Meta's AI Investments Pay Off, Nvidia Shatters Records | Bloomberg Technology

AI Investments and Growth

• Meta's AI investments are paying off. The company's stock is on track for its biggest jump since February, likely due to the success of its AI initiatives.
• Meta's recent earnings report showed better-than-expected results, indicating that their AI investments are starting to pay off. This triggered a significant stock rally.
• The company is using AI to improve ad relevance and create new ads, which is helping to boost their core business.
• Meta's AI investments are lowering the barrier to entry for advertising, making it easier for small and medium businesses to advertise.
• Meta's AI is improving the effectiveness of ads, making them more efficient for advertisers.
• Meta's focus on core business is driving growth. Meta has shifted its focus away from projects like the metaverse and back to its core business of advertising. This shift, combined with its AI investments, has helped the company respond to Apple's privacy changes and improve its advertising effectiveness.
• Meta's advertising revenue is growing. MikMak, an e-commerce marketing platform, tracks advertiser spending across various platforms. Their data shows that Meta remains the most trafficked brand advertising channel, representing 40% of their total traffic.
• While Meta is investing heavily in future AI technologies like large language models and smart glasses, they are also emphasizing the immediate benefits of AI in their current products.
• Kurt Wagner believes that the AI story is less about futuristic technology and more about improving existing products, particularly advertising.
• Despite the focus on AI, Meta's core products like Facebook and Instagram continue to grow and attract new users.
• The addition of Threads to the mix is expected to further boost user engagement and growth.

Nvidia's AI Chip Success

• Nvidia shattered records. The company added $329 billion to its market cap in a single session, demonstrating the strong demand for its chips, which are crucial for AI development.
• Nvidia's upcoming Blackwell chip is expected to be a significant upgrade, offering increased compute power for large language models.
• The ability to easily swap out generations of GPUs is crucial for companies to keep up with the rapid advancements in AI.
• The market is currently focused on the spending of hyperscalers, particularly their capital expenditure (CAPEX) forecasts.
• Google, Microsoft, and Meta have all announced increased CAPEX, indicating a continued investment in AI infrastructure.
• This increased spending is expected to benefit Nvidia, as they are a major supplier of AI chips.

Arm's Growth in AI and Mobile

• Arm, a chip design firm, resisted boosting its outlook despite a strong quarter. While Arm's revenue exceeded expectations, the company chose to maintain its existing guidance, citing a cautious view of the macro environment.
• Arm's CEO, Rene Haas, emphasized the strength of the licensing business. This business, which is a forward indicator of demand for technology, saw a 70% year-on-year increase in revenue, driven by the demand for new, complex chips.
• Arm remains optimistic about the long-term outlook. The company's licensing activity is strong, and the royalty business, driven by smartphone growth, is also performing well.
• The speaker discusses the automotive market and how ARM is seeing growth in demand for its technology due to the increasing complexity of automotive platforms.
• The speaker explains that ARM benefits from the increased capital expenditures on AI infrastructure because its low-cost, low-power processors are efficient for building data centers.
• The speaker highlights that NVIDIA's complex chips and platforms, which are based on ARM, are driving the development of complex data centers.
• The speaker acknowledges that ARM is exploring the possibility of designing its own accelerators to compete with its partners, but no product announcements have been made.
• The speaker emphasizes that ARM is constantly exploring new technologies and markets, and the development of AI PCs is a significant trend in 2024.
• Arm's AI PC strategy focuses on long-term growth. While Arm's immediate revenue from AI PCs may not be significant, Haas emphasizes the long-term potential of this market. He expects more vendors to adopt Arm chips for Windows devices, leading to increased market share for Arm.
• Arm is confident in achieving a 50% market share in the Windows market within five years. Haas believes that Arm's strong position in the Apple ecosystem, where it holds a 100% market share, makes a 50% share in the Windows market a realistic goal.
• Dell XPS is a strong competitor to Apple products. Rene Haas, the President of Arm, acknowledges the impressive performance of Dell XPS devices, particularly their long battery life. He highlights the Dell XPS as an example of a high-quality Windows product that can rival Apple's offerings.
• The high-end smartphone market is driving growth for Arm. Despite modest overall smartphone unit growth, the premium segment is experiencing significant growth. This is beneficial for Arm, as its higher-end processors are used in these premium devices.
• Arm's revenue from smartphone royalties is increasing significantly. Despite single-digit unit growth in the smartphone market, Arm's smartphone royalties have increased by 60% year-on-year. This is attributed to the growing adoption of Arm's higher-end processors in premium smartphones.
• Increased Compute Power in Smartphones: The demand for increased compute power in smartphones is driven by the need to run complex software, cameras, and AI workloads.

AI in Other Industries

• Etsy's Strong Performance: Despite a challenging macroeconomic environment, Etsy exceeded expectations in its second-quarter earnings, maintaining a high number of active buyers.
• Etsy's Focus on Differentiation: Etsy is not focused on price competition but rather on leveraging its unique offerings and using AI to improve the user experience.
• AI's Role in Etsy: AI will be crucial for Etsy to organize its vast inventory of unique items, making it easier for customers to navigate and find what they are looking for.
• Readit's AI Acquisition: Readit acquired a startup called Memorable AI, which uses generative AI to enhance marketing efforts. This acquisition aims to improve the quality of ads on Readit's platform.
• Olympic Partners' Loss: Olympic Partners reported a loss of $2.1 billion due to weak customer demand and industry-wide headwinds.
• Automotive Chip Maker's Downgrade: A Jerusalem-based maker of chips for advanced driver assistance systems saw its stock drop 20% after downgrading its revenue outlook due to declining orders from automotive customers.

AI and the Future of Computing

• AI Model Development: The development of large language models like Llama and Gemini requires significant compute power, which benefits companies like Nvidia.
• Mark Zuckerberg has publicly announced that Meta's next generation open-source language model will require 10 times the compute power.
• Apple, while not a hyperscaler, is also investing in AI and will likely benefit from the advancements in GPU technology.
• Apple is expected to leverage the massive capital expenditure (CAPEX) of hyperscalers like Amazon, Microsoft, and Alphabet to develop its AI-enabled internet for the iPhone interface.
• Apple's model is considered capital-efficient as it can benefit from the investments made by other companies.
• Amazon's approach to AI is different from companies like Alphabet, Microsoft, and Meta, as it does not have the same level of fungibility in terms of GPUs and capital expenditures.
• Amazon's core business is not as reliant on daily engagement apps like Office 365, Copilot, or Meta's search, making it difficult to repurpose GPUs for its core operations.
• Amazon is transitioning from being a dominant cloud computing provider to competing with Microsoft and Alphabet in the AI-enabled cloud computing space.
• Amazon is showing interest in Covariant, a robot software maker that uses AI.
• Covariant's technology is similar to Amazon's acquisition of Kiva Systems in 2012, which focused on warehouse robotics.
• Covariant's technology could be integrated with other warehouse robots to improve efficiency in packaging and assembly, which aligns with Amazon's needs.
• Covariant, an R&D research project, has raised significant funding and requires Amazon's support to thrive.
• Investors are cautious about investing in startups due to the ongoing market correction, but there is still capital available for promising companies.
• There are rumors of a potential acquisition of Character AI by XAI, with Elon Musk weighing in on the deal.

AI and Development Tools

• Microsoft's GitHub acquisition is a success story. Microsoft invested in GitHub and helped it grow its revenue stream by 45% year-over-year, reaching over $2 billion. Copilot, an AI-powered coding assistant, contributed significantly to this growth, with 700,000 users.
• GitHub has announced expansions in its AI strategy, providing increased access to and new extensions of its Copilot models.
• GitHub's CEO highlighted the company's efforts to integrate machine learning models directly into its platform, offering developers early access to trials and free access to Microsoft's models.
• GitHub's CEO clarified that the new AI models are not Copilot but are still AI and machine learning models available for developers.
• GitHub's growth, as indicated by its annual run rate, is a significant milestone for the company.

AI and Government Regulations

• The U.S. government is considering imposing new restrictions on China's access to AI memory chips and equipment used to manufacture them.
• These restrictions could be announced as soon as next month and would be the most significant since the October 2022 rules.
• The restrictions would target high-bandwidth memory above the 2.0 generation, including Samsung's latest models, as well as tools used to manufacture chips.
• The U.S. government is also considering restrictions on additional tools and equipment used in the semiconductor industry, which would primarily affect U.S. equipment companies.
• The U.S. government is also implementing a $39 billion subsidy program called the CHIPS Act to bring chip manufacturing back to the U.S.
• While companies like Intel, Samsung, and TSMC have received funding, Applied Materials, a major equipment supplier, was not awarded funding for its $4 billion research and development program.
• The U.S. government scrapped a portion of the grant program specifically designed for commercial R&D due to a separate program on military chips.
• There is still some funding left from the CHIPS Act, and more announcements are expected through the end of the year.

Samsung's Workplace Culture and AI

• Samsung's Workplace Culture Concerns: Samsung issued a warning about its workplace culture, stating that it needs to address communication barriers and avoid hiding problems. This comes after recent missteps in supplying memory chips for AI.

TikTok's Threat to Meta

• TikTok is a growing threat to Meta, as it is becoming a more popular platform for advertisers.
• TikTok's effectiveness in advertising is attracting advertisers, even though there are potential risks associated with the platform.
• Advertisers are willing to move their dollars from one platform to another based on effectiveness, so Meta needs to be concerned about TikTok's growth.
• Meta's stock is on track for its biggest jump, while Apple and Amazon are also being watched closely.