WEBVTT - Bloomberg Surveillance TV: August 10th, 2026 0:00:02.360 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amerie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.840 Terminal and the Bloomberg Business app. 0:00:36.240 --> 0:00:38.400 We begin this hour with stocks and Bonds, kicking off 0:00:38.400 --> 0:00:41.680 the treating week Little change. Eric Johnston of counter Fitzgerald writing, 0:00:41.880 --> 0:00:44.720 equities will need to battle the negative seasonality over the 0:00:44.760 --> 0:00:47.479 next two months. We think stocks can power through these 0:00:47.520 --> 0:00:50.160 headwinds and will be led by the tech sector. 0:00:50.479 --> 0:00:51.319 Thank you so much for. 0:00:51.320 --> 0:00:53.880 Joining us, Eric. Now from more Eric, I just want 0:00:53.920 --> 0:00:56.800 to start on all of this financing that is expected 0:00:56.880 --> 0:00:59.360 coming out. We're seeing this from Intel, We're seeing this 0:00:59.440 --> 0:01:02.360 now from orient Anthropic. At what point does it get 0:01:02.400 --> 0:01:06.560 concerning based on just the ability to monetize in quick fashion, 0:01:07.680 --> 0:01:08.640 So the amount. 0:01:08.319 --> 0:01:11.240 Of capital that is going to be required is clearly 0:01:11.280 --> 0:01:13.200 going to be you know, enormous. We're going to see 0:01:13.200 --> 0:01:16.360 a big step up in cap X next year to 0:01:16.480 --> 0:01:20.160 over you know, over a trillion dollars from from the 0:01:20.200 --> 0:01:23.240 Big four. But the bottom line is is that what 0:01:23.280 --> 0:01:26.680 they're what they're starting to show is the ROI and 0:01:26.720 --> 0:01:29.679 this is what the market has been looking for. We 0:01:29.760 --> 0:01:33.240 saw it from Microsoft and Amazon's earnings where cloud growth 0:01:34.200 --> 0:01:38.960 has accelerated and so you're seeing margins expand and you're 0:01:38.959 --> 0:01:43.440 seeing rent prices for compute starting to move higher. And 0:01:43.520 --> 0:01:47.240 so part of this story is about the cash flows 0:01:47.680 --> 0:01:53.240 from these businesses increasing and likely reducing the need for 0:01:53.800 --> 0:01:59.760 as much you know, capital markets uh as people expected before, 0:02:00.360 --> 0:02:03.920 and so I think that's incredibly important. Now the reality 0:02:04.080 --> 0:02:08.000 is is that equity and debt is going to be needed, 0:02:08.040 --> 0:02:10.640 and that's been part of the pressure that we've seen 0:02:10.880 --> 0:02:14.040 on treasuries because the amount of paper that's going to 0:02:14.080 --> 0:02:16.799 need to come to the market from a corporate perspective 0:02:17.360 --> 0:02:19.600 is going to be very significant. But I think the 0:02:19.680 --> 0:02:22.320 key point is that you're going to see these cash 0:02:22.320 --> 0:02:26.600 flows from operations increase and that will likely reduce the 0:02:26.680 --> 0:02:28.720 need for the capital markets. 0:02:29.040 --> 0:02:31.280 Eric, I just wonder what some of these companies know 0:02:31.400 --> 0:02:34.639 that we don't. Why are they frontloading all their capex 0:02:34.800 --> 0:02:38.680 now unless it's a market that is frankly looking really 0:02:38.680 --> 0:02:40.680 good to them. In other words, they think it's only 0:02:40.720 --> 0:02:43.080 going to get more expensive for them to borrow, which 0:02:43.120 --> 0:02:45.119 means that yields are only going to get wider, which 0:02:45.160 --> 0:02:47.760 means that anyone who's buying in right now is probably 0:02:47.800 --> 0:02:50.720 going to lose money on a market value perspective. And 0:02:50.760 --> 0:02:53.000 the same sort of goes for the equity side of things. 0:02:53.000 --> 0:02:55.560 Why is this such a good time for the borrowers? 0:02:57.120 --> 0:03:00.640 Yeah, I mean they're starting to finally explain how this 0:03:00.760 --> 0:03:03.880 capex is going to work and talking about how very 0:03:04.000 --> 0:03:08.840 soon revenue growth is going to exceed capex growth. And 0:03:08.960 --> 0:03:10.760 also the fact that you know, you brought the point 0:03:10.800 --> 0:03:14.400 about front loading capex when they're building a data center. 0:03:14.680 --> 0:03:17.280 There are parts of the data center that have a 0:03:17.320 --> 0:03:19.680 thirty year life. There are other parts that have a 0:03:19.760 --> 0:03:22.720 much shorter life related to the chips. But the point 0:03:22.840 --> 0:03:27.360 is is that the capex requirements early on are a 0:03:27.400 --> 0:03:31.399 lot more than what they are in you know, two, three, 0:03:31.520 --> 0:03:34.920 four years from now, and so that's going to likely 0:03:35.080 --> 0:03:38.880 inflect their free cash flow. We're already seeing it from 0:03:39.000 --> 0:03:42.160 you know, someone like Microsoft, where their free cash flow 0:03:42.400 --> 0:03:46.640 this quarter came in higher than than what the market 0:03:46.680 --> 0:03:50.520 was expecting. I think that's a trend that is likely 0:03:50.560 --> 0:03:54.040 going to continue in the quarters to come, and so 0:03:54.120 --> 0:03:56.240 that's going to be a very favorable dynamic from a 0:03:56.240 --> 0:04:00.240 borrower perspective. I would also say that although the amountunt 0:04:00.240 --> 0:04:04.240 of supply is clearly very large, and that has been 0:04:04.280 --> 0:04:08.200 part of the problem around the backup in some of 0:04:08.200 --> 0:04:11.920 these spreads, but the reality is is that their balance 0:04:11.920 --> 0:04:17.320 sheets are still extraordinarily strong and a year from now 0:04:17.360 --> 0:04:19.080 and two years from now are also going to be 0:04:19.120 --> 0:04:22.479 extraordinarily strong, even with all the spending they're doing. 0:04:23.440 --> 0:04:26.960 Eric every earnings quarter, it feels like for these tech names, 0:04:26.960 --> 0:04:29.000 the bargets higher that they have to clear. But you 0:04:29.040 --> 0:04:31.440 think this last season was an inflection point. 0:04:31.560 --> 0:04:37.040 Why so part of it was how they actually handled 0:04:37.480 --> 0:04:41.880 the conference call in terms of really explaining the dynamics 0:04:42.000 --> 0:04:46.040 of the capex. The second thing is is that margins 0:04:46.839 --> 0:04:51.919 are starting to expand, and so because the demand for 0:04:52.080 --> 0:04:57.240 compute continues to outstrip supply, pricing is going higher, margins 0:04:57.240 --> 0:05:00.080 are going higher, and you're also seeing it in the 0:05:00.160 --> 0:05:04.240 revenue growth. So if you looked whether it was Google, Microsoft, 0:05:04.320 --> 0:05:08.080 or Amazon, you know, they all came in higher than what, 0:05:08.720 --> 0:05:12.880 uh the street was expecting. And the growth is accelerating. 0:05:13.080 --> 0:05:16.600 So you're seeing revenue growth you know, for their for 0:05:16.640 --> 0:05:18.960 their cloud business, depending on who it is, you know, 0:05:19.000 --> 0:05:23.960 between forty and seventy percent. And the likely scenario is 0:05:24.080 --> 0:05:28.440 that this acceleration is going to continue into next year. 0:05:28.839 --> 0:05:32.599 And that's you know, very very powerful h dynamic. 0:05:32.880 --> 0:05:36.120 You're bullish on the momentum factor. You're very bullish on 0:05:36.160 --> 0:05:38.520 what's going on the semiconductor sector, lab by memory. 0:05:38.520 --> 0:05:40.000 What do you make of Intel this morning? 0:05:41.640 --> 0:05:46.240 So this was somewhat expected that at some point they 0:05:46.279 --> 0:05:49.960 were going to need to raise equity. So their business 0:05:50.040 --> 0:05:52.640 is a little bit you know, different than than others 0:05:52.680 --> 0:05:55.960 because of this you know, foundry build out and this 0:05:56.560 --> 0:05:59.719 you know, thought to be able to build foundry here 0:05:59.839 --> 0:06:03.279 in the United States. And so I think this, you know, 0:06:03.320 --> 0:06:07.479 the stock is call it thirty forty percent off the highs, 0:06:07.960 --> 0:06:12.240 and so I think investors were you know somewhat expecting this. Ultimately, 0:06:12.360 --> 0:06:15.120 it's a supply of equities, so I'm not surprised to 0:06:15.160 --> 0:06:18.919 see the stock you know, down this morning. Considering this 0:06:19.040 --> 0:06:23.240 supply that needs to be absorbed. But you know, I 0:06:23.279 --> 0:06:27.240 don't I don't think it's necessarily a indication of you 0:06:27.279 --> 0:06:29.720 know what other for example, semis are going to need 0:06:29.760 --> 0:06:33.120 to do. Most of them are generating significant cash flow 0:06:33.760 --> 0:06:35.760 where they're going to be doing the opposite and actually 0:06:36.160 --> 0:06:40.520 buying back you know, shares. So we'll see how this 0:06:40.560 --> 0:06:43.719 plays out. I do think that the overall equity supply 0:06:44.040 --> 0:06:48.479 story is a real story, will be a headwind for 0:06:49.160 --> 0:06:53.039 equities over the course of the next year. And this 0:06:53.160 --> 0:06:55.400 is an example that's certainly, you know, part of it. 0:06:55.760 --> 0:06:58.560 Eric, we beat any leverage out of the systems and 0:06:58.640 --> 0:07:01.760 situational awareness or is it all come roaring back in 0:07:01.800 --> 0:07:03.679 the four days subsequently after? 0:07:05.000 --> 0:07:08.839 So I think we've certainly have taken a lot of 0:07:08.880 --> 0:07:13.360 the faster retail money from a global perspective out of 0:07:13.360 --> 0:07:15.600 the market. You know, certainly, you look at what's going 0:07:15.640 --> 0:07:19.560 on in South Korea and some of these celebritytfs are down, 0:07:19.800 --> 0:07:23.560 you know, seventy five eighty percent, significant number of brokerage 0:07:23.560 --> 0:07:26.760 accounts have been shut down, the margin calls have been 0:07:27.080 --> 0:07:30.600 of you know, significant proportion. And then here in the 0:07:30.720 --> 0:07:34.520 US we saw a major d risking not only you 0:07:34.560 --> 0:07:36.600 know from a little bit from retail, but really from 0:07:37.240 --> 0:07:40.960 institutions who were in this momentum trade. And the momentum 0:07:41.040 --> 0:07:46.880 trade ultimately is highly correlated to the AI infrastructure trade, 0:07:46.960 --> 0:07:50.720 and so I think what we saw was a pretty 0:07:50.840 --> 0:07:55.480 significant event that we think was a clearing event from 0:07:55.520 --> 0:07:59.600 both a positioning standpoint for the momentum trade, and it's 0:07:59.600 --> 0:08:02.880 for a that it was crowded for good reasons. The 0:08:02.960 --> 0:08:06.040 fundamentals are really strong, and we think the fundamentals are 0:08:06.040 --> 0:08:08.440 going to continue to be strong. And so now you 0:08:08.560 --> 0:08:12.120 have this cleaner positioning that I think is going to 0:08:12.200 --> 0:08:17.000 allow this group to work in the coming weeks and months. 0:08:17.440 --> 0:08:20.960 Stay with us, Mulblindex, Savannah's coming up off to this. 0:08:30.240 --> 0:08:33.599 Sarah Kundsta Cleo Capital writing, I've said for years TSM 0:08:33.720 --> 0:08:37.320 is a lynchpin of AI. It is essentially irreplaceable in 0:08:37.360 --> 0:08:39.720 ship production for the next three to five years with 0:08:39.840 --> 0:08:41.720 no real competitors on the horizon. 0:08:41.840 --> 0:08:43.120 Sarah joins us now for more. 0:08:43.200 --> 0:08:45.040 Sarah, thank you so much for being with us. 0:08:45.040 --> 0:08:46.319 I want to take a step back. 0:08:46.320 --> 0:08:48.840 Because what we've seen over the past week is a 0:08:48.920 --> 0:08:51.720 real sense that tech is safe again. We've had leverage 0:08:51.760 --> 0:08:53.600 kind of pushed out of the system. We've had earnings, 0:08:53.600 --> 0:08:56.520 particularly from the hyperscalers, that seem to confirm the story 0:08:56.520 --> 0:08:59.440 that they're able to monetize more quickly than people. 0:08:59.120 --> 0:09:00.360 Previously expect did. 0:09:00.720 --> 0:09:03.200 Do you think that it makes sense to lean into 0:09:03.280 --> 0:09:06.360 the bull case with TSMC just one pillar of the 0:09:06.440 --> 0:09:07.880 overall positive. 0:09:08.559 --> 0:09:11.320 I think it makes sense on a case by case basis. 0:09:11.360 --> 0:09:14.840 So I think TSM is in a pretty safe place 0:09:15.040 --> 0:09:17.240 as long as you think that the sort of overall 0:09:17.280 --> 0:09:19.600 demand for chips is going to stay pretty much flat 0:09:19.679 --> 0:09:20.040 or even a. 0:09:20.040 --> 0:09:22.120 Little bit up over the next few years. 0:09:22.760 --> 0:09:26.240 I think Alphabet is in a potentially really interesting situation 0:09:26.280 --> 0:09:28.000 when you look at the stock. 0:09:27.720 --> 0:09:29.199 Price versus the revenue. 0:09:29.640 --> 0:09:31.280 But I think that there are still a lot of 0:09:31.320 --> 0:09:33.960 other names in the space, like the SpaceX's that are 0:09:34.320 --> 0:09:36.600 really really overpriced and that make me nervous. 0:09:36.679 --> 0:09:38.040 Coreweaves another one of those. 0:09:38.280 --> 0:09:39.559 There's an issue right now. 0:09:39.600 --> 0:09:41.960 People are trying to imagine what the world looks like 0:09:42.480 --> 0:09:46.679 in an AI universe, and there's this question of hyperscalers 0:09:46.960 --> 0:09:49.880 versus the adopters. As Mike Wilson is talking about that 0:09:49.920 --> 0:09:53.800 he's looking for, how are you expecting us to understand 0:09:54.080 --> 0:09:56.160 consumer products. 0:09:55.840 --> 0:09:56.840 That might have AI. 0:09:56.880 --> 0:09:59.240 And I'm thinking about Google and their phone that will 0:09:59.280 --> 0:10:02.680 be coming out later this week, or potentially even Apple 0:10:02.720 --> 0:10:04.520 that's going to be talking about their foldable phone, but 0:10:04.559 --> 0:10:07.199 maybe with less AI coming out in September. 0:10:08.120 --> 0:10:11.559 Everybody's making foldable phones and glasses. It is unclear if 0:10:11.559 --> 0:10:14.319 anyone wants them, but I mean, I think one it's 0:10:14.360 --> 0:10:17.440 a great reminder. Hey, Google makes phones, and also Google 0:10:17.480 --> 0:10:21.240 Power is the Android ecosystem of three billion devices, right. 0:10:21.280 --> 0:10:24.440 Google touches across a lot of their properties, well over 0:10:24.520 --> 0:10:28.200 four billion people every month, and so that's one of 0:10:28.200 --> 0:10:30.160 the reasons why I do think that they will. 0:10:29.960 --> 0:10:31.720 Be ultimately the AI winner. 0:10:32.000 --> 0:10:35.080 They have a baked in user base across devices, across 0:10:35.120 --> 0:10:39.600 consumer products and enterprise that just dwarfs any of the competitors. 0:10:39.840 --> 0:10:41.400 Can they be the winner when it comes to mobile 0:10:41.440 --> 0:10:43.559 phones because of where they are in the AI race? 0:10:44.120 --> 0:10:45.640 I mean, are we all going to have pixels now? 0:10:46.120 --> 0:10:47.400 But are we do? 0:10:47.520 --> 0:10:50.599 A huge lot of people, particularly globally, have androids? 0:10:50.679 --> 0:10:50.920 Yes? 0:10:51.160 --> 0:10:51.800 Do we know that? 0:10:52.160 --> 0:10:54.920 Very often Apple has ambitions on its own and then 0:10:55.000 --> 0:10:57.640 sort of goes back to Google and says, actually, can 0:10:57.679 --> 0:11:00.319 I just borrow youuros can I borrow your search bar? 0:11:00.559 --> 0:11:02.920 I'll pay you for it? Right, So we know that 0:11:03.040 --> 0:11:04.920 it is likely that Google. 0:11:04.600 --> 0:11:07.880 At the end of the day, will power, particularly in mobile, 0:11:08.240 --> 0:11:13.120 the vast majority of on device AI and I think 0:11:13.160 --> 0:11:16.440 that that is a pretty logical step in when you 0:11:16.480 --> 0:11:19.960 pull back and look at their dominance with the Android. 0:11:19.559 --> 0:11:21.200 OS when it comes to about phones. 0:11:21.240 --> 0:11:23.040 Lisa and I were just talking about how there's this 0:11:23.120 --> 0:11:27.079 journal report of the weekend how Apple is testing CXMT 0:11:27.800 --> 0:11:30.120 memory tips to put in their product lines. Are we 0:11:30.280 --> 0:11:32.960 opening up of can of worms here in the United States. 0:11:33.880 --> 0:11:35.960 In terms of Chinese chips? I mean, I think that 0:11:36.000 --> 0:11:36.800 we are. 0:11:37.120 --> 0:11:39.319 We are going to sort of surface what has been 0:11:39.360 --> 0:11:43.079 happening underneath, which is we know that China gets their 0:11:43.080 --> 0:11:45.959 hands on a lot of Invidio chips that everyone swears 0:11:45.960 --> 0:11:47.719 they don't have, and I think a little bit of 0:11:47.800 --> 0:11:51.280 vice versa, which hasn't happened a ton in the last decade, 0:11:52.080 --> 0:11:55.760 is not shocking. I also think that it opens up 0:11:55.800 --> 0:11:58.559 the competition more to say, hey, maybe we have to 0:11:58.679 --> 0:12:01.520 drive these prices down. And the reason that the Apples 0:12:01.520 --> 0:12:04.440 of the world are curious about using these other chips 0:12:04.760 --> 0:12:07.960 is largely because of price. And then obviously the political 0:12:08.000 --> 0:12:11.679 climate in China, and so if these chip companies have 0:12:11.760 --> 0:12:15.000 to be a bit more competitive on price, I think 0:12:15.040 --> 0:12:18.120 that that is not necessarily a bad thing for the market, 0:12:18.280 --> 0:12:20.480 even though it might be a bad thing for their stock. 0:12:20.559 --> 0:12:22.000 I'm glad that you mentioned that, Serrex. 0:12:22.000 --> 0:12:25.080 It seems like increasingly the AI story is a financial 0:12:25.080 --> 0:12:29.120 market story and a capital intensivity story. The idea that 0:12:29.160 --> 0:12:31.880 you have to raise potentially three four trillion dollars in 0:12:31.880 --> 0:12:34.240 the next couple of years in order to build all 0:12:34.280 --> 0:12:36.400 of the hopes and dreams of these companies. 0:12:36.440 --> 0:12:37.800 How important is it going to. 0:12:37.720 --> 0:12:40.240 Be that margins compressed in some of these places, whether 0:12:40.280 --> 0:12:44.640 it's memory chips or other potential components that go into 0:12:44.679 --> 0:12:47.640 this universe At a time where investors are that much 0:12:47.640 --> 0:12:54.200 more focused on rapid monetization before they hand out more cash. 0:12:52.760 --> 0:12:54.360 I think it's going to be really important. 0:12:54.800 --> 0:12:59.000 I think that we're going to see pressure that Hey, look, Nvidia, 0:12:59.040 --> 0:13:00.960 it's great that your margin are so big, but one 0:13:01.000 --> 0:13:03.720 that means there's a lot more sort of competition happening. 0:13:03.920 --> 0:13:05.800 We know that the Googles of the world, a lot 0:13:05.840 --> 0:13:08.240 of companies are working on their own chip design, but 0:13:08.280 --> 0:13:11.000 then on the other side. There's only so much that 0:13:11.040 --> 0:13:13.920 people can bear, right, and when we look at Apple 0:13:13.960 --> 0:13:16.679 having to raise their prices and because they can't get 0:13:16.679 --> 0:13:19.320 their hands on chips and everything else, a lot of 0:13:19.320 --> 0:13:22.600 these price increases are starting relatively small, but they eventually 0:13:22.640 --> 0:13:26.160 snowball against a consumer that is really feeling the pain. 0:13:26.200 --> 0:13:27.840 I think we're going to see more of that in 0:13:27.880 --> 0:13:29.359 the University of Michigan. 0:13:29.000 --> 0:13:29.800 Report this week. 0:13:29.880 --> 0:13:32.880 So I think that we are at this point where 0:13:33.240 --> 0:13:35.760 all the VC dollars in the world don't make a 0:13:35.880 --> 0:13:39.040 difference if at the end consumer, the end small business 0:13:39.320 --> 0:13:42.880 can't afford to buy what you're selling because they just 0:13:42.920 --> 0:13:43.800 don't have the cash. 0:13:43.880 --> 0:13:46.240 It seems like Apple has been rewarded for a number 0:13:46.240 --> 0:13:49.240 of months for not having as much capital intensivity as 0:13:49.240 --> 0:13:51.599 some of the other AI related companies. 0:13:51.640 --> 0:13:53.440 Do you think that can last? We're just saying, or. 0:13:53.440 --> 0:13:57.280 Report it at Jeffrey's analyst, who's really attracked closely edisonally 0:13:58.120 --> 0:14:01.920 by the Wall Street community downgrade their expectation for Apple. 0:14:01.960 --> 0:14:04.800 You're seeing shares down some one point two percent. In response, 0:14:04.840 --> 0:14:07.560 I'm just wondering if that makes sense to you based 0:14:07.600 --> 0:14:10.480 on its recent rise, and frankly, some of those questions 0:14:10.480 --> 0:14:12.800 that you were just talking about with consumer health. 0:14:13.679 --> 0:14:15.960 So I think you also have to remember there's another 0:14:16.040 --> 0:14:19.480 big narrative happening inside Cooper Tino, which is they're getting 0:14:19.560 --> 0:14:22.720 a new CEO, and they have a long beloved CEO 0:14:22.760 --> 0:14:25.120 who's done a really good job, and the new guy, 0:14:25.160 --> 0:14:27.960 while not new internally, is pretty new to the market. 0:14:28.000 --> 0:14:31.200 And so I think some of this is a little 0:14:31.240 --> 0:14:33.000 bit of a question mark, a little bit of a 0:14:33.080 --> 0:14:34.880 let's see what he's like. 0:14:35.560 --> 0:14:37.920 Do we like this new boss? And so I would 0:14:37.960 --> 0:14:40.000 put some of that downgrade. I would put some of 0:14:40.040 --> 0:14:41.840 those concerns in. 0:14:41.840 --> 0:14:44.760 The bucket of would this be happening if Tim Cook 0:14:44.880 --> 0:14:47.520 was still in charge doing the same thing. And on 0:14:47.560 --> 0:14:51.040 the other side, I think there's a problem that Apple has, 0:14:51.040 --> 0:14:53.120 which is a good problem to have for consumers, which 0:14:53.120 --> 0:14:56.800 is their products are so good and they're relatively reliable 0:14:56.840 --> 0:15:00.680 that you're not constantly buying more, and so where do 0:15:00.760 --> 0:15:05.120 they get that extra money? If your phones aren't getting 0:15:05.120 --> 0:15:06.960 stolen or you can get them back right and if 0:15:07.000 --> 0:15:10.440 your computer isn't breaking and you don't really need more memory, 0:15:10.920 --> 0:15:13.960 And so I think that's part of this problem for them, 0:15:14.120 --> 0:15:16.520 even though it points to the fact that their products 0:15:16.520 --> 0:15:17.440 are really really good. 0:15:17.880 --> 0:15:20.600 Stay with us. Mult Blomberg Surveillance coming up. 0:15:20.880 --> 0:15:32.520 Off to this, Emily Banister, the head of private credit 0:15:32.560 --> 0:15:36.280 Wellington Management, writing, the bigger the AI opportunity gets, the 0:15:36.320 --> 0:15:39.280 more selective lenders need to be. This is becoming a 0:15:39.400 --> 0:15:42.840 market of winners and losers. Emily joins us now for more. Emily, 0:15:42.880 --> 0:15:44.680 great to see. Thank you so much for joining us. 0:15:44.960 --> 0:15:45.280 Emily. 0:15:45.320 --> 0:15:47.520 What does it mean to be more selective when it 0:15:47.520 --> 0:15:48.720 comes to AI investment? 0:15:49.960 --> 0:15:52.360 Well, one thing to really think about with the AI 0:15:52.440 --> 0:15:55.240 financing ecosystem that's going on right now is that it 0:15:55.320 --> 0:15:59.040 is incredibly broad. We are certainly seeing the large data 0:15:59.040 --> 0:16:01.960 center deals come, but we are also seeing opportunities to 0:16:02.080 --> 0:16:07.200 finance the AI build out through multiple different lenses. You're 0:16:07.200 --> 0:16:10.520 seeing it in power generation, You're seeing it in cooling. 0:16:10.640 --> 0:16:13.720 You're seeing it really across all of the physical infrastructure 0:16:13.720 --> 0:16:16.640 that will be needed to support AI. And that means 0:16:16.680 --> 0:16:19.800 you have opportunities to really pick your spots. So when 0:16:19.840 --> 0:16:22.440 we hear things about one part of the market getting 0:16:22.520 --> 0:16:26.120 hotter or having a lot of issuentes coming in the future, 0:16:26.400 --> 0:16:29.480 we are also seeing those other SEMs, those other areas 0:16:29.720 --> 0:16:32.360 where you can really structure something unique for a need 0:16:32.400 --> 0:16:35.360 that is supported by the same demand but may have 0:16:35.600 --> 0:16:38.520 really different dynamics for a lender. And that's got us 0:16:38.600 --> 0:16:42.640 very excited about areas like within investment grade private credit 0:16:42.720 --> 0:16:45.360 or commercial real estate debt, where you can really look 0:16:45.400 --> 0:16:48.080 at these themes and then look at the individual structures 0:16:48.080 --> 0:16:49.920 and investments and find the ones that are going to 0:16:49.960 --> 0:16:52.360 be the great opportunities for lenders going forward. 0:16:52.480 --> 0:16:55.200 How do you immunize yourself emily at a time when 0:16:55.200 --> 0:16:58.560 we're getting trillions of dollars of capex into an investment 0:16:58.600 --> 0:17:01.880 theme that, yes, everybody believes in, but is murky as 0:17:01.920 --> 0:17:03.960 far as what the end state looks like and exactly 0:17:03.960 --> 0:17:05.920 the degree to which it can be monetized. 0:17:06.119 --> 0:17:06.520 How do you. 0:17:06.520 --> 0:17:10.680 Evaluate the type of yield you need to offset the risk. Also, 0:17:10.720 --> 0:17:12.240 it made an inflationary moment. 0:17:13.800 --> 0:17:15.720 I think you make a great point, which is that 0:17:16.240 --> 0:17:18.960 not every deal in the AI theme is going to 0:17:18.960 --> 0:17:22.520 go well. I think that's a guarantee from here because 0:17:22.560 --> 0:17:26.280 this is a very broad space and in many cases 0:17:26.280 --> 0:17:29.719 we've seen some thematic ideas in the past where if 0:17:29.760 --> 0:17:32.240 you identify the theme correctly, you can invest across it 0:17:32.320 --> 0:17:34.800 and the rising tide will lift all boats and you'll 0:17:34.800 --> 0:17:37.680 do well. I would say AI is the opposite of that. 0:17:37.960 --> 0:17:40.840 AI is a place you need to be selective because 0:17:40.880 --> 0:17:44.639 it's becoming increasingly complex. When we think about underwriting a 0:17:44.760 --> 0:17:47.840 data center type deal, you need to think not only 0:17:47.880 --> 0:17:51.240 about the corporate exposure, because it's not only a corporate exposure. 0:17:51.440 --> 0:17:54.199 You're thinking about the tenant risk. You're thinking about the 0:17:54.240 --> 0:17:58.600 ability for construction to meet its milestones. You're thinking about 0:17:59.680 --> 0:18:04.000 what the opportunities for power generation, how contracted are those, 0:18:04.560 --> 0:18:06.879 And you're thinking about the structure that you've agreed to 0:18:07.080 --> 0:18:10.000 and whether it protects you in addition to your grade point, 0:18:10.200 --> 0:18:11.879 what are you getting paid, what are the yields? 0:18:12.240 --> 0:18:13.600 So in a complex space. 0:18:13.520 --> 0:18:16.480 Like this, really being able to dig in is incredibly important. 0:18:16.760 --> 0:18:19.159 I think the best way to immunize yourself is actually 0:18:19.200 --> 0:18:23.560 to have a lens across markets, because this market is 0:18:23.600 --> 0:18:27.879 also becoming a place that where markets are intersecting. We 0:18:27.920 --> 0:18:30.280 actually did some work on the more than three hundred 0:18:30.359 --> 0:18:33.080 data center deals over the last two and a half years, 0:18:33.520 --> 0:18:35.720 and we found something interesting, which is that about a 0:18:35.880 --> 0:18:38.680 third of those were financed by banks, about a third 0:18:38.680 --> 0:18:41.119 by the public markets, and then about a quarter by 0:18:41.119 --> 0:18:44.120 private credit. So this is an ecosystem that is getting 0:18:44.160 --> 0:18:49.080 financed by multiple different parts of our financing options, and 0:18:49.119 --> 0:18:51.200 you need a lens across all of them to see 0:18:51.280 --> 0:18:54.160 where the structure's right, where's the pricing right, And having 0:18:54.200 --> 0:18:56.520 a full picture across all of them, I think is 0:18:56.560 --> 0:18:58.080 the way to immunize yourself going forward. 0:18:58.280 --> 0:19:01.080 Emily, you mentioned a bunch of risks when you look 0:19:01.080 --> 0:19:03.040 at how to invest in AI. 0:19:03.119 --> 0:19:04.399 What about the political risks? 0:19:04.480 --> 0:19:06.080 You know, we're sitting here in New York and there 0:19:06.119 --> 0:19:09.280 was a mematorium a ban for a year basically on 0:19:09.359 --> 0:19:11.439 data centers. People don't want them in their backyard and 0:19:11.440 --> 0:19:14.480 this is becoming a huge election issue, especially into the midterms. 0:19:15.640 --> 0:19:17.639 Well, you couldn't possibly talk about something more fun for 0:19:17.680 --> 0:19:18.760 a credit person than risk. 0:19:19.000 --> 0:19:20.520 So definitely a good place to go. 0:19:21.119 --> 0:19:25.120 But I would say that really gets to the main point, 0:19:25.400 --> 0:19:29.119 which is that there is incredible complexity underneath data center 0:19:29.240 --> 0:19:33.399 financings and each project can look different. They're in different geographies, 0:19:33.400 --> 0:19:37.600 with different permitting processes, with different community engagement strategies, and 0:19:37.640 --> 0:19:40.720 we do expect that you need to understand what's underneath 0:19:40.760 --> 0:19:44.120 each deal as opposed to just investing thematically, because that's 0:19:44.240 --> 0:19:48.360 really where I think lenders can support great projects and 0:19:49.600 --> 0:19:50.480 do well over time. 0:19:50.840 --> 0:19:54.480 Intel just came out and announced a proposed fifteen billion 0:19:54.520 --> 0:19:57.000 dollar stock offering. This isn't just a dead story, This 0:19:57.119 --> 0:20:00.280 is a financing story across the entire capital struct Sure, 0:20:00.480 --> 0:20:03.120 we're seeing the shares lower by about three percent free 0:20:03.200 --> 0:20:06.720 market trading. It just highlights how if there's trillions of 0:20:06.720 --> 0:20:09.679 dollars necessary over the next couple of years to build 0:20:09.760 --> 0:20:13.720 out the incredible tech infrastructure, it's going to be required 0:20:13.720 --> 0:20:14.960 to come from all places. 0:20:15.240 --> 0:20:17.159 Do these equity issuances. 0:20:16.640 --> 0:20:19.080 And we've seen this from other companies as well earlier 0:20:19.119 --> 0:20:24.439 this year improve the profile of the private credit space 0:20:24.480 --> 0:20:28.320 of the credits brace overall, or potentially increase the risk 0:20:28.400 --> 0:20:31.480 of correlation between stocks and bonds to a degree that 0:20:31.520 --> 0:20:33.040 we haven't seen for a long time. 0:20:34.320 --> 0:20:37.920 I think both are important considerations. What we're seeing here 0:20:38.080 --> 0:20:41.320 is a trend that even goes beyond AI and data 0:20:41.359 --> 0:20:44.280 centers into really one of the important emerging trends in 0:20:44.320 --> 0:20:48.600 private credit, which is the interconnectedness of markets. We're seeing 0:20:48.720 --> 0:20:52.280 increase in convergence between public and private credit, and to 0:20:52.320 --> 0:20:57.439 your point, we're seeing increasing overlap between issue exposure in 0:20:57.520 --> 0:21:00.880