Big Tech Stocks Lose Over $750 Billion in AI Driven Selloff

0:00Support for this show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On Public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined.

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1:15That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions.

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2:44It's certainly part of today's story. The other part is what Charlie was just talking about with these tech stocks, Wall Street being rattled by these renewed concerns over these AI investments, these massive AI investments, and if they're going to pay off. Yeah, I think that's such a huge question. The Bloomberg Mag 7, you've been talking about this, the total return index gauge of mega caps. I keep mentioning this because it's such a superlative. It is. Given how crazy things have been over the last 14 months, I'm shocked that today's route is on par with what we saw post-Liberation Day. Yeah, you're talking about April 2025, the tariff-fueled meltdown.

3:19So a little bit of perspective right in context. Alphabet down about 7 % after raising its CapEx forecast. Tesla down 14 % its profit value even after strong EV deliveries. Ed Ludlow has been following this all. He's the host of Bloomberg Tech. He joins us from our San Francisco bureau. Ed, I'm going to leave it to you on where to start here, because both of these are huge stories today and they're driving certainly the mega cap tech trade. So I think that the way you frame it in how markets have reacted against history is completely right. You know, this is a big move lower in Alphabet in particular.

3:51You know, we're on track for literally the biggest drop since May of last year. But a seven percentage point move when we got data that we were expecting. You know, everyone expected them to raise capital expenditure guidance for this year and signal that CapEx will continue to grow over a multi-year horizon. It's exactly what we got. I know that you guys, I don't know, I have mixed feelings about this, but 7 % is big because, you know, it's a three and a half standards deviation move on a stock that typically won't react like that. But I recognize a big change in psychology overnight from where we started our discussion yesterday of Mandeep to now, which is there was the evidence that the AI spend is paying off yesterday.

4:32Now it's much like how high is the cost going to be? And that's where we're at. Similarly with Tesla. That's a really good point, right? Like, okay, the buy-in is there, but at what cost, right? Like that's where the conversation is getting, I feel like, a lot more specific and detailed. Like we're in, we get it, we understand what's going on here, but again, it's not at any cost. Yeah, I mean, Alphabet, there's just so much rich data to try and work out what the direction of travel is with AI. So they have a backlog that's$515 billion, backlog of orders. And you'll remember Mandeep actually thought that number was a little bit low.

5:15You know, he had expected it to be higher. They have$811 billion of contracted spending. In other words, there's all these projects that Alphabet's committed to. And as disclosed in their regulatory filings, all of those commitments total$811 billion. So people like look at that and they're like backlog versus spending. There's a mismatch there still. on the question of what are the returns that AI is giving these companies that are spending big? Well, what's the other side of this coin, Ed, for Alphabet? The other side of this coin is that they can leverage the existing customer base that they have and bring in a ton of revenue as a result of being more efficient when it comes to ad sales and being more efficient and just better when it comes to Google Cloud, right?

6:04That's still the bull case. Yeah, so there's also data points that are definitely evidence of demand. Google Cloud continues to grow at an astonishing rate, 82 % year on year in the quarter gone. There is the backlog number of$514 billion and more than half of that backlog. You know, this is like such CFO speak because I always like think about the technology. I think we should say like, is Google's AI getting traction with the world? And there's lots of evidence it is, But that$514 billion backlog, what they said was very specific. They expect more than half of it to translate into revenue over two full financial years, according to the CFO.

6:45Is that a long time, a short time? I don't know. I want to throw something at you, Ed. I just did this on. Literally or metaphorically? If you were any closer, I'd be able to do it literally, okay? You go to Ask B. Go throw it. And I was just curious. So I looked and I saw that Tesla's down almost 30 % this year. Alphabet is only up about one and a half percent this year. I'm like, okay, what are all the other Mag7 companies doing so far this year? Apple's up 18%. NVIDIA's up more than 11%. You have Amazon up about 1.2%. Meta's down more than 8%. Microsoft is down more than 20%. We've done a lot of reporting on that.

7:22And as I mentioned, Tesla down almost 30%. Talk to us a little bit about Apple and how Apple has been sort of the quiet one. We're going to hear from Apple next week, but Apple's been the quiet one over the last few months. It did lag for a while. It did lag for a while. We were doing stories about, come on, Apple, what's going on? So I posted this on X yesterday before the market closed. Here's the Mag7 year-to-date performance from biggest gainer. I love this. Great minds think alike. I got to look at your X more. And so then loads of people were like, after the market had closed and all the earnings came, loads of people replied saying, do this again tomorrow and see if anything changes.

8:01You know, Apple, the stock story changed where investors came to love that they did not have a capital expenditure story. It was a complete reversal. For a long time, everyone wanted Apple to invest aggressively to show that they could get into the AI game. But it's the structure of Apple's business. They are not a hyperscaler. They don't deploy their own compute at the scale that the hyperscalers do. And so then they got some insulation from that equation. You know, the market really came to cheer them for not having to spend at that level. And so where they can spend is maybe on talent or R &D and things like that.

8:41But that's a part of the stock story. That and that they've kind of more got their act together on their AI next phase on the hardware devices side. I don't know if you guys had Mark Gurman on this week about all his detailed reporting on the next generations of Mac that are coming, for example. He's super excited about stuff coming. Yeah. And those stories really resonate with investors and with users of Apple hardware and software. You know, I want to go back to Alphabet for a second, though. I do think about this backlog. It's like, I think you, it was a good question about like when they talk about this and how long it's going to take to work off.

9:19I mean, this is where, you know, you hope I would assume that their CFO team and all of their in-house financial experts are being, okay, so if we're going to get this realization of this revenue, but at what cost, like they've got to be figuring this out, right? Because if they're spending, spending, spending, like that revenue spread over that time frame, I don't know. You really have to figure this out. Backlogs also tend to get bigger over time. Like we haven't seen anyone really eat away at their backlog. I mean, so you can think about it in financial terms, which I think is the right way because that's how management presented it on the call last night.

9:58In the AI economy, how much a particular company or Frontier Labs AI is getting used is measured in tokens. And one of the data points that they gave is that they were doing 22 billion Gemini tokens per minute through the API. And that really resonates because people in industry are like, OK, I understand that. 22 billion Gemini API tokens per minute. what I've been trying to spend all day doing is like do we have an equivalent figure from Amazon AWS from Microsoft from the Frontier Labs themselves and they aren't they aren't apples to apples but like there is a lot of evidence that all of the work that Google's been doing in AI has got traction in the in the real world the world of business and with the consumer one thing that Mandeep and I don't again I don't want to speak on his behalf I just think he's really smart he's always exactly on the pulse of what's happening pointed out is that they're behind on their latest models.

10:55And that has hurt Google. Oh, man. Can we just go another 10 minutes with that? Come on, guys. Stay with us. More from Bloomberg Business Week Daily coming up after this.

11:24agents that handle all these tasks on your behalf. Just describe what you want to do in plain English, like if the VIX hits 25, buy a put option on the S &P 500. Or if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less.

12:04That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off.

12:45deep in the work that moves the business. Let's create smarter business, IBM. Let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a healthcare company linking patient care and pharmacy services and using data and technology to drive the whole system So care is connected, not complicated, for patients and providers.

13:18Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together. Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how. You're listening to the Bloomberg Business Week Daily Podcast.

13:54Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. It's been on the president's mind, though, for some time. He's talked about building ships in the U.S. for quite a while, including just after returning to the White House early last year in March of 2025 when he gave a joint address to Congress. To boost our defense industrial base, we are also going to resurrect the American shipbuilding industry, including commercial shipbuilding and military shipbuilding.

14:34and for that purpose i am announcing tonight that we will create a new office of shipbuilding in the white house and offer special tax incentives to bring this industry home to america where it belongs all right that of course was president trump march 4th 2025 uh when he gave a joint congress uh joint address i should say to congress they're talking about uh shipbuilding but But on this, what's interesting, there was an announcement actually earlier today in Washington. Yeah, formally announcing the signing of a nine-figure deal that establishes Siemens as a key technology partner for HD Hyundai's next-generation shift-building and digitization strategy.

15:14Those two companies formally announcing that deal earlier today. With us right now is Tony Hemmelgarn. He is president and CEO of Siemens Digital Industry Software. And also with us is Sekhwan Hung. He's the president and CEO of HD Hyundai USA. And again, they both join us from Washington. Gentlemen, welcome, welcome. Delighted to have you here on Bloomberg. Tony, I want to kick it off with you. What does this deal solidify specifically and mean for shipbuilding here in the U.S.? What does it mean for the two companies? But what does it mean for maybe shipbuilding more broadly here in the United States?

15:49Yeah, so we're very proud of the partnership here with HD Hyundai. And a big part of that was how do they move faster? How do they build ships faster? How do they design, engineer, and manufacture faster? And so what our software is, is we provide the tools that allow you to do that. And so when you think about the advancement of shipbuilding here in the U.S., part of the announcement today between the U.S. and Korean governments is how do we promote more of that commercial shipbuilding here in the U.S.? And our tools are the tools that help you do that, to help you go a lot faster, to create that digital environment to be able to produce, manufacture and engineer.

16:24So it's something that's a key enabler to be able to promote this business here in the U.S. Seckwon, I want to talk to you about what it takes to actually build a ship in a sustainable way here in the U.S. rather than in another part of the world. Specifically with a deal such as this, how do you pencil it out and make the numbers work for you and for Hyundai? Well, we see great momentum from the Hill and the strong leadership from the US administration. But at the same time, when it comes to reality and day-to-day operation, there are many challenges. One of the great challenges that we are facing here in the United States would be a shortage of labor, especially the skilled labor.

17:09And what the digitalization, the digital shipyard that we are building together with GMENZ do in that relation is to create a virtual 3D type digital shipyard where everything is connected. All information comes together and by that we make a better decision and optimize our resources better. better. In that way, we think that, you know, it will enable us to faster automation and digitalization and AI environments in that, you know, we can solve the labor issue here and that there'll be a powerful tool to have here. So, Sequan, let me just follow up on that. So, So how much can a digital shipyard basically reduce construction time for, let's say, a destroyer, a submarine or an auxiliary ship?

18:11Oh, that's a great question. We don't gauge the success of the digital shipyard thing in terms of the time that we reduce. What we more focus more is, you know, whether. Well, let me put it this way. We believe with this digital tool, on time and on budget delivery will be, you know, will be possible in a more efficient way. So we try to reduce the time, but some more focus, I would say for now, is to keep the time and the labor force ready for that on time delivery. Yeah, Tony, that's a good question to you, too, about this labor force and the way that digital tools, in your view, are offsetting some of the challenges that the U.S.

19:06industrial base has or the U.S. labor force has here. Given the shortages of welders, how much can these digital tools offset that shortage of skilled welders, pipe fitters, and electricians? Yeah, I guess I'd first start, though, with just the design, right? Before we even get to the actual labor that it takes to physically build this. Right, because you've got to get the design right. You've got to get the engineering right, the physics right of the product. And we talk about this as a digital twin. And the idea of the digital twin is how closely the digital world can represent the real world.

19:40And the closer we can make that relationship, the faster companies like H.A. Hyundai can go. Because you think about these products are highly complex. You've got software, you've got mechanical design, electronics, electrical, manufacturing, engineering, the plant layout, plant simulation, all of these things. If we can simulate that, this is a very complex environment. The complexity is not going to go away. But if I can simulate it and I can do what ifs and make changes and other types of things, that allows me to go a lot quicker. And once I do all of that, then it comes to what do I do with welding?

20:12What do I do with the simulation of what happens in the plant? We bring all that together. And this is where you really start to get the value of what our software can deliver. Because now I can make these decisions in confidence in a very complex world. And that's truly a competitive advantage. If I can simulate and do all of that work much faster than the next guy, it's a big advantage. And so we take that. And then also these tools are enabled for the workers. They can use these tools. We can simulate what the workers are going to do. We can show them how to perform the work, to provide the work instructions, all of these types of things.

20:44So it's really assisting what's going on, as well as programming the robots, simulating the robotic simulation, all of that is part of our software. So, Sequan, let me go back to you then. So I get it, like the timing, and it sounds like things will be much faster. So give us an idea. I want to go back to, like, so how does this change output? Can you give us some kind of, we're into numbers here, some context in terms of six months, what gets changed, 12 months? Give us an idea of how output has changed, especially when you've got a president who we're monitoring right now and talking about data centers and so on and so forth in power, but also thinking about shipbuilding, which he has talked about, and increasing that.

21:28Because many people have said you can't do this quickly in terms of the U.S. shipbuilding industry, change it and increase it. It doesn't happen overnight. Well, the current timeline that we have in mind is to be able to apply this digital shipyard concept to our starting the design in 2028. But that will be the starting point in reality. And it will take some more time to develop a program to cover the whole shipyard and the whole, the entire ship that we built in our yard. Well, and then, so, you know, I want to bring you back here to in on this conversation, Tony, when it comes to timelines, like what's the timeline on you and how the kind of the pressure, the demands on you guys in terms of delivering the software and the changes that are need to kind of basically modernize the shipbuilding industry here in the United States?

22:35Software is here and proven now. It's established. So we have software. We sell the software all the time. The work is for us to integrate that into the workflows and the way that HD Hyundai works, for example, and how they design. And we do a lot of this all over the globe. Many, most manufacturing and engineering companies in the world use some portion of our software. And so we have what we call a digital thread. The idea is how do you get from point A to point B in a design process? like you mentioned things like sustainability or whatever it might be we can simulate for example that ship flowing through the water and the resistance of the water at the same time the resistance of the airflow and the ship as it's going with computational fluid dynamics from that we can determine how efficient we can make the product how we can reduce energy how we can lightweight the product so we have all of these processes established and now what we do is we sit with hd hyundai and establish them in their workflows and this is work we've started already.

23:30So we feel very confident that we can go very quickly in the design, engineering, and manufacturing process. Of course, building out some of the work in the plans takes a little bit longer to what we're doing, but the software is ready to go now. Right. So you guys are ready to go. It's just a case of integrating all of this into the existing systems that are there at Hyundai. Gentlemen, fascinating as we continue to see and talk a lot about the re-industrialization of the United States. Some say it's really difficult, but you guys are doing it with this announcement. I hope you will come back in a few months and give us a status update.

24:03We'd really appreciate it. Great. Thank you for having us. Congratulations. All right, folks, we are continuing. Tony Hemelgarn, he is president and CEO of Siemens Digital Industries Software there in DC, along with Sekhwan Hung. He is president and CEO of HD Hyundai USA. So interesting stuff there. Stay with us. More from Bloomberg Business Week Daily coming up after this.

24:30Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. or if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the rest. Monitoring the market, watching for your conditions and executing your strategies exactly as defined.

25:09An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand.

25:48But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. Let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day.

26:26They're a health care company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together. Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills.