Caroline Hyde (3:57)

Ryan, more broadly, just dwell a little bit more on what's happening in terms of the software perspective and what's happening in certain names. MongoDB and I hate to bring it back to what the market was treading water on or trying to digest before this geopolitical upheaval, but we have to go back to what's happened in Terms of Mongo DB's extraordinary sell off despite the numbers not being quite as ugly as many would have anticipated.

Ed Ludlow (4:21)

Right. So this occurs against the backdrop of people being very cautious that AI services are going to diminish the growth prospects for legacy software companies, offer some kind of replacement, diminish their pricing power, their margins. MongoDB results kind of fit into that narrative where they weren't necessarily bad, but the upside was a little bit smaller than people had expected. Relative the past quarters, the outlook was not dramatically higher. All these sort of concerns just feed into this broader environment right now where people are very concerned about AI. When you have results like this, it just sort of add to the concern by not really diminishing them. You know, like I said, people were already predisposed to sell. And you're really seeing that in a, in a stock like Manga right now. You're right. Also massive underperformance in chip stocks, which we're going to explain a little bit later on in the show, Blue is Ryan for Stella. Thank you very much. Let's talk a bit more broadly about what's happening in markets. Brian White is Piper Sandler co head of technology investment banking. We can have a different conversation probably to the one that we thought we might be having. Caroline made a really interesting observation at this this morning. You look at a name like Palantir, for example, still down significantly. There was a big run up yesterday. Cyber stocks under pressure. Those are areas that you might think in this scenario, this environment, a war in Iran might go to the upside. It's an area that you look at. Software go from there, please.

Brian White (5:41)

Yeah, I mean I think that it's still going to be the bright spot in this market. I think the challenge that we have right now is that this increasingly looks like a prolonged conflict and so investors are selling off right now. They're panicking in regards to what continues to go on. This doesn't appear to be kind of the limited engagements that we've seen traditionally. And so thus when you're looking, you know, broadly and you step back, I still think if you want to be in cyber or you want to be in defense, those are going to be bright spots. But right now everything's risk off.

Ed Ludlow (6:09)

Co head of tech IV 5% of. I've read your CV, you don't mind and you know, you know the apparatus of government. Well, yes. How important is that that that kicks in in a market environment like this, you understand the understanding, you know, what a policymaker may or might not do in a war environment.

Brian White (6:29)

I think it's helpful because you can put things in context. I mean fundamentally what we look to do is advise clients on how to navigate this turmoil. And having the experience to see how government thinks through these issues, particularly during conflict like this, is critical because we're not just dealing with the disruption, we're dealing with geopolitical disruption. And clients are wondering how do I raise capital in this environment? Should I think about M and A on the buy side or the sell side? This is where people are going to be thinking about what moves should I make to take advantage of the uncertainty in this environment? Because as we know, people that are able to do smart moves right now often are the long term winners because they don't sit back risk off. And that experience is helpful when I'm advising clients.

Caroline Hyde (7:11)

How much is that experience applicable to the current administration?

Brian White (7:16)

Well, I think it's traditionally the levers of government remain pretty stable. There is obviously some political influence that goes on over the years. But you know, one thing that we should all take, you know, great regard in is just the experience of the military. That is that is there the decision apparatus and what has been in place to make these informed decisions. I think as we're increasingly seeing this is going to be a prolonged conflict, it is going to require a lot of, you know, deft policymaking, particularly as we engage with the Middle east that is in a bit of turmoil. I don't think when we woke up on Saturday morning, people nearly suspected how wide this would appear to be. And so people are going to be looking for some off ramp soon and the market impact of that is unknown and that is what people are reacting to right now.

Caroline Hyde (8:03)

So without wanting to be just knee jerk and thinking through if this could be a longer term conflict, if there's inflationary pressure there, what does it mean in terms of the influence that AI has been having on the market thus far? Do you just stay in the winners that have been working and yes, maybe over allocate a little bit more even to defense tech?

Brian White (8:21)

I think defense will be a bright spot. And then even before Iran, defense looked like an area where there was going to be tremendous innovation. I mean what we're continuing to see is that people are looking for new technology, new approaches. We have a increased geopolitical conflict in this world. So being in defense is a good place to be. And that was pre Iran. And as it relates to AI, I think there will remain some bright spots, particularly in infrastructure, particularly in cyber. Those are going to be good places to be. And over time I think people will gain more confidence as we see earnings come out. I mean don't, don't forget we still got a couple more weeks of earnings to go. This week. We're going to have news out of a couple of the technology conferences and hopefully that will start to calm this market down a little bit more and people will realize that this is a bit of a sell off that is not applicable to all.

Ed Ludlow (9:07)

Just really quick and trying to keep this on the news. DHS is warning. Right. Which seems inevitable about the threat to citizens in this country in response to cyber. Just give me more on cyber and why it's not getting more traction in this environment.

Brian White (9:21)

Yeah, I would say two things. First and foremost, we've always known that Iran via its proxies like Hezbollah is go may have the capacity to do something in the American homeland. So I think that's partially what we're hearing from the administration. I think more saliently though is that people need to invest in cyber right now the attack surface for both the private sector as well as the public service sector could not be any higher in terms of their threat environment. So there, you know, everybody should be paying more attention to what they need to do because where the Iranian cyber capability is quite strong.

Ed Ludlow (9:54)

Brian White, Piper Sandler, Great to have you here on Bloomberg Tech. I want to get to what happened in Korea overnight. Shares of Samsung and SK Hynix both falling by around 15%. There was a holiday in the Korean markets on Monday, so this was the first session since the war in Iran and the events of the weekend. But remember that the cost be the main index in Korea has been a massive outperformer year to date led by Samsung and SK Hynix. It's just a market reaction, a sentiment reaction particularly with the energy infrastructure concern in those two names. But it was a big move and maybe that's transferred carried to chip names in the US in this session.

Caroline Hyde (10:29)

Certainly extraordinary sell off over there. Meanwhile coming up well we look at some extraordinary moves, some Sam Altman calling it calling OpenAI's Pentagon deal rollout sloppy. That's next. This is Bloomberg Tech.

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Ed Ludlow (11:16)

It starts with Adobe, so there's a lot of noise about AI. But time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise. Proof of how we can help 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, Adobe, Acrobat Studio, your team's home base. Collaborate within a shared PDF space. You've got your docs, your plans, your specs and then invite the crew to build what's next.

Caroline Hyde (11:57)

Talk up the team teamwork.

Ed Ludlow (11:59)

They think that this design could be a contender. When somebody wonders what's the next step,

Brian White (12:06)

AI helps you finish the rest.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (12:08)

Bolts are tight now.

Ed Ludlow (12:09)

Your plan's refined. Run a smoother business. When you're all aligned, do that With Acrobat. Learn more@adobe.com do that with Acrobat. OpenAI is facing backlash over its new Pentagon deal and CEO Sam Altman is admitting the rollout was mishandled. In a post, Altman said said the company shouldn't have rushed the announcement, saying it looks quite opportunistic and sloppy here. The latest is Bloomberg's AI reporter Rachel Metz. It's one way you probably need to explain to us what the deal is and how it came about, but a very public statement by OpenAI CEO about how it was done.

Narrator/Advertiser (12:45)

Yeah, I mean this was all part of this really rushed situation that happened over several days. We had Anthropic squaring off against the, the Pentagon, the Pentagon saying we're not going to be using anthropics AI models anymore and making some even further declarations than that about how companies perhaps could even use anthropic models if they work with the government. And, and then OpenAI very quickly swooped in and said we have a deal with the government. So I think that caught a lot of people, maybe not so much off guard, but it certainly left a lot of people upset, including Some people at OpenAI who are posting about it publicly on social media.

Caroline Hyde (13:24)

A lot of people were painting the streets outside OpenAI and, well, fears and concerns. Rachel, this has prompted a backlash that is actually impacting downloads of chat GPT and certainly has been pushing those to be getting into Anthropic's offering Claude instead. It would feel like the numbers stack out in that way, Rachel. But talk us through ultimately what has been changed in terms of their agreement with the Pentagon, if anything.

Narrator/Advertiser (13:51)

I mean, it sounds like OpenAI has basically done a little bit more back and forth with the Pentagon to make sure that the red lines that Opening Eye says are in place regarding their software not being used for surveillance will be, will be kept in place.

Ed Ludlow (14:09)

Rachel, Sorry, do we have any understanding, understanding of like how big a piece of OpenAI's business this is? Like, is this something like severely critical to them or is it still the case that, you know, subscribers and enterprise is really what they're most concerned about?

Narrator/Advertiser (14:25)

I mean, at this point, I don't think that this is like an overarching piece of their business. I think it is a smaller piece. But as we've seen with the disagreement between Anthropic and the Pentagon, just having this kind of connection can really telegraph a lot about your business and it could lead to other things, other ripple effects and other kinds of business either happening or not happening. Now or in the future.

Caroline Hyde (14:50)

Rachel Metz, thank you so much. An ongoing narrative that involves geopolitics at the same time as generative AI. Let's take a look at those tech markets in the eye of a geopolitical storm that is Middle Eastern conflict conflict. We're currently seeing 1.7% lower on the NASDAQ 100. We had fallen more than 2%. In fact, only 13 names are on the green on the NASDAQ 100 as we speak. New York crude is where the action lies. We're up more than 8% and we're seeing this inflationary tension mean that people think the Federal Reserve cannot cut into the situation. Therefore that has a long term impact on the value of stocks right now.

Ed Ludlow (15:24)

Well, way off session lows. But at one point we're on track for the biggest drop in the NASDAQ 100 since October when the President president was really escalating the tariff tension with China. That's how markets are weighing in here. We're also tracking shares of Nvidia, one of the top stories on the Bloomberg Terminal and On.com down 1.6%. The US is weighing new limits on Nvidia's AI chip sales to China, including a potential cap of 75,000 of its H200 accelerators to any one single Chinese company. That's according to sources. Bloomberg's in. King is here to explain it. When that regulatory filing hit at earnings, they were pretty clear that they have no idea whether China would even let the chips in. But what we're reporting is on the US side putting a cap on the export, the cap level and the strategy behind it. What do we know? Yeah, I mean the understanding had been that the US side was more amenable to this happening. Right.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (16:17)

And that China was kind of the roadblock. But now what we're doing reporting is that there are more restrictions, more kind of fine, fine print details being piled upon it. And that obviously makes the situation more difficult and the likelihood of major shipments

Ed Ludlow (16:30)

and major business less likely.

Caroline Hyde (16:32)

And that's why many ways Nvidia and Jensen didn't include any China business in their forward looking guidance. So do we just take it from here that China doesn't want even H200 and where we are in terms of a potentially crafted Blackwell offering?

Ed Ludlow (16:45)

Yeah, I mean the way that Nvidia's leadership of phrase it is like, look, you'll know the Chinese have given us permission when you see the Chinese companies make orders. We haven't seen them make the big orders yet.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (16:55)

So obviously that doesn't look positive, it

Ed Ludlow (16:58)

doesn't look hopeful for the way things are progressing. Go back to the basics of what Caroline just said. The forecast for sales is $78 billion plus or minus 2% in the quarter, does not include any China. But when you did your earnings piece the next day, a lot of the analysts were like, well China is therefore potential upside in the event they are allowed to do it. Jensen's modeling for that or not. It doesn't appear to be. I mean they're being prudent right now.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (17:22)

I mean the potential upside came from the detail that we got during earnings which is hey, we got a few licenses. So Wall street was like oh great crack of light, here we go.

Ed Ludlow (17:32)

And then now we get this and

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (17:34)

obviously we still haven't seen any movement

Ed Ludlow (17:36)

from the China side either.

Caroline Hyde (17:37)

Now China used to to be a significant area of revenue, what was it almost at 20% at one point for video numbers or thereabouts. Where's the Middle east at? Can I just ask something to throw a curveball into the mix in the current geopolitical situation?

Ed Ludlow (17:50)

That's a very good question.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (17:51)

Obviously Nvidia cares very much about what's

Ed Ludlow (17:54)

called sovereign AI, which is, you know, countries attempts to try and build their own infrastructure. We've seen that in Saudi Arabia, we've seen that in the uae and these

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (18:02)

are areas where there's a lot of cash and there's a lot of investment in this future economy being made.

Ed Ludlow (18:07)

So any threat to that would obviously

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (18:09)

be a threat to this whole system.

Caroline Hyde (18:11)

Well certainly Nvidia is one of the key legs to the downside in a points perspective today in King we're always so thrilled to have his expertise and it's nice to be sat next to him as well. Meanwhile, let's take a quick look at what's happening with Apple because if you didn't realize amid the torrent of news that you're trying to digest today the company is actually introducing refreshed MacBook Pros and airs with an M5 chip. The company also raising the prices of those products amid an industry wide memory crunch. Other products announced include two new external monitors as you see shows down 9 10% so actually better performing the rest of the market at. Welcome back to Bloomberg Tech. War in the Middle East. We take a look at what's happening in the markets amid a US Israeli focus on Iran. We've got the NASDAQ 100 off by 1.6% Micron leading you on the points perspective to the downside. So too is in video we're seeing the S&P 500 off by one and a half percent. Bitcoin is acting like a risk asset today. We're back lower, but it's still elevated versus where it was on the weekend. 68,800 is where we trade. Move on to individual names because it is important to see where the impact of tension and ongoing war in the Middle east and where it has and what it does to assets owned by Amazon. For example, warning of prolonged disruptions to its services after drone strikes damaged 3 of its data centers in the Middle East. They said the company said drones had directly struck two facilities in the UAE and damaged infrastructure near other facilities in Bahrain. Palantir. The sentiment shift today is so negative that even companies that are meant to benefit from the focus on defense and defense tech are on the lower side. Rough by 1.4% after a rally yesterday. Not more. Analysts are going positive on Palantir, of course, software that's used by the government very much into defense perspective. And we're seeing 20 out of 31 analysts now saying buy the stockhead.

Ed Ludlow (20:00)

Shares of defense firms have joined the market sell off even as the conflict in Iran reinforces their critical role, the critical role of the US Primes. Let's bring in Bloomberg Intelligence senior analyst Wayne Sanders for more. Wayne, you've been keeping the reaction in the research up to date over the last two or three days. Yet this scenario where if this conflict lasts weeks or more, you look at the airstrike capabilities the United States has and who might benefit. We showed some of those names on the screen just there. But give us your latest research, please.

Wayne Sanders (20:32)

Yeah, absolutely. Thank you so much for having me on. When you think about this conflict so far, a lot of the munitions experts, right, you're looking at rtx, you're looking at Lockheed and Northrop are really the ones that are set really to benefit off of, off of part of this because they're going to have to replenish what they've got. The problem is, is that as we continue to expand, a lot of the munitions right now, especially if you're looking at your, your aim 9 x's and your AMRAAMs, which are your, your aircraft missile shots, as well as your Tomahawks that are coming from your naval vessels, which comes from rtx, these are the ones right now that are going to be critical also in further contingencies that we would look down the road 20, 27 and beyond. So we want to make sure that there's a balance between both, that we are using them effectively now and having the ability to replenish in the future

Caroline Hyde (21:22)

when we turn to you. Because not only are we lucky enough to have you as a senior Defense Research Analyst here with us at Bloomberg Intelligence, but your past experience with the Office of the Undersecretary of defense up until 2024, the fact that you were so ingrained with the Department of the army as well. Therefore, are we well placed when you're looking out to 2027 and the likes and in the here and now, are we using the right strategic assets?

Wayne Sanders (21:43)

Yeah, no.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (21:43)

Great question.

Wayne Sanders (21:44)

And so the bottom line, I try to tell a lot of people, is the US Military does a very good job of making sure that they have contingency plans in place. They war game these all the time to say, okay, these types of conflict scenarios that we would be looking at would require this amount of munitions, it would require these amount of aircraft, it would require these amount of targets that we would want to be able to hit. When you put all those into place, I guarantee you that there is not a way where the President of the United States got a briefing from the Pentagon that says, hey, we're going to run out of missiles in a specific period of time if we were to go into Iran. So they have those contingencies in place. They know what they're doing from that. Given the fact that we have air superiority is, well, means that we have plenty of resupply capability in the area as well.

Ed Ludlow (22:26)

So I want to talk about what's happening on the ground. Our colleagues at Bloomberg News and Bloomberg Economics have basically done the missile math for the United States. This has been focused on the Patriot missile system, right, $4 million missiles, whereas Iran has deployed lower cost $20,000 drones. There is evidence that the US is also looking at drones strategy. What are you seeing in the data that's being published?

Wayne Sanders (22:53)

Yeah, we were doing a lot. Right now the US is doing a lot, especially on counter drone technology as part of the Pentagon's replica Replicator 2.0 initiative. There are a lot of companies out there right now, bae, working on apkws as well. That's been something that's been used in Ukraine as well from a counter drone capability. And then you're also, you know, you start looking at things like directed energy, high powered microwaves and high energy lasers. Those are further, further out, right? They are not right now at the point of full rate production scalability. But it starts to ask the question like you guys are talking about is you have to be able to look at the magazine depth how much it costs for us to be able to shoot those things down. And they've got to be alternate technologies that are out there that can help us be able to do that a lot cheaper. You look at it on munitions side of the house. We reverse engineered the United States reverse engineered engineered a Shahid drone specifically to create the Lucas drone. So from a strike perspective you're now looking at instead of a one and a half million dollar Tomahawk missile, you could actually use a $35,000 unmanned one way attack drone which this is the first operational employment that has been out there is during this time in Iran.

Caroline Hyde (24:05)

Wayne Sanders, a Bloomberg intelligence analyst as well as retired colonel, we so appreciate your time today. Look, demand for defense tech may be set to rise, but the spike in oil, the gas prices, the closure of key shipping routes while they're raising concerns about how those products reach markets. Tara Murphy Dorsey is here with us, CEO of Giving look it's a software provider for defense tech supply chains. You have the inside track on resilience. Right now you sit there in Washington, Tara, and I ask you put out a note really thinking about an available ability crisis that we currently have. Spell out that reality that we have in acquisition right now.

Narrator/Advertiser (24:44)

The reality is that I think you can see from the weekend the demand for American military power is continuing to increase. And so much of the conversation, including what we just heard from Wayne's great summary, is focused on production of new south systems. That's incredibly important. But when you also look at what the United States is bringing to bear in the Middle east right now, F15s, F22s, some of these systems are sustainment challenges as well. And so there's a production need in the United States. There's also an availability of parts and legacy systems that is equally important.

Caroline Hyde (25:25)

We're not in any sort of reality immediate crisis though when it comes to this Iranian focus and battle that currently rages,

Narrator/Advertiser (25:35)

we're not I would say that the United States today is capable, including not just from a military capability perspective, but a capacity perspective of executing any military operation that it deems appropriate. We are not in immediate danger of running out of stockpiles of munitions. We are when you look at longer term trends in a situation where if we are firing one year's worth of missile production in one week time, then things start to really become questionable in terms of overall sustainability.

Ed Ludlow (26:15)

Tara One of the most read stories on the Bloomberg is about Russia seeing the war in Iran is putting pressure on its own air defense systems in the Context of Ukraine. Very interesting. Earlier in programming we spoke to cf, sf, CFO about how Ukraine fits into the Iran dynamic. Just listen to this. Some of the experience from Ukraine is

Brian White (26:35)

developed quite quickly into the use. Some of this will take time and

Ed Ludlow (26:40)

the experience is still coming.

Brian White (26:41)

So I'm expecting now the focus in

Ed Ludlow (26:45)

AI is particularly is so massive as well as all the other technologies like

Brian White (26:50)

for example 3D printing of the missile, etc.

Ed Ludlow (26:54)

What we can use within the US and European startups. Exactly the same topics you've been discussing, right? The lessons that should have been learned from Ukraine in predictive preparedness versus like in the US military apparatus at least this cultural justice in time system essentially. How do you see that, that, that learning from Ukraine and what we're seeing in Iran?

Narrator/Advertiser (27:21)

I think you put it perfectly, Ed. I don't think the learning has been absorbed enough. And we know that AI, the era is upon us and what we need to do as a US military, as a US national security apparatus is better harness deficit for US national security aims and overall American interests. Your point about being able to look ahead here is such a good example of where I can be powerful. You know, we were just talking about the impact of this war with Iran or this military crisis with Iran and on the primes. And yet one great example of how Gavini uses AI in this context is to demonstrate, demonstrate that when you look past the primes, the sub tier suppliers of critical parts for those munitions are shared. And so you end up with these bottlenecks and choke points in the supply chains for military systems that used to be completely invisible to decision makers. That's not true today with what you can do with AI and data. And so the next step is we understand those dynamics. What are we doing about it from a pre positioning and stockpile management perspective.

Ed Ludlow (28:32)

Tara murphy.cfgheeni thank you very much. Coming up in the program, Coherent CEO Jim Anderson joins us to talk about his company's new strategic partnership with in video that includes a $2 billion investment. That's next. This is Bloomberg Tech. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise proof of how we can help 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, Adobe Acrobat Studio. Your team's home base. Collaborate within a shared PDF space. You've got your docs, your plans, your specs and then invite the crew to build what's next.

Caroline Hyde (29:31)

They talk up the teamwork.

Ed Ludlow (29:34)

They think that this design could be a contender. And when somebody wonders what's the next

Brian White (29:39)

steps, AI helps you finish the rest.

Ed Ludlow (29:42)

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Ed Ludlow (30:20)

Prepared by BlackRock Investments ll Nvidia has agreed to invest $4 billion in the photonics firm's coherent momentum. The two equally sized bets by the leader should ensure demand for advanced optical components used in data centers. Let's discuss with Coherent CEO Jim Anderson. I think a reasonable place to start is to understand the role that a laser has in the server design and in the data center more broadly, how servers talk to one another, because the market reaction is quite clear to how investors feel about this. But where does the technology fit in?

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (30:54)

Yeah, it's a good question. First of all, thank you for having me on. I appreciate it. Yeah, the way you can think about it is a laser is really ultimately it's photonics and it's really about light and it's about using light to transmit data in the data center. And there's a good portion of the data center already today where all of the the communication of the data is happening with light. And the reason that light gets used rather than for instance an electrical signal is light is the absolute fastest, most power efficient way to transmit data. And so a good portion of the data center already runs 100% on photonics optical connections. But as we move forward building new data centers, as we see a massive ramp in the amount of data flowing through these data centers centers, more and more of the data center connections will be based on light on optical photonics.

Ed Ludlow (31:45)

In this, in this arrangement you will take the funds for R and D purposes, but inside of it. There is a purchase opportunity for Nvidia. It is done a lot on silicon photonics. They've told me about it for quite a while now. What's new in it for them, you know, what is it that they're able to now do that they couldn't do themselves?

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (32:02)

Well, they're relying on us to bring the photonics experts expertise. Right. So Nvidia for us has been a long term partner, actually over 20 years as a customer and a partner through their Melanox acquisition. So we've had a long history with Nvidia and really what we're doing is working together to use photonics to advance the architecture of data centers, to find new innovation within data centers in there. And the key thing that photonics or optics brings is incredibly powerful, efficient data transmission because again, there's no more.

Ed Ludlow (32:34)

As opposed to transferring via electric.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (32:36)

Exactly. So as you increase the data rates, as you increase the amount of data that's being transmitted, you have to, if you're using electrical today, eventually you'll hit a physics limit and you'll be kind of forced to switch to optical. And so we'll see more and more of the connections within the data center move to optical. And that's really where we come in. We're, you know, a global expert, expert in photonics, in optical communication.

Caroline Hyde (33:00)

The market is forward looking. They understood the copper to optical vibe for a few months, if not years. And your shares have shown that. But what's interesting is Momentum CEO was speaking at an event yesterday, Michael, and he was talking about even with scaling of their supply, they're still way back, they're falling further behind where demand is. Is that something similar for you as well?

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (33:21)

Well, demand, there's no doubt demand is incredible, incredibly strong and that is both in the near term and in the long term. I mean the forecasts that we're seeing from our customers, not just in video, but large hyperscalers, cloud service providers, are just exceptionally strong. And so what we are doing about that is we are rapidly expanding our capacity. I mean we are building capacity as fast as we can.

Caroline Hyde (33:43)

Look just.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (33:44)

Yeah, supply chain, I was going to say just as one example, you add, you add asked about the lasers, let's take the lasers.

Caroline Hyde (33:50)

We want to talk about lasers.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (33:52)

So if you look at the lasers, we're doubling our capacity this year. Right. So we're coming out with twice as much indium phosphide, that's the key material underneath the lasers, but twice as much indium phosphide production. So we are Ramping our capacity as fast as possible. But back to as we see more and more of the data center converge from electrical to optical, you got kind of two big secular growth trends underneath us and number one, the data center growth. But number two, this conversion of electrical to optical. And so that just generates an incredible amount of demand. So we're trying to stay ahead of that. We're ramping capacity. This Nvidia partnership is part of that. That investment that they made into Coherent is will help us ramp capacity faster and make sure that we've got the right capacity.

Ed Ludlow (34:39)

Ramp to an where?

Caroline Hyde (34:40)

Right.

Ed Ludlow (34:40)

We had the co founders mesh on the show recently, Space X alum who did lasers at SpaceX and they came to market with a very simple argument. Output of these systems at scale was done in China. There isn't a facility in the United States, there isn't the capacity here. Is that part of your game plan or you dispute that?

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (34:58)

Laser. Absolutely. Lasers. Some of the key technology that we're developing and ramping is here in the U.S. right. So we have a long history of U.S. manufacturing. We were founded as a U.S. manufacturing company. We've got over 20 manufacturing sites across 13 different states. But one of the key technologies that we're ramping on behalf of Nvidia and other customers is that laser technology that's happening in Sherman, Texas. Right. And that's a great facility we've had. We've supported customers out of that facility for years. But that's where we're going to to be part of where we're going to be doubling capacity.

Caroline Hyde (35:33)

What do you need from like a raw material perspective? What is it that makes US manufacturing ever more capable? I'm sure you're discussing this with government all the time.

Bloomberg's In-King / Jim Anderson / Rachel Metz (varies by segment) (35:40)

Yeah. So one of the, the key inputs is it's the indium phosphide substrates themselves. And so we have a very diversified supply chain. We've just like in video securing you know, capacity rights to our capacity. We're doing the same thing with our supplier. So we're making sure that we've got all the the key input capacity or input supply secured. But look it's. We believe that these key optical technologies like lasers, we absolutely want to see that manufactured in the U.S. now we have other sites as well. We're a global company and so we are ramping at multiple sites. But that's one of our key facilities is Sherman, Texas.

Caroline Hyde (36:20)

Jim, it's great having you on. I want to is a rather busy week. Jim Anderson Coherent CEO Always love talking lasers.

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