WEBVTT - Jackson Hole Preview 0:00:02.529 --> 0:00:04.210 Bloomberg Audio Studios. 0:00:04.670 --> 0:00:05.370 Podcasts. 0:00:05.690 --> 0:00:07.050 Radio. News. 0:00:12.530 --> 0:00:16.670 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.730 --> 0:00:20.210 at 7 a.m. Eastern on Apple CarPlay or Android Auto 0:00:20.290 --> 0:00:23.880 with the Bloomberg Business App. Listen on demand wherever you 0:00:23.920 --> 0:00:26.980 get your podcasts or watch us live on YouTube. 0:00:27.660 --> 0:00:29.660 You know, last week we got the data point that 0:00:29.680 --> 0:00:35.900 kind of stuck out $ 40 trillion U.S. government debt. The 0:00:35.979 --> 0:00:41.879 debt to GDP is now 128% up from 40% maybe 0:00:41.880 --> 0:00:45.380 40 years ago. There's a bond market care. It's been 0:00:45.400 --> 0:00:48.320 an issue ever since I've been on Wall Street since 0:00:48.440 --> 0:00:50.440 the mid-80s is the growing U.S. 0:00:50.460 --> 0:00:50.540 Debt. 0:00:50.800 --> 0:00:52.879 And of course, a great financial crisis kind of spiked 0:00:52.920 --> 0:00:55.800 that and then the pandemic even more so. Andrew Sheets, 0:00:55.820 --> 0:00:58.750 Global Head of Fixed Income Research at Morgan Stanley. Andrew, 0:00:58.790 --> 0:01:01.790 does your market, does your bond market care about a 0:01:01.790 --> 0:01:04.070 $ 40 trillion U.S. 0:01:04.250 --> 0:01:04.470 Debt? 0:01:06.530 --> 0:01:09.229 Hey, good morning. It's great to be here. And look, 0:01:09.250 --> 0:01:11.570 I mean, I think you actually frame that perfectly. This 0:01:11.610 --> 0:01:13.850 has been an issue that's been around for a while, 0:01:13.970 --> 0:01:17.940 but I think it's taken on new significance in just 0:01:17.950 --> 0:01:21.080 the last decade. You know, that $ 40 trillion U.S. debt 0:01:21.120 --> 0:01:25.160 number is Half of it came in the first 240 0:01:25.160 --> 0:01:28.140 years of the United States, and the other half has 0:01:28.200 --> 0:01:33.330 come in the last 10. So the trend has been accelerating. Now, 0:01:33.970 --> 0:01:36.750 I think the good news is that objectively, the bond 0:01:36.790 --> 0:01:40.510 market is currently fine with that number. Rates of implied 0:01:40.550 --> 0:01:44.190 volatility in the bond market are pretty low. Levels of 0:01:44.230 --> 0:01:48.050 inflation expectations are still pretty modest. The yield curve is 0:01:48.330 --> 0:01:50.610 kind of at an average level of steepness. So it's 0:01:50.640 --> 0:01:52.170 very hard to look at the bond market and say 0:01:52.190 --> 0:01:56.580 that there's some big objection to the number. Auctions are 0:01:56.600 --> 0:01:59.680 still being taken down. But it's clearly a large number. 0:01:59.700 --> 0:02:03.440 And I think combined with record AI spending and a 0:02:03.460 --> 0:02:05.400 lot of the issuance that's come on the back of that, 0:02:05.480 --> 0:02:09.520 it's trends that are causing investors a lot of concern 0:02:09.540 --> 0:02:12.160 around the supply of duration of the market and probably 0:02:12.360 --> 0:02:13.139 steepening the curve. 0:02:14.180 --> 0:02:20.260 Andrew, we've got Treasury Secretary Besant intervening in the bond market. 0:02:20.280 --> 0:02:22.320 Seems like a lot of that euphoria has faded, but 0:02:22.370 --> 0:02:25.010 there is talk that he could tap a trillion dollar 0:02:25.790 --> 0:02:29.050 Treasury general account to fund that buyback. 0:02:29.770 --> 0:02:30.450 Does that matter? 0:02:30.610 --> 0:02:32.190 Put that in perspective for us. What does that mean 0:02:32.230 --> 0:02:33.470 and why should we care if at all? 0:02:35.100 --> 0:02:38.350 Yeah, so I think that is an important development in 0:02:38.389 --> 0:02:41.650 the story because the initial buybacks, we were talking about 0:02:41.710 --> 0:02:46.150 maybe $ 4 billion out of a total U.S. debt of 0:02:46.150 --> 0:02:52.120 $ 40, 000 billion. It's a pretty small relative number. But the 0:02:52.160 --> 0:02:54.920 Treasury general account, as you mentioned, is much larger. And 0:02:55.040 --> 0:02:58.240 our interest rate strategy team, they published a report recently 0:02:58.320 --> 0:03:00.619 on this. you know, they, they think maybe, you know, 0:03:00.620 --> 0:03:03.720 80 to 200 billion is kind of a level of, of, 0:03:03.870 --> 0:03:07.750 of potential, uh, potential firepower that could be there. So, 0:03:08.010 --> 0:03:11.510 you know, those are large numbers, but, you know, there are, 0:03:11.570 --> 0:03:14.320 there are challenges, you know, to that, that treasury general 0:03:14.360 --> 0:03:18.239 account is the buffer that is utilized if there's a 0:03:18.300 --> 0:03:21.899 debt ceiling showdown and, you know, you're we're not that 0:03:21.940 --> 0:03:25.419 far away from the midterm elections. There's certainly a chance 0:03:25.460 --> 0:03:28.280 that the balance of power changes and, you know, the 0:03:28.340 --> 0:03:31.010 debt ceiling fights could be right back at the front 0:03:31.030 --> 0:03:33.330 of the agenda. And it also, you know, it doesn't 0:03:33.370 --> 0:03:37.350 really change some of the other drivers of rates. The 0:03:37.390 --> 0:03:40.700 fact that global rates are rising, you know, rates in Japan, 0:03:41.040 --> 0:03:44.640 Germany are up. The fact that, You have lots of 0:03:44.760 --> 0:03:48.760 AI-driven spending that's driving a lot of long-term corporate bond issuance. 0:03:48.780 --> 0:03:50.680 So there are a lot of things, and I think 0:03:50.720 --> 0:03:53.300 this is the challenge that the market's aware of, that 0:03:53.340 --> 0:03:55.280 are kind of out of the Treasury Secretary's hands. 0:03:56.500 --> 0:03:59.480 Andrew, in terms of credit risk here, the question is, 0:03:59.680 --> 0:04:01.279 do we even go out there and try to take 0:04:01.300 --> 0:04:03.340 some credit risk? Because I can go to a two-year Treasury, 0:04:03.920 --> 0:04:06.530 get 422. I can go 10 years and get 465, 470. 0:04:06.520 --> 0:04:12.310 Are you suggesting your clients take credit risk on top 0:04:12.320 --> 0:04:12.500 of that? 0:04:14.190 --> 0:04:17.600 So we're currently a bit cautious on the credit side, 0:04:17.640 --> 0:04:21.219 certainly the investment grade side. I do think that supply 0:04:21.279 --> 0:04:25.900 remains very heavy and will remain heavy this year. Credit 0:04:25.920 --> 0:04:29.580 spreads have been remarkably resilient. I mean, you have seen 0:04:29.620 --> 0:04:32.620 some widening in the AI-driven names, but the overall index 0:04:32.700 --> 0:04:36.210 is still pretty tight. So you're still looking at pretty 0:04:36.529 --> 0:04:40.550 rich valuations. And I do think a good thing about credit, 0:04:40.610 --> 0:04:42.790 you could say, is is you know what the risk 0:04:42.830 --> 0:04:45.610 premium is. The risk premium is not some secret number. 0:04:45.730 --> 0:04:49.839 It's the spread minus an expected loss. And that spread 0:04:49.880 --> 0:04:53.280 minus expected loss is pretty low. And I think we're 0:04:53.339 --> 0:04:56.340 also in a part of the economic cycle that is 0:04:57.100 --> 0:05:01.110 burning hotter and burning more aggressive. You have rising M & 0:05:00.870 --> 0:05:03.950 A volumes. You have rising levels of CapEx. You have 0:05:04.210 --> 0:05:07.089 a lot of excitement in markets. And that can be 0:05:07.130 --> 0:05:09.950 very supportive for equities. But it tends to be less 0:05:10.790 --> 0:05:13.840 supportive for credit when you get markets that are running 0:05:13.880 --> 0:05:16.560 hotter and seeing more aggressive activity. So even from kind 0:05:16.580 --> 0:05:20.040 of a cyclical perspective, I think that's also a headwind. 0:05:20.120 --> 0:05:24.480 So we have spreads widening modestly on the investment grade side. 0:05:24.520 --> 0:05:26.859 We think high yield could maybe outperform a little bit 0:05:26.880 --> 0:05:30.640 at the margin relative to investment grade. But we think 0:05:30.670 --> 0:05:35.270 that there's better risk-reward elsewhere, particularly in stocks at the moment. 0:05:36.060 --> 0:05:38.800 Let's talk about value and opportunity. Where do you see 0:05:38.820 --> 0:05:41.850 value right now in, let's say, securitized credit, Andrew? 0:05:43.440 --> 0:05:45.960 Well, so I think an interesting factor on the securitized 0:05:46.000 --> 0:05:48.339 side is there are parts of the securitized market that 0:05:48.360 --> 0:05:50.940 are seeing a lot less issuance. And again, I think 0:05:50.960 --> 0:05:54.100 kind of issuance is the name of the game this year. 0:05:54.120 --> 0:05:55.900 We're seeing it on the treasury side, but we're also 0:05:55.920 --> 0:05:57.919 seeing it on the corporate side. And I think investors 0:05:58.080 --> 0:06:02.140 are very interested in markets that are not seeing as 0:06:02.200 --> 0:06:05.570 much issuance. And so we've seen a lot less issuance 0:06:05.630 --> 0:06:09.710 in things like non-QM mortgages, so parts of the mortgage 0:06:09.770 --> 0:06:12.110 market that are a little bit. 0:06:12.050 --> 0:06:12.490 Off the run. 0:06:13.210 --> 0:06:16.410 You're seeing a lot less issuance in the commercial mortgage-backed 0:06:16.430 --> 0:06:19.469 security side just because there's been a lot less commercial 0:06:19.510 --> 0:06:24.290 mortgage activity given high interest rates and a slowdown in 0:06:24.330 --> 0:06:27.260 that sector. But you have a lot less issuance there, 0:06:27.339 --> 0:06:31.140 which is kind of a relatively positive technical. And then 0:06:31.180 --> 0:06:33.120 I think we're also seeing a lot more focus on 0:06:33.180 --> 0:06:37.839 kind of the relative value between with all of this 0:06:37.900 --> 0:06:41.390 build-out in AI CapEx, you actually have a lot more– 0:06:41.720 --> 0:06:45.730 opportunities for investors to compare a securitized asset, an asset-backed 0:06:45.750 --> 0:06:49.850 security that is linked to, say, a data center, and 0:06:49.970 --> 0:06:53.030 an unsecured corporate risk that might ultimately link back to 0:06:53.070 --> 0:06:55.530 that data center. And so in many cases, we're seeing 0:06:55.810 --> 0:06:59.950 the asset-backed security side of that equation trade at somewhat 0:07:00.029 --> 0:07:01.250 wider valuation levels. 0:07:01.330 --> 0:07:02.750 And that's interesting. 0:07:02.770 --> 0:07:04.390 That's certainly something we're doing a lot of work on 0:07:04.430 --> 0:07:04.830 at the moment. 0:07:05.650 --> 0:07:06.370 Andrew, thanks so much. 0:07:06.790 --> 0:07:09.250 Always appreciate getting a few minutes of your time. Andrew Sheets, 0:07:09.330 --> 0:07:12.150 he's a global head. fixed income research at that little 0:07:12.190 --> 0:07:15.230 shop in Midtown called Morgan Stanley. 0:07:17.050 --> 0:07:21.200 Stay with us. More from Bloomberg Surveillance coming up after this. 0:07:28.480 --> 0:07:32.060 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:07:32.140 --> 0:07:35.320 weekday afternoons from 7 to 10 a.m. Eastern. Listen on 0:07:35.430 --> 0:07:38.690 Apple CarPlay and Android Auto with the Bloomberg Business app 0:07:38.910 --> 0:07:40.610 or watch us live on YouTube. 0:07:40.930 --> 0:07:43.790 The news of the day yesterday in terms of company 0:07:43.910 --> 0:07:46.850 earnings was NVIDIA. Some numbers after the close, the street 0:07:46.910 --> 0:07:49.530 likes it. The stock's up 70%. The number that jumped 0:07:49.570 --> 0:07:51.450 out at me was they projected revenue for the next 0:07:51.490 --> 0:07:55.110 fiscal year. Growth rate of 70%, 7-0. Now, put that 0:07:55.130 --> 0:07:55.810 into context. 0:07:56.130 --> 0:07:56.990 It is stunning. 0:07:57.150 --> 0:08:00.130 And this is on a run rate of $ 300 billion. 0:08:00.170 --> 0:08:02.750 So it's not like they got a couple million dollars. 0:08:02.770 --> 0:08:06.020 This is $ 300 billion of revenue growing at 70%. So 0:08:06.280 --> 0:08:09.480 it's just extraordinary. I think the tech space, tech investors 0:08:09.520 --> 0:08:13.550 breathe a sigh of relief that the AI– investment momentum continues. 0:08:13.690 --> 0:08:15.630 Angelo Zeno, he does this stuff for a living. He's 0:08:15.650 --> 0:08:20.179 the Senior Vice President and Tech Lead for CFRA Research. Angelo, 0:08:20.200 --> 0:08:22.820 what were some of your takeaways from NVIDIA's earnings and 0:08:22.860 --> 0:08:25.660 conference call last night? Yeah. 0:08:25.680 --> 0:08:29.600 So, you know, I'd say the biggest takeaway, obviously, is 0:08:29.640 --> 0:08:32.069 kind of the revenue numbers that you guys just alluded 0:08:32.150 --> 0:08:35.530 to in terms of expectations for 70 percent growth next 0:08:35.570 --> 0:08:39.080 year from mid 40s. And, you know, I think what's 0:08:39.120 --> 0:08:42.260 happening right now is a number of factors. One, hyperscalers 0:08:42.620 --> 0:08:45.320 are planning to spend much more than maybe we previously anticipated. 0:08:46.360 --> 0:08:49.400 You know, I think NVIDIA pointed to about $ 1. 3 trillion 0:08:49.470 --> 0:08:51.610 next year, and that was about $ 200 billion above our 0:08:51.670 --> 0:08:55.430 expectations or forecast for next year. So I think that's 0:08:55.470 --> 0:08:57.870 kind of a big driver. And also, you know, what 0:08:57.890 --> 0:09:01.849 you're actually seeing away from the hyperscalers, those NeoClouds plus 0:09:01.929 --> 0:09:04.420 Musk is kind of the bucket I would throw it in. 0:09:04.450 --> 0:09:07.189 And that's actually growing faster than the hyperscalers. And I 0:09:07.210 --> 0:09:11.750 think it's helping to really kind of diversify NVIDIA's broader business. 0:09:11.910 --> 0:09:15.980 And then What I would also say is the content 0:09:16.000 --> 0:09:18.660 growth story, and that's the biggest reason why we have 0:09:18.720 --> 0:09:21.940 been bullish here over the last couple of years, continues 0:09:21.980 --> 0:09:24.530 to exceed our expectations. So we see no signs of 0:09:24.570 --> 0:09:26.850 that letting up as we kind of look here over 0:09:26.870 --> 0:09:29.349 the next couple of iterations. And then, of course, I'd 0:09:29.370 --> 0:09:34.700 say the one blemish was the margin issue out there. 0:09:34.820 --> 0:09:37.500 But that being said, they are going to increase pricing 0:09:37.580 --> 0:09:42.200 as we go into calendar 2027. And that clearly is 0:09:42.559 --> 0:09:45.960 supporting that 70% growth trajectory and helping to kind of 0:09:45.980 --> 0:09:48.870 maybe ease some of those pressures and stabilize the margins 0:09:48.900 --> 0:09:49.640 going into next year. 0:09:50.130 --> 0:09:52.709 But Angela, let's talk about some of the possible hurdles 0:09:52.890 --> 0:10:01.540 for NVIDIA and for growth going forward. I as customers? Also, remember, 0:10:01.600 --> 0:10:06.059 some of these customers are increasingly developing in-house chips that 0:10:06.179 --> 0:10:08.819 could potentially take business away from NVIDIA. 0:10:09.970 --> 0:10:10.990 Yeah, no, absolutely. 0:10:11.010 --> 0:10:13.450 You're absolutely right. And I'd say the competitive pressures are 0:10:13.490 --> 0:10:16.429 out there. And, you know, we still look at NVIDIA 0:10:16.530 --> 0:10:19.840 even after the monster move today. You know, I would 0:10:19.860 --> 0:10:22.120 say that the multiple remains compressed based on some of 0:10:22.140 --> 0:10:25.280 those concerns, some of the competitive pressures out there, maybe 0:10:25.520 --> 0:10:28.090 some of the circular financing concerns that are out there. 0:10:28.970 --> 0:10:29.400 As well. 0:10:29.470 --> 0:10:32.949 But as far as the competitive dynamics and the customer 0:10:32.990 --> 0:10:36.270 base is concerned, the good thing is we are starting 0:10:36.350 --> 0:10:39.850 to see, and there are signs that that customer base 0:10:39.870 --> 0:10:43.870 will diversify going into next year, essentially NVIDIA pointing towards 0:10:43.990 --> 0:10:46.950 more of a 50-50 split as we go into next year. 0:10:47.830 --> 0:10:50.390 And that kind of helps alleviate maybe some of the 0:10:50.730 --> 0:10:55.320 concerns that from a customer concentration perspective, but that will 0:10:55.400 --> 0:10:59.520 remain for the foreseeable future. But in the same respect, listen, 0:11:00.240 --> 0:11:03.460 when you think about NVIDIA's ecosystem supporting about 6 million 0:11:03.500 --> 0:11:08.060 developers or so, those hyperscalers will need to continue to spend. 0:11:08.160 --> 0:11:10.590 I will just say this, Maybe the growth rate from 0:11:10.610 --> 0:11:13.410 the hyperscalers going into next year, let's call it closer 0:11:13.429 --> 0:11:20.070 to 50%, whereas maybe for some of the non-hyperscalers, those neoclouds, 0:11:20.090 --> 0:11:22.910 you'll see significantly higher growth. Let's call it closer to 90% 0:11:22.910 --> 0:11:24.660 to 100%. 0:11:24.660 --> 0:11:28.600 Angela, one of the concerns out there for NVIDIA specifically, 0:11:28.620 --> 0:11:30.560 but I think just for the AI space in general, 0:11:30.580 --> 0:11:35.210 is some of the circular funding structures that are being 0:11:35.350 --> 0:11:38.809 created out there where maybe NVIDIA is funding some of 0:11:38.870 --> 0:11:43.660 its customers in various formats. What does the company say 0:11:43.720 --> 0:11:45.120 about that? Did they address that last night? 0:11:46.540 --> 0:11:46.940 They did. 0:11:46.960 --> 0:11:49.800 You know, they actually I think for them, it's an 0:11:49.860 --> 0:11:52.280 area of strength and in many respects it is right. 0:11:52.340 --> 0:11:54.679 I mean, historically, when you kind of look at the 0:11:54.720 --> 0:11:57.250 competitive advantage that NVIDIA has had, it has been that 0:11:57.300 --> 0:11:58.470 CUDA software. 0:11:58.520 --> 0:11:58.710 Right. 0:11:59.210 --> 0:12:01.730 And now it's not just CUDA. It's also the fact 0:12:01.770 --> 0:12:05.089 that they've got some massive scale. They're generating massive free 0:12:05.170 --> 0:12:07.510 cash flow. You're looking now at a $ 200 billion run rate. 0:12:07.530 --> 0:12:09.710 This time next year, it'll probably be closer to a 0:12:09.710 --> 0:12:12.569 $ 300 billion free cash flow run rate. And they're pumping 0:12:12.610 --> 0:12:15.130 a lot of that right back into the ecosystem. Essentially, 0:12:15.150 --> 0:12:18.010 what they're trying to do is build out, be a 0:12:18.070 --> 0:12:23.030 supporter in growing out that AI ecosystem. infrastructure because without 0:12:23.080 --> 0:12:26.300 them it's going to be nearly impossible to do. For 0:12:26.360 --> 0:12:28.980 them to kind of go out there and support the ecosystem, 0:12:29.020 --> 0:12:31.160 they're helping to kind of lower the cost of capital 0:12:31.559 --> 0:12:36.179 and they're actually allowing these neoclouds to succeed. 0:12:36.280 --> 0:12:39.000 So in many respects they're going. 0:12:38.840 --> 0:12:41.140 To participate in terms, they're going to benefit in the 0:12:41.160 --> 0:12:43.679 sense that they're going to get that hardware revenue. They're 0:12:43.700 --> 0:12:46.179 also going to potentially get revenue in terms of and 0:12:46.250 --> 0:12:51.210 enjoy the upside of from the actual sales within those 0:12:51.990 --> 0:12:52.589 data centers. 0:12:52.630 --> 0:12:53.370 But it is a risk. 0:12:53.470 --> 0:12:55.290 It is absolutely a risk if we get to a 0:12:55.370 --> 0:13:00.480 point where we overbuild and NVIDIA is sitting there with 0:13:00.500 --> 0:13:04.479 having built too much capacity as well. So there are 0:13:04.500 --> 0:13:05.740 pluses and minuses to all this. 0:13:06.670 --> 0:13:10.090 Angelo, how much is NVIDIA doing all of this and 0:13:10.410 --> 0:13:13.350 just wowing us with their numbers without China? Because there 0:13:13.370 --> 0:13:16.530 still are restrictions on NVIDIA doing business there, right? How 0:13:16.590 --> 0:13:20.410 important is gaining more access to the Chinese market for 0:13:20.510 --> 0:13:21.189 NVIDIA's growth? 0:13:22.400 --> 0:13:24.080 Yeah, I mean, you would have thought it would have 0:13:24.120 --> 0:13:26.900 hurt them by now. I mean, to be honest with you, yeah, right. 0:13:26.960 --> 0:13:29.800 It was, I think, 1% of their revenue in terms 0:13:29.900 --> 0:13:32.490 on the data center side or less than 1%. So 0:13:33.050 --> 0:13:36.810 virtually no revenue coming from China at this point in 0:13:36.830 --> 0:13:40.050 time is all upside. But at some point in time, listen, 0:13:40.390 --> 0:13:43.050 it's going to be an issue for them as the 0:13:43.070 --> 0:13:45.550 growth rates here in the U.S. eventually have to slow down. 0:13:45.890 --> 0:13:48.280 And we'll see how successful, you know, we kind of 0:13:48.320 --> 0:13:51.600 get this open source versus closed, you know, model debate. 0:13:51.760 --> 0:13:54.220 But as you kind of see more and more token 0:13:54.280 --> 0:13:58.660 growth and success from the Chinese market, I think you're 0:13:58.679 --> 0:14:03.130 going to see greater, you know, maybe greater concern or 0:14:04.070 --> 0:14:06.770 motivation from Nvidia to try to get the U.S. government 0:14:06.790 --> 0:14:08.650 to get some of their, you know, more of their 0:14:08.690 --> 0:14:12.250 chips into China. But at this point in time, they're 0:14:12.980 --> 0:14:14.720 They're going to have to do it without China because 0:14:14.760 --> 0:14:17.000 there's no way we think the U.S. government is going 0:14:17.020 --> 0:14:17.840 to allow that to happen. 0:14:18.559 --> 0:14:21.580 Angelo, from a competitive perspective, what is the biggest threat 0:14:21.620 --> 0:14:24.940 or challenge to NVIDIA? Is it the other chip makers, 0:14:24.960 --> 0:14:27.000 the Broadcoms, the AMDs of the world, or is it 0:14:27.040 --> 0:14:30.080 some of their customers, as Alexis was suggesting earlier, that 0:14:30.440 --> 0:14:32.360 may be developing their own chips internally? 0:14:34.310 --> 0:14:36.150 I think it has to be some of their customers 0:14:36.350 --> 0:14:40.160 at this point in time in the sense that they're 0:14:40.180 --> 0:14:44.000 going to have to continue to purchase NVIDIA's servers. That's 0:14:44.060 --> 0:14:46.340 not going to stop. But what it can do in 0:14:46.400 --> 0:14:50.100 terms of some of these hyperscalers developing more of their 0:14:50.140 --> 0:14:54.390 own internal chips is it will slow eventually and get 0:14:54.430 --> 0:14:57.490 to the point where NVIDIA's growth rate will start to 0:14:57.530 --> 0:14:58.750 level off and really mature. 0:14:58.830 --> 0:14:59.070 Yep. 0:14:59.590 --> 0:15:01.250 I think that is the biggest risk at this point 0:15:01.270 --> 0:15:03.989 in time. But keep an eye out for AMD. You're 0:15:04.010 --> 0:15:06.920 going to see them really come on hard, I think, 0:15:06.960 --> 0:15:08.740 over the next couple of years. They're just now ramping 0:15:08.820 --> 0:15:11.620 up Helios. And we think there's some significant potential for 0:15:11.700 --> 0:15:12.880 that over the next couple of years. 0:15:13.260 --> 0:15:15.780 Angelo, great stuff. Thanks so much for joining us. Angelo Zeno, 0:15:15.870 --> 0:15:18.810 Senior Vice President, Tech Lead, CFRA Research. 0:15:20.650 --> 0:15:24.770 Stay with us. More from Bloomberg Surveillance coming up after this. 0:15:32.050 --> 0:15:35.630 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:15:35.710 --> 0:15:38.890 weekday afternoons from 7 to 10 a.m. Eastern. Listen on 0:15:38.990 --> 0:15:42.240 Apple CarPlay and Android Auto with the Bloomberg Business app 0:15:42.480 --> 0:15:44.170 or watch us live on YouTube. 0:15:44.510 --> 0:15:47.580 Brent Ewing joins us here. Brent is a chief market strategist, 0:15:48.040 --> 0:15:51.120 First Franklin Financial Services, joining us live here in our 0:15:51.520 --> 0:15:54.780 Bloomberg Interactive Brokers studio. Brent, it seems like the AI 0:15:54.840 --> 0:15:58.140 trade coming from last night's NVIDIA print is kind of 0:15:58.180 --> 0:15:59.040 alive and well, I guess. 0:16:00.010 --> 0:16:00.710 Indeed it is. 0:16:00.730 --> 0:16:03.170 I tell you, the words out of Jensen last night 0:16:03.240 --> 0:16:06.160 were really powerful. I think it's just put a put 0:16:06.240 --> 0:16:09.700 on this market for quite a while. I love the 0:16:09.740 --> 0:16:14.860 conversation about the global demand that he mentioned and the 0:16:14.920 --> 0:16:19.160 expansion that he's seeing out there. I think the monetization 0:16:19.240 --> 0:16:23.060 story that we've all been waiting for is really coming 0:16:23.100 --> 0:16:23.780 true right here. 0:16:25.120 --> 0:16:28.470 I'm curious, though, if they're They're risking missing out on 0:16:28.510 --> 0:16:33.990 maybe billions of dollars in revenue because of the ship shortages. 0:16:34.110 --> 0:16:37.150 We've got the constraints there. We've also got competition from 0:16:37.350 --> 0:16:40.110 SK Hynix and Samsung. Is that maybe an opportunity for 0:16:40.230 --> 0:16:42.410 them to jump in and take something away from NVIDIA? 0:16:44.410 --> 0:16:45.030 I think it is. 0:16:45.350 --> 0:16:48.500 And he did comment on that, by the way. And 0:16:48.820 --> 0:16:52.140 he mentioned that the growth rate, though, out there with 0:16:52.220 --> 0:16:54.880 all the other community, the ecosystem out there. 0:16:55.060 --> 0:16:57.220 Is really accelerating much. 0:16:57.120 --> 0:17:00.460 Faster than the hyperscalers and the competition that is coming 0:17:00.500 --> 0:17:01.850 from them with their own chips. 0:17:03.070 --> 0:17:04.950 We just heard from Tom Keene out in Jackson Hole. 0:17:05.930 --> 0:17:07.550 What do you think the market would like to hear 0:17:07.590 --> 0:17:10.389 from our Fed chairman here when he speaks tomorrow out 0:17:10.430 --> 0:17:11.150 there in Jackson Hole? 0:17:11.430 --> 0:17:15.630 Wow. So many things. Are we going to get them, though? 0:17:16.080 --> 0:17:19.520 I don't think we're going to get them. Are we 0:17:19.540 --> 0:17:22.980 going to get comments about the task force? 0:17:23.160 --> 0:17:26.080 Maybe some guidance going into September would be useful for 0:17:26.100 --> 0:17:28.760 the market to maybe give us an idea of when 0:17:28.780 --> 0:17:31.300 we're going to get those real updates. And I think 0:17:31.359 --> 0:17:36.500 that his... Comment about Besset or what Treasury operations are doing. 0:17:36.520 --> 0:17:38.369 I don't know if that's I agree with Tom. I 0:17:38.400 --> 0:17:40.169 don't know if that's going to be on the table. 0:17:40.930 --> 0:17:43.110 He's going to he's probably going to allude into some 0:17:43.150 --> 0:17:47.310 of this. The theme maybe go into the AI and 0:17:47.350 --> 0:17:50.130 the longer term effects of that on the economy. That'd 0:17:50.150 --> 0:17:51.860 be nice if we got some comments out of that. 0:17:52.220 --> 0:17:52.320 So. 0:17:52.730 --> 0:17:54.690 And, you know, we don't know a lot. We're sort 0:17:54.710 --> 0:17:57.649 of operating in the dark here because Powell, former Fed 0:17:57.670 --> 0:18:01.820 Chair Powell, talked about how the PCE was an important 0:18:01.930 --> 0:18:04.660 measure for them of inflation. We don't really know what 0:18:04.720 --> 0:18:08.580 Warsh is looking at when he's looking at that 2% 0:18:08.580 --> 0:18:11.460 inflation target. What would you like to hear from him 0:18:11.520 --> 0:18:13.740 tomorrow that you think could be market moving? 0:18:16.020 --> 0:18:18.280 Well, I would love to hear a comment about Treasury 0:18:18.340 --> 0:18:21.679 operations that they announced. I think that would be about 0:18:21.720 --> 0:18:25.550 their coordination. I mean, Besset made a comment about how 0:18:25.570 --> 0:18:28.470 they would coordinate with the Fed regarding balance sheet. 0:18:28.550 --> 0:18:31.390 I think it would be somewhat appropriate. I mean, would 0:18:31.410 --> 0:18:33.010 you throw the ball back, right? 0:18:33.150 --> 0:18:33.390 Right. 0:18:33.630 --> 0:18:34.750 You know, we had. 0:18:34.840 --> 0:18:38.199 Some rotation in this marketplace this year. We got the 0:18:38.260 --> 0:18:42.290 Russell outperforming. I mean, the small and mid-caps outperformed. I mean, 0:18:42.310 --> 0:18:44.129 they always kind of get left on the sidelines, but 0:18:44.150 --> 0:18:46.229 they're actually performing here. How do you think about that? 0:18:47.130 --> 0:18:47.879 I think it's great. 0:18:47.990 --> 0:18:50.500 I think it's a testimony to the strength of the 0:18:50.560 --> 0:18:54.399 underlying economy is what I think. And not only is 0:18:54.460 --> 0:18:57.240 it up 21 percent year to date, outperforming all the 0:18:57.300 --> 0:19:00.410 other indices, but look where interest rates are right here. 0:19:00.650 --> 0:19:04.480 So that is a very interesting. rate-sensitive area of the market, 0:19:04.570 --> 0:19:07.590 and it's just outperforming. It's looking past that, and that's 0:19:07.630 --> 0:19:09.330 why I think interest rates are kind of at the 0:19:09.369 --> 0:19:10.370 top level right here. 0:19:10.950 --> 0:19:11.690 Our call is that. 0:19:11.630 --> 0:19:14.550 Interest rates kind of decline going into next year. We 0:19:14.570 --> 0:19:16.370 don't believe we're going to get a rate hike this year. 0:19:16.430 --> 0:19:18.840 We believe a rate cut is next in line, and 0:19:18.859 --> 0:19:20.580 we think that happens in the first half of 2017. 0:19:20.560 --> 0:19:20.879 Interesting. 0:19:21.640 --> 0:19:23.400 So then you believe inflation is going to be kept 0:19:23.460 --> 0:19:24.000 under wraps. 0:19:24.260 --> 0:19:24.520 I do. 0:19:24.680 --> 0:19:27.280 I think the recent prints is just a start of 0:19:27.320 --> 0:19:30.219 a trend. And I think it will continue throughout this fall. 0:19:30.980 --> 0:19:33.680 And the job market where it is right here, you know, 0:19:33.760 --> 0:19:37.030 it's anemic, but it's not really weak. 0:19:37.070 --> 0:19:38.189 It's just not really strong. 0:19:38.230 --> 0:19:41.369 But over the last 12 months, we're averaging 34,000 job 0:19:41.890 --> 0:19:42.570 per month growth. 0:19:42.690 --> 0:19:44.629 That's not like an inflationary issue. 0:19:44.650 --> 0:19:46.270 And those jobless claim numbers continue to be low. So 0:19:46.290 --> 0:19:48.449 you're saying as long as people are working to some extent, 0:19:48.470 --> 0:19:51.260 they're going to keep spending and- that'll pop up the economy. 0:19:51.280 --> 0:19:51.420 Yeah. 0:19:51.520 --> 0:19:54.730 And I think Warsh is looking way past. He's looking out, 0:19:54.990 --> 0:19:58.110 what is AI going to do to transform the world 0:19:58.630 --> 0:20:02.340 on labor? And he knows that deflationary force. He's talked 0:20:02.380 --> 0:20:05.359 about it through his testimonies. Over the last two years, 0:20:05.420 --> 0:20:08.930 he's been very outspoken about that. And I think he's 0:20:08.950 --> 0:20:12.389 bringing it to light. I would hope that his task 0:20:12.430 --> 0:20:15.369 force that's really focused on that will bring some of 0:20:15.430 --> 0:20:17.550 that forward for a conversation. 0:20:17.010 --> 0:20:19.520 With the FOMC. Put all that together. 0:20:20.160 --> 0:20:24.100 Earnings have been just fantastic. Where can earnings take this 0:20:24.240 --> 0:20:25.540 S & P 500, do you think? Do you have 0:20:25.560 --> 0:20:26.280 a target out there? 0:20:26.680 --> 0:20:28.460