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- [00:00]
Michael McDermott
At CES. Michael McDermott, EVP of Samsung, spoke with Bloomberg Media Studios about what the company calls its next AI chapter, your companion to AI Living. It's a shift from AI as a feature to AI as a trusted partner in everyday life.
- [00:15]
Caroline Hyde
At Charmin, we heard you shouldn't talk about going to the bathroom in public, so we decided to sing about it.
- [00:20]
Michael McDermott
Light a candle, pour some wine, grab a roll the soft kind for a little me time. Charmin Ultra Soft Smooth hair wavy edges.
- [00:29]
Rene Haas
For my rear so let the softness caress your soul.
- [00:33]
Ed Ludlow
Just relax, you're on a roll. Charmin Ultra Soft Smooth Tear Charmin Ultra.
- [00:39]
Caroline Hyde
Soft Smooth Tear has the same softness you love now with weighty edges that tear better than the leading one ply brand.
- [00:44]
Minda Smiley
Enjoy the Go with Charmin. If you're an H Vac technician and a call comes in, Grainger knows that you need a partner that helps you find the right product fast and hassle free. And you know that when the first problem of the day is a clanking blower motor, there's no need to break a swe. With Grainger's easy to use website and product details, you're confident you'll soon have everything humming right along. Call 1-800-GRAINGER Click grainger.com or just stop by Grainger for the ones who get it done.
- [01:18]
Caroline Hyde
Bloomberg audio studios podcasts radio news. Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco.
- [01:38]
Ed Ludlow
This is Bloomberg Tech coming up. Qualcomm and ARM out with their earnings will break them down with the two CEOs Cristiano Amon and Rene Haas plus.
- [01:46]
Caroline Hyde
Alphabet's CapEx mic drop record Spending plans hit the stock despite strong earnings and.
- [01:52]
Ed Ludlow
Bitcoin falls below 70,000 USD for the first time since late 2024 will break down the negative momentum impacting crypto markets.
- [02:01]
Caroline Hyde
And that negative momentum is affecting markets more broadly at the moment. Check out the Nasdaq off by 1.4%. We are trading the lowest since November right now at the moment and we are seeing pain across the board and that's why we've got to go to our Bloomberg's Cross asset reporter. I'm pleased to say we can dig into all of these moves across asset classes with Alexandra Simoneva who's with us now. I don't know where to look at the moment. Everything is in the red.
- [02:24]
Alexandra Simoneva
It has been a really ugly week Caroline. We have obviously seen corrections in tech over the last three years since the launch of Chat GPT, but nothing has rivaled the sheer magnitude of this sell off that we're seeing in the sector across various assets, hitting both stock and credit markets. Software stocks of course have been at the forefront of this. They are down about 15% this week and 29% from their all time highs in September. It's also important to note that this sell off has triggered a number of extreme levels. From a technical perspective, the share of software stocks at oversold levels eclipsed 70% yesterday. That is an all time high. In the broader tech sector that share is about 45%. Also a record and another barometer of how painful it has been. The iShares expanded tech software etv that is ticker igv compared to the S&P500 is the most oversold that it has ever been. And of course that risk off sentiment is spreading today. What we've seen so far is that it has really been focused on tech. So up until today it's really been a rotation out of tech and into into other pockets of the market. And now we're really seeing the sell off broaden out. Looking at The S&P 500, it is down 1.2% right now. The Dow Jones industrial average which up until today been kind of shielded from this, is now down 1.2% also. The S and P equal weight yesterday for example was up 0.9% even as the broader market sold off. It is down again today. So really risk off across the board. And we have to talk of course about Bitcoin. It fell below 68,000 today which is the lowest since November 2024, down about 45% from its October high. Also big news today that crypto exchange Gemini plans to cut about 25% of its workforce. So really seeing the pain of that that.
- [04:08]
Ed Ludlow
Bloomberg's Alexandra Semenova with the macro picture at the index level, this is what matters when it comes to technology earnings. Caroline called it the MIC drop moment. Alphabet, parent of Google with a Capex forecast for the fiscal year of $185 billion. The street had forecast just shy of $120 billion. That's a bit of a delta. The stock down almost 5% on track for its biggest drop since May of last year. A big number to digest. Earnings also in the chip sector, Qualcomm down almost 8%. It gave a forecast for the current period $11 billion in sales at the top end. How much better would that have been were it not for the impact of what's happening in memory chips right now in the memory market? ARM similarly, but actually it is up 5 percentage points and it's accelerated throughout the session. Sales and fiscal fourth quarter will be about $1.47 billion, just ahead of consensus. How are they managing what's happening in the memory shortage and when is they going to transition from the handset story to the data center story? Let's talk through it. ARM CEO Rene Haas joins us now. Rene, good morning. Thank you for joining us. There is a lot going on. Let's get this sort of handset, smartphone and memory situation out of the way, if that's okay. You know, clearly this is impacting outlook for, for the smartphone market across this calendar year. How do you think it showed up in the earnings that you posted? And would it have been slightly better if the situation were different?
- [05:38]
Rene Haas
Yeah. Good morning. Good morning, Ed. So first off, the quarter was amazing for us. We had not only record revenue, but record royalties, 1.24 billion in revenue, nearly $740 million in, in royalties. And if you just stack that up, that's 27% year on year. Our data center business is exploding. We were up 100% year on year, probably north of 100% year on year. So to your question, no, the memory situation isn't really impacting ARM so directly. And you might ask, well, why? Why is that? Well, number one, we are spread across a lot of different businesses. As I said, the data center business is increasingly growing for us and we think in a few years it'll be our largest business. Secondly, our products are tight used across the board so we tend to see in memory shortages is the bottom end of the stack starts to get impacted and that's actually lower royalty rates for us. So as a result, we don't get impacted very much. So no, short answer is no impact this quarter. And we raised our guidance for the next quarter because as I said, we're just not seeing that kind of impact. But it's, I'm not denying that it's there, but for the ARM business, the impact is quite minimal.
- [06:54]
Ed Ludlow
Rene, thank you for that. Datacenter royalty revenue grown 100% year on year as you outlined. I get the same question for you from, from everyone sell side through to buy side, which is give me a specific year market on the calendar when AAM goes from being handset to data center and it accounts for more of your business. Is that inflection point clear on your calendar at least?
- [07:19]
Rene Haas
It's very clear. And that's why in the earnings call I said in a few years, as you know, we don't typically provide forward Guidance on an annual basis. But we have a line of sight that says we see it coming and it's probably coming sooner than we had thought. And the reason for that is the data center growth. But if you click below that, why is Datacenter growing so rapidly? It is the a presence of ARM CPUs in the data center. We're now over 50% market share at the hyperscalers. Secondly, the CPUs that are being used are using more ARM CPUs inside the chip. 192 cores for example, inside a Graviton chip going from 96 Vera Nvidia Vera going from 72 cores on Grace now to 88. So what does that mean? That means more cores means more royalties and high growth rate. Well, why are there more cores? When you think about agentic AI and everything associated with agents moving workloads across Systems, managing workflows, etc. Etc. That's the kind of work only CPUs can do. So to your question, while we're not giving a date, we can see it and it's coming sooner than we had thought. Even probably six to nine months ago.
- [08:33]
Caroline Hyde
And probably on the back of when you look at an Alphabet increasing its capital expenditure by another, well, potentially $185 billion. Rene, is. Is the air bubble, this worry about infrastructure build out a thing of the past to you or there is still some bottleneck issues that you're concerned about?
- [08:50]
Rene Haas
Yeah, so it's a great observation, Caroline. And yes, there's huge growth in, in Google's capex. Not all of that $180 billion is coming to us, of course, but what does that, what does that say? We continue to see investments in the data center, whether it's what Matter had announced or Microsoft announced and now Google Alphabet that exceed what people had originally thought was even possible even a couple of years ago. If you go back to when we announced the Stargate initiative In January of 2024, $500 billion over a number of years, people looked at those numbers and said how is that even possible now? Now, 18 months later, it looks quite, quite credible. So bottom line is we are seeing such an investment because the opportunity, the way I like to think about it, is kind of the final frontier relative technology. When you think about what could be on the be beyond AI, it's really hard to imagine. So also the fact that AI has really had very little penetration, let's say into into large enterprise or into our health systems or things around drug discovery. So there's a long, long Runway, I think People are a little nervous about it as, as decidedly so, because we've not seen it before, right? We've not seen the order of magnitude we're talking about. So it's somewhat natural to look at it and say, well, gravity's got to hit it sometime. But then if you intellectually look at it and say, my gosh, is AI going to be something that will change and transform how everything is done? Well, of course. And then there's going to be investment to, to support that.
- [10:21]
Caroline Hyde
And that's what we're saying, investment to support that. We mentioned Stargate. That immediately makes me think of Masa and you were clear on the call yesterday that you spoke to him. You don't think Softbank is in any way going to sell down its stake in aam, but how much is that an overhang in the longer term? And how much actually do you want to see more free float of your stock?
- [10:41]
Rene Haas
Well, I have one very large shareholder who I talk to quite frequently who loves aam and he's very long on aam. So he has no intention to sell at all. And I shouldn't even say anytime soon. I don't know when, when that would be, quite frankly. We do talk about it. He said he's got no interest in selling, how that impacts the float, etc. You know, that's not something, candidly I spend a whole lot of bandwidth thinking about. But he's very, very long on ARM because he sees the enormous opportunity that we have. And if you think about what we've done since we've gone public, Caroline, in the fall of 2023, we told the world we'd be growing at 25% year on year for two, three years. And people didn't believe it was possible. Here we are now, a couple of years later, and we're beyond what we told investors during our roadshow and things are even stronger than they were at that time. So as a result, he sees it. He sees probably more of the data than anyone does, and that's why he's not selling.
- [11:39]
Ed Ludlow
Rennie, I want to go back to CPU. January 26, Bloomberg speaks to Nvidia CEO Jensen Huang and he speaks for the first time about selling to the market via CPU as a standalone. And that seems critically important because if you think about the pipeline for Black, well and Rubin, right, those are GPUs coded in ARM based architecture. And those building, they don't want to sort of have to cross pollinate x86 based platforms with their arm based GPUs. It seemed to be really substantive. Could you explain how, how much of a boost that that was for arm? And, and whether this idea that the Vera CPU goes into the market is a standalone product products changes the trajectory at all? Because at the same time Nvidia talks up about how much content it owns proportionally in the overall system. Just take it and run with it, please.
- [12:36]
Rene Haas
Yeah, you know, so first off, thrilled to see Jensen say that they're a great partner and Vera is a, is a great product. And as I mentioned earlier, Vera has gone from, is gone now 88 CPUs inside it, CPU cores from, from 72. So why is that a really good thing for us going forward? Primarily because when you think about the data centers and, and how they're evolving to, from what is general purpose compute moving to AI compute, a mix of training and inference. And those inference workloads are agentic. That's right down the center of the plate for what the CPU not only is good at, but can only do. Can only do. So what that means is inside the data center you're going to start to see movement towards a homogeneous type of structure where people would love to have the ARM stack running almost everything. It's just easier from a maintenance standpoint, it's easier from an upgrade standpoint, it's easier from a cost standpoint. So. And also the flexibility it can afford. You can build a tremendously efficient custom system based on ARM. The Vera Rubin platform compared to Grace Blackwell uses 6x the number of CPUs and that's when you look at the storage, the DPU, the offload, that's a huge increase. So yes, selling Blue Spirits, that's a, that's a great thing. We're, we're super happy to see that.
- [13:57]
Caroline Hyde
Briefly, Renee, you have such a bird's eye perspective because you're working with Nvidia, but also you're working with Open Air. It was reported potentially was looking with you at your technology to be working with its own custom chip. With Broadcom, you've got matter looking at custom chips, of course. How do you see this evolving?
- [14:15]
Rene Haas
Yeah, we, we, we have a, I have a lucky job. I get to work with just about everybody in the industry across the planet. Whether it's in the fab foundry area, whether it is a chip company, whether it's an oem, whether it's a software provider. We work and talk to everyone because ARM is just so pervasive. The common theme we see is continued investment in AI and not just at the data center. It's trying to figure out how do you run those AI workloads everywhere, how do you run them in wearables, how do you continue to make them more efficient in a smartphone or a PC or in physical AI, whether it's autonomous driving and or robotics? So we're involved in all the conversations and the common theme is heavy, heavy investment. And one of the challenges that we see in the chip world around this is, as you know, it takes a couple of years to build a chip. The IP that we develop that goes into the chips, a couple, maybe a couple of years in before it trying to predict what the architectures look like four years after the chip has been designed. Where the AI models are going is really very tricky. That lends itself also though very well to arm because we are programmable, we are flexible and we are low power, meaning that wherever the chips drop, no pun intended, we should be in a very good position to be able to drive those workloads.
- [15:36]
Caroline Hyde
CEO Rene has with the broader perspective. We thank you for it. Now coming up, we've got more earnings to talk about. Alphabet's results. Expectations for Amazon. It's coming thick and fast, folks. This is Bloomberg Tech. Record spending by cloud providers. Well, it's raining on the parade of big tech earnings following Alphabet's results last night. Let's talk it through with Aoko Yoshioka who say with wealth and hearts announcement group. I looked at one point after the announcement yesterday that we were going the way of matter, that even though Capex was going up, we were celebrating the rewards and the revenue boost and then we went more the way of Microsoft and we were worrying about the extent of the Capex. Are you selling on this?
- [16:19]
Aoko Yoshioka
No, Caroline, we're not selling on this. You know, these companies are still high quality companies and they're still growing very quick, quickly. I think it's just an adjustment from a valuation standpoint in terms of what are these companies worth over the long term, how much longer are they going to be spending at these levels? Because the issue for investors is really just the sort of collapse in free cash flow that we have been just growing accustomed to. These. These companies used to return so much of that free cash flow to shareholders and now it's being spent for investment for good reason. And over the long term this should help them grow. However, it just means that the investor kind of gets put to the, to the side for a little bit.
- [17:04]
Caroline Hyde
Are you worried in any way about the free cash flow that Alphabet is perhaps taking a hit on? Because from what we could understand from the numbers in fact, they're becoming ever more efficient. The margin is being supported because they're so vertically integrated, they're able to cash in on growing cloud and focus on compute much more than rivals per se.
- [17:23]
Aoko Yoshioka
Absolutely. I mean, with, you know, the cloud business growing 48%, well beyond what investors were expecting at around 30%. If that continues, the investment that they're doing is justified and I think investors will eventually reward them for that. It's just in the meantime, meantime, just recalibrating really what you want to pay. And the momentum had been so strong for Alphabet going into earnings that there's just a little bit of a, you know, take, take profit attitude going on in markets.
- [17:57]
Ed Ludlow
Okay, let's bring back the capital expenditures chart. Wait, wait for some TV magic. It's going to appear any second and then you look at that and you go, my goodness. You know, it is Caro called it mic drop moment. It is shocking. But what you said a moment ago, Google cloud growing at 48%. Like the whole Microsoft anxiety was that Azure was off by a percentage point. Why is Alphabet not getting the credit for the Google cloud growth? And everyone's just staring at that chart.
- [18:31]
Aoko Yoshioka
It's a great question. I mean, you know, Microsoft missed by 0.4%. You know, they, they posted 39% instead of 39.4. And yet Google really sort of blew it out of the water. And I really feel like it's that focus on that CapEx spend in 2026 more so than anything else. It's great that we're seeing that growth on the cloud for both Microsoft and for Alphabet, but really it's that spend in order to get those growth numbers, I think is what is giving investors. There's a little pause.
- [19:07]
Ed Ludlow
Amazon's down 4%. How much is that? Just anxiety about what they will or won't need to say tonight?
- [19:14]
Aoko Yoshioka
Absolutely. I think a lot of it has to do with the anxiety about what they'll say tonight and how much investors might be off or the street might be off. In terms of the estimate for 2026 capex for Amazon, I think investors are anticipating about 125 billion in spend, which is up 22% or so from 2025. And so we'll have to see if Amazon decides to spend a little bit more.
- [19:42]
Ed Ludlow
Koshoka Wealth Enhancement Group. Really good summary of what's going on in the Max 7. Thank you so much. Coming up, Air Tools keep coming for the enterprise software market, but will they be the existential threat that investors fear? We've got More on that next. This is Bloomberg Tech.
- [19:59]
Michael McDermott
How do you shift AI from being a flashy feature to a trusted partner in consumers everyday lives on the ground at CES Bloomberg Media Studios, asked Michael McDermott, EVP of Samsung. Our 2026 vision is built around an AI companion. It understands you and responds intuitively. This intelligence works quietly in the background across TVs, home appliances and mobile devices. By putting AI at the center, at the center of everything we do, we're simply improving everyday life for everyone everywhere.
- [20:29]
Caroline Hyde
With VRBoCare, help is always ready before, during and after your stay. We've planned for the plot twists, so support is always available because a great trip starts with peace of mind. Well, it's introducing a new platform to help companies deploy AI agents easily and pave the way for broader adoption among corporate customers. The new product, called Frontier, allows organizations to build and manage those AI tools so that each agent has appropriate guardrails and data access. Ed, what you got?
- [21:08]
Ed Ludlow
Speaking of the enterprise shake up caused by AI, Anthropic Legal plug in for its Claude cowork may not be as devastating a blow to legal solutions providers. That's according to research from John Davies at Bloomberg Intelligence, who joins us now. John, as someone that suffered through years of law school and was born to two attorneys, I enjoyed reading it. Your conclusion is that Claude Legal is insufficiently expert to to mount a challenge? Just dig a bit deeper into your thesis.
- [21:41]
John Davies
Absolutely. I think the key thing is that the all these generic tools schools don't have access to the vast pools of data which the very specialized tools which the established companies have access to which they've built up really over many decades, even centuries in some cases. And they're not easily replicable sets of data. It's a lot of shoe leather involved. You've got to visit vast numbers of courthouses. And it's not simply a question of digitizing the information. You've also got to put it in context. Context. So the companies we're talking about here, Westlaw and LexisNexis, each employ many hundreds of legal professionals and have done for a very long time. And all that information is caught up inside their products. And that's the thing which I think the generic tools won't have access to, don't have access to. And therefore they're more likely to make mistakes to hallucinate and lead people astray. And you can't really work this stuff out from first principles because sometimes the law defies logic. It's not really like a science problem here, here.
- [22:48]
Caroline Hyde
And defies logic. It's interesting, John, that in many ways, look, Claude co work had said that in a statement. They said, look, you still need a human in the loop. We're not suggesting this should just run wildly free. And in particular, we had an investor on yesterday, Uday to Revu, who's from Harding Lovena, who was saying the thing with Alexis Nexus though is it is a point solution, it's not a platform solution. And that's why people have the anxiety that it might be knocked out in such a way. What more could we see from these AI developments that might give you pause about Alexis Nexus or whoever's being competed against?
- [23:23]
John Davies
I think if they, if they do somehow manage to gain access to data and clearly, you know, while it's expensive to replicate, these companies have a vast amount of, of money. So that could be, could be one angle and I guess, I guess the other one is if in some way it's a bit like proving a negative, but if they can somehow prove that they're no longer hallucinating, then. And they can, they can point to where they don't have the knowledge and say, okay, beyond this point, you need as a lawyer to go and do the work yourself. But here is the kind of basic tool set that could become quite a useful product, which could be sold perhaps at a much lower cost than, than the incumbent providers have at the moment. But it really seems like quite a stretch and there's an enormous amount of experience built into the use of the existing products.
- [24:11]
Ed Ludlow
Right.
- [24:12]
John Davies
For decades, much like they have various.
- [24:14]
Caroline Hyde
Tools in financial markets, annual notes point out they've also been enthusiastic adopters of AI themselves, so have been making major innovating. To John Davies, Bloomberg Intelligence is a great note. Thanks for bringing it to us. Meanwhile, coming up, but it's all about crypto increasingly under pressure. We'll break down what's behind these moves next. This is Bloomberg Tech.
- [24:43]
Ed Ludlow
Welcome back to Bloomberg Tech. In the last 30 minutes or so, actually, markets have come off session lows and Nasdaq 100 is down 9.10of a percent, had been down about 1.8% and trading at its lowest level since November. We'll keep an eye out on the Bloomberg terminal. I'm not really sure what the news flow is. Maybe this is just a kind of market sentiment thing that's going on. Earnings, though, of course are a big factor in it. We talked about Alphabet, which itself is on track for its worst day since May. After the bell, we get Amazon and Amazon's down 4%. Right. You don't usually see a name that's going to report earnings after the bell decline with that conviction. Usually you're treading water. But because Alphabet, the parent of Google, posted such a monster capital expenditures forecast for this year, $185 billion. Maybe there's some. Read through that, Cara. Maybe the market's like, oh wow, what's Amazon going to say? Like, what do we, what do we think is coming here? And of course, we're bracing.
- [25:39]
Caroline Hyde
Yeah, we're bracing. Meanwhile. Well, if you are bracing for crypto to be falling further, you got that delivered. We're off by 6% today. We're below the important $70,000 level. And that negative momentum is just accelerating across cryptocurrencies writ large. Look, it's driven maybe in part by vanishing marginal demand amid this week's volatility in other areas. Tech equities, precious metals, reverse crypto. Reporter Myochen joins us now. We are, is this people selling crypto to cover losses elsewhere? Is it more fundamental than that?
- [26:12]
Myochen
Right now it feels like there are some more fundamental issues within the crypto industry. So based on what I'm talking, everyone I'm talking to in the crypto industry, there is a crisis face, right? Like you know, digital digital currencies, like promise of like we build this like Internet, like Internet money and that's kind of disappearing because like when prices are going down of asset class as supposed to be going up, that's really hard to sell at the moment.
- [26:37]
Caroline Hyde
It was a store of value.
- [26:38]
Myochen
Yes.
- [26:38]
Caroline Hyde
Losing faith.
- [26:39]
Myochen
Yeah. Not just, not just bitcoin as a digital gold, also other cryptocurrencies, right. Like you see like Ethereum, Solana, all these blockchains and crypto are supposed to sort of build like rebuild the Wall street and rebuild Fintech and Neobank and whatsoever. But that's not really happening right now. Even if they're happening as we're seeing some adoption from Wall street, for example, right. We saw big institutions are getting into the space, but that's also not affecting prices. I think that's a big puzzle for the industry to resolve at the moment.
- [27:09]
Ed Ludlow
I think you wrote a really excellent summary using data in the chart that actually for all the hype around Bitcoin, if you compare to other asset classes, it has lagged not just in the short term, but on a longer term basis. Just explain the reporting.
- [27:26]
Myochen
I think the issue is that like, you know, bitcoin is supposed to be like the digital digital gold. But what's happening again, as I just mentioned to Caroline, that is like you know, we have this digital gold that's price is supposed to go up, but we are seeing that gold and silver prices are going up. But meanwhile bitcoin is selling. That's the issue of crypto. Right. Like you don't have a fundamental happening right now. That's a proof removing what like all the bitcoin fans are trying to sell to the market at the moment.
- [27:54]
Ed Ludlow
Right. The most. Shen, thank you very much. Another source of pain right now, software debt. In just four weeks, nearly $18 billion in loans has been pushed into distressed territory, the highest level since October 2022. For more Bloomberg Americans finance editor Sally Bakewell joins us. Sally, there's enough anxiety and concern in the the market right now is software before we even started writing about the debt pile. But it's the smart thing to do. Explain what's at issue here right in that kind of milestone that I just read out.
- [28:27]
Sally Bakewell
So I think the big question here for debt investors, for the market more broadly is how much of this sell off in loans that are tied to software is justified. Now that's the big question we can get to. But in the meantime it's is providing a lot of potential opportunities for investors who are scouring the market looking for companies that are sort of good software loans that can withstand and maybe even benefit from AI versus those that are likely to be made obsolete or have their revenue severely stressed by AI. So that's sort of the big question and what is interesting is the sort of spirited defense that some of the loan buying community, some of the biggest loan buyers have come out with. Aries said some interesting things on its earnings call that you know, there are different kinds of kinds of companies and a lot of them will benefit from AI and that I cannot actually replicate a database, it cannot replicate proprietary data. And so if you build a software portfolio around elements like that, you can actually build a portfolio that's resistant to AI and actually work will benefit from it.
- [29:34]
Caroline Hyde
In fact, Macara Getty joined Preview earlier shows Today the CEO of Ares talking about people are not really understanding how senior and safe a lot of these loans are as well. Is this a case of sort of throwing the baby out with the bathwater or when are we starting to potentially see people getting more nuanced on which loans are exposed, which software names aren't adopting AI fast enough?
- [29:56]
Sally Bakewell
Sally Companies like Aries, like Blue Alumni, they've all and Thomas Bravo who you know, who buy in the space or borrow heavily to fund in this space, they're probably all going through all of their portfolios right now to look at this, you know, there are a company, there are software companies out there that generate billions of dollars of revenue and they're actually showing earnings that are accelerating, not declining. So you know, they're using words sort of like it's not monolithic. You don't just have this sort of very binary situation. And you do have to look at the nuances of some of the companies there. But there's some really interesting dynamics going on in the loan market. For example, close collateralized loan obligations. They're big buyers of these loans and they're only they have limits on what they can hold. So they may become sort of for sellers of loans that do slip into distressed debt territory based on this sell off. And again, that could pose a lot of buying opportunities which investors have to look through and sort of sort out the good from the bad, as it were.
- [30:55]
Caroline Hyde
So interesting how John Zito over at Apollo sort of talked about questioning if the real risk is if software is dead and they'd cut their exposure by half in 2025. We'll see how this continues to ripple through the markets. Sally Bakewell with the Cross Asset I read across. Let's talk about now, Space X holding meetings with banks from outside the US for its ipo, including from Europe and other regions. That's all. According to sources, the meetings took place before SpaceX announced that it would acquire Xi, but the combined company is still expected to hold the IPO later this year.
- [31:28]
Ed Ludlow
Okay, coming up, Snap paid subscribers rise, but the company sees a dip in daily active users, particularly in America. More on those numbers next, down 9%. This is Bloomberg Tech. BJ's Wholesale Club has everything you need to throw the perfect big game party now through February 8th. Get a $15 digital coupon when you spend 150 in one transaction. BJ's has deals on everything from appetizers and snacks to giant party subs to TVs even bigger than the giant party subs. Plus you can pick up the supplies you'll need to clean up after. Go to BJ's.com biggame for details, sales and make your place the place to watch the big game. Time now for talking tech. Let's go through some more of the earnings. First up, Sony reporting a 22% rise in profit over the holiday quarter. And it said it secured sufficient memory supply for its key PlayStation 5 business this year. The company company did caution, however, the profitability of the wider games and networking division worsened due to rising hardware costs. Plus Nvidia partner Hon Hai saw revenue climb 35.5% in January to the equivalent of 23 billion USD. The Taiwan based company is one of the key players in the AI hardware industry and is benefiting from the billions being spent on the gear needed to train and operate the models and shares of Peloton. Peloton a down after the fitness company provided a weaker than expected revenue forecast for the fiscal third quarter, investors have been hoping the release of AI powered treadmills, bikes and other new products would put some muscle into Peloton's turnaround efforts like that carrot.
- [33:18]
Caroline Hyde
Pardon your puns. Meanwhile, let's continue this theme of earnings and those that are falling on the back of it. Snap down more than 8% amid a drop in daily active users here in the United States. Still, the company actually posted better than it was expected holiday quarter sales and actually paid subscribers were rising to 24 million. So let's break it down. Mita Smiley, E Market, a senior analyst is with us. It's many pronged conversation we can have about Snap, but first and foremost, why are we seeing a decline in users in the United States?
- [33:46]
Minda Smiley
Yeah, it's a great question. I mean, I think Snapchat definitely has kind of a stickiness problem. I feel like we see people often age out of it as they grow, grow older. And then we're also seeing reports that younger people are not adopting it. You know, I'm talking Gen Alpha. Really young people aren't adopting it at the same rate that Gen Z might have, so they're kind of in this tough spot. It's interesting, we see a lot of the other social platforms like Facebook for instance, they're really trying to, to court young users. And I feel like Snapchat in some ways has the opposite issue where it sort of has, has a hold on this specific generation of young people. But when you go above and below that, it is struggling a bit more. And I think that is why we're seeing some of those falls.
- [34:23]
Caroline Hyde
And interestingly, you go back to November when we had the previous earnings numbers and the shares skyrocketed. Not just the back of numbers, but on the back of a deal. They were meant to be getting $400 million in a mixture of cash and equity with perplexity, a partnership tonight. Any news on that?
- [34:38]
Minda Smiley
Yeah, I think everyone was kind of hoping this earnings call would shed a bit more light on this deal and what's going on there. Of course they ended up saying that it's been delayed. They didn't provide a ton of detail and it's interesting because when the deal was first announced, it was certainly welcomed by investors. I think they were excited to kind of see a new revenue stream for Snapchat and also just see how Snap is kind of looking into how it wants to compete in the broader air race. And so to see not really any updates there is concerning. And it also just raises a lot of questions people already had around, you know, sort of why Perplexity in the first place? Why was the deal only for one year? How is it going to fit into, you know, how is Perplexity going to fit into Snapchat spreader interface and whatnot? So more questions and answers at this point, for sure.
- [35:21]
Ed Ludlow
I'm trying to understand where Snap fits in the world. It's the first time users declined since 2018. I haven't been on Snap for a very long time and 2018, I certainly wasn't. That sounds like a worrying signal, right? You know, you're talking about the different revenue streams, but at the end of the day, what is Snap and what does the shrinking user base suggest to you? Minda?
- [35:45]
Minda Smiley
Yeah, I mean, I think it's a fair question and I think that partly explains why we are seeing the shrinking user base. I think a lot of users just aren't seeing the value in it that they used to, especially as we see Instagram, tik tok, now YouTube, really, really gain Steam and just really take chip away at time spent. That's something we see in our own forecast at E Marketer. I mean, we are seeing time spent on Snapchat decline year over over year, at least in the US and we're seeing them try to, you know, try to fix that, really. That's why they're investing in things like games. And we're seeing they introduced other features last year that are really just meant to get people, keep people on the app longer. But it is tricky. You know, Snapchat is really distinct in the social media landscape, which in some ways I think has worked to its advantage, but also has hurt it because it really kind of seems to struggle to keep up with the broader trends unfolding in the broader landscape.
- [36:32]
Ed Ludlow
You know, it's easy to try and compare and contrast with matter, right? Particularly in the glasses context. You know, matter has a generative AI tool, meta AI and the glasses have been the surprise package, the modus operandi by which people interface with that, with that AI tool. Can you see the same story with Snap with the glasses and what the point of them will be ultimately?
- [36:55]
Minda Smiley
Yeah, I think, you know, personally, I'm Pretty I'm pretty much a skeptic when it comes to the smart glasses space in general. I just think it's, you know, it still remains really niche and I think there, there's still a lot of uncertainty around to what extent it will ever hit mass adoption. And I think, but you know, even say it, say it does take off, people do end up wanting these glasses. Snapchat is still in a tough position. I mean it is competing with pretty much all the, all the major tech giants who are investing in this space, who are pouring tons of resources in this space. They all have a lot more money than and Snapchat. So yeah, it's interesting to see them bet on it. It makes sense with their history of augmented reality and whatnot. But I think they're in a tough position going forward in that space.
- [37:36]
Ed Ludlow
Minda Smiley V. Marketer thank you very much. Now coming up, we speak with Qualcomm CEO Cristiano Amon that conversations next. This is Bloomberg Tech. Let's focus in on Qualcomm shares. Right now down about 8% on track for biggest drop since last summer. At one point in the session, we were down 11% on track for the biggest drop since March of 2020. The world's largest maker of smartphone processors issued a lackluster revenue forecast, raising some concerns that memory supply constraints could push prices higher, which in turn would weigh on the handset demand. Joining us to discuss is Christian Cristiano Amon. Qualcomm CEO Cristiano, good morning. Thank you for coming. I give you that what's happening in memory is completely outside of your control. Right. But the, the forecast for the current period of sales up to $11 billion. I suppose one way of looking at it is how much better would that have been were the market not so constrained by the supply of memory right now, but also the pricing pressure that that supply deficit puts in place.
- [38:51]
Michael McDermott
Yet look, it's a very interesting situation. You know, in one hand I'm incredibly happy with the business. Everything is going well. Demand is strong. Macroeconomic indicators are good. Demand for handset is strong. We have seen, we had like a record quarter in Q1. We saw all of our customers reporting sell through data better than expectations. But, but then the industry is now defined by the availability that memory that is is going to be available for consumer electronics and it creates, you know, a sudden change in how OEMs look at of their build plan and they say look, I have to size the size of the market not based on demand, but the memory that I can get for consumer electronics and that will make it like this unique period. There's.
- [39:44]
Ed Ludlow
Go ahead, let me jump in. But you know, within that market there are some specific, interesting case studies. Right. The premium segment is good, like from a demand side, particularly in China. So usually like in any hardware environment where you're supply constrained, but demand is high, like that's a good thing. And increasingly, like, think about the content in the phone that you provide. How can you kind of navigate this to your advantage?
- [40:11]
Michael McDermott
Yes, and that's a great observation. That's why I think there's a lot of, I think a lot of unnecessary, I think speculation right now. Here's, here's what's going to happen. We saw this with COVID OEMs. The first thing they're going to do, they're going to prioritize premium and high tier. You know, because those are more resilient, I think to price increases. They are. We are going to see probably adjustment in prices on handsets. And because, you know, demand, it is strong, it is very likely that the premium and the high tier is going to be less impacted than the mass tier on phones. And we have seen that the premium tier continue to expand regardless. Regardless over the several years the premium tier is expanding and we are more concentrated on the premium, the high tier. So your, Your theory is 100% correct. All that happened is OEMs had thinking about a particular size of the year that got resized by the memory availability. They're adjusting their build plans and we're going to see how this is going to play out in the next few quarters. That's, that's really the story. The good thing is demand is high.
- [41:21]
Caroline Hyde
So the second quarter chip sales guidance was what worried people. But third quarter, fourth quarter, it's going to play out over that time frame. Do you think?
- [41:30]
Michael McDermott
It's one thing that I carefully worded. I think during our earnings call I said the memory availability and pricing will be the defining factor for the size of the handset market. And we talk about the size of handsome market because we have visibility, the whole market because of our licensing business. But, but now we're going to see how this play out. And I'm a little hesitant to make a very definitive prediction on how this is going to play out in Q3 and Q4. But the pandemic was a good proxy. When we have something like that and we have a semiconductor shortage, we saw that the premium tier has been more resilient and, and you know, we're going to be working with Our customers as they move the, the roadmap to kind of those type of devices and now.
- [42:16]
Caroline Hyde
You control the controllables and those controllables have been diversification in many ways. This speaks to why you've been focusing in on new areas of growth, whether it be autos, we connected devices, whether it be the future of robotics, whether of course it be AI. Cristiano, how much can you accelerate there to make up for the handset issues?
- [42:34]
Michael McDermott
Look, we, we, you know, it's not, hopefully it's not lost on people that we had another record in automotive. We had actually a record in the company in Q1. And not only we continue to be satisfied with the direction the company is going on diversification, we add a new things like robotics for example. We had a record in automotive. A couple of things that happened in the quarter that are very, very important. One is we announced a broad partnership of Volkswagen Group across all the brands to build the Snapdragon digital chassis for Volkswagen. We saw the launch of the Rafael 4, one of the top selling cars in the world for digital cockpit. And IoT is growing. We, we enter robotics in a short period of time with some major customers. So we're excited about that. The fundamentals of the company are actually incredible and we're just navigating to another phone cycle.
- [43:33]
Ed Ludlow
Cristiano, second consecutive quarter where automotive is above $1 billion. And I remember over years is us discussing what was a backlog in automotive. Right. Apply that story and that experience to your hopes in Datacenter. You know, you've told us when this will happen and who it will happen with first. But how do you see that translating from your order backlog to revenue growth and hitting milestones like a billion dollar quarter?
- [44:02]
Michael McDermott
Yes, we, we will, we restated the data center will start showing up in fiscal 27. We, we have been talking for a while that the data center is going to change. It's going to go from the current focus on training into inference. We have been saying, I think before it was popular that a different architecture will be required. I think the post GPU architecture interesting that the GROK development is kind of validating that and we're getting a lot of good feedback. We have a new architecture including for memory. We don't need HBM which is causing all of this memory situation. And we have been very encouraged by the traction we're getting. So it's going to be material in 27 and we are going to provide a lot of details in our upcoming investor event.
- [45:01]
Caroline Hyde
Just broadly, how are you thinking about the actual consumer right now as well. Cristiano, just briefly.
- [45:09]
Rene Haas
Yes.
- [45:10]
Michael McDermott
So phone is a great proxy for consumer macroeconomic indicators are strong consumer demand very strong. And one of the things I said in the earnings call sell true data on phones and we have visibility because of our licensing business exceeded all expectations. Phones are getting off the shelf. So it's not a demand issue. It's just a, it's just a memory supply issue.
- [45:35]
Caroline Hyde
Qualcomm CEO Cristiano Amon, we so appreciate you joining on this day after the earnings stay. Well meanwhile, that does it for another extraordinary edition of Bloomberg Tech. There is so much market volatility but earnings coming think of fast. We got Amazon for tomorrow.
- [45:50]
Ed Ludlow
Yeah, so. So Alphabet has the mic drop of $185 billion. Capex forecast is Amazon judged by the stock same metric and they communicate that differently. Recap those conversations on podcast. Two important CEO interviews. A lot going on. You know where to find it online, Apple, Spotify, Iheart and of course on all the Bloomberg platforms from San Francisco and New York. This is Bloomberg Tech.