US-China Trade Tensions Grow

0:28The news doesn't stop on the weekends. We put the past week's events into context, examining what happened in the markets and the world. Then on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television, listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast. That's Bloomberg this weekend, Saturdays and Sundays starting at 7 a.m. Eastern on February 28th. Make us part of your weekend routine on Bloomberg Television, Radio, and wherever you get your podcasts.

1:09Bloomberg Audio Studios. Podcasts. Radio. News.

1:19Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Lovelow in San Francisco. This is Bloomberg Tech. Coming up, escalating trade tensions between China, the US, and now Europe too. We'll discuss what the latest trade showdown means for the tech sector. Plus, concerns of an AI bubble grow louder among global fund managers. We'll discuss the valuation anxiety in their latest Bank of America survey. And Instagram makes some changes with tighter content restrictions for teenagers. We'll discuss with Instagram's global director of policy. But first, to check in on these public markets, and once again, anxiety returns to the fore.

1:59We are worried about US-China, Europe-China, and the trade tit-for-tat that really moves out into the world of shipping. We're down 9 tenths of a percent on the index of the NASDAQ 100. But Bitcoin, crypto in the eye of the storm, and$150 billion wiped out in terms of market cap across the industry. We see margin calls, leverage flush out. It really is a dial-up of worries when it comes to geopolitical risk here. OK, let's get to our top story. Treasury Secretary Scott Besson said he still expects Presidents Trump and Xi Jinping to meet, though China's latest escalation in that trade conflict between the world's two largest economies raises questions about all issues can be resolved before that meeting.

2:40Bloomberg Senior Technology Editor Mike Shepard joins us. Mike, what do we need to know? What's the latest on those U.S.-China trade talks? Well, the latest really is that China is hitting the gas rather than hitting the brake now as the two sides prepare to meet to discuss these ahead of a possible summit between presidents Donald Trump and Xi Jinping. China earlier today unveiled new measures aimed at U.S. shipping, sanctioning a South Korean company with strong U.S. ties and the U.S. operations of that venture, Hanwha, and then also unveiling other possible port fees. This is the latest escalation in an area where Beijing feels like it has an advantage over the supply chain.

3:23China has been the world's largest shipbuilder since 2017, and it follows the last week's move where China imposed new export controls on sales of rare earths minerals to the U.S. and to other countries around the world. Again, another area where they have a hold on the supply chain. And even as Sakat Besant is saying that he sees the prospects for a meeting between Donald Trump and Xi Jinping. He has also indicated that he sees China's moves against rare earths, and he hasn't commented yet on the shipping decision by China. But he sees those steps as aiming a bazooka at the global supply chain.

4:00And it is not the tone you would expect the two sides to be striking as they try to reach some sort of an agreement. The global supply chain is key here, Mike. Europe really considering what its own options are, where leverage can be applied to protect its own manufacturers, because the rare earth's implications are large for them too. The rare earth's implications are huge, and they're looking at it at a number of fronts. One area of particular concern, of course, has been the vehicle industry and electric vehicles more specifically. And what the EU is considering now is whether to require Chinese firms that want to operate within the bloc to share technology.

4:37And this is sort of taking a page from Beijing's own playbook. Any foreign company that wanted to do business with a Chinese partner in mainland China had to share technology with that partner as really the price of admission. And the EU is now considering the same. And it is worried because it is seeing BYD make such inroads into the European market and putting some of the European makers and their own EV ambitions in jeopardy. Now, it would require not only the sharing of technology, but this also joins, Carol, other steps that are aimed at trying to rein in China on the continent. And that includes a doubling last week of tariffs on steel imports, clearly a move aimed at China.

5:20And this also follows something that we were covering very closely over the past two days, the Dutch decision to seize Nexperia from its Chinese owner, Wingtech, a venture that was subject to possible U.S. sanctions. We learned today if it did not replace its Chinese CEO. And that prompted the government, the Dutch government, to move and to seize control of the local venture, Nexperia, from its Chinese parent. Bloomberg's Mike Shepard. Thank you very much. Let's get more details on the story Mike mentioned. China retaliates after the Dutch government invoked a Cold War era law to take control of chip maker Nexperia.

6:00With Beijing now blocking Nexperia and its subcontractors from exporting products from the Asian nation, the company is a subsidiary of China's Wing Tech technology and a key supplier of mature chips used by the automotive and consumer electronic industries. Cara. Now, look, these U.S.-China trade tensions and European China trade tensions clearly weighing across risk assets. Most notably, though, crypto, it continued to lose ground after a historic round of liquidations that triggered a sharp sell-off over the weekend, remember. Look, Bitcoin is in a technical correction. The market value of all cryptocurrencies fell by more than$150 billion over the last 24-hour period, according to CoinGecko data.

6:39The person we turn to is Bloomberg's Bailey Lipschelz, who covers tech assets for us. And this is washing out the leverage from the system. Yeah, washing out the leverage, you have people getting margin called. The thing that's interesting with crypto, when you talk to your kind of regular Joe crypto trader, they sometimes use 50 times leverage, which means that if they're that levered and you see any type of pullback, they don't get to say, oh, actually, let me try to get some assets together. They immediately get margin called. That's when you see some of this leverage be flushed out so quickly.

7:06And this comes back to the debate 24-7 trading. If you're asleep or taking a weekend off to watch some college football and all of a sudden Bitcoin pulls back, well, guess what? Your portfolio just got blown up. And that is something that we saw really happen and play out over the weekend. And when you see the back and forth with the U.S. and China, we're going to continue to see this volatility. Bailey, one of the best read stories on the Bloomberg Terminal and on the website is the latest Bank of America fund manager survey. and in particular the focus on how the market feels about AI valuations in equity markets, what do we need to know?

7:41You look at it and say that are there fears of a bubble? Looking at that 54 % of participants in that October poll pointing to tech stocks being too expensive. You look at the NASDAQ 100 forward PE, nearly 28 versus an average over the last decade of 23. So all signs do point to overvaluation. When I talk to portfolio managers, the question is where are you allocating capital? Is it that MAG7 Plus Broadcom? And also, if we're going to say that, hey, this is a market that could be overvalued, these are investors who get paid to at least outperform their peers. So when you see where stocks have been trading for the last six months, or even if you go back to that April bottom, if you missed out on the immediate snapback, you kind of continue to buy.

8:22Even if you think the stock market is overvalued, we see investors kind of bending over backwards, doing some mental gymnastics saying, okay, well, maybe it's overvalued on the forward price to earnings. But if we really look out to 2028, well, what does NVIDIA look like then? Then they're justifying buying now. But there's so much talk about froth, and we've seen it with large cap tech, with some of these smaller companies. I often keep an eye on the Goldman Sachs unprofitable basket. It's a return to about 48 % year to date. So quickly outstripping the Magnificent Seven, quickly outstripping the NASDAQ 100, is that a short squeeze or is that people taking on risk?

8:56It's really been a topic of conversation depending on who you talk to, whether that's in the private or the public markets. Topic of conversation on the earnings calls. Look, we've just had a CFO of Citigroup being asked about frothy valuations in AI. This is focused for institutional investors as well as retail investors. And it's undeniable. And the question is, are you going to hit on one of those 10 investments? I look at a company like Oaklow in the nuclear space, up 470 % this year. Quantum stocks are up hundreds of percents. Is that a bet on these being kind of the next wave of companies?

9:26Or is this investor saying, you know what, if I hit one out of the 12 companies and quantum ends up being kind of the next paradigm. Well, at least I got in on the next NVIDIA, if you will, on the ground floor. Which is the biggest story today? The CFO of a bank saying something quite measured or a Bank of America survey of all the fund managers that they track? CFO. I think when you see management teams start to kind of grapple publicly with the idea of froth and publicly discussing whether they're going to outright say, are we in an AI bubble or not? whether you want to ascribe a lot of value to what we've seen and heard from the likes of Sam Altman talking about kind of it is an AI bubble or Jeff Bezos.

10:06Every leader at these biggest companies in the world, whether it's tech giants or whether it's the C-suite of banks, are grappling with this debate. And it's going to be something that is a theme in this earnings season, whether you want to talk about tariffs. but it's going to inevitably come back to AI bubble and valuations and expectations because there is so much debate around the cycling of money and what this actually will mean with building out data centers, buying these chips, open AI partnering with seemingly everyone. What that does mean when we look back a year from now, two years from now, was this kind of the build-out of the next generation in terms of AI or was this something that we all kind of should have seen the signs that there was a potential top?

10:46Bloomberg's Bailey Lipscholz with big Bailey Lipscholz fans here on Bloomberg Tech. Try saying that in the morning without a coffee. Thank you very much. Now, coming up, AMD announces a new agreement with Oracle supplying even more AI chips. We have the details on that next. This is Bloomberg Tech.

11:19amd says oracle is set to deploy 50 000 of their mi450 chips into data center computers starting next year it's the latest commitment in the ai infrastructure frenzy here with the details bloomberg's ian king who leads our coverage of semiconductors this is an important deal for amd it's one of the only stocks on the socks that's in the green right now um what do we need to know about it, the specificity of where these chips are going? So the first thing to note is that these chips don't actually exist. These are the new products promised for next year. So what this is, is another affirmation that AMD has a role in the future of this massive build out, that it is perhaps more than just an alternative to NVIDIA, that people are actually looking at its technology and saying, hey, we'll have some of that.

12:05We like that. We're going to commit at least part of our data center build to that. And what's interesting is, and it comes hot on the heels, of course, of OpenAI, AMD teaming up. Oracle's down significantly today. They've got AI world upon us. But how much are we seeing AMD reap the rewards? How much will some of these be built out in data centers and the margins be impacted for Oracle here? Yeah, I mean, we've obviously saw the massive OpenAI announcement with AMD, another affirmation, a separate affirmation from this, that, hey, they've got a role. Oracle has been a customer of AMD for a while.

12:40This gives Oracle more options. Obviously, everybody else, including Oracle, is paying most of their money to NVIDIA right now. The margins are massive. The prices are massive. So this creates an alternative. Let's go back to what you said about these chips don't yet exist. AMD, much like NVIDIA, has future generations of their GPU that they've designed and announced, but they're not yet in production. How do we best understand where AMD stands in this market for this lead edge accelerator versus Nvidia in the next year or so? Yeah, I mean, I think the best way to look at it is up until the OpenAI announcement, it seemed like everybody was kind of AMD curious that they were getting, you know, orders, which were substantial and bringing in a good amount of money for the company.

13:28But compared to what was on offer, compared to what was happening at Nvidia, really nothing. I mean, they were the best of a group that's following NVIDIA. What we're seeing now is at least the beginnings of these kind of volume orders and these future commitments, which would imply that they are a serious technology provider. Ian King with always the latest. Thank you so much. Sticking with chips, shares of Samsung actually sliding over in Asia trading hours, despite the company reporting its biggest quarterly profit or expectations of in more than three years. Here to discuss it, Bloomberg's Peter Elstrom.

14:02And it's all about memory and demand for it. But why is the stock under pressure? Well, Samsung stock has really been on a run this year. It's up about 75. It was up about 75 percent before these earnings came out. So investors are taking a bit of profit here on the actual news. Samsung's numbers were pretty good. This is just preliminary earnings for them. They just put out revenue numbers and then operating profit, just two numbers so far. And their operating profit was the biggest in at least three years. It was about$8.5 billion. So they are making more money. They're gaining some traction on the HBM side.

14:36These are the memory chips that are paired with the accelerators. But you were talking earlier with Bailey about some of these tech stocks getting ahead of themselves. Samsung is one of those examples. It had run up quite a bit. Now their investors are taking a bit of profits. But the numbers look pretty strong. We're going to get final earnings from them later on in the month. We'll get more detail about exactly how much of this is coming from memory chips, the HBM chips in particular, how much from smartphones and other kinds of components. Samsung in this AI memory chip race has been behind SK Hynix, its local competitor.

15:10SK Hynix has been very good at working with NVIDIA in particular, but now Samsung appears to be making some progress. We'll get more detail on that later, but it does look like they're making some progress. Peter, you're the editor that leads our coverage of Asian technology, right? How do we cover Samsung? That's a company that has all of these different arms. And in the calendar, is Samsung the most important Asian technology company right now? Well, we've got a big week for tech companies in Asia and particularly chip companies in Asia. TSMC comes later on in the week. TSMC, of course, makes chips for everybody.

15:46But particularly, they're the ones who actually manufacture those chips for NVIDIA when they go ahead and sell them to OpenAI and the rest of their customers. So that's going to be a biggie. In between, we have ASML in Europe, which is another very important company in the chip ecosystem because they make the highest-end chip equipment for manufacturing these high-end chips. So both of those are going to be important indicators. Samsung is very much in there. Recently, they've had some struggles as they fell behind SK Hynix and the memory chip business in particular. It looked like Hynix was going to run away with this market.

16:20Now Samsung, of course, big company within South Korea, the biggest company historically. They've made a lot of progress in terms of catching up. So they're important. And together, Samsung and SK Hynix give you an indication of how the AI market is doing. So both of those companies are partnering with OpenAI, too. As you mentioned earlier, OpenAI seems to be partnering with everybody. They both have contracts to be able to supply those memory chips as OpenAI embarks on this enormous construction project to build more data centers across the U.S. and beyond the U.S. Samsung under pressure and you articulate how far the stock has run up recently.

16:53But is there any implication from the dialing up of geopolitical anxieties? At the moment, we know that China, South Korea are getting embroiled from a shipping perspective, Peter. Is there anything weighing more broadly or worries that Samsung will be engulfed in yet further tensions between South Korea, China and more broadly? There are certainly tensions. I think everybody is watching the negotiations between the U.S. and China. We, of course, had that flare-up over the weekend where China threatened to use their control over the rare earth elements. In the trade negotiations, President Trump responded by saying perhaps tariffs would go to 100%.

17:29I think that concerns everybody. When it comes to South Korea, in particular, and Samsung, Samsung is one of the companies that is building facilities within the U.S. They're one of the Chips Act beneficiaries, so they're doing construction in the U.S. They plan on adding a lot of capacity here. So as the Trump administration pushes for more domestic manufacturing, they seem to be one of the beneficiaries at this point, at least. They, of course, make these memory chips, which is really where they make all of their money. The mobile phone business may be a little bit higher profile, but the chips business is really where they make the profit.

18:01as they push ahead with that and they work more with TSMC and NVIDIA on those memory chips. That should help their profits. But in terms of these trade wars, it's very important that they continue to build out in the U.S. and build up those fabs that they have in the U.S. Bloomberg's Peter Aelstrom on all things Samsung. Thank you very much. Now, coming up, I'm going to speak with Tonal's CEO, Darren McDonald, about the company's retail expansion and its push to infuse AI into all of its products. That's next. This is Bloomberg Tech.

18:59following 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. So 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.

19:39Tonal Systems, the maker of at-home fitness equipment, says it's seen a return to revenue growth fuelled by sales of its tech-infused Tonal 2. The company has experienced a turbulent few years after pandemic-era lockdowns lifted and people went back to in-person gyms and fitness classes. Let's talk more about the company's turnaround efforts with Tonal's CEO, Darren McDonald. So there is a strategy now, right? A different environment to, say, 2020 through 2022. And I'm trying to make sense of what links it all. You seem to want to look at the high street a little bit and retail. What is your big strategy?

20:18Well, yeah, just in the past year, we've actually rolled out from 19 locations to over 100 locations for distribution. So now we have more places for people to see and touch and feel a tonal product, which is incredible because we have 75 % NPS and some of the lowest churn in the category. So giving people an opportunity to actually experience this system means that people end up buying. And so we want to really focus on that. Tonal systems are still higher end. And if we learned anything from a couple of weeks ago when Peloton had its latest change in strategy, people are still very sensitive to pricing.

20:50They want more for less. What's your strategy for pricing? Yeah, you know, we feel like we've got the world's leading strength training system. It's a personal trainer on your wall. It's a full gym. You don't have to think about it in the sense that we personalize all the weights for you. So there isn't anything out there in the market like what we do. So the fact that we can personalize the workout, we can adjust weights in real time, we'll move weights up by one pound or decrease it by one pound if you're not doing well, and you don't have to think about it at all. And from our perspective, because of our platform and the way it's built, which just sits on top of AI, it's not just entertaining you.

21:27It's really a strength training system that works with you. And you are offering more to those that already have one with Reforma Pilates options being built in, Darren, and Unfolded. But I'm interested in the artificial intelligence part of it that has been being baked into everyday workouts on the tonal. How are you embracing it? Yeah, well, as you said, Carolyn, we're super excited today to announce the fact that we're working with Chris McGee and we're announcing our Pilates system. You know, what's really great about it is that what we see on our platform is that almost two thirds of our members are interested in Pilates, but only 17 percent of them are actually doing it.

22:02And the reason for that is pretty clear. You know, we've got people who have difficulty getting into classes. They're inaccessible. You have to drive to them. The classes are often difficult to find. And so we rolled that out on our tonal system. We have force curves that are very similar to what a reformer looks like. So as you move further away from the machine, it actually increases in resistance as well. It's really unlike anything that's ever been offered out there. So now a greater part of our community is able to actually interact with something like Pilates. And so you add that to strength.

22:35You add that to yoga. You add that to the cardio work that we do. And so to answer your question around the AI component of it, we think we have the world's largest strength database. So we have nearly 300 ,000 members lifting nearly 300 billion pounds. It's a tremendous data set. So as we learn about you and who you are, we can look at our cables and say, you know, somebody is lifting a certain amount of weight, a certain amount of reps, force, velocity, range of motion, all of those things, which helps us to define what outcomes could look like for somebody. So people get stronger on Tonal than any other system.

23:09It is a premium offering. Would you ever think about having cheaper offerings or just the application as we've seen with Paladin, for example? Yeah, we don't have anything to announce today, but we're certainly looking at alternative opportunities for our hardware. I mean, we could move upstream, we could move downstream. But again, I would just refer back to the fact that nobody has anything quite like what we have. Just very quick before we let you go, you've raised money in the past. Would you raise money just to keep growth going, or what would the rationale be? Sure. I mean, we're always looking to fuel growth.

23:41So, you know, in terms of developing new hardware, in terms of acquiring new customers, expanding any new modalities as we're announcing today, we think there's an opportunity for us to keep that going. Keep that going. We really appreciate it. Darren McDonald, CEO of Tonal, on the latest announcement when it comes to Reforma Pilates and the growth story. But coming up, Ed, we've got so much more to discuss when it comes to Salesforce's Dreamforce conference. Kicks off today, we're going to be speaking with Meij Habib, a writer, and Mati Staniszewski of Eleven Labs. This is all about the integration of AI and the future of enterprise software.

24:13Basically, Ed, today the key question is, are we in an AI bubble? How much, therefore, are we seeing a return on AI investment in the enterprise? Look at what the impact, though, is of China and the US as well. Funny day in the market, so we're down about a percentage point on the NASDAQ 100. I'm still recovering from Friday where the president broke that news at the top of our show and then markets went into freefall. But the blanket theme is the same. Anxiety about trade and unknowns about the relationship between the United States and China, particularly in the context of technology. The outlier AMD doing deals all over the place.