Iran Conflict Sell-Off Rattles Tech Stocks

Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive from coast to coast with Caroline Hide in New York and v Low in Sent Francesco.

This is Bloomberg Tech Technology stocks full, bonds full, and oil surges. As the war in Iran shows no signs of the escalation, investor concerns rise as the possibility of disruption to energy markets, supply chains, and a jump in inflation loom large.

Correct, Let's take a look at those markets energy in particular, I mean extraordinary moves that we're seeing in oil.

Oil is currently having the.

Biggest move since twenty twenty two.

At one point since twenty twenty it's the highest is twenty twenty four.

That has implications for the Nasdaq down almost two percent and the S and P five hundred down almost two percent. Why because the Federal Reserve cannot cut.

Into this inflationary environment. Is the way that the market is anticipating. Bitcoin is off by some one point.

Seven percent, then as that one hundred is off session loads. But that is what we're looking at right There is targeted drone and missile activity as a threat to energy infrastructure in the Middle East. New York Crew WTI up eight percent seventy seven dollars a barrel, but also brent the global benchmark, surging to eighty five dollars first time in a long time. US tenure yield had been above four point one percent and on track for its biggest two day advance since April of last year.

We've come off that little bit.

We are very focused on what is happening in the Strait of Horn moves right. There are boats that are stuck and cannot carry oil. As a result, the producers like Iraq have stopped producing. By the way, America relies a lot on Iraqi oil in terms of the refiners. So we're going to look at that. There is specific tech action. So let's get to that action when Bloomberg equalties reporter Ryan.

For the SELECA.

There's a lot to unpick here right at one point, and as that one hundred was on track for its biggest drops since October, certainly since November when we got that strong jobs print. There is inflation concern, but broadly, where is the risk of sort of mentality and sentiment you're seeing, Ryan.

Good morning, Thanks for having me.

So one thing I would just notice that all of this recent news, all this rise in political uncertainty, comes at a time when investors were already showing signs of being cautious about tech. We have seen concerns about how much money is being spent on AI. We have seen concerns about AI related disruptions. So if you add a new wrinkle on top of that, I think you already had investors predisposed to sell and sell pretty broadly.

Ryan more broadly, dwell a little bit more on what's happening in terms of the software perspective, and what's happening in certain names Mongo dB, and I hate to bring it back to what the market was treading water on or trying to digest before this geopolitical upheaval, but we have to go back to what's happened in terms of Mongo DB's extraordinary sell off, despite the numbers not being quite as ugly as many would have anticipated.

Right, So this occurs against the backdrop of people being very cautious that AI services are going to diminish the growth prospects for legacy software companies offer some kind of replacement, diminish their pricing power, their margins. Marco DB's results kind of fit into that narrative where they weren't necessarily bad, but the upside was a little bit smaller than people had expected it or relative to past quarters, the outlook

Right also massive underperformance in chip stocks, which we're going to explain a little bit later on in the show Bloomers.

Ryan for Selca, thank you very much.

Let's talk a bit more broadly about what's happening in markets, Brian White, it's pi Ersanla, cohead of Technology Investment Banking. We're going to have a different conversation probably to the one that we thought we might be having. Caroline made a really interesting observation at desk this morning. You look at a name like Palenteer for example, still down significantly. There was a big run up yesterday, cyber stocks under pressure.

Please, Yeah, I mean I think that it's still going to be the bride spart in this market. I think the challenge that we have right now is that this increasingly looks like a prolonged conflict, and so investors are selling off right now. They're panicking in regards to what continues to go on. This doesn't appear to be kind of the limited engagements that we've seen traditionally, and so thus when you're looking, you know broadly and you step back.

Co Head of Tech IV five percent of I've read your CV. If you don't mind, and you know you know the apparatus of government, well, yes, how important is that that that kicks in in a market environment like this. You understand the understandable, you know what a policy maker may or not do in a war environment.

I think it's helpful because you can put things in context. I mean Fundamentally, what we look to do is advise clients on how to navigate this termoril. And having the experience to see how government thinks through these issues, particularly during conflict like this, is critical because we're not just dealing with the AI disruption, We're dealing with geopolitical disruption, and clients are wondering, how do I raise capital in this environment? Should I think about M and A on

How much is that experience applicable to the current administration though.

Well, I think it's traditionally the levers of government remain pretty stable. There is obviously some political influence that goes on over the years. You know, one thing that we should all take a great regard in is just the experience of the military that is there, the decision apparatus and what has been in place to make these informed decisions.

So without wanting to be just knee jerk and thinking through if this could be a longer term conflict, if there's inflationary pressure there, what does it mean in terms of the influence that AI has been having on the market thus far.

Do you just stay in the winners that have been working.

And yes, maybe overallocate a little bit more, even to defense TEP.

I think defense will be a bright spot. And then even before ARA, defense looked like an area where there was going to be tremendous innovation. I mean, what we're continuing to see is that people are looking for new technology, new approaches. We have a increased geopolitical conflict in this world, So being in defense is a good place to be, and that was pre Iran, and as it relates to AI, I think there will remain some bright sparts, particularly in infrastructure,

Just really quick and trying to keep this on the news. DHS is warning right, which seems inevitable about the threat to citizens in this country and response cyber. Just give me more on cyber and why it's not getting more traction in this environment.

Yeah, I would say two things first and foremost, we've always known that Iran via it's proxies like hesbalah Is may have the capacity to do something in the American homeland. So I think that's partially what we're hearing from the administration. I think more saliently though, is that people need to invest in cyber right now. The attack surface for both the private sector as well as the public surf sector could not be any higher in terms of their threat environment.

Ry Pipersander, great to have you here on Bloomberg Tech. I want to get to what happened in Career overnight shares of Samsung and sk Heinex both falling by around fifteen percent. There was a holiday in the Korean markets on Monday, so this was the first session since the war in Iran and the events of the weekend. But remember that the costs fee, the main index in Career, has been a massive outperformer year to date, led by Samsung.

And sk Heinex.

It's just a market reaction as sentiment reaction, particularly with the energy infrastructure concern in those two names. But was a big move, and maybe that's transferred character chip names in the US in this session.

Suddenly extraordinary sell off over there. Meanwhile, coming up, well, look at some extraordinary moves from Sam Altman calling open a eyes Pentagon deal roll out sloppy.

That's next, there's a bluebir tech.

Open Ai is facing backlash over its new Pentagon deal, and CEO Sam Altman is admitting the rollout was mishandled. In a post, Altman said the company shouldn't have rushed the announcement, saying it looked quite opportunistic and sloppy. Here of the latest is Bloomberg's AI reporter Rachel Metz. It's one where you probably need to explain to us what the deal is and how it came about. But a very public statement by open ai CEO about how it was done.

Yeah, I mean this was all part of this really rush situation that happened over several days. We had Anthropic scoring off against the Pentagon, the Pentagon saying we're not going to be using Anthropics AI models anymore and making some even further declarations than that about how companies perhaps could even use Anthropics models if they work with the government, and then open Ai very quickly swooped in and said

A lot of people were painting the streets outside open Ai and well fears and concerns, Rachel. This has prompted a backlash that is actually impacting downloads of chat GPT and certainly has been pushing those to be getting into Anthropics offering Claude instead. It would feel like the numbers stack out in that way, Rachel. But talk us through ultimately what has been changed in terms of their agreement with the Pentagon, if anything.

I mean, it sounds like open Ai has basically done a little bit more back up and forth with the Pentagon to make sure that the redlines that Opening Eyes says are in place regarding their software not being used for surveillance will be kept in place.

Rachel, Sorry, do we have any understanding of how big a piece of open aised business this is?

Like?

Is this something like severely critical to them or is it still the case that you know, CHATGBT subscriber as an enterprise is really what they're most concerned about.

I mean, at this point, I don't think that this is like an overarching piece of their business. I thinkause is a smaller piece, but as we've seen with the disagreement between Anthropic and the Pentagon, just having this kind of connection can really telegraph a lot about your business and it could lead to other things, other ripple effects and other kinds of business, either happening or not happening now or in the future.

Rachel Mattz, thank you so much.

An ongoing narrative that involves geopolitics the same times as generator of AI. Let's take a look at those tech markets in the eye of a geopolitical storm that is Middle Eastern conflict. We're currently seeing one point seven percent lower on the Nasdaq one hundred. We had fallen more than two percent. In fact, only thirteen names are on the green on the Nasdaq one hundred as we speak. New York Crude is where the action lies.

We're up more than eight percent ed.

We're seeing this inflationary tension mean that people think the Federal Reserve cannot cut into the situation.

Therefore that has a.

Long term impact on the value of stocks.

Right now well way off session lows, but at one point we're on track for the biggest drop on the NASZAG one hundred since October when the President was really escalating the tariff tension with China. That's how markets are weighing in here. We're also tracking shares of Nvidia, one of the top stories on the Bloomberg terminal and on

What do we know?

Yeah, I mean, the understanding had been that the US side was more amenable to this happening, right, and that China was kind of the roadblock. But now what we're reporting is that there are more restrictions, more kind of fine print details being piled upon it, and that obviously makes situation more difficult than the likelihood of major shipments and major business less likely.

And that's why many ways in video and Jensen didn't include any China business and therefoward looking guidance.

So do we just take it from here that China doesn't want.

Even h two hundreds and where we are in terms of a potentially crafted blackwell offering.

Yeah.

I mean the way that in Videa's leadership are phrases is like, look, you'll know the Chinese have given us permission when you see the Chinese companies make orders. We haven't seen them make the big orders yet. That doesn't look positive. It doesn't look hopeful for the way things are progressing.

Going back to the basics of what Caroline just said that the forecast for sales is seventy eight billion dollars plus or minus two percent in the quarter, does not include any China. But when you did your earnings piece the next day, a lot of the analysts were like, well, China is then therefore potential upside in the event they are allowed to do it.

Jensen's modeling for that or not, it.

Doesn't appear to be. I mean they're being prudent right now. I mean, the potential upside came from the detail that we got during earnings, which is, hey, we got a few licenses, so Wall Street was like, oh, great crack of light, here we go. And then now we get this and obviously we still haven't seen any movement from the China side either.

Now, China used to be a significant era of revenue.

What was it almost twenty percent one point.

For a video numbers or thereabouts.

Where's the Middle East at.

Can I just ask something to throw a curve ball into the mix of the current Gyo political situation?

Well, that's a very good question. Obviously, in video cares very much about what's called sovereign AI, which is, you know, come trees, attempts to try and build their own infrastructure. We've seen that in Saudi Arabia, we've seen that in the UAE, and these are areas where there's a lot of cash and there's a lot of investment in this future economy being made. So any threat to that would obviously be a threat to this whole system.

Well, certainly in video is one of the key legs to the downside in a points perspective. Today, in King we're always so thrilled to have his expertise.

And it's nice to be sat next to him as well.

I Meanwhile, let's take a quick look on what's happening with Apple, because if you didn't realize amid the torrent of news that you're trying to digestiday, the company is actually introducing refreshed MacBook pros and airs with an M five chip. The company also raising the prices of those products amid an industry wide memory crunch. Other products announced include two new external monitors.

As you see shows down nine.

Tex percent, so actually better performing than the rest of the market ed.

Welcome back to Bloomberg Tech. We're in the Middle East.

We take a look at what's happening in the markets amid a US is really focus on Iran. We've got the Nastaq one hundred off by one point six percent, Micron leading you on the points perspective to the downside, so two it is in video, we're seeing the S and P five hundred off by one and a half percent.

Bitcoin is acting like a risk asset today.

We're back lower, but it's still elevated versus where it was on the weekend.

Sixty eight eight hundred is where we trade.

Move on to individual names because it is important.

To see where the impact.

Of tension and ongoing war in the Middle East, where it has and what it does to assets owned by Amazon. For example, AWS warning of prolonged disruptions to its services after drone strikes damage three of its data centers in the Middle East. They say the companies said drones had directly struck two facilities in the UAE in damaged infrastructure near other facilities in Bahrain Palanteer.

The sentiment shift today.

Is so negative that even companies that are meant to benefit from the focus on defense and defense tech are on the lower side. We're off by one point four percent after a rally yesterday. More analysts are going positive on Palenteer, of course, software that's used by the government very much in the defense perspective, and we're seeing twenty out of thirty one analysts now saying by.

The stockhead we're great.

Shares of defense firms have joined the market sell off, even as the conflict in Iran rearforce is their critical role, the critical role of the US primes. Let's bring a Bloomberg Intelligence senior analysts Wayne Sanders for more. You've been keeping the react and the research up to date over the last two or three days. You have this scenario where if this conflict losts weeks or more, you look at the air strike capabilities the United States has and

Yeah, absolutely, thank you so much for having me on. When you think about this conflicts so far, a lot of the munitions experts right you're looking at RTX, you're looking at Lockheed in Northrope, are really the ones that are set really to benefit off off of part of this because they're going to have to replenish what they've got.

We turn to you, because not only are we lucky enough to have you as a senior defense research analysts here with us of BlueBag Intelligence, but your past experience with the officer of the under Sectary of Defense up until twenty twenty four, the fact that you were so ingrained with the Department of the Army as well.

Therefore, are we well placed when you're looking out to twenty twenty.

Seven and the likes and then here and now, are we using the right strategic assets?

Yeah?

No, great question. And so the bottom line I try to tell a lot of people is the US military does a very good job of making sure that they have contingency plans in place. They wargain these all the time to say, Okay, these types of conflict scenario that we would be looking at would require this amount of munitions, it would require these amount of aircraft, it would require these amount of targets that we would want to be

So I want to talk about what's happening on the ground. Our colleagues of Bloomberg News and Bloomberg Economics have basically done the missile math for the United States. This has been focused on the Patriot missile system right four million dollar missiles, whereas Iran has deployed lower cost twenty thousand dollar drones. There is evidence that the US is also looking at drone strategy. What are you seeing in the data that's being published.

Yeah, we're doing a lot right now. The US is doing a lot, especially on counter drone technology as part of the Pentagon's Replicator two point zero initiative. There are a lot of companies out there right now BA working on apkws as well.

That's been something that's been used.

In Ukraine as well from a counter drone capability. And then you're also you start looking at things like directed energy, high powered microwaves and high energy lasers. Those are further further out right. They are not right now at the point of full rate production scalability. But it starts to ask the question, like you guys are talking about, is you have to be able to look at the magazine depth how much it costs for us to be able

You look at it.

On munition side of the house, we reverse engineered, the United States reverse engineered a Shahi drone specifically to create the Lucas drone. So from a strike perspective, you're now looking at instead of a one and a half million dollars Tomahawk missile, you could actually use a thirty five thousand dollars unmanned one way attack drone. Which this is the first operational employment that has been out there is during this time, and I.

Ran Ryan Sander's a Blue May intelligence analyst as well as retard Colonel.

We so appreciate your time today.

Look, demand for defense tech may be set to rise, but the spike in oil, the gas prices, the closure of key shipping routes. Well, they're raising concerns about how those products reach markets. Tara Murphytosi is here with our CEO of Gavini. Look, it's a software provider for defense tech supply chains. You have the inside track on resilience right now. You sit there in Washington, Tara, and I asked you put out a note really thinking about an

The reality is that I think you can see from the weekend, the demand for American military power is continuing to increase, and so much of the conversation, including what we just heard from Wayne's great summary, is focused on production of new systems.

That's incredibly important.

But when you also look at what the United States is bringing to bear in the Middle East right now F fifteen's, F twenty two's, some of these systems are sustainment challenges as well, and so there's a production need in the United States. There's also an availability of parts and legacy systems that is equally important.

We're not in any sort of real immediate crisis, though, when it comes to this Iranian focus and battle that currently.

Rages, We're not.

I would say that the United States today is capable, including not just from a military capability perspective, but a capacity perspective, of executing any military operation that it deems appropriate. We are not in immediate danger of running out of stock of munitions. We are when you look at longer term trends in a situation where if we are firing one year's worth of missile production in one week time, then things start to really become questionable in terms of overall sustainability.

Tara.

One of the most read stories on the Bloomberg is about Russia seeing the war in Iran is putting pressure on its own air defense systems in the context of Ukraine.

Very interesting.

Earlier in programming we spoke CFSFCFO about how Ukraine fits into the Iran dynamic.

Just listen to this.

Some of the experience from Ukraine is developed quite quickly into the use. Some of this will take time and the experience is still coming. So I'm expecting now the focus in AI particularly is so massive, as well as all the other technologies like for example, three D printing of the missile et cetera. What we can use within the US and European.

Startups exactly the same topics you've been discussing, right, the lessons that should have been learned from Ukraine in predictive preparedness versus like in the US military apparatus at least this cultural just in time.

System.

Essentially, how do you see that learning from Ukraine and what we're seeing in Iran?

I think you put it perfectly ed.

I don't think the learning has been absorbed enough. And we know that AI the era is upon us, and what we need to do as a US military, as a US national security apparatus is better harness it for US national security aims and overall American interests. Your point about being able to look ahead here is such a

What are we doing about it.

From a prepositioning and stockpile management perspective.

Tara Murphy, do TCO of Gueni, thank you very much. So coming up in the program, Coherent CEO Dumandison joins us to talk about his company's new strategic partnership with Nvidia that includes a two billion dollar investment.

That's next. This is Spoonmberg Tech.

Vidia has agreed to invest four billion dollars in the photonics firms Coherent Momentum. The two equally sized bets by the AI leader should ensure demand for advanced optical components used in data centers. Let's discuss the Coherent CEO J Anderson. I think a reasonable place to start is to understand the role that a laser has in the server design and in the data center.

More Broady House servers talked to.

One another because the market reaction is quite clear to how investors feel about this, But where does the technology fit in?

Yeah, it's a good question.

First of all, thank you for having me and I appreciate it. Yeah, the way you can think about it is a laser is really ultimately it's photonics. It's really about light, and it's about using light to transmit data in the data center. And there's a good portion of the data center already today where all of the communication.

Of the data is happening with light.

And the reason that light gets used rather than, for instance, an electrical signal is light is the absolute fastest, most power efficient way to transmit data. And so good portion of the data center already runs one hundred percent on photonics optical connections. But as we move forward building new data centers, as we see a massive ramp in the amount of data flowing through these data centers, more and more of the data center connections will be based on light on optical forts.

So in this arrangement you'll take the funds for R and D purposes, But inside of it there is a purchase opportunity for Nvidia if it has done a lot on silicon photonics. They've told me about it quite a while. Now what's new in it for them? You know, what is it that they're able to now do that they couldn't do?

Themselves, Well, they're relying on us to bring the photonics expertise right. So in Vidia for US has been a long term partner actually over twenty years as a customer and a partner through their Melanax acquisition, So we've had long history with Nvidian and really what we're doing is working together to use photonics to advance the architecture of

Place transferring virra election exactly.

So as you increase the data rates, as you increase the amount of data that's being transmitted, you have to if you're using electrical today, eventually you'll hit a physics limit and you'll be kind of forced to.

Switch to optical.

And so we'll see more and more of the connections within the data center moved to optical. And that's really where we come in. We're a global expert in photonics in optical communication.

And the market is forward looking.

They understood the copper to optical vibe for a few months, if not years, and your shares have shown that. But what's interesting is Momentum CEO was speaking at an event yesterday Michael, and he was talking about even with scaling of their supply, they're still way back, they're falling further behind where demand is. Is that something similar for you as one?

Well, demand There's no doubt demand is incredibly strong and that is both in the near term and in the long term. And the forecasts that we're seeing from our customers, not just in Nvidia but large hyperscalers, cloud service providers are just exceptionally strong. And so what we are doing about that is we are rapidly expanding our capacity. I mean, we are building capacity as fast as we can. Yeah, I was going to say, just as one example, ed you asked about the lasers.

Let's take the lasers we want to.

So if you look at the lasers, we're doubling our capacity this year, right, So we're coming out with twice as much indium phosphide that's the key material underneath the lasers, but twice as much indian phosphide production. So we are ramping our capacity as fast as possible. But back to as we see more and more of the data center

In paste where right.

We had the co founder's mesh on the show recently SpaceX alum who did lasers at SpaceX, and they came to market with a very simple argument. Output of these systems at scale was done in China. There isn't a facility in the United States. There isn't the capacity here. Is that part of your game plan or you dispute.

That laser Absolutely, lasers. Some of the key technology that we're developing and ramping is here in the US.

Right.

So we have a long history of US manufacturing. We were founded as a US manufacturing company. We've got over twenty manufacturing sites across thirteen different states. But one of the key technologies that we're ramping on behalf of Nvidia and other customers. Is that laser technology that's happening in Sherman, Texas, right, And that's a great facility we've had. We've supported customers

What you need from like a raw material perspective, what is it that makes us manufacturing ever more capable.

I'm sure you're discussing this from government all the time.

Yeah. So one of the key inputs is it's the Indian phosphide substrates themselves, and so we have a very diversified supply chain. We've just like in videas securing you know, capacity rights to our capacity. We're doing the same thing with our suppliers. So we're making sure that we've got all the key input capacity or input supply secured. But look, it's we believe that these key optical technologies like lasers, we absolutely want to see that manufactured in the US. Now,

Jim, it's great having you on.

Is a rather busy week.

John Anderson, Coherent CEO, always talk, he lass