Broadcom Follows Oracle in Disappointing AI-Focused Investors

0:01Bloomberg Audio Studios Podcast Radio News.

0:11Bloomberg 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. Broadcom suffers a stock slide after its sales outlook, or lack of, failed to meet investors' lofty expectations. Plus, China eyes the largest ever state-backed chip incentives with as much as$70 billion of state money considered for the pivotal sector. And our conversation with White House AI czar David Sachs on President Trump's executive order aimed at limiting state-level regulation of AI. First, Ed, we check on these markets that are dictated by tech.

0:53Dictated by them. And we say that where we're off by 1.8%, let's look at it, on the Nasdaq 100. We are under pressure as we consider not just the macro perspective and Bon Yield's move, what's happening underneath the surface. I'm looking at the Golden Dragon Index. Look, this is showing what Chinese names trade in the US in terms of the ADRs are up to. What a dichotomy we've got going. What a juxtaposition. China higher. We'll get to that news later. US lower. And in large part, it's by one key stock you're looking at. Some breaking news. Bloomberg reporting, citing sources that Oracle has pushed back some of the completion dates of data centers that it's developing with and for OpenAI.

1:32That pushback is to 2028 from an earlier plan of 2027. The market reacted. Look at the right-hand side of the squiggly line. It's paired some of that decline, but at one point, session low well beyond 6%. I think, Carol, later in the show, we're going to get an opportunity to talk to Brody Ford. Yes. You broke that story. Get more of the details. Right now, the top story is Broadcom. It is on track for its biggest decline since January of this year. a$73 billion backlog, AI-specific. But what the street wanted was a very different number. During a conference call, CEO Hock Tan held off giving an annual AI revenue forecast, saying it was, quote, a moving target.

2:13Listen to this. It's hard for me to pinpoint what 26 is going to look like precisely. So I'd rather not give you guys any guidance. And that's why we don't give you guidance, but we do give it for Q1. Carl Ackerman, Managing Director of Semiconductors and Networking Hardware at BNP Paraba, joins us for more. His new price target,$475, among the highest now for analysts covering the stock. So that's the point. You have different sets of data. They gave us a figure which was a$73 billion backlog. Yep. This morning, quite clearly, the market would like to see a revenue number that's forward-looking.

2:52Yep. Yep, that's true. So you're right. I think what's interesting here, the reason why Broadcom is down is not about how revenue has perhaps missed expectations. First and foremost, the company actually beat and raised guidance. AI sales were above expectations. The outlook for next quarter of$8.2 billion. Farx City consensus of$6.8 billion of AI sales, which doubled on a year-to-year basis. When queried, the company indicated that, Hawk indicated that revenue could perhaps accelerate into fiscal 26 versus that 100 % accelerated growth number. We have over$50 billion of AI sales in fiscal 25.

3:30I think the reason why the stock is down, Ed, however, is in part because there are some investors a bit worried about the margin structure of the Anthropic deal. So of that$73 billion in AI sales, $21 billion will go to Anthropic as part of a TPU system sale. And that TPU system sale is going to be lower margin than what Broadcom generates today. It's about content. How much of the content of a server do you own beyond just the chip? But you like this name, right? Like you've just raised the price target to$475 from$385. Is that right, Math? Well, what is it that you like about Broadcom? Sure.

4:07I mean, Broadcom, I think, is in a league of its own akin to NVIDIA, really, where NVIDIA and Broadcom dominate two of the three main buckets of AI infrastructure spending. Those include compute, memory, and networking. They, of course, control two of them, networking and compute, more than anyone else. And I think what is happening here, what the investment community, I think, is overlooking today on this sell-off is the fact that Broadcom is moving toward a full solution stack akin to what NVIDIA is doing on providing AI compute and AI networking as we move to a scale-up domain where you're going to need optical for both the networking ASICs and the compute.

4:53And they offer that entire IP stack in-house. And that is what I think people are missing today. You're calling it short-sighted, Carl. I know you don't cover NVIDIA as a name, but does Broadcom's success come at the expense of others in the market? Thanks, Caroline. It's a good question. You know, I think it's in a vacuum. You know, we try and pigeonhole Broadcom versus NVIDIA or Broadcom versus AMD or GPUs versus custom accelerators. I think what we found out is that it is not a winner-take-all. It is not a singular approach. What you're seeing is that hyperscalers are adopting custom compute compute as well as GPUs for frontier model training.

5:41And that will continue to progress as we move toward inferencing. So it's not so clear-sighted there. I think what's important here is that Broadcom offers the full solution stack across networking and compute. And similar to NVIDIA, those are about the only two companies in all of tech, including semis, that offer that capability. Of course, Hock Tan's very much aligned in terms of his own pay package with hitting certain revenue numbers for AI in particular. But from your perspective, is there a supply-side headache going on at the moment? We're hearing reports that Dell, for example, is having to jack up pricing because of the pricing that it's feeding on memory.

6:25More broadly, we're seeing the breaking news that Oracle's having to delay some of its data centers. There is a tussle for the infrastructure that's necessary right now. And is that just not going to happen in the overnight way that the market is anticipating? Great question, Caroline. I think what's interesting to hear is I would like to tie in this idea that are we in a bubble of AI infrastructure? I think that's no. The answer is definitive no. I think gigawatt capacity and announcements take time to ramp. That ramp and that qualification and filling up that fab is now extending the visibility across the entire supply chain, whether it's hard drives, whether it's memory, whether it's networking, whether it's compute.

7:11And that is giving companies like Broadcom, companies like NVIDIA, companies like everyone across the supply chain, a very long visibility. And right now, things are very tight. And so some of the areas that are the most tight in our AI ecosystem coverage include lasers for optical transceiver components. There are ways to ameliorate that tightness among the supply chain. And Hawk and Broadcom announced how they have the sufficient capacity for their chips to meet the demand that they see in fiscal 26 and in fiscal 27. Who doesn't love talking lasers? Carl Ackerman of BNP Paribas. It's been great getting your take as we do see stocks fall through the Nasdaq.

7:56More broadly, now under pressure of some 2%. We want to keep up the discussion that's happening between the US and China because chip markets are in the eye of the storm there. China planning to pour up to$70 billion of state money into the sector, being pivotal to its technological conflict with the United States. Bloomberg's Maggie Eastland joins us now. And$70 billion would be an extraordinary amount of government support that we've ever seen worldwide, right? Yes, this is a huge number. This would be China's biggest semiconductor-specific packaging. And according to Bloomberg reporting, that number could be anywhere between, as you said,$70 billion, and it could go down to$28 billion.

8:36So it depends here. We'll see how large it is. That compares to the U.S. effort at industrial policy for semiconductors, which is$52 billion. So this is a similar scale to what the U.S. has undertaken in recent years. Maggie, there are some questions to which we just don't have answers, and that largely relates to what China specifically will do with the funds and where they'll go. But within that Bloomberg reporting, where do we think China is going to prioritize using the funding? Which champions is it going to elevate? Yes, so of course, China is always really looking to support its AI chip makers that compete with NVIDIA.

9:13So that includes companies like Huawei and CanberraCon. Con, but there are other chip companies, including SMIC or SMIC, which does the manufacturing. So, that would be the corollary to TSMC. So, there's a range of companies that could see this investment, but China will face headwinds because it still has restrictions on many of the equipment technologies and the foundries that can't access TSMC for those advanced node chips. You have many worrying about just what the yields are like from an SMIC, from a SMIC, when they're actually producing these homegrown domestically made chips. But I'm looking at NVIDIA under pressure again today, Maggie.

9:51More broadly, are we getting any sense whether this is meaning that China will say no thank you to the H200s in the same way that they did the H20s? As you know, China has certainly never been shy about saying no to U.S. technology when they have their own local champions. But what I will say is we don't know the exact number of H200s China will accept, if any. What we do know is they're clearly not backing down on their commitment to their own chip supply chain, and they're not going to readily give way to this U.S. strategy of selling advanced AI chips in order to undermine their local competitors.

10:25So we'll have to wait and see what happens on H200s. Bloomberg's Maggie Eastland, who's been across China's chip efforts all week long. Thank you very much. coming up. We're going to get more on that breaking news report from Bloomberg about Oracle delaying OpenAI-specific data center project by one year, back to 2028. It had an impact on the markets. The Nasdaq 100 is now 2%. Actually, Caro, as of Thursday night, the state of play was the Nasdaq 100 was flat for the week. So we are now down 2 % on the Nasdaq 100 on a weekly basis. Of course, the reaction to Broadcom and some other AI angst is part of what's weighing on this market.

11:04And we're going to get a lot more on that very, very soon. Stay with us. This is Bloomberg Tech.

11:21Okay, shares of Oracle are down almost 5%. They've hit session lows of 6.5 % decline after Bloomberg's Brody Ford broke the story that the firm will be delaying data centers for OpenAI to So 2028, instead of a previously planned 2027, the reason labor and material shortages, Bloomboast Brody Ford runs the set and joins us now. Important reporting for you, because this is what a part of Oracle's debate is. Okay, great. You have a great backlog of business, but we are very closely monitoring the ability to execute on it and then book revenue on it. And OpenAI is a big chunk of the exposure. Fill the blanks for us.

12:01More reporting. What other details have you got? These are unprecedented scale data centers, right? I mean, GigaWatt scale data centers unprecedented and Oracle's trying to do effectively five of them at once. And so what we have today is that the initial completion dates, the initial full delivery dates have been pushed back in some cases from 27 to 28. And, you know, I think if you've spoken with data center folks over the last couple months, it's not a huge shocker because, I mean, these are such crazy projects, right? And the idea of getting them done in two years was always going to be ambitious.

12:35So now getting them done by 28, it's still a tight timeline. It's still, frankly, an impressive turnaround, but it's maybe just not as quick as the company had initially hoped. We're looking at Abilene, Texas right now, where on the conference call during earnings, we had the co-CEO, one of them, saying that they had more than 96 ,000 NVIDIA chips delivered, giving you the sense of scale. But is it a hindrance to what the revenue is ultimately for Oracle here? Or is it just investors having to be like, oh, it's still jammed tomorrow, not today? Right. I mean, Oracle, I'm sure, will say that as you put, they deliver these sites in chunks, right?

13:15And so Abilene is already being turned on, this massive data center in West Texas. Once you get the servers running, OpenAI uses them. That's revenue recognition, right? And so really what we're thinking about is the further out sites beyond Abilene. We keep seeing these Stargate announcements for Michigan and New Mexico. These sites which are still being kind of put together and Oracle and other vendors too are finding that, wow, there's a lot of stuff out there that's backlogged. Labor for one of them. There's only so many electricians. I mean, you want to build in rural Texas. It's a smaller pool of people you have access to.

13:50It's a fascinating story. It's going to run and run. Bloomberg's Brody Ford with a real market moving bit of reporting there. Let's talk more about the market implications. We've got Margie Patel with us, Senior Portfolio Manager and Head of Capital Allocation over at Allspring Global Investments. She has$629 billion in assets under advisement. And Margie, are you worried these drip, drip bits of information that maybe the revenue streams aren't able to be booked tomorrow? It has to be weighted out a little bit more in terms of the returns on AI investment? No, I think the long-term trends are still in place.

14:24I actually thought that Broadcom's numbers were quite good and people were just, I think, very nervous at the end of the year, particularly with some bad news we've seen, such as from Oracle. And I think it's really more just end-of-year jitters rather than anything fundamental. I think when you look out into 2026, you still have to like the tech sector, especially the Semi, the Memory, those companies, I think you still have to stick with them, that they're going to continue to be high growers. And these little hiccups we have here and there don't change the fundamental trend of very, very strong growth in a year which should be very modest growth next year.

15:01So we still like the whole sector. So, Margie, on a day where Broadcom's off by 11 percent, when the Nasdaq's off by 2 percent, is that hiccup a buying opportunity? Well, I think it is, actually, because if you look at the leading stocks that have stuck to their plan, that have great growth, great profit margins, great innovation, and they're down 10%, 15%, even 20 % from their peaks of a few months ago. So I think that looks like a pretty attractive time to add to these names because there's end-of-year uncertainty. A lot of short-term traders want to preserve their gains, cash out. And I think that's what you're seeing is this pressure on the sector rather than the change in the fundamentals.

15:40The cash flow of the big companies is so large. This isn't going to be derailed anytime soon. So I think next year looks pretty good sailing too. Margie, it's good to see you. It sounds like at your end, you don't personally have many jitters. One of the best read stories on the Bloomberg Journal today is about the debt and the lending that is behind the build out in that infrastructure. where does the debt does debt as a factor in consideration sit for you when you are tracking all sorts of different hard and soft data sets to work out what's going on here? Well, I look at the debt as really a company's choice of how they want to allocate capital.

16:22Do they want to borrow? Do they want to increase the dividend? Do they want to do share buybacks? And particularly the large successful companies really have no need to borrow, even paying for the CapEx, they still have plenty of excess cash flow that they have to decide how to utilize. Whereas I think Oracle has really taken on a lot of debt compared to their cash flow. But the rest, I think, all look pretty good. It's a volatile sector, and that's why the returns are higher, because you have to be prepared for these little downdrafts in order to get the upside. Maggie, Brody's report on Oracle was very specific, that Oracle's delaying those projects by a year because of labor and material shortages.

17:05Elsewhere in the U.S. economy, we have all the chips we need, clearly. Are we good at the other stuff, and is the other stuff where it needs to be to support this build-out? Yes, I think it is. I think when you have this explosion in demand of these very complex centers, I think you should expect there will be short-term problems of supply and so forth. But really, that's a good problem to have rather than lack of demand or pricing pressure. And we're really seeing very strong pricing for the semis that are going into the data centers. So we think it's just nothing to worry about. And the fundamentals are still very strong.

17:43Briefly, though, there's reports today from other outlets saying that Dell is going to have to jack up its prices because of pricing strength in memory. Are there areas of this AI trade that are overvalued that you shouldn't be piling into from a margin perspective? Well, I think when you look at tech, it's like any other sector, is the best companies usually trade rather richly. The cheap companies usually have problems. They don't have the leading edge. They don't have the innovation. And when you look at tech, it's just, and you can see even here with the data centers and concern about what approach that companies are using, you know, Broadcom or NVIDIA, whatever, in the new products.

18:19It's really about innovation and who are the leading innovators. And so the companies that don't have that innovation are just going to fall behind. So I think this year up till, say, the summer, everything moved up. And now we're seeing a separation between the companies that have leading edge and the companies that are really falling behind and aren't going to catch up. So I think it'll be much more stock selection next year than we've had for the first part of this year. With a message that in tech there's nothing to worry about, Margie Patel from Allspring Global Investments. Great to have you back on the show.

18:50Thank you very much. Now, coming up, we're going to bring you Bloomberg's exclusive conversation with Uber's CEO on the company's international ambitions, particular focus on Asia. That's next. This is Bloomberg Tech.

19:07Uber CEO Dara Coswishahi says the company expects to offer robo-taxi services in more than 10 markets by the end of next year. He spoke with Bloomberg Tech Asia's Annabelle Droulers about why he's optimistic in particular about growth potential in Asia. The APAC market and in particular the North Asia markets as well, they are huge growth markets for us. And if you look, for example, in the rideshare business, over 30 percent of our global first trips coming into the category come from the APAC region. the area is growing very quickly including taxi as well which is actually one of our newest products on the platform so for me coming here seeing the teams meeting with local business people and regulators and talking about how we can be part of the future growth of the region is really what my agenda is early this year you also put out a statement on on the robo taxi push as well.

20:06And so the Middle East and Asia were the markets for 2025 to launch. And we've seen, of course, that initial deployment in the Middle East already. What's happening on the Asia side? Well, lots of discussions on the Asia side. I think what's really important is to set up a regulatory framework to go forward. For example, Hong Kong has various trials and pilots going on and in many other markets. We're talking to regulators about how we can be a part of shaping rideshare and autonomous rideshare going forward. The technology is absolutely getting there. These are the robot driver. It doesn't get tired, doesn't get distracted.

20:46And we very much look forward to working with various authorities to introduce rideshare into the markets. We're now live in four markets now as we speak in the U.S. and in the Middle East. And I expect to be in 10 plus markets by next year. And we want those markets to be in the Asia Pacific region as well. Where then in Asia do you think is the most likely place? We'll see. I think that certainly Japan has great potential. They are behind on their regulation. They are behind on their regulation. But I think that they also understand that with an aging population, there's a real need for transportation.

21:29not just in the large cities, but in the rural areas. And for example, I experienced that personally going to Kaga City, where we have communal rideshare and kind of took a rideshare trip and understood what the needs are there. So we're talking with various countries, regulatory authorities. I think Japan is going to be a part of it. I certainly hope that Hong Kong is going to be a part of it. Australia, where we were just talking about, is a huge market for us. So we're having those dialogues. And I think that the picture will shape up over the next two years because the technology is definitely getting there.

22:03Uber CEO Dara Khosrowshahi there along with our Annabelle Drowlers. Now sticking with Uber, the company along with DoorDash is suing New York City to block requirements that the delivery tipping option be available at the time of checkout and set to at least 10%. The two companies argue this would worsen sticker shock for inflation-weary consumers. New tipping laws are set to become effective January 26th. Caro? Want to watch, Ed? Meanwhile, coming up, you're reporting to watch how Rivian is replacing NVIDIA's tech in future vehicles with its own chips. From New York, from San Francisco, this is Bloomberg Tech.

23:00Welcome back to Bloomberg Tech. Rivian. Take a look at its shares, up currently 16%. At one point in the session, up more than 19%, trading at its highest level since January of 2024. So its highest level in two years. Yesterday, it fell quite a lot after it told investors and the world its plans for autonomous driving. Rivian's plan for autonomous driving is based on two big technology bets, and we went to see them.

23:33Rivian's developed its own artificial intelligence chip for its future cars. That gamble might pave the way to fully autonomous driving.

23:45A lot of the tech world imagines a future where we don't own cars at all. We're talking about fleets of robo taxis that are summoned through an app, maybe no steering wheel or driver controls at all. But Rivian's in the camp that does see people owning their own cars in the future and being willing to pay top dollar for a software platform that allows the car to drive itself. If this idea seems familiar, Tesla has been selling a version of it for years. Full self-driving supervised is not technically full autonomy if you read the fine print, but it can get you from point A to point B without needing to put your hands on the steering wheel.

24:25Rivian's path to autonomy is rooted in two big bets. The first, a custom AI chip developed in-house, which marks a big break from NVIDIA. This is a Wrap 1 chip. It's a multi-chip module. In the middle is a Rivian-designed custom silicon surrounded by memory on two sides. The decision to build an in-house was based on a very rigorous analysis of the benefits we could come. And those benefits are velocity or ability to get to market very quickly with it, performance and cost. The second, a major change in how Rivian vehicles see the world. The next generation Rivian R2 will have indented LiDAR sensors in it.