00:00:02 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 00:00:11 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordert. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. We begin this out we're stocks trading at all time highs as tech concerns continue to ease. David Levitz of JP Morgan Asset Management, writing hyperscaler earnings results reinforce our positive outlook for corporate profits well maintain a pro res view in portfolios. David joined us Now for more, David good Mornick. Since we got those earnings, those hyperscalers have been offset the races. I'm talking about gains of ten to twenty five percent of the last three or four days for a handful of some of the biggest companies on the planet. What was in the data The earnings that has started this move. 00:01:08 Speaker 1: Well. 00:01:08 Speaker 3: So I think what's really interesting is we've seen this over the past couple of quarters, where coming into the earnings announcements, you see this skepticism begin to rise. You know, maybe profit growth won't be as good as it has been made, margins will finally start to come back in, and then they impress, and. 00:01:22 Speaker 1: For the most part, you know, the numbers are good. 00:01:24 Speaker 3: They may or they may not be, but I think the market is focused on the fact that even if you exclude the equity investment gains from the overall earning season number, you're still looking at earnings growth of thirty percent, and so these are just unequivocally good numbers. I think a lot of it ties back to the point you were just making. You're seeing this AI trade broaden out. You're seeing a show up in the manufacturing economy, the industrial economy, the real economy at the end of the day, and that's what's giving this story legs, right, That's what's making it a more durable trade. It's not just this flash in the pan We're going to spend a bunch of money and then move on to the next project. This is really something that's transforming the growth rate and the growth trajectory of the US economy. 00:02:00 Speaker 2: For much of the year, it was hyper scandal, chips one or the other, not both. It was chips or software one or the other, not both. Is that still the story or things changed? 00:02:10 Speaker 1: So I think things are changing. 00:02:12 Speaker 3: And I think last time I was on with you guys, we were talking a little bit about how markets are becoming increasingly discerning between the different players, and so you know, what I think you're going to see going forward is within software, who are the winners and who are the losers? Within chips, who are the winners? Who are the losers? You to and extent saw it in the hyperscalers throughout this earning season. Who are the winners and who are the losers? What is the market looking for? They're looking for that ROI. They're looking for that that inclination that there is going to be a profit benefit down the road. And I think that you're starting to see that come through in a more durable way. 00:02:41 Speaker 4: How much you seeing discernment and how much you seeing relief that maybe some of the leverage has been pushed out of the system, either with situational awareness or with the situation over in Korea. 00:02:50 Speaker 1: So it's funny. 00:02:51 Speaker 3: I remember being an analyst and like, if the market moved two percent in one day, it was a really really big deal. And now we have these two percent moves and people kind of like shrug their shoulders. 00:02:58 Speaker 1: And twenty percent and he'll do it. We'll do it again tomorrow. 00:03:01 Speaker 3: I mean, look, clearly, there was a technical element of what was going on here in terms of the selling, in terms of the leverage and some of these ATF products. But that's the market that we're in today. And I think kind of thinking about the volatility angle and going back to some of the comments that you guys were making about Kevin Warsh and how the market's digesting everything there. You know, yes, on the one hand, you could say the market is doing the work for him. My question is how long are markets going to be content doing the work for the chairman of the Federal Reserve. I think at some point you get market exhaustion, and that's when they want a little bit of guidance as to what to expect. And so, you know, the Fed's walking a very fine line here, and I think that the earnings are really what's bailing them out at the end of the day. 00:03:40 Speaker 1: The fundamental story is just very good. 00:03:41 Speaker 4: What's notable to me is that when we talk to people about at what point the long end of the yield curve will constrain some of the ambitions within the S and P five hundred, they say, we're not there yet. But it's because earnings are so strong. It's because we can look past this. When does that change? 00:03:57 Speaker 3: So I think that you're starting to see debt markets begin to push back on a lot of this financing. And it's not problematic when you go from a negative leverage ratio to a leverage ratio of one. I mean, you're still going to be able to bring paper to market at fairly attractive spreads. But we have seen spreads for the hyperscalers begin to move wider. You look at high yield, the picks and shovels trade, some of those issues are getting a little bit more wobbly. You know, one time subscribe instead of multiple times oversubscribe. And so that's what I think you want to watch there is when do these AI players recognize that they can't just do it with debt, they can't just do it with equity, they can't just do it with cash flow. They need to figure out a mix of all three, because if this is really going to extend over the next couple of years, you can't be a one trick pony when it comes to financing this investment. 00:04:38 Speaker 2: A week close to exhilisting, what's avaiable to them to issue debt to issue equity. 00:04:43 Speaker 1: I think that there's more room to run. 00:04:45 Speaker 3: I think you look at some of the hyperscalers this year, and part of what happened was you had so much debt coming to market in such a short period of time and not really giving investors the heads up that it was coming. And so you know, if we begin to see a little bit more of a steady drip instead of a fire, I think that that will help markets digest. But you know, clearly, the fact that markets are requiring a greater spread in the IG space, in the high yield space to take down this paper tells you something about the sheer volume we've seen so far here today. 00:05:11 Speaker 2: Back in the day, if you sort of moved like that and spread to still steeper tite, but if it's not to see them one to night, you'd worry about equities. 00:05:18 Speaker 1: Is it the same story. 00:05:19 Speaker 3: So I think what's interesting to me is that up until this point, the equity market and the credit markets were kind of two different things. 00:05:27 Speaker 1: Right. 00:05:27 Speaker 3: You didn't have a huge hyperscaler presence in the IG space, you didn't have a huge data center presence in the high yield space. You had a bunch of software sitting in private credit and direct lending. But you know, hey, that only marks four times a year, so you only need to pay attention to it four times a year. Now you're seeing that the tech trade, in the AI trade is infiltrating. 00:05:45 Speaker 1: Both the debt and the equity side of the equation. 00:05:47 Speaker 3: So I think that there's more signal coming from what's happening with spreads than there was previously. But at the end of the day, you look at where spreads are, I mean, there's still pretty tight by historic standards, and you look at what's going on in high yield two seventy over, I mean, I struggled to get overly concerned about the trajectory of the economy when that's what we're seeing from a financing cost perspective. 00:06:06 Speaker 4: Does sixty forty have any relevance whatsoever anymore? In the backdrop that you're just explaining. 00:06:12 Speaker 1: So I think it does. 00:06:14 Speaker 3: And I think one of the misconceptions that investors have is that when you say sixty forty, you mean a. 00:06:19 Speaker 1: Public sixty forty. Right. 00:06:21 Speaker 3: Private equity and public equity are still equity at the end of the day. Private credit and public credit are still credit at the end of the day. And so one of the things we're encouraging investors is, hey, sixty forty might make sense, seventy thirty might make sense, But beneath the surface, what does your credit allocation look like? What does your equity allocation look like? And do you need to think about other alternatives things like real assets to help play defense against higher inflation volatility going forward. 00:06:44 Speaker 4: At the end of last year, a lot of debt investors credit investors were saying there was more of an opportunity in equities than there was in credit, just simply because the upside looked so much better and the potential downside was potentially worse for bond investors. Has that pendulum shit lifted as yields have go materially higher. 00:07:02 Speaker 3: So I think that it has become more balanced. I'm hesitant to say that it's completely shifted because the earning story still is so strong, and so if you believe in the idea that over time stock prices will follow profits and profit growth is still going to be there, then maybe there's more juice to get squeezed out of that orange. But you know, seven and a quarter seven and a half on high yield, which we know is a higher quality asset than it once was with a fairly low duration, to me, feels pretty interesting in an economy, In an economic environment where growth is clearly above trend. If I think about the skew to risk free rates, it's very much to the upside. So if I can pick up some spread on top of that and maintain a below bench mark duration, that's going to be interesting. 00:07:39 Speaker 1: From an overall portfolio. 00:07:40 Speaker 2: The sieve into Canada's side might be the biggest concents this time around Roid ninj and nine high oout. 00:07:45 Speaker 4: You've got a duration concern and you've got a much more concentrated AI concern. So at a certain point, tight spreads, more duration, more AI exposure that potentially is fraught with disruption, suddenly starting to look at IG that has potentially more risk. It's been a lower duration high yield portfolio. I mean, it's sort of an interesting kind of turning upside down at risk. 00:08:05 Speaker 1: Stay with us. 00:08:06 Speaker 2: More Bloomberg Surveillance coming up after this. The President's slamming Exon and Chefron has higher prices from the war in a round way on consumers and fuel profits for the ord giants. The company's ranking going to combined twenty nine billion in the second quarter, more than triple the same time last year. Stephen Shock of the Show Grew joined us. Now for more, Steven, let's talk about where the profits are coming from. Have the money's being made, what happened at Exon, what happened at Chefron, The upset of the president so much? 00:08:44 Speaker 5: Oh well, it's understandable here. I mean, we finally found an issue that Trump and a democratic socialist can agree. He's chastising in the industry that has made money in a quarter on a war that he started and has no apparent plan on ending. Now he's going full Bernie Sanders on the market, telling us, now, Excellent has to turn that money over. 00:09:06 Speaker 6: Chavon has to turn that money over. He said it himself. 00:09:09 Speaker 5: They're making money from shortage and making money relative to a year ago. But it's a shortage that he created, and he has again no plan is from the market's perspective of alleviating. So, yes, companies are going to make money when you start and you artificially inflate the price due to your own actions. So he is flailing right now, reaching out and slamming everyone because it's not going the way he had expected. Clearly when this all started going on six months. 00:09:39 Speaker 2: Ago, Steven, Clearly, refining is a major feature of what's happening. Care what kind of utilization rates are you're seeing across the industry. Where is the capacity to bring more refining online and to help get the gasoline price lower, not just stay signed, but around the world. 00:09:54 Speaker 5: No, virtually No, I mean, because we were looking at a market where crudel is going up in down every time the President changes his rhetoric. West Thursday, human full doctor strange love, I'm going to blow a round up to twenty four hours later, I'm John Lennon. 00:10:09 Speaker 6: Let's give a piece of chance. 00:10:10 Speaker 5: And oil prices are reacting to everything the President says. What doesn't react is the reality refining margins the product markets. The market is telling us through the forward curve, both in the diesel marketing and the gasoline market that we are short of product, and hence, now the margins, the difference between diesel and gasoline and CRUDEO are massive. Therefore, the refiners are doing everything they possibly can to capture those margins, and therefore they are running. In the Midwest, they are running at virtually one hundred percent of capacity. In the refinery epicenter, in the Gulf Coast, they're running at ninety seven percent of capacity. So the refining industry, he's already pushed to its max at this point. So there's a very little more margin that the industry can do to get more gasoline to the market. 00:10:59 Speaker 6: They just can't ad a loan and there's some pixie dust on. 00:11:02 Speaker 5: The market and all of a sudden bring retail prices lower. No, retail prices are higher because there is a shortage of product and the ability refiners to bring more product to the market is already stretched to the max. 00:11:15 Speaker 4: Stephen, can the president do anything along the lines of what he's suggesting. I mean, if you channel Mike Worth and you try to get into his head, is he just sort of rolling his eyes and saying, what a bunch of hooey? And it's never going to come to pass. 00:11:28 Speaker 6: No, absolutely, everyone. 00:11:29 Speaker 5: I mean, I don't know Mike Worth personally and I haven't spoken to him, but everyone I do speak an interest. Yes, they are rolling their eyes at a situation where you go on and you could take such a populous view that stems from a war that you created when the industry is responding the way you would expect the responding. The old adage is that high prices are the cure for high prices. We have those high prices, and why are they a cure because you're going to bring product to the market, to Britain, the pod to exploit those high prices. But we're already there. What we can address now is the shortage of product because once again, there's very little that the industry. The industry is doing essentially everything it can. It's responding to high prices. What it cannot do is respond to the uncertainty. Look, I could price a ninety five dollars war. I could price a seventy five dollars piece. What I cannot do, and what the market cannot do, is price a ninety five dollars war and the seventy five dollars piece when it alternates, the ping puns within every single news cycle. So there's a price to be paid for that uncertainty, and the market is paying that price right now. 00:12:34 Speaker 4: Do you like the oil majors as a group in terms of the share price given the volatility that we've seen in oil prices, the shortages that are ongoing, and the fact that high prices haven't gotten high enough to for demand destruction in a real way, at least not in the United States. 00:12:49 Speaker 5: Yeah, absolutely, And that's the here that we're having because there's two ways to impact elasticity of demand of any commodity, bring more supply to the market. 00:12:57 Speaker 6: Or kill demand. 00:12:58 Speaker 5: Well, our ability to supply the market, as we've said, has already pushed to the market to the margin. So therefore the only other issue to bring prices down is demand destruction, and of course that's economic contraction, and that is the fear in the market. As the longer we go, and as we have the uncertainty of how long this war, how long this destruction to the flow of oil around the world through the stranger who moves or through the bob LMD into Red Sea, how long does that remain disturbed? 00:13:26 Speaker 6: And right now we don't have an answer to that. 00:13:29 Speaker 5: Therefore, we have extreme uncertainty volatility in the market. And when the market's uncertain, when the market is volatile, prices are going to be high. 00:13:37 Speaker 6: You're going to have to pay for that for that uncertainty. 00:13:40 Speaker 2: Stay with us, multile Inpex Savandan's coming up after this. Let's talk about chips A massive month behind us. They declined by more than twenty percent. A big afternoon coming up, a d sets report earnings after the bow. The chip makers lofty second quarter goals, aiming to close the competitive gap within video. Angelo Zeno of CFRRA maintaining a strong binder stock and a six hundred dollars price target rising. These ambitious targets reflect AMD's confidence in capturing a significant share of the expanding AI market. Execution will be critical. Angelo joins us. Now for more, Angela, welcome to the program. Let's just start that that story. How big is the gap between AMD and in video right now? Is it closing? And why does that gap even exist? What is one company doing better or have done better than the other? 00:14:33 Speaker 1: Yeah? So, John, thanks for having me. 00:14:35 Speaker 7: I'd say overall, listen, there's a huge gap here and the biggest reason for the gap is you've got in Video, which essentially has been doing their Kuda software for let's call it two decades at this point in time, so they had a huge, massive lead in terms of the start of this AI revolution. They've essentially dominated the whole AI accelerator market over the last couple of years, and more importantly, within video, they've kind of shifted to these large scale RAX solutions, which everyone has kind of the whole industry has migrated to. When you kind of look at AMD here, they are now starting to kind of shift to large scale rack scale solutions. Actually the Helius platform is ramping here, will ramp in Q three. More of the kind of the upside going to be in Q four and into Q one of next year. But also when you look at what they're doing on the software side of things, they're now really starting to make some good progress there and you're going to see more developers on their platform, and that makes them a real kind of thread to in Nvidia kind of looking here over the next couple of years, where they've got a very small share and actually negligible share when you start thinking about the actual large scale rack solutions. So there's a lot of upside here for AMD, and it's why it's our top pick here. 00:15:48 Speaker 1: Over the next couple of years, AMD. 00:15:50 Speaker 4: Has announced relationships with some of the frontier models of AI we've heard just generally chip chip companies have gone after deals with the likes of open ay and Anthropic. To what degree is that a benefit and attribute and to what degree is that potentially detrimental? 00:16:08 Speaker 1: No, I mean, it's it's important. 00:16:09 Speaker 7: These partnerships are absolutely important for a company like A and D. They need to kind of prove their you know, their position in the market at this point in time, and the best way to do that is with these partnerships, whether it be Anthropic, open AI, which they now have good partnerships with, as well as recent announcements with the likes of Meta as well as Microsoft. So they're in a pretty good position here and it's also kind of helps now build a very good pipeline for them for over the next couple of years. 00:16:40 Speaker 4: Are there margin levels that are too good from your vantage point? 00:16:44 Speaker 1: The potentially are. 00:16:44 Speaker 4: So high as to essentially ask for some competitive pressure. 00:16:50 Speaker 7: If we're looking all across the kind of the you know, the semi ecosystem. Yeah, I mean there's I think there are points there, you know, where you get to points on the on the margin side of things where it gets a little bit too lofty, too good. But you know, for a company like AMD, you're not there, nowhere near there at this point in time, especially relative to some of the other players across the semi ecosystem. 00:17:14 Speaker 2: Angela, I know you have sort of bought them up and you're covering single names, but I want your reaction to what happened with situation Lawhanis last week, because a lot of bulls willing to buy this sect and now pointing to that as a clearing event, which you points to the same thing. How do you think about that kind of dynamic? 00:17:30 Speaker 7: Yeah, I know, I think that's a good question, you know, when we think about that situation in itself. Yeah, I mean, I think there was a lot of momentum that's really kind of been built within the entire semi ecosystem, and to an extent, you needed to see some sort of kind of wash out, which you know that probably attributed to here over the last couple of weeks. I think you're still in this kind of price discovery phase as far as the semi ecosystem is concerned. We've kind of essentially kind of hit peak growth rates back in Q two, so you're going to see growth for its start to decelerate for the semi ecosystem over the next couple of quarters and years. The market needs to digest that and find kind of a proper multiple. 00:18:10 Speaker 1: For the industry. I do think kind of some of the pullback. 00:18:13 Speaker 7: You've seen over the last couple of weeks or months, whatever you want to attribute to, I think helps get us to that point, maybe a little bit faster than we would have hoped for. But yeah, I mean, I think there's some extent a clearing event that took place over the last couple of days, weeks, call it. But at this point in time, you know, it's hard to say whether or not we've found the absolute bottom within the space. 00:18:36 Speaker 2: This is the Bloomberg S Evments podcast, bringing you the best in markets, economics, angiot politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business Amp