Netflix Shares Fall Despite Earnings Beat

25:59They said that they do prefer vanilla strategies, but some of the things they're doing that he spoke about included selling Taiwanese dollars or US dollars rather in the spot market. They're injecting money. We've seen them injecting$10 billion, for instance, recently into TSMC Global, so that's a subsidiary. And then they also use forward contracts as well. So essentially just trying to manage those risks. but we actually do understand they're a very big Bloomberg customer as well because they are trying to manage these basically on a daily basis. Annabelle, super quick, summarize their AI demand.

26:34AI demand is super robust. I mean, that was really, really clear out of these figures as well, and they're basically guiding for very strong demand from some of their key customers. Of course, we know that's NVIDIA, we know that's Apple, and we don't really see so much optimism from them generally, But when they're saying things like robust demand, I mean, the market really needs to be paying attention to that. Bloomberg's Annabelle Droula's in Taipei, thank you very much. Now, coming up, we're going to continue the tech earnings discussion with Martin Orton from Empower, a conversation that you do not want to miss because looking at that calendar, my goodness, there's a lot to come.

27:08This is Bloomberg Tech.

27:28Welcome back to Bloomberg Tech. Netflix is worth recapping, right? The stock's down almost 5%. That puts it on track for its biggest drop since the first week of April. But it is a stock that was up more than 40 % so far this year, in excess of$500 billion market cap. Beat across the board, strong forecast, but a very high bar. And that's kind of a big factor. And the only real stock story that's out there in the market right now, though, a couple of more to come. Now, what happens next? Big tech earnings on the docket. Next week, you have Tesla and then you have Alphabet. And then it just comes thick and fast the week after with Apple, Amazon, and then much later in August, NVIDIA.

28:07Earnings in the tech space is back in focus. Thank goodness. What are we expecting? Martha Norton, chief investment strategist at Empower, is with us. it's my happy time, right? This is what we're so excited about. We get that granular detail on capital expenditures, on the big picture of what's happening with the customer base. What is it that you're most focused in on and zeroed in on this earnings period? Well, you know what's interesting? When I reflect back on, it's been such a busy year, so much news, but one of the things that I think has been maybe appreciated by the market, but not appreciated as much by the commentators is what a reinforcing narrative we've seen around AI.

28:47So, of course, we're focused on tariffs. We're focused on everything that's happening at the Fed. But if we roll the clock back to the start of the year and all the questions that were surfacing around DeepSeek, let alone concerns around where AI demand is, what we've really seen as the year has progressed is that CapEx continuing and then also these nascent signs of AI demand and AI implementation, which has been such a boon for the hyperscalers in particular. So I think watching that AI narrative continue is especially important in this earnings season. Team in New York, let's bring back the calendar.

29:24I just want to make one point on NVIDIA because NVIDIA comes so late in the season. But what I reflect on is that when NVIDIA hit$4 trillion of market cap. All of the research I was reading was about how the data in the 90 days prior to that had basically shown that NVIDIA's most important customers had that commitment that you just outlined on capital expenditures. Take that forward into this next period and bear with me. Is it just as simple as you need to see Alphabet, Microsoft, Meta continue to say, we're committed to this for NVIDIA then to have a great print when it comes around? Well, I think that's the first derivative.

30:01You do want to see the customers showing that commitment, kind of reinforcing what they've suggested in terms of CapEx estimates, which are very tremendous, as we've seen. But then also that second derivative, which is what I think of as that AI implementation, both within the tech sector, but then for the economy overall. And I think as you start to see that second derivative, that demand come through, I think that is reinforcement for the picks and shovels for the NVIDIAs of the world. The wild card is tariffs. How are the analysts on your desks kind of thinking about that and modeling for that right now?

30:36Well, you know, it's so interesting because if we're taking a look just at price performance since that bottom on April 8th, if you're looking at IT, you know, in particular, it's a 45 % run. There has been this massive enthusiasm where the market is beginning to appreciate what's happening with AI and maybe a sigh of relief in terms of the resilience of the economy. But I think when we're taking a look at tariffs, we haven't really seen the full force of those costs come into effect. And so, of course, we want to see what happens with corporate earnings in Q2. But as I think about longer term and kind of this rollback of globalization, I guess my thought is, you know, longer term, what does this mean for corporate profitability?

31:15And, you know, there's revenue that the government is collecting that's coming from corporations. And so what that looks like, that is kind of the wild card in terms of how that weighs on Q2. but longer term, what that means for earnings. Marta, I really appreciated you going back to reference that kind of deep seek moment in April where, long story short, markets were roiled by the performance of deep seek's model and the cost of it getting there. But one of the things that happened was there was a kind of a valuation reset on the MAG7. Have they climbed back to a level where you're still like, or is there some interest to look at the MAG7 in a portfolio right now?

31:52Well, that's what jumps out to me. So when we're taking a look at valuations, what we really want to focus on is the extremes. So, for example, technology, if we're looking at its valuations, price to forward earnings over kind of a history for that particular sector, it is in those extremes. It's in those ninth, tenth deciles. But when we're looking at the MAG-7, we don't see that same, I guess, extreme valuation picture. So I think it's really that one-two punch that we saw for the MAG7, first getting hit by the deep-seek questions, then getting hit on the tariffs, that have made those companies a little bit more approachable in valuation.

32:27And when you think about the health of these companies, kind of their ties to AI and their general kind of strength within the overall economy, it's hard not to consider the MAG7 a bit of an opportunity, at least offering a bit more margin of safety than some of the other tech -related names. Marta, I'm going to go to a question I've not had the opportunity to ask for many months now. How good. Which is, how are you using AI in each of your sort of daily tasks that works seriously? And which tools do you rely on? Well, you know, it's a good question. I am a slow adapter. So, you know, I'm definitely representing more of the tail or more of the average of the investment community.

33:07And I do, you know, I'll use ChatGPT on the regular just to get a quick summary view of what things look like. Hey, give me the lay of the land in this. Give me the lay of the land in that. And we're increasingly beginning to think about what we can do to automate tasks, especially that spreadsheet build, those deeper analytical efforts. What can we do to make that faster so that we can get the heart of the questions sooner and spend more time on the analysis? So I'm really thrilled about it, despite the fact that I'm a light adapter in most things. I think this is something that is really opening up the bandwidth to explore the more interesting stuff of my job.

33:43I really appreciate the answer because like a lot of our audience are facing the same questions with themselves. Something we reported earlier in the program is that JP Morgan, basically the biggest research shop right on the street, is expanding its research coverage to private companies. And they're starting with open AI. What I wanted to ask you about that was like almost as like a private proxy. When you think about your own portfolio management, would you read research of those private companies to kind of think about the exposure your public companies have to that name, OpenAI, or just to inform like future investment opportunity?

34:19You know, I think that convergence of public-private is really important for the investment community. I think it's really tempting to say, you know, on the private equity side, are we looking at a market peak or, you know, getting tactical with it? But the reality is that so much of the U.S. market is actually private at this point. And so for us to really understand the dynamics of the public market, we have to have better understanding of the private market. And getting those, you know, those bits of information, it's kind of an inefficient market at this point. So the more that we can dig in, the more systems that we can build, the more landscape that we can view combining the public and the private, I think that will inform our analysis all the better.

35:00Marta Norton, Empower Chief Investment Strategist, great to have you back on the show. Thank you very much. Now, coming up, manufacturing company Hadrian announces expansion plans to help build out AI-powered factories here in America. This is the defense use case. We're going to speak to CEO Chris Power next. This is Bloomberg Tech.

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38:19defense manufacturing company Hadrian has announced it's raised a$260 million Series C that will be used to expand its footprint in California and Arizona. The company's building AI and robot automated factories across the U.S. utilized heavily in the aerospace and defense industries. Chris Powers, Hadrian CEO, joins us now. Chris, welcome to Bloomberg Tech. It's really great to have you on. One of your investors says that the product is the factory. Just explain that. So we view our job as to re-industrialize the country. And from the 70s to the 2020s, we really like offshored everything we possibly could.

38:58And it's this whole system of both our software powered by Opus, as well as this new American workforce that creates this factory system. And that is the real output to our customers. It's like, what are we producing? how accurate it is, how on time it is. And this full stack factory autonomy and the new American workforce that we're enabling with that alongside is the most important thing we're building. And that's why we think the factory system that we're building with people and technology combined is the product. Sizable round, interesting group of investors, Founders Fund, Andreessen, Lux Capital.

39:30Why the size of the round, the difficulty or not in raising it, and what you plan to do with it, Chris? We're very lucky that we were open and shut within a small handful of weeks, less than a month. Really, that's just a credit to my fundraising ability of the market. It's just the team's hard work over the last year. What we will do with this capital is expand into Arizona with a new factory for our customers that's four times the size, as well as use that capital to hire more people so we can ship more manufacturing capabilities to our customers, both in aerospace and defense sectors, commercial manufacturing, and obviously, you know, the DOD as well.

40:08In January of this year, I was with the Anduril team in Ohio when they announced and confirmed that would be the side of Arsenal 1. And part of the discussion I had with Palmer Luckey was why not California? You know, Hadrian also has this big footprint in California, but you've looked to Arizona for your expansion. I think that's really worth discussing. yeah we will have you know r &d in california and we're not moving out of california but one of the most important things is that we're creating thousands and thousands of new manufacturing jobs in every state um arizona has been great to work with on the practical stuff like permitting workforce getting energy connected to the building all these basic things that are harder to do in some states so we're really happy to expand into arizona but it also won't be the last you know our goal is to have factories in every state and creating, you know, millions of new manufacturing jobs along the way.

41:01Chris, something that I think was kind of missed from your post and the announcement was what you're expanding into, welding, casting, additive. Is that just because that's where the demand is, particularly from the DOD and the defense apparatus of this country? That's right. I think if you look at, you know, pretty public information from the Secretary of the Navy or the Army in areas like shipbuilding, the nuclear force, munitions. There's this huge lack of skills in the country. We need millions of welders. We need millions of machinists. We need millions of quality inspectors in all these manufacturing capability areas.

41:36And we just don't have the skilled workforce of that volume anymore. And this is what we're really doing with Factories as a Service, which is combining technology to make people 10 times more efficient and enabling them. It's not about replacing workforce and manufacturing because we just don't have a manufacturing workforce anymore in this country. So we really need to combine the two things that America is best at, you know, American software and the American spirit to get this 10 times advantage over our global competitors. And yeah, we're working on those categories primarily because they're so important for areas like shipbuilding.

42:07Chris, when your peers come on this program, you know, Castellian, Saronic, Vannevar Labs or the Anduril team, they frame it in the context of China, China's manufacturing prowess, its competence in areas like software and hardware. How do you think about China? And what is the sort of Hadrian mission statement with regards to China, if indeed you take it into consideration? Yeah, we think that the arsenal of inventory is not deterrence. It's the ability to produce fast and onshore, not just in areas of defense, but in pharmaceuticals. And that's why you have to re-industrialize the country. And I agree, you know, we've given the farm away to the CCP by letting them have all our manufacturing capability over the last three decades.

42:52And now we're in a position where that really degraded the skill set of the trades in the U.S. And this is why, you know, building ships, building munitions, building machine components in this country is very difficult because we kind of offshore that talent for the Chinese. I certainly think that, you know, the U.S. needs to be the strongest industrial power like we were post-World War II, again, in order to, you know, prevent or meet that threat. Chris, is your ceiling limited just by the idea that your core customer is the DoD? Or in the future, do you do business with these other primes and other startups as well?

43:26Very quick. All of our customers are, you know, a defense startup or a space startup from day one up to all the mega primes through that whole chain. The DoD has only been recently a part of our business. But we are working with the vast majority of hardware startups all the way through to the mega cap public prime and everything in the middle. Chris Power, Hadrian CEO, really grateful for your time on Bloomberg Tech. Thank you very much. Now, I want to get to a story out of China. China's top venture capital firms are back in the market, raising over$2 billion in new dollar-denominated funds.

44:00Lightspeed China is targeting$400 million for deep tech. Monolith, which backs Moonshot AI, plans a second fund worth at least$265 million. At least six major firms, according overseas investors, signaling renewed global interest in China's startup ecosystem from AI to consumer tech. Okay, coming up, President Trump is set to release new AI guidelines. We're going to have all the details on that next. This is Bloomberg Tech.

44:43President Trump is expected to announce new AI policy guidelines calling for an easing of regulation and an expansion to energy sources for its data centers. For more, I want to get out to Bloomberg's Mike Shepard in Washington, D.C. What's the need to know here, Mike? Well, the thing we need to know is that this will be the administration's most significant policy statement to date on artificial intelligence. It's been in the works for about six months. This is one of the first things the president set out to do upon taking office. He tapped David Sachs, the venture capitalist, somebody who's been on this program even just this week, to talk about artificial intelligence, to lead this effort, along with Michael Kratios, another regular guest on these airwaves.

45:26And together, they have been trying to turn away from what had been seen as a rules-heavy approach under the prior administration. They want to do something that will do more to ensure and speed adoption of this technology, while also still trying to set a few rules of the road. We're expecting the president to deliver remarks on AI at an event at the White House on Wednesday, July 23rd. David Sachs will be here. It's an event that's being put together with the folks from the All In podcast, where David Sachs is one of the co-hosts. And we're also expecting the president to be signing a few executive orders connected with all of that.

46:04It's not going to be as far-reaching a statement on the technology itself. This will be focused more on executive branch actions, yet it still will carry some weight, and we'll be watching it very closely here. All eyes on Washington next week. I think that's fair to say. I see some breaking news this morning, which is that the House Select Committee on China essentially criticizing or reprimanding the president, allowing chip makers, NVIDIA, the focus in being able to resume some limited chip sales back into China. What do we know? Well, we're hearing from the top Republican on the committee, one of the toughest China hawks in town, really raising questions about this decision to allow NVIDIA to resume sales of the H20 AI chip in China.

46:49Remember, the Trump administration had barred sales and shipments of that chip to China over national security concerns just back in April. But in the past week or so, we have seen that restriction lifted. And that was a huge win for NVIDIA, but it prompted questions from John Mulanar, the Michigan Republican who heads this committee focused on the competition with China and the challenge that the world's second largest economy poses to the U.S. Now, Moenor is raising the concern that, look, if we allow these H20 chips to be sold once again in China, this will simply allow Beijing to acquire more capabilities in artificial intelligence, including some that could go to fuel its military and intelligence complex.

47:38Bloomberg's Mike Shepard. Thank you very much. staying in Washington, the U.S. Commerce Department is set to impose preliminary anti-dumping duties of 93.5 % on imports of Chinese graphite. That's a key component of battery manufacturing. I want to get out to Evelina Stoiku of Bloomberg NEF. Evelina, you kind of lead our analysis and in-house research of the battery supply chain. As a start, why would this penalty on graphite have impact? Why do we need to know about this? Well, as you mentioned, Ed, graphite is a key component for batteries. And these tariffs would basically increase the cost of making battery cells in the U.S.

48:18Now, batteries are important for a variety of sectors, including EVs and stationary storage. And as the U.S. is pushing for more domestic production for battery cells, as it is a key component around energy, we're going to see likely increased costs. Most of graphite is coming from China. And in the U.S., around 75 % of synthetic graphite imports, which is the type of graphite that is mostly used for batteries, is coming from China. So we expect a big impact for the battery industry. When the news broke, I saw that Tesla shares fell significantly. They're now up higher in this session. But one of the things I was thinking about is for those U.S.

48:58domestic battery manufacturers, I was at Panasonic in Kansas earlier this week. There are some US-based producers of graphite on there. Yeah, there are. And the domestic graphite production is increasing. Tesla, among many other companies, were lobbying against these tariffs in the early stages, claiming that the graphite quality or the graphite quantity was not at the stage that they wanted, at least at that stage. However, eventually, these graphite tariffs are going to incentivize local production. but we do remain to see whether this graphite is going to be enough to meet demand and of low cost in order to meet many cost targets that battery manufacturers and automakers have in the U.S.

49:46Evelina, right now what is the biggest headwind or factor for the EV battery supply chain? We focused on graphite but there are many other things happening around the world right now. Yeah, absolutely. It's definitely a time where a lot of things are changing when it comes to policy that is impacting both EVs and batteries in the US. Right now, I think the challenge is going to be figuring out the supply chain and choosing suppliers in order to comply and try to qualify for many of the important tax credits, as now there are new restrictions around where many of these components can be sourced.

50:23So I think this is going to be top of mind for a lot of players in the US, because this push to source everything domestically and to manufacture everything domestically might come with a cost to consumers. Evelina Stoyku of Bloomberg, New Energy Finance, Bloomberg NEF. Great to have you on the program. Thank you very much. So that does it for this edition of Bloomberg Tech. What a week it's been from policy to politics, AI to everything else in between. Don't forget to recap the show on the podcast. You know where to find it. It's on all the Bloomberg platforms as well as online on Apple, Spotify, and iHeart.

51:02Shep said it just a minute ago, but next week, it's all eyes on Washington, D.C. Pay close attention and always do it here on Bloomberg Tech.

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