Nvidia Shares Fall on Reports of Google Competition

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1:12Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Lovellow in San Francisco. This is Bloomberg Tech coming up. Meta eyeing Google's AI chips, according to reports. How the market is questioning NVIDIA's long-term dominance. Plus, Xi Jinping brings the issue of sovereignty over chip hub Taiwan back on the agenda with Donald Trump during their phone call. And Apple eliminates sales roles in a rare layoff to streamline the way it offers products to businesses and governments. We have the details. But first, let's check in on these markets that are trying to digest a wall of delayed data at the same time as baking in maybe an 80 % chance of a Fed rate cut.

1:55That's what the market price is in. But all eyes on Tussle at the top in AI dominance. I'm looking at a 0.5 % drop on the NASDAQ 100. On the upside, some key players. On the downside, we're seeing a key drag from some of the key chip names in particular. Let's delve into what's moving this particular index, which does lag the S &P and the Dow today. We're seeing NVIDIA off by 5%. No wonder the NASDAQ 100 is underwater when the world's most dominant player from a market cap perspective is currently off by 5%. Big moves for a$4 trillion company. And in large part, it's because of Alphabet. that actually is trimming its gains, but still at a new record high.

2:30This is, we understand, meta eyeing TPUs. This is all about the dominance of where we get the chips of the future to train our models as well as use our models. Meta is the key line of questioning here. Is meta eyeing TPUs from Google to put in its own data centers? They're the reports coming from the information today. Let's talk about the market reaction. Equity reporter Ryan Glastelica is here with us. Ryan, it's a monumental move that Alphabet has had Since mid-October, it's added a trillion in market capitalization. We're starting to become aware of its prowess in AI and in chips. Yeah, absolutely.

3:06Thanks for having me. So, yeah, certainly sentiment has really reversed on Alphabet. And I think people are really appreciating how dominant it is across every layer of the AI stack. Of course, it recently released a latest update to Gemini, which was seen as very strong across all the major benchmarks that people use to evaluate AI models. The chip business is getting a lot of attention lately between the report with Meta and the deal with Anthropic. People really see this as a really significant potential competitor to NVIDIA, as you were discussing earlier. And beyond that, it has a huge cloud business that is seeing accelerating growth.

3:44It has so much data and users and distribution and talent. It really has all of the pieces. And that has really helped the stock surge, not just recently, but over the past several months. It is by far the biggest performer or the best performer of the Mag 7 this year. I think CounterPoint research analyst and co-founder Neil Shah and a story on Bloomberg saying it's a sleeping giant in the AI race and is fully awoken. But many have been trading for the last few days, ever since Gemini 3 release, maybe going short open AI suppliers and long alphabet suppliers. Is that still bearing out? I'm looking at Oracle down once again, Ryan.

4:23Oracle has really been under a lot of pressure lately. I think it's on track for its biggest one-month drop since 2001. So certainly a real reversal there. It does seem like people are moving towards the Google and Alphabet suppliers, which is companies like Broadcom, while at the same time, the companies that are more connected to open AI. You mentioned Oracle, also AMD, Microsoft to a certain extent. These companies have really been under a lot of pressure lately. It's worth reminding, though, that yes, Alphabet's been on a tear. And actually, its valuations have started to trade way higher than we're used to.

4:56I think about 26, 27 times future earnings. But it's still leapfrogged just Microsoft. Ahead of it in terms of market cap is Apple. I think it's got another 7 % to go to hit that. But 15 % to go to NVIDIA. We're not questioning longer term at this exact moment NVIDIA's dominance in AI and semiconductors. Well, NVIDIA right now has, I think, 90 % or so share of the data center market. If there is potential for Alphabet to start eating into that, I think that would change a lot of calculations for people in terms of how much can Alphabet scale this business. I have talked to someone who thinks that this could potentially be worth more than Alphabet's cloud business, potentially up to$900 billion.

5:35So that is a huge potential market there. And if that means that NVIDIA starts losing market share, I think people will start reassessing how to value that company and its growth and its valuation. Now, I will just simply say that the AI market is growing so rapidly that people do see room for a lot of big players. And even Alphabet remains a major customer to NVIDIA just because there is so much demand for compute right now. People don't want to be beholden to any single supplier. It does suggest that there's a lot of room for growth to go around, even if we start seeing some erosion in market share at NVIDIA.

6:10And I'm pretty sure Jensen Wang will be responding to any concerns about erosion in market share. Ranva Selica, we still appreciate you joining. Let's dig into further analysis here with Stephanie Anagaya to the conversation. She's a global market strategist at J.P. Morgan Asset Management and has$4 trillion in assets under management. $4 trillion, rather similar to the market capitalizations of some of these companies. And I'm interested, Stephanie, does it matter to you from a market sentiment perspective if there's squabbling at the top of the U.S. domiciled companies? Is it a worry that we'll see perhaps Nvidia being questioned in terms of its dominance?

6:46I think it's quite healthy. We've seen the AI trade has delivered enormous returns for markets over the last two years. And we're, I think, all kind of experiencing this sigh of relief or this exhale, I guess, in a way. We've moved from a rising tide, lifting all boats, to more choppier waters. And investors are being far more scrutinizing when it comes to how much is being spent, the quality of those investments. We're seeing as this AI trade continues to grow in its enormity, the investment being made and the moats and such being questions and shifting. So I think it's quite healthy that we're focusing on selectivity.

7:24I mean, this is what you want to see to prevent a dot-com bubble. And when looking at valuations today, you know, we don't really see a big risk of that happening amongst the big tech firms. So even these worries about debt in particular, and you are coming to us with a viewpoint that is cross asset in many ways. We have seen a real desire to get into AI related debt. Some of the bond sales have come from the likes of Alphabet and the likes of Meta and Oracle have been scooped up. But there's been this worry that in the longer term, it might start to maybe pull back on overall demand. We might see some of these big hyperscalers come into the market so often that it drives up prices for others.

8:00It's possible. I mean, I think first, just looking at the magnitude of how much AI investment is needed or being spent already, by any way that you cut it, the amount of spending right now is enormous. But just like Cartier isn't that expensive for a billionaire, when looking at these CapEx relative to the sales from these companies, relative to their current revenue growth, which has also grown significantly, it's actually not that extreme. So we're seeing this increasing move to tap into debt markets. But for us, it's not so much these companies getting overextended, but actually more so a reflection of a better capital structure.

8:37There are some investments like these data centers that are going to be invested over multiple years. It might make more sense to tap debt markets for some of these deals or an off-balance sheet structure. So, for example, we're going to be looking not only at AI investment surging, but at credit default swaps of Oracle surging. Has that just been acting as a bellwether and a necessary bellwether to start reflecting some of the risks that maybe people have been ignoring for the past few months? I think it's very apt. And not all of these companies have the establishments. They differ in many different ways and also in their sources of revenue.

9:11And I think it makes sense that, you know, Oracle is one of the more, you know, riskier companies that is tapping these bond markets and you're seeing that being reflected in CDS spreads. But that also can't be extrapolated to the entire shift right now towards debt markets to help finance these data center builds. And I'll also add, look, when it comes to cloud services, the business model is one of the most cash-generative business models in the world. So at the end of the day, these bonds are also being tied to services, business operations that have tended to do quite well for these companies.

9:43It's interesting, of course, deciding where the margin accrues. We're going to have Dell HP after the bell, many feeling that margin is being eroded because of the cost of memory. Meanwhile, we'll get Micron next week with its earnings and many anticipating they're strong because of the memory demand there. From your perspective, is there still room to run in just the tech trade more broadly? Or has that shift into more value names and certainly with the context of the Fed, change things longer term into the end of the year? We still think we're quite early in this AI wave, but we've seen a chapter or two.

10:14And moving forward, I think the focus is not going to only be on compute needs and capacity needs, but also on AI utilization. And what companies are really critical for that, whether it's in software, what companies are leading the way in financials and entertainment in adopting AI. and then also how once we learn more about the end user demand for AI and the pricing power of these AI services, that's going to give us a lot of clarity around the ROI around these AI investments. So is that what we need? Is it ultimately the revenues of companies outside of the world of tech to vindicate that what pushes us higher in terms of real context for you?

10:53Is it December when we get the Fed decision? What is the catalyst, do you think, for us to reassess where we are in valuation? I'd say it's less of the kind of macro backdrop really here and much more of the kind of proof point around the monetization of AI. I think the more that you see businesses ramping up their IT budgets, the stickiness that you see in those investment spending, and then also AI delivering. And we've seen some proof cases of that so far. Coding has been a huge factor of that. But once you see more companies, particularly outside of tech, maybe tech adjacent, coming at their earnings calls and talking about their AI-generated savings, I think that's going to be a really important next lever for the AI trade.

11:36And then what about the lever for actually the companies that are adopting, the clients that are calling you on a daily basis? Are they saying, do I double down more in tech? Or are they saying, I need to double down outside of the world of tech? I think it's diversifying that tech exposure. You know, after a long run in these AI names, you don't want all your eggs in one basket because it is true. Not on an NVIDIA? No. Probably not. At least you want to right-size some of that exposure. Build on top of all of those gains that we've experienced and positioned for how this AI wave is going to evolve.

12:04There will undoubtedly be losers and winners. But we also don't want to be out of the market. And that's another thing that we're trying to talk to clients about. Because even when you call a bubble correctly, if you weren't in the market from 1995 to 1999, you would have missed out on over 400 % in total return in the NASDAQ. You were right, but you locked in years of underperformance. So when it comes to US equity markets today, we don't see that real risk of a systemic bubble, but we do see a real opportunity to just make sure that portfolios are built for resiliency and they're also built to take advantage of how this AI wave continues to evolve.

12:40We'll hopefully keep having you on as the bubble or indeed the narrative does evolve. We so appreciate Stephanie Aliaga. of J.P. Morgan Asset Management going across tech for us. Meanwhile, coming up, China's Xi Jinping revives talks to sovereignty over Taiwan in a phone call with President Trump. More on that next. This is Bloomberg Tech.

13:10Chinese President Xi Jinping has revived the topic of China's sovereignty over Taiwan in a phone call with President Trump yesterday. A discussion that didn't come up during their face-to-face meeting last month in Beijing. Rimbabwek senior tech editor Mike Shepard joins us for the latest. And Mike, remind us, from a tech perspective, Taiwan, we know its dominance in chips. We understand its integral nature to the tech ecosystem. What is happening between Xi Jinping and Trump on this? Well, what was interesting yesterday, Cara, is that we get two very different versions of this phone call between the leaders of the world two largest economies.

13:47The first version came from Beijing. The official state news agency, Xinhua, put out its version of the conversation, presenting it really as one centered on the question of Taiwan. And then a few hours later, we heard from President Donald Trump himself on Truth Social, posting that they had had a great conversation about issues, including soybeans and other matters, rare earths and other key topics that were dear to the U.S. president. But he made no mention of Taiwan there. Now, while he did not bring it up, several hours later, he did call the new prime minister of Japan, Sanaya Takayichi, who had enraged Beijing with comments a few weeks ago.

14:28You'll remember, Caro, saying that Japan would consider leaping to Taiwan's defense in the event that China were to try to take it. Now, all of this is huge implications for the supply chain of semiconductors, as you noted, especially Taiwan semiconductor. It's one of the world's largest producers of AI chips. And they are moving some of their production, as we know, to the U.S. They've pledged$165 billion in investment in plants here in the United States. But they would still retain a significant amount of their capacity on the island. Therefore, any question of Taiwan really does bring up tech issues for us.

15:07And talking of tech issues, the administration once again trying to signal its commitment, seeing the AI infrastructure build out akin to the Apollo mission or to the Manhattan Project, Mike? Now, they are talking about a Manhattan Project-like effort in this executive order to call Genesis that President Donald Trump signed yesterday. But it was really more a call to action for various agencies to start working together more closely. And that includes the Department of Energy and its national research laboratories. But when we talk about Manhattan project, though, we do need to remember that that effort took$36 billion in real dollars today from back then in the 1940s as the United States was in the race to develop a nuclear weapon ahead of the Axis powers.

15:55This is a very different time. We are not seeing new money being pledged toward this effort. It's important to remember, Caro, though, that the U.S. already has put a significant investment in production of chips that would be needed for artificial intelligence. And that is the Chips and Science Act of 2022 that put tens of billions of dollars in loans and grants and other support, including tax incentives to support the development of a chip industry domestically that would help artificial intelligence take hold and gain ground and lead the world. as President Biden and President Donald Trump now say they would like the U.S.

16:33to do. Now, we are seeing companies like OpenAI push for further investment to support data centers, and that would include extending some of those tax credits to data centers. So it'll be interesting to see how this develops and whether more of those tax credits will go to some of those AI projects. Just, Cara, as we are wrestling with those questions of whether we are seeing too much money going into this space. Thanks, Mike Shepard. All the context. From Washington, we appreciate it. Meanwhile, it's time for Talking Tech now. First up, Alibaba reported 34 % growth in its cloud unit during the September quarter.

17:07Despite the gain, though, spending on consumer subsidies, data centers, that's eaten into its profits. The company's ADRs, as you can currently see, is trading off by some 2 % today. Meanwhile, Anthropik, it's got a new model called Opus 4.5 that the company says is better at coding and office tasks, such as financial analysis and creating presentations or spreadsheets. It's part of Anthropik's efforts to compete with OpenAI, with Google, for business customers. And meanwhile, OpenAI is a new tool to generate personalized shopping guides. The company trained a version of GPT-5 mini model to ask follow-up questions, draw answers from reviews published on what the company considers higher quality websites.

17:48Now, let's talk Apple. Because in a rare move for the company, the tech giant has eliminated dozens of sales roles in an effort to streamline the way it offers its products to businesses, schools and governments. For more on this breaking story, Mark Gurman joins us. It's not hundreds, we're talking tens of people, but still it's notable because we don't often see layoffs at Apple. Yeah, to your point, it was several dozen people across Apple's sales division. And this sales division, they partner with carriers across the world to sell iPhones, but they also partner with enterprises, large-scale businesses, government organizations, schools, educational institutions, major universities across the world to sell products like iPhones, iPads, Macs, and you name it.

18:34And over the course of this month, there was a big streamlining, rounds of layoffs, including, like I said, several dozen people. There were account managers. They are called account executives for specific government agencies, for specific university systems. people who partner in pitch companies on buying Apple products. There are these tiny Apple store-like fixtures called briefing centers at Apple offices in California and Texas, and the people managing that, for the most part, were laid off as well. And so this is going to change how Apple sells products to these different organizations. The majority of products are bought through what's called the channel, so third-party retailers.

19:17And so those products are still going to sell, But quite a bit of a shakeup here for Apple. Sells products and delivers these devices to the major customers. And of course, as you said, a rare layoff for Apple. Apple did respond to your reporting and saying we're continuing to hire and those employees can apply for new roles, Mark. But what do you think this signifies more broadly about how Apple is trying to streamline, trying to become more efficient, trying to ensure that it doesn't seem like it's a laggard in this age of AI? Yeah, you know, I don't think this has much to do with AI. I think this has to do with cutting roles internally to lower costs because they realize most of these sales are happening from the channel.

19:59And there's a lot of duplicate efforts internally with the channel. So the third party retailers. So I think it's just one of your classic layoffs to create more efficiency and cost cutting rather than having much to do with artificial intelligence. In terms of layoffs related to AI at Apple, I guess the only thing you've seen related to AI from Apple that has to touch a layoff was the self-driving car project. Job cuts of 1 ,000 people in the beginning of 2024. And that was actually to do more AI rather than because of AI. So they moved a lot of those folks over to the generative AI division.

20:35But I haven't seen any job cuts at Apple to date because of AI. that doesn't mean they're not going to happen, but so far they haven't. Well, thus far we're starting to still see some drill cuts across technology and Mark Gurman, you've been at the front of that reporting. We really appreciate it. Now coming up, Michael Burry stands by his NVIDIA criticisms. As after calling out the company for stock buy gap facts, for compensation dilution, but NVIDIA itself responded to analysts. More on that next, this is Bloomberg Tech.

21:15As we've been reporting, NVIDIA shares, they are under pressure today. Competition fierce when it comes from Alphabet and TPUs. We understand reporting that Meta is eyeing potentially turning to Google for its chips in its data centers in the future. But there's also Michael Burry there, isn't there? Standing by his criticism of the company after NVIDIA pushed back on his earlier analysis of stock-based compensation of share buybacks. For more, Bloomberg Equities reporter Carmen Reinecke reminds us of what the Cassandra, as he dubs himself, has been saying. Michael Burry laid on issues about the circularity of tech deals, worries about the interoperability of what big tech are currently doing in the world of generative AI.

21:55What did he take issue, though, with NVIDIA when it comes to share buybacks and stock compensation? Yeah. So I think most basically his argument is that the amount of stock-based compensation is diluting, you know, owners' power. That if you hold the stock, it's being diluted by the stock-based compensation. And so it really is just another thing and sort of a myriad of things that he has called out with NVIDIA in recent weeks. And, yeah, we saw the company, you know, push back. There was a memo that they sent to some Wall Street analysts. This is according to a Barron's report that said, you know, we think his math is wrong, kind of explained the situation a little bit better and also very blatantly stated, you know, we're not Enron.

22:36We're not, you know, there's no fraud here. But Burry really said, you know, I stand by my analysis that, you know, about the stock-based compensation dilution share buybacks. And he also said, you know, I'm not comparing NVIDIA to Enron. I'm comparing it to Cisco, which I thought was really interesting thinking about Cisco, you know, in the dot-com era. It had this huge run-up, but it was really associated with the overbuild in fiber optic cable. So he's, you know, comparing that to what's happening now, I guess, with NVIDIA, with data centers. And these are really some of the biggest concerns or pain points that we're seeing in this debate over if AI is a bubble.

23:15And, you know, NVIDIA shares are down. I think they were down as much as 6 % today. We're seeing, you know, more than$200 billion in market value just wiped off. And we're also watching the sort of 20 % level. NVIDIA is nearing 20 % drawdown from its high at the end of October, which is a significant level for the shares. Technical bear market. Extraordinary. Thank you very much, Carmen. and Reinecke always has some of the most read stories across all of the technology moves. You've got to keep them up to date with it. Meanwhile, coming up, Google's potential chip deal with Meta is raising questions about NVIDIA's dominance in the race for AI leadership.

23:49More on that take next. This is Bloomberg Tech.