AI Payoff in Focus During Tech Earnings Bonanza

26:12We're up 7 % record high. Amazon, that flywheel effect is still there. They create and have custom chips, but of course, they're also making moves on cloud, AWS, 20 % growth. But maybe we come off near record highs on that share price. Down 5 % is Microsoft, and that's more interesting. Yes, they also are spending more, leaning into$190 billion spend for the year. They're also, though, maybe not managing to ramp up the Azure growth as much as people anticipated, but it's still going to be a healthy 40 % in future quarters. It's at 39 % for this particular quarter. Move on and see what's happened in terms of Meta.

26:45I'm afraid we are not applauding Meta's commitment to capital expenditure because they don't have a cloud offering thus yet. Let's just have a little listen to what Mark Zuckerberg really had to say about, well, where his spending is going yesterday. We are increasing our infrastructure CapEx forecast for this year. Most of that is due to higher component costs, particularly memory pricing. But every sign that we're seeing in our own work and across the industry gives us confidence in this investment. That said, we are very focused on increasing the efficiency of our investments. Let's get into it with RBC's internet analyst, Brad Erickson, whose pre-earnings report flagged Meta's, quote, elevated investment cycle.

27:28And yeah, that's what we got. Meta is a company that operates social media platforms and it makes money from advertising. and at the same time it will spend at the high end$145 billion in infrastructure to support its work in AI. For me, there just wasn't that number that explained this is the result of that investment. This is how our AI work is getting traction with the world. Is that your take, Brad? Yeah, I think that's a very fair way to sort of look at it. But, you know, each quarter that ticks off with all of these companies, right, we, fair or unfair, we have to evaluate kind of what have you done for me lately relative to that spend.

28:15And clearly the cloud, the commercial cloud vendors last night are the ones showing sort of the best return, particularly with that margin upside. Whereas with Meta, you've got a deceleration, just start there, right? The revenue was fine in the quarter, but you do have a little bit more deceleration in their guidance for Q2. And then they were the only ones to raise the CapEx guide, at least on an organic basis. Amazon and Google, Google had to raise their CapEx, but it wasn't. It was because of an acquisition, not because of higher component pricing. So, yeah, it's just a tough combination for kind of that next day stock reaction.

28:53I use Meta AI. I'm sure Caroline uses Meta AI too, but I don't pay for it. I use it within the Instagram app, for example, or I'm aware of Ray-Ban Meta's voice-based assistant version of Meta AI. A parallel example was Alphabet giving us data quarter on quarter for Gemini's enterprise growth, 40%. Meta doesn't have that sales channel. So what is it that Mark Zuckerberg can say other than MuseSpark, the latest model, is making ads better that will convince the street, yeah, let's keep going with this? Yeah, sure. Yeah, I mean, there's always going to be optimization, right? They drive, you know, more content recommendation gets people staying on there for longer.

29:34They show more ad impressions. They find people with better ads that convert more. So there's all sorts of value creation that's still going to happen there. But yeah, I kind of agree with you. I think, you know, clearly on the enterprise, there's a far more compelling argument for for, you know, enterprise developers adopting things like Gemini or Anthropic or or ChatGPT, where I think the idea, though, that we're kind of broaching for people. We call it born on Meta. And what it means is we actually think there's big opportunities that are probably underappreciated for Meta to almost start to help small businesses start, exist and execute entirely on Meta.

30:16We think that's a possibility in the future. Today, you start a small business somewhere else. You come to Meta to market. It's certainly helpful for the business, but they've only participated in kind of that advertising portion of it. imagine if meta AI started like helping you ideate, originate, literally start businesses on the platform that were specifically geared around success with the ads, right? Like there's a connection there that I think the super intelligence group is aiming to make. And I think it's subtle at this point, but it's a topic we're kind of trying to elevate for people because I think that might be the more compelling way that they use meta AI in the future.

30:55Briefly, there was lip service given by, in a statement, Susan Lee, that there's the regulatory overhang and that could impact future revenues. How much is that a worry for you at the moment, Brad? You know, that's a, you know, you hear it referred to as kind of the big tobacco moment. I mean, that would be relative to kind of social media usage broadly in today's world. That would be such a seismic change. It's a risk. it's we worry about a lot of stuff on stocks. That's something that's completely out of sort of everyone's control at this point. But yeah, if that happens and they are forced to kind of throttle usage for users below a certain age, it will absolutely meaningfully impact the business.

31:40It's also just one of those things. A, it's totally unpredictable. B, you know, there will be like years of appeals involved. And so I don't want to say a fine or a settlement looks more likely, but historically, we've seen that be kind of the primary outcome of these types of situations. RBC's internet analyst, Brad Erickson, really glad we could dig into Meta with you. Thank you very much indeed. Look, we've got more earnings. Apple reports later today its first release since the iPhone maker really announced the hardware chief. John Turnus will succeed the CEO, Tim Cook. Let's get the details of what to expect with Bloomberg's Mark Gurman.

32:12Like, almost is it a sideshow, the earnings? Yeah, I mean, this is going to be quite interesting, right? A week ago, They announced that Tim Cook is stepping down September 1st, being replaced by John Ternus, as we anticipated. I'll be looking out for any other new color on the transition, if Ternus is going to speak and give some insights to Wall Street for the first time. I'm going to be interested to see how that all gets split up. Obviously, from a numbers perspective, we're expecting some pretty numbers, right? 13 % to 16 % year-over-year revenue increase is what Apple guided. A few key factors in there.

32:48The biggest one is pent-up demand for iPhone 17 Pro and Pro Max. That launched last September, obviously, but there were some supply chain constraints through the tail end of the first quarter, which means that some sales bled into the second quarter. So we'll see a bit of an iPhone increase because of those products. And then they had their wave of new Mac and iPad and iPhone 17 launches very much at the tail end of the March quarter, which obviously contributed as well. The MacBook Neo has been a strong seller, so you're likely to see a big jump in Mac revenue as well. Mark, I think we're showing Apple shares up modestly, half percentage point, treading water until tonight.

33:29But we should probably address how much of a leading indicator Qualcomm is. They told us that the Android market in China will bottom in Q3. Memory pricing is clearly an issue. What data do we have about Apple facing similar issues? You know, the Qualcomm stuff is interesting, actually. It's hard to put two and two together at this point, just because the Android market is not selling well in particular parts of the world like China. You know, there's no telling if that means that the iPhone is also not selling well. It's possible that the Android market is not selling well because people are buying iPhones instead.

34:06So I really wouldn't read too much into it. Okay, Bloomberg's Mark Gurman on deck after the market close today for a big Apple print. Thank you very much. Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins, or the S &P 500 minus high-debt companies, chances are there isn't an ETF that fits your exact criteria.

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37:05137 Ventures has raised$700 million split across two new funds. The firm has put money behind some familiar names like Anduril, Gusteau, Ramp, and SpaceX. Justin Fishner-Wolfson, founder and managing partner at 137, joins us here in San Francisco. Good morning. Morning. This is interesting how you've done this. This is two funds where each serves a purpose. It takes your assets under management to$15 billion. And I mean this, Justin, with respect. Your firm's gone a little under the radar. And now here you are, arriving at this moment. I mean, I think we've just been focused on investing. So maybe I think within the venture ecosystem, people know us.

37:47I want to talk about one of the funds in particular. I find this very interesting. The idea of some of the capital is that you offer liquidity, right, to founders that you back, their employees in different forms? Why specifically earmark some money for that? So if you kind of rewind the clock, right, we started the firm about 16 years ago. And, you know, our thesis was that companies were going to stay private longer. And the challenge of companies staying private longer was going to be that founders, executives, employees were going to need liquidity. Like working capital. I mean, look, if you start a company when you're 25 and then you end up being 35, your life is different.

38:28Maybe you want to buy a house. In the same way, all these companies need more growth capital. And so we've seen the availability of that expand in the private markets. And so our general view is if companies stay private longer, there are going to be more opportunities to invest in them. And opportunities, boy, did you take. You first invested in SpaceX, for example, in 2010. You've written two dozen checks, it tells me, into SpaceX since. How much now do you own? of SpaceX, if you're able to do that? I mean, I think at this point, we're, I think we own well over$10 billion. So it's a pretty big position for us.

39:02And we've had a lot of conviction in the business over the last, you know, 15, 16 years. So yeah, we're excited. I mean, if you were in in 2010, what sort of returns can the LPs be expecting on this? Oh, gosh, some of those, some of those investments, I think, are probably like 100x investments at this point. It's interesting. Your$10 billion of position in SpaceX, I think, would be around 1 % of the company. But you've got a decision to make. So if we're right, and Bloomberg's reporting that... Bloomberg is always right. Bloomberg is very often right. But we're reporting that SpaceX goes public in late June at a valuation of up to$2 trillion, whatever it ends up raising,$75 billion.

39:48You keep talking about the whole point of the firm is to invest in companies over that longer time horizon. In that case, companies are staying private longer. What do you do for your LPs or for your firm in an IPO scenario? Do you stick with it or what's the strategy? I mean, I think the exciting part about SpaceX is like the next 20 years of the business. And so I agree with your question. I think it's a hard decision. Ultimately, let's see where we get to, right? We'll find out what the company price is at. As you know, these things tend to happen the night before. So I think there's a lot of information between now and when the IPO happens.

40:25And I think we're going to be happy with all outcomes. But we're sort of excited for the next couple of decades. I wanted to look backward a little bit. The first investment around 2010, you had already had a history with SpaceX from your time at Founders Fund. But if you did do two dozen checks over 15, 16 years, what was that like? We make a lot on this program of Google and Fidelity, Founders Fund coming in in these bigger rounds, but you were able to participate. I think really the thing that we did is consistency. We were excited about the business. We had conviction about the business, and so we kept investing.

41:01Some people wrote it one check, and that obviously was a huge outcome, but we showed up year in, year out, and that's really paid off. And now new people show up. SPVs, access to retail. Is that what naturally has to happen if we're going to get these companies staying private longer? What's the tension there? I mean, once the company's public, obviously, everyone will have an opportunity to invest in it. I think, you know, as we've seen more capital become available in the private markets, I mean, you've seen, you know, some of the large crossover funds get involved. So, I mean, there's just, there's an incredible increase in the amount of capital available in the private markets relative to 10 or 15 years ago.

41:45And so I do think some of these things are sort of the natural evolution of the private markets. On SPVs, sorry, I just wanted, I want to get an answer to your question because on the show, we talked a lot about claimed ownership of a company. SpaceX is a prime example, but Andrew Rills talks about this as well. There are people out there purporting to have a position, but they bought in through some SPV structure ahead of an IPO. What's the reality of that? what happens when the real ownership becomes clear? Well, I mean, I think the greater concern is just fraud in the private markets, right?

42:17And so just because people, there's clearly been fraud in the SpaceX market, in the Andro market. So I think that people need to be thoughtful about who they're partnering with and who they're doing business with, because I think we'll find out, I don't know, a year after the IPO when people think they're getting shares and they don't get them, right, what actually happens. That's because of a lockup period. There'll be some kind of lockup period or whatever, but I just think it takes a while for people to actually start demanding the shares that they thought they owned. And I think that's going to be an unfortunate consequence of some number of bad actors in the market.

42:51And a big claim, and one I'm sure regulators will be looking at, and one Bloomberg will continue to report on. Justin Fishnoholson, it's great to have some time with you, founder, managing partner at 137 Ventures. Now, investors, look at how they're cheering Qualcomm's entry into AI, sparking the biggest intraday rally after their earnings since October. This is after the company revealed it will ship custom AI chips to a major hyperscaler later this year. Joining us now, Qualcomm CEO, Cristiano Amon. Who is the hyperscaler, Cristiano? I'll tell you all about it on June 24th. It's going to be three days after my birthday.

43:31June the 24th, we've got to hold on to. But what does this signal about... You have been a man who's committed to telling the market that you are expanding the market. It's not just about mobile phones, while Qualcomm has really dominated the market share. But Chip's now in automobiles, in IoT, but really in the data center. What sort of TAM, what sort of expansion of Qualcomm's business will this mean for you? Yeah, look, you know, this is a great question. And I want to maybe start the answer by saying, you know, why would not anybody, you know, bet on Qualcomm diversification efforts? We started as a mobile company.

44:06If you look at what we're doing right now, we expanded into PC. We became one of the largest providers of semiconductor to automotive. We're going to industrial. We're going to robotics. We're going to broadband and networking. And I think the data center was a natural thing. We have been working on this for the past couple of years. We've been consistently saying we're building assets. We acquire companies like Alpha Wave. We have a pretty good CPU, a very good accelerator. We're not a small company. We ship 40 billion chips. So I actually, I don't know why people would bet against Qualcomm, but I think it's okay.

44:39We're just being on this road to execution like we have done on the other business. And we're very exciting because I think what's really happening right now, as we enter this next phase of AI, we went from training to inference, now agents, which actually would generate demand for tokens. It provides an opportunity across the entire Qualcomm business. All of those devices where people are going to have agents running, whether it's phones and PCs, they're going to go to an upgrade cycle. And then some of the assets that we build create opportunity for data center. Cristiano, specificity is so important here.

45:17You said, and you can correct me if I'm wrong, you said it was an ASIC product, which I think the market's looked at and is a little bit surprised. So you are not doing your own chip. You're not doing merchant silicon, your own designs for market. You're doing an ASIC with someone. So we have said that our data center product, and I need to make sure I don't front run my investor day. I'm trying. Yeah, I understand that. My data center product offering includes three vectors. One is CPU. We are developing a CPU and we're very flexible. We can provide a full SOC, we can provide chiplets, so that's one asset.

46:02The other asset is an accelerator. We have the accelerator with innovative memory architecture. We don't need HBM for the disaggregated inference. The other one is the ability to do custom chip, which when we acquire Alpha Wave, they have both a lot of IP, which is important for custom ASIC, as well as a custom chip team. When you put everything together, it creates a lot of opportunities for Qualcomm. Now, here's what is important to understand. The data center market is highly concentrated. There are about six to eight companies that represent the majority of it. And what you see what's happening in the market right now, a lot of solutions are becoming bespoke.

46:46They're no longer just merchant solutions. So I think as Qualcomm entered the space, you should expect that we will offer a lot of flexibility and we'll leverage our supply chain and our design capability to do bespoke products. And I think that's what we're doing. Four to six companies. That's interesting. So this depends on your definition of hyperscaler. Like, for example, Meta is not a cloud computing company, but it operates at hyperscale, its own data center infrastructure. So maybe that's what we're talking about here, the definition of what is or is not a hyperscaler. Look, I'm just going to cut to the chase.

47:26We're talking about a large hyperscalers. You should be thinking about one of the large cloud companies that we have today. It's a scale business. So I think that's what we're talking about. Oh, getting closer. The potential customers, therefore, are four to six, but they're huge. And maybe they're even more than that. So just can you get specific about how big the opportunity is for this particular part of the business? How much you think it could ramp up revenue? Is that something you're able to push ahead of before the investment meeting? Look, I don't want to get ahead of our skis. We're executing.

48:05We're very pleased with the engagement. And what we said is it will be material in fiscal 27. Now, if you look at the scale of the Qualcomm revenue base, I think anything material to Qualcomm is probably in the multiple of billion dollars in fiscal 27. But look, we're just starting, and we're very happy with the progress we're making. Cristiano, I think back very fondly to when you and I were on stage together at the Bloomberg Tech Summit. I think it was three years ago now, and we talked about the world where we switched to inference running on device. But actually, Qualcomm's story has really changed in that time, right?

48:42So in this world where we're moving to inference and we're moving to agentic, how are you positioning Qualcomm? The CPU is important, but you must think differently to how you did three years ago. Look, frankly, it's actually playing out exactly the way we thought. And I know we have a limited time, but when you start running agents and when you start running things like OpenClaw and a bunch of other claws, actually what is fascinating to see what's happening in the phone industry, every Android OEM right now is launching their own claw. And the way agents work, they actually operate your device for you.

49:26So what you're going to see at the end, you're going to see a lot of activity in the cloud, and you're going to see also activity on the device. And it's all going to magically work. I almost like to say this. I am sure you have probably 200 apps on your phone or close to that. At least. We never have a discussion about how much each app is doing on the cloud or doing on the device. It just works. And I think that's how we see those agents working. They look at your data. They look at things on your device. They do things for you and they do stuff on the cloud. And I think that's why I believe this actually builds into the Qualcomm assets and the fact that we're present everywhere.

50:05Our engagement with the cloud companies right now, they look at our devices at end point for AI. And that's also exciting. I think we're talking with all the AI companies about their new and exciting devices. What's less exciting has been supply chain disruption. But you were really clear with investors and they liked it quickly with 30 seconds. Memory, you see an end point, at least in China. Yeah, look, the reality is everything needs memory, and AI drives more memory demand. They drove a lot of demand at a data center. It caused a crunch on the consumer electronics. The good thing is we now see the bottom.

50:41As I said in the call, we're under shipping market demand. We look at customer activations of devices and sell-through data. We see what the demand is. That's now we can call the bottom. and, you know, there's going to be more supply and more suppliers and we'll see how this is going to play out. The market is taking this really seriously. Qualcomm having its best day since April 2019. Qualcomm's Cristiano Amon. Thank you very much. Caroline, that, I don't know, for me, in the 10 years I've been here, an extraordinary technology earnings 24 hours. And that does it for this edition of Bloomberg Tech.

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