Bloomberg's Caroline Hyde and Ed Ludlow break down what kinds of headwinds tech stocks are facing as we head into earnings season. Plus, Apple sees a 40% drop in shipments as the PC industry grapples with unsold inventory.
From the heart of where innovation, money and power Collie in Silicon Valley, NB. This is Bloomberg Technology with Caroline Hide and Ed Ludlow. I'm Caroline Hide and Bloomberg's World headquarters in New York, and I'm Ludlow in San Francisco. This is Bloomberg Technology coming up. Tech stocks facing headwinds as we head into earning season. We'll discuss why the sector is twenty percent rally may be disconnected from reality. Plus a plunge in PC shipment's Apple seeing a forty percent drop in shipments. Is the industry grapples with unsold inventory. We'll bring you the details next, and mention capital firm Eclipse raises one point you billion for two new funds, both dedicated to backing startups trying to modernize physical industries. Will have an exclusive conversation with Fanning Partner or Susan. But first, let's check in on these publicly traded markets at the moment, and interesting that we've had a little bit of a flip reverse. I think we just want to go back to the broader markets. Head I seem to be jumping the gun and being trying to tell everyone your micro moves. It is a lot about chips. We are seeing a focus on the sales that are happening at the moment in terms of PCs. What that means also for the flood of infantry and chips. But let's just move it on to what's happening in terms of the broader markets. If we can the nastac off by nine tenths of a percent, This is more about the jobs print on Friday, more about the economic fundamentals, more about the Federal Reserve maybe giving us another twenty five basis points hike in May. Two year yield up two basis points, so boring cost, justus rising to that for all important four percent level. Bloomberg dollar indexts on the higher side as we start to price in a more hawkish fed. Moving on, because what does it mean for the world of crypto? While Bitcoin, even amid this dollar strength ed, we're still seeing Bitcoin managing to pull up actually more than a percentage point. We're above that twenty eight thousand level. We all I, of course, what's happening in the world of eth ethereum. We're expecting that upgrade come Wednesday. A lot of volatility likely to come. What about the micro though. Yeah, when it comes to single movers, the markets in the tech sector are trading what happened Friday because it was a holiday here in the US. Also, you know kind of thin volumes. Samsung, the world's biggest maker of memory chips, basically said they're going to cut production to meaningful levels get rid of the supply glut. You see names like Micron and Western Digital trading markedly higher, even though broadly tech is down. TSMC also posting numbers second consecutive quarterly sales miss, and that is weighing on the US ADRs of TSMC down three percent. The other data point we've woken up to this Monday morning is the IDC PC tracking data. A long story, shortcarrow. We will get into it later in the show. With IDC a big drop year on year in PC shipment's Apple certainly the worst, more than forty percent drop in its shipments. The stop reacting two percent. Dell also sort of drop, but it's a little bit higher, a little more sangwim when it comes to that name. The reason we care is that is not a good leading indicator or four bow for what's to come in this earning season. Around the quarter for those hardware makers carry Yeah, and it is all about now bracing ourselves for the earning season. What we anticipate, whether or not we can see any real fundamental reason for it, is basically a ball market that we've gone back into in the NASDAC and it seems as though when you go to the m Live pulse, this is a great way of getting the Bloomberg user that people who are managing money trading these stocks deciding really whether they're optimistic or not, and ultimately it feels like they're not particularly they think only fourteen percent in fact, think that the earnings are going to be strong enough to really vindicate some of the rally we've seen it. The other part that we're looking at with this is the rotation into tech came at the expense of the banks. Right, you think about what happened with SVB, So the question we ask ourselves going forward is, well, that's a little bit artificial because what hurt the banks is also worrying for the tech sector. Forty one percent of respondents saying what we saw with SVB could spill over in some of the bigger names. What does that mean going into earnings? What does that mean for the tech sector, Well, we are s our audience. And this is what they've had to say in recent weeks. Carry the decline in the yields is actually driving tech stocks. And if you take a look at the Quintessential Central Fangman, they peaked at twenty eight percent of the SMP. They trotted around eighteen and they've really inched up recently. And that's being because you know that discounting mechanism, which is represented by the yield, has resulted in those long tail cash flows being worth more. These tech companies, if we're talking to some of the bigger ones, I think they're defensive and the standpoint of the health of their balance sheets. You can see that when the banking crisis erupted that even some of the bigger fan companies actually outperformed in a relative basis because essentially their balance sheets are stellar. The cost cutting once that started happen, the bottom and tech, in my opinion, was done, and that's why I believe there is still another ten to fifteen prison upside tech. If you look at the seven biggest tech stocks in the US, I think they make up almost more than ten percent of the SMP. Five hundred in terms of market cap, and that's only going to grow as people find that that's the only place to hide. But once earnings start to slow down, you should see that. You should see this segment start to start there. You should see their share prices start to fall a breadth of viewpoints their head. But actually, what hasn't there been in breadthin is the market rally in the first quarter. It was all down to some of these big tech names. That's why it's important for the broader market, right, And you look at the run up and then as that one hundred the first three months of this year, the rotation into tech, it's completely odds with earnings expectations. The data shows that we think it's going to be a pretty rubbish season, particularly for megacap tech. So how do you tally those two things? And also how expensive? Therefore tech has become twenty four times on the NASA one hundred in terms of forward earnings. That's more than we've seen over the last Hey, let's get straight to it with all. The woman has a few ancess for us, Gina Mouston Adams. We're so prettied to say she's coming to us. Of course, you know, our Broombag intelligence Gina, we are seeing a lot of adam more basically, how we've set ourselves up for the earning season. People bracing for the numbers to come down and actually what there since two thousand and six. Yeah, it should be a pretty rough earning season, not just for tech but really for the SMP five hundred at large. And indeed it's expected to be a pretty rough first half altogether. Analysts are now forecasting greater than seven percent decline in the first half. Remember at the beginning of the year, they were expecting only a two percent decline, So in the matter of just a few weeks, analyst expectations have been plumbing techs a big part of that. Both the tech and communication sector, which of course houses stuck like Alphabet and meta stocks that we generally think of as tech. Both of those segments of the SMP five hundred are anticipated to produce double digit declines and earnings for the first quarter on the heels of a really rough fourth quarter. So not much good news anticipated to come with the first quarter earning season. It's the only thing that from a fundamental perspective, may be enabling some better performance from these stocks on the communication side is the valuations are very very low. This is a group that has been trading off for the better part of a year and a half, so at least on that side of the space where the Googles and that rather alphabet and Meta Netflix disneys of the world are trading at relative discounts. So that has emerged. And then also we have seen a tremendous amount of cost cutting. So the consensus is anticipating that within the first half of this year these companies will prove enough cost cutting, rationalization of expenses and the like that they can produce a margin turnaround by the end of twenty twenty three. Gina, we talked about the rotation into tech they kind of gained and then as that one hundred, this sort of starkist example of that you have megacat tech in that indatex. You also have very high multiple software names, some of them preprofit as well. Why is there such a why are they so odd? The sort of outlook for a poor earning season and the performance of that index, Well, I think there's a combination of things going on. The first is, even though outlook the alok for earnings is relatively negative, we did price in a very negative outlook for earnings by the end of twenty twenty two. Really, as of the early part of October twenty twenty two, the market was pricing for a significant decline in earnings to come. We did see the relative momentum and analyst revisions reach a low at the point as well, So even though revisions are still going lower, they're not going lower as fast as they were in the fall of last year, so that has created some degree of stability. I think another thing to consider is at the start of this year, some of these stocks were incredibly discounted. Again, these are the communications segments of tech, not the traditional tech, but the communication stucks were trading at very extreme discounts relative to their long term history, which would imply they were relatively prepared for very negative earnings news. And then many of these companies came out and announced cost cutting measures that allowed for the consensus to start to think about a potential margin finally forming for this segment of the index. And then the whilest I would say really did support the rotation was about interest rates. We've seen a pretty big rally and interest rates, which naturally results in improvement in some of the longer duration, higher growth segments of the index in terms of valuation expansion. So it's not been about earnings really, it's more about a lot of other factors that have helped some near term recovery in this group. Caroline, you mentioned earlier the valuation question. You know later in the show we're going to pass over the IDC data with IDC. I'm looking forward to that. How much is that a crystal ball for the trouble macro environment we're in right now for technology? Yeah, Gina, to that point, you used to always come on around earnings in the clothes when I was lucky enough to be in those hours as well, and thinking about when you get about earnings from For me, the canary in the coal mine was nearly always snap and it was about advertising. But now all were starting to think more about well, inventory, about consumer, about demand, about the chip sector. Yep. And I think this is a really important distinction between This is why I keep talking about the communication stocks versus the tech stocks. Communication stocks are a different group intentionally because fundamentally they trade on a slightly different cycle. Communication stocks led this down draft. Remember that's where you saw a tremendous amount of margin weakness. That's where Snap was absolutely a good leading indicator. Now we're moving into a slightly different portion of the cycle, which you would expect would probably hammer away at some of the tech strengths and tech specific strengths, which is really more about not only software and services, but those hardware names, the communications equipment names, the semiconductor's names. The areas of the index that are really traditional tech they're subject to an inventory cycle, are the areas where, unfortunately valuations are still a little bit overpriced. Earning's weakness is emerging, has emerged over the last year, certainly with an inventory crisis that has emerged but is likely reaching more critical levels. And frankly, I think the investor base is really captivated by the idea of a cycle, and in particular with Apple and Microsoft really being able to shrug off risks fast quickly and recover quickly. Yeah, and that's a notion that we're going to really question over the course of the next earning season is how much of this is a short term weakness versus a long term weakness. How rapidly can these companies to recover strength into twenty twenty four that is likely to frame. I think the outlook for these ducks and how many times can they mention artificial intelligence to get people on sited Gina Marston Adams, I mean, thank you so much opening meg Intelligence. IDC out with its latest report showing PC demand is plunging, with Apple, for example, seeing a more than forty percent decline in shipments year year in the first quarter, joining us an now I DC Group Vice President for Consumer Device Trackers Ryan Reith, and Ryan, you know, Apple is the kind of headline here that across the industry we're back below early twenty nineteen levels for shipments. What is the principal cause really demandsload? Good to talk to you guys, by the way, it's nice like going on again put on. Honestly, it's really a demand story at this point. You know, I think you know the way we're looking at the entire market is we're basically at a correctional standpoint, and the correction is not just going to be this Q one that we just put out a report this morning. Realistically, the correction is going to be probably most of this year or the industry sees some growth around PCs. But so yeah, that's kind of where we're at at this stage, it's not a supply issue. It's not anything there. It's really a demand issue. And Ryan, the reasoning behind the demand issue. Is it that well, some of these computers haven't been upgraded of late, with silantipitating Apple to do that in the second half of the year, everyone already over indexed on purchasing them. Or is it actually when I worried about our finances, we don't want to make big purchases. It's probably more of the ladder. I think it's uh, you know, you've got sorry about that. I just pumped the table here. Um, you've got the you know, you've got the ongoing you know, inflation concerns that are rising costs of goods already, you know, the global recession fear has not gone away. It's been tempered a little bit in some regions. So I think it's probably more of the ladder that both consumers, companies and education institutions are sort of holding onto their purse strings a little bit tighter than they would And it makes sense. And I think a lot of the industry, from supply chain all the way up to the OEMs, they foresaw this coming. I think the question was really what's the magnitude going to be, And nobody wanted to, you know, over sort of correct on the downside because they didn't want to miss an opportunity like many did throughout the pandemic. So I think we're at that point now where you're gonna you know, we already heard a little bit from Samsung around memory, but we've got some really important tech earnings coming up in the next couple of weeks. Would you guys know very well? I think we're going to start to hear a little bit more, probably hear a little bit more. You know, the storm's not over, more so than the positives. But you know, I just want to sort of just preface by sort of saying that we still believe that, you know, we get into next year, that we're going to be at at or a little above pre pandemic level. So there is some positive in all this, but we're going to hear some negativity not only from what we put out today but realistically probably through the next couple of course. And ed, I mean, we already heard the warnings. The CFO of Apple himself, Luca was saying we're going to see double digit declines in the map part of the business. But it's not just Apple being affected. Yeah, And we were saying earlier, Ryan, you know, how much is your data set a crystal ball ahead of earning season? But I wonder if we can actually get even more granularity. Right, it's not Apple. You look at Dell greater than thirty percent, decline HP greater than twenty four percent. Is there any geographic or demographical breakdown you can see real pullback from the consumer. Yeah, well, it's happening across the board. I would say the pullback that we're seeing now, the shift is probably more angled towards the developed markets in the last six months, and the reason for that is because more of the developing markets around the world had already sort of corrected for consumer pullback, you know, hit a little bit harder on the wallet and so forth, and businesses sort of followed in sort of in that same segue, meaning, you know, businesses in these emerging markets sort of said, hey, look, if we needed a PC, maybe we could do another six months without buying that PC. Or if people were going to refresh every five years, maybe we can get them to six years now. And that sort of prolongs the cost. So again, I know, developed market versus emerging market doesn't really sort of break down the geographies. But you know, I think when you look at things, you know, our expectation is that, you know, the the North American market has still been doing good in comparison to the global market. You know, we've seen pockets of again I use the word strength very lightly because it's really not strength but a little bit better sort of opportunity in some of the European markets. China seeing a little bit of recovery. Going to take a little bit more time there, especially on the consumer side. So it's really spread out, but it's probably hitting the pullbacks and the developing markets a little bit more just because of the cost. Ran reath great breakdown, thank you of IDC Group, and he led us there. He started talking about China and the demand from that country. Let's stick with Apple and in fact, it's relationships with China, and you know that it's one US business that's facing some of the steepest challenges. So we say to selective decoupling as it's been called from China. It's a key lawmaker has been saying after a series of meetings with executives and experts in Hollywood and Silicon Valley over the last week or so. Let's go for more on this from the most Economics Tom Orlick and Tom, we're talking about Mike mcgallagher in particular, discussing this selective decoupling. What does he mean exactly? So we've got Mike Gallagher, the chair of a new House committee on US China relations heading over to California, meeting with Tim Cook of Apple, meeting with Bob Iger of Disney, and talking about this concept of selective decoupling. Now, the idea here is that there are some aspects of the US China relationship which are strategically important. Most here in Washington, DC, for example, don't want China to get the edge in artificial intelligence, and that's why there's now a ban in selling China the leading edge semiconductors which are required to do leading edge AI work. Other parts of the relationship, though, snapping together iPhones, watching Disney movies, cooperating on climate change, there's a desire to keep those relationships on an even keel. The big question, of course, is well, in practical terms, for a company like Apple, for a company like Disney, what does that selective decoupling look like, and is it in fact possible to have intense colastetition, intense rivalry over here, but normal relationships over there. Tomorlick of Bloomberg Economics, who, of course, Caroline spent many years in China at the heart of that economy, so knows both sides. All right. Coming up, We're going to talk Tesla, which is building a large new battery factory in China in Shanghai, further cementing China's place at the top of the global energy storage supply chain. More with that next, sickem of the world of mask. Twitter has changed its description tag for MPR to government funded Media from state affiliated media following criticism last week. You probably saw this one. The company rewrote the label on Saturday, following pushback from MPR, which hasn't used the platform itself since April fourth. MPR CEO had called the state affiliated media label quote unacceptable. This is Bloomberg time now for Talking Tech. Open AI sending its eyes in Japan. The co found Racio some altman who's here. He says, the organization is looking at opening an office there and expanding Japanese language services. After meeting with the country's prime Minister, let's move to Uber now because it's Middle East unit is selling a fifty percent stake worth four hundred million in its Kareem super app to Emirates Telecom. Now, that's an Aberdabi based firm trying to reinvent itself as a global tech investor. And Tesla will build a large new battery factory in Shanghai the ev Makawar manufacturer those megapacks, those large scale energy storage units in the new facility, adding to its factory for evs in the area, and ed you're going to talk about that more. Yeah, I've got DNA Hole who covers all things Tesla for us here in San Francisco with me on set. You and I always talk about when we're trying to report out these things. It's not a surprise. Elon Musk has always said long term, we need more giga factories all over the world. But this one's quite interesting because it's in China. Yeah, I mean, Tesla is really doubling down on its investment in China at a time when the like tensions between Washington and Beijing are kind of at an all time high. And this is not super surprising. At Investor Day, last month, Tesla talked about the energy transition. They've always made it very clear that they are more than a car company. You know, for years energy storage took a backseat to the cars, but now we're seeing Tesla talk a lot more about the energy storage products. A lot of news from tests are over holiday weekend, which often happens. They cut prices again in the United States. Where and how and why? So they changed the prices on their website late Thursday night Friday as a market holiday, cut the X and asked quite a bit, you know, shipped off some prices of the three and the why. Musk has said that they're going to chase volume over margins, and I don't know if investors are super thrilled with that, but I mean he's made it very clear that in the short term, this is the way to go. We saw prices rise up quite a bit because of the chip shortage. Now they're coming back down and he's determined to maintain that pole position and he's going to cut prices to move on them. All right, Bloom bogs Downahole, who leads our coverage of all things Elon Musk, All Things Tesla. Welcome back to mow Med Technology. I'm Caroline Hide in New York and I'm med lod Low in Sam Francisco. We've got some thin trading, to be honest, amid the holiday weekend, but most major equity indicias lower a lot of trading driven around FED bets and has that one hundred off by a percentage point. Also, the US listed shares of China Tech down more than one and a half percent, sort of underperforming the market where there's outperformances in the chips. Look at the Philadelphia semi conductor index up eight tens or one percent. When you look at the individual movers, Caroline, you kind of understand why. It's the memory chip makers really pushing higher significant single digit gains that dragging up that index, all after Samsung said on Friday that it was going to cut production and memory chips to a meaningful level take some of that supply glut out of the market. Where there is weakness is TSMC, which, as you know over the weekend said that it essentially has had its second consecutive coursely sales miss against expectations. But how quickly things are changing this sector from supply glut to no demand. What is going on. Yeah, and ultimately the self prescriptions that are going on at Samsung cutting its production and TSMC actually cutting its capital expenditures. That's the game. With Joanne Phoene, Partner Portfolio manager and Advisors Capital Management, who really we looked to you for the expertise in the chip sector right now, joe Anne, because should we expected all of this? Yeah, Caroline's good to see, you know, the challenges of the chip industry you're facing look like they are coming to an end, which is the good news. The cuts at Samsung for a manufacturing capacity is always part of a big bass boom cycle in the memory chip world. We're seeing that play out. But the Apple and TSMC news, you know, it has some people wondering just how far down the PC sales are going to ago and how long that part of the world is going to take to recover. And this becomes circular in a way, and are we kicked off the conversation of today really discussing some of the Apple issues, the fact that they're seeing a slowdown in PCs that just is highlighting the electronics demand that diminishes and ultimately that hits chips. I think John, this is where It's hard to understand what's going on, right, Is this a demand issue for the end market memory chips go into PC's are the consumer electronics? Is this chip customers going through inventory and that there is a supply gout? What for you is the single biggest factor right now that's hurting the chipmakers. You know, if for those exposed to the consumer PCs and smartphones, it's certainly a demand decline right after the surgeon purchases during the works of the pandemic, right, we're seeing them digest that and wait till they need to upgrade their PCs and their smartphones. So I think demand is largely driving what's going on bulth with Apple on TSMC and have already gone on at the other PC manufacturers. The latest data from IDC just can firms that Apple's higher priced PCs are now seeing that same kind of drop off. And don't forget we also saw news recently that Apple was cutting its demand for chips out of TMSMC, particularly the newest chip, the M two, and that you know, was also a signal of what this was likely to be for them for the first quarter. You've taken us there. It's the next generation technology The first thing that Caroline thinks of Joan when she wakes up is artificial intelligence, and when she goes to sleep, artificial intelligence is all any of us think about the moment. But in the chip sector, that's what's driving sales right now. You look at Vinvidia as the kind of prime beneficiary of that. Is that an area that excites you as an investor, Yeah, ed, you've just bridged to the exciting area of the chip world, which is high performance computing, the generative AI. And don't forget there's also a broader demand for chips out there in industrial applications and medical care applications. So while we do see right the PC and smartphone space in a demand and driven decline and all the inventory problems that came along with that, we continue to see a secular that is, multi year growth in the other areas of a more advanced chips demand, like for Invidia chips, like for servers. We know data centers are continuing to expand we have all this traffic running across the Internet, and now all of this demand for really high intensity computation driving the demand, for example, for Invidia chips. So one has to look more broadly at the chip space and not just focus in on the PCs, which we know they're encyclical decline, but there are plenty of opportunities for our companies to continue to grow through those other areas. I'm saying it's a family affair, and my husband did all of the Easter egg hunt clues this weekend VACHACPT and nearly blew my mind. But so to us, John, I mean about aside from the excitement of ultificial intelligence, there was some hope, some silver linings coming from for example IDC saying some of this pullback means maybe TSMC and the like start to get where they manufact show in order as we start to see a bifurcated world of China US as the US, but also that things are going to pick back up in twenty twenty four. Yeah. I think that's fair and one of the things we've been looking at as a potential positive driver for these markets. In addition to eventual stabilization and ultimately cuts in interest rates, which will help these higher growth stocks to recover as they have been right since late last year. The next thing to come, we do believe is going to be a recovery in earnings outlooks for the second half of this year and in twenty twenty four, and you know, you saw that Micron report and it was terrible, but yet they said, hey, we're looking at the end of this inventory clearing cycle. Things are going to get better. And so I think that ultimately the tech investor is recognizing that cyclical declines are temporary. We're probably at the worst it's going to get. Probably see companies come out with almost terrible earnings here for the first quarter and cautious guidance, but they're probably going to point beyond that and say, yeah, this is a cyclical decline. We still have these structural drivers. Let's everybody look forward to that, because these companies still have a lot of earnings power, and earnings got ahead of them once we get through the circlebal decline, and and these are companies that have to think for the very long term, particularly when I think about R and D. Well like the point you be made about where they manufacture. Sorry, Joam, So it's just you know, one thing we haven't talked about recently is the Chips Act. You know, you have Intel trying to reinvent itself on the foundry side, but also TSMC. Looking at Arizona as an investor, is there an opportunity to put your money among those names that are due to get public money support? Right is what's happening in the Chips Act, the rethink on production and supply chain. You know, I think that's going to be a relatively minor driver of the stocks. It certainly gives Intel a lifeline to get it past this technology, you know, stumbling walk they've gone over. Gives them time potentially to get into the foundry business. We're not so excited about that name in particular, but the other ones, though. What you can start from these subsidies is ultimately decline in the depreciation that they'll have to take against these new factories, and that should help sustain their margins. That's a good thing, but it wouldn't drive our investment thesis. Overall. We still want to look to see whether they have a leading edge in the chips they're producing or designing, and whether they're serving the right markets, the ones that are really growing. So I wouldn't use that as a real driver of an investments at this point, but it should help sustain some margins. And one company, of course, we were shining a line in the companies that do well on the day, the Microns, because Samsung's going to pull back in terms of its supply Joan. But I remember speaking to the CEO of Micron, who a year or so ago was saying, boom bus cycles that're over, weren't it for the long term. We're going to see IoT, we're going to see autos, and we're going to have this perpetual need for chips that doesn't seem to ever work out. That wasn't the great hope, and we heard it from many companies, from Texas Instruments to Micron to others. I think, though, we have to take a little bit of a step back recognize two things. One, it is the case that the demand in the use of chips is far more diverse now than it was the case in the nineteen nineties and the first decade of the two thousands is what happened to disrupt that whole thesis that chip demand was more diversified and therefore there'd be less of these cycles, which in the past had really been driven by the PC. And when the new chip came out, what happened was we hit a pandemic and the pandemic coordinated the purchases by lots of companies and lots of people of new PCs and new smartphones, and now we're seeing the backside of that where they're now pausing since they just bought a bunch of new stuff and they're waiting. We didn't expect to see that kind of a shot to the PC and smartphone cycle that really probably only came about because of the pandemic. I think once we get beyond this, I think that more diversified and market dynamic will come back into place and we'll see much smoother cycles going forward. Or the chip industry as a whole. Joan Poeni partner and portfolio manager had Advises Capital Management. Someone Caroline on the research and investing side has covered that sector for a long time, and it's interesting to get the kind of real time views on that newsreaction from an investor's perspective. Now coming up, betting on real world industries to redefine the next decade of tech. We're gonna be joined by a CLIPS founding partner, Leo Susan for more in that next character. Yeah, let's just check in what's happening in the world of crypto, there was this key story if you're following the FTX fallout, well, the debtors, they've just been releasing their first report since the collapse, and it doesn't paint a pretty picture. Unsurprisingly now, the report says that the company lacked fundamental financial and account and controls, stifled descent within the company, and that top members even joked internally about their tendency to all lose track of millions of dollars in assets. Former CEO Sam Bankwinfried faces trial in October after pleading not guilty to forward and campaign financial law charges. Let's just check in though, on the broader crypto's scene right now, because bitcoin the strength still there. We're at twenty eight twenty eight and a half thousand now, and even if getting a little bit of a bid despite strength in the US dollar today, we're all thinking about Wednesday. We're all thinking about the Shanghai, the ongoing nature of a move from proof of work to proof of steak with Ethereum, and some of the unstaking of some of those eighteen million ether that have been locked up for a few years. From New York, from San Francisco, there's a Bloomberg have private markets become a victim of their own success. That's what new research from Bloomberg Intelligence would suggest. As a surgeon fundraising more than doubled in recent years during the error of low rates. This environment curvated created some perverse incentives for valuations, right as cash rich firms chase deals. B i AN Lists, in a note published today, say they now expect institutional investment in private equity and venture capital to cool off as restructuring marked down, slowing dry powder for deals and rising interest rates force basically a reevaluation of that risk reward equation. Now, there are some firms out there that are still raising money, powering through with new fund. Silicon Valley firm ECLIPS just raise one point two billion dollars for two new funds, both dedicated to backing startups Caroline that are trying to modernize physical industries. Fund five will focus on early companies, while Early Growth Fund two or back more mature companies. Delighted to say that the Clips founding partnerle Or Susan joins us, Now, this is interesting. You want to back startups that make stuff, actual physical stuff. Why why is that so appealing to you? Because, first of all, thanks for having me focus, and you know, it's because it's matter and the end of the day, we'll live in the physical world. Seventy five trillion out of thee hundred trillion dollars, it's industries the belt physical and those industries did not add the same digital ons formation that we are sol familiar in the world of Internet and etc. We want to digitize in those industries because I think it's matter and because I think the impact from financial point of view is going to be tremendous. Leo, there's a name at your firm familiar to me, Charlie Mwonghi, who was an executive at Riving, and that got me thinking about your strategy. A lot of the areas you're looking at require scale and they're very capital intensive. Does that make them more risky as a VC investment? You know, that's actually kind of was the perception. The reality is to technology reached a point right now that you actually don't need the same amount of capital you needed before because you just goes talked about semi conductor. I can use semi conductor of the shelf. I can use contract manufacturing of the shelf. I can use the same open source and cloud infrastructure that our friends in the area of Internet is being developed, and I can apply that in the physical world, meaning the cost of capital and the needful capital went down dramatically and the upside is a seventy five trillion. So what we're seeing is a new area of our opportunities for new founders to come and change the industries that matter. You know, Caroline, what's so fascinating. We're talking on a daily basis about artificial intelligence, software, Web three again software. Now, there must be a chunk of investors out there that are interested in getting into physical assets, physical companies building real stuff, even though at the moment, for a lot of institution investors, you were just saying it's a time to rethink your allocation to private markets. And therefore, how hard or indeed easy was it to raise money? What the LPs look like? Yeah, we raised money from a nonprofit institution in the United States that will be our endowment foundation and pensions hospital system. I probably needs to say right now, Oh, it was really easy. We did it in two months. We will oversubscribed all of the things that probat of this is will say that's true, but that's actually another point. The point is. We are seeing some of the most amazing founders right now in the market. Wants to be ellen mosques, They wants to go cars, they wants to build rockets. They understand that the impact of technology can be much more superior in the physical world than what we've been trained in Silicon Valley. It's all about SaaS, It's all about recount revenue. That's just not true anymore. Where are these founders that you're seeing. This is not a Silicon Valley things. You need agriculture in China, and you need logistics in Austin, Texas. You needs manufacturing in Berlin, and you need industrial systems in Abu Dhabi. This is a global efforts to take the industries the powering our life and digitizing them. And I'm telling you that some of the smallest people right now are not doing any more only crypto or SaaS or enterprise software. They are taking the long roads to go and build companies that will matter, that will move the economy into a digital phase. Lee or you reference China, so you do plan to take some of your funds raised from US based investors to deploy into startups that are based in China. We are one hundred percent focus on Today in the United States, we are all based in Carlo, alto thirty of US, and we are focusing on investing in the domestic area. I will tell you that we're spending most of our time on onshore manufacturing, semiconduct, those batteries, defense systems that are very domestic oriented. And this is currently where is our focus on. But that's not mean that there is no opportunities in China real quickly. Or there is one company that's looking for some money and that company is Virgin Orbits. First of all, are you interested in investing in Virgin Orbit? And second of all, how do you do due diligence on the physical space? How hard is that? So we all operate those that operating those industries from below, Revian Apples, some Sara, flex Ge and many others, and that's kind of I think would bring us the edge to be able to not only diligence in those companies when they have two guys in a presentation, maybe a dog, but also to help them building when they're scaling into commercialization and then hopefully into the public market. One day on the Virgin I will likely pass ah exclipts founding partner, Leo, You've been so fruitful in all the rest of your answers. We thank you for politely deciding not to answer, Leo. Susan Senator Elizabeth Warren and Representative Alexandria Ococia Cortez are demanding answers over Silicon Valley banks close relationships with some of its customers now in let us since Sunday I'm reviewed by Bloomberg. The Democrats are asking fourteen of the largest depositors with SVB about the nature of their connections with the bank, including where the board members actives investors when they received special benefits such as lines of credit from SVB. Well, Hannah Miller wrote that story. We're very pleased to welcome her to the show and anyone responding to these letters so far, Yeah, so far, I've only heard back from Robox, so we haven't seen many responses come through yet. But it'll be interesting to see whether these companies choose to answer these letters, and if they don't, what Warren and AOC will say. You know, Hannah, I will never forget that weekend, the Saturday and Sunday following Silicon Valley Banks collapse. You and I were working together right, and we very quickly learned that actually many, in many cases depositors did use other services for the bank. What is that the kind of CrOx of what Warren is trying to find out here. Yes, so Silicon Valley Bank was just this cherished institution among venture capitalists and tech startup founders, and they had a wide, wide range of services. You know, you could go to them for your own personal finance as well as those for your company. So the contagion here that was felt when SBB collapse was really widespread and at Warren and AOC want answers as to whether these personal relationships that SVB had with founders and vcs actually contributed to its collapse. It's interesting that they're going to a lot of the big now public companies for these sorts of answers. Is the real end person they're trying to label here the VC community. I think they are targeting the VC community. I mean, both Warren and AOC have been extremely outspoken and critical about what happened with SVB. There are concerns here that you know, SVB was so willing to provide short term funding, you know that it may have contributed to instability at the bank, so they want to closer look. They want to see how you know, SVB coddled its clients. I think that was the word that Warren used. So it's very interesting to see how this will play out. All right, Bloombogs Hannah Miller, thank you very much for your reporting. Now we've been talking about it and it's going viral. The Super Mario movie. It just topped the box office and it's the biggest opening weekend for a film so far this year. Super Mario is released on Wednesday to take advantage of the spring break in East the holidays, and over the five day period it took in two hundred and five million dollars domestically according to comScore, and with a global hall of three hundred and seventy eight million, it's the biggest opening of any movie so far in twenty twenty three is out in Japan. Yet that was delayed, there wasn't it. That's the big question. Delay because it's a tough crowd to please, and still they rake in all of that money globally, quite astounding. Have you watched it? I haven't, but I will, Okay, I might wait until it's more for a family affair, but great amount of focus on that. I didn't even get to ask you though, ed whether you've picked up your fire Festival two tickets. I wish we had got this in. I haven't picked up my fire Festival too tickets, But that is certainly something that's taught us. Bound Twitter right now, don't worry, We'll go and do a little video for social media. Come follow us at Bloomberg Technology. Meanwhile. That does it for this edition of the show Bloomberg Technology. Yeah, it was packed, big focus on markets and chips. You can recap on the podcast Apple, Spotify, iHeart Bloomberg, wherever you get your podcasts. From New York, from SF, this is Bloomberg