Tech Firms Unleash AI Spending Spree; Fed Holds Rates Steady

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

1:02Bloomberg Audio Studios. Podcasts. Radio. News. Good morning. I'm Nathan Hager. And I'm Karen Moscow. Here are the stories we're following today. Karen, the market continues to react to big tech earnings we got after the closing bell. This morning, shares of Meta platforms are surging 7.5%. The Facebook owner topped projections for holiday quarter revenue and gave a strong forecast for the current period. That's offsetting concerns about plans for unprecedented spending on artificial intelligence this year. Here's Meta CEO Mark Zuckerberg on the earnings conference call. I think that 2026 is going to be the year that AI starts to dramatically change the way that we work.

1:45As we navigate this, our North Star is building the best place for individuals to make a massive impact. So to do this, we're investing in AI-native tooling so individuals at Meta can get more done. We're elevating individual contributors and flattening teams. We're starting to see projects that used to require big teams now be accomplished by a single very talented person. Mark Zuckerberg says Meta plans to spend as much as$135 billion this year on AI. Meanwhile, Nathan, at Microsoft, spending surged to a record high while cloud sales growth slowed. That has shares of Microsoft down more than 6 % this morning.

2:24Capital expenditures for the fiscal second quarter hit$37.5 billion. That's up 66 % from a year ago. And here's CEO Satya Nadella on the company conference call. We are in the beginning phases of AI diffusion and its broad GDP impact. Our TAM will grow substantially across every layer of the tech stack as this diffusion accelerates and spreads. In fact, even in those early innings, we have built an AI business that is larger than some of our biggest franchises that took decades to build. CEO Satya Nadella says total sales increased 17 % to more than$81 billion in the quarter. And Karen, we're watching shares of Tesla this morning.

3:07They're up more than 2.5 % in early trading. The EV maker reported earnings above analyst estimates. and in Tesla's call with analysts. CEO Elon Musk said the company is discontinuing the Model S and X. It's time to basically bring the Model S and X programs to an end with an honorable discharge because we're really moving into a future that is based on autonomy. Elon Musk says Tesla plans to spend$20 billion this year to streamline its electric vehicle lineup and shift resources toward robotics and AI. Nathan, more news this morning on the AI front. The information is reporting NVIDIA, Microsoft, and Amazon are in discussions to invest as much as$60 billion in OpenAI as part of a major new funding round.

3:58This could help alleviate investor concerns about OpenAI's cash burn. And Karen NVIDIA's CEO Jensen Wong says his company has not yet received any orders from Chinese customers for H200 AI chips. Jensen Wang spoke with reporters earlier today in Taipei. I'm hoping that also the Chinese government would allow NVIDIA to sell in H200. So they have to decide. And I'm looking forward to a favorable decision. I think that H200 is very good for America technology leadership. It's also very good for the Chinese market. It was NVIDIA CEO Jensen Wang. Chinese officials recently told the country's largest tech firms, including Alibaba, they can prepare orders for each 200 chips, suggests Beijing is close to formally approving imports of components essential to powering artificial intelligence.

4:50Nathan, big tech earnings continued this afternoon, and that's when Apple reports its latest quarterly results. We get a preview with Bloomberg's Tom Busby. Apple is poised to deliver its biggest sales quarter ever, thanks in large part to expected blowout sales of its iPhone 17 lineup, especially for the higher end models. But investors are still concerned about rising costs for components, especially memory chips, and what sales look like in China, which declined just three months ago. Bloomberg Consensus calls for revenue to jump 11 % higher to$138.4 billion, the biggest quarterly growth in four years, on earnings per share of$2.68.

5:28Tom Busby, Bloomberg Radio. OK, Tom, thank you. Now let's turn from the markets to get you to the latest from Minneapolis. The new man in charge of immigration enforcement in the city, Tom Homan, is set to hold a news conference later this morning. President Trump sent his border czar to replace Border Patrol Commander Greg Bovino in a bid to cool the uproar over the shooting deaths of two U.S. citizens by federal agents. The two officers involved in Alex Preddy's killing have been placed on administrative leave. Meanwhile, President Trump is warning Minneapolis Mayor Jacob Fry he is, quote, playing with fire for saying he won't change his city's immigration policies.

6:02And Minnesota Democrat Ilhan Omar held another town hall last night after a man charged at her with a liquid during an event earlier this week. I wouldn't be where I am at today, having to pay for security, having the government to think about providing me security if Donald Trump wasn't in office and if he wasn't so obsessed with me. Democratic Congresswoman Ilhan Omar. Again, we expect to hear from White House boarders our Tom Homan in a news conference from Minneapolis. It's set for 8.30 Wall Street time, and we will bring it to you live on Bloomberg Radio and on the Bloomberg Podcast page on YouTube.

6:37Well, Nathan, we're hearing signs of progress in avoiding a government shutdown over the Minneapolis crackdown. A source tells Bloomberg News that talks between the White House and Senate Democrats are moving closer to Democrats' demands. Minnesota Democrat Amy Klobuchar laid out her demands for federal agents on the Senate floor. The mass should come up and the body cameras should go on. And there must be thorough, objective and independent investigations into these killings. Along with Minnesota's Amy Klobuchar, Senate Minority Leader Chuck Schumer has insisted that Homeland Security funds be stripped from the massive spending package that will keep the government open after tomorrow night.

7:15Senators from both parties say they're open to a stopgap measure for homeland security to allow more time for negotiations on immigration enforcement guardrails. Let's turn to the weather now, Karen. We have more frigid temperatures and the possibility of another winter storm this weekend. Let's get the latest now from Bloomberg meteorologist Craig Allen. Craig, good morning. Good morning, Nathan, and good morning, Karen. New York City right now is at 13, Boston 14, Washington 15 degrees. So, yes, the first thing that we've mentioned here is the cold. The suburbs of all these cities have readings that are in the single digits, and the wind chills are also in the single digits to near zero.

7:55So you're absolutely right. We are starting off with bitter, bitter cold temperatures again, and this isn't going away. That's lasting through the weekend for sure. Now, let's break this down by region for the upcoming possibility of a snowstorm. There's definitely going to be a snowstorm across South Carolina, North Carolina, southern Virginia. How close is this going to get to Washington, D.C.? Well, there are winter storm watches, in effect, as far north as the southern parts of Virginia. I think D.C. could get grazed by this. I think New York City, especially east of the city, across Long Island and the eastern sections of New England will get grazed by it as well.

8:39And definitely Boston will be in the works, especially out towards Cape Cod. So heavier amounts east and south based on last night's weather maps and lighter amounts off to the west and north. It's still wobbling, guys. So there is still the chance of going back and forth on this forecast. We'll have more on that as we go through the morning. Nathan, Karen? Sounds good. All right, Craig Allen, thank you. And, of course, we will be checking back in with you throughout the morning, as you said. We want to turn to the economy now, where, as expected, the Fed held rates steady. And Bloomberg's John Tucker joins us with the very latest.

9:13John, good morning. Good morning, Karen. This marks the first rate pause since July. And at his news conference after the decision heard here live on Bloomberg Radio, Fed Chair Jerome Powell says they're still waiting to see the impact of tariffs before committing to rate cuts. The expectation is that we will see the effects of tariffs flowing through goods prices peaking and then starting to come down. The decision to hold rates steady yesterday was approved on a 10-2 vote with the governor's Christopher Waller and Stephen Myron dissenting in favor of a cut. Waller's dissent in favor of a rate cut seen as keeping him in the race to replace Powell as chair of the Federal Reserve.

9:54In New York, I'm John Tucker, Bloomberg Radio. All right, John, thank you. We're seeing commodities rally this morning. In fact, gold is up for a ninth straight day, surging above$5 ,500 an ounce. The rally's been fueled by a weaker dollar and investor flight from sovereign bonds and currencies. Spot gold has risen by nearly 30 % this year.

10:17Time now for a look at some of the other stories making news in New York and around the world. And for that, we're joined by Bloomberg's Michael Barr. Michael, good morning. Good morning, Karen. Former New York Mayor Eric Adams is responding to criticism about the budget from current Mayor Zoran Mamdani. The newly sworn in Democratic Socialist Mayor argues additional money from the state is necessary because the city faces a fiscal crisis created by Adams and by a push from former Governor Andrew Cuomo to shift costs from the state onto the city. We did not arrive at this place by accident. This crisis has a name and a chief architect.

10:55In the words of the Jackson 5, it's as easy as ABC. This is the Adams budget crisis. M. Donnie says over two years, New York is staring at a$12.6 billion budget gap. Adams refuted the claim, saying the city was upgraded by bond rating companies and had ample reserves under his leadership. President Trump warned Iran to make a nuclear deal with the U.S. or face military strikes far worse than the attack he ordered last June. Iran said it stands ready for dialogue based on mutual respect and interests, but warned that it will defend itself and respond if pushed. Police say a man repeatedly crashed his car into the Chabad-Lubavich World headquarters in New York City.

11:41The incident happened last night while people were gathered for prayer at the Hasidic Jewish site. No one was injured. Police Commissioner Jessica Tisch. This incident is currently being investigated as a hate crime by the NYPD's Hate Crime Task Force. The driver was arrested. Global News 24 hours a day and whenever you want it with Bloomberg News Now. I'm Michael Barr and this is Bloomberg. Karen. Thanks Michael. Time now for our Bloomberg Sports Update and for that we bring in John Stash Hour. Thanks, Darren. 59-year-old Todd Munkin named the new coach of the Cleveland Browns. He was an assistant once with the Browns, then went to Georgia.

12:19Last three years, he's coached the offense in Baltimore. The NBA trade deadline next Thursday, the Milwaukee Bucks just 18-27. Their star Giannis Soto DeCumpo currently out with a calf injury. The Bucks are said to be open to listen to trade offers involving Giannis. LeBron James back in Cleveland, maybe for the last time, and the Cavs blew out the Lakers by 30. That's your Bloomberg Sports Update. Stay with us. More from Bloomberg Daybreak coming up after this. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots.

12:59Visit Bloomberg.com slash podcast offer to learn more.

13:06Coast to coast on Bloomberg Radio, nationwide on Sirius XM, and around the world on Bloomberg.com and the Bloomberg Business App. This is Bloomberg Daybreak. Good morning. I'm Nathan Hager. The AI spending boom is in full swing, and the biggest names in big tech are being rewarded for it if they can show it's paying off. This morning, investors seem to think that's the case for meta platforms. For Microsoft, Not so much. Joining us this morning is Mandeep Singh, Global Head of Technology Research for Bloomberg Intelligence. Mandeep, we heard Meta says it's going to spend up to$135 billion on CapEx this year.

13:40Microsoft, just this quarter,$37.5 billion. Meta shares up, Microsoft shares down. What gives? Well, so in the case of Meta, I mean, the core business seems to be accelerating. And what they highlighted last night was, look, I mean, we are spending all this money, but we already see some return in terms of our ad conversions, better recommendation systems. And eventually we'll be launching separate products in terms of, you know, having an AI assistant that will work within the apps as well as content generation tools. So the investors seem to have given them a green light in terms of investing up front with the hope that they will launch new products that they can monetize later in the year.

14:31So clearly that core business acceleration was key. In the case of Microsoft, I mean, it was a fine quarter. The Azure growth was 38 % instead of 39%. And what they said is, look, we are using a lot of the GPUs internally to develop our new applications instead of renting them out, you know, on Azure. And from that perspective, they are supply constrained like all the other companies are. And, you know, I kind of feel like everyone is, you know, compute constrained right now. So that's where memory prices are having an impact and all the things that are going on in terms of the chip prices are having an impact around, you know, what these companies are able to do around creating that infrastructure.

15:24So overall, it was a very good quarter for Microsoft. It's just expectations were slightly higher. And that's where probably investors didn't like that Azure print. So in just 30 seconds, Mandiv, how does that set us up for when we're going to hear from Apple later on today? I mean, memory prices. So Microsoft called out how memory prices are having an impact on their Windows sales. So I do expect Apple to acknowledge memory prices impacting their gross margins. And we'll find out if it had an impact on their hardware sales during the quarter. This is Bloomberg Daybreak, your morning podcast on the stories making news from Wall Street to Washington and beyond.

16:07Look for us on your podcast feed by 6 a.m. Eastern each morning on Apple, Spotify or anywhere else you listen. You can also listen live each morning starting at 5 a.m. Wall Street time on Bloomberg 1130 in New York, Bloomberg 99.1 in Washington, Bloomberg 92.9 in Boston and nationwide on Sirius XM Channel 121. Plus, listen coast to coast on the Bloomberg Business app now with Apple CarPlay and Android Auto interfaces. And don't forget to subscribe to Bloomberg News Now. It's the latest news whenever you want it, in five minutes or less. Search Bloomberg News Now on your favorite podcast platform to stay informed all day long.

16:45I'm Karen Moscow. And I'm Nathan Hager. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak.

16:57Thank you.