AI Spending Takes Center Stage in Big Tech Earnings | Bloomberg Tech 7/23/2026

>> "BLOOMBERG TECH" IS LIVE FROM THE HEART OF SILICON VALLEY, WITH AT --ED LUDLOW IN SAN FRANCISCO. ED: THIS IS "BLOOMBERG TECH" THE AI SPENDING RACE IS RAMPING UP WITH ALPHABET BOOSTING INVESTMENT PLANS, WHILE TESLA IS BURNING THROUGH CASH TO FUND ELON MUSK'S AI AMBITIONS. PLUS, AMMON SHASHUA WILL BE STEPPING DOWN AFTER 20 YEARS. HE JOINS US FOR AN EXCLUSIVE INTERVIEW. WE SPEAK TO THE IBM CEO AFTER A STEEP DROP IN MAINFRAME SALES WEIGHED ON THE COMPANY'S RESULTS. THIS IS AN EARNING STORY ABOUT AI SPENDING. HOW MUCH, HOW FAST CAN WITH WHAT RETURNS? ALPHABET, THE PARENT OF GOOGLE, TESLA IN ALPHABET'S PLACE, ON TRACK FOR ITS BIGGEST DROP AT ONE POINT SINCE MAY OF LAST YEAR. TESLA, IS DEEPLY CRYING --TESLA STEEP DECLINE, BIGGEST DROP IN ALONG LONG TIME. BIG QUARTER FOR EV DELIVERIES, BUT CHAIRS STILL TUMBLED. THIS IS PARTLY DUE TO AMBITIOUS SPENDING. TESLA'S FIRST CASH BURN, OR NEGATIVE FREE CASH FLOW IN A TWO YEARS. HERE IS WHAT ELON MUSK HAD TO SAY ABOUT THE CAPEX PLANS. >> WE SHOULD BE SPENDING AS FAST AS WE CAN SPEND -- AS FAST AS WE CAN WITHOUT IT BEING TOO WASTEFUL. WE ARE NOT TRYING TO AIM FOR SOME, LIKE, EXTREMELY HIGH EFFICIENCY CAPITAL SPEND, BECAUSE THAT WOULD SLOW THINGS DOWN. SO IT IS A BALANCE BETWEEN, LIKE, HOW MUCH, YOU KNOW, CAPITAL EFFICIENCY VS. TIME. ED: JOINING US NOW, THE TIGRIS FINANCIAL PARTNERS COO. IT'S BEEN A LONG TIME SINCE YOU HAVE BEEN WITH US ON "BLOOMBERG TECH." WELCOME BACK. THE STOCK IS DOWN A LOT, BIGGEST DROP SINCE JUNE OF LAST YEAR. WE WENT INTO THIS WITH WALL STREET SAYING WE WANT TO SEE TESLA SPEND. THEY ARE. WHY THE NEGATIVE REACTION? >> WELL, THEY LIKE TO SEE THE BEST WALL STREET LIKES TO SEE COMPANIES SPEND BUT THEY DON'T LIKE COMPANIES THAT SPEND. TESLA HAS NEVER BEEN A CAR STORY, ALWAYS A TECHNOLOGY COMPANY STORY AND AI STORY. WALL STREET HAS TO CONTINUE TO GO BACK AND FORTH WITH EVALUATING THAT. THE UPCOMING DRIVERS FOR THE COMPANY ARE ITS AUTONOMOUS TECHNOLOGY, ITS ROBOTAXI, THE OPTIMUS ROBOTS, EVOLVING TO A PHYSICAL AI COMPANY. AND HOW YOU EVALUATE THAT. AND IT ALSO TAKES A LOT OF CAPITAL. IT IS GOING TO TAKE, LIKE ELON JUST SAID, THEY WANT TO SPEND AS MUCH AS THEY CAN SMARTLY, BUT THEY ARE ALSO COMPETING AGAINST A LOT OF OTHER COMPETITORS. THIS COMPANY IS VIEWED AS A TECH COMPANY, AND THE PROFITABILITY FROM THAT IS STILL A WAYS OFF. ED: AGAIN, I'M GOING TO ACKNOWLEDGE THE STOCK, BIGGEST DROP SINCE JUNE OF LAST YEAR, AT ITS LOWEST LEVEL SINCE AUGUST 2025. LET ME GO THROUGH THE NONFINANCIALS, RIGHT. CYBER CAP PRODUCTION HAS BEGUN. THEY HAVE BEEN DOING EMPLOYEE RIDES IN THOSE CYBER CABS. THEY HAVE EXTENDED THE ROBOTAXI AREAS TO NEW CITIES, ALSO EXPANDING IN AUSTIN. THE OPTIMUS HUMANOID ROBOT LINES, PRODUCTION IS EXPECTED TO START LATER THIS YEAR. THAT DOESN'T SEEM LIKE ENOUGH OF AN UPDATE ON THOSE BUSINESS LINES TO CONVINCE INVESTORS. IVAN: WELL, EVERYBODY WANTS TO SEE WHEN THE OPTIMUS ROBOTS WILL BE AVAILABLE, WHAT WILL BE THE FUNCTIONALITY, HOW THEY WILL BE DEPLOYED. THAT IS STILL A WAYS OUT. IT IS STILL A SHOW-ME COMPANY, AND THE MARKET IS GOING THROUGH A DIFFICULT TIME. IT HAS HELD UP PHENOMENALLY WELL WITH WHAT IS GOING ON IN THE WORLD, BUT -- AND IT HAS BEEN DRIVEN BY TECH. THE MARKET STRENGTH FOR THE PAST SEVERAL YEARS AND THIS YEAR SO FAR HAS BEEN DRIVEN BY TECH. THEY ARE PRICED FOR PERFECTION, AND WHEN YOU SEE A SLIGHT PASUSE FOR CONCERN, STOCKS ARE GOING TO GET HIT HARD. TESLA HAS ALWAYS BEEN A VOLATILE STOCK. IF YOU LOOK BACK IN ITS HISTORY, BUYING THE DIPS HAVE PAID OFF. THE SELLOFF TODAY IS A BUYING OPPORTUNITY. IT HAS SHOWN THAT TO BE THE CASE IN THE PAST. AND I STILL BELIEVE THAT TO BE THE CASE NOW. FOR THE DRIVERS OF ITS FUTURE GROWTH, STILL AHEAD OF IT. AND THE CONCERN IS THAT WE'RE NOT SEEING CURRENTLY -- OR REAL TERM TANGIBLE RESULTS ARE NOT ON THE NEAR-TERM HORIZON. ED: LOWER ASP'S, HIGHER INTEREST RATES, RISING COMMODITY PRICES, STOCK--BASED COMPENSATION, AND THEN SPENDING, AI SPENDING. WHAT I FIND INTERESTING IS CAPEX'S $25 BILLION FOR THIS YEAR, WHICH AS YOU KNOW, FOR TESLA, UNPRECEDENTED. THEY ARE NOT EVEN TALKING TO THAT RIGHT NOW. THEY WILL HAVE TO REALLY ACCELERATE IN THE SECOND HALF OF THIS YEAR. WHAT IS THE STORY GOING TO BE? WHAT IS THE METRIC YOU WILL TRACK AS EVIDENCE THAT ELON MUSK AND THE TESLA TEAM ARE MAKING PROGRESS ON THE FUTURE IS IN HIS LINES?--FUTURE BUSINESS LINES? IVAN: OUR NUMBER ONE MEASURE OF PERFORMANCE IS ECONOMIC PROFIT, INCREASING RETURN ON CAPITAL, AND THESE WILL EVENTUALLY BE HIGH-MARGIN BUSINESSES WITH HIGH RETURNS, BUT IT TAKES A LOT OF CAPITAL INVESTMENT NOW, DILUTING THE NEAR-TERM RETURNS. THAT IS THE PRIMARY ISSUE. I AM ALSO IMPRESSED THAT THEY DID SELL THE NUMBER OF CARS THAT THEY DID THAN RAN FOR THE -- EV'S REMAIN STRONG BECAUSE THE OVERALL EV DEMAND IN THE INDUSTRY HAS BEEN SOFT FOR SOME TIME. TESLA HAS SOLD A A LOT OF CARS SINCE INCEPTION AND THE DEMAND FOR THE CARS REMAIN STRONG. BUT THE FUTURE OF THE COMPANY IS PHYSICAL AI, IT'S ROBOTICS, AND IT IS ALSO THE CYBER CAB AND ROBOTAXI. AND THOSE ARE STILL IN LITTLE WAYS OUT. ANYTIME THAT THINGS ARE NOT PERFECT, THE STOCK SELLS OFF. ED: BACK ON THE SHOW, THANK YOU VERY MUCH INDEED. ANOTHER PIECE OF NEWS FOR TESLA -- AT A TIME WHEN MEMORY CHIPS ARE HARD TO COME BY, MACRON IS COVERING UP CAPACITY FOR TESLA. DURING THE EARNINGS CALL, ELON MUSK PRAISED MICRON FOR SETTING ASIDE WHAT HE CALLED A SIGNIFICANT ALLOCATION OF MEMBERSHIP, AND HE CALLED THEM UNDER REASONABLE TERMS. INTERESTING TO SEE MICRON OF ALMOST 3% ON A DAY WHEN A LOT OF CHIP STOCKS ARE DOWN GENERALLY SPEAKING AND A LOT OF TECH STOCKS ARE LOWER. LET'S TURN TO THE OTHER BIG STORY, ALPHABET. THE GOOGLE PARENT RACE TO THE TOP END OF ITS CAPEX THIS YEAR TO $205 BILLION. THERE IS CLOUD GROWTH, GEMINI ENGAGEMENT. THE DISCIPLINE ON SPENDING IS A BIT OF A CONCERN. JOINING US IS ERIC SHERIDAN, GOLDMAN SACHS CO. BUSINESS LEADER OF THE TECHNOLOGY, MEDIA, AND TELECOMMUNICATIONS GROUP AND GLOBAL INVESTMENT RESEARCH. HE SAYS ALPHABET IS WELL-POSITIONED TO BENEFIT FROM THE GROWING DEMAND FOR AI ACROSS CONSUMER AND ENTERPRISE MARKETS AND REITERATES A BUY RATING WHILE LOWERING HIS 12-MONTH PRICE TARGET TO $435 FROM $440. WELCOME TO THE PROGRAM. NOT A SURPRISE, REALLY, THAT THEY WOULD RAISE THE CAPEX EXPECTATION FOR THIS YEAR. BUT THE REACTION TO THAT SEEMS A BIT SEVERE. THEY DID SWING TO NEGATIVE FREE CASH FLOW FOR THE FIRST TIME AS A PUBLIC COMPANY. WAS THAT IT? >> THEY DID SWING TO NEGATIVE FREE CASH FLOW. I THINK THERE IS A PICTURE OF SIGNALS VS. NOISE IN THIS PRINT. THE LONG-TERM SIGNALS, YOUTUBE CONTINUES TO GAIN MOMENTUM ACROSS BROADER MEDIA LANDSCAPE, GOOGLE CLOUD REVENUE CONTINUES TO RE-ACCELERATE AND WILL LIKELY REACCELERATE IN AN OUTSIZED WAY FOR MOST OF THE NEXT ONE TO TWO YEARS. THEY MADE SOME DECISIONS SHORT-TERM TO RAISE CAPEX AND STRIKE DEALS FOR THIRD-PARTY COMPUTE THAT ARE IMPACTING OPEX THAT ARE ALL ABOUT CLOSING SOME OF THE DEMAND VS. SUPPLY GAP THAT EXISTS AROUND COMPUTE TODAY BECAUSE THEY DID NOT WANT TO SLOW GROWTH AND DISAPPOINT EXTERNAL CLIENTS. WE ARE CERTAINLY COGNIZANT THAT IN THIS MARKET ENVIRONMENT, OVER INDEXING FOR INVESTMENT AND UNDER INDEXING TO SHORT-TERM ATTORNEYS AND BEING REWARDED. WE THINK ALPHABET IS MAKING THE RIGHT LONG-TERM DECISIONS WHEN ANGLING AGAINST THE LARGER MARKET OPPORTUNITY FOR AI FOR THE NEXT COUPLE YEARS. ED: WE GOT A LOT OF STATS, STATS ABOUT GEMINI, ENTERPRISE ADOPTION, THE CLOUD UNIT GROWING 82% YEAR-OVER-YEAR. FOR ME, THE REALLY SIMPLE QUESTION IS IS GOOGLE DOING WELL AT AI. ERIC: THEY ARE STILL AN AI WINNER IN OUR VIEW. THE MARKET TOOK A STEP BACK FROM THAT VIEW OVERNIGHT. THE DELAYS AROUND 3.5 PRO AND THE FACT THAT THEY NO LONGER HAVE A FOUNDATIONAL MODEL THAT SITS RIGHT AT THE FRONTIER OF PERFORMANCE AND BENCHMARKING HAS TAKEN A LITTLE BIT OF THE SHINE OFF THE AI WINNER THEME. WHAT SUNDAR PICHAI TALKED ABOUT LAST NIGHT IS THAT THEY ARE LIKELY GOING TO HAVE TO WAIT FOR GEMINI 4 TO BE BACK AT THE FRONTIER OF PERFORMANCE WITH AI MODELS. TWO POINTS -- GENERALLY WHEN YOU LOOK AT ACCESS TO CHIPS, DATA, THE ABILITY TO TRAIN THESE MODELS, WE THINK ALPHABET IS AS WELL-POSITIONED AS ANYONE BUT THAT CAN BE SHORT-TERM GAPS BETWEEN PERFORMANCE AND TRAINING RUNS AROUND THESE MODELS. MORE IMPORTANTLY, WE THINK THE WORLD IS BROADLY SHIFTING FROM TOKEN MAXXING TO TOKEN OPTIMIZING. SOME OF THESE OTHER MODELS AROUND SPEED AND EFFICIENCY, INCLUDING THE FLASH MODELS THAT THEY RELEASED, WILL ALLOW THEM TO REMAIN VERY COMPETITIVE FOR INCREMENTAL WORKLOADS. INVESTORS WANT TO SEE COMPANIES SPENDING THIS AMOUNT OF MONEY AND THEY WANT THEM AT THE FRONTIER OF MODEL PERFORMANCE. THEY MIGHT HAVE TO WAIT A FEW MONTHS FOR THAT WITH ALPHABET. ED: THAT IS A CONVERSATION I'VE BEEN HAVING WITH COO'S ACROSS THE STACK, THE DIFFERENCE BETWEEN TOKEN MAXXING AND TOKEN OPTIMIZING. IF GOOGLE NAILS THAT, WHERE DOES THAT SHOW UP? YOU RIGHT AT THE TOP OF YOUR THIS MYTH THAT ESTIMATES--YOUR NOTE THAT ESTIMATES ARE REVISED EVEN HIGHER. ERIC: WE BELIEVE THAT COMPANIES LIKE ALPHABET AND NEXT WEEK FROM AMAZON, GOING INTO ENTERPRISE CUSTOMERS AND SAYING WE ARE GOING TO HELP YOU OPTIMIZE YOUR SPEND, GOING TO BE JUST ABOUT BUYING TOKENS, NO MATTER WHAT THE COST FOR A SINGLE MODEL, BUT A WIDER AWAY -- WIDER ARRAY OF TOKENS FROM A WIDER ARRAY OF MODELS IS GENERALLY WHERE THE LANDSCAPE IS GOING. WE WROTE A NOTE A COUPLE MONTH AGO OF WHERE THE AI ECONOMY WOULD GO IN THE LONG TERM, AND WHAT GOT LOST IN THAT NOTE WOULD BE THE FACT THAT TO DRIVE UTILITY AND TOKEN GROWTH, YOU NEED DEFLATION. EVERY TECHNOLOGY COMPUTE SHIFT I'VE EVER COVERED AND ANALYZED HAS UNIT GROWTH THAT COMES WITH THE DEFLATION, BECAUSE YOU HAVE TO INCENT ADOPTION RATES AND WE DON'T THINK THE AI ECONOMY IS GOING BE DIFFERENT THAN THAT. ED: CHINA IS FOCUSED ON LOWERING DOLLAR TOKEN AND AMERICA'S FOCUSED ON THE QUALITY OF THE TOKEN. THE OTHER HYPERSCALERS BY ASSOCIATION ARE MARKEDLY LOWER TODAY. ERIC SHERIDAN, REALLY ENJOYED HAVING YOU ON THE PROGRAM, THANK YOU VERY MUCH. ONE MORE NUGGET FROM ALPHABET'S EARNINGS, ITS CLEARLY BETS ARE PAYING OFF. GOOGLE SAYS IT IS SITTING ON $94 BILLION WORTH OF SPACEX SHARES AFTER SPACEX'S IPO. TOGETHER WITH ITS ANTHROPIC STAKE, THOSE HOLDINGS DELIVERED $100 BILLION IN GAINS LAST QUARTER ALONE. FOR NOW, MOST OF THOSE SPACEX SHARES OF COURSE REMAIN UNDER LOCKUP RESTRICTIONS, LIMITING WHEN ALPHABET CAN CASH IN AND CASH OUT. COMING UP, A WHITE HOUSE OFFICIAL ACCUSES CHINA'S MOONSHOT OF IMPROPERLY USING U.S. AI MODELS AND NVIDIA CHIPS TO CREATE THE KIMI K3 SYSTEM. DETAILS NEXT. THIS IS "BLOOMBERG TECH." ED: YESTERDAY OPENAI SAID ITS ADVANCED AD MODELS MISTAKENLY BREACHED HUGGING FACE'S SYSTEM IS DOING A CONTROLLED TEST. BLOOMBERG HAS LEARNED THE MODEL COMPLETED THE ATTACK IN JUST HOURS, A TEST THAT WOULD TYPICALLY TAKE SKILLED HACKERS WEEKS. THAT'S ACCORDING TO SOURCES. OPENAI SAYS IT IS CONTINUING A JOINT INVESTIGATION WITH HUGGING FACE. STICKING WITH A I, CHINA'S MOONSHOT IMPROPERLY USED USA I MODELS AND NVIDIA CHIPS TO CREATE THE KIMI K3 SYSTEM ACCORDING TO WHITE HOUSE OFFICE OF SCIENCE AND TECHNOLOGY POLICY DIRECTOR MICHAEL KREMTSIOS. BLOOMBERG'S AI REPORTER MAGGIE EASTON JOINS US FOR MORE. IT IS A BIG ACCUSATION BY DIRECTOR -- THE DIRECTOR. GIVE US THE REPORTING AND SPECIFICS OF THE ACCUSATION WHAT WE NEED TO KNOW. MAGGIE: THERE ARE TWO KEY POINTS THE WHITE HOUSE OFFICIAL IS MAKING. THE FIRST IS THAT MOONSHOT, THE MAKER USED NVIDIA SERVERS AND CHIPS INSIDE SERVERS THAT CHINESE COMPANIES ARE NOT ALLOWED TO PURCHASE. THAT WAS THE FIRST ACCUSATION. HE SAID THEY ACCESSED THOSE CHIPS IN THAILAND AND ACQUIRED THEM. THE SECOND ACCUSATION HERE IS THAT MOONSHOT DISTILLED FROM U.S. MODELS. THIS IS LIKE AN EMERGING TECHNIQUE THAT WASHINGTON HAS BEEN WORRIED ABOUT IN WHICH THE CHINESE COMPANIES ARE USING OUTPUTS FROM THE U.S. COMPANIES TO THEN FEED INTO COPYCAT VERSIONS OF THE U.S. PRODUCT. ED: BLOOMBERG TECH MADE EVERY EFFORT TO INVITE MR. KRATSIOS ON THE SHOW BECAUSE PEOPLE HAVE SIMPLE QUESTIONS. THEY LOOK AT WHEN ANTHROPIC'S FABLE WAS RELEASED AND THEN CONTROLLED BY THE U.S. GOVERNMENT. WHEN K3 WAS RELEASED AND SAY, HOW IS THAT POSSIBLE ON THE DISTILLATION SIDE? THE SIZE AND SCOPE OF K3 AND THE DISTILLATION ACCUSATION A LITTLE MORE PATIENT WHAT MR. KRATSIOS IS SAYING? MAGGIE: THERE'S A LOT OF QUESTIONS IN D.C. AND BEYOND AROUND THIS QUESTION OF DISTILLATION AND WHETHER THIS IS A REAL THING THAT WASHINGTON NEEDS TO BE CONCERNED ABOUT. ANTHROPIC AND OPEN I HAVE BEEN RAISING CONCERNS FOR THE BETTER PART OF A YEAR. ESSENTIALLY, SOME WOULD STILL SAY THIS TECHNIQUE IS PERFECTLY FINE. AS YOU POINT OUT, THE TIME BETWEEN ANTHROPIC'S LATEST RELEASE AND RELEASE OF KIMI K3 IS NOT THAT LONG. SOME HAVE POINTED TO THAT TIME I CAN QUESTION WHERE IS THE EVIDENCE THIS DISTILLATION IS REALLY HAPPENING. CHINA HAS A LOT OF TALENT IN THE AI INDUSTRY. THERE IS A LINGERING QUESTION OF, HOW MUCH DID MOONSHOT RELY ON U.S. TECHNOLOGY AND HOW MUCH IS THEIR OWN INNOVATION? ED: MAGGIE EASTON WITH A CRITICALLY IMPORTANT REPORT ON BLOOMBERG TODAY. THANK YOU VERY MUCH. MOBILEYE FOUNDER AND CEO AMNON SHASHUA ANNOUNCED HE WILL BE STEPPING DOWN AFTER 27 YEARS. SHASHUA JOINS US NEXT FOR AN INCLUSIVE INTERVIEW. THIS IS BLOOMBERG TECH. ED: A BIG DAY FOR MOBILEYE WHOSE FOUNDER IS STEPPING DOWN AS CEO AFTER 27 YEARS. THE NEWS COMES AS MOBILEYE RELEASED ITS SECOND-QUARTER EARNINGS TODAY, BEATING ANALYST ESTIMATES. A REPORTED REVENUE OF $508 MILLION, JUST ABOVE HIS STRONGEST QUARTER OF 2025. THE FOUNDER AND CEO AMNON SHASHUA JOINS US NOW FOR NEXT WITH OF INTERVIEW. WELCOME BACK TO THE SHOW. I THINK THE EASIEST PLACE TO START IS WHY YOU ARE STEPPING DOWN. WHY YOU THINK NOW IS THE RIGHT TIME TO HAND THE REINS OVER TO SOMEONE ELSE. AMNON: GOOD MORNING, ED. THERE'S NEVER A GOOD TIME BUT AT THE SAME TIME THIS IS THE BEST TIME. MOBILEYE BUILT A GREAT FOUNDATION. TECHNOLOGICAL FOUNDATION GOING FORWARD. WE ARE AT AN INFLECTION POINT IN WHICH THERE IS NO OPEN SCIENTIFIC PROBLEM IN THE SOFTWARE STACKS THAT WE ARE DEVELOPING. EVERYTHING IS RUNNING EITHER OFF-LINE OR ONLINE AND IS READY FOR ROBOTAXI AND EVERYTHING WE ARE DEVELOPING. ON THE OTHER HAND THERE IS HUGE EXPANSION, OPERATIONAL EXPANSION, GO TO MARKET EXPANSION. THE ROBOTAXI, WE WANT TO EXPLORE B TO C. IT'S A NEW THING FOR US. B TO C AS WELL. AI IS MOVING VERY FAST. AS YOU JUST MENTIONED IN YOUR PREVIOUS ARTICLES. AS A SCIENTIST THIS IS REALLY MY STRONGEST POINT AND CONTRIBUTION TO MOBILEYE. I THINK IT IS THE BEST TIME TO BRING IN A NEW CEO THAT WILL TAKE CARE OF THE GROWTH AND ME FOCUS ON THE LONG HORIZON THINKING. ED: YOU ARE STAYING POST UNTIL A SUCCESSOR IS FOUND. HOW ACTIVE WILL YOU BE IN THE PROCESS OF FINDING YOUR REPLACEMENT? AMNON: THE BOARD HAS A SEARCH COMMITTEE. I WILL BE VERY CONTRIBUTING TO IT. OUR MANAGEMENT TEAM. WE WANT TO CAST A WIDE NET AND BRING THE BEST CEO. I'M LOOKING MANY YEARS INTO THE FUTURE. AT THIS POINT IN TIME IF WE FIND AN EXCELLENT CEO WITH A GROWTH POTENTIAL OF MOBILEYE IS HUGE. IT IS HUGE. ED: THE STOCK IS DOWN SIGNIFICANTLY, 15%. THE BIGGEST DROP SINCE ANGUS OF BIG -- AUGUST OF 2024. YOUR DECISION TO DROP -- TO STEP DOWN IS OVERSHADOWING A PRETTY STRONG SET OF RESULTS. IS THA -- HAS THAT SURPRISED YOU, THE REACTION TO THIS? AMNON: ACTUALLY I THOUGHT THE STOCK WOULD GO UP. THE MARKETS DON'T LIKE UNCERTAINTY. ONCE IT WILL BE INTERNALIZED, I'M HERE TO STAY. I'M NOT GOING ANYWHERE. RELEASING MYSELF IN THE DAY-TO-DAY MANAGEMENT AND FOCUSING ON WHAT REALLY MATTERS, WHICH IS THE FUTURE. THE TECHNOLOGY OF THE FUTURE, THE SCIENCE OF THE FUTURE. MOBILEYE IS ONE OF THE FEW REALLY FEW COMPANIES IN THE PHYSICAL AI SPACE THAT DOES BOTH AUTONOMOUS CARS AND HUMANOID ROBOTICS. THIS IS REALLY HUGE AND THERE ARE LOTS OF TECHNOLOGY IDEAS GOING FORWARD AND THAT IS WHAT I WANT TO FOCUS ON. ED: THIS IS A FUNDAMENTAL QUESTION FOR THE COMPANY. WHOEVER COMES IN IS THE NEXT LEADER OF MOBILEYE. WHAT IS YOUR EXPECTATION THAT THEY JUST COMPLETELY SHIFT THE COMPANY'S FOCUS TO ROBOTAXI AS A DOMAIN AS OPPOSED TO BEING A SUPPLIER OF SIC, JUST GOING DEEPER INTO THAT SEGMENT? AMNON: NO. THEY ARE CONTRIBUTING TODAY ABOUT $2 BILLION OF REVENUE PER YEAR. $400 MILLION OF PROFIT. THERE IS AT LEAST A SINGLE DIGIT GROWTH IN THE YEAR ON YEAR ON A DAS IT IS A CASH COW. NO ONE WAS TO REMOVE THE FOCUS. THE CHALLENGE IS TO INCREASE FOCUS ON ROBOTAXI AND HUMANOID -- FIRST ROBOTAXI. THIS IS AROUND THE CORNER. WE HAVE COOPERATION WITH VOLKSWAGEN. FIRST IN ORLANDO AND IN LAKE NONA. LAST WEEK THERE WAS A VERY BIG DEMONSTRATION OF END-TO-END, INCLUDING TAIL OPERATION. THE KPIS ARE ON TRACK. COMMERCIALIZATION. COMMERCIAL DEPLOYMENT BY THE END OF THE YEAR. EVERYTHING LOOKS REALLY GOOD. NOW THAT THE CHALLENGE IS OPERATIONAL. GO TO MARKET. BILL THE OPERATIONS. IT'S ORTHOGONAL. ED: I SUPPOSE YOU ENVISAGE THE NEXT AID TO BE MORE OPERATIONAL RATHER THAN FROM A SCIENCE -- A TO B TO BE MORE OPERATIONAL RATHER THAN SCIENCE. TO BE CLEAR, THIS WAS YOUR IDEA. AS OPPOSED TO THE BORDER ANY WELL SAYING WE SHOULD MAKE A CHANGE. AMNON: IT IS MY IDEA AND THE BOARD HAS OFFERED ME THE CHAIRMAN POSITION. IT SHOWS CONFIDENCE IN ME AND SHOWS CONFIDENCE IN MY FUTURE CONTRIBUTION. IT IS MY IDEA, BECAUSE I THINK IT IS THE RIGHT TIME. NOT TO WAIT TOO LONG BECAUSE IT IS AN INFLECTION POINT AND THAT WAS THE RIGHT TIME TO BRING SOMEONE THAT CAN HELP WITH THE GROWTH. ED: VERY QUICK, 15 SECONDS, FOR WHICH I APOLOGIZE, BUT DO YOU HAVE A TARGET TIMELINE DATE? AMNON: NO. I AM HERE TO STAY. IT WILL TAKE THE TIME IT TAKES TO FIND A CEO. WE ARE CASTING A WIDE NET TO FIND THE BEST CEO POSSIBLE. ED: MOBILEYE FOUNDER AND CEO AMNON SHASHUA, THANK YOU VERY MUCH. IBM CUTS ITS FULL-YEAR SALES OUTLOOK AFTER WEAKNESS IN ITS MAINFRAME DEMAND. WE SPEAK WITH THE CEO ARVIND KRISHNA. IT IS HALF TIME. WE WILL BE RIGHT BACK. THIS IS WHAT THE MARKETS LOOK LIKE. ALPHABET AND RAISING OF CAPEX IS WEIGHING DOWN A LOT OF THE TECH SECTOR. TESLA, TOO. THIS IS BLOOMBERG TECH." ED: WELCOME BACK TO "BLOOMBERG TECH," SHARES OF IBM TRADING SINCE THEIR LOWEST LOVER -- LEVEL SINCE NOVEMBER 2024. THEY DIALED BACK THERE FORECAST AFTER A DROP IN MAINFRAME RESULTS. JOINING US IS ROMAINE BOSTICK. ROMAIN: YOU'VE SEEN SOME CONCERNS ABOUT THE LOWER SALES FORECAST OVERALL AS WELL AS SOFTNESS IN SOFTWARE. YOU HAVE CHARACTERIZED THIS AS A SHORTFALL FOR ONE QUARTER THAT IS LIMITED TO CAPEX PORTIONS OF THE PORTFOLIO. SALES COMING INTO THAT QUARTER, WAS THAT PIPELINE OVERSOLD? >> I DON'T BELIEVE SO. WHEN WE LOOK AT ALL THE DEALS THAT DIDN'T CLOSE, I THINK WE HAD ENOUGH VERIFICATION TO KNOW THAT THEY WERE VERY REAL AND IT WAS A RE-PRIORITIZATION OF THE CAPEX SPEND AT THE END OF THE QUARTER. THIS IS VERY CONFINED TO THE FORTUNE 100, THE DEALS WITHIN A SUBSET OF THOSE. ONE THIRD OF WHAT DIDN'T HAPPEN HAS ALREADY COME BACK. THAT TELLS US THIS WAS A REPRIORITIZATION AS OPPOSED TO BEING OPTIMISTIC IN OUR PROJECTIONS. I WANT TO ALSO ADD THAT I THINK MAINTAINING A FREE CASH FLOW TELLS US WE HAVE LEVELS OF PRODUCTIVITY AND CONVICTION AND CONFIDENCE IN THE BUSINESS AND THAT IS GOING TO SETTLE WITH INVESTORS WELL BUT THE NEXT FEW MONTHS WILL TELL US THAT. ROMAINE: THE CASH FLOW FIGURES CERTAINLY PLEASED INVESTORS OUT THERE. MAINTAINING THE DIVIDEND AS WELL. BUT YOU HAVE LARGELY DONE THAT SO FAR BY CUTTING COSTS. IF WE ARE ANTICIPATING SLOWER GROWTH ON THE REVENUE SIDE, DOES THAT MEAN MORE COST CUTS ARE IN-STORE. ARVIND: THE BULK OF OUR CASH FLOW GROWTH OVER THE LAST FOUR YEARS HAS BEEN ON ADJUSTED, SO THIS IS MOSTLY THROUGH REVENUE GROWTH AND OUR MODEL HAS ALWAYS BEEN THAT THE LAST DOLLAR IS MORE PRODUCTIVE AND PROFITABLE THAN THE FIRST DOLLAR. WE HAVE BEEN GROWING REVENUE 4% OR 5% AND CASH FLOW UP IN 7%, 8%, 9%. NOW, RIGHT NOW IF WE DROP REVENUE BY ONE POINT, WE CAN ABSOLUTELY MAKE IT THROUGH PRODUCTIVITY. COST CUTS IS AN ENCROACHING QUESTION THAT DOES NOT ALWAYS COME DOWN TO PEOPLE REDUCTION AND HEADCOUNT. HOW ARE HEADCOUNT HAS BEEN MORE OR LESS FLAT THE LAST MANY YEARS. THERE IS A LOT OF THIRD-PARTY SPEND WHERE WE WILL GET A LOT MORE EFFICIENT WITH THAT THIRD PARTY SPEND THAN WE HAVE BEEN ALWAYS. ED: ARVIND --"BLOOMBERG TECH" IS LIVE ON BLOOMBERG TV AND BLOOMBERG RADIO. WE ARE SPEAKING WITH THE IBM CEO ARVIND KRISHNA. I'M WONDERING WHAT YOU ARE ASKING THE TEAM TO DO DIFFERENTLY NOW IN RESPONSE TO ALL THE FACTORS YOU OUTLINED? ARVIND: IF I LOOK AT OUR SOFTWARE BUSINESS, 80% OF IT IS AN ANNUAL CONSUMPTION BUSINESS. IF WE THINK THE CAPEX HEADWIND BUSINESS IS GOING TO CONTINUE, WE WANT TO PUT A LOT MORE FOCUS SO WE WILL DIRECT A LOT OF THE TEAM WITH ENGINEERS, PEOPLE FOCUSED ON DEPLOYING SOFTWARE DECLINES, TECHNICAL HELP AND MAKING THAT 80% GROW EVEN FASTER. THESE ALL FIT THAT MODEL. ON THE CAPEX SIDE, WE HAVE TO MAKE SURE THAT WE DON'T DEPEND ABOUT OUTSIZED GROWTH TO GO THERE. THEN ON THE SUPPLY CHAIN CAN WE LEVERAGE ALL OF OUR CAPABILITY OF THE SUPPLY CHAIN TO MAKE SURE WE HAVE A DISTRIBUTED INFRASTRUCTURE IN STORAGE AND UNIT SYSTEMS SO PEOPLE CAN FULFILL ALL OF THE DEMAND. WE CAME OUT WITH A BACKLOG IN THAT PORTFOLIO. THAT GAVE YOU AN IDEA OF THE CHANGES WE ARE MAKING, NOT JUST FOR THE SECOND HALF. ED: YOU SUMMARIZED THE STATE OF THE WORLD BEAUTIFULLY. YOU SAID THE CUSTOMER HAS SHIFTED TOWARD STORAGE, SERVERS, AND MEMORY IN LATE JUNE. WHEN I POSTED ON SOCIAL MEDIA YOU WERE COMING IN OF THE SHOW, THE QUESTION FROM THE AUDIENCE WAS SIMPLE, DID THAT TREND CONTINUE FROM JUNE INTEGERS -- INTO JULY? ALONG DO YOU EXPECT IT TO LAST? ARVIND: WE HAVE NOT SEEN IT IN JULY. BUT WHAT I WOULD TELL YOU IS MEMORY PRICING, NETWORKING, INFRASTRUCTURE IS UP 60% TO 80%, FIBER IS UP, CONNECTORS ARE UP. I DO THINK SOME OF THESE TRENDS ON UNDERLYING COMPONENTS ARE GOING TO CARRY ON FOR SOME MORE TIME. SO, PEOPLE ARE GOING TO HAVE THOSE PRICES. NOW, THE QUESTION IS IS THAT GOING TO MAINE -- MAINTAIN THE REPRIORITIZATION OF THE CAPEX SPEND. IT SAYS PEOPLE ARE GOING TO GET MORE CAREFUL ABOUT OUT TO SPEND THE CAPEX. A LOT OF CAPEX DOES GET COMMITTED AT THE END OF THE QUARTER, NOT ALWAYS THROUGH. IT MEANS THAT THAT IS ON FOR SOME MORE TIME AND THAT IS WHAT WE GIVE A GUIDE OF 4% TO 5%. IF SOFTWARE COMES BACK WE WILL BE AT THE HIGH-END OF THE RANGE. ROMAINE: I KNOW THERE IS A BIG FOCUS RIGHT NOW ONE OF THE CLIENTS THAT DID NOT NECESSARILY MATERIALIZE IN THE QUARTER. WITH REGARD TO THE EXISTING CLIENTS AND I'M REFERRING TO YOUR MAINFRAME BUSINESS PRIMARILY, CAN YOU SHARE WHAT PERCENTAGE OF THOSE CLIENTS ARE INCREASING SPENDING? IS THAT GOING UP? ARVIND: ABSOLUTELY, THE CURRENT MACHINE IS CALLED BUSY 17. -- THE Z-17. THAT HAS BEEN AT 130% IN TERMS OF THE CAPACITY GROWTH. THAT IS ONE VERY STRONG SIGNAL AND THAT IS AN AGGREGATE. IS EVERYBODY THERE ARE ONLY A FEW? 85% OF BUYERS ARE INCREASING THEIR CAPACITY AS OPPOSED TO THE 15% WHO ARE NOT. THAT GOES ON ALL THE TIME AND I WILL TELL YOU THIS IS PROBABLY THE BEST WE HAVE SEEN IN A LONG TIME OF WHAT IS GOING ON THERE. SOFTWARE IS GOING TO LAG. ROMAINE: WE KNOW THE HARDWARE CAPACITY IS THERE, SOFTWARE IS LAGGING. I UNDERSTAND WHY IT IS LAGGING IN THE MOMENT. FORGIVE ME IF THE QUESTION IS A BIT UNFAIR, BUT I LOOK BACK TO THE 1990'S AND WHETHER THERE ARE PARALLELS TO THE MAINFRAME ISSUES IBM WENT THROUGH BACK THEN UNDER A PREDECESSOR TWO OR THREE TIMES REMOVED FROM YOU. THE IDEA THAT AT THAT TIME WE WERE GOING THROUGH THIS PARADIGM SHIFT IN COMPUTING AND HOW COMPANIES SPENT AND ALLOCATED MONEY AND THERE WAS A LOT OF TALK BY THE CEO THAN THAT THE ISSUES WERE TEMPORARY, ECONOMIC, AND THEY WOULD WRITE THEMSELVES. WE KNOW IN HINDSIGHT IT WAS MUCH -- MUCH MORE STRUCTURAL. WHY SHOULD WE LOOK AT THIS MAJOR SHIFT GOING ON WITH AI AND THE COMPUTATION INVOLVED AND THINK THAT THIS TIME IS DIFFERENT? ARVIND: WELL, WE HAVE TO LOOK AT WHAT THE CLIENTS ARE DOING. OUR OPINION IS AN OPINION, WHAT CLIENTS DO IS WHAT MATTERS. WHEN I CHECK WITH MY CLIENTS, ARE YOU GOING TO MAINTAIN THE MAINFRAME? THEY GO TO THE RESILIENCE, THE AMOUNT OF CAPACITY, THE UNIT COST OF IT BEING 5-15 TIMES CHEAPER IS IMPORTANT. THE BIG DIFFERENCE FROM THE EARLY 1990'S UNTIL TODAY IS THE COST ISSUE. YOU COULD NOT ARGUE THAT THE MAINFRAME WAS CHEAPER AT A UNIT COST BASIS THEN AT THAT TIME THE MIDRANGE COMPUTERS, THE WHOLE UNITS. IT WASN'T REALLY CLIENT SERVERS, IT WAS UNITS TAKING THE WORKLOADS OFF IN THE EARLY 1990'S. THAT ISSUE YOU HAVE TO LOOK AT. IF THERE IS A CHEAPER ALTERNATE FOR THAT WORKLOAD, I WILL LOOK AT YOU AND SAY IN 5-15 YEARS IT WILL MOVE ON. BUT THAT IS NOT THE CASE. RIGHT NOW, WE CAN SHOW THE CLIENT THAT IS 5-15 TIMES CHEAPER TO KEEP IT ONE OF THE MAINFRAME. THAT IS NOT ALL WORKLOADS, THAT IS WORKLOADS THAT NEED PROTECTION AND RESILIENCE, THAT NEED THE BURST CAPACITY THAT COMES. FOR THOSE KIND OF WORKLOADS, THE MAINFRAME IS THE ARCHITECTURALLY SUPERIOR PLATFORM. THAT WAS NOT THE CASE 30 YEARS AGO FOR THE WORKLOADS THAT DID GO OFF. ED: LIVE ON BLOOMBERG TELEVISION AND BLOOMBERG RADIO, THIS IS "BLOOMBERG TECH," SPEAKING WITH IBM CEO ARVIND KRISHNA. I'VE BEEN SPEAKING TO YOU A LOT IN THE LONGFORM PODCASTS AND SOCIAL MEDIA ABOUT YOUR VIEW OF THE WORLD AND WHAT IT IS LIKE TO BE A CEO IN THE DOMAINS IBM OPERATES IN. IT IS INTERESTING HOW QUICKLY IT COMES BACK TO MACROECONOMICS. A LOT OF PEOPLE LOOK TO THIS YEAR FOR GUIDANCE AND THEY DO SAY ON THE SHOW, MEMORY PRICES ARE NOT CHANGING, THEY ARE CONTINUING TO PUSH HIGHER. THEY LOOK AT THE OUTLOOK FOR GROWTH. COULD YOU JUST EXPLAINED THE DATA POINTS YOU RELY ON THAT GIVE YOU THE CONFIDENCE ON THE NEW GUIDANCE YOU HAVE GIVEN AND WHETHER IT IS ACTUALLY ACHIEVABLE OR IT WILL BE DIFFICULT TO MEET? ARVIND: ED, I WILL COME BACK TO FOR OURSELVES WE HAVE TO LOOK AT OUR DEMAND PIPELINES AND OUR YIELDS AND HOW WE GET THINGS GOING, BUT I THINK FOR YOUR AUDIENCE, LET'S LOOK AT IT THIS WAY. NUMBER ONE MOST IMPORTANT IS WHAT IS GDP GROWTH GOING TO BE? WE THINK 2% AT 3% FOR THE YEAR IF I LOOK AT THE GLOBE. AND IT IS GOING TO BE CONSISTENT EVEN IN THE MIDDLE EAST AND ASIA WHERE THERE WAS A LOT MORE ENERGY AND DISRUPTION. WE SEE A LOT OF GROWTH. TECH IS GOING TO BE 2, 3, 4 POINTS ABOVE THAT. THAT PUTS TECH SOMEWHERE IN THE 5%, 6%, 7%. THEN IT COMES BACK TO WHAT PART OF OUR PORTFOLIO CAN PLAY AGAINST THAT DEMAND AND WHAT PARTS CANNOT. I LOOK AT THE SOFTWARE PORTFOLIO, THAT'S WHY I TALKED ABOUT THE 8% GROWTH IN THE 80% OF IT, THAT CAN PLAY RIGHT INTO IT. OUR DISTRIBUTED INFRASTRUCTURE CAN PLAY RIGHT INTO THAT. I THINK CONSULTING WILL BE THAT 1%, 2%, 3%. IT WILL NOT BE IN THE DOUBLE-DIGIT GROWTH. BUT WE SEE THE DEMAND AND THE SIGNINGS AND THE CLIENTS LEANING IN TO SEE THEY WANT THAT WORK DONE. THAT IS HOW WE KIND OF KNOW, WE LEAD WITH THE MACRO AND THEN COMING DOWN. I WILL MAKE A PREDICTION FOR YOU. I THINK TECHNOLOGY SPEND IS GOING TO BECOME A LARGER PART OF EVERY ENTERPRISE'S BUDGET. IT USED TO BE 3% 30 YEARS AGO, IT IS PROBABLY ABOUT 5%, 6% ON AVERAGE. I WOULD NOT BE BY 2035 IF IT IS 10% OF EVERYONE'S BUDGET. ED: GIVE YOU A QUICK MICRO CASE STUDY. STARBUCKS IS REPLACING MICROSOFT TOOLS WITH IN-HOUSE. ABOUT THAT. ARVIND: STARBUCKS IS A LITTLE OVER $2 MILLION CLIENT OVER IBM. THEY ARE REPLACING REAL ESTATE LEASE MANAGEMENT. THE VERSION OF IT STARBUCKS HAS IS ALMOST 20 YEARS OLD. I'M NOT SURPRISED THEY ARE REPLACING IT BECAUSE I'VE BEEN DESCRIBING PUBLICLY, SOFTWARE WHICH IS LARGELY INTERACTION BASED AND IS BASED ON EASE-OF-USE AS OPPOSED TO ANYTHING ELSE CAN BE EASILY REPLACED BY AI AND AI AGENTS AND THAT IS WHAT IS GOING ON THERE. IF I SEE OTHER PARTS OF STARBUCKS AND MAY BE THE ABILITY FOR OUR PORTFOLIO, OUR SECURITY PORTFOLIO, I WOULD PHRASE IT THIS WAY, I WOULD NOT BE SURPRISED IF STARBUCKS IS A LARGER CLIENT NEXT YEAR, THEN I WAS LAST YEAR. ROMAINE: WITH REGARD TO HOW THE WORLD IS EVOLVING, I'M CURIOUS ABOUT YOUR PLANS TO HIRE PARTICULARLY WHEN IT COMES TO THE TECHNOLOGICAL SIDE. HAVE YOU BEEN ABLE TO KEEP PACE WITH SOME OF THE OTHER COMPANIES OUT THERE ALSO TRYING TO DO WHAT YOU DO AND PAY SOME OF THE SALARIES YOU HAVE TO PAY? ARVIND: WELL, WE HAVE HIRED THREE TIMES AS MANY COLLEGE HIRES THIS YEAR THAN WE DID LAST YEAR. I THINK GIVEN OTHERS SEEM TO BE BACKING OFF COLLEGE HIRING, IT GIVES US AN INCREDIBLE OPPORTUNITY TO BRING IN GREAT TALENT AND GROW THEM INSIDE OUR COMPANY AND OFFER THEM GREAT CAREERS. I THINK IF I LOOKED AT IT LAST, WE HAVE I THINK 20 MILLION RESUMES IN OUR APPLICANT DATABASE, SO THAT GIVES US A HUGE FIELD TO GO LOOK AT. I DON'T WORRY ABOUT BRINGING IN TALENT, I ACTUALLY WORRY MUCH MORE ABOUT CAN WE GIVE THEM A GREAT CAREER AND GREAT PATHWAY? BECAUSE NOT EVERYBODY IS CUT OUT TO DO WORK THAT IS GOING TO BE DEMANDED BECAUSE I DON'T THINK THERE WAS A LACK OF EMPLOYMENT, BUT THE NATURE OF THE WORK, IF YOU CAN'T USE AI TOOLS, IF YOU CAN'T USE THE PRODUCTIVITY TOOLS THAT WILL BE REALLY HARD FOR YOU TO BE COMPETITIVE WITH YOUR PEERS. ROMAINE: WE ALREADY KNOW THE POTENTIAL IMPACT OF WHAT AI MEANS FOR THE ECONOMY AND YOUR BUSINESS. THERE ARE A LOT OF PEOPLE LOOKING AROUND THE CORNER TO QUANTUM. IS THAT A VIABLE BUSINESS ON THE HORIZON OR IS THAT JUST A MOONSHOT YOU ARE HOPING ACTUALLY STICKS? ARVIND: WHEN THINGS ARE TWO YEARS AWAY I WOULDN'T CALL THEM A MOONSHOT. I THINK QUANTUM IS NOW IN THE ENGINEERING REALM AS OPPOSED TO THE SCIENCE ROUND FOR THE NEXT FIVE YEARS. AND I BELIEVE THAT BY 2029 WE WILL DELIVER A MACHINE THAT DOES 100 MILLION COMPUTATIONS OF LARGE-SCALE QUANTUM COMPUTING IN THE NEXT TWO YEARS. I THINK THAT IS AN INCREDIBLE OPPORTUNITY. I WILL QUANTIFY IT AND THIS IS NOT JUST OUR WORK, THIRD PARTIES. BY THE END OF THE 2030'S, WE THINK OF IT AS A TRILLION DOLLAR MARKET IN TOTAL VALUE THAT QUANTUM WILL CREATE. THAT IS WHY WE DOUBLED DOWN THIS MORNING AND ANNOUNCED WE BOUGHT HRL FROM GM AND BOEING AND THAT IS GOING TO HELP US BRING PEOPLE WITH A LOT OF TALENT AROUND MATERIALS, QUANTUM SENSING, AND OTHER SENSOR TECHNOLOGIES TO ADD TO OUR OWN EFFORT SO WE ARE EVEN MORE WELL-POSITIONED TO GO WIN IN THIS MARKET. ED: ARVIND KRISHNA, IBM'S CEO, ALONGSIDE ROMAINE BOSTICK. IBM SHARES ARE MODESTLY HIGHER. HAVING OPEN LOWER. THE STOCK FELL 22%, 25%. WE WILL GET BACK TO EARNINGS AND BACK TO ALPHABET AND ITS CAPEX NUMBER. INTEL IS UP NEXT. THIS IS "BLOOMBERG TECH." ♪ ED: COASTAL VENTURES, ONE OF OPEN AI'S EARLY INVESTORS, IS IN TALKS TO RAISE $5.5 BILLION IN A NEW SET OF VENTURE INVESTMENT FUNDS, WHICH WOULD MAKE IT THE LARGEST FUNDRAISING EVENT IN THE FIRM'S HISTORY, ALL ACCORDING TO SOURCES. BLOOMBERG'S NATOSHA MUSK ARENAS BROKE THE STORY. NO SURPRISE THERE. I THINK PEOPLE MAY LOSE SIGHT ABOUT HOW BIG A FIRM IT WAS ALREADY. AND THIS RACE IS VERY MUCH IN LINE WITH WHAT'S HAPPENING. >> IF YOU WERE AN EARLY OPENAI OR ANTHROPIC BACKER, YOU PROBABLY HAVE ONE OF THE BEST STORIES AND VENTURE FUNDRAISING RIGHT NOW. LAST MONTH WE TALKED ABOUT THE LARGEST FUND OF ALL TIME, NOW TALKING ABOUT KHOSLA, THE FIRST OUTSIDE INVESTOR IN OPENAI. ED: 5 BILLION DOLLARS SPLIT ACROSS MULTIPLE FUNDS WE THINK. >> THEY ARE GOING TO KEEP REPLICATING THAT EARLY SUCCESS, PUTTING THE MAJORITY OF THE CAPITAL INTO EARLY-STAGE BEDS AND $2.5 BILLION RESERVED FOR AN OPPORTUNITY FUND THAT'S PRETTY MUCH FOR THE LATER STAGE AS CONCENTRATION BECOMES A MORE INVOKED STRATEGY FOR VENTURE CAPITAL. ED: WE KNOW THE FIRM'S NAMESAKE, BUT THERE ARE INTERESTING PEOPLE AT THAT FIRM, INVESTING AT DIFFERENT STAGES. TELL US MORE ABOUT THE TEAM. >> THIS IS A TEAM THAT HAS BASICALLY CHOSEN TO STICK WITH AN EARLY-STAGE FOCUS, WHEN A LOT OF PEOPLE ARE GETTING INTO A UNIQUELY BROAD SET OF SIDE QUESTS AS VENTURE FIRMS. I AM THINKING OF THE TEAM THAT HAS BACKED SAKANA AI WHICH IS BUILDING A JAPANESE LLM. COMPANIES LOOKING AT ROBOTICS AND CLIMATE. THEY ARE DEFINITELY GOING AFTER THE A.I. APPLICATION LAYER. WHEN I THINK ABOUT KHOSLA VENTURES, I THINK OF A MORE BIOTECH FOCUSED HARD TECH FOCUSED. ED: ALL AREAS OF INTEREST AS WELL. >> ABSOLUTELY. ED: I WOULD POINT OUT ONE PERSON FROM THE FIRM DECLINED TO COMMENT ON THE REPORTING BUT THERE'S ANOTHER THEME WHICH IS KHOSLA RAISED $4 BILLION LAST YEAR, BIG FUNDS LAST YEAR AND THIS YOU HAVE DONE THAT. WHAT DO WE NEED TO KNOW? >> THEY ARE GOING THROUGH THE FUNDS AT A FASTER THAN EVER CADENCE. WE THINK THIS IS LIKE YOUR PROACTIVELY -- YOU ARE PROACTIVELY RAISING AHEAD OF NEEDING TO TOUCH THE CAPITAL. MY UNDERSTANDING IS THE LAST YEAR FUND IS STILL BEING ACTIVELY DEPLOYED. THIS FUND WE BROKE IS BEING KICKED OFF AND THE FUNDRAISING CALLS AND CONVERSATIONS ARE HAPPENING RIGHT NOW. IT DOES SHOW YOU HOW COMPETITIVE AND EXPENSIVE BEING A VENTURE CAPITALIST IS TODAY. ED: NATOSHA, WITH ANOTHER BIG STORY IN THE WORLD OF VENTURE CAPITAL. THANK YOU. ALPHABET, A RECENT CONFERENCE ON THE -- CONCERNS ON THE COST OF A.I. RAISING CAPEX PRODUCTION TO $2.5 BILLION AT THE TOP END FOR THIS YEAR. THE COMPANY CASH FLOW WERE NEGATIVE FOR THE FIRST TIME IN THEIR HISTORY AS A PUBLIC COMPANY WHICH GOES BACK OVER 20 YEARS. OUR BLOOMBERG INTELLIGENCE SENIOR ALLERGIST MANDEEP SINGH JOINS US, WHO LEAVES THE TECH CORPORATE SIDE -- COVERAGE SIDE AT BI. YOU SAW CAPEX GOING EVEN HIGHER THAN $2.5 MILLION. ARE YOU IN THE CAMP OF PEOPLE THAT ARE WORRIED ABOUT THAT? MANDEEP: NOT FOR ALPHABET. I AM IN THE CAMP THAT CAPEX WILL GO MUCH HIGHER FOR 2027. THEY DID SAY THAT THERE WILL BE A SIGNIFICANT INCREASE NEXT YEAR. THIS IS A FULL STACK COMPANY WHERE THEY HAVE ALREADY SHOWN THE CAPEX SPEND IS FAR MORE EFFICIENT THAN ANYONE ELSE OUT THERE. THAT'S WHY THEY ARE GOING BIG IN TERMS OF GETTING AS MUCH CAPACITY. BECAUSE SO FAR IF YOU HAD THE COMPUTE AND POWER, THAT IS TRANSLATING INTO CLOUD REVENUES. WE SAW THAT IN ALPHABET'S CLOUD SEGMENT GROWTH, 82%. THAT'S WHY THEY ARE GOING WITH THAT TPU STACK AS WELL. THEY WANT TO SELL THAT INDEPENDENTLY OF THE CLOUD AND THAT COULD BE A BIG LINE OF BUSINESS OVER THE NEXT TWO YEARS AS WELL. ED: IT'S A BALANCING ACT. GOOGLE IS ON THE HOOK FOR $811 BILLION OF SPENDING. AND IN UNITED STATES -- AND IN YOUR REACTS, YOU SAY THAT IS AGAINST THE STRONG CLOUD GAINS THEY ARE SEEN. MANDEEP: I THINK THEY DID NOT QUANTIFY THE MARGINS OF THOSE TPU SYSTEMS. BUT ONCE YOU START BASICALLY SELLING YOUR DESIGNS EXTERNALLY, WHICH SO FAR TPU'S WERE USED MOSTLY FOR GOOGLE CLOUD, NOW THEY ARE TALKING ABOUT SETTING UP ANTHROPIC DATA CENTERS WITH THEIR OWN DESIGN ENGINE, WITH REVENUE OUT OF THAT, THAT IS HUGE. IT COULD BE A BIG LINE OF BUSINESS ON ITS OWN. SO FROM THAT PERSPECTIVE, GOOGLE HAS GOT IT ALL IN TERMS OF LARGE LANGUAGE MODELS, TPU SYSTEMS AND THE CLOUD BUSINESS AND THAT IS WHY THEY ARE REALLY GOING BIG IN TERMS OF THE CAPEX INCREASE. ED: THE THING ABOUT THE TPU BUSINESS IS THEY HAVE THESE SALES PACKS. WHAT ALPHABET'S CFO SAID IS A COMPANY WILL NOT REALIZE REVENUES FROM THAT UNTIL I THINK THEY SAID 2027. TWO ARE BASICALLY SAYING THAT WILL BE AN IMPORTANT BUSINESS LINE FOR THEM. MANDEEP: YES, I LOOK AT WHAT NVIDIA HAS DONE WITH THEIR SYSTEM SALES AND HOW BIG NVIDIA HAS GOTTEN OVER THE PAST THREE YEARS. THIS IS A RISING TIDE THAT IS LIFTING ALL BOATS. AND WE ARE IN A SUPPLY CONSTRAINED ENVIRONMENT. SO ESSENTIALLY, FOR ALPHABET, THEY ARE THE ONLY ONES THAT HAVE THE ABILITY TO DO THAT. EVERYONE ELSE IS STILL IN THE EARLIER VERSIONS OF THEIR CHIP DESIGN. AMAZON IS THIRD AS WELL. IT IS REALLY ABOUT HOW MANY VERSIONS YOU HAVE HAD AN HOW EXTERNAL CUSTOMERS -- AND HOW EXTERNAL CUSTOMERS CAN TRUST YOUR DESIGN FOR THEIR WORKFLOWS AND ALPHABET HAS THE ABILITY TO DO THAT FOR EXTERNAL WORKFLOWS. ED: I WOULD POINT OUT IF YOU LOOK AT THE STOCK REACTION, THE STOCK IS DOWN THE MOST SINCE MAY OF 2025 AND WE ARE SHOWING THIS ASTONISHING CHART, THE FIRST TIME THIS COMPANY HAS SWUNG TO NEGATIVE FREE CASH FLOW IN THEIR HISTORY, THAT'S AN ASTONISHING JOB. MANDEEP SINGH, THANK YOU VERY MUCH. NEXT UP ON DECK, INTEL, THEY REPORTED SECOND-QUARTER RESULTS AFTER THE CLOSING BELL AND INVESTORS WILL BE KEEPING A CLOSE EYE AS THEY SPEAK TO THE STRENGTH AND BREADTH OF THE SEMICONDUCTOR INDUSTRY RIGHT NOW. BLOOMBERG'S IAN KING JOINS US FOR A PREVIEW. WHAT TO MAKE AND WHAT TO LOOK FOR WITH INTEL? IAN: THE STOCK IS UP 702%. IF YOU LOOK UNDER THE HOOD AT THE ACTUAL NUMBERS, IT REALLY IS SHOWING DOUBLE-DIGIT DIGIT GROWTH AND SHOWING SOME DEMAND FOR THEIR PRODUCTS. BUT COMPARED TO GROWTH AND WHAT OTHER COMPANIES ARE PUTTING UP AND HAVE BEEN PUTTING UP FOR THE LAST COUPLE OF YEARS, NOT QUITE THERE YET. WHAT INTEL HAS GOT TO SHOW IS THAT IT'S REALLY A FUNDAMENTAL PART OF THIS A.I. RACE. ED: THE CPU STORY HAS BEEN MORE INTERESTING RECENTLY AND THE BUSINESS AS A THIRD-PARTY CONTRACT MANUFACTURER AND THE LATEST TECHNOLOGY PROCESS, I ALWAYS FEEL LIKE WE WANT TO GET ANSWERS ON THAT AND WE DON'T. IAN: THAT WOULD BLOW THE STORY WIDE OPEN AND WOULD MAKE PEOPLE CONSIDER IT INTEL DIFFERENT, THAT THIS TURNAROUND WOULD BE VINDICATED. HAVE NOT SEEN THAT YET BE OVER THE COMPANY SAID WE CAN TALK ABOUT IT -- WE HAVE NOT SEEN THAT YET. THE COMPANY SAID WE CAN'T TALK ABOUT IT. WE WILL BE LOOKING FOR THAT TODAY. ED: WHAT IS THE FINANCIAL METRIC YOU LEARNED IN THE MOST ABOUT IN TEL FROM? IAN: GROWTH IS VERY IMPORTANT BUT THIS IS A COMPANY HAS BEEN LOSING MONEY AND ITS GROSS MARGIN IS 20 POINTS SOUTH OF WHERE IT WAS ON THE GOOD DAYS AND WE NEED THAT MARGIN. ED: ABOVE 65%. IAN: ABOUT 60%. ED: NOWHERE NEAR THAT RIGHT NOW. ANOTHER BUSY AFTERNOON FOR YOU AND FOR ME. IAN KING, THANK YOU VERY MUCH. A HEAVY FOCUS ON TECHNOLOGY EARNINGS. THAT DOES IT FOR THIS EDITION OF "BLOOMBERG TECH." ACROSS ALPHABET, TESLA, IBM, AND 24 HOURS' TIME, WE WILL DO IT AGAIN WITH INTEL. THE MOVES ARE TIED TO EARNINGS BIG. ALPHABET IS ALSO BY ASSOCIATION DRAGGING DOWN A COUPLE OF THE OTHER HYPERSCALERS, AMAZON FOR EXAMPLE HAS A BIG DECLINE. FOR TESLA, THIS IS A BIG DROP. DOWN 14%. AND REALLY, IT'S STILL A SPENDING STORY ACROSS THE BOARD. STAY WITH US THROUGHOUT THE WEEK. THIS IS "BLOOMBERG TECH." ♪