>> from the heart of where innovation, money and power collide in silicon valley and beyond, this is bloomberg technology with caroline hyde and ed ludlow. ed: i'm ed ludlow in san francisco. this is bloomberg technology. meda says it will be the world's leading ai company but investors do not like the romance -- the roadmap to get there. a massive drop in zuckerberg's stock. from earnings to ipo's we speak to the ceo and rubric's on

listing day. $14 billion goes to micron from the chips act to boost america's memory chip prowess. there is only one story that matters right now and it is meta-. you see the share reaction to mosque -- zuckerberg outlining billions of dollars to building out ai infrastructure. expenses, arrange raised, capex raised. the focus of the call was on the product cycle. how many years will it take for this investment to would materialize in sales growth. that's the question on the stock is on track for biggest drop since october of 2022. remember how well it's performing year-to-date. look at the market cap, the scale of this company but also the market cap lost. the reporting from kurt wagner

and the analysis from analyst mandeep singh. mark zuckerberg was cognitive on this call but what he tried to do was say trust me end bear with me i've got a plan for ai to have an impact on the existing business. explain what we learned. kurt: he was saying this is not anything that's going to return to shareholders quickly but be patient, he said smart investors will see the benefits of this long-term plan. suggesting that anyone who is savvy or who sees the future like i do they will be in this stock even though it's taken a short-term hit. it's a little bit combative. it's one thing we don't necessarily hear from him which is pleading to investors be patient and hang tight. you've got to whether a little bit of the turbulence in the meantime.

ed: when you look at the fundamentals of this company, you and i would -- were discussing before the earnings print where do we look to see if there is evidence that the ai is impacting the top or bottom line. i looked at the impressions growth i look to the pricing growth because this is an advertising based business. what did you see in those numbers? mandeep: it continues to be impressive and that's driven by better field recommendations, ad targeting is better. ad pricing was much better in the europe region if you parse through the numbers. north america was lighter. part of that could be explained from the pole back that everyone is expecting from chinese advertisers. but they did not call that out. clearly that is a risk and that's why the guidance was wide when you look for to q. at the end of the day when you

look at the cost growth, that will be in double digits so if that mid to high teens revenue does not pan out for some reason , that is when you will see margin compression. so far the story has been cost control and revenue growth accelerating. now that story could change because the cost will grow double-digit and if the revenue growth does not match and there is a risk. ed: meda is down 12% but on a points space is clearly dragging down the nasdaq 100, the s&p 500. the semiconductor index that was put on there because of a knee-jerk reaction. nvidia last night fell. it is now up 3% and the logic is zuckerberg said 800,000 gp's come online as meta-trains its ai model. the other area of interest is zuckerberg's kinda fired up about things that surprised him.

he spent a lot of time talking about glasses, but there is still this confusion. is the metaverse still a strategy? the year of efficiency, just trying and clearing out the muddy waters on what zuckerberg is trying to do. >> there so many things they are working on at one time. it's understandable someone might be confused but he brought up the glasses a lot and what he said was these are progressing faster than anticipated so the glasses is the idea of wearing a pair of spectacles that look like reading glasses or sunglasses but have all kinds of ai or ar features packed into them. they are working with ray bans to produce these right now and what mark zuckerberg was saying is these of gotten so good so fast it's encouraged me to continue to invest in ai and put money into the group building this.

i think this has been his long-term vision. he thought they would sort of be the next iteration of the phone. you would wear it on your face but now he saying he thinks they will be faster than he anticipated which is why we are seeing this increase in spend. ed: we have had sort of breaking news headline since we've come on the air and it relates to tiktok. bytedance has published on its chinese website a statement basically saying it has no plan to sell tiktok. bytedance has no plan to sell tiktok. we need to dig deeper to understand what they mean by that. you've also published research, your latest thinking on tiktok just this morning on the bloomberg terminal. just explain the basics to us. mandeep: tiktok has a lot of original content that goes

through instagram, youtube and so if tiktok is banned a lot of those creators have to go to some other platform. whether it's youtube shorts or instagram we -- reels you can see a lot of the original content creation happens on tiktok and that's where you will see meda being a beneficiary but i am excited to look at the youtube numbers because to me youtube should be the 15% consensus numbers given the kind of viewership gains you have already seen with youtube and so i think that is the one aspect people need to think about is the creators will not wait for nine months to move. they are going to start thinking about what's the alternative platform and where they can move their followers. that's going to determine gains for snap, youtube and meda in the coming months. ed: it's important we know on the earnings call the analyst

asked mark zuckerberg for reaction to tiktok. the cfo jumped in and said they are monitoring that situation closely but it was too early to tell the impact of the tiktok divest or band. we will dig in but thank you kurt wagner and mandeep singh. coming up on the program sales forecast fall short of wall street expectations but there is some positive outlook ai related. we will speak to bill mcdermott. there is a lot happening at once in the markets as well. microsoft and google reporting after the bell. those are pretty significant declines in the idea is we are worried on the back of meda's earnings, that all of this spend on ai infrastructure is not bringing some big boom in generative ai driven sales growth. actual software products that people use and companies make money from.

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when you go for something big like this, your kids see that. and they believe they can do the same. earn unlimited 1.5% cash back on every purchase with the chase ink business unlimited card from chase for business. make more of what's yours. ed: service out with first-quarter results but it's the outlook where the focus is projected subscription sales will increase in the current period, that was below what the street was expecting but those are street expectations what about the big expectations of the company ceo. bill mcdermott joins us now. let's cover off the classic earnings stuff. you have a strong quarter and then you given outlook which relative to concessions

estimates was disappointing. what would your pushback to that market reaction be? >> first you have to look at the triple play we just pulled off and we had a beat on the top line, a beat on the bottom line and we raised the full-year guidance. so if the high-class problem was solving for is we did not raise the guidance enough, everyone can really relax because over the last five years that i've been here we always beat and we have every expectation of doing so again. ed: i want to invite you to give the basics of what service now does. a portion of the audience knows the name. they might appreciate just an explanation of what you are doing out in the world. my summary is you are trying to capture i.t. spend, the budget for i.t. spend for all kinds of companies. bill: the best way to sum it up

is think of service now as the ai platform for business transformation. if you look at companies today, they need a platform on an end to end basis from i.t. to the employee experience. and the way they build new products. they need one platform that can do all of that. what is unique about ours, we built it organically. it is pristine. it's a sheet of glass that lies above the mass that's been created for the last half-century. the big movement today is now what is the new frontier. the new frontier is generative ai and people say generative ai what is that mean. they need to optimize their processes and every enterprise

will be engineered with generative ai. we are the first mover and the market leader in that category in the enterprise. so the future glide path could not be brighter. >> the stock is down, 6%. i know there is some pressure in the market this morning because of meda's earnings. let's talk about rpo because that gives some evidence of the backlog meaning remaining performance that's basically sass speak for backlog. why should the investor base be more positive about that? bill: they should feel good we have nearly $18 billion and remaining performance obligations so that his business we have in the backlog that has yet to be fully recognized. so the backlog is there.

we are beating on the revenue. we beat on the revenue by 100 basis points, the margin by 150 basis points. our free cash flow was up 47% and our gross profit was up and we were talking about was the increase in the guide enough. you mentioned perfectly 18 billion in backlog. the company is on a tear. you've great companies like microsoft and ibm as an example that are transforming their employee experience with a digital first support model freeing up all kinds of resources and fueling innovations on service now's genai. novartis delivering new drugs and increasing operational efficiency by streamlining clinical trials research and financial management with our genai and there's countless other examples. genai right now is a small part

of the overall total. but, the uptick in future sales in generative ai when companies reengineer the way they run on our platform is that believable because there will be half a trillion spent on it in 2027 alone. this is a really big market. we are the leader and we are teaming up with the best in the business like nvidia, microsoft, ibm and others to create a bright future. ed: the stock is down 6% and there are reasons why for that in the short term. one of them is probably meda, you're the ceo of service now but to extrapolate from meta-, part of that concern last night was all this investment is going into the underlying infrastructure that supports generative ai. meda is a case study they are not yet seeing that investment in the infrastructure translate

to topline growth. tangible evidence that they are selling ai as a platform. in your case you are only selling it as a software and just explain that thesis, should we be as concerned that corporate america has not yet worked out how to sell ai. bill: absolutely. first of all meda is a great company. they have very good results, and their guide might've been muted in terms of the return on genai. they are running large language models and that is very important for the future of the world and they are doing a great job. we are running small language models which basically means we run our platform with the customers data in mind. so it is rocket fast, zero latency. because we are using the customer's own data there is

total accuracy and 80 is very inexpensive and that's why customers are buying our genai now because it is secure, inexpensive to run and it's 100% accurate based on the customers data. that is what they are buying right now. we also have an open platform where we integrate with meta and we integrate with google and microsoft and all of the other market-leading companies out there should the customer want to reach into large language models. and we teamed up with nvidia where nvidia probably our greatest partner in this category is running small language models for us and large language models with their compu power. let me give you an example. let's think about employees and customers. think about generative ai deflecting all the soul crushing work that people do not want to do anymore. so think of employee and customer deflection where

virtual agents can do the work but people used to have to do. think about software engineers increasing their productivity with the speed of innovation by nearly 50% by texting something in natural language and turning that into software code. there several other examples but the point is small language models are selling today, we are making a lot of money and large language models are also available on our platform but our customers are tearing up with microsoft for example on copilot and service now on our virtual assist ai platform and we got it together as better solutions for the marketplace and that's what's selling today. >> i appreciate the depth of the answer. thank you so much. microsoft goes public amid a rising demand for data security.

this is bloomberg technology. ♪

ed: rubric which focuses on data management recovery from ransomware attacks and accelerates cloud mobility is officially going public. joining is the rubric ceo. the shares have indicated to open it $38 a share, you price this ipo at 32. tell me what that means to you today? >> thank you for this opportunity to speak with you. it's a very exciting day for our customers and partners and everyone in our ecosystem around the world. i will leave the stock price to experts and traders, ultimately we are a different type of cybersecurity company and customers continue to run the

business with cyberattacks so that hospitals are open when people swipe they get money out irrespective of a successful cyberattack or not. >> did you really need to go public for the visibility, your business seems to be doing quite well do you think it is tangibly improves your sales? >> we are working with a number of customers around the world having more visibility and more importantly when you're a public company you can see the numbers and understand the resiliency of the business, that's good for your customers, for our ecosystem. it also helps us in front of more innovative companies talking to them about and help them against the ransomware attack and this other cyberattack.

i spent two years asking if you would go public. you finally and eventually are doing it. but i think there is a feeling there's a premium on this ipo a lot of people want to see revenue and profit that comes from this but you have resisted the temptation to talk endlessly about ai. you say you do not have a core ai story. >> we do, rubric has been building ai for the last 10 years. our data trend engine is on the ai platform that delivers security from the data. more recently we announced a generative ai based defense and recovery that helps cyber defender fight fire with fire because you know they are applying ai in terms of bringing the velocity of attacks. we are allowing the defenders using ai in terms of rubric and

ruby so they can deliver cyber resilience. ed: microsoft remains an important financial and technology partner to you. how will that relationship work going forward? bipul: we have a very strong relationship with microsoft. we have been partner of the year for usn u.k.. we continue to innovate together and help our joint customers get cyber resilience make sure they withstand cyberattacks and run the business because digital trust starts with keeping the services up even when you are attacked and a cyber breach has happened to you. ed: after two years of asking you would go public, you did. we need to talk about the markets let's look at the index level in the majors. there are several stories. meda's earnings results and the reaction in the meta-stock is a factor particularly on the nasdaq 100 but we have a gdp

print for the united states. economic data that was the opposite of what equities markets wanted to see and that is the economy is slowing down. that is a big thing particularly for technology shares in the market today, a look at the nasdaq 100 down 1.6%. the s&p 500 and the broader nasdaq also down in similar territory. the market is saying let's rethink some things, now betting the first fed rate cut comes in december. we continue to talk about that. this is bloomberg technology. ♪

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ed: welcome back to bloomberg technology. i think we need to go back to the markets there's a lot happening in the lot of red on the screen behind me. the story is multifaceted. meda's earnings and a 12% drop in meta-stock is having an impact on the index level but economic data is also hitting technology shares. we got the gdp reading for the united states that came in softer than expected and the rationale i'm seeing in the markets coverage is the equities market did not want to see that. we are recalibrating when we think the federal reserve, america's central bank is going

to cut interest rates or move on interest rates, we are moving from the summer to now thinking december is when that will happen prayed all of that impacts the technology sector. semiconductors, really curiously it's nvidia that striving is higher. when meda headed statement on its capex from ai investment, nvidia fell but in the actual session today it's rising. the idea is if meda will spend money on ai it will be in nvidia where they are spending that. we will keep checking in on it. it's a wild day where news flow and economics combining. and we love that. the clock is ticking for tiktok to avoid its ban in the u.s. should it be unable to divest. joining us now from d.c. is mike sheppard. mike leads our coverage with the intersection of politics and tech. we had that breaking news

headline that bytedance saying through its chinese website that it has no plan to divest or no plan to sell tiktok, that was the wording. i don't really feel like i understand what they mean by that. they are digging in. >> the statement in a way is not that much of a surprise. they've made clear through this process as the legislation started to take shape last month that really started to look real like it was going to happen. that they have no intention of playing ball and they would try to fight it with every arrow in their quiver. they really want to make sure they are able to hold on to this valuable asset and resist what they're able to see as interference in the valuable media property. >> there is a lot happening quite quickly.

we reported bytedance was thinking about a solution where it sold tiktok but without its sacred algorithm and on the show yesterday we talked about why the algorithm is so important for content creators in particular, the president signed this into law yesterday as far as i'm aware the president hasn't actually pointed or talked about his view on tiktok, just update us on the politics of the last 24 hours. >> this is a great question because politics is really surrounding this not only the geopolitics between the u.s. and china but even the domestic politics. on its surface back in march president biden said he would sign the measure, but he hasn't really expanded much more. to be clear the tiktok bill was attached to a much larger foreign aid package which was a far greater priority for the president and his administration. they wanted to see a ukraine

that through above anything else and in his remarks he devoted the lion's share of his commentary to that. at the same time his spokesperson being clear yesterday after the president spoke that selling tiktok a full to vest at your wanted. at the same time they do not want to see the app shut down. they respect many users derive great enjoyment from it and also for many it is a source of business and that is something the administration does not want to see shut down. ed: really appreciate the coverage. we will talk about this quite a lot. thank you. a conversation going getting the market analysis, principal analyst at insider intelligence. we are waiting through a lot of unknowns, but where is your head at. you look at tiktok from the point of view where this is a platform where almost 50% of americans are using. what do you think will happen?

>> i think the announcement today they weren't going to sell was to be expected. tiktok has said it will wage an intense legal battle. the question is with all this uncertainty, tiktok has a lot of loyal users. many of come out in full force to defend the app and i expect they will do so again. i don't expect many to leave. advertisers are not going to leave as long as there's audiences to reach. they are not going to leave if there is money to be made. if there's one thing advertisers do not like it is uncertainty and if this uncertainty surrounding the legal battle and what happens to tiktok sends enough of them running for higher ground, that could lead to creator starting to leave end-users will follow creators wherever they go and that could

end up and undoing of tiktok before this matter is resolved in courts or if light dance changes its mind. ed: coming into the show today before the headline cost of bytedance with no plans to sell tiktok what was your thesis before that? >> my thesis in terms of whether it was going to be sold or not, what i was thinking about mostly was in terms of the algorithm and how important part of that would be in terms of the sale that could take place. the algorithm is part of what makes tiktok tick and not having it as part of the sale but less than the valuation potential expanding list of fires -- of buyers. even if bytedance were willing to sell that. >> last night during meda's earnings call when analyst asks

mark zuckerberg for basically reaction to the tiktok situation , susan li who is the cfo answered the question and that way are monitoring it -- we are monitoring it. do you have a clear winner in any scenario who the main beneficiary of a tiktok divest or ban might be in the social media landscape? jasmine: meta has been silent on the issue. there could be ramifications. in countries where meda does business, it would be a clear winner if tiktok were to disappear from the u.s. mainly because of instagram reels, it's one of the most natural fits for tiktok displaced users. i imagine a large number of tiktok users would move their or to youtube shorts. it would be a winner in terms of ad dollars. a massive player in the digital ad landscape were expecting it

to bring in $64 billion. tiktok's ad business is smaller, it is about 10 billion ad dollars. $10 million in ad revenues so of course some of those dollars, a big chunk would go to meta as well. ed: will meta be the world's leading ai company? jasmine: it's a great question and meta is in the ai race to win it. i think it could be a dark horse if you think about the distribution potential alone it has a built in audience through facebook, instagram, i was doing some calculations after they released meta ai into the search bars last week and meta only needs 43% of the u.s. facebook users to use meta ai on a monthly basis for its audience to be as big as chatgpt is here in the u.s. and that is not

unthinkable if you consider how prominently and permanently meta ai is displayed across the apps. in terms of monetization that will be a big factor in determining who wins the ai race. meta has a competitive advantage there. we don't know how genai will be monetized but pretty much everything meta does is likely to be an ad play connected to its powerful ad ecosystem. i could see it emerging as the unexpected winner. there's a lot of competition in a crowded market to face. ed: still down more than 12%. always great to have you on the program, thank you. i broke this story with kurt wagner, we just published it on the bloomberg terminal. elon musk will be deposed on monday as part of the first arbitration hearings in the legal process where former

twitter employees have basically brought a class action against elon musk. the former twitter employees say they were cheated out of severance pay when he bought the social media company in october of 2022. the law firm will be representing almost 2000 former twitter staff in individual arbitrations as well as more than a dozen class-action lawsuits overall in the courts. that story just out on bloomberg and will surely be online soon. we have so much more ahead on the program. this is bloomberg technology. ♪ from southern new hampshire university. ♪ ♪ - i'm nervous, i'm excited. ♪ ♪ - [man] okay, let's see it. let's see it. - oh my gosh. - jesus suarez, i did it and it's here. (group cheers) ♪ ♪

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time for talking tech. abu dhabi startup chief 42 is choosing sides. the company known for a sprawling product portfolio is teaming up with american companies like amazon and microsoft and divesting from its chinese partners. the move comes amid worries from u.s. officials of open backdoors from the chinese government with some members considering an intelligence briefing to discuss g 42's latest partnership. the chinese online tutoring platform has filed for a u.s. ipo according to sources. it adds to signs beijing is looking to boost funds for its tech industry. the company is worked with advisors on a potential listing that could take place as early as this year. the semiconductor maker expect a full recovery in the memory chip market led by ai related demand. the company posting

first-quarter results that exceeded expectations for casting its fastest pace of revenue growth since 2010. they say they're entering a rebound phase and is preparing to expand capacity for its leading edge chips. let's stick with chips and memory, macron is expected to receive nearly $14 billion in u.s. grants and loans to help the company build new american factories. we are also expecting intel results after the bell, there is a lot happening in real time with the semiconductor industry. let's start with micron. they are the number three maker of memory chips. the u.s. leader of memory chips. almost $14 billion in grants and loans officially. it seems like a lot of money. it's not really is it? ian: for someone like you or micron it might not be a lot but

for me it is. when you put it in context of the 125 billion they are looking to put into a factory network that will be built over the next few years clearly it is not. it will help even the cost base between building here versus in asia or they have most of their facilities but it is not a freebie by any stretch. ed: the memory market is interesting. historically commoditized boom and bust cycles. the next generation goes into data centers for ai and micron is competing against those names. why are they wanting to on shore this in america? what is the playbook? ian: we had a conference call with political leadership behind this saying we cannot afford to have all of our eggs in one

basket. we need production of this increasingly important technology in the united states and as you indicated it isn't just a commodity or won't be just the commodity it has been in the past so we need this key technology is the argument being made. ed: we've done a lot on the program. we continue to talk about it. in the moment, intel is the next big chip name to report after the bell. what are we expecting? ian: expectations are very low. a stock that was down way below the key semiconductor, we already know the operations are struggling in the manufacturing paul. the key question we will see today is our peace is getting better, companies and hyper scalars starting to on the server chips again.

>> is the same story every quarter and we wonder if the story changes when it comes to earnings. thank you. i want to look at shares of nvidia. it is an outlier in the markets this morning. as is the philadelphia semiconductor index largely because of the pull up from nvidia. last night when meta reported its earnings in after hours there was a notable move lower by about 1.5, 2%. it's higher 2% and if you extrapolate the logic, there was concern about how much meta would spend on ai infrastructure. we are talking about nvidia's high-performance gpu's and ai accelerators going into data centers. that's where that will be spent. we will be right back, this is bloomberg technology. ♪

ed: let's talk again about meta. it's off session lows but there's a lot of anxiety in technology more broadly based on what we had in meta's earnings. in the commentary on the ai infrastructure spend that's can happen. jeffrey joins us now. on meta specifically we need to

have a bigger picture conversation, you cut your price target to $540 for 585. are you actually anxious or worried about what you heard last night from zuckerberg? >> i think it is a gift for investors. what we've learned in ai you three things you need users, data and money. the list of vendors that will survive is very small. meta is going to be one of them. for long-term shareholders this is a great opportunity, they will do $25 earnings power even a low 20 multiple to mid in the beginning between 500 plus to 600 plus in the stock. when you look back and the earnings it has huge support with stock trading at 16 or 17 times right now. in terms of the worry i don't

worry because i think they are doing the right thing. these investments are not going into the metaverse. they are going back into the core platform for users trying to have better engagement helps advertisers create campaigns faster it will send more ad dollars into the platform. it would be so easy campaign and find a user for your travel company for your apparel company , you'll be able to find more users and more relevant way. it pays off so i'm not worried. >> let's push ahead to alphabet and microsoft and if i draw commonality and there is an anxiety of what happened with meta it's the idea for all the billions of dollars in data centers around the world being built it does not yet translate tangibly to revenue growth that is selling in ai product directly. is that a thesis you share? >> we are in the age of ai hype,

not the revenue cycle yet. at our private internet conference we had many top ai leaders and everyone said ai's and infrastructure. you are dead right about this. it is nvidia, and, -- amd, dell. it hasn't gotten to the application layer. 95% of these ai deployments are proof of concept. less than 5% of them are live. how do you monetize when you are proof of concept? ibm talked about the billion dollar backlog number on their call. that was a few hundred million. the interest is building but in terms of the impact overall it still not there yet. microsoft remains in the best position because they are the furthest ahead and that the best management team of anyone with

no questions asked. they will be in a great spot but even for microsoft it will take time and again we have said this, the revenue reality is kicking in later this year and that's why investors want to be over 8 -- overweight. that's where clients are and all my stocks are red. ed: i am not asking you to do my job for me but i will speak to ruth pratt after the investors -- the numbers hit this afternoon what do you think i should ask? brent: the number one question for ruth is when is the new cfo coming on board, it's been nine months and you have not effectively updated us. two, if you did simple things with investors your stock would go up 15%. google is the least shareholder friendly company of anyone in tech and there's simple things

they can do to get the stock higher. have an analyst day, talk about ai, they're the only company that doesn't talk about ai. they all give some color. with no color and no insight and no handholding, our clients are like i want to be able to do the work and i can do the work in these other companies. right now i think investors are frustrated with that. one would be the cfo and two would be do you realize how easy it is to get your stock higher? ed: appreciate the help, thank you. that was not an answer i was expecting. that does it for a pretty packed addition of bloomberg technology. it was a big morning in markets but technology stories were at the heart of it. listen to the podcast on apple, spotify and we are also posting the pod on bloomberg platforms.

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♪ 0 sonali: welcome to bloomberg markets. u.s. economic growth slowed and inflation process sending jitters across markets and once again pushing back the timing of the first rate cut expected out of the fed. let's get a check on the markets because there is a steep drop lower. the s&p 500 lower by more than 1%. the nasdaq is down about one .4% on the day in the dow jones industrial average down about 1.5% on the day in the vix marginally on the rise. let's look at yields and where they are hea