Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Daybreak Asia podcast on Dan Schwartzman. Doug
Speaker 2: Chrisner has the week off. We begin with earnings. SpaceX's
Speaker 2: revenue exceeded Wall Street's estimates in the company's first quarterly
Speaker 2: financial report following its blockbuster initial public offering back in June.
Speaker 2: Elon Musk's space company reported revenue of seven point eight
Speaker 2: billion dollars. That's greater than the six point eight one
Speaker 2: billion analysts expected on average, but shares of SpaceX are
Speaker 2: lower and late trading after the company announced over eighteen
Speaker 2: billion dollars in spending on AI. That's where we begin
Speaker 2: our conversation with Bob O'Donnell. Bob is president and chief
Speaker 2: analyst at TECHnalysis Research. He spoke to Bloomberg's Heidi shroud Watts.
Speaker 3: Investors probably shouldn't be concerned about the massive amount of
Speaker 3: AI spend, given that this is how Alon characterizes.
Speaker 4: This company well exactly.
Speaker 5: And look, these kind of investments we're going to be
Speaker 5: seeing from all the major model providers and all the
Speaker 5: big AI companies over the next several years, frankly, and
Speaker 5: people just need to know that that's going to happen.
Speaker 5: You know, what's interesting about what SpaceX is doing is, frankly,
Speaker 5: a lot of their infrastructure costs they're actually leasing out
Speaker 5: to other people. So in some ways they're becoming as
Speaker 5: much of a neo cloud company as they are an
Speaker 5: AI company, because their revenues from the pure AI side
Speaker 5: of selling their own models of grock han't has been
Speaker 5: as big, of.
Speaker 4: Course as we've seen from open ai and anthropics.
Speaker 5: So and yet they've got all this capacity they built,
Speaker 5: and right now it's compute capacity that's really in sharp demand. Now,
Speaker 5: the question longer term, to be fair around SpaceX is, hey,
Speaker 5: is that really the kind of business you want to
Speaker 5: be in, because obviously they have a lot of other
Speaker 5: things going on, and at what point will they need
Speaker 5: to bring back some of that capacity to run their
Speaker 5: own models. So there are a lot of questions there,
Speaker 5: but yes, there's a lot of money being spent on
Speaker 5: this sort of stuff right now.
Speaker 3: There's a lot of existential questions in this space. Right
Speaker 3: We've long been talking about the insatiable need for capacity.
Speaker 3: There's now concerns about overcapacity, there's concerns about rising costs,
Speaker 3: the numerous risks how long this is going to take
Speaker 3: for these ambitions for Elonnas to take, you know, come
Speaker 3: to fruition. Do you think the thesis is a little
Speaker 3: less stable now than it was even just a few
Speaker 3: months ago.
Speaker 4: Well, I do think there are challenges you have to
Speaker 4: be aware of.
Speaker 5: The you know, all the money within SpaceX is coming
Speaker 5: from Starlink, right, I mean that all the profit pardon me,
Speaker 5: and right now Starlink pretty much has that world of
Speaker 5: satellite based communications to itself.
Speaker 4: However, we are going to see competition.
Speaker 5: Amazon has already talked about their Kuyper satellites. Likely there
Speaker 5: will be some other companies as well, So that's going
Speaker 5: to be an issue. And you know, the US carriers
Speaker 5: are not going to take this potential challenge to them
Speaker 5: that you guys were just talking about sitting down. They're
Speaker 5: clearly focused on trying to address this. And the important
Speaker 5: thing to remember about satellite based services is the vast
Speaker 5: majority of satellites come or excuse me, of cell service
Speaker 5: comes from land based networks. The satellites are sort of
Speaker 5: the gravy on top. So Musk is coming at it
Speaker 5: from a different way, which is, hey, we have all
Speaker 5: this great stuff in the areas where there's not a
Speaker 5: lot of people. But in the main areas where people
Speaker 5: live and work all the time, that satellite service doesn't
Speaker 5: really work as well. So it's extraordinarily expensive to build
Speaker 5: out those networks.
Speaker 4: So that's going to be an interesting challenge.
Speaker 5: So I do think there are a number of interesting
Speaker 5: concerns that aren't really being thought through a lot when
Speaker 5: it comes to SpaceX, and there's a lot more kind
Speaker 5: of oh, this is a great vision.
Speaker 4: Let's buying into the vision kind of thing. But it's
Speaker 4: a long way off.
Speaker 3: Yeah, it's a vision that you know, I think, if
Speaker 3: you take a step back, is largely unproven too, right,
Speaker 3: the idea of having data centers in space, how how
Speaker 3: that's going to be powered, and how the data is
Speaker 3: going to be transmitted to But I also do wonder
Speaker 3: what sort of I guess consolidation you expecting from this
Speaker 3: broader group of companies. We've heard some of the rumors
Speaker 3: that have been refuted regarding their China businesses on Tesla.
Speaker 3: Do you expect a bit more of a coming together
Speaker 3: and perhaps shedding of non core business interests.
Speaker 5: You know, look, when it comes to Musk and his plans,
Speaker 5: any of those things are possible, let's be honest. Yeah,
Speaker 5: I mean he could end up pulling all the pieces
Speaker 5: that he wants together, all the ones that are making money,
Speaker 5: and then getting rid of.
Speaker 4: The ones he doesn't see as having opportunities.
Speaker 5: Longer term, it does become a question of, you know,
Speaker 5: a conglomerate of things that you try to build a
Speaker 5: story around but ultimately don't make that much sense. I mean,
Speaker 5: already there are a lot of people who are saying
Speaker 5: that about SpaceX because data centers in space, there are
Speaker 5: enormous technical challenges to make that happen. Let's not forget
Speaker 5: someone has to fix these things occasionally. You can't do
Speaker 5: that if they're in space. I mean, there's just so
Speaker 5: many issues there. So you know, I wouldn't be surprised
Speaker 5: to see a lot of these things. The problem is
Speaker 5: they're just not predictable. You know, He's not a predictable personality,
Speaker 5: so just hard to bet on that and hard to
Speaker 5: know exactly what's going to happen. Some people buy into
Speaker 5: the Musk vision and some people don't, and that becomes
Speaker 5: ultimately the guiding factor when people are thinking about this.
Speaker 3: Yeah, his fans would say that the lack of predictability
Speaker 3: is just part of the genius right well in times
Speaker 3: of the broader landscape, and obviously we've seen a lot
Speaker 3: of rotation and a lot of volatility in the AI
Speaker 3: space over the past few weeks, even into the last
Speaker 3: few days, but a big part of this has been
Speaker 3: the gains made by China, right And I'm just going
Speaker 3: to throw up a quick sort of capture of what
Speaker 3: we're seeing the different models and the different types of
Speaker 3: ability that we're seeing from each of the different models,
Speaker 3: And a lot of these Chinese models are quite clearly
Speaker 3: closing the gap when it comes to cost efficiency, the economics,
Speaker 3: but also the broader efficiency of getting things done as well.
Speaker 3: Is this kind of the disruptive force that is should
Speaker 3: be most worrisome to the US players at the moment?
Speaker 4: Well, look, I do think it's a big issue.
Speaker 5: I happen to be in Beijing this week visiting with
Speaker 5: Lenovo and hearing a lot more about some of these
Speaker 5: Chinese open models and the things that they're doing, and
Speaker 5: the opportunity to have some of these models run locally
Speaker 5: within companies to reduce the costs because right now, of course,
Speaker 5: companies are spending hundreds of millions of dollars on tokens
Speaker 5: into the cloud or chat GPT or clawed from Anthropic
Speaker 5: and all these other companies. These open source models dramatically
Speaker 5: change that. Now there are challenges here in China because
Speaker 5: they're not really making any money, they're not charging it, and.
Speaker 4: Eventually they're going to have to do that.
Speaker 5: So there's a lot of question marks out there, but
Speaker 5: there's no question I believe that open source models is
Speaker 5: open weight models pardon me, are really going to have.
Speaker 4: A dramatic impact. I don't think that means frontier models
Speaker 4: go away.
Speaker 5: I just think we can see an interesting mixture of
Speaker 5: things and that's going to have a lot of impacts overall. Fundamentally,
Speaker 5: companies do need AI compute if they're going to need
Speaker 5: some in the C I think you're going to see
Speaker 5: them use more in the data center.
Speaker 4: AMD earnings that they just came out and they were.
Speaker 5: Talking about Helios, which is coming to bring more data
Speaker 5: center capabilities to some organizations, and then on client devices,
Speaker 5: on PCs, on smartphones, and so we're going to see
Speaker 5: this hybrid AI mixture of all of these different elements.
Speaker 5: And how exactly those play out is still something that
Speaker 5: we're all watching closely, and frankly, it's changing on a
Speaker 5: monthly basis, in part.
Speaker 4: Because of all the evolution of these big bombs.
Speaker 2: That was Bob O'Donnell, president and chief analysts at TECHnalysis Research,
Speaker 2: speaking of Bloomberg's Heidi shroud Watts, and we're bringing their
Speaker 2: conversation to you here on the Daybreak Asia podcast. Welcome
Speaker 2: back to the Daybreak Asia Podcast. I'm Dan Schwartzman. Doug
Speaker 2: Chrisner has the week off. HSPC announced a fresh dot
Speaker 2: buy back and raised its cost cutting target. This comes
Speaker 2: after the lender reported second quarter earning that beat estimates
Speaker 2: despite China's crackdown on cross border wealth flows. And we
Speaker 2: had the chance to catch up with HSBC Group CEO
Speaker 2: Georgia zel Henery. He spoke to Bloomberg's Francine Lacroix.
Speaker 6: Look, one billion dollars in buyback is actually sooner, much
Speaker 6: sooner than expected.
Speaker 7: What does this say about the strength of HSBC right now?
Speaker 8: Well, I think, I mean the results as a whole
Speaker 8: are demonstrating that we are becoming the stronger bank that
Speaker 8: we set out to build. We're very pleased with what
Speaker 8: we announced this morning. We're growing across all our indicators.
Speaker 8: Our revenue growing, our law E loans and deposits are growing,
Speaker 8: our income is growing. We generated returns of nineteen and
Speaker 8: a half percent on tangible equity, so this is, you know,
Speaker 8: this is a good demonstration of a strong business momentum.
Speaker 8: We're also very pleased with the progress we're making on
Speaker 8: the strategy, which we're executing with precision, with discipline and
Speaker 8: at pace. And we've upgraded some of our strategic deliverables,
Speaker 8: including simplification related saves, and just announced three more non
Speaker 8: strategic exits over the last ten days. That's fifteen exits
Speaker 8: since twenty twenty five. And all of this is giving
Speaker 8: us capacity to invest, capacity to accelerate our investment. And finally,
Speaker 8: let me say we're we're you know, we're very confident
Speaker 8: in the potential of this bank. We're very confident our
Speaker 8: ability to unlock it. We are now a leader in
Speaker 8: a number of areas where we're operating with, you know,
Speaker 8: the Asian leader in wealth management, the world Straight bank,
Speaker 8: and we have structural growth opportunities along our footprint, I
Speaker 8: mean Asian wealth, Asia by Asia, the UK growth opportunities.
Speaker 8: So we're pleased to put more of our strength and
Speaker 8: the service for our clients.
Speaker 6: I mean it's impressive because when you privatize hanks And
Speaker 6: last year you said look in terms of buybacks will
Speaker 6: probably take a couple of quarters. So what does this
Speaker 6: big buy bank actually tell us about the return generation
Speaker 6: capability of the bank post hanks And Yeah, so.
Speaker 8: We're pleased to have resumed buy back the squat three
Speaker 8: quarters after we announced Hanksang. We said at that time
Speaker 8: that our priority would be to rebuild capital postal privatization.
Speaker 8: We estimated three quarters to be about the time to
Speaker 8: build that three quarters on were able to return excess
Speaker 8: capital to shareholders. Remember, our priority use of capital first
Speaker 8: is the dividend payoutratio. Second is supporting the organic growth
Speaker 8: of the business. Organic growth with an outs capitite at
Speaker 8: the right returns within our strategic priorities. And we're very
Speaker 8: pleased our loan books have grown. I mean, UK has
Speaker 8: seen consistent growth and we've been able to lean in.
Speaker 8: We're very pleased to see Hong Kong finally resume to
Speaker 8: loan growth. So those will be the priority. Of course,
Speaker 8: excess capital priority distribution mechanism has share buybacks. Hence the
Speaker 8: one billion.
Speaker 6: Your head of Corporate Investment Bank said you could actually
Speaker 6: become a three hundred billion capitalation bank shortly. I mean
Speaker 6: your I think by twenty thirty is what he said.
Speaker 6: You're thirty billion away from that. Do you think you
Speaker 6: can become three hundred billion in terms of size and
Speaker 6: like six to twelve months?
Speaker 8: Well, look, I mean we're certainly very pleased with the
Speaker 8: share price reaction to the delivery of our strategy, where
Speaker 8: this will go as a metaph our shareholders to judge.
Speaker 8: What I'm really focused on is delivering for the business,
Speaker 8: focused on all the growth opportunities that we're driving for
Speaker 8: the business, delivering the strategy and the simplification at pace.
Speaker 8: And you know, the upgrades we have shown in our
Speaker 8: capability to do so and the speed at which we
Speaker 8: are able to do it safely are our good testament
Speaker 8: of the capacity we're creating to invest even further in
Speaker 8: the business.
Speaker 6: Sure, you've also said that Hong Kong would overtake Switzerland
Speaker 6: as the world's largest cross border well center by the
Speaker 6: end of the decade. Actually it's done so already. What
Speaker 6: does that mean for wealth creation in Asia and your
Speaker 6: story in it?
Speaker 8: Well, yeah, I'm very pleased to see you know, Hong
Speaker 8: Kong again becoming this wordly there for cross border web management.
Speaker 8: I mean, Hong Kong is a home market for us.
Speaker 8: We are the leader in web management across Asia. We've
Speaker 8: grown our web parents is in Hong Kong by ten percent.
Speaker 8: We're at half a trillion dollars wethan. We continue adding
Speaker 8: clients in Hong Kong, six hundred and forty thousand new
Speaker 8: clients across our two brands, the two iconic brands we
Speaker 8: hold in Hong Kong, HSBC and Angsng Bank. So we're
Speaker 8: very pleased with the momentum that Hong Kong and the
Speaker 8: sophistication that the Hong Kong as a platform is creating
Speaker 8: to be the you know, the cross boarder leader in
Speaker 8: the world. Remember also Hong Kong is a technology hup.
Speaker 8: We're seeing a lot of investment in Hong Kong in Ai.
Speaker 8: We will be launching very soon the next couple of
Speaker 8: months stable coin in Hong Kong, you know, as you know,
Speaker 8: as the you know, they're leading center for bank issued
Speaker 8: stable coins within a very good regulatory framework. So it's
Speaker 8: all good developments given our presence in Hong Kong.
Speaker 7: For Hanksang, how many more synergies are you expecting to
Speaker 7: come from that?
Speaker 8: Yeah, I mean, Hank sanng synergies. You know, we were
Speaker 8: executing in more than eighty percent of all the synergy workstream.
Speaker 8: So this is going on as per plan. We've already
Speaker 8: announced leadership across most of the infrastructure areas, the back
Speaker 8: office areas, the technology areas, the manufacturing areas. This will
Speaker 8: allow us to create the alignment and the synergies that
Speaker 8: you want to achieve. I'll give you one example, very
Speaker 8: telling example in Q two Hank saying, as of May
Speaker 8: started to use some of the digital onboarding capabilities customer
Speaker 8: acquisition capabilities that HSBC built. They were able in Q
Speaker 8: two to double the number of clients they onboarded, sixty
Speaker 8: thousand clients on board in Q two compared to thirty
Speaker 8: thousand Q one. Immediate visible benefit of those synergies.
Speaker 7: Sure, as we have a new prime minister here in
Speaker 7: the UK. If you think a possible UK tax on
Speaker 7: banks is a possibility.
Speaker 8: Look, that's a matter for the government. What we're really
Speaker 8: focused on is supporting the government and the government's intention
Speaker 8: to support growth in the UK. Now, if you only
Speaker 8: achieved growth in the UK, you need businesses that are investing.
Speaker 8: You need confidence. For businesses to invest, they need to
Speaker 8: be able to access financing. For them to be able
Speaker 8: to access financing, they need a strong, well capitalized banking
Speaker 8: sector to support them. So our role UK is extremely
Speaker 8: important for hspecies or home market. Our role is to
Speaker 8: support all businesses across the UK. We support more than
Speaker 8: We support around seven hundred thousand SMEs in the UK
Speaker 8: across the UK, and we've grown our lending to them
Speaker 8: twelve percent. We've grown our lending to all businesses in
Speaker 8: the UK about ten percent, or ten billion US dollars.
Speaker 8: We already pledged another five billion pounds of investments to
Speaker 8: support SMEs in the UK. All of that is what
Speaker 8: is supporting or hopefully supporting that growth that we wish
Speaker 8: for the UK.
Speaker 7: Can you tell me a little bit about so.
Speaker 6: Bill Winters of Standard Charger last week said that they
Speaker 6: were using a combination of Chinese and US AI models.
Speaker 7: What are you using.
Speaker 4: We're using a broad range of AI models.
Speaker 8: We're investing in a broad range, We're partnering with a
Speaker 8: broad range of AI partners, investing in the broad range
Speaker 8: of A models. But we're doing so thoughtfully and strategically.
Speaker 8: We're deploying AI responsibly and safely, and we have now
Speaker 8: multiple hundred use cases either in production or in pilot stage,
Speaker 8: and we're seeing real benefits I mean encoding. We're seeing
Speaker 8: in areas productivity up to three hundred to four hundred
Speaker 8: percent higher in hyper personalization of service to clients, we're
Speaker 8: achieving great benefits. Now more than two thousand of our
Speaker 8: wealth relationship managers have access to AI tools that help
Speaker 8: them high per personalized advice to clients. And we've rolled
Speaker 8: out productivity tools and productivity capabilities to more than two
Speaker 8: hundred thousand of our colleagues, helping them in their day
Speaker 8: to day need.
Speaker 6: Our staff worried actually about you know, redundancies, about being
Speaker 6: able to apply these models and how do you handle that?
Speaker 8: And the important thing for us is make available to
Speaker 8: all our colleagues both productivity tools but also training materials
Speaker 8: and knowledge management materials so they all individually can become
Speaker 8: more productive and more impactful in the way they do
Speaker 8: business for our clients. Everybody wants productive stuff, so I'll
Speaker 8: be extremely happy if all our colleagues can become those
Speaker 8: productive versions of those more performing versions, you know, future
Speaker 8: ready versions, of themselves because of all the tools and
Speaker 8: the capabilities we're putting in front of them. And frankly,
Speaker 8: if we generate this productivity as a bank, I would
Speaker 8: reinvest it in those colleagues who help us accelerate our strategy.
Speaker 6: Talk to me a little bit about digital tokens. Do
Speaker 6: you have to cap because there's still AI implementation is expensive?
Speaker 6: So are you letting people experiment at the moment and
Speaker 6: then cap.
Speaker 7: It at some point or do you cap from the Yeah.
Speaker 8: So, as I said, we're investing in AI very actively,
Speaker 8: but we're doing so thoughtfully and strategically. I am tracking
Speaker 8: license fees and toalken costs. It is important for many
Speaker 8: of the flagship initiatives that we see the benefits and
Speaker 8: understand what the benefits are. Give you an example onboarding
Speaker 8: for clients. For wholesale clients, we've already rolled AI capabilities
Speaker 8: in the space and achieved fifty percent productivity gains and
Speaker 8: actually fifty percent speed in delivering the service. So a
Speaker 8: clear example of benefits realized. For many of the other initiatives,
Speaker 8: we track benefits. For some of them, the benefits may
Speaker 8: bee non financial benefits could be improved, productivity improved, quality
Speaker 8: of service or the benefits could be, you know, being
Speaker 8: able to access a wider range of clients for wider
Speaker 8: range of services.
Speaker 2: That was HSBC Group CEO Georgies l Henry speaking of
Speaker 2: Bloomberg's Francine Lacroix, and we're bringing their conversation to you
Speaker 2: here on the Daybreak Asia Podcast.
Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 1: Asia Edition podcast. Each weekday, we look at the story
Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific.
Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast
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Speaker 1: Join us again tomorrow for insight on the market moves
Speaker 1: from Hong Kong to Singapore and Australia.
Speaker 7: I'm Doug Prisner, and this is Bloomberg