Admin's Mixed Messages on Iran Stoke More Volatility

15:54Carol Massar:Yeah, I have to say, to be fair, Noor, you actually sent me a headline, too, or somebody, a terminal user, who sent you some information about a report that the U.S. intelligence indicates, as you just said, Joe, Iran is preparing to deploy naval mines in the Strait of Hormuz. I mean, again, information coming. We were looking for confirmation. But to me, it doesn't say that there's any war, any end to this war, at least at this moment in time. Well, that's true.

16:21Tim Stenovec:And even Republican lawmakers we were talking with on the early edition of Balance of Power, Congressman Stutzman, for instance, did have to acknowledge that this is going to be a longer effort. And, you know, we're likely not talking about days. The president was asked yesterday and pressed in a news conference, how soon could this end if we are very complete? And he said, not this week. That was a redhead on the terminal. That goes to show how close investors are watching this. But it's really something, Carol. Well, you're watching the markets every day, and it seems like investors are really looking through a lot of the rhetoric here to try to bring us back to where we were before that kind of panic selling that we saw on Monday morning.

16:58Tim Stenovec:So, this is a really fascinating moment that we're in.

17:00Carol Massar:And, you know, I think it's safe to say we just talked with Kevin Gordon over at Schwab, this whole idea that despite everything, Nora, that's happened since the beginning of the year, as Joe mentioned, investors seem to be kind of sitting tight. And he said they really haven't changed much in terms of portfolios.

17:13Tim Stenovec:Right. And as we're kind of looking at how this is all trickling in the market, I'm curious, Joe, what is the strategy? What is the thinking here, especially given the fact that we are coming up on midterm elections? What do you take away from this? Well, it's really interesting timing in that the Republican House conference is in Miami right now for a retreat. That's why the president was down there last evening at Doral. And they're talking about messaging for the midterms and how to strike home the issue of affordability, which is the last thing anyone's talking about right now. In fact, we're talking about three and a half dollar gas.

17:48Tim Stenovec:So there is a real cross current here with what Republicans would like to be talking about in many cases and what the administration is prosecuting in terms of this war, this conflict with Iran. And at some point when we get further into primary season, this will become a more urgent matter because that is the issue that will be making voters decisions at the polls.

18:07Carol Massar:Joe, what do we know about tensions within the White House and what we're hearing from President Trump's team? There was a great story on the Bloomberg about kind of how this is playing out among the MAGA faithful and not necessarily playing out well at all. But that within the White House, some of the president's chief advisors aren't so keen on him continuing this war. And I just wonder what we are hearing in terms of conflict there internally.

18:30Tim Stenovec:You don't hear a lot. I mean, this is really sort of the backroom conversation, right? And sometimes leaks come through Capitol Hill and back to us here in our Bloomberg newsroom. Look no further than J.D. Vance. I mean, he's kind of the face of this, having been, of course, an America first politician and a veteran himself who had made the case against going to war with Iran repeatedly during his time in the Senate and on the campaign trail. And now he finds himself having to support the president, but also try not to bog himself down as somebody who wants to be a serious contender, if not the front runner for president in 2028.

19:04Tim Stenovec:But this is causing great confusion more broadly throughout all of MAGA. Steve Bannon is going to have a very different thought about this if you start talking about America first and longer entanglements. But it's fascinating to see even that part of the MAGA community give the president the benefit of the doubt, much like this market tries to on a daily basis in the hopes that this will be done sooner than later. So is the administration intentionally leaving room for strategic ambiguity? That's a great question. And I think that's always a yes for Donald Trump, which is why he's leaving all options on the table.

19:37Tim Stenovec:It's not very often you ask a politician how they think about ground troops, and it's usually immediately ruled out. This White House has said, no, we're keeping that option on the table in case there is a need for more directed actions by, say, special forces to go find enriched uranium. And they're not saying that out loud, by the way, or maybe even to deal with the matter of Karg Island. All of this stuff has yet to be seen. We have to find out exactly what Iran's intentions are. Having heard from the Speaker of the Iranian Parliament, Nora, earlier today, who said Iran is not interested in a ceasefire right now.

20:09Tim Stenovec:Even if the president thinks this thing is over, the enemy, as they say, also gets a vote.

20:14Carol Massar:Hey, listen, if President Trump isn't thinking about midterms, perhaps, what about the members of Congress who are, of course, not in session at this moment? But that's right. I'm just curious about what kind of pressure they might be feeling from their constituents when it comes to this war.

20:28Tim Stenovec:Yeah, it's a lot. They're getting a lot of questions about this, as many of them are home. And as I just mentioned, Carol, they're at that retreat in Miami right now and they're huddling, talking about this very issue. And how do we message around the war? Because at some point, if you're running for a primary election here and you're trying to resonate with voters at home, you've got to talk about affordability. and with AAA showing over three and a half dollars for a gallon of gas, that conversation just got a lot more difficult. And as you've been exploring here on Bloomberg Business Week daily, it's not just oil that's going through the straight.

20:57Tim Stenovec:It's also fertilizer. And you put them both together and you've got the feedstock that goes right to the grocery store, right to the food aisle. And that's a big problem for anybody who's running for elected office in the majority, which is looking smaller by the moment here in Washington.

21:11Carol Massar:All right. Great stuff as always. Joe, thank you so much. Looking forward to Balance of Power coming back at 5 p.m. Wall Street time. Joe Matthew, of course, co-host of Balance of Power. Catch it on Bloomberg Television and Bloomberg Radio.

21:24Tim Stenovec:This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. All right.

21:43Carol Massar:From the global macro market to one of the largest market cap companies in the world, we are talking about one that actually turns 50 years old on April 1st. And according to our team, Apple, its new Neo laptop is a game changer for the industry. So we want to get into that and just take a look at all things Apple. And with us to do that is our Bloomberg News Managing Editor for Global. Let's try that again. For Global Consumer of tech. He is Mark Gurman and he joins us in the Bloomberg News LA Bureau. Mark, good to have you here. Tell us about, you guys took a test drive when it comes to the new Neo.

22:17Carol Massar:You guys liked it.

22:19Tim Stenovec:Yeah, we've been testing out this new MacBook Neo,$600,$500 with an education discount. It's a great machine. It uses an iPhone chip from two years ago, which is able to power you through some light 4K video editing, some light AI apps. But most importantly, this is for students. This This is for people who don't need all the power of a MacBook Air or a MacBook Pro. They're basically doing web browsing. They're doing Facebook. They're doing Instagram. They're doing iMessage. They're doing email. They're doing documents. They're using Google Docs. They're using Gmail, right? All the basic apps that you're using on your phone, but you want that keyboard, trackpad, and bigger display.

22:54Tim Stenovec:And the price point is quite aggressive for Apple. You know, traditionally, they've not done sub-thousand-dollar machines. This is sub -$600. So this is a pretty big deal for them. I mean, I would imagine this is something that many people have been waiting for. I just think back to my college days and you're going to find a laptop and, you know, the MacBook Pros are always a thousand plus. And I felt like an investment. So I'm curious, you know, as you got to do this test drive, what's different about this device as opposed to some of their main devices that we know very well? Yeah, I mean, it has a slightly smaller screen than the MacBook Air.

23:29Tim Stenovec:So a 13-inch screen versus a 13.6-inch screen. There's also the 15-inch model of the Air. The speakers are a bit weaker. The processor is clearly not as fast. It doesn't have a backlit keyboard. The display quality is not as good. But it will do pretty much everything you need it to do if you're a student or someone who considers computer work going on Facebook and doing email and some web browsing, right? I mean, 90 % of the world, I would say, uses computers for very basic tasks, all things considered when you compare that to all the things you can do with AI and video editing and what have you.

24:06Tim Stenovec:So this is going to meet the needs of a lot of people. And I think this is going to put the Windows PC laptop market and the Google Chromebook market both in precarious positions.

24:15Carol Massar:Hey, is it all about though being a big revenue generator for Apple, Mark? And I also do wonder how it is, you know, in terms of kind of starting to bring a different part of the consumer base into the Apple universe. So they maybe buy this and then they buy something else.

24:29Tim Stenovec:Yeah, it's both. So it's going to accelerate Mac revenue for sure because it's going to bring new people into buying the Mac. But more importantly, this is going to be a gateway drug, so to speak, to the Apple ecosystem. You'll buy this Mac and then maybe you'll buy an iPhone. Then maybe you'll buy an iPad. Then maybe one day you'll buy a higher-end Mac, maybe an Apple Watch, maybe AirPods. And you know once you get into the Apple ecosystem how hard it is to leave the Apple ecosystem. So it'll make the revenue in the short term. but more importantly for them, it's going to make the ecosystem even stickier because now, in many cases, maybe a person's first computer won't be a PC or a Chromebook.

25:06Tim Stenovec:Maybe it'll be a MacBook Neo. Well, what other colors do they have? I'm looking at the article that we have on the Bloomberg Terminal, and I didn't even realize that they had a variety of colors for a laptop. Yeah, so that's a first for them having sort of these more fun colors. So you have that flagship color, which is, they call it citrus. It's a combination of yellow and green. There's also a indigo blue. So it's sort of like a dark blue. That's, that's my favorite one. You have your plain silver, which of course you need. And then you have your blush pink. To me, it doesn't really look too different than silver, but they swear it's pink.

25:41Tim Stenovec:So that's an offering there too. Mark, what pushed them to do this? I think that this is something that people have really been pounding the table for, for years, over a decade, even, I'm curious, what made them finally do it? I think it was that a bunch of moving parts and pieces came together for them to be able to do this. It wasn't that they were pushed to do it, it was that they finally had the pieces to be able to do it. Having the ability to run macOS on ARM silicon, so non-Intel chips, that was the big innovation of 2020. Apple moving to its own chips for the Mac, which meant rewriting macOS to work on its own in-house silicon, which is based on the iPhone processors.

26:21Tim Stenovec:So the software story, the second piece, having those chips from the iPhone 16 Pro from two years ago being manufactured for the last couple of years. The longer you manufacture, the more chips you're able to create, the more efficient you're able to get the production process and the cheaper you're able to build those processors for. So it's the software story coming together and the chip story coming together. And then the third thing is they've long been developing this new aluminum manufacturing process that's more efficient and cheaper, allowing them to save some of aluminum scraps and reuse it.

26:53Tim Stenovec:So all these cost efficiencies and efficiencies was what was able to align for Apple to release this product.

26:58Carol Massar:Hey, so they've got this going on, Mark. And so, you know, tapping into another piece of the consumer market, if you will. But you write in your Power On newsletter over the weekend that the company still plans to push deeper into the higher end with more ultra devices. So they're not giving up on that.

27:15Tim Stenovec:Oh, no. This is a, I would say this is a blip on the radar here. Obviously, they'll continue to invest heavily in this Neo line. I think eventually they'll expand the Neo line with new versions. Obviously, you have the iPhone 17e. So that's a mid-tier phone. Neo's a low-cost phone. New Ultra products. So not necessarily named Ultra, but in that higher tier. So you'll see a very high-end MacBook Pro with a touchscreen and OLED display tech in the fall. You'll see new AirPods as early as this year or next year with built-in cameras. Those will be a higher-end version of the AirPods Pro that exists today.

27:52Tim Stenovec:They're working on a large foldable iPad. So Apple is trying to hit all price points now. But certainly the premium is the focus.

28:00Carol Massar:I just am waiting, Nora, and Mark knows this because I've talked about this a lot, and Tim. I'm just waiting for them to get Siri straight. Oh, please. That would be wonderful.

28:10Tim Stenovec:I was just yelling at my Siri this morning.

28:13Carol Massar:You know, I don't know. I don't even know where to go with this. Hey, you have another story out there on the smart home display. Another delay or like, what do we need to read? Is this trouble or is it just...

28:24Tim Stenovec:It's exactly what you said. It was that the new Siri needs to be functional. It needs to be released. It needs to work before this hardware product can come out. Because if you release the hardware product before the new Siri is ready, it's just not going to work properly. It's not going to function as intended. And in addition to having a lot of criticism around their AI, you're going to have criticism now around their hardware products as well. And so that's the last thing they want. So why have they been struggling so much with Siri? I just want to dig a little bit deeper into that. I'm curious, like, are, is it, how much time do you have?

28:53Tim Stenovec:You said, which phone do I have? No, how much time do you have? No, how much time do you have? Well, tell me what you know. Well, you know, this is a fundamental thing for Apple. They've struggled with Siri and AI development for many years. They didn't believe in AI being a core component of devices and device operating systems, even when companies were moving in that direction three or four years ago. They were completely caught off guard by chat GPT. They had management issues. They had issues where they didn't get enough of the GPUs necessary for training. They overbuilt on their own processors for the Apple Intelligence Cloud.

29:34Tim Stenovec:So just a string of different problems that all led to Apple Intelligence not being that compelling of a solution.

29:39Carol Massar:Always love checking in with you. Hey, Mark, thank you so much. Of course, that is our Bloomberg News Managing Editor for Global Consumer Tech, Mark Gurman.

29:47Tim Stenovec:Stay with us. More from Bloomberg Businessweek Daily coming up after this.

29:55Hello, hello.

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30:43Carol Massar:Yeah.

30:44Tim Stenovec:Wow. So we are not asking our clients to be the first experiment on it. We say you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit IBM.com slash smart talks.

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33:24Tim Stenovec:You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube.

33:38Carol Massar:Let's get to our Anurag Rana. He's Bloomberg Intelligence Senior Technology Analyst. He's here in our Bloomberg Interactive Broker Studio. Good to have you here and great to have you here in-house. Good report?

33:50Tim Stenovec:Yeah, it's actually very clean numbers. I think the thing that sticks out most is capital expenditure is not going to go up. I think people are worried about a lot of these cloud providers adding to CapEx. So that's a good thing. With revenue slightly higher, CapEx remaining flat, the backlog is growing. So I think this is a good print from, multiple facets. So, I mean, we look at a stock that's down, what, about 23 % so far this year. Many would say that maybe the company needed some good news. The bar seemed like it was pretty low heading into this report. I think the big thing for us on the call is that just now, OpenAI did a very big deal with AWS.

34:25Tim Stenovec:AWS is investing in OpenAI. How does that change the relationship between OpenAI and Oracle? Because that is the mega deal of all kinds, is the Stargate project between OpenAI and Oracle. I think that is one thing that I would want to know more when we got on the conference call.

34:42Carol Massar:Do you think it does change or has to change or no?

34:44Tim Stenovec:Well, the thing is OpenAI has made very large commitments of spending across everybody. Now, we'll see how that shapes up over the next few years. So it's possible that none of that changes, but we want to make sure that the Oracle management comes out and says it categorically that there is no change in that arrangement. There are some reports, Brody reported that there is some issue with the Abilene, Texas data center expansion. Right. The question is what happens there? So that's going to be another thing we want to learn on the conference.

35:12Carol Massar:Well, I'm glad you went there because I felt like there was a bunch of stories from Brody Ford and team about Oracle and OpenAI ending that plan to expand that flagship data center. Then you had Oracle planning thousands of job cuts in the face of an AI cash crunch. How do you put those together with this?

35:28Tim Stenovec:See, the thousands of jobs. I mean, is Oracle in trouble? No, no, no, no, no, not at all. Thousands of job cuts is just the question of, you know, concept of rationalizing of the cost structure. It happens a lot in software, frankly. When you are growing top line this much, you may not need that same amount of, you know, salespeople, marketing people, R &D people. Like, I get that. And especially when AI revenue comes with a lower margin right now. Over time, the margin improves. So when you have a company like Oracle with very high margin revenue base, you mix high growth revenue with lower margin.

36:02Tim Stenovec:The net effect is your overall margin gets impacted. One way to offset is you take care of tight your operating expenses. Microsoft has been doing it for many, many years as well. So this is no different in our case. So it sounds like there's not as much of a fundamentals issue. I'm curious, how much of its fundamentals versus how much of it is people being a bit sour on the artificial intelligence software space this year? Yeah, this is more on the AI infrastructure side. It's very different than the SaaS issue that we are facing. But for Oracle and all the others, whether that's Microsoft, Amazon, the question is, for how long will that big demand for AI infrastructure remain?

36:40Tim Stenovec:Right now, for everything that we are seeing, the demand is very high. And in the case of Oracle, it is a little more specific tied to OpenAI than it is for some of the other vendors. So the big question is whether OpenAI can afford to spend at that rate. So they have made arrangements of over$300 billion just with Oracle alone. Which is tremendous. Yeah,$250 billion with Microsoft. And then a new contract with AWS. So for a company that size where the revenue run rate is, let's say,$20,$25 billion or somewhere in that range, how can they spend that much? And that's, I think, the biggest question of them all when it relates to all these companies.

37:14Carol Massar:Does the jump in those stocks, again, up about 7.5%, that makes sense in terms of coming off of these numbers?

37:20Tim Stenovec:Yeah, because CapEx is not going up. They're saying whatever the next raise of RPO increase that they're seeing or the backlog, they're going to fund it from either prepayments or some of the other way. So they're not going to raise their CapEx numbers. I think that's the big difference here.

37:34Carol Massar:You know, I think it's fascinating, though, too, Anurag, that I feel like some of the AI conversation is evolving, thinking beyond the large language models and the build-out of these. Is it right? Are you seeing that too? And I do wonder what it means for the spend. Does that have to continue still at the pace that we've seen?

37:49Tim Stenovec:So when you look at these three, four vendors, whether it's CoreWeave, Oracle, Amazon, Microsoft, Google, they are providing the token factory or the base infrastructure for people to build applications. And each one has its own story that goes in tandem with what their long-term strategy is. For Oracle, the OpenAI contract is a big piece of it, frankly. And I think that's where we want to focus on and say, how is that relationship going to evolve over the next few years? So, I mean, it's not uncommon that sometimes we'll see this post-market rally and then in the morning you come in and for some reason we're declining, right?

38:25Tim Stenovec:What do you think investors will really be looking at that you think will be consequential as we kind of think about sentiment heading into tomorrow? Is there anything that stands out to you maybe from this report or areas that investors may be really critiquing? Yeah. I talked about the first one, the opening. The second one is what is the internal rate of return for a lot of the contracts that they're signing right now? Is it something that is going to be accretive in the near term or it going to be multiple years out? So that's the second piece of the equation. And the third is funding. As far as this year is concerned, calendar 2026, they've already talked about funding, you know, in the tune of 45 to 50 billion dollars, both from debt and equity.

39:02Tim Stenovec:The question is, what happens next year? When you're going to realize the next big backlog next year, how much of that capex is going to go up? And how are you going to fund that capex? So those are the three things that I think is going to stand out on the call today, which will dictate the stock tomorrow morning.

39:20Carol Massar:I mean, the open AI is just fascinating, right? Great to kind of have that exposure and that relationship. But it also puts you at risk, right? You're vulnerable if that customer backs off at all.

39:30Tim Stenovec:Yeah, but Oracle can say the same thing. Well, Microsoft has the same situation, frankly, because they're dependent on Microsoft is dependent on OpenAI's technology for their products. It is highly dependent on the flow through of the hosting of the app and so forth. So I think OpenAI is an important part of the overall ecosystem. But the question is, can they afford to spend at that same rate for multiple years to come? How are you thinking about Oracle as it stacks up against some of its peers right now? Yeah. So four or five years ago, they were not in the game at all when it comes to AI infrastructure.

40:03Tim Stenovec:It was basically Amazon number one, Microsoft number two, then Google, and then, you know, Fighters is there. But because of OpenAI, I mean, these guys are going up quite a bit. And, you know, they're going to have hundreds of billions of revenue just on cloud in the next several years if nothing goes wrong. and that puts them actually, you know, it could be very close to Google or even above Google, depending on where they are.

40:27Carol Massar:All right, so going back to the call, if they say something about open AI, that would be troublesome.

40:31Tim Stenovec:What else? Well, the thing is, it's a question of whether they say, well, we're going to raise our capex quite a bit next year. Not this year, because they've already disclosed that. I think those are the things that we will be looking for.

40:40Carol Massar:All right, great stuff. And we're going to be looking for your work. Anurag, thank you so much. So great to have you here in our studio. Yes. Thank you so much. Bloomberg Intelligence Senior Technology Analyst, Anna Agrana here in our Bloomberg Interactive Broker Studio.

40:52Tim Stenovec:This is the Bloomberg Business Week Daily Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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