We're from Mahard.
We're Innovation Money and Power Collie in Silicon Vallet NBN. This is Bloomberg Technology with Caroline Hyde and.
Ed Ludlow live from San Francisco. This is Bloomberg Technology coming up. A global equity route intensifies with big tech at the forefront of the selloff, from Nvidio and TSMC to.
Robinhood and Microsoft.
We hone in on the names being hit hardest amid the carnage, and we'll have full coverage on Apple as Berkshire halfaway slashes its steak in the tech giant. But first, this is the picture in financial markets. It is an ugly day, but we're off session lows at the index level. It started in Asia, it went to the European session. Now in the United States, but looking at the S and P five five hundred, even a three percent decline puts US on track for its biggest drop since late September.
Chip stocks particularly feeling the anxiety names like in Nvidia, but also TSMC's usadrs. You saw the yield on the US two year treasury fall below that of the ten year. Disinversion happen for the first time since July twenty twenty two. The crypto markets are also interesting. Show me Bitcoin and look at the severity of declines.
Remember that in the.
Crypto space, we're in an asset class that is trading twenty four to seven If we can please bring that up, because I want to move things forward. There's also particular anxiety right in those single names. You look at Bitcoin down eight point eight percent in a session twenty four to seven hour trading.
Apple and and Vidia.
Also off session lows, but in particular names that leading declines from a point perspective or a percentage change drag at the index level.
Let's break it all down.
We got Bloomberg crossset report at Isabel Lee and also our international Economics and Policy correspondent Michael McKee as well.
I start with you. I think this started with economic data on Friday.
Then you had new slow through the weekend, and now here we are through an Asia, Europe and the US session where things don't look very good.
Exactly. It's sart. On a Friday, we had week jobs data, but it wasn't really horrible, so we saw a stock market under pressure. But over the weekend I was checking my phone because I was trying to figure out what is going wrong. And today we have New York to London to Tokyo equities are really getting pummeled s and P five hundred is on track for its worst routes in twenty twenty two, with ninety five percent of the
stocks there in the red. And I read a note this morning that's saying, instead of asking what's going wrong, it's better to ask what didn't. We have a slew of reasons for that. We have, for instance, a great hip from Japan, a perceived failure by the said to cut rates. We have unemployment US employment figures. We have Warren Buffett selling Apple shares, and we had a Bloomberg storytelling traders Okay, maybe it's really not some cost for a panic, but of course we have some traders panicking.
And last, but not the least, is the unwiding and the highly popular trade which is called popular yen, called carry trade. We're also seeing pressure in that. So that's a trade where you borrow yen investment in their high flying currencies. But really it's just really a slew of reasons, and I don't know where to start.
Mike McKee, our policy and economics corresponding the Fed, or at least the market's expectations for the FED, are a big part of this story. The swaps market at one point pricing in a sixty percent six zero percent chance of an emergency rate cut this week.
Explain that to me.
I can't really explain it to you except for panic. It was in Asian markets where the volume is lower and people don't understand the FED. Perhaps as well. It's really come back now at the moment there's one week swaps are pricing in a five basis point move, not even a real rate cut. So at this point you can't really say that people think the FED is going
to be getting involved. There's more of a wish being the father to the man situation here in the markets, always looking to the FED when something goes wrong.
But there's some right with.
What's happened today from an economic standpoint, in the sense that the ISM services number was good, and with yields falling, we're seeing mortgage rates falling. We're also seeing gasoline prices falling, and all those things could be stimulative to the economy. So the Fed's could to sit back and say you're losing money in your equity trade, because maybe you did the wrong trade, but it's not something we can fix.
Is value.
You sort of masterfully gave this global picture of what happened in equities markets, tying in the economic data. One of the questions I've been getting this morning on social media has been about Bitcoin.
Loads of people saying, hold on.
You kept telling us that bitcoin would behave like a haven asset in an environment like this. Bitcoin seems very much tied to the FED narrative and economic data as well, But that's the same.
Bitcoin hasn't been really a haven. In fact, it's been more of a barometer of risk sentiment. And now we see Bitcoin and Easier and all the other art coins really edging lower in from me, what's interesting is the Bitcoin ETFs and the ether ETF because we've never really seen this economic climate with this product. I mean, a lot of people are comparing it to the Great Financial Crisis or other eras, but then we didn't have bitcoin ETFs then, so we're really going to keep track of
the flows. I have a story from Across Asset team about how billions were still poured into tech ETFs, and of course now we see that they're under some pain, so it's also going to be interesting to see how bitcoin ets and ether ETFs trade in this really unfortunate or fortunate depending on who you ask.
Pena'men on Mike.
We always say on this program Bloomberg Technology that higher rates discount the present values of future cash flows. So, in other words, technology investors track what the FED will it won't do. I was listening to Bloomberg Surveillance earlier, and they're talking about this distinction between the fed's lesser focus on restrictive policy and a future moved to accommodative policy. What happens next. I know that's really impossible for you to answer, but go ahead.
Yeah, that is a sort of impossible set up there, because the FED is going to want to wait as long as possible. They don't want to do anything emergency. They don't want to react to stock market ups and downs. As long as you can trade, they don't care which way the trade goes. But the data have to show the Fed that there is a significant shift in the economic outlook before they would consider doing something like a fifty basis point cutter moving much more closer to accommodative.
They're still on track for twenty five in September because they think they need to normalize, they need.
To get back to a closer to neutral rate.
And I don't think that's going to change, at least in their minds unless we see some data start to come in really badly. And the first data we had out today, the ISM services numbers come in better than expected across the board, So their caution is going to be dependent on the data, and the data at this point are not telling them they need to do anything.
Bloom Bags, Mike McKee and Isabel Lee, the best at bloom Bags Television, New York, thank you so much. Let's get more on the markets and bring in Angelocal cafas senior strategists at Edward Jones. And I'm always one for a data point. I'm thinking specifically about the Mag seven and we have this index or gauge at the Mag seven at one point in the session, it's biggest.
Drop on record. Take everything that our.
Team have just just said and apply it to what's happening with the biggest technology names.
Sure.
Hello, Clearly volatility didn't take the summer off. We saw the markets were led by the Magnificent seven and on the way lower, it's been the Magnificent seven that have been really the weak spot. I think the issue has been that of expectations. These companies continue to deliver outsize earnings growth, but the bar was very high heading into this quorder, and as a result we did see some disappointments. These were the names that have been trading at the
highest pe ratios. So as we talking about the yen charactery, heads funds, many heads fans borrowing in yen to invest in other assets, and now with the yen appreciation, they're selling some of those assets, and no doubt some of these are the Magnificent seven stocks. So we have a combination of high bar, we have earnings broadening to other sectors.
For example, this earning season, we have seen the biggest earning surprises coming from defensive sectors and also some of the cyclical ones and not the growth sectors that we have been used to over the last couple of earning seasons.
But at the same time, the fundamentals have not seen so let exactly, so let me jump in.
The fundamentals have not changed, is what you just said.
We made a big deal of the gain in the S and P five hundred in the first half of this year, fourteen percent or so, largely coming from the Magnificent seven and in years where the S and P five hundred is gained double digits in one AH, it usually goes on to perform in two AH. How much of the departure is this session for that historic trend.
Not that this is an abrupt and uncomfortable pullback. And I think there's two things going on. One is the technical picture, which if it is an over reaction that potentially move lower presents an opportunity for the remainder of the year. And then the second part we need to answer as investors is is there something fundamentally broken?
Meaning are we heading towards the recession?
Because part of a lot of that narrative has been around the growth scare, and I think for our clients' perspective, we need to first answer the latter. The US economy still continues to grow, let's call it trend or maybe slightly below trend. Looking at the GDP now estimate for
Q three is still slightly north of two percent. We just got the ism services PMI that was well into expansion territory, and the em employment component very importantly provided some reason for optimism given the Friday jobs report that we get. We do not think that the US economy in a week's time is going to fall off bed We have seen still rising earnings, corporate profits, consumers, and
corporate balances remain healthy. So I think it fits into the narrative of broadening in market leadership away necessarily from the overall potentially over extended peck.
So we are still posed for the remainder of the year.
But we don't think that the Magnificent seven are going to be once again the ones that everybody gravitates towards.
Angelo.
Chief of what among what you've just outlined is in video, we are way off session loads and video is down six percent, but one point in the session was down fifteen percent, which for a company that size is a big drop. There was a report from the Information that said Blackwell, the next generation AI accelerator with face delays due to a design issue.
Over the weekend.
In video got back to us and said that actually Hopper demand is strong, Blackwell sampling is started. They don't comment on rumors, et cetera. You just said that we'll move away from sort of the concentration of leadership, but we have to wait until the twenty eighth for this month to get in video earnings. That's quite a long period of time in which the markets could have some anxiety for what has been a leader in the direction of travel.
What do you make of that?
Yeah, the Nvida is the last of Magnificent seven to report earnings, and no doubt, it's not that everybody the whole world is watching the theme so far with everybody's excited about the artificial intelligence, but there has been some skepticism over the last couple of weeks and investors are getting increasingly impatient to see the heavy spending of AI
translate into eternal profits. But what we have been hearing from the remainder Magnificent six of the seven that they have been spending, so that should continue to be a pail wind for Nvidia. And I think what we're all been with here is again the high bar of expectations when you have a stock that's been up so much over the last couple of years and so this year, even with the recent pullback, Naturally that creates tension points whenever news like we have been getting over the last
couple of weeks emergence. But at the same time, again we still continue to be positive around artificial intelligence, not only for this year, but for the next five to ten years.
And I think that that is important for investors to remember.
Angel Local Cafe senior strategist Edward Jones, thank you. We said that this all started in the Asian session. The taie X saw its worst day in fifty seven years after TSMC shares plunged nine point eight percent, a record daily decline for the AI chip maker. TISMC accounts for more than thirty percent of the taie X, which closed down eight point four percent. It's worth sell off since nineteen sixty seven in the seas In Japan and South
Korea also significantly in their Monday sessions. Coming up here on Bloomberg Technology, we're going to hone in on Apple as shares plunge and Berkshire slashes its steak in the iPhone maker. The stock down three point three percent, again of session lows, but a significant decline.
This is Bloomberg Technology.
I believe it to buy an opportunity for the high quality of large cab memes that we like.
To buy in these types of periods.
Dan I was of Webbush earlier saying it's an opportunity to buy the dip in big tech. I know he's not alone in calling for that this morning. Let's also take a look at shares of Apple. We are way off session lows, but at one point in the session we're down more than ten percent, which was a worrying way to start the US session on a Monday. Let's bring in Bloomberg's Mark German. One of the catalysts or newsflow items of the weekend was Berkshire halfway slashing at
steak in Apple, largely to generate cash. But there's his story on the Bloombag about how Apple investors have been urged to keep calm in spite of what happened elsewhere. We just concerned about growth the Apple side of this story.
Please, when you have declines.
Of this magnitude, you mentioned the ten percent decline in the early hours of trading. Now it sounds to about a three percent decline. These are more macro related issues when you have those big swings in that volatility. Right, There's nothing that Apple necessarily did. There's no news item related to Apple's actions a product its earnings.
From last week. A lot of this has to do with macro.
Concerns, the situation currently going on in the Middle East, the uncertainty surrounding the election, people wanting to hold onto their cash. But of course, as you mentioned the Warren Buffett Berkshire Hathaway news from over the weekend compared to the beginning of twenty twenty four, as steak in Apple is now half.
Of what it was.
He still hasn't about an eighty four point two billion dollar steak, So a huge steak remaining in Apple. But when you get those headlines about Warren Buffett right telling that much Apple over the course of the last six to eight months, that could be concerning combined with some of the other concerns greater China, artificial intelligence growth, the performance of the iPhone moving forward, their guidance certainly all of that combined in addition to the macro factors.
Bloomberg News reflected going into Apple's earnings that some of the run up in the stock over recent weeks and months had been really about faith that Apple Intelligence would deliver. You've written over the weekend after earnings that actually, with Apple Intelligence, there's a long way to go.
What were your arguments, Yeah.
Apple Intelligence obviously is going to be a big initiative for Apple moving forward.
They're marketing this heavily on the earnings call.
I didn't get an official count, but I'm sure Tim Cook mentioned it at least fifteen to twenty times. Nearly every analyst asked about it. That has been a big catalyst for stock growth. But I don't think the initial feature set or even the future set in totality is something that's going to drive iPhone upgrades for this cycle. I think it's something that's probably going to drive upgrades
in future cycles. Now, I want to be clear, I don't think there's a connection between realizations about the performance of artificial intelligence and this Apple stock decline. If you look at the rest of the market, they're in decline as well, So I think it's largely about more macro factors than anything very specific.
In particular Bloomberg's Mark German on All Things Apple, Thank you.
Time for talking tech and first Up.
TikTok is being sued by the US government for allegedly collecting data on children. In a suit filed on Friday, the Justice Department claims the app has allowed millions of kids under the age of thirteen to create accounts without their parents' knowledge or consent in violation of an online Privacy Act. TikTok previously reached a settlement in twenty nineteen with the FTC on concerns related to child privacy.
Plus.
Online trading platforms from robin Hood to Fidelity and Charles Schwab have been suffering outages amid a surge in volume during this market sell off. More than fourteen thousand users reported an outage at Schwab at nine to fifty am in New York. That's according to the website down Detector.
The firm did not immediately respond to requests for comment, but a company account posted on the social site x that some clients may have difficulty logging to Schwab platforms and shares of in Video falling today amid the tech sell off. According to reports, the company's upcoming AI chips will be delayed by three months or more due to a design flow and in Video spokesperson responded to Bloomberg over the weekend, saying, as we stated before, Hopper demand
is very strong. Broad Blackwell's sum has started and productions on track to ramp in two h Beyond that, we don't comment on rumors all right more on AI. Groc has raised six hundred and forty million dollars in a Series D funding round, bringing evaluation to two point eight billion dollars. The startup focuses on building fast AI inference technology to supply increasing demand delights, bringing Jonathan Ross, founder and CEO.
Of GROCK for more.
Just last week, we were speaking to Lisa sou the MDCO about the move from training to influence. It's a sizable chunk of change you managed to raise. I guess the best starting place what we use the cash for.
So the first thing is that we're going to build out about one hundred and eight thousand of our LPU chips or language processing units. To put that in perspective, you mentioned Hopper the Nvidia GPU. Last year they shipped about five hundred thousand, so this would be about twenty percent of what they shipped last year. Secondly, we intend to hire significantly. We're building out a lot of features.
We actually offer a token as a service business where people can just use our hardware without having to buy it. And then we are looking at some acquisitions going forward as well.
Strategically, when did GROC sort of say okay, inference needs to be our focus and how is it helping you get sort of get ahead that There's lots been discussed on this program about the many startups and companies working on training large language models from many hundreds of billions of parameters to smaller models. You have a more narrow focus, Jonathan.
Yeah.
So Grok from the beginning is focused on inference. And the reason is training at this point is a well solved problem and we always knew that it would be my background. I actually started the Google TPU chip and we actually started with inference there because we're actually able to train the models, we just couldn't afford to put
them in production. Typically, whatever you spend on training, you will continue to spend going forward, but you're going to spend ten to twenty times that much putting it into production. You spend money to make the models, you make your money with inference. It's also a scale game, and so we've been focused on this since day one.
There's also sort of a relationship and talent conversation to be had. Yan lquern Over at Meta is going to be your new technical advisor, which was in the news as well.
Why is that important to you?
So, Yan lacun is a legendary in this industry. He won the Turing Award for being one of the three people who invented the algorithms that make modern AI work. And of course Yan Lacun is very centrally positioned in terms of AI. He's also pushing very heavily for open source models or open weights models, and this is something that's important for the industry. GROC actually wouldn't exist today
if it wasn't for open source models. We'd actually built the world's best chips, but if we didn't also have the software to run on it, we wouldn't be able to demonstrate that. And so the LAMA models for meta effectively are the Linux of the generative age, and it's enabling people to get into the AI business without having to train the models themselves.
Jonathan Ross, founder and CEO of GROC, Welcome back to Bloomberg Technology, Ed Ludlow in San Francisco. I go straight to the Nasdaq one hundred, So we're off session lows, down two point three percent or so in this session, but we remind ourselves something that we talked about on Friday. The Nasdaq one hundred closed Friday with four straight weeks of declines, So what's happening right now in the moment.
There is anxiety in global financial markets, but it's kind of been happening over a longer period of time in terms of the downward pressure on technology stocks, in particular in terms of single names and specific asset classes. Nvidia is under pressure, but off session lows. Apple actually is now down four percent and its declines are starting to accelerate, but nowhere near the near eleven percent drop at the open.
Then Bitcoin well fifty four thousand US dollars per token trading twenty four to seven, but was down eight percent in the current US session.
There's a lot to discuss. Delights.
Bring in my friend Bluembo Shnali Bassak. I mean, you had two hours on open interest, right and I think that you probably discuss all manner of things, the basics being a move into the bomb markets, the safety of them, bitcoins not behaving like a haven asset, and equacy investors are either very worried or completely sanguine. Reflects on some of the conversations that you've.
Had a few things to the point that you're making here, you're looking at the third day of declines in the s and P five hundred, and then the Nazak one hundred. It is the third day of declines of more than two percent. Friday, you saw the Nazaq one hundred really flirt with that correction territory. Then over the weekend into today, you saw the Asian trade just really really sell through the ground here. You saw really historic really moves there in Japanese equities for example.
And what you.
Saw was an unwinding of a globe carry trade. This is what investors are borrowing under a cheap currency and really plowing those assets now into higher yielding US assets, particularly stocks in this instance, which is why you're seeing that unwind. Now, the major question is how far does that unwind really go? On top of that, there's very few places to hide. To your point, Bitcoin today now flirting with about fifty five thousand, had fallen below fifty thousand.
You saw gold.
Dropping this morning, oil dropping as well. You saw a lot of risk off attitudes across the board and in the bond market as well, until you saw that ism data hit and give a little bit of a sigh of relief. You are now watching a bond market a to your yield essentially about flat on the day, so that severe bid in the bond market starting to take its foot off of the pedal here, and stocks taking a little bit of a breather along with it. Still down on the day, but not as severely as we
started the day lower. Those small cap equities also taking a major hit today as well. Remember recently a lot of traders plowing into that Russell two thousand rotation really feeling the pain, so underneath the surface, a lot of pain. I will also say takes a couple of days to see those margin calls also start to come through. Big question here about whether there is more pain once you see those calls start to come through the market.
Starting Monday with a discussion about margin calls. Happy Monday to you, Bluebooks, Snali Vassek, thank you. Let's get the investors' perspective. Nancy Tegler of Laffatengler Investments here to talk markets and with respect. You've been in and around the market so a lot longer than I But I just want to go back to the point I made in my market check that the NAZ that one hundred had had four straight.
Weeks of declines.
Bitcoin traded lower through the weekend over multiple days when you wake up to daylight today, is it anxiety or is it well, we should have seen this coming a little bit.
Well, yes, thanks for having me ED. I think we kind of did see it coming. As earning started. The penalty that Alphabet received for CAPEC spending and just somewhat weaker margins in the next quarter seemed outsized to me. And that's often what happens when valuations get a little bit lofty, and then every bit of news, every bit of headline news, drives the market because thealgoes are reading the headlines, the hedge funds are trading off of the headlines,
and so you get these big, outsized moves. If you put it in the perspective of the forty plus years I've been doing it historically, this has been a time when you've wanted to step back, not jump in too quickly, but build a list of names that you want to own. And then as the market sort of settle in the VIX comes down a little bit, then I think this
is once again an opportunity. The last thing I'll say about this ED is that the one economic number that has been little discussed and gone unnoticed was the improvement in productivity too, was came in much harder than expected, up two point three percent. The previous quarter was revised up also, and I think productivity is going to be the key, the magic bullet, whatever you want to call it, for continued economic growth in a lower inflationary environment.
Take what you just said about productivity then, and I post a question of what should the market do with that? You know, Mike McKee was on the show earlier trying his best to explain why the swats market with price a sixty percent chance of the Fed doing an emergency rate cut this week, and that seems more tied to the equities market rather than warding off a recession or not.
I'm just trying.
To tie macro and monetary policy with the market's behavior right now.
Well, yeah, and if you had been well, you certainly know about the bond vigilandies. But that's what this feels like to me. It's the market having temper tantrum because they think the Fed is waited too long. They probably have waited too long. They've been behind the curve, so to speak, all the way through this process. And this notion of being data dependent in a world where you need to be looking forward and where they're four hundred
plus PhD economists are forecasting models. They have made, in my estimation, an enormous policy error. But that said, stocks ultimately should trade off of earnings. I think we get a cut. I don't think we get an emergency cut, as the market would like. And I actually think that would be bad because when you look at the economic numbers, the economy is just fine. I mean, the jobs numbers are revised dramatically every month, and so I think you have to step away from that and say, you know,
was that an aberration on Friday? Is I mean, we know the job market is softening, but is it collapsing? I don't think so. And so I think this is an opportunity for long term investors once the dust settles, because there there'll probably be a few more runs to the downside. And then I think you step in and you add to high quality memes.
Nancy in Video reports its earnings after market on August twenty eight. How uncomfortable are the next three weeks going to be?
I think they're going to be uncomfortable ed. I think that, and remember we've seen this every year twenty twenty two, twenty twenty three. We were told in the summer and the summer swoon that the tech trade was over, but remember the CAPEC spend that Alphabet and Amazon and Microsoft have been punished for is someone else's revenues, and so I think in vidious likely to surprise to the upside we heard from Lisa Sue. I heard you mentioned her earlier.
That's a name where we've been adding. I think it's going to be a catalyst for some outperformance and stabilization.
If you're able to please, can we look a hot head to the second half of the year. We talked a lot about how in years where the S and P five hundred registered is a double digit percentage gain in one age, it often performs well in the second half of the year. I think the NAZA one hundred has similar precedents or history. Is that your expectation of what's to come?
Yeah, Well, based on what I've heard from the companies from an earning standpoint, you're hearing and most of us are hearing, that it's not been a good reporting season so far, but there have been very meaningful bright spots, Companies raising guidance, companies expanding margins. So I think that you have to again, as always, you've got to let
the markets work through this stuff. But the second half, based on what we've seen at the company level, should be better and up in our view, and seasonality is in our favorites and election year that doesn't always work, but we do think we'll certainly be higher by the end of the year and even into twenty twenty five.
If the tech trade is over, people need to be much more worried about the rest to the market because technology is embedded in every aspect of many companies day to day and their future earnings and margin growth.
That is the argument that Bloomberg Intelligence is Gina Martin Adams literally wrote this morning. We're going to talk about it with her later in the show. Nancy Tengler, CEO and CEO of Lappetengler Investments, thank you very much. Now coming up on the program, we're going to be joined by Matt Wieiler from Wellington Private Investments for his take on private markets late stage investing.
But there are.
Always parallels with what's going on around the world, even with public markets and public acquities. I'm really looking forward to this one that's next. This is Bloomberg Technology right back to financial markets and megacap tech. We're going to look at the Bloomberg Index, which tracks the Magnificent Magnificent seven. These are the biggest megacap technology companies. At one point
in the session, the biggest drop on record. We've paired that that's kind of the story of the session so far, down three point four three point five percent on the mag seven. We've outlined all the concerns so far. Part of it is the worry about growth, and we can wait until Video's earnings on August twenty eighth to carry on that conversation about growth, particularly in the context of investment in AI infrastructure. But there are lots of parallels
between public markets and also private markets as well. Let's talk about the investment landscape when it comes to late stage private tech companies, also IPO tech activity. I suppose with Matt with Hyler, consumer and Technology lead for Wellington Private Investments, also joined by my friend Hemma Palmer of Bloomberg News.
Good morning to you, Matt.
When you wake up to a daylight today, you're largely focused on growth.
Stage venture investments.
There are different factors you're tracking, But how do you react?
How does it make you approach your day to day work.
The short answer is is that on a day to day basis, the fluctuations in volatility in the public market don't really impact the late stage private market where we focus. There's obviously implications if this persists when it comes to exit opportunity with the respect to IPOs and valuation concerns, but the day to day volatility doesn't really impact the late stage private market unless it sustains.
And when you look at AI, you know, some of the a good portion of the pain we're seeing right now is in the AI stock space. Does that inform how you look at AI investing when it comes to late stage growth investing in artificial intelligence?
Again, I wouldn't characterize the public markets as having a huge implication in the short term on the late stage private market, but I would say, you know, with respect to AI, you kind of have to think about and address us question number one is is AI a transformational shift in technology platforms?
You kind of have to answer that.
And then the second question I think you have to answer is kind of where are you with respect to AI based transformation or AI lead transformation? And I think those are the two questions you have to answer as a late safe private investor to think about where you should be deploying, if at all, and what the landscape looks like not over the next month or two or quarter, but over the next multi day.
So as you look to invest the seven point five billion that you oversee in private markets, where is the biggest opportunity for you right now?
I mean, I think I couldn't be on the show and be talking to both of you about talking about AI and AI lead disruption when you think about fundamental transformational shifts in technology. We believe that AI is a disruptive technology that will be a generational shift and how technology is ultimately deployed and adopted by enterprises. But then to the second question around how are we or how far along are we in that transformation?
I think we're very early.
And so when we think about opportunity set and we think about AI, we're long term, very.
Bullish on the opportunity.
You think shorter term and think about where we are within the inning the game of AI, and given how early we are, I think one of the questions that we end up asking ourselves with respect to AI is will today's winners be the winners that persist over a long time, and I think when you look historically at tech led disruption, when it comes to generational shifts like the Internet, like cloud, like mobile, the early winners oftentimes are not the long term winners who end up creating
multi billion dollar public companies.
Matt, you said that term or daily volatility doesn't really impact thinking in the hearing now, but it does impact sentiment towards markets, and therefore we need to ask about IPOs. You know, where do you see the remainder of this year with some of the late stage companies that are waiting in the wings to go public.
I mean, I think, as you've talked about through the show, ed, the landscape has changed pretty dramatically over the past two days, two trading days, and absent those two trading days, I would have said that the IPO market is probably on the rebound, likely to start accelerating through the back half
of this year and early next year. And given the noise, the volatility we're seeing today, will it cause the company that maybe's on the margin thinking should I go public or not to reassess and maybe delay until early next year?
Most likely?
That being said, if you go back, not over the last five.
Or ten years of IPO data.
But if you look back at the last fifty years of IPO activity levels, generally.
The IPO window in other words, the.
Amount of IPOs coming out tends to be dramatically below the norm or the mean for one to three years. And if you think about where we sit today, were kind of in the middle.
Of year three, the first quarter of Q.
Three of IPO activity being meaningfully down compared to historic periods, and so based on that, I would guess that we maybe have anywhere between zero in twelve more months before we do see a rebounded IPO activity, and.
We're starting to see a little bit of it today.
If you look back last year, we had three tech led IPOs go public last year. This year you're to date we've had five, so already at an accelerated pace. Will we take a pause given what's going on today?
Potenti Matt with Eiler Consumers, technology lead for Wellington Private Investments and Bloomberg's Hemmapalma. Just very dynamic and timely conversation.
Thank you. Back to markets.
Let's bring in Gena Martin Adams of Bloomberg Intelligence and Gina are going straight to your bio on the Bloomberg terminal this morning. I'll summarize, but you're basically saying, look at earnings in aggregate on the S and P five hundred and stop blaming earnings, Blame something else.
Who are you holding responsible for what's happening?
Gina, Yeah, I think that really if we look at the sequence of how the market is melted down over the last couple of weeks, it's been predominantly about tech and kind of a loss of faith and tech. Now, I think it's important to consider where we've been as well when you look at the broad markets. We wrote a couple of notes last week that I think you're pretty telling.
The first is we.
Identify three and forty four reasons why tech faced in possible expectations. Those reasons are basis points and valuation multiples four thousand basis points above long term average or five year average. On the multiple would suggest that expectations for tech companies were extremely high coming into the last week. Yeah, a couple of key headline misses, but for the most part,
tech companies actually satisfied second quarter expectations. It was about their guidance and this is the trigger that the market really played on. Then you piled on top of that some key macro indicators in the ism and the employment numbers that weren't as strong as many had hoped for, and you have a full meltdown on your hands. But this is really at the foot of tech, and investors' expectations that tech was of tech were just far too
high coming into this earning season. We're now normalizing those expectations, and that's creating a bit of panic in the market.
Investors' expectations are interesting. I mean, I think about Microsoft, for example, is just one case study where they missed estimates on cloud growth by a percentage point but still registered twenty nine two nine percent top line growth in the most critical unit. Is it just sort of idiosyncratic or is this broad based anxiety from investors that something will give way on the growth narrative overall?
Yeah, I think it's a great question, and it's really difficult to tell so far. But what I can say is over the last week, what we have seen is just severe punishment of any tiny nuance, as you correctly highlight with Microsoft, very very strong aggregate growth, but a tiny nuanced miss was enough to really create a lot of uncertainty around that story. You see a lot of the same emerged with Amazon, similar sort of reactions even to Alphabet, So across the tech and tech adjacent space,
we saw very similar reaction functions emerge. And that is I think investors just got ahead of them to their skates. They were expecting tech not only to beat, but to raise expectations beat almost perfectly. That was embedded in valuations, and now we're normalizing that.
Now.
This is tough because at this point in time, it was impossible for tech to keep creating stronger and stronger momentum earnings. We're now getting to the point where third quarter, second quarter, third quarter earnings of this year are facing incredibly tough comps. So tech earnings, even in the best of circumstance stances, are going to show decelerating growth rates over the second half of this year for the first
time in quite some time. They were the only story of accelerating growth in the market in twenty twenty three and early twenty twenty four. Now they're showing some decelerating and growth. Well, the rest of the S and P five hundred is actually showing the growth acceleration, But we're kind of ignoring that because tech has been so key to the market performance so far this year.
Well, you can also sort of pick and choose your data point, right, So in the first half of this year, the S and P five hundred rows fourteen percent, largely attributable to the mag seven.
Right.
But the other data point is that in years where the S and P five hundred has registered double digit gain in one h it usually does quite well in the full year or the second half of the year. So which one do you put emphasis on? The index or the names that drove the gains?
Initially, I think it's a combination of both. I hate to wiggle around your question with them awfully answer, and I do think it is a combination of both, because if tech continues to sell off, if we still have weakness in tech, it's almost impossible for the index to overcome that. But the tech seloff is really about right sizing expectations and the rest of the index is producing growth.
This is one major nuance when we compare twenty twenty four to twenty twenty three that I think is important to acknowledge. When tech sold off in the third quarter of twenty twenty three, remember we had a ten percent correction last time this year as well, but when Tech sold off in that instance, it was basically a one for one. As Tech sold off, the S and P five hundred sold off just as much. This time, the S and P five hundred is down just more than
half or just about half as much as Tech. Okay, because you have some natural stabilizers that have emerged in twenty twenty four, with that our news recovery that is emerging in the rest of the index, does that sustain itself? Can it gather a little bit of momentum and a little bit of attention is a really key question we should be asking right now.
Yes, Tina Martin Adams of Bloomberg Intelligence, thank you so much this Monday. That does it for this edition of Bloomberg Technology. Don't forget to recap all the conversations had today on the podcast. They were dynamic and there is a lot going on your where to find it on the terminal, the Bloomberg platforms, as well as on Apple, Spotify, and iHeart from San Francisco.
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