Nasdaq’s Rough Quarter, Rivian’s 'Micromobility’ Spinoff | Bloomberg Technology

Key Concepts

• AI Investment & Infrastructure: Data centers, AI model development, funding rounds, profitability concerns.
• Chips Act & Semiconductor Industry: Grants, tax credits, investment commitments, tariffs, global manufacturing, mergers.
• EV Market & Tesla: Sales slump, competition (BYD), product changeovers, political factors, tariffs, tax credits, market share in China.
• Micro-mobility: New company "Also", market opportunity, consumer demand, technological solutions.
• Trade Tensions (US-EU): Tariffs, retaliation, digital services tax, data flows, security concerns, impact on tech companies.
• Elon Musk's Political Influence: Spending in elections, impact on political landscape.

I. Market Volatility and AI Narrative

• Worst Quarter for NASDAQ: The NASDAQ 100 experienced its worst quarter since Q2 2022, with significant selloffs in Magnificent Seven stocks.
• Punishment of Loved Names: The most popular stocks of 2023 and 2024 faced the most severe corrections, shedding trillions in market capitalization.
• AI Darling Drag: Companies like Microsoft, Amazon, and Meta, previously driving the bull run due to AI, are now contributing to market declines.
• Macroeconomic Uncertainty: Market questions arise amidst significant macroeconomic uncertainty.
• Conflicting AI Narratives: Alibaba's co-founder is reportedly pushing for rapid AI service development, while a report suggests Microsoft is stepping back from new projects.
• Data Center Investment: Microsoft has committed nearly $80 billion to data centers, with major spenders earmarking a total of $300 billion.
• Messy AI Narrative: The AI narrative is becoming unclear, challenging the notion of a US-dominated bubble.
• Valuation Concerns: Questions arise about whether current valuations reflect a bear market, with many stocks down over 20%.
• Tech as Offensive: A mutual fund manager interviewed suggests tech remains an offensive but volatile sector.
• Valuation Metrics: Tech's price-to-earnings ratio has decreased from 27 to 24, but remains above the average of 20.
• IPO Market: The IPO market is not performing as expected, with Newsmax being a notable exception, surging 800%.
• Private Market Activity: Public market investors are observing a $40 billion funding round for OpenAI, indicating strong private market interest.
• Insatiable Demand: Sam Altman claims there is "insatiable demand" for OpenAI's products, leading to user melting.
• Tariff Overhang: Tariffs may be contributing to the downside for tech stocks.
• Liberation Day: The upcoming tariff announcements are being referred to as "Liberation Day," but uncertainty remains.
• Defensive Posture: Many are adopting a "wait and see" approach regarding tariffs, with concerns about their impact.
• Bitcoin as Risk Proxy: Bitcoin's performance, down 10% YTD and 20% from its peak, is seen as a broad gauge of market sentiment.

II. Chips Act and Semiconductor Industry

• Chips Act Grants in Limbo: Howard Lutnick is considering withholding Chips Act grants to incentivize companies to increase their US investments.
• Goal: To generate tens of billions of dollars in additional semiconductor investment commitments without increasing federal grant amounts.
• Leveraging Disbursements: Lutnick intends to use the disbursement of funds as leverage to secure further investment commitments.
• No Increase in Awards: The total value of Chips Act awards will not increase.
• TSMC Example: TSMC was initially planning to invest $6-7 billion in US chip capacity and is now considering an additional $100 billion investment.
• Tax Credits Importance: Tax credits are considered more important than grants for companies like TSMC and Samsung.
• Potential Increase in Tax Credit: Discussions are underway to potentially increase the tax credit beyond the current 25%.
• TSMC's Opportunities: TSMC sees significant opportunities to invest in the US, build cutting-edge chips, and sell them to domestic customers.
• Leverage for Eye-Popping Numbers: The administration aims to leverage the Chips Act to get companies to announce larger investment figures.
• Tariff Uncertainty: Uncertainty surrounding tariffs makes it difficult for CEOs to commit to more spending.
• Trump Administration's Stance: The Trump administration has cited tariffs as a reason for increased investment in the US tech and chip sectors.
• Unclear Tariff Details: The specifics of potential tariffs on chips and end products remain unclear.
• Policy Instability: Rapidly changing policies create challenges for long-term investment planning in the chip industry.
• GlobalFoundries and UMC Merger: GlobalFoundries is exploring a potential merger with United Microelectronics to create a more resilient manufacturer of older-generation semiconductors.
• Hurdles to Merger: The deal faces hurdles including financing, opposition from Taiwan's government, and regulatory approval from China.
• Intel's CEO Change: Intel's stock is down 2.4% following the articulation of the company's future under new leadership.
• Analyst Concerns: Analysts see the new CEO's focus on talent and client secondary but note a lack of detail on future product innovation.

III. Tesla's Challenges and EV Market Dynamics

• Tesla's Sales Slump in Europe: Tesla is experiencing a sales slump in Europe, with shares rebounding slightly after a poor previous quarter.
• Q1 Performance: Tesla's shares were down 35% in Q1, with sales in France falling 37%.
• Auto Deliveries: Tesla's auto delivery numbers are expected to be released soon.
• Pressure Points: Tesla faces pressure from political factors, increased competition, and model changeovers.
• European Market: Political uncertainty in Europe may be causing some buyers to shy away from Tesla.
• Competition from BYD: BYD is gaining significant market share in China.
• Model Y Changeover: The Model Y changeover is impacting production and sales.
• Elon Musk's Politics: While Elon Musk's politics may be a factor, regular business factors also contribute to Tesla's challenges.
• Wells Fargo Note: Wells Fargo suggests Tesla needs "magic" to overcome its current challenges.
• Cannibalization Concerns: There are concerns about cannibalization of existing products due to new iterations of the Model Y.
• EV Tax Credit Uncertainty: The $7,500 US EV tax credit is likely to be eliminated, potentially impacting sales.
• Tariff Impact: Tesla is relatively less affected by tariffs but could still experience some impact due to imported parts.
• Consumer Behavior: Some buyers may be purchasing EVs now to take advantage of existing tax credits before they disappear.
• Ford and Honda EV Sales: Ford and Honda have seen significant jumps in their EV sales, potentially due to the impending tax credit changes.
• Tesla's Market Share in China: Tesla's market share in China has decreased from double digits (11-12%) in 2020 to only 4% currently.
• EV Adoption in China: EV adoption in China has accelerated but is now trading below the overall growth of the Chinese EV market.
• Competition in China: Competition in China is fierce, with companies like BYD and Xiaomi entering the market.
• Software Commoditization: Chinese companies are rapidly commoditizing software, similar to hardware.
• Autonomous Driving Issues: Concerns exist regarding autonomous driving technology, particularly regarding liability in case of accidents.
• Product Fatigue: Tesla may be experiencing product fatigue due to slow product launches.
• Consumer Demands in China: Chinese consumers demand exciting newness, which Tesla's competition is offering.

IV. Softbank, OpenAI, and AI Model Development

• Softbank's Loan: Softbank is seeking a $6.5 billion loan to fund its AI investments in the US.
• AI Infrastructure Project: The loan would help finance a $100 billion AI infrastructure project.
• OpenAI Funding Round: Softbank is committing $30 billion to OpenAI's $40 billion funding round.
• $300 Billion Valuation: The funding round values OpenAI at $300 billion.
• Complex Deal Structure: The deal is complex, involving a syndicate to help finance it.
• Restructuring Condition: The deal's completion depends on whether OpenAI can restructure as a for-profit entity.
• Slow-Motion Split: A slow-motion split is perceived between Microsoft and OpenAI.
• Microsoft's Role: Microsoft remains part of the syndicate of investors.
• Softbank's Role: Softbank is expected to become the largest financial backer of OpenAI, displacing Microsoft.
• Diversification from Microsoft: Softbank is key to helping OpenAI diversify away from Microsoft on the data center side.
• Revenue Growth: OpenAI is experiencing spectacular revenue growth, tripling or more from last year to $2.7 billion this year.
• Profitability Concerns: Concerns exist about OpenAI's profitability, with cash flow positivity not expected until the end of the decade.
• Compute Needs: OpenAI needs to raise tens of billions of dollars to support its compute needs.
• Alibaba's AI Model: Alibaba is planning to release its flagship AI model soon, intensifying competition with OpenAI and Deepseek.
• Model Capabilities: Alibaba's 2.5 model allows text, picture, and audio processing and can run on phones and laptops.
• Qualcomm's Potential Acquisition: Qualcomm is reportedly considering buying Alpha Wave, another chip company.

V. US-EU Trade Tensions and Tariffs

• EU's Response to Tariffs: The EU is prepared to retaliate against President Trump's global tariffs.
• Affected Goods: The EU's response to the 25% steel and aluminum tariffs will affect 26 billion euros in goods, including Harley Davidsons and bourbon.
• Auto Import Tariffs: The EU is concerned about the potential imposition of 25% tariffs on auto imports, affecting European auto manufacturers.
• Anti-Coercion Instruments: The EU may use anti-coercion instruments in response to countries using trade or economic policies to coerce the EU.
• Impact on Tech Companies: Anti-coercion instruments could affect intellectual property and digital services trade, impacting tech companies.
• Irony: The potential retaliation could target areas that President Trump is already upset about, such as non-tariff barriers and regulatory policies around technology.
• Mercedes' Consideration: Mercedes is considering pulling its US entry-level cars due to Trump's tariffs.
• Digital Services Tax: The digital services tax is a point of contention for US tech companies, particularly Mark Zuckerberg.
• Tightening Regulation: The EU could tighten regulation around big technology companies as a form of retaliation.
• Potential Retaliation from Trump: President Trump could retaliate against the EU's actions, potentially imposing 200% tariffs on European wine and champagne.
• Shift in Tariff Purpose: Tariffs are shifting from protecting production to protecting big tech profits.
• Data Flow Tariffs: The discussion raises questions about how to tariff data flows, which are different from physical goods.
• Cloud Services: The US dominates the cloud services market, raising questions about whether to tariff access to cloud services provided by American companies.
• Bifurcation with Europe: The desire to retaliate and protect profits could lead to increased bifurcation with Europe.
• European Tech Growth: Trump's policies could inadvertently make European tech great again by creating reasons to sever relationships with American tech companies.
• Security Concerns: The underlying theme of the relationship between the US and Europe has been around security.
• Software-Based Systems: The importance of software-based systems in modern warfare is highlighted, raising questions about reliance on US software service providers.
• Starlink Example: The example of Donald Trump shutting down Starlink's access to the Ukraine army is cited as a concern.

VI. Rivian and Micro-mobility

• Spin-Off Company "Also": Rivian is spinning off a new company called "Also" to develop EVs for short trips.
• Funding: "Also" has received $205 million in funding from Rivian and Eclipse.
• Smaller Form Factor: "Also" will focus on low-cost, smaller form factor vehicles.
• Micro-mobility Opportunity: The micro-mobility space is seen as a significant opportunity.
• RJ Scaringe's Role: RJ Scaringe will be on the board of "Also".
• Consumer Demand: The consumer is waiting for more compelling micro-mobility solutions.
• Global Opportunity: Micro-mobility is a global opportunity.
• Tariff Impact on Rivian: Rivian is preparing for potential policy impacts, setting aside hundreds of millions of dollars.
• Uncertainty: Uncertainty surrounding tariffs is a major challenge.
• Alignment with Administration's Objectives: Rivian is aligned with the administration's objectives to drive technology manufacturing into the US.
• Production Footprint: Rivian's production footprint may change due to the dynamic environment.
• Control the Controllable: The key is to control the controllable, build resilience, and create flexibility in the supply chain.
• Benefits from Tesla's Challenges: Rivian may be benefiting from people moving away from Tesla for political reasons.
• Electrification Opportunity: The biggest opportunity is bringing people into new technology vehicles and introducing them to electric vehicles.
• Need for Choice: There needs to be a lot of choice to go from 8% to 50% and eventually 100% EV adoption.
• R2 Program: The R2 program is a lower-priced, incredible product that will give customers another choice.

VII. Elon Musk's Political Influence

• Wisconsin Supreme Court Race: Elon Musk is spending millions of dollars to influence the Wisconsin Supreme Court race.
• Swing State: Wisconsin is a swing state, making the Supreme Court race significant.
• Issues at Stake: The court can decide on abortion rights, labor laws, and congressional redistricting.
• Alignment with Trump: Musk has aligned himself with Donald Trump.
• Record Spending: The $82 million being spent on the race is a record amount.
• Political Stage: Musk is promising to stay on the political stage going into the midterm elections in 2026.
• Reckoning with Musk: Many in Congress feel they have to reckon with Musk as a factor.
• Primary Challenges: Republicans may face primary challenges funded by Musk and backed by Donald Trump.
• Referendum on Musk: The special congressional races are seen as a referendum on Elon Musk in his new political role.

VIII. Synthesis/Conclusion

The technology sector is facing a complex and uncertain landscape. Market volatility, driven by macroeconomic factors and shifting narratives around AI, is creating challenges for even the most successful companies. The semiconductor industry is grappling with the implications of the Chips Act and potential tariffs, while the EV market is becoming increasingly competitive, with Tesla facing pressure from both established automakers and new entrants. Trade tensions between the US and EU are adding another layer of complexity, with potential retaliatory measures impacting tech companies. Finally, Elon Musk's growing political influence is reshaping the political landscape, adding another element of uncertainty for businesses and policymakers alike. The key takeaways are the need for adaptability, resilience, and a focus on controlling the controllable in the face of constant change.