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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. We

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Speaker 2: are focused on the meeting later today between Donald Trump

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Speaker 2: and Chi Chen Ping. These leaders are set to finalize

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Speaker 2: call it a detante as they meet on the sidelines

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Speaker 2: of the APEX Summit in South Korea, and this will

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Speaker 2: put the trade war between the US and China on hold,

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Speaker 2: at least for now. Initial signals seem to indicate an agreement.

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Speaker 2: Here's Bloomberg sherry On.

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Speaker 1: We're expecting President shigm Paint to arrive here in South Korea.

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Speaker 1: He'll be arriving the city of Pusan, just half an

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Speaker 1: hour ride from where we are hearing in Koonju. Now,

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Speaker 1: this is his first trip to South Korean in eleven years,

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Speaker 1: and is also going to be the first in person

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Speaker 1: meeting with President Trump since twenty nineteen. We're expecting a

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Speaker 1: trade truce between the two largest economies of the world,

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Speaker 1: perhaps something along the lines of purchase agreements on soybean's,

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Speaker 1: perhaps something around critical minerals. But President Trump said that

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Speaker 1: he'd be open to providing China with access to Nvidia's

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Speaker 1: Blackwell AI processor as part of a trade deal that

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Speaker 1: would be a major concession. Of course, it's really been

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Speaker 1: about those concessions coming from Washington.

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Speaker 2: That is Bloomberg sherry On. Now. The other big story

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Speaker 2: we are tracking has to do with big cap tech

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Speaker 2: earnings after the bell in the US, we heard from Microsoft,

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Speaker 2: Alphabet and Meta Platforms for some reaction. I'm joined now

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Speaker 2: by Daniel Newman. He is the CEO at the Futurum Group. Daniel,

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Speaker 2: thank you so much for making time to chat with me.

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Speaker 2: So much going on in markets. I'd like to focus

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Speaker 2: on the earnings first that we had after the bell.

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Speaker 2: We heard from Microsoft, we heard from Alphabet and Meta Platforms,

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Speaker 2: somewhat different stories, but I think the commonality here is

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Speaker 2: the fact that these companies continue to build out AI infrastructure.

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Speaker 2: At what point does that become a concern for you?

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Speaker 3: For me, it's when the growth stops. One of these

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Speaker 3: CEOs understands something that those that are continuously saying it's

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Speaker 3: a bubble or that this thing is going too fast,

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Speaker 3: is that this is the existential moment for these companies.

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Speaker 3: Mark Zuckerberg's done this before. He made a bet on

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Speaker 3: the metaverse that didn't yet pan out, and so people

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Speaker 3: are kind of skeptical of his decision making. But if

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Speaker 3: you actually look at the value he's brought to shareholders

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Speaker 3: over time, he's continued to bring growth and the numbers

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Speaker 3: overall were very good. That one time charge related to

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Speaker 3: the taxes, that non cash charge threw a lot of

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Speaker 3: people off. But if you actually if you actually credited

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Speaker 3: for that, they actually beat on the top and bottom line.

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Speaker 3: But if you listen to Amy Hood and Sati Inadella,

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Speaker 3: if you listened just under Pachai, and if you listen

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Speaker 3: to Mark, they're all saying the same thing. We have constrained.

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Speaker 3: We need more energy, we need more data centers, we

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Speaker 3: need more AI compute because their plans of how they

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Speaker 3: want to build their businesses and deliver to the future

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Speaker 3: require this.

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Speaker 2: So you were at the Nvidia conference in Washington, d

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Speaker 2: C in the last day or two, and I'm wondering

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Speaker 2: what you took away from what Jensen Wong had to say.

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Speaker 3: Well, Jensen delivered his best keynote at a GtC so far.

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Speaker 3: It was crisp, it was clear, it was tight. He

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Speaker 3: had the partners aligned, he had the growth story aligned.

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Speaker 3: But he really put one number out that I think

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Speaker 3: sent that parabolic move that brought the company's market cap

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Speaker 3: over five trillion dollars, and that was when he showed

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Speaker 3: that he had visibility. By the end of twenty twenty

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Speaker 3: six into a half a trillion dollars in revenue. Basically

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Speaker 3: every one of those CSPs that we just spoke about,

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Speaker 3: all of these partners He had partnerships with Service Now,

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Speaker 3: with CrowdStrike, with pal Andeer, he announced a big partnership

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Speaker 3: with the Department of Energy, all of them boring investment

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Speaker 3: building products on the Nvidia platform. And this just shows

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Speaker 3: that there is so much momentum here. But the other

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Speaker 3: thing Doug that I thought was really important was the

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Speaker 3: diversification through all these partnerships. He went into quantum, he

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Speaker 3: went into physical AI and robotics, into you know, of

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Speaker 3: course the traditional data center, the edge computing, and autonomy

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Speaker 3: and vehicles. The business of AI is so much bigger

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Speaker 3: than just the data centers. But what people have to

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Speaker 3: kind of realize is it has to start there. It's

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Speaker 3: like the brain of all of this buildout starts with

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Speaker 3: these data centers and it proliferates into every part of

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Speaker 3: our economy.

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Speaker 2: So in Vidia, i think, is trading it around forty

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Speaker 2: four times forward earnings. That seems to be historically a

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Speaker 2: pretty rich multiple, but it doesn't seem to concern you

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Speaker 2: at all.

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Speaker 3: Well, it actually traded much higher multiples before this sort

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Speaker 3: of boom at different times. You know, you see AMD,

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Speaker 3: you see Tesla. They traded these great premiums mostly because

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Speaker 3: people have this belief. Now in Vidia, I think gets

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Speaker 3: a rerating to some extent based on those forward comments

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Speaker 3: about the visibility into the size of it of its business.

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Speaker 3: But the company operates in the mid seventies percent margins,

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Speaker 3: it delivers net income in the fifty percent. It looks

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Speaker 3: like it could do three hundred billion dollars and revenue

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Speaker 3: next year. So when you look at how it qualifies,

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Speaker 3: and then you say, well, if open ai is going

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Speaker 3: to be a trillion dollar company coming out the gate,

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Speaker 3: then Nvidia delivering you know, nearly one hundred and twenty

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Speaker 3: to one hundred and fifty billion of net income depending

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Speaker 3: on the exact outcome next year. It seems like that

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Speaker 3: would be a business that could be very investible at

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Speaker 3: that forward earnings. I like it better at thirty to

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Speaker 3: thirty five, and that's where it's been trading. I wouldn't

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Speaker 3: be surprised to see some new estimates based on Jensen's

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Speaker 3: comments this week at GtC.

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Speaker 2: So, I'm glad you mentioned open Ai because the company

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Speaker 2: is reportedly preparing an IPO soon. I guess maybe as

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Speaker 2: soon as next year. Reuter is saying that it could

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Speaker 2: value the company at as much as a trillion. You

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Speaker 2: and I talked a moment ago. That's pretty much what

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Speaker 2: you said to say a while back. And we know

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Speaker 2: as a result of a deal in the last week,

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Speaker 2: Microsoft now will have about a near thirty percent stake

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Speaker 2: in open Ai. But here's the thing. After the bell,

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Speaker 2: Microsoft reports a steeper increase in spending than the street

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Speaker 2: was expecting, and the stock in late trading on Wednesday

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Speaker 2: gaps down by more than seven percent. What's happening here

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Speaker 2: with the Microsoft story.

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Speaker 3: Well, these two things are somewhat codependent, but somewhat not. Obviously, Microsoft,

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Speaker 3: in this new way of physiciing its relationship in the

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Speaker 3: twenty seven percent or so that it holds now has

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Speaker 3: to report the losses in open Ai. While it might

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Speaker 3: have a trillion dollar valuation and its an investment may

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Speaker 3: have a great mark to market valuation for Satia and Microsoft,

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Speaker 3: the cash losses are a responsibility of Microsoft at least

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Speaker 3: for their share, so that obviously is weighing, But I

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Speaker 3: don't think that's what brought the market down. I think

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Speaker 3: there was a couple of things that happened. One is

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Speaker 3: it had a very strong run up into earnings. It

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Speaker 3: had seen its earnings, It's seen the stock price appreciate significantly.

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Speaker 3: It went up over four trillion dollars as well. I

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Speaker 3: think there was a lot of enthusiasm people were thinking

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Speaker 3: there would be this big number. Did deliver a forty

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Speaker 3: percent azure growth number, It did deliver an RPO number.

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Speaker 3: You know, they're saying they have four hundred billion dollars

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Speaker 3: in revenue booked over the next two years. That these

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Speaker 3: are booked orders, not potential orders. And to some extent,

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Speaker 3: I think there was a little bit of just sell

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Speaker 3: the news, Doug. I think people saw it run up,

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Speaker 3: they saw more capex, more spending, and it's going to

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Speaker 3: spook investors. I'm going to take some gains right here.

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Speaker 3: But most of the thoughtful tech forward thinkers that I've

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Speaker 3: been speaking to today have all said, all commonly believe

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Speaker 3: that these companies, the CEOs, Zuckerberg, Satia, Sundar, they are

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Speaker 3: all doing the critical things they need to do to

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Speaker 3: make sure that their businesses can survive. I think Zuckerberg

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Speaker 3: keeps saying it best. I would rather be overinvested than

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Speaker 3: underinvested here. So investors may have to be a little

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Speaker 3: patient with the with the gyrations of the market when

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Speaker 3: people react to that. But I overall think that these

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Speaker 3: CEOs are doing the right thing, and I think this

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Speaker 3: AI trade is very real.

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Speaker 2: Okay, so let's go to Thursday after the bell. Tomorrow

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Speaker 2: we'll hear from Apple, Amazon, what are your expectations from

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Speaker 2: these companies.

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Speaker 3: Well, Apple, it's going to be all about the new

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Speaker 3: iPhone seventeen. We've heard a lot of positives about that

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Speaker 3: pro device, a lot of excitement. We've also heard some

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Speaker 3: questions about some of those lower end devices that thinner

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Speaker 3: air device hasn't necessarily done well. Apple's sort of been

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Speaker 3: able to get that growth at software trillion dollars as

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Speaker 3: well without ever actually really identifying its AI strategy. And

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Speaker 3: I think that's because the market just believes its platform

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Speaker 3: is so close to its consumer the commitment level people

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Speaker 3: to stay on the Apple platform. So when you hear

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Speaker 3: about open AI building something that's going to disrupt it

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Speaker 3: or Meta. I just don't think people believe it, and

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Speaker 3: they think Apple might be a safer investment. They certainly

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Speaker 3: haven't laid out those capex dollars to nearly the extent

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Speaker 3: of these other mag seven companies. Amazon, they had that

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Speaker 3: big outage. They've got to show some growth in that

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Speaker 3: AWS business. You had Google over thirty percent, I think

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Speaker 3: thirty four percent today you had Azure's Microsoft's cloud business.

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Speaker 3: For Amazon's been trailing, and it's been trailing because it

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Speaker 3: came out late. It underinvested to the point that I

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Speaker 3: made earlier, they underinvested with Nvidia, didn't build out enough capacity.

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Speaker 3: Their growth, despite being the biggest player, their growth has

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Speaker 3: been much slower. They've been in the teens, you know,

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Speaker 3: trying to get back to the twenties, and I think

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Speaker 3: the market needs to see that growth. I think their

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Speaker 3: commerce business will do well. I think Amazon's absolutely knocked

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Speaker 3: out of the park there. They've been, you know, finding

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Speaker 3: these cost efficiencies that obviously comes with two sides. People

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Speaker 3: don't love all the cost cutting, you know, from the

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Speaker 3: world standpoint, but investors tend to like those actions. So Amazon, though,

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Speaker 3: I think it's going to ride the way the market

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Speaker 3: will respond on does aws grow enough? And have they

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Speaker 3: shown that they've been able to overcome those capacity constraints

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Speaker 3: that have worried investors in the last few quarters.

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Speaker 2: Before I let you go, I want to get your

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Speaker 2: take on Qualcom. Earlier in the week we had news

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Speaker 2: that the company is developing a new AI chip, and

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Speaker 2: I think it was Monday, the stock popped about eleven percent.

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Speaker 2: What's your story on on Qualcom here? Is it worthwhile?

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Speaker 2: Do you think that this company has a chance to

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Speaker 2: go up against in Vidia in any way?

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Speaker 3: I think the everything against Nvidia train of thinking is

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Speaker 3: a bit problematic here. I think Qualcom has a lot

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Speaker 3: of engineering prowess. They hold, you know, in an abscorbinate

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Speaker 3: amount of patents. They understand low power efficient design, and

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Speaker 3: they have invested and bought some really good intellectual property

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Speaker 3: for compute. I think what they actually launched is complementary.

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Speaker 3: I think in many ways, there's this and Doug you've

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Speaker 3: probably heard about inference versus this training boom. Nvidia owns

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Speaker 3: that market and AMD has basically taken what's left along

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Speaker 3: with some of those custom broadcom chips. I think Qualcomm,

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Speaker 3: in that deal that they signed with humane they're really

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Speaker 3: going after this inference, which is going to be this

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Speaker 3: higher volume, this more efficient computing at the edge. I

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Speaker 3: think they're going to find some efficiencies in their pricing

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Speaker 3: and how they market themselves. But here's the biggest thing

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Speaker 3: for investors to think about. This is a company that's

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Speaker 3: been trading around thirteen fourteen times. Maybe they got a

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Speaker 3: little boost after Monday for as we talked about, you know,

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Speaker 3: Invidiot forty five, this wild company at thirteen fourteen. They

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Speaker 3: got a little bit of a boost here. But they

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Speaker 3: win one or two percent of the market share. Our

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Speaker 3: estimates show that that could be six to twelve billion

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Speaker 3: dollars of incremental revenue for them by the end of

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Speaker 3: the decade. So I think they can win big even

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Speaker 3: if they only win small in that market. I think

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Speaker 3: they have the abilities to win a small piece of

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Speaker 3: that market.

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Speaker 2: Daniel will leave it there, Thank you so very much.

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Speaker 2: Daniel Newman is the CEO of the Futurum Group, joining

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Speaker 2: us here on the Daybreak Asia podcast. Welcome back to

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Speaker 2: the Daybreak Asia Podcast. I'm Deck Chrisner. Let's turn next

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Speaker 2: to the Federal Reserve. We had policymakers cutting the Fed

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Speaker 2: funds rate by a quarter point during the last session. Now,

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Speaker 2: that move was widely expected. The aim is to support

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Speaker 2: a softer labor market. However, the path forward seems less clear,

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Speaker 2: especially since there's been a lack of economic data resulting

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Speaker 2: from the government shutdown. That's one reason why Fedchair j

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Speaker 2: Powell cautioned against assuming the FED will cut rates again

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Speaker 2: in December.

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Speaker 4: In the committee's discussions at this meeting, there were strongly

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Speaker 4: differing views about how to proceed in December. A further

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Speaker 4: reduction in the policy rate at the December meeting is

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Speaker 4: not a foregone conclusion. Far from it. Policy is not

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Speaker 4: on a preset course.

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Speaker 2: At the same time, Powell said the FED will stop

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Speaker 2: shrinking its balance sheet after some recent stress in money markets.

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Speaker 2: Joining me now for a closer look. As Sean Clark,

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Speaker 2: he is the CIO at Clark Capital. Sean is on

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Speaker 2: the line from Philadelphia, Pennsylvania. Sean, thank you for making

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Speaker 2: time to chat with me. This move on the part

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Speaker 2: of the FED to lower interest rates at quarter point

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Speaker 2: today was widely expected. There's been a lot of suggestions

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Speaker 2: recently that the FED needs to pay attention to a

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Speaker 2: weaker labor market, but Powell seemed to push back on

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Speaker 2: this idea that the market is expecting a rate cut

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Speaker 2: in December. He said, it's far from a foregone conclusion.

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Speaker 2: But what do you think is driving his thinking here?

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Speaker 5: I think you're right about that. He actually said that,

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Speaker 5: I believe three times in the in the press conference.

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Speaker 5: I think I was driving him. I think it's he's

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Speaker 5: he's looking at a more balanced picture when it comes

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Speaker 5: to weakening labor conditions and a little bit of you know,

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Speaker 5: elevated inflation. I still do think, however, I do think

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Speaker 5: that the FED still is more worried about weakening UH

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Speaker 5: employment than they are inflation. And I think, you know,

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Speaker 5: the FED does see that there's continued gradual cooling of

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Speaker 5: the labor markets. I just think for right now, with

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Speaker 5: a lot of lack of data given the government shutdown,

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Speaker 5: I think the FED wants to take a little more

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Speaker 5: of a measured pace.

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Speaker 2: Financial conditions, I think you could agree with me, are

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Speaker 2: pretty much have been regarded as being very loose right now,

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Speaker 2: and I'm wondering whether that creates a bit of concern

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Speaker 2: for you.

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Speaker 5: Actually, no, you know, I think when we look at

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Speaker 5: the bigger inflation picture, it's still we still remain within

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Speaker 5: the context of a deflationary trajectory that has really defined

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Speaker 5: the cyclicobal market that began in twenty twenty two. A

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Speaker 5: lot of that DOUG, as you mentioned, has to do

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Speaker 5: with easy financial conditions, lower interest rates, lower dollar, higher stocks.

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Speaker 5: I think we get a continuation of that into your

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Speaker 5: end and well into next year before I think we

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Speaker 5: start to run into some volatility into and ahead of

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Speaker 5: the midterm election. So my opinion is, no matter what

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Speaker 5: the FED does right now, I think they're still going

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Speaker 5: to be cutting into next year. Whether or not they

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Speaker 5: cut in December, is more of a coin toss right now,

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Speaker 5: and overall market expectations that now back FED cuts by

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Speaker 5: one rate cut into the end of next year, I

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Speaker 5: am not too concerned. I actually think it's a positive

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Speaker 5: that the market that the FED is going to be

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Speaker 5: cutting in a more gradual pace, not so much in

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Speaker 5: a reactionary tone, but you know, maybe a little bit

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Speaker 5: of precaution.

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Speaker 2: What does it say to you that the FED is

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Speaker 2: going to stop shrinking the balance sheet. One of the

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Speaker 2: things I think Powell focused on was some recent stress

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Speaker 2: that we have seen in money markets, and I'm wondering

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Speaker 2: whether that represents any concern for you that the FED

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Speaker 2: is going to stop a process that the market had

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Speaker 2: been kind of looking forward to.

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Speaker 5: Almost Yeah, I think the FED really needed to deliver

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Speaker 5: on three key points today. That one one was a

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Speaker 5: rate cut check. Second was they needed to message the

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Speaker 5: QT and you know ending the balance sheet runoff check

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Speaker 5: two and third is dubbish language. We didn't quite get that.

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Speaker 5: But then back to back to the balance sheet runoff comments.

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Speaker 5: You know, there have been signs that reserves are no

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Speaker 5: longer really abundant, and I think a lot of that's

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Speaker 5: evident by the fact that we've seen repo rates that

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Speaker 5: have been running pretty much consistently above the midpoint of

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Speaker 5: the FED funds target range for for quite a quite

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Speaker 5: a while. So there were some signs of stress. Now

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Speaker 5: we do know that the VET did message that they're

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Speaker 5: going to be ending the runoff and keep the balance

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Speaker 5: sheet at a constant level starting on December first. They

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Speaker 5: are still going to be reinvesting treasuries at the auction,

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Speaker 5: they're going to be rolling those over, but principal payments

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Speaker 5: and payments from nbs, they're going to be reinvested in

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Speaker 5: T bills. I think what that potentially does longer term

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Speaker 5: possibly increases demand on the short end of the curve,

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Speaker 5: and I think that actually could steep in the yeld curve,

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Speaker 5: which you know for bank earnings, that probably is not

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Speaker 5: a bad thing.

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Speaker 2: I'm interested in getting your perspective on the banks in

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Speaker 2: a moment, But talk first about this move lower pretty

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Speaker 2: dramatic across the curve in terms of yield. We've got

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Speaker 2: a ten year right now around three sixty Would you

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Speaker 2: put money to work at the short end of the

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Speaker 2: curve right now on the long side.

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Speaker 5: Who No, I would not. I would go more to

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Speaker 5: the belly of the curve, or maybe extend a little

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Speaker 5: bit more in narration. I would stay away from the

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Speaker 5: short end of the curve, just because I think a

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Speaker 5: lot of the gains have been had. With that said,

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Speaker 5: I do think the path of least resistance for most

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Speaker 5: most of the Yelk curve probably is still a little

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Speaker 5: bit lower. Right we already defined downtrend in yields when

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Speaker 5: you look at the two year yield, the five year yield,

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Speaker 5: ten year, and thirty year yields. From a technical standpoint,

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Speaker 5: all of those yields fifty day moving averages are creating

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Speaker 5: below there are two hundred day moving averages, which two

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Speaker 5: wats is one of the key definitions for a downtrend.

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Speaker 5: So I still think we get lower yields. The fact

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Speaker 5: that we punctured four percent on the tenure to the downside.

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Speaker 5: We're a little bit elevated above that right now with

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Speaker 5: a little bit of backup in yields over the past

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Speaker 5: couple of days. You know, getting through that four percent

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Speaker 5: on the ten year tells me next stop is probably

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Speaker 5: three point eight percent on the ten year yield, and

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Speaker 5: after that we might be looking at three sixty.

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Speaker 2: And yet inflation remains above target. It's rising still, and

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Speaker 2: Powell today said near term inflation expectations have risen. That

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Speaker 2: doesn't concern you in the least well.

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Speaker 5: Inflation ceremony, But I still believe that we are in

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Speaker 5: a disinflationary trajectory. When we look at the components of CPI,

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Speaker 5: most of those components are actually in deflationary territory. And

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Speaker 5: we look at you know what Powell said today with

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Speaker 5: regards to the various components and how the Fed breaks

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Speaker 5: it into three different three different subsets shelter x, hotels

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Speaker 5: or shelter goods. Inflation is being affected by the tariffs,

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Speaker 5: which is elevated. That's to be expected. Housing services has

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Speaker 5: been down. That's a reflection of shelter costs thing as

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Speaker 5: a LAG. Shelter costs represent about forty three percent of

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Speaker 5: course CPI. They are deflating. That should continue because they

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Speaker 5: operate with the LAG. Finally, non housing service in inflation.

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Speaker 5: Pop comment is being you put all of that together,

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Speaker 5: it doesn't seem like the inflation picture is all that bad.

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Speaker 2: Okay, let's go back to the banks.

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Speaker 5: Now.

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Speaker 2: We're talking about maybe a little bit more steepening of

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Speaker 2: the curve, albeit in an environment where rates overall are

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Speaker 2: drifting lower. Do you like the bank stocks here we

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Speaker 2: do going bad.

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Speaker 5: I think they've had a pretty big correction given some

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Speaker 5: of the concerns with regional banks and quite frankly, some

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Speaker 5: of the loans. I would use this weakness in banks

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Speaker 5: as a buying opportunity as opposed to getting overly conservative

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Speaker 5: and too cautious on the industry group by itself.

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Speaker 2: Is there a risk that some of these banks may

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Speaker 2: still be exposed to problems in the credit space where

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Speaker 2: we're talking about maybe a credit line to a private

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Speaker 2: credit firm or something else that remains at this point unseen, undisclosed.

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Speaker 2: We don't really have a lot of visibility here, and

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Speaker 2: I'm wondering whether that represents the slightest concern for you.

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Speaker 5: Well, there's always risks, and certainly that is a risk.

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Speaker 5: I do think the whole private credit space is a risk.

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Speaker 5: What we saw a couple of weeks ago with some

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Speaker 5: bad loans and some defaults. Yeah, I mean Jamie Diamond's

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Speaker 5: comments about cockroaches. Sure there may be more. We really

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Speaker 5: focus on overall credit conditions, and when I look at

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Speaker 5: credit spreads, credit spreads are historically low. When we begin

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Speaker 5: to see credit spreads rising, that's when we're going to

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Speaker 5: start to get concerned with overall credit conditions, which normally rise,

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Speaker 5: credit spreads normally begin to elevate prior to market turmoil.

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Speaker 5: We just quite frankly, are not seeing any of that

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Speaker 5: at the moment.

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Speaker 2: Okay, Sean, we'll leave it there. Good stuff, Thank you

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Speaker 2: so much. Sean Clark is CIO at Clark Capital, joining

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Speaker 2: from Philadelphia here on the Daybreak Asia podcast. Thanks for

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Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets finance

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm crazy and this is Bloomberg.

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Speaker 5: Mhmm