Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business App. Angelo Zeno of CFRRA
Speaker 2: still bullish on Nvidia out of this afternoon's earnings results.
Speaker 2: He's looking ahead at the company's launch of its advanced
Speaker 2: black Wild chips thanks to the promise of greater market share.
Speaker 2: Angelo joins us now for more. Angelo, welcome back to
Speaker 2: the program. A question I think we've got to lead
Speaker 2: with is a question that you've been addressing in your
Speaker 2: note as well. When will the data center CAPEX actually
Speaker 2: let up to see some selfness in the year ahead.
Speaker 1: Yeah, I mean, I don't know if you start to
Speaker 1: see softness, but I think you definitely see some sharp
Speaker 1: acceleration in terms of the you know, the data center
Speaker 1: CAPEC spend. I mean we're looking at about you know,
Speaker 1: thirty five to forty percent growth here in calendar twenty
Speaker 1: twenty four from kind of you know, the big five
Speaker 1: spenders out there, and we know who they are in
Speaker 1: terms of the high paper scalers, the Big four plus Oracle,
Speaker 1: the names we kind of look at. And then as
Speaker 1: you kind of go into calendar twenty five, initially we're
Speaker 1: kind of you know, pegging more of a deceleration towards
Speaker 1: about fifteen to twenty percent growth, still very good growth.
Speaker 1: And then I think the question is all going to be,
Speaker 1: you know, what are we looking at as we kind
Speaker 1: of go into twenty six and twenty seven, right and
Speaker 1: you know, right now our placeholder is about five to
Speaker 1: ten percent CAPEX growth as we kind of look in
Speaker 1: some of those out years into twenty six and twenty seven.
Speaker 1: But that said, we do see potential upside to those expectations,
Speaker 1: more of a bias to the upside than the downside.
Speaker 1: But that's how we're looking at it. It's not necessarily
Speaker 1: a let up in terms of CAPEC spend. It's more
Speaker 1: you know, sharp deceleration from likely unsustainable growth trends that
Speaker 1: we're seeing and you're seeing it right now and in
Speaker 1: Video's numbers, right, I mean, the last two quarters they
Speaker 1: saw their data center business grow north of four hundred percent.
Speaker 1: That's clearly not not sustainable. We're looking at, you know,
Speaker 1: close to one hundred and forty percent growth here in
Speaker 1: the July quarter, and that will continue to decelerate also
Speaker 1: over the next couple of woks.
Speaker 2: So we're talking about the size of the pie. The
Speaker 2: pie will continue to get bigger, just not the same rate.
Speaker 2: Can we talk about the slice of the pie? Is
Speaker 2: there any real upside to overall wallets share and is
Speaker 2: there a threat coming from anywhere? How big is that
Speaker 2: mot around this company?
Speaker 1: Yeah, so, you know, I think that's an interesting question.
Speaker 1: So as far as the video is concerned, I think
Speaker 1: a lot of you know, people out there kind of
Speaker 1: look at the competitive pressures out there as far as
Speaker 1: GPUs are concerned. And you got the likes of you know,
Speaker 1: the A and Diesel Little World, which you know, we
Speaker 1: love what they're doing. We like the recent acquisition they
Speaker 1: kind of made. They are kind of you know, definitely
Speaker 1: kind of you know, kind of filling up kind of
Speaker 1: what they need in terms of better compete with in
Speaker 1: Video on the GPU side of things in a in
Speaker 1: a growing market. So you know, that's great from a
Speaker 1: competitive standpoint, But as you kind of look more broadly
Speaker 1: for in Video on kind of you know, the data
Speaker 1: center wallet share, as they kind of kind of roll
Speaker 1: out some of these new offerings with Blackwell, with a
Speaker 1: new kind of spectrum x Ethernet offering out there, this
Speaker 1: new kind of Blackwell offering is really intended to be
Speaker 1: more of kind of this platform offering rather than kind
Speaker 1: of just a GPU offering. So what we mean by
Speaker 1: that is not only the GPU, but the CPU as well.
Speaker 1: We're going to be more arm based in nature. We
Speaker 1: think as you kind of see these next gen data
Speaker 1: centers really take off, and that's important because we haven't
Speaker 1: seen arm based CPUs out there find any success in
Speaker 1: the market. When you kind of just look at you know,
Speaker 1: Intel's recent guidance out there, they're clearly not seeing the
Speaker 1: orders on their end. We think you're going to see
Speaker 1: something different over the next couple of orders from in
Speaker 1: Vidia specifically kind of as as they turn more into
Speaker 1: this platform based offering, and that will kind of give
Speaker 1: them a next kind of leg up in terms of
Speaker 1: their revenue potential. Here we think over the next twelve
Speaker 1: to eighteen.
Speaker 3: Months, pairing the ideas that you just talked about, Hyperscaler
Speaker 3: is the bigger, biggest investors in Nvidia. How long until
Speaker 3: Nvidia is almost a competitor to their biggest customers.
Speaker 1: Yeah, it's interesting because to an extent they are. I mean,
Speaker 1: they've got a big investment out there in a company
Speaker 1: called core Weave right and where they're kind of you know,
Speaker 1: they've got a big stake in there, and they're shipping
Speaker 1: a ton of GPUs out there as kind of this
Speaker 1: GP or AI as a service type offering for that company.
Speaker 1: In Nvidia definitely has the potential to kind of get
Speaker 1: more on the cloud oriented side of things. Obviously they
Speaker 1: sell their own kind of you know, full suite kind
Speaker 1: of systems out there, and you know, over time, Yeah,
Speaker 1: I mean, I think there's there's definitely some concern probably
Speaker 1: out there from some of these cloud players out there,
Speaker 1: especially with what Innvidia has done on the software side
Speaker 1: of things, where you can essentially, if you're an enterprise customer,
Speaker 1: go directly with in video and kind of buy those
Speaker 1: total systems out the outright. But that said, it's so
Speaker 1: capital intensive in nature, whereas it's really we think is
Speaker 1: going to continue to sit with these big cloud companies,
Speaker 1: and I don't necessarily think kind of in Nvidia wants
Speaker 1: to kind of get to that next level where they're
Speaker 1: directly competing with some of these cloud companies, even though
Speaker 1: to some extent, you know, you can kind of see
Speaker 1: that taking.
Speaker 2: Voice Angela, this was awesome. Got to do it again
Speaker 2: soon and follow up after the results later on Angelo
Speaker 2: Zino there of cfl ray. So here's the latest. US
Speaker 2: National Security Advisor Jake Sullivan and his Chinese counterpart kicking
Speaker 2: off a second day of talk, set to discuss a
Speaker 2: range of issues, including foreign policy and trade. Bloomberg reporting
Speaker 2: that Sullivan will aim to make clear he won't speak
Speaker 2: for the next US administration. John Liberview raise your group
Speaker 2: looking ahead to the next election, and writes in the
Speaker 2: following Harris would maintain the status quo with regard to
Speaker 2: Taiwan and would prioritize keeping the US out of regional conflicts.
Speaker 2: John jois from all John. In some ways that's been
Speaker 2: the approach of this administration as well, and in many
Speaker 2: ways it hasn't helped. If that's the approach. Do you
Speaker 2: ignite mare could send and perhaps not less.
Speaker 4: I think the goal for both the Harris and the
Speaker 4: Biden administration has to have been to keep guardrails around
Speaker 4: what's obviously a declining competitive relationship. And nothing that Sullivan
Speaker 4: says when he's in China, and nothing that Harris or
Speaker 4: her team say in the next couple of months is
Speaker 4: going to change any of that. The fact of the
Speaker 4: matter is that Washington views Beijing as a rising threat
Speaker 4: and they're willing to take actions and steps in order
Speaker 4: to contain that threat. But what they don't want is
Speaker 4: to get involved in another war or another actual hot conflict.
Speaker 4: And that's what this visit is all about. It's about
Speaker 4: keeping channels of communication open, it's about maintaining warm relations
Speaker 4: And despite what they're saying, I do think this is
Speaker 4: about signaling that there'd be continuity in a set in
Speaker 4: a Harris administration between what the Biden team has been doing,
Speaker 4: which sets up a contrast with what Trump is trying
Speaker 4: to do, which is a much more aggressive approach to China.
Speaker 2: So let's talk about tariffs. That's what it ultimately comes
Speaker 2: down to. John tariffs, Tariffs in the early part of
Speaker 2: the Trump administration were about a lack of reciprocity. You're
Speaker 2: putting tariffs on us, We'll put tariffs on you. In fact,
Speaker 2: we'll go further unless you do X. Then it became
Speaker 2: about national security much more so under this administration. We
Speaker 2: don't want to salu this because we don't want you
Speaker 2: doing that. When it comes to leverage, John, and this
Speaker 2: is what I'm struggling with, the lack of clear evidence
Speaker 2: that we're able to find any real lever to gain
Speaker 2: leverage over the Chinese to influence their foreign policy. What
Speaker 2: can the West do to influence the Chinese to change
Speaker 2: their view about how foreign policy should be conducted.
Speaker 4: I think the big I mean, the big thing you're
Speaker 4: getting out here is Taiwan, and the Chinese absolutely have
Speaker 4: been resolute that Taiwan is actually a part of China
Speaker 4: and that someday we'll be reunited with mainland China. And
Speaker 4: that's the single biggest flashpoint and the single biggest red
Speaker 4: line for the Chinese that the Americans. They do not
Speaker 4: want the Americans to cross. And I think that's kind
Speaker 4: of hanging out in the background of this entire discussion.
Speaker 4: One thing you didn't mention when you're talking about tariffs,
Speaker 4: is jobs in the US, because that's really what I
Speaker 4: think the tariff regime is about. It's about decoupling from China,
Speaker 4: particularly in a second Trump administration, trying to bring jobs
Speaker 4: back to the US. And right now that's a bipartisan
Speaker 4: thing with the Biden administration making massive investments in terms
Speaker 4: of subsidizing green energy in order to bring a construction
Speaker 4: boom back to the US to create jobs. So that
Speaker 4: threat of Taiwan is out there that the Chinese have
Speaker 4: been very clear the US cannot cross that red line,
Speaker 4: and the Americans are now saying, you know, our goal
Speaker 4: here is actually to protect ourselves, but also to bring
Speaker 4: jobs back.
Speaker 2: To the US.
Speaker 3: John, you talked about continuity from the last administration to
Speaker 3: the new one, whichever it would be.
Speaker 2: Do we have a.
Speaker 3: Sense of what Kamala Harris's policies would be.
Speaker 4: Not really. She hasn't really laid out a specific China policy,
Speaker 4: and actually she hasn't really laid out a lot of
Speaker 4: specifics on any policy. At the convention, she did make
Speaker 4: a point to talk about a strong national defense, but
Speaker 4: we don't really know what that means. I mean, the
Speaker 4: US has massive fiscal challenges that's probably going to determine
Speaker 4: the path of its national defense and the size of
Speaker 4: its military over the foreseeable future. Harris has said she
Speaker 4: wants to be strong here, but that could mean anything.
Speaker 4: And one of the questions for her, one of the
Speaker 4: big challenges she's going to face, is what happens when
Speaker 4: there's a provocation, What happens when the Chinese try to
Speaker 4: stop the Philippines from resupplying the second Thomas schoul for example.
Speaker 4: During her administration, how strongly does she confront them? And
Speaker 4: we just don't have a sense of that from her.
Speaker 4: Some of her personnel are going to be left over
Speaker 4: or brought along from her vice presidency. Most of the
Speaker 4: Biden people will probably cycle out. But it's really difficult
Speaker 4: to infer exactly what she will do when that three
Speaker 4: am phone call comes.
Speaker 3: How much is that framing some of the conversations that
Speaker 3: you're having with clients, both corporate and other governments.
Speaker 4: I think the big question about what Harris is going
Speaker 4: to do is on the mind of every single person
Speaker 4: that we talk to. I think on domestic policy, it's
Speaker 4: a lot easier to predict. I mean, you know, she's
Speaker 4: going to inherit a Biden platform that looks like most
Speaker 4: other kind of democratic platforms, which won't be that different
Speaker 4: because it will require Congress. But on foreign policy, you know,
Speaker 4: presumably she continues what she's doing with the Biden administration
Speaker 4: is doing with Ukraine. Presumably they continue this strategy of
Speaker 4: engagement with China. But how what the specifics does that
Speaker 4: look like? Who are the people making the decisions? These
Speaker 4: are all big questions that our clients are asking us.
Speaker 2: John, as a journalist, we can sit here all day
Speaker 2: and complain about the lack of access. That will be
Speaker 2: a little bit of access. There will be a sit
Speaker 2: down conversation together with her running mate. The complaints will
Speaker 2: continue regardless, But ultimately I look at the results and
Speaker 2: whatever you think about it, the strategic campic you wou'd say,
Speaker 2: the lack of access, the lack of clear policies, it's
Speaker 2: working based on the polls. Now, John, you and I
Speaker 2: have been talking for a while. We all have about
Speaker 2: a sub called Double heights as. How deep is that
Speaker 2: poll of Double heights as And how well is this administration,
Speaker 2: or rather this campaign, how well if they done at
Speaker 2: tamping into that reservoir.
Speaker 4: Yeah, they're doing a great job consolidating support among the
Speaker 4: Democratic leaning independents who didn't like Joe Biden. And you
Speaker 4: see this in Harris's approval rating, and you see this
Speaker 4: in her poll numbers, where a lot of it looks
Speaker 4: like over the last few weeks, a lot of voters
Speaker 4: have come back home, both to the Trump campaign and
Speaker 4: the Harris campaign, as both of their numbers of support
Speaker 4: have risen in most polls. But Harris is buy a
Speaker 4: lot more. So that double hater group is probably going
Speaker 4: to be a lot less relevant in this cycle than
Speaker 4: it was in either twenty sixteen, when Trump and Clinton
Speaker 4: were the least like candidates ever or twenty twenty when
Speaker 4: Trump was so deeply unpopular. So I think the double
Speaker 4: haters are less relevant here, and Harris is doing a
Speaker 4: very good job of presenting herself as kind of the normal, reliable,
Speaker 4: predictable option relative to Donald Trump.
Speaker 2: Making it less relevant though, makes it a bigger issue
Speaker 2: for the Trump campaign and John As you've noticed, there
Speaker 2: has been a sailing. The former president has suffered from
Speaker 2: a sailing of support. If that's the case, what's his
Speaker 2: strategy and how does his strategy differ to say Kamala Harris's.
Speaker 4: His strategy is to do what he's done the last
Speaker 4: in twenty sixteen, which is he pull out kind of
Speaker 4: an inside straight in the electoral college and win barely
Speaker 4: enough votes to get him there. So he needs to
Speaker 4: win some combination of probably Pennsylvania and Georgia. Now North Carolina.
Speaker 4: North Carolina is looking a little bit more competitive, and
Speaker 4: you know he's going after young black voters, He's going
Speaker 4: after young Hispanic voters. He's going after the disconnected kind
Speaker 4: of voters who were supporting RFK, people who aren't regular voters.
Speaker 4: It's a high risk strategy, but that's what he's got
Speaker 4: because he is not your typical politician.
Speaker 2: John Laber of you is great, John, I appreciate it,
Speaker 2: Thank you, sir. So here's the latest oil slipping once
Speaker 2: again ahead of key US inventory's data. This coming is
Speaker 2: both Goldman and Morgan Stanley count their twenty five crude outlook.
Speaker 2: Dan Strivan of Goldman Sachs revising his forecast to seventy
Speaker 2: seven a barrel. Writing this, we still assume that OPEC
Speaker 2: will raise production in Q four as the market is
Speaker 2: potentially shifting from an equilibrium where OPEC supports spot balances
Speaker 2: and reduces volatility to a more long run equilibrium focused
Speaker 2: on strategically disciplining non opex supply. Don John just now
Speaker 2: for more good morning, sir, right. Want to start with
Speaker 2: that last line. We talked about it yesterday as well.
Speaker 2: When you say disciplining non OPEC supply, are you talking
Speaker 2: just about shale or everything else? Who are you talking about?
Speaker 4: Mostly US shild because the US shil is the short cycle,
Speaker 4: the short term producer that responds within a year or
Speaker 4: so to price changes. Supply elsewhere in the world is
Speaker 4: mostly long cycle where you're also price celested with it
Speaker 4: takes typically typically many years. Taking a step back, I
Speaker 4: think over the last two years, OPEK has really been
Speaker 4: quite effective at balancing the market by adjusting supply and
Speaker 4: to keep prices in a fairly narrow range by historical
Speaker 4: crude standards. If OPEK goes ahead with raising production, and
Speaker 4: it's very much a close call, we may learn more
Speaker 4: in coming days. We may potentially shift to a new
Speaker 4: equilibrium with somewhat more volatility, where the new floor under
Speaker 4: old prices becomes the break even price of US shale producer.
Speaker 2: Let's go back to the experience of the last decade
Speaker 2: the middle of the last decade, there was a real
Speaker 2: effort from the SAIS to discipline and almost punish shale producers.
Speaker 2: Arguably SHLLE producers came out of that more disciplined and
Speaker 2: much stronger. What's different about this time compared to them?
Speaker 4: So I think, as you point out, US producers have
Speaker 4: very strong balance sheets. Now the reinvestment ratio is significantly lower.
Speaker 4: About fifty percent of free cash flows are reinvested in
Speaker 4: new projects. And so I think that that means that
Speaker 4: to engineer, given slowdown in US shale growth, you arguably
Speaker 4: need a bigger drop in prices because those big US
Speaker 4: public producers their production plans, they're fairly, fairly sticky, and
Speaker 4: they're very strong balance sheets, And so to us that
Speaker 4: means that very sharp drop in prices is not that likely.
Speaker 4: It's more likely going to be a gradual shift shift lower.
Speaker 3: Some people would argue the just structurally, what you see
Speaker 3: right now is you haven't seen that increased production by
Speaker 3: OPEC plus and what you've seen is actually inventory is
Speaker 3: getting taken down at eight out of US past nine weeks,
Speaker 3: as according to some industry data. I'm just wondering at
Speaker 3: what point you see this as kind of feeding on itself,
Speaker 3: especially with lower rates that might sustain the recovery. How
Speaker 3: much of a counterpoint do you really take to this?
Speaker 4: Absolutely, So we only have a modest and gentle decline
Speaker 4: in old prices next year from brands sort of in
Speaker 4: the high seventies now to seventy four dollars bearyled by
Speaker 4: the end of next year, despite a moderate but meaningful
Speaker 4: surplus we have in our bounds next year. Why is
Speaker 4: that only slightly lower prices despite the surplus to assume
Speaker 4: the main reason is that we do think that oil
Speaker 4: currently is slightly undervalued, meaning that prices are a touch
Speaker 4: low relative to the level of inventories. And also, if
Speaker 4: you do get these fat cuts, you should get some
Speaker 4: upward pressure on valuations and prices because basically the opportunity
Speaker 4: cost of holding oil is lower when interest rates come down.
Speaker 3: So I apologize in advance for this, but your predecessor,
Speaker 3: Jeff Curry, who now is at Carlisle, came out yesterday
Speaker 3: and he said there's going to be a huge spike
Speaker 3: in crude prices because of lower rates and because of
Speaker 3: this sort of supercycle that you see on the on
Speaker 3: the heels of the investment in some of the infrastructure
Speaker 3: plays that we've seen globally. Why do you so vastly
Speaker 3: disagree with that?
Speaker 4: First of all, I would like to, you know, thank
Speaker 4: Jeff for everything we and our team learn learned from him.
Speaker 4: It's very much building on the shoulders of a giant.
Speaker 4: And I agree with Jeff that wasitioning is very low,
Speaker 4: is very light at the moment. And I also agree
Speaker 4: that oil prices currently look somewhat low relative to fair value,
Speaker 4: and that's precisely the reason why despite the meaningful six
Speaker 4: hundred KVD surplus in twenty twenty five, we have a
Speaker 4: base case of only slightly slightly declining all prices.
Speaker 2: Seventy seven is the average for twenty twenty five? Correct?
Speaker 4: Correct?
Speaker 2: How much of that is about Chinese demount softening and
Speaker 2: maybe not pouncing back.
Speaker 4: I think that the big surprise this year on the
Speaker 4: de Man side has been softness in China. The Man
Speaker 4: growth actually it's the Man outside of China is surprising
Speaker 4: to the upside in the US, in Europe, in India,
Speaker 4: but I think the slowdown in China, the Man growth,
Speaker 4: which is I think mostly structural, is an important factor
Speaker 4: for all markets in coming years. To put this in context,
Speaker 4: in the five years before COVID, China was growing it's
Speaker 4: demand of oil by almost six hundred kbd every year.
Speaker 4: In the first half of this year, annual oil the
Speaker 4: man growth from China was only two hundred KVD, so
Speaker 4: basically only one third. Some of it is a macrostory.
Speaker 4: GDP is structurally growing at a slower pace, but some
Speaker 4: of the factors are oil specific and more micro fuel
Speaker 4: switching into EVS, fuel switching out of diesel into liquefied
Speaker 4: natural gas, which is now cheaper as well. And we
Speaker 4: think that some of those fuel switching factors are are
Speaker 4: more structured, and.
Speaker 2: We're saying that in other commodities as well. We're start
Speaker 2: to see that inside irono versus COMPA two in China.
Speaker 4: So I think that the sort of two thousands China
Speaker 4: driven commodity supercycle was a supercycle where very rapid growth
Speaker 4: in China GDP and especially the property sectors sort of
Speaker 4: lifted demand and prices for all commodities. I think we're
Speaker 4: going to enter an era with greater divergences in terms
Speaker 4: of the demand trends across commodities, with I think a
Speaker 4: pretty solid long run demand out look for copper. It's
Speaker 4: the green green metal of the future gold because I
Speaker 4: think Chinese including Central Bank, are looking for for new
Speaker 4: new assets in a more uncertain world. But then on
Speaker 4: the other end of the spectrum iron ore ferrous metals,
Speaker 4: where I think the demand out look looks league because
Speaker 4: of a structural slin down grind down in in demand
Speaker 4: in the property section.
Speaker 2: This was an absolute clinic and we've got to do
Speaker 2: it again soon. Thank you sir. It's going to see
Speaker 2: you downstriving there of Goldman sax on the commodity market,
Speaker 2: Lisa starting on crude and finishing on everything else. This
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