Cisco's Weak Forecast, Alibaba Stops Cloud Unit Spinoff | Bloomberg Technology
ANNOUNCER: THIS IS BLOOMBERG TECHNOLOGY. CAROLINE: I'M CAROLINE HYDE. ED: I'M ED LUDLOW. CAROLINE: MORE EARNINGS COVERAGE. ALL YOU NEED TO KNOW ABOUT CISCO, TUMBLING AFTER ITS NUMBERS. ED: MORE ON ALIBABA, AFTER ABRUPTLY ENDING A PLANNED SPINOFF OF THE CLOUD UNIT. CAROLINE: APEC CONTINUES. TEXT CEO'S DINE WITH CHINA'S PRESIDENT.
A LITTLE BIT OF MOOD MUSIC SHIFTING. WE HAD DEPRESSING MACROECONOMIC DATA. IS THAT GOOD NEWS? MANY FEELING JOBLESS CLAIMS ARE ON THE RISE. THE FED CANNOT HIKE AGAIN. MAYBE WE SEE CUTS NEXT YEAR. A BID COMING INTO THE BOND MARKET, ALL SIX POINTS.
CRUDE DOWN 4.5%. COOLING DEMAND, WHAT DOES THAT MEAN ABOUT GLOBAL GROWTH? RISK ASSET, BITCOIN TRADING WITHIN THIS GENERAL $36,000 LEVEL, OFF 3% BY THE DAY. ED: IN CHINA, IT IS THE MICRO AND MACRO. ALIBABA HAVE DECIDED NOT TO SPIN OFF THE CLOUD UNIT. COMMENTARY IS THEY HAVE BEEN IMPACTED BY THE U.S.
TECHNOLOGY EXPORT CURVES. WE DIG INTO THAT LATER. THE ADRS, U.S. LISTED SHARES ON TRACK FOR THE BIGGEST DROP IN MORE THAN A YEAR. CISCO IS THE NAME WE ARE LOOKING AT IN THE U.S.. THEY GAVE THIS FORECAST FOR THE
FISCAL SECOND QUARTER ENDING IN JANUARY WELL BELOW STREET. THIS IS NOT MACROECONOMIC PRESSURES OR HEADWINDS. THEY HAVE BIG ENTERPRISE CUSTOMERS WORKING THROUGH NETWORK EQUIPMENT. THOSE ORDERS SHOULD WE ACCELERATE.
PIPER JOINS US NOW. JIM, I WAS READING YOUR NOTE. YOU ARE ONE OF THE FEW CALLING A DOWNTURN IN THIS NETWORKING EQUIPMENT MARKET. JIM: GREAT TO CHAT. ABOUT A MONTH SINCE WE CAUGHT UP ON CISCO. WE AGREE AND WE DON'T AGREE WITH WHAT THEY ARE SAYING.
OUR CHECKS INTO THIS PRINT, ARISTA, JUNIPER, F5, WE STARTED TO SEE A DOWN TICK AND WHAT ENTERPRISES WERE LOOKING TO ORDER. THE KEY THEME HEADING INTO THESE PRINTS INCLUDING LAST NIGHT WAS DIGESTION. THAT'S THE BEST WORD YOU CAN USE. ORDERS FROM 2021-'22 PUSHED INTO CALENDAR '23 AND YOU ARE SEEING THAT DIGESTION. WHEN BUDGETS GET TIGHTER,
NETWORKING TENDS TO BE THE FIRST THING YOU TRY TO RUN HOTTER AND SQUEEZE. YOU CAN GET AWAY WITH IT FOR SOME TIME. WE ARE SKEPTICAL WE COULD SEE AN ACCELERATION AGAIN IN THE FISCAL SECOND HALF IN PRODUCT ORDERS WHEN YOU THINK ABOUT BUDGETS SET FOR CALENDAR '24 ROUGHLY ABOUT NOW WITH A LOT OF CIOS. CAROLINE: YOU MENTIONED THE LAST TIME, THE THESIS OF DIVERSIFICATION, NOT JUST HARDWARE BUT GIVING INTO SOFTWARE AND LONGER-TERM PAYMENTS? JAMES: ABSOLUTELY. A GREAT PART OF WHY THEY NEED, WHY CISCO NEEDS SLUNK.
IT WILL HELP WITH THE RECURRING REVENUE PIECE. THEY WILL MOVE THE BUMPING THIS OF THEIR CURRENT BUSINESS. EVEN WITH SPLUNK YOU STILL HAVE A CYCLICALITY CISCO HAS TO DEAL WITH, GIVEN NETWORKING IS THE BIGGEST PART OF ITS BUSINESS AT THIS POINT. CAROLINE: TALK ABOUT AI. THEY SAY THE APPETITE IS THERE. IS THAT ENOUGH TO OFFSET
MANAGED DECLINE OR DIGESTION THE NEXT FEW QUARTERS? JAMES: NICE NARRATIVE TO HAVE. WE DID THIS BACK TO BASICS PEACE AROUND SWITCHING AND ROUTING NOT LONG AGO. YOU DIVE DEEP INTO WHERE AI SWITCHING'S COULD BE.
SEE ESTIMATES CALLING FOR $10 MILLION-ISH. CHUCK MENTIONED THAT LAST NIGHT. 75% WILL BE ETHERNET. EVEN YOU TALK ABOUT 10% OF THEIR SWITCHING BUSINESS A FEW YEARS FROM NOW, BEING AI DRIVEN, THAT'S A SMALL PART OF THEIR NETWORKING BUSINESS WHEN YOU TALK ABOUT A $30 BILLION PLUS NETWORKING BUSINESS ON ITS OWN. ED: WHATEVER CONNECTS DEVICES MOVES DATA.
WHAT JUMPED OUT WAS THE END CUSTOMER. IN CISCO'S ARGUMENT, BEING ENTERPRISE CUSTOMERS -- NOT SME'S. COMING OUT OF THE PANDEMIC, WE ALL HAD AN EXCESS OF TOILET PAPER AND SANITIZER.
BEAR WITH ME. IT SEEMS LIKE THESE COMPANIES HAVE AN EXCESS OF GEAR. DO YOU SEE THAT AS EVIDENCE? JAMES: THAT IS SHOWING UP IN CUSTOMER CONVERSATIONS AND WITH SOME OF THEIR LARGEST CHANNEL PARTNERS. YOU HAVE A GLUT OF EQUIPMENT THAT NEEDS TO BE DEPLOYED. IT WILL TAKE A COUPLE QUARTERS. DOES THIS START TO STEM INTO
THE S&P COMMERCIAL BASE AS WELL? THAT CAN BE MORE MACRO SENSITIVE . IT DOESN'T LEAVE A LOT OF WIGGLE ROOM. 30% OF THEIR BUSINESS IS THAT COMMERCIAL LINE. WE'VE SEEN STRUGGLES ON THE CARRIER SIDE. CLOUD DEPENDS ON YOUR EXPOSURE
TO WHICH HYPER SCALE. OVERALL, ENTERPRISE WAS THE LAST LEG OF THE SCHOOL HOLDING MOST OF THE SPACE UP. NOW YOU ARE SEEING THAT DOWN CYCLE OF NETWORKING COMING OUT HERE, SPECIFICALLY -- WIRELESS LAN HAS BEEN ONE OF THE STRONGEST PARTS. IT IS TWOFOLD. YOU HAVE A LOT OF ACCESS POINT
UPGRADES ALREADY. CISCO M IS BENEFITING BY GROWING DOUBLE DIGITS. SECONDLY, WHEN YOU LOOK AT WHY THEY NEEDED TO UPGRADE ACCESS POINTS, IT'S BECAUSE OF WHAT I AM SITTING ON NOW WITH ZOOM OR TEAMS WHERE THAT SUCKS UP SO MUCH BANDWIDTH AT ALL THESE CAMPUSES AND BRANCHES, YOU NEEDED TO UPGRADE ACCESS POINTS. NOW YOU'VE GONE THROUGH THAT AND THE APPLICATIONS ARE TRYING TO REDUCE BANDWIDTH BY OVER 20% IN THE LATEST VERSION.
YOU HAVE A SLOWDOWN IN THAT SPACE IN PARTICULAR. ED: LOADS OF FOLKS USE SMB'S FOR THE LEAD INDICATOR OF THE HEALTH OF AN ECONOMY. GREAT TO CATCH UP. COMING UP, WE BREAK DOWN ALIBABA. SHARES DROPPING, ADR'S AT LEAST, ON THIS ABRUPT DECISION TO NOT SPINOFF THE CLOUD UNIT. CAROLINE: I'M LOOKING AT THE CONSUMER. PERHAPS A MANAGED DECLINE IN CONSUMER SPENDING. WALMART DOWN. WORRYING ABOUT REVENUE GROWING.
RETAILERS ARE HAVING TO MANAGE PROFITABILITY WHILE REVENUE DECLINES. MACY'S DID THAT WELL. I GOT TO SIT DOWN WITH THE INCOMING CEO AS WELL AS JEFF KENNETT. TONY SPRING WAS TELLING ME, ON THE TECHNOLOGY FOCUS, WE ARE IN THE EARLY INNINGS. THEY ARE STILL OPTIMISTIC ABOUT THE AREAS THEY LEAN INTO WHEN IT COMES TO PERSONALIZATION. THIS IS BLOOMBERG. ♪ ED: AFTER BEING ROCKED BY U.S. SANCTIONS, WH HUAWEI UNVEILED A NEW CHIP. THIS RAISED QUESTIONS ABOUT THE
EFFECTIVENESS OF U.S. LED CONTROLS. ANNOUNCER: THIS IS JUST A SMART PHONE, AT FIRST GLANCE. REPORTER: ONCE YOU KNOW WHAT IS INSIDE, IT BECOMES CLEAR.
>> WHAT CHANGED EVERYBODY'S VIEW WAS WHAT WAS AT THE HEART OF IT. THE MICROPROCESSOR DESIGNED, MANUFACTURED IN CHINA. REPORTER: IT'S AT THE CENTER OF TENSIONS BETWEEN THE BIGGEST ECONOMIES. THE PHONE REPRESENTS A
BREAKTHROUGH BY BEIJING AS IT TRIES TO ESCAPE WASHINGTON'S CONTROLS ON ITS ACCESS TO TECHNOLOGY AND ESTABLISH A SELF-SUFFICIENT CHIP INDUSTRY. IF CONTROLS HAVE BEEN SUCCESSFUL, THIS SHOULD NOT BE POSSIBLE WITHOUT IMPORTING KEY COMPONENTS. >> CHINA NOW IS MORE CAPABLE THAN EVER ARE BUILDING ADVANCED TECH. REPORTER: IT WORRIED US.S. OFFICIALS. THAT LEFT THEM WONDERING, HOW DID CHINA DO IT? CAROLINE: CATCH THE FULL DOCUMENTARY ON THE BLOOMBERG. TONIGHT, 5:00 P.M., TOMORROW ON
YOUTUBE. ALIBABA SHARES SLIPPING HARD AFTER THEY PULLED OFF A SPINOFF OF THE CLOUD BUSINESS, CLAIMING THE U.S. IS TIGHTENING CHIP CURBS. IT FEELS AS THOUGH THE FIRST DIVIDEND WAS NOT ENOUGH TO OFFSET THE PARTS NOT LOOKING SO VALUABLE? HENRY: IT'S A DOUBLE WHAMMY SITUATION THIS QUARTER. SELLING GOODS TO CHINESE CONSUMERS IS NOT POSTING THE EXCITING REVENUES WE'VE BEEN SEEING LAST QUARTER.
MORE IMPORTANTLY, THE COMPANY SCRAPPED THE PLAN TO SPIN OFF THE CLOUD UNIT. THAT SAID IT WOULD RELINQUISH CONTROL, AND SEND IT OUT AS DIVIDENDS TO SHAREHOLDERS. NOT MATERIALIZING FOR NOW. THE COMPANY CALLED IT OFF. THEY ISSUED A CATCH DIVIDEND.
IT IS SEEN AS A MINOR OFFSET TO A DISAPPOINTMENT BECAUSE INVESTORS WERE EXPECTING THE COMPANY WOULD ISSUE THIS SPECIAL DIVIDEND AFTER THE SPINOFF. THE CLOUD IS THE SECOND-BIGGEST SEGMENT FOR ALIBABA. IT'S A DAY OF DISAPPOINTMENT FOR SHAREHOLDERS. ED: THE TIMING IS EXTRAORDINARY. WE WILL GO TO AIPAC LATER. A CENTERPIECE LAST NIGHT WAS PRESIDENT XI AND BIDEN TALKING ABOUT CLOSER ECONOMIC COOPERATION WHILE BIDEN WAS SAYING, WE WILL STAY COMPETITIVE.
WHAT ARE WE LEARNING ABOUT THE HEALTH OF THE CHINESE ECONOMY? >> MANY WERE BANKING ON THE BREAKUP OF THE SIX. THEY WERE SAYING BEIJING PROBABLY HAS, PROBABLY GAVE THE APPROVAL BECAUSE THIS WAS DUBBED THE MOST RADICAL CHANGE IN HISTORY. THEY CITED THE U.S. RESTRICTIONS AS ONE OF THE REASONS THEY WOULDN'T CONTINUE THIS. PRESIDENT BIDEN AND XI HAVE MET FOR THE FIRST TIME IN A YEAR, AS RELATIONS BETWEEN THE NATIONS ARE AT AN ALL-TIME LOW. NO ONE WAS REALLY EXPECTING A MAJOR CONCESSION. THE FACT THIS MEETING IS HAPPENING IS MORE THAN ENOUGH, ANALYSTS TOLD ME.
OPTICS ARE IMPORTANT. INVESTORS WERE DISAPPOINTED . ADR'S ARE FOLLOWING TO THE MOST IN ONE YEAR. CAROLINE: JD MANAGED TO BEAT, TENCENT MANAGED TO BEAT, EVEN WITH COMPETITION. DOES THIS REFLECT A CONSUMER UNDER PRESSURE OR COMPETITION? ISABELLE: BOTH. IT'S THE TEPID DEMAND. CHINA HASN'T SEEN THE RECOVERY THEY WERE HOPING AND GLOBAL INVESTORS WERE BANKING ON AFTER THE PANDEMIC. PRESIDENT XI IS TRYING HIS
BEST. HE VISITED THE CENTRAL BANK OF CHINA TO SHOW HE IS ON TOP OF THIS. FOREIGN INVESTMENTS IN CHINA, ALL-TIME LOW. IT'S A COMPLEX PICTURE. IT'S NOT A MONOLITH. TENCENT IS DOING WELL. JD IS DOING WELL. OPTIMISM IS NOT EVIDENT IN CHINESE INVESTORS. ED: THINK ABOUT ALIBABA ANALOGOUS
WITH AMAZON. E-COMMERCE COMPONENT. THE CLOUD COMPONENT. YOU WERE WRITING THIS MORNING'S STREET WRAP FOR ALIBABA. WHAT IS THE SPECIFIC TAKE AWAY FROM THE NUMBERS AND THE DIFFERENT PARTS OF THE BIZ? HENRY: FROM THE NUMBERS, THE E-COMMERCE PART IS STILL 50% OF THE CORE REVENUE. THAT PART IS SLOWING. WE SAW A REVIVAL TRENDS LAST QUARTER.
ALIBABA MIGHT BE REGAINING MOMENTUM AGAIN WHEN COMPETITORS ARE ENTERING THE SPACE AND GRABBING MARKET SHARE. IT'S NOT HAPPENING ONCE AGAIN THIS QUARTER. SALES HAVE BEEN DISAPPOINTING. FOR ANALYSTS, IT'S A DISAPPOINTMENT. ON THE OTHER HAND, IT'S NOW SCRAPPING THE PLAN TO SPIN OFF THE CLOUD. IT IS SCRAPPING ITS PLAN TO IPO ITS GROCERY SHIPPING CHAIN. IT'S ANOTHER DISAPPOINTMENT. ANOTHER THING TO DIGEST. ED: THAT DISAPPOINTMENT REFLECTED
IN SHARES. ADR'S DOWN 9%. THE STOCK TRADING AT ITS LOWEST LEVEL SINCE MAY. THE DREAM TEAM BACK TOGETHER, THANK YOU.
AIPAC CONTINUES IN SAN FRANCISCO. CHINA'D PRESIDENT DINES WITH THE CEOS OF MAJOR FIRMS. THOSE DETAILS NEXT. THIS IS BLOOMBERG. ♪ ED: SHARES OF HELLO FRESH FALLING AFTER SHOCKING INVESTORS BY CUTTING '23 GUIDANCE. DOWN BY A RECORD 24%, ERASING $780 MILLION OF MARKET VALUE.
LENOVO EXPECTS REVENUE GROWTH THIS QUARTER GENERATED FROM PERSONAL COMPUTER DEMAND IN CHINA. IT IS INVESTING MONEY IN AI OPTIMIZED DEVICES, SOMETHING THAT COULD DRIVE ANOTHER ROUND OF REPLACEMENT. SAPIENT UNVEILING ITS LATEST CHIP FOR DATA CENTERS.
THE START UP BACKED BY SK GROUP IS WRAPPING UP THE OFFERING TO COMPETE WITH NVIDIA AND OTHERS, CONDUCTING TESTING FOR MAJOR CUSTOMERS BEFORE BEGINNING MASS PRODUCTION NEXT YEAR. CAROLINE: APEC UNDERWAY IN SAN FRANCISCO. ANNMARIE HORDERN THERE THROUGHOUT.
WE'VE GOT REPORTING SAYING ELON MUSK WILL BE NO LONGER IN THE LINEUP TODAY. THAT IS BECAUSE HE ENDORSED AN ANTI-SEMITIC POST ON X -- WHO HAVE WE SEEN WITH XI JINPING? ANNMARIE: I HAVE A FULL LIST OF WHO SAT AT THE TABLE LAST NIGHT. CEOS APPLAUDED HIM, RAY DALIO, LARRY FINK, TIM COOK, ALL OF THEM IN ATTENDANCE, TO MEET WITH XI JINPING. ONE REPUBLICAN OFFICIAL, MIKE GALLAGHER OF WISCONSIN, WHO CHAIRS THE CHINA HOUSE SELECT COMMITTEE, SAID, AT A PROTEST AGAINST THE CHINESE COMMUNIST PARTY THIS WEEKEND, A COMPANY PAYING AS MUCH IS $40,000 FOR THEIR CEO TO GO TO THIS DINNER AND SIT WITH THE PRESIDENT OF CHINA. IMPORTANTLY, WHAT HE SAID
YESTERDAY. HE STRUCK A CONCILIATORY DOVISH TONE. HE IS DEALING WITH A FRAGILE ECONOMY AT HOME. HUGE HIT TO FOREIGN DIRECT INVESTMENT TO CHINA. IT LOOKED LIKE HE WAS TRYING TO SET A PATH FORWARD TO BE MORE WELCOMING TO U.S. BUSINESSES.
GINA RAIMONDO SAID SHE TOLD CHINESE LEADERS WHAT SHE HEARS TIME AND AGAIN FROM BUSINESSES IS THAT CHINA IS BECOMING MORE UN-INVESTABLE. XI JINPING SAYS HE DOESN'T WANT TO SEE CHINA IN A HOT OR COLD WAR. IT REMAINS TO BE SEEN WHETHER THIS WILL ASSUAGE CONCERNS. ED: PRESIDENT BIDEN WAS ASKED A SPECIFIC QUESTION ABOUT WHETHER HE VIEWED XI JINPING AS A DICTATOR.
ANNMARIE: HE SAID IT BEFORE, HE SAID IT YESTERDAY AND PROBABLY WILL SAY IT AGAIN ESPECIALLY IN NOVEMBER, 2024. HE SAID XI JINPING IS A DICTATOR. IT'S A DIFFERENT SYSTEM IN CHINA. THIS COMMENT CAME AFTER HE FIELDED A NUMBER OF QUESTIONS, THEN HE TOOK AD HOC QUESTIONS.
THE MAIN TAKE AWAY FROM THE WHITE HOUSE IS BIDEN WILL NOT BACK AWAY. ESPECIALLY AS THE RHETORIC GETS HEATED. THEY FEEL THIS WAS A DELIVERABLE WAY THESE INDIVIDUALS MET. BIDEN WANTS TO PICK UP THE
PHONE IN A TIME OF CONFLICT. ED: WHAT'S LEFT ON THE AGENDA? ANNMARIE: BIDEN WILL BE ADDRESSING CEOS. THERE WILL BE A FAMILY PHOTO. THIS EVENING, HE WILL BE LOOKING FORWARD TO THE IPATH, THIS WATER DOWN TRADE DEAL, THE INDO PACIFIC ECONOMIC FRAMEWORK. POTENTIAL PUSHBACK THEY WILL
SEE BECAUSE THE TRADE PILLAR HAS BEEN DITCHED. IT WAS POTENTIALLY GOING TO BE ANNOUNCED AT THIS FORUM, AND IT IS NOT. ED: STAY TUNED LATER. MORE COVERAGE OF APEC AND A SIT-DOWN INTERVIEW WITH THE ALPHABET CEO CONDUCTED BY EMILY CHANG. CAROLINE: COMING UP, THE INTERSECTION OF AI AND CYBERSECURITY. DEEP INSTINCT WILL BE JOINING US NEXT ON ALL THINGS ABOUT DEEP LEARNING WHEN IT COMES TO FENDING OFF CYBERSECURITY THREATS. THIS IS BLOOMBERG.
♪ CAROLINE: WELCOME BACK. ED: TWO MOVERS. PALO ALTO NETWORKS. LARGELY SOFTWARE. TRYING TO JUMP ON AI. IT MISSED ESTIMATES IN ITS FISCAL FIRST QUARTER AND LOWERED ITS FIRST YEAR GUIDANCE. SHARES DOWN 6%. REVISITING CISCO.
THE STOCK DOWN MORE THAN 11%, ON TRACK FOR THE BIGGEST DROP IN 18 MONTHS. THE CONCERN IS THE OUTLOOK FOR THE FISCAL SECOND QUARTER CAME WELL BELOW EXPECTATIONS. CUSTOMERS ARE WORKING THROUGH A BACKLOG ON NETWORKING EQUIPMENT. WORRIED ABOUT THE HEALTH OF THE MARKET. BIG MOVERS, SIMILAR SPACES, IMPACTING THE BROADER MARKET. CAROLINE: WE WANT TO DIG IN ON THE APPETITE OF CORPORATE SPENDING, PARTICULARLY CYBERSECURITY.
IN A WORLD WHERE AI IS HELPING AND HINDERING. DEEP INSTINCT. YOU WERE THE FORMER CEO OF PALO ALTO. EARNINGS NOT LIVING UP TO EXPECTATIONS, EVEN THOUGH THERE SEEMS TO BE A RAPID DEMAND FOR CYBER PROTECTION HERE AND NOW. WHAT DO YOU MAKE OF IT? >> I CAN'T SAY THEY ARE NOT LEANING INTO GROWTH. I HAVE TO COMMEND THE TEAM. WHAT THEY'VE DONE POST MY TIME
HAS BEEN GOOD. THE FOCUS IS A PLATFORM PLAY. THAT'S TO GIVE YOU A PROTECTION AROUND ACCESSING INFRASTRUCTURE AND THE THREATS THAT MIGHT HIT. HOW DO YOU GUARD THE DOOR? THE PLATFORM PLAYERS ARE GOING BROAD. NOT DEEP.
THAT'S WHERE THE AI FOCUS NEEDS TO COME IN. DEEP INSTINCT GOES DEEP. AS YOU CAN APPRECIATE, I GOT OFF MY BENCH TO DO THIS. THE CHALLENGE OF AI IS BECOMING PARAMOUNT. ED:
THIS YEAR, TALKING AI IN CONTEXT OF CYBERSECURITY, IT'S AS MUCH A TOOL FOR THREAT ACTORS AS FOR YOUR CUSTOMERS, PEOPLE TRYING TO WARD AGAINST THREATS. WHO'S MAKING THE MOST PROGRESS? LANE: A LOT OF PEOPLE WERE CAUGHT OFF GUARD. 90 PLATFORM PLAYERS HAVE MACHINE LEARNING MODELS. TO GET AHEAD OF THREAT ACTORS, YOU NEED MORE SOPHISTICATED TECH. IT'S CALLED DEEP LEARNING. IT ACTS SIMILAR TO A BRAIN.
YOU HAVE COUNTLESS, INFINITY PARAMETERS YOUR CHECKING AGAINST TO CREATE A PREDICTIVE CAPABILITY AND GET AHEAD OF THE ACTORS. DEEP INSTINCT HAS BEEN DEVELOPING THIS CAPABILITY 10 YEARS. WHEN AI BECAME EN VOGUE IN TERMS OF THE THINGS YOU COULD DO FROM A SALESFORCE ENHANCEMENT, CUSTOMER SUPPORT ENHANCEMENT -- A LOT OF SECURITY COMPANIES INCLUDING THE ONES YOU NOTED WERE STILL FOCUSED ON BROADENING COVERAGE BUT NOT GOING DEEP TO THE MORE SOPHISTICATED ALGORITHMS. THAT'S WHAT WE DO WITH 99% EFFICACY. THE CHALLENGE IS PROTECTING DATA. EVERYONE LOOKS TO PROTECT DATA.
EVERYONE LOOKS TO ATTACK DATA. YOU CANNOT FIGHT FIRE UNLESS YOU HAVE FIRE TO FIGHT FIRE. DEEP LEARNING IS GOING TO BE THE ANSWER MOST OF THE COMPANIES HAVE TO FOCUS ON.
THAT'S WHAT WE FOCUS, GROUND UP, 100%. ED: YOUR CHOICE OF WORDS, INTERESTING. 24 HOURS AGO, THE RUBRIC CEO ON THE SHOW. HAVE A LISTEN. >> CYBERATTACKS HAVE GONE BEYOND HUMAN COMPREHENSION. YOU HAVE TO FIGHT FIRE WITH FIRE.
AS ATTACKERS LEVERAGE AI TO GENERATE MORE TO ATTACK YOU, YOU HAVE TO APPLY AI TO UNDERSTAND WHAT THE HECK IS REALLY GOING ON. ED: YOU EXCHANGING NOTES? LANE: NO-NO. HE'S A GOOD FRIEND. I'M AN INVESTOR IN RUBRIC. THEY ARE ADDRESSING THE BIG CHALLENGE OF STORAGE RECOVERY. IT WENT UNNOTICED FOR A LONG TIME. IT IS SOMETHING WE FOCUS ON. PEOPLE FOCUS ON THE ENDPOINT CROWD STRIKES. SENT NO ONE ALMOST ACCEPTS THE
FACT YOU WILL HAVE A BREACH, THEN THEY HELP YOU CLEAN IT UP. YOU CANNOT ACCEPT THE BREACH ANYMORE. YOU HAVE TO GET AHEAD OF IT. WE SHARE A LOT OF VIEWS. THE SECRET IS IN TECHNOLOGY AND UNIQUE LIST OF THE DEEP LEARNING FRAMEWORK. CAROLINE: PREVENTION TAKING CENTER STAGE RATHER THAN DEALING WITH THE AFTERMATH.
WHAT IS IT ABOUT DEEP LEARNING THAT CAN GO THERE UNLIKE OTHER APPLICATIONS FROM RIVALS OR AI BROADLY? LANE: RIVALS AND MOST COMPANIES ARE USING AI LOOSELY FOCUSING ON MACHINE LEARNING. THESE ARE MODELS MADE BY HUMANS, TRAIN ON MILLIONS OF FEEDS. AT THE END OF THE DAY, THEY ARE ONLY SOPHISTICATED AS THE PEOPLE WHO DESIGNED THEM. THE ALGORITHMS AREN'T SOPHISTICATED.
THE BEST COMPARISON, COMPARE IF YOU WOULD, CHATGPT TO TEXT. DEEP LEARNING, DEEP INSTINCT TO CYBERSECURITY. IF THAT LEVEL OF QUANTUM LEAP. CAROLINE: INTERESTING ANALOGY. WE APPRECIATE THE TIME.
INVESTOR IN ALL AREAS OF CYBERSECURITY. THANK YOU. COMING UP, THE WORLD OF AI INVESTMENT. ADVANCING AI STARTUPS. MATT MURPHY NEXT. ED: LET'S GO TO SPACE. AMAZON LOWER. THE COMPANY CONFIRMED THE
PROTOTYPE SATELLITES CURRENTLY IN ORBIT ARE FUNCTIONING 100% AS INTENDED. THAT'S IMPORTANT. THEY NOW CAN START BROADER MASS PRODUCTION TO BUILD OUT THE CONSTELLATION, LITERALLY MAKE THEM AND GET THEM IN OREGON. THIS IS A WOULD BE COMPETITOR TO STAR LINK. ALL GOING WELL SO FAR. THIS IS BLOOMBERG. ♪
ED: $1.35 BILLION, NEW CAPITAL. FLAGSHIP MENLO 16 AND INFLECTION 3 AND AFFILIATED FUNDS. I THINK YOU WOULD ARGUE YOU HAVE A GOOD TRACK RECORD IN INVESTING IN AI AND EARLY-STAGE BUT THERE IS CLEARLY NEAR-TERM MOMENTUM. EXPLAIN HOW QUICKLY YOU RAISED FUNDS AND WHERE FROM. MATT: STANDARD LPS. GOOD LONG-TERM PARTNERS. POSITIVE NET DOLLAR RETENTION. YOU RAISE MORE, YOU INCREASED
YOUR BASE OF CAPITAL. WE ADDED ADDITIONAL LPS. WE'VE BEEN THROUGH A BUMPY TIME. THE KIND OF FOCUS AROUND THIS ABILITY AND BUILD AROUND AI IS COMPELLING TO NEW INVESTORS.
CAROLINE: INSTEAD OF VC MONEY GOING INTO THESE, WE'VE SEEN MONEY COME FROM BIG TECH. HOW HAVE YOU DISCERNED THE RIGHT REWARD STRUCTURE YOU NEED TO SEE FROM COMPANIES WRAPPING AROUND AI? OR WHETHER THOSE BUILDING MODELS, WHAT IS THE BEST VC BACKED COMPANY? MATT: ONE MASSIVE OPPORTUNITY IS GENERATIVE AI STACKS. BUILDING INFRASTRUCTURE. YOU LOOK AT THE APPLICATION
LAYER. A 10 YEAR TREND. THE PORTFOLIO, WE ARE AT THIS PERFECT INTERSECTION OF TECH READINESS AND CEO COMPANY READINESS. THERE'S A MOVE TO ADOPT AI AS FAST AS POSSIBLE. APPLICATION OPPORTUNITY IS 10 YEAR. SOME OF THE BEST WILL BE BUILT IN A FEW YEARS AS THE TECH MATURES AND ENGINEERS IMAGINATIONS EVOLVES.
HERE AND NOW, THE BIGGEST OPPORTUNITY IS IN INFRASTRUCTURE BUILDING BLOCKS. NVIDIA, OPENAI. THERE'S A BIG METAL THAT HAS TO HAPPEN WELL. PICKING MODELS, TRAINING MODELS, OBSERVING MODELS, OPTIMIZING MODELS. THERE'S A BIG BODY OF WORK COMING TOGETHER THAT WILL MAKE THIS EASIER AND ACCELERATE THE APPLICATION. CAROLINE: MENLO, ONE OF THE OLDEST VC'S FROM THE BAY AREA. IS THE FOUNDER COMING FROM THE WEST COAST? IS IT DISPERSED GLOBALLY? MATT: IT'S GOTTEN MORE GLOBAL.
SAN FRANCISCO IS HAVING ANOTHER RENAISSANCE. WE HAVE THE MOST AI TALENT IN THE WORLD. PEOPLE ARE FLOCKING BACK TO BE PART OF THESE COMPANIES. THERE ARE MANY POCKETS OF VC. NEW YORK IS A BIG HUB. L.A., SEATTLE, BOSTON. SAN FRAN IS THE EPICENTER.
ED: THAT 10 YEAR TIME ARISING. LIKE VENTURE CAPITAL 101, ACROSS THE STARTUP CURB. LOADS OF FOLKS SAY THE REALITY IS 99% WILL FAIL. DO YOU SHARE THAT OUTLOOK? MATT: THE NUMBERS ARE BETTER. 50% OF COMPANIES DON'T RETURN CAPITAL. THERE IS A GOLD RUSH NOW. THE OPPORTUNITY IS BIG.
HISTORICALLY IN VENTURE, IF YOU WENT ZERO TO ONE THE FIRST YEAR, THREE TO 10 THE THIRD YEAR, THAT IS REALLY GOOD BY CLASSIC STANDARDS. WE ARE SEEING COMPANIES, NOT TO BE NAMED, GO FROM ZERO TO 100 IN ONE YEAR. RIGHTFULLY, THERE IS A GOLD RUSH AROUND THE MARKET. THERE WILL BE THINGS THAT DON'T STAND THE TEST OF TIME. WE ARE LEANING IN OPTIMISTICALLY. THIS IS THE FASTEST MOVING ECOSYSTEM WE'VE EVER SEEN IN VENTURE. ED: WHEN A FOUNDER COMES TO YOU
WITH THEIR PITCH, HOW MUCH EMPHASIS DO YOU PUT ON THEIR ACCESS TO COMPUTER? CAPITAL IS ONE THING. THEIR ABILITY TO GET RESOURCES TO BUILD THE THING THEY TELL YOU THEY WILL BUILD? MATT: THAT PROBLEM HAS BEEN OVERHYPED. JENSEN WILL RAMP UP. NUMBER OF OTHERS ARE COMING FORWARD WITH GPU CAPABILITIES. THE MAIN ISSUE IS PEOPLE
FIGURING OUT THE WAY TO DO SOMETHING INNOVATIVE. THE APPLICATION LAYER ESPECIALLY. YOU CAN TAKE A CURRENT APPLICATION, APPLY LLM, AND IT MAKES IT SMARTER. A COMPUTER DOING REASONING IN WRITING, ALL THOSE THINGS ARE EXCITING. THERE ARE EARLY STAGES FOR IMAGINATION OF WHAT IS POSSIBLE. THAT IS WHAT WE SEE ACCELERATE
THE NEXT COUPLE YEARS. IT IS LESS ABOUT, CAN YOU GET ACCESS TO COMPUTER? WHAT ARE YOU DOING DISTINCTIVE THAT OTHERS CANNOT DO? CAROLINE: YOU HAVE MADE THE RIGHT BETS IN THE PAST. THANK YOU FOR BRINGING ON THE NEXT SET OF OPPORTUNITIES. MUSK IS BACK AT IT, THIS TIME ENDORSING AN ANTI-SEMITIC POST ON X. THIS IS BLOOMBERG. ♪
ED: ELON MUSK ENDORSED AN ANTI-SEMITIC POST ON X THAT ATTACKED MEMBERS OF THE JEWISH COMMUNITY FOR "PUSHING HATRED AGAINST WHITE PEOPLE." HIS NAME IS NO LONGER ON THE LINEUP OF SPEAKERS AT APEC IN SAN FRANCISCO. WE DON'T KNOW THE REASON WHY. WE WILL CHASE THAT THROUGH THE DAY.
SARAH, WHAT DO WE KNOW ABOUT THIS POST? SARAH: THIS HAD ECHOES OF THE GREAT REPLACEMENT THEORY. ONE OF THE THINGS THAT HAS MOTIVATED SOME OF THE SHOOTINGS IN THE JEWISH COMMUNITY OF PAST YEARS. MUSK RESPONDED TO IT SAYING IT WAS THE TRUTH. THEN HE BUILT ON HIS COMMENTS. HE RELATED THEM TO HIS DISSATISFACTION WITH THE ADL, WHICH IS A GROUP THAT IS THE BIGGEST FIGHTER OF ANTISEMITISM IN THE WORLD, A NONPROFIT. HE BROUGHT HIS COMMENTS BACK AND SAID I'M NOT JUST TALKING ABOUT THE ADL BUT ANYONE WHO ESPOUSES ANTIWHITE RHETORIC AND ANTI-ASIAN RHETORIC.
WE SEE MORE FROM MUSK. HIS CONCERN ABOUT ANTIWHITE RHETORIC. THIS IS A CHARGED TIME TO BE SAYING THOSE THINGS. THERE IS ONGOING VIOLENCE IN THE WORLD. HE'S RUNNING A MASSIVE COMMUNICATION PLATFORM. MORE THAN 140 MILLION FOLLOWERS
HIMSELF. WHEN HE DOES THIS, IT IS NEWS. CAROLINE: THIS ISN'T THE FIRST TIME. LAST YEAR, THE AMERICAN JEWISH COMMITTEE PUSHED ON HIM TO APOLOGIZE PREVIOUSLY FOR A DELETED CONTROVERSIAL TWEET THAT MADE SATIRICAL COMPARISONS. HE HAS BEEN SORT OF BLAMING THE
ADL. HOW DO WE BALANCE PRO FREE SPEECH, AND AGAINST ANTISEMITISM OF ANYTIME, BUT YET HE CONTINUES TO WALK A DIFFICULT LINE? SARAH: WHEN PEOPLE HEAR THE WORDS ANTISEMITISM, THEY CRINGE. THAT'S NOT BE.
WHEN YOU LOOK AT THE CONTENT OF HIS TWEETS AND THE PEOPLE HE IS RESPONDING TO -- REMEMBER ON TWITTER, WHO YOU RESPONSE TO AFFECTS THE ALGORITHM. THE WEIGHT OF HIS FOLLOWING WHEN HE REPLIES, TO SAY THINGS LIKE HMM OR INTERESTING, THAT CAN THEN AMPLIFY THOSE VOICES. WE'VE SEEN HIM DO THAT A NUMBER OF TIMES. THE RECENT POST IS THE MOST EXPLICIT SO FAR ON HIS CONCERN OVER ANTIWHITE SENTIMENT. IT IS SOMETHING AFFECTING HIS COMPANY. MORE THAN HALF OF ADVERTISERS
ARE OFF THE PLATFORM. HE'S WHOLEHEARTEDLY BLAMING THE ADL FOR THAT. THEY HAD A PATCHING UP SINCE THEN. NOW IT SOUNDS LIKE HE'S BACK TO CRITICIZING THEM. CAROLINE: THANK YOU.
ADVERTISING REVENUE UNDER PRESSURE AT X BROADLY. RACHEL, FOUNDER OF MIKMAK. ARE YOU HEARING FOR MANY CLIENTS, THAT PEOPLE ARE WILLING TO COME BACK TO X? >> EVER SINCE MUSK TOOK OWNERSHIP LAST FALL, '22, WE'VE SEEN A 90% DECLINE IN BRAND TRAFFIC. MAY, 2023. WE SAW SOME HOPE. BRANDS WERE LIKE OK HERE IS
SOMEONE WHO UNDERSTANDS BRAND SAFETY AND WE WILL TRY A FEW DOLLARS. NOT $1 MILLION BUT PUBLICLY TRADED COMPANIES SAYING, $50,000 IN TWITTER ADS. WE WILL SEE HOW IT WORKS. ED: SORRY. RACHEL: MUSK IS VOLATILE. EVERY TIME HE DOES THIS, WE SEE
A MASSIVE DECLINE IN TWITTER TRAFFIC. THERE'S A DIRECT CORRELATION TO HIS ACTIVITIES AND BRAND ADD SPEND. ED: ONE OF THE THINGS WE'VE BEEN TRACKING ON THE PLATFORM IS VIDEO. THEY PUT A HUGE EMPHASIS ON VIDEO AS A STRATEGY TO BRING BACK CREATORS AND ADVERTISERS. HOW DO YOU SEE THAT GOING? RACHEL: WHEN WE SAW BRANDS RE- TEST THE WATER WITH TWITTER, MAY, 2023, WE SAW STRONG RESULTS. THE INVESTMENTS ARE IMPROVING THE PRODUCTS BUT IT IS NOT ENOUGH FOR BRANDS TO BE WAN -- TO WANT TO BE ASSOCIATED WITH HIS VOLATILE BEHAVIOR. CAROLINE: LINDA HAS REALLY BEEN TRYING TO
AD HOC THE FOCUS ON BRAND SAFETY. HAVE ANY MOVES MADE A MARK ON CLIENTS? RACHEL: D HIS BRAND IS BIGGER THAN X. ANYTHING HE DOES PUTS A HALT TO THE ADVANCEMENTS THEY ARE TRYING TO MAKE. CAROLINE: SO TO THE POINT. THANK YOU SO MUCH.
THAT DOES IT FOR THIS EDITION. ED: THANK YOU EVERYONE WHO TUNES INTO THE PODCAST. WE PUBLISH THE PODCAST TO ALL BLOOMBERG PLATFORMS. FROM SAN FRANCISCO AND NEW YORK, THIS IS BLOOMBERG. ♪
2023-11-24 02:50
