Tech Left Behind in S&P 500’s Latest Rebound

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

0:37So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

1:02Bloomberg Audio Studios. Podcasts. Radio. News.

1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech. Coming up, big tech lags as investors remain skittish about the AI trade. We dig into anxieties and losses coming from the magnificent seven. Plus, earnings still roll in. We speak with Okta CEO Todd McKinnon after the software company boosted its full-year profit forecast. And TikTok will invest more than$37 billion to build a data center in Brazil, its first project in Latin America. But first, you check in on these markets that are volatile on this day. Look, we're pulling back on some of the gains made yesterday on the NASDAQ 100.

1:51We're off only by a tenth of a percent. NVIDIA flip-flopping between gains and losses, but all eyes on some of the key magnificent seven names that look less magnificent on the day. Bitcoin still managing to power up. Nine-tenths of percent, we're at 92 ,000, so a bit of dip buying going on. As sentiment, though, still remains pretty sour on the asset class. Move on and have a little look at what's really under fire today. Reports out there that Microsoft potentially having to say to its salespeople of co-pilot of AI productivity tools, maybe you need to pull back on your sales targets. There is counter-reporting coming from CNBC that this isn't currently true, but we're going to dig into those details for you.

2:29currently off by 1.8%. All of this speaks to the anxiety that AI isn't going to give us the productivity gains. Many had hoped. Bailey Lipschul, as I'm pleased to say, is here with us at the moment, really talking about more broadly what we're seeing in this market at the moment. And Bailey, are we seeing those sorts of anxieties? Well, we are seeing some of the uncertainties and we're seeing that play out in real time. The big debate really around a lot of this AI trade and we saw this play out throughout November is how much of this spend is going to be realized? are the dollars going to make sense at the end of the day?

2:59And if you're seeing companies dial back their spending, what does that ultimately mean for the bottom lines? When you see a report like we've been seeing, whether they're conflicting or not with Microsoft, it's a lot for investors to chew on. And what's been being chewed on is that people have diversified since the bottom in October, since we really saw the perhaps end of the significant selling. Tech's still lagged, and we've seen it underperform health care and other key sectors. Yeah, if you look, so last time we had an all-time higher, looking back to October 28th, best performers, healthcare, communications, energy.

3:29As you mentioned, worst performing group is tech. One thing to keep in mind, when you look at that S &P 500 InfoTech, the big names, NVIDIA, Apple, Microsoft are in there, missing Tesla, Alphabet, and other names. So a little bit of a grain of salt to take it with that. But we are certainly seeing investors diversifying, flocking to healthcare, Eli Lilly, Cardinal Health, Biogen, all out performing. When I talked to portfolio managers, part of the debate is we've come so far so fast in a lot of these names. And as much as we like to think that things only go up, eventually the question is, can you outperform and is there alpha generation?

4:01And that's why we see some of that repositioning. Repositioning, still significant gains on the year if you're thinking of an NVIDIA. But the momentum trades that we've seen on the back of this, the fact that quantum stocks have done so well, some of the crypto spheres, are they still under a lot of pressure right now? They're under pressure. There's just a lot of volatility. You look at the moves that we saw, whether it was in nuclear power or, as you mentioned, in quantum, pretty much nonstop up and to the right, whether that was retail, whether that was momentum or just hedge funds trying to juice their books.

4:30We've seen them pull back pretty markedly. Obviously, Bitcoin has been quite volatile trying to recoup some of those losses. But if you're really kind of macro investor or running a book broadly from the equity side, we're in December. So if you're up quite a bit, maybe take some gains off the table and maybe diversify into something like a health care, which could be positioned to benefit or at least continue growing if there are concerns around AI. And concerns as a macro picture. We just saw the ADP figures today. I mean, jobs market looking a little bit weaker as well. Bailey Lipschitz, it's always a joy to have him on, talking us through the markets.

5:02We've got more market context for you now. And more broadly with Sylvia Jablonski, Defiance ETF, CEO, CIO, you've been writing. It's not a rollover, but the pace of spending is becoming more selective. If upcoming macro data corporates, we could be nearing a tradable bottom. As a longer term investor, I continue to see these pullbacks as opportunities. She joins us now. So cooperating here, is market sentiment not or is market sentiment going to shift to the positive again? Good morning. Well, you know, barring external factors, which we've seen a lot of right throughout the last year, whether it's been geopolitics, whether it's been tariffs or things like this, you know, if we're on pace here for kind of the trend that we have here and we do have this growth of AI, you know, I know there's news around spending being cut back and things like this, but we're still in the infancy of AI and there has already been so much spending that is now going to kind of pile into the economy, pile into these different companies, different sectors and things like this.

6:02So I think it plays out and benefits these companies over time. So I think, you know, That coupled with a Fed that is likely to cut, particularly if we have a new Fed chair in with the president and kind of knowing where the predictions will go on that. That's what the market's really looking for, right? We have a little bit of a weaker labor number. Consumer spending is holding up. You know, corporate earnings were arguably great. You had over 80 % of names beating on the top and bottom line. You know, double digit growth continues. Positive GDP outlook. look, I think that we could be in for a good market here.

6:38A good market led by the same names. It's interesting that NVIDIA CEO Jensen Wang is in Capitol Hill today. We understand he's just been seen entering U.S. House Speaker Mike Johnson's office. How much will political tailwinds or headwinds help or hinder some of these companies being worried about access to China? More broadly, can NVIDIA continue to lead this market higher? So I think in a way, NVIDIA still has the monopoly on AI and chips, right? And so I think that, you know, a lot of the other semiconductor companies are starting to do better and take some of the business away. But for now, NVIDIA remains the clear leader in terms of Washington and politics.

7:16Of course, all of these things impact these companies. You know, they are the trillion dollar clubs. They lead the market and policy affects them first. But the other side of that argument is when the market falls back, you know, where do people invest? A lot of times they look for defensive names, but you have these high, again, trillion dollar companies, high quality, strong balance sheets that over time tend to perform. Investors actually do look to those companies for investments. And if you look at today, you know, 400 out of the 500 names actually participated in the bounce off of, you know, the last pullback.

7:46And so you see a little breadth expansion there. I do, though, think that the AI tech is going to continue leading markets for years to come. You've actually got a large cap ETF that is excluding Magnificent Seven. How is that performed of late and how many people are wanting to put money into it? So interestingly enough, we've actually seen an increase in flows into that ETF. And, you know, it may sound like a contradiction. What I just said, it absolutely isn't. I think that the average investor has exposure to Mag7 everywhere, right? Whether it's in ETFs or they hold the single name stocks.

8:19And so when the market pulls back and you're looking to diversify and broaden your exposure, we take out those names because we're saying, hey, you already have them, hang on to them, but participate in the breadth and the broadening of the rallies in the years to come. And so, you know, very much like an equal weight strategy, XMAG excludes the MAG7. But what's, you know, we think very favorable about that is you're still letting the winners win, right? So you still have market caps rallying in that fund and can, you know, do well over time. You really have created a lot of ETFs that have been galvanized by this whole broadening out of the trade, AI and power infrastructure ETF, for example.

8:57But I'm also interested in the quantum side of things because there's an interesting story. Key Nobel laureate, winner of the physics prize, has just been talking about how China looks like it's really pulling ahead just a nanosecond behind the US in terms of quantum compute scale and indeed innovation. How much have people been wanting to get into the quantum side of the equation? Well, I think, you know, what you just mentioned will be a big reason. And we'll put a lot of focus on the quantum names again for investors, because what happens when we think that, you know, other governments are beating us in AI or technology or things like this, the U.S.

9:32government tends to invest, right? And American corporations tend to invest and catch up and try to win the race, right? So I think that just, you know, on a basic level, you've seen some good news around quantum, whether it's been HSBC, the advanced bond pricing models that have come out of it. You know, you've seen some good results around annealing from D-Wave. You know, some of the top quantum companies have done quite well for investors. But I think, you know, as this continues and it becomes more commercial, you will see flows coming into the space. And we think it's a longer term hold for investors.

10:01What hasn't been a longer term hold just in recent days has been micro strategy. You have a lot of ETFs giving either you long exposure to micro strategy, now called strategy, or indeed leverage positioning for it, but also to go short as well. So you're kind of offering both sides of the pile here. What do you make of the fact that maybe Michael Saylor isn't a complete hodler for the longer term, that maybe at some point they might have to sell Bitcoin? Yeah, I mean, I think that that's a business decision for their firm in terms of how best to generate ROI and be profitable over time. But, you know, what you just mentioned, it is true.

10:40We have long funds, we have short funds. And for us, we're just trying to democratize hedge fund like products for investors that, you know, are tactical and knowledgeable about these markets and look for short term exposure opportunities. So those products are simply there. We don't necessarily have an opinion on, you know, their view of that. We want to give them the right tool to do that. But I think, you know, if Bitcoin rallies, you'll see strategy do well. If it doesn't, you'll see it go the other way. And perhaps the flows will also match in terms of long and short leverage funds. Sylvia Jablonski talking about what has been quite the volatile trade for certain retail of late.

11:14Defiance ETF, CEO, CIO. It's always great to catch up with you. Coming up, we're going to hear from AWS CEO Matt Garman about his take on the AI power demand, the race with NVIDIA. So much more, of course, Tranium 3. This is Bluebeck Tech. I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast. Now, every day, we are bringing you reporting from the magazine that helps global leaders stay ahead. We've got insight on the people, the companies, and trends that are shaping today's complex economy. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time.

11:50And we've got complete coverage of the U.S. market close. Got to say, basically, if it impacts financial markets, if it impacts companies, If it's impacting trends and narratives that are out there, we are on it. We also have a lot of fun doing it. Bloomberg Business Week also brings you the analysis behind the headlines through conversations with our expert guests. And we are doing this all live each weekday. And then we bring you the best analysis in our daily podcast. Search for Bloomberg Business Week on YouTube, Apple, Spotify, or anywhere else you listen. Check it out on your way home from work to catch up on the conversations that you miss during the business day.

12:22And on the weekend, check it out for a complete wrap-up of your business week. That's the Bloomberg Businessweek Daily Podcast. I'm Carol Masser. And I'm Tim Stanovic. Subscribe today wherever you get your podcasts.

12:36The desire and the hunger out there for more power and more compute is almost insatiable. And so the more we can take an existing power footprint, an existing set of capabilities, and bring more and more compute into that for customers to build cool applications and cool environments and to get value from that, that's what we're focused on. And so we're going to be pushing that envelope as fast as we possibly can to get those new and new capabilities out to customers. The pitch for Tranium in both the training and inference use case is that it's a great deal, you know, cost effective, performant.

13:11At the same time, you went on stage and said AWS is, quote, by far the best place to run NVIDIA GPUs. How are both possible? Well, I mean, Both are possible because that is a great environment to run accelerators and compute in. And so we've been working for 15 plus years with the NVIDIA team and Jensen and team to deliver outstanding capabilities for our customers. And when you're running a large cluster of NVIDIA GPUs, people will tell you AWS is the best place. You get the best performance, the most stable cluster, the best capabilities out there, and broad scale. And it's why folks like OpenAI and others are running on AWS.

13:51And we have that choice. And so for others that want to be able to take advantage of Tranium, and there's some use cases that are best for Tranium, there's other use cases where NVIDIA GPUs are going to be your best option, we want to have all of those available. And so we think that if we can continue to push the envelope on what Tranium can deliver for customers and make sure that we are supporting the latest and greatest from everything that the awesome team at NVIDIA is delivering, that's going to be the best outcome for our customers. The plan for AWS is to basically double capacity by end of 2027 to around 8 gigawatts.

14:24Do you have a sense of how you apportion that capacity in-house silicon and server designs of Tranium versus NVIDIA GP is? We're just going to keep pushing as fast as we can, and we'll see where customer demand drives us as we go. And as you said, we're massively adding capacity. In the last year alone, we've added 3.8 gigawatts of capacity, and we'll continue to add more and more over the next couple of years. And we'll let customer demand drive us a little bit on what they're looking for and what they want. And that's what we always listen to, and that's what we'll continue to listen to. The focus with Tranium, in the time I've been able to interact with you and talk about, again, not just the accelerator, but the server design level, there's a lot of benefits to the customer.

15:06When does that benefit start accruing to AWS in terms of profitability? Like if it's such a good financial proposition, you must be able soon to say we're making a lot of money on this. Yeah, well, you're already seeing some of the benefits occur. You see things like Bedrock growing really, really rapidly. And you see Tranium powering that under the covers. And we announced today that more than half of all tokens and inference done in Bedrock are done on Tranium 2 servers under the covers. And so you're already seeing that benefit come. You see the models that we're building in Nova and Nova 2 start to get better and better over time.

15:39and be accelerated by Tranium. And so we really think that there's a whole bunch of dimensions on which both our customers, our partners, and our own products are going to get accelerated all from Tranium. Every time you come onto the program, I always offer the audience opportunity to pose a question to you. There's a lot of interest in AWS, right? Many of your customers span global technology. Actually, most of the questions were about Anthropic. That wasn't much said on stage. I think people are trying to understand And what is the benefit and advantage AWS offers to Anthropic while they are ramping Tranium through Project Rainier, but also ramping their TPU allocations as well?

16:17Well, look, our partners at Anthropic, our partnership with them is incredibly strong and it's never been stronger. And we do a ton of collaboration with them. And as I mentioned, through Project Rainier, it's a huge collaboration there to go build their current generation models. And all their models run today and launch on day one on top of Tranium and on top of AWS. AWS CEO Matt Garman, along with our own Ed Ludlow. Let's discuss this growing AI chip race. And one of the big tech names, who's winning, who's losing? Joanne Feeney is the perfect person to ask, partner and portfolio manager over at Advisors Capital Management.

16:49So did Amazon manage to solidify its prowess when it comes to vertical integration, cloud and chip offering? Well, they seem to be doing a really excellent job of that. And what's interesting about what Matt just said is they're going to let customer demand drive, how they build out these different capabilities for AI applications, which tells us that there are going to be different models purposed to different types of workloads. So everybody's thinking, oh, NVIDIA is the market-dominant player right now. They have massive market share. And they're treating it like it's one sort of big thing that's homogenous.

17:28And I think what people are going to realize over time is that there are going to be different types of models for different workloads. And different chips will be useful for developing such different models and for running those models, for doing the inference. So I think there's a lot of room for different chip players here. And we should expect more of the in-house chips like what Amazon does in collaboration with Marvell or what Google does in collaboration with Broadcom to continue to rise in prominence as we've been seeing in the recent news coverage. I mean, yeah, let's talk about Marvell.

17:58Out with earnings, out with also a key purchase of Celestial AI that's all about lasers. We can talk into lasers a little bit more. But are we seeing ASICs really starting to put a concern towards NVIDIA? Should they be threatened by this custom built model? Well, no company likes any kind of competition. So I'm sure NVIDIA would just be happier if they didn't exist. But clearly, look, ASICs are very powerful. That stands for application specific integrated circuit. Right. So these I believe these kind of XPUs or TPUs are going to be designed and going to be put to use for the type of applications in AI for which they're best designed.

18:38So it's clearly the case that NVIDIA is going to lose share over time in the big world of AI compute. But nobody should be surprised by that. And the pie is still growing so massively. They can't meet demand. They're unlikely to be able to meet demand for some years to come. And so there's a lot of room for ASIC approaches to play roles in various types of models. So we should expect that. Before we talk more lasers, I want to go back to where we sort of started. The fact that you're getting specific chips for specific applications, but also specific models. And I think there's some threat in the market today around Microsoft's other part of the flywheel.

19:16Because everyone thinks Microsoft's got a very strong cloud offering. And clearly we've seen Azure not be able to fill demand with its supply. But we're now worried just basically about the applications, about companies being willing to pay more for these AI agents and actually the use of AI. What are you hearing in the market? How much does that impact your sector of chips? There is a lot of sporadic, I should say, information about how much AI agents and AI is being used in different settings. So, right, there was a story today about how, you know, Microsoft has reduced its sales targets for getting AI agents, you know, to be adopted by their customers.

19:54And so that's people concerned. You know, Salesforce similarly is trying to roll out, right, their AI agent capabilities. And some people are wondering whether that's going to happen. But there are so many other applications in addition to those kind of smart helper AI agents. And I think the earlier in the week announcement with NVIDIA and Synopsys is a good example of that, right? The industrial uses, whether it's these digital twins, basically being able to model out a whole factory or a whole building or, you know, any other physical presence in simulation. You need this kind of computational power.

20:28You need AI. And so that kind of collaboration, I think, really points to lots of other applications for AI. And then you go to biotech and pharma and, you know, computation. we've just been held back for so many years by its limitations from the CPU side. And now that we have these GPU-based accelerators and innovations in fabric, like what Celestial is bringing to Marvell and what Broadcom already does, is speeding up all of these computations, making far more applications possible across all industries. And some would say limitations have been in the fabrication in the United States, energy just making sure that we've got more solid and trustworthy supply chains.

21:09I think about just the news also earlier this week,$150 million stake in a chip startup by Pat Gelsinger. Of course, we all know him from Intel. But the U.S. is making that investment in Xlight, a startup. Joanne, you have some real insight as to how this technology is being put forward. It's all about lithography taking on ASML. Yeah. So Xlight is developing a new laser technology. And that is a fundamental ingredient to doing lithography, right? ASML being the leader in extreme ultraviolet lithography, which depends on these very high-end lasers. So X-Lite's taking a different approach to laser development.

21:43And what's interesting is, and also reminds me of my past, is that this$150 million investment by the federal government, by the Chips and Science Act, the work is going to be done at a place called Albany Nanotech, which is where I got my start in the semiconductor industry, you know, 20-plus years ago. And it's a location for collaborative R &D, for development of new manufacturing techniques, development of new materials, development of new recipes for designing and building chips. And it's all the major players in the industry are there, and it's pre-competitive. And so for X-Lite and Pat Gelsinger to be doing it there with the support of the federal government sort of enhances this model of get some public support for a technology that can be spread and help the industry, broadly speaking, and does go towards this effort to enable more chip equipment design and manufacturing to eventually occur in the United States.

22:41It's going to take a long time. These programs, you know, as I was involved with back in the early 2000s, they take many years. But it's a great way for the U.S. to subsidize a general technology which could ultimately help the U.S. position in equipment manufacturing. And the state of New York. I'm sure music to its is to Joanne Feeney of Advisors Capital Management. Thanks so much. Time now for Talking Tech. First up, Uber launching autonomous trips with AV Ride in Dallas, marking the latest U.S. city where the ride-hailing giant is offering such a service. Uber's global head of autonomous mobility and delivery sat down with our colleagues at Wall Street Week.