IBM Doubles Down on AI, Palantir Falls Short | Bloomberg Technology

Key Concepts:

• Enterprise AI simplification and scaling
• Generative AI adoption and CEO concerns
• Government spending on technology modernization
• Accuracy and use cases of AI
• Quantum computing investment and leadership
• Valuation of Big Tech and AI's impact
• Recessionary environment and market resilience
• Software vs. hardware performance
• European tech and global shifts
• Corporate debt and investment preferences
• Federal Reserve's stance on inflation
• Palantir's valuation and retail investor sentiment
• Tesla's sales decline in Europe
• Private credit and investment opportunities
• Secondary markets and private equity challenges
• Doordash's acquisitions and expansion strategy
• Tariffs and trade imbalances

1. Market Overview and Economic Outlook:

• The market is under pressure due to concerns about tariffs and trade.
• Treasury Secretary Scott Bessent testified on budget cuts and the U.S. economy, stating there are no signs of a recession.
• Bloomberg Intelligence expects a hawkish commentary from the Federal Reserve (FED) despite likely holding rates steady.
• The U.S. has not engaged in negotiations with China, but "luminary framework agreements" are expected soon.
• The U.S. aims to clinch deals with 80-90% of its top 15 trading partners by the end of the year.
• The U.S. government is still sorting through tax receipts from April and cannot provide an updated number on when it could default on its debt.
• The base case is not recession, with a resilient job market.

2. IBM's AI Strategy and Enterprise Solutions:

• IBM CEO Arvind Krishna discussed simplifying and scaling enterprise AI at the company's THINK conference.
• IBM aims to make it easier for customers to leverage their own data to build AI models and increase enterprise productivity.
• IBM announced new software to orchestrate AI capabilities, including 150 new agents from IBM and its partners.
• IBM has a $6 billion and growing book of business in generative AI.
• CEOs are concerned about the "air of extremity" around generative AI and are looking for ways to make their AI projects more productive.
• Only about 25% of AI projects are paying off well, and CEOs want to learn from these successes and remove inhibitors like fragmentation.
• IBM is providing software and consulting to help CEOs experiment with and scale AI projects in an uncertain economy.
• Arvind Krishna is optimistic about the use of technology to solve supply chain, cost, and productivity issues.
• He believes that technology can help scale businesses without adding a lot of physical cost.
• IBM is helping the GSA on expense management and the DOD on payroll with robust contracts.
• IBM is investing heavily in quantum computing, believing the U.S. must lead in this area for national security and competitive advantage.
• IBM can do 450 billion AI inferences per day.
• IBM has invested $150 billion into the U.S.

3. Government Contracts and Technology Modernization:

• Some of IBM's government contracts have been canceled, particularly those related to discretionary spending or labor augmentation.
• However, Arvind Krishna believes that any cancellations will be offset by new business opportunities within the government.
• There is a huge appetite within the administration to use technology to modernize government and make it more efficient.
• Technology will be part of the answer to improve air traffic control, including better integration and computing capabilities.
• Arvind Krishna breaks down the problem of AI accuracy, stating that core air traffic control must be built on precise data, while AI can be used to optimize flow and capacity.
• AI can also be used to process claims faster at social security or the V.A.

4. Generative AI Accuracy and Use Cases:

• Accuracy is crucial for air traffic control, and the risk of inaccurate underlying data is a concern with generative AI.
• For use cases like customer service or internal help desks, 100% accuracy is not always necessary, and a lower error rate can be acceptable.

5. Palantir's Performance and Valuation:

• Palantir's shares tumbled after its financial results failed to live up to investors' lofty expectations.
• The company raised its revenue forecast, representing growth of 36% from last year.
• The forward-looking guidance was not enough to substantiate an extraordinary valuation.
• Palantir is one of the most popular trades among retail investors.
• The company is doing $900 million in revenue with less than 800 customers.
• The market capitalization is $55 billion.
• The stock ran excessively this year, up 60%.
• The split between retail and institutional investors is 50-50.
• Palantir recently signed a massive NATO contract for their Maven platform.
• Europe is in a crisis and must embrace the AI revolution to survive.
• Governments across the world are certain to increase their inquisition of Palantir.
• The U.S. government business is accelerating.

6. Tesla's Sales Decline in Europe:

• Tesla's monthly sales continue falling hard across Europe.
• Sweden is off by 81%, and the U.K. is off by 62%.
• In the U.K., just over 500 units were moved.
• The lack of a fresh item to buy into and the fact that production was put on ice are blamed for the decline.
• The European market is more competitive than the U.S., with more product coming to market and Chinese companies entering the market.
• Elon Musk's political reputation may be crimping demand.

7. Doordash's Expansion Strategy:

• Doordash is on a buying spree following its earnings beat, announcing two multi-billion-dollar acquisitions.
• Doordash is acquiring hospitality tech company Seven Rooms for $1.2 billion.
• The acquisition would expand Doordash's reach.
• Doordash is expanding globally and adding the ability to book restaurants via the app.
• The reported earnings beat expectations, but the adjusted EBIT outlook was conservative due to ongoing investment into new international markets and businesses.
• Doordash is expanding their enterprise offerings for restaurants, including a reservation platform and tools to build loyalty and reach customers.

8. Private Credit and Investment Opportunities:

• Ares Management CEO Michael Arougheti discussed the strategy he is seeing from the administration and how he as an investor reacts to it.
• Ares' businesses tend to be middle-market service companies with a local customer base, making them relatively unaffected by tariffs.
• Most middle-market companies are insulated from the large cross-border impacts of tariffs.
• Ares has a large business in the Asia-Pacific region.
• Ares had a record year of fund raising last year and has $145 billion of dry powder to invest.
• Ares is giving investors a lot of choice as to where they want to play and what risks they want to take.
• Ares' private credit strategies are generating 12 to 15% rates of return.
• Investors are finding it easier to take shelter in the credit markets and make those low to mid teens returns without having to worry about that equity risk premium.
• Ares has grown faster through periods of dislocation.
• The resolution of all of those assets that need to reset basis will be a massive opportunity in places like secondaries, opportunistic credit, and opportunistic real estate.
• There is significant demand from the GP community as well as the LP community to kinda figure out how to recapture some of that 3 trillion and give it back to investors.

9. Retail Investor Sentiment:

• In March, there was $40 billion of net inflows from retail, and in April, there was about $42 billion of net inflows from retail.
• Hedge funds took down their positioning to the MAG Seven to the lowest since 2023 and showed that there short positioning on the broader S&P is at 2022 levels.
• Retail has been buying the dip.

10. Synthesis/Conclusion:

The broadcast covers a range of topics from market anxieties surrounding trade and potential recession to specific company strategies in the tech sector. IBM is focusing on simplifying AI for enterprise adoption and investing in quantum computing. Palantir faces valuation concerns despite strong growth, while Tesla struggles with sales in Europe. Doordash is expanding through strategic acquisitions. The discussion also highlights the resilience of the U.S. economy, the potential for government spending on technology modernization, and the opportunities in private credit markets. Retail investor activity and sentiment are also examined, providing a comprehensive overview of the current technology and financial landscape.