Memory Prices Hit Cisco, Apple Faces Siri Snags

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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. Memory chip prices strike again, this time taking a toll on Cisco, even as AI demand surges. We'll break it down. Plus, Apple's revamp of its Siri voice assistant hits new snags that could delay the release of some features. And Altruist launched an AI tax planning tool. And within hours, wealth management stocks tumbled. The CEO of Altruist joins us to discuss. But first, we check in on these markets that in many ways are still digesting AI disruption. We focus in on Cisco that I know you'll go to.

1:54We're off by 1 % on the Nasdaq 100. That anxiety of costs, of memory costs really building into the benchmark. But more broadly, we're all eyes on costs for consumers. CPI print coming later in the market, just a little bit nervous ahead of that. Bitcoin, down another day. Off by a percentage point, 67 ,000 is where we trade for this particular risk asset. Ed, what are you looking at? There's a lot of pieces of consecutive red on the screens we've been putting up. Cisco, no exception. Down 11%, on track for its biggest drop since May of 2022. and prior to today's session, it was up 11 % and had momentum.

2:30Outlook is strong on sales for the current period. AI demands there, but there's margin compression, memory chip prices. Let's get more with Bloomberg Intelligence Senior Hardware and Network Analyst Wu Jin-ho. It's actually probably a good time to remind us what Cisco is and what Cisco does. But the memory issue is factoring in to servers. And right now you are leading with your React piece on the Bloomberg terminal with the memory chip issue. What do we need to know? Yeah, hey, Ed. So really quickly, what Cisco is is the leading global provider of networking equipment for corporate as well as for data centers.

3:09And they've actually had a foray into cloud data centers to help power some of the AI workloads. Now, what happened last quarter, they got the AI orders, you know, momentum and drove a lot of the upside on sales. But the gross margin issue, especially given from the DRAM pricing, is a lot bigger than we had thought. Chuck Robbins, though, was trying to say that, like, if anyone's going to navigate this, they're going to navigate it. They're already going to their suppliers. They're already thinking about increasing prices. How well can they handle it? Yeah, so we did the math for the third quarter.

3:45There's about 200 basis point product erosion on gross margin. But when we look at the fourth quarter, they're able to stabilize that. Now, if we think about 2027, they actually have a fairly sizable software business. And if software really starts ramping up, we could start seeing some gross margin stability in 2027. Woo Jun-ho of Bloomberg Intelligence. There we have your piece, Cisco's results outlook pinched by memory price spike. Look, all of this is as Cisco's numbers. They highlight the heavy infrastructure build-out, but have investors really questioning what happens next for the implications for software too.

4:20Joining us now to go across the whole gamut is Tony Wong, Portfolio Manager at T. Rowe Price Science and Technology Fund. In his latest thoughts, he says that recent software sell-off is more of a valuation reset and that companies that successfully embed AI into workflows could drive stronger productivity and margins over time. And Tony, what's so great about having your voice on this show as you time and time again have been like the proof point, the ROI is going to be productivity gains. Suddenly we've got the productivity gains sort of shining a light that we're actually worried it's going to really hit valuations.

4:51How do you weigh where we are in terms of the sell-off and if it's overdone? Yeah, well, I think it's the key question the market is wrestling with right now. And so when I think about it, it's really just what is on the right side of change, I think, and what is the inevitability here? And I think what you're seeing with Cloud Cowork is that these agents are becoming more autonomous and they can actually execute things on their own, do more than just like you had to prompt something like Chachamete for your own personal Chachamete. So what's exciting is that these enterprise agents, I think, are going to be more of a force here.

5:32And we're starting to see that really pay off. And when you think about it, I think the market's reacting the way it is, because if you think about it in the future, there are widespread implications for what most mean in terms of software as well as information services. So it's definitely a disruptive potential force here. Disruptive to some of those in your portfolio. I'm looking, you are exposed to Salesforce. You are exposed to Accenture, which people have been worrying about the consultant side of the equation. Even Shopify, even though it delivered strong numbers, got beaten up yesterday.

6:07How are you being discerning at this moment of where you actually buy into on a dip? Because you do think that they'll manage to ride the software disruption. Yeah, so I think that, you know, it's more important that you're the platform and not just the feature. Because if you're a feature, then AI agents can code software so easily and costlessly that you essentially can be embedded in a bigger platform. And so I think that increasingly you want to make sure that you're the layer that all these agents need to coalesce around. I think that there's going to be a lot of change here in terms of, and we honestly don't know.

6:45And so I think the market is in a sell first and ask questions later mode. And so it's important to kind of stay on the right side and manage these changes in the market. Tony, NVIDIA CEO Jensen Wong has this line that software is now worth paying for. The example he would give is cursor. But I guess what we're trying to do with you is define what software is that is worth paying for. You just brought up Salesforce, right? So in the most recent quarter, they had like more than a billion dollars of ARR directly from AI. And they talk about all the almost 19 ,000 agent force deals that they have.

7:24Yet they're still subject to this same AI is going to eat software's lunch chat that's going on right now. Why do people not believe the traction that they have, as an example, that it's worth paying for? Yes, I think there's two things that I think about. One is that there's just so much competition when you think about all these AI native startups. And their pricing in a way that is really compelling. and to drive adoption, essentially. So you think about, like, image generation, right? Like, you pay$20 at ChatDT, you can generate unlimited images, whereas on Adobe, Firefly, you have to pay per image generation.

8:01You know, you can think about, you know, Cloud Coworks, you know, in a similar way in terms of what they're pricing versus the value that they're delivering is really compelling. And so I think, one, you just have a lot of price deflation, and that's why I think a lot of these, you know, software companies are looking to drive adoption, their economics aren't as good as the seed-based model. And we're going from a seed-based model to outcomes and agents, which is a very different version. Just for reference to our audience, Nasdaq 100 near-session low is now down 1.25%. This story started in Europe in August.

8:36I was there in London. I remember the day all the European software stocks sold off. Earlier today, we spoke to the Siemens CEO. Let's get his take. We know that AI has the potential to disrupt some of the software businesses. I mean, if you talk about software which runs on call centers and the like, I mean, that's fully on the block. But if you go on the other end, on industrial software, simulation software, physics-based software, we don't see that at all. We rather see an enrichment of the software which allows more and more customers to use it. another software ceo whose fate is very closely tied to a relationship with nvidia and i think it's important to point that out but his argument is that actually specialized software is getting better because of ai you buy that i think so and i think that most um i think a lot of the economics that we've made at the specialization of the niches.

9:38So, you know, domain-specific knowledge will always be very important. And so, you know, I think just general knowledge is probably going to be not take the economics. And so what really matters is, like, being able to, like, put this into ROI. Now, at the same time, it doesn't mean that if you have a stronger model, that doesn't mean it doesn't create more competition for existing incumbents. So I don't think the battle is won or lost for these companies. And I think it's just important that they stay, front-footed in incorporating the latest technology trends into their platform. And your science and technology fund has all the trends.

10:12You're in hardware, you're in software, your number one holding is Alphabet at the moment, then NVIDIA. But going back full circle to Cisco, your exposure there, what do you think about the memory price implications and how you can weather who are the winners and losers in that situation? How long for? yeah so i think that you know memory there's it's a fascinating industry um because one is secular trends and ai is not just new tam uh and then we've also gone through multiple years of under investment because memory has been a downturn um so i think one it is that they're secular but there's also cyclical elements of it um so you know in terms of our portfolio we definitely own a lot of the bottlenecks where the economic value capture is in um such as memory um at the same time, I think that Cisco networking is also going to be participating in AI.

11:01I think that the implications of the memory shortage is actually becoming more widespread and having implications that a lot of times the market didn't think about. So it is fascinating, but I do think Cisco continues to be a really important company that's driving a lot of this AI adoption. Tony Wong, Dero Price, great to have you back on Bloomberg Tech. Really appreciate it. Now, coming up Apple's new Siri runs into more snags during testing. What's delaying the AI upgrade? We have the Bloomberg reporting next. This is Bloomberg Tech.

11:45Apple's revamp of its Siri voice assistant has hit new challenges that could delay the release of some features, according to sources. Bloomberg's Mark Gurman, as always, has the details. Let's get into the details. What do we need to know? What's new? What are you hearing from inside the company about the latest snag with artificial intelligence-powered Siri? So Apple has been planning to launch the new Siri. This is an AI revamp that initially introduced in June 2024 at its Developers Conference, allowing you to tap into features like your personal data to fulfill queries, on-stream content, and precise control of apps.

12:23It was supposed to launch next month in March as part of an update called iOS 26.4. This had been the plan for several months. It's actually been the plan for well over a year at this point. Now that is being delayed and staggered potentially. Right now the delay is moving many of the Siri capabilities to iOS 26.5. That's scheduled for sometime in May, June, so about a couple-month delay. But some of the features, including the personal context features, those are likely not to launch until September as part of iOS 27. So a bit of a delay there. And, you know, altogether, it's possible that these new features are not going to launch until two years after they were initially introduced.

13:06The setback for Apple here is not necessarily in phone sales. People are still buying iPhones. You saw the$85 billion worth of sales, which could have even been more if not for some manufacturing challenges. But the challenge is, where is OpenAI? Where is Anthropic? Where are Google going to be at the end of this year, right? They're likely to be well ahead of where they are today. So that's really what we have to pay attention to. Let's talk, Mark, about how, therefore, the Google integration is going. Because in many ways, this just fits into the overall Apple intelligence stop-start and how they're going to be building out from within.

13:43My belief is the only reason they're going to be able to get this done this year, which I still believe they're going to do despite these latest snags during testing is because their models are being improved by the Google Gemini team as part of that collaboration between the research labs at both Apple and Google. So that is going to be a major boon for them. I do expect this big Siri chatbot revamp in iOS 27 coming out with the iPhones in the fall to be pretty nifty and pretty cool, a new way to control your phone with AI. They just need to pull it off. And I think they will. But the big question is, how impressive is it going to be in September compared to whatever OpenAI and Gemini has for their own customers and Ropic has with Claude in six months from now?

14:30Bloombergs, Mark Gurman, we appreciate you on all things latest with Apple. Meanwhile, let's turn our attention to social media now, because Instagram boss Adam Masseri testified in a landmark case that likened social media to digital casinos. Masseri told the jury he doesn't consider problematic use of platforms like Meta to be the same as, quote, critical addiction. Bloomberg's legal reporter, Madeleine Meckleberg, is with us. You were there in the hearing NLA. And so the push on Adam Masseri, anything different that we've heard on other occasions that he's testified? So he covered a lot of similar ground to things that we've heard before in congressional testimony and other public remarks about this issue of social media addiction.

15:12Obviously, what's unique here is the context in which he was giving this testimony, which is this landmark case that's testing whether juries will respond to claims that these companies knowingly designed their platforms to addict young users. But we heard him cover a lot of different ground. As you noted, he talked about this issue of clinical addiction versus problematic use, which is something that we hear a lot from social media companies referring to people who use the platforms more than maybe they feel good about. We also heard him talk about some internal emails in the company when he was asked about them by the lawyer about decisions they were weighing about certain features on the platform related to photo filters on Instagram.

15:54Madden, this is a process, right? Both sides present arguments. You have plaintiffs. What do we need to know about what happens next? Who else might testify? And what is under consideration at the heart of the trial? That's right. So we're in week one of what's expected to be an eight-week trial. Adam Mosseri was the first executive to be called to the stand, but he will certainly not be the last. As you said, this is the plaintiff's case. They kind of get the first chunk of time at the trial, and then the defendants, in this case Meta and Google, they're going to get a chance to respond. We're also expecting to hear from Mark Zuckerberg of Meta.

16:34We're expecting to hear from YouTube CEO Neil Mohan at some point. And we're also, we kind of got a little bit of a preview that we're going to be hearing from executives a little bit further down the food chain who maybe were weighing in on some of these decisions. But the heart of this case is about this question of addiction and whether or not these platforms knowingly designed these tools to hook young users, resulting in mental health struggles. This case, of course, centers on one individual, a young woman from California, and her specific allegations. But it represents thousands of other cases that have been filed.

17:09So there's a lot of attention on the outcome here because it's going to dictate how the rest of these cases are decided. Bloomberg's Madeleine Mecklenburg, thank you very much. Now coming up, Altruist introduces a new AI way to plan your taxes. We speak with Jason Wenk, Altruist CEO, next. This is Bloomberg Tech.

17:40AI. It's added again. And it's been a wonky, worrying few days for wealth managers and those who've had shares in it, considering the technology's impact. It's all started Tuesday. A startup called Altruist added a tax planning tool to its AI model, Hazel. Within hours, wealth management stocks had tumbled. Charles Schwab, LPL, Raymond James, as you see, down significantly. And that's as investors really feared AI disruption. The CEO of the company that kicked all of this off, our truist, Jason Wank. Jason, did this take you by surprise? Yeah, I think, to be incredibly honest, I don't think anybody could have possibly thought that somewhere between tens of billions and maybe 100 billion of market cap would be wiped out in a week.

18:21AI is very powerful. And certainly the market reaction tells me that there's a lot of people voting with their dollars and the potential disruption. Jason, all of this is about enabling wealth managers, individual wealth managers from your part. Just remind us what Altruist does and what this new development in terms of building in a tax tool does to help them. Yeah, absolutely. So I think you hit the nail on the head. Like the most important thing is that we're not trying to displace financial advisors or wealth managers. It's not AI taking those jobs away. It's AI to help empower them to do better work for their clients.

19:01And in many ways, when people think about wealth management, you know, there's deservedly a lot of critique. It could be things like, why is it so hard to get access? Like the minimums are really high. Why are the costs very high? Why are the results sometimes inconsistent? And a lot of that is because of how much manual process and human labor is involved. You just have a lot of limiting factors. AI very much is an incredible equalizer. Effectively, with a tool like Hazel, what used to take teams that were 10 or more people working hundreds of hours and costing many tens of thousands of dollars, it can be done in like two to three minutes.

19:45and users, the advisor users in our case, are paying 100-ish dollars per month, right? So much more affordable, much more accessible. And tax is just a start. We launched tax first for what it's worth because it's tax season in the US. We wanted that to be our first agent to kind of get out there in the hands of wealth managers and advisors. But this is a pretty good harbinger of the things that will come. There'll be more agents doing more work that will continue to make advice better, more affordable, and more accessible. Jason, you will have noticed that some of the CEOs of those wealth managers appeared on television in the days that followed the sell-off.

20:18Here's Charles Schwab. Listen to what they had to say. AI is a real accelerant. So it was puzzling to see our stock sell-off related to AI because we're benefiting from it in multiple ways and bringing it to our clients. It's allowing us to reach new clients. And I think that's why you won't see the population of advisors shrink is that AI will be useful in reaching new clients that we couldn't before. it. Has Mr. Worcester or any other leader in that field phoned you since Tuesday? And would you be open to working with these companies literally jointly? Yes. No, I haven't heard directly from Mr.

20:56Worcester. But we already actually work with any independent financial advisor. One of the reasons why we stood up Hazel as a separate entity, Altruist, of course, is a direct competitor to Schwab, Fidelity, LPL, and others. But we wanted Hazel to be something that any advisor could use to help any client. And we didn't want them to be forced into using a single custodian. So there are already thousands of advisors who use Schwab, for example, as a custodian that are leveraging Hazel and doing so to drive better outcomes for their clients and a lot more operational efficiency for themselves. And we have, I'd say, in the last 48 hours, it's in the hundreds of very large, significant wealth management companies around the world reaching out to see if there's a way that we can partner.

21:45So definitely looking forward to putting this tool in as many hands of as many capable advisors in the US as possible. Let's talk about the tool and the technology. What are the data sets that the underlying models trained on? What is your core competence that if there is concern from the legacy industry of wealth management, what is it they should be concerned about? And what is it that makes this model powerful? Well, so there's two parts to that. I'll try to be succinct. But the first is, I think what causes concern is not so much just the AI. It's the fact that we also have built a very modern infrastructure for our wealth business.

22:24So the things you can do on Altruist, you just can't do anywhere else in terms of the speed of opening accounts and funding accounts and managing of assets. If you take AI and you put it on top of bad, antiquated infrastructure, you're not going to get a ton of value. It's kind of akin to putting self-driving on a horse and buggy or something like that. You need to have an entire vertically integrated ecosystem. I think, if anything, that's maybe where some of the market concern is, is that what happens if If something is digital and it's 20 % or 30 % better, you add AI and multiple agents, it becomes 200 % or 300 % better.

23:03Now advisors could very much have a shift in where they decide to custody their assets. That could be pretty monumentally difficult to overcome for some of the big incumbents. As far as what makes the model unique, the way that we built Hazels, we rely, like most AI companies, on having really clean data. So data is a huge advantage. I think, you know, Mr. Worcester was right in saying that data is very critical. In the case of a custodian, you have the ultimate system of record, meaning we have all of this data on clients, transactions. That makes it a lot easier to give personalized analysis and feedback back to the users.

23:42Jason, make a voucher. Sorry, we're out of time, but grateful for the conversation. Coming up, we look at Waymo. We'll be right back. This is Bloomberg Tech.

24:00Welcome back to Bloomberg Tech. A lot of action in the markets today. Let's just go through it in terms of the NASDAQ benchmark, currently off by 1.8%. We're at session lows. This is as we worry about earnings and how they're implicated by prices. Prices and memories, Cisco in particular, down significantly. I want to shine a light and off by 11%. So we've got that anxiety about whether AI is really helping these businesses or whether pricing pressure is hurting them. Remember, the macro picture is about to get CPI data, so pricing pressure for the consumer too. As we build up to that, the market's just a little bit jittery.

24:28Adyen, over in European trading, check it out, by 20%. This is the payments company, FinTech, which is being hit by consumer sentiment being on the downside. Also, a weaker dollar hit them as well in terms of payments, revenue, and their earnings outline just really not living up to expectations. We move on and have a think about what's happening when you've got exposure to the private sector. Now, many are saying, I'm talking BTIG in particular, saying that SoftBank is like the way to play open AI exposure as well, because they've already put$36 billion in. Then we're looking to increase that maybe up to the tune of$30 billion.