Anthropic, Google Discuss Multibillion-Dollar Cloud Deal

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech coming up. Anthropic and Google discussing a deal for cloud computing services valued in the high tens of billions of dollars. Plus, we break down earnings, Netflix and Texas Instruments in focus while we await Tesla's results after the closing bell. And hot on the heels of AT &T's own earnings, we discuss with the company's CEO, John Stanky. Let's get to our top story overnight. Bloomberg breaking the story that Anthropic is in talks with Alphabet, specifically Google, for cloud computing capacity.

1:57High tens of billions of dollars. TPUs are in the mix. When we broke the story, Alphabet shares jumped in aftermarket. Amazon fell. This is where we're trading right now on Wednesday's session. I broke that story with Bloomberg's Rachel Metz. Let's get out to her. Actually, Rachel, like the details are quite simple to understand. Early talks and they're around capacity. But let's recap what we know. Yeah. So as you said, the two companies have been discussing a plan for Anthropic to use Google's Tensor Processing Units, TPUs. These are chips that can be used for a lot of things, but they also can be used for AI workloads.

2:37And Anthropic, I think it's important to remember, is already a customer of Google's for its cloud service. And also, Google is an investor in Anthropic. And Anthropic is a similar deal with Amazon, too. So that's why you sort of see these mixed reactions. There has been a lot of reaction to our reporting. Later in the program, We're going to speak to Bloomberg Intelligence about their take on it. Anthropic have been busy of late, right? We've reported that Dario Amadei did this kind of tour of the Middle East seeking both money and compute capacity. The compute capacity bit is where people are trying to understand this.

3:16Like, is it that just Anthropic really needs as much capacity as it can get? Or is this a story about how actually Google is kind of becoming the better partner for Anthropic beyond an Amazon? I think there's a couple things that could be happening here. One is that, yes, building the kind of AI models that Anthropic is building is extremely compute intensive. And you can't just use like any cloud capacity you could find anywhere. And you can't just use any chips. You have to use certain chips that are going to work well for the kinds of large language models they're building and the kinds of models that they are serving to people.

3:53So it seems like a vote of confidence potentially for Google and for its chips. I mean, hardly any companies beyond NVIDIA, AMD, maybe one or two others have chips that people are willing to be using for these kinds of AI workloads. It also could make people a little nervous about what it says about Amazon and its ability to provide the services that a company like Anthropic needs. Bloomberg's Rachel Metz. Thank you very much. Let's get to the earnings story, starting with Texas Instruments. Its stock fell the most in three months after it gave a lackluster forecast for the current quarter. Bloomberg's chips reporter, Ian King, is with us.

4:34Actually, probably a more simple story than we expected. We got a lens into the health of analog devices. Texas Instruments is analog chips. You covered the earnings blow by blow. What do we need to know about this? So first off, the number's not too bad. 14 % growth for most companies would be fine, projecting something in the region of 11 % for this current quarter. But what they said was more important. What they said was things are coming back, everything's okay, but just not at the pace that we had been expecting. There's still some uncertainty out there. This is macro-related. Companies aren't investing in their factories perhaps as quickly as we had hoped.

5:16And really, they were sort of painting this picture of a kind of an anemic kind of return to growth for the whole industry. When I was reviewing your story, the CEO said that overall, the semiconductor market recovery is continuing. That seems a little bit incongruous with the market's reaction to what's going on. The stock's down 5%, but also kind of, you know, what's specific to them? What they're projecting is basically seasonal, right? what would happen normally if everything is equal in the fourth quarter. The problem is with that is that if we're in this recovery period, if we're in this bounce back from this inventory correction that we've suffered, things should be growing quicker than that.

6:00People should be rushing to stock up. People should be rushing to build new things, and they're not. Bloomberg's Ian King. Thank you very much. We actually just had some breaking news at the top of the show, and it is move shares of Google. You can see there on the screen. The company ran an algorithm on its willow quantum computing chip that can be repeated on similar platforms and outperform classical supercomputers. A breakthrough, it said, clears a path for useful applications of quantum technology within five years. This was detailed in a paper published Wednesday in the science journal Nature.

6:37And you can see there on the screen, the right-hand side of the chart, when those headlines hit, Alphabet shares who had given up the gain they'd seen from our reporting on Anthropic suddenly jumped in the session to a gain of around 2%. We will continue to track that story and Alphabet shares throughout the show. Okay, back to earnings. Another steep share. Drop. Netflix disappointed investors with its results. The streaming giant blamed a tax dispute with Brazil for a cut to its third quarter earnings. Let's get more with Bloomberg's media editor, Felix Gillette. This tax issue, like yesterday I went on television all day long saying maybe there'll be a foreign currency benefit to Netflix's earnings.

7:17We'll learn about advertising. But actually, this tax issue is the main story. Just explain it. This is a long-going dispute that Netflix has warned about in filings before. They didn't factor it into the forecast. They ended up having to pay several hundred million dollars more to Brazil. They're saying it's a one-time deal. It's not going to be material impact moving forward. They're trying to steer the attention back to the growth, 17.5 % growth in sales for the quarter and profit growth also up. You know, we were talking, Felix, about the idea that Netflix wants to be judged by its sort of traditional financial metrics.

7:55Those are quite good, generally speaking, right? Yeah. Yeah. I mean, they were fine. At this point, I think investors were looking for more than fine. They were looking for a complete blowout quarter in part because, you know, they had such a strong slate of programming in the third quarter. You know, Wednesday, new episodes, Squid Game, new episodes, K-pop demon hunters. So at this point, yeah, the programming looked good. The growth and sales looked good, but investors wanted more. Bloomberg's Felix Gillette, really appreciate your time. Thank you very much. Ayoko Yoshioka is a portfolio consulting director at the Wealth Enhancement Group, which holds some of the major Magnificent Seven Names, Texas Instruments.

8:36And I think we can also talk a little bit about Netflix. That's where I'd quite like to start. Earning season in technology can bring all kinds of beautiful stories. Did you have a tax dispute with Brazil on your bingo card for what Netflix would tell us about the world of streaming? I did not have Brazil tax issues on my bingo card. But I think the Netflix earnings were actually pretty decent. We forget that Netflix has actually come a long way from a free cash flow growth perspective. They were only generating about$1.6 billion about two and a half years ago. And now they're generating close to$8 billion in free cash flow.

9:15And that's slated to go to$11 billion. So we'd like to focus on that metric versus the Brazilian tax issue. Okay, team, let's leave the shares up. Ayoka was showing shares on the screen. The stock's down almost 10 % on track for its biggest drop since April 2022. What was the big picture story about the health of streamers and streaming here and where Netflix sits in that landscape? Sure. I think from a consumer standpoint, you know, Netflix is one of those go-to programs that consumers are going to continue to go to. I think that, you know, for Netflix, the content you mentioned has been very solid.

9:54and even if the macro environment is a little shaky out there, I think Netflix will continue to see subscriber growth and that's what we'd like to see over time. Oyoko, let's get back to our top story today. Overnight, Rachel Davey and I broke the story that Google is in early talks with Anthropic for a cloud computing deal, capacity in the high tens of billions of dollars. When we broke that story, Alphabet shares really jumped in aftermarket. They've given up some of that gain in the market open this morning. And Amazon fell. Wealth Enhancement has some exposure, particularly to Alphabet. What is your reaction to that reporting and what does it signal to you for those companies involved?

10:37I think in general, the sort of clue to me is just that the infrastructure build out is still in its early phases, right? We've heard so many announcements over the last several months. And yet here we are with another one. And just when you thought you weren't going to get another announcement related to AI infrastructure buildouts, here we are with Google and Anthropic. I think that the race is clearly on and we'll have to see who's really going to win. But the buildout is sort of still in its early phases. the cloud computing market as we've always understood and talked about it is aws number one player google cloud number three player in the specifics of this story both of those companies as it relates to ai workloads have some questions to answer here right so amazon is also a significant investor in Anthropic.

11:35Our reporting says that Anthropic wants to use TPUs. What are you learning about the competitive nature of Alphabet's cloud offering or Google's cloud offering versus Amazon's in the AI domain? Sure. So I think we have to really dig into this in terms of, you know, what are the TPUs offering in terms of optimizing workflows that GPUs aren't? And how is this better suited for, you know, Google's sort of overall workflow and how they're going to be using AI through Gmail and Google Maps and a lot of their applications that they have in-house. And then how does that fit related to Amazon and how, you know, some of the algorithms are working for Amazon's, you know, suggestions for retail as well as advertising.

12:22I think there's still a lot to dig into here in terms of how this is all going to work out. Texas Instruments is worth lingering on, I think. You know, sometimes it's seen as almost like a crystal ball of what all kinds of end markets around the world will do coming up next because of how many analog chips go into all kinds of things. What was your read on the print there? Sure. So I think in general, as Ian said, the overall quarter and earnings were actually pretty decent, 14 % growth. But I think the read-through into industrial markets, into automotive, into some of the consumer electronics that are more basic really shows that we're not in a macro environment that is growing gangbusters.

13:09So outside of all of the AI investments that we're seeing in the economy, we're not seeing that sort of economic growth take off as much as I think people had hoped for. We're in it. This is it. Technology earnings season. My Super Bowl. I don't know if it's your Super Bowl. What was it that we were expecting to hear? And what do you need to hear from the technology sector, specifically the MAG-7, I suppose, to keep the direction of travel that we have seen in equity markets? Sure. So next week will be the big week for all of this, including a Fed meeting to cap it all off, too. So I think for us, we're always going to be looking at commentary around CapEx spend.

13:52I mean, this is what really set it off years ago. And we're going to continue to see whether or not that spend continues from the hyperscalers or whether or not they need to take a little bit of a pause. But I think we're going to continue to see that spend. I mean, we're seeing announcements left and right. And so we'd like to kind of dig into that during earnings season. Do you expect that tariffs specifically or any other Trump administration policy will play out on the calls or in the statements? In the tech side, maybe a little bit, but I don't think it's going to be as prominent as some of the consumer names have talked about with tariffs and goods.

14:30I think it's going to be less of an issue. You know, I think we've seen all of this talk about exporting that has had a little bit more of an impact and the sort of tit for tat with China. That's probably going to be a little bit more of an impact. But overall, I really do think that investors are going to be focused on general cap back spend, ROI around AI and how that's playing out. Oyoko Yoshioka of the Wealth Enhancement Group, really appreciate you rolling with the news of the day and a big tech earnings season. Coming up, AT &T CEO John Stanky joins us to talk about the company's earnings.

15:08And it was a big one. Investors still making up their minds. That's next. This is Bloomberg Tech.

15:23Welcome to our Bloomberg TV and radio audiences worldwide. We bring in AT &T CEO, John Stanky, the company reporting results this morning that showed higher than expected subscriber growth. There's some analysts noting customer churn and average revenue per user showing signs of strain. John, it's great to have you back with us. Good to be with you. Thanks for having me on. You're welcome. It's like a simple story. The data from the quarter is very clear. There was an element of promotion and marketing and deals that drove it. How would you summarize it? Look, we had really strong growth, as you indicated, and we're really comfortable with our growth, as I think you're probably aware.

16:05We've been focusing on customers that want to buy both wireless and broadband from us. And when we can do that, even if it's promotional, that's a good customer to pick up because they have great lifetime values. And over time, they'll churn less and they'll address that very issue that you alluded to, which is the increasing churn in the industry. And we kind of anticipate as we acquire these customers, we're going to see a little bit of ARPU pressure, partly because we obviously give them a better price for their loyalty. and over time we move them up on the continuum of services we sell. So, excuse me, by and large, we feel really good about it.

16:49John, I don't know if you have some water there with you. Let me give you a second just to take a quick drink if you need it. Of course, in the quarter, and we've discussed this with a number of the carriers, it was iPhone 17. You know, I was there at Cupertino Apple Park on the day of its release. Can you give us a real-term sense? even if it's from the promotion perspective of how big a factor the iPhone 17 was for you? Well, I think it's not a huge factor, but clearly there was a little bit of suppressed activity after the last iPhone cycle a year ago. Maybe some folks anticipated it was going to be a little bit larger.

17:24Customers were seeing if it was really frame-breaking and change and concluded possibly that it wasn't and delayed waiting for the next cycle. And I think, you know, you can only suppress that activity for so long. And now the new device comes out, people see what it is. So there has been an increase over last year and maybe some other previous years. It's not a record-breaking cycle, but it's strong. And we're seeing that as a result. But I don't think it's anything dramatically out of pattern, given the suppression we've seen in the market. And we were very effective at working through it. 400 ,000, over 400 ,000 post-paid phone net ads shows we can compete in that space and do well with it.

18:06If you're joining us on Bloomberg Television and Radio, we're speaking to AT &T CEO John Stanky. Final on the iPhone 17, will it be more of a factor in the three-month period that ends in December, the holidays? Well, the holiday season moving through the fourth quarter is always a peak season for everybody in the industry. I expect that's going to continue to be the case this year. I don't see anything what we've had over the first couple of weeks of the introduction to suggest we're going to see a step function change from current rate and pace. So all of our forward guidance that we've given expects that it's going to be competitive, that we're going to compete and continue to earn our fair share of service revenues on those converged customers I talked about.

18:51And I expect that it'll be as rambunctious in the industry as it has been, and we'll do just fine. John, if I turn on my television and watch a show that has ads or I scroll on any given social media timeline, I keep seeing AT &T talking about itself as a home internet provider. I know that's been a priority. Have you any evidence that that push has been a success and that you have positioned AT &T in that domain? Well, I'm glad you're seeing those. It means we must be getting our right market and targets out there. And I think this quarter was an excellent example of it. We had our best broadband gain on our strategic products and services, fixed wireless and fiber that we've had in eight years.

19:39And so over 550 ,000 ads on those strategic products and a net gain of over 230 ,000 of broadband total. It's the best we've done in eight years, I think that's a good, strong indication that it's working, especially when you consider the industry has been rife with examples of our competitors adjusting their offers, trying to do different things to stem the momentum we've had. So I feel really good about where we're going on that front. And to the effect, we can add that with wireless subscribers, which we're showing that we can do over 50 % of the time when somebody buys our fixed wireless product and we're over 41 % penetrated on our fiber base, that's a winning combination economically and what kind of differentiates us from everybody else in the industry.

20:25Okay. Shares are down a touch more than 1%, which in the grand scheme of today is modest. There's a decline. The back and forth you had with the analysts was, yes, churn is up and ARPUs are down, but you seem not to be concerned about that. Why? Why is that not the metrics by which we should look to progress? Part of it, I think, Ed, as well, is we've got a little bit of churn going on in the industry from CEO changeouts, and there's a little uncertainty around what the competitive posture is going to be. And then you look at the data points you just referenced, and we're the first to report, and people are asking, you know, what's going to happen when we hear from everybody else.

21:09And my answer to your question is, we're going to talk about the fact that we're focused on putting customers together with wireless and broadband. And part of that dynamic is go penetrate segments that we've not been successful at penetrating or as successful. So when we go to value segments that we're maybe a little undershared in, you're going to naturally have a little bit less ARPU or average revenue per user when you pick that customer up. And when you combine wireless and broadband together, you may be giving initially a little bit better deal to do that. But that's designed into the plan.

21:44We want to grow in aggregate service revenues, which we've demonstrated that we can do that. We indicated we're going to see some strengthening of that as we move through the year from where we were this quarter. And I'm okay with a little bit lower ARPU if we actually execute on this consolidated customer strategy and are more successful at penetrating some of these segments that we haven't been as active in. John Stanky, AT &T CEO. It's great to have you back here on Bloomberg Tech. Thank you very much. Okay, coming up, Arm could be on the way to providing full chips. Does customers demand faster pass to market?

22:22We have more on that next. This is Bloomberg Tech.

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23:51arm is exploring an expansion into producing full complete chips as ai customers seek faster routes to market cfo jason child discussed the plans with bloomberg techs tom mckenzie in london we're actually exploring building full chips and the reason why is we are actually having customers in this AI cycle, basically asking us, can you help us be able to get products to market faster? Which means instead of us just taking an IP from you, can you actually just really help us design the chip? So it's something we're exploring. Coming up, Netflix drops as a tax dispute with Brazil cuts into its earnings, which on the whole were pretty good.

24:35But that is quite a drop on track, in fact, for its biggest drop in a couple of years. We will have more on that story with a key analyst and some of the sound from the earnings call coming up next. What a day, what a show. Stay with us. This is Bloomberg Tech.

25:03Welcome back to Bloomberg Tech. One of top earnings stories is Netflix. Stock down significantly, 10%, putting it on track for its biggest drop since April of 2022. The story isn't the one we were expecting necessarily. A tax dispute with Brazil hit the company in the quarter. But Netflix, the streamer, has been saying for quite a long time, judge us by traditional financial metrics, please, Wall Street. Look beyond the content, look beyond the subscriber count, which they don't disclose in the same way anymore. There's still a lot to talk about when it comes to Netflix. So let's get to Alicia Rees, Wedbush Senior VP of Equity Research.