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