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- [00:01]
Ed Ludlow
With the highest number of young STEM graduates per capita in the eu, Ireland has the people and skills your company needs to succeed here. IDA Ireland, the national investment development agency, can help you find and nurture the people you need to internationalise and thrive. Our talent is just one of the extraordinary benefits Ireland has to offer. Learn more@idailand.com invest in extraordinary.
- [00:32]
Romaine Bostick
Introducing B of A Rewards A new
- [00:34]
Bloomberg Tech Host
loyalty program with rewards for every ambition. From cash back deals on brands you know and love to a credit card rewards bonus, from fueling up to rewards that fuel your goals. It all starts with a Bank of America checking account and grows from there. What would you like the power to do? Bank of America Open or enroll your account@bankofamerica.com B of A rewards bank of America Corporation All Rights Reserve the thing about AI for business, it may not automatically fit the way your business works. At IBM we've seen this firsthand. But by embedding AI across hr, IT and procurement processes, we've reduced costs by millions, slashed repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM
- [01:33]
Ed Ludlow
Bloomberg Audio Studios Podcasts Radio News.
- [01:44]
Bloomberg Tech Host
Bloomberg Tech is live from the heart
- [01:47]
Ed Ludlow
of Silicon Valley with Ed Ludlow in San Francisco.
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Bloomberg Tech Host
This is Bloomberg Tech. Coming up, the spending race is ramping up with Alphabet boosting its investment plans while Tesla's burning through cash to fund Elon Musk's AI ambitions. Plus, mobileye founder and CEO Amnon Shashua will be stepping down after 27 years. He joins us for an exclusive interview to explain why. And we speak with IBM CEO Arvind Krishna after a steep drop in mainframe sales weighed on the company's results. This is a technology earnings story about AI spending. How much? How fast, with what returns? We're looking at Alphabet, the parent of Google. We're looking at Tesla and Alphabet's place on track for its biggest drop at one point since May of last year. Tesla a very steep Decline now of 14%. Biggest drop in a long, long time. Tesla had a strong quarter for EV deliveries, but profits still tumbled. Shares as I said, down 14%. This is partially due to ambitious spending was Tesla's first cash burn or negative free cash flow in two years. Here's what CEO Elon Musk had to say on the company's capex plans.
- [02:59]
Eric Sheridan
We should be spending on capex as
- [03:02]
Romaine Bostick
fast as we can, spend as fast
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Bloomberg Tech Host
as we can without it, without it being too wasteful.
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Eric Sheridan
So we're not trying to aim for like some extremely high efficient efficiency capital spend because that would slow things down. So it's a balance between like how
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Bloomberg Tech Host
much so capital efficiency versus time. Joining us now, Ivan finds that Tigris Financial Partners CEO and partner. It's been a long time since you've been with us on Bloomberg Tech. Welcome back. The stock's down a lot. Biggest drop since June of last year. We went into this with Wall street saying we want to see Tesla spend. They are. Why the negative reaction?
- [03:47]
Ivan Vines
Well, they like to see the companies, Wall street likes to see companies spend but they don't like companies that spend. And look, the Tesla has never been a car story. It's always been a technology company story and a story. And you know, Wall street has to continue to go back and forth with evaluating that and the whole, you know, the, the upcoming drivers for the company are its autonomous technology, its Robotaxi, the Optimus robots and evolving from, to a physical and how you evaluate that. And it also takes a lot of capital and it probably is going to take and like Elon just said, they want to spend as much as they can smartly but they are also competing against a lot of other competitors and this company is viewed as a tech company and the profitability from that is still a ways off.
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Bloomberg Tech Host
Again I'm going to acknowledge the stock biggest drop since June of last year down 14% but at its lowest level since August of 2025. Let me just go through the sort of non financials right. Cyber Cab production has begun. They've been doing employee rides in those Cyber Cabs. They've expanded the Robotaxi areas to new cities but also expansion in Austin and the Optimus humanoid robot lines have gone in in Fremont. Production expected to start later this year. That doesn't seem like enough of an update on those business lines to convince investors.
- [05:25]
Ivan Vines
Well, everybody wants to see when the Optimus robots will be available, what would be the functionality, how will they be deployed. So that's still a ways out. So it's still a show me company. And right now the market is going through a difficult time. I mean it's held up phenomenally well with what's going on in the world. But and it's been driven by tech, the market strength for the past several years and you know, this year so far has been driven by tech and that price for perfection. And when you see now a slight pause of concern, the stocks are going to get hit hard. I mean Tesla has always been a volatile stock. And if you look back in its history buying the dips have paid off. So I feel that this sell off today is a buying opportunity. It's shown that to be the case in the past and I still believe lead that to be the case now and the drivers of its future growth are still ahead of it. And so, and the concern is that we're not seeing currently or real tangible results are not on the near term horizon.
- [06:31]
Bloomberg Tech Host
Record EV deliveries in the quarter gone, but lower ASPs, higher interest rates, rising commodity prices, stock based compensation and then spending, spending and what I find so interesting right is CapEx is still $25 billion for, for this year which as you know for Tesla like it's just, it's just unprecedented. But they're not even tracking to that right now. They're going to have to really accelerate in the second half of this year going forward. Ivan, what's the story going to be? What is the metric that you'll track as evidence that Elon Musk and the Tesla team are making progress on those future business lines?
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Ivan Vines
Well, our number one measure of performance is economic profit. It's an increasing return on capital and these will eventually be high margin businesses with high returns. But it takes a lot of capital invested now so that's diluting the near term returns and that's the primary issue. I'm also impressed that they did sell the number of cars that they did. The demand for their EV EVs remain strong because the overall EV demand in the industry has, you know, been soft for some time and Tesla has sold a lot of cars since inception and the demand for the cars remain strong. But the, the future of the company is physically it's robotics and it's also the Cyber Cab and Robotaxi and
- [07:58]
Romaine Bostick
those
- [07:59]
Ivan Vines
are still a little ways out. So any time that things are not perfect, the stock sells off.
- [08:07]
Bloomberg Tech Host
Ivan Vines have Tigress Financial partners back on the show. Thank you very much indeed. Another piece of news from Tesla. And at a time when memory chips are hard to come by and prices are high. Microns carving out capacity for Tesla. During the company's earnings call, Elon Musk praised Micron for setting aside what he called a significant allocation of memory chips. And he also called them under reasonable terms. It's interesting to see micron up almost 3% on a day where a lot of chip stocks are down generally speaking and a lot of tech stocks are lower. Let's turn to the other big, big story. Alphabet, the Google parent raised the top end of its capex plan. For this year to $205 billion. There's cloud growth, there's Gemini engagement, all that. The discipline on spending is a bit of a concern. Joining us is Eric Sheridan, Goldman Sachs Co business unit leader of the Technology, Media and Telecommunications Group in Global Investment Research. He says Alphabet is well positioned to benefit from the growing demand for AI across both consumer and enterprise markets and reiterates a buy rating while lowering his 12 price 12 month price target to 200 to $435 from 440. Eric, welcome to the program. Not a surprise really that they would raise the CapEx expectation for this year, but the reaction to that seems a bit severe. They did swing to negative free cash flow for the first time as a public company. Was that it?
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Eric Sheridan
They did swing to negative free cash flow and I think there's a mixture of signals versus noise in this print. The long term signals are Search is a stable business, YouTube continues to gain momentum across the broader media landscape and Google Cloud revenue continues to reaccelerate and will likely reaccelerate in an outsized way for most of next one to two years. They made some decisions short term to raise CapEx and strike deals for third party compute that are impacting OpEx that are all about closing some of the demand versus supply gap that exists around COMPUTE today because they didn't want to slow growth and disappoint external clients. Now we certainly are cognizant that in this market environment over indexing to investment and under indexing to short term return isn't being rewarded. But we think Alphabet is making the right long term decision margins when angling against a larger market opportunity for AI over the next couple of years we
- [10:35]
Bloomberg Tech Host
got a lot of stats, stats about Gemini, stats about enterprise adoption, the cloud units growing 82% year on year. For me really simple question is is Google doing well? I
- [10:50]
Eric Sheridan
they are still an AI winner in our view. The market took a step back from that view overnight. The delays around 3.5 Pro and the fact that they no longer have a foundational model that sits right at the frontier of performance and benchmarking has definitely taken a little bit of the shine off the winner theme. What sundarpichai talked about last night is that they're likely going to have to wait for Gemini 4 to be back at the frontier of performance with AI models. Two points I think generally when you look at access to chips, data, the ability to train these models, we think Alphabet is as well positioned as anyone. But there can be short term gaps that open up between performance and Training runs around these models. More importantly, we think the world is broadly shifting from token maxing to token optimizing. And some of these other models that are around speed and efficiency, including some of the flash models that they've released, will allow them to remain very competitive for incremental workloads. But investors want to see companies spending this amount of then they want them at the frontier of model performance. They might have to wait a few months for that With Alphabet.
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Bloomberg Tech Host
That is a conversation I've been having with CEOs all across the stack recently. The difference between token maxing and token optimizing, if, if Google nails that, where does it show up right? I think you write right at the top of your note the cloud revenue estimates now revised even higher. Is that, is that still the metric to follow on how they are being used out in the real world World?
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Eric Sheridan
Yes. And we believe companies like Alphabet and next week we'll hear this from Amazon that are going into enterprise customers and saying we're going to help you optimize your spend. It's not going to be about just buying tokens, no matter what the cost from a single model, but buying a wider array of tokens from a wider array of models is generally where this landscape is going. We wrote a note a couple of months ago about where the economy would go over the longer term. And I think what got lost in that note, Ed, would be the fact that to drive you utility and to drive token growth, you need deflation. Every technology compute shift I've ever covered and analyzed has unit growth that comes with deflation because you have to incent adoption rates. And we don't think the economy is going to be any different than that.
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Bloomberg Tech Host
We don't have time for this. But China's focused on lowering dollar per token. America's focused on the quality of the token. I just note very quickly that the other hyperscalers as by association markedly lower today. Eric Sheridan of Goldman Sachs really enjoyed having you on the program. Thank you very much. One more nugget from Alphabet's earnings. Its early bets are paying off. Google says it's sitting on $94 billion worth of Space X shares after Space X is IPO. Together with its Anthropic stake, those holdings delivered nearly $100 billion in gains last quarter alone. But for now, most of those Space X shares of course, remain under lockup restrictions, limiting when Alphabet can cash in, cash out. Coming up, a White House official accuses China's moonshot of improperly using US AI models and Nvidia chips. To create the Kimi K3 system. Details next. This is Bloomberg Tech. Yesterday, OpenAI said its advanced AI models mistakenly breached Hugging Faces systems during a controlled cybersecurity test. Bloomberg has now learned the models completed the attack in just hours, a task that would typically take skilled hackers weeks. That's according to sources. OpenAI says it's continuing a joint investigation with Hugging face sticking with AI. China's moonshot improperly used US AI models and in video chips to create the Kimik 3 system. That's according to White House Office of Science and Technology Policy Director Michael Kratzios making the case in a social media post yesterday. Nvidia and Moonshot didn't respond to requests for comment. Bloomberg's reporter in D.C. maggie Eastman, joins us for more. It is a big accusation by Director Grazios. It's a detailed post. Give us the reporting, the specifics of the accusation, what we need to know.
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Maggie Eastman
There are two key points here that this White House official, Michael Kratzios, is making. The first is that Moonshot again, the maker of Kimmy K3 access, Grace Blackwell's. So those are Nvidia servers. Nvidia chips inside servers that Chinese companies are not allowed to purchase. So that was kind of the first accusation. He also said that they access those chips in Thailand as well as acquired them. And then the second accusation here is that Moonshot actually distilled from US Models. Now, this is kind of like an emerging technique that Washington has been quite worried about in which, you know, the Chinese companies are using outputs from the US Companies to then feed them into sort of copycat versions of the US product.
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Bloomberg Tech Host
Bloomberg Tech has made every effort to invite Mr. Kratz. Yes. On the show because people have very simple questions. For example, they look at when Anthropic's fable was released and then controlled by the US government and when K3 was released and say, well, how is that possible on the distillation side? Give us, I guess, the context, then the size and scope of K3 and then the distillation accusation a little bit more based on what Mr. Kratz is saying.
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Maggie Eastman
Yeah, I think there's a lot of questions in D.C. and beyond around this, you know, question of distillation and whether this is a real, a real thing that Washington needs to be concerned about. Right. Because Anthropic and OpenAI have been raising these concerns for the better part of a year. And essentially some would still say that this distillation technique is perfectly fine. And as you point out, the time between, you know, Anthropic latest release and the release of Kimi K3 is not that long. So some have pointed to that timeline and question, you know, where is the evidence that this distillation is really happening? You know, China obviously has a lot of, you know, talent in the industry as well, so there's still, you know, this lingering question of how much did MoonShot rely on US technology and how much as their own innovation.
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Bloomberg Tech Host
Bloomberg's Maggie Easten with a critically important report on Bloomberg today. Thank you very much. Now coming up, mobilized founder and CEO Amnon Shasher announced today that he'll be stepping down after 27 years. Shasher joins us next for an exclusive interview. Stay tuned. This is Bloomberg Tech.
- [17:45]
Ed Ludlow
With the highest number of young STEM graduates per capita in the eu, Ireland has the people and skills your company needs to succeed here. IDA Ireland, the national investment development agency, can help you find and nurture the people you need to internationalise and thrive. Our talent is just one of the extraordinary benefits Ireland has to offer. Learn more@idaiirland.com invest in extraordinary
- [18:14]
Public.com Advertiser
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Bloomberg Tech Host
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- [19:13]
Ivan Vines
Member FINRA and SIPC Advisory Services by Public Advisors, LLC. SEC registered advisor complete disclosures available@public.com disclosures
- [19:23]
Bloomberg Tech Host
Amazon Health AI presents Painful Thoughts why
- [19:29]
Ed Ludlow
did I search the Internet for answers to my cold sore problem? Now I'm stuck down a rabbit hole filled with images of alarmingly graphic source in various stages of ooze. I can clear my search history, but I can never unsee that.
- [19:46]
Arvind Krishna
Don't go down the rabbit hole.
- [19:48]
Romaine Bostick
Amazon Health AI gets you the right care fast. Healthcare just got less painful.
- [19:56]
Bloomberg Tech Host
It's a big day for Mobileye, whose founder is stepping down as CEO after 27 years. The news comes as Mobileye released its second quarter earnings earlier today, beating analysts estimates with reported revenue of $508 million, just above its strongest quarter of 2025. Mobileye founder and CEO Hamna Shastra joins us now for an exclusive interview. Welcome back to the show. I think the easiest place to start is why, why you're stepping down, why you think now is the right time to hand the reins over to someone else.
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Amnon Shashua
Good morning. I think there's never a good time but at the same time this is the best time because you know, mobileye built a great foundation, technological foundation going forward and we are at an inflection point in which now there's no open scientific problem. In the stacks, in the software stacks that we are developing, everything is running either offline or online and is ready both for Robot Taxi and for, you know, everything that we are developing. On the other hand, there is huge expansion, operational expansion, go to market expansion. For example, in the Robotaxi, we want to go B2C to explore B2C. Not only B2B humanoids, we want to, it's a new thing for us, B2C as well. And at the same time AI is moving very, very fast. As I just mentioned in your previous articles and as a scientist, this is, this is really my, my strongest point in my contribution to mobile. So I think it's the best time to bring a new CEO that will take care of the growth and me focus on the long horizon.
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Bloomberg Tech Host
Thinking you'll stay in post until a success is found. How active will you be in the process and on a finding your replacement?
- [21:48]
Amnon Shashua
Well, the board has a search committee, I'll of course be very contributing to it and also our management team, we want to cast a very wide net. We want to bring the best CEO we are looking, I'm looking many years into, into the future and at this point in time, if you find an excellent CEO, the growth potential of Mobilize is huge. It's really huge.
- [22:18]
Bloomberg Tech Host
The stock is down significantly, right? 15%, biggest drop since August of 2024. And you know, the sell side acknowledges that your, your decision to, to drop to, to step down is overshadowing a pretty strong set of results. You know, has that surprised you, the reaction to this?
- [22:41]
Amnon Shashua
Well, actually I thought the stock would go up, but I think that the markets, they don't like uncertainty and you know, once it will be internalized that I'm here to stay, I'm not going anywhere, just you know, releasing myself from the day to day management and focusing on, on what really matters, which is the future technology of the future science of, of the future. You know, mobileye is one of the few, really very few companies in the physical AI space that does both autonomous cars and humanoid robotics. This is, this is really, this is really huge and there are lots of technological ideas going forward and this is what I want to focus on.
- [23:23]
Bloomberg Tech Host
So this is also a fundamental question for the company, right? You know, whoever comes in as the next leader of mobileye, what is your expectation that they just completely shift the company's focus to Robotaxi as a domain as opposed to being a supplier of SOC for adas, Just going deeper into that segment.
- [23:45]
Amnon Shashua
No, look, ADAS is contributing today about $2 billion of revenue per year, $400 million of, of profit. The, there is at least a single digit growth in year on year on adas. It is, it is really a cash cow. Nobody wants to remove the focus from, from adas. The challenge is to increase, not instead, but increase focus on Robotaxi and humanoid. Well, first Robotaxi, this is, this is really around the corner. We have, you know, cooperation with the Volkswagen, with Moya, our first city Orlando and Lake Nona. Just last week there was a very big demonstration of end to end, including teleoperation. The KPIs are on track, commercialization, commercial deployment by the end of the year. Everything looks, it looks, looks really good. And now that you know the challenge is operational, go to market, building the operations and it has, it's really orthogonal to, to aid us.
- [24:58]
Bloomberg Tech Host
So I suppose you envisage the next leader being more operational rather than from a science, science and, and sort of entrepreneur background like you have.
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Public.com Advertiser
Right.
- [25:08]
Bloomberg Tech Host
I think just to end this, this Amnon, to be clear, this was your idea. This was you wanting to move to something new as opposed to the board or anyone else saying, you know what, we should make a change.
- [25:21]
Amnon Shashua
Well, it's my idea and also the board has offered me the chairman position. So it shows confidence, shows confidence in me and shows confidence in my future contribution. And it's my idea because I think it is the right time not to wait too long because it's an inflection point and now is really the right time to bring someone that can help with the growth.
- [25:46]
Bloomberg Tech Host
Just very quick. We have 15 seconds for which I apologize, but do you have a target timeline date?
- [25:53]
Amnon Shashua
No, no, I'm here to stay. Well, it will take as much time it will take to find a successor CEO. And as I said, we're casting a wide net to find to find the best CEO possible.
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Bloomberg Tech Host
Right? Mobileye founder and CEO Amnon Shashua. Thank you very much. Coming up, IBM cuts its full year sales outlook after weakness in its mainframe demand. We speak with IBM CEO Arvind Krishna. Soft time. We'll be right back. This is what the markets look like. Alphabet and its raising of capex is weighing down quite a lot of the tech sector. Tesla too. This is Bloomberg Tech Foreign. Welcome back to Bloomberg Tech. Shares of IBM trading near their lowest level since November 24th. September 2024. The company dialed back its full year sales forecast after a pretty steep drop in mainframe sales which weighed on results. Joining us from New York is the co host of Bloomberg's the Close. Remain Bostick alongside IBM CEO Arvind Krishna.
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Arvind Krishna
Remain Arvind, you've seen the reaction amongst investors here. Some concerns here about that lowered sales forecast overall as well as softness in software. You've characterized this as basically a shortfall for one quarter that is limited to capex sensitive areas of the portfolio. But that's still a meaningful area of your portfolio. Were sales coming into that quarter? Was that pipeline overstated?
- [27:26]
Romaine Bostick
I don't believe so because when we look at all the deals that didn't close, I think we have done enough verification, including with the clients to know that they were very real and it was a reprioritization of the CapEx spend at the end of the quarter. This is pretty confined to, I'll call it the Fortune 100. The deal that were within a subset of those. Now one third of what didn't happen has already come back. So that tells us that this was a reprioritization and those deals were very real as opposed to us being optimistic in our projections and remain I would also add, I think that maintaining our free cash flow tells us that we have levers around productivity and conviction and confidence in the business. And that is also I think going to serve our investors well. But the next few months will tell
- [28:18]
Arvind Krishna
us that well on that cash flow figure. Yes. And that certainly pleased a lot of analysts and investors out there. That billion dollar number of projected free cash flow growth. You maintaining the dividend as well, but you're largely done that so far by cutting costs. So that raises the question that if we are anticipating slower growth on the revenue side, does that mean more cost cuts are in store?
- [28:41]
Romaine Bostick
So the bulk of our cash flow growth over the last four years has actually been on adjusted ebitda. So that tells you that this is mostly through revenue growth. And our model has always been that we are the last dollar is more productive and more profitable than the first dollar. So we've been growing revenue 4 or 5% and we've been growing cash flow up in the 7, 8, 9%. So that's kind of our model and we intend to keep maintaining that. Now right now if we drop revenue by one point because we said 4 to 5 instead of 5 plus, we can absolutely make it through productivity. Cost cuts is an interesting question. Cost cuts doesn't always come down to do people reduction in headcount. Our headcount has been more or less flat over the last many years. I think there's a lot of third party spend where we are going to get a lot more efficient with that third party spend than we have been always.
- [29:39]
Bloomberg Tech Host
Bloomberg Tech is live on Bloomberg Television and Bloomberg Radio and we're speaking with the IBM CEO Arvind Krishna. Good morning. You want to focus on accelerating revenue growth and accelerating profitability and just really simply I'd love to hear what you're asking the team to do differently now in response to all of this factors that you outlined.
- [30:00]
Romaine Bostick
So it really so if I look at our software business, 80% of it is already an annuity consumption opex based business. 20% of it is a capex business. If we think that the capex headwinds are going to continue but 80% is already growing at about 8% we want to put a lot more focus so we are going to direct a lot of the team with forward deployed engineers with people who are focused on deploying the software at clients much more technical help and make that 80% grow even faster. Products like Red Hat, Confluent, Hashi all fit that model. On the CapEx side we have to make sure that while we can continue to do it don't depend upon outsized growth on that side to go there. Then on the supply chain can we leverage all of our capability and supply chain to make sure we have enough distributed infrastructure in storage, in Unix systems that people can fulfill all of the demand because we came out of the second quarter with half a billion dollars of backlog in that part of the portfolio. So those give you an idea of the kind of changes that we are making already, not just for the rest of the half.
- [31:14]
Bloomberg Tech Host
You summarize the state of the world. Beautiful. Briefly you said that customers shifted spending towards servers, storage and memory in late June and when I posted on social media you're coming on the show that the question from the audience really simple did that trend continue From June into July and for how long do you expect it to last?
- [31:35]
Romaine Bostick
We have not seen it in July but I would tell you, look, the semiconductor pricing memories are for what, three to four times over the last 18 months. Networking infrastructure is up 60 to 80%. Fiber is up, connectors are up. I do think that some of these trends on the underlying components are going to carry on for some more time. That works its way up into those things. So people are going to have those prices. Now the question is, is that going to maintain a reprioritization of the CapEx spend? If I take the signal that a third of our deals closed then that says no, people are going to get more careful about how to spend their capex. If that goes into September because a lot of capex does get committed at the end of a quarter, not always through, then it means that that carries on for some more time. And that is why we gave a guide of 4 to 5% depending upon. If that carries on, we'll be at the low end of the range. But if some of it comes back, then we'll be at the high end of the range.
- [32:38]
Arvind Krishna
So. So Arvin, I know there's a big focus right now on, on sort of the, the clients that sort of did not necessarily materialize in the quarter. With regards to the existing clients that you have, and I'm primarily referring to your mainframe business. I mean can you share like sort of what percentage of those clients are actually increasing their spending? Is that going up still?
- [32:57]
Romaine Bostick
Absolutely. So the current machine is called the Z17. The Z17 has been from the beginning, which was May of 2025 to today at 130% in terms of the capacity growth compared to the prior machine. That's one very strong signal and that's an aggregate. Then you can say, hey, is everybody in there? Or Only a few, 85% of the clients are increasing their capacity as opposed to the 15 who are not. That optimization goes on all the time. And I will tell you this is probably the best that we have seen in a long time of what is going on there. I mean software is going to lag.
- [33:37]
Arvind Krishna
Yeah, software is going to. I mean look, we know the hardware capacity is there, software is lag and I understand why it's lagging in the moment. And I'm going to ask you a question and forgive me if it's a bit unfair, but I look back to the 1990s and whether there are some parallels to some of the mainframe issues that IBM went through back then under a Predecessor two or three times removed from you, John Akers and this idea that at that time we were going through this paradigm shift in computing and how companies spent and allocated their money and there was a lot of talk by the CEO then that the issues were temporary, that they were economic and that they were rights themselves. We know in hindsight that it was much more structural. Why should we now look at this major shift going on with AI and the computation involved in that and think that this time is different?
- [34:24]
Romaine Bostick
Well, we have to look at what the clients are doing. I always start there. Our opinion is an opinion. What clients do is what matters. So when I check with my clients, those who do credit card authorizations, are you going to maintain the mainframe? And they go to. Well, the resilience, the amount of capacity, the unit cost of it being five to 15 times cheaper is important. The big difference from that time, early 1990s to today remain is the cost issue. You could not argue that the mainframe was cheaper on a unit cost basis for the workloads that are moving off than at that time the mid range computers. I'll call it the whole Unix. It wasn't really client server, it was Unix. Taking the workloads off in the early 1990s, that issue you have to look at. If there is a cheaper alternate for that workload, I'll sort of look at you and say that means in five to 15 years it will move off. But that's not the case right now. For the workloads that are on, we can show the clients that it's five to 15 times cheaper to keep it on the mainframe. They're not. But that's not all workloads, that is workloads that need protection, that need resilience, that need the burst capacity that comes. And so for those kinds of workloads, the mainframe is the architecturally superior platform. That was not the case 30 years ago for the workloads that did go off.
- [35:49]
Bloomberg Tech Host
Live on Bloomberg Television and on Bloomberg Radio. This is Bloomberg Tech speaking with IBM CEO Arvind Krishna. I've been listening to you a lot recently on long form podcasts, some clips on the social media about your view of the world, what it's like to be a CEO in the domains that IBM operates in. And it's interesting how quickly it comes back to the macroeconomic backdrop. A lot of people looked at the guidance for the balance of this year and would say, and they do say, I've end on this show, memory prices are not changing. They continue to push Higher they look at the outlook for growth. Could you just explain the data points you rely on that give you the confidence on the new guidance that you've given and whether it is actually achievable or it will be difficult to meet?
- [36:37]
Romaine Bostick
Yeah. So Ed, I'll come back to. For ourselves we have to look at our demand pipelines and our yields and how we get things going. But I think for your audience, let's look at it this way. Number one most important is what is GDP growth going to be. We think that that's between 2 and 3% for the year. If I look at the globe and it is going to be consistent even in the Middle east, even in Asia where there is a lot more energy and disruption, we actually see a lot of growth. Tech is going to be I think two to three to four points above that. So that puts tech in terms of what the market is somewhere in the 5, 6, 7%. Then that comes back to what parts of our portfolio can play against that demand and what parts cannot. And so I look at the parts of the software portfolio, that's why I talked about the 8% growth in the 80% of it that can play right into that. Then I look at our distributed infrastructure that can play right into that. I think consulting will be that 1 to 3% is not going to be in the double digit growers. But we see the demand and we see the signings and we see the clients leaning in to say they want transformational work done. That's how we kind of know beginning with the macro and then coming down. I make a prediction for you. I think technology spend is going to become a larger and larger part of every enterprise's budget. Used to be 3% since remain raised the 30 years ago is probably up at 5,6% on average. I will not be surprised if by 2035,5 it's 10% of everyone's budget.
- [38:16]
Bloomberg Tech Host
Give you a quick micro case study. Bloomberg reported that Starbucks is replacing some IBM tools on the software side with in house. Talk to that.
- [38:26]
Romaine Bostick
So Starbucks is about a little over $2 million a year client for IBM. The portion they're replacing is a product called Tri Riga that does real estate lease management. The version of it that Starbucks has is almost 10 years old. I am not surprised that they're replacing it because I've actually been describing publicly software which is largely interaction based and is based on ease of use as opposed to anything else can be easily replaced by AI and agents. And that is what is going on there. However, if I see Other parts of Starbuck and maybe the ability for our Hashi portfolio or security portfolio. How about if I phrase it this way, I would not be surprised if Starbucks is a larger client next year than it was last year with regards
- [39:15]
Arvind Krishna
to how this world is evolving. Arvin, I am curious just internally about your plans to hire, particularly when it comes to the technology technological side. Have you been able to keep pace with some of the other companies out there also trying to do what you do and pay some of the salaries that you have to pay?
- [39:35]
Romaine Bostick
Well, we hired three times as many college hires this year than we did last year. And I think that given others seem to be backing off college hiring, it gives us an incredible ability to bring in great talent and to then grow them inside our company and to offer them great careers. I think if I look at it last, we had I think 20 million resumes in our applicant database. So that gives us a huge field to go look at. So I don't worry about bringing in talent. I actually worry much more about can we give them a great career and a great pathway because not everybody is cut out to do work that is going to be demanded because I don't think there's a lack of employment, but the nature of the work. If you can't use air tools.
- [40:25]
Arvind Krishna
Yeah.
- [40:25]
Romaine Bostick
If you can't use the productivity tools, then it's going to be really hard for you to be competitive with your peers.
- [40:31]
Arvind Krishna
We always, we already know sort of the potential impact of what I means for the economy and for your business. There are a lot of people looking around the corner, including yourself to Quantum. Is that a viable business on the horizon or is that just a moonshot that you're hoping actually sticks well when
- [40:49]
Romaine Bostick
things are two years away, I wouldn't call them a moonshot. I think Quantum is now in the engineering realm as opposed to the science realm for the next five years. And I believe that by 2029 we will deliver a machine that does 100 million computations of large scale fault tolerant quantum computer in the next two years. I think that's an incredible opportunity. I'll quantify it. And this is not just our work. A lot of third parties by the end of 2030s, we think it's about $1 trillion total market opportunity in terms of value that Quantum will create. That is why we also doubled down this morning and announced that we bought HRL from GM and Boeing. And that is going to help us bring people with a lot of talent around materials, spintronics, quantum sensing and other sensor technologies to add to our own effort, so we are even more well positioned to go win in this market.
- [41:52]
Bloomberg Tech Host
Arvind Krishna, IBM CEO of course, alongside Bloomberg's Romaine Bostick. Thank you both very much. I would note the IBM shares now modestly higher 3. 10 of 1% having opened lower. But of course IBM pre released some of its financials July 14th and the stock fell 20 to 25%. We're going to get back to earnings and back to Alphabet's big CapEx number while Intel's up next on the chopping block later today. This is Bloomberg Tech.
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- [45:02]
Bloomberg Tech Host
Khosla Ventures, one of open air ISE early investors, is in talks to raise $5.5 billion in a new set of venture investment funds. It would make it the largest fundraising event in the firm's history. All according to sources. Bloomberg's Natasha Mascarenas broke the story. No surprise there. Find this so interesting. Interesting Vinod Khoastler, a regular on the show, but I think that people may lose sight of how big a firm it was already and this raise is very much in line with what's happening in industry right now.
- [45:32]
Vinod Khosla
I mean if you were an early open air and anthropic backer, you probably have one of the best stories in venture fundraising right now. I mean last month we talked about Menlo Ventures raising its largest fund of all time. Now I'm back talking about Khosa, an early opening. I backer the first outside investor.
- [45:49]
Bloomberg Tech Host
This is 5.5 billion split across multiple funds we think.
- [45:52]
Vinod Khosla
Yeah, yeah. So in this case they're going to keep doing and try and replicate that open air early success. So they're going to be putting majority of the capital into early stage bets and 2.5 billion is reserved for an opportunity fund which is pretty much for the later stage investments as round sizes get bigger and concentration becomes a more invoked strategy for venture capitalists.
- [46:11]
Bloomberg Tech Host
You know, we do do know the firm's namesake, Vinod Khosla, but there are lots of interesting people at that firm investing at different stages. Tell us a bit more about the team.
- [46:21]
Vinod Khosla
Yeah, I mean this is a team that has basically chosen to stick with an early stage focus when a lot of people are getting into a uniquely broad set of side quests as venture firms. I'm thinking of the team that is backed second AI which is building a Japanese Japanese L companies that are looking at robotics and climate. So yes, they're definitely going after the application layer. But when I think of Khosla Ventures I actually think of a much more biotech focus, hard tech focus, deep tech focus.
- [46:52]
Bloomberg Tech Host
Those are areas of interest for Vinod, I point out as well.
- [46:55]
Vinod Khosla
Yes, absolutely.
- [46:56]
Bloomberg Tech Host
Just real quick I would point out that a spokesperson at the firm declined to comment on our reporting. But there's another theme here, which is coastal race 4 billion last year. Yeah, other firms have done that. Big funds last year. Quick follow on this year. What do we need to know?
- [47:11]
Vinod Khosla
I mean, these people are going through their funds at a faster than ever cadence. I mean, we think that this is almost like you're proactively raising ahead of needing to even touch the capital. So my understanding is that last year's fund is still being actively deployed. This fund we broke is being kicked off. And the fundraising call calls and conversations are happening right now. But it does show you how competitive and how expensive being a venture capitalist is today.
- [47:35]
Bloomberg Tech Host
Bloomberg's Natasha Mascara in us with another big story in the world of venture capital. Thank you. Alphabet's increasing capex figures are raising concerns on the cost of. Google's parent raised its capex projections to $205 billion at the top end for this year. But the company's cash flow went negative for the first time in its history as a public company, which goes back over 20 years. Bloomberg Intelligence senior analyst Mandeep Singh joins us. And Mandeep leads our entire team on the tech coverage side at bi. I mean, you were in the camp of people that saw CapEx going even higher than $205 billion, but the milestone is that swing to negative free cash flow. Are you in the camp of people that are worried about that?
- [48:15]
Mandeep Singh
Not for Alphabet. And yes, I am in the camp that CapEx is going to go much higher for 2027. And they did say there will be a significant increase next year. So look, I mean, this is a full stack company where they've already shown their capex spend is far more efficient than anyone else out there. And that's why they're going big in terms of getting as much capacity because so far if you had the compute, you had the power more. That's translating into cloud revenues. And we saw that in Alphabet's cloud segment growth, 82%. And that's why I think they're going with that TPU stack as well where there's, they want to sell that independently of the cloud. And that could be a big line of business over the next two years as well.
- [49:05]
Bloomberg Tech Host
It's a balancing act. Right. Google is on the hook for $811 billion of spending. And in your reaction, you kind of make the point that it's that versus the very strong cloud gains that they're seeing.
- [49:17]
Mandeep Singh
Yeah, I mean, and look, I think they didn't quantify the margins of those TPU systems. But once you start, you know, basically selling your designs externally, which so far TPU's were used mostly for Google cloud. Now they are talking about setting up anthropic data centers with their own design and generating revenue out of that. That's huge. And you know, it could be a big line of business on its own. So from that perspective, Google has got it all in terms of large language models, TPU systems and then the cloud business. And that's why they are really going big in terms of their capex increase.
- [49:56]
Bloomberg Tech Host
So the thing about the TPU business that's cool is they have these sales packs and I think what Alphabet CFO said was the company won't even realize revenues from that in. So I think they said 27, but they didn't say which part of 27. But you're basically saying that's going to be an important business line for them.
- [50:12]
Mandeep Singh
Yes, and I look at what Nvidia has done with their system sales and how big Nvidia has gotten over the past three years. I mean, clearly this is a rising tide that's lifting all boats and we are in a supply constrained environment. So essentially, you know, for Alphabet they are the only ones who have the ability to do that. Everyone else is still in their earlier versions of their chip design. I think Amazon is a third as well. But it's really about how many versions you have had and how external customers can trust your design for their workloads. And in this case, Alphabet has the ability to do that for external workloads.
- [50:53]
Bloomberg Tech Host
I would point out that if you just look at the stock reaction, the stock is down the most since May of 2025. And we're showing this astonishing chart that for the first time in this company's public history, it is swung to negative free cash flow. That's an astonishing chart. Mandeep Singh of Bloomberg Intelligence, thank you very much. Next up on deck, intel, the chip maker report its second quarter results today after the closing bell. And investors will be keeping a close eye as Intel's earnings could speak to the strength and breadth of the semiconductor industry right now. Bloomberg's income king joins us for a preview. Intel, what to make of intel, what to look for with intel this year
- [51:30]
Bloomberg's In-King
the Stock is up 172%. Clearly investors have said, okay, you're actually back in the game. But then if you look under the hood, the actual numbers, it really isn't. It's showing double digit growth, it's showing some demand for its Xeon products. But Compared to growth, compared to what other companies are putting up and have been putting up for the last couple of years. Not quite there yet. So what intel has really got to show is that it's really, really a fundamental part of this race.
- [51:59]
Bloomberg Tech Host
There's, there's the CPU story which has been interesting more recently, and then there's its business as a third party contract manufacturer and the latest technology process. I always feel like we want to get answers on that and we don't.
- [52:11]
Bloomberg's In-King
Yeah, I mean that would blow the story wide open. Open and would make people consider intel different, that this turnaround would be vindicated. Haven't seen that yet. The company have said, look, we can't talk about it. It's our, it's up to our customers. You'll know we're doing it though. You'll know it's real when we start to spend big money on Capex to build those factories out. So we'll be looking for that today.
- [52:32]
Bloomberg Tech Host
I know this is a pretty simple question, but what is the financial metric that you learn the most about intel from?
- [52:38]
Bloomberg's In-King
Yeah, obviously growth is very important, but this is a company that's been losing money and its gross margin is 20 points south of where it was in the good days. Right.
- [52:46]
Bloomberg Tech Host
So we need that margin historically above 65%.
- [52:50]
Bloomberg's In-King
Above 60%.
- [52:51]
Bloomberg Tech Host
Above 60% and yeah, nowhere near that right now. Another busy afternoon for you and for me. Bloomberg's in King, thank you very much. Heavy focus on technology earnings. That does it for this edition of Bloomberg Tech. But go back and recap across Alphabet, Tesla, IBM and then in 24 hours time we'll do it again with Intel. Listen, on the pod, I would say that some of the moves directly tied to earnings are big. Right. Alphabet is also by association dragging down quite a number of the other hyperscalers. Amazon for example, has a pretty deep decline. For Tesla, this is a big drop, down 14%. And really it's still a spending story across the the board. Stay with us throughout the week. This is Bloomberg Tech.
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Arvind Krishna
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Arvind Krishna
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