Nvidia Reports and Palo Alto Drops | Bloomberg Technology
ANNOUNCER: FROM THE HEART OF WHERE INNOVATION AND MONEY COLLIDE, IN SILICON VALLEY AND BEYOND, THIS IS "BLOOMBERG TECHNOLOGY," WITH CAROLINE HYDE AND ED LUDLOW. CAROLINE: I'M CAROLINE HYDE AT BLOOMBERG'S HEADQUARTERS IN NEW YORK. ED LUDLOW IS OFF. COMING UP, ALL EYES ON NVIDIA AS THE $1.7 -- $1.7 TRILLION COMPANY YEARS UP FOR EARNINGS AFTER THE BELL. PLUS, PALO ALTO NETWORKS HEADING FOR ITS BIGGEST DROP EVER AS CUSTOMERS FACE SPENDING FATIGUE IN CYBERSECURITY.
AND GOOGLE LOOKS TO BUILD AN OPEN-SOURCE AI COMMUNITY WITH THE LAUNCH OF ITS NEW MODEL. WE WILL DISCUSS THAT AND SO MUCH MORE THROUGHOUT THE HOUR. BUT FIRST LET'S CHECK IN ON THESE MARKETS. WE ARE SEEING FATIGUE AND TERMS OF PURCHASING OF TECH STOCKS. WE ARE WAITING AND WATCHING TO
SEE WHETHER THE AI HYPE CAN BE BORNE OUT IN THE REALITY OF REVENUE. NASDAQ OFF BY .6%. CHINESE STOCKS MOVING HIGHER ON THOSE U.S.-TRADED ONES. THAT ULTIMATELY IS BEING SEEN AS CHINA PUTTING IN PLACE RESTRICTIONS ON SELLING. COULD THIS SUPPORT THE MARKET AND STOCK INFO AND SEE SOME SORT OF REBOUND? I'M LOOKING AT BITCOIN UNDER PRESSURE BY 1.8%.
WE ARE STILL AT ABOUT A $51,000 HANDLE, WHAT A LITTLE RISK AVERSION THAT SINKS INTO THAT AREA OF RISK ASSETS. I WANT TO MOVE ON AND LOOK AT WHAT THE INDIVIDUAL MOVERS ARE DOING. WHAT HAS BEEN HAPPENING MORE ON THE WORLD OF PALO ALTO NETWORKS. 26% LOWER, A QUARTER OF ITS MARKET CAPITALIZATION ERASED ON ONE DAY AS THE LOOK ON THEIR FISCAL QUARTER THEY JUST HAD, LIVED UP TO EXPECTATIONS, BUT THEIR FORECAST IS WHERE WE ARE WORRIED ABOUT. BITES TECHNOLOGY OFF BY MORE THAN 9% AS THE CEO SUDDENLY STEPS DOWN. HE SAID HE HAS BEEN MAKING SOME TRADES AND NOT BEEN TOLD -- UP AND TELLING EXECUTIVES OR SHAREHOLDERS. AND NVIDIA, DOWN 2% AHEAD OF
THEIR EARNINGS. WE ARE ALL WAITING AND WATCHING AS TO WHETHER THIS 1.7 TRILLION DOLLARS COMPANY CAN LIVE UP TO THE 200% GROWTH IN REVENUE THAT THE MARKET IS ANTICIPATING. MORE ON NVIDIA. TELL US A LITTLE BIT ON ULTIMATELY, HAS THE MARKET PRICED IN THE RIGHT SORT OF LEVEL OF GROWTH FOR THIS EARNINGS NUMBER? >> DEFINITELY. THE STOCK IS PRICED FOR PERFECTION, AND WE EXPECT A ROBUST PRINT AND GUIDE.
THE SUPPLY HAS COME IN STRONG. TIMES HAVE SHRUNK, WITH THE DEMAND TO NEWS TO OUTPACE SURPRISED -- SUPPLY, -- SUPPLY. CAROLINE: THEY ARE INTEGRAL TO BUILDING OUT AI MODELS. WHAT IS INTERESTING, THOUGH, IS IN THE PAST CHINA HAS BEEN INTEGRAL TO A. ARE WE LIKELY TO GET ANY GUIDANCE ON HOW MUCH GEOPOLITICS STILL AFFECTS THE BUSINESS AND HOW MUCH THEY CAN SELL INTO THAT COUNTRY? KUNJAN: RECENTLY JENSEN HAS BEEN MEETING WITH THE HEADS OF DIFFERENT GEOGRAPHIES, INCLUDING CHINA. WE EXPECT SOME KIND OF COMMENTARY ON THAT.
THE NUMBERS FOR THIS QUARTER HAVE BEEN THAT CHINA WILL BE SIGNIFICANTLY LOWER THAN WHAT WE HAVE SEEN IN THE PAST. IN THE NEAR TERM WE THINK THEY CAN OFFSET THE DEMAND BY SHIPPING TO OTHER REGIONS, WHICH CONTINUE TO SEE SIGNIFICANT INCREASE IN DEMAND. CAROLINE: WE WILL SEE HOW ALL OF THAT LIVES UP. WHAT HAS BEEN SO INTERESTING HAS BEEN SOME OF THE TAKE FROM OTHER ANALYSTS TODAY.
GOLDMAN SACHS SAYING NVIDIA IS THE MOST IMPORTANT STOCK ON PLANET EARTH. WE WILL SEE HOW YOU ANALYZE THAT STOCK A LITTLE BIT LATER. KUNJAN SOBHANI, THANK YOU SO MUCH FOR THE BREAKDOWN AHEAD OF THOSE NUMBERS AFTER THE BELL. THAT'S MAKE THIS BROADER. LET'S SEE HOW THIS PARTICULAR STOCK FITS IN WITH THE REST OF THE INDUSTRY GROUP AND MARKETS.
SO PLEASED TO WELCOME KRISTIN BITTERLY, CITIGROUP HEAD OF BOTH INVESTMENTS. WHEN YOU THINK ABOUT THE MOST IMPORTANT STOCK HIM PLANET EARTH, IS THIS THE BELLWETHER? DO WE THROW THE FED MINUTES OUT THE WINDOW? KRISTEN: THIS IS CLEARLY THE KEY CATALYST. BUT I THINK, LOOK, EARNINGS AFTER THE CLOSE TODAY, IT IS REALLY ABOUT WHETHER OR NOT THIS AI STORY HAS MORE LEGS IN TERMS OF THE MOMENTUM WE HAVE SEEN IN THE MARKET. ONE OF THE THINGS WE ARE LOOKING AT IS, WE CAN TALK ABOUT THE MAGNIFICENT SEVEN, WE CAN TALK ABOUT THE CONCENTRATION IN MARKET BREADTH, BUT IT HAS BEEN BACKED UP BY SUPERIOR EARNINGS. WHEN YOU HAVE A EARNINGS GROWTH IN THE BALLPARK OF 25%-PLUS, IT IS SOMETHING THAT COMPELS THE VALUATIONS WE SEE AND CONTINUED INFLOWS INTO THESE COMPANIES. CAROLINE: SOME MIGHT SAY NVIDIA MARK B IS CHEAP COMPARED TO THE RUN-UP OF THE OVERALL SHARE PRICE.
-- NVIDIA IS MARKEDLY CHEAP, COMPARED TO THE RUN-UP OF THE OVERALL SHARE PRICE. ARE THEY JUSTIFIED, FROM YOUR PERSPECTIVE, FOR WHAT PRODUCTIVITY IS GOING TO BE BORNE OUT FOR THESE COMPANIES? KRISTEN: WHEN WE LOOK AT THESE LARGE COMPANIES THAT HAVE PERFORMED WELL, JUST GOING BACK TO 2022 THEY HAD NOT PERFORMED WELL. YOU WERE SEEING THE OPPOSITE STORY, WHERE YOU SAW DECLINES. NOW IT IS BACKED UP BY EARNINGS.
YOU ARE LOOKING AT THE MAGNIFICENT SEVEN REPRESENTING CLOSE TO 20% OF THE EARNINGS CONTRIBUTION OF THE U.S. EQUITY MARKET. THEY HAVE DELIVERED IN EARNINGS GROWTH. I DO THINK AS AN INVESTOR IT IS IMPORTANT TO HAVE EXPOSURE HERE, BUT ALSO IMPORTANT TO HAVE EXPOSURE AS TO WHO ARE THE BENEFICIARIES? THE PLAY WHEN IT COMES TO THE TECHNOLOGY AND ENABLERS, VERY CLEAR. I THINK THE ADOPTERS IS WHERE INVESTORS ARE LOOKING FOR GAINS WITHIN 2024. CAROLINE: DIG INTO THAT. IS IT GOING FOR SPECIFIC NAMES
IN HEALTH CARE, SPECIFIC NAMES IN INDUSTRY THAT HAVE MANAGED TO TALK UP A GOOD GAME IN AI? KRISTEN: I THINK IT IS A LITTLE BIT OF A SHOW ME STORY IN 2024. WHEN YOU LOOK AT AI, IN TERMS OF THE NUMBER OF TIMES IT HAD BEEN MENTIONED IN EARNINGS CALLS, IT HAS COME DOWN. WHEN YOU LOOK AT SECTORS THAT STAND TO BENEFIT FROM THIS -- I KNOW CYBERSECURITY VERY MUCH IN THE NEWS, YOU LOOK AT SOMETHING LIKE CYBERSECURITY AND SAY, COMPARING THE RUN-UP OF THAT SECTOR VERSUS THE BROADER AI, MAGNIFICENT SEVEN, THERE IS A COMPARATIVE DIFFERENCE THERE. ON A FORWARD P/E BASIS YOU ARE
LOOKING AT VALUATIONS WE HAVEN'T SEEN SINCE 2020. WHEN I THINK OF THE APPLICATIONS AND ADOPTERS OF GEN AI, NOT ONLY IN AN AREA WITH CYBERSECURITY, DOES THAT ADDRESS THE MARKET? THERE ARE REAL PRODUCTIVITY GAINS WHEN IT COMES TO WHAT USED TO TAKE A SECURITY ANALYST HOURS TO DO, CAN COME DOWN TO MINUTES. WE ARE GOING TO SEE THOSE PRODUCTIVITY GAINS IN 2024. CAROLINE: MAKE THAT MACRO FOR US. THERE HAS BEEN A PERSPECTIVE THAT THE FED IS GOING TO START TALKING ABOUT THE PRODUCTIVITY GAINS AI CAN BRING, MORE BROADLY TO THE U.S. LABOR FORCE. AND THE FACT THAT WE DO HAVE A TIGHT LABOR FORCE. WILL WE SEE PRODUCTIVITY GAINS
MORE BROADLY? KRISTEN: FROM A MACRO PERSPECTIVE WE HAVE TO GO BACK TO, EVEN THOUGH WE HAVE SEEN VOLATILITY, WE HAVE TO GO BACK TO KNOW WHAT IS TRUE AND WHERE WE ARE GOING TO SEE FLOWS FROM AN INVESTING STANDPOINT. WE KNOW THERE ARE $6 TRILLION SITTING ON THE SIDELINES IN MONEY MARKET FUNDS. THAT HAS INCREASED BY $1.5 TRILLION SINCE THE FED STARTED ITS HIDING CYCLE.
WE KNOW WE ARE AT PEAK FED FUNDS RATES. I DON'T THINK THERE ARE TOO MANY ARGUMENTS THAT THE FED WOULD RESUME A HIKING CYCLE. INFLATION, WE KNEW IT WAS GOING TO BE A BUMPY RIDE DOWN TO THE 2% TARGET. WE SEE A PATH DOWN TO 2.5% BY THE END OF THIS YEAR, AND EARNINGS HAVE TROUGHED. WHEN WE LOOK AT THIS
BROADENING, NOT JUST BECAUSE OF INFLATION COMING DOWN, RATES COMING DOWN, CASH ON THE SIDELINES, EARNINGS TROUGHED, AND NOW WE ARE SEEING MORE SECTORS TURN TO PROFITABILITY. SO, YOU HAVE A PROFITABILITY ARGUMENT IN ADDITION TO PRODUCTIVITY GAINS. CAROLINE: IT MIGHT BE AN ARGUMENT OF BUYING ON WEAKNESS. WHAT WE LOVE ABOUT HAVING YOU ON SHOWS IS THE THEMES YOU BRING. WHERE ELSE ARE YOU SEEING
FORCES THAT CANNOT BE ARGUED WITH, EVEN IN A FEDERAL RESERVE THAT POTENTIALLY DOES NOT START CUTTING AS SOON AS WE ANTICIPATE? KRISTEN: ANOTHER AREA WE LOVE -- AND YOU ARE PROBABLY GOING TO LAUGH -- HIS LONGEVITY. CAROLINE: THAT REALLY WORKS FOR THE SHOW. KRISTEN: IT DOES, SO WE WILL BRING IT FULL CIRCLE. LONGEVITY IS ANOTHER AREA THAT WAS LEFT BEHIND LAST YEAR. WHEN YOU LOOK AT HEALTH CARE, IT WAS REALLY EXCLUSIVELY ABOUT GLP-1 DRUGS. UNTIL THE LAST TWO MONTHS OF THE YEAR, AND THEN BIOTECH'S STARTED TO GET A LITTLE BIT OF A BID, AND LIFE SCIENCES. THIS IS THE SAME TYPE OF
ARGUMENT WHEN YOU THINK OF PRODUCTIVITY GAINS, WHEN YOU THINK OF ENHANCEMENTS, WHEN YOU THINK OF WHAT TECHNOLOGY CAN DO IN TERMS OF BRINGING DOWN THE HOSTILE -- COSTS OF HEALTH CARE, THERE ARE EVALUATION OPPORTUNITIES BOTH FOR THE SHORT-TERM AND LONG-TERM. CAROLINE: WE LOVE THE COMMENTARY. THANK YOU SO MUCH FOR COMING IN TODAY. KRISTEN BITTERLY IS CITIGROUP
HEAD OF INVESTMENT SOLUTIONS. APPLE, UPGRADING SECURITY ON AT SIGN MESSAGE APP TO FEND OFF QUANTUM COMPUTING ATTACKS. -- IT'S IMESSAGE APP TO FEND OFF QUANTUM COMPUTING ATTACKS. PALO ALTO IS SHREDDING ITS MARKET CAP TODAY.
THE STOCK WAS CUT TO NEUTRAL AFTER ITS EARNINGS CAME AFTER THE BELL YESTERDAY. AN ANALYST NOW SETTING A PRICE TARGET AT $300 CURRENTLY TRADING AT $275. OFF BY A QUARTER OF ITS ENTIRETY TODAY. WHY?
EARNINGS FORECAST, NOT LOOKING GOOD. HE WILL DISCUSS NEXT. CAROLINE: APPLE, IT IS UPGRADING THE SECURITY OF ITS IMESSAGE APP TO FEND OFF A FUTURE THREAT. ADVANCED QUANTUM COMPUTING ATTACKS. LET'S BRING IN MARK GURMAN FOR MORE. THE REALITY HAS NOT YET ARRIVED. APPLE WANTS TO FRONT RUN NIGHT. MARK: THAT'S RIGHT. QUANTUM COMPUTING, SOME
ESTIMATES INDICATE THESE TYPES OF COMPUTERS, WHICH ARE SUPER-DUPER COMPUTERS, WILL NOT ARRIVE UNTIL THE TAIL END OF THE DECADE, OR DEEP INTO THE 20 30'S. APPLE IS STARTING TO PREPARE FOR THAT. LET ME TELL YOU WHY. THERE IS SOMETHING CALLED HARVEST NOW, DECRYPT LATER ATTACKS. WHAT THAT MEANS IS, SOMEONE COULD STEAL SOME DATA NOW, EVEN THOUGH IT IS UNBREAKABLE NOW, QUANTUM COMPUTERS MAY BE ABLE TO BREAK IT OPEN, RIGHT? APPLE WANTS TO START THAT -- STOP THAT FROM HAPPENING. THEY DON'T WANT SOMEONE TO STEAL IMESSAGE DATA IN 2025 AND CRACK IT OPEN IN 2022. THAT IS WHAT THIS NEW TECHNOLOGY IS GOING TO DO. IT IS MUCH-IMPROVED ENCRYPTION
FOR THE PLATFORM. IT IS ROLLING OUT NEXT MONTH WHEN APPLE RELEASES ITS NEXT SOFTWARE UPDATE. IT IS IOWA WEST 17.4. IT IS GOING -- IOS 17.4. CAROLINE: I'M INTERESTED IN YOUR REPORTING YOU HAVE DONE OVERNIGHT ON SOME EXECUTIVE CHANGES GOING ON AT APPLE.
THIS SEEMS TO BE A NEVER ENDING STORY. MARK: MORE EXECUTIVE CHANGES AT APPLE. THIS ONE IN ITS AUDIO DIVISION. THEIR VICE PRESIDENT OF ACOUSTICS, ONE OF THEIR TOP EXECUTIVES RELATED TO AUDIO, REALLY HAS BEEN AT THE FOREFRONT OF THE DEVELOPMENT OF AIRPODS OVER THE LAST DECADE OR SO, WHICH OBVIOUSLY NOW IS A $20 BILLION A YEAR BUSINESS FOR APPLE. HE HAS STEPPED DOWN AS OF THIS WEEK FROM HIS ROLE. HE HAS GIVEN THAT ROLE TO HIS
TOP DEPUTY. HE IS GOING TO REMAIN FOR THE NEXT SEVERAL MONTHS AT APPLE AS AN ADVISOR. SO, NO LONGER RUNNING A TEAM, BUT AN ADVISOR IN CHARGE OF BEATS AIRPODS AND OTHER AUDIO PRODUCTS. MORE EXECUTIVE CHANGES. THIS COMES AFTER A KEY VICE
PRESIDENT THERE LEFT TO BE A SENIOR VICE PRESIDENT OF PROGRAM MANAGEMENT AT RIVIAN THIS YEAR. THE VICE PRESIDENT OF DESIGN FOR THE IPHONE, THE APPLE WATCH, AND AIRPODS, HE IS GOING TO JOIN JOHNNY ISAKSON HIS COMPANY -- JOHNNY IVES AT HIS COMPANY. YOU HAVE SEEN A LARGE CHUNK OF THE INDUSTRIAL DESIGN TEAM LEAVE AS WELL. THIS IS NOT A DEPARTURE YET, BUT A KEY EXECUTIVE STEPPING DOWN FROM THE ROLE. CAROLINE: MARK GURMAN, ALWAYS AHEAD OF IT. WE THANK YOU SO MUCH FOR THE INSIGHTS. LET'S TURN OUR ATTENTION TO
TALKING TECH. SPACE X SEEING A RARE HIGH LEVEL DEPARTURE IN ITS CORPORATE RANKS. THE COMPANY'S SENIOR VICE PRESIDENT OF COMMERCIAL BUSINESS IS LEAVING AFTER SPENDING MORE THAN A DECADE WORKING THERE. AND WAS PERSONALLY RESPONSIBLE
FOR BRINGING IN $1 BILLION OF ANNUAL REVENUE. SAMSUNG HAS SOLD ITS ENTIRE REMAINING STAKE IN ASML. THE WORLD'S LARGEST MEMORY MAKER SOLD ITS REMAINING SHARES IN THE DUTCH COMPANY AS IT WORKS TO CATCH UP IN HIGH-BANDWIDTH MEMORY CHIPS. PLUS, SAM BANKMAN-FRIED IS HEADING BACK TO COURT TODAY FOR THE FIRST TIME SINCE HIS NOVEMBER CONVICTION. THIS IS OVER A MULTIBILLION-DOLLAR FRAUD. SAM BANKMAN-FRIED IS SET TO ANSWER QUESTIONS AS TO WHETHER HE WAS AWARE OF POTENTIAL CONFLICTS OF INTEREST FOR THE LAWYERS HE HIRED TO REPRESENT HIM IN MARCH. HIS NEW ATTORNEYS REPRESENT
ANOTHER CRYPTO MOGUL FACING CRIMINAL CHARGES. COMING UP, VICE PRESIDENT AND GENERAL MANAGER OF GOOGLE WORKSPACES GOING TO BE JOINING US. APARNA PAPPU JOINING US TO TALK ABOUT HOW GEMINI AI IS TURNING INTO GOOGLE WORKSPACE. SHARES OF AMAZON, MEANWHILE.
LET'S HAVE A LOOK AT WHAT IS HAPPENING IN TERMS OF WHAT FALLS OUT. CAROLINE: LET'S TALK ABOUT GOOGLE FOR A MOMENT. IT HAS GOT A LOT OF ANNOUNCEMENTS. IT IS INTRODUCING NEW LARGE LANGUAGE MODELS IT IS CALLING GEMMA. REVERSING THE COMPANY'S STRATEGY AT KEEPING PROPRIETARY TECHNOLOGY OUT OF PUBLIC VIEW. THE MODELS WILL HANDLE TEXT-ONLY, HAVE BEEN BUILT FROM THE SAME TECHNOLOGY USED TO CREATE GEMINI. AND GEMMA WILL BE RELEASED IN TWO SIZES.
MANY WOULD SAY GIVEN THE TRANSFORMERS GIVEN TO THE COMMUNITY, IN MANY WAYS GOOGLE HAS BEEN OPEN SOURCING. LET'S STICK WITH GOOGLE. SOME MORE NEWS DARTING TO COME OUT THAT DUET FOR GOOGLE WORKSPACES GOING TO HAVE A BRAND-NEW NAME. YOU GUESSED IT, IT IS GEMINI. WORKSPACE CUSTOMERS WILL BE ABLE TO CHAT WITH GEMINI, AND THE EXPERIENCE WILL HAVE DATA PROTECTIONS, AS WELL AS COPYRIGHT INDEMNIFICATION.
HERE IS THE GENERAL MANAGER OF GOOGLE WORKSPACE, A PARTNER PUP WHO. -- APARNA PAPPU. WHEN I AM SET UP MY WORK DESK, HOW DO YOU ENVISAGE PEOPLE WORKING WITH THAT? APARNA: WE ARE SUPER EXCITED. WORKSPACE COMPRISES APPS PEOPLE USE EVERY DAY IN THEIR LIFE. TO HAVE GEMINI INFUSED THERE, TO MAKE ALL OF YOUR WORK JOURNEYS MORE PRODUCTIVE, IS FANTASTIC. WE ARE ALREADY SEEING PEOPLE DOING INTERESTING THINGS LIKE HELPING THEM RIGHT AT HER, PERHAPS MAKING THEM SOUND MORE PLAYFUL. TODAY'S ANNOUNCEMENT IS REALLY
EXCITING, BECAUSE GEMINI IN WORKSPACE JUST UP-LEVELS ALL OF THE THINGS AI CAN HELP YOU DO IN YOUR WORK LIFE. CAROLINE: OVER 3 BILLION PEOPLE -- 3 MILLION PEOPLE DO USE GOOGLE WORKSPACE. YOU CAN GARNER SO MUCH DATA AS TO HOW IT IS BEING DEPLOYED. BUT WHAT ARE THE GUARDRAILS THAT A LOT OF YOUR CLIENTS ARE GOING TO BE ASKING YOU FOR? THAT HAS BEEN THE NERVOUSNESS ABOUT THE NEW WORLD OF GENERATIVE AI. APARNA: ONE OF THE THINGS WE HOLD DEAR IS OUR PROMISE TO USERS ABOUT PRIVACY, SECURITY, AND COMPLIANCE. WITH WORKSPACE WE OFFER SECURITY FOR ALL OF OUR GEMINI FEATURES, WHICH MEANS YOU ARE IN CONTROL OF YOUR DATA YOUR DATA NEVER LEAKS INTO THE MODELS, DATA IS NEVER USED FOR ADVERTISING.
THAT LEVEL OF SECURITY AND COMPLIANCE BEING MADE AVAILABLE TO ALL OF OUR GEMINI USERS IS SOMETHING WE ARE PROUD OF. CAROLINE: WHEN I THINK ABOUT WORKSPACE I THINK OF ENORMOUS CORPORATIONS IN WHICH I CURRENTLY SIT, BUT SMALL AND MEDIUM ENTERPRISES HAVE GOT TO HAVE BEEN WANTING TO USE GENERATIVE AI TOO, RIGHT? APARNA: ABSOLUTELY. 87% OF A SMALL AND MEDIUM-SIZED BUSINESSES ARE READY TO USE GENERATIVE AI. GIVEN OUR CUSTOMER BASE OF OVER
10 MILLION CUSTOMERS, WE ARE EXCITED TO BRING GEMINI TODAY WITH A BRAND-NEW LAUNCH AT A LOWER PRICE POINT TO BUSINESSES OF ALL SIZES ALL OVER THE WORLD. WE NOW ENABLE SMALL BUSINESSES TO GET MORE DONE AS WELL. CAROLINE: TALK TO US ABOUT THE PRICING OF THIS. HOW DOES ONE COME UP WITH WHAT REAL VALUE IS WORTH IN THIS AND NOT BE BLOWN AROUND BY ULTIMATELY WHAT OTHER COMPETITORS ARE PRICING THEIR POINTS AT? APARNA: WE FEEL VERY STRONG ABOUT OUR PRICING STRATEGY.
IT IS BASED ON A NUMBER OF FACTORS. BUT ALSO THE PERCEIVED VALUE OF OUR CUSTOMERS. ULTIMATELY IT COMES DOWN TO CUSTOMERS AND WHAT THEY ARE WILLING TO PAY FOR. WE HAVE A $20 VERSION FOR SMALLER BUSINESSES OR ENTERPRISES THAT WANT TO GET STARTED BUT ARE NOT SURE WHERE TO BEGIN. CAROLINE: A SAID AT THE BEGINNING, THE 3 BILLION USERS, HOW ARE YOU SEEING IT BEING USED DIFFERENTLY? APARNA: IT IS SO WONDERFUL.
PEOPLE TELL US STORIES ALL THE TIME, THE THINGS THEY ARE DOING WITH HER. HAVE SMALL BUSINESS PEOPLE WANTING TO FOCUS ON THEIR BUSINESSES. FOR EXAMPLE, A MUSIC TEACHER WANTS TO TEACH MUSIC, BUT HAS TO RESPOND TO INBOUND INQUIRIES. SO GETTING HELP ARE PLANNING TO
EMAILS WHILE SOUNDING PROFESSIONAL WOULD BE FANTASTIC. WE LOVE THE STORIES FOR HOME -- FOR PEOPLE FOR WHOM ENGLISH IS A SECOND LANGUAGE, THEIR WORK HAS BEEN TRANSFORMED AND GIVES THEM MORE CONFIDENCE. CREATIVITY UNLOCKED. IF YOU ARE TRYING TO BRAINSTORM A NEW PRODUCT, JUST COMING UP WITH VISUAL AIDS OF, VISUALIZE WHAT THIS MIGHT LOOK LIKE, HELPS UNLOCK SOME OF THE BRAINSTORMING. BANKS USING IT FOR EXECUTIVE MANAGEMENT.
I COULD GO ON AND ON. IT IS TRULY TREMENDOUS WHAT OUR CUSTOMERS ARE DOING WITH IT ALREADY. CAROLINE: YOU ARE A LONG TIME EXECUTIVE. DECADES UNDER THE BELTS. TELL US ABOUT HOW IT HAS FELT WHEN YOU HAVE BEEN REALLY R&D FOCUSED, ALL THINGS ARTIFICIAL INTELLIGENCE, INJECTING THINGS LIKE R&D INTO THE BROADER ECOSYSTEM.
BUT THEN CAME THIS IDEA THAT YOU WERE BEHIND THE CURVE. HOW HAVE YOU BEEN ABLE TO DEFUSE THAT? APARNA: I THINK ULTIMATELY CUSTOMERS DECIDE, AND WHEN CUSTOMERS USE OUR PRODUCTS AND TELL US THEY ARE MORE HELPFUL, INTUITIVE, EASY TO USE, AND ACTUALLY DELIVER THE VALUE, THAT IS WHERE WE NEED TO FOCUS. WHAT ARE REALLY USERS SAYING AS OPPOSED TO ALL OF THE HYPE? WE LOVE OUR PARTNERSHIP WITH DEEP MIND, BECAUSE ULTIMATELY GOOGLE'S FOCUS ON THE USER IN MAKING SURE WE ARE HELPFUL TO THE USER IS WHAT DIFFERENTIATES US. CAROLINE:
SO THERE IS A LOT OF FEELING THAT THERE IS HYPE. HOW ARE YOU IN REALITY, AS SOMEONE THAT USES GMAIL AND NOT JUST SOMEONE WHO IS IN CHARGE OF WORKSPACES, USING GENERATIVE AI? APARNA: IN MY WORK LIFE AND PERSONAL LIFE I OFTEN FEEL OVERWHELMED WITH EMAIL. MY PERSONAL LIFE MORE SO THESE DAYS BECAUSE SCHOOLS AND BUSINESSES AND PACKAGE TRACKING AND ALL OF THESE THINGS. HAVING GMAIL BE A HELPFUL ASSISTANT TO ME BY SHOWING SUMMARIES OF THE LONG EMAILS I GET HAS SAVED ME A LOT OF TIME AT HOME. SAME THING APPLIES AT WORK AS WELL. FOR EXAMPLE, I WAS PREPPING FOR AN INTERVIEW. HOW DOES ONE DO A BROADCAST
INTERVIEW? GOT SOME REALLY GREAT TIPS FROM GEMINI. THERE ARE ALL SORTS OF WAYS IN WHICH IT MAKES YOU A LITTLE BIT MORE CONFIDENT ABOUT WHY YOU ARE DOING, FREEING UP YOUR TIME TO DO OTHER THINGS. CAROLINE: YOU CAN GO BACK AND SAY, YOU WERE PRETTY DARN GOOD. VICE PRESIDENT AND GENERAL MANAGER OF GOOGLE WORKSPACE, APARNA PAPPU THERE. COMING UP, FORETHOUGHT CEO AND COFOUNDER DEON NICHOLAS IS GOING TO BE JOINING US.
THE THING AT THE COMPETITIVE SPACE AS WELL. LET'S CHECK IN ON SOME OF THE PUBLICLY TRADED COMPANIES RIGHT NOW. CISCO IS DOING A HEAVY-DUTY PURCHASE. A BOND DEAL IS GOING TO BE HELPING TO AFFORD ACQUISITION. JUST OFF BY A .2%, IN-LINE WITH THE REST OF THE MARKET THAT IS LOWER TODAY. THIS IS "BLOOMBERG TECHNOLOGY." ♪ CAROLINE: WELCOME BACK TO "BLOOMBERG TECHNOLOGY." LET'S CHECK IN ON THESE MARKETS.
A LITTLE BIT OF A PULLBACK AHEAD OF THE ALL-IMPORTANT EARNINGS AFTER THE BELL TODAY. THE NASDAQ 100 MORE BROADLY SOFTER. WE ARE OFF BY .6%. LOOKING AT WHAT IS HAPPENING IN BOND MARKETS RIGHT NOW.
CALMNESS, ULTIMATELY. WE ALL ANTICIPATE THE FED MINUTES TO COME LATER TODAY. LOOKING AT BITCOIN, OFF 1.8%. LET'S LOOK AT WHAT IS HAPPENING
ON INDIVIDUAL NAMES. I'M JUST GOING TO SHINE A LIGHT ON THE STORY OF TODAY. AS WELL AS NVIDIA, THESE CYBER STOCKS. PALO ALTO NETWORKS MANAGED TO MEET THAT 90% GROWTH IN REVENUE FROM THEIR PREVIOUS FISCAL QUARTER, THE FORECAST IS GOING TO BE 16%. PALO ALTO, FALLING MOST IN ITS HISTORY. WE ARE OFF BY 26%. WE ARE ALSO SEEING CROWD STRIKE DOWN AND THE SCALER.
LET'S GET BACK TO THE EARNINGS WE ANTICIPATE. NVIDIA ERNIE'S COMING AFTER THE BELL. HERE ARE WHATEVER GUESTS HAVE HAD TO SAY AND WHAT THEY EXPECT. >> THERE IS 700 71 COMPANIES ANNOUNCING THIS WEEK, BUT THERE IS REALLY ONLY -- ONLY ONE THAT MATTERS. >> THE STRUCTURAL SIDE IS EXCITING WITH THE AI. >> NVIDIA'S EARNINGS ARE GOING TO BE THE STORY THAT WE ALL ANTICIPATE AND WAIT WITH BAITED BREATH.
>> EXPECTATIONS ARE HIGH, CAROLINE. I THINK PROBABLY THEY WILL DELIVER. >> YOU LOOK AT NVIDIA, THERE IS NO SHORTAGE OF DEMAND.
>> IT IS GOING TO BE MORE ABOUT WHAT JENSEN SAYS ABOUT THE PRODUCT LINEUP. CAROLINE: THERE IS SO MUCH HYPE ABOUT WHAT THIS INTEGRAL PART OF AI INFRASTRUCTURE CAN DELIVER. HOW ARE WE DEPLOYING GENERATIVE AI? DEON NICHOLAS IS AT THE FOREFRONT OF THAT. HE IS THE CEO OF FORETHOUGHT, A
COMPANY THAT USES GENERATIVE AI FOR CUSTOMER SUPPORT. WE ARE SEEING THE WHOLE MARKET DECLARING THAT NVIDIA IS THE MOST IMPORTANT COMPANY ON THE PLANET, OR STOCK AT LEAST. HOW DO YOU THINK ABOUT THIS AI HYPE CYCLE? DEON: I AGREE. THANK YOU FOR HAVING ME BACK ON THE SHOW. WHEN YOU THINK ABOUT IT, IN A GOLDRUSH IT IS THE PICKS AND SHOVELS THAT MAKE THE MOST MONEY, AND I THINK NVIDIA IS THE PICKS AND SHOVELS BUSINESS FOR A HIGH.
WE ARE STILL IN THE EARNIE -- EARLY INNINGS ON THE APPLICATION LAYER. I THINK ABOUT ALL OF THE MONEY BEING SPENT ON THINGS LIKE OUTSOURCING AND THINGS LIKE THAT IN THE CUSTOMER SUPPORT WORLD. I THINK AI, AND PARTICULARLY AI AGENTS, OR GOING TO BE THE FUTURE OF THIS INDUSTRY. -- ARE GOING TO BE THE FUTURE OF THIS INDUSTRY. CAROLINE: YOU NEED ACCESS TO COMPUTER. HOW DO YOU ENSURE IT IS NOT EATING SO MUCH OF YOUR COSTS THAT YOU HAVE TO KEEP RAISING MORE AND MORE IN THE BC WORLD? KATIE: DEON: ESPECIALLY IN THE LAST YEAR AND A HALF EVERYTHING HAS BEEN ABOUT EFFICIENCY.
IN TERMS OF COMPUTE POWER. YOU THINK ABOUT THE ALGORITHMS WE USE EVERY SINGLE DAY, GETTING SMARTER AND SMARTER NOT JUST ON THE APPLICATION LAYER, BUT USING THOSE TO BE SMARTER WITH OUR COMPUTE HOW WE DO THAT. CAROLINE: WHO HAVE YOU TURNED TO IN TERMS OF THE ECOSYSTEM TO HELP YOU WITH THAT? WHO HAVE BEEN YOUR HYPER SKILL IS OF CHOICE? -- SCALARS OF CHOICE? DEON: WE DO A LOT WITH THE CLOUD PLAYERS. FOLKS LIKE MICROSOFT, AMAZON AWS, AND THINGS LIKE THAT. WE ANNOUNCED A PARTNERSHIP WITH AWS A FEW MONTHS AGO.
WE ARE TRYING TO BE AGNOSTIC TO WHAT IS GOING ON IN THE UNDERLYING LAYER AND MAKE SURE WE CAN HAVE FALLBACKS SO WE CAN DELIVER A ROBUST SYSTEM. CAROLINE: LET'S TALK ABOUT WHAT YOU ARE DELIVERING. YOU ARE WITH INSTACART, PLENTY OF OTHER COMPANIES TURNING TO YOU TO MAKE MY EXPERIENCE WHEN USING THOSE APPS MORE JOYOUS, RIGHT? WHERE ARE WE IN THE INNINGS OF HAVING GENERATIVE AI MAKING MY EXPERIENCE BETTER? DEON: AT FORETHOUGHT WE HAVE BEEN DELIVERING AI FOR THE PAST SIX YEARS. HIS -- IT IS EXCITING TO SEE
THIS BOOM. AT THE END OF THE DAY I THINK WE ARE VERY EARLY, AND THERE IS SO MUCH TO BE DONE IN THIS SPACE. AT FORETHOUGHT WE ARE DELIVERING AGENTS FOR CUSTOMER SUPPORT. WE ARE SOLVING MORE THAN 100 MILLION ISSUES EVERY SINGLE YEAR. WE THINK THE TECHNOLOGY IS ONLY GOING TO GET BETTER.
LLM'S ARE THE BEGINNING. THEN WE SAW AI AGENTS, WHICH WE ANNOUNCED ABOUT A YEAR AGO WITH OUR TECHNOLOGY. I THINK IT IS GOING TO KEEP GETTING BETTER. CAROLINE: AI AGENTS HAS BEEN THE TALK OF THE TOWN. WHAT IS SO INTERESTING ABOUT THE GENERATIVE AI SPACE IS YOU ALL SEEM TO BE FRENEMY'S.
YOU HAVE BRET TAYLOR COMING IN, AND HE IS LAUNCHING SIERRA, WHICH IS ALSO ABOUT AGENTS AND CUSTOMERS. WHERE DO YOU SEE THE LANDSCAPING? HOW MANY PLAYERS WILL THAT BE? DEON: I THINK THIS IS GOING TO BE ONE OF THE LARGEST SOFTWARE CATEGORIES ON PLANET EARTH. THERE IS GOING TO BE ROOM FOR MULTIPLE PLAYERS.
ULTIMATELY WHAT IS HAPPENING IS, THERE IS A SHIFT FROM THE OLD GUARD TO THE NEW GUARD. YOU HAVE SEEN INCUMBENTS SCRAMBLING TO BRING AI INTO THEIR STRATEGY, BECAUSE BEING THE HELP DESK OR CRM IS NOT GOING TO CUT IT IN AN AI-FIRST FUTURE. WHAT WE ARE SEEING, AND BEING VALIDATED LIKE FOLKS LIKE BRETT TAYLOR ENTERING THE SPACE, IS AI IS GOING TO BE THE WAY OF THE FUTURE. CAROLINE: HOW HARD IS IT WHEN A STARTUP IS MORE WILLING TO GO WITH A START FOR ITS OWN CUSTOMER DELIVERY? BUT WHEN YOU'VE GOT BIG, OLDER INSTITUTIONS THAT HAVE SALES FORCE WITHIN THEM ALREADY, HOW HARD IS IT TO SAY, NO, COME TO THIS DIFFERENT OFFERING? DEON: I THINK THAT'S A FAIR QUESTION.
WHAT WE ARE SEEING IS A LOT OF ACTIVITY IN THE MID MARKET, COMPANIES EMBRACING THE FUTURE AND THINGS LIKE THAT. A LOT OF THESE LARGER INCUMBENT COMPANIES, THERE IS A LOT OF INTEREST, BUT ARE THEY ACTUALLY MAKING THE CHANGES? THAT IS SOON TO BE SEEN. THAT IS ANOTHER THING AS WE TALK ABOUT THINGS LIKE NVIDIA. A LOT OF THE USE CASES SEEM TO BE EXPERIMENTAL TODAY. I'M CURIOUS WHAT JENSEN IS GOING TO SAY IN TERMS OF THE OUTLOOK OF THE FUTURE. WHO IS GOING TO TRULY BE AN AI-FIRST COMPANY AND WHO IS EXPERIMENTING? CAROLINE: I'M SURE JENSEN MIGHT PAY LIP SERVICE TO THE FACT THAT IT IS HARD TO GET TALENT AS WELL AND SCALE.
WHAT ARE SOME OF THE THINGS THAT HOLD BACK FORETHOUGHT, OR SOME OF THE THINGS HELPING YOU GROW? DEON: I THINK TALENT IS THE MOST IMPORTANT THING. WE WERE FOUNDED ON THIS GENERATIVE AI VISION, LEVERAGING OUR OWN RESEARCH, AS WELL AS RESEARCH FROM CHRIS MANNING AT STANFORD. IN TERMS OF HOLDING US BACK, THE SKIES THE LIMIT IN TERMS OF THIS MARKET. IT IS A VERY NOISY MARKET. EVERYONE IS CALLING THEMSELVES A GENAI PLAYER. BUT IN A LOT OF WAYS WE HAVE
BEEN OUT -- AT THIS FOR MANY YEARS. SO IT IS REALLY ABOUT SHOWING CUSTOMERS WHAT IS TRUE AI, YOU CAN ACTUALLY DELIVER, AND WHAT THAT MEANS FOR THEIR CUSTOMERS. CAROLINE: IT IS GREAT TO HAVE YOU IN TOWN. BUT YOU COULD STOP BY THE SHOP. FORETHOUGHT CEO DEON NICHOLAS. OF COURSE, TALKING ALL THINGS NVIDIA, AND MORE BROADLY THE IMPACT OF GENERATIVE AI. WE ARE GOING TO BE JOINED BY
DARREN ABRAHAMSON TO TALK ABOUT WHERE HE IS PLACING HIS BETS. EVERYONE IS IN TOWN TODAY. HE IS COMING OVER FROM BOSTON. LET'S GET A CHECK ON WHAT IS HAPPENING IN TERMS OF ONE OF THE AI DARLINGS, WHICH HAS BEEN SELLING OFF PART. SUPER MICRO COMPUTER. SHORT-SELLERS HAVE BEEN NOTCHING $1.2 BILLION OF LATE AS WE HAVE SEEN SHARES FALL. BUT, REMEMBER, THIS IS A COMPANY UP MORE THAN 700% IN THE LAST YEAR. THIS IS "BLOOMBERG TECHNOLOGY."
CAROLINE: LET'S RETURN TO SHARES OF PALO ALTO NETWORKS. THEY ARE HEADING FOR THE BIGGEST DROP EVER AFTER THE COMPANY CUT ITS FORECAST AND MADE A PULLBACK IN CYBERSECURITY SPINNING. JOINING US NOW IS MANDEEP SINGH. THE LINE ECONOMY FROM THE CEO
IS THAT THERE IS SPENDING FATIGUE. HE SAYS THIS IS NEW. MANDEEP: YEAH, WELL, I THINK WHEN YOU LOOK AT SECURITY IT IS ONE OF THOSE THINGS THAT HAS WORKED REALLY WELL ALONG WITH GENERATIVE AI FOR THE PAST FEW QUARTERS. SO, IT MAKES YOU WONDER WHAT CHANGE IN THE LAST 90 DAYS -- CHANGED IN THE LAST 90 DAYS. THEY GAVE A FORECAST FOR GROWTH, AND NOW THEY CUT IT TO THE LOW TEENS. THEY ARE SEEING A CHANGE IN
ENVIRONMENT. THEY TRIED TO EXPLAIN THAT WHAT THEY KNEW GO TO MARKET STRATEGY, BUT PALO ALTO IS THE LARGEST SECURITY -- CYBERSECURITY VENDOR, AND THEY HAVE HAD A LOT OF SUCCESS WITH FONDLING THEIR PRODUCTS. THE FACT THAT THEY ARE CHANGING THE GO TO MARKET IN AN ENVIRONMENT THAT SHOULD FAVOR CYBERSECURITY IS A LITTLE BIT OF A SURPRISE, AND THAT IS WHY YOU SEE THAT KIND OF STOCK REACTION. CAROLINE: WE HAVE SEEN A RUN UP OF ABOUT
120% IN THE PAST YEAR. WHEN HE WENT ON TO OUTLINE THAT PEOPLE DON'T WANT TO SPEND AT THE MOMENT UNLESS THEY SEE A SIGNIFICANT IMPROVEMENT, THE WHOLE POINT OF CYBERSECURITY IS ULTIMATELY TO BE A DEFENSE. HOW DO YOU THINK THAT THEY AND OTHER COMPETITORS, CROWD STRIKE, CAN CONVINCE PEOPLE TO KEEP SPENDING? MANDEEP: IT IS A GREAT POINT, BECAUSE HYPER SCALE CAR PROVIDERS ARE GIVING YOU SECURITY.
SO, THESE COMPANIES HAVE TO CONVINCE THE CUSTOMERS THAT IT IS SOMETHING EXTRA. THEY ARE SUPPORTING A MULTI-CLOUD STRATEGY. IN THIS CASE I THINK PALO ALTO HAS TO MAKE THAT SHIFT FROM FIREWALLS AND NEW SUBSCRIPTIONS, CLOUD BASE REVENUE, WHICH IT IS A MULTIYEAR TRANSITION. THEY WERE DOING WELL SO FAR, BUT CLEARLY THE DECELERATION IN TOPLINE GROWTH IS DEFINITELY SPOOKING A FEW INVESTORS OVER HERE. CAROLINE: THAT IS FOR SURE. MANDEEP SINGH OF BLOOMBERG
INTELLIGENCE. WE ARE GOING TO TURN OUR ATTENTION TO THE VENTURE LANDSCAPE. WE ARE PLEASED TO WELCOME TO THE SHOW DARREN ABRAHAMSON. HE IS PARTNER AT AN CAPITAL'S TECH OPPORTUNITIES TEAM, TRAVELING IN FROM BOSTON. -- AT BAIN CAPITAL'S TECH OPPORTUNITIES TEAM, TRAVELING IN FROM BOSTON. ALL OF US ARE TALKING ABOUT HOW GENERATIVE AI MEANS WE NEED MORE CYBERSECURITY PROTECTION.
DARREN: IT IS IMPORTANT THAT YOU PUT THINGS IN CONTEXT. HE POINTED OUT THAT PALO ALTO HAS HAD A PHENOMENAL RUN-UP. A LOT OF THE COMPANIES OUTPERFORMED OVER THE LAST YEAR AS CFOS AND CUSTOMERS LOOKED TO CUTBACKS BAND. WE TALK TO CHIEF INFORMATION SECURITY OFFICERS WHAT WE ARE HEARING IS, PARTICULARLY IN ENTERPRISE, THAT THEY DO NOT WANT ANOTHER SOLUTION. WANT TO FIGURE OUT HOW TO INTEGRATE WHAT THEY'VE GOT AND PATCH THE HOLES THAT POP UP WHEN YOU INTEGRATE AND IMPLEMENT A LOT OF NEW TECHNOLOGIES.
THAT BEING SAID, THE UNDERLYING THREATS PERSIST, AND I THINK AI IS GOING TO ACCELERATE THAT. THE EASE AT WHICH A HACKER CAN NOW SPOOF OR SPAM OR DO THINGS IN A MORE SOPHISTICATED WAY MAKES THE CYBERATTACK SERVICE EVER MORE DANGEROUS. WE DO SEE A LOT OF NEW COMPANIES SOLVING THOSE PROBLEMS, AS WELL AS IN OTHER SEGMENTS OF THE MARKET. DOWNMARKET WE MADE AN INVESTMENT IN BLACK POINT, WHICH IS AN MDR SOLUTION. THEY BRING IN A WAY TO SOLVE CYBER PROBLEMS FOR CUSTOMERS. THEY ARE PROBABLY THE
HIGHEST-GROWING COMPANY IN OUR PORTFOLIO RIGHT NOW. IT DEPENDS ON THE SEGMENT OF THE MARKET, THE TYPES OF TOOLS YOU ARE SELLING INTO. CAROLINE: INTERESTING THAT YOU POINT OUT THAT IS A CHECK YOU PULLED OUT LAST. IN THIS ENVIRONMENT WHERE GENERATIVE AI SUCKED THE OXYGEN
OUT OF THE ROOM, HAVE YOU BEEN LEANING INTO THAT THEME OR FINDING OTHER WAYS? DARREN: HOW REFINED IS MORE LATE STAGE GROWTH EQUITY, AND EVEN ENTERED SOME -- INTO SOME SMALL GROWTH BUYOUTS. I THINK YOU HAVE SPOKEN SOME OF MY PARTNERS BEFORE. WE WERE BORN TO SIT IN BETWEEN OUR VENTURE EFFORT AND LARGE CAP PRIVATE EQUITY EFFORT AND FILL THAT GAP. FOR US THE GENERATIVE AI THEME, WHICH IS PERVASIVE ATOP -- ACROSS THE TECH ECOSYSTEM, IS LESS OF A DIRECT INVESTMENT OPPORTUNITY. THAT IS MORE RISKY, MORE VENTURE CAPITAL. WHAT WE ARE LOOKING FOR IS ESTABLISHED BUSINESSES, OFTEN FOUNDER-OWNED AND LED, WHO HAVE REACHED HIM SCALE AND ARE LOOKING FOR SUPPORT TO GET TO THE NEXT LEVEL.
HOW DO THEY GET FROM $100 MILLION OF REVENUE TO 300. -- $300 MILLION OF REVENUE? THAT MAY BE, WE NEED SOME OUTSIDE HELP IN ABLE TO LEVERAGE GENERATIVE AI AND FIND WAYS TO INNOVATE IN OUR PRODUCT SEGMENT. IT MAY DOING THEIR FIRST SCALE ACQUISITION. WE TEND TO BE FOCUSED ON HOW WE CAN HELP OUR PORTFOLIO COMPANIES, AS WELL AS NEW INVESTMENTS LEVERAGE GENERATIVE AI AS OPPOSED TO TRYING TO BACK THE NEXT MODEL OR PURE AI COMPANY. OVER TIME THAT WILL EVOLVE, BUT
FOR NOW THAT FEELS TO US A LITTLE BIT EARLY AND MORE SPECULATIVE THAN OUR FOCUS. CAROLINE: IN THAT THE LESS-SPECULATIVE, MORE MATURE BUSINESS, THERE HAS BEEN SORT OF A TOUGH ENVIRONMENT. PEOPLE NOT WANTING TO WRITE SUCH BIG CHECKS TO COMPANIES, OR OTHER AREAS CONCERNED AMID THE ECONOMIC ENVIRONMENT. HAVE YOU FOUND THERE WAS THIS SWEET SPOT WHERE COMPANIES WERE REVENUE-GENERATING, PROFIT-GENERATING, AND THAT IS WHERE YOU WANT TO BE WRITING THE CHECKS? DARREN: IT IS A DIFFERENT SEGMENT OF THE MARKET WHERE WE PLAY. WHAT WE DID SEE IN THE BACK
HALF LAST YEAR WAS ACTIVITIES START TO PICK UP. MIDMARKET BUYOUTS, YOU KNOW, COMPANIES THAT ARE HIGH-QUALITY BUSINESSES OF SCALE, HAVE SOME PROFITABILITY. IN MANY CASES HAVE INVESTORS THAT ARE STARTING TO THINK ABOUT LIQUIDITY AFTER AN ENVIRONMENT WHERE IT WAS TOUGHER TO DO SO. THAT PART OF OUR BUSINESS HAS
PICKED UP. CAROLINE: WHO IS DOING THE BUYING? ARE THEY ATTENDING TO DO -- TO GO WITH SMALLER COMPANIES? DARREN: WHERE WE ARE LOOKING AT HIS NEW FINANCIAL INVESTORS COMING IN WITH A NEW THESIS AND PROVIDING LIQUIDITY. IN OTHER CASES SOME OF OUR PORTFOLIO COMPANIES ARE LOOKING TO TAKE ADVANTAGE AND DRIVE M&A AS WELL. YOU ARE SEEING SOME ACTIVITY FROM LARGER STRATEGIC. OBVIOUSLY THE RPO MARKETS HAVE NOT BEEN A REAL PATH FOR THIS. HOWEVER BUSINESS HAS PICKED UP
OVER THE LAST QUARTER OR TWO. -- OUR BUSINESS HAS PICKED UP OVER THE LAST QUARTER OR TWO. IF YOU WERE THE COMPANIES THAT RAISED AT PEAK MULTIPLES, THE TOP OF THE MARKET IN 2021, IT IS STILL DIFFICULT TO GO BACK TO MARKET.
PEOPLE ARE STILL SOMEWHAT STICK MANIC ABOUT -- STIGMATIC ABOUT DOWN ROUNDS. THOSE COMPANIES NEED TO GROW INTO VALUATIONS FOR THE MOST PART. WE TEND TO FOCUS IS A LOT OF FOUNDER-OWNED BUSINESSES WHO DID NOT RAISE MONEY DURING THAT PERIOD, AND WHERE WE ARE THE FIRST INSTITUTIONAL CAPITAL COMING IN.
IT IS LESS ABOUT WHAT IS GOING ON IN THE MACRO AND WHEN THAT SPECIFIC FOUNDER IDENTIFIES AN OPPORTUNITY TO DO SOMETHING DIFFERENT WITH THEIR BUSINESS AND WANTS THE RIGHT PARTNER TO HELP THEM DO THAT. THAT TENDS TO BE A PRETTY ACTIVE SEGMENT OF THE MARKET WHERE WE HAVE FOUND ALL OF OUR INVESTMENTS LAST YEAR WERE A FLAVOR OF THAT. CAROLINE: AND THOSE FOUNDERS, WHO HAVE BEEN BOOTSTRAPPED OR HAD WEALTH BEFOREHAND, OR COMING FROM THE EAST COAST OF AMERICA? ARE THEY GENERALLY U.S.? DARREN: WE ARE BIG BELIEVERS THAT THERE ARE GREAT COMPANIES BEING BUILT ALL OVER THE WORLD, SO WE HAVE INVESTMENTS IN JAPAN, BRAZIL, EUROPE, ISRAEL, AND ALL OVER THE U.S. ONLY ONE OF OUR PORTFOLIO COMPANIES IS FROM THE BAY AREA. YOU HAVE TWO FROM NEBRASKA.
I THINK IT SPEAKS TO THIS IDEA THAT THERE IS TALENT EVERYWHERE, AND TECHNOLOGY IS TRANSFORMING INDUSTRIES AROUND THE WORLD. OUR JOB IS TO FIND THOSE FOUNDERS, AND OFTEN TIMES THEY ARE BUILDING BUSINESSES UNDER THE RADAR AND EVENTUALLY WILL GET TO A SIZE AND SCALE WHERE THEY WANT A PARTNER TO HELP THEM SCALE AND GROW. CAROLINE: HOW DO YOU FIND THOSE FOUNDERS? WHAT DOES YOUR PIPELINE LOOK LIKE? IS IT INTRODUCTIONS? IS IT PEOPLE YOU HAVE BANKED WITH? HOW DO YOU FIND THESE? DARREN: THIS IS WHERE I THINK BEING PART OF A FIRM LIKE BAIN CAPITAL IS ADVANTAGEOUS. WE HAVE BEEN INVESTING IN THE TECH ECOSYSTEM FOR OUR HISTORY. THIS IS OUR 40TH ANNIVERSARY. THERE IS A HUGE AMOUNT OF RELATIONSHIPS AROUND THE WORLD.
WE ARE SEEING -- WE HAVE A VENTURE CAPITAL BUSINESS. THOSE RELATIONSHIPS PERSIST AND MAY ULTIMATELY GROW INTO THINGS THAT ARE RELEVANT FOR US. THEN THERE IS A LOT OF PROACTIVE OUTREACH. THE TEAM IS TRAVELING ALL OVER
THE WORLD, ALL OVER THE COUNTRY IN VERY TARGETED SECTORS. WE LIKE TO FOCUS ON SUBSECTORS OF THE MARKET WE KNOW WELL, SPECIFIC POCKETS OF HEALTH CARE, FINTECH. WITHIN THOSE WE ARE TRYING TO BE THEMATIC AROUND, THESE ARE THE FOUNDERS, AND HOW DO WE GET IN FRONT OF THEM, BUILD THOSE RELATIONSHIPS? WHICH IN MANY CASES TAKE FIVE, SIX YEARS BEFORE THEY RESULT IN ANY TRANSACTION OPPORTUNITY.
CAROLINE: IT IS A RELATIONSHIP BUSINESS. THANKS FOR SPENDING SOME OF THAT TIME WITH US TODAY. DARREN ABRAHAMSON IS PARTNER AT BAIN CAPITAL. WE WANT TO TALK ABOUT UNIVERSAL MUSIC GROUP DOING SOME M&A, BUYING A MINORITIES STAKE IN KKR . WE WILL HAVE THE DETAILS ON WHY UNIVERSAL MUSIC GROUP WANTS THAT EXPOSURE. THIS IS BLOOMBERG TECHNOLOGY. CAROLINE: UNIVERSAL MUSIC SNAPPED UP A MINORITY STAKE IN CORD MUSIC PARTNERS, THE COMPANY THAT OWNS MORE THAN 160,000 SONGS. THE MUSIC CHINA IS PAYING $240
MILLION FOR A 25.8% STAKE IN THE BUSINESS. HE WITH MORE ON WHY, BLOOMBERG'S MICHELLE DAVIS. THE REASON IS, WHAT, EXPOSURE TO MUSIC RIGHTS TO BRING TO THE MASSES? >> UNIVERSAL MUSIC HOLDS A TON OF MUSIC RIGHTS.
THE BIG DEAL THEY DID A COUPLE OF YEARS AGO WAS BUYING BOB DYLAN'S CATALOG. BEING A MINORITY INVESTIGATOR GOING TO HAVE EXPOSURE TO THE RIGHTS IN THIS CATALOG WITHOUT BEING A DIRECT OWNER. UNIVERSAL MUSIC, AS WELL AS MEDIA COMPANIES, ARE UNDER PRESSURE TO SHOW RETURNS TO SHAREHOLDERS. THIS IS AN INDIRECT WAY FOR THEM TO DO THAT WITHOUT SPENDING TOO MUCH, DIPPING THEIR TOES INTO THIS PARTICULAR CATALOG WITHOUT JUST PUTTING TOO MUCH OF THEIR BALANCE SHEET BEHIND IT.
IT ALL SPEAKS TO A MUCH BIGGER TREND WITHIN THE MUSIC INDUSTRY, WHERE SOME OF THE TRADITIONAL WALL STREET FIRMS LIKE KKR, BLACKSTONE, THAT POURED MONEY INTO THE INDUSTRY YEARS AGO, THEY HAVE ALL BEEN LOOKING FOR AN EXIT. PRIVATE EQUITY, EVEN OUTSIDE OF MUSIC, THEIR LPS WANT THEM TO RETURN SOME MONEY AS IT HAS GOTTEN MORE EXPENSIVE FOR THEM TO INVEST IN STUFF. IT'S RATES GOING UP THEY HAVE BEEN UNDER PRESSURE TO SHOW THAT MONEY TO THEM. FOR KKR, EXITING THIS IS ONE WAY FOR THEM TO DO THAT. CAROLINE: DUNDEE PARTNERS TAKES THE OTHER 70% OF IT, AND THAT IS RUN BY THE INDO FAMILY. WHAT DOES UNIVERSAL MUSIC BENEFIT ITS SHAREHOLDERS WITH, WITH RIGHTS OWNERSHIP? IS IT THAT THEY THINK THE VALUE WILL GO UP OR THEY CAN USE IT IN INTERESTING MANNERS? MICHELLE: THAT IS PART OF THE ASSUMPTION, YOU HAVE TO EXPECT THE VALUE LOGO UP.
IT IS ALSO A PREDICTABLE REVENUE STREAM. THE MUSIC INDUSTRY HAS RECOVERED BECAUSE WE FIGURED OUT STREAMING COMPARED TO 20 YEARS AGO, WHEN THE MUSIC INDUSTRY DID NOT KNOW WHAT TO DO WITH EVERYONE PIRATING MUSIC. THEY ARE STILL FACING DISRUPTION . THERE IS QUESTIONS ABOUT WHAT WILL HAPPEN WITH TIKTOK AND AI. THIS GIVES THEM PREDICTABLE REVENUE STREAM TO SHOW INVESTORS. CAROLINE: MICHELLE DAVIS, WE THANK HER FOR HER TIME. MEANWHILE, THAT DOES IT FOR
THIS EDITION OF "BLOOMBERG TECHNOLOGY ." YOU DO NOT WANT TO FORGET TO CHECK OUT OUR PODCAST. AND OF COURSE, STAY BRACED FOR NVIDIA WARNINGS AFTER THE BELL.
2024-02-25 00:55
