Zuckerberg Plans to Cut Metaverse Group's Budget Up to 30%

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2:06Learn more at thehartford.com slash risk mitigation. Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus, global business, finance and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. We've been looking a lot at the push into artificial intelligence.

2:51It makes sense for the last three years. We've also seen more recently the talent grab and the war that is underway. On that, Bloomberg's Mark Gurman reported Meta has poked Alan Dye. He's Apple's most prominent design executive in a major coup that underscores a push by the social networking giant into AI-equipped consumer devices. And we see this playing out in a big way. Meta been paying up really big time, too, for some of those AI executives. Always a go-to on Apple and so much more when it comes to technology. Great to have with us. Back with us is Gene Munster, co-founder and managing partner at Deepwater Asset Management.

3:26They've got about$580 million in assets under management joining us, I believe, once again from Minneapolis, Minnesota. Gene, good to have you here. How are you? Oh, I'm doing great. And I just want to do a shout out to your Mark Gurman. What an amazing job that he does, not just today with his breaking this talent move, but it just feels like week in, week out, he gets it done. So great work, Mark. And I think it just speaks to this, the news cycle around AI this week. You know, each week it's a high bar and each week it seems to deliver for us, Carol. And we got big news this week. Yeah. Listen, I'm you know, we're all head of the fan club.

4:08I'm Mark Erman because he is unbelievable in terms of his insight on that company. What do you make of the talent grab and especially things moving around from Apple? You know, Apple has often been sometimes criticized for being behind when it comes to the AI curve. Others say maybe they're waiting for the models and all of it to play out rather than doing the big spend now. But tell us about the talent grab and how you see Apple, whether they're losing in this or they're doing OK. Well, I think Apple is doing a reset in terms of how they're thinking about talent, just not only around design, But of course, AI and the news that the head of AI is retiring.

4:46Essentially, I think he was asked to retire. And then, of course, we have Alan Dye and his move over to Meta. And I think that those are related. If Apple wanted to keep Alan, they would have. And my sense is that the pay package is probably worth over five years,$500 million. It's a big number. But he could have earned and been rewarded options with Apple stock. And if they wanted to keep them, they could have. But if you kind of just look at the big picture here is that these two departures, the timing of them, I think speaks to essentially a reset that Cook is undergoing. And so I think that that's one piece to it.

5:27The second is that it is, even though Apple wasn't desperately trying to keep on, I think it is a coup for Meta. I mean, this is probably one of the top three talents in the world in terms of design behind Johnny Ive. And I think that, you know, they're obviously paying up. And it speaks also to a reset that's been going on with Inside Meta. We talked about how Cook is kind of resetting the AI on the design team at Meta. they're kind of resetting the words, the framework around reality labs. And as a quick reminder, this is their segment that does virtual reality, mixed reality. This is where the quest goggles are in, uh, and, uh, their wearables, uh, what they're, what they're doing with Ray band is all part of that.

6:11So when you say reset, yeah, go ahead, Gene. Yeah. They're losing a lot of money within that. This 19 to$22 billion a year. And, and, um, yeah, so the reset, I can kind of define what that reset looks like, but I think there are some very big, important moves within these two companies that have gone on this week. Do you think the reset also involves possibly Tim Cook stepping down as CEO? Will he then just become chairman of the board there at Apple? So that it's eventually he will. I think he's around 60, 65, I believe, 65. And so, I mean, that is on the horizon. My sense is that it's probably at the end of the Trump administration where he would actually try to exit.

7:02I think, you know, he has been the whisperer at the White House. That's been an important role. He's played as a statesman. And especially and then on top of these changes that have happened on their design team and within AI, I think it's important that he's around. So my sense is it's probably two, three years away before we hear anything on that front. And so I think they're grooming a team to take the reins there. And so I think he's investors, Apple investors at least, can sleep well at night, at least for the next couple of years, knowing that Cook is still going to be in charge. Gene, go back to this reset of both Meta and Apple.

7:40It sounds like you're saying that these two companies are kind of looking at themselves and figuring out where they need to be for the future. Talk to us a little bit more about this reset of the two. Well, on the Apple side, the reset is just to get the products to work beyond this functioning Siri. And, of course, that's the bar. Apple has appropriately raised a very high bar for what the new Siri. And for your listeners, when you hear about the new Siri, it's code for the new Apple intelligence. It's code for a reset of all that they've done and really an opportunity for them to kind of reset customer expectations.

8:17But beyond that, beyond that new Siri, which presumably is still on track for the spring, that's that reset is trying to find new ways. I think he's looking for new ideas in terms of how to infuse AI across their products. So that's what's going on in Apple. In terms of Meta, kind of roll it back and look at what how Zuckerberg described in 2021 when they changed the name to Meta. His comments about the metaverse were basically this immersive internet. That's how he referred to it as. It was very VR-centric. That was reality labs, and that's where they'd been spending that 15, 20, losing 15 to 20 billion a year.

8:51Back in September, when they announced the new glasses, this Ray-Ban glasses, the meta display glasses, he talked about the metaverse. He defined it as a mix of AI and holograms on the real world. It was not this immersive kind of closed-off experience. And so I think the reset that's going on within Zuckerberg's definition of the metaverse is away from VR. I don't think anybody's going to be heartbroken over this, but away from VR and more, you know, bring a nail and die on is more to really nail some glasses and hardware design, software design around these wearables future. Hey, we do have something crossing the Bloomberg and I want to see if we can get you to weigh in on this.

9:35It's coming from the FT, and they're citing a bill seen on the NVIDIA chip block proposal and that U.S. senators are looking to stop NVIDIA advanced chip sales to China. So this bipartisan bill would bar NVIDIA's H200 Blackwell chips, again, from the FT. This war with China, the role of NVIDIA advanced chips. How important is it that we do restrict some of this technology, especially these high-end chips from NVIDIA or others when it comes to China? So this is almost like a religious question. Well-minded people on both sides have very different opinions. My view is that China will find a way to develop the most advanced chips.

10:19I have the same opinion that Jensen has that ultimately is that if we don't sell some form of chips to China, They'll just go and create their own, and we can benefit in the near term of having them dependent on our platform. If you think of like NVIDIA, for example, it's not just the chip. They have a CUDA development platform. And so getting their developers based on that does give the U.S. some form of leverage in terms of how the technology rolls out in the years to come. And so my sense is the best thing is to allow limited sales, somewhat metered back, governed back chips to China. I think that that is a win.

10:58In terms of NVIDIA stock, it's a negative headline. We get kind of these positive headlines that there's going to be some sort of resurrection in their China business, and then we hear what you're talking about that just hit. And I think that the answer is that the street estimates right now don't include any China revenue. And my sense is that Jensen has talked about that business being a$50 billion a year business, so kind of adding 20%, 15%, 20 % to their overall revenue. I think eventually it does get turned back on. I just want to mention, NVIDIA shares, like the overall market, off their highs of the day, but still up, Alexis, up about 1.7%.

11:35Yeah, I mean, and also NVIDIA's CEO was in Washington just yesterday. He left, I don't know if he left with the feeling that maybe it was going to go his way, but this certainly doesn't seem like it might go his way. What are the implications, do you think, though, Gene, for the chip sector in general? I mean, beyond NVIDIA, if this bill were to pass. Well, I think any legislation that slows down the development, I haven't seen the details of it, but if this does create some form of restrictions on build out. if it's just China-related, that's generally a neutral to the AI trade. But anything that would slow down any restrictions on chips, there's obviously a compounding effect.

12:21For every dollar spent on chip, there's another nine that spent on other infrastructure around it. And so that's one thing to look at is, can this ultimately slow some of that? My sense is that the big picture is, I still believe, I probably need to preface this comment, is I consider myself, like, try to look at different views and be well grounded. And I still believe we're in the second inning of this AI build out. I don't want to get involved in all the hype cycle. But back to this, what we're seeing this news today is that this is essentially just dressing. This is the ripple of the day. the underlying tide still is undeniable, is that we still are, the size of the brain is getting bigger, the hardware piece, the infrastructure of AI brain, and the applications and the use case and the transformation will inevitably follow.

13:10And so I generally think like any headlines like this don't change the inevitable piece, which we still have, I think, multiple years left of better than expected, higher growth rates around a lot of this AI infrastructure. And I just want to add, just because as you said, and we appreciate you weighing in on these FT headlines because it's a little bit of information, just a little bit more to add. It's called the Secure and Feasible Export Chips Act. It would require the Commerce Department to deny export licenses for advanced chips to China for 30 months, and again, from the FT. But what I want to go back to is what you say about the AI build-out, which I do feel like there's this push and pull when it comes to where we are going with this, some concerns about the circular financing and some concerns about just the spend overall, this AI build-out, you have conviction and you say, you know, early in, in terms of the innings, more years to come.

14:09What gives you that conviction? What makes you so sure? Because some are questioning whether the ROI will be there for everyone in terms of the spend. Yeah. I mean, the numbers, they become numbing, but I'll just quickly recap. We're talking about a trillion dollars infrastructure spending over a few years, and there's nothing even that compares to that. So how do you get an ROI on that? And my basic sense is that if you just kind of think about like humanity, I think that the most valuable thing that humanity has, maybe beyond love, is some sort of form of an insight. And if AI, in fact, does deliver insight, it's not there today, But if we do move to something, we don't have to necessarily get to general intelligence.

14:52But if we do get to general intelligence and beyond, I think that the value on that is going to it's going to be hard to quantify. And so that is I mean, it's a pretty soft, like bull case in some respects. But in other ways, it's most compelling because humanity's never seen anything like this. And if you look at, listen to the comments from the biggest companies, they're still talking about pretty elementary uses of AI. Jensen most recently was talking about the importance of coding or customer service. I mean, this is three years in it, we're still talking about that. You can read that as the most bullish comment regarding AI that we're just scratching the surface.

15:31You could read it as a comment that is ultimately a sign that there's never going to be any ROI. my sense is intelligence at scale is infinitely valuable to humanity and is going to continue to power this trade higher. All right. With all the companies that you cover that you followed for years, yes, the Mag7 and others, is there one tech company out there that you really feel like we all should be continuously watching? She's asking for your favorite child. Yeah. Sorry, Gene. No, it's the right question. And I think that outside of the obvious ones, maybe to answer a slightly different question, outside of the obvious, what's a company that is going to be a big part of conversations in the future that's just starting to grow?

16:19I think a company like Andrel, we hold it in one of our venture funds. Of course, that's a well-known company, but I think can have just a profound impact on humanity And I mean, how conflict is resolved and not only just a growth story for that company, there was recently a story in the Wall Street Journal about some of their struggles in terms of getting the products to work. And I think it misses the point that there is going to be a transformation around defense. But that's kind of below the Mag 7. If I can just put a word in for I think Apple's probably the best performing Mag 7 over the next six months and probably Google over the next year.

16:57Yeah. And I mean, Google has Alphabet certainly has been outperforming this year when you look at the Mag 7 already. And Apple's up about 12 % year to date. Jean, always great to get some time with you. Thank you so much. And if we don't catch it before the new year, happy new year and happy holidays. That, of course, is Jean Munster, co-founder and managing partner at Deepwater Asset Management. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

17:25What if data didn't sit still? What if intelligence moved with us? Not buried in reports, but activated in real time. Where lives are being shaped. Where decisions are being made. It all starts with a question. Where is the potential? Cotality turns data into clarity. Intelligence into insight. Insight into action. Because when intelligence moves, we all move forward. Cotality. Intelligence beyond bounds. 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.

18:15Now 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. Why is it always chaos when we link up? Cause nobody plans anything bro. Good thing the Rogue's ready like that. For real. Rain, dirt, whatever. Available all wheel drive. Five modes. We still outside. And they got some kick too. That turbo? Torque is crazy. The most in its class. It moves moves. Rogue doesn't mess around and peep the space. Merch on merch. Gear. Mics. All of it fits. Load up. We out. 2026 Nissan Rogue. Built for all of it.

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19:51Let's get to Meta. We are seeing shares rallying to do today. A top performer in the NASDAQ 100. It's all thanks to a Bloomberg scoop by our own Kurt Wagner. He joins us now from our Bloomberg News San Francisco bureau and studio. Kurt, great reporting. Tell us about Meta and kind of going in reverse when it comes to the Metaverse. Yeah, so this is something that has come out of conversations over the last several weeks. At the executive level at the company, they're doing 2026 budget planning. And Mark Zuckerberg has sort of asked executives across the board to generally look for 10 % cuts. You know, how do we trim things down, head into next year a little slimmer?

20:31But for the metaverse group specifically, he's asked for a lot more. And my understanding is that executives are still figuring out exactly how deep they're going to go. but that they're talking about cutting the budget by as much as 30 % next year. And so for a company that has, you know, touted the metaverse as the future of this business, right? I mean, they literally changed the name from Facebook Inc. to Meta Platforms Inc. a few years ago. It's a notable decision that they are pulling back. You know, they're not getting rid of the metaverse stuff, but they are pulling back in a meaningful way.

21:04I'm glad you said they're not getting rid of the metaverse stuff. What does that consist of? I'm thinking of like virtual reality type stuff, the cool wonky glasses. Are those things still going to be there? Yeah, you're right. So there is a little bit of confusion because Reality Labs, which is this sort of futuristic unit within meta, does a whole bunch of stuff. They do the AI glasses, the display glasses that they showed off in September. But then they also do sort of the metaverse group, which I would bucket into two things. One is the VR headsets, the Quest sort of immersive headsets, and then Horizon Worlds, which is the virtual world software product that they develop.

21:44And so my understanding is this 30 % budget cut is really in that metaverse specific bucket. So I imagine we'll see some deep cuts into VR and Quest. We'll see cuts into the meta Horizon Worlds product more so than the actual AI glasses, those Ray-Bans. That's something I think they think is performing well. And actually, I'm told that some of the savings from the metaverse stuff will be funneled over toward the AI glasses and other types of wearables in that department. Totally makes sense. Just got about 30, 40 seconds here, Kurt. I think about when they went public, right? And they had to pivot quickly to mobile, right?

22:20Because they were kind of penalized for not being there in that space. Is this just a company saying, okay, maybe it isn't the metaverse. We're pivoting to what makes sense. We're listening to investors and analysts and just got about 30 seconds. I mean, think about what's changed in the last four years since that company name change, right? Back then, AI models, building multi-billion dollar data centers wasn't the thing. The Ray-Ban metas weren't a thing. So a lot has changed for them in that short amount of time. And quite frankly, they've probably found that there are other better ways to be spending these billions of dollars right now.

22:52So again, not getting rid of it entirely, but better uses of the money. Might meta AI name change be around the corner? I hope you cover that and not me if that's the case. Great stuff. Congratulations. A scoop and exclusive by our own Kurt Wagner. He's Bloomberg News senior tech reporter covering social media. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from two to five Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. I've been driving all night, my hands wet on the wheel. Come on, let's take a drive.

23:28A drive? Yeah, a drive. Can you just focus on driving? Focus on the road. Why would I drive fast? Because I'm asking you to. Just drive, baby. This is the drive to the close. Where we're going, we don't need roads. On Bloomberg Radio. All right, everybody, we've got just about 19 minutes to go until we wrap up the trade on this Thursday. Carol Master along with Alexis Christoffers in for Tim Stanovic. Kind of interesting in terms of the trade, Bill and Charlie just breaking it down, Alexis, just down about six, seven points on the S &P 500 and the NASDAQ 100. Declan of about 85 points down one third of one percent.

24:11Yeah, I mean, as Paul Sweeney would say of Bloomberg Intelligence, it's a nothing burger right now as we wait for the Fed next week. All right. So we want to talk about that with Jimmy Lee. Great to have him here in studio, usually out in Vegas. He's founder and CEO of the Wealth Consulting Group. They've got about$6.7 billion in assets under management. How are you? Great. Thanks for having me. Great to see you. It's great to see you. I was saying, like, I asked you in the break before we got going, good year? It's been a great year, yes, because I think that in April, when things were not so great, as far as the markets and investor psychology, we thought that this could look like another V-shaped recovery like COVID.

24:50which has played out. Yeah. And we've seen a lot of other, you know, outside of max. Did you get out before? No, we're not market timers. We do have, we do have all of it. We do have some tactical portfolios, but we definitely didn't go down as much in all of our models. We were just underweight. A lot of the big names that got hit the most during that time period. The liberation day time period we're talking about, right? When tariffs were announced back in April. That's correct. That's correct. And so it's actually been a great year and we've got a decent allocation overseas. You know, international markets have done really well this year, as you know.

25:23Small caps are starting to come back. Yeah. That's part of our story. I'm hopeful that interest rates will be lower than maybe predicted. And I think that, you know, small businesses that are suffering right now, we saw with the recent jobs report, I think I'm hoping for a recovery. I'm hearing diversification, although we didn't say the word, right? But basically, you have a lovely diversified situation where you are. Yes, we like tech on the dips and on sell-offs. So buying like the Mag 7 on sell-offs? Maybe not all, but some on the sell-offs. But we like other areas that provide value, right?

25:57What are they? Well, you were just even talking about some of these retailers, right? We saw Dollar General, Walmart. I mean, value shopping is in vogue at the moment across the board. And so I think that in the investment space, I think investors that might take some of that$8 trillion on the sidelines could move that money into longer duration assets such as bonds, equities. And I think they'll look for value in there. You know, this is a hated bull market, as you know. A lot of people missed it as evidenced by that eight trillion. There's a lot of FOMO out there still. So speaking of which, you still have a you say seven thousand on the S &P is still doable by end of year.