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Speaker 2: Going through the Paige Book, the anecdotal summary of what
Speaker 2: is going on when it comes to overall economic activity
Speaker 2: in the Fed's districts. Economic activity grew slightly in three districts,
Speaker 2: while the number of districts that reported flat or declining
Speaker 2: activity rose from five in the prior period to nine
Speaker 2: in the current period. Employment levels were study overall, though
Speaker 2: there were isolated reports that firms filled only necessary positions,
Speaker 2: reduced hours in shifts, or lowered overall employment levels through attrition. Still,
Speaker 2: reports of layoffs remained rare. On balance, wage growth was
Speaker 2: modest well Increases in non labor input costs and selling
Speaker 2: prices range from slight to moderate. From all on this,
Speaker 2: we turned to Stephen Blitze's chief US economist at Global
Speaker 2: Data TS Lombard. He joins us here in the Bloomberg
Speaker 2: BusinessWeek Studio. Important to keep in mind this is anecdotal
Speaker 2: evidence from the FEDS districts, but it does give a
Speaker 2: good idea of changes from different periods of time and
Speaker 2: how employers are feeling about the economy. What are your takeaways?
Speaker 3: Well, I wouldn't downgrade the fact that it's anecdotal information,
Speaker 3: because if you go back to the time leading into
Speaker 3: eighth nine, they valued and they learned in their sort
Speaker 3: of you know, Monday morning quarterbacking of going in the
Speaker 3: value of anecdotal information. And I'm really not surprised by
Speaker 3: what this said because if you look at the economic
Speaker 3: data that's coming out, right, and I expect the Friday
Speaker 3: employment number not to be particularly surprising either direction.
Speaker 2: So in line with expectations.
Speaker 3: Yeah, in line with expectations in other ways. They don't
Speaker 3: expect minus one hundred thousand or something like that. But
Speaker 3: what this number tells you, This tells you why Powell
Speaker 3: said what he did at Jackson Hole making a for
Speaker 3: a FED chair, a very blanket statement saying you know it,
Speaker 3: the easing of labor markets stops here, all right, And
Speaker 3: anecdotal information is very important to them at turns in
Speaker 3: the cycle because they lead the data.
Speaker 4: So how are you thinking about all the data that's
Speaker 4: coming in right now, because it really seems like we're
Speaker 4: in a situation where the market at least is very sensitive.
Speaker 4: They don't want to see, for example, a labor market
Speaker 4: that's too hot. They don't want to see when that
Speaker 4: is too weak. How are you kind of putting all
Speaker 4: of this together?
Speaker 3: Well, I think on the edges, right, there's no recession, right,
Speaker 3: and so on the edges you see weakening economic growth.
Speaker 3: The July personal income data is actually pretty good, especially
Speaker 3: on real spending for discretionary items in other words, not
Speaker 3: counting food, energy, rent. So it's actually pretty good, right,
Speaker 3: So this is really about this is unusual for most cycles,
Speaker 3: and that this is really about the FED easing before
Speaker 3: recessionary data takes place as opposed to the usual, which
Speaker 3: is catching up, right, And they don't want to be
Speaker 3: in catch up mode, right, And by anyone's model, the
Speaker 3: funds raise at least one hundred basis points too high.
Speaker 3: So the real question is how fast do you get
Speaker 3: down there? And the data will determine that the market
Speaker 3: is figuring that once they do the twenty five, the
Speaker 3: data will soften enough to scare the market to do
Speaker 3: like a fifty in December, and then another twenty five
Speaker 3: in December, and that's how you get your one hundred right.
Speaker 3: The moves after that, right is really in anticipation of
Speaker 3: the funds rate going down to adjust for an inflation
Speaker 3: rate by the next year it's two percent instead of three.
Speaker 2: I'm looking at labor markets. In the beij book, it
Speaker 2: says that employment levels STEVE were generally flat to up
Speaker 2: slightly in recent weeks. A few districts reported that firms
Speaker 2: reduced shifts and hours, left advertised positions unfilled, or reduced
Speaker 2: headcount through attrition, though accounts of layoffs remained rare. Employers
Speaker 2: were more selective with their hires and less likely to
Speaker 2: expand their workforces, citing concerns about demand and an uncertain
Speaker 2: economic outlook. Is this coupled with the Jolts data that
Speaker 2: we got earlier today, Is this a return to normalcy?
Speaker 3: Well, that's that's the question, right, and that's always that's
Speaker 3: been the question all along as to whether or not
Speaker 3: this is just a return to a normal economy or
Speaker 3: this is a precursor to recession.
Speaker 2: What do you think?
Speaker 3: I think that in what I'm reading here, this is
Speaker 3: typical precursor of recession.
Speaker 2: He said, we're not in a recession right now.
Speaker 3: No, we're not. We're not in a recession now to
Speaker 3: be very clear. Right, but before firms start to lay
Speaker 3: people off, right, what do they do, just in our
Speaker 3: own experience, right, they slow wage increases, maybe they don't
Speaker 3: give wage increases. They cut travel. Business travel is an
Speaker 3: important you know, ask you know, hotels what they're seeing
Speaker 3: in business travel, not vacations, but business travel.
Speaker 5: Uh.
Speaker 3: And then they cut hours, and then there's unfilled positions
Speaker 3: and they say, you know what, we're not going to
Speaker 3: fill this position.
Speaker 2: We've been hearing for two or three years that a
Speaker 2: recession is just around the corner. Why is what? And
Speaker 2: it hasn't it hasn't arrived.
Speaker 3: Well, we haven't gone around enough corners yet.
Speaker 2: Okay, maybe we haven't. What's different about this environment?
Speaker 3: Well, the difference is that this is not a normal
Speaker 3: cycle because there was a mandated shutdown and then a
Speaker 3: mandated reopening which was COVID, right, and you had a
Speaker 3: tremendous amount of fiscal stimulus along with that, and so
Speaker 3: you had this unreal, unsustainable six percent growth whatever it
Speaker 3: was in twenty twenty two. So the economy is going
Speaker 3: from six down to two two and a half, so
Speaker 3: which is its normal cycle. As the impact of all
Speaker 3: these stuff kind of washes through, so it's very hard
Speaker 3: to tell what is just returning to normal and when
Speaker 3: are you going past that? Now, the Fed really didn't
Speaker 3: get tight until earlier late last year, earlier this year.
Speaker 3: And my favorite indicator is the inversion of the real
Speaker 3: yeald curve, so real three month yels versus real ten
Speaker 3: yure yelds, and that inverted last November, and that's about
Speaker 3: a twelve month till, you know, on average, which is
Speaker 3: always a dangerous number, but on average is about twelve months,
Speaker 3: which puts you into coming into recession at the end
Speaker 3: of this year. But of course, you know, it's not
Speaker 3: necessarily faded if the Fed does what it wants to
Speaker 3: do in terms of easing financial conditions, and the key
Speaker 3: one is to actually cut the cost of short.
Speaker 2: Term financing, which they're set to do.
Speaker 3: Which they will do twenty five in September. Unless, as
Speaker 3: a unless there's a unless there's a big negative surprise, right,
Speaker 3: there's no upside number like let's say it's two undred
Speaker 3: and fifty thousand that's gonna keep them, especially given this
Speaker 3: anecdotal information that will keep them from cutting twenty five.
Speaker 3: So the question is twenty five or fifty, and you
Speaker 3: would need a really poor employment number to get fifty.
Speaker 2: Steve, We're gonna have to leave it there. Steven Blitz,
Speaker 2: Chief US Economists at Global Data TS Lumbar joining us
Speaker 2: here in the Bloomberg at Business Week studio. Always good
Speaker 2: to see you.
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Speaker 2: Well Suprilla. It is a bound when talking about what
Speaker 2: happened with the video. Yesterday, shares fell more than nine
Speaker 2: point five percentator Race nearly two hundred and eighty billion
Speaker 2: dollars in market cap. It lost more than the market
Speaker 2: cap of Adobe, which is one of the thirtiest thirty
Speaker 2: biggest stocks in the US market. Shares hired by the
Speaker 2: three tenths of one percent as we speak. Then, aftermarkets closed,
Speaker 2: Ian King and Leah Nyland exclusively reported that the US
Speaker 2: Justice Department sent subpoenas to Innvidia and other companies as
Speaker 2: it seeks evidence that the chip maker violated anti trust laws,
Speaker 2: an escalation of its investigation into the dominant provider of
Speaker 2: AI processors. We got with us Ian King, Bloomberg News
Speaker 2: US Semiconductor and networking reporter, joining us from our San
Speaker 2: Francisco bureau. Ian. The dust has settled a little bit
Speaker 2: in the last eighteen hours twenty hours or so since
Speaker 2: you and Leah reported this story. As the dust settles,
Speaker 2: remind us what is that issue here and what the
Speaker 2: Justice Department is alleging.
Speaker 6: I mean, the important thing is that this is a subpoena.
Speaker 6: They've been surveying in Vidia's customers and competitors. Now they've
Speaker 6: moved to a subpoena, which, as you know, is a
Speaker 6: legally enforceable requirement to provide information. So what we think
Speaker 6: in terms of what this signifies is that they are
Speaker 6: moving closer to wards launching a formal complaint alleging that
Speaker 6: in Video has try and gross rules here.
Speaker 2: Remind us what Invidia has said thus far about these subpoenas.
Speaker 6: Yeah, in response to our story, they came back and
Speaker 6: they were quite feisty. They didn't deny the facts. What
Speaker 6: they said was, look, people buy our chips because they're good.
Speaker 6: If they don't, they can go elsewhere. So really, you know,
Speaker 6: showing a degree of irritation, I would say with this,
Speaker 6: they believe in truth and engineering. They believe that they
Speaker 6: are where they are because they are the best engineers
Speaker 6: for this type of product.
Speaker 4: So what is at the core of the DOJ probe?
Speaker 4: What part of Nvidia's supply chain are they really looking
Speaker 4: at here?
Speaker 6: Yeah, I mean, we won't really know that until as
Speaker 6: a formal complaint filed, but our reporting basically shows that
Speaker 6: what they're looking at is the idea. And this is
Speaker 6: something that's happened in the chip industry before with companies
Speaker 6: like Intel, where if you make multiple products for a
Speaker 6: data center, such as what in VideA does you know
Speaker 6: networking software? They supply software, models, services, and the chips say,
Speaker 6: if you only want to buy the chips, maybe you're
Speaker 6: paying more, maybe you're not getting the kind of supply
Speaker 6: that you want, compared to those that are buying everything.
Speaker 6: That's one of the examples that's that's sort of been
Speaker 6: thrown around. Maybe there's some kind of pricing differentiation going
Speaker 6: on that the customers don't like or think is unfair.
Speaker 6: All of these kind of ideas when you have a
Speaker 6: company like in Video, which is so utterly dominant in
Speaker 6: one area.
Speaker 2: Okay, well you bring up a good point in that
Speaker 2: it is utterly dominant in this in this one area,
Speaker 2: and you said, well, essentially the response has been if
Speaker 2: you don't like our product, you can go elsewhere? Can consumers?
Speaker 2: Can customers really go elsewhere?
Speaker 6: Sort of? I think the problem. I mean, obviously, competitors
Speaker 6: such as Intel and AMD are really you know, it's
Speaker 6: taken them a while, and AMD is closer but still
Speaker 6: not really at the level that in Video is that,
Speaker 6: and Intel, by its own admission, it is kind of
Speaker 6: trailing far behind. So in that sense, no, but there
Speaker 6: are other aspects to this. A company like AWS, Amazon's
Speaker 6: web services, they do their own networking, they do their
Speaker 6: own servers, they do their own software. So maybe they
Speaker 6: just want the chips. Maybe it's hot. I'm giving you
Speaker 6: a hypothetical here. Maybe it's difficult for them because they
Speaker 6: don't want to buy everything. So that's the kind of
Speaker 6: argument that exists that maybe some of these companies that
Speaker 6: have the expertise and the ability to do a lot
Speaker 6: of themselves want just the chips and want those chips
Speaker 6: on for fair terms.
Speaker 4: What do you make of the move in the stock
Speaker 4: we saw obviously in video fall almost ten percent yesterday,
Speaker 4: but it's actually in positive territory right now. Is that
Speaker 4: move justified with the news that you're reporting.
Speaker 6: I mean, I think you would have to ask my
Speaker 6: market's colleagues a little bit more about that. I mean,
Speaker 6: looking at what was happening yesterday, and this is before
Speaker 6: US went out, there was you know, obviously all of
Speaker 6: the chips related stocks sold off, and those that had
Speaker 6: been tied to this kind of AI frenzy were amongst
Speaker 6: the leaders, and obviously in video led everybody because of
Speaker 6: its market happ it had a huge impact on the indexes,
Speaker 6: and particularly chip related index So that had happened pre
Speaker 6: to this. I mean, what we should do is probably
Speaker 6: separate the short term fluctuations between the long term impact
Speaker 6: of something like an antitrust investigation, which will take a
Speaker 6: long time and which will likely be appealed if there
Speaker 6: is an investigation, if there is a formal complaint, and
Speaker 6: if the courts decide in favor of the government's case
Speaker 6: whenever that is brought.
Speaker 2: Okay, whenever that is Broughty in help us understand and
Speaker 2: help our audience understand what the next piece of this
Speaker 2: puzzle would be. What are you watching for?
Speaker 6: Yeah, I mean there would be a formal complaint would
Speaker 6: be the next step we have to say in that
Speaker 6: regard these things typically have taken years. Actions against Microsoft,
Speaker 6: actions in the past against Intel, and quite a lot
Speaker 6: of them have you know, very little material impact on
Speaker 6: a company's fortunes because I guess what technology moves quicker
Speaker 6: than the legal system. But at the same time, it's clear,
Speaker 6: not only in the US but worldwide that AI and
Speaker 6: who controls it, who controls these vital passways, is a clear,
Speaker 6: you know, strategic geopolitical security focus for governments around the world.
Speaker 6: So I think we could take this as part of
Speaker 6: a you know, a broader look at these things, and
Speaker 6: obviously an influence that governments feel they need to bring
Speaker 6: to bear upon this market.
Speaker 2: Hey, in what we have you, we'd be remiss if
Speaker 2: we didn't ask you for your view on what happened
Speaker 2: yesterday when it came to the socks. When it came
Speaker 2: to the chip stocks, we saw all thirty components of
Speaker 2: the socks down yesterday. The socks had its worst day
Speaker 2: going all the way back to twenty twenty. There was
Speaker 2: this UBS note that came out yesterday. But other than that,
Speaker 2: why did we see such a decline in chip stocks yesterday?
Speaker 6: I mean, it's look at the multiples, look at the
Speaker 6: run ups that we've had this year, last year. It's
Speaker 6: clear that a huge amount of money has been shifted
Speaker 6: into this sector, and it's happened very very quickly, in
Speaker 6: video being the prime example of that. When you get
Speaker 6: that kind of concentration, you obviously attract a lot of
Speaker 6: retail investors and a lot of people who don't potentially
Speaker 6: have the knowledge. So you have a lot of you know,
Speaker 6: what people will call fast money coming into a sector
Speaker 6: which traditionally didn't really have it. So that's going to
Speaker 6: make any rollover, any sense that perhaps we've got ahead
Speaker 6: of ourselves a little bit even more precipitous. When people
Speaker 6: get nervous and when they pull back, that is one
Speaker 6: explanation of what happened yesterday, and we've seen that happen recently.
Speaker 6: And then guess what the money came rolling back in again.
Speaker 6: So you would have to ask, you know, long term
Speaker 6: investors and short term investors what their viewpoint is and
Speaker 6: what their biases to me, that is the kind of
Speaker 6: explanation that I've heard that makes most sense to describe
Speaker 6: what's going on.
Speaker 2: Well, we certainly appreciate that explanation, and we certainly appreciate
Speaker 2: all the coverage that you and the team covering Nvidia
Speaker 2: and other chip companies. Ian King, Bloomberg News US Semiconductor
Speaker 2: and Networking reporter, joining us from our San Francisco bureau.
Speaker 2: Now we're going to talk Intel because the Biden Harris
Speaker 2: Administration's big bet on Intel to lead a US chip
Speaker 2: making renaissance is in grave trouble. This as a result
Speaker 2: of the company's mounting financial struggles. It creates a potentially
Speaker 2: damaging setback for the country's most ambitious industrial policy in decades,
Speaker 2: so writes Mackenzie Hawkins, Bloomberg News US Economic and Industrial
Speaker 2: policy reporter. She joined us from Washington, d C. Mackenzie
Speaker 2: Intel is supposed to receive eight and a half billion
Speaker 2: dollars in grants and eleven billion dollars in loans. That's
Speaker 2: as a result of the Chips Act from twenty twenty two,
Speaker 2: but only if the chip maker meets key milestones. Where
Speaker 2: is Intel right now in relation to those miles stones?
Speaker 7: So President Joe Biden went to Intel's factory site in
Speaker 7: Arizona in March and announced this massive grant and loan
Speaker 7: package from the chips Stacked and what could be and
Speaker 7: would be the program's largest award. And Intel, like more
Speaker 7: than a dozen other companies that are supposed to receive
Speaker 7: US government subsidies, is in the middle of a pretty
Speaker 7: intense due diligence process that comes after reaching that preliminary
Speaker 7: agreement earlier this year, and once the company signs a
Speaker 7: final term sheet and hits milestones on each of four
Speaker 7: projects that Intel's Chipsacked Award is supposed to support, they
Speaker 7: could start to receive funding from the government in the
Speaker 7: form of a reimbursement for companies spending. But Intel has
Speaker 7: resisted certain due diligence requests from the Biden administration and
Speaker 7: had a pretty disastrous financial report early last month that
Speaker 7: calls into question whether the company will ever be able
Speaker 7: to reach the milestones that would trigger that disbursement in
Speaker 7: the first place.
Speaker 4: So what is the US really looking here when it's
Speaker 4: examining these milestones, Like, what exactly are the milestones that
Speaker 4: Intel has to meet?
Speaker 7: So the government has been actually pretty quiet on the milestones.
Speaker 7: They're very bespoke arrangements that go on not just a
Speaker 7: company by company basis, but a project by project one.
Speaker 7: So in Intel's portfolio, for example, you have everything from
Speaker 7: an R and D facility in organ to a small
Speaker 7: packaging project in New Mexico, and each of those facilities
Speaker 7: have different timelines, different milestones, and different portions of Intel's
Speaker 7: grant that would fund those projects. But across the board,
Speaker 7: one of the key metrics for the Biden administration is
Speaker 7: general commercial viability, and the best way for a company
Speaker 7: to demonstrate that is by lining up major customers. So
Speaker 7: if you compare Intel to a company like Taiwan's TSMC,
Speaker 7: which is widely regarded to have the world's best semiconductor
Speaker 7: technology and has orders from pretty much every major tech
Speaker 7: name in the books, Intel doesn't actually have any major
Speaker 7: customers lined up for its US facilities. It has some
Speaker 7: interest from companies including Media Tech, Broadcom, and Microsoft, but
Speaker 7: none of them have reached full production yet. The Commerce
Speaker 7: Secretary Hers Steff actually reached out to executives out in
Speaker 7: Vidia and AMD and asked them to consider manufacturing it
Speaker 7: Intel's Ohio facility, which could become the world's largest chip
Speaker 7: making factory if it's fully built out, and neither company
Speaker 7: plans to do so.
Speaker 2: Hey mackenzie, how did this story change just in the
Speaker 2: last month, Because at the beginning of August, Intel reported
Speaker 2: earnings and it was the worst single day in decades.
Speaker 2: As you note, two major credit raterers downgraded the firm's
Speaker 2: debt to just a few notches above junk. The chip
Speaker 2: maker also slashing about fifteen thousand jobs. How did this
Speaker 2: story change just in the last month.
Speaker 7: So the process that Intel's going through right now, which
Speaker 7: is the preliminary agreement followed by months of due diligence
Speaker 7: ahead of a final award, was always the process that
Speaker 7: the company was going to go through. But of the
Speaker 7: entire chipsack portfolio, which includes companies like TSMC, Samsung, sk Heinex, Micron,
Speaker 7: Intel has perhaps seen the biggest change in the company
Speaker 7: position in the industry from when that preliminary agreement was
Speaker 7: announced to now. And so we're in a bit of
Speaker 7: a holding pattern. The Biden administration and just about everybody
Speaker 7: else are waiting to see what the company will do,
Speaker 7: and they're set to evaluate options at a mid September
Speaker 7: board meeting. So if the company does something like split
Speaker 7: off its manufacturing division or scale back its global factory plans.
Speaker 7: That could have an impact on its negotiations with the
Speaker 7: Biden administration. And to put a finer point on it,
Speaker 7: if and there is an indication yet that this is happening,
Speaker 7: but if the company does decide to pair back any
Speaker 7: of its US plans specifically, that would almost certainly cause
Speaker 7: a reduction in its overall chip sacked toward.
Speaker 4: I'm wondering, if maybe we can zoom out, just for
Speaker 4: people who are just tuning in now, why has Intel
Speaker 4: not been able to kind of capture that frenzy that
Speaker 4: there is, at least in the market for semiconductors. You
Speaker 4: know in videas the top performing stock in the S
Speaker 4: and P five hundred. It's been a huge theme this year,
Speaker 4: and yet we have Intel, which is a very well
Speaker 4: known name, and it just hasn't been able to ride
Speaker 4: that wave. The stock is down something like sixty percent
Speaker 4: year to date. Just get us up to speed on
Speaker 4: exactly what they're missing.
Speaker 7: So, you know, Intel is an American technological giant. This
Speaker 7: is the company that gave Silicon Valley its name. But
Speaker 7: there have been several years of strategic and technological blunders
Speaker 7: that CEO pat Glsinger came into leadership of the company
Speaker 7: aiming to turn around with a massive bet on Intel's
Speaker 7: factory division for factories that are known as foundries in
Speaker 7: chips peak. But the foundry business has struggled. They posted
Speaker 7: a seven billion dollar loss last year, and they missed
Speaker 7: out on a big AI wave that companies like TSMC
Speaker 7: have been able to ride. And so now Intel is
Speaker 7: sort of playing catch up against foreign competitors and their
Speaker 7: technology still lags several generations behind the cutting edge, and
Speaker 7: they've struggled to convince major other players in the industry,
Speaker 7: who get the bulk of their orders for AI chips
Speaker 7: from the industry leader TSMC, to take a bet on
Speaker 7: their factory processes. So it's a bit of a spiral
Speaker 7: for Intel right now as they're trying to convince investors,
Speaker 7: convince the government, and convince industry that their technology is
Speaker 7: worth taking a bet on McKenzie.
Speaker 2: On the US side of this, the US government side
Speaker 2: of this, the support that Intel was set to get
Speaker 2: from the US government is set to get from the
Speaker 2: US government. What does the US government want to see?
Speaker 2: Is this about jobs? Is about security? Is it about both.
Speaker 7: So if we go thirty thousand foot and look at
Speaker 7: the Chips Act overall, this was a landmark law that
Speaker 7: was that President Joe Biden signed just about two years ago,
Speaker 7: two years ago last month, and the goal is basically
Speaker 7: to bring manufacturing of these critical electronic components back to
Speaker 7: the US. Chips are in everything you could think of,
Speaker 7: from a microwave to a phone to a nuclear missile,
Speaker 7: and for decades the US has ceded manufacturing leadership to Asia.
Speaker 7: The pandemic revealed to everybody how important ships are. It
Speaker 7: was a shortage of even less advanced chips that caused
Speaker 7: auto supply lines to shut down during COVID, and governments
Speaker 7: around the world, not just the US, but from the
Speaker 7: EU to South Korea, to Japan, to Taiwan to of
Speaker 7: course China has decades of industrial policy in this area
Speaker 7: are really doubling down and trying to make sure that
Speaker 7: they have a stable and secure domestic manufacturing base for
Speaker 7: both economic and national security. The jobs, of course, are
Speaker 7: an added bonus, but this isn't a jobs program. The
Speaker 7: goal is to get the world's top chip makers, and
Speaker 7: the US has gotten commitments from all of them, including Intel,
Speaker 7: to build significant manufacturing presence on US soil so that
Speaker 7: the country can make a fifth of the world's most
Speaker 7: advanced processors by the end of the decade.
Speaker 2: But you say, you write in your piece that this
Speaker 2: is a long process. I mean you go back to
Speaker 2: the Obama administration and Intel was talking with the Obama
Speaker 2: administration for something that they ended up building and touting
Speaker 2: during the Trump administration.
Speaker 7: That's right. And you know, one of the big difficulties
Speaker 7: facing the bidening minist is you know, they're looking at
Speaker 7: point in time company financials and market conditions. But this
Speaker 7: is an intensely cyclical industry. And as much as companies
Speaker 7: would like to make promises to politicians, you know, they'd
Speaker 7: love to stand with Biden at a bill signing or
Speaker 7: go to the Oval Office, the reality is that they're
Speaker 7: beholden to their shareholders and to their customers. And so
Speaker 7: you have a strategy employed not just by Intel but
Speaker 7: by other major companies as well, to build factory shells,
Speaker 7: do what has cost billions of dollars but is actually
Speaker 7: the cheap part of the process, and only outfit them
Speaker 7: with actual equipment when they can see, you know, six
Speaker 7: months down the line, nine months down the line, exactly
Speaker 7: what their demand picture is going to look like. And
Speaker 7: so right now you're starting to see a lot of
Speaker 7: the signs that you would want to see if the
Speaker 7: country were going to meet it's, you know, a decade
Speaker 7: end goal of making all of these chips at home,
Speaker 7: but that's in factory construction, not in actual equipment purchases,
Speaker 7: and so there are a lot of other indicators to
Speaker 7: watch to see whether companies will actually make good on
Speaker 7: their production plans in the times that they have set
Speaker 7: out with the administration.
Speaker 4: I wanted to talk about that timeline. What do we
Speaker 4: know about what's next for Intel and how much time
Speaker 4: they do have before they would be set to receive
Speaker 4: those billions of dollars in grants.
Speaker 7: Intel would love to know the answer to that question.
Speaker 7: Very active negotiation. You know, there are companies that are
Speaker 7: quite close, but we haven't actually seen any chipsacked money
Speaker 7: go out the door. All of the announcements of which
Speaker 7: there are more than thirty billion dollars committed, have been
Speaker 7: in the form of these preliminary agreements like the one
Speaker 7: that I described Biden announcing for Intel in March, and
Speaker 7: so all of the companies are going through due diligence,
Speaker 7: actively hashing out the specific dollars and cents that are
Speaker 7: correlated with you know, X production, milestone, X customer commitment,
Speaker 7: and it's you know, a very company by company basis.
Speaker 7: And so really what Intel is feeling right now is
Speaker 7: not necessarily like, oh, we're worried our chips ACKed award
Speaker 7: is going away. That would only happen if their US
Speaker 7: factories went the way, and Intel hasn't made any decision
Speaker 7: that effect. But it's about the timing. Intel has a
Speaker 7: balance sheet that's in pretty dire straits and they want
Speaker 7: to get this money as quickly as possible. But that'll
Speaker 7: only happen if they cooperate with due diligence. They have
Speaker 7: resisted some requests from the Biden administration so far, and
Speaker 7: of course if they actually get their factories off the ground,
Speaker 7: which requires the company to invest billions of dollars itself.
Speaker 2: To what extent does the US government need Intel to succeed?
Speaker 2: I'm not asking if it's like too big to fail,
Speaker 2: but is it too important to fail?
Speaker 7: Intel's crucial to the Overall Ships Act effort. There are
Speaker 7: only three companies that make the types of advanced processors
Speaker 7: that the US is really really focused on in this effort,
Speaker 7: and that's Intel, Samsung, and TSMC, and both of the
Speaker 7: latter companies are building factories on US soil. But to
Speaker 7: get to a fifth of the world's production, especially when
Speaker 7: governments around the globe are trying to do the same thing,
Speaker 7: you really need these large scale commitments like the ones
Speaker 7: that Intel is making. I mean, they're planning multiple fabs
Speaker 7: in Ohio and multiple fab expansions in Arizona. So to
Speaker 7: potentially lose those projects or to see them delayed, which
Speaker 7: again we don't really know what's going to happen on
Speaker 7: that front, would be a pretty massive blow to the
Speaker 7: overall ambition of the program. And tells also the only
Speaker 7: American maker of these chips, which the Pentagon has decided
Speaker 7: as really crucial for Department of Defense supply chains. And
Speaker 7: it tells the sole intended beneficiary of a three and
Speaker 7: a half billion dollar program to stand up a secure
Speaker 7: facility to make semiconductors for military and intelligence purposes. So
Speaker 7: will the Chips Act fail if Intel fails? No, there
Speaker 7: are hundreds of companies that were interested in the money.
Speaker 7: More than a dozen awards have already been announced, but
Speaker 7: it's impossible to overstate how critical Intel's investments are to
Speaker 7: not just the company's turnaround plan, but also the Biden
Speaker 7: administration's goals.
Speaker 2: Mackenzie Hawkins, Bloomberg News US Economic and Industrial Policy reporter.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 2: Eleven thirty data centers and transmission networks each account for
Speaker 2: up to one point five percent of global consumption. That's
Speaker 2: according to the International Energy Agency. Together, they're responsible for
Speaker 2: emitting about as much carbon dioxide as Brazil annually. So
Speaker 2: over the summer, we learn the new data center's plan
Speaker 2: for Silicon Valley of the potential that a three point
Speaker 2: five gigawatts of demand for electricity. This, according to PGNE,
Speaker 2: it's more than the output of three nuclear power plants. Emily.
Speaker 2: Needless to say, all of this computing power is using
Speaker 2: a lot of energy. Josh Patterson is trying to do
Speaker 2: more with less at Voltron Data, where he's CEO and
Speaker 2: co founder. It's an analytics software startup backed by firms
Speaker 2: including black Rock, Alphabet's GV light Speed, and more. Josh
Speaker 2: joins us from Charleston, South Carolina. Josh, good to have
Speaker 2: you with us. Welcome to Bloomberg BusinessWeek. You are adding
Speaker 2: VideA for about four years before you co founded Vultron Data.
Speaker 2: What was the problem that you saw when you were
Speaker 2: at Invidia that you set out to solve?
Speaker 8: Absolutely?
Speaker 9: At Nvidia, I joined specifically to drive GPU acceleration in
Speaker 9: data analytics. Prior to in Nvidia, I was at Accenture
Speaker 9: Tech Labs and we were working on cybersecurity challenges and
Speaker 9: what we realized is we had the algorithmic and systems
Speaker 9: technology to solve really large scale threat detection, but it
Speaker 9: was preheitively expensive moving you know, parts of the software
Speaker 9: stack to in video. GPUs allowed us to shrink different
Speaker 9: parts of it down tremendously, moving from forty servers to
Speaker 9: a single server and being much more energy efficient and faster,
Speaker 9: moving you know, graph analytics from thirty minutes to thirty seconds.
Speaker 9: And so after that we really caught this this bug.
Speaker 9: How can we gp you accelerate all of data analytics
Speaker 9: how can we help bring GPUs and data systems. And
Speaker 9: that's what I joined in video for there, I created
Speaker 9: the rapids dot AI ecosystem. It's all the modular and
Speaker 9: composed of building blocks for building software for data analytics,
Speaker 9: machine learning, graph analytics, et cetera.
Speaker 8: In video GPUs.
Speaker 9: And our whole goal was data is going to keep growing,
Speaker 9: and so we know we have to be able to
Speaker 9: analyze that data faster, cheaper and with less energy.
Speaker 4: Okay, so help us understand maybe in I mean I
Speaker 4: get it. Come on, maybe simple terms. If you have
Speaker 4: to explain this to you know, someone your elevator pitch,
Speaker 4: or you know, explaining this to your grandma, what exactly
Speaker 4: is a GPU and what exactly is voltron? I guess
Speaker 4: producing here that is reducing the energy consumption that these
Speaker 4: big data centers take.
Speaker 9: It absolutely, you know, and so the first thing I
Speaker 9: would do is always do it. You know, kind of
Speaker 9: an analogy. We we know for a fact that in
Speaker 9: video GPUs are the leaders in AI. AI would be
Speaker 9: you know, prohibitively expensive, It would be borderline impossible without
Speaker 9: the innovation. Uh, you know, from B one hundred to
Speaker 9: A one hundred h one hundred and now the B
Speaker 9: one hundreds coming out soon. And you know, GPUs are
Speaker 9: essentially these multi core chifts that allow you to do
Speaker 9: parallel data processing a lot faster, a lot more energy efficient,
Speaker 9: and it's been the building blocks of graphics, high performance computing,
Speaker 9: autonomous vehicles and ai as.
Speaker 8: We all know.
Speaker 9: What we're doing is we're taking that exact same speed
Speaker 9: up and we're applying it to databases. And when you
Speaker 9: think about a database, it has three layers. You have
Speaker 9: how you store data, how you manage data, how you
Speaker 9: actually do compute on the data, and then how you
Speaker 9: talk to that data system, your ap eyes, how do
Speaker 9: you send instructions and so what we do at Voltron
Speaker 9: Data that is pretty unique is we run that database compute.
Speaker 9: So not the data warehousing, not how you store data,
Speaker 9: and not how you index and sort data, but the
Speaker 9: actual how do you join tables together, how you do
Speaker 9: group Yes, think about all the things that you do.
Speaker 8: In Excel, but just at a much much larger level.
Speaker 9: Instead of you know, megabytes of data, we're talking about
Speaker 9: terabytes of data, and we do that running on in
Speaker 9: video GPUs. We primarily focus on that middle layer that's
Speaker 9: just the compute, and we allow people to bring their
Speaker 9: own APIs to our engine, and that allows that integration
Speaker 9: to be a lot faster and more seamless. And so
Speaker 9: whether you're using you know, one of the myriad of
Speaker 9: SQL dialects, a Python data frame API, a Java data
Speaker 9: frame API like Spark, you can send your existing code
Speaker 9: to our query engine that then grabs data from your
Speaker 9: data lake and analyzes that data really really fast. And
Speaker 9: so you know, essentially we can take workloads that used
Speaker 9: to take two hundred servers and we can run them
Speaker 9: on two servers and it's faster, and that's how we
Speaker 9: get to these you know pretty you know, amazing energy
Speaker 9: reductions today.
Speaker 2: Where are the servers that you're running these queries.
Speaker 9: On, both in the cloud and on premise. We have
Speaker 9: customers who do air gap on premise installations. So think about, uh,
Speaker 9: you know, your Department of Defense and your intelligence community
Speaker 9: agencies as well as you know, high frequency trading firms
Speaker 9: where you know, for a myriad of privacy reasons, they
Speaker 9: don't want you know, their data centers having free access
Speaker 9: to the Internet. Traditional data centers that you would find
Speaker 9: in you know, Fortune five hundred organizations, your top banks, retailers,
Speaker 9: et cetera, as well as in the cloud, and so
Speaker 9: we can run our software across all major clouds.
Speaker 8: The only prerequisite.
Speaker 9: Is in video GPUs that is the backbone of what
Speaker 9: theseus runs on. And then from a from a kind
Speaker 9: of a big data how do you schedule and orchestrate it.
Speaker 9: We use Kubernetes, which is, you know, the foundations of
Speaker 9: cloud native technology. So we're we're cloud native and we're
Speaker 9: accelerated native. We're built from the ground up to fully
Speaker 9: leverage in video GPUs, accelerated networking and storage.
Speaker 4: So how's business so far? What kind of customers do
Speaker 4: you have? And have you seen I guess an increase
Speaker 4: in them because I know you're a new company.
Speaker 8: We're a new company.
Speaker 9: We were found in twenty twenty one, but we didn't
Speaker 9: really launch theseus until this March at Nvidia GtC and
Speaker 9: that's where we release our benchmarks showing that we can
Speaker 9: scale to hundreds of terabytes of data with you know,
Speaker 9: single digit number of servers.
Speaker 8: You know, business is doing well.
Speaker 9: We've we've we've signed some really great deals with a
Speaker 9: few of the intelligence agencies, a very large commercial bank,
Speaker 9: one of your fortune one hundred, uh, you know, top
Speaker 9: five banks, and we also have about a dozen customers
Speaker 9: that we're doing enterprise support and advisory for around open
Speaker 9: soare software and so think about your you know, your
Speaker 9: high frequency trading firms, Snowflake UH and others or customers
Speaker 9: of our enterprise support and these two things work very
Speaker 9: graciously together. So, first, we help people use existing open
Speaker 9: source software as efficiently as possible, and that is things
Speaker 9: like Apache, Arrow and IBS and substrate and park and
Speaker 9: so they can build these better data lakes, they can
Speaker 9: build interoperability, they can have these you know, more UH.
Speaker 8: Efficient composable systems. But it also.
Speaker 9: Allows them to more graciously upgrade to these cheap accelerated
Speaker 9: query engines when they're ready. And so both sides of
Speaker 9: our business really is revolving around how do people do
Speaker 9: more with less? How do they you know, continue to
Speaker 9: use their existing code, how can they leverage best practices?
Speaker 9: Is an open source to drive enterprise value today?
Speaker 2: Josh, your company you're based in South Carolina? Is your
Speaker 2: company in South Carolina?
Speaker 8: We are fully geographically distributed.
Speaker 9: We have engineers from Japan to Australia the long way,
Speaker 9: probably about two thirds in the US, one third global,
Speaker 9: and you know pretty distributed across the US.
Speaker 2: Is that pretty high con Do you see that as
Speaker 2: an advantage? I mean, when we talk about companies such
Speaker 2: as your Silicon Valley is the geographic location that certainly
Speaker 2: comes to mind for for a lot of these companies.
Speaker 9: You know, So when our company was was born, it
Speaker 9: was born out of a kind of an amalgamation of
Speaker 9: some of the world's best talent in hardware engineering, software engineering,
Speaker 9: database design, high performance computing as well as you know
Speaker 9: in video GPU know how, and that talent is very rare,
Speaker 9: and so if we wanted to move everyone to one place,
Speaker 9: it would have been you know, it would have been expensive.
Speaker 9: And so this was one of the ways that we
Speaker 9: we could really keep our costs as low as possible
Speaker 9: while building the world's best engineering team and allowed us
Speaker 9: to build this really amazing engine I would say, faster
Speaker 9: and more capital efficiently than you know, ever before Historically typically,
Speaker 9: you know, people spend four to five times as much
Speaker 9: building a data system than we did. And that's really
Speaker 9: because you know, even from our time in and video,
Speaker 9: we were geographically distributed some of our leadership team, and
Speaker 9: we've been you know, fully remote, probably some of us
Speaker 9: since twenty sixteen, so even pre COVID, and so this
Speaker 9: was a working model that we were very used to.
Speaker 9: Is very common in open source, and we leverage you
Speaker 9: to our advantage.
Speaker 2: Josh, come back and visit us again. Really appreciate you
Speaker 2: joining us. Josh Patterson. He is co founder and CEO
Speaker 2: at Voltron Data, a journal.
Speaker 6: Now about you let me drive Oh no, alright, please,
Speaker 6: I'll do.
Speaker 5: I want to.
Speaker 8: It's good question.
Speaker 1: This is the Drive to the Clothes on Bloomberg Radio.
Speaker 4: All right, it's time for Drive to the Clothes with
Speaker 4: Thomas Raymond, investment management partner at Callan Family Office. He
Speaker 4: joins us here in the Bloomberg Interactive Brokers studio. Welcome,
Speaker 4: thank you for joining us. For me, so in video
Speaker 4: was down today, but the notes that you sent us
Speaker 4: had a lot to do with AI. Where exactly you're
Speaker 4: seeing opportunities in that part of the market.
Speaker 5: Yeah, well, first off, perspective matters a great deal when
Speaker 5: the markets are chopping like this and you have a
Speaker 5: cell off, especially with the magnitude of Navidia's declined the
Speaker 5: other day. But Navidia is not another Netscape. There is
Speaker 5: a clear difference between that company and what we saw
Speaker 5: in the tech craise and the tech bubble, all right,
Speaker 5: I mean the earnings in revenue numbers that we've seen
Speaker 5: are one hundred percent growth year every year. It's not
Speaker 5: the same, right, so kind of put everyone's mind at ease.
Speaker 5: It is not the same. But what we are seeing.
Speaker 5: One of the the theories that we've kind of had
Speaker 5: was that there's going to be a shift from AI
Speaker 5: producer to AI consumer and various benefits from that, and
Speaker 5: that could unlock a huge productivity innovation wave.
Speaker 2: Where we are we seeing that yet with S and
Speaker 2: P favend companies. I mean every quarter, I'm like listening
Speaker 2: on these calls to hear about how a company that's
Speaker 2: not an Nvidia, for example, that's not actually producing the
Speaker 2: products or you know, building the services, that is doing
Speaker 2: this analysis, are actually using these tools to improve their
Speaker 2: bottom line.
Speaker 5: Yes, you are in some unlikely places. Okay, so Walmart,
Speaker 5: let me give you an example. Walmart is not typically
Speaker 5: considered a tech company, but you look at what they said,
Speaker 5: their CEO said in their most recent earnings announcement, by
Speaker 5: the way, they outperformed on an earnings basis. They said
Speaker 5: that they were able to catalog eight hundred and fifty
Speaker 5: million of their items through the use of large language
Speaker 5: models AI. It would have taken them one hundred times
Speaker 5: their workforce to replicate that work in just a fraction
Speaker 5: of a time. That's just one example. That is Walmart.
Speaker 5: Visa was another one. A couple of years ago. They
Speaker 5: saved twenty five billion in fraud detection from the use
Speaker 5: of AI. There are a lot of examples out there
Speaker 5: of companies they don't think are tech companies, but man,
Speaker 5: they start to look like them, and there is this
Speaker 5: push to be more asset light and more clear evidence
Speaker 5: of this is earnings growth. Right in the first quarter,
Speaker 5: the MAG seven names at earnings growth of just those
Speaker 5: seven companies of fifty percent plus earnings growth year. Youer
Speaker 5: the rest the other four hundred and ninety three companies
Speaker 5: down two percent. In the second quarter, there's been a convergence,
Speaker 5: there's been a normalization of the earnings growth from the
Speaker 5: MAG seven names and growth on the bottom line. The
Speaker 5: number of the delta now is a twenty some odd
Speaker 5: percent because the MAG seven areas growth came down, but
Speaker 5: the rest of there's other's other feign or ninety three
Speaker 5: companies started to go up. So it is an earning story. Right,
Speaker 5: the cost savings that you get immediately cruise to your
Speaker 5: bottom line when you embrace these you know, embrace AI.
Speaker 4: So where does that leave big tech then, because you're
Speaker 4: still seeing a big appetite to buy those apples, Alphabets,
Speaker 4: Microsofts and when you look at you know how much
Speaker 4: of Nvidia's customer bases those companies, they do make up
Speaker 4: a large portion. So do you hold do you sell
Speaker 4: that area?
Speaker 5: Well, there's time. Horizon is the controlling factor in this
Speaker 5: right for those that have the ability to embrace the
Speaker 5: volatility along the way tech is just it's not going away.
Speaker 5: It will be a bumpy ride. But let's just fast
Speaker 5: forward into a couple of years and all these upstream
Speaker 5: effects from AI. Take the ROBOTAXI. We're here in New York.
Speaker 5: I don't see any robotaxis just yet. Yeah, but they're
Speaker 5: in San Francisco.
Speaker 2: You can't you can't walk a step, We can't a
Speaker 2: block in San Francisco without seeing a way mo.
Speaker 5: Yeah, but that's not possible without AI and not we're
Speaker 5: not necessarily endorsing the tesla's and the way moves and
Speaker 5: the bodies of the world, but having staple positions in
Speaker 5: tech into those AI and those companies that are embracing it.
Speaker 5: It's it's something you need to have, but you got
Speaker 5: to have the perspective and the time horison to support it.
Speaker 2: Okay, speaking of perspective, everybody's favorite topic politics, Uh, the
Speaker 2: election coming up. We've got a couple of months until. Wow,
Speaker 2: that's crazy, actually when I say it like that, a
Speaker 2: couple months until yeah, literally a couple months. How do
Speaker 2: you see that as a risk out there?
Speaker 5: So I've heard there's there's going to be an election
Speaker 5: as well. Yeah, so and I and I'm in a
Speaker 5: swing state. I'm in Pennsylvania, So I hear every other
Speaker 5: every other ad is a is it as a political ad?
Speaker 5: How we're approaching it is? I mean, there's going to
Speaker 5: be it. It feels like a toss up. But to
Speaker 5: make an investment bet predicated upon a certain election outcome
Speaker 5: never really works. Well. What we would reshape the narrative
Speaker 5: to is some of the sure things, right, some of
Speaker 5: the more certain items that are about to come about,
Speaker 5: one being interest rates, right. We know injuries rates are
Speaker 5: going to come down. The path is clear, whether it's
Speaker 5: twenty five or fifty, you know that that's up for discussion,
Speaker 5: but we know it's going to come down. We see
Speaker 5: FED fun futures. It's it's going and we have had
Speaker 5: a FED that's committed to transparency and open communications and
Speaker 5: proactive communications. We know interest rates are going down. That's
Speaker 5: one certain that will play out irrespective of who wins
Speaker 5: in November. The other certainty is we're still going to
Speaker 5: see a lot of unspent government dollars right there's a
Speaker 5: trillion dollars. There's a trillion of unspent federal dollars that's
Speaker 5: still out there from the Inflation Reduction Act and things
Speaker 5: like that that's still coming. There's still going to be
Speaker 5: a federal spend that's going to influence the economy. So
Speaker 5: there's some sure things that are out there. We would
Speaker 5: always advise not to have political ideology influence a investment decision.
Speaker 5: Tends not to work out well. Try to kind of
Speaker 5: reorient and make decisions based off those more certain things
Speaker 5: that we see coming.
Speaker 4: We have a big payroll report coming on Friday, and
Speaker 4: we also got labor market data today that showed a
Speaker 4: weakening labor market. How are you thinking about jobs in
Speaker 4: the US right now and how it impacts markets?
Speaker 5: Well, it's it's that derivative effect into into FED policy.
Speaker 5: And the reality is from from the economy. From an
Speaker 5: economic standpoint, what we saw when rates went up, We
Speaker 5: saw that the economy isn't as sensitive to rates as
Speaker 5: we once saw. There was twenty five percent of homeowners
Speaker 5: refinanced when we had ultra low rates. Now the opposite
Speaker 5: effect will hold true. We might not get that juice
Speaker 5: when the economy when rates start to come down. From
Speaker 5: an economic standpoint, we will get it from a lot
Speaker 5: of you know, from a financial market standpoint, a lot
Speaker 5: of companies that at floating rate debt, typically small caps,
Speaker 5: smaller companies as compared to larger companies, they'll benefit somewhat
Speaker 5: more directly from that. So it's the economy from a
Speaker 5: rates perspective. And then there's the financial market effect.
Speaker 2: You're saying, we might not see pent up demand because
Speaker 2: a lot of people already have low mortgages.
Speaker 5: Correct, Yeah, okay, yeah, I'm one of them.
Speaker 2: Yeah, a lot of folks out there. I mean, I
Speaker 2: think I forget the statistic. It's like something like eighty
Speaker 2: percent of people have sub four percent or something like
Speaker 2: sub five percent. I don't know it. It was I
Speaker 2: don't have the stat off the top of my head,
Speaker 2: but it is a large number of people and remember
Speaker 2: that's fixed.
Speaker 5: So yeah, it's over twenty million homeowners refinanced to the
Speaker 5: ultra A low rate. So it's it kind of you know,
Speaker 5: that dynamic has desensitized rates to the broader economy at
Speaker 5: large and spending. So the jobs report it's meaningful, but
Speaker 5: in terms of you know where rates are going and
Speaker 5: that interplay not you know, I think we're there might
Speaker 5: be an overstatement of where things can go.
Speaker 2: Thomas Raymond, investment and management partner at Callent Family Office,
Speaker 2: joining us here in our Bloomberg Interactive Broker's studio.
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