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- [00:00]
Caroline Hyde
When your data goes dark, Veeam turns the lights back on. Partner with Veeam to increase your data resilience and get your data back so fast you won't even have time to miss it. With Veeam, it's all good. Keep your business running@veeam.com that's v e.
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Amazon/Advertising Announcer
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Caroline Hyde
Marketing dollar work harder.
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Amazon/Advertising Announcer
With Amazon ads, trillions of insights help small and medium businesses reach the right customers that matter.
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Caroline Hyde
Your ads will show up during the.
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Amazon/Advertising Announcer
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Ed Ludlow
Bloomberg.
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Amazon/Advertising Announcer
Tech is live from coast to coast with Caroline Hyde in New York and.
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Caroline Hyde
Ed Ludlow in San Francisco. This is Bloomberg Tech. Coming up, President Trump says the threatened 145% tariffs with China are not viable. Will this soothe trade relations between the two world's biggest economies? Plus billions of dollars in crypto market value vanish as altcoins plunge. We'll dive deeper into some of the risk parts of the tech markets. And Apple plans a revamped Mac Book Pro with a touch display in late 2026 or early 2027. But first we check in on these markets that have been whipsawed this week and we shine a light. What's happened to the NASDAQ 100 that throughout some of those trade tensions, despite the anxiety around credit in the banking sector, we remain higher, up 1.6%. We really have earnings on top for some of the key players. Take tsmc, take asml. But let's return now, of course, to what's been happening in the world of crypto as well. We have seen some on that particular part of the market, the riskier edges. Look at some of the quantum stocks, look at some of the more risky leveraged ETFs one of five more than 8% when it comes to bitcoin. So has not managed to revive from that tumult that we experienced over the course of the weekend and leverage getting flushed out return to all of these parts of the market. But first we talk the macro context here because President Trump says indeed that he the threatened high tariffs with China are not viable as tensions between the world's two largest economies intensify ahead of an expansion expected face to face meeting with Chinese counterpart Xi Jinping. Here's what he said on FOX Business.
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Mike Shepherd
It's not sustainable, but that's what the number is.
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Mike Dixon
It's probably not, you know, it could.
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Mike Shepherd
Stand, but they forced me to do that. I think we're going to be fine with China, but we have to have a fair deal.
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Jaya Baloo
It's got to be fair.
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Caroline Hyde
It's soothing markets, the long term impact. Bloomberg senior tech editor Mike shepherd joins us now to break it down. Look, we'd worried that that meeting between Xi and Trump wouldn't be on. It looks as though tantalizingly it might be.
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Mike Shepherd
Yes, he is indicating caro that this meeting will take place. Of course, we still don't have the details on when or exactly where, although it is expected to take place during the APEC summit that both leaders are scheduled to attend at the end of the month, which is really about 10 or 12 days away. So they don't have a lot of time to lock that in and then also do some of the key legwork ahead of time. And that's grown only more complex with all of the back and forth over some really sticky trade issues that we've seen more recently. And this all was thrown into doubt by last week's move by China to impose curbs on exports of rare earth elements, which are critical across the economy and everything from autos to consumer electronics to defense equipment. And that was something that really set off U.S. officials. And we saw Treasury Secretary Scott Bessens really visceral reaction earlier this week. And the US has since moved to rally allies against China's move, recognizing that this would have global implications and that it would affect far more than just the US Economy. So it'll be interesting to see how this all plays out in those lower level negotiations. But for now, the president is saying the quiet part out loud, acknowledging, Carol, that there will be some severe economic fallout if those very high tariffs actually take effect.
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Caroline Hyde
I'm looking at certain tech names that are exposed to China and they have been rallying whether or not it's just a risk on attitude into the weekend or whether it is on the back of these comments. But what are you watching for in the tech sector more broadly, Mike, as to how they weather this ongoing instability uncertainty?
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Mike Shepherd
Well, part of the question really is going to be the degree of investment that will flow to China and whether there is any sort of chill elsewhere as well. As a result, one of the key questions in the US China relationship has been not only the Chinese export curbs on rare earths, but the US Export restrictions on advanced technology. That includes the AI chips from Nvidia and AMD that you and I have talked about so much in this space, but also the semiconductor manufacturing equipment from the likes of ASML and Tokyo Electron that is so critical to making those chips that are powering the AI revolution. That gear has been restricted by US Measures over the past couple of years. And one of the reasons Beijing is trying to use this leverage right now at this moment on rare earths, a market and a sector that it really dominates, it has this control over that supply chain. It wants the US to relent a little bit in this area so that it can gain back some access to those critical materials itself, the AI chips and the semiconductor equipment, manufacturing equipment needed to make them.
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Caroline Hyde
CTO Palantir telling us that exact thing this time last week on our Defense Tech Special, Mike shepherd, it's great to have you on the show. Thanks for the context. Let's go out to Mike Dixon now for the market impact of US China trade tensions. He is the head of research and quantitative strategies over at Horizon investments. You've got $10 billion in assets under management, all told, Mike, and I'm interested as to how you weather the ongoing headline risk that we see about US and China.
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Mike Dixon
Well, it's certainly there and we have seen that impact certain areas of the market, you know, but overall, as we're heading into the bulk of the tech earnings season here in just a couple of weeks, you know, I think it's helpful just to kind of zoom out a little bit and see where the fundamentals are. And we've got an early read on that this week. Of course, with ASML and TSM showing, there's very strong demand, you know, Oracle's Investor Day as well supported as much, you know. And when we look at the returns thus far for the top of the market, I think one of the most interesting things to me is that we actually have not seen returns driven by valuations increasing this year. So, you know, as we head into earnings season, I think it's a really Good. Really good point to remember and kind of zoom out for a little bit of the bigger picture. And we'll see how this, you know, trying to China trade tension stuff works out. But the underlying fundamentals are very much strong.
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Caroline Hyde
Okay, what have the returns been driven by then?
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Mike Dixon
There's been driven by this, you know, increased demand and you know, overall just the expected, expected earnings continuing to grow and clip or clip along at very high rates. And, you know, we're seeing that through, you know, through the continued, you know, demand. And I think strong fundamentals supporting the returns is a much better place to be than having that be driven by just the increase in investor optimism through valuations going up. And I really do think it's a very strong place to be as we head into earnings season to actually see valuations be at or below for a lot of these bigger names and they really were even to come into the year. And I think investors really need to be aware of that, that, you know, especially those that, that are bearish on, you know, some of this continuation of the trend because the fundamentals are very strong and it is support the price trends that we've seen.
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Caroline Hyde
Okay, so it feels as though you're not thinking there is some sort of bubble, but that's in parts of the market which have seen the AI, well, optimism really light fire. We've seen it particularly as you say, tsmc, asml. I just want to go back to some companies that are rallying today that have exposure to China. In particular, I'm looking at Tesla, I'm looking at Apple, I am looking at asml which managed to calm our anxieties, that they can continue to see the Megatrend continue even if China falls away in terms of demand. But what about those companies that have high exposure to China? Is that something that you need to be anxious about?
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Mike Dixon
Well, I think we need to go back to just what we've seen over the last six months with, with all of the tariff stuff. Of course we are, you know, you know, in this period where we're not exactly sure how this is going to work out. But when we look at the last six months, there has been a lot of fits and starts of, you know, tariff situation is going to be terrible and then we ultimately get a deal. And look, I think overall the market has become a little desensitized to a lot of this back and for, you know, tariff situation, I for one think that, you know, ultimately, and Trump alluded as much in his interview, I think wants to make a deal. And so I Think that, that, that should be kind of our base case here. And this headline volatility that we've seen, you know, is, is just necessary for, you know, that risk premium to be realized.
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Caroline Hyde
Mike, going back therefore to the idea of valuations, yes they're high but it's because earnings have grown into the them. Where are you seeing the earnings likely to catch fire in this set of earnings for the companies that you follow? Because you are in all the major players when it comes to AI?
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Mike Dixon
Yeah, that's right. I mean when you look at just the top of the market, you know, max 7 obviously comes up a lot there. There's pretty big, you know, divergence amongst that group this year. And so you know, some of the names that have been laggards amongst that group, the Tesla is, the Apples, the Amazons, you know, I think where, where that sits is as, you know, what's attractive with the top of the market. I think that's probably still going to be the case that in the medium term those are probably still going to be the laggards and the winners in that, you know, AI group at the top of the market are still going to be the winners. And a lot of that I think has to do with you know, a lot of the smaller software and services type names have had a difficult time really kind of separating themselves and really showing unique value propositions for, for their products. And therefore the market is kind of defaulting to what they know and that is those winners. So I think, you know, even amongst that top of the market in the Mag 7 names, the ones that have been doing well I think are poised to continue to do well and the laggards are at least in the medium term probably still going to to be the laggards.
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Caroline Hyde
Follow the trend. My Dickson of Horizon. We appreciate you have a good weekend. Now coming up we'll break down the latest F5 cybersecurity hacks, how it's affecting the Defense Department and wider implications for the cycle cybersecurity industry. Jai Bulow is with us from Iowa. This is Bloomberg Tech. Shares of cybersecurity provider F5 Networks. Look, they tumbled the same week following revelations that it was hit by a prolonged hack that could lead to potentially catastrophic compromises. Now according to sources, the breach has been blamed on state backed hackers from China. China Foreign Ministry spokesman Lyn Jian said that China always opposes and fights hacking activities in accordance with the law. For more Bloomberg Cybersecurity editor Jeff Stone. But why is this so potentially catastrophic?
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Mike Shepherd
One of the things we have to.
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Ed Ludlow
Remember, Caroline, is that cybersecurity companies like F5, like a lot of technology companies, but cyber companies in particular have really deep access to their clients systems, their networks. They control firewalls, they control who has access to what. They control which IPs can access other computers, certainly passwords and usernames and that kind of thing. So when the people who are trying to stop hackers from getting in ultimately are compromised, that gives outsiders spies from places like China really, really deep, valuable insight.
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Caroline Hyde
For a long time.
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Ed Ludlow
For a long time.
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Caroline Hyde
12 months. And what sort of companies and institutions are being implicated here?
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Ed Ludlow
We're still trying to get a sense of that. We're really trying to understand how Chinese hackers also accessed F5 in the first place. But we know F5 works with government agencies. We know they work with a huge number of the Fortune 500. It's a big, successful, publicly traded company. You mentioned the shares fell. I mean, that's a reflection of the severity of the issue, obviously.
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Caroline Hyde
Severity of the issue. That means the UK and the US have both together put out these warnings. But as companies try to tackle this, how else are they analyzing their defense systems? And how else are they also thinking about other companies that are at the very backbone of their own infrastructure?
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Ed Ludlow
That's right.
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Mike Shepherd
One of the things that we've seen.
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Ed Ludlow
Certainly out of China, for instance, is this evolution from typical email phishing attacks. And they're now resorting to companies with deeper access. Instead of trying to hack your email, they are hacking the company that you rely on to protect your email. So for companies that are potentially affected by that, they need to take a closer look, and they are taking a closer look at who they rely on to do what. They're looking at their vetting procedures, and they're really looking at who they trust with their own kind of crown jewels. But it's hard. It's a really difficult process.
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Caroline Hyde
We understand, according to people familiar, that the CEO of F5 himself is out there calling up clients, trying to discuss how Chinese hacking in particular were able to access. But what are the next steps for a company in this situation?
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Ed Ludlow
They five is going through this process where they're going to try to, to generate as much trust as they possibly can. Part of that is going to mean being transparent about what they do know, what they don't know, and some of the things that they're trying to fix. I know that the CEO, for instance, you mentioned is talking about China. One of the reasons that we see executives do that a lot is because.
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Mike Shepherd
It'S A serious argument for, for a CEO to make to say, hey, we're a private company.
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Ed Ludlow
We are being attacked by some of the world's most advanced, thoughtful, sophisticated spies. Really. And this is how they got in. And here's what we're going to try.
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Mike Shepherd
To do about it.
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Caroline Hyde
Jeff Stone, we thank you from Bloomberg. Sorry, excuse me. Now let's bring in Jai Baloo into the conversation. She is co founder, CEO and chief information security officer at aisle so new AI native cyber reasoning system for vulnerability management which just came out of stealth yesterday. Perfect timing for us in our audience, Jaya and I'm interested as to what your read is on this situation. How fierce is the threat coming from state related activists and hackers?
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Jaya Baloo
It's actually incredibly fierce and it's because there's a very strong motivation to do these kinds of attacks. And what you'll see is that this particular group who is, you know, part of, we think Silk Typhoon or maybe a separate group, we've been seeing this type of activity classified under something called Brick Storm. And it sounds terrifying because it is terrifying. And that's why the cybersecurity agency in the United States put out an emergency directive just this Wednesday because 48 out of the, you know, Fortune 50 are using F5. A vast number of the federal government are using FI. We suspect that they're still thousands of devices being deployed. And you know, really because the source code is now out there and in the hands of the Chinese, that means that a nation state attacker is now looking for vulnerabilities in this source code and has information they never should have had about undisclosed vulnerabilities that F5 was already investigating. And because the attacker was there for more than a year year studying F5, it's actually quite terrifying all the capability they can have.
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Caroline Hyde
How have they gone unnoticed for so long?
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Jaya Baloo
Well, one of the biggest reasons is because if the attacker comes in over remote management devices and protocols using zero days, it's very hard to find the initial vector of how they originally got into that network. And you know, simply if they got in more than a year ago, the chances are high that there's not even logs that hold that type of log retention for over a year. That's, let's start there. That's how we don't know when they actually got in in the first place. The second part of that problem is most of these network devices don't have like a sort of, you know, detection and response that we can actually see. There's no EDR in these network devices. So we can't actually see this malicious activity. We don't necessarily see this telemetry as they're conducting this latter movement. I mean theoretically we should, and at some point F5 did, but that was as late as August of this year and they were directed for national security concerns to keep it quiet until they could release this information in their SEC filing.
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Caroline Hyde
Jay, you are making it clear to our audience how critical this is. But when we all go home and sit around our dinner tables, I don't feel like this is becoming the top of conversation that perhaps it should be. Given the strength of the concerns and anxieties you make clear, what is it that ends up affecting the consumer or more writ large in this circumstance?
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Jaya Baloo
The fact of the matter is, especially from a consumer perspective, we don't always feel like paying for cybersecurity. We think it should be built in rather than bolted on from a competition consumer perspective. Enterprises are more used to this notion that, you know, it's like a never done thing, that we continuously need to improve that it's a rinse and repeat like action. But we still expect more and better from cybersecurity vendors, from people who are comfortable in this space. But frankly, if you are really successful with your software and hardware, you should expect that nation states will target you for something side of supply chain compromise. It's almost inevitable. It's because of that very success that your reputation and your network and information systems are critically at risk.
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Caroline Hyde
And particularly in the world of AI where the ever more sophisticated attacks are happening and writ large at such pace. This is where your company comes in and I'm so interested in Isle and what you're currently building because you're saying it's the first AI native cyber reasoning system. Can you talk us through exactly how it works differently from others? Yes.
- [18:47]
Jaya Baloo
So we are. Which means that everything we do starts from an AI first principle. And one of the most tenacious problems we have in cybersecurity is this ability to both find the right set of vulnerabilities and then remediate them quickly. So what we do at aisle is exactly that. We have an analyzer that actually looks to find those vulnerabilities that truly matter, not just small low level bugs. And we've proven that with, you know, several very famous programs that you have online open source programs. We found incredibly critical zero days. We've reported them responsibly to the maintainers of these open source projects and they have fixed them. And what we've really been trying to do is make sure that we are not just showing, hey, this stuff is broken, but allowing customers to actually be able to remediate those incredibly quickly at superhuman speed. And that has to be how we work because you can bet your bottom dollar that the attackers are using AI now we need to make sure that the defenders are too. And this is something that really we haven't been doing in this way for so long and this kind of static basis that we've had is no longer suitable for the types of threats that we face.
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Caroline Hyde
Just going to island who its core customer is, feels that it's everyone but all these sites, Cyber companies are becoming ever more platforms and want to own your entire ecosystem of cyber. So where do you fit in?
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Jaya Baloo
Well, we start where everything is being built. So if you're right now I feel like every customer that we look at is really, I mean it's remarkable, but we have changed into a planet that operates on software. So everything that we actually look at is a company that's using software. So if they build software, if they're having someone else build software for them for their manufacturing, manufacturing process, for their supply chain, you know, for those kinds of potential customers and design partners, that's where we come in and we try to make sure that those supply chain vulnerabilities that could impact others downstream as well as their own vulnerabilities, that we give them critical knowledge to know what is it that's really broken that you need to focus on and how can we get you to a place where you have zero vulnerabilities coming in? Most of the these companies also have rather terrifying backlogs of vulnerabilities that they have not fixed millions in the backlog. And I'm telling you as a CISO of three different publicly listed companies, I've had these experiences myself of these tenacious, hard to fix vulnerabilities and I wished for this solution, which is why we now built it.
- [21:24]
Caroline Hyde
Well, you've got some phenomenal backers and some phenomenal co founders, Javalu, COO and CISO at I'll. It's great to have you back on the show. Have a good weekend. Coming up, Apple is finally getting in on the touch display game with a revamped MacBook Pro. Details. Next is Bloomberg Tech. When your data goes dark, Veeam turns the lights back on. Partner with Veeam to increase your data resilience and get the right data recovery options for any kind of disruption so you can undo the unpredictable and get your data back so fast you won't even have time to miss it with Veeam. It's all good. Keep your business running@veeam.com that's v e.
- [22:10]
Mike Dixon
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Amazon/Advertising Announcer
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Caroline Hyde
Launch a revamped MacBook Pro with a touch display in late 2026 or early 2027. It's all according to sources. The new computers will also have thinner, lighter frames and run on Apple's M6 line of chips. Let's get out to the man who of course been breaking it all down. It's Mark Gurman, our consumer tech editor. Mark I so often personally try to move my MacBook Pro with my hand. Finally it'll actually work.
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Ed Ludlow
This is a yes. This is a very big deal for Apple. For 15 years or longer they've been.
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Mark Gurman
Resistant to doing touchscreen Macs.
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Ed Ludlow
Why? Because they sell iPads. And they had this fear that the Mac, if it got touched, would cannibalize iPads. They also strongly believe that the ergonomics of a touchscreen computer, to quote Steve Jobs, were terrible and to quote Tim Cook, would be like merging a toaster in a refrigerator. But the Reality is the market has changed. Touch screens on PCs are now table stakes. Mac books are outselling iPads. You also have the reality that that Apple has now combined many of the fundamental technologies between the iPad and the Mac. They both run the same processors now. They both run the same user interfaces. They both have a shared app ecosystem because of Apple's new App Store where they've merged the applications across iOS and macros. So there's so many similarities now. Consumers are desperate for touch, and so they finally are doing it and they think they can bring the Mac more upmarket by doing so.
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Caroline Hyde
We're desperate to make toast in our refrigerators. That's okay, Mark, but I'm also interested that we're all desperate to consume more Sport on Apple TV. Just quickly on F1. It's been a long time in the making.
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Ed Ludlow
Yeah, you know, F1 is interesting. There are a lot of fans. Specifically overseas. Apple is now bringing F1 in a big way to the United States. This is going to make the Apple TV not plus now just Apple TV subscription more valuable. Clearly there was a lot of interest in, in the F1 movie with Brad Pitt. Now they're getting more clearly into the sports. I'm personally hoping they do something about the NBA because it's completely flummoxing how.
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Mark Gurman
Many apps you need to access that now.
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Ed Ludlow
But I guess F1 is good for now.
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Caroline Hyde
Well, we can see you're a sports fan from over your shoulder. Bloomberg's Mark Gurman. It's always great to have you on. Thank you so much. Now coming up, Oracle quals Wall street fears over its profitability. Or does it? Why is it sinking off by almost 8%? This is Bloomberg Tech. Welcome back to Bloomberg Tech. Let's take a quick check on these markets because maybe we've had some nerves soothed a little bit. We are off on the day by 3.10of a percent, bouncing off some of our lows as we try to steady the read across of whether or not Xi Jinping and President Trump will indeed meet in the next few weeks and will indeed manage to back away from the highest possible tariffs. 145%. We know that President Trump spoke to Fox Business saying this would be unsustainable if we did hit that sort of a level. We also though think about the risk and the anxiety in the market. Yes, there's about the banks, the particularly the smaller banks and exposure to credit. There's also the riskier parts of the market. Bitcoin, as you see over the last five days, has been under Some serious pressure. We can see the sell off more than 7% amid that big liquidation that occurred over the course of the weekend prior. Let's talk about all this Bloomberg ETFs and cross asset reporter Emily Griffeo joins us on the more, should we say frothy parts of the market are starting to lose a bit of steam, particularly in crypto and altcoins in particular.
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Jaya Baloo
That's exactly right. You look at what bitcoin's done over the last week, it's down about 8%. Typically the frothier parts, the altcoins like dogecoin, polkadot, bitcoin, those drop more than bitcoin and ether. There's a little bit less liquidity there. We see them as more kind of high beta. What's interesting now is in the ETF world, issuers are trying to package those altcoins into ETFs, into products. Given the success of BlackRock's Bitcoin ETF, they're looking at products like a polka dot ETF, a chainlink ETF, Caroline a pengu ETF integral. I don't know if you've heard of this. I have affiliated with Pudgy Penguins.
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Caroline Hyde
Who doesn't have a Pudgy Penguin? I mean, seem to have it as his avatar. Yeah.
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Jaya Baloo
So we have 130 ETF applications right now filed with the SEC, pending listing. So they haven't launched yet. But it just speaks to kind of that appetite from Wall street to take these altcoins, even though they're dropping right now, and put them into an etf.
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Caroline Hyde
I mean, we just looking at the Doge etf, which has been under considerable pressure. We've seen a lot of these ETNs happen over in Europe, US maybe the government shutdown has put them on pause. But why the sudden anxiety in these parts of the market? Is it more broadly us, China? Is it more the macro Fed side? Is it gold? Because gold is being seen as a haven, but digital gold, not so much.
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Jaya Baloo
Yeah, that's exactly right. A couple sources have pointed to potential stresses in the credit market, maybe seeping into the frothier risk on parts of the market. I mean. Right, the cockroaches.
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Caroline Hyde
I think that comment kind of has.
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Jaya Baloo
Spread to other parts of the market. You look at what tech is doing tech stocks right now. Typically when we see the NASDAQ 100 down, we do see crypto down even more. But then again, there's some days where it does act as that safe haven. I would say in this current cycle, crypto is not Acting as a safe haven. We're seeing it drop further than what the traditional tech markets are doing.
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Caroline Hyde
But you know, you look at that.
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Jaya Baloo
Dogecoin ETF, the ticker DOJ E it's gotten some inflows. It's actually $30 million in a for a new ETF, especially for a meme coin ETF that's actually not that bad. There could be some investors in the market trying to buy the dip here.
- [29:23]
Caroline Hyde
And buy something like this. Well, we know Those liquidations over October 10th and 11th were really painful. In particular, Binance's linked Token BNB has been under significant pressure ever since. It seems to been being blamed for some of that big move. Emily, great to have you back on the show. Please come again soon. Emily Griffin breaking all down for us, but let's pivot a little bit and talk about what's happening over on shares of Oracle because they're also lower. But that's even as the company has been saying, look, it can reach 35% gross margins for its large infrastructure products projects. Why are investors skeptical? Let's go to Bloomberg Intelligence senior tech analyst Anuragrana. Look, there was that report from the information that we were worried that basically Oracle wasn't really making that much money for itself when it gets a big $300 billion contract from OpenAI. They tried to reassure the market it hasn't paid off for today it seems.
- [30:12]
Mike Shepherd
You know, I think the big push came in the stock when they announced that big RPO number, you know, a few weeks ago. So I think you could, you know, perhaps perhaps say that this is more sell on the news kind of, you know, information or reaction. But you know, from our side that 35% is a very good number frankly because you can go back in the history of cloud computing even in the days of an Amazon, you know, web services was formed getting to gross margin starting off this early and you know, it's not a bad thing because over time time that number is going to grow as you scale up as you are able to do things in a much more effective way. 14% number from that article that you mentioned was concerning and I think these guys did a good job of explaining why that's not the case for them. And I, you know, from our side I think the profitability aspect is fine. They talked about, you know, revenue growth of 30% over the next five year period and earnings growth of 28%. So only mild, you know, depression in, you could say EPS growth rate. But at the same time I think it's going to be more back end loaded, which is you were not going to see, you know, you will see compression over the next two years, three years, and then you're going to see a rebound from that. So I think that's where you could see some disappointment. But from our side, you know what we heard, what we like that these.
- [31:30]
Caroline Hyde
Guys said, really like that. You've been talking to some of the great elements our producers have had ready for us, talking about that 2030 goal. But going back to this pie chart that really breaks down where its gross profit comes from. They're saying, look, they're going to be having $21 billion, for example, if you took an overall that's their 35% gross margin for a certain size contract. Can you tell us in the future how they reduce the hardware costs, how they reduce the land and power costs just by economies of scale.
- [31:58]
Mike Shepherd
It's a combination of economies of scale and using more software to optimize the workloads. That has been the case, you know, going back to history of any large infrastructure project, you can go back and see that in the same way CPU computing happened, over time you get better at managing these things. On top of that you add more value added services. So when you look at the stack of software as a service, platform as a service or infrastructure as a service, you're first giving the infrastructure layer, then you're going to give added services services on top of it. Those added services have gross margins of 70, 80% or so. That's usually how cloud providers work. So over time you're going to have those things come in. That's going to help the gross margins.
- [32:38]
Caroline Hyde
Even more when they get those $60 billion in total revenue deals for six years, as the theory of that pie chart went. Anuragrana Great breakdown and always great analysis. We appreciate you Bloomberg Intelligence. Now let's turn our attention to Salesforce. Interestingly, recently also gave its outlook for 2030, but we want to talk about the philanthropic part of it. Venture capitalist Ron Conway has resigned from Salesforce's board following CEO Mark Benioff's call for President Trump to deploy the National Guard to San Francisco. In an email to Benioff and several board members, Conway writes, it saddens me immensely to say that with your recent comments and failure to understand their impact, I now barely recognize the person I've so long admired. For more more Bloomberg wealth reporter Biz Carson joins us. Why is Ron Conway such an important voice here? Biz well, Ron Conway and Marc Benioff have worked together for a Long time. He's been on the board of Salesforce foundation for over 10 years and they're both seen as two big benefactors to the city. So for this to create a rift between the two to the point where Ron is stepping down from the Salesforce foundation board saying he will no longer work with Benioff and is a big deal. It and it shows that, you know, he's not standing behind his comments. Benioff's comments to send in the National Guard to the city to clean it up. I mean, he's not the only voice. There have been more calling out Mark Benioff for his words in San Francisco and in particular, Lauren Powell Jobs seems to have done in an article she's penned herself in the Wall Street Journal. Just discuss what it is that Mark Benioff really feels here because some would say, you know, just his alignment with Trump shouldn't always cause such rifts with people he's known for years. Correct. I mean, that should not cause this alignment. Benioff has literally changed the skyline of San Francisco with the Salesforce Tower. His name is on the hospitals here. He has done a lot through his philanthropy to change and help the city of San Francisco. And so Larissa Powell Jobs criticism was that he should not be expecting things though in return for that generosity. When he was asked about the National Guard coming to San Francisco, he said, if they can be cops, I'm all for it. But a lot of people, including Benioff and including Lorraine Powell Jobs and Conway don't believe that because he has been a philanthropist means he doesn't get to dictate what happens in the city, especially when he's no longer living here and companies here. But he's in Hawaii these days. As Ron Conway put it, San Francisco does not need a federal invasion because you don't like paying for extra security. For Dreamforce this Carson, it's an extraordinary story. Thanks for bringing it to us. Coming up, we're going to be speaking with Seth Rosenberg of Greylock Partners on the impact of AI in the fintech space and so much more. This is Bloomberg Tech.
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- [37:59]
Caroline Hyde
Take a look at shares of American Express. Look, the company reported third quarter earnings that beat estimates buoyed by the strong card spending and recently refreshed Platinum card. The results come as rising rates and high delinquencies across the industry have fueled some concerns about credit quality. But look, CEO Steve Scary. I spoke with him earlier. He told me there's a lot of concern about credit in the markets, but ours continues to be pristine. And beyond the earnings, American Express is also leaning into guest artificial intelligence, rolling out new tools features both for customers and within the company. Scurry told me look, we're getting that just like everyone else. We are rolling out the tools and the training for us, I think it'll be an accelerant to growth. Here to discuss how AI is reshaping the fintech landscape in particular, not just big players like Amex. Seth Rosenberg, partner at Greylock Partners. And you have some stellar companies in the portfolio. We've also seen fintech on a tear until the government shut down with Klarna and Chime coming to the market. So how much is artificial intelligence what companies need to infuse within themselves right now?
- [39:03]
Mark Gurman
Yeah, well, first of all, thanks for having me. I think financial services is one of actually the most interesting verticals for AI. First of all, if you just look at the size of the industry, right, financial services, about 25% of the economy, about $17 trillion of aggregate market cap. And then second, if you look at just the amount of both structured and unstructured data that you have to work with that is currently not being used in the industry. If you think about, you know, receipt data, bank statement data, 10Ks, 10Qs earnings calls, there's all of this data that's currently not being used in an optimal way. And then I think the last thing is if you think about the incremental economic value of making slightly better decisions with that, with that data, whether it's making investment decisions, making underwriting decisions for credit or for fraud. And so yeah, at Greylock we're, we're very optimistic about the opportunity for AI in financial services.
- [39:57]
Caroline Hyde
It's interesting that at the moment we come off a week where there has been anxiety fueled into the public parts of the market. Right now we're worried about community banks and their exposure to credit risk. And Jamie Dimon, JP Morgan. Talk about cockroaches. When we've suddenly seen some key companies roll over with exposure to auto loans and the like, will I feed that out?
- [40:17]
Mark Gurman
I feel like that's the story of the economy in general. There's a lot of risks underlying and then everyone's very excited about AI, right? And so we're focused a little bit more on the early stage software side. And the opportunity that we see is we're moving from a world where software is maybe you know, 1 to 2% of the overall budget of a company, maybe 0.7% of the GDP represents software spend. We're moving from capabilities where software is just a tool where people can enter data to software is actually capable of completing end to end work. So if you just take any subset sub segment within financial services Take accounting for example. You have maybe one and a half billion dollars spent today on accounting software and you have $140 billion spent on bookkeepers and accountants that are actually doing the work. And we believe that gap is actually going to narrow significantly because AI and software is now actually capable of completing end to end work. And that is just one example. But if you take every piece of the services side of financial services, that's kind of the trend that we're paying attention to.
- [41:21]
Caroline Hyde
But for those services to be so impactful and so productive has to be the infusion of generative. Generative AI. That has to be correct if we're talking about making sure that the cockroaches aren't creeping in. And so how are companies in stress testing ensuring that though the advance they're making on having unknown consequences for the companies that take it off?
- [41:42]
Mark Gurman
That's a great question. And the first thing that we think about is you're not comparing yourself against perfection, you're comparing yourself against humans. And unfortunately, humans are also not perfect.
- [41:52]
Mike Dixon
Right.
- [41:53]
Mark Gurman
And so if you take compliance as one example, right, this is a huge cost center for banks, right? If you take one of the large tier one banks, they can spend upwards of 3 to 400 million on compliance analysts. And the problem is they're spending 3 to $400 million for terrible outcomes, right. We're still seeing 3 to $5 billion a year in compliance fines. We're still seeing very slow customer onboarding, we're still seeing very inconsistent results. And so, for example, one of the companies that we invest in at Greylock is called Greenlight. They use AI to basically automate this compliance workflow. And if, if people are concerned initially about accuracy, they basically use a human in the loop system, right? So they have green light basically automate a lot of the work that L1 analysts do. And then you still have L2 and L3 analysts checking the work and signing off.
- [42:43]
Caroline Hyde
When you're thinking about invite investing in a green light, there's also another green light that my family uses when it comes to saving for small children and their literacy. You are starting to see these companies looking for the, the public markets themselves. How is your portfolio looking at aging out when you're writing into the smaller early stage companies? Are they seeing a ray of light by what's happened with Klarna and Chime? Even though we've seen some volatile trading, yes.
- [43:06]
Mark Gurman
I mean, we were fortunate to be early investors in Coinbase, you know, which is one of the public fintech companies in our portfolio. And Yeah, I think what's interesting about the public market opportunity opportunity for fintech is there's just a supply and demand imbalance.
- [43:23]
Mike Dixon
Right.
- [43:24]
Mark Gurman
If you look at the $717 trillion of market cap in financial services, a very small percentage of that is currently represented by fintech companies that are available for public market investors. And so I think there's a very interesting pipeline of really high performing and valuable late stage privates including Ramp in our portfolio. You know revolut wealth simple in our portfolio as as well as companies like Stripe that everyone knows what about M.
- [43:52]
Caroline Hyde
And A Because I know C Square has been buying up certain fintechs as well.
- [43:57]
Mark Gurman
I think, I think the theme like in all areas of the economy is going to be AI and so I think if larger companies don't have an AI native strategy, they're going to be looking for for M and A opportunities.
- [44:08]
Caroline Hyde
Seth Rosenberg, great to have you on the show.
- [44:10]
Mark Gurman
Thanks so much.
- [44:11]
Caroline Hyde
Expertise from Greylock Partners. We thank you. Now look, Chinese e commerce giant Alibaba is hoping I can help boost sales and customer engagement. To Kai Food Jiang, vice president of Alibaba Group sat down with Bloomberg's Minman Low for details on the platform's revamped search feature.
- [44:27]
Ed Ludlow
We actually did a very substantial rework of our search and recommendation this year starting with our 2 billion product listings because we have really one of the biggest product category in the world which is 2 billion strong. And we actually used AI and large language model to rework that underlying product catalog. We enriched the product content when they also re indexed the entire product catalog which is a foundation for the search engine. And you can ask our search engine what is the best gift for someone who is really stressed out in high school and he's having headaches, for example. And AI will be able to comprehend your semantic query and to analyze your underlying need and give you recommendations of the right products. So this was not possible in a simplistic search engine where you have to tell the search a product name and it's going to give you that particular product.
- [45:25]
Caroline Hyde
So you mentioned 20% increase in product relevance. So does that mean, mean we can expect very robust numbers from this year's November 11th sales?
- [45:33]
Ed Ludlow
So, so 20% is actually a very large number. Right. Because I mean we operate a very mature tech stack. I mean this technology stack has been optimized year over year for many years. So you don't often see 20% lift in a B testing but we are able to achieve that with large language model. Of course our model modifiers. Right. That's 20% increase in relevance when the consumers queries are semantically complex. Right.
- [46:01]
Caroline Hyde
How much is the conversion rate though?
- [46:03]
Ed Ludlow
So, so, so if you have a 20% uplift in relevance, the conversion rate improvement is also quite significant. We are able to achieve a 10% improvement in our click through by using large language model to give the consumer more positive surprises. The idea is that the consumers have a lot of product browsing and click preferences but sometimes you want to see new products. You want to see something that you've never expressed any interest in and that was hard. Original Architect so how much is the.
- [46:38]
Caroline Hyde
Cost savings that you are able to help your merchants achieve with AI?
- [46:42]
Ed Ludlow
Yeah, so because we are providing a very comprehensive suit of tools for the, for our merchants, including content generation, including customer service, including marketing and all these other use cases. But I'll just, I'll just give you one example. So in a customer service, you know, like chatbot, we provide our merchants and the cost saving is actually 20 million Chinese yuan per day.
- [47:03]
Caroline Hyde
Your CEO did mention that Alibaba is planning to increase Capex spending beyond the 380 billion yuan that was previously pledged. Do you have a concrete number to share in terms of how much more.
- [47:13]
Ed Ludlow
Investment in so obviously I'm not the right person to answer that question, but I'm on, you know, but I'm on the application end. What I can tell you is that the actual number of usage in terms of, you know, the inference and tokens is actually growing pretty fast.
- [47:28]
Caroline Hyde
Kai Fujiang, Alibaba Vice President there Now Cameron is dubbed China's in video by retail investors. It reported a few 14 fold surge in quarterly revenue. One of the starkest signs yet of how China's chip makers are benefiting from a national drive to replace restricted Nvidia gear as part of a domestic AI development boom. Now the company swung to a net profit of $79.6 million in the September quarter two because not quite the tens of billions that Nvidia is making, but it is compared to a net loss of $27 million a year ago, according to a filing on the Shanghai Stock Exchange. And coming up Matter, it's set to seal a $30 billion financing package for a data center site in rural Louisiana. More next this is Bring Back Tech.
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Caroline Hyde
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Mike Dixon
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