Broadcom Slides by Most in More Than a Year on AI Outlook Miss

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1:35Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's bring in Mandeep Singh, our global tech research head here at Bloomberg Intelligence, to talk more about what we're hearing from a company like Broadcom, whose ticker, by the way, is AVGO. So it always gets confusing. It does. Avago. That's what it used to be before it was renamed Broadcom. I didn't know that.

2:12Haktan runs Broadcom, formerly Avago. Is he someone who tends to be conservative in his outlook? I mean, this was a disappointing outlook for investors who wanted more. But is he by nature conservative? Could that be part of it? I would characterize it slightly differently. He's not like Jensen, who really would always, you know, go big in terms of his numbers and he will always talk trillions. Hocktan, on the other hand, is more, I would say, grounded in the sense like, yes, he would talk in terms of gigawatts and, you know, how he has got more customers now, but he won't make any bold bets around, you know,$4 trillion,$5 trillion.

2:52So we didn't hear those sort of numbers. But look, overall, I thought the print was solid. Whenever you see, you know, valuations really go up so much in anticipation of good earnings, you could say the buy side bogey was higher and they didn't live up to the estimates. But to me, this is a company that's growing top line over 60%. And it's going to do that at least for the next two to three years. That's very solid. So is this a company that is setting the bar low? And is that the way that perhaps some of these hardware companies need to be going into earnings announcements, setting the bar low so that they can easily top it and then kind of wow people at the end of the day?

3:33Yes. And also everyone is trying to triangulate here. If Google is doing more business with Anthropic and Anthropic's backlog is$200 billion, should Broadcom be getting a piece of that pie? Because that's definitely not going to NVIDIA. Or if it's going to NVIDIA, then is it coming at the expense of Broadcom? And so, you know, that$200 billion number was so big coming from Anthropic that everyone was modeling, you know, Broadcom should be the obvious beneficiary because they make most of Google TPUs. That wasn't evident in the guidance last night where they said they have six XPU customers now and, you know, they will do up to 10 gigawatts in 2027 and it's going to ramp up very nicely.

4:22But there wasn't that sort of lift, that$200 billion backlog converting to probably a bigger estimate than what they had guided to previously. Broadcom, did they make good chips? I mean, look... If it's a good chip maker, I'm binding on the fullback today. Look at the entire Google TPU ecosystem is all made by Broadcom chips. Google doesn't make its own chips, so it does it in partnership with Broadcom. And now Anthropic, which is the leading frontier model, that was all trained on Google TPUs. And Enthropic gave a$200 billion contract for Google TPUs that's going to go through 2030. So in theory, Broadcom should be a major beneficiary of that.

5:13So why is the stock selling off today? Well, they didn't erase their guidance. Everyone is saying, you already got, you told me this 90 days back. In the last 90 days, this anthropic contract came into the scene. Why are you not lifting your guidance more? And it happens all the time. Okay. So that's the story with Broadcom. And it sounds like it is specific to Broadcom rather than applicable to the rest of the AI world because of that anthropic announcement. What about CrowdStrike? The shares are down about 6.7 % modest sales guidance. Again, something that didn't live up to investor expectations.

5:50Yeah. Again, a case of valuations front running a lot of the good news. And they conceded, you know, clearly coding agents is the big driver when it comes to AI use. And for a company like CrowdStrike that does cybersecurity, they don't have as much exposure to coding agents being used more and more in terms of the data security or, you know, providing cybersecurity around coding agents. They said they are ramping up AI products, but then they were more focusing on general AI use case. Whereas right now, you know, 80 percent of incremental spend is going towards coding agent. And they didn't really call out that as being a driver of their revenue.

6:35So, you know, the market picks these little things where they would measure the bullishness of a company in terms of how much they're raising estimates, as well as what is it that market is fixated on right now? It's coding agents and entropic. Well, if you're not telling me that story and that's not your key focus on the earnings call, then people may be disappointed when the valuation is so rich. Stay with us. More from Bloomberg Intelligence coming up after this. At Brookfield, you can own wealth that's measured in generations. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future.

7:16Providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at brookfield.com. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. On June 10th, Bloomberg Invest is back in Hong Kong. We look at the role Hong Kong plays between China and the world as major powers compete and markets realign. As global investors rethink risk, we'll explore the forces driving Asian demand and the future of private capital. Catch exclusive interviews with top newsmakers, plus a live recording of Bloomberg's Odd Lots podcast.

7:52Visit BloombergLive.com forward slash InvestHongKong to learn more. Supporting sponsor, Deutsche Bank. you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube boy it's just all about equity markets new issuance we had that monster monster issuance of secondaries or not secondary stock but a follow-on offering from Google. Market just sopped that up, no problem. SpaceX hitting the road today for their IPO, looking to price arguably, ideally a week from today and then trade next Friday.

8:35So let's see what's happening after the new issue market. Then we have the AI trades coming after that. Those IPOs are going to be monsters. Well, Billy Lipschultz, he's busy these days, senior equities reporter for Bloomberg News, trying to make head and shoulders out of this whole thing. Billy, talk to us first about SpaceX. I mean, there's so many aspects to it, which are fascinating. A, it's space. B, it's Elon. C, the total magnitude of the underwriting 75 large on maybe a$1.8 trillion market capitalization. Where are we? Did they start the roadshow? Are they starting the roadshow today? Meeting started today.

9:08Calls and first interactions with investors formally started today. It's kind of weird. They went a bit ahead of schedule. Normally, you need 15 days from the public flip to the start of marketing. They went yesterday setting a fixed price range. Our understanding is that teed them up to start engaging with folks in Australia and Asia this morning, as opposed to them being kind of stuck on a one day delay because the deal is, again, a bit truncated, expected to price next Thursday. So they are talking to investors. This has been the, I'd call it worst kept secret in capital markets history. So they've had one-on-one meetings.

9:42They've had TTWs. They've been meeting with investors. They've hosted meetings at Starbase. They've hosted meetings out in California. So it's one of those circumstances where if you are surprised by anything you're hearing right now, you haven't been doing your work. So are we I guess the issue is Elon part of the sales pitch? Because if I'm a portfolio manager, in my mind, it's 100 percent a bet on Elon. That's it. And if I don't hear and see and feel the vision from him, I'm not sure I can write that big a check. What do we know? We haven't heard if Elon is or isn't part of these individual meetings now.

10:18What we do know is the 17-minute video that kind of roadshow was just CFO Brett Johnson. We do know that Brett Johnson and Gwen Shotwell will be meeting with Jamie Diamond for interactions around retail later this evening. Bank of America also hosting an event with those two. Again, our understanding is Elon is not part of those conversations. When we look back to the trip that SpaceX put together where they rented out, I believe, a 747 and took a few 200 of the biggest money managers down to Starbase. Elon did make an appearance. He spoke, from my understanding, for about 30 minutes. But for all intents and purposes, what we've heard from bankers is it's very much CFO Brent Johnson's show.

10:59Does that change? How does that evolve over the coming week? Will be interesting. Interesting. Do we know whether they're going to, again, you're talking about Asia and Australia. Do we know whether they're going to London? That's kind of another financial global hub. The terms we've seen center on the U.S., the one thing to keep in mind is that, again, we know investors from around the world trip to Starbase. We know that Elon has had interactions. So the roadshow, again, they have a fixed price. They have a fixed valuation from our understanding from bankers. It's really kind of the line is set, drawn in the sand.

11:32The stage is set. it's a question of how much you're in for or not in for at this point, as opposed to a more traditional IPO where, you know, the CEO, CFO management team is kind of jet setting around the world. Interesting. One of the there's so many interesting aspects to this transaction, obviously, but one of them is kind of governance. If you're a public shareholder, you're basically handing over the keys completely to Elon Musk. Super voting stock gives him complete control of this company. I think he's probably learned a few things from Tesla in terms of that. Is there any pushback on that?

12:05Are we hearing any of that from investors? We've seen pushback from third-party entities. We've seen pushback and heard from different kind of groups that are upset about things like the fast-track entry rule for the NASDAQ 100, the S &P 500 changing their rules. When I talk to investors, again, if you invested in Tesla, you believed in Elon Musk's vision for robots and autonomous vehicles. If you're investing in SpaceX, to your point, you're investing in Elon's vision. Is it a bit scary from some investors' perspective that you're kind of all in on a guy who is the only person who can remove himself?

12:40Yes. But if you've made billions of dollars on Tesla, it's hard to say you want to take your money and go home now. Yeah. And one of the things, again, if I were a portfolio manager, one of the millions of questions I've had for Elon Musk is, where's your attention? because it's wandered in the past, going into government with Doge and how do you allocate your time between Tesla and all your other things? I would like to think that this is the priority for Elon Musk. Is that something that we've heard from investors? Investors have pointed to that. And the inevitable next point is, well, he now has super voting on SpaceX, this whole notion of merging SpaceX with Tesla.

13:20Some point down the road, Elon seemingly has endorsed it. What does that look like? Is that something that really comes to fruition? Again, the big question around SpaceX is not only the governance issue, but truly the CapEx needed for AI, for data centers in space, for this notion that they're going to mine asteroids is tens, if not hundreds of billions of dollars. How do you actually finance that? And what does it look like in the next year and even the next decade? And what's the lockup again? Isn't there a unique lockup? There's a unique lockup. Basically, more shares can be unlocked just after earnings.

13:52And then Elon isn't locked up for a full year. One of the things that was interesting talking to folks on the buy side is this whole kind of deal has come together was, well, Elon never really sold Tesla. And if his whole vision is to merge the two together, he's not going to sell a year or 20 years from now. But they have had some unique structures where it's tied to performance, it's tied to kind of expediting getting more shares available for trading. Stay with us. More from Bloomberg intelligence coming up after this. On June 10th, Bloomberg Invest is back in Hong Kong. We look at the role Hong Kong plays between China and the world as major powers compete and markets realign.

14:28As global investors rethink risk, we'll explore the forces driving Asian demand and the future of private capital. Catch exclusive interviews with top newsmakers, plus a live recording of Bloomberg's Odd Lots podcast. Visit bloomberglive.com forward slash invest Hong Kong to learn more. Supporting sponsor Deutsche Bank. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Want to continue the tech discussion?

15:06We can do that with Gene Munster, managing partner at Deepwater Asset Management. Gene, got to start with the big one here, SpaceX, what's your call to your clients? This is a fundamental company to own for the long term. And let's just skip all the noise around what's happening with the IPO, the trading over the next month. There's a lot of dynamics in that. My sense is that it probably moves up and then might move off a little bit as some of those lockups get released. But I think what's most important is where this company is going. And like him or not, Elon is a generational founder. And what he's put together in terms of building a sovereign AI company, that's everything from chips to energy distribution, that piece is unique.

15:51And if we take the approach that having vertical or sovereign AI is a competitive advantage because you can innovate faster and distribute faster, if that is true and you believe that AI is going to ultimately be foundational to humanity, I think this really sets up as one of those generational companies to own. And so you kind of got to look at the conversation in two pieces. But this company really does stand alone when it comes to its unique set of assets. And it's, I think, just a very exciting time in tech. You know, I was talking to some sell side shops. It appears like the aerospace analysts are going to cover this name.

16:32I'm wondering how the company, how the underwriters are going to position it. You kind of gave us the AI angle here. It's a space company. I don't know what this thing is. So talking about putting people on Mars, it's tough to position, don't you think? I think that it's tough to position if you kind of look at where they have been, I think, over the long haul, thinking about kind of their rocket business. And I think that if you look at what they've done over the last one and three years, I think it's easier and easy to position. Also, if you think about what is at the core of Elon's most passion, which is AI.

17:10And, you know, he's at electrification. He's had other businesses, but really AI is kind of his violin concerto. And so when you think about this$1 trillion revenue target that they have for 2030, they're going to do, what's it,$40 billion this year? I mean, that's a meaningful step up as an understatement. But when you think about that, that trillion, they didn't break out in the S1 where the contribution comes from. but my sense is the majority of that is going to be somehow AI related, whether it's connectivity, subscription services, third parties like Anthropic using some of their capacity.

17:48So I think that the AI piece is going to be what this company is all about. So I want to go back to your earlier comment, which is this company is going to be covered by space analysts and kind of, you know, that side of it. I think it's a miss and it reminds back in in uh you know 2004 2005 i was um an analyst that was covering uh consumer tech and was the first to pick up apple as a kind of a device company at the time just on the heels of the ipod and uh the entire coverage universe now keep in mind apple was a like a four billion market cap at the time but the the entire uh coverage was based on them being competitors with HP and compact and it just missed the point.

18:33So I think what we will see here is this narrative around specifically is that their biggest revenue opportunity is in AI. And I think that that's where it's going to be positioned. I would just say this is, you know, I mentioned all the, you know, this breathtaking growth that's expected and how unique these assets are. I think the biggest challenge for SpaceX is this is a company that a lot of the employees are passionate about space. I mean, if you look at Starbase, I mean, this whole concept, I was down for one of the scrubber launches recently, and the concept of Starbase, I think, has just really surprised me.

19:09I think it's underappreciated, the city that they have built and will continue to expand. But I think one of the challenges is just in terms of culture. Imagine being an engineer, and you've moved your family into the middle of nowhere in Texas. You're living on a city that essentially Tesla or that SpaceX has made. And you've had this passion around going to Mars and then you go public on this inspiration of being an AI first company. There's that piece to it. But beyond that, I think that AI is really core to that. And I think that's where the fellowship from investors is going to lead to in the months to come.

19:45SpaceX is in the portion of its process where it is holding its roadshow for investors. And what we know of it so far is that it has a 17-minute video presentation in which the CFO, Brett Johnson, appears. What do you hope to learn from this roadshow? Or do you have all the information that you need in order to move forward with how you believe this company is positioned? Well, I've been studying the company for a long time. I think I've got a good sense. Undoubtedly, I'm going to watch the presentation. what I do hope to learn is more about how they're communicating this kind of acceleration and growth, because that ultimately comes down to, you know, how, you know, the value is going to be created over the long term.

20:29And they don't have to, of course, hit those numbers, but that's the specifics is this trillion dollar number. I think they talked about a 42 trillion dollar market opportunity, but just some more specifics around that. Undoubtedly, he will be asked around that, you know, give us pockets is, you know, of that trillion dollars. Is it$200 billion in cloud getting served to third parties? Is it their launch business? Some of the details around how to get there. Whatever his answer is, the street is going to run it through the Elon filter. And he will undoubtedly stand up and say, these are the real numbers.

21:05These are the numbers we feel confident in. And when you think about putting the filter on those numbers, we have to do some of that. But when we think about it, just think about what they've done over the past month and a half. I mean, they've done this Anthropic deal. They're launching rockets. They're preparing for an IPO. This company, I can say, is just an intensity level that can do things that are very hard to do. So what I'm saying is don't put it through too much of a filter. Right. A trillion dollar number. This is the Bloomberg Intelligence Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts.

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