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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Today it's all about earnings. First, in Seoul, Samsung's chip unit reported a profit increase of more than fivefold for the December quarter, given that robust demand from memory for artificial intelligence, and at the same time, Samsung announced a two and a half billion dollar stock buyback. In the States, meantime, there were a number of key earnings after the US close. We heard from Microsoft to Meta as well as IBM,
along with Tesla. Joining us now for a closer look is Daniel Newman. He is the CEO of Futurum Group. Thank you so much for being here. Let's start with Microsoft. The earnings and revenue for the latest quarter were above estimates. However, Microsoft's cloud sales growth seemed to slow and CAPEX spending hit a record, so the stock was down quite a bit in late trading, around five percent. How do you read this price action? What is it telling us?
Yeah, first of all, it was a pretty good quarter.
So when you see it fall six percent or so after hours, you definitely have to, you know, raise an eyebrown and say, what's happening, I actually think the thing that spooking investors has more to do with the large backlog that was shared by cfo Amy Hood. I think it's about six hundred and twenty billion, which is a massive number. But if you remember when Oracle did a similar thing, shared its big backlog, there's a common denominator
here and that's open Ai. So while Microsoft is having tremendous growth record results and by the way, I think the cloud myths that everyone keeps talking about at thirty nine percent azure growth against a forty percent a quarter ago, so this is minuscule in terms of a miss still really strong momentum, but that open ai commitment and the relationship between Microsoft Open Ai, and basically right now everything that open ai is touching feels a little bit toxic.
So all the companies that are in the kind of ecosystem of Sam Altman's trillions of dollars of committed compute spend seem to be penalized because there's a lack of confidence in the market as to whether or not SAM and open a are going to be able to execute. So while some people are pointing to cloud, some people are pointing to the CAPEC spending.
I see it a little differently.
I think people are a little nervous that there's too much of its business committed to being able to support open Ai. But I think Microsoft is well diversified, and I think that might be an overreaction.
Before we talk about Meta, I want to explore this open ai issue a little bit more visa v. Microsoft. Are you saying that open ai potentially could be facing a lot more in the way of competition, whether from Alphabet or Google essentially, or perhaps Anthropic.
Yes, one percent.
I think what we're seeing, and by the way, Meta, which we will talk about Meta Google and Thropic. But Enthropic has been especially noisy lately, and then a really good way we've seen what it's been able to do with its code generation. It announced an outsized revenue performance
for the year. It has five times oversubscribed investment at three hundred and fifty billion right now, and while that still is smaller than open Ai, there's no question that Entropic is executing very well, and it has to be creating some jitters within investors that are looking at open Ai as large commitments. And then, of course, all of the companies attached to it its ecosystem. Google has no doubt outperformed. Its market cap has soared. We were long
very optimistic about Google over the last year. We think it's grown into a fair evaluation here, but it saw its market cap almost double over the course of twenty twenty five. And it's because it's been able to execute not only models, but it has its own infrastructure. Microsoft and Amazon other companies are just catching up on their own homegrown chips. That's going to help with CAPEX. So yes,
all these things together are very important. But in the end, what we're seeing Doug is compute is still the most precious resource, and so you're seeing Metago big on investing in compute. It's outsized CAPEX commitment. Microsoft is spending, but they're spending to support that expected backlog, and so we don't think the spending is as much a problem as it is whether or not in who the customers are
that they're spending for. And I think that's what's creating some consternation in the investor community.
So away from the hyperscalers, are you getting a sense that we're going to begin for the people who are actually investing in artificial intelligence, that we're going to begin seeing an ROI, a return on investment.
We have said that this has to be and we do believe it will be the year of ROI, of a gentic AI and enterprise AI. And that's basically where AI takes action to create greater productivity and efficiencies within business. We think service now for instance, this quarter showed a really strong perform so did IBM, both companies that provide software to enterprises, AI platforms and AI capabilities to enterprises.
Enterprises are going to be consuming trillions of tokens. So while many of us think of AI through the lens of us using CHATGBT or using claud or using Gemini in our everyday searches, the future is really when we start to put AI to work to be able to help automate workflows and processes within our everyday businesses. And when that starts to scale inside healthcare and financial services
and inside manufacturing. That's where we think the inflection is where business are going to say, okay, I spent X dollars on AI software, agents, capabilities, and we are seeing twenty thirty forty percent increases in productivity, which is yielding greater profits, greater earnings, which.
Should be what it really appeases investors.
Tomorrow after the bell, we'll hear from Apple. This company has been struggling a bit when it comes to artificial intelligence. What will you be listening for or when Apple speaks to analysts tomorrow after the bell.
Yeah, it's like Apple's wearing a fire retardant AI suit. It just does not want to get in on AI. I don't know why, you know, but it's funny because they are sort of the opposite of all of these other companies when it comes to their strategy.
They don't have the big cap ex commits.
They're really staying loyal to their existing hardware in the moat that is their hardware ecosystem, and they're really trying to maximize revenue by basically saying, yeah, we don't have the models and we don't necessarily have the AI.
Software, but everybody's using it on our device.
So the big question for Apple is going to be how long of a moat is the handset because that's really where all of the momentum for Apple is.
And you're hearing things about wearables.
Maybe it's a metaglasses, maybe it's a pin or pendant that's going to be worn from open ai. So the platform is going to really matter over time. Apple, I think, is one of those companies. Though they do the buybacks, they continuously are sort of a safe haven because while their numbers aren't as exciting as some of these other companies for growth, they tend to perform and that's really what Tim Cook's great at.
But I do think they need a leadership change.
They need to bring a young, aggressive, sort of transformational leader to be the next Steve Jobs, the next person that's you know, and there's no other Steve Jobs, but the next of that ILK that's going to come in and really change up Apple, because right now it is definitely getting a little bit stale.
So the former Apple designer Johnny Ive is working with open ai right now and developing a physical AI hardware device. And before and I heard the criticism that you made earlier of open ai, and that just how concentrated it is right now in terms of its ability to kind of connect with other companies in this AI space and the risk that that may present. Is it too soon to write off open Ai? I mean, we don't want to throw out the baby with the bathwater necessarily, do we.
It's it would be a huge mistake. I mean, this company has grown faster than any other company in history, and it has some great capabilities. It is still the synonymous brand with Generative AI or LLLMS. Right, you're using Chatchipt. Even if you're using Gemini, people say I'm using Chatchipt. So they've definitely created a brand an identity in the market.
But what has happened is a couple of things.
The first thing to happen is we have seen models, and we talked about this earlier, you know, with model parody. We're seeing Gemini leap frog and open ai model, and then Anthropic and leapfrogs both, and then maybe a Chinese open source model leapfrogs all of them in a certain capability, and then open ai comes back. But what all these companies understand is that the real mote is going to be compute power, so all of them and this is
why Sam was spending so big. This is why Anthropics now gone to Google and Amazon beyond Nvidia, this is why Microsoft is spending so much on Capex, and of course this is why Mark wants to build the Metacloud. Sam was right when he was trying trying to go out and build these contracts and get all these commitments for compute power, because what that gives open ai will be the flexibility to continue to innovate, to build, and to pivot, knowing that.
What they're building today may only be the DVD.
Shipment version of Netflix, and that the future might be something that looks more like the streaming version. You know, we are going to see great innovation in AI, and we don't even know what's going to come next. But the one thing that all of these AI labs know, that all of these hyper scalers know, that Mark Zuckerberg knows, is that they don't have the compute power. They will not be able to compete at some inflection in the future. So Sam should not be SAM and openet should not
be written off. But there is very real reason to be concerned if the current offerings that Sam has, if he doesn't have a trick up his sleeve, because he's certainly been caught with companies offering parody, offering competitive products, and offering you know, alternatives that he has to deal with, and so so that's going to be a big question. But it's too soon to say open ai won't be the winner.
So given everything we're talking about, does it really come back to in Nvidia. At the end of the day, you've got to belong that company because it's involved in everything that's going right on right now in the space.
Look, if there wasn't great indicators from the TSMC results from ASML which printed this morning that the insatiable demand for compute is still very much intact. If these CAPEX numbers aren't proving it, and if in Nvidia isn't the biggest winner, I don't.
Know who is.
Nvidia is still making up the lion's share of the compute It has among the most innovative products at any given time. Of course, some may claim one spack or another, but they have the deepest moat, the most loyalty in customers, the largest backlog and revenue book that we've seen in the marketplace, and right now it is the incumbent. And also for the investors out there, it's trading at a
fairly low multiple. If you believe the forecast that it's putting out and of course the order book that it sees over the next year, you have to be very optimistic that NVIDIAs come back to you. As an investor and you have to be very positive that is still the most likely to win the infrastructure battle over.
The long run.
Daniel will leave it there always a pleasure. Thanks so much. Daniel Newman is the CEO of Futurum Group. Joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. The FED left interest rates unchanged on Wednesday, in a move that was widely expected. Policymakers pointed to improvements in the American economy as well as the job market. Here is Chair J. Powell.
The US economy expanded at a solid pace last year and just coming into twenty twenty six on a firm footing. While job gains have remained low, the unemployment rate has shown some signs of stabilization, and inflation remains somewhat elevated now.
As a result, the Fed did signal a more cautious approach when it came to future potential cuts in interest rates. And that's where we begin our conversation with Jeanette Garatty. Jeanette is chief economist at Robertson Stevens. She spoke with Bloomberg TV host Sherry on and April Hong.
And does today's FED decision move the needle at all when it comes to great expectations for the rest of the.
Year, great expectations for the US economy. Perhaps not really, I don't think this changes much of anything. First of all, it was expected. Second of all, there was actually remarkably
little discussion in the press conference. I was very surprised about the trajectory on interest rates beyond some discussion about the next So I think he you know, maybe everybody thought they knew what Jerome Powell was going to say if they tried to pin him down to the second half the year, But there really wasn't a whole lot
of substance there. And he did a rather interesting thing, in my view, which is to shine a light on some of the fiscal policy issues, some of the things that are bothering people in the US economy right now, if you will, do not have monetary policy solutions, only have fiscal policy solutions. So that's where I think he's saying that the needle is going to move, and he's comfortable with monetary policy where it is right now. That could change, as it always.
To your point, a little bit of that ca shaped economy that we're seeing, right, the wealthy getting wealthier. But also I think a lot of that conversation was crowded out by the fact that we were really getting a lot of questions around the politics of everything.
Right.
I have to ask you, what do you make a Governor Waller's dubbish descent.
Does that sort of.
Give us a FED put in the months ahead if he were to become the next FED chair?
Possibly The only thing I made of it right now actually one that's a bit of a offhand remark, which is that he's the only FED governor that the current sitting FED voting member who is being contemplated to be a future head of the FED. So, you know, he voted this way because as perhaps he wanted to single signaled to various people that he in fact would be rather dummish. The leeway, the theoretical leeway for why he
did that was in d compous remarks. He did say that while he feels and why the majority of the board, while the majority of the Board felt that they were very comfortably in the neutral range for monetary policy, in the neutral rate of interest, that it was at the high end, So there could be you know, it's not out of bounds that Chris Waller could say, well, I think we could have cut a quarter point and we would still be firmly in the area of neutral policy stances.
So that would be the cover for what he decided to do.
And that's just seems to be just focused on the puff in the second half for the FED. I mean, you look at the way goal has popped, right, the expectation of a doubbish shift. What is your sense of you know, in the first half, is it fair assumption that we're not going to see a cut?
Well, now you're pinning me down to time and date and magnetude, all of that step that economists love to avoid. I do think that there will be two cuts this year. The timing of it I would see as mostly being in the second half, but could come in a little bit earlier. But my expectation is premised on an assumption then we will actually see some improvements in the inflation numbers because of the way that the numbers are calculated
and because of other general trends in the economy. And I'm making a grand assumption that there won't be any unexpected terrriff announcements. But if that doesn't happen, then then I don't know about those two cuts, and we could we could have a very confrontational environment if inflation starts to go the other way. I don't see that right now. I think two cuts are in the mix. See it starting at midyear.
Okay, so a couple of caveats to those Outlook, what is your sense of the dollar whiplacks that we've been seeing this week and the overall negative trajectory for the green bag. How might that affect the US economy?
It will have macroeconomic effects. It will have effects on prices in the United States. So the weaker dollar makes those goods coming in from overseas that much more expensive.
We always we always see that in play. I think Scott Bessant and Jerome Pwell are being economically intellectually honest here in recognizing that, first of all, you can't do very often what you want to do for the domestic economy if you are trying to do something for the something in the global markets, for example, at the same time, you usually have to pick one perspective to determine policy. It's domestic and that's what they're going to stick with.
There's there's obviously a lot going on. I'm not sure how much of what is going on honestly reflects the fundamentals as I see it. This is still a very point, you know, and so it should the dollar should not weaken this much.
Yeah, I mean to your point on the inflationary effects of the US dollar. We saw a long term treasure yields actually move as the dollar was falling, and actually moving the opposite direction as the dollar rebounded.
Right.
I want to take you to the earlier point that you were making about this bifurcation in the US economy as well, because we have seen the Fed now perhaps shift towards UH their focus on the stabilization of the job market, but that key shaped economy that we continue to see in the US. How problematic could this be?
Well, it's very problematic from a political standpoint. It's problematic for monetaries, for the Federal Reserve because it partially goes to the heart of what they feel they are there to do, which is to protect the general fabric of the US economy, which is usually expressed in terms of inflation and employment, but it covers a number of other things.
So I don't think they like necessarily what they're seeing there, but their tools are not tools that are designed to do something about many of these things, and so that's why I think there was Jerome Powell correctly mentioned, well, it's understandable why from a spending standpoint, we are seeing stronger spending in one sector of the economy, because that's a sector that attempts to hold more ox and bonds, more real estate. Those are areas where prices have gone up,
and so they're spending it. But the fundamental problem of affordability and employment availability in certain sectors, that's a hard one for the FED to address.
That was Jeanette Gerritty, chief economist at Robertson Stephens, speaking to Bloomberg TV host Sherry On in April home bringing it to you here on the Daybreak Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug prisoner and this is Bloomberg