Morgan Stanley Cuts Jobs Across All of Its Business Lines

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1:57Paul Sweeney:One of the top red stories on the Bloomberg Terminal is about Morgan Stanley and cutting about 3 % of its workforce pretty much across all of its business lines. And one question I have, I think a lot of folks have, is this something specific to Morgan Stanley? Does it signal weakness in the biz or is it just kind of the annual culling of people? So let's just see what's happening here. Herman Chan, senior analyst for U.S. Banks, joins us here in our Bloomberg Interactive Broker Studio. So what do you make of the news for Morgan Stanley about laying off about 3 % of its workforce?

2:26Isabelle Lee:Yeah, that's right. 3 % of its workforce, about 2 ,500 workers. I would say that it is sort of an annual calling. They did a similar workforce reduction last year. I would also point to the fact that headcount across the big banks was pretty stable for banks like J.P. Morgan, Bank of America, Citi. Whereas Morgan Stanley grew their headcount 3 % last year. So now they're sort of back in the pack with this workforce reduction. So we noticed that the cuts hit investment banking, trading and the wealth management. You mentioned that it's annual culling. But should we read into whether this signals a broader shift for the bank?

3:05Isabelle Lee:Yeah, it's interesting because last year when they did a 2 % reduction, they didn't really touch their financial advisor force. Whereas this year, it seems like it's more broad in scope. So I think there's just maybe some changes in where they think that their advisors are and maybe just shifting geographically as well.

3:28Paul Sweeney:You know, what are the investment banks saying about AI and as a way to make them more efficient, maybe with less headcount? Because I think about the first three years of my investment banking career, pretty much everything I did, running earnings models, LBO models, pitch books, pretty much all of my life could have been done by AI. I think I'm pricing myself out of a job back then. But what are they saying these days?

3:52Isabelle Lee:Yeah. So AI is a big story. We just heard JP Morgan at the Investor Day talk about the benefits of AI in terms of personalization, pinpointing which customers would be open to different products and using AI to better use their marketing dollars for that. On the other hand, they've also talked about improving customer satisfaction with the call centers and the like, where there's less people in the call centers, which is expense saving for banks like JP Morgan and B of A, but they're also improving customer satisfaction. You can see that improving over time. So there's a double benefit on that front.

4:33Isabelle Lee:But is AI accelerating structural change when it comes to these banks? Because we've heard a lot of banks and fintech firms like Block actually citing AI as a reason why they're culling their workforce. Yes. I wouldn't say we're going to see 40 % job cuts from JPMorgan or B of A at this point. But I would say that AI is definitely reducing the need for headcounts. And we've seen that given the fact that JPMorgan's headcount numbers are flat year over year. And really, they've been reducing their workforce within the consumer bank, which speaks to what I was just saying before with the call center.

5:12Paul Sweeney:Yeah. We were just talking earlier that 2026 could wind up being a monster year for IPOs. We're just talking about Anthropic, OpenAI, SpaceX. What are the banks saying about the prospects for IPOs in 2026?

5:27Isabelle Lee:Yeah, that is something that heading into the year, a lot of the investment banks were really were really enthusiastic about a pickup in capital markets issuance and activity, specifically with IPOs and equity capital markets and also in M &A. You talked about some of the three headline IPOs that could potentially hit this year. That being said, there's been some volatility and turbulence in the markets today. So maybe that pushes things back a little bit. But overall, there is some general enthusiasm. As I mean, J.P. Morgan mentioned capital markets would be up 14, about mid-teens for the first quarter.

6:03Isabelle Lee:So there's hope that that could continue going forward. Do you think that these layoffs will affect Morgan Stanley in competing with top talent? Because to Paul's point, it's going to be such a busy year, or is this par for the core in most banks? Yeah, I would say Morgan Stanley is one of the top investment banks, particularly in technology, TMT. and they're going to get their fair share of deals and win a lot of mandates. Just given the fact that they have really strong banking presence within that industry, we'd expect them to do really well in 2026.

6:36Paul Sweeney:You know, when President Trump was elected and took over in early last year, one of the initiatives that was really thought to benefit would be the financial services industry, much less regulation, rolling back some of the regulations that came out of the great financial crisis. Have we seen that?

6:52Isabelle Lee:We have. So we've seen that directly with M &A, with bank M &A. There's been more deal making, but also less red tape in terms of getting deals approved by the regulators. We've seen a few deals that just get approved with less than 100 days from announcement to close. Whereas during the Biden administration, it took 300 to 400 days for that to happen. So much more streamlined. And you're also seeing, on the other hand, for the big banks, less onerous capital rules. So that means they can plow more of their capital into the trading businesses and lending. So that's going to be an ongoing benefit for the big banks.

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10:23Paul Sweeney:Broadcom, the chipmaker Broadcom reported some pretty good numbers, better than expected numbers, some good revenue guidance. CEOs talking about$100 billion in revenue next year. They had about$68 billion last year. So that's a mega jump. Let's check in with Kujan Sobani. He's a senior analyst covering the semiconductors for Bloomberg Intelligence. He's based out there in San Francisco. Kujan, it seems like a good number to me. What did you guys and what did the street take away?

10:49Kunjan Sobhani:Yeah, it was one of the most strongest showings when it comes to AI chip names in our sector. You know, just for context, most of the AI chip names, despite them giving strong numbers, next they have seen their stock down sort of mid single digit. Here you're seeing the opposite. Very well justified. A few things that really stood out to investors, that one was the$100 billion plus line of site of AI chip revenues in 2027 and to add the point that they see growth in 2028. Again, this is the first company calling out growth two years out so far in our sector. So that should ease the concerns around hyperscale spending.

11:31Kunjan Sobhani:There were a lot of other good points here. The networking side of their business, which we believe continues to be underappreciated, has been running much faster than people expect the gross margins which you would think uh should be seeing headwinds uh because of these ramp of the their ai chips are actually going to stay stable which in in itself is a very positive sign uh which implies that a they have significantly strong pricing power they're not eating the rising input cost and uh that they have the supply chain really optimized to get the best yields.

12:05Isabelle Lee:They did say that AI sales chips could top 100 billion by 2027. Kunjan, how credible is that target? I mean, AI revenue more than doubled last quarter, but is this growth sustainable?

12:19Kunjan Sobhani:I mean, look, what Hockton says in our sector is not taken lightly. It's sort of a line in the stone. So I wouldn't think they would be throwing out numbers really nearly if they didn't have to. also there was there is no need for them to throw out that long outward number so you know most of the street and the south side does give a lot of credence to that number now that it's coming out from hawkman's mouth and look when we look at the gigawatt and the unit volume projections which are there on the street even before that hundred billion number came out it doesn't seem drastically aggressive or ambitious.

12:57Kunjan Sobhani:I mean, we have heard Google's higher capex, the Enthropic deal and the OpenAI deal lay out the timing. Enthropic, again, to remind everyone, will be on all the TPUs that Broadcom creates through Google. So when you add up most of the unit volume, which is expected, this does seem reasonable that they can easily achieve that 100 billion target.

13:18Paul Sweeney:Kunjan, where does Broadcom fit into the world of the semiconductor chip makers? I'm thinking, you know, versus the NVIDIAs of the world, the AMDs of the world. Where does Broadcom kind of fit in there?

13:29Kunjan Sobhani:Yeah, so, you know, the AMDs and NVIDIAs sell what we call GPUs. Think of them as AI accelerator chips used for everything AI. But that is something that off-the-shelf chips, anyone can go buy the GPU and use it the way it's supposed to be used. Broadcom sells a similar chip that is used for the same AI training, AI inference, agentic AI use cases, but are ASICs. What it just means is big companies like Google, Meta, Amazon, and Microsoft go and sort of design their own AI GPUs, if I may, working with a company like Broadcom because they want to modify, they want to customize, they want to optimize it to their own needs.

14:12Kunjan Sobhani:So essentially you have the NVIDIAs, the AMDs, the Broadcom and the Marvels all selling AI accelerator chips is just at the end use cases. The same is just the mode of execution is slightly a bit different.

14:24Isabelle Lee:Broadcom also announced a$10 billion buyback. What does that signal to investors right now, in your opinion?

14:31Kunjan Sobhani:It's definitely a positive signal. I mean, any buyback is a positive signal, but it is not that huge enough to really raise eyebrows. Broadcom historically has been a great dividend pair. They have sustained records of growing their dividends. So that is what their sort of long-term capital return shareholders really care about, which they continue to still do. This is just a cherry on the top.

14:56Paul Sweeney:So NVIDIA, they have an investor day coming up, I believe on St. Patrick's Day. What do you expect to see there? That could be a big data point?

15:07Kunjan Sobhani:Yeah, that usually is a huge data point for them. It is their three-day conference. Look, we expect a couple of things here. We expect the new sort of a lot more details when it comes to the Rivera Rubin, which is supposed to come in second half of 26. And more than that, we expect a lot more details on that 2027 roadmap. All eyes are from investor perspective now that what we have heard from NVIDIA, Broadcom and every hyperscaler is really to figure out the 27 numbers. So the focus really will be the chips that are coming out in 2027, the new innovation that they will be doing, what will be the memory, whether it will have silicon photonics, CPO.

15:45Kunjan Sobhani:I know I'm rambling some technical terms, but this is what will really help investors to shape 2027. Will 2027 be an up year for chip makers? And does that mean the hyperscales will still keep spending more in 2027 than they are spending in 2026, which would be an impressive feat? So that is what

16:03Paul Sweeney:really the focus will be from nvidia's gtc kujan uh 30 seconds left here how often do i have to replace a chip is that something that i have to do every year every time they update how's that work

16:15Kunjan Sobhani:yeah these are fairly new chips so when you think of we have not seen a full life cycle of these new gpus in asics right we really started seeing them deploying in volume in 2023 now based on the depreciation schedules right now that are put in place uh we're talking about five to six years before you really have to crank out a chip and put a new one in its place. So we are not there yet. However, there's another business case where you have a limited power, you have limited data center footprint. So if a new or more efficient chip comes in, there might be a business case to justify ripping out an old chip, even though it's working correctly, so that you are running on the latest and greatest chip.