WEBVTT - Nvidia Boosts Share Buyback Program by $150 Billion 0:00:02.730 --> 0:00:04.410 Bloomberg Audio Studios. 0:00:04.890 --> 0:00:05.569 Podcasts. 0:00:05.890 --> 0:00:06.410 Radio. 0:00:06.850 --> 0:00:07.250 News. 0:00:09.750 --> 0:00:13.450 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.530 --> 0:00:16.570 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:00:16.640 --> 0:00:19.939 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:19.980 --> 0:00:23.060 you get your podcasts or watch us live on YouTube. 0:00:24.180 --> 0:00:25.900 Paul, I'm looking at all the headlines, and of course 0:00:25.980 --> 0:00:29.340 it's all the Iran war, all oil, all rising bond yields, 0:00:29.460 --> 0:00:31.760 and then there's a lot of stories, of course, on 0:00:31.800 --> 0:00:35.090 what's going on in big tech, Nvidia with this massive 0:00:35.090 --> 0:00:40.050 $ 150 share buyback. I can't even imagine how much cash 0:00:40.070 --> 0:00:42.449 flow it throws off that it can just buy $ 150 0:00:42.409 --> 0:00:43.530 billion of its own shares. 0:00:43.570 --> 0:00:46.010 I'd like to be the trader on Wall Street that 0:00:46.050 --> 0:00:48.129 gets this buyback. I'm just out there buying stock with 0:00:48.170 --> 0:00:49.310 no risk. How cool is that? 0:00:50.220 --> 0:00:52.879 All right, let's bring in Jonathan Bloxham. He's with us 0:00:52.960 --> 0:00:55.060 right now. Matthew Bloxham. Excuse me, Matthew. 0:00:55.080 --> 0:00:55.640 No problem. 0:00:55.760 --> 0:00:57.380 He's with us right now. He's our senior media and 0:00:57.420 --> 0:00:59.120 tech analyst, normally in London. 0:00:59.320 --> 0:00:59.560 Yes. 0:00:59.700 --> 0:01:00.380 But here in New. 0:01:00.320 --> 0:01:01.180 York with us for the week. 0:01:01.200 --> 0:01:02.260 Especially for you, right? 0:01:02.300 --> 0:01:05.620 Great to see you here in office, in studio. Really, 0:01:05.660 --> 0:01:09.240 really appreciate your joining us today. NVIDIA buying its shares back. 0:01:09.380 --> 0:01:12.370 Is that a sign that the shares are undervalued? Because 0:01:12.410 --> 0:01:15.850 that's what typically people say when you embark on a 0:01:15.990 --> 0:01:18.090 massive buyback. And this is a massive buyback. 0:01:18.470 --> 0:01:24.009 Yeah, that's certainly one interpretation. The other is that maybe 0:01:24.069 --> 0:01:27.209 they're running out of things to invest the money in. 0:01:27.230 --> 0:01:29.640 And I think it's probably a mixture of the two. 0:01:29.680 --> 0:01:32.760 I mean, given the trillions of dollars going into AI 0:01:32.800 --> 0:01:35.740 right now, I don't think there's so much of a 0:01:35.780 --> 0:01:38.140 constraint on what they can invest in. But they are 0:01:38.540 --> 0:01:43.470 spreading their financial muscle quite broadly across the industry. They've 0:01:43.480 --> 0:01:47.039 got lots of investments in in partners. They've obviously kind 0:01:47.100 --> 0:01:51.000 of recently spent, what, kind of 18 to 20 billion, 0:01:51.020 --> 0:01:52.840 if I remember correctly, on Hugging Face. So, you know, 0:01:52.880 --> 0:01:54.940 they're kind of spreading the money around. I think, obviously, 0:01:55.360 --> 0:01:58.610 you know, particularly in the U.S. market, buybacks are a 0:01:58.650 --> 0:02:02.930 very popular way to return shares, the cash to shareholders. 0:02:02.990 --> 0:02:05.090 And so, I think it's not that surprising given, you know, 0:02:05.130 --> 0:02:07.690 that they're I think in this financial year, they'll generate 0:02:07.730 --> 0:02:11.450 something like $ 200 billion of cash flow. Next year, it's 0:02:11.550 --> 0:02:15.610 expected by consensus to go up to about $ 330 billion. So, 0:02:15.630 --> 0:02:18.180 I think this is them saying to the market, look, 0:02:18.240 --> 0:02:20.070 you know, there's lots of kind of noise around AI 0:02:20.470 --> 0:02:23.720 right now. Our forward pipeline for at least the next 0:02:23.820 --> 0:02:27.740 one to two years is looking incredibly healthy. No need 0:02:27.780 --> 0:02:29.399 to worry about our runway of growth. 0:02:30.350 --> 0:02:32.859 Matt, what's the conversation you're having with clients these days, 0:02:33.060 --> 0:02:35.359 just broadly about AI? 0:02:35.380 --> 0:02:37.780 We kind of had that level of uncertainty kind. 0:02:37.680 --> 0:02:40.850 Of get interjected several weeks ago when some of the founders, 0:02:41.190 --> 0:02:43.690 Sam Altman, Elon Musk, not founders, but some of the 0:02:43.750 --> 0:02:47.240 original executives in this technology, maybe said, let's put the 0:02:47.280 --> 0:02:48.639 brakes on this a little bit. And that was a 0:02:49.340 --> 0:02:51.090 you know, pause, it's kind of become a little political 0:02:51.690 --> 0:02:53.769 by President Trump weighing in as well. 0:02:54.350 --> 0:02:56.829 What are investors thinking about that now? Yeah, you know, 0:02:56.910 --> 0:02:57.549 I mean, when we. 0:02:57.470 --> 0:03:01.239 Look back, actually, the reaction was initially quite positive. And, 0:03:01.250 --> 0:03:02.790 you know, there's obviously lots of different ways you can 0:03:02.830 --> 0:03:05.030 take this messaging. I think a lot of people took 0:03:05.090 --> 0:03:08.150 it as a view that, you know, that these open 0:03:08.169 --> 0:03:12.090 AI and Anthropic in particular, looking to strengthen the moat 0:03:12.220 --> 0:03:14.959 they have against, for example, the likes of Meta, obviously 0:03:14.980 --> 0:03:18.510 news today that they're, uh, taken a new CEO for 0:03:18.530 --> 0:03:21.690 their enterprise business. And that, you know, actually, as much 0:03:21.740 --> 0:03:24.260 as there may be some concerns about the pace at 0:03:24.280 --> 0:03:26.820 which AI is developing and our control over it, that 0:03:26.880 --> 0:03:29.500 actually this could be a good mechanism for them to 0:03:29.520 --> 0:03:31.419 kind of protect the moat they have, because it would 0:03:31.460 --> 0:03:33.940 constrain the whole industry in terms of the pace of development. 0:03:34.620 --> 0:03:37.070 You know, I think broadly speaking, obviously, there are still 0:03:37.110 --> 0:03:39.890 concerns about the kind of three to five year outlook 0:03:39.930 --> 0:03:42.750 for AI, but certainly in the near term, and again, 0:03:42.810 --> 0:03:46.210 reflected in what NVIDIA has done today, the market is 0:03:46.270 --> 0:03:50.150 pretty confident that there's enough momentum to sustain the next 0:03:50.270 --> 0:03:53.100 one to two years. And enterprises are still at an 0:03:53.130 --> 0:03:56.580 early stage of deploying AI into their businesses. And even 0:03:56.640 --> 0:04:00.420 if you didn't have any further evolution of the frontier 0:04:00.440 --> 0:04:03.960 models from where they are today, there's still lots of 0:04:04.040 --> 0:04:06.700 technology capability there for enterprises to play with and really 0:04:06.760 --> 0:04:08.040 shift the way their business. 0:04:07.720 --> 0:04:12.790 Is So we're approaching the end of the third quarter. 0:04:12.970 --> 0:04:15.190 The fourth quarter will begin soon on October 1st, and 0:04:15.210 --> 0:04:17.550 that means earnings season is kind of around the corner. 0:04:18.310 --> 0:04:20.670 The big tech names report at the end of October. 0:04:21.710 --> 0:04:23.610 What are we likely to hear from them when it 0:04:23.650 --> 0:04:25.770 comes to CapEx? I mean, are they going to continue 0:04:25.810 --> 0:04:28.080 to increase CapEx at the rate that they've been increasing 0:04:28.140 --> 0:04:31.820 in thus far? Or will all the political discussion over 0:04:32.420 --> 0:04:35.180 AI and whether we should slow development mean that some 0:04:35.200 --> 0:04:38.720 of the hyperscalers will start to see the numbers reflect 0:04:38.760 --> 0:04:39.300 that slowdown? 0:04:41.850 --> 0:04:42.710 Great question. 0:04:43.029 --> 0:04:48.300 My sense would be that the market is still anticipating 0:04:48.820 --> 0:04:53.140 growth in spending next year. Obviously, nowhere near the pace 0:04:53.180 --> 0:04:57.279 we've seen before. But I think we're still expecting to 0:04:57.339 --> 0:05:00.140 see it increase. And as much as there's been a 0:05:00.660 --> 0:05:05.339 lot of fanfare around slowing the pace of model development, 0:05:05.600 --> 0:05:09.550 there's still a huge amount of implementation spend to come through. 0:05:10.190 --> 0:05:14.510 Probably right now the biggest constraint on implementation. the pace 0:05:14.550 --> 0:05:18.270 of capital spending growth is the supply side, all the 0:05:18.310 --> 0:05:22.730 way from the kind of fab units to the chips, 0:05:22.830 --> 0:05:25.190 to the capacity to make the chips, and then also 0:05:25.589 --> 0:05:28.250 all the way through to energy and space and how 0:05:28.350 --> 0:05:31.320 quickly can you actually deploy data centers, which is where 0:05:31.360 --> 0:05:33.940 ultimately a lot of this capex ends up. So that's 0:05:33.980 --> 0:05:37.200 probably the biggest natural constraint, I'd say, on spending. 0:05:37.790 --> 0:05:39.830 Matt, it probably doesn't surprise you, but I am way 0:05:39.890 --> 0:05:42.659 ahead of both John and Scarlett on AI. 0:05:42.760 --> 0:05:45.339 I'm way out there. I've got the window on my 0:05:45.420 --> 0:05:49.359 phone that's got the apps. I've got ChatGPT. I've got Gemini. 0:05:49.380 --> 0:05:53.060 I've got Claude. He added Muse. I added Muse. But 0:05:53.200 --> 0:05:53.789 I'm guessing. 0:05:54.430 --> 0:05:58.810 I'm not the monetization that these gajillion-dollar CapEx are being 0:05:58.870 --> 0:06:02.290 spent for. Talk to us about enterprise integration of AI. 0:06:02.810 --> 0:06:06.830 Is that happening? Because it's not cheap. to deploy AI 0:06:07.029 --> 0:06:08.529 and use AI in an enterprise? 0:06:09.050 --> 0:06:11.830 It certainly isn't. I mean, it's definitely happening, you know, 0:06:11.850 --> 0:06:14.910 across every sector. And if anything, you know, this year, 0:06:16.529 --> 0:06:20.100 enterprises are kind of running into some spending, you know, 0:06:20.180 --> 0:06:23.940 kind of constraints or kind of obstacles they probably hadn't 0:06:24.100 --> 0:06:26.880 anticipated because, you know, they've kind of largely let their 0:06:26.920 --> 0:06:29.359 engineers run loose with, you know, playing around with this stuff. 0:06:29.680 --> 0:06:32.229 And then they suddenly realized that the consumption is ahead 0:06:32.270 --> 0:06:33.770 of the budget they put in there. And they're now 0:06:33.810 --> 0:06:35.550 having to scratch their heads and go, okay, Do we 0:06:35.630 --> 0:06:38.750 increase our dollar budgets to continue with the pace of development? 0:06:39.150 --> 0:06:40.570 Or do we have to start to kind of find 0:06:40.610 --> 0:06:43.539 ways to kind of moderate or change the way our 0:06:43.580 --> 0:06:46.750 engineers are? uh, are using AI tokens to kind of 0:06:46.770 --> 0:06:48.630 develop things. And, you know, the answer is so far 0:06:48.650 --> 0:06:50.250 being a bit of a mixture of the two. Uh, 0:06:51.029 --> 0:06:54.290 but yeah, the enterprise market's huge and it's a massive, massive, 0:06:54.350 --> 0:06:57.250 massive multi-trillion dollar market. Uh, when you look at technology 0:06:57.270 --> 0:07:00.110 as a whole, um, and I think it's, it's, it's 0:07:00.150 --> 0:07:03.909 becoming the new, you know, kind of theater of competition, 0:07:03.970 --> 0:07:05.790 if you like, between the big players. And, you know, 0:07:05.810 --> 0:07:08.290 this is where Meta's coming in with its enterprise strategy 0:07:08.310 --> 0:07:11.800 and historically Meta, very much a consumer focused ad funded 0:07:11.860 --> 0:07:15.750 business and looking to kind of, uh, compete with OpenAI 0:07:15.770 --> 0:07:17.440 and Anthropic in that space. I think it's going to 0:07:17.450 --> 0:07:20.500 be a really interesting space over the next 12 to 0:07:20.500 --> 0:07:23.140 24 months to see how that competition evolves, but it's 0:07:23.160 --> 0:07:25.200 kind of really a huge opportunity for all of them. 0:07:26.180 --> 0:07:28.980 Yeah, and Meta's doing that, as we mentioned, by tapping 0:07:29.060 --> 0:07:33.250 MongoDB's president and CEO to lead this new AI platform 0:07:33.260 --> 0:07:36.510 for enterprise customers. Has Meta ever done anything at an 0:07:36.550 --> 0:07:38.690 enterprise level targeting enterprise customers? 0:07:38.950 --> 0:07:40.770 I mean, is this the first? I think it.... 0:07:42.770 --> 0:07:44.870 If it isn't the first, then it's kind of close 0:07:44.910 --> 0:07:47.270 to a first. Certainly, I think their kind of biggest 0:07:47.620 --> 0:07:50.100 and most significant push into this. I mean, they've been, 0:07:50.140 --> 0:07:54.380 you know, working and engaging with corporates indirectly, I'd say, 0:07:54.600 --> 0:07:57.420 in the AI space so far because, you know, their 0:07:57.480 --> 0:07:59.920 models are open source and so a lot of companies 0:08:00.320 --> 0:08:02.140 do use them. But I guess that's kind of a 0:08:02.160 --> 0:08:05.540 bit of an arm's length interaction because there's not so 0:08:05.580 --> 0:08:08.280 much direct involvement. This is, you know, much more significant, 0:08:08.300 --> 0:08:12.950 almost like kind of consulting evolution of, you know, I guess, 0:08:12.990 --> 0:08:15.190 kind of forward deployed engineers. That's the kind of phrase 0:08:15.210 --> 0:08:16.770 that we never used to talk about, you know, kind 0:08:16.790 --> 0:08:20.160 of helping organizations to kind of figure out how they 0:08:20.200 --> 0:08:24.220 can use AI in their specific enterprise use cases to 0:08:24.260 --> 0:08:27.300 kind of improve efficiency or create new opportunities. 0:08:28.100 --> 0:08:29.360 Matthew, you're based in London. 0:08:29.400 --> 0:08:32.280 You spend a lot of time with companies all across Europe. 0:08:33.179 --> 0:08:36.810 Is AI, is there going to be any AI created 0:08:37.190 --> 0:08:40.229 in Europe? Because there's not a lot of technology companies 0:08:40.730 --> 0:08:44.530 in Europe. Is it going to be left to China 0:08:44.750 --> 0:08:47.490 and the U.S. to drive this bus? Because, boy, it'd 0:08:47.510 --> 0:08:51.370 be amazing if European companies did not get involved. 0:08:51.570 --> 0:08:54.370 Yeah, it's, yeah. I mean, I guess, you know, the 0:08:54.390 --> 0:08:57.910 poster child still is Mistral AI, which is, you know, 0:08:57.929 --> 0:09:00.349 the kind of closest we've got to, like, a frontier 0:09:00.370 --> 0:09:03.620 model company. Very small, and, you know, I think, whereas 0:09:03.640 --> 0:09:05.260 you used to hear a lot about them a year 0:09:05.300 --> 0:09:07.739 or two back, you know, they've kind of gone into 0:09:07.760 --> 0:09:09.939 the shadows a little bit, you know, given everything that's 0:09:09.960 --> 0:09:12.579 going on with the U.S. and the Chinese frontier models. 0:09:13.160 --> 0:09:14.580 So I think something like that is kind of one 0:09:14.600 --> 0:09:20.790 of Europe's biggest opportunities. There are some initiatives underway across 0:09:20.830 --> 0:09:23.050 a number of European markets to try to shift people 0:09:23.090 --> 0:09:27.110 away from using U.S. tools to European tools. But when 0:09:27.510 --> 0:09:30.599 those tools either don't exist or they're kind of significantly inferior, 0:09:30.620 --> 0:09:32.459 that's a kind of really hard thing to kind of 0:09:32.520 --> 0:09:35.480 ask people to do. So my sense would be that, 0:09:35.600 --> 0:09:37.900 you know, like with a lot of technology in the past, 0:09:38.020 --> 0:09:41.800 Europe's going to be a taker of another region's technology. 0:09:41.820 --> 0:09:45.220 And so the opportunity, if there is one, is for 0:09:45.380 --> 0:09:50.390 European businesses to excel at leveraging the use of that technology, 0:09:50.429 --> 0:09:53.350 almost kind of the kind of second derivative of the 0:09:53.410 --> 0:09:57.030 services that sit on top of that. And also, you know, 0:09:57.050 --> 0:09:59.090 one of the big issues for Europe is how they 0:09:59.110 --> 0:10:03.900 support deploy this technology infrastructure into the region. You know, 0:10:03.920 --> 0:10:06.160 we've got this kind of back and forth debate about, 0:10:06.220 --> 0:10:09.300 you know, where does the data reside? If it has 0:10:09.340 --> 0:10:12.580 to be in Europe, then that's a massive investment in infrastructure. 0:10:13.340 --> 0:10:16.179 Stay with us. More from Bloomberg Intelligence coming up after this. 0:10:20.300 --> 0:10:24.020 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:10:24.080 --> 0:10:27.120 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:10:27.179 --> 0:10:30.490 Auto with the Bloomberg Business App. Listen on demand wherever 0:10:30.530 --> 0:10:33.910 you get your podcasts or watch us live on YouTube. 0:10:35.490 --> 0:10:35.710 All right. 0:10:35.830 --> 0:10:40.250 Meta, Muse, big news last week. Meta stock jumped big time. 0:10:40.970 --> 0:10:43.630 Some people are questioning, all right, what's the risk here 0:10:43.750 --> 0:10:47.410 from AI, Muse and all this kind of stuff, particularly 0:10:47.429 --> 0:10:51.559 in creating content? And that's one of the areas that 0:10:51.600 --> 0:10:54.760 the BITMT team, Tech Media Telecom team, took a look 0:10:54.820 --> 0:10:58.280 at here. Geetha Ranganathan leads it up there. So, Geetha, 0:10:58.320 --> 0:11:02.110 talk to us about, you know, Muse. You guys are 0:11:02.120 --> 0:11:06.190 suggesting maybe a target telecom and some of the moats 0:11:06.410 --> 0:11:07.950 from telecom companies and media. 0:11:08.290 --> 0:11:08.950 Talk to us about that. 0:11:10.140 --> 0:11:10.740 Yeah, absolutely. 0:11:10.780 --> 0:11:13.640 Thank you so much, Paul. So, you know, any place 0:11:13.700 --> 0:11:16.540 where you see a lot of consumer inertia, I mean, 0:11:16.559 --> 0:11:18.680 that is the perfect place for Muse. So, I mean, 0:11:18.730 --> 0:11:21.470 this is not just comparing prices, right? You think about 0:11:21.870 --> 0:11:24.829 your internet plan, like your broadband subscription plan that you're 0:11:24.850 --> 0:11:28.310 paying for, or even, you know, telecom wireless plans. I mean, 0:11:28.330 --> 0:11:31.310 this is all just perfect comparison. a perfect place for 0:11:31.370 --> 0:11:33.310 Muse to kind of come in. Because remember, they're not, 0:11:33.510 --> 0:11:37.240 Muse is not just comparing prices. It is actually helping 0:11:37.260 --> 0:11:40.120 you to take the next step, compare all of these 0:11:40.179 --> 0:11:44.300 different plans, and then go shopping. So, you know, traditionally, 0:11:44.340 --> 0:11:47.839 we've seen telecom companies or cable companies, a lot of 0:11:47.880 --> 0:11:50.679 consumer inertia there, because people just basically subscribe, they pay 0:11:50.700 --> 0:11:52.900 their bill, they don't really go back and check and 0:11:52.960 --> 0:11:56.050 shop around just because of Customer service, right? It's such 0:11:56.090 --> 0:11:58.969 a painful process. You know that your cable company is 0:11:58.990 --> 0:12:02.530 the most hated company in America. So nobody wants to 0:12:02.550 --> 0:12:04.850 be sitting on the line talking to a customer service 0:12:04.910 --> 0:12:06.930 rep for like five hours and trying to figure out 0:12:06.990 --> 0:12:09.280 what to do. Muse now kind of takes over that 0:12:09.320 --> 0:12:13.900 whole process, makes it so simple. And this is really scary, 0:12:13.960 --> 0:12:16.520 I would say, for both the cable companies. You think 0:12:16.580 --> 0:12:18.660 about a Comcast or a Charter and even some of 0:12:18.679 --> 0:12:21.140 the telecom companies, especially when all of them are fighting 0:12:21.330 --> 0:12:26.850 off each other in this really, really competitive landscape. And 0:12:26.890 --> 0:12:29.830 you have the looming threat of a new competitor in Starlink. 0:12:30.350 --> 0:12:31.050 Yeah, it's amazing. 0:12:31.190 --> 0:12:32.910 See, I'm going to send this report to Matt Miller 0:12:32.929 --> 0:12:35.630 because he and I have a running feud. I arbitrage 0:12:35.830 --> 0:12:39.410 Uber and Lyft, and I save 10%, 20% often. 0:12:39.450 --> 0:12:41.510 But it takes effort on your part. It takes another, yeah. 0:12:41.730 --> 0:12:43.730 But now Muse can do it for me. 0:12:43.750 --> 0:12:46.770 Okay, so you have the Muse app on your phone. 0:12:46.790 --> 0:12:47.750 Are you going to deploy it? 0:12:47.850 --> 0:12:49.450 I'm going to start doing it. All right, Matt Miller 0:12:49.490 --> 0:12:52.850 does not do this. No, he just goes to one 0:12:52.890 --> 0:12:56.410 or the other. Uber, I think. It's a big running 0:12:56.670 --> 0:12:57.130 feud we have. 0:12:57.490 --> 0:12:59.400 That makes a lot of sense, Geetha, what you say 0:12:59.420 --> 0:13:01.120 about how muse can do a lot of the heavy 0:13:01.200 --> 0:13:03.860 lifting on the kind of work that people don't feel 0:13:03.900 --> 0:13:08.410 like doing. But after a period of time, even with this... 0:13:09.580 --> 0:13:11.800 AI agent doing the work for you, people still have 0:13:11.840 --> 0:13:14.160 to think of it and move forward with it. And 0:13:14.600 --> 0:13:18.220 that inertia is pretty powerful. I mean, do you have 0:13:18.240 --> 0:13:21.179 any numbers in terms of what percentage of the population 0:13:21.220 --> 0:13:24.560 are going to start working on this or moving forward 0:13:24.580 --> 0:13:27.660 with something like this to compare prices and actually try 0:13:27.720 --> 0:13:29.620 to pin down these lower prices? 0:13:31.670 --> 0:13:32.099 Absolutely. 0:13:32.140 --> 0:13:35.180 I mean, we've run some surveys, some proprietary BI surveys, 0:13:35.240 --> 0:13:38.719 not specifically for Muse itself, Scarlett, but just in general, 0:13:38.760 --> 0:13:41.570 kind of looking at the pricing landscape across a lot 0:13:41.610 --> 0:13:45.390 of these subscription services. And believe it or not, for broadband, 0:13:45.910 --> 0:13:48.310 you know, it used to be that speed was everything 0:13:48.350 --> 0:13:51.080 and now price is everything. And in some of the 0:13:51.130 --> 0:13:53.680 surveys that we ran, we've seen that at least 35% 0:13:53.679 --> 0:13:57.920 to 40% of the population are willing to switch and 0:13:57.960 --> 0:14:01.959 make that effort if they have a more competitive price. 0:14:02.020 --> 0:14:05.300 And now you introduce Mews into the equation, I think 0:14:05.340 --> 0:14:07.679 it's going to be much, much higher than 40%. If 0:14:07.700 --> 0:14:09.800 you have somebody who's already doing all of the heavy 0:14:09.840 --> 0:14:12.760 lifting for you, all of the dirty work, it just 0:14:12.840 --> 0:14:15.640 makes that whole process, the friction go away and makes 0:14:15.660 --> 0:14:18.540 the process so much more painless and easier. 0:14:18.870 --> 0:14:21.190 So is Muse going to argue on the phone for 0:14:21.230 --> 0:14:24.660 three hours with a Comcast or a T-Mobile rep? 0:14:25.800 --> 0:14:26.880 It's getting there, Paul. 0:14:26.960 --> 0:14:29.720 It's first starting off like on the internet, talking with 0:14:29.740 --> 0:14:30.440 the chatbots. 0:14:31.040 --> 0:14:32.120 So it did that actually. 0:14:32.180 --> 0:14:34.440 Yeah, I mean, we've had a couple of examples posted 0:14:34.460 --> 0:14:36.680 all over the internet of news kind of talking to 0:14:36.730 --> 0:14:39.790 some of the chatbots, the customer service chatbots, and arguing 0:14:39.830 --> 0:14:41.910 for a better price. And it managed to even switch 0:14:42.230 --> 0:14:44.790 for a few customers. So, you know, I mean, if 0:14:44.930 --> 0:14:46.770 I were a telecom company or a cable company, I 0:14:46.790 --> 0:14:49.610 would definitely, you know, be pretty concerned at this point. 0:14:50.730 --> 0:14:51.290 Stay with us. 0:14:51.410 --> 0:14:53.560 More from Bloomberg Intelligence coming up after this. 0:14:57.640 --> 0:15:01.350 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:15:01.430 --> 0:15:04.470 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:15:04.530 --> 0:15:07.830 Auto with the Bloomberg Business App. Listen on demand wherever 0:15:07.870 --> 0:15:10.960 you get your podcasts or watch us live on YouTube. 0:15:12.540 --> 0:15:15.020 Another big mega bond deal hitting the market. 0:15:15.060 --> 0:15:19.840 Paramount puts $ 44 billion bond sale in the market for 0:15:19.900 --> 0:15:22.610 to close their Warner Brothers Discovery deal. So that's kicking off. 0:15:22.630 --> 0:15:24.620 So we want to get the latest on what's happening 0:15:24.640 --> 0:15:26.800 in that part of the market. Steve Flynn joins us here. 0:15:26.840 --> 0:15:30.940 He covers all the tech media, telecom credit out there. 0:15:31.400 --> 0:15:34.380 So $ 44 billion, this is, talk to us about this deal. 0:15:34.400 --> 0:15:35.100 What's going on here? 0:15:35.440 --> 0:15:35.740 Hey, Paul. 0:15:35.760 --> 0:15:38.700 Well, this deal is to help fund Paramount's acquisition of 0:15:38.720 --> 0:15:43.150 Warner Brothers, which should close relatively soon. There's significant debt 0:15:43.190 --> 0:15:45.550 financing behind that. But the good thing, there's also significant 0:15:45.670 --> 0:15:48.150 equity checks coming in from the Ellison family, coming in 0:15:48.170 --> 0:15:51.190 from Redbird Capital, coming in from some sovereign wealth funds. 0:15:51.210 --> 0:15:52.980 So you have a lot of equity capital behind it. 0:15:53.110 --> 0:15:56.200 But It is a big bond deal. They want to 0:15:56.360 --> 0:16:00.560 raise $ 44. 4 billion. It's a complicated deal because they're hitting 0:16:00.680 --> 0:16:04.220 two big bond markets, right? They have first lien debt, 0:16:04.320 --> 0:16:06.760 which is considered an investment grade. They're going to do 0:16:06.800 --> 0:16:09.260 about $ 32 billion of that, which is going to be, 0:16:09.440 --> 0:16:12.560 I believe, all dollar denominated debt. But then they're also 0:16:12.640 --> 0:16:15.580 tapping the high yield markets. They have second lien obligations, 0:16:15.660 --> 0:16:18.020 which are high yield. There they want to do about 0:16:18.020 --> 0:16:21.870 $ 12. 4 billion equivalent, hitting both the dollar market and the 0:16:21.970 --> 0:16:23.190 euro market in high yield. 0:16:23.410 --> 0:16:23.650 Nice. 0:16:24.150 --> 0:16:27.270 Bankers are making money, but interest rates are blowing out. 0:16:27.750 --> 0:16:29.510 I mean, they're paying more in interest that I'm sure 0:16:29.530 --> 0:16:30.750 they probably thought they would. 0:16:31.150 --> 0:16:31.430 Yes. 0:16:31.550 --> 0:16:34.880 So we've had underlying treasury rates moving up, up, up, 0:16:34.980 --> 0:16:37.980 which is pushing, you know, the spreads were pretty good 0:16:38.040 --> 0:16:39.840 holding in there, both investment grade and high yield. They've 0:16:39.860 --> 0:16:41.900 started to bump out over the past couple of weeks. 0:16:41.980 --> 0:16:45.680 So all in, you know, your investment grade market is 0:16:45.760 --> 0:16:48.540 probably about 6% right now. I think it was like 5.9% 0:16:48.540 --> 0:16:51.780 close on Friday. It's definitely probably around 6% now. High 0:16:51.800 --> 0:16:56.230 yield market overall is over 8%. So, yes, they're going 0:16:56.250 --> 0:16:58.650 to be paying a lot of interest pro forma for 0:16:58.690 --> 0:16:59.050 this deal. 0:16:59.590 --> 0:16:59.770 All right. 0:16:59.790 --> 0:17:01.610 I'm going to quote you the market back in the 0:17:01.670 --> 0:17:03.690 early 90s when I was lending to these companies from 0:17:03.710 --> 0:17:08.310 the Chase Manhattan Bank. I'll lend three, maybe four times EBITDA. 0:17:08.369 --> 0:17:09.889 You want to put any sub debt on top of that? 0:17:09.930 --> 0:17:13.100 That's your problem. What's the total leverage. 0:17:12.760 --> 0:17:14.410 Going to look like on this company pro forma? 0:17:14.470 --> 0:17:16.680 And I'm going to ask you or tell you pre synergies. 0:17:16.720 --> 0:17:18.139 Don't give me any of that synergy stuff. 0:17:18.859 --> 0:17:22.380 What's the leverage on the pro forma Paramount Warner Brothers Discovery? 0:17:22.560 --> 0:17:23.879 So leverage is high. 0:17:24.720 --> 0:17:27.919 Leverage all in will probably be about mid six times 0:17:28.050 --> 0:17:31.270 pro forma this year when you combine the two companies. EBITDA, 0:17:31.310 --> 0:17:34.730 which is about $ 12 billion combined together for this year. 0:17:36.010 --> 0:17:37.610 Net debt is expected to be. 0:17:37.570 --> 0:17:42.730 Around $ 79 billion. So you're like six, four times. But 0:17:42.810 --> 0:17:47.310 the company sees significant cost synergy. So again, combined, they're 0:17:47.330 --> 0:17:49.850 about $ 12 billion of EBITDA. They see $ 6 billion of 0:17:49.910 --> 0:17:53.520 cost savings combined. within three years. So that gives you 0:17:53.580 --> 0:17:55.179 pro forma, I know you don't want to hear it, 0:17:55.200 --> 0:17:58.770 but pro forma EBITDA of about $ 18 billion and leverage, 0:17:58.790 --> 0:18:02.190 which is much lower. The second thing to know here 0:18:02.369 --> 0:18:06.020 is that They're issuing first and second lien bonds. There 0:18:06.119 --> 0:18:09.870 is debt securities that are subordinate to that. So there's 0:18:09.880 --> 0:18:14.050 some leftover unsecured debt from Paramount, some stub pieces from 0:18:14.070 --> 0:18:17.629 Warner Brothers, and some Paramount subordinated debt. So when you 0:18:17.650 --> 0:18:20.780 look at those leverage numbers, that's all in the debt 0:18:20.820 --> 0:18:22.480 that they're selling is higher priority. 0:18:22.960 --> 0:18:23.520 And these are. 0:18:23.460 --> 0:18:27.700 Businesses, the core businesses... they're not really growing that well. 0:18:28.020 --> 0:18:30.260 I mean, so it's not like they can really earn 0:18:30.300 --> 0:18:33.149 their way out of this leverage. So how are you guys, 0:18:33.190 --> 0:18:35.370 how's the market, how are the rating agencies viewing this 0:18:35.730 --> 0:18:36.350 capital structure? 0:18:36.390 --> 0:18:37.330 Yeah, you know, it's interesting. 0:18:37.410 --> 0:18:40.550 If you look at combined EBITDA for Warner Brothers and 0:18:40.590 --> 0:18:43.480 Paramount over the past couple of years and consensus forecast 0:18:43.500 --> 0:18:44.360 like this year, next year. 0:18:45.020 --> 0:18:46.199 It's about $ 12 million. 0:18:46.300 --> 0:18:50.610 It's basically been about flat because The revenue has been challenging. 0:18:50.630 --> 0:18:52.710 These companies have done a good job of taking out costs, 0:18:52.730 --> 0:18:54.970 but it's been very challenging to grow revenue because the 0:18:55.010 --> 0:18:58.869 top line has been under pressure, right? Like traditional linear 0:18:58.890 --> 0:19:03.650 television under significant pressure. Now they're growing in streaming. Studios 0:19:03.670 --> 0:19:07.270 has been doing well. But overall, that is a challenge 0:19:07.590 --> 0:19:10.350 for this company. So the real EBITDA growth is going 0:19:10.369 --> 0:19:13.670 to come from cost takeout. Again, the $ 6 billion synergy number. 0:19:14.300 --> 0:19:16.660 There's a fair amount of upfront costs to achieve those 0:19:16.680 --> 0:19:18.980 synergies within the first year or so. But then after that, 0:19:19.000 --> 0:19:22.300 you should see significant free cash flow. So as a bondholder, 0:19:23.020 --> 0:19:25.160 you're really supported by two things. Number one, you love 0:19:25.200 --> 0:19:27.869 the huge equity checks coming in behind you, supporting the deal. 0:19:28.310 --> 0:19:31.070 You love the commitment from the Ellison family. And you 0:19:31.109 --> 0:19:35.230 really do like the significant free cash flow that should 0:19:35.270 --> 0:19:38.520