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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: the Table, City's Rob Sokin Michael Clart of f UBS. Michael,
Speaker 2: to you first, your reaction to these numbers this morning.
Speaker 3: Yeah, not much of a signifiant change, So you know,
Speaker 3: there has been a little bit of slow down and
Speaker 3: growth from the really hot numbers last year. Still solid composition,
Speaker 3: still pretty good right now, but do think that we're
Speaker 3: going to continue to get some slowing as we go forward.
Speaker 3: I think one of the issues for the raids for
Speaker 3: out there is everyone's been mesmerized by this rise in
Speaker 3: the equity market, thinking that strong equities mean strong economy,
Speaker 3: therefore high rates. The problem with that is, you know,
Speaker 3: earnings were solid, but an awful lot of this rally
Speaker 3: has been AI and other non economic, noncyclical factors.
Speaker 4: So I think that, you know, as we go.
Speaker 3: Forward a little bit, we will see some slowing. We've
Speaker 3: taken out most of the downside risk in rates after
Speaker 3: a long time, we're respecting lots of easing, you know,
Speaker 3: decent recession probability. We priced most of that out, and
Speaker 3: so I think the market's cheap right here.
Speaker 2: Rub you're looking for some slowing, some big time slum
Speaker 2: because you've got a right cut call for July. I'm
Speaker 2: trying to work out what the data needs to look
Speaker 2: like from here come against July for that to take place.
Speaker 2: And let's start with payrolls next Friday. How bad does
Speaker 2: that Friday number need to be to keep your right
Speaker 2: cut col im plight.
Speaker 5: Yeah, absolutely, And to really get there, as you said,
Speaker 5: you need some type of nonlinear slowing in the labor market.
Speaker 5: And right now, these jobles figures, which are some of
Speaker 5: the best indicators of the labor market, are not really
Speaker 5: pointing to that. They're still quite quite low, quite stable,
Speaker 5: point to a fairly robust labor market right now. Our
Speaker 5: US team is looking for just a shade below one
Speaker 5: pin fifty on payrolls, you probably have to see an
Speaker 5: larger slowing in other labor market indicators and in the
Speaker 5: labor market more broadly after that to really get that
Speaker 5: July cut on the table. So I think if their
Speaker 5: call is right on payrolls, you're still not quite in
Speaker 5: that danger zone yet where the FED would really be
Speaker 5: worried about that nonlinear slowing, but it would be a
Speaker 5: pretty notable slow down from where we've been. That said,
Speaker 5: there's a lot of uncertainty around the report. For example,
Speaker 5: bad weather in April likely depressed April payrolls. It's possible
Speaker 5: you get some payback in May, so there is some
Speaker 5: upside risk to that figure.
Speaker 6: It doesn't sound like Robert, you have as much conviction
Speaker 6: about the July rate cut as maybe a month ago.
Speaker 4: Is that true?
Speaker 6: I mean, are you basically thinking how far before or
Speaker 6: we have to backpedal on this one.
Speaker 5: It's a tough call, as you said, and you're seeing
Speaker 5: that obviously reflected in markets. I think to get to
Speaker 5: that July cut you would need probably some combination of
Speaker 5: soft enough labor market data and enough decline in the
Speaker 5: run rate for inflation, that the Fed is seeing progress
Speaker 5: on the inflation side of its mandate and gets worried
Speaker 5: about activity. So the bar for that to happen both
Speaker 5: of those things is pretty is pretty high. We're still
Speaker 5: holding on to as I said, we see a lot
Speaker 5: of softness in a lot of more minor labor market
Speaker 5: indicators like surveys of small businesses hiring within the PMI reports,
Speaker 5: But even still, as you said, the bar is pretty
Speaker 5: high to get there, and I think over the last
Speaker 5: month it's become a bit more challenged, Michael, from.
Speaker 6: That standpoint, this is something people have been grappling with,
Speaker 6: and suddenly Bill Dudley is talking about the fact that
Speaker 6: maybe if you hold rates higher for longer, it isn't
Speaker 6: going to be restrictive in any way, shape or form,
Speaker 6: And then in fact we should be talking about holding
Speaker 6: rates here indefinitely. In Robert's view of things, and I
Speaker 6: believe you're sympathetic with this, it's actually not the case,
Speaker 6: and that if the Fed doesn't lower rates soon, it
Speaker 6: could actually tip the economy over into a hard landing.
Speaker 6: How much more are you thinking about that type of
Speaker 6: scenario at a time where the data isn't cooperating with
Speaker 6: the FED cuts as quickly, right.
Speaker 3: I think that's more an issue for later in the year,
Speaker 3: but it is. It does seem to be restrictive right now.
Speaker 3: We're certainly seeing it in housing numbers starting to soften
Speaker 3: a little more right there. So some of these most
Speaker 3: you know, interest rates sensitive sex to the economy.
Speaker 4: You are seeing a bite so you know, does have
Speaker 4: some effects.
Speaker 3: It's been a little bit offset by the fact that
Speaker 3: credit spreads are extraordinarily tight and you're getting these other
Speaker 3: loosening and financial conditions offsetting it. But you know, generally,
Speaker 3: I think you know it is biting. If you stay here,
Speaker 3: eventually you'll you'll feel a squeeze.
Speaker 2: My McKay, we wanted to come back to you for
Speaker 2: a final word on this role looking ahead to John
Speaker 2: Williams of the Neo F a little bit later on
Speaker 2: this afternoon. This pace that Lacy just mentioned from built
Speaker 2: out lay getting everyone's attention the FED things is finding inflation.
Speaker 2: Think again, even a more than five point five percent
Speaker 2: the Central Bank's short term interest rates target might not
Speaker 2: be high enough to call the economy. Mike, first of all,
Speaker 2: what's your reaction to that, and what would you look
Speaker 2: for from mister Arstar himself a little bit like to
Speaker 2: this afternoon.
Speaker 7: Well, it's something that a number of FED officials have
Speaker 7: been talking about, including John Williams, who spoke to me
Speaker 7: about a month ago here on Bloomberg Television and said
Speaker 7: that he was beginning to think that our star the
Speaker 7: neutral rate is higher than the FED basic consensus is
Speaker 7: about six tens of eight percent. And if that's the case,
Speaker 7: it would have implications for how much the FED funds
Speaker 7: rate is holding back the economy, and it raises that
Speaker 7: question that you've heard a number of people talk about
Speaker 7: of whether they might have to raise rates. The other
Speaker 7: option is that we still see lags at work, and
Speaker 7: we're going to be seeing them hit the economy and
Speaker 7: bring growth down and bring inflation down at the same time.
Speaker 7: So the interesting thing I think from Williams would be
Speaker 7: if he speaks about that, because we sort of know
Speaker 7: what he thinks, it's going to be like everyone else,
Speaker 7: that it will take higher for longer to get inflation down,
Speaker 7: and we're committed to that. But what does he say
Speaker 7: beyond that that might make news that could be it.
Speaker 6: Well, Robert and I know that neither of the people
Speaker 6: who are around the table, Michael Robert, both of you
Speaker 6: are not sympathetic with that view.
Speaker 4: You believe that there is a.
Speaker 6: Restrictiveness and that we are seeing that come through.
Speaker 8: Rob What would you have to see to.
Speaker 6: Actually go around to the Bill Dudley school of thought?
Speaker 5: Well, you know, as you know, we are seeing interest
Speaker 5: rates by different parts of the economy at varying speeds.
Speaker 5: We're seeing ongoing tightening credit conditions, weakening credit demand stresses,
Speaker 5: and lower income consumers.
Speaker 4: But that being.
Speaker 5: Said, if you look at the data, growth continue overall
Speaker 5: to hold up quite well, even at rates at a
Speaker 5: fairly high level, or rate that I would think is
Speaker 5: fairly is fairly restrictive. So I would say, if we're
Speaker 5: going into the second half of this year, and it
Speaker 5: was mentioned earlier the Atlanta Fed NowCast is running a
Speaker 5: pretty strong growth or second quarter, if we keep running
Speaker 5: at numbers that look like that, it would lead me
Speaker 5: to believe that either rates would have to stay at
Speaker 5: these levels for a much stronger, longer period because maybe
Speaker 5: short term our star has risen more significantly than expected,
Speaker 5: or maybe even rates could have to go higher from here.
Speaker 5: So I basically would have to look at the data.
Speaker 5: If we don't get that type of moderation or cooling
Speaker 5: in activity. I think I would move more into that camp.
Speaker 9: If you move into that camp, what does that do
Speaker 9: to your July call? Is that just totally the back
Speaker 9: end of the year you push it to twenty twenty five.
Speaker 5: I think, depending on how well the economy continues to
Speaker 5: hold up, we would have to probably push out that
Speaker 5: call even further.
Speaker 8: That may raise the risk of.
Speaker 5: Some type of harder landing ahead if the economy has
Speaker 5: to face elevated rates for an extended period. Normally we
Speaker 5: don't have to face rates at these levels for such
Speaker 5: an extended period. So basically I would think it would
Speaker 5: get pushed out towards later this year, and depending on
Speaker 5: the resilience, you could get pushed out even further.
Speaker 4: Michael, do you agree with that?
Speaker 6: That is just a matter of just if you do
Speaker 6: see this kind of ongoing strength in the economy, you
Speaker 6: might have to reset and kind of come around to
Speaker 6: this idea that maybe rates are not that restrictive at all.
Speaker 3: So even if our star is fifty basis points higher,
Speaker 3: we're still much tighter than that currently, so you know
Speaker 3: you're still tight. Anyway, you come up with that In
Speaker 3: addition for some of this, you know, high FED funds
Speaker 3: rates forever. I think one of the challenges to that
Speaker 3: is our star is really just shorthand for broad financial conditions.
Speaker 3: It says, you know, at a different funds rate over time,
Speaker 3: everything will average out a certain way if the consensus
Speaker 3: is right, and we're going to see steepening in the
Speaker 3: yield curve due to all this supply. You know, if
Speaker 3: you have a two and a half funds rate with
Speaker 3: no term premium, that's very different financial conditions than you
Speaker 3: know two and a half funds rate one hundred basis
Speaker 3: point term premium.
Speaker 4: In that case, the.
Speaker 3: Fed needs to have funds rate lower rather than higher
Speaker 3: to offset that higher rates out the curve. So I think,
Speaker 3: you know, the hurdle to get right. Heikes from here
Speaker 3: very very high. Does feel like inflation is going to
Speaker 3: slow too?
Speaker 2: You and the team SAMD buy bones. Is that the
Speaker 2: cool hit?
Speaker 4: Yeah?
Speaker 3: I think I think at this level, at the curve,
Speaker 3: so I think we're more sort of out in the
Speaker 3: tenure sector. I think that you know, at these levels
Speaker 3: you've got real yields, you know, at two and a
Speaker 3: quarter to value there well, just to sort.
Speaker 6: Of building this In other words, you believe that one
Speaker 6: way or another, inflation is going to come down, the
Speaker 6: Fed's going to cut rates. What about the other component,
Speaker 6: the idea of what we've been talking about, the term
Speaker 6: premium and all of these questions around just the fiscal
Speaker 6: profile of the country.
Speaker 3: Yeah, over long term supply has a has a huge effect.
Speaker 3: You know, every time my teenage daughters give me a
Speaker 3: hard time, I just roll with it because they should
Speaker 3: be angry.
Speaker 4: You know, all this debt, they're going to herod from us.
Speaker 4: So you're a better human than I. Carry on.
Speaker 3: But you know the problem is in the short term,
Speaker 3: the swings in demand, they're so much larger than the
Speaker 3: swings in supply. If you look back, the biggest supply
Speaker 3: shock in history was US ran a budget surplus from.
Speaker 4: Ninety eight to one.
Speaker 3: For the first two and a half years of that,
Speaker 3: the term premium went the wrong way, you know.
Speaker 4: So it's really the demand shifts overwhelmed the supply shifts.
Speaker 3: So if you do these supply trades, they'll probably work eventually,
Speaker 3: but it's going to be awfully mumpy ride on the way.
Speaker 3: Very few people will be able to hold that trade
Speaker 3: to the maturity.
Speaker 9: UBS has pulled Donovan overnight after the auctions said trusting
Speaker 9: up treasuries. Obviously immediately thought of Lisa, are you saying
Speaker 9: this is basically something that it's not immediate in the
Speaker 9: back burner. This is a problem that the market should
Speaker 9: care about it.
Speaker 3: It's the issue is we just don't know where the
Speaker 3: breaking point is. And the trouble is it feels like
Speaker 3: Congress because they haven't you know, they've been hearing about
Speaker 3: this tree branch breaking for a long time, and so
Speaker 3: they're sprinting as fast as they can out the tree
Speaker 3: branch right now. So you know, it's it's we don't know.
Speaker 3: We're in new territory here. But I think it's really
Speaker 3: one of those things where the supply you don't trade
Speaker 3: based off of that, you size your trades based off
Speaker 3: of that.
Speaker 4: So if the.
Speaker 3: Supply works for your idea, you upsize your risk a
Speaker 3: little bit. If it works against your trade, you downsize
Speaker 3: a little bit.
Speaker 4: So it's really more of a tail risk.
Speaker 2: Tends the volume up and down just a little bit.
Speaker 2: It's an interesting way of thinking about it. When I
Speaker 2: hear about doom, read about Doom, I think of Bramo too.
Speaker 2: First thing just Lisa Liz trus Bramo the first Place Psycho,
Speaker 2: First Place Psycho. We're all thinking about the supposed inflation
Speaker 2: re outcomes of November, whether it's going to be tariffs,
Speaker 2: what it might mean, additional supply, fiscal easing coming from
Speaker 2: whichever administration we might get. Is it's still too early
Speaker 2: to think about those things from your perspective, because we're
Speaker 2: getting guests coming on already at the end of May.
Speaker 2: Thinking about them.
Speaker 3: No, I think those are real, and I think they're
Speaker 3: you know, whichever party wins, you're going to see tightening
Speaker 3: on that side. It's a scale difference, but same direction
Speaker 3: on those things.
Speaker 4: That said, the reason we're kind.
Speaker 3: Of optimistic about inflation in the near term is if
Speaker 3: you look at, you know, all of these rental surveys,
Speaker 3: those peaked and rolled over a while ago, and so
Speaker 3: we all thought that that meant that OERE, the biggest
Speaker 3: piece of inflation, was going to roll over to the
Speaker 3: problem is that those surveys had run well ahead of
Speaker 3: OER for a long time, and it turned out OER had.
Speaker 4: To fill the gap between those.
Speaker 3: At this stage, it's filled a gap for all the
Speaker 3: surveys except one, So it does feel like we're finally
Speaker 3: going to start to see you know, some of this
Speaker 3: oer start to slow. You know, we can't be one
Speaker 3: hundred percenture because there's still is one survey that there's
Speaker 3: some gap to fill, but the preponderance of data says
Speaker 3: it'll slow.
Speaker 9: Rob to John's point, how are you thinking about twenty
Speaker 9: twenty five.
Speaker 5: Well, I think for the election and looking at the
Speaker 5: domestic implications. I know there's a lot of debate about this,
Speaker 5: but we still think deficits are going to stay pretty
Speaker 5: large no matter who comes to power. You know, the
Speaker 5: CBOs projecting five and a half percent or something around
Speaker 5: those levels for deficits per year as a percent GDP
Speaker 5: over next decade. I would probably look at that as
Speaker 5: sort of a floor estimate of whe where things could go.
Speaker 5: I think it's interesting when Trump and the Republicans were
Speaker 5: in power, they cut taxes and boosted deficits, and when
Speaker 5: Democrats and Biden were in power, they boosted spending and
Speaker 5: boosted deficits. So I think until the market really tells
Speaker 5: them this is a huge problem, and it would have
Speaker 5: to be a lot of market pressure, I think we're
Speaker 5: going to get large deficits for the foreseeable future, and
Speaker 5: then thinking about some of these international components. As you mentioned,
Speaker 5: I think both parties are going to be very tough
Speaker 5: on China. I think we saw that recently with the
Speaker 5: Biden administration's new tariffs on China, and in terms of
Speaker 5: tariff policy, Trump is probably going to be even more
Speaker 5: aggressive than Biden. I don't think you would go as
Speaker 5: far as sixty percent tariff, but I think is ten
Speaker 5: percent across the board is something we have to take seriously.
Speaker 5: But the buy administration is not going to shy away
Speaker 5: from using them. And then a minimum keeping what's what's
Speaker 5: there now in place.
Speaker 4: So I think.
Speaker 5: Tariff policy is going to be used or in place
Speaker 5: pretty extensively. And I think deficit spending is here to
Speaker 5: stay until markets tell them otherwise.
Speaker 2: Hi, Rob, it's going to say thank you, sir. Roughstock
Speaker 2: in there city a loveside Michael Clotti of ubs. You
Speaker 2: know in some of the games of stocks we've seen
Speaker 2: this year, this one right here, I don't think it's
Speaker 2: been talked about nearly enough a year today, move of
Speaker 2: one hundred and thirty four percent. Announcing a partnership with
Speaker 2: Nvidia won't hurt to expand this AI services. Let's have
Speaker 2: this conversation with Bank of America's Wamzi Mohn lifting his
Speaker 2: price target on down to one eighty and writing this,
Speaker 2: we expect strong momentum into twenty five given upside from
Speaker 2: AI service, high end storage, and PC refresh with optionality
Speaker 2: from AI. Wemnesday, Good morning's here Morne John. What is
Speaker 2: behind that months to move in Dell? And have you
Speaker 2: ever been busier?
Speaker 4: It's incredible.
Speaker 1: I I would kind of pose this as almost a
Speaker 1: hardware renaissance, right, Like, we've not been in a period
Speaker 1: where these hardware value stocks typically have performed as growth stocks,
Speaker 1: and it's been a real change in perception in rerating
Speaker 1: of valuations. And this is happening all because AI at
Speaker 1: its core is really going to be driven ultimately on
Speaker 1: physical servers, and physical servers, as we all know from
Speaker 1: Nvidia's perspective, are in big demand. And who are the suppliers?
Speaker 1: Who are the arms dealers for that? Right? So you
Speaker 1: look at the hyperscaler market, you got the Taiwani sodms.
Speaker 1: But as you think about AI adoption more broadly at
Speaker 1: tier two cloud service providers or in the enterprise, that
Speaker 1: is where Dell really shines, and so Dell's really being
Speaker 1: able to come up with a great story putting this
Speaker 1: technology together. And if you remember at GtC, he was
Speaker 1: the one exact Michael Dell was one of the executives
Speaker 1: who was called out multiple times by Jensen. I think
Speaker 1: that added a lot of street cred sort of to
Speaker 1: Dell's AI initiatives and the capability of those servers.
Speaker 2: You've listed a bunch of reasons to be constructive AI servers,
Speaker 2: high end storage, PC refresh. Where does PC refresh rank
Speaker 2: for you? I'm trying to work out we're about to
Speaker 2: see this big upgrade cycle. Everyone just saying the desktop's
Speaker 2: interesting again, let's upgrade the PC.
Speaker 1: Yeah, John, Look, I think PCs are probably just in
Speaker 1: the order that you described, right, the third order of
Speaker 1: sort of like the key drivers, because servers as a
Speaker 1: magnitude of the opportunity is just much larger dollar wise.
Speaker 1: When you think about storage, they are tied to the
Speaker 1: high end storage and ibms coming up with a mainframe
Speaker 1: refresh next year, and Dell is very well positioned.
Speaker 8: And these are the.
Speaker 1: High margins sixty percent plus gross margin opportunity that Dell has.
Speaker 8: When you think about PCs.
Speaker 1: So refreshes, not so much about AIPCS per se. In
Speaker 1: our opinion, I think that'll take a little bit longer.
Speaker 1: But we do see the echo of the boom of
Speaker 1: the demand that came up during COVID. So you had
Speaker 1: about one hundred and fifty million extra PCs sold in
Speaker 1: the COVID couple of years, and off that we'd say
Speaker 1: a third of dot Chromebooks and maybe about forty percent
Speaker 1: of the remainder were commercial pieces. Those commercial pieces are
Speaker 1: coming up for a refresh.
Speaker 8: And that's material.
Speaker 1: So when you think about that, coupled with the commercial
Speaker 1: refresh that's going to be driven by Windows ten end
Speaker 1: of life, those are two big catalysts that can drive
Speaker 1: PC units much higher than sort of the flatish that
Speaker 1: we've seen year today.
Speaker 6: I wish I could go back a couple of years
Speaker 6: and all the people who are saying the personal computer
Speaker 6: is dead and really sort of highlights some of these earnings.
Speaker 4: It's not just Dell.
Speaker 6: HP came out yesterday after the bell also beating expectations,
Speaker 6: is said about ten percent of shipments in the second
Speaker 6: half of this year are going to be AI equipped.
Speaker 6: How do you understand who the winners are going to
Speaker 6: be in thissance of the PC and who the losers are.
Speaker 6: I'm thinking maybe Apple who haven't maybe adapted as quickly.
Speaker 1: Yeah. I would say that our view on AI at
Speaker 1: the edge, more broadly speakingly says that when you think
Speaker 1: about the devices that hold most of the content and
Speaker 1: the information that consumers want to use and on a
Speaker 1: daily basis, it's really going to be the smartphone, and
Speaker 1: we're talking about the smartphone actually becoming dumb more like
Speaker 1: a feature phone, and the next wave of phones that
Speaker 1: are coming, which we're calling the intellphones, are really where
Speaker 1: the intelligence is embedded. You've got AI agents at the
Speaker 1: back that are pushing information back to your apps or
Speaker 1: forward facing phone users.
Speaker 8: And so we think that that adoption cycle.
Speaker 1: Is going to overtake the AI adoption at PCs on.
Speaker 8: The winners and losers on the PC side.
Speaker 1: Right, PC markets consolidated around the large OEMs of Dell, HP,
Speaker 1: Lenoo and so on. I think that remains it's pretty
Speaker 1: much status quo. On the Apple front, we think that
Speaker 1: you know, AI is going to be all across all devices, right,
Speaker 1: so this is something that Apple is going to do
Speaker 1: from the back end. They will do partnerships as opposed
Speaker 1: to just kind of driving more capability at the edge,
Speaker 1: and these partnerships are going to be server based. So
Speaker 1: this is part of the reason why we think that
Speaker 1: the AIPC story itself is marginal in the near term,
Speaker 1: because there are not a lot of apps that require
Speaker 1: that heavy compute power right.
Speaker 8: On the device. And Apple's got you know, it's M
Speaker 8: four chip.
Speaker 1: And when you think about the way that most people
Speaker 1: are classifying this AI capability at about forty tops performance,
Speaker 1: Apple's right there.
Speaker 8: They can handle it.
Speaker 1: But I think that the consumers are going to use
Speaker 1: much more so on the smartphone side.
Speaker 6: It strikes me that the quicker adopters and the winners
Speaker 6: in the short term have been the hardware side, whether
Speaker 6: it's the chips, whether it's the PCs. They can just
Speaker 6: use what's out there to quickly bring in the capabilities.
Speaker 6: How long do you think it's going to take before
Speaker 6: becomes a software story. We sell salesforce fall out of
Speaker 6: bed after not being able to monetize AI. We've seen
Speaker 6: that consistently. When does this shift to benefit some of
Speaker 6: the other players.
Speaker 8: Yeah, it's a great question.
Speaker 1: Look, I think the wave of AI really has started
Speaker 1: sort of first, I.
Speaker 8: Think in the chip centric.
Speaker 1: World moved on to sort of physical devices servers PCs.
Speaker 1: I think the next leg is really services because there
Speaker 1: are I mean, we've spoke about machine learning five years
Speaker 1: ago and what happened to it. No one talks about
Speaker 1: machine learning, it's all Jenny I today and no one
Speaker 1: really adopted machine learning per se in a big way,
Speaker 1: and there was a lot of help that enterprises needed
Speaker 1: to even get there.
Speaker 8: It's the same story. Enterprises are going to need a
Speaker 8: ton of.
Speaker 1: Help to say, you go and procure a black Will
Speaker 1: server for three million dollars, what are you going to
Speaker 1: do with it?
Speaker 4: Right?
Speaker 1: As an enterprise, you have to have a strategy, a plan.
Speaker 1: What is the data that's going to run on it,
Speaker 1: is the data clean, is the data good?
Speaker 8: What is the training software?
Speaker 1: And what sort of architecture you're going to use. So
Speaker 1: there are a lot of open questions for which I
Speaker 1: think the services companies will step in and really help
Speaker 1: map out that strategy as SI partners or or working
Speaker 1: with working with the various players in the industry.
Speaker 8: Beyond that, we think the next leg would.
Speaker 1: Be really software and software I think is kind of
Speaker 1: like you know, plus and minus. I think when you've
Speaker 1: got very points solutions of software that are you know,
Speaker 1: deeply seated in with one vertical I think a lot
Speaker 1: of that expertise is where AI puts that at risk, right,
Speaker 1: And when you think about that, even in terms of
Speaker 1: in consulting, even that's been.
Speaker 8: Proved to be true. So the more vertical, like smaller
Speaker 8: sleeves of.
Speaker 1: Productivity improvements that can come from small places of let's say,
Speaker 1: like technology knowledge, those are the ones where you can
Speaker 1: see real disruption, whereas adopting AI within software is a
Speaker 1: long term story where.
Speaker 8: Companies that are successfully.
Speaker 1: Able to blend that and be much more platform based
Speaker 1: are going to be the winners.
Speaker 2: There is the word in telephone catching on.
Speaker 8: We certainly hope it will look.
Speaker 1: We've thought about this and coined that it was kind
Speaker 1: of a fun, fun play on words. But the way
Speaker 1: we thought about really the concept, right, and it's appropriate
Speaker 1: to say this here on Bloomberg is context is everything,
Speaker 1: right and AI phones.
Speaker 8: That is the difference. It is about the context.
Speaker 1: You can go back and have a conversation with an
Speaker 1: AI agent because it already knows the context of your
Speaker 1: last conversation. Right, So if you're doing replacing a travel
Speaker 1: agent with your AI agent. You need the context. You
Speaker 1: want to come back with more information. It's not usually
Speaker 1: just hey, book me this and it's done. Give me options,
Speaker 1: let me look at that, let me come back and
Speaker 1: give you some more information. Right back and forth of
Speaker 1: a conversational agent. We think will be handled by the intelephone.
Speaker 2: You're welcome back anytime. Thank you, sir. Moha Banks of
Speaker 2: America appreciate it. Thank you. The US is leading global
Speaker 2: oil production for the sixth straight year, according to data
Speaker 2: from the EIA. Record cash piles by energy giants also
Speaker 2: fueling consolidation in the space Exceon, Chefron, Coloco, Phillips all
Speaker 2: announcing new deals this year and pleased to say that
Speaker 2: with this around the table, it's Lorenzo. Similarly, the CEO
Speaker 2: of Baker Hughes, Lorenzo, good morning to you, sir.
Speaker 10: Great to be with you.
Speaker 2: Massive consolidation, Chefron, Exon, all the big players in a mix.
Speaker 2: What does it mean for your world? For services? How
Speaker 2: are thing it's going to change?
Speaker 10: You know, we've seen these times before as consolidations taken place.
Speaker 10: What it means for us is, obviously we work with
Speaker 10: our customers. We get stronger with them as well. And
Speaker 10: as we see the bigger players get together, we see
Speaker 10: our opportunities to partner with them on the technology forefront.
Speaker 10: They're looking for efficiency, productivity, they're looking for ways in
Speaker 10: which they can also reduce emissions, and as consolidation happens,
Speaker 10: we actually see it as an opportunity to really grow
Speaker 10: larger with them from a shared perspective and introduce new technologies.
Speaker 2: You've talked about this new spending cycle. When you think
Speaker 2: about new technologies, you're thinking about how to develop existing
Speaker 2: fields even more or discover new ones.
Speaker 10: It's definitely about existing fields. And as you look at
Speaker 10: mature assets, solutions, chemicals, ESPs, electrical submissible pumps, doing more
Speaker 10: with what we have. We know that today seventy five
Speaker 10: percent of the production is from mature assets, and we've
Speaker 10: got to do more with those mature assets. Green fields
Speaker 10: costs a lot of money, and so how do you
Speaker 10: drive efficiencies productivity with the reservoirs we have today.
Speaker 6: There's been a lot of question around Okay, thirteen million
Speaker 6: barrels a day in the United States being produced, is
Speaker 6: that the cap? How much higher could it potentially go?
Speaker 6: And how quickly could it go? Higher in response to
Speaker 6: some sort of geopolitical pressure. Given the technology that you're
Speaker 6: talking about, how quickly could you ramp that up well
Speaker 6: beyond thirteen million barrels a day?
Speaker 10: You know, I think we've always been surprised. We've been
Speaker 10: surprised by the shell revolution. We've always seen technology come in,
Speaker 10: and I think it's hard to predict how much high
Speaker 10: you could go. We've obviously got to recover depletion rates.
Speaker 10: Technology is going to be the advantage for the producers.
Speaker 10: How much more that's a question mark. I think Right now,
Speaker 10: our focus is on driving efficiencies and also making sure
Speaker 10: that we're meeting the demand, and the demand is there.
Speaker 10: We know that demand is growing globally.
Speaker 6: Has there been more of an emphasis in developing some
Speaker 6: of the mature acids in the fossil fuel industry and
Speaker 6: maybe less so on some of the new energies that
Speaker 6: aren't being rewarded as much by shareholders.
Speaker 10: We're seeing both, and you know, there's definitely a focus
Speaker 10: across the globe on being able to meet the energy demand,
Speaker 10: both from a standpoint of of the aspect of providing
Speaker 10: the energy but also lowering emissions. And so we're seeing
Speaker 10: both sides grow at the same time. In fact, last year,
Speaker 10: if we look at our new energy within Baker Hughes,
Speaker 10: we achieved over seven hundred and fifty million dollars new orders.
Speaker 10: This year, we've got a guidance for eight hundred to
Speaker 10: a billion dollars of new energy orders and we're set
Speaker 10: for twenty thirty to have six to seven billion dollars.
Speaker 10: So we're seeing the growth there as well as continuing
Speaker 10: to see an increase in the aspect of energy demand
Speaker 10: from the fossil fuels, which requires also lower emissions.
Speaker 6: You said the demand is there. A lot of people
Speaker 6: talking about artificial intelligence, is some of the chip centers
Speaker 6: and the kind of energy that that's going to require.
Speaker 6: I am curious as you talk about new technologies to
Speaker 6: produce more energy how much of this is going to
Speaker 6: be through acquisitions versus just sort of organic growth.
Speaker 10: Going to be a combination. There's a lot that's being
Speaker 10: done with regards to incubator technologies, around direct air capture,
Speaker 10: around CCUS, also around the micro turbines and net power.
Speaker 10: When you're looking at clean integrated power solutions. We have
Speaker 10: a partnership with netpower, which again is the oxycombustion process
Speaker 10: which allows us to provide three hundred megawatts of clean
Speaker 10: integrated power, which is a great solution. So I think
Speaker 10: it's going to be a combination of both. I know
Speaker 10: one thing is for sure. We're going to need a
Speaker 10: lot of technology, a lot of investment, and it's going
Speaker 10: to be both inorganic as well as organic development.
Speaker 9: There's a lot of consolidation in the industry, but when
Speaker 9: Baker Hughes comes up, people talk about potentially speculation that
Speaker 9: you would actually split into two. Is that something you
Speaker 9: think about as you reorganize the business?
Speaker 10: Now, we've often looked at it, and we actually have
Speaker 10: a clear strategy with regards to sustainable energy development and
Speaker 10: helping our customers. And as we look across our two
Speaker 10: segments or field services and equipment and industrial energy technology,
Speaker 10: they really go hand in hand with enabling our customers
Speaker 10: to being able to improve their efficiency, drive incremental production
Speaker 10: and lower emissions.
Speaker 4: And as we look.
Speaker 10: At increasing energy demand, you need both sides of the house.
Speaker 10: And I look at a kingdom such as Saudi Arabia
Speaker 10: and being in the Middle East last week, they're growing
Speaker 10: their gas infrastructure. So we're there with regards to our
Speaker 10: old field services being able to help them with the
Speaker 10: gas reservoirs, but we're there also with the industrial energy technology,
Speaker 10: with the master gas system, being able to help them
Speaker 10: with the development of that pipeline network, being able to
Speaker 10: help them with the power generation, and so hand in hand.
Speaker 10: Baker Hughes provides a portfolio that actually provides the full suite.
Speaker 4: So better together for now.
Speaker 9: Yes, I know you have a lot to say as
Speaker 9: well on LERG and the boom we've seen from LERG.
Speaker 9: What do you make of this administry putting a pause
Speaker 9: on permits given the fact that it basically had a
Speaker 9: promise to Europe that it would be a supplier.
Speaker 10: You know, we're disappointed. We're disappointed with the decision. Obviously,
Speaker 10: the administration has to make its decisions as it does,
Speaker 10: and we think that global demand for LNG is still
Speaker 10: strong and robust. We think that by twenty thirty there
Speaker 10: needs to be an installed capacity of eight hundred million
Speaker 10: tons per annum, and we believe that's going to be
Speaker 10: coming and it's either going to be international projects or
Speaker 10: it's going to be US projects that take place. We're
Speaker 10: still seeing a lot of activity. You've seen the announcements
Speaker 10: being made in Gitar, You've seen announcements being made by
Speaker 10: add notquid investments they're making also in Mozambique. So projects
Speaker 10: are moving forward and we hope the administration releases the
Speaker 10: pause and moves forward. There's a lot of natural gas
Speaker 10: within the United States. There's a lot of good projects,
Speaker 10: and we think it's an opportunity to be able to
Speaker 10: again provide energy security to the world.
Speaker 2: Do you think some of the aspirations to move away
Speaker 2: from fossil fuels are realistic? What do you say back
Speaker 2: to some government officials.
Speaker 10: I think you need to be pragmatic and again, you
Speaker 10: need a sustainable energy development. There is no doubt that
Speaker 10: you need to move towards energy abundance as well as
Speaker 10: lower emissions, and you need to do it in a
Speaker 10: way that is affordable, secure, and sustainable. And so you
Speaker 10: need to marry a roadmap that introduces an aspect of
Speaker 10: let's stop talking about the fuel types. Let's focus on emissions, abating,
Speaker 10: reducing emissions. And I think that's the discussions that we're having,
Speaker 10: and that's why we're focused on the solutions around CCUS,
Speaker 10: carbon capture, utilization, storage, direct air capture, geofermal hydrogen. That's
Speaker 10: why we're looking at natural gas as being not just
Speaker 10: a transition but a destination fuel LNG because it's available today.
Speaker 10: So let's have a pragmatic sustainable energy development discussion and
Speaker 10: let's go towards lower emissions.
Speaker 2: At least we're alluded to this. She talked about AI.
Speaker 2: We talk about in video every single day that stock
Speaker 2: has had a phenomenal run. The energy demands of some
Speaker 2: of this are going to be absolutely massive. If you
Speaker 2: and the team put some numbers on it, what are
Speaker 2: the additional energy demands over the next few years is
Speaker 2: going to be from some of these major tech firms.
Speaker 10: Oh, they are staggering. I won't give any specific numbers
Speaker 10: because they can be so vast, but you look at
Speaker 10: some of the numbers that you get out there, for example,
Speaker 10: cryptocurrencies today, you know, cryptocurrencies use as much energy as
Speaker 10: the country of Poland. As you look at the AI
Speaker 10: and Generative AI, they're saying twenty percent increase in US
Speaker 10: demands for energy just from new data centers. It's going
Speaker 10: to require a lot of installations of distributed power generation,
Speaker 10: it's going to require incremental natural gas, it's going to
Speaker 10: require clean energy. So it's an all of the above strategy.
Speaker 10: And it's also the use of AI to drive efficiencies
Speaker 10: as well. So there's the aspect of also us benefiting
Speaker 10: from the inclusion of AI into the way in which
Speaker 10: we operate for efficiencies.
Speaker 6: How long do you think it's going to take to
Speaker 6: build out the infrastructure to support the outgrowth of energy
Speaker 6: demand by AI that so many people are talking about.
Speaker 10: You're looking at a number of years. And also it's
Speaker 10: going to require the right policies and the right permitting
Speaker 10: to be in place, and in particularly in the United States,
Speaker 10: that's one of the aspects that needs to be resolved
Speaker 10: is from a permitting perspective, how do you get that
Speaker 10: resolved and how do you move forward? Also internationally, as
Speaker 10: you look at Europe, how do you make sure that
Speaker 10: the regulations are in place. So that's something that they're
Speaker 10: working for and they're working through Lorenzo.
Speaker 2: You're in an exciting space and it's going to catch
Speaker 2: up with you. Thank you, sir, Thank you very much.
Speaker 2: Thank you, Lorenzo. Similarly, there of Baker Hughes. This is
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