China Targets Apple, AMD Disappoints With AI Outlook
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Live from New York, I'm Caroline Hyde.

And I'm Jackie Davalos in San Francisco. This is Bloomberg Technology.

That and so many more earnings coming up. And Apple off by 1.3%. A key issue here is China and the US and a potential antitrust probe coming from China, all regarding its app store. Let's get to it with Bloomberg's Peter Elstrom, because the timing here is, of course, amid this tit-for-tat from US and China in tariffs. But this started before Trump came to office.

Yeah, that's exactly right. So what we've heard from sources is that Beijing regulators are looking at Apple and specifically the policies around its App Store. It takes a 30% cut of app revenue like it does in other countries too. And also it kind of locks down payment systems because it wants you to make those payments through the Apple Store in particular. So we've heard that SAMR, the regulator there, is taking a close look at Apple.

They've called in executives from the company and some other executives, too, to find out more information. Now the ball's in Apple's court to respond in some sort of way and see whether they're able to address this or whether regulators are going to have to take more action. To be fair, though, this is the same kind of action that Apple has faced in other countries, too, where there are concerns about the App Store, how much money it takes away from developers, and whether that's actually a level playing field for other companies.

Peter, one of the outstanding questions is, is this just a bit more bark than bite? And what is the time horizon here? Because a lot of these probes take time to play out. Do you have a sense of how long it'll take before companies actually see a hit from some of these probes?

Yeah, that's a very good question. This is coming, of course, in the middle of this kind of geopolitical tit-for-tat between the United States and China. So the U.S. levied the 10% tariffs on Chinese imports, and China has responded with some more careful targeted things, including an investigation into Google, which has a similar kind of app store issue. It doesn't have that many operations in the country beyond that. So I think politics are going to play a role here. We're going to see how that...

plays into the negotiations with these companies. Beijing has a very forceful regulatory arm. If they do decide to go ahead and take action against Apple, Google, we know they're investigating NVIDIA too. It could be very punitive for those countries, companies, but it may have to do with the dynamics between the two countries, in fact, rather than the companies themselves.

Bloomberg's Peter Ahlstrom, we thank you. Alphabet shares dropping after fourth quarter earnings missed expectations yesterday. Investors were disappointed by a slowdown in sales in Google's cloud unit. For more on this, we're joined by Brent Phil from Jefferies.

Brent, when we look at Google, Alphabet's cloud sales lagged by 2%. This was behind estimates. It's the second hike per scaler to lag on this front in the last week. Microsoft last week posted disappointed cloud numbers. What's driving the decline for Google specifically? Because the Microsoft story was a little bit different there. Yeah, I mean, the common thread is Google and Microsoft are...

indicating, you know, slower growth. Now, I want to be clear, last quarter was an anomaly for Google, so growth went to 35 and then went to 30 this last quarter. So I think everyone is concerned about the magnitude, but they did say there were some one-time items. Growth in Q4 is still up from the front half of the year. So it's not like things are falling out of the sky. And even for Microsoft, right, they had

low 30% growth. They wanted to see mid-30s, and they didn't see that acceleration. They took that off the table. So we're still talking 30% growth across both companies. And we were at the beginning of the AI change. So I'd be careful to look at just one quarter and say it's a massive trend. The trend has actually been pretty healthy. And then I think the other thing is

you kind of have this bug zopper light, as we call it, with AI. Everyone gets attracted to this light over here and says, AI, AI, AI, and then they forget about the core workloads, right? And so Microsoft highlighted that their AI piece was strong, the non-AI piece was a little weaker. So again, I think part of this is we're on a journey, we're at the beginning of the journey. There are going to be some rocks and pebbles and

you know, barking dogs that cross the path on the way that you got to navigate. And it's not like a straight line up. But ultimately, I think it's pretty good now that... But Brent, just on the pretty good thing, can I just ask about the $75 billion CapEx though? Because we are trying to understand whether you should be committing such significant investment at this time if the return on AI is still questioned.

100% you should be committing. The question that everyone's asking and every company, when you ask the companies this question, and Microsoft will say, do you want us to get 5% market share or 50? We're at one of the biggest tectonic shifts. The CEO of Medtronic, every board in America globally, we're talking about China taking down a trillion dollars in market cap last Monday. Do you want to be involved or not?

And there's a price to admission. And so this is very clear that the time to spend is now and the time to spend is not in four, five, six quarters. And so to your point, what happened last Monday, the takedown that was born by deep seek. And actually, we did hear from Sandov Hichai talking about deep seek. Just take a listen, Brent. There's been a lot of speculation.

observations on DeepSeq. First of all, I think tremendous team. I think they've done very, very good work. I would say both are 2.0 flash models or 2.0 flash thinking models. They are some of the most efficient models out there, including comparing to DeepSeq. From your perspective, does Alphabet able to compete when it comes to cheaper models?

Yeah, I mean, look, the China training thing is nonsense. Okay? David Sachs from the White House came out and said it's nonsense. Okay? So we got to get that off the table. The technology is there, but the training run costing $6 million is nonsense.

So I think, yeah, they're going to be – we have software companies using 25 LLMs, Atlassian 25, Intuit using 10. These are all going to commoditize and they're all going to have a place. DeepSeq will have a place. But it's not this – you open your garage door with one button and you open your iPhone with another button. There's going to be multiple buttons. It's not just one.

And so we think ultimately the big platforms with the users, with the capital and the data win. And Google has a lot of data and they have a lot of great technology. So again, this is why Meta is doing so well. Meta is going to perform very well with Lama.

So we are a believer that, look, yeah, better AI efficiency will come, but it's not coming at the pace that the market thinks with DeepSeek. It's just not. And look at all the CapEx numbers. Between Meta and Google, they've raised CapEx by $25 billion. If it was that efficient, these are pretty smart companies. They don't want to waste shareholder money. They don't want to waste. They have a lot of employees that work there because they get paid in stock.

Like, they wouldn't do this if they felt like, oh, yeah, it's so efficient. Like, why would you jack up the numbers as much as they have? So, again, I think everyone's being misled by one comment from a Chinese comment firm that you can't validate the spend. And the...

I'm curious if you can kind of speak to maybe, you know, shifting back to Google's bread and butter, search, YouTube, and bring in the artificial intelligence picture here, because while we're seeing some of this still kind of come out on the cloud side, what sort of benefit are investors pricing in on the YouTube and search side? What AI boost are you expecting there in the next couple quarters?

Well, no one's pricing anything today. So obviously stocks off big on this kind of minor miss, if you will. But ultimately, we think AI is going to have a huge role. Like you look at Gemini, I've been using it every day.

And over time, Gemini is going to get smarter. And I think there's a role of core search. I'm looking for a restaurant. I'm looking for hours of the local small business I need to visit. I need to get an answer of what's the population of Iceland. And I want to ask Gemini or I want a quick response in Gemini. These things are going to effectively, I think, search in what's happening with AI and these AI agents are going to

are gonna effectively melt together and so it'll be a seamless experience. I think Google can do this. So there'll be times where you see an ad and sometimes you don't. Is that gonna force advertisers to run away? I don't think so. Look at YouTube, great numbers. Look at Core Search, good numbers.

The issue in Google's quarter has nothing to do with the core business. It has to do with the smallest business in cloud and CapEx is up massively. Guess what? Meta, Microsoft, everyone else is doing the same thing. Yeah. And you got to do it right now. So...

And look, we've said this AI journey is going to take time. It's going to be a long journey and we're at the beginning of it. Well said. And Alphabet just coming down from some record highs of yesterday as well. Jeffrey's analyst, Brent Phil, it's so good to catch up with you. Thank you very much. Coming up, we're going to talk more earnings. AMD disappointing with its AI outlook. More on the chip makers' earnings. Another in the silicon sector next. But as AMD falls, so too does Snap. Quick check on those earnings.

After a mixed outlook, basically, spurring a load of downgrades on the street, Wells Fargo, for example, cutting it to an equal weight, saying solid revenue trends, but not enough to outweigh the period of reinvestment. This is Bloomberg Technology.

Shares of AMD tumbling today after the chipmaker left investors with a disappointing outlook for its AI data center business, saying they see strong double-digit growth. For more, Joanne Feeney, Advisor's Capital Management Partner, joins us. And investors, they don't just want double-digit growth. They want a doubling of AI business, right?

They want a lot, Caroline, that's for sure. And what they overlook is what's going on with the rest of the business. I mean, look at how much share that AMD has taken from Intel.

Their data center business has nearly doubled in 2024 over 2023. It's PC client business up more than 50% for the whole year. They've done a tremendous job of really taking advantage of Intel's problems, but have been doing it by being able to develop superior chips of its own. You're right, Joanne. They're not getting a ton of credit for that revenue beat, doubling revenue.

their other unit. I'm curious if you can kind of speak to what they said about that estimate miss on the data center unit. And what does it say about AMD's standing in the AI ecosystem broadly? Yeah, so, you know, the problem they had with their report was that their entry into the AI side of data center is something that's a little bit slower to roll out than people were hoping. And expectations were high heading into the quarter.

And so this new chip that is expected to really push AMD into this business more securely, and they've only just started rolling out this whole line of chips, that new chip, the MI350, isn't now expected to ramp until the second half of this year. And so consequently, their guidance was softer than expected for the data center.

That doesn't take anything away from the core data center business, which continues to grow. But we are in a seasonally weaker quarter for PCs and for data center. And with a little bit less of a ramp on those new chips, the gross margin takes a bit of a hit. And so in the semiconductor world, gross margin is everything. And so whenever you see a decline in the gross margin outlook relative to expectations, typically stocks go down. But more importantly,

their second half outlook for this ramp remains intact. It's just become a little bit of a wait and see game. And some shorter term investors don't tolerate that well. And they get out of the stock and they say, okay, we'll get back in later. For long-term investors, it becomes a ride this out moment.

You don't know when sentiment is going to change. People could say, OK, it's coming in the second half. Well, that's July. Oh, maybe I should start buying it, you know, in March or, you know, maybe I better get ahead of that buying spurt and buy it, you know, later this month now that it's come down. So it's really hard to time this kind of thing. What you have to rely on is that the fundamentals are good.

Speaking of the short-term disruptions, DeepSeek also came up on the earnings call, and I was surprised to hear that the CEO projected a tone of confidence that they could actually benefit from some of these algorithmic breakthroughs. I'm curious if you can explain how does AMD and perhaps even Qualcomm's foothold and edge devices like phones make it better positioned perhaps

to handle some of the disruptions coming from a deep-seek or models like it, as opposed to an NVIDIA that really saw its shares tank in the wake of that.

Yes, so the DeepSeq innovation news was surprising because they were able to achieve efficiency potentially more quickly than folks had imagined. But efficiency is always something that comes to this space, right? Chips get smaller, faster, cheaper over time, but that never led folks to buy fewer chips. Same thing here, right? The models become cheaper and more efficient over time, but that doesn't mean that folks are going to step away from buying the best chips they can. Now, AMD,

Qualcomm have more of a focus on the inference side of this. That is the use of the models. And that's where greater efficiency will mean more use. And I think that's what they're focused on. More use is good for them. It's going to mean more chips are going to be needed to roll out those applications. And so, hey, if the market shifts from the training chips, where you absolutely have to have the highest quality, most powerful NVIDIA chips, over to the inference side, where there are different components like memory and speed,

that plays into their strengths and arm benefits we've got arman qualcomm after the bell today

Yeah, absolutely. ARM is more diversified, I'd say, more diffuse in their exposure. I mean, yes, they certainly play a role in a lot of the chips that go into the AI infrastructure, but they also are more heavily tilted towards smartphones and in a very broad way. Qualcomm, obviously more smartphone-oriented, but fortunately for them, the smartphones they go into tend to go to the higher-end consumer, and that is an area that continues to be strong.

So we actually, we do own Qualcomm. We've owned it for a long time for clients. We like their growth potential. We also like the income with their pretty solid dividend. Lots to see today after the bell. Joanne Feeney of Advisors Capital Management. Thank you.

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Electronic Arts cut its full year revenue outlook yesterday. That follows a decline in the company's third quarter sales. For more on what we learned from the video game publisher, we're joined by Bloomberg's Jason Schreier. Jason, this stirred concerns among investors that EA Games can continue to squeeze growth from its tentpole.

soccer franchise games. But it counts for a big slice of its overall revenues. What did you learn from the earnings call about how the company plans to turn this around?

Yeah, so it was an interesting call last night. EA had already reported preliminary results a couple weeks ago and are taking a bath in their stock. As a result, I believe they're down about 20%. They had a slight gain overnight, partially because they said they were buying back a billion dollars in stock.

And yeah, I mean, they are looking at the soccer franchise. That is their big moneymaker. I believe it's something like 74, 75% of EA's revenue in their business is now from live service, meaning not just selling a game on a store shelf, but also recurring revenue, getting players to buy stuff within the game after it launches. And the soccer game is a big part of that. This

this recent kind of disappointing quarter as a result of this new soccer game not having the same kind of long-term revenues that they hoped for. Analyst at Morgan Stanley, for example, calling out lower user acquisition, softer engagement with FC. They also then turned their attention to Battlefield and basically a slipping calendar date there too a bit, Jason.

Yeah, it looks like they are planning on releasing the new Battlefield at some point this coming fiscal year, so before April of next year. And yeah, this one has been a little while in the making. It's been a while since EA's most recent Battlefield game.

Battlefield has never been able to keep up with their biggest rival, Call of Duty from Activision Blizzard, so it'll be interesting to see how they perform this time. They, for I believe the first time, they have four different studios within the EA organization just working on this single Battlefield game, so it is a humongous bet for them.

Jason, one of the company's challenges right now is getting users to play the updated version of the game, but they're still pretty interested in playing the older version of the game. How does the company typically deal with something like that?

This is the eternal video game industry problem right now, which is that you have so many people who just don't feel compelled to keep buying new games every single year when they can still have a great time playing their older games, playing Fortnite or playing a previous iteration of the sports game. In the sports, it's been interesting. Traditionally, a company like EA has been able to get people to keep buying games

because of roster updates and kind of slight feature enhancements. In the case of the soccer games, formerly called FIFA and now called EA Sports FC, one of their biggest investments is this kind of like this ultimate team mode where basically players have to buy these kind of loot boxes or card packs that give them randomly generated players and stats. And it's this whole big ecosystem that a lot of people have criticized for feeling a whole lot like

gambling. And EA's hope is that

EA has said that the most recent entry is a little bit unbalanced. Players didn't like a lot of things about it, and they're hoping that a big update they just released a couple of weeks ago will fix things and get people back on track. Jason Schreier, thanks so much for the update on EA. Now on to more earnings. Uber shares falling on weak gross booking guidance. Bloomberg Intelligence analyst Mani Singh is in the house. And look, they're blaming weather. You're actually more worried about broader deceleration from ultimately monthly user growth.

Yeah, look, I think when you look at their three-year target of mid to high teens, what could kind of get them there? It has to be the mobility segment. That is the core business. The delivery side isn't that profitable still when you compare them to DoorDash. And on the mobility side, everyone is so worried about Waymo rolling out to 10 more cities. Now, granted, the number of rides that Waymo is doing is a fraction of what... And Uber has a relationship. Yeah.

but only in two cities. So that's the catch here. It's not a relationship that spreads across all the cities. And that's what I think investors are worried about. If Tesla robo taxis were to come this year, and that's a big if, and they get all the regulatory approvals they need,

then you could make the case that mobility growth will slow down. And DoorDash has partnered with Lyft now, so I would say Lyft should benefit from DoorDash's distribution. So all those factors kind of weigh on the user growth. And then it's very hard to make a case that the right frequency will grow given Waymo is expanding in all these new cities.

Mandeep, in 30 seconds, Uber shed its self-driving car business years ago. What's its strategy today? Has the company said anything about how it plans to go about that? Yeah, they mentioned that they will be looking for the right acquisitions and they don't want to spend too much in terms of making an acquisition, but it's pretty obvious that they will be looking for tuck-ins and adding their own technology to avoid being disintermediated here.

Bloomberg Intelligence Analyst, Mandip Sen, we thank you. Welcome back to Bloomberg Technology. I'm Caroline Hyde in New York.

And I'm Jackie Davalos in San Francisco. Quick check on these markets first. Disney off by a 1%. Interesting is they managed to do particularly well in streaming in terms of profitability. They're still seeing the Moana 2 effect really bullying up what's happening in terms of their movie-making business. Entertainment was flat. Let's have a little look at what the CFO was talking about in terms of the Disney numbers, which did beat on a profit basis. Jonathan Farrow and Lisa Abramowitz sat down with the CFO Hugh Johnston earlier this morning. Here's what he said about streaming strength.

The streaming business is doing extremely well. This is a business we invested pretty heavily in a couple of years ago. And what you're seeing now is the benefit of those investments. Our expectation is we'll continue to grow subs, we'll improve margins. We should make more than a billion dollars in that business this year. And next year, we're looking at double-digit margins in that business. So

Certainly a ton of positive momentum. Now you get into the question of why a lot of it is the great content that's coming from the studio side of the house, both on the TV and the movie side of our entertainment business. Moana 2, Inside Out 2, Deadpool, all terrific hits. And on the TV side, the combination of Abbott Elementary, Shogun, and High Potential, you

causing viewership to grow. We're seeing higher engagement. We're seeing churn ultimately coming down over the course of this year. So we feel like the streaming business is going to be one of the big drivers for our company going forward.

Hugh, you know how much I love Shogun and Lisa, I can say, love Moana too as well. So the content is looking pretty good so far. I did want to talk about the cost issue though and clearly not an issue from you, so I appreciate the explanation. Conversation we've had over the last few days or so is if we get tariffs, can companies pass on the costs? I'd like to know from your perspective and for the company, the additional tariffs that have gone on to China, how that could impact your business. How are you thinking about things?

Yeah, right now, based on what's been proposed, and obviously this is a rapidly evolving environment, so we're going to react as we learn things, the impact would be immaterial to us. So from that perspective, really, the Walt Disney Company will be fine based on what's on the table right now.

That was Disney CFO Hugh Johnston, and we stay with Disney earnings. Joining us now is Ross Gerber, CEO of Gerber Kawasaki. Ross, one of the things that stood out to me in this report is not just that quarterly profits beat, but that positive performance might have a few drivers here. And the thing that stood out to me is that price hike from the fall.

I want to know how much of that profit came from that price hike or versus, you know, organic customer growth. What are you seeing?

Well, we didn't see a huge amount of organic growth in customers. And that was part of the strategy in making streaming profitable by charging the right amount for the content. But what they proved is that they could jam a pretty big price hike into the system and not lose subscribers by any meaningful amount and therefore increase profitability. And when you look at

Exactly what the CFO said, the enormous amount of money they've invested in streaming to now see it becoming a very profitable business with double digit margins. That was always our hope for Disney. Disney's a top holding in my fund, GK. And I think that stock is just wildly undervalued when you compare it to Netflix, which is actually the top holding in my fund. And Netflix is killing it on all

but it's really a two-horse streaming race between Disney and Netflix. Bob Iger was talking on the conference call with investors such as yourself, talking about how he's so pleased with the subs numbers, the fact that you didn't see more churn. But what about the growth story back to the likes of entertainment? Yes, you want to see streaming being a real pillar for Disney going forward, but we've got broader entertainment, we've got TV and cable being difficult for them, not to mention people getting onto the latest boat or into the latest park.

Well, the big thing about linear TV is dying, and that's not going to change. But what it really is about is good content, and the Iger effect is real. And we're seeing the benefits of having Iger back at the helm because the content has improved dramatically from the JPEG era. And that drives results. It drives it in the theaters with Moana 2, and then it drives it onto the streamer because I'm just waiting for Moana 2 to drop on Disney+, and subscriber numbers will soar.

Because people want to watch these really successful movies that they'll pay in the theaters, but then they'll watch it again on the streamers probably for the next 10 years. So Disney's experiences division the parks, and they made a lot of investments, and then they had the storm. That kind of hurt earnings a little bit. But with the new cruise ships coming out too, this business is –

is a gold mine. So if you look at Disney's cash flow, it's just a wonderful business at a really decent price. So, you know, we're very bullish on Disney's future. What about the future of the CEO?

Well, you know, Iger is a young 70 or whatever, and I hope he stays forever. And Disney has a long history of having CEOs that keep saying they're going to retire and don't retire. But I think ultimately they should drive the industry towards the digital part of their business or maybe a co-CEO situation where you have experience and a digital, kind of like what Netflix has done because the businesses are huge and quite different. But we need somebody who can really drive creativity

because that's what drives Disney's earnings.

Ross, let's pivot, shift gears to another game or another name that you cover, Tesla, no pun intended there. Gerber Kawasaki Holdings peaked in 2018 and they've come down quite a bit. And what do you make of Elon Musk's growing side project with Doge and his role in government? At what point do you think you'll really start to pare back more or if not completely, if his attention continues to be diverted there?

Well, there's a lot of things to unpack with Tesla. First of all, his full-time job is at the government right now, so we all know he doesn't really work at Tesla. And that's not so bad because many of the people at Tesla are actually fine with that because he's quite disruptive. That said, the goals for Tesla are quite immense, and they have very little time to achieve them based off the timelines that they've set out.

Tesla has a lot of issues that they have to deal with, especially from a marketing perspective as well, because like the numbers in Europe. So we've been a seller of Tesla over the years because we had such an overweight position because we made so much money in Tesla from 2018 to, let's say, today. And so we still own Tesla because it's the most impactful company for climate change in the world.

And that's a theme that we very much believe in. They make the best EVs. And if they just focused on their core business and really stopped all the political noise, I think Tesla would be fine. So, you know, it's a really difficult stock to own and we still own it. And, you know, it's not a big position, but then it doubled in value. So we've been taking profits again.

Ross, to your point about the climate change opportunity, does that still exist in a Trump administration where perhaps that's not as prioritized as it was previously?

Well, I can tell you because I just fought the fires myself in the Palisades that when you're looking at 70-foot flames burning up an entire city in one night or hurricanes in Florida or ridiculously cold weather in the north or whatever you want to look at, climate change is not a political issue. It's a real issue that all of us in the world are facing. Whether we like it or not, I've seen it firsthand. Mother Nature does not want us here anymore. So we need solutions real badly. And Tesla...

is the best solution for climate change between battery storage, charging, and the EV business. So people are going to buy EVs because they're better cars than gas cars. They're a better value for consumers, and it's good for the environment. And this business is growing globally, and every carmaker is making great EVs now, and that was the goal of Tesla originally. So we've been successful, but this trend towards EVs is not going away because of politics.

Thoughts with you, with your neighbors, for what you've been fighting over the course of the month in LA, Ross? I want to go back to what you said about Europe, because as I mentioned earlier, the numbers out of Germany are pretty astonishing, down 60% in terms of sales. France, down 60%. Is Europe feeling the impact of Elon and the marketing impact more than the US, or is this just a lack of a lineup?

No, no, no. This is 100 percent politics. I mean, when you go into Germany and you start supporting the right wing, almost like Nazi Party of Germany, you're going to get a lot of Germans not buying your vehicles. Remember, Europeans are very conscious people and they pay a lot of attention to things that are important, whether it be, you know, the quality of their food or water. And also they care about climate. But when push comes to shove, Elon's agenda is a direct

a front to the direction of Europe. And Europeans are voting with their dollars and they're not going to buy Tesla because they know they can buy other EVs that are just as good. So we're just starting to see this. It's happening in California as well. This is a big problem for Tesla long term. And I'm really concerned they're going to be unable to grow sales moving forward with the current, I would say, anti-marketing campaign of Elon Musk.

You mentioned, of course, the AfD, which is the far-right party in Germany, which in many ways Elon Musk has lent his support to, Ross. Bringing it back to, therefore, what the company needs to do fundamentally, look, it doesn't matter. The numbers didn't live up to expectations. We've got, ultimately, following Waymo in terms of robo-taxis on the ground, but the market still pushed the stock higher. So is it completely disassociated with fundamentals at this point?

Well, we look at it as the fundamentals of the business are worth about $200. And then the rest of the stock prices is hope premium based off robo taxi and robotics and AI, which, you know, are legitimate, you know, opportunities for Tesla. So I don't want to poo poo them. But I live in Santa Monica and every day I drive, there's Waymo's everywhere really doing well. They're driving perfectly. They're taking rides from Uber. We sell that in Uber.

We're going to see this in Uber's numbers, which we now don't own Uber because I think Waymo is a wonderful opportunity for investors for Robotaxi, and it's way better driving than Tesla. So I would say with the decline in Google today, boy, that's an opportunity for investors because that's a reasonably priced stock.

with things like Waymo that could be worth a ton of money in the future. So now they're launching in Austin, right in Tesla's backyard. And it's almost like spitting in Elon's face now as he's pitching a robo-taxi that basically doesn't work. And Waymo is really successfully rolling out robo-taxis. So this is a real competitor. And certainly we're getting outlines from Alphabet overnight of how many rides are being done by Waymo at the moment. Ross Gerber of Gerber Kawasaki, great to catch up with you. Thank you. Coming up,

We're going to be joined by Sarah Guo of Conviction. We're going to be discussing the state of AI investing. That's coming up next. This is Bloomberg Technology.

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Time now for Talking Tech and first up, Workday says it's cutting about 8.5% of its workforce. In a note to employees, CEO Karl Escherbacht says about 1,750 workers will be let go as the company focuses on, quote, durable growth. He goes on to say the company intends to hire for areas such as AI and plans to take on more people overseas.

Plus, Oklahoma is set to become the first Republican state to challenge corporate America's DEI policies as an investor. Oklahoma Treasurer Todd Russ plans to submit shareholder proxy proposals to six companies, including Alphabet and Amazon, in an effort to promote "political neutrality" and challenge corporate donations to organizations that advocate for LGBTQ rights, for example.

And OpenAI CEO Sam Altman called India the most important international market for the startup after it saw a tripling in users last year. Now, the comments come as Altman makes a stop in New Delhi, meeting with Indian government officials and entrepreneurs. It's the latest picture course on Altman's worldwide tour. It's also included Japan, South Korea, Germany's next, Jackie.

let's keep talking about the global ai race on today's vc spotlight with sarah gua she's the founder of conviction a venture firm focused on ai native companies sarah it's been over two years since you founded conviction just a month before chad gpt really took the world by storm and you wasted no time in getting to the cap table in some of the most promising ai startups from mistral to harvey but i want to know

So what's changed in the AI landscape from your perspective as a venture capital investor since you launched? Because AI has come a long way.

Yeah, when we launched, we had this very strong belief that AI would be a decade-plus shift, the most important shift in technology we were likely to see in our lifetimes. And then we made some early bets that application companies and companies that invested vertically up and down the stack would create a lot of value. I think that is even more true now. And the myth of the GPT wrapper has been brushed away. One of the major...

developments over the last few weeks that everyone has been paying attention to is of course a more and more competitive foundation model landscape.

That's right. I mean, you were tweeting about deep seek in December before the world freaked out just last month. But we also had another venture capital investor on the show last week who called it a grave national security threat. And I would love to get your thoughts on the strength of that model, what it means for AI startups competing in this space. And do you agree with that statement? Is it a national security threat?

Let's take the first part first. So it's an incredibly useful model and considered on many capability tests as a state of the art. And I think what is really interesting about it is that DeepSeek as a company released a base model, which you can think of as just pre-training deepseekers.

Then a instruction-tuned model, which is a set of work that allows the model to be more helpful to respond in a sort of chat interface. And then a reasoning model, which is parallel to, for example, OpeningEye's O1 model. And so right at the frontier, now you have an open option, albeit one from a Chinese hedge fund. I think that was quite surprising to the world and quite democratizing to application developers to have this force of open source from companies

from Mistral, from DeepSeek now. Whether it serves as a push for the U.S. to get more competitive on this incredibly important industry front of being first in the race to

stronger AI technologies remains to be seen. But I think it's very clear that export controls are not leak proof and no country has a monopoly on AI talent. Sarah, let's go into how it changes the game in terms of the valuation stack because you are in at the large language model layer with a small allocation towards a mistrial, but you're also in the application layer of these large language models when I think of cognition, for example. How do you think the money is going to flow ultimately?

Yeah, one of our core beliefs is that AI makes the pie bigger. And you can think about it as the stack, as you described, right? Infrastructure, tooling, model companies, application companies, and those that are verticalized. But we're much more interested in application companies and verticalized companies to date. And part of it is seeing the LLM landscape play out.

It's been a very expensive game to play, despite DeepSeek's claims around a $6 million single training run that vastly underprices the cost of experimentation and all of the infrastructure that was used in, for example, post-training and inference as well. And so it's still a very expensive game to play. I think in terms of economic opportunity of...

sort of, you know, the traditional venture capital game being capital efficient growth. We think that is going to be most concentrated in the application layer. And it was all about agents, Sarah, before that. And Sierra, you're in, Brett Taylor leading that business. And that, of course, taking on a Salesforce, for example, is a gentic AI where the real value is going to come in the next year or so?

Yeah, agentic is a really hard thing to define, but I think one thing that we're really excited about with companies like Sierra and others is the more, like very simply, the more that AI does for you, the more people will be willing to pay for it, right? And so something like Sierra improves the customer experience, especially for people with very high-value customers. So think of finance, subscription, travel, et cetera. And...

And I think as we see AI models get more capable beyond answering simple questions to completing tasks, which is something that will take a lot of vertical specific and last mile work, we should expect these companies to be able to capture a lot of that value too. Always great to have you on. Seregua, we love it from Conviction. Thank you.

Amazon's efforts to cut out middle management bloat is sending ripples throughout the company, with many employees fearing uncertainty and a lack of promotions. For more, Bloomberg's Spencer Soper joins us now. Spencer, Amazon veterans are used to periods of belt tightening. What did you glean from employees about how Jassy's tactics this time around are different?

Well, a lot of it is a sign of the times. Employees historically within Amazon, when Jeff Bezos was CEO, would maybe try to figure out what he was excited about because they figured that was going to get a lot of money and investment, and that would be a nice career path for them. And the big difference with Jassy, as CEO, he's a lot more disciplined. He doesn't chase as many moonshot projects. The money's a little less free-flowing, so those career paths for advancement are narrower.

And then you layer on top of that that Amazon's trying to kind of out with the old, in with the new in terms of a reduction in management, replace more senior workers with lower-level employees. And it's just kind of rippling through morale.

particularly at a time where other current giants in tech are laying off, Salesforce. We see that with work day-to-day as well, Spencer. It's a difficult market, but investors want to see this sort of belt tightening. We look at the earnings per share expectations for Thursday.

Yeah, so they've had the past six quarters, I believe, of increasing profits, and they're expecting the same when they report tomorrow. And that's the thing. He's been pleasing Wall Street but making the workforce unhappy, and that's a calculated move, right, like you mentioned with the layoffs.

You can work your workforce a little higher, make promotions a little more scant when they have fewer opportunities with other companies elsewhere. And so that's the calculated gamble they have right now is, you know, we can lean on folks a little harder just for the sake that they have less opportunities to leave us.

Bloomberg Spencer Soper, as we build into these earnings later in the week. Thank you. Meanwhile, that does it for this edition of Bloomberg Technology. Don't forget to check out our podcast. You can find it on the terminal as well as online on Apple, Spotify and iHeart. And don't forget about the earnings coming after the bell. Arm, Qualcomm. The, of course, shows will be across it throughout the afternoon. But from New York, from San Francisco, where it's a little rainy, this is Bloomberg Technology.

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