Tesla Under Pressure, Big Tech Bolsters S&P 500 | Bloomberg Technology

Bloomberg Technology Summary

Key Concepts:

US-China Trade Tensions (Technology Focus)
Export Controls (AI Chips, Rare Earth Minerals)
Geopolitical Risks (Taiwan, South China Sea)
AI Demand & Semiconductor Industry
Magnificent Seven (Tech Stocks Performance)
Tesla's Challenges & Future (Autonomy, Robotics)
New York Tech Scene (AI, Startups)
IPOs (Chime, Circle)

US-China Trade Tensions & Tech Focus

Escalation: Trade tensions between the US and China are escalating, with technology at the center. The "honeymoon" period following the Geneva talks has ended.
Accusations: Both countries accuse each other of violating recent agreements. The US claims China hasn't lifted barriers on rare earth mineral exports, while China criticizes US export controls on AI chips and related tooling.
US Actions: The US is restricting exports of chip design software to China, a significant blow to China's AI ambitions. They are also warning allies against using Huawei's chips and potentially revoking Chinese student visas.
China's Reaction: China is reacting strongly to US export controls, suggesting they are more effective and painful than China's propaganda suggests. They are pressuring the US for more concessions.
Export Controls: US export controls are designed to curb China's advancements in areas like artificial intelligence. This includes not just semiconductor exports but also sales of chipmaking machinery.
Impact: These tensions could unravel any understanding reached in Geneva. The direction of travel is not towards a resolution.

Export Controls: AI Chips vs. Rare Earths

AI Chips: The US export controls on AI chips are forcing China to innovate. However, the key issue is the scale of compute needed. China can find workarounds through smuggling and making its own chips, but scaling up to meet the rapidly escalating demands of AI is a challenge.
Rare Earths: US dependency on China for rare earth processing is a known vulnerability. China has "broken the glass" on using this as leverage. Xi Jinping is likely to push this leverage to extract more concessions from the US.
Impact on US Industry: Auto and defense manufacturers have already reported pain and potential work stoppages due to rare earth supply issues.

Geopolitical Risks & Private Sector Advice

Taiwan: Geopolitical tensions in the Indo-Pacific, particularly around Taiwan and the South China Sea, are crucial to watch. The Secretary of Defense warned that a Taiwan crisis could be imminent.
Military Drills: China frequently conducts military drills around Taiwan and in the South China Sea, often without advance notice, shrinking the warning window.
Supply Chain Disruption: A crisis around Taiwan could disrupt chip supplies for weeks or longer.
Private Sector Advice: The private sector needs to remember that this is not just about tariffs and trade. They need to watch geopolitical tensions and potential supply chain disruptions.

Magnificent Seven & AI Demand

Recovery: The "Magnificent Seven" tech stocks (excluding Apple) have driven the recovery of US equities after a decline in April.
Valuation: Despite the recovery, these stocks are still considered "pretty cheap" by some metrics, such as the PEG ratio.
AI Demand: AI demand is booming, driving strong performance for semiconductor companies like NVIDIA and Broadcom.
Broadcom: Broadcom is expected to report strong results, driven by both its semiconductor and software businesses. They have a 60-40 split in semis versus software.
NVIDIA's Impact: NVIDIA alone accounts for 12% of the S&P 500 rebound since April.

Semiconductor Industry & Tariffs

Valuation Concerns: Valuations in the semiconductor industry are not as attractive as they were 4-6 weeks ago. NVIDIA, for example, is trading closer to 24-25 times 2026 expectations.
Semiconductor Investigation: A semiconductor investigation is ongoing, and a permanent tariff on the semiconductor industry is expected, with a base case of 25%.
Smartphone Industry: While individual tariffs on smartphones are not expected, they could fall under the national security umbrella of the semiconductor investigation.
Apple's Pricing Power: If a 25% tariff is imposed, Apple might need to increase the price of its iPhone 17 by around $50. However, Apple is best positioned to offset higher tariffs due to its brand recognition and pricing power.
Investment Advice: Investors should look for a near-term digestion period before buying into semiconductor-oriented names. NVIDIA and Broadcom are top picks with the biggest visibility.

Samsung & Perplexity AI

Partnership: Samsung is nearing a wide-ranging deal to invest in Perplexity AI and integrate its search technology into Samsung devices.
Integration: The companies are in talks to preload the Perplexity app on upcoming Samsung devices.
Google Competition: This move could be seen as a challenge to Google, especially given antitrust scrutiny on Google's search dominance.
Perplexity's Strengths: Perplexity AI has a great design and is drawing fans from both consumers and hardware companies.
Announcement: The partnership could be announced as soon as this year.

Tesla's Challenges & Musk's Return

Sales Decline: Tesla's sales have fallen to a three-year low in France.
Musk's Return: Elon Musk's return from his involvement with DOGE is seen as positive for Tesla shareholders.
Future Value: 90% of Tesla's future value is tied to autonomous driving and robotics.
Austin Event: The upcoming event in Austin is crucial for showcasing Tesla's progress in autonomy and robotics.
Cybercabs: Cybercabs are expected to be a significant part of Tesla's autonomous vehicle strategy.
FSD Penetration: Increasing Full Self-Driving (FSD) penetration from 15% to 50% is key to Tesla's growth.
$2 Trillion Valuation: A $2 trillion valuation for Tesla is possible within the next 18 months, driven by autonomous driving and robotics. This assumes 20% of vehicles being "ought on must" (autonomous).
China Market: China is a key market for Tesla, accounting for 40% of deliveries.
Robotics Potential: Robotics could be even bigger than autonomous driving for Tesla.
Supply Chain: Tesla's strong presence in China gives it a significant advantage in terms of supply chain.

New York Tech Scene

Tech Boom: New York City is experiencing a tech boom, with the sector accounting for 41% of the city's net job growth since 2019.
"Obviously New York" Campaign: A campaign called "Obviously New York" is celebrating the tech industry in the city.
College Graduates: New York is the number one destination for college graduates.
Job Creation: The tech sector creates 10 times more new jobs in the local economy than other industries.
Industry Size: It's a $700 billion industry with 25,000 startups.
AI Focus: New York is uniquely positioned to figure out how to use AI, who is going to pay for it, and what it will do in practice.
Success Stories: Examples of successful New York startups include Runway (AI), Ramp (fintech), and Maven (digital health).
Public-Private Partnership: A public-private partnership is helping to bolster the AI ecosystem in New York.
AI Job Postings: AI job postings in New York are expected to top 25,000 in 2024.

IPOs: Chime & Circle

Circle: Circle's IPO seems to be going well, with enthusiasm towards cryptocurrency contributing to the positive sentiment.
Chime: Chime is a retail-focused fintech company that has been popular with a younger demographic.
Downround: Chime's IPO is coming at a significant downround or lower valuation than it was able to attract in 2021.

Synthesis/Conclusion:

The technology sector is facing a complex landscape of escalating US-China trade tensions, geopolitical risks, and evolving market dynamics. While AI demand is driving growth for companies like NVIDIA and Broadcom, concerns about valuations and potential tariffs remain. The private sector needs to be aware of these challenges and adapt accordingly. Meanwhile, New York City is experiencing a tech boom, driven by AI and a strong talent pool. The IPO market is showing signs of life with companies like Circle and Chime, but valuations are more realistic than in the past. Tesla faces challenges in the near term but is betting on autonomous driving and robotics for future growth.