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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple Coarclay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Looking at a lot of tech news today, I'm going

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Speaker 2: to start with just Samsung's.

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Speaker 3: I'm looking at the SMP, I'm the Nasdaq ROF.

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Speaker 2: You know, one and a half percent here, the socks

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Speaker 2: index trading off today. Samsung reported the numbers. I don't know,

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Speaker 2: to my own trained they look good. I don't know,

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Speaker 2: but apparently the market's not digging it. So let me

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Speaker 2: go to the guy who does this stuff for living

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Speaker 2: at ludlow b Tech co anchor, talk to us about

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Speaker 2: Samsung and get the spillover maybe for the broader tech market.

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Speaker 4: Well, there is a lot of spillover, right, there's a

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Speaker 4: lot of downward pressure on chip stocks in particular, but

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Speaker 4: genuine generally the AI trade in the US. You are right,

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Speaker 4: numbers good, you know, revenue more than double profit nineteenfold.

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Speaker 4: And what's so interesting about it is fundamentally very deliberate

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Speaker 4: choice of word, nothing in the memory markets change from

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Speaker 4: when you and I went to bed last night. You

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Speaker 4: know it. There is still tight supply pricing of de

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Speaker 4: RAM and nand the key markets for memory is going up,

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Speaker 4: and Samsung has no line of sight when that improves.

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Speaker 4: It's really a stock story, where like Samsung was a

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Speaker 4: stock that was up one hundred and fifty percent year

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Speaker 4: to stay going into it. And I think everyone's just

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Speaker 4: taking a pause and saying, you know, this isn't the

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Speaker 4: right trade right now, you know, let's do something different.

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Speaker 5: It seems like a lot of AI and tech stocks

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Speaker 5: are having sell offs this morning, and like you say,

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Speaker 5: there doesn't seem to be a real reason behind it,

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Speaker 5: just animal spirits. Is that what's going on? Or people

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Speaker 5: just taking stock at this moment and worried we're out

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Speaker 5: over our skis or something else going on.

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Speaker 4: Yeah, I mean if there was a place with Samsung

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Speaker 4: you might have some concern, And with memory generally, you

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Speaker 4: could point to margins and say how do we feel

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Speaker 4: about this? Historically memory is a very cyclical market boom

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Speaker 4: and bust. It's highly commoditized. Right now, what's happening doesn't

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Speaker 4: reflect it reflect historical norms, but in those periods where

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Speaker 4: the memory names have had very high margins, they've never

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Speaker 4: been maintained. They ever flow, they crash to a floor,

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Speaker 4: and I think everyone might be a little bit worried

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Speaker 4: about that maybe, But generally speaking, you know, we've had

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Speaker 4: a melt up, We've not quite had a melt down.

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Speaker 4: And if you just look at the last month of

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Speaker 4: trading on the socks, it's so normal to have a

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Speaker 4: swing of five to eight percent. I think, you know, Paul,

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Speaker 4: you know this. Right in the equity space, there is

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Speaker 4: a distinction between volatility and a swing in price, but

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Speaker 4: you know, probably both are true in that market right now.

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Speaker 2: The folks on Wall Street, my friends on the debt

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Speaker 2: capital market says they have to be going crazy busy.

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Speaker 3: No summer vacation for those people.

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Speaker 2: Say every day there's another mega, mega tech deok to

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Speaker 2: the investment grade bond market today, to Amazon looking to

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Speaker 2: raise at least twenty five billion dollars in a US

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Speaker 2: dollar year, to.

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Speaker 3: Just what's going on? What is Amazon doing? Is this

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Speaker 3: just more ai capeck?

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Speaker 4: The latest is that in quick succession for the second time,

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Speaker 4: it's looking at the USIG market and Bloomberg's reporting twenty

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Speaker 4: five billion across eight tranches maturities three to forty years.

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Speaker 4: You know, corporate credit is not my strong suit, but

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Speaker 4: Robert Schiffman of BI would tell you that on a

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Speaker 4: weighted cost of capital basis, it makes total sense for

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Speaker 4: these hyperscalers to use the debt market to finance massive capex.

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Speaker 4: Amazon's a really simple story. Capex is growing at an

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Speaker 4: enormous rate, much faster than revenue is growing. The reason

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Speaker 4: capex is growing is also because building data centers is

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Speaker 4: getting more expensive with inflation. There is labor and construction

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Speaker 4: labor inflation. There is memory chip pricing inflation. We just

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Speaker 4: talked about that, and so right now, you know, BIC

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Speaker 4: is a path of capex for Amazon, going from two

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Speaker 4: hundred bis into three hundred billion dollars in full year

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Speaker 4: twenty seven. I've got to find the money somewhere. But

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Speaker 4: like you know, bondholders love Amazone, the krem de la

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Speaker 4: creme of credit profile, you know, so exactly that's the story.

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Speaker 3: Bring it on.

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Speaker 5: Well, all kinds of companies are going to have to

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Speaker 5: be raising money for AI, for data centers and things

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Speaker 5: like that. Like you say, Amazon is krem de la

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Speaker 5: crem So there will definitely be a market for this step.

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Speaker 5: But what about for other companies that are wanting to

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Speaker 5: expand into AAR They're going to have trouble.

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Speaker 4: So there is there are distinctions, right, So something happened.

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Speaker 4: There are two case sies where we can compare and contrast.

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Speaker 4: There was a time where Amazon flipping into negative free

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Speaker 4: cash flow. I one would imagine the market would have

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Speaker 4: freaked out several years ago, but now that's okay, you know,

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Speaker 4: negative free cash flow Amazon. Andy Jasse explained that a

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Speaker 4: way that you know, when you have a period of

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Speaker 4: time where you have cafex and whatever you build takes

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Speaker 4: time to come online. Like data centers are real things,

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Speaker 4: it takes a couple of years for them to actually

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Speaker 4: like do something and get some revenues.

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Speaker 3: Paragrapas with Oracle.

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Speaker 4: You know, Oracle flip to negative cash flow free cashwoaw

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Speaker 4: for the first time in the nineties and the market

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Speaker 4: melted down because you know, you have to look holistically

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Speaker 4: at the strength of the balance sheet that that company's

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Speaker 4: power in the real world market of AI, like Amazon

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Speaker 4: and aws's cloud business are highly important in what's happening

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Speaker 4: in AI compute. So those are the two things I'd

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Speaker 4: point to that not all companies are created equal in

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Speaker 4: that sense, you.

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Speaker 3: Know, talking about Amazon.

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Speaker 2: You know what surprised me, What's that the extent to

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Speaker 2: which Jeff Bezos has stepped back. You never hear from

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Speaker 2: this dude other than you see in Powder Boring, Padda Borning,

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Speaker 2: you know somewhere.

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Speaker 4: Yeah, that's certainly how I think about it, though, you

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Speaker 4: know he's a busy guy elsewhere.

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Speaker 3: Yeah, but boy, I just don't as it related to Amazon.

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Speaker 2: You know, he's just he really has step back and

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Speaker 2: just kind of bracing the chair and letting his management

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Speaker 2: team go, which oftentimes with founders you just don't see

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Speaker 2: it that they can turn it off that quickly.

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Speaker 3: So yeah, it depends.

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Speaker 4: Like in the Valley, like founder mode On is still

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Speaker 4: that the mantre, you know, like Airbnb has Brancheski found

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Speaker 4: a CEO, Mark Zockerberg found Azeo. They lean into that,

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Speaker 4: you know, Jeff's running a space company and an AI

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Speaker 4: company somewhere else, that he's kind of busy exactly. Still

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Speaker 4: ends not eight percent of the company.

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Speaker 1: Stay with us.

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Speaker 2: More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live

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Speaker 1: weekdays at ten am easterned on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube

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Speaker 1: the Mag.

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Speaker 3: Seven and I was looking at some Bloomberg News reporting

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Speaker 3: on this.

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Speaker 2: The MAGS seven tech giants are no longer dominating the

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Speaker 2: stock market, with their index gaining just one point seven

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Speaker 2: percent in twenty twenty six.

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Speaker 3: Let's break it down. Our next guest, Ryan Lastelica.

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Speaker 2: Equities reporter for Bloomberg News talk was Ryan about this

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Speaker 2: rotation we're seeing in the stock worker.

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Speaker 3: What are you seeing?

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Speaker 6: Yeah, it's been pretty remarkable. After years of really being

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Speaker 6: the driver four stocks the MAG seven have really started

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Speaker 6: to become something of an afterthought. Momentum has shifted away

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Speaker 6: from them and into other parts of the market, even

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Speaker 6: though the momentum is still within tech. But we've seen

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Speaker 6: a lot more interest in the semiconductor side of things,

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Speaker 6: especially the memory and storage area, which have become the

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Speaker 6: real bottleneck for this stage of the AI infrastructure buildout.

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Speaker 6: So we've seen huge gains in stocks like Micron, sand Disk,

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Speaker 6: Western Digital, Seagate, and we've seen basically flat performance overall

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Speaker 6: in the names that have otherwise been sort of the

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Speaker 6: market leaders for like I said, for years, this.

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Speaker 5: Doesn't seem like such a huge shift. It seems like

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Speaker 5: more of a semantics issue, like shifting money around within

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Speaker 5: the AI space. Still, do you see it as a

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Speaker 5: significant shift?

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Speaker 6: Well, I think what it really shows is that people

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Speaker 6: are really trying to go where the AI trade is going.

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Speaker 6: So right now we have all of these sort of

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Speaker 6: trational mag seven companies, and I'm talking particularly about the hyperscalers,

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Speaker 6: which is Amazon, Alphabet, Microsoft, Meta, companies that are really

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Speaker 6: spending aggressively to build out their AI infrastructure. People have

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Speaker 6: sort of moved away from those. Now there's been sort

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Speaker 6: of a mixed bag even within that group. Alphabet's doing

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Speaker 6: pretty well because people remain pretty positive about its AI position.

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Speaker 6: Microsoft has really struggled this year because people aren't sure

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Speaker 6: about its AI position or what it's really getting out

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Speaker 6: of the tens of billions of dollars that it's spending

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Speaker 6: on this infrastructure. So right now there is a lot

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Speaker 6: of questioning and concern about what is all this money

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Speaker 6: really going to, what kind of return are they going

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Speaker 6: to see from it? And at least for the time being,

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Speaker 6: people feel a lot more comfortable being in the companies

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Speaker 6: that are the beneficiaries of all that spending, which, like

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Speaker 6: I said, is the infrastructure complex, memory other parts of chips.

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Speaker 2: So, Ryan, I'm old enough to remember the day when

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Speaker 2: a stock would go up, when a company would take

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Speaker 2: its CAPEX.

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Speaker 3: Numbers up here, maybe like three or four quarters ago.

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Speaker 3: That game seems to be out of fashion. Is that

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Speaker 3: what you're saying.

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Speaker 6: Yeah, I think there's been a real change in centiment

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Speaker 6: in terms of how investors are viewing these kinds of

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Speaker 6: aggressive capbex plans. Now. I think people, you know, you

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Speaker 6: talk to a lot of investors, they say, you know,

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Speaker 6: I still feel pretty positive. I think they know what

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Speaker 6: they're doing. But at least for the time being, we're

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Speaker 6: really seeing an impact on free cash flow, on their

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Speaker 6: cash piles. Some companies are raising equity or tapping debt markets.

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Speaker 6: There's been a lot of, you know, complicating factors that

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Speaker 6: have just gone beyond you know, you know, spend the money.

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Speaker 6: You know, spend a dollar on AI infrastructure, you get

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Speaker 6: a dollar back and revenue growth or something like that.

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Speaker 6: It's not nearly that simple anymore. I think people are

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Speaker 6: taking a much more jaundice look on this type of strategy,

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Speaker 6: even though I think they remain pretty positive that over

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Speaker 6: a longer term period it will eventually start paying out.

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Speaker 4: Stay with us.

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Speaker 3: More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast live weekdays at

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Speaker 1: ten am. He's done on Apple, Coarclay and Android Auto

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Speaker 1: with the Bloomberg Business app. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 2: All right, here's a pretty good deal, I think Sam Altman,

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Speaker 2: you know, the open ai guy. He's offered the US

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Speaker 2: a five percent stake in open Ai, which he said

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Speaker 2: would allow Americans to share in the benefits of artificial intelligence.

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Speaker 2: Seems like a good deal to me. Let's suit our

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Speaker 2: next guest, Thanks got Kunda. He's a lecturer at the

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Speaker 2: Yale School of Management and he's a Bloomberg Opinion contributor,

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Speaker 2: joining us via zoom from Sweden.

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Speaker 3: Okay, why not? It's a nice place to hear Gotham,

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Speaker 3: What do you mean here? How do you view this

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Speaker 3: potential offer.

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Speaker 2: From mister Altman as it relates to ai open Ai.

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Speaker 3: I think it's a bit of a trojan horse, Paul.

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Speaker 7: If he gives fifty five percent of the equity of

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Speaker 7: open Ai to the government. He's going to get the

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Speaker 7: government committed to the success of open Ai, and since

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Speaker 7: the government has a lot of ability to determine that success,

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Speaker 7: that's probably worth more than five percent to him. But

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Speaker 7: I'm not sure it's worth more than five percent the

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Speaker 7: American public.

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Speaker 5: Is this I mean, is this an attempt to make

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Speaker 5: the company kind of too big to fail? And what

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Speaker 5: is the case he's making to the government for why

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Speaker 5: this would be a good idea?

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Speaker 3: Right?

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Speaker 7: I think it's exactly that, right, And it wouldn't be

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Speaker 7: too big to fail economically. That argument just doesn't make

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Speaker 7: any sense opening eye, however, bigot is not systemically economically important.

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Speaker 7: What it would become is too big to fail politically,

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Speaker 7: right that because there's this huge chunk of equity that

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Speaker 7: people would be able to track, it would go back

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Speaker 7: if you think back to like in twenty twelve, the

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Speaker 7: Department of Energy had a loan program during the Obama

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Speaker 7: administration that gave out loans to lots of companies, one

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Speaker 7: of which was Cylindra, a solar sol company that's failed.

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Speaker 7: It was a sort of a catastrophe. They lost all

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Speaker 7: the money and Mitt Romney made a lot of hay

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Speaker 7: out of that. And you you know, if the Obama

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Speaker 7: administration had the ability, you think they might have gone

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Speaker 7: back and been like, maybe we should have propped that

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Speaker 7: company up. That that would be open AI times like

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Speaker 7: a million, right, because the scale of the open Aie

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Speaker 7: investment is so large, and it would put so much

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Speaker 7: pressure on the government to kind of lean on the

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Speaker 7: levers and keep this company propped up for no other

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Speaker 7: reason than to stop people from saying, hey, you cost

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Speaker 7: us you know, eighty billion or one hundred million dollars

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Speaker 7: or whatever it ends up being.

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Speaker 2: So we have seen this administration take investments in other

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Speaker 2: companies a put give us some context around that. I

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Speaker 2: don't recall our country doing our government doing that too

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Speaker 2: much before, maybe the auto industry, and I don't know,

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Speaker 2: how do we think about that in general?

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Speaker 7: Yes, this administration alternates between launching those sufference attacks on

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Speaker 7: socialism and communism and taking ownership of private companies. So

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Speaker 7: I guess today we're on a taking ownership of private

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Speaker 7: companies day, and tomorrow we'll be back to attacking communism.

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Speaker 6: And yeah, this is this.

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Speaker 7: Is a new thing, and they're very good reasons we

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Speaker 7: don't do it right, and they're good reasons on both

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Speaker 7: sides of the equation. We've talked on the government side

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Speaker 7: how this is going to lead to bad policy and

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Speaker 7: to bad political outcomes, and it is just right. It

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Speaker 7: is corrosive on free markets and free enterprise to have

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Speaker 7: government puts a heavy hand in like that. But it's

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Speaker 7: also really bad for the companies, right, So they may

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Speaker 7: think of themselves as buying insurance against failure by getting

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Speaker 7: the government on their side. But these are companies that

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Speaker 7: have a global market. And if you are you know,

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Speaker 7: the government of France or Germany, or you know Denmark,

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Speaker 7: which is just seeing the United's just a few just

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Speaker 7: a few minutes ago, right, Donald Trump issued more threats

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Speaker 7: to Greenland. Then the idea of having your economy or

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Speaker 7: your government run on a company's software when that company

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Speaker 7: is functionally part owned by the United States government, you know,

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Speaker 7: a few years ago that wouldn't have been a problem,

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Speaker 7: but now it's a huge problem. And it means that

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Speaker 7: these companies are going to limit their global market in

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Speaker 7: a really profound way.

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Speaker 5: I mean, the hazard seem quite clear here. Is there

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Speaker 5: potentially a case to be made for government investment in AI,

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Speaker 5: just because the economy has become so dependent on it,

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Speaker 5: such an expensive thing to try to build out. Is

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Speaker 5: there possibly a case to be made for an investment

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Speaker 5: like this?

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Speaker 7: I think there's an extremely strong case to be made

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Speaker 7: for the government. You for the government profiting from gains

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Speaker 7: in AI, and for being taking those gains and using

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Speaker 7: them to sort of provide public goods for the whole,

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Speaker 7: for the whole the United States, and that benefit the

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Speaker 7: economy of the siety as a whole. That case is overwhelming.

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Speaker 7: But the mechanism for executing that is taxes. And if

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Speaker 7: the United States government wants to benefit from AI, it

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Speaker 7: should tax profitable AI companies. That's the way we should

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Speaker 7: do it. And to tax the individuals who make billions

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Speaker 7: of dollars off AI, that's the right way to do it.

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Speaker 7: This equity thing.

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Speaker 3: Is not.

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Speaker 2: Where where is open AI in its IPO process? I think,

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Speaker 2: you know, the feeling on the street is maybe it

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Speaker 2: might slip into next year, maybe Anthroomic might get out first.

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Speaker 3: Is that your understanding?

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Speaker 7: You know, That's what I'm hearing. And I'll just say

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Speaker 7: that the more you look at the finances of open AI,

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Speaker 7: you know, as a front of the Financial Times just

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Speaker 7: were able to get some of them. These look really bad,

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Speaker 7: Like I mean, I know that what with SpaceX, we've

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Speaker 7: sort of decided that traditional metrics for an IPO don't

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Speaker 7: apply anymore. But it's really kind of hard to make

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Speaker 7: a case for how these companies are going to some

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Speaker 7: pay back, you know, pay the gigantic capital investments they're making.

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Speaker 7: And I think a lot of people are starting to go,

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Speaker 7: you know, you can have an extraordinary revolutionary technology, one

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Speaker 7: that changes the world, that changes the way we do

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Speaker 7: the way we do work, and the peak companies that

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Speaker 7: are doing it don't make money. Because we saw that

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Speaker 7: with the airlines and with biotech for two generations. These

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Speaker 7: were incredibly important technologies and they just weren't profitable for

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Speaker 7: the companies that were doing it.

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Speaker 5: Do you see Opening Eye as in a good position

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Speaker 5: right now? It seems like it was way out in

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Speaker 5: front at first and had all of the public's imagination

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Speaker 5: and a lot of money, and now it seems like

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Speaker 5: it's losing its shine a little bit.

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Speaker 3: Yeah.

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Speaker 7: I mean, as I'm one of the people who sort

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Speaker 7: of switched from using using chat GPT to claude just

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Speaker 7: because you know, the experience was so much better, and

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Speaker 7: I think a lot of people are having are sort

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Speaker 7: of saying that where the the in terms of usage,

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Speaker 7: open ai is still on ahead, but in terms of

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Speaker 7: the I would say the more sophisticated an AI user is,

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Speaker 7: the less likely it seems to be that they are

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Speaker 7: that they are open ai dependent. But beyond that, I

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Speaker 7: think that the questions about their leader are also just

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Speaker 7: you know, their questions about is this sustainable, the level

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Speaker 7: of the commitments that they've made for data centers and

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Speaker 7: sort of the spending commitments they've made, aired with the

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Speaker 7: fact that the construction of these data centers is not,

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Speaker 7: from what I can tell, going nearly as quickly as

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Speaker 7: it would have to be to make sort of these

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Speaker 7: compute these demands are commute, these contracts full out. I

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Speaker 7: think a lot of people are starting to look at

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Speaker 7: this and going, wait a sec, how does you know,

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Speaker 7: how does this story end? Does it really end with

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Speaker 7: you spending one and a half trillion dollars on data

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Speaker 7: centers when no one of the United States sort of

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Speaker 7: wants you to build them in your neighborhood, when there's

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Speaker 7: so many construction bottlenecks, and when you know when the

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Speaker 7: demand for them is starting to get a little iffy.

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Speaker 7: That's it's not clear to right.

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