Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. We
Speaker 2: are focused on the meeting later today between Donald Trump
Speaker 2: and Chi Chen Ping. These leaders are set to finalize
Speaker 2: call it a detante as they meet on the sidelines
Speaker 2: of the APEX Summit in South Korea, and this will
Speaker 2: put the trade war between the US and China on hold,
Speaker 2: at least for now. Initial signals seem to indicate an agreement.
Speaker 2: Here's Bloomberg sherry On.
Speaker 1: We're expecting President shigm Paint to arrive here in South Korea.
Speaker 1: He'll be arriving the city of Pusan, just half an
Speaker 1: hour ride from where we are hearing in Koonju. Now,
Speaker 1: this is his first trip to South Korean in eleven years,
Speaker 1: and is also going to be the first in person
Speaker 1: meeting with President Trump since twenty nineteen. We're expecting a
Speaker 1: trade truce between the two largest economies of the world,
Speaker 1: perhaps something along the lines of purchase agreements on soybean's,
Speaker 1: perhaps something around critical minerals. But President Trump said that
Speaker 1: he'd be open to providing China with access to Nvidia's
Speaker 1: Blackwell AI processor as part of a trade deal that
Speaker 1: would be a major concession. Of course, it's really been
Speaker 1: about those concessions coming from Washington.
Speaker 2: That is Bloomberg sherry On. Now. The other big story
Speaker 2: we are tracking has to do with big cap tech
Speaker 2: earnings after the bell in the US, we heard from Microsoft,
Speaker 2: Alphabet and Meta Platforms for some reaction. I'm joined now
Speaker 2: by Daniel Newman. He is the CEO at the Futurum Group. Daniel,
Speaker 2: thank you so much for making time to chat with me.
Speaker 2: So much going on in markets. I'd like to focus
Speaker 2: on the earnings first that we had after the bell.
Speaker 2: We heard from Microsoft, we heard from Alphabet and Meta Platforms,
Speaker 2: somewhat different stories, but I think the commonality here is
Speaker 2: the fact that these companies continue to build out AI infrastructure.
Speaker 2: At what point does that become a concern for you?
Speaker 3: For me, it's when the growth stops. One of these
Speaker 3: CEOs understands something that those that are continuously saying it's
Speaker 3: a bubble or that this thing is going too fast,
Speaker 3: is that this is the existential moment for these companies.
Speaker 3: Mark Zuckerberg's done this before. He made a bet on
Speaker 3: the metaverse that didn't yet pan out, and so people
Speaker 3: are kind of skeptical of his decision making. But if
Speaker 3: you actually look at the value he's brought to shareholders
Speaker 3: over time, he's continued to bring growth and the numbers
Speaker 3: overall were very good. That one time charge related to
Speaker 3: the taxes, that non cash charge threw a lot of
Speaker 3: people off. But if you actually if you actually credited
Speaker 3: for that, they actually beat on the top and bottom line.
Speaker 3: But if you listen to Amy Hood and Sati Inadella,
Speaker 3: if you listened just under Pachai, and if you listen
Speaker 3: to Mark, they're all saying the same thing. We have constrained.
Speaker 3: We need more energy, we need more data centers, we
Speaker 3: need more AI compute because their plans of how they
Speaker 3: want to build their businesses and deliver to the future
Speaker 3: require this.
Speaker 2: So you were at the Nvidia conference in Washington, d
Speaker 2: C in the last day or two, and I'm wondering
Speaker 2: what you took away from what Jensen Wong had to say.
Speaker 3: Well, Jensen delivered his best keynote at a GtC so far.
Speaker 3: It was crisp, it was clear, it was tight. He
Speaker 3: had the partners aligned, he had the growth story aligned.
Speaker 3: But he really put one number out that I think
Speaker 3: sent that parabolic move that brought the company's market cap
Speaker 3: over five trillion dollars, and that was when he showed
Speaker 3: that he had visibility. By the end of twenty twenty
Speaker 3: six into a half a trillion dollars in revenue. Basically
Speaker 3: every one of those CSPs that we just spoke about,
Speaker 3: all of these partners He had partnerships with Service Now,
Speaker 3: with CrowdStrike, with pal Andeer, he announced a big partnership
Speaker 3: with the Department of Energy, all of them boring investment
Speaker 3: building products on the Nvidia platform. And this just shows
Speaker 3: that there is so much momentum here. But the other
Speaker 3: thing Doug that I thought was really important was the
Speaker 3: diversification through all these partnerships. He went into quantum, he
Speaker 3: went into physical AI and robotics, into you know, of
Speaker 3: course the traditional data center, the edge computing, and autonomy
Speaker 3: and vehicles. The business of AI is so much bigger
Speaker 3: than just the data centers. But what people have to
Speaker 3: kind of realize is it has to start there. It's
Speaker 3: like the brain of all of this buildout starts with
Speaker 3: these data centers and it proliferates into every part of
Speaker 3: our economy.
Speaker 2: So in Vidia, i think, is trading it around forty
Speaker 2: four times forward earnings. That seems to be historically a
Speaker 2: pretty rich multiple, but it doesn't seem to concern you
Speaker 2: at all.
Speaker 3: Well, it actually traded much higher multiples before this sort
Speaker 3: of boom at different times. You know, you see AMD,
Speaker 3: you see Tesla. They traded these great premiums mostly because
Speaker 3: people have this belief. Now in Vidia, I think gets
Speaker 3: a rerating to some extent based on those forward comments
Speaker 3: about the visibility into the size of it of its business.
Speaker 3: But the company operates in the mid seventies percent margins,
Speaker 3: it delivers net income in the fifty percent. It looks
Speaker 3: like it could do three hundred billion dollars and revenue
Speaker 3: next year. So when you look at how it qualifies,
Speaker 3: and then you say, well, if open ai is going
Speaker 3: to be a trillion dollar company coming out the gate,
Speaker 3: then Nvidia delivering you know, nearly one hundred and twenty
Speaker 3: to one hundred and fifty billion of net income depending
Speaker 3: on the exact outcome next year. It seems like that
Speaker 3: would be a business that could be very investible at
Speaker 3: that forward earnings. I like it better at thirty to
Speaker 3: thirty five, and that's where it's been trading. I wouldn't
Speaker 3: be surprised to see some new estimates based on Jensen's
Speaker 3: comments this week at GtC.
Speaker 2: So, I'm glad you mentioned open Ai because the company
Speaker 2: is reportedly preparing an IPO soon. I guess maybe as
Speaker 2: soon as next year. Reuter is saying that it could
Speaker 2: value the company at as much as a trillion. You
Speaker 2: and I talked a moment ago. That's pretty much what
Speaker 2: you said to say a while back. And we know
Speaker 2: as a result of a deal in the last week,
Speaker 2: Microsoft now will have about a near thirty percent stake
Speaker 2: in open Ai. But here's the thing. After the bell,
Speaker 2: Microsoft reports a steeper increase in spending than the street
Speaker 2: was expecting, and the stock in late trading on Wednesday
Speaker 2: gaps down by more than seven percent. What's happening here
Speaker 2: with the Microsoft story.
Speaker 3: Well, these two things are somewhat codependent, but somewhat not. Obviously, Microsoft,
Speaker 3: in this new way of physiciing its relationship in the
Speaker 3: twenty seven percent or so that it holds now has
Speaker 3: to report the losses in open Ai. While it might
Speaker 3: have a trillion dollar valuation and its an investment may
Speaker 3: have a great mark to market valuation for Satia and Microsoft,
Speaker 3: the cash losses are a responsibility of Microsoft at least
Speaker 3: for their share, so that obviously is weighing, But I
Speaker 3: don't think that's what brought the market down. I think
Speaker 3: there was a couple of things that happened. One is
Speaker 3: it had a very strong run up into earnings. It
Speaker 3: had seen its earnings, It's seen the stock price appreciate significantly.
Speaker 3: It went up over four trillion dollars as well. I
Speaker 3: think there was a lot of enthusiasm people were thinking
Speaker 3: there would be this big number. Did deliver a forty
Speaker 3: percent azure growth number, It did deliver an RPO number.
Speaker 3: You know, they're saying they have four hundred billion dollars
Speaker 3: in revenue booked over the next two years. That these
Speaker 3: are booked orders, not potential orders. And to some extent,
Speaker 3: I think there was a little bit of just sell
Speaker 3: the news, Doug. I think people saw it run up,
Speaker 3: they saw more capex, more spending, and it's going to
Speaker 3: spook investors. I'm going to take some gains right here.
Speaker 3: But most of the thoughtful tech forward thinkers that I've
Speaker 3: been speaking to today have all said, all commonly believe
Speaker 3: that these companies, the CEOs, Zuckerberg, Satia, Sundar, they are
Speaker 3: all doing the critical things they need to do to
Speaker 3: make sure that their businesses can survive. I think Zuckerberg
Speaker 3: keeps saying it best. I would rather be overinvested than
Speaker 3: underinvested here. So investors may have to be a little
Speaker 3: patient with the with the gyrations of the market when
Speaker 3: people react to that. But I overall think that these
Speaker 3: CEOs are doing the right thing, and I think this
Speaker 3: AI trade is very real.
Speaker 2: Okay, so let's go to Thursday after the bell. Tomorrow
Speaker 2: we'll hear from Apple, Amazon, what are your expectations from
Speaker 2: these companies.
Speaker 3: Well, Apple, it's going to be all about the new
Speaker 3: iPhone seventeen. We've heard a lot of positives about that
Speaker 3: pro device, a lot of excitement. We've also heard some
Speaker 3: questions about some of those lower end devices that thinner
Speaker 3: air device hasn't necessarily done well. Apple's sort of been
Speaker 3: able to get that growth at software trillion dollars as
Speaker 3: well without ever actually really identifying its AI strategy. And
Speaker 3: I think that's because the market just believes its platform
Speaker 3: is so close to its consumer the commitment level people
Speaker 3: to stay on the Apple platform. So when you hear
Speaker 3: about open AI building something that's going to disrupt it
Speaker 3: or Meta. I just don't think people believe it, and
Speaker 3: they think Apple might be a safer investment. They certainly
Speaker 3: haven't laid out those capex dollars to nearly the extent
Speaker 3: of these other mag seven companies. Amazon, they had that
Speaker 3: big outage. They've got to show some growth in that
Speaker 3: AWS business. You had Google over thirty percent, I think
Speaker 3: thirty four percent today you had Azure's Microsoft's cloud business.
Speaker 3: For Amazon's been trailing, and it's been trailing because it
Speaker 3: came out late. It underinvested to the point that I
Speaker 3: made earlier, they underinvested with Nvidia, didn't build out enough capacity.
Speaker 3: Their growth, despite being the biggest player, their growth has
Speaker 3: been much slower. They've been in the teens, you know,
Speaker 3: trying to get back to the twenties, and I think
Speaker 3: the market needs to see that growth. I think their
Speaker 3: commerce business will do well. I think Amazon's absolutely knocked
Speaker 3: out of the park there. They've been, you know, finding
Speaker 3: these cost efficiencies that obviously comes with two sides. People
Speaker 3: don't love all the cost cutting, you know, from the
Speaker 3: world standpoint, but investors tend to like those actions. So Amazon, though,
Speaker 3: I think it's going to ride the way the market
Speaker 3: will respond on does aws grow enough? And have they
Speaker 3: shown that they've been able to overcome those capacity constraints
Speaker 3: that have worried investors in the last few quarters.
Speaker 2: Before I let you go, I want to get your
Speaker 2: take on Qualcom. Earlier in the week we had news
Speaker 2: that the company is developing a new AI chip, and
Speaker 2: I think it was Monday, the stock popped about eleven percent.
Speaker 2: What's your story on on Qualcom here? Is it worthwhile?
Speaker 2: Do you think that this company has a chance to
Speaker 2: go up against in Vidia in any way?
Speaker 3: I think the everything against Nvidia train of thinking is
Speaker 3: a bit problematic here. I think Qualcom has a lot
Speaker 3: of engineering prowess. They hold, you know, in an abscorbinate
Speaker 3: amount of patents. They understand low power efficient design, and
Speaker 3: they have invested and bought some really good intellectual property
Speaker 3: for compute. I think what they actually launched is complementary.
Speaker 3: I think in many ways, there's this and Doug you've
Speaker 3: probably heard about inference versus this training boom. Nvidia owns
Speaker 3: that market and AMD has basically taken what's left along
Speaker 3: with some of those custom broadcom chips. I think Qualcomm,
Speaker 3: in that deal that they signed with humane they're really
Speaker 3: going after this inference, which is going to be this
Speaker 3: higher volume, this more efficient computing at the edge. I
Speaker 3: think they're going to find some efficiencies in their pricing
Speaker 3: and how they market themselves. But here's the biggest thing
Speaker 3: for investors to think about. This is a company that's
Speaker 3: been trading around thirteen fourteen times. Maybe they got a
Speaker 3: little boost after Monday for as we talked about, you know,
Speaker 3: Invidiot forty five, this wild company at thirteen fourteen. They
Speaker 3: got a little bit of a boost here. But they
Speaker 3: win one or two percent of the market share. Our
Speaker 3: estimates show that that could be six to twelve billion
Speaker 3: dollars of incremental revenue for them by the end of
Speaker 3: the decade. So I think they can win big even
Speaker 3: if they only win small in that market. I think
Speaker 3: they have the abilities to win a small piece of
Speaker 3: that market.
Speaker 2: Daniel will leave it there, Thank you so very much.
Speaker 2: Daniel Newman is the CEO of the Futurum Group, joining
Speaker 2: us here on the Daybreak Asia podcast. Welcome back to
Speaker 2: the Daybreak Asia Podcast. I'm Deck Chrisner. Let's turn next
Speaker 2: to the Federal Reserve. We had policymakers cutting the Fed
Speaker 2: funds rate by a quarter point during the last session. Now,
Speaker 2: that move was widely expected. The aim is to support
Speaker 2: a softer labor market. However, the path forward seems less clear,
Speaker 2: especially since there's been a lack of economic data resulting
Speaker 2: from the government shutdown. That's one reason why Fedchair j
Speaker 2: Powell cautioned against assuming the FED will cut rates again
Speaker 2: in December.
Speaker 4: In the committee's discussions at this meeting, there were strongly
Speaker 4: differing views about how to proceed in December. A further
Speaker 4: reduction in the policy rate at the December meeting is
Speaker 4: not a foregone conclusion. Far from it. Policy is not
Speaker 4: on a preset course.
Speaker 2: At the same time, Powell said the FED will stop
Speaker 2: shrinking its balance sheet after some recent stress in money markets.
Speaker 2: Joining me now for a closer look. As Sean Clark,
Speaker 2: he is the CIO at Clark Capital. Sean is on
Speaker 2: the line from Philadelphia, Pennsylvania. Sean, thank you for making
Speaker 2: time to chat with me. This move on the part
Speaker 2: of the FED to lower interest rates at quarter point
Speaker 2: today was widely expected. There's been a lot of suggestions
Speaker 2: recently that the FED needs to pay attention to a
Speaker 2: weaker labor market, but Powell seemed to push back on
Speaker 2: this idea that the market is expecting a rate cut
Speaker 2: in December. He said, it's far from a foregone conclusion.
Speaker 2: But what do you think is driving his thinking here?
Speaker 5: I think you're right about that. He actually said that,
Speaker 5: I believe three times in the in the press conference.
Speaker 5: I think I was driving him. I think it's he's
Speaker 5: he's looking at a more balanced picture when it comes
Speaker 5: to weakening labor conditions and a little bit of you know,
Speaker 5: elevated inflation. I still do think, however, I do think
Speaker 5: that the FED still is more worried about weakening UH
Speaker 5: employment than they are inflation. And I think, you know,
Speaker 5: the FED does see that there's continued gradual cooling of
Speaker 5: the labor markets. I just think for right now, with
Speaker 5: a lot of lack of data given the government shutdown,
Speaker 5: I think the FED wants to take a little more
Speaker 5: of a measured pace.
Speaker 2: Financial conditions, I think you could agree with me, are
Speaker 2: pretty much have been regarded as being very loose right now,
Speaker 2: and I'm wondering whether that creates a bit of concern
Speaker 2: for you.
Speaker 5: Actually, no, you know, I think when we look at
Speaker 5: the bigger inflation picture, it's still we still remain within
Speaker 5: the context of a deflationary trajectory that has really defined
Speaker 5: the cyclicobal market that began in twenty twenty two. A
Speaker 5: lot of that DOUG, as you mentioned, has to do
Speaker 5: with easy financial conditions, lower interest rates, lower dollar, higher stocks.
Speaker 5: I think we get a continuation of that into your
Speaker 5: end and well into next year before I think we
Speaker 5: start to run into some volatility into and ahead of
Speaker 5: the midterm election. So my opinion is, no matter what
Speaker 5: the FED does right now, I think they're still going
Speaker 5: to be cutting into next year. Whether or not they
Speaker 5: cut in December, is more of a coin toss right now,
Speaker 5: and overall market expectations that now back FED cuts by
Speaker 5: one rate cut into the end of next year, I
Speaker 5: am not too concerned. I actually think it's a positive
Speaker 5: that the market that the FED is going to be
Speaker 5: cutting in a more gradual pace, not so much in
Speaker 5: a reactionary tone, but you know, maybe a little bit
Speaker 5: of precaution.
Speaker 2: What does it say to you that the FED is
Speaker 2: going to stop shrinking the balance sheet. One of the
Speaker 2: things I think Powell focused on was some recent stress
Speaker 2: that we have seen in money markets, and I'm wondering
Speaker 2: whether that represents any concern for you that the FED
Speaker 2: is going to stop a process that the market had
Speaker 2: been kind of looking forward to.
Speaker 5: Almost Yeah, I think the FED really needed to deliver
Speaker 5: on three key points today. That one one was a
Speaker 5: rate cut check. Second was they needed to message the
Speaker 5: QT and you know ending the balance sheet runoff check
Speaker 5: two and third is dubbish language. We didn't quite get that.
Speaker 5: But then back to back to the balance sheet runoff comments.
Speaker 5: You know, there have been signs that reserves are no
Speaker 5: longer really abundant, and I think a lot of that's
Speaker 5: evident by the fact that we've seen repo rates that
Speaker 5: have been running pretty much consistently above the midpoint of
Speaker 5: the FED funds target range for for quite a quite
Speaker 5: a while. So there were some signs of stress. Now
Speaker 5: we do know that the VET did message that they're
Speaker 5: going to be ending the runoff and keep the balance
Speaker 5: sheet at a constant level starting on December first. They
Speaker 5: are still going to be reinvesting treasuries at the auction,
Speaker 5: they're going to be rolling those over, but principal payments
Speaker 5: and payments from nbs, they're going to be reinvested in
Speaker 5: T bills. I think what that potentially does longer term
Speaker 5: possibly increases demand on the short end of the curve,
Speaker 5: and I think that actually could steep in the yeld curve,
Speaker 5: which you know for bank earnings, that probably is not
Speaker 5: a bad thing.
Speaker 2: I'm interested in getting your perspective on the banks in
Speaker 2: a moment, But talk first about this move lower pretty
Speaker 2: dramatic across the curve in terms of yield. We've got
Speaker 2: a ten year right now around three sixty Would you
Speaker 2: put money to work at the short end of the
Speaker 2: curve right now on the long side.
Speaker 5: Who No, I would not. I would go more to
Speaker 5: the belly of the curve, or maybe extend a little
Speaker 5: bit more in narration. I would stay away from the
Speaker 5: short end of the curve, just because I think a
Speaker 5: lot of the gains have been had. With that said,
Speaker 5: I do think the path of least resistance for most
Speaker 5: most of the Yelk curve probably is still a little
Speaker 5: bit lower. Right we already defined downtrend in yields when
Speaker 5: you look at the two year yield, the five year yield,
Speaker 5: ten year, and thirty year yields. From a technical standpoint,
Speaker 5: all of those yields fifty day moving averages are creating
Speaker 5: below there are two hundred day moving averages, which two
Speaker 5: wats is one of the key definitions for a downtrend.
Speaker 5: So I still think we get lower yields. The fact
Speaker 5: that we punctured four percent on the tenure to the downside.
Speaker 5: We're a little bit elevated above that right now with
Speaker 5: a little bit of backup in yields over the past
Speaker 5: couple of days. You know, getting through that four percent
Speaker 5: on the ten year tells me next stop is probably
Speaker 5: three point eight percent on the ten year yield, and
Speaker 5: after that we might be looking at three sixty.
Speaker 2: And yet inflation remains above target. It's rising still, and
Speaker 2: Powell today said near term inflation expectations have risen. That
Speaker 2: doesn't concern you in the least well.
Speaker 5: Inflation ceremony, But I still believe that we are in
Speaker 5: a disinflationary trajectory. When we look at the components of CPI,
Speaker 5: most of those components are actually in deflationary territory. And
Speaker 5: we look at you know what Powell said today with
Speaker 5: regards to the various components and how the Fed breaks
Speaker 5: it into three different three different subsets shelter x, hotels
Speaker 5: or shelter goods. Inflation is being affected by the tariffs,
Speaker 5: which is elevated. That's to be expected. Housing services has
Speaker 5: been down. That's a reflection of shelter costs thing as
Speaker 5: a LAG. Shelter costs represent about forty three percent of
Speaker 5: course CPI. They are deflating. That should continue because they
Speaker 5: operate with the LAG. Finally, non housing service in inflation.
Speaker 5: Pop comment is being you put all of that together,
Speaker 5: it doesn't seem like the inflation picture is all that bad.
Speaker 2: Okay, let's go back to the banks.
Speaker 5: Now.
Speaker 2: We're talking about maybe a little bit more steepening of
Speaker 2: the curve, albeit in an environment where rates overall are
Speaker 2: drifting lower. Do you like the bank stocks here we
Speaker 2: do going bad.
Speaker 5: I think they've had a pretty big correction given some
Speaker 5: of the concerns with regional banks and quite frankly, some
Speaker 5: of the loans. I would use this weakness in banks
Speaker 5: as a buying opportunity as opposed to getting overly conservative
Speaker 5: and too cautious on the industry group by itself.
Speaker 2: Is there a risk that some of these banks may
Speaker 2: still be exposed to problems in the credit space where
Speaker 2: we're talking about maybe a credit line to a private
Speaker 2: credit firm or something else that remains at this point unseen, undisclosed.
Speaker 2: We don't really have a lot of visibility here, and
Speaker 2: I'm wondering whether that represents the slightest concern for you.
Speaker 5: Well, there's always risks, and certainly that is a risk.
Speaker 5: I do think the whole private credit space is a risk.
Speaker 5: What we saw a couple of weeks ago with some
Speaker 5: bad loans and some defaults. Yeah, I mean Jamie Diamond's
Speaker 5: comments about cockroaches. Sure there may be more. We really
Speaker 5: focus on overall credit conditions, and when I look at
Speaker 5: credit spreads, credit spreads are historically low. When we begin
Speaker 5: to see credit spreads rising, that's when we're going to
Speaker 5: start to get concerned with overall credit conditions, which normally rise,
Speaker 5: credit spreads normally begin to elevate prior to market turmoil.
Speaker 5: We just quite frankly, are not seeing any of that
Speaker 5: at the moment.
Speaker 2: Okay, Sean, we'll leave it there. Good stuff, Thank you
Speaker 2: so much. Sean Clark is CIO at Clark Capital, joining
Speaker 2: from Philadelphia here on the Daybreak Asia podcast. Thanks for
Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Speaker 2: Each weekday, we look at the story shaping markets finance
Speaker 2: and geopolitics in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm crazy and this is Bloomberg.
Speaker 5: Mhmm