Chapter 1: What is the main topic discussed in this episode?
Bloomberg Audio Studios.
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Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco.
This is Bloomberg Tech. Coming up, Qualcomm and Arm out with their earnings. We'll break them down with the two CEOs, Cristiano Amon and Rene Haas.
Plus Alphabet's CapEx mic drop. Record spending plans hit the stock despite strong earnings.
And Bitcoin falls below $70,000 for the first time since late 2024. We'll break down the negative momentum impacting crypto markets.
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Chapter 2: What are the implications of Google's increased capital expenditures?
And that negative momentum is affecting markets more broadly at the moment. Check out the Nasdaq off by 1.4%. We are trading the lowest since November right now at the moment, Ed. We are seeing pain across the board, and that's why we've got to go to our Bloomberg's cross-asset reporter.
I'm pleased to say we can dig into all of these moves across asset classes with Alexandre Samaneva, who's with us now. I don't know where to look at the moment.
Everything is in the red. It has been a really ugly week, Caroline. We have obviously seen corrections in tech over the last three years since the launch of ChatGPT, but nothing has rivaled the sheer magnitude of this sell-off that we're seeing in the sector across various assets hitting both stock and credit markets. Software stocks, of course, have been at the forefront of this.
They are down about 15% this week and 29% from their all-time highs in September. It's also important to note that this sell-off has triggered a number of extreme levels from a technical perspective. The share of software stocks at oversold levels eclipsed 70% yesterday. That is an all-time high in the broader tech sector. That share is about 45%, also a record.
And another barometer of how painful it has been, the iShares expanded tech software, ETV, that is ticker IGV, compared to the S&P 500, is the most oversold that it has ever been. And of course, That risk-off sentiment is spreading today. What we've seen so far is that it has really been focused on tech.
So up until today, it's really been a rotation out of tech and into other pockets of the market. And now we're really seeing the sell-off broaden out. Looking at the S&P 500, it is down 1.2% right now. The Dow Jones Industrial Average, which up until today has been kind of shielded from this, is now down 1.2%.
Also, the S&P equal weight yesterday, for example, was up 0.9% even as the broader market sold off. It is down again today. So really risk off across the board. And we have to talk, of course, about Bitcoin. It fell below 68,000 today, which is the lowest since November 2024, down about 45% from its October high.
Also, big news today that crypto exchange Gemini plans to cut about 25% of its workforce.
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Chapter 3: What trends are influencing the crypto market's current downturn?
So really seeing the pain of that.
Bloomberg's Alexandra Semenova with the macro picture at the index level. This is what matters when it comes to technology earnings. Caroline called it the mic drop moment. Alphabet parent of Google with a capex forecast for the fiscal year of $185 billion. The street had forecast just shy of $120 billion. That's a bit of a delta.
The stock down almost 5% on track for its biggest drop since May of last year. A big number to digest. Earnings also in the chip sector. Qualcomm down almost 8%. It gave a forecast for the current period $11 billion in sales at the top end. How much better would that have been were it not for the impact of what's happening in memory chips right now in the memory market?
ARM similarly, but actually... Actually, it is up five percentage points and it's accelerated throughout the session. Sales and fiscal fourth quarter will be about $1.47 billion just ahead of consensus. How are they managing what's happening in the memory shortage? And when is they going to transition from the handset story to the data center story? Let's talk through it.
Arm CEO Rene Huss joins us now. Rene, good morning. Thank you for joining us. There is a lot going on. Let's get the handset smartphone and memory situation out of the way, if that's okay. Clearly, this is impacting outlook for the smartphone market across this calendar year. How do you think it showed up in the earnings that you posted?
And would it have been slightly better if the situation were different?
Yeah, good morning, good morning, Ed. So first off, the quarter was amazing for us.
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Chapter 4: How is the tech sector responding to recent earnings reports?
We had not only record revenue, but record royalties, 1.24 billion in revenue, nearly $740 million in royalties. And if you just stack that up, that's 27% year on year. Our data center business is exploding. We're up 100% year on year, probably north of 100% year on year. So to your question, no, the memory situation isn't really impacting ARM so directly. And you might ask, well, why is that?
Well, number one, we are spread across a lot of different businesses. As I said, the data center business is increasingly growing for us. And we think in a few years, it'll be our largest business. Secondly, our products are used across the board. So what we tend to see in memory shortages is the bottom end of the stack starts to get impacted. And that's actually lower royalty rates for us.
So as a result, we don't get impacted very much. So no, short answer is no impact this quarter. And we raised our guidance for the next quarter because, as I said, we're just not seeing that kind of impact. But I'm not denying that it's there. But for the arm business, the impact is quite minimal.
Rene, thank you for that. Data center royalty revenue grown 100% year on year as you outlined. I get the same question for you from everyone, sell side through to buy side, which is give me a specific year. Mark it on the calendar when ARM goes from being handset to data center and it accounts for more of your business. Is that inflection point clear on your calendar at least?
It's very clear, and that's why in the earnings call I said in a few years. As you know, we don't typically provide forward guidance on an annual basis, but we have a line of sight that says we see it coming. And it's probably coming sooner than we had thought. And the reason for that is the data center growth. But if you click below that, why is data center growing so rapidly?
It is the presence of ARM CPUs in the data center. We're now over 50% market share with the hyperscalers. Secondly, the CPUs that are being used are using more ARM CPUs inside the chip. 192 cores, for example, inside a Graviton chip going from 96. NVIDIA VERA going from 72 cores on Grace now to 88. So what does that mean? That means more cores, means more royalties and high growth rate.
Well, why are there more cores? When you think about agentic AI and everything associated with agents moving workloads across systems, managing workflows, et cetera, et cetera, that's the kind of work only CPUs can do. So to your question, while we're not giving a date, we can see it, and it's coming sooner than we had thought, even probably six to nine months ago.
And probably on the back of when you look at an alphabet increasing its capital expenditure by another, well, potentially $185 billion, Rene. Is the AI bubble, this worry about AI infrastructure build-out, a thing of the past to you? Or are there still some bottleneck issues that you're concerned about?
Yeah, so it's a great observation, Caroline. And yes, there's huge growth in Google's CapEx. Not all of that $180 billion is coming to us, of course. But what does that say?
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Chapter 5: What factors are contributing to the volatility in software loans?
This idea that the Vera CPU goes into the market as a standalone product changes the trajectory at all, because at the same time, NVIDIA talks up about how much content it owns proportionally in the overall system. Just take it and run with it, please.
Yeah, you know, so first off, thrilled to see Jensen say that. They're a great partner, and Vera is a great product. And as I mentioned earlier, Vera's gone from, it's gone now 88 CPUs inside it, CPU cores from 72. So why is that a really good thing for us going forward?
Primarily because when you think about the data centers and how they're evolving to from what is general purpose compute, moving to AI compute, a mix of training and inference, and those inference workloads are at Gentec, that's right down the center of the plate for what the CPU not only is good at, but can only do, can only do.
So what that means is inside the data center, you're going to start to see movement towards a homogeneous type of structure where people would love to have the ARM stack running almost everything. It's just easier from a maintenance standpoint, it's easier from an upgrade standpoint, it's easier from a cost standpoint. And also the flexibility it affords.
You can build a tremendously efficient custom system based on ARM. The Vera Rubin platform, compared to Grace Blackwell, uses 6x the number of CPUs. And that's when you look at the storage, the DPU, the offload. That's a huge increase. So, yes, selling loose Veras, that's a great thing. We're super happy to see that.
Briefly, Rene, you have such a bird's eye perspective because you're working with NVIDIA, but also you're working with OpenAI. It was reported potentially was looking with you at your technology to be working with its own custom chip with Broadcom. You've got Meta looking at custom chips, of course. How do you see this evolving?
Yeah, I have a lucky job. I get to work with just about everybody in the industry across the planet, whether it's in the Fab Foundry area, whether it is a chip company, whether it's an OEM, whether it's a software provider, we work and talk to everyone because Arm is just so pervasive. The common theme we see is continued investment in AI and not just at the data center.
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Chapter 6: How is Arm's data center business performing amidst market challenges?
It's trying to figure out how do you run those AI workloads everywhere? How do you run them in wearables? How do you continue to make them more efficient in a smartphone or a PC? Or in physical AI, whether it's autonomous driving and or robotics. So we're involved in all the conversations and the common theme is heavy, heavy investment.
And one of the challenges that we see in the chip world around this is, as you know, it takes a couple years to build a chip. The IP that we developed that goes into the chips, maybe a couple years in before it. Trying to predict what the architectures look like four years after the chip has been designed where the AI models are going is really very tricky.
That lends itself also, though, very well to Arm, because we are programmable, we are flexible, and we are low power, meaning that wherever the chips drop, no pun intended, we should be in a very good position to be able to drive those workloads.
I'm CEO Renee Haas. With the broader perspective, we thank you for it. Now, coming up, we've got more earnings to talk about, Alphabet's results, expectations for Amazon, which is coming thick and fast, folks. This is Bloomberg Tech. Record spending by cloud providers. Well, it's raining on the parade of big tech earnings following Alphabet's results last night.
Let's talk it through with Ayoko Yoshioka, who's here with Wealth Enhancement Group. Ayoko, it looked at one point after the announcement yesterday that we were going the way of Meta, that even though CapEx was going up, we were celebrating the AI rewards and the revenue boost. And then we went more the way of Microsoft, and we were worrying about the extent of the CapEx. Are you selling on this?
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Chapter 7: What impact do component shortages have on Qualcomm's revenue forecast?
No, Caroline, we're not selling on this. You know, these companies are still high-quality companies, and they're still growing very quickly. I think it's just an adjustment from a valuation standpoint in terms of what are these companies worth over the long term? How much longer are they going to be spending at these levels?
Because the issue for investors is really just the sort of collapse in free cash flow that we have been just grown accustomed to These companies used to return so much of that free cash flow to shareholders, and now it's being spent for investment for good reason. And over the long term, this should help them grow.
However, it just means that the investor kind of gets put to the side for a little bit.
Are you worried in any way about the free cash flow that Alphabet is perhaps taking a hit on? Because from what we can understand from the numbers, in fact, they're becoming ever more efficient. The margin is being supported because they're so vertically integrated. They're able to cash in on growing cloud and focus on compute much more than rivals per se.
Absolutely.
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Chapter 8: How is Qualcomm adapting to memory supply constraints?
I mean, with the cloud business growing 48%, well beyond what investors were expecting at around 30%. If that continues, the investment that they're doing is justified. And I think investors will eventually reward them for that. It's just in the meantime, just recalibrating really what you want to pay.
And the momentum had been so strong for Alphabet going into earnings that there's just a little bit of a... take profit attitude going on in markets.
Okay, let's bring back the capital expenditures chart. Wait for some TV magic. It's going to appear any second. And then you look at that and you go, my goodness. You know, it is, Caro called it a mic drop moment. It is shocking. But what you said a moment ago, Google Cloud growing at 48%. Like, the whole Microsoft anxiety was that Azure was off by a percentage point.
Why is Alphabet not getting the credit for the Google Cloud growth and everyone's just staring at that chart?
It's a great question. I mean, Microsoft missed by 0.4%. They posted 39% instead of 39.4. And yet Google really sort of blew it out of the water. And I really feel like it's that focus on that CapEx spend in 2026 more so than anything else. It's great that we're seeing that growth on the cloud for both Microsoft and for Alphabet.
But really, it's that spend in order to get those growth numbers, I think, is what is giving investors a little pause.
Amazon's down 4%. How much is that just anxiety about what they will or won't need to say tonight?
Absolutely. I think a lot of it has to do with the anxiety about what they'll say tonight and how much investors might be off or the street might be off in terms of the estimate for 2026 CapEx for Amazon. I think investors are anticipating about $125 billion in spend, which is up 22% or so from 2025. And so we'll have to see if Amazon decides to spend a little bit more.
Hayoko Yoshioka, Wealth Enhancement Group. Really good summary of what's going on in the MAG7. Thank you so much. Coming up, AI tools keep coming for the enterprise software market. But will they be the existential threat that investors fear? We've got more on that next. This is Bloomberg Tech.
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