Chapter 1: What is the main topic discussed in this episode?
Bloomberg Audio Studios. Podcasts. Radio. News. Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Lovelow in San Francisco.
This is Bloomberg Tech. Coming up, memory chip prices strike again, this time taking a toll on Cisco, even as AI demand surges. We'll break it down.
Plus, Apple's revamp of its Siri voice assistant. It hits new snags that could delay the release of some features.
And Altruist launched an AI tax planning tool. And within hours, wealth management stocks tumbled. The CEO of Altruist joins us to discuss.
But first, we check in on these markets that in many ways are still digesting AI disruption. We focus in on Cisco that I know you'll go to. We're off by 1% on the NASDAQ 100. That anxiety of costs, of memory costs, really building into the benchmark. But more broadly, we're all eyes on costs for consumers. CPI print coming later in the market, just a little bit nervous ahead of that. Bitcoin?
Down another day off by a percentage point. 67,000 is where we trade for this particular risk asset. Ed, what are you looking at?
There's a lot of pieces of consecutive red on the screens we've been putting up.
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Chapter 2: How are memory chip prices affecting Cisco's stock?
Cisco, no exception. Down 11% on track for its biggest drop since May of 2022. And prior to today's session, it was up 11% and had momentum. Outlook is strong on sales for the current period. AI demands there, but there's margin compression. memory chip prices. Let's get more with Bloomberg Intelligence Senior Hardware and Network Analyst Woojin Ho.
Chapter 3: What challenges is Apple facing with the Siri revamp?
It's actually probably a good time to remind us what Cisco is and what Cisco does. But the memory issue is factoring in to servers and right now you are leading with your React piece on the Bloomberg terminal with the memory chip issue. What do we need to know?
Yeah, hey, Ed. So really quickly, what Cisco is is the leading global provider of networking equipment for corporate as well as for data centers. And they've actually had a foray into cloud data centers to help power some of the AI workloads. Now, what happened last quarter, they got the AI orders momentum and drove a lot of the upside on sales.
But the gross margin issue, especially given from the DRAM pricing, is a lot bigger than we had thought.
Chuck Robbins, though, was trying to say that if anyone's going to navigate this, they're going to navigate it. They're already going to their suppliers.
Chapter 4: What is the impact of AI on wealth management stocks?
They're already thinking about increasing prices. How well can they handle it?
Yeah, so we did the math for the third quarter.
Chapter 5: What insights does Altruist's CEO provide about their new AI tax tool?
There's about 200 basis point product erosion on gross margin. But when we look at the fourth quarter, they're able to stabilize that. Now, if we think about 2027, they actually have a fairly sizable software business.
Chapter 6: How is the market reacting to AI disruptions in various sectors?
And if software really starts ramping up, we could start seeing some gross margin stability in 2027.
Mu Junho of Bloomberg Intelligence. There we have your piece, Cisco's results outlook pinched by memory price spike. Look, all of this is as Cisco's numbers. They highlight the heavy infrastructure build-out, but heavy investors are really questioning what happens next for the implications for software too. Joining us now to go...
Across the whole gamut is Tony Wong, portfolio manager at T. Rowe Price Science and Technology Fund. In his latest thoughts, he says that recent software sell-off is more of a valuation reset and that companies that successfully embed AI into workflows could drive stronger productivity and margins over time.
And Tony, what's so great about having your voice on this show is you time and time again have been like the proof point, the ROI is going to be productivity gains. Suddenly we've got the productivity gains sort of shining a light that we're actually worried it's going to really hit valuations. How do you weigh where we are in terms of the sell-off and if it's overdone?
Yeah, well, I think it's the key question the market is wrestling with right now. And so when I think about it, it's really just what is on the right side of change, I think, and what is the inevitability here. And I think what you're seeing with cloud co-work is that these agents are becoming more autonomous and they can actually execute.
execute things on their own, do more than just, like, you had to prompt something, like Chachapiti, you know, for your own personal Chachapiti.
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Chapter 7: What are the implications of Apple's Siri delays on their product strategy?
So what's exciting is that these enterprise agents, I think, are going to be more of a force here, and we're starting to see that really pay off. And when you think about it, like, I think the market's reacting the way it is because if you think about it in the future, like, there are wide-sweeping implications for companies
what most mean like in terms of software as well as information services. So it's definitely a disruptive potential force here.
Disruptive to some of those in your portfolio. I'm looking, you are exposed to Salesforce. You are exposed to Accenture, which people have been worrying about the consultant side of the equation. Even Shopify, even though they've delivered strong numbers, got beaten up yesterday. How are you being discerning at this moment of where you actually buy into on a dip?
Because you do think that they'll manage to ride the software disruption.
Yeah, so I think that it's more important that you are the platform and not just a feature. Because if you're a feature, then AI agents can encode software so easily and costlessly that you essentially can be embedded in a bigger platform. And so I think that increasingly you want to make sure that you're the layer that all these agents need to coalesce around.
I think that there's going to be a lot of change here in terms of, and we honestly don't know. And so I think the market is in a sell first and ask questions later mode. And so it's important to kind of stay on the right side and manage these changes in the market. Tony, NVIDIA CEO Jensen Wong has this line that software is now worth paying for. The example he would give is Cursor.
But I guess what we're trying to do with you is define what software is that is worth paying for. You just brought up Salesforce, right? So in the most recent quarter, they had like,
more than a billion dollars of ARR directly from AI, and they talk about all the almost 19,000 agent force deals that they have, yet they're still subject to this same AI is going to eat software's lunch chat that's going on right now. Why do people not believe the traction that they have as an example that it's worth paying for? Yeah, so I think there's two things that I think about.
One is that there's just so much competition when you think about all these AI-native startups, and their pricing in a way that is really compelling and to drive adoption, essentially. So you think about image generation, right? You pay $20 at ChatGPT, you can generate unlimited images, whereas on Adobe or Firefly, you have to pay per image generation. You can think about Cloud Cowork.
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Chapter 8: How is Altruist's AI tool changing the landscape for financial advisors?
Let's get his take.
We know that AI has the potential to disrupt some of the software businesses. I mean, if you talk about software which runs on call centers and the like, I mean, that's fully on the block. But if you go on the other end, on industrial software, simulation software, physics-based software, we don't see that at all.
We rather see an enrichment of the software which allows more and more customers to use it.
another software CEO whose fate is very closely tied to a relationship with NVIDIA. And I think it's important to point that out. But his argument is that actually specialized software is getting better because of AI. You buy that? I think so. And I think that most... I think a lot of the economics that we've made add the specialization of the niches.
So, you know, domain specific knowledge will always be very important. And so, you know, I think just general knowledge is probably gonna be not take the economics. And so what really matters is like being able to like put this into ROI. Now, at the same time, it doesn't mean that if you have a stronger model, that doesn't mean it doesn't create more competition for existing incumbents.
So I don't think the battle is won or lost for these companies. I think it's just important that they stay front-footed in incorporating the latest technology trends into their platform.
And your science technology fund has all the trends. You're in hardware, you're in software. Your number one holding is Alphabet at the moment, then NVIDIA. But going back full circle to Cisco, your exposure there, what do you think about the memory price implications and how you can weather who are the winners and losers in that situation? How long for?
Yeah, so I think that, you know, memory is a fascinating industry because one is secular trends and AI is not just new TAM. And then we've also gone through multiple years of underinvestment because memory has been a downturn. So I think one, it is that they're secular, but there's also cyclical elements of it.
So, you know, in terms of our portfolio, we definitely own a lot of the bottlenecks where the economic value capture is in, such as memory. At the same time, I think that Cisco networking is also going to be participating in AI. I think that the implications of the memory shortage is actually becoming more widespread and having implications that a lot of times the market didn't think about.
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