Where's big tech's innovation?

Hi all. Alphabet’s recent decision to start paying dividends has me thinking about the state of innovation in tech, a topic we’ll explore in [View in browser]( [Bloomberg]( [by Tom Giles]( Hi all. Alphabet’s recent decision to start paying dividends has me thinking about the state of innovation in tech, a topic we’ll explore in depth this week at our annual [Bloomberg Tech]( conference in San Francisco. But first... Three things you need to know today: • Nintendo teases next Switch [to soften blow of dour profit outlook]( • Synopsis is selling its [cybersecurity-focused unit for $2.1 billion]( • Palantir’s sales forecast [failed to impress investors]( Spending plans Alphabet Inc. is going to issue a dividend for the first time, tapping into a pile of cash that’s swelled to $108 billion at the end of March. The move gives investors added incentive to hold the stock and helped fuel a [10% rally]( in Alphabet’s shares the day after it was announced; it came just one quarter after Meta Platforms Inc. [similarly said it would start]( returning some cash through a quarterly dividend. Big Tech’s dividend rush — Amazon.com Inc. is the lone holdout in its peer group — leaves me pondering what else Silicon Valley giants are, or could be, doing with their oceans of cash. Why not, for instance, plow even more dollars back into researching and developing whiz-bang products? Or what about boosting capital expenditure budgets for the pricey chips, servers and facilities needed to develop large language models? More fundamentally, the decision to dole out dividends has often struck me as a hallmark of a company’s transition from lean and speedy innovation machine to a sturdier, more mature corporation that, at least in some industries, is less inclined to crank out cutting-edge machinery, software or services. I stress-tested this take with some analysts and fund managers. Historically, dividends have signaled that a “company’s era of growth is over,” said [Andrew Zamfotis](bbg://people/profile/3372899), a portfolio manager at Ami Asset Management in Los Angeles. But that’s not the case here, he said. “These aren’t massive payouts relative to cash flow,” leaving more than ample money to meet R&D and capex needs, Zamfotis told me. It’s also a welcome sign of fiscal discipline, he said, adding, “I don’t think it’s the end of innovation.” In Meta’s case, [there’s plenty to spend on](, including the Llama large language model that’s pulling in information from Facebook and other publicly available data troves to help customers and partners power their own tailored artificial intelligence assistants. Or what about the Meta Quest line of virtual reality headsets that a few people use to play games, work out or collaborate at work? And there’s the metaverse — the virtual world where you can mosey around wearing those Quests — that Mark Zuckerberg spent the better part of the pandemic talking about. Meta has no plans to skimp on research and development or capital spending. Capex will be as high as $40 billion this year, up from an earlier projection of as much as $37 billion — and that spending will continue to increase next year, Meta said. Along with my colleague Sarah Frier, I’ll have the chance to talk with Meta Chief Product Officer [Chris Cox](bbg://people/profile/16500345) at the May 9 conference, and you can be sure we’ll ask him to elaborate on how Meta will use its resources to keep the company’s technology relevant. Another reason tech titans are embracing dividends is that acquisitions — traditionally one of the favored uses for fat wads of cash — are getting harder to pull off. Just ask Adobe Inc., which was forced to abandon a takeover of Figma Inc., the maker of collaborative design software, after regulators said the deal would threaten competition and hamper innovation. “I expect conventional M&A to slow down, given the resistance and extra scrutiny that’s weighing on sentiment toward acquisitions,” said [Tejas Dessai](bbg://people/profile/20543287), a research analyst at Global X ETFs. Enterprise-tech reporter Brody Ford will have the chance to talk to Figma Chief Executive Officer [Dylan Field](bbg://people/profile/21395829) about his plans for the upstart now that its path to being bought has been blocked. One of the few blockbuster deals to squeak by regulators in recent years was Microsoft Corp.’s purchase of Activision Blizzard Inc. [Sarah Bond](bbg://people/profile/21889073), president of Microsoft’s Xbox business, will take the stage at our conference Thursday to speak with reporter Dina Bass about Microsoft’s gaming franchise newly enlarged by the Activision acquisition. Just months after failing to scuttle Microsoft-Activision, the Federal Trade Commission under Chair Lina Khan is fixing its crosshairs on another series of moves by tech behemoths. This time, the commission is [probing]( more than $19 billion in investments by Microsoft, Amazon and Google in AI startups OpenAI and Anthropic. Businesses “cannot use claims of innovation as cover for law breaking,” Khan said in January. Bloomberg Businessweek Editor Brad Stone will ask Anthropic co-founders [Dario](bbg://people/profile/23328295) and [Daniela Amodei](bbg://people/profile/21043896) about the state of that inquiry as well as all things generative AI. If Kahn and her Justice Department counterparts are right that companies have less incentive to innovate after they’ve gotten bigger through acquisitions and investments, what does that mean for legions of other startups that, in an earlier era, might have been takeover targets for established tech buyers? What about the venture capitalists who fund entrepreneurs for years in hopes of an exit that, in some cases, takes the form of an acquisition? At Bloomberg Tech, we’ll put those questions to a panel that includes [Aileen Lee](bbg://people/profile/6254300) of Cowboy Ventures, [Kirsten Green](bbg://people/profile/17709198) of Forerunner Ventures and [Adeyemi Ajao](bbg://people/profile/17662809) of Base10 Partners. According to Dessai at Global X ETFs, the state of innovation in tech is intact, dividends or no. “The beauty of the tech business model is that you can invest in areas like AI, cloud computing and mixed-reality headsets and still be left with enough cash” to return some of it to shareholders, he said. “We are in a new paradigm.” — [Tom Giles](mailto:tgiles5@bloomberg.net) The big story Artificial intelligence startups are building tools to automate the craft of songwriting. Not everyone is happy with the result, which has [major implications for the music industry.]( One to watch [Watch Anduril Industries founder Palmer Luckey interviewed on Bloomberg Television about the defense technology startup’s new products.]( Get fully charged The Biden administration is considering funding for research focused on [“digital twin” technology for the semiconductor industry](. Chipmaker Nvidia backs UK self-driving startup Wayve in [a $1 billion fundraising round.]( EV maker Lucid revealed a wider-than-expected loss[plagued by production issues and irregular demand.]( More from Bloomberg Get Bloomberg Tech weeklies in your inbox: - [Cyber Bulletin]( for coverage of the shadow world of hackers and cyber-espionage - [Game On]( for reporting on the video game business - [Power On]( for Apple scoops, consumer tech news and more - [Screentime]( for a front-row seat to the collision of Hollywood and Silicon Valley - [Soundbite]( for reporting on podcasting, the music industry and audio trends - [Q&AI]( for answers to all your questions about AI Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Tech Daily newsletter. 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