Bloomberg Audio Studios, podcasts, radio news.
This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world, and straight ahead on the program, a look ahead to tech earnings from some of the Magnificent Seven. Also a monetary policy decision from the Fed. I'm Tom Busby in New York.
I'm Calline Hecker heavy London, where we're assessing what is at stake at the next Bank of England policy meeting.
I'm dek Prisner looking ahead to earnings from Apple and Samsung and what these companies will say about artificial intelligence.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg E Loove Them three own New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius XM one nineteen and around the world on Blue Bomberg Radio, dot com and via the Bloomberg Business app.
Good day to you. I'm Tom Busby, and we begin today's program with the Federal Reserve FED officials holding a two day policy meeting this week, issuing a monetary decision on Wednesday. Now this coming Friday, we also get the job data in the US for the month of July,
is something that could impact Fed policy moving forward. For more on what to expect, we're joined by Michael McKee, Bloomberg International Economics and Policy correspondent Michael seven meetings in a row the Federal Open Markets Committee, leaving rates unchanged. What do you expect to see on Wednesday?
Well, happy anniversary. By the way, it was July of twenty twenty three when the FED finally stopped raising interest rates. So we've been higher for longer? Is it for long enough? Probably not this week. The Fed has not given us an indication that they're going to cut rates this week, so there is no reason to think that they will
because they don't like to surprise them Mark. However, the big expectation is for them to signal a September rate cut in the statement and then Jay Powell to follow it up in his news conference, and that would probably produce much the same as a rate cut, in the sense that the markets will then start discounting a rate cut, Yields will go down, and it's it's sort of the same effect.
Even if they don't cut rates this time, it's like a dec in hockey. Now, the hopes, the bets for September rate cut obviously being bolstered by some pretty encouraging data. Let's talk about that. On Friday, the PCE.
Yeah, Friday, we got the PCE inflation numbers which showed a sort of ongoing decline. The core rate didn't change on a year over year basis two point six percent, but we just did see the headline number go down to two point five percent, and that puts you in
the within range of the two percent target. And remember that j Powell and others on the Fed have said they don't want to wait to start cutting rates until they get to two percent, and he had sort of suggested at his last press conference that it was a range of two to two and a half.
So so we're in that ring.
We're sort of in that range right now.
That's good. And earlier this past week, second quarter GDP grew by much larger than expected.
There were a number of people going into the week and during the week who were suggesting maybe the Fed needed to cut rates in July because otherwise they'd be behind the curve, but the stronger that expected GDP numbers two point eight percent, a big increase from the first quarter, sort of reassure them that they are they don't have to rush, that the economy is not on the brink or the precipice of recession. That's not to say things
can't get worse. This coming Friday, after the FED meeting, we get the jobs report, which is too bad for the Fed. I'm sure they'd like it beforehand. But the unemployment rate there is if it's for it's point one percent, now it goes up to four point two percent, then that triggers the famous Sam rule that suggests that we're getting close to a recession, and that will scare the markets. That will scare the horses, and we may get a reaction in the markets.
That's the barometer four point two percent.
Well it's not four point two percent, it's it's a bit complicated, but basically the three month moving average. Subtract from that the lowest three month moving average of the past twelve months, and you get a number, and then if it's greater than half a percent, then it has always forecast recession in the past. Now and it would only take going to four point two percent to get that rate.
Well, let's stay on it on the jobs report this Friday. So now in June a little softer but still pretty solid, two hundred and six thousand jobs. What do you expect to see then in.
July, Well, the forecast is for one hundred and seventy five thousand, But the last three four months we have had forecasts in that range and they've come in stronger than that. So I don't know if you're a trend better or not, but you might. You might think that it's going to at some point it has to start slowing down, but it hasn't yet. The big number, though,
is they say is going to be unemployment. It's forecast to remain unchanged at four point one percent, but of course a lot of you get into the three digits and you can get rounding and it could go up to four point two percent. So there'll be a lot of focus on that because of this some rule thing. But it does look like at this point that wages are slowing down. They slowed down in the PCE numbers, and they've been slowing on a month over a month
basis in the employment numbers. Then we get on Wednesday, ahead of the Fed, we get the Employment cost Index. That's something they'll be looking at to see what wages are doing. But if wages are well behaved and we don't get a collapse in jobs or a big rise in unemployment, then the FED is going to be satisfied with waiting until September.
And all that. All that, the wages, moderating inflation. It appears to show that the Fed's Higher for Longer campaign is working. No disastrous impact on the economy.
No disastrous impact. I hate to use the soft landing analogy. It's almost become a cliche by now, but it looks like we're kind of there now. They don't want to say that because in the minute they do, it's like jinxing themselves and something will go wrong. But at some point you got to, as the famous senator said about the Vietnam War, you got to declare victory and go home. So maybe they'll do that.
Yeah, this week, maybe that's coming.
Well.
The FED wraps up it's latest two day policy meeting this Wednesday, a decision expected around two pm Wall Street time, and our thanks to Michael McKee Bloomberg International Economics and policy correspondent. We move now to earnings from some of the nation's biggest tech companies, on the heels of kind of disappointing reports from Tesla and Alphabet last week. Now, in the days ahead, we're going to hear from more the so called Magnificent seven like Microsoft, Meta Platforms, Apple,
and Amazon. And for more on what to expect, we're joined by Mandeep Singh Bloomberg Intelligence, senior tech industry analysts. Now, Man Deep, let's start with what we saw last week Alphabet and Tesla. What was it that rattled the markets and investors?
Sure, Tom So, Look, when it comes to Alphabet, it was pretty obvious that the market is focused on what they're going to spend on CAPEX this year. And the fact that you know, they spend billion dollars above consensus expectations for this quarter and said it's going to be higher than their two Q numbers for the next two quarters. Clearly it suggests that they will keep spending. And the CEO mentioned that in his remarks that they would rather
overspend right now on AI as opposed to underspend. And look, I think what they are suggesting is they want to build more capacity because they're that reflected in the cloud numbers. So in the case of Alphabet, Google Cloud segment actually had a sequential acceleration. It grew twenty nine percent. And what it tells me about Microsoft is, look, they will be reporting next week and last quarter, Azure, which is the equivalent of Google Cloud, grew thirty one percent at
a much higher base. Microsoft Cloud is a seventy six billion dollar rundread business. Google Cloud is about forty billion, And so if they are able to show AI contributing to the growth in Azure segment, then clearly you know it's paying off for these hyperscalers. And in the case of Microsoft, they're also monetizing it with their office Copilot, So you want to see an acceleration in both those segments Office Copilot as well as Microsoft Azure the infrastructure
sign and Look. With Tesla, I think it was more idiosyncratic because they set expectations for a robotaxi launch on August eighth, then they said they'll move it to October tenth now, and.
It's only a prototype, not even a real vehicle yet.
Yeah, but I will give them credit to the extent that you know, they're still the furthest along when it comes to doing something like this. So think about all the other carmakers. They're not even in this game, not close. So the fact that they are spending those R and D dollars on something that could be a big market down the line, whether it becomes feasible this year, next year, I mean clearly, I think they still have a lead. And obviously they're not managing expectations very well, which is
why you see that sort of stock reaction. But I feel with Tesla it's going to be volatile, just because you know, it will all depend on how quickly they time this to market.
When they deliver. Now that was then now this week, looking ahead, we're going to hear from you already brought up Microsoft as you're it's relationship with open Ai, and it's I mean, they're way ahead of the pack on AI, aren't they.
Well, I think what you're finding is other competitors are catching up when it comes to the large anglid model. So this week Meta actually released their latest large anglid model, the three point one version, and they have closed the
performance gap. I mean, look for consumers like us, we read you know about these models and the fact that they can reason, they can generate images, they can generate texts, do summaries, but it's very hard for us to see real time use cases because it's still you know, in the development. These companies are in the process of deploying it.
And to me, the fact that they are kind of comparing themselves on benchmarks and saying the performance is almost equal doesn't vote very well for open ai because anthropic metal, they're all catching up at the same time. With that being said, Microsoft still is showing it in the numbers. That's why that growth rate of Azure and the copilot contribution is very important. If you start to see that moderating, then clearly you know the lead is narrowing and that
will have an impact. Instead of Microsoft being the clear winner, you will have others kind of catch up.
Catching up fast.
Yeah.
Well, now that leads me to a point meta platforms. You know, it's always been about user numbers for Facebook, WhatsApp, Instagram advertising revenue. Is Wall Street now putting that behind them and just focusing on AI? And what have you done for me lately? How have you monetized AI or is that still going to be a big focus? How many average daily and monthly users.
It will absolutely be a focus because guess what, Meta will also raise their capex, and we know the capex increases right now are not helping these companies when it comes to the stock performances. We saw a negative reaction with Alphabet. I expect something similar with Meta given the valuations these companies are training at. Remember MAC seven stocks have done phenomenally well, so the valuations are rich, and so any increase in capex is not good for the stocks.
And so clearly Street cares about monetization. And if Meta is saying we are open sourcing our large anglid model and we have no kind of roadmap to monetizing it, that's not good news. And so they are the only ones right now who are open sourcing everything on the generative AI side with no plans to monetize. Remember Google and Microsoft are monetizing through their cloud through their copilots. They're not open sourcing it. Meta is the one that's saying we are giving it away for free.
Well, a full slate of tech earnings in the coming week a lot to look forward to. Our thanks to Mandeep Sing, Bloomberg Intelligence Senior tech industry analyst up on Bloomberg day Break weekend, a look at what's at stake at the Bank of England's next policy meeting. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later in our program a look at more tech earnings,
including from Samsung. But first, it's approaching ten weeks since we last heard from Bank of England Governor Andrew Bailey and his fellow policymakers. Now, with the Bank of England rate decision due in the coming weeks, Bloomberg Daybreak Europe banker Caroline Hepger has been gauging the anticipation in London.
Tom after the UK has seen some volatile economic data in recent weeks, including faster than anticipated inflation numbers, so the sense of radio silence is all the more consequential before a decision on whether to cut UK interest rates, that investors are judging to be on a knife edge,
Unlike peers in the US and the Eurozone. Andrew Bailey has played down the importance of spoon feeding signals to the markets, but the Bank of England's approach to messaging has been criticized by the former US Federal Reserve Chair Ben Bananke, and a full start to rate hikes back in twenty twenty one has also bred a persistent level
of scrutiny of the governor's tactics. While four members of the nine person Monetary Policy Committee have communicated following the fourth of July election, most were already seen as being in either the hawkish or the dubvish camps, revealing little of what investors did not already know. The upcoming decision then could be a pivotal turning point. Andrew Bailey must decide whether to support two rate setters already pushing for cuts, or continue to side with the hawks, warning the u
underlying price pressures still pose a danger. It's something that BlueBay Television has been discussing with Janet Henry, who is Global Chief Economists at HSBC. She says that Bailey's choice will have a big impact on her strategy.
We are looking for some modest rate cuts over the course of the next year. We do have a gradual improvement, but it's by no means a v shaped recovery, and it's certainly still not a recession, as you know, we've never been in that camp. Obviously, we have got this enormous uncertainty regarding the fiscal backdrop through twenty twenty five. You know, even last year the fiscal deficit widening, added
to inflation, added to GDP growth. And should we find ourselves in a similar situation in twenty twenty five, and that would probably mean a lot less in the way of rate cuts.
How much visibility do we really have on twenty twenty five.
Well, we don't have a lot of visibility on twenty twenty five. And of course it's not just the domestic politics and the domestic fiscal there is this geopolitical overlay in that. You know, one of the remarkable things you might say through the first half of twenty twenty four is that despite all of this uncertainty in terms of conflict underway in the world, tariffs that are still coming through not just from the US, but some from Europe
and even parts of Latin America. Despite all of this uncertainty, the global economy generally has muddled through. It's just that it's still really the US and from an emerging market perspective, India that have been the stellar performers. But you're right, twenty twenty five is the key area of uncertainty and central banks. You know, the age of medium term forward guidance is way behind us now.
That was Janet Henry, Global Chief Economists at HSBC. Well, I've also been discussing the stakes of Andrew Bailey's big decision with Bloomberg's chief economist Dan Hanson. He says the choice will have far reaching consequences.
Well, I wish I could say this was a lot of confidence. I'm not sure you can. I think we're we're on the side of the the case for cutting, that's our view, but it's really easy to make the case for a hold as well. It's not a clear cut decision. Markets are at about forty five percent chance of a cut, so slightly less than a coin toss. They're not convinced, you know, I think on balance, if you look back to at least the June meeting, it
felt like the bank was quite keen to cut. If you read the minutes, you know, you could potentially read between the lines and try and make an argument that the elections sort of they just didn't want to get involved during the election campaign. Since then, the data's been a bit choppy, but I think, you know, for us, the case is still there. But as I said, at the there's a lot of uncertainy. We've also got quite a few changes of personnel or at least one change,
I should say, of personnel on the NPC. That makes it just just add that element of uncertainty and the vote split that will come out.
Yeah.
I mean you talked about the election. Of course that meant that there was a black up and actually it's been a really long time since we've heard from Andrew Bailey, maybe as long as period without communicating as Bank of England governor in the kind of four years that he's been there. And since then fellow NPC members have also been quite quite I mean, how significant is that to have so little guidance from policymakers.
Yeah, I mean it's an interesting one. I was I've been quite surprised, if I'm honest, I thought coming out of the election blackout periods. You know, as I say, we had the June meeting, we had the minutes from that, but I thought Bailey and others would would come out and sort of say set the record straight. That's not quite right, but just give an update on where they
think things are. You know, we'd had a lot of data and we know that the June meeting for we don't know who they were, but for some members of the NPC, the decision was finally balanced, and I think it would have been I think there's sort of a belief in amongst sort of economists and in the market that you know, Bailey was amongst that group. It would have been interesting, I think, to hear from him and
where things are. I don't necessarily think he would have made it one hundred percent clear about what they were going to do at this meeting, but I think something around the data and you know, the weight they were placing on upside surprises and how worried they were about that, I think would have been a sort of useful guide. Because there's been a lot of volatility, as I say, in the data, and that's injective volatility into market pricing as well, which I don't think is particularly helpful.
Okay, there does seem to be though, after the election and the turbunce that we've seen in politics, perhaps a window where maybe UK politics is calming down and there's been a lot of announcements on this new government about the things that they're going to do. Obviously it's all untested yet, but certainly a feeling that there's maybe an opportunity for more calm now in the UK. How useful would a rake up be to the new chancellor? Rachel reeves.
There does seem to be more optimism, and you've written about it about economic growth maybe being a bit better in the UK now.
Yeah, So I think, I mean, I think on the rate cut point, obviously, I think there's there's a really positive narrative around that that the government can spin. Does it does you know, if it's a twenty five basis point rate cut, does that change the economic outlook? No, But if it's a series of rate cuts, you know, it does begin to sort of feed into economic activity.
But remember the sort of mortgages and the like are already being priced off the expectations that rates will be cut, So you know, the bigger risk is they don't get cut and then we sort of have this sort of knee jerk in the other direction. I mean, thinking fiscally, if you go back to the obr's forecast in March, there was actually a lot more easing priced into the curve at that point sort of there was sort of this exuberance around the number of rate cuts that come
this year. So actually, in terms of the fiscal the sort of in their interest spending and the like is probably going to be a little bit higher in the obr's forecast because we've got higher guilt yields and also higher exp dictations for bank rate and relative to March. But you know, Ruth's will want to see rates start to come down. That sort of narrative, I think is one much more probably political than it is economic. As I say, on the economic side, a lot of this
is already baked in. You know, the idea of two rate cuts this year has been the sort of consensus for quite a while now, and it's just a case of, you know, from her perspective, hoping that the Bank ends up delivering that.
How much influence will the Fed have on the Bank of England, now.
Yeah, that's a good question, I think. You know, the argument for one of the arguments for waiting September is it looks like the Fed's going to go in September now, though there are some voices saying that July is you know we had build do on the terminal in his opinion piece saying that July would be the right time for them to go. I think, you know, one of the arguments is that the US is ahead of the UK and the rest of the world in its inflation process.
If the FED goes, it gives other central banks confidence. That said, you know, the SMB Bank of Canada, they're all going ahead and cutting rates. They're not waiting for the FED. So I think the bank doesn't need the FED to go. I just think, you know, you'd look across the Atlantic and it would just give you a little bit more confidence that you're sort of moving in the right direction. So it's something they keep an eye on, but I don't think it stops them from cutting in August.
Returning to the UK story then around mortgages, I mean, the Institute for Fiscal Studies, interestingly in recent days has come out with this view that the interest rate increases from the Bank of England have pushed three and twenty thousand more people into poverty, which I think is quite interesting. I mean, the IFS always does hold the Government of the day's feet to the fire or the Bank of
England or whoever that is their job. But I think that is quite interesting, isn't it in terms of the pressure as we look at the positive, the more positive economic story versus the pressure that there is on UK consumer.
Yeah, definitely. I mean at an aggregate level. You know, we've spoken for a long time about the resilience of the UK economy. You've mentioned there the sort of pick up in growth, but the distributional effect of all of these things is significant and that's sort of what the IFS is citing there. The fundamental point is that interest rates are the Bank of England's main tool, but it's an extremely bluntle and it does have these negative effects.
I mean, I think what's interesting is that that those sort of numbers and you've seen insolvencies. They've come back down, but insolvencies picked up as well on the back of rising interest rates. And actually it's surprising, I think, against that backdrop that the economy has at an aggregate level performed as it has. You know, there is a lot
of stress out there. And look, I think, as I say, interest rates are very blunt all and I think at least if you're thinking about the distributional impact of these things. It's really a fiscal policy question and that's I guess it is something that the Rachel Ruves might might end up thinking about.
Yeah, I mean her last thought on Reeves, you know, going out making the pitch again and again in recent weeks, now that she and Kirstarma are in power, that the UK is open for business, open for business, that's the mantra she's really got to deliver, doesn't she Are more investment coming into the UK sort of longer term that's the underlying pressure for Britain.
Yeah.
I mean they've really up the ante actually on the narrative and some of the goals that they've set are very challenging I think. And you know, if you remember back to the previous government, Rishi Sunak had his five targets and there was a lot of you know, holding him to account about you know, whether he was achieving these things on the economic front, but also obviously on
NHS waiting lists on the boats as well. So you know, there if it doesn't all come to pass, they're going to you know, they're going to feel that feel the heat again, I think, And as I say, they are extremely stretching targets that they've set particularly on growth, and obviously we will hope that it comes to pass. Like everyone wants living stands to rise. That is sort of
the best possible outcome. But as I say that, if you look at recent history, it would suggest that we're going to go through a quite significant step change in economic performance to deliver it. And you sort of me being a skeptical economist, I'm a little bit skeptical about whether it will come to pass, but we'll see how it goes. As you say, it's a lot of rhetoric, but they need to put the policies in place and see whether it delivers.
Now, that was Dan Hanson, Bloomberg's chief economist, on the Bank of England's rate decision, which we'll hear about, of course, on Thursday, the first of August. I'm Caroline Hepge here in London. You can catch us every weekday morning for Bloomberg Daybreak. You're at beginning at six am in London. That's one am on Wall Street.
Tom, Thanks Caroline, and coming up on Bloomberg Daybreak weekend to look at earnings from both Apple and Samsung and what these companies will say about artificial intelligence. I'm Tom Busby and this is Bloomberg. I'm Tom Busby in New York with your global look ahead at the top stories for investors in the coming week. A big week ahead for tech earnings with some of the biggest manufacturers in Asia,
companies like Apple and Samsung reporting for more. Let's get to Bloomberg Daybreak Asia hosts Doug Krisner and Brian Curtis Tom.
Both Samsung and Apple are putting emphasis on AI features in their latest smartphones. The aim here, obviously, is to create a lot more buzz when it comes to AI technology where consumers are concerned.
Apple has been doing so after falling behind the likes of Open Ai and Alphabet's Google, but he's playing catch up now on the AI front with the introduction of Apple Intelligence. It also aims to ship ten percent more new iPhones. Meantime, Samsung had earlier announced that he would hike prices on its latest models. With the addition of AI features, it aims to reclaim its title as the world's leading maker of foldables.
Earlier, Brian and I spoke to Dan Ives. He is managing director and senior equity analyst at Webbush Securities. He thinks Apple is the core player in AI.
Especially when you look at Apple Intelligence and what's happened with iPhone sixteen. You know, we think that's how you get to a four trillion dollar evaluation in Apple with an unparalled in stallby. The reality is that consumers when they go through AI, they're going to go through the Coopertino essentially an Apple device that's up twenty five percent of the world's going to access AI. You talk about other names that benefit here. I think there's names like
an Oracle service. Now I look at names like Palenteer that's really a pure play name in terms of use cases. So there's a lot of You talk about narrow. It is narrow now, but over the next one to two years it's going to be a lot broader.
So it's nine pm, the party's going to four in the morning. Do we need to talk about regulatory risk? Is there at some point a move on the part of government officials to get involved in how artificial intelligence is regulated? Is that a concern that you have.
I mean, that's at four thirty five am, when you're at the diner after, when you're at when you're at the diner after the party. So the point is like, yeah, regular toy will be there, but for now it's not. I mean it's self regulation. We spent a lot of time in the belt. Regulatory is going thirty miles an hour in a minivan the right lane. The technology is in Bugatti going one hundred miles an hour in the left lane. So I don't think regular tour is going
to be an issue. And I think regardless with presidential pandy wins, I also think we're gonna see less regulatory and which ultimately I think is bullish or big tech.
Well, let's get a broader question answered here from you, Dan. Do we need to worry about a slow down in the economy as kind of spoiling the party or no?
I mean I think right now, unless you have a Talis group or binocurate, you don't see your recession right. So I think we're in this Goldilocks soft landing. I'm not saying it's it's a Rosen Champagne. There's clearly choppiness. But if you could overall tech earnings, it's bullsh who could overall bank broader to I mean eighty five percent are hit or at being earnings, So I think that will be in the background, but it's not going to stop this AI freight train.
He is Dan Ives of wet Bush Securities and joining us now from our studios in Hong Kong is a vlad Savov, Bloomberg Tech editor. Lad, thanks so much for being with us. In the last week, the equity market clearly was expressing concern over the issue of valuation when it comes to a number of these artificial intelligence names, particularly the chip makers. I don't sense that the thesis has really fundamentally. Most people still agree on the transformative
nature of AI. Yeah, there may be some debate over the use case when we point to what AI can ultimately provide. Currently, the issue also seems to be on the return of investment. I was reading a note from Barclays saying that analysts are expecting big tech companies to spend around sixty billion dollars a year on developing AI models by twenty twenty six. Here's the thing. Those companies will only reap around twenty billion a year in revenue
from AI. So it seems like the market is right at this moment in time to be a little concerned about how quickly we've arrived at this point.
Is that fair yes, I think naturally that is fair to say. It's also worth bearing in mind that when you say sixty billion for all of big tech spending on AI, I mean a good chunk of that forty billion is going to be just meta. They've already pledged to spend like I say, double digit billions of dollars just on AI, just in acquiring those to get Nvidio chips.
It's worth also thinking about the fact that this level of investment, which is going to come this year, next year, in the year after that, is probably not going to be sustained, and they're probably planning for that as well. You get those in Vidio chips, you get that hardware infrastructure in place to train your AI models, and you do that. But then those models are trained and they just start being deployed, and then people start figuring out how to use them. It's still very early days. We're
still trying to find the actual application. We're trying to find the monetization methods, whether it's going to be through subscription services online, whether it's going to be additions to hardware. This is the big trend that we're seeing with the vice makers setting their devices as effectively AI vessels. It's by our laptop. No, it's not the same old laptop. It's an AI laptop today. Same thing with smartphones.
We started off with Dan Eyes asking him about comment that we'd heard on Bloomberg, which was that Apple was the key. Apple was the company that has the smarts through the years to convert something into a friend device for consumers. Do you agree with that? And to what extent is Samsung also in that category?
I agree, but only to an extent because Apple strength has always been to integrate hardware and software and a service that it can eventually charge for. We know that, we know that's been the case in the track record, but it's so much more wide open than it has been in the past.
It really is such a wide open.
Question for how you're going to take an AI service like an image generator or chat GBT and its ability to translate and to generate texts for you in all sorts of ways, how are you going to turn that into actual revenue at the end of the day. So absolutely, Apple has the pedigree for us to invest confidence in it, whereas on the flip side with Samsung, it actually doesn't. For all of his strengths and accomplishments. Samsung has never
been great at software. It's never been great coming up with the applications that run on top of its devices. It sells laptops those run Windows, it sells smartphones those run Googles.
And I think it's fair to say that the weakness that we saw in AI related stocks in the last week was touched off by the comments that we heard from Sundhar Pachai, the CEO of Alphabet, who said, Hey, it's going to take some time for AI products to mature and become more useful, but can we talk about how quickly things are evolving. The rate of change seems to be very clear. It's almost parabolic, right, And if that trend line continues, I don't think the market's going
to have to wait too much longer. Am I right on that or am I wrong?
I still think it's still going to take a good chunk of time. But give an illustrative example for this. When you look at image generation. One of the earliest issues it had was with fingers. You would ask it to generate like a Renaissance painting for you, and you can always generated it because you can never get the right number, the right shape, of fingers on people in on. It took a few months and those things are large
resolve now. It really is impressive, especially with image generation, because it becomes so obvious to see the rate of progress. So I fully agree with you that the progress is there. The question really is and especially the trend this year is with Microsoft and its Copilot PCs, Apple with Apple Intelligence and Samsung making every Galaxy smartphone an aiphone, is they're trying to sell us, like I say, hardware as
carriers of AI. So will that prove to be the successful tactic or will it prove to be something along the lines of open AI setting you an only one AI subscription.
I think the thinking on the device makers, particularly Apple, is that you need inference on this because of privacy. You need the intelligence the AI to be on that phone that's in your pocket. It's not drawing from the cloud because that's susceptible to interference and to security consideration. And that's why I think the comment goes to Apple knows how to ministurize these things and get it into a very small phone.
That's right, Brian.
And one of the things to bear in mind is that when Apple says trust us use only our proprietary software and proprietary holdware. You kind of can because again it has that petigree. When Samsung says trust us only use Samsung software, it's a big question mark flat.
I think we have to talk about China. It was interesting in the last week we heard from Texas Instruments and the company made two points. One is that the market for the chips that TI is involved in, in terms of China it's return to growth. The second thing that I thought was very interesting was the company saying it's a mistake to assume that China is only doing
simple semiconductor manufacturing. Do we have to talk about the degree to which China will try to play catch up in AI or is the industry in China so far in the dust at this point it's not likely that China will catch up anytime soon.
It might be possible to say yes to both of your questions, because absolutely China is trying to catch up. There is no amount of giving up. Everyone sees AI as essential in the same way that they see technology and being connected in the Internet is essential to building economic and industrial growth in the future. At the same time, there is this big gap. This is why we're seeing. One of the examples that I like to recall is Nicon.
We interviewed the president not too long ago, and they are renewing a machine who's designed that haven't changed for over a decade. And that's because China is buying up
so many of these mature chips, older technology chips. So as much as possible, China is trying to get the chips and the semiconductors and technology that it can subject to the US sanctions, which means older technology, and then maybe with some amount of creativity and technical innovation and breakthrough to make its AI models lighter and easier to handle with older generation hardware, it can catch up. We should never be complacent about China's capabilities in this field.
In the broader picture of lad it seems that now the market is giving two thumbs down to this rapid spending on AI features. And so I want to ask you questions kind of parallel to doug ast earlier about campex. So for a while companies were rewarded for their campex on AI. It showed massive commitment to what is a mega trend. Now it seems like they're being castigated. So
the reason this is parallels from the market point of view. Okay, is this theme about not rewarding companies for investing in AI a passing notion or is it something that will we'll hold for a while.
It's a very interesting one brand because Meta is kind of the perfect example for this. They really went wrong with technology. They went down this metaverse path, which is now over forgotten within the company. They renamed the company that's about the only left over from We're going to build a metaverse for the entire world, And they invested super heavily into AI, and the market rewarded them. Nothing really changed. There wasn't anything special as far as metas
prospects of making money. At the end of all that investment, people just had faith and confidence in Meta, pouring billions into the AI thing. Apple likewise, it has really struggled with the iPhone sales over the past year, especially in China, the world's bigau smable market. And then everybody heard about
Apple Intelligents and they said, Okay, let's reward that. Now the trend is shifting in the opposite direction, as everyone is sobering up about the length of time the oldest investment is going to take to repay.
And maybe things are just normalizing.
I don't know that we're going to see the same levels of enthusiasm as we saw with METSA and Apple's examples. But I also don't know that anybody's going to be punished for investing in air.
We're not close to that.
Flat, thank you so much for spending the time to talk about artificial intelligence with us. As we look forward to the earnings in the coming week from both Apple and Samsung, and we'll have those reports broken down for you here on a Daybreak Asia. Flat Savov is a Bloomberg Tech editor. I'm Doug Krisner, and you can join Brian Curtis and myself weekdays here for Bloomberg day Break Asia beginning at eight am in Hong Kong eight pm on Wall Street. Tom.
Thank you, Doug, and thank you Brian. And that does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Tom Buzby. Stay with us. Top stories and global business headlines are coming up right now.