Meta Stock Surges on Plans for Metaverse Cuts

0:01Bloomberg Audio Studios, Podcast radio, Newske economic 1973 rev� negro Min терue live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco.

0:22This is Bloomberg Tech. Coming up, Bloomberg reports Meta's considering budget cuts of 30 % for its metaverse group next year, the very group Mark Zuckerberg once framed as the future of the company. Shares jump. Plus, NVIDIA CEO Jensen Huang is not sure China would accept more powerful AI chips, even if the US relaxes restrictions on the sales we discuss. And we break down the latest tech earnings results from Snowflake and Salesforce, and we'll be joined by the UiPath CEO too. First, let's check in on these markets that are struggling to find direction today, Ed. We've been higher. We're now pushing back lower on the Nasdaq 100, off by 0.3%.

0:58Real catalysts we're still waiting relief for next week in the Federal Reserve decision. We still get that myriad of jobs data that we try to digest. We're looking, though, at Bitcoin just coming off by 0.8%. At one point it broke into positive territory for the year again. We're now back to 92 ,973. But what are you looking at on the individual stocks? Yeah, one single name where the stock does have a direction. It's our top story. Metashare is off their session high, but up 4%. Bloomberg reporting that executives are considering cutting up to 30 % of the budget for its Metaverse initiative, along with wider cuts.

1:33Let's talk more about what Meta's plans mean for the company with Bloomberg's Kurt Wagner, who broke the story and joins us with the reporting. Sounds like in the last few weeks, last month, Zuckerberg assembled leadership. They looked at the budget for next year and metaverse is where they want to focus their cuts. Bring us your reporting. Yes. So this is an annual thing, right? Looking ahead to 2026 budgets. In this case, Mark Zuckerberg has a nice home in Hawaii where they have a series of meetings. Executives come in in the month of November. And to your point, they talk about this year 10 % cuts sort of across the board looking at all the different teams, but that the metaverse has been asked to cut much more deeply than that.

2:15As much as 30 % is currently being discussed, I should point out it hasn't been decided yet, but a cut of 30 % would certainly also come with layoffs. So to your point, this is an effort that Mark Zuckerberg has touted as being the future of the company for years. So it's a pretty meaningful change there. Let's go back to when he thought it was the future of the company. Just take a listen to Mark Zuckerberg back in 2021. If we all work at it, then within the next decade, the metaverse will reach a billion people, host hundreds of billions of dollars of digital commerce, and support jobs for millions of creators and developers.

2:53Boy, a lot has changed since then. And that was a long time ago, Kurt. But we still will get, well, the idea that we'll have augmented reality, We're still focusing in on the glasses. It's just not the actual virtual worlds and working out. That's right. And the virtual worlds aren't going away, to be clear. It's still going to be something that they invest in, just not quite as aggressively as they had. And what was explained to me by sources this week is that part of that is that the market has not really materialized. You know, I think they originally spent a lot of money building out this metaverse group, thinking that they would have competition from others in the industry rushing towards a metaverse-like product as well.

3:33That has not happened. And so it's not necessarily that Mark Zuckerberg no longer believes in this. I'm told that he still does. But clearly they have overspent to try to build this thing. And I think the ultimate goal is to get to these AI-inspired glasses and AR glasses. And maybe the metaverse was a stepping stone to that all the way. So actually it signals a commitment to AI hardware distinct from metaverse hardware. I thought it was really interesting that shares of SLO Luxottica, who they partner with to make the Ray-Ban Metas, kind of rose a little bit after the story. And all of the analysts notes, and there are many actually reacting to our reporting, say this is probably bullish for AI spending.

4:12At the same time, Bloomberg reporting that Apple's most senior design executive going to Meta. Right. They are not giving up on hardware, right? The VR virtual reality group is expected to be hit by these metaverse cuts, right? That is the immersive metaverse product. But they are still investing in AI glasses, the Ray-Bans that you mentioned, Ed. They are still obviously bringing in big talent and poaching people to design these things. This is what Mark Zuckerberg talks about on earnings calls. AI, he talks about the glasses. Those things are not going away. It is the specific kind of immersive virtual stuff that it looks like they're taking a second look at.

4:48And reallocation resources, Kurt Wagner, a huge market moving story. Thank you for joining us on it. Let's talk more about the market moves. Nancy Curtin's with us. She's Global Chief Investment Officer at LTTD Global. Nancy, you've actually been writing really saying that we are currently in an innovation driven bull market. But what does this move from Meta and sort of the moving around of capital expenditure tell you about where we are in the cycle? I mean, I think the thing is about innovation driven bull markets. And we've had, you know, pretty much three of them before this one, which is they tend to be characterized by a couple of different risks.

5:24You know, cap expenditure is quite large. Companies need to tap the debt markets and they're shifting perceptions of the winners and losers. So, you know, these bull markets last longer. They go beyond people expect. They tend to come with productivity improvements, but you do get some shifting perceptions and shifting priorities. So let's just bring that back to Meta. You know, they've got a lot of money that they want to spend on Gen. A.I. The market hasn't liked the fact they've tapped into the debt market to do that. You know, they've got less in a way cash flow than some of the other companies making similar levels of CapEx spend.

5:59So I think this is a good and, you know, sane reallocation of resources towards AI, which is the prize. Nancy, I want to go to something you just said. I think it's critically important. Cash flow. If you look at the reaction to this Bloomberg report on Meta, many would note that Meta was headed for negative free cash flow next year. That's right. This year, the story was about Oracle hitting negative free cash flow for the first time since 1992. Is that a worrying set of data that you're seeing on your desk? Yeah, because I think the market's being more discerning now. It's recognizing that some companies have cash flow that can support this and some companies really need debt.

6:43And Oracle is a good poster child for not only being late to cloud, spending quite a lot of money, being very tied into the open AI in terms of contracts and the risks associated with that, but also using debt. And I think their debt to EBITDA is like four times. So it's in a completely different category. You know, it's kind of in the core we've department in terms of indebtedness. And investors, quite rightfully, are becoming more discerning about the risk associated with, you know, financial leverage. And then there's the risk of the private markets. How are you seeing open AI playing as a virtuous or a vicious circle right now?

7:20Is it a single point of failure or is it the one that you need to be allocated to? It's a little of both. Let's face it. OpenAI declared code red yesterday, the day before yesterday. Look, it's facing competition. It recognizes that Gemini is really. And if you've used the Gemini 3, it's pretty it's pretty impressive. It's not as friendly as chat GBT. And that's a personal relationship thing going on. But it really is quite interesting in terms of Nano Banana. You know, the image editor, as well as I would say, complex reasoning is really quite good in Gemini 3. So OpenAI is facing competition.

7:57They've got to focus. They've been spread across a lot of different dimensions. I think they're refocusing now on personalization, reliability, speed, and continuing to build out that OpenAI large language model to maintain their lead, right? Nancy, we came into this morning when we met as a team thinking probably we focus on Salesforce and Snowflake earnings. And then we got the meta report, right? Your thesis is that you have innovation cycles driven by heavy capex. Monetization follows. Actually, if you take the different part of the stack with Salesforce and Snowflake, tepid outlook in terms of profits and top line growth from all the AI investment.

8:36Is that a fair point I've just made? Yeah, because I think that the problem is in innovation bull markets is CapEx starts and you've got to build out the CapEx and the revenue follows, you know, sometimes years later, sometimes within a couple of years. And so investors have to extrapolate. Is the investment really going to deliver the revenue and profits and the rate of return? And not everyone's going to get there. And that's the risk of innovation driven bull markets. There are some winners. There are some losers along the way. But, you know, I think the key is you've got to really focus on who is delivering the revenue today or at least the visibility of that and who has the wherewithal.

9:18And just an example, you know, I mean, Alphabet's got, what,$150 billion of operating income. Open AI is losing$9 billion a year. So, you know, the wherewithal, the financial might probably, I think, investors are thinking may sit with Alphabet at the moment. We're going to go very deep later in the program on the earnings from Salesforce and from Snowflake. But that was a very interesting cross-the-board look. Nancy Kern, Global Chief Investment Officer, LTT Man Global, thank you very much. Now, coming up, NVIDIA's Jensen Wang looks to win over Washington on chip export rules. But could it be too late for the AI chip maker in China?

9:55We've got more on that next. This is Bloomberg Tech.

10:09Going toe-to-toe against anyone, the American technology industry has nothing to fear. We are mighty, we're fast, we're inventive, we'll take anybody on. In the case of China, we shouldn't concede the entire market to them. They're formidable, but conceding that entire market, we ought to go compete for it. NVIDIA CEO Jensen Huang there speaking on American AI leadership at the CSIS conference in Washington yesterday. Huang also met with President Trump to discuss export controls on his chips, noting some uncertainty over whether China would even accept the processes if restrictions were indeed eased.

10:47Here with the latest is Bloomberg senior tech editor Mike Shepard. And Mike, we're talking about H-200s in particular here, and it feels as though maybe Jensen thinks the ship has already sailed. They're limited and wanting to focus on domestic, really. Yeah, it's unclear exactly where things stand internally inside the administration on the H-200 and whether Donald Trump will give the ultimate green light for those chips to be sold to China. You'll remember just a few weeks ago before the holiday, we broke the news that administration officials have been deliberating this idea of allowing the H200 to be sold to China, to be exported to China.

11:27And this would be a significant relaxation of the export controls that have been in place on AI chips since 2022 and have really hampered NVIDIA's ability to sell into China, which is the world's second largest AI and chip market right now. And it's something that he has made a priority, even though NVIDIA is not putting the China market on its forecasts or anything else. Yet he's identified it, Ed, as a$50 billion opportunity for the company. The baseline assumption is zero China revenue, right? But Jensen Wang's keeping himself in proximity, not just to the administration, to Congress as well, whether China wants those chips.

12:07We'll talk about that with Peter Aelstrom in just a minute. The GAIN-AI Act is also a part of this lobbying effort, and it's an area where maybe NVIDIA is nearer to a win. Could you just explain the basics of legislation or a piece of it that was omitted in NVIDIA's favor? Of course, Ed, and this was actually a big portion of his visit to Washington. It was another whirlwind day in the nation's capital for Jensen, who has become a regular here in Washington, both on Capitol Hill, but even more so at the White House, where he has forged that close bond with President Donald Trump. What NVIDIA has been trying to do is fend off this GAIN-AI Act, which would prevent or make it at least very hard for NVIDIA to sell to China and other U.S.

12:54adversary nations without explicit permission from the U.S. government. The company has argued that, look, we don't need these restrictions in place. The Commerce Department already has the authority to do so. And there is no competition between customers in China and the customers here in the U.S. The bill also would have required the company to give first dibs to American buyers. It looks like lawmakers are going to exclude this provision from must-pass defense legislation that has to be done before the end of the year. However, we can't consider it completely dead. Our sense is that Congress may try again.

13:30There is bipartisan support for this idea. And we do get a sense that some lawmakers still have concerns about allowing China to have access to some of those advanced AI chips from NVIDIA. Bloomberg's Mike Shepard in Washington, D.C. Thank you. At the same time, China's ramping up support for domestic chip production to occupy a vacuum that's been left by NVIDIA's forced exit. According to sources, Beijing-based Cambricon is set to triple production of AI chips in 2026 with plans to deliver half a million AI accelerators, the vast majority of which are advanced. Bloomberg's technology executive editor, Peter Eldstrom, joins us.

14:12Cambricon is another example of a domestic player with an AI accelerator product. It is reliant on SMIC, China's domestic version of TSMC. And this is an interesting piece of reporting. Bring us the details, but also technologically speaking, the differences of where CambraCon and Spic are versus NVIDIA, because the scale is completely different. Yeah, this is exactly what Jensen Wong is talking about. This is exactly what he's concerned about within China, that after the Biden administration first decided to cut off shipments of NVIDIA chips into that country, the government and the companies there saw the market opportunity.

14:51They saw their own vulnerabilities, and they decided to invest very, very aggressively in their own production technologies for chips and also AI design. So Huawei is really the primary competitor that we have been talking about. They have quite a bit of momentum in building these AI chips. They've been used in a number of different places there. CameraCon is really the second player. It's sort of like the AMD for that market. They're quite small at this point. They don't have the kind of heft that Huawei does in particular, but they are making a lot of progress. So what our sources have told us is that their plans are to triple their production of AI chips into next year.

15:24There'll be a pretty significant second to Huawei in supplying those chips. So to the broader question about what U.S. export controls do to this market, as Jensen Wong is talking about, it certainly has opened it up for domestic production. Chinese companies are being told by Beijing that they should buy domestic chips whenever possible. They've also turned down this idea that they're going to buy NVIDIA's H20 chips. They don't think that those are good enough for the market. So as Mike Shepard was talking about earlier, there may be a discussion about H200s, but there's no putting this genie back in the bottle.

15:56China has decided they are going to make their own chips domestically, and they're making a lot of progress. They're making a lot of progress in designing them, but then they've got to get them spat out by SMIC. And it feels as though ultimately the production, what you're really garnering, isn't very many. Yeah, that's a very good point. They are way, way behind the global standards. There is some desperation here that if you have to produce at lower standards, you will. But if you look at some of the details, it's very, very interesting. So SMIC is still producing these chips at 7 nanometers, so well behind the 3 nanometer that we see from TSMC at this point.

16:32Also, the yields, we've got some insights into the yields. Only about 20 % of the chips they're making right now are actually usable. So that's only one out of five chips that they produce they're actually able to use. You compare that with the TSMC, which is up at 80 or 90 percent yields. Their economics are just totally different. But it's a sign of how badly Beijing wants to be able to catch up in this market, that they're just going to eat those costs. They're going to eat four times the cost of what it would cost some other globally competitive manufacturers to make these chips, because they feel like from a strategic standpoint, they need to make this progress.

17:07Peter Elstrom, brilliant reporting. Thank you very much indeed.

17:16Shares of UiPath having their best day in two years after the automation software provider reported earnings that showed accelerating growth in the third quarter. I'm pleased to say founder, CEO, Daniel Dines joins us for more. You're like the OG. You've been doing this for two decades, automating processes. You're thinking about repetitive administration and the tasks you can take away from a human. How are you building in AI agents into that? AI agents are very complementary to our automation engine. We specialize over the year in bringing rule-based automations and AI agents is bringing something that is much more closer to human intelligence.

17:58We believe that the key aspect of bringing reliable AI to enterprises is to have a solid foundation of automation and then ai comes on the top of it and we connect basically using our orchestration technology we connect ai agents with robots and humans daniel i've been digging into rpa and trying to think about like what is new about rpa in an ai world i think that was kind of the root of caroline's question one of the ideas is that there's a potential addressable market for you where desks with less technical staff can use your software because it's better at reasoning across documentation and those kinds of workloads.

18:49Just explain how you kind of grow the business beyond your traditional customer base. Well, first of all, within our traditional customer base, there is a lot of room for expansion. And we are seeing tremendous opportunities in healthcare and financial services. So we really are expanding the reach of our RPA technology with this new agentic proposition. Even for the traditional RPA itself, we are bringing the power of GENEI to make the development faster and in some instances even more reliable when, for instance, the applications changes a lot. We are combining now computer use type of technology with traditional RPA.

19:42So this combination of agentic RPA, API, and orchestration is really what is the crux of our platform and It resonates quite well with our customers. Let's talk about that resonating, Daniel, because we're hearing more and more that really the barriers are at the moment adoption or a willingness to pay. How are you seeing clients deal with that? Because many clients were initially investing mostly in like chatbots. And they don't get really the high, you know, the outcomes. they don't have an impact on the bottom line eventually. What we are bringing on the table is the capability of delivering autonomous agentic automation.

20:30And this is even from RPA. We specialize in bringing this autonomous agent. And now we show to our customers that they can get significant benefits and that can go directly into the bottom line. Daniel, our colleagues at Bloomberg Intelligence, that's our in-house analysts, are a little bit cautious on your subscription revenues. If you look at where the street thought they'd be, basically in line slightly B, and they're worried about the sustainability of subscriptions, are they right or are they wrong? Well, I think they are totally wrong, guys. I have yet to see one piece of AI that was capable of replacing one of our robots.

21:17I think this is the most misunderstanding piece of technology when you feel that AI can replace RPA. RPA is a great last-mite technology. It's rule-based driven. It's fast. It's reliable. It's precise. It works very well across the regulated industries in health care. And AI is just a complement to it. I would say that Agentic right now, actually, it helps improving our subscription business. Daniel Dines, CEO of UiPath with the Earnings Breakdown.

21:59Welcome back to Bloomberg Tech. Our top story is Bloomberg's Kurt Wagner reporting that Meta is considering cutting budgets for its Metaverse initiative by up to 30 percent next year as part of its budget planning cycle. That's all according to our sources. The stock reacting positively to the report, up 4 percent at the moment on track for its biggest jump since July. Nothing's being decided yet. There will be an element of layoffs, according to our reporting. part of a kind of broader look at the company and refocusing from metaverse to AI. But really interesting move in the stock, Gary. Yeah, stock reaction.

22:35Now let's get you an analyst reaction because Bloomberg Intelligence has been out there writing that these meta cost cuts, Ed, along with potential use of Google's TPUs, could actually improve the company's free cash flow by at least$10 to$12 billion. The person helping pen that is Bloomberg Intelligence tech analyst, Manip Singh. And, Mandy, we've been worrying about free cash flow meta, the AI CapEx spend. Is this helping offset that concern a bit? Yeah. And look, I mean, based on consensus right now, we are talking about at least a 50 percent increase in CapEx or meta next year. And no one, I think, would mind that given everyone's fees.

23:11There will be lift in revenue from AI down the line in the near term. And I think they needed some offset because the stock was very expensive on a free cash flow basis. So this is a nice offset. And I think the TPU news was also quite productive in that direction, simply because they will be spending close to$50 billion on accelerator chips next year if$110 billion is their CapEx number. So some portion allocated to TPUs, which cost maybe 25%, 30 % cheaper, I think bring down that free cash, like help offset that free cash flow, which is going to be negative next year. Mandeep, a part of why the stock is pushing higher, I guess, is just the commitment to AI, right?

24:00The metaverse and Meta's AI ambitions have overlap, but they are distinct in many ways. My question is, is there a Bloomberg Intelligence House view on what the story is with Meta, Metaverse or AI or a hybrid of the both? I mean, I like to think of, you know, Metaverse ambitions as a moonshot for Meta. And look at, you know, Google's moonshot, for example, like self-driving, Waymo. That is a lot real then in terms of driving, you know, tangible revenue, top line growth compared to what Meta has accomplished with that aggregate, you know,$70 plus billion in spend over the last three, four years.

24:41And to me, it's still a moonshot. And that's where, you know, paring back and allocating that capital towards probably a more productive use case in AI where they will see some top line lift is the right thing to do. And I think the year of efficiency that Meta had a few years back, maybe a repeat, I think, in 2026. It's interesting, though, because they've been spending a lot on talent and they've just recommitted to talent when it comes to hardware and design. and then really poaching a key executive, Alan Dye, over at Apple. Is that what you want to see, more leaning in maybe to the virtual reality offerings that we've seen that have been amplified by AI, the Ray-Ban glasses, for example?