1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,600 --> 00:00:17,840 Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg 4 00:00:17,920 --> 00:00:21,040 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,360 --> 00:00:23,080 Speaker 1: or watch us live on YouTube. 6 00:00:23,840 --> 00:00:26,480 Speaker 2: All right, it is Monday, which means M and A 7 00:00:26,560 --> 00:00:28,720 Speaker 2: is in the house right now. And one of the 8 00:00:28,720 --> 00:00:30,880 Speaker 2: big ones that we're keeping an eye on here is 9 00:00:31,080 --> 00:00:34,120 Speaker 2: people offering to buy MGM Resorts for forty eight dollars 10 00:00:34,120 --> 00:00:36,960 Speaker 2: thirty cents a share in cash. And for anyone who's wondering, 11 00:00:37,320 --> 00:00:41,159 Speaker 2: people incorporated as a company controlled by Barry Diller. So 12 00:00:41,560 --> 00:00:44,000 Speaker 2: let's bring in Jody Lourie. She's our senior credit analyst 13 00:00:44,040 --> 00:00:46,680 Speaker 2: for more on this. Jody walk us through what this 14 00:00:46,720 --> 00:00:49,040 Speaker 2: looks like, because this is forty eight dollars storty cents 15 00:00:49,080 --> 00:00:50,720 Speaker 2: a share in cash. 16 00:00:50,760 --> 00:00:51,960 Speaker 3: Is there going to be debt involved? 17 00:00:52,880 --> 00:00:55,280 Speaker 4: Oh, there is going to be debt involved, Starlette, I 18 00:00:55,600 --> 00:00:58,240 Speaker 4: will not doubt that by any measure. 19 00:00:58,480 --> 00:01:00,000 Speaker 3: Now, of course, is the deal going to get done? 20 00:01:00,120 --> 00:01:01,040 Speaker 3: That's the bigger question. 21 00:01:01,120 --> 00:01:05,240 Speaker 4: But right now, so people owns twenty six point one 22 00:01:05,319 --> 00:01:07,800 Speaker 4: percent and they're planning on increasing that by twenty four 23 00:01:07,840 --> 00:01:11,160 Speaker 4: percent in terms of total ownership, or twenty four percentage 24 00:01:11,160 --> 00:01:14,720 Speaker 4: points in total ownership, and so they want to own 25 00:01:15,000 --> 00:01:18,080 Speaker 4: fifty point one percent and have other investors on the 26 00:01:18,080 --> 00:01:18,600 Speaker 4: other amount. 27 00:01:18,880 --> 00:01:19,800 Speaker 3: Now, if you look. 28 00:01:19,640 --> 00:01:23,640 Speaker 4: At the whole package of that seventy four percent that's 29 00:01:23,680 --> 00:01:27,479 Speaker 4: getting acquired, we estimate that's about eight billion in debt. 30 00:01:27,560 --> 00:01:30,560 Speaker 4: If you exclude the amount of cash that people has 31 00:01:30,560 --> 00:01:32,479 Speaker 4: on hand, which is a little over a billion, it's 32 00:01:32,520 --> 00:01:36,200 Speaker 4: at one point one billion. So eight billion dollars is 33 00:01:36,240 --> 00:01:38,280 Speaker 4: quite a lot. Now, if you only look at what 34 00:01:38,640 --> 00:01:41,520 Speaker 4: they're going to buy, it's still you know, it's still 35 00:01:41,560 --> 00:01:43,759 Speaker 4: a large amount. It's still four or five billion dollar 36 00:01:43,880 --> 00:01:47,640 Speaker 4: in terms of leveraging up the company. So we're talking 37 00:01:47,760 --> 00:01:51,000 Speaker 4: leverage going from mid five times to mid seven times 38 00:01:51,360 --> 00:01:54,840 Speaker 4: on a lease adjusted basis for MGM. And we view 39 00:01:54,880 --> 00:01:58,520 Speaker 4: this less so as an acquisition by equals, more so 40 00:01:58,600 --> 00:02:02,200 Speaker 4: as an LBO type structure, So really just leveraging up MGM, 41 00:02:02,280 --> 00:02:05,160 Speaker 4: putting all the debt on MGM, and creating a situation 42 00:02:05,200 --> 00:02:08,800 Speaker 4: in which MGM's private, in which they have more debt 43 00:02:08,800 --> 00:02:11,240 Speaker 4: on the balance sheet and it's going to be at 44 00:02:11,240 --> 00:02:14,400 Speaker 4: odds with of course, the large leases that they already have, 45 00:02:14,440 --> 00:02:17,720 Speaker 4: which is about you know, three quarters of the debt 46 00:02:17,840 --> 00:02:18,600 Speaker 4: that they have on hand. 47 00:02:19,280 --> 00:02:21,280 Speaker 5: As a former banker, I don't like this balance sheet. 48 00:02:21,400 --> 00:02:25,280 Speaker 5: Start with what's your market telling you, Jody, I mean, 49 00:02:25,720 --> 00:02:27,040 Speaker 5: how did these does trade? 50 00:02:27,400 --> 00:02:30,160 Speaker 4: Yeah, so, Paul, it's one of those names that really 51 00:02:30,200 --> 00:02:32,600 Speaker 4: frustrates me in general, just because a few years ago 52 00:02:32,639 --> 00:02:34,399 Speaker 4: they decided to do a sale lease back of all 53 00:02:34,520 --> 00:02:37,040 Speaker 4: the US assets. So they got rid of all US 54 00:02:37,080 --> 00:02:43,000 Speaker 4: assets and instead went into this sale easepack structure, which 55 00:02:43,040 --> 00:02:46,720 Speaker 4: is basically, they pay rent, they pay rent, they pay 56 00:02:46,880 --> 00:02:50,200 Speaker 4: they pay taxes, they pay all the upkeeping capex and 57 00:02:50,280 --> 00:02:55,120 Speaker 4: operating operating costs on the properties. But they're a tenant 58 00:02:55,680 --> 00:02:57,760 Speaker 4: and so you look at that and you say, well, 59 00:02:57,760 --> 00:03:00,320 Speaker 4: wait a minute, what's the benefit of that. These are 60 00:03:00,360 --> 00:03:05,200 Speaker 4: long term structures with a few parties and you're paying constantly. Now, 61 00:03:05,240 --> 00:03:08,400 Speaker 4: it is a little bit cheaper in theory than borrowing 62 00:03:08,520 --> 00:03:11,040 Speaker 4: debt all the time, but it is one of those 63 00:03:11,080 --> 00:03:13,760 Speaker 4: situations that as a bondholder, you say, okay, if they 64 00:03:13,760 --> 00:03:18,080 Speaker 4: only have about five six billion, seven billion in debt outstanding, 65 00:03:18,440 --> 00:03:21,560 Speaker 4: but then they have about twenty nine billion or twenty 66 00:03:21,560 --> 00:03:25,519 Speaker 4: five billion excuse me, in operating leases, you're not really 67 00:03:25,560 --> 00:03:28,520 Speaker 4: a big fan of that. And so this is a 68 00:03:28,560 --> 00:03:32,680 Speaker 4: company where from a business perspective, it's really fantastic in 69 00:03:32,760 --> 00:03:36,560 Speaker 4: terms of the reach, in terms of the geo structure 70 00:03:36,600 --> 00:03:38,680 Speaker 4: that they have. I mean, they have buildings in Osaka, 71 00:03:39,040 --> 00:03:41,800 Speaker 4: you know, they have buildings. Obviously, they have MGM China, 72 00:03:41,840 --> 00:03:44,160 Speaker 4: which is based in Macaw, they have all throughout the 73 00:03:44,240 --> 00:03:47,240 Speaker 4: US and a really big stronghold in Vegas. But then 74 00:03:47,440 --> 00:03:49,800 Speaker 4: you just throw on those operating leases and as a 75 00:03:49,800 --> 00:03:52,120 Speaker 4: bondholder you can never get comfortable, but even more so 76 00:03:52,320 --> 00:03:54,560 Speaker 4: now when it's going to get levered up and so 77 00:03:54,600 --> 00:03:55,840 Speaker 4: the bonds are just widening. 78 00:03:56,440 --> 00:03:59,720 Speaker 3: Jody, what's going on in the casino sector. We had 79 00:03:59,720 --> 00:04:01,360 Speaker 3: you on last week when. 80 00:04:01,360 --> 00:04:06,560 Speaker 2: We talked about for Tita Entertainment buying Caesars, and now 81 00:04:06,600 --> 00:04:09,200 Speaker 2: you have people's buying the chunk of MGM resource that 82 00:04:09,280 --> 00:04:12,360 Speaker 2: doesn't already own what's happening in the casino business fundamentally 83 00:04:12,400 --> 00:04:14,960 Speaker 2: that is causing or that is triggering all this M 84 00:04:14,960 --> 00:04:15,120 Speaker 2: and A. 85 00:04:16,240 --> 00:04:18,039 Speaker 4: So Scarlett, I think we're in a little bit of 86 00:04:18,080 --> 00:04:21,760 Speaker 4: a late stage indication from a credit cycle perspective. If 87 00:04:21,800 --> 00:04:25,119 Speaker 4: I had to opine on it, just because you only 88 00:04:25,160 --> 00:04:28,400 Speaker 4: see these sort of scenarios in these later stages, right 89 00:04:28,720 --> 00:04:31,680 Speaker 4: that's when the LBOs happen. We also have the political 90 00:04:31,720 --> 00:04:33,919 Speaker 4: situation where things are a little bit more lax at 91 00:04:33,960 --> 00:04:36,640 Speaker 4: the DOJ and the SEC, and so that also opens 92 00:04:36,680 --> 00:04:40,760 Speaker 4: the door to these acquisitions getting done even being a possibility. 93 00:04:41,120 --> 00:04:43,719 Speaker 4: But for gaming in particular, it's sort of interesting because 94 00:04:43,760 --> 00:04:45,680 Speaker 4: we also have the prediction markets, which of course have 95 00:04:45,760 --> 00:04:48,960 Speaker 4: created all sorts of waves in the industry in terms 96 00:04:48,960 --> 00:04:51,839 Speaker 4: of the digital side of things. So that online gaming 97 00:04:51,880 --> 00:04:55,240 Speaker 4: sports betting component has been a big sort of avenue 98 00:04:55,279 --> 00:04:57,279 Speaker 4: for growth a lot for a lot of these companies 99 00:04:57,480 --> 00:05:00,760 Speaker 4: where it's really just you know, other is not really 100 00:05:00,760 --> 00:05:05,040 Speaker 4: a very exciting industry, and the prediction markets is definitely 101 00:05:05,040 --> 00:05:06,840 Speaker 4: shaking it up a little bit in the US and 102 00:05:07,240 --> 00:05:10,560 Speaker 4: causing questions of what's the next growth story. So it's 103 00:05:10,600 --> 00:05:14,039 Speaker 4: not really so surprising that these investors are coming in 104 00:05:14,080 --> 00:05:16,680 Speaker 4: and saying, hey, I can do a better job, particularly 105 00:05:16,680 --> 00:05:19,400 Speaker 4: investors that are already smart in the industry. They've already 106 00:05:19,440 --> 00:05:21,760 Speaker 4: been involved in it in some sense, or involved in 107 00:05:21,800 --> 00:05:25,280 Speaker 4: related industries in some sense. So we're not surprised as 108 00:05:25,360 --> 00:05:30,120 Speaker 4: much as we are intrigued and concerned for creditors. 109 00:05:30,640 --> 00:05:33,560 Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this. 110 00:05:37,360 --> 00:05:41,040 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 111 00:05:41,120 --> 00:05:44,200 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 112 00:05:44,240 --> 00:05:47,520 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 113 00:05:47,600 --> 00:05:50,720 Speaker 1: you get your podcasts, or watch us live on YouTube. 114 00:05:51,520 --> 00:05:55,360 Speaker 5: Let's talk about our good friends at Berkshire Hathaway. Matthew 115 00:05:55,360 --> 00:05:57,600 Speaker 5: palos Oli. He joints us here from Bloomberg Intelligence. He 116 00:05:57,640 --> 00:06:00,440 Speaker 5: covers all the insurance companies, including Berkshire Hathway Ay Berkshire 117 00:06:00,440 --> 00:06:03,480 Speaker 5: Hathway in the market again here for a deal. What 118 00:06:03,640 --> 00:06:08,320 Speaker 5: is Taylor Marson? And what if somebody is a Berkser 119 00:06:08,440 --> 00:06:09,960 Speaker 5: shareolder think about this deal? 120 00:06:10,400 --> 00:06:12,839 Speaker 6: So you may or may not recall I was in 121 00:06:12,839 --> 00:06:14,679 Speaker 6: here a couple of weeks ago and I had said 122 00:06:15,080 --> 00:06:17,479 Speaker 6: what I would like to see Greg Abell do is 123 00:06:17,800 --> 00:06:21,279 Speaker 6: hit some doubles and singles. Perhaps I think this is 124 00:06:21,480 --> 00:06:25,240 Speaker 6: exactly in line with that. So Taylor is a home builder. 125 00:06:25,720 --> 00:06:31,760 Speaker 6: Berkshire owns the biggest off site homebuilder in the country. 126 00:06:31,760 --> 00:06:33,560 Speaker 3: And what does off site home builder mean? 127 00:06:33,680 --> 00:06:35,360 Speaker 6: So they build the house and then they bring you 128 00:06:35,440 --> 00:06:37,800 Speaker 6: the house. So when I was at the annual meeting 129 00:06:37,880 --> 00:06:42,080 Speaker 6: in May. They literally had houses inside of the convention center, 130 00:06:42,600 --> 00:06:46,839 Speaker 6: and those houses more in the affordable end. This is 131 00:06:47,040 --> 00:06:50,560 Speaker 6: a vertically integrated company. Their company, they own Clayton, so 132 00:06:50,600 --> 00:06:53,000 Speaker 6: they do it from beginning to end. They sell the house. 133 00:06:53,240 --> 00:06:55,880 Speaker 6: The houses are maybe around two hundred thousand dollars. This 134 00:06:55,960 --> 00:07:00,160 Speaker 6: company they're buying fits very nicely with it because they're 135 00:07:00,000 --> 00:07:04,040 Speaker 6: an on site builder of more higher end homes, so 136 00:07:04,080 --> 00:07:06,960 Speaker 6: it's complementary to the business the business that they have. 137 00:07:07,120 --> 00:07:09,200 Speaker 6: They're not paying too much. It's eight point five billion, 138 00:07:09,480 --> 00:07:11,840 Speaker 6: that's about two percent of their three hundred and seventy 139 00:07:11,840 --> 00:07:16,040 Speaker 6: three billion cash as of March thirty first, and the 140 00:07:16,120 --> 00:07:18,960 Speaker 6: valuation these stocks have been beat up, as you might 141 00:07:19,000 --> 00:07:22,320 Speaker 6: have guessed, so the valuations down. I think I'm not 142 00:07:22,360 --> 00:07:26,400 Speaker 6: a home builder analyst, but Taylor was underperforming peers, and 143 00:07:26,400 --> 00:07:28,520 Speaker 6: I don't think Berkshire minds that all that much to 144 00:07:28,520 --> 00:07:31,280 Speaker 6: get it at probably a discount to its historical valuation. 145 00:07:31,640 --> 00:07:35,040 Speaker 2: And one thing that analysts point out is the fact 146 00:07:35,040 --> 00:07:39,160 Speaker 2: that greg Abel said that they want to overtime unify 147 00:07:39,280 --> 00:07:42,840 Speaker 2: our site built home building operations into a combined platform. 148 00:07:43,200 --> 00:07:45,920 Speaker 2: With this new purchase of Taylor Morrison and combine it 149 00:07:45,960 --> 00:07:49,600 Speaker 2: with Clayton Holmes. This is a different strategy, isn't it 150 00:07:49,640 --> 00:07:53,200 Speaker 2: from Berksher's usual approach of letting acquisitions run on their 151 00:07:53,200 --> 00:07:54,360 Speaker 2: own under their own branding. 152 00:07:54,440 --> 00:07:54,600 Speaker 3: Yeah. 153 00:07:54,680 --> 00:07:57,040 Speaker 6: No, that's a good thing to point out, Scarlett. They 154 00:07:57,080 --> 00:07:59,920 Speaker 6: typically Berkshire does not ever talk about synergies or or 155 00:08:00,080 --> 00:08:03,600 Speaker 6: or use that as any kind of justification forever buying something, 156 00:08:03,880 --> 00:08:07,840 Speaker 6: but greg Abel did specifically not so Clayton. They do 157 00:08:07,960 --> 00:08:09,800 Speaker 6: the business where they build a house and they bring you. 158 00:08:09,840 --> 00:08:11,640 Speaker 6: They have a smaller business where they do build it 159 00:08:11,680 --> 00:08:15,120 Speaker 6: on the site, and they were building building that unintended 160 00:08:15,200 --> 00:08:19,520 Speaker 6: over time through acquisitions. So what Able's saying is we're 161 00:08:19,520 --> 00:08:21,640 Speaker 6: going to take that business and probably fold it into 162 00:08:21,680 --> 00:08:26,480 Speaker 6: the tailor business and it's probably a better run through them. Also, 163 00:08:26,520 --> 00:08:32,800 Speaker 6: by the way, Berkshire owns a ton of manufacturing component businesses, 164 00:08:33,080 --> 00:08:35,800 Speaker 6: So Paul, you probably have the Benjamin Moore cea foam 165 00:08:35,840 --> 00:08:39,640 Speaker 6: pain in your shorehouse. That's a Berkshire Hathaway product. 166 00:08:39,760 --> 00:08:39,920 Speaker 7: Right. 167 00:08:39,920 --> 00:08:44,000 Speaker 6: They do flooring installations, all kinds of companies, and again 168 00:08:44,040 --> 00:08:46,480 Speaker 6: they don't talk about like having synergies here, but there's 169 00:08:46,520 --> 00:08:47,920 Speaker 6: definitely some opportunity to. 170 00:08:48,120 --> 00:08:49,720 Speaker 3: So they control a lot of the supply chain. 171 00:08:49,840 --> 00:08:55,160 Speaker 6: Yeah, and Taylor. While Clayton is vertically integrated, Taylor buys 172 00:08:55,280 --> 00:08:56,079 Speaker 6: from suppliers. 173 00:08:56,640 --> 00:09:00,199 Speaker 5: What's the cadence of acquisition activity for Berksher Hathaway. They 174 00:09:00,800 --> 00:09:02,880 Speaker 5: like to do one a year, two a year one. 175 00:09:02,960 --> 00:09:06,160 Speaker 6: We're just opportunistic, you know the answer to that, Paul, 176 00:09:06,200 --> 00:09:08,080 Speaker 6: They're going to do it when they see it in 177 00:09:08,120 --> 00:09:08,560 Speaker 6: the market. 178 00:09:08,600 --> 00:09:09,000 Speaker 5: They don't. 179 00:09:09,120 --> 00:09:12,920 Speaker 6: There's no timetable, there's no you know, we have to 180 00:09:12,920 --> 00:09:14,839 Speaker 6: do it. We have to deploy cash in any way. 181 00:09:15,240 --> 00:09:19,440 Speaker 6: They preach patients over anything. So I think it's you know, 182 00:09:19,520 --> 00:09:22,040 Speaker 6: when we see the deal, we do it. In the 183 00:09:22,080 --> 00:09:24,760 Speaker 6: note we put out today, we do have the deals 184 00:09:24,920 --> 00:09:27,840 Speaker 6: and capital deployment that they have done over time, and 185 00:09:27,880 --> 00:09:30,720 Speaker 6: it is I think more than you'd realize. They spend 186 00:09:30,720 --> 00:09:32,760 Speaker 6: twelve billion dollars on Google stock in the first quarter, 187 00:09:32,760 --> 00:09:34,160 Speaker 6: which is bigger than this acquisition. 188 00:09:35,480 --> 00:09:38,240 Speaker 2: We look at Berkshire Hathway shares and they've kind of underperformed, 189 00:09:38,559 --> 00:09:40,600 Speaker 2: down five point six percent this year when the SMP 190 00:09:40,760 --> 00:09:44,360 Speaker 2: is up about eleven percent. Does this kind of deal 191 00:09:44,600 --> 00:09:47,319 Speaker 2: help persure makeups some that gap? 192 00:09:47,640 --> 00:09:48,080 Speaker 7: Probably not. 193 00:09:49,120 --> 00:09:52,400 Speaker 6: I don't think so. I think this is probably able 194 00:09:52,480 --> 00:09:56,000 Speaker 6: building investor confidence over time. I mean, I think that 195 00:09:56,160 --> 00:10:00,520 Speaker 6: the the leaving of warm Buffett really left a whole 196 00:10:00,960 --> 00:10:03,720 Speaker 6: in the hearts and minds of people investing in the company, 197 00:10:03,960 --> 00:10:06,000 Speaker 6: and I think that needs to be rebuilt. I think, 198 00:10:06,200 --> 00:10:11,760 Speaker 6: ironically Berkshire's the kind of proto ANTIAI trade. You know, 199 00:10:11,800 --> 00:10:14,480 Speaker 6: they have all hard assets, they have a financial business, 200 00:10:14,480 --> 00:10:18,040 Speaker 6: and the insurance should you see the AI trade kind 201 00:10:18,040 --> 00:10:20,200 Speaker 6: of sell off be the natural company that I would 202 00:10:20,240 --> 00:10:22,559 Speaker 6: think would benefit from that. But even in the times 203 00:10:22,559 --> 00:10:24,520 Speaker 6: where that has happened earlier in the year, it hasn't 204 00:10:24,559 --> 00:10:26,120 Speaker 6: really over themed. 205 00:10:28,600 --> 00:10:31,560 Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this. 206 00:10:33,600 --> 00:10:37,280 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 207 00:10:37,360 --> 00:10:40,440 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 208 00:10:40,480 --> 00:10:43,760 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 209 00:10:43,840 --> 00:10:46,960 Speaker 1: you get your podcasts, or watch us live on YouTube. 210 00:10:48,120 --> 00:10:51,319 Speaker 2: Video is entering the PC market with this new RTX 211 00:10:51,320 --> 00:10:56,319 Speaker 2: spark super chip. It's of course causing repercussions across a 212 00:10:56,440 --> 00:11:00,360 Speaker 2: chip space. We see Intel shares AMD shares to line. 213 00:11:00,480 --> 00:11:03,400 Speaker 2: Of course they are competitors. Let's bring in Mandeep Seing, 214 00:11:03,440 --> 00:11:06,040 Speaker 2: our global tech research head here at Bloomberg Intelligence for 215 00:11:06,120 --> 00:11:09,160 Speaker 2: more on this. So mand Jensen Hook made the announcement 216 00:11:09,240 --> 00:11:12,480 Speaker 2: in tipaid and Industry conference. How big a deal is 217 00:11:12,480 --> 00:11:15,439 Speaker 2: this that in Nvidia is entering the PC market. 218 00:11:15,840 --> 00:11:18,960 Speaker 7: Well, PC is a saturated market, you know, when you 219 00:11:19,000 --> 00:11:21,480 Speaker 7: think about the PC market, two hundred and fifty million 220 00:11:21,600 --> 00:11:26,480 Speaker 7: units a year grows probably low single digit So it's 221 00:11:26,559 --> 00:11:29,440 Speaker 7: not that exciting compared to some of the other stuff 222 00:11:29,440 --> 00:11:31,719 Speaker 7: that they've been doing on the server side and the 223 00:11:31,840 --> 00:11:34,800 Speaker 7: data center side, and the numbers would pay in comparison. 224 00:11:35,400 --> 00:11:39,199 Speaker 7: I think where they're going with this is they think 225 00:11:39,320 --> 00:11:43,319 Speaker 7: the physical AI would be a much bigger opportunity. Now, 226 00:11:43,320 --> 00:11:47,359 Speaker 7: when I say physical AI, it's your robotics, your humanoids 227 00:11:47,480 --> 00:11:49,840 Speaker 7: and that kind of stuff, and you're not going to 228 00:11:49,880 --> 00:11:53,319 Speaker 7: be able to do that just by focusing on the 229 00:11:53,360 --> 00:11:56,440 Speaker 7: server and the data center market. So they really want 230 00:11:56,480 --> 00:12:00,600 Speaker 7: to expand into other areas to build that ecosystem where 231 00:12:00,720 --> 00:12:04,560 Speaker 7: they have, you know, a PC footprint, and they just 232 00:12:04,600 --> 00:12:07,199 Speaker 7: don't want to be the chip provider anymore. That's been 233 00:12:07,280 --> 00:12:10,880 Speaker 7: Invidiou's key struality over the past few years is they 234 00:12:10,920 --> 00:12:13,960 Speaker 7: will give you all in terms of the Kuda software 235 00:12:14,920 --> 00:12:18,319 Speaker 7: stuff on the networking side, rather than just being confined 236 00:12:18,360 --> 00:12:21,640 Speaker 7: to being a GPU provider. And that's where they're going 237 00:12:21,679 --> 00:12:24,720 Speaker 7: with this is Look, you guys can run agentic AI 238 00:12:24,960 --> 00:12:28,400 Speaker 7: on our PCs. Now. Granted, their market share would be, 239 00:12:29,120 --> 00:12:31,840 Speaker 7: you know, low single digit. I don't expect it to 240 00:12:31,920 --> 00:12:35,040 Speaker 7: really take off and displace Intel our AMD, But what 241 00:12:35,080 --> 00:12:38,720 Speaker 7: they're trying to prove is the concept that in theory, 242 00:12:39,040 --> 00:12:41,880 Speaker 7: we can have our own PC and that is what 243 00:12:41,920 --> 00:12:44,000 Speaker 7: will position us well for that roboty if. 244 00:12:43,960 --> 00:12:47,000 Speaker 5: We choose to go down that d Yeah, the strategy 245 00:12:47,040 --> 00:12:49,840 Speaker 5: guy who advised Jensen Wang to do this, he'll be 246 00:12:49,960 --> 00:12:51,880 Speaker 5: out of a job in twelve months. I guarantee you. 247 00:12:51,960 --> 00:12:54,080 Speaker 3: This is why this PCs. 248 00:12:54,440 --> 00:12:56,959 Speaker 5: That's like some nineteen eighties dude. I mean, I'm an 249 00:12:57,000 --> 00:13:00,920 Speaker 5: AI company. I just want the AI or that's all 250 00:13:00,920 --> 00:13:04,240 Speaker 5: I want. I don't need to be making anything. I 251 00:13:04,280 --> 00:13:06,520 Speaker 5: don't want people touching my product. I just want to 252 00:13:06,520 --> 00:13:09,199 Speaker 5: be the AI company. That is what Scott Nvidia to 253 00:13:09,200 --> 00:13:10,679 Speaker 5: where it is now. I would argue it. 254 00:13:10,679 --> 00:13:14,040 Speaker 7: Has, but look at what they've done on the server side. 255 00:13:14,240 --> 00:13:19,000 Speaker 7: Server wasn't a very fast growing market. Suddenly everyone wants 256 00:13:19,040 --> 00:13:22,800 Speaker 7: to be in the server market. Why because the nature 257 00:13:22,840 --> 00:13:26,880 Speaker 7: of compute has changed with AI workloads, and with Agent TAKEAI, 258 00:13:27,360 --> 00:13:30,600 Speaker 7: we're talking about a very different type of compute than 259 00:13:30,640 --> 00:13:33,560 Speaker 7: what we are used to seeing on our desktops and laptops. 260 00:13:33,600 --> 00:13:37,120 Speaker 7: And so from that perspective, if the new interface for 261 00:13:37,240 --> 00:13:41,560 Speaker 7: Agent TAKEAI is conversational and a lot of stuff happens 262 00:13:41,600 --> 00:13:45,240 Speaker 7: in the background with an agent, then clearly your old 263 00:13:45,320 --> 00:13:46,800 Speaker 7: PC is not good enough for that. 264 00:13:47,559 --> 00:13:49,640 Speaker 5: Just doesn't have the technology chops that I do. I 265 00:13:49,960 --> 00:13:52,240 Speaker 5: can think way out in advance, and I don't want 266 00:13:52,240 --> 00:13:54,400 Speaker 5: to be with you exactly. 267 00:13:54,679 --> 00:13:58,000 Speaker 2: Clearly put into context for us another headline we got 268 00:13:58,040 --> 00:14:01,080 Speaker 2: on in video, which is it Saysthropic, Open AI and 269 00:14:01,120 --> 00:14:03,840 Speaker 2: SpaceX or among the first big users of this upcoming 270 00:14:03,880 --> 00:14:07,760 Speaker 2: microprocessor called Verra CPUs in their data centers. What is 271 00:14:07,800 --> 00:14:09,760 Speaker 2: this about and how does this fit in with the 272 00:14:09,800 --> 00:14:10,720 Speaker 2: broader strategy. 273 00:14:11,040 --> 00:14:13,800 Speaker 7: Yeah, so via Rubin, as you know, is their new 274 00:14:13,960 --> 00:14:18,720 Speaker 7: architecture after Blackwealth what they currently have, and they talked 275 00:14:18,720 --> 00:14:22,760 Speaker 7: about ramping it to full production in fall, and as 276 00:14:22,880 --> 00:14:26,680 Speaker 7: part of that they're really toouting you know, the CPU 277 00:14:26,840 --> 00:14:29,920 Speaker 7: portion of that Vira system that has got you know, 278 00:14:30,040 --> 00:14:35,120 Speaker 7: GPUs networking and everything in terms of an optimized system infrastructure. 279 00:14:35,560 --> 00:14:39,120 Speaker 7: So they are saying our CPU, which works very well 280 00:14:39,160 --> 00:14:45,400 Speaker 7: in this system. Integrated architecture will help you deploy agent AI. 281 00:14:45,560 --> 00:14:48,280 Speaker 7: And the reason why that stress on CPU is because 282 00:14:48,840 --> 00:14:53,120 Speaker 7: with Agent Tachai, the shift from chatbots to agent Takai, 283 00:14:53,240 --> 00:14:56,840 Speaker 7: the importance of CPU has grown. So they think CPU 284 00:14:56,920 --> 00:14:59,080 Speaker 7: is a big market and it's an important part of 285 00:14:59,080 --> 00:15:02,360 Speaker 7: that agentic rca detector and hence why this stress on SEA. 286 00:15:02,440 --> 00:15:05,120 Speaker 2: So black Claws, the current most advanced AI chip VIA 287 00:15:05,240 --> 00:15:06,000 Speaker 2: is the next generation. 288 00:15:06,120 --> 00:15:06,520 Speaker 4: That's right. 289 00:15:07,960 --> 00:15:10,880 Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this. 290 00:15:15,040 --> 00:15:18,760 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 291 00:15:18,840 --> 00:15:21,920 Speaker 1: weekdays at ten am Eastern on Apple Cockplay and Android 292 00:15:21,920 --> 00:15:25,240 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 293 00:15:25,280 --> 00:15:28,840 Speaker 1: you get your podcasts, or watch us live on YouTube. 294 00:15:29,840 --> 00:15:32,360 Speaker 5: We're supposed to be Isabell Lee Last Hour and extend. 295 00:15:32,360 --> 00:15:34,680 Speaker 5: They bait and switch me put Eric Malchunis in, which 296 00:15:34,800 --> 00:15:35,680 Speaker 5: was a crushing. 297 00:15:35,520 --> 00:15:36,280 Speaker 3: That was a downgrade for you. 298 00:15:36,560 --> 00:15:38,280 Speaker 5: That was a downgrade for you. But we got Isabella 299 00:15:38,320 --> 00:15:40,800 Speaker 5: Lee now cross Asser reporter for Bloomberg News. She's in 300 00:15:40,800 --> 00:15:41,280 Speaker 5: our studio. 301 00:15:42,200 --> 00:15:44,120 Speaker 3: You guys have a big take story out today. 302 00:15:44,160 --> 00:15:47,800 Speaker 5: Lu Wang Bailey, Lipschultz and you, Isabella Lee, this SpaceX ipo. 303 00:15:48,400 --> 00:15:50,960 Speaker 5: This is kind of setting new rules and new norms 304 00:15:50,960 --> 00:15:52,040 Speaker 5: for the IPO market, is it. 305 00:15:52,200 --> 00:15:55,280 Speaker 8: Yes, it's just so consequential. It's reorganizing a lot of 306 00:15:55,280 --> 00:15:57,160 Speaker 8: the parts of the markets, and one of those that 307 00:15:57,240 --> 00:16:01,040 Speaker 8: it's reorganizing is the stead quiet world of passive investing. 308 00:16:01,160 --> 00:16:04,800 Speaker 8: So because a lot of the companies behind the massive 309 00:16:05,320 --> 00:16:08,000 Speaker 8: indexes you can think of the company behind SMP five hundred, 310 00:16:08,080 --> 00:16:12,760 Speaker 8: NASAK one hundred, Russell, they're changing and have changed their 311 00:16:12,840 --> 00:16:17,560 Speaker 8: rules to accommodate megacap IPOs like SpaceX. They don't really 312 00:16:17,600 --> 00:16:20,480 Speaker 8: say it's for SpaceX, it's just SpaceX, because when companies 313 00:16:20,520 --> 00:16:24,000 Speaker 8: go public these days, it's they're mega companies as opposed 314 00:16:24,000 --> 00:16:26,600 Speaker 8: to in the past when they're just you know, a company. Now, 315 00:16:26,640 --> 00:16:29,320 Speaker 8: you scale privately, you raise funds privately, and when you 316 00:16:29,360 --> 00:16:31,240 Speaker 8: go public, you're the super giant company. 317 00:16:31,320 --> 00:16:32,120 Speaker 1: So for the. 318 00:16:32,160 --> 00:16:34,440 Speaker 8: NASAC, I think the seasoning period, which you can think 319 00:16:34,480 --> 00:16:36,400 Speaker 8: of it as a wait time before they add you 320 00:16:36,440 --> 00:16:38,680 Speaker 8: to the NASAK one hundred. It used to be three months. 321 00:16:39,040 --> 00:16:41,280 Speaker 8: They've narrowed it down to fifteen days. For foot T 322 00:16:41,440 --> 00:16:44,560 Speaker 8: one hundred, it's five days. SMP is still in consultation, 323 00:16:44,640 --> 00:16:46,160 Speaker 8: but from twelve months six. 324 00:16:46,000 --> 00:16:48,040 Speaker 2: Months, right, I mean it feels like they have to 325 00:16:48,080 --> 00:16:50,480 Speaker 2: go down that pass if everyone else did. Is this 326 00:16:50,840 --> 00:16:53,320 Speaker 2: a one time thing where they're changing for SpaceX or 327 00:16:53,440 --> 00:16:54,240 Speaker 2: is this from here on out? 328 00:16:54,280 --> 00:16:56,520 Speaker 3: Because if the SpaceX IPO goes off. 329 00:16:56,480 --> 00:16:59,320 Speaker 2: Without a hitch, then we're also going to see Anthropic 330 00:16:59,360 --> 00:17:01,840 Speaker 2: and open AI list as well, and they too could 331 00:17:01,880 --> 00:17:04,240 Speaker 2: then potentially join the NAS like one hundred after fifteen 332 00:17:04,280 --> 00:17:04,840 Speaker 2: trading days. 333 00:17:04,920 --> 00:17:07,919 Speaker 8: Yes, they never say it's for SpaceX, it's for megacap companies, 334 00:17:08,200 --> 00:17:11,000 Speaker 8: so one good thing. It's likely also for anthropic and 335 00:17:11,000 --> 00:17:13,240 Speaker 8: open AI. And this isn't unprecedented in the past, they've 336 00:17:13,280 --> 00:17:15,679 Speaker 8: also tried to change your rules to accommodate META if 337 00:17:15,720 --> 00:17:19,040 Speaker 8: I'm not mistaken in twenty twelve, but Annals estimate that 338 00:17:19,080 --> 00:17:22,320 Speaker 8: for SpaceX, if the rules apply, index funds would have 339 00:17:22,359 --> 00:17:26,520 Speaker 8: to buy twenty billion dollars worth of SpaceX shares, which 340 00:17:26,560 --> 00:17:28,479 Speaker 8: is a lot, and that could really move the markets. 341 00:17:28,520 --> 00:17:31,560 Speaker 8: And that's not even considering where it will be. Is 342 00:17:31,600 --> 00:17:33,639 Speaker 8: it going to be communication, Is it going to be industrial, Is. 343 00:17:33,600 --> 00:17:34,879 Speaker 3: It going to be what? Is it going to be 344 00:17:34,920 --> 00:17:35,919 Speaker 3: classic classication? 345 00:17:36,000 --> 00:17:36,200 Speaker 7: Yes? 346 00:17:36,280 --> 00:17:38,080 Speaker 8: Is it going to be a tech firm. So yeah, 347 00:17:38,080 --> 00:17:39,280 Speaker 8: no one knows, but it's. 348 00:17:39,119 --> 00:17:42,120 Speaker 5: Interesting you mentioned that because I was wondering, like what analysts, 349 00:17:42,440 --> 00:17:45,640 Speaker 5: which analysts on Wall Street will be covering the yes, 350 00:17:45,800 --> 00:17:47,160 Speaker 5: and so what I want to understand is a lot 351 00:17:47,160 --> 00:17:48,880 Speaker 5: of the aerospace and defense. 352 00:17:49,040 --> 00:17:51,680 Speaker 8: Rockets usually are industrials. But then if you look at 353 00:17:51,680 --> 00:17:54,440 Speaker 8: the revenue generating I mean, it has cloud services, deals 354 00:17:54,480 --> 00:17:56,160 Speaker 8: with anthropic that's communication. 355 00:17:56,680 --> 00:17:58,120 Speaker 3: Sorry, no, that's tech. 356 00:17:58,520 --> 00:18:03,320 Speaker 8: But then they Nicolas Colas of Data Trick awesome, he 357 00:18:03,400 --> 00:18:06,320 Speaker 8: said it might be communications because of the sales, and 358 00:18:06,520 --> 00:18:09,200 Speaker 8: guess we're alphabet and meta is communications. 359 00:18:09,280 --> 00:18:11,960 Speaker 2: No matter what, it's going to be the gigantic company 360 00:18:12,040 --> 00:18:14,520 Speaker 2: in that sector, especially if it's something like communications, which 361 00:18:14,560 --> 00:18:16,919 Speaker 2: doesn't have as many names as the tech sector. 362 00:18:16,640 --> 00:18:19,399 Speaker 8: One hundred percent. But it's just so unprecedented, to be honest, 363 00:18:19,400 --> 00:18:21,879 Speaker 8: and it will also pave the way for the mega 364 00:18:21,880 --> 00:18:24,000 Speaker 8: IPOs we're going to see at the end of this year. 365 00:18:24,119 --> 00:18:26,320 Speaker 5: And what I like about the Big Takes stories AI, 366 00:18:26,359 --> 00:18:30,000 Speaker 5: they're just really interesting stories, and they're deeply resourced and 367 00:18:30,040 --> 00:18:33,240 Speaker 5: deeply sourced all that kind of cool stuff. Even nice pretty. 368 00:18:32,960 --> 00:18:35,640 Speaker 3: Pictures likes always. 369 00:18:35,359 --> 00:18:38,480 Speaker 5: Help, And they've got a pretty picture about how SpaceX 370 00:18:38,600 --> 00:18:42,360 Speaker 5: IPO stacks ups in terms of offer size, the biggest 371 00:18:42,359 --> 00:18:45,080 Speaker 5: in terms of market cap one point eight trillion, second 372 00:18:45,160 --> 00:18:45,840 Speaker 5: only to a round. 373 00:18:45,880 --> 00:18:47,160 Speaker 8: I think can just compare on it. 374 00:18:47,160 --> 00:18:50,240 Speaker 5: It's just extraordinary. So it's way way off the grid here, 375 00:18:52,280 --> 00:18:55,280 Speaker 5: I guess, you know, do we expect this thing to 376 00:18:55,400 --> 00:18:56,879 Speaker 5: just do a normal road show? Are they going to 377 00:18:56,920 --> 00:18:58,600 Speaker 5: go to do we I haven't even seen a road 378 00:18:58,600 --> 00:19:00,480 Speaker 5: show schedule. Are they going to do in New York? 379 00:19:00,480 --> 00:19:01,560 Speaker 5: At they in London? And day that? 380 00:19:01,760 --> 00:19:02,240 Speaker 3: I'm not sure. 381 00:19:02,280 --> 00:19:03,679 Speaker 8: I think it's going to be mid June. But I 382 00:19:03,680 --> 00:19:05,960 Speaker 8: want to bring up one important point. Also, they're going 383 00:19:05,960 --> 00:19:08,359 Speaker 8: to allot thirty percent of retail traders, and just this 384 00:19:08,440 --> 00:19:11,080 Speaker 8: morning newsbrook that five percent will be allotted to employees, 385 00:19:11,080 --> 00:19:12,159 Speaker 8: which I think is more normal. 386 00:19:12,200 --> 00:19:14,879 Speaker 3: Why is that unusual? That's a huge. 387 00:19:14,600 --> 00:19:17,560 Speaker 8: Size because in the old playbook, it's institutional money that 388 00:19:17,640 --> 00:19:19,640 Speaker 8: gets a lot of this and retailers are just left 389 00:19:19,640 --> 00:19:22,760 Speaker 8: with leftovers. But now it's really putting the retail investors 390 00:19:23,000 --> 00:19:26,880 Speaker 8: to a pedestal and recognizing them to be an important part. 391 00:19:26,880 --> 00:19:29,879 Speaker 8: I mean, it's thirty percent, which is still minority compared 392 00:19:29,880 --> 00:19:32,119 Speaker 8: to seventy percent, but that's bigger than anything. 393 00:19:32,320 --> 00:19:35,680 Speaker 5: Well, my deals. If retail, that means this a bad deal. 394 00:19:35,760 --> 00:19:36,880 Speaker 5: I couldn't get to the institution. 395 00:19:37,560 --> 00:19:39,320 Speaker 3: But this is different. This is Elon, and I think 396 00:19:39,480 --> 00:19:39,720 Speaker 3: is it. 397 00:19:39,680 --> 00:19:42,159 Speaker 2: Different because does that mean there's gonna be enough demand 398 00:19:42,240 --> 00:19:45,280 Speaker 2: after the stock lists? And is a publicly traded company, 399 00:19:45,640 --> 00:19:47,159 Speaker 2: is it going to have that swell of demand that 400 00:19:47,280 --> 00:19:48,400 Speaker 2: usually boosts the share price. 401 00:19:48,760 --> 00:19:51,160 Speaker 8: I think that's what everyone's going to be worried about. 402 00:19:51,200 --> 00:19:53,240 Speaker 8: And then if you go through Reddit, the best source 403 00:19:53,320 --> 00:19:53,720 Speaker 8: on Earth. 404 00:19:54,200 --> 00:19:55,760 Speaker 5: I know I've got it on my phone, but I 405 00:19:55,920 --> 00:19:57,440 Speaker 5: just don't find it useful. 406 00:19:57,280 --> 00:19:59,800 Speaker 2: To talk about we're getting you, We're going to your 407 00:20:00,000 --> 00:20:01,240 Speaker 2: It's going to be convers people. 408 00:20:01,080 --> 00:20:03,440 Speaker 8: Where like why will I even buy? They think it's 409 00:20:03,760 --> 00:20:05,679 Speaker 8: a scam. We all know some people think that, but 410 00:20:05,720 --> 00:20:07,800 Speaker 8: others are like, why will I even try buying when 411 00:20:07,840 --> 00:20:09,600 Speaker 8: it's going to be in my index fund aka my 412 00:20:09,680 --> 00:20:14,000 Speaker 8: brache account soon, which again because of the seasoning shortened. 413 00:20:14,359 --> 00:20:17,080 Speaker 5: And then another little derivative trade is do I sell 414 00:20:17,119 --> 00:20:20,119 Speaker 5: my Tesla because I can get Ela on by just 415 00:20:20,160 --> 00:20:21,000 Speaker 5: owning SpaceX. 416 00:20:21,080 --> 00:20:24,040 Speaker 2: Too much concentration risk if you have both Tesla and SpaceX, 417 00:20:24,160 --> 00:20:24,720 Speaker 2: So if you. 418 00:20:24,640 --> 00:20:26,919 Speaker 8: Have an index fund, you've basically have SpaceX in a 419 00:20:26,920 --> 00:20:27,479 Speaker 8: few months. 420 00:20:28,880 --> 00:20:33,560 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 421 00:20:33,760 --> 00:20:37,720 Speaker 1: and anywhere else you get your podcasts. 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