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This is Bloomberg Technology with Caroline Hyde and Ed Ludlove.
I'm Caroline Heid at Bloomberg's weltad quarters in New York. Ed Ludlow he is off. This is Bloomberg Technology coming up.
All eyes on Nvidia as.
The one point seven trillion dollar chip company. It gears up for earnings results after the bell. Full coverage ahead, plus we stick with earnings and Palo Alto Networks heading for its biggest drop ever as customers face spending fatigue in cybersecurity will bring you those numbers. And Google looks to build an overen source AI community with the launch of its new model Gemma, built on the same technology
as it's Gemini LLM. We'll discuss that and so much more throughout the hour, but first let's check in on these markets, because look, we are seeing a little bit fatigue when we call it in terms of purchasing of tech stocks.
Right now.
We are all waiting and watching to see whether the AI hype can be borne out in the.
Reality of revenue.
Uptic over it in video Nazdac off by six tens percent. Interesting Chinese stocks moving a little bit higher on those US traded ones that ultimately is being seen as China is putting in place and restrictions on selling maasbely getting out of certain stocks and the open and the close of their trade.
Could this support the market in the stock.
Inflow and see some sort of rebound that's been reflected here in the US trade. I'm looking at bitcoin under pressure just by one point eight percent. We're still at about a fifty one thousand dollars handle, but still a little bit of risk aversion today that sinks into that particular area of risk assets.
Move on and have a look at one of the individual movers are doing on a.
Day like today, because look, I've got to focus on what's been happening more broadly on the world of palle Alt networks as you see twenty six percent lower, a quarter of its market capitalization erased on one day, as they look actually on their fiscal quarter that they just had lived up to expectations, but their forecast is where
we're worried about bytes technology. Interesting one traded over in the UK off by more than nine percent as the CEO suddenly steps down as he said, they's been making some trades and not been telling executives or shareholders. That's a UKAI and cyber and software company to keep an eye on. And in Vidia, as we say, down some two percent ahead of their earnings. Look, we are all waiting and watching as to whether this one point seven trillion dollar company can live up to the two hundred
percent growth in revenue that market is anticipating. Kunjin Sabani is here with us. I'm so policed to say, Bloomberg Intelligence More and Nvidia and just tell us a little bit ultimately where the warriors. Has the market priced in the right sort of level of growth for this earnings number?
Definitely? I mean, look the market the stock is price for perfection, and we again expect a robust print and guide. The supply has come in strong. Lead times have shrunk, but so has the demand and continues to still outface supply, especially as momentum in enterprise AI spending continues to rise, so that increases the odds of another beaten rise.
And they are integral to AI infrastructure. They are integral to building out of AI models. What's interesting though, is in the past China has been integral to it.
Are we likely to get any guidance.
On how much geopolitics still affects the business and how much they can sell ince that country.
Yes, I mean recently, you know, Jensen has been sort of on a world whore meeting with heads of different governments and different geographies, including China. So we do expect
some kind of commentary on that. The numbers for this quarter have been dealers that China will be significantly lower than what we have seen in the past, but in the near term we think they can offset the demand that they could have shipped to China by shipping to other regions, which again continue to see significant increase in demand.
We will see how all of that lives off. I mean, really, Kunjen. What's been so interesting has been some of the take from other analysts out there today, Scott Rubner, Goldman Sachs. What he's saying in Vidio is the most important stock on planet Earth. We'll see how you analyze that stock a little bit later. Being meg Intelligence analyst Punchin Sabani, thank you so much for the breakdown ahead of those numbers after the bell.
But let's make this broader.
Let's see how this particular stock fits in with the rest of the industry group and indeed markets more generally so pleased to welcome Chris and Bitterly, City Group Wealth, head of Investment Solutions to the show and Kristin. When you think about the most important stock on planet Earth, I mean.
Is this the bell weather?
Do we sort of throw all the FED concerns and talk and print that we're going to get from FED minutes out the window.
This is clearly the key catalyst, at least for today and maybe this week. But I think, look, this is earnings after the close today. It's really about whether or not this AI story has more legs in terms of the momentum that we've seen in the market. I think one of the things that we're looking at though, is we can talk about the Magnificent seven, we can talk about the concentration in market breadth, but it has been
backed up by delivering superior earnings. And when you have earnings growth that's in the ballpark of twenty five percent plus, it is something that actually compels the valuations that we see and actually continued inflows into these companies.
Some might say actually in Vidio remarkably cheap in comparison to where we've seen in terms of the run up of the overall share price. But the spillover effects here, the fact that people are looking out for anything that has AI in its name. Many have felt that it's kind of a rerun of crypto in some way, But are they justified from your perspective. More broadly, on a macro perspective, Walt productivity is going to be born out for these companies.
I think when we look at these very large companies that have performed quite well, we have to remember just going back to twenty twenty two, they did not perform well at all, So you were saying quite the opposite story where you saw declines of fifty sixty plus percent. Now, looking at this, like I said, it is backed up by earnings. You're looking at the Magnificent seven represent close to twenty percent of the earnings contribution of the US
equity market. We're only going back to twenty seventeen it was five percent, So they have delivered in earnings growth. I do think though as an investor, it's important to have exposure here, but it's also important to have exposure as to who are the beneficiaries the play when it comes to the technology and the enablers very clear. I think the adopters is where investors are really looking for gains within twenty twenty four.
Okay, so dig into that.
Is it going for specific names in healthcare, specific names in industry that have managed tool cup a good game in AI or do you have to see the proof in the pudding before you stop audocating money.
I think it's a little bit of a show me story in twenty twenty four. I think you know, when you just look at AI in terms of the number of times it's been mentioned in earnings calls, it's come down. I think, like last quarter it was six thousand times and now it's about two thousand. But I do think that when you look at sectors that stand to benefit
from this. I know cybersecurity very much in the news based on last night's earnings, But you look at something like cybersecurity and you say, okay, comparing the run up of that sector versus the broader AI magnificent seven, there's a comparative difference there, and evaluation difference actually on a
forward pe basis. You're looking at valuations that we haven't seen since twenty twenty within that sector, and when I think of the applications and the adopters of GENAI, not only in an area with cybersecurity, does that increase the total addressable market and the demand side of the equation. But there are real productivity gains when it comes to what used to take a security analyst hours to do can come down to minutes. And we're going to see those productivity gains in twenty twenty four.
Maybe not macro.
For US, there has been a perspective that the FED is going to stop maybe talking about the productivity gains the AI can bring more broadly to the US labor force and the fact that we do have a tight labor force, people still wanting to be hard. We do seem to see growth within it. Will we see productivity gains? Do you think more broadly in a macro perspective.
I think from a macro perspective, we have to go back to even though we've seen volatility and the inflation print, we have to go back to what we know is true and where we're going to see flows from an investing standpoint, So what we to be true right now? We know that there's six trillion dollars sitting on the sidelines in money market funds that has increased by one and a half trillion dollars since the FED started its hiking cycle. We know that we're at peak FED funds rates.
The question is when does the FED start cutting. I don't think there's too many arguments that the FED would resume a hiking cycle. Inflation, we knew it was going to be a bumpy ride down to the.
Two percent target.
We see a path maybe down to two and a half percent by the end of this year. And earnings have troughed, and I think that's an important thing when we look at this broadening, not only just because of inflation coming down, raids coming down, cash on the sidelines, Earnings troughed and Q three of last year and now we're seeing more sectors turn to profitability, So you have a profitability argument in addition to then productivity gains.
And it might be an argument therefore, when you come back to your theme of cyber of buying on weakness. What we love about having you on shows across on network is the themes that you bring. Where else are you seeing sort of forces that cannot be argued with even in a Federal Reserve that potentially doesn't stop costing as soon as we anticipate.
Another area that we love, and you're probably going to laugh because you've heard me talk about this for years, is longevity and investing in It's very tech.
It really does it kind of does work.
So we'll bring it full circle in terms of AI gains there as well. But longevity is another area that was left behind last year. So when you look at healthcare, it was really exclusively about GLP one drugs until the last two months of the year, and then biotech started to get a little bit of a bid, med tech started to get a little bit of a bid, and
life sciences. And so this is the same type of argument when you think of productivity gains, when you think of enhancements, when you think of what technology can do in bringing down the cost of healthcare, there are a lot of compelling valuation opportunities, both for the short term but.
Also for the long term.
We love the themes, you love the perspective the macro commentary. Thanks so much, con thank you. Enjoy the healthy dose of an exalt to the bell. Christian Visilicious City Group Wealth, Head of Investment Solutions, Apple it's upgrading the security of as I message app to fend off a looming future threat, advanced quantum computing attacks. Let's bring in blue mugs Mark German for more.
And we talk a lot.
About quantum computing, but the reality hasn't yet arrived.
Blapple wants to front run that.
Yeah, thank you so much for having me. That's right, quantum computing. Some estimates indicate that these types of computers, which are super duper computers, not just supercomputers so to speak, won't arrive until the tail end of the decade or deep into the twenty thirties. But Apple's starting to prepare for that with I Message. Let me tell you why. There is something called harvest now decrypt later attacks. Right.
What that means is someone could steal some data now, even though it's unbreakable now, quantum computers in the future may be able to break it open.
Right.
So Apple wants to stop that from happening. They don't want someone to collect or steal someone's IM message data in the year twenty twenty five and then crack it open in twenty thirty two. And so that's what this new I Message PQ three technology is going to do.
It's much improved encryption for the platform. It's rolling out next month when Apple releases its next software updates, iOS seventeen point four being the big one, and then it's going to become the default for all I message conversations by the end of this year.
And saying it's more efficient of effective at least than the signal, of course than other competitors out there.
What's happen?
They're like, Mark, I'm interested, and also that you're reporting that you've done overnight on Really some executive changes going on at Apple.
This seems to be a never ending story.
Yeah, it's interesting. More executive changes at Apple, this one in its audio division. Gary Jeeves, who's their vice president of Acoustics, one of their top executives related to audio, really has been the leader and at the forefront of the development of air pods over the last decade or so, which obviously now is a fifteen to twenty billion dollars a year business for Apple. He has stepped down as of this week from his role. He's given that role
to his top deputy. He's going to remain for the next several months at Apple as an advisor, right, so no longer running the team, but an advisor to Apple's executive in charge of Beats, AirPods, now the home Pod and other audio products, so more executive changes. This comes after Dj Navotni, who was a key vice president of hardware engineering there, left to be a senior vice president
of program management at Rivian earlier this year. Tang Tan, the vice president of design for the iPhone, the Apple Watch, and AirPods. He's going to join former Apple design chief Johnny I've in his company love from working on new AI products with Sam Altman, and you've seen a large chunk of Apple's industrial design team leave as well. So this is not a departure yet, but key executive stepping down from their role.
Changing of the God Matt Gammon always ahead of it with thank you so much for the insights. Now let's turn our attention to talking tech and we're going to stick with the theme of executive reshuffling. SpaceX seeing a rare high level departure in its corporate ranks. According to reporting from CNBC, the company senior vice president of its commercial business is leaving after spending more than a decade working there and was personally responsible for bringing in over
a billion dollars of annual revenue. Meanwhile, Samsung has sold its entire remaining stake in ASML. That's as it pushes
into new areas of chip making. Now the world's largest memory maker sold its remaining shares in the Dutch company as it really tries to work to catch up with rival s k Heinex in high bend bandwidth memory chips, which are used to help in videos, accelerators, train artificial intelligence plus sam mam and Freed is heading back to court today for the first time since his November conviction. That's over a multi billion dollar fraud in cryptocurrency customers.
Of course, Patwan.
Freed is slated to answer questions from a federal judge as to whether he is aware of potential conflicts of interest for the lawyers he hired last month to represent him at sentencing in March. His new attorneys also represent another cryptomogul facing criminal charges coming up. Vice president and general manager of Google Workspace going to be joining us a partner, Pabu joining us to talk about how duet ai is turning into Google Workspace and it became Gemini.
That's next watching shows of Amazon.
Meanwhile, let's have a quick look at what's happening in terms of well up eight nine tenths of the percent why.
Centering the Dow Jones Industrial average. What falls out Walgreens?
This is Blueberg Technology.
Just to talk about Google for a moment, because it's got a lot of announcements. First up, it's introducing new open large language models that's calling GEMMA. This is reversing the company's kind of general strategy and keeping the company's
proprietary artificial intelligence technology out of public view. But the models will handle text only have been built from the same research and technology used to create the company's flagship AI model, Gemini and Gemma will be released in two sizes, one targeted at customers who plan to develop AI software using high capacity AI chips and data centers, and then a smaller model for more cost efficient app building. And many would say, actually given them transformers being given to
the community in many ways Google has been open sourcing. Meanwhile, let's stick with Google in another way in which you're using it, perhaps at the enterprise. Some more news coming out that's starting today Duet AI for Google Workspace. It's going to have a brand new name, and you guess that it's Gemini Workspace customers will be able to chat with Gemini in a new way, and the chat experience will have enterprise grade data protections as well as copyright
in demnification. Here to join a Vice president and General Manager of Google Workspace a pantner PAPU. It is great to have you with us a partner, and number of ways it feels to be using Gemini Now when I'm sat at my work desk, how do you envisage people working with it to improve their productivity?
Well, first of all, we're super excited have Workspace center the Gemini era. As you said, workspace comprisers of apps that people use every day in their life, from Gmail, Dark Drive, sheets, Meet, you name it, and so to have Gemini infuse there to make all of your work journeys more productive is fantastic. So we're already seeing people do lots of interesting things like helping them write better, making them sound more professional, perhaps making them sound more playful.
And so today's announcement is really exciting because Gemini in Workspace just up levels all of the things that AI can help you do in your work.
Life, and not many people might not realize as over three billion people do use Google Workspace, and I'm therefore you can garner so much data as to how it's being effectively deployed, who, what types of people wear geographically, but what are the guardrails that a lot of your clients are going to be asking you for, because that has been almost the nervousness, the reticent about the new world of generative AI.
So one of the things that we hold very dear is our promise to users about privacy, security and compliance. And with Workspace, we offer enterprise grade security for all of our Gemini features, which means you're in control of your data. Your data never leaks into the models you get, your data's never used for advertising, and so that level of security and compliance being made available now to all of our Gemini users is something that we're very proud of.
What's interesting is, of course, when I think about Workspace, I think of enormous corporations in which I currently sit. But small and medium size enterprises have got to have been wanting to use generative AI in their heart too, right.
Absolutely, we just did a survey wag eighty seven percent of small businesses and all medium sized businesses are all ready to use generait of AI and so given our user customer base of over ten million customers, we're excited to bring Gemini today with a brand new launch at a lower price point to businesses of all sizes all over the world. And so with that launch, we now enable small businesses to get more done every single day. As well.
Taught to us about ultimately the pricing of this.
How does one come up with what real value is worth in this and not be sort of blown around by ultimately well other competitors of pricing that points at.
So we feel very strong about our pricing strategy. It's robust, It's based on a number of factors, not just what the market can bear, but also the perceived value of our customers, because ultimately it comes down to customers and what they're willing to pay for. And this is where we started with a thirty dollars version for our enterprise customers and a twenty dollar version for smaller businesses or enterprises who want to get started. But I'm not quite sure where to begin, and I said.
At the beginning, So with the breadth of three billion users, how are you seeing it being used differently in different places?
Oh, it's so wonderful. It's so creative and clever. People tell us stories all the time of things that they're doing with it. We have small business people who are actually just wanting to focus on their businesses. So, for example, a music teacher really just wants to teach music, but often has to respond to inbound inquiries all the time, and so getting help replying to emails while sounding you know, factual and professional is actually really fantastic.
We love the stories where people for.
Whom English is the second language, have been you know, their work has been transformed by how it makes them sound at work and gives them more confidence. Creativity unlocked with things like im generation with slides. If you're trying to brainstorm how you might think about a new product, and so on, just coming up with visual aids of like visualize what this idea might look like really helps
unlock some of the brainstorming. Banks using it for executive management, event planners using it to get events done.
I mean, I could go on and on.
It's actually just truly tremendous what our customers are doing with it already.
And look, you're a long time Google executive decades under the belt and tell us a little bit about how it's felt when, as we said at the beginning of this conversation, you with of course deep Mind, have been really R and D focused all things artificial intelligence, injecting things like Transformer R and D into the broader ecosystem. But then came this idea that you were behind the curve that you were following on from Microsoft and open Ai teaming together.
Have you been able to diffuse that? Have you been able to think that that's not true?
I think ultimately customers decide in when customers use our products, and the tell us that they're more helpful, more intuitive, easy to use, and.
Actually deliver the value.
And it's not just about the hype. I think that's where we need to focus is what are the real users saying as opposed to all of the hype around this. And so we love our partnership with deep Mind because ultimately Google's focus on the user and making sure that we're actually helpful to the user is what differentiates us from everybody else.
Okay, so there is a lot of feeling that there's hype. How are you in reality as just someone that uses Gmail and docs and not just someone who's in charge of workspace, is using generative AI on a daily basis.
So many people, so many ways. So first of all, both at my work life and my personal life, I often feel overwhelmed with email. Actually in my personal life more so these days because schools and businesses and package tracking and all of these things. So having Gmail be a really helpful assistant to me by showing me the summaries of the endless long emails I get has saved me a lot of time at work at home, which has been helpful. Same thing applies at work as well.
And you know, for example, I was prepping for an interview, how does one your broadcast interview got some really great clips from Gemini. Actually is like be confident but yourself. There's just all sorts of ways in which it just makes you a little bit more confident about what you're doing. Freeing up your time to do other things helps you be yourself in the best possible way.
You can.
Go back and say it to Gemini, you're a pretty darn good Thanks very much, your vice president and general manager at Google Workspace A Panna papu there on all things of its injection into Gemini into the workplace.
Welcome back to Blue Meg Technology. I'm Karen Hide in New York. Let's check in on these markets.
Because a little bit of a pull back, a little bit of caution ahead of course the all important earnings after the bell today, have a check in on what's happening with the nast that one hundred. More broadly, software one of the worst performing benchmarks if you compare it to the S and p 'or of by six tenser percent. I'm looking what's happening in bond markets right now, calmness. Ultimately we're seeing four point twenty nine. Let's call it on the tenure at the moment as we all anticipate
its course. From the macro perspective, the Fed minutes that come a little bit later today, looking at Bitcoin just off by one point percenters, risk assets sell off. More broadly, let's have a look at what's happening on individual names and particular stocks.
That are on the downside.
And I'm just going to shine a light on the story of today as well as we anticipate in video has got to sae what's happening with all of these cyber stocks. The numbers after the bell are Palo Alto Networks. Yes, they managed to meet that nineteen percent growth in revenue for their previous fiscal quarter. But the forecast is going to be sixteen percent growth. I'm afraid that's nowhere near the twenty five percent we've all got rather used to Palo Alto fooling the most in its history on record,
we're currently off by twenty six percent. We're also seeing CrowdStrike down and z scala or lower in sympathy today. But let's get back to the earnings that we still anticipate. Let's get back to Nvidia results coming after the bell. And of course here's what some of our guests have had to say and what they expect.
Thank listen, there's seven hundred and seventy one companies announcing this week, but there's really only one that matters, isn't that and that is in video.
Of course, the structural side is very exciting, obviously, with AI in the key, Driver's Saint.
In Video's earnings are going to be the story that we all anticipate and wait with baited breath.
Expectations are high, Caroline. I think probably they'll deliver.
You look at Navida, there's no shortage of the demand.
I think it's going to be more about what Jensen says about the outlook, the growth and the product lineup as opposed to what he actually delivers in the earning.
There is so much hype about what this integral part of AI infrastructure can deliver. How are we deploying generative AI? How are we using it in our day to day deon Nicholas and pleas to say, is at the forefront of that is the CEO of fore Thought. It's a company that uses generative AI for customer support. You're also into the world of agents, which is another key hype area at the moment, Dion.
When we are seeing the whole market.
Declaring that in Vidia is the most important company on the planet or stock at least, how do you think about this AI hype cycle?
No, I agree, Caroline, and thanks for having me back on the show. When you think about it, like in a gold rush, it's really the picks and shovels that make the most money. And I think Nvidia really is the picks and shovels business for AI. But at the end of the day, we're still in the early innings on the application layer, which I'm most excited about. Right I actually think about all of the money that's being spent on things like outsourcing and things like that in
the customer support world. And I think AI jen AI and particularly AI agents are going to be the future of this industry. I think it's going to be one of the most massive software categories on the planet.
To get there, you need access to compute.
How have you managed to think around that ensure that it's not eating so much of your cost that you also have to just keep going to the market and raising more and more in the VC world.
Agreed, especially over the last year and a half, call it, everything has been about efficiency, right, and so not just in terms of people and spend like that, but in terms of compute power. And so you think about the algorithms that we use every single day, getting smarter and smarter not just on the application layer, but using those algorithms to be smarter with our compute is how we do that?
Okay?
Who have you turned to in terms of the ecosystem to help you with that? Who have been your hyperscalers of choice, who have been your access to GPUs?
Yeah, so we do a lot with open ai, for example. You do a lot with the cloud players. So folks like Microsoft, Azure, folks like Amazon AWS and things like that. We actually announced a partnership with AWS a few months ago. So what we're trying to do is be I would say, agnostic to what's going on in the underlying layer and make sure that we can have failovers, fallbacks and all of that so that we can deliver a robust system for our customers.
And let's talk about what you're delivering at the moment, you're with instacll utwork, plenty of other companies turning to you to basically make my experience when using those apps more joyous. Right, Where are we in the innings of development of having general to AI making my experience better?
Absolutely so.
At forethought, we've been delivering AI for the past six years, and so it's exciting to see this boom so to speak, in the genai world. But at the end of the day, I think we're still very very early and there's so much more to be done in this space. At forethought, we're delivering AI agents for customer support. We're already solving more than one hundred million issues a year, every single year, and we think the technology is only going to get better.
Lllms are just the beginning and then we saw retrieval augmented LLLM or RAGS, and then we saw AI Agents, which we actually announced here on Bloomberg about a year ago with our auto flows technology. And I think it's going to keep getting better and better.
AI Agents, as I said, has been sort of all the talk of the town. And what's so interesting about the generative AI space is you all seem to be frenemies in some way. You're just talking about how you're leaning upon open Ai in some way, but open Ai has GPTs itself. You then got Brett Taylor, who's the chairman of open Ai, coming in and he's launching of course Sierra, which is also all about agents and customers.
Where do you see the landscape being? How many players will there be?
Again, as I said, I think this is going to be one of the largest software categories on Planet Earth, mark my words. And so there's going to be room for multiple players. And ultimately, I think what's happening is there's a shift from the old guard to the new guard. You've seen incumbents companies like Zendesk and Salesforce and folks
like that scrambling to bring AI into their strategy. Because being the help desk or being a CRM is not necessarily going to cut it in an AI first future, right, And so what we're seeing and being validated by folks like Brett Taylor entering the space is that Jenai and being AI first in this space is going to be the way of the future.
How hard is it, though, when I can understand that it work in instacrat A already, a startup is probably more willing to go with a startup for its own customer delivery.
But when you've got big, older.
Institutions, they've just got salesforce within them already. How hard is it to say no, no, no, come to this different offering untwine yourself from the incumbent.
I think that's a fair question.
So what we're seeing is a lot of activity in the mid market SMB companies who are embracing the future and things like that. A lot of these larger incumbent companies, there's a lot of interest, there's a lot of hype, but are they actually making the changes that's soon to
be seen? And that's actually another thing is we talk about things like Nvidia, A lot of the use cases seem to be experimental today, right, and so I'm curious what's going to happen, what Jensen's going to say in terms of the outlook for the future as we start to see more of these technologies become put into production, who's going to keep and truly be an AI first company and who's just experimenting.
And then I'm sure Jensen might pay some lip service to the fact that it's hard to get talent as well and to scale at the spies that you want to what are some of the things that hold back forthought or what are some of the things that are helping you grow.
Absolutely, I think talent is first and foremost the most important thing. We were founded on this generative aivision, leveraging both our own research as well as research from folks like Chris Manning at Stanford, the godfather of NLP. And in terms of holding us back, I mean, the sky's the limit. In terms of this market, one of the things is that it's a very noisy market. Everyone is calling themselves a GENAI player, everyone is throwing AI into their name, but in a lot of ways, again, we've
been at this for many years. We've stayed at the forefront, and so it's really about showing customers what is true AI, what you can actually deliver, and what that means for their customers.
Deon, it's great to have you in town passing through New York. Glad that you could stop by the show for thoughts. CEO co founder Dion Nicholas, of course, talking all things as we anticipate in video and were broadly the impact generator A. I mean while coming up, but we're going to be joined by Darren Abrahamson from Baine Capital's techn Opportunities team.
To talk about where he's placing his bets.
Everyone's in town today, He's coming over from Boston to be here in New York. Meanwhile, let's have quick check on what's happening in terms of one of the AI darlings of choice of late, which has been selling off pretty hard over the last three.
Training days, super micro Computer.
Now actually short sellers have been notching about one point two billion dollars of late as we've seen shares full we're down another seven and three quarters of percent, but remember this is a company that's up more than seven hundred percent, and then last year this is a Bloomberg technology. Let's returned to shares of Palo Altera Networks. Why because they're heading for the biggest drop ever. That's after the company cut its forecast amid a pullback in cybersecurity spending.
Joining us now is man leep seeing a bloomberg intelligence and Mandat. The lie that caught me from the CEO was that there's spending fatigue.
It says this is new.
Yeah, well, I think when you look at security, it's one of those things that has worked really well along with generative AI for the past few quarters. So it makes you wonder what change in the last ninety days. And they gave a prior guidance of about you know, high teens growth for the full year and now they cut it to loteins. So clearly, you know they are
seeing a change in environment. They tried to explain that with, you know, a new go to market strategy, but you know, pow Alta is the largest cybersecurity vendor and they have had a lot of success with bundling their products. So the fact that they are changing the go to market in an environment that should favor cybersecurity, it is a little bit of a surprise, and that's why you see that kind of stock reaction.
And we've seen a run up of about one hundred and twenty percent in the last year, which maybe is why we've see the significant pullback Man Deep, But when you went on to sort of outline that people don't want to spend at the moment unless they see a significant improvement, Well, the pole point of cybersecurity is ultimately to be a defense. How do you think that they and other competitors cloud strike can convince people to keep on spending that you need to in this environment.
Yeah, it's a great point. Because the hyper scale cloud providers are all giving you security. It's bundled security that they are giving you. So these companies have to convince the customers that it's something extra. They're supporting a multi cloud strategy and the defenses that the hyperscalers give are not enough. And in this case, I think Powell Alta has to make that shift from firewalls to new subscriptions
cloud based revenue, which is at multi year transition. They were doing well so far, but clearly the deceleration in top line growth is definitely spooking a few investors over here.
As for sure, Man, name's saying so great to have you on the show. Thank you of Bloomberg Intelligence. Now we're going to turn our attention to the NUER landscape, talk a little bit about cyber within it. I'm a peace to Welcome to the show, Darren Abramson, he's partner at Bain Capital's Tech Opportunities team on today's VC Spotlight. Traveling in from Boston and I'm interested, Darren, and whether you're hearing or seeing this from some of the startups
that you've been investing in. I know cyber has been a theme, but all of us are talking about how GENATVAI means that we need more cyber protection, not a pullback or less.
Yeah.
I think it's really important that you sort of put things in context. I think you pointed out on the prior segment. You know, pale Alto's had a phenomenal run up and a lot of the cyber companies really outperformed.
Over the last year.
As CFOs and customers look to cut back spend in other areas of technology, cyber was one of those areas that remain very resilient. But when we talked to chief information security officers, what we're hearing a lot now is particularly in the enterprise, that they don't want another solution. They don't want to buy more. They need to actually figure out how to integrate what they've got and patch the holes that pop up inevitably when you integrate and
implement a lot of new technologies. That being said, to your point, underlying threats persist, and I think AI is going to accelerate that. Just the ease at which a hacker can now you know, spoo for fish or spam or do other things in a much more sophisticated way, I think makes the cyber attack surface ever more dangerous. And so we do see a lot of innovative new companies that are solving those problems as well as in
other segments of the market, you know, down market. We made an investment last year in a company called Blackpoint, which has an MDR solution and they bring it sort of all in one way to solve cyber problems for smaller customers, and they're probably the highest growing company in our portfolio right now because the demand is still clearly there. So I think it very much depends on the segment of the market the types of tools you're selling into.
Interesting that you point out that black Point Cyber was a check you wrote last year where else have you been deploying.
Your capital there?
For in this whole environment where generative AI suck the oxygen down the room, have you just been leaning into that theme or finding other ways?
Yeah, So our fund is really more sort of late stage growth equity and even into some small growth her buyouts, and so we're not we have a separate venture capital fund. I think you've spoken to some of my partners from that team before. You know, we really were born to sit in between our venture effort and our large cap private equity effort and sort of fill that gap for later stage companies. And so for us, the generative I sort of theme, which is obviously pervasive across the tech ecosystem,
is less of a direct investment opportunity. I think that's earlier stage, you know, more risky, more venture capital.
You know.
For us, what we're looking for is established businesses, often founder owned and led, who have reached some scale and are looking for not just capital but support to kind of help get to the next level. So, you know, how do they get from fifty seventy five one hundred million of revenue to two three four hundred million. And that may be things like we need some outside help in thinking about how to leverage generative AI to drive our own process efficiency and find ways to innovate in
our product segment. It may be going to do their first scale acquisition, it may be entering a new market, and so we tend to be more focused right now on how we can help our portfolio companies as well as new investments leverage generatve AI as opposed to sort of trying to back the next model or sort of pure AI.
Company, if you will.
Now, over time that will evolve, but for now that just feels to us a little bit early and a little more sort of speculative than our focus.
And in that less speculative, more mature business, there has been sort of a tough environment ultimately, people not wanting to write such bigger checks to such big up companies or indeed seed being very active other areas still slightly concerned amid the economic environment.
Has that changed at all?
Have you actually found that, No, there was this real sweet spot where companies are actually revenue generating, profit generating, and that's where you want to be writing the checks.
Yeah, I think you've Again, I think there's different segments of the market where we play. So what we did see in the back half of last year. Is activity really start to pick out on the buy outside of our business. So growth your sort of mid market buyouts. You know, companies that are high quality businesses of scale, have some profitability, and in many cases have existing investors who are starting to think about liquidity after a period of the environment where it was tougher to do so.
And so that part of our business has picked up quite significantly.
He's doing the buying, who are they tending to go with other smaller companies? Are they being bought by larger companies, Because it's a combination.
I'd say in many cases where where we're looking, it's new financial investors coming in with a new thesis and you know, providing some liquidity. In other cases, some of our portfolio companies, you know, bigger, better capitalized businesses are looking to take advantage and drive M and A as well. And then you're seeing some activity from larger strategic So i'd say that's still you know, less active. Obviously, the
IPO markets haven't been a real path for this. So the buy outside of our business has been quite active and really picked up over the last quarter or two. The growth side I'd say is a tale of two worlds. If you were one of the companies that raised you know, at peak multiples very you know, at the top of the market in twenty twenty one, it's still difficult to.
Go back to market.
People are still you know, somewhat stigmatic about down rounds, and we're seeing a little bit more of that ease up, but that part of the market, I think those companies still need to grow into those valuations. For the most part. However, where we tend to focus is a lot of founder owned businesses who didn't raise money during that period of time and where we're sort of the first institutional capital
coming in, and that's very different. The dynamics there are around relationship and partnership, and it's less about what's going on in the macro and more about when that specific founder identifies an opportunity to do something different with their business and wants the right partner to help them do that. And that tends to be a pretty active segment of the market where we've found, actually all of our investments last year were a flavor of that.
For example, and those founders who are by them in bootstrapped or have had wealth to be able to invest in sales beforehand. I think coming from East coast of America, are they generally US? Are you looking more further afield and globally.
It's a great question. You know, we're big believers that there are great companies being built all over the world. So we have investments in Japan and Brazil and Europe and Israel and all over the US. Interestingly, only one of our portfolio companies is actually from the Bay Area. We have two from Nebraska to phenomenal software companies all up and down the East Coast, and so I think it really speaks this idea of there's talent everywhere andnology
is transforming industries around the world. And so our job is to go find those founders. And often they're not in places you might expect, but they're building, you know, phenomenal businesses kind of under the radar, and eventually we'll get to a size and scale where they want to partner like us to help them sort of scale and grow.
And how do you find those founders? What is your pipeline look like?
Is it introductions of one found and on business turning to another fun in their business, saying they've been a great partner is it people that you know have been backed to with I mean, how have you found these sorts of.
So this is where I think being part of a firm and a platform like being capital is really advantageous. You know, we've been investing in the tech ecosystem for really our history.
This is our forty year.
Anniversary, and so there's a huge amount of relationships and networks around the world. We obviously have a venture capital business, and so they're seeing a lot of companies at the earlier stages, some of which they invest in, many they don't, but those relationships persist and ultimately may grow into things that are relevant for us. And then there's a lot of just proactive sort of outreach. You know, our team is traveling all over the world, all over the country
in very targeted sectors. We like to really focus on sub segments of the market that we know well, specific pockets of cybersecurity, vertical software, healthcare, IT, fintech, and so within those we're trying to be very thematic around Okay, these are the segments, these are the companies, these are the founders, and how do we get in front of them build those relationships which in many cases take you know, four or five six years until they result in any
kind of transaction opportunity, until a lot of our time and effort is really spent there.
So relationship business, thanks for spending some of that time with us today, darn Abramsen, his partner at Bain Capital's tech opportunities team. Universal Music it snapped up a minority stake in coren Music Partners. That's a company that owns one than sixty thousand songs by the likes of John
Legend or Lord or The Weekend and more. And the music giant is actually paying two hundred and forty million dollars for a twenty five point eight per cent steak in the business here with more on why Murkes Michelle Davis, and the reason is well, sort of exposure to music rights to them bring to the masses, How do they benefit?
So? Universal Music already owns a ton of music rights. You'll remember a big deal they did a couple of years ago was buying Bob Dylan's whole catalog.
But this by being a.
Minority of investor, they're gonna have exposure to these music rights in this particular catalog without being a direct owner. Universal Music as well as a lot of other big media music companies. Media companies are under pressure right now to show returns to their shareholders, and this is kind of an indirect way for them to do that without spending too much, you know, dipping their toes into this particular catalog, without just putting too much of their balance
sheet behind it. But I think it all speaks to a much bigger trend within the music industry where some of the traditional you know, Wall Street firms like Kkar, Apollo, Blackstone that really poured money into the industry a few years ago when music valuations were surging, they've all been looking for an exit because you know, private equity, even outside of music, outside of entertainment, Their LPs want them
to show some returns, to returns some money. As it's gotten more expensive to them for them to invest in stuff with rates going up, they've been under pressure to show that that money to them. And this for Kkar, you know, exiting, this is one way for them to do that.
So Dundee Partners takes the other seventy odd percent of it, and that's run by the Handel family. Ultimately, what does Universal Music benefited shareholders with right with rights ownership. Is it that they think the value will go up on the rights to the music or they can use it.
In different and more interesting manners.
I think that's part of the assumption is you have to expect if the value will go up, and it's also a predictable revenue stream for them.
You know, you know right now a lot of the music.
Industry has recovered because we've figured out streaming. Compared to twenty years ago, when you know, the music industry didn't know what to do with everyone pirating music. Streaming is a thing now, but they're still facing a lot of disruption. There's questions around what will happen with TikTok and ai, how that will affect everything. So this just gives them a predictable revenue stream to build as show investors.
Well said Michelle Davis.
We thank you for a time on all those transactions within the music industry. Meanwhile, how does it for this edition of bloombig Technology. You do not want to forget to check out our podcast. Got so much more to wrap up, and of course stay braced from video earnings after the bell we'll be digesting that tomorrow.
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