Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: we get interesting GDP revision perspective from j Brice and
Speaker 1: the chief economist at Wills Fargo. Jay, do you get
Speaker 1: a lot of value out of a second look at GDP?
Speaker 1: And dare I say the third look?
Speaker 2: You know, there's a little bit of value in the
Speaker 2: sense of what you get in the second release is
Speaker 2: the first estimate of gross domestic income. It's the income
Speaker 2: side of the national accounts. It should, in theory be
Speaker 2: the same thing as GDP, So you know, I'm not
Speaker 2: sure what that came out. As you get some of that,
Speaker 2: you also get corporate profits, which are also important for
Speaker 2: the economy. So you know, I look at more of
Speaker 2: the income side of things that in the second look
Speaker 2: here than I do.
Speaker 3: And you know, in terms of the demand components.
Speaker 4: Jay, how to data dependent? Can you be if you
Speaker 4: can't rely on the data.
Speaker 2: Well, you know, it's you're always flying blind in this economy.
Speaker 2: And I guess what I would say, at least right now,
Speaker 2: is is you know, there's a lot of choppiness, there's
Speaker 2: a lot of noise out there. I mean, I kind
Speaker 2: of the big picture here, I think in terms of
Speaker 2: the economy, is it continues to expand. It seems a
Speaker 2: a I call it modest pace at this point. The
Speaker 2: labor market, I think, in general, is holding in there.
Speaker 2: And I think we know that inflation has come down,
Speaker 2: but it remains kind of elevated. And so I think
Speaker 2: that's the real narrative that we have to you know,
Speaker 2: we have to manage to at this point.
Speaker 4: Well, the narrative has been all over the place this year,
Speaker 4: as we all know, as we've all been trying to track.
Speaker 4: And I'm wondering whether this idea of immaculate disinflation moved
Speaker 4: to perhaps rapid inflation. Now it'll slowly go away and
Speaker 4: we don't have to worry about it anymore. Is the
Speaker 4: market underpricing the risk of having to worry about inflation
Speaker 4: for a longer period of time forcing the Fed's handle
Speaker 4: a little bit more.
Speaker 2: I think least that there's something to be said for that.
Speaker 2: I mean, if you look at market pricing, and you
Speaker 2: folks were talking about it earlier, you know, at the
Speaker 2: end of the year there's rate cuts priced in there.
Speaker 2: I think some way to make sense of that would
Speaker 2: be the market isn't really good at making precise estimates
Speaker 2: of probabilities. One way to look at that is a
Speaker 2: low probability of a really big move by the end
Speaker 2: of the year because something has blown up, whether it's
Speaker 2: the debt ceiling or something else along those lines. But
Speaker 2: if that doesn't happen, then I think that there's a
Speaker 2: really good possibility that or there's a possibility that you
Speaker 2: could get stuck at an inflation rate that's higher than
Speaker 2: three percent, And I don't think the market is priced
Speaker 2: for that, because I don't think the Fed would be
Speaker 2: cutting in that situation, nor would they actually probably.
Speaker 3: Be on hold, probably raising rates even higher.
Speaker 1: Jay the heritage of Wells Fargo economics, from John Silvia
Speaker 1: to J Brice and has just been brilliant on the demographics,
Speaker 1: the movement, the fabric of this nation. Do you believe
Speaker 1: in a rolling recession. I mean, we're aggregating in even
Speaker 1: to the silliness of an Nber estimate of this dreaded
Speaker 1: our word. But should we have a belief in a
Speaker 1: rolling recession given all of the fractured parts of the
Speaker 1: American experiment?
Speaker 2: Well, yeah, Tom, and I think there's you know, it
Speaker 2: depends on your definition. And rolling recession is I tend
Speaker 2: to think of one as hitting different sectors at different times.
Speaker 2: And so you know, if you look at housing, Housing
Speaker 2: clearly slumped last year, there's some evidence to suggest that's
Speaker 2: probably stabilizing. Manufacturing at best has kind of topped out.
Speaker 2: The thing that's holding in there right now is consumer spending.
Speaker 2: And you know, if you kind of go forward here,
Speaker 2: if you do have weakness in housing, if you do
Speaker 2: have weakness in manufacturing, you could see some job losses
Speaker 2: there and then that could then bleed over into consumer spending.
Speaker 3: And so you could have not all sectors.
Speaker 2: Going down at the same time, but you could have this,
Speaker 2: you know, as you talk about this kind of rolling,
Speaker 2: you know, sort of recession thing going.
Speaker 1: On, and you Madge, the smartest thing I've heard today
Speaker 1: was Lisa Bramowitz, our airline analyst on Delta Airlines. I mean,
Speaker 1: that's a single smartest thing I heard this week. Is
Speaker 1: completely ginormous sold out. And that's personal consumption, and in
Speaker 1: one way that's personal consumption.
Speaker 4: It's absolutely personal consumption, so your whole paycheck if you
Speaker 4: try to travel a lot. I do wonder Jay, though,
Speaker 4: just going forward, whether we do see some sort of
Speaker 4: seismic shift coming down the pike for the US, given
Speaker 4: in Nvidia, given AI, given the tech giants that were
Speaker 4: left for dead sort of and then suddenly reprise their
Speaker 4: greatness this year. Do you think that this is a
Speaker 4: lasting trend that has implications for jobs, that has implications
Speaker 4: for a gross domestic product.
Speaker 3: Oh yeah, absolutely.
Speaker 2: I Mean the way I think about it is AI
Speaker 2: is a potent a productivity game changer. You know, it's
Speaker 2: it's another you know, I don't want to get too
Speaker 2: dramatic here, but you know, industrial revolution. You know, maybe
Speaker 2: it's not an industrial revolution, but it's kind of like
Speaker 2: when we first went to the networking of computers and
Speaker 2: the internet back in the late nineteen nineties.
Speaker 3: I think it's even bigger than that as it comes along.
Speaker 1: You know.
Speaker 2: The issue though, obviously, is not only is that a
Speaker 2: productivity game changer. It has profound right, social and political
Speaker 2: implications and that's going to last for years and years
Speaker 2: and years.
Speaker 1: Doctor Bryson, thank you so much for joining us. Brilliant
Speaker 1: Jay briceon there, Wells Fargo, Parson, Yes, claim some news there.
Speaker 1: Thank you to our Washington team for that great reporting
Speaker 1: on Massachusetts claims fraud. This is a joy. Douglas Holtz,
Speaker 1: ecan out of the Princeton Shop, has done serious work
Speaker 1: on the debt and the deficit. I'm not going to
Speaker 1: demean him by asking him about Oval Office discussions of that,
Speaker 1: but I mean I canna ask him about where we are,
Speaker 1: of course, is work with the Congressional Budget Office and
Speaker 1: President of American American Action Form, Doctor Oltzik. And I'm
Speaker 1: going to cut to the chase you go where the
Speaker 1: CBO goes, which is to try to estimate our growth
Speaker 1: rates of revenues, which I think is called taxes and spending.
Speaker 1: Where are those glide pasts going to be after this
Speaker 1: debt crisis.
Speaker 5: I think it's important to recognize that regardless of what
Speaker 5: deal has ultimately struck, it will put the tiniest of
Speaker 5: dents in our fiscal challenge. The fundamental problem is in
Speaker 5: the large and titlement spending programs, they're off the table.
Speaker 5: There's a room to raise more revenue that's off the table.
Speaker 5: So we're not addressing the issues that face the federal government,
Speaker 5: the budget and awestly. Until we get serious about slowing
Speaker 5: the growth rate of the big and talent spending programs,
Speaker 5: the budget will never end up. They'd simply grow much
Speaker 5: faster than revenue. Ever plausibly will.
Speaker 1: I mean, I look where we are, and we need
Speaker 1: a commission. So we need a commission with people with
Speaker 1: z in their names, so I can really see orzeg,
Speaker 1: whole teaken or whole teacn orzeg is an intelligent commission
Speaker 1: that Americans would know as intelligent people coming to an
Speaker 1: intelligence solution. And yet we're not talking about that. Why not?
Speaker 5: This is politics, That's all there is to it. The
Speaker 5: issue is not the debt ceiling issue, not default. There's
Speaker 5: unionimity that we have to raise the debt ceiling. There's
Speaker 5: unionimity that we should not even come close to defaulting.
Speaker 5: There's a big disagreement about the future of fiscal policy.
Speaker 5: I think it's healthy that this has been highlighted to
Speaker 5: the American people. My concern has been that in the
Speaker 5: twenty first century, we've never seen the debt do anything,
Speaker 5: would go up, even relatives to the economy, and there's
Speaker 5: never been the political wherewithal to stabilize it, which is
Speaker 5: I think the necessary condition for the US, and we
Speaker 5: really haven't talked about it if you think fact to
Speaker 5: the presidents we've had. I worked for George day Bush
Speaker 5: I fron greatly, but his budget said let's win the
Speaker 5: war on global terror. Look at the eight years of
Speaker 5: the abodm administration. The only thing that they said about
Speaker 5: the federal budget that might be a problem is the
Speaker 5: rich didn't pay their fair share. The Trunk administration said
Speaker 5: nothing for four years on and deficits, and the Biden
Speaker 5: administration came in with really enormous plans to just expand spending.
Speaker 5: And so the American people can be excoose or not understanding.
Speaker 5: We have a big problem and we do well. But
Speaker 5: it's time they were told that and that, you know,
Speaker 5: addressing it is the thing that we have to do next.
Speaker 4: And Doug they've perhaps been told that, but as Leslievinjamory
Speaker 4: said of Chatham House earlier in the show, it doesn't
Speaker 4: mean that they're going to accept that they get less
Speaker 4: at any given day, that they're going to get fewer benefits,
Speaker 4: and there does seem to be a shift on both
Speaker 4: sides of the aisle to adding whether it's respect to
Speaker 4: investing in technology, whether it's respect with respect to investing
Speaker 4: in infrastructure, or whether it's just the spending that we
Speaker 4: already have in place. It doesn't seem likely that we're
Speaker 4: going to see restraint in the near future, regardless of
Speaker 4: what comes from this budget. What's your view in terms
Speaker 4: of what it would take to make people truly care
Speaker 4: about a debt limit that doesn't really seem to matter.
Speaker 4: If they could just kick it up and they can
Speaker 4: keep borrowing at relatively low rates.
Speaker 5: They shouldn't care about the delimit there's no real economic
Speaker 5: crash now for having a delement or the major economy
Speaker 5: and the globe that has one, and it doesn't make
Speaker 5: any economic sense. They should care about the fact that
Speaker 5: the spending exceeds the revenues as far as the eye
Speaker 5: can see, and that leads to real threats. They should
Speaker 5: care even more about the fact that because the entitlement
Speaker 5: spending is claiming all the revenue, there isn't money for
Speaker 5: real investments. We're squeezing out national security, basic research, infrastructure,
Speaker 5: or education, the things our founders saws the role of
Speaker 5: the government, and that's a serious problem for having more
Speaker 5: prosperous feisure. And they should care a lot about the
Speaker 5: fact that those big programs are taking all the money
Speaker 5: and they're not financially sustainable. So Street is going to
Speaker 5: go bankrupt in ten years. Someone who's fifty five literally
Speaker 5: can't play and their retirement because they haven't fixed social security.
Speaker 5: That's just unconstable. That should wagh people up.
Speaker 4: What's your sense of the tax revenues. We've been talking
Speaker 4: about how bumpy and lumpy it's been, and that it's
Speaker 4: been underwhelming. How much is this a lack of investment
Speaker 4: in the IRS and a lack of tax collection.
Speaker 5: We've had a long standing problem with the IRS. It's
Speaker 5: beyond merely the technology. It's an organization whose culture has
Speaker 5: been deeply broken, and so it is time to get
Speaker 5: the IRS back to its job, which is to collect
Speaker 5: the taxes and do it effectively. We somewhere along the
Speaker 5: line decided everything should be a refundable tax credit and
Speaker 5: turn them into a benefits paying organization. They weren't built
Speaker 5: to do that and they struggle with it and so
Speaker 5: identifying its mission, getting it staffed up, giving a modern
Speaker 5: technology are all essential.
Speaker 6: Great to catch up doc. As always on this Douglas
Speaker 6: Hall Teak in the American Action Forum.
Speaker 1: It is wonderful to have Diana a MOA with this,
Speaker 1: your chief investment Officer of Long based Strategies, Kirkanswall Capital Partners.
Speaker 1: This morning, I want to go right to the pro discussion,
Speaker 1: which is you people say be an EM participate in EM.
Speaker 1: Every textbook, every paper says you have to hedge, to
Speaker 1: hedge or not to hedge. Is the core issue with EM.
Speaker 1: How do you hedge EM right now?
Speaker 7: Well, if I'm assuming we're talking about hedging the currency risk.
Speaker 1: Here, I go either way you want. But the answer
Speaker 1: is in financial media nobody talks about this reality that
Speaker 1: you have to hedge EM.
Speaker 7: Well, the reality is when you look at performance in
Speaker 7: the marging market, it's actually been quite resilient. Two things
Speaker 7: that have been quite notable in the last few months. Realize,
Speaker 7: volatility in emerging market currencies and also in a marging
Speaker 7: market fixed income has been much lower than in developed markets.
Speaker 7: Argue part of that is one inflation outlook in development
Speaker 7: market is much stickier, whilst in the emerging market things
Speaker 7: appear to have picked but there was some support coming
Speaker 7: through from a week of dollar in the first half.
Speaker 1: Of the year.
Speaker 7: So that's the reality that emerging market right now this year,
Speaker 7: If you'd hedged out your currency exposure, you'd have actually
Speaker 7: been regretting it because most for the most part, EMFFS
Speaker 7: has done well. Where we are right now, I would
Speaker 7: say you still want to have em duration. It's a
Speaker 7: trait that works in multiple scenarios of the world. Irrespective
Speaker 7: of whether we have a recession in the US, whether
Speaker 7: the FED cut rates or not. The outlook for emerging
Speaker 7: currencies I think for the next few months might be
Speaker 7: less clear cut. But if you have a rangebound dollar,
Speaker 7: I would suggest actually maybe not hedging that urging.
Speaker 6: Let's annoys some people with Diana. It's about it a
Speaker 6: clot had the coffe They've woken up that we really
Speaker 6: engaged when we talk about em Are we talking about
Speaker 6: the US, the UK, Europe? Who are we talking about?
Speaker 8: Well?
Speaker 7: Typically people say it's the distress stories that you need
Speaker 7: to watch about. Where are we talking about default?
Speaker 9: Now?
Speaker 7: John?
Speaker 3: The US?
Speaker 5: There you go.
Speaker 7: But you know, classic definition would argue, you know, US
Speaker 7: doesn't qualify for an emerging market, but certainly what we're
Speaker 7: seeing right now with this default talk and the lack
Speaker 7: of consensus on how to manage the fiscal situation is
Speaker 7: raising some red flags and making emerging markets look relatively
Speaker 7: not too bad.
Speaker 6: I have a simple am test. I've had it for
Speaker 6: a long long time. Go something like this, if things
Speaker 6: get bad in that country, do you buy or sell
Speaker 6: the debt? It's as simple as that. Now, typically in
Speaker 6: development markets, what you do when things get bad in
Speaker 6: that country, you buy the debt. Typically an EM you
Speaker 6: sell it. What's happening with treasuries right now, because I'm
Speaker 6: struggling with it. I know it's all at the front end,
Speaker 6: the bulk of it, but treasuries is selling off and
Speaker 6: have been for like the last ten days. What's going
Speaker 6: on there?
Speaker 7: Well, the thing that's interesting with the US market, you're
Speaker 7: seeing these locations, particularly in front end paper, things that
Speaker 7: are going to be impacted by X date the June paper.
Speaker 7: We are definitely seeing this location in pricing, and that's
Speaker 7: just a fact of the fact that there's no cross
Speaker 7: default closes in treasuries, so they can't technically default on
Speaker 7: a paper without it affecting the rest of the curve,
Speaker 7: and so markets are treating it that way, and the
Speaker 7: assumption is if you do get a technical default, it's
Speaker 7: going to be a short, short lived story and actually
Speaker 7: might tip the economy into recession. So you're seeing this
Speaker 7: sort of inversion in the curve where people are buying
Speaker 7: some safe, safe haven duration just to hedge against this outcome.
Speaker 4: So for people who might consider some of the developing
Speaker 4: world's emerging markets, some people on the set who might
Speaker 4: make that suggestion about the US, Others would come out
Speaker 4: and say, what about Nvidio, what about the tech giants
Speaker 4: that have performed really well? And they relate this to
Speaker 4: the bid for US stocks, a bid for US assets
Speaker 4: over the past decade as being a huge driver. How
Speaker 4: do you sort of play that story at a time
Speaker 4: when emerging markets have gotten bid up so far this
Speaker 4: year and all of a sudden, people are realizing perhaps
Speaker 4: there's something like to the US.
Speaker 7: Well, if you look at the performance in US equities,
Speaker 7: I think there's a huge amount of dispersion within that.
Speaker 7: So it's not a one trade for the whole U
Speaker 7: S equity markets. I think it's specific themes that are
Speaker 7: more longer term and structural, things like the adaptation of AI.
Speaker 7: What's that doing to various companies and sectors. I think
Speaker 7: that's a theme that's here to stay. I wouldn't say
Speaker 7: that that means you buy the whole equity market, but
Speaker 7: you definitely look for some of these more resilient stories
Speaker 7: that are going to play out irrespective of whether we
Speaker 7: go into a recession Lisa, and then from an em perspective,
Speaker 7: most of these innovations are quite commodity intensive, so that's
Speaker 7: also another theme. Whether you're talking about things like AI,
Speaker 7: electronic vehicle adaptation, the drive towards more sustainable sorts of manufacturing,
Speaker 7: that's a commodity theme that's going to be also a
Speaker 7: longer term story.
Speaker 9: How do you.
Speaker 4: Understand the valuation at a time or when some of
Speaker 4: these starcks are trading like penny stacks, even though they
Speaker 4: have nearly a trillion dollar valuation.
Speaker 7: It's less about that than more about for more in
Speaker 7: my view, So markets don't know what to do with equities.
Speaker 7: We've been talking about recession, going from recessions to default.
Speaker 7: People are jumping on the stories that look sustainable. So
Speaker 7: the valuations right now are It's hard to say it's
Speaker 7: based purely on fundamentals and more about investors being underinvested
Speaker 7: in equity markets and not wanting to miss out on
Speaker 7: the winners.
Speaker 1: If you look at all the cash out there, and
Speaker 1: I don't mean just you know, typical investment cash, but
Speaker 1: private equity crash, just the genormous amount of cash has
Speaker 1: been raised, do you just assume it will float to
Speaker 1: equities or does it just stay like a brick in cash.
Speaker 7: No, I don't think we're in that world where equities
Speaker 7: is the no brainer play anymore, especially not when you
Speaker 7: have such interesting yields in fixed income. And I think
Speaker 7: for investors that's probably the consideration where whether you're looking
Speaker 7: at cash yielding close to five percent or even duration
Speaker 7: in certain parts of the market. So there is money
Speaker 7: definitely on the sidelines. But I think the days of
Speaker 7: just buying equities blindly because you had easy monetary conditions
Speaker 7: are behind us, and the investors will look at a
Speaker 7: much more balanced portfolio.
Speaker 6: Diana, awesome as always, I'm really good to see you
Speaker 6: in person, Diana Ramo. There of Kirkus World Capital Partners
Speaker 6: joining us now is Larry Adam, the chief investment officer
Speaker 6: at Raymond, James Larry. Let's break this interview up in two.
Speaker 6: We can talk about the debt scening. At the moment,
Speaker 6: I want to talk about this row and rally in
Speaker 6: tech so far this year. Is that something you want
Speaker 6: to fight or participate in?
Speaker 9: Now?
Speaker 8: We want to participate in it.
Speaker 10: I mean, if you'd look at tech, it continues to
Speaker 10: reinvent itself over and over.
Speaker 8: The latest generation is going to be AI.
Speaker 10: And I think as you look at the visibility of earnings,
Speaker 10: you continue to see a strong earning's coming. And I
Speaker 10: think that that's important because a lot of people continue
Speaker 10: to say that tech has gotten expensive. But when you
Speaker 10: start to factor in how much tech has been able
Speaker 10: to beat their earnings, I don't think it's as expensive
Speaker 10: as what people think.
Speaker 8: And I think that trend is going to continue.
Speaker 4: Is tech just big tech or is it all tech?
Speaker 4: Is basically time to go into some of the beaten
Speaker 4: up smaller tech stocks that aren't necessarily as profitable.
Speaker 8: I prefer bigger tech.
Speaker 10: I mean, first of all, they're much more diversified than
Speaker 10: the smaller tech companies.
Speaker 8: I think that's an important discriminating factor.
Speaker 10: Right back twenty years ago, tech was one trick ponies
Speaker 10: where they had one product, one piece of software hardware software,
Speaker 10: where they had to fight the upgrade cycle.
Speaker 8: Now they're much more diversified.
Speaker 10: They have plenty of seeds planet that can continue to
Speaker 10: generate their earnings going forward.
Speaker 8: So I continue like the big tech names.
Speaker 10: And by the way, from the index levels, you guys
Speaker 10: have just stated that's what drives the index.
Speaker 8: So I think you have to be there.
Speaker 1: Larry, just because you're down south, they want to go
Speaker 1: to DeSantis. And the conference call with mister Musk that
Speaker 1: ran like a Raymond James Swiss watch that we saw
Speaker 1: last night, you really emphasize second half of a third
Speaker 1: year of a presidential administration. Discuss the second half of
Speaker 1: a third presidential year.
Speaker 10: Well, I think it's important because what tends to happen
Speaker 10: in the markets is that momentum tends to beget momentum.
Speaker 10: And if you look at the strong start that we've
Speaker 10: had to this year, the first one hundred trading days,
Speaker 10: which by the way, today's the one hundred trading day
Speaker 10: of the year, when it's up more than eight percent,
Speaker 10: the rest of the.
Speaker 8: Year tends to be strong.
Speaker 10: If you look at this presidential election cycle that you're
Speaker 10: referring to from June to the end of this year. Historically,
Speaker 10: ninety two percent of the time the market continues to
Speaker 10: be positive, and that's been consistent through time. That this
Speaker 10: third year of a presidential term is fairly strong.
Speaker 1: Does cash of five percent, four point eight percent, whatever?
Speaker 1: Is that competition for your bullish view?
Speaker 10: I mean, it's clearly become more competition today, right. I
Speaker 10: think at the beginning of this year we were much
Speaker 10: more positive on the equity markets with upside of fifteen percent.
Speaker 10: But clearly we've had a rally and our upside to
Speaker 10: our target now is around six percent.
Speaker 8: So clearly it's become more competition.
Speaker 10: But I still like the equity markets longer term for
Speaker 10: people that have a long term horizon.
Speaker 6: Some went to the politics finished there, Larry, the desk
Speaker 6: sitting debate at the moment, what do you actually came
Speaker 6: in the clients should do?
Speaker 10: I still think that this what's going on down in
Speaker 10: Washington is still pretty much noise, right.
Speaker 8: I mean, I think.
Speaker 10: The looking putting, you know, the US on watch by
Speaker 10: Fitch is just another warning sign across the bow. I
Speaker 10: think in the end we get a deal at the
Speaker 10: very last second. If we don't, I think the downside
Speaker 10: in the market is probably five to seven percent. But then,
Speaker 10: as I always say, the fourth arm of the government,
Speaker 10: the stock market, will come to the rescue. We see
Speaker 10: it down, you know, we see that downward movement in
Speaker 10: the equity market. That'll bring people back to the negotiating
Speaker 10: table and we'll get a deal done and we'll move forward.
Speaker 4: Is there a signal here that you're sealing dollar strength
Speaker 4: despite the concern of a US default. This is basically
Speaker 4: fly in the face of people who were questioning the
Speaker 4: pre eminence of the dollar as the global currency and
Speaker 4: prompt you to actually go more into the dollar.
Speaker 10: Look, I still think the dollar will continue to be
Speaker 10: the dominant currency. I really don't see any other currency
Speaker 10: out there that can really challenge it.
Speaker 8: This is not a news story. People have been.
Speaker 10: Talking about the dollar being challenged with the yen back
Speaker 10: in the eighties, the Euro in the nineteen nineties, in
Speaker 10: two thousand, I don't think there's any question that the
Speaker 10: dollar will remain the dominant currency going forward. I think
Speaker 10: the two factors out there right now is when you
Speaker 10: focus on the Euro, the Euro and Land is probably
Speaker 10: going to continue.
Speaker 8: To raise interest rates.
Speaker 10: The US is going to continue to have better, more
Speaker 10: dynamic growth going forward, So we're looking for more of
Speaker 10: a range bound, particularly versus the Euro between one oh
Speaker 10: five and one ten, and for the most part, that's
Speaker 10: where it continues to be.
Speaker 1: John, he's way too optimistic for six h nine am.
Speaker 1: I mean, Larry's way too optimistic.
Speaker 6: That's Raymond James.
Speaker 8: Thank you say that's great.
Speaker 1: We talk, we speak, we're amateurs. He's not. Mandy Singh
Speaker 1: joins US now senior Technology and Vidia Analystic Bloomberg Intelligence
Speaker 1: for a really important conversation. I got a bunch of questions, Mandy,
Speaker 1: but let me just simply start with the addressable market
Speaker 1: out there over the next decade. There's been some pretty
Speaker 1: good work on this. Is it like the cloud where
Speaker 1: it seems never ending for Nvidia excellence, I think so.
Speaker 9: And what they have done really well is they have
Speaker 9: gone beyond this narrative of you know, Nvidia being just
Speaker 9: a chip company and they have actually proved it in
Speaker 9: the way they have gone about their product launches. So
Speaker 9: now they have been partnering with the hyperscaler, especially Microsoft,
Speaker 9: and it's an application that sits on top of Microsoft cloud,
Speaker 9: which is how you consume generative AI. And I would
Speaker 9: say the addressable market for that is north of trillion
Speaker 9: dollars simply because when you look at how these services
Speaker 9: are deployed the underlying infrastructure, that will become a much
Speaker 9: bigger portion of overall IT spending. So whether the hyperskillers
Speaker 9: let Nvidia kind of continue with that, I am doubtful.
Speaker 9: I don't think AWS is on board with that strategy
Speaker 9: or Google is, but Microsoft definitely is, and that is
Speaker 9: what is working for them in terms of that cloud
Speaker 9: plight mandate.
Speaker 6: What was amazing about yesterday in the guidance was the timeline.
Speaker 6: It was the fact that this demand seemed to have
Speaker 6: already appeared in their outlook and the near term outlook
Speaker 6: for the current coredroom beyond mandate. Have you've got a
Speaker 6: sense for where this has come from, how they're able
Speaker 6: to monetize it right now?
Speaker 9: Yeah? And I think what is very clear right now
Speaker 9: is Intel has given up its leadership when it comes
Speaker 9: to being the primary chip at the data center level.
Speaker 9: So CPUs used to be, you know, the main chip
Speaker 9: that you would need to run a server. Guess what
Speaker 9: going forward, You're going to need a lot more of
Speaker 9: in Vidia GPUs, and Nvidia has bundled their networking GPUs
Speaker 9: switches all in one package, which is the beauty of
Speaker 9: how you can tube things on cloud. So clearly that
Speaker 9: shift from CPUs to GPUs is very visible right now
Speaker 9: in terms of the trend, and that is sustainable, that
Speaker 9: is not going away anytime.
Speaker 4: So but to build them what John was talking about
Speaker 4: the company's forecast for sales during the forward looking period
Speaker 4: was fifty three percent higher at and analyst estimates. Where
Speaker 4: did the surprise come from?
Speaker 9: Well, so that is a real surprise in terms of
Speaker 9: what they saw on ninety days back versus last night.
Speaker 9: And clearly I think the generative AI wave is catching up.
Speaker 9: Everyone right now wants to invest in this. So the
Speaker 9: other aspect of it is the supply side. Last year
Speaker 9: we were in a supply cront situation where Nvidia was
Speaker 9: one of the vendors that was going to DSMC. Now
Speaker 9: that supply has normalized, they can make a lot more
Speaker 9: of these and they can satisfy that insatiable demand on
Speaker 9: the data center side. So I do think the supply easing,
Speaker 9: supply chain easing is helping them, and it's visible in
Speaker 9: the gross margin. The gross margin is close to seventy
Speaker 9: percent for next quarter. That's like a software white margin.
Speaker 9: And you're seeing that gross margin expansion on the back
Speaker 9: of very high demand, which is a very good sign
Speaker 9: when it comes to fundamental I.
Speaker 4: Hate being negative, Nelly, but I do wonder where China
Speaker 4: plays into this, especially as there are certain bands being
Speaker 4: placed or at least restraints on what US or non
Speaker 4: Chinese companies can sell to China with respect to highly
Speaker 4: capable chip technology. So at what point does that become
Speaker 4: a headwind or sort of an unknown the challenges some
Speaker 4: of the absolute runaway valuations of Nvidia.
Speaker 8: Yeah, so you bring up a great point.
Speaker 9: It happened to Micron this week and right now there
Speaker 9: are export controls around in video chips, and to my mind,
Speaker 9: they are actually still undershipping demand on the data center side,
Speaker 9: so that demand is actually higher, which is somewhat reflected
Speaker 9: in the guide now. But still I think if the
Speaker 9: China market is huge for them, and if you know,
Speaker 9: the export controls were to increase, that would certainly hurt them.
Speaker 9: But I don't think NBDIA is the only company that
Speaker 9: gets hurt in that scenario.
Speaker 1: Mandy. There are twelve months at a fifty times earning,
Speaker 1: It's really not all that big of a peopled company
Speaker 1: seventy thousand, whatever the employment is. Maybe they're not a
Speaker 1: takeout candidate, but why doesn't big money come in and
Speaker 1: take out ten or fifteen percent of this is a
Speaker 1: stub out five years or ten years. It just makes
Speaker 1: to me it's a no brainer.
Speaker 8: Yeah.
Speaker 9: Well, I think part of it has to do with
Speaker 9: just how the market is positioned right now. There are
Speaker 9: certain pockets that are in high demand because of the
Speaker 9: AI weight, and then there are certain segments on the
Speaker 9: semi side which are in a mode where they are
Speaker 9: inventory clearing and that sort of thing. So clearly you
Speaker 9: will see a rebound across different chip segments at different times,
Speaker 9: and right now it's anything to do with GENERATORBI that
Speaker 9: is doing well, and there's a good.
Speaker 8: Reason for that.
Speaker 9: I think in terms of a transformative.
Speaker 6: Aspect mandate, can we just finish on where Tom started?
Speaker 6: Basically essentially, how do you value some of these companies
Speaker 6: at the moment?
Speaker 9: Look, I think for a stock like Nvidia, a lot
Speaker 9: is pricing. It was priced for perfection last night too,
Speaker 9: but then when you delivered this kind of beat. It's
Speaker 9: hard to be negative simply because you know, as I said,
Speaker 9: they're still undershipping demand on the data center side, and
Speaker 9: the data center business will double in the next two years,
Speaker 9: so it will grow into its valuation. But any slightness,
Speaker 9: and we've seen that only with semi companies. They can
Speaker 9: have a big beat like this, a monster beat, or
Speaker 9: they can miss big as well. And I don't think
Speaker 9: it's going to happen to Nvidia in the next couple
Speaker 9: of quoteras. But that is always a risk. If the
Speaker 9: hyper scalers were to develop their own chips, their customer
Speaker 9: base is concentrated. I mean it's three customers that's buying
Speaker 9: fifty percent of their chips, you know, the hyper scale
Speaker 9: cloud customers. So if they decide to make our own
Speaker 9: chips or even you know, anything along those lines, that
Speaker 9: will hurt us.
Speaker 6: Talk just amazing, absolutely amazing, man, Dave, Thank you Mandave Sinc.
Speaker 6: There Bloomberg Intelligence on the back of the success of Nvidia.
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