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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 Krisner. So

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Speaker 2: the moment of truth is less than twenty four hours away.

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Speaker 2: That's when in Video will report its results tomorrow after

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Speaker 2: the closing bell in the States. Now on Tuesday, it shares.

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Speaker 2: We're down two point eight percent, bouncing right off their

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Speaker 2: one hundred day moving average. In Vidia's market cap is

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Speaker 2: now about four point four trillion dollars. That is larger

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Speaker 2: than the energy, the materials, and the real estate sectors combined.

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Speaker 2: So calling this report critical may be an understatement. For

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Speaker 2: a closer look, Now, I'm joined by Jed Ellbrook. He

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Speaker 2: is portfolio manager at Argent Capital Management. Jed, thank you

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Speaker 2: so much for making time. Are you optimistic on this

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Speaker 2: in Video story?

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Speaker 3: Still? Yeah?

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Speaker 4: I am. I think in Vidia is going to report

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Speaker 4: outstanding earnings tomorrow evening. I think everybody knows that. Biggest

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Speaker 4: question is where does revenue guidance for next quarter end up?

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Speaker 4: I think something over sixty three billion would probably get

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Speaker 4: a green light from investors. But just stepping back, the

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Speaker 4: company continues to grow at an incredible rate. The demand

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Speaker 4: for their products is enormous. Their competitive advantage over their

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Speaker 4: peers remains wide, and the company is leading. Their products

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Speaker 4: are the infrastructure that's that's allowing for this AI revolution

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Speaker 4: to unfold.

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Speaker 2: So Microsoft and Nvidia today kind of announced the commitment

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Speaker 2: to invest a combined fifteen billion dollars in Anthropic, which

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Speaker 2: is obviously a rival firm to open Ai, And at

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Speaker 2: the same time we learned that Anthropic is intending to

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Speaker 2: buy thirty billion dollars in cloud computing power from Microsoft's

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Speaker 2: Azure service. This seems to feel a little like circular financing,

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Speaker 2: does it not? And I'm wondering whether that concerns you

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Speaker 2: a bit.

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Speaker 4: Yeah, there is an aspect of circular financing to a

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Speaker 4: lot of these deals. It doesn't concern me terribly. I

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Speaker 4: think that all the models are going to be available

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Speaker 4: on all the clouds. We've pretty much reached that stage

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Speaker 4: at this point, with open Ai available on AWS and

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Speaker 4: now Anthropic available soon on Azure. In video, chips are

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Speaker 4: exceptionally important for all the hyperscalers. They're buying them aggressively.

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Speaker 4: They'll buy a lot more next year than they did

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Speaker 4: this year. The circular financing doesn't concern me terribly because

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Speaker 4: in videos, doing it with their profits. They're using cash flow.

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Speaker 4: It's a debt free balance sheet, and they're just taking

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Speaker 4: their profits, their annual cash flow and investing it back

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Speaker 4: in the ecosystem to try to accelerate AI growth. They're

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Speaker 4: making wise investments. Their investment in core Weed, for example,

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Speaker 4: from two or three years ago, has turned out very well.

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Speaker 4: I think their investment in a lot of these leading

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Speaker 4: model players like open ai and Anthropic and many of

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Speaker 4: the other AI ecosystem companies will be more successful than not.

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Speaker 4: So it's an aggressive strategy, certainly you can criticize, but

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Speaker 4: I think it's it's prudent business and seating the ecosystem,

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Speaker 4: and I think it's worked well for Nvidia thus far.

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Speaker 4: And the company has a debt free balance.

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Speaker 2: Sheet, so some of the hyperscalers have been using debt

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Speaker 2: as a way of financing this buildout. I think in total,

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Speaker 2: they've sold so far this year high grade notes totaling

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Speaker 2: around one hundred and twenty one billion in US dollar terms.

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Speaker 2: That seems like a phenomenal amount, many times what we

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Speaker 2: have seen over the last five years. I think that

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Speaker 2: five year average over each of the last five years

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Speaker 2: is around twenty eight billion dollars and I understand the

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Speaker 2: appetite for the buildout, yes, but financing through debt is

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Speaker 2: that a concerned at all?

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Speaker 4: Yeah? I think it is. I think that you just

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Speaker 4: have to acknowledge the AI build out up through you know,

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Speaker 4: say mid year this year, mid year twenty twenty five

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Speaker 4: was financed almost entirely with the operating cash flows of

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Speaker 4: the big tech companies in America. Now we have pivoted,

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Speaker 4: you know, we were spending on that. Now in some

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Speaker 4: cases and you know, now a decent chunk, maybe a

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Speaker 4: quarter of the next year's buildout will be financed with debt.

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Speaker 4: These big tech companies, though, remain their balance sheets remain

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Speaker 4: in a net cash position in all but one or

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Speaker 4: two circumstances. Oracle is obviously an outlier on the aggressive side.

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Speaker 4: They have you know, debt to ebitdad north of three times,

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Speaker 4: which is you know, reasonably high Coreweave is pretty aggressively financed.

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Speaker 4: They have a lot of debt, but Amazon, Google, Microsoft

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Speaker 4: remain in a net cash position. They are borrowing some,

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Speaker 4: but they remain in a net cash position overall. Meta,

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Speaker 4: I think is on the aggressive side too. They're spending

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Speaker 4: super aggressively to build data centers for their own use,

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Speaker 4: and they are doing some off balance sheet financing to

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Speaker 4: fund that. And they're smaller than Google, Microsoft, and Amazon

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Speaker 4: in terms of annual cash flows, so they need to

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Speaker 4: they need to rely on borrowing some. But I think

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Speaker 4: the core three Amazon, Microsoft and Google remain in a

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Speaker 4: net cash position. They borrow occasionally just to manage their

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Speaker 4: balance sheet, but they remain an exceptionally strong competitive positions,

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Speaker 4: exceptionally strong cash flow, and their cash flows are growing

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Speaker 4: north of fifteen percent per year.

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Speaker 2: Are you concerned at all about the level of concentration

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Speaker 2: when we look at some of these big tech names

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Speaker 2: and the degree to which they are influencing so much

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Speaker 2: of the markets behavior.

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Speaker 3: Yeah.

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Speaker 4: Absolutely. We are in a very different investing landscape in

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Speaker 4: large cap US equities today compared to five, ten, twenty,

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Speaker 4: or thirty years ago. The big tech companies are, you know,

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Speaker 4: more than a third of the S and P five

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Speaker 4: hundred in Nvidia is over eight percent I believe of

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Speaker 4: the S and P five hundred today, Microsoft and Apple

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Speaker 4: aren't far behind. So yeah, the rising market concentration amongst

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Speaker 4: US equities is different, and it does bring about some risks,

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Speaker 4: and it's something investors need to weigh carefully. You know,

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Speaker 4: investors want returns, of course, but they also want balance

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Speaker 4: and diversification, and the S and P five hundred large

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Speaker 4: CAPUS equities are becoming less diversified, less balanced by the month.

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Speaker 2: No doubt, these megacap companies have been really, really innovative

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Speaker 2: in terms of creating new technologies. Obviously AI is a

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Speaker 2: big part of the story. But I'm wondering, if you

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Speaker 2: look off shore to a place like China, are you

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Speaker 2: concerned about maybe an unknown unknown there that could deliver

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Speaker 2: a level of competition that the market's not prepared for.

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Speaker 4: Yeah, I think that. You know, Chinese LM developers are

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Speaker 4: just a couple months behind the leading US labs, and

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Speaker 4: that gap has been shrinking over the last two years.

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Speaker 4: You know, we've seen some big events like deep Seek

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Speaker 4: and the new Kimmi model that are big steps up

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Speaker 4: for the Chinese models. So yeah, there is intense competent.

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Speaker 4: China has plenty of power, but not great supply of chips.

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Speaker 4: United States not enough power, plenty of chips. So they

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Speaker 4: each have their strengths, they each have their weaknesses. They're

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Speaker 4: both working to shore up their weaknesses as quickly as

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Speaker 4: they can, and it's intensely competitive, and that's going to

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Speaker 4: remain the case. And then, of course you've got Taiwan,

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Speaker 4: which exports most of the most advanced accelerator chips that

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Speaker 4: are relied on for AI use cases. So that is

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Speaker 4: another flashpoint.

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Speaker 2: I read an article a couple of weeks back about

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Speaker 2: a new analog chip produced in China that was reportedly

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Speaker 2: a thousand times more efficient than some of the most

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Speaker 2: advanced chips that Nvidia has designed. I mean, when you

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Speaker 2: hear a story like that, you have to be a

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Speaker 2: little concerned that maybe there is something happening that we're

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Speaker 2: not completely aware of that could cause major disruptions. Does

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Speaker 2: that eat up any of your thinking at all?

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Speaker 4: Yeah, sure it has to. You have to pay attention

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Speaker 4: to some of the outlier rests. I would want it

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Speaker 4: before I put a lot of credence in that particular story,

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Speaker 4: I would want to see those chips performing out in

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Speaker 4: the wild, out in data centers, you know, outside of

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Speaker 4: outside of China, just just to verify and confirm that

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Speaker 4: and see it for myself. So a little skeptical and

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Speaker 4: waiting for some demonstrations of use cases.

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Speaker 2: Is there a way that you're playing this trade that

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Speaker 2: may be a little counterintuitive, or are you just kind

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Speaker 2: of following I don't want to say following the herd necessarily,

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Speaker 2: but adopting pretty much a mainstream approach in applying capital

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Speaker 2: to this segment of the market.

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Speaker 4: I think what we're trying to do is a little

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Speaker 4: bit different. We are focused on investing in companies that

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Speaker 4: we believe will be you know, outperformers, whether AI achieves

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Speaker 4: the most wild you know, aggressive predictions or not. So

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Speaker 4: for example, Amazon, we're we're we're confident. We believe that

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Speaker 4: if AI becomes all that all that the technologists hope

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Speaker 4: and expect over the next five years, that Amazon will

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Speaker 4: be a successful, outperforming business. But if AI falls short,

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Speaker 4: if AI development is a couple of years behind the

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Speaker 4: timelines people project and expect, Amazon's going to do well

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Speaker 4: in that scenario too, because their existing businesses are performing

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Speaker 4: really well. They've got a lot of non AI revenue.

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Speaker 4: So we're trying to cover our bases as much as possible,

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Speaker 4: and we're trying to acknowledge that there are a lot

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Speaker 4: of future growth paths for AI.

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Speaker 2: Jed will leave it there, thank you so very much.

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Speaker 2: Jed Elbroki's portfolio manager at Argent Capital Management. Joining us

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

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Speaker 2: Daybreak Asia Podcast. I'm deg Chrisner. There was a defensive

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Speaker 2: tone in US DOC trading in the last session in

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Speaker 2: front of those earnings from Nvidia. We had shares dropping

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Speaker 2: about two point eight percent, bouncing right off their one

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Speaker 2: hundred day moving average. In Vidia's market cap is now

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Speaker 2: four point four trill dollars. That is larger than the energy,

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Speaker 2: the materials, and the real estate sectors combined. So calling

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Speaker 2: the earnings report critical maybe an understatement. Now, the recent

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Speaker 2: selling that we have seen in shares, not only in Nvidia,

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Speaker 2: but other tech giants, has reignited this debate on AI

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Speaker 2: and whether the industry is generating enough revenue or profit

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Speaker 2: to justify this massive buildout in infrastructure. Gorilla Technology Group

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Speaker 2: is a full stack builder and operator of sovereign AI infrastructure.

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Speaker 2: Here is Gorilla CEO J Chendon On one of the

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Speaker 2: major challenges facing the industry during this current buildout.

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Speaker 5: The biggest challenge we have today is that there are

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Speaker 5: no standards or protocols that can be adopted today. The

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Speaker 5: world is building to it. The problem being that different

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Speaker 5: nations are building at different paces today. The issue we

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Speaker 5: have today is that we don't have one uniformed platform

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Speaker 5: that we can subscribe too. And what Gorilla is doing

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Speaker 5: is that we're working with governments across the organizations today.

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Speaker 5: We're making sure that we're able to support and build

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Speaker 5: these infrastructure platforms so that we can have a unified

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Speaker 5: protocol across the region today.

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Speaker 2: That's Jay Chanden. He is the CEO of Gorilla Technology Group. Now,

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Speaker 2: the outlook from Nvidia in particular could have significant impact

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Speaker 2: on markets. The bar has been getting higher for this

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Speaker 2: chip maker to convince investors that the billions spent on

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Speaker 2: AI will pay off. So we got some perspective from

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Speaker 2: the market side from Bob Diamond. He is the former

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Speaker 2: CEO of Barclays, and he spoke with Bloomberg TV host

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Speaker 2: Sherry On and Avril Hon at the Bloomberg New Economy

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Speaker 2: Forum in Singapore.

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Speaker 3: We're repricing risk in a way.

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Speaker 6: It's equities, it's AI, it's fitcoin, it's really across the piece.

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Speaker 6: So I don't think this is specifically about crypto or

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Speaker 6: digital assets. I think for us, what's really interesting is

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Speaker 6: we're a big investor in Hype, the native token of

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Speaker 6: hyper Liquid. Hyper Liquid, as you know, is developed right

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Speaker 6: here in Singapore by Jeffynn and his team, and it's

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Speaker 6: a decentralized, non custodian exchange and its native token, Hype,

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Speaker 6: over the last seven days is up a bit, where

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Speaker 6: Bitcoin and most of the other tokens are down.

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Speaker 3: But I would say that's rare. It's unusual.

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Speaker 6: Really across the piece, we've seen risk assets be repriced.

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Speaker 6: In my sense, this is a healthy correction, not something

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Speaker 6: that's turning into a bear market. So I think for

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Speaker 6: many reasons. I was just at the GIC Insights over

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Speaker 6: the last day. Anybody associated with GIC, you know, appreciates

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Speaker 6: who they've bring together once a year to talk about

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Speaker 6: these trends, and you know, one of the things we

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Speaker 6: were talking about there was the big numbers in AI.

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Speaker 6: I mean the billions here, trillions there, billions here, data centers,

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Speaker 6: and I think the most people have a hard time

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Speaker 6: really processing it, and that doesn't really work against the

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Speaker 6: fact that we can be really really positive on AI

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Speaker 6: over the next five to ten years and the impact

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Speaker 6: it's going to have.

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Speaker 5: But the big.

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Speaker 1: Numbers are scary. A period of time when they continue

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Speaker 1: to invention right place, and these concerns about a circular

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Speaker 1: deal about whether this is just a bubble, so you

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Speaker 1: don't buy into that, will there be the amount down

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Speaker 1: the line.

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Speaker 3: What I feel comfortable in is taking a two three,

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Speaker 3: five year view of the impact of AI.

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Speaker 6: I think it will be a real positive in dampening inflation.

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Speaker 6: I think it's going to be incredibly important in terms

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Speaker 6: of productivity in the global economy. And I think some

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Speaker 6: people are confused right now over the valuations. And many

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Speaker 6: people say this they look back, you know to the

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Speaker 6: Internet bubble in two thousand, right had a real bubble

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Speaker 6: because there was some some you know, some fringe equities

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Speaker 6: that probably weren't legitimate as much as kind of the core,

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Speaker 6: but nothing stopped the development of the Internet over the

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Speaker 6: next ten, fifteen, twenty years. And I think the consensus

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Speaker 6: over the last day has been where really we the

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Speaker 6: group are very very positive on what AI can bring

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Speaker 6: in terms of productivity, dampening inflation, global growth.

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Speaker 3: Really comfortable.

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Speaker 6: So I think this is a correction in risk assets

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Speaker 6: across the piece. And I think, you know, AI partly

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Speaker 6: because there's so many big numbers out there that people

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Speaker 6: really don't understand yet, in particularly around data centers.

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Speaker 7: Yeah, I think it's hard to decipher. And to your

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Speaker 7: point about the Internet economy, it was also about sifting

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Speaker 7: out the froth at that stage early on in the game.

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Speaker 7: When it comes to digital assets, you look at tokenization,

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Speaker 7: as you highlighted earlier, as a key driver. How are

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Speaker 7: you viewing, say, stable coins and how that might be

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Speaker 7: shaping the financial system.

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Speaker 6: Well, that's the other big investment we made at Atlas

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Speaker 6: Merchant Capital. We're an early investor in Circle in twenty

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Speaker 6: twenty one. We've worked with Jeremy Laire and his team

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Speaker 6: very closely over the years. They have a tremendous relationship

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Speaker 6: here in Singapore with the Monetary Authority of Singapore and

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Speaker 6: the developments that they've had, and I think we've learned

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Speaker 6: so much about the impact of blockchain in terms of

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Speaker 6: we believe will be a real source of the underlying

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Speaker 6: foundation of financial services over the.

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Speaker 3: Next two three five years.

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Speaker 6: Stable coins are really here to stay, and I think

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Speaker 6: the acceptance of Circle as the most regulated, the most conservative,

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Speaker 6: really has reserves behind it that are managed by Blackrock.

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Speaker 3: As you know.

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Speaker 6: So I think the best of the best in stable coins,

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Speaker 6: a Circle highly regulated, want to be highly regulated, They

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Speaker 6: want to be an occ bank in the US. So

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Speaker 6: I think the developments there are very strong, and I

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Speaker 6: think what we've seen this year is a sea change

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Speaker 6: in the US in terms of tailwinds with this administration

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Speaker 6: with Scott Bessant in the Treasury, with Paul Atkins, and

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Speaker 6: the SEC with Jake Clayton. This team is so highly

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Speaker 6: respected and so supportive of regulation that covers both digital

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Speaker 6: assets and financial services, not two separate regulatories.

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Speaker 7: In your mind, in terms of deliverables left to go

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Speaker 7: on these regulatory guard rails for the environment.

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Speaker 6: Well, I think the most important thing from my point

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Speaker 6: of view is we look as we look at stable coins,

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Speaker 6: is the increase.

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Speaker 3: In institutional use, you know.

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Speaker 6: A move from crypto traders using staple coins and using

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Speaker 6: digital currencies two treasures to Visa and MasterCard to the

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Speaker 6: big banks like JPM Morgan and Vaa developing it. We're

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Speaker 6: certainly seeing in the Middle East with some of the

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Speaker 6: best banks in Abu Dhabi in Dubai already developing use

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Speaker 6: cases for blockchain and in stableok win, particularly dollar stableok wins,

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Speaker 6: particularly USDC.

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Speaker 3: So.

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Speaker 1: I know that you talked about perhaps the US regional

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Speaker 1: banks and the consolidation.

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Speaker 4: In that sector.

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Speaker 1: Right What scares me right now is all the fraud

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Speaker 1: not only in the crypto space. But of course we

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Speaker 1: talked about tech and the build up and around artificial intelligence.

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Speaker 1: Where do you go to hide when you could potentially

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Speaker 1: see Jamie Diamond said cockroaches one means more. And you've

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Speaker 1: seen even around banks in the US where you had

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Speaker 1: isolated incidents with Tricoler of first brand. So is there

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Speaker 1: a hedging mechanism at the moment.

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Speaker 6: Well, I think there's two different questions there. In terms

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Speaker 6: of the comment on cockroaches. I mean, I think it

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Speaker 6: was a statement of credit. Credit and if we're being

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Speaker 6: very very honest with ourselves, you know, we had twelve

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Speaker 6: years of zero infrast rates after the Great Financial Crisis

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Speaker 6: in two thousand and eight, then we had a steep

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Speaker 6: increase from zero to five and a half percent. I

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Speaker 6: would have thought back then we would have seen cracks

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Speaker 6: and credit because it was such a long period of

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Speaker 6: credit was really very very available. And I think today

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Speaker 6: it would be unsurprising to me, given how tight credit

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Speaker 6: spreads are, that we see some correction in credit spreads.

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Speaker 1: To a lot of people say that credit bit spreads

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Speaker 1: are type right now because they're not really thinking about

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Speaker 1: the fiscal risk that's already baked in. Because you can't

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Speaker 1: even really count on sovereigns at the moment with their

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Speaker 1: building debt level that they're actually safe.

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Speaker 6: Well you have I think, Sherry, what you just brought

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Speaker 6: up is the darkest cloud overhanging the markets.

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Speaker 3: Which are the debt levels.

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Speaker 6: You know, we're talking about the credit markets, but what

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Speaker 6: you're referring to now is sovereign credit and in particular

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Speaker 6: from the US US and the much higher debt levels,

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Speaker 6: and that is the dark cloud hanging over the market.

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Speaker 7: For what about Pe? How are you approaching fundraising going

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Speaker 7: into making You.

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Speaker 6: Know, with all this volatility, it makes what we do

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Speaker 6: in private equity even more sustainable. And I think when

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Speaker 6: you look at you know, the correction in equities, for

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Speaker 6: example in the US, it's primarily around those seven or

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Speaker 6: eight or nine equities in tech that.

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Speaker 3: Have really been leading the rally.

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Speaker 6: You move from that to the smaller companies in the index,

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Speaker 6: and then you.

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Speaker 3: Move from that to the private companies.

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Speaker 6: We're seeing very very good opportunities in private equity. We

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Speaker 6: focus on financial services. We do a lot in the US.

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Speaker 6: One of the things that we see is a terrific

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Speaker 6: opportunity is consolidation in regional and community banks, their ability

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Speaker 6: to pull costs out to create cost synergies almost immediately

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Speaker 6: with consolidation. I mean particularly here, when I mentioned to

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Speaker 6: people that there's four and a half thousand banks in

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Speaker 6: the US, they usually look at me, like, what United

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Speaker 6: States is four and a half thousand banks and they're

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Speaker 6: really good and it's Scott Besson, the Secretary of the Treasury,

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Speaker 6: has pointed out many times about half of the lending

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Speaker 6: to small businesses in the US come from regional and

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Speaker 6: community banks, not from kind.

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Speaker 3: Of the big four.

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Speaker 6: So there are a lot of great opportunities out there

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Speaker 6: in private markets.

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Speaker 2: That is Bob Diamond, the former CEO of Barclays, in

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Speaker 2: conversation with Bloomberg TV host Sherry On and April Hong

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Speaker 2: at the Bloomberg New Economy Forum in Singapore. Here on

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Speaker 2: the Daybreak Asia podcast. Thanks for listening to today's episode

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Speaker 2: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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Speaker 2: look at the story shaping markets, finance, and geopolitics in

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Speaker 2: the Asia Pacific. You can find us on Apple Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the mark market

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Speaker 2: moves from Hong Kong to Singapore and Australia. I'm Doug

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Speaker 2: Prisoner and this is Bloomberg