Microsoft SharePoint Hack, Musk’s Wild Business Bets

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1:45Bloomberg 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, tens of thousands of organizations could be affected by a hack of Microsoft's SharePoint software. Plus all eyes on Tesla, Alphabet, IBM this week as big tech earnings get underway and stock benchmarks hit new records. And how Tesla, SpaceX and XAI are struggling to deal with the fallout from Musk's feud with Trump and his wild bets. But first, one key stop we're looking at, which is managing to shrug off initial anxiety that you saw at the start of trade around this global vulnerability.

2:25SharePoint, a software where you can be, it's a data management application for Microsoft. And indeed, it could be exposed to hackers. Tens of thousands of businesses could be affected. Let's get to it. Bloomberg's Brody Ford. And it's not a share impact, but it could be a real impact for users. That is absolutely right. If you have a coworker who sends you a file, there's a good chance it's on SharePoint. I mean, this is a very well-used, pervasive program from Microsoft. And what is interesting about this situation is it is about one year after a very fateful day for Microsoft, which is when that issue with CrowdStrike caused all those flights to go down.

3:03And so Microsoft's cybersecurity division has had a lot of heat lately. Today, it just got a little hotter. It did. over the course of the weekend, the U.S. Cybersecurity and Infrastructure Security Agency, CISA, put out this warning. And it's not the first time that the U.S. government has called out Microsoft for these sorts of vulnerabilities. Absolutely. And you could say that this is a really small subsect of customers likely, right? This is folks who are using SharePoint on-premise. That's likely a small subsect of the larger group. And it's those who maybe should have updated to the cloud and this maybe wouldn't have happened.

3:38But it doesn't matter, right? If you're a customer and you got your SharePoint hacked, and now you have hackers going between your files to your teams and pulling out emails and God knows what, you certainly might take a second look before staying with Microsoft for certain security products. Has Microsoft responded and how? Well, they've sent out some instructions on, hey, here's how to patch your system. Here's what to do if you think you may have been impacted. But this is a pretty quick-moving thing. I mean, also, Microsoft earnings are next week, and so I'm certainly expecting to hear some questions about, hey, is this impacting any kind of customer behavior yet?

4:14Census, Silas Cutler in your story saying it's a dream for ransomware operators. Yeah. Bloomberg's Brody Ford. Thank you. Thanks for reporting on it for us. Meanwhile, let's just get a bit broader because we were just hearing from Brody that big tech earnings are coming up. Indeed, Microsoft is one of them. Amazon, that's happening later this month too. This week, we've got Tesla, Alphabet, IBM to name but a few. Let's bring in Bloomberg's Danica Tsekova. Denisa, look, are we expecting revenue to be improving for the likes of Alphabet at least? I know that Tez is a distant story, but let's talk on Alphabet.

4:46We actually saw an upgrade on Alphabet from Morgan Stanley. They're very optimistic both on Alphabet and Meta, but they're upgrading the price target at Alphabet just because the violations of Meta is pretty high. But what we're seeing now, we're obviously at record highs. S &P trades at 20 times, 22 times forward earnings. Just incredible rally here. We're also seeing a very high bar. There is a big punishment for those who miss on earnings. The biggest in three years. And for those who actually overperform, outperform, it's like the best in about a year. So the bar is higher, especially if you disappoint.

5:27Artificial intelligence spending has really made a big difference in the Magnificent Seven. We see Meta, we see Microsoft and NVIDIA leading the gains, and obviously Apple is struggling. Amazon is another interesting story. They're up just about 3 % year-to-date, which compared to the incredible spending Meta did and the rewards investors have given to that, the company is up more than 20%. So we're seeing a big gap opening, and with this year's earnings season happening without too many economic reports, too much happening in the macro, it's all about the earnings right now. And I love that you bring up the spending that Meta has done because Bloomberg Intelligence, Manly Singh, writing that Alphabet, we are anticipating maybe even an increase in CapEx coming from then.

6:10We're also anticipating, of course, the fact that they've boosted some of the prices of their ad targeting. Maybe that's going to be reaping dividend. You can go and read more about the preview that our colleagues over at Bloomberg Intelligence have. But he said go back to maybe the other key proof point this week is Tesla. Now, what's interesting is sometimes the fundamentals don't matter for this business. We expect revenue to fall, profitability to fall. There's more about what Elon says. It's really fascinating because he was very active this weekend. He was saying he was working 24-7. He's even sleeping there.

6:40We actually didn't saw a big reaction today. In pre-market, there was some optimism. But today, the stock is actually down. We also have news that is set to fight the California Department of Motor Vehicles over their claims that the company has exaggerated their capitalities of self-driving. And no, we're not seeing a major move. Obviously, after that quarrel with President Trump, the stock was under a lot of pressure. It has recovered some of that, but there is a whole universe of investments tried to Elon Musk that has been under pressure and hasn't received that big social sentiment we saw after the election, in the beginning of the year.

7:22So with that boost absent. The question is whether investors will really penalize a missing earnings, particularly the retail fans. We're going to dig into Tesla much more in a moment with Max Tchavkin. But with the numbers, with Danisa Tchekova, we thank you very much. Now let's just bring you a broader perspective as we think about earnings and think about idiosyncratic news like Microsoft. Michael Reynolds is with us. He's vice president of investment strategy over at Glenmead. He got a cool$45 billion in assets under management. And Mike, I go to you first about the optimism already baked in the market.

7:53We're at record highs again. How high is the bar for earnings this week? Thanks for having me on. The bar is pretty high as we come into Q2. It seems like a lot of companies are really posting some or expected to post some results that are relatively resilient, especially compared to where people thought tariffs were going to be in early April. The thought that that was going to hit margins pretty materially. We're looking at Q2 numbers in the aggregate that are actually holding up pretty well. S &P 500 expected to post 5 % earnings growth on a year-over-year basis. Tech is a pretty big contributor to that, and they may be relative beneficiaries from the tariffs that have been announced and have gone into effect so far.

8:31So overall, the story of earnings season, as the rubber's sitting in the road, is resilient so far, almost surprisingly so. Resilience, for the large cap winners of the AI trade, in particular, I think of NVIDIA, in particular, I think of Meta. But we have started to see this bifurcation in the Mag 7, for example. Tesla has not overperformed this year and indeed is a key laggard. So too is Apple. How are you seeing that being played out from an investor sentiment perspective? An excellent point. We're not just bucketing the Mag 7. We're looking at broader tech here, and there is this bifurcation.

9:06In large cap, Mag 7 overall, again, some aren't contributing, are a really big driver of the results for the S &P 500. But if you look over into small caps, actually, some of the biggest contributors for pretty notable gains in earnings for Q2 are expected to be financials and health care. So what that sort of tells you is it's really not just a broad tech play for earnings resilience this quarter. It's actually a little bit more company-specific, which is a bit of a departure from what we saw last year where, in the aggregate, MAG7 just blistering earnings growth. And you're starting to see some of that falter a little bit, deceleration in the aggregate and some companies just having a little bit of a tougher go of it.

9:43In terms of a tougher go of it, just think back to last week in Netflix. I mean, they managed to post some really solid earnings, but they were punished largely because of just how well they've run up. Is there a risk that companies don't even underperform? They actually manage to beat, but not well enough. Sure. That's an inherent risk when you have companies that are valued So to such a premium extent that they have such high, let's call it price to earnings ratios, that you bake in a growth rate to those earnings. And if you can't meet those hurdles, there's often a big punishment for failing to meet those results.

10:20There comes great expectations with great valuations. And so if you're showing signs that perhaps down the road we're not going to be able to meet some of those earnings growth expectations, there's a re-rating that has to happen there. And it's an inherent risk investing with, again, growth stocks or premium valuation equities. And regulatory risk overhangs a lot of these big names. I think of Alphabet in the line of fire when it comes to investigations as to whether it's a monopoly in certain areas of its business. You think about Tesla and the ongoing need for more regulation around robo-taxes in the future.

10:49That affects Waymo, too. How much do you have to factor in regulation right now, Mike? Regulatory risk is so important, especially when you have such a concentrated market as we have now. Right now we have one stock in the S &P 500 that's an 8 % plus weight in a 500 company index. We've seen this two other times in the 60s. You had AT &T and you had IBM. What happens is when you get to such a scale, you have a target on your back. And that can be a regulatory target. And that could also be a competitive target. So these are things that you have to think through when you're looking at a company that dominates an index.

11:25They have a target on their back. and you have to sort of think through the implications of what that can have to future earnings growth and future dominance of the company. Thus far, NVIDIA stays higher up about a quarter of a percent. In fact, Apple getting a little bit of wind beneath its wings for this particular week. But Mike, I go back to what you said about small caps. Look, we're a tech-focused show here, but the fact that healthcare and the fact that financials outperform, how much that's starting to be the fact that AI will be beneficial and that that will help revenue growth and maybe profitability as well?

11:55Yeah, it's an excellent point because we've seen some of the initial beneficiaries of AI been those that are developing the technology and providing the hardware for that technology. But ultimately, that's going to be something like the Internet that permeates through every company. And there's got to be this thought process across the spectrum that AI is going to be a beneficiary for these companies. And it's going to penetrate throughout C-suites, throughout the economy. So is it a little early to perhaps being able to see some of that penetration happen in real time for some of these companies?

12:28Perhaps. But some of these early movers could start to see some benefits onto their bottom line. Look, we're a global network as well. And we've talked so much about the U.S. winners. But I think about what TSMC is doing with its valuation, hitting more than a trillion over in South Korea. When you're thinking about European bets, Mike, how much are you seeing investors want to get global with their tech exposure? We're seeing quite a bit of that, especially around the dollar in particular, where we're looking at portfolios in some cases that, you know, if they're very U.S. focused, we're arguing if you don't have a single investment in your portfolio that's not dollar denominated, you're not properly invested.

13:07And so when we're going to look for these opportunities abroad, it's not just what are the company specific opportunities, but more on a macro basis. If we do find ourselves in a declining dollar environment, you're going to really wish you have non-dollar denominated assets in your portfolio. May some of that be AI plays? Perhaps. But more broadly, it's just more important that you're looking abroad for a global opportunity set within your equity portfolio. Michael Reynolds, Vice President of Investment Strategy at Glen Mead. Great to catch up with you. Thank you. Now coming up, how Tesla, SpaceX, XAI, they are struggling to deal with the fallout from Musk's feud with Trump.

13:41That's next. It's the Businessweek front cover. This is Bloomberg Tech.

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16:47Elon Musk's feuds and wild bets. Well, they're having an impact on the billionaire's businesses, including Tesla, SpaceX, XAI. And that is the focus on the Bloomberg Big Take. And it's Bloomberg's Max Trafkin and our own Ed Ludlow that co-author it. Max joins us right now. It's a great story. It's the lead of the Business Week cover as well. and you go into the case studies of just how what has been a very public spat has fallen out into some key or future crises for these companies. Yeah, absolutely. So you do have this feud with Donald Trump, which is a big deal. I mean, I think you look at like why has Tesla stock fallen over the past six months or so.

17:26A big reason to that is it's kind of like it hit a high just after the election and we've got had kind of a reverse Trump train. But once you back away from the Trump of it all, you start to see three key companies, SpaceX, Tesla, X, all of which are attempting these huge kind of monumental things with huge amounts of risk. I think it's a it's a thing that Elon Musk has never tried to do before, really. We've never seen this in his career. As much as he's a guy who makes big bets. We have Tesla attempting to do a really like a hard pivot away from car manufacturing to robo taxis, a competitive field, a field where they're not necessarily in the lead.

18:05We have Starship, this giant rocket, which has yet to fly yet. We've had three successive explosions during test flights. And then we have X, which looks very promising, XAI, but I think is clearly a little bit behind some of its competitors, OpenAI and Anthropic, and is losing huge sums of money. And you take all those three things, and then you take a poor relationship with the guy who's in power in the United States. And that is a dangerous recipe, I'd say. And it's a dangerous recipe that investors now stare down the barrel of as earnings come up this week on Wednesday. He's already declaring he's sleeping at the office, largely to fix, is it Tesla at the moment?

18:43Is it XA? How do we know where he's spending his time? Well, that is the thing. And as Ed and I talk about in this story, I think if you talk to different people at different companies, they'll say different things. I think Tesla employees, a lot of them feel that Tesla is Elon Musk's main priority. XAI employees kind of would say the same thing. I think SpaceX is in a slightly different position because you do have sort of a strong executive more or less in charge. That's Gwen Shotwell, the president and COO. But there is that tension. And we saw that come up in the last couple of weeks. We've seen investors suggest that maybe Tesla needs to give Elon Musk even more equity to sort of persuade him to spend more time at Tesla, which is a strange thing when you're talking about a stock that's gone down, when you're talking about all of the challenges this company faces in terms of the core business, the car business, which has not been performing well over the last year or so.

19:34And you really articulate how much just general sentiment towards Musk as what had been the most adored entrepreneur has completely depleted. But he still has such a big base of retail supporters. Is that fading in this current moment? How much does that have to be an anxiety? I mean, you look at Tesla stock and it's still not doing that poorly considering all of these kind of challenges that I've brought up. So the stock is still very, very expensive compared to other car companies. It hasn't done especially badly over the last month or so. So there is this base of support. But I think you hit the nail on the head, Caroline.

20:10The big change here for Elon Musk is he went from being a very popular, admired guy to being unpopular. When you look at his approval ratings, they are poor. And it's possible. You don't necessarily need to be popular to succeed in business. but it doesn't hurt, especially when you've made your own personal brand so important to your companies, as Elon Musk has. And when your biggest fan, from an analyst perspective, and we know gives short shrift to Wall Street, but when Dan Ives says, pay the guy more, and he says, shut up, Dan. Bloomberg's Max Chafkin. It's a great piece. I urge you to go read it.

20:51and it's time now for talking tech and first up app design software maker figma and some of its investors are looking to raise one million dollars in its u.s ipo in what could be one of the biggest listings of the year could value the company up to 13.6 billion dollars based on filings the move comes after the planned sale to adobe remember fell through in 2023 plus uber well it's suing a group of lawyers and medical providers in LA alleging they made fraudulent insurance claims that cost the company millions in legal fees. Now, Uber accused the defendants of directing passengers to pre-selected medical providers who submitted inflated bills to treat negligible or non-existing injuries from minor collisions between 2019 and 2024.

21:29And the crypto exchange backed by Peter Thiel, that's bullish, has filed for an IPO too. The offering is being led by JP Morgan, Jeffries and Citigroup, the latest company in the growing crypto market pursuing a public listing this year. Look, there's another company set to access crypto for public markets, the Ether Machine. The firm is a combination of Dynamics and the Ether Reserve creating an Ether treasury with over 400 ,000 Ether tokens. Here with more is Andrew Keyes, Ether Machine chairman, co-founder. Andrew, there are a fair few companies doing this digital asset treasury play? Why are you the one to go with?

22:07So we are not a buy and hold treasury. We are an institutional vehicle that is generating risk adjusted returns, actively managing Ether. Ether is a productive asset, unlike Bitcoin. And in doing and having Ether on our balance sheet, we have to stake it and use it to participate in the decentralized financial economy where we're able to actively generate yield. Okay, you're also not the only one that's looking to bring yield. I'm thinking what Bitmine and others are doing out there. So how do you distinguish yourselves as the experience with which to allocate, the experience with which to drive yield?

22:51I know that you're age old in the ETH space and a co-founder of ConsenSys, but well, the CEO of consensus and the guy who co-founded ETH is backing another one. Yeah. So we have amassed the Avengers of Ethereum. Our technology team is unparalleled in experience and the creation of proprietary technology to generate this yield. And basically, we're able to outperform the exchange traded funds that don't have yield and the ETPs that are only able to participate 50 % capacity in staking. And we are able to stake, which is the only thing that the ETFs would be able to do, restake, which is using Ethereum's proof of stake mechanism to secure other middlewares and then use Ether as a pristine collateral in the DeFi economy to further generate additional yield.

23:48What's interesting is this is almost about a little bit of PR for the Ethereum ecosystem more broadly. You talk about it catalyzing the ecosystem. And you've got some big institutional strategic players who've come on board with this particular initial announcement, I think in Pantera, I think in Kraken. How long do they hold? How long do they stay with you after the SPAC is completed and you continue to trade? So all of our capital partners, we believe, are long-term money. We had no fast money in this vehicle. And these are other people that believe that Ethereum is essentially the next generation of the internet.

24:26With Bitcoin, you have one asset that is moving on that ledger, the Bitcoin. With Ethereum, you can have and tokenize infinite assets, such as stable coins, real world assets like parcels of lands, stocks, bonds, derivatives. And with those tokenized assets, you can deploy them into what are called smart contracts. So arbitrarily complex legal agreements. And we believe that Ethereum is in the earliest innings of the next generation of the Internet. It's interesting that ETH has so lagged Bitcoin as an institutional play, though. And we just think in the recent years, we have seen it just not perform in the way that Bitcoin has as an institutional asset.