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Speaker 1: with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2: Twelve shares of US homebuilders taking a hit earlier in
Speaker 2: today's session at their load today inter day load down
Speaker 2: about one point four percent. They've moved off that level,
Speaker 2: just slightly lower as we speak. In a Bloomberg exclusive,
Speaker 2: the Trump administration officials are exploring opening an anti trust
Speaker 2: investigation into US home builders as the White House sharpens
Speaker 2: its focus on tackling the country's housing affordability crisis. This
Speaker 2: story definitely cut our attention.
Speaker 3: Yeah with us is Bloomberg News real estate reporter Pac Clark.
Speaker 3: He joins us here the Berg Business Week Studio. Congratulations
Speaker 3: on another exclusive when it comes to the White House
Speaker 3: and housing affordability just this week. What can you tell us?
Speaker 3: What are these possible antitrust concerns?
Speaker 4: Well, the thing that you know, one thing that's caught
Speaker 4: the eye of administration officials is a trade group and
Speaker 4: they're concerned that, you know, are our home builders coordinating
Speaker 4: through the trade group. And that's the thing that's been raised,
Speaker 4: at least internally. I think that's a common concern about
Speaker 4: trade groups across industry coordinating.
Speaker 5: How well, you know, you're not supposed to talk about
Speaker 5: like anything, We're gonna set our prices in this way
Speaker 5: and right that's you're not supposed to tell your competitors
Speaker 5: how you're setting prices.
Speaker 6: And and.
Speaker 4: You know, I think it's a it's a concern that
Speaker 4: can come up, which is like you have this trade
Speaker 4: group where everyone is getting together and talking to each other,
Speaker 4: or they're talking to some centralized person in the trade group,
Speaker 4: and information gets disseminated. And this would not be I'm
Speaker 4: not an anti trust expert, but my understanding is that
Speaker 4: this would not be the first time that you know,
Speaker 4: there was a probe of you know, a trade group
Speaker 4: or some centralized body.
Speaker 3: The lending builders leading Builders of America is the trade group?
Speaker 3: What have they said? What have the homebuilders come out
Speaker 3: and said after this?
Speaker 4: They haven't responded. They're keeping their heads down right now
Speaker 4: or so it seems I think, you know, I mean,
Speaker 4: all this goes back to October when the President put
Speaker 4: out on a social media post that home builders are
Speaker 4: I mean, he likened them to opek and complained that
Speaker 4: builders are sitting on more lots than ever. And you know,
Speaker 4: I mean, I think this is if you go back
Speaker 4: to the story earlier this week about the builder's pitch
Speaker 4: for a Trump Homes project. In a way, that's like
Speaker 4: trying to get on the administration's good side in hopes
Speaker 4: that you know, they're not on the bad side, and
Speaker 4: this is kind of what the bad side might look like.
Speaker 2: Just last question, kudos to you two exclusives in terms
Speaker 2: of what the White House is working on housing affordability.
Speaker 2: Having said that, you know, they are said to be
Speaker 2: trying to do anything, Is there any progress, any really
Speaker 2: move forward in terms of being able to make homes
Speaker 2: more affordable. Some would say there are different issues at
Speaker 2: play in order making this work, but in terms of
Speaker 2: what the White House might be able to do.
Speaker 4: Listen, I mean, I think this is where we are
Speaker 4: on home prices. Is it took fifteen years to get
Speaker 4: to this point. It took a pandemic, you know, to
Speaker 4: get there. In the end of an interest rate environment
Speaker 4: that had been in place for a decade or so. So,
Speaker 4: you know, I don't think the standard should be getting
Speaker 4: to you know, a solution overnight. But yeah, it's in
Speaker 4: the something is going to you know, people are talking
Speaker 4: about things. What happens.
Speaker 2: I don't know, is it really a priority for the
Speaker 2: White House?
Speaker 4: Just quickly seems like it.
Speaker 3: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 3: up after this.
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Speaker 2: We're going to stay on the domestic economic state because
Speaker 2: we did get some data earlier today.
Speaker 3: Yeah, that data showed that US consumer sentiment unexpectedly improved
Speaker 3: to the highest in six months, largely propelled by wealthy
Speaker 3: Americans who've benefited from stock market gains. Digging into the
Speaker 3: US economic backdrop. Federal Reserve Bank of Atlanta President raphae
Speaker 3: Albostik reiterated it's important to keep interest rates at a
Speaker 3: level that restricts economic activity of returns inflation to two percent.
Speaker 3: He spoke about that and more in an exclusive interview
Speaker 3: with Bloomberg TV and Radio's International economics and policy correspondent
Speaker 3: Michael McKee. That was earlier in Atlanta.
Speaker 7: In terms of inflation, you know, what I've learned is
Speaker 7: that we really don't want to have inflation right. Once
Speaker 7: inflation gets entranstion, people's mindset changes how the economy evolves.
Speaker 7: And it's one of the reasons why I think that
Speaker 7: we need to keep our policy in a restrictive posture
Speaker 7: so that we get inflation back to two percent. That's paramount.
Speaker 7: High prices and the prospect of rising prices really do
Speaker 7: have a lot of families on the edge. And I
Speaker 7: mean you all have reported a lot about the K
Speaker 7: shaped economy. There are lots of families that are feeling
Speaker 7: very precarious right now, and that's a source of concern.
Speaker 6: Do you think the economy is becoming more K shaped?
Speaker 6: I don't know more.
Speaker 7: I mean it's been that way for a while. Just
Speaker 7: before the pandemic, I had been talking about this and
Speaker 7: we were trying to find into metrics to really detail
Speaker 7: how there's a split. I used to call it the
Speaker 7: Barbell economy where either you were at the high end
Speaker 7: or at the low end, the K shape is the
Speaker 7: same thing. What I know is that there are a
Speaker 7: lot of families that are precarious and are feeling very
Speaker 7: uncertain about their prospects for the future and the prospects
Speaker 7: for their children for that matter, and that concern, I
Speaker 7: think does underlie a bit of the lower on the
Speaker 7: low consumer confidence that we continue to see being reported.
Speaker 7: And what we'll need to do is really give people
Speaker 7: reasons to be optimistic, show them where the new jobs
Speaker 7: are coming from, and show them how do they get
Speaker 7: the skills to compete.
Speaker 6: For it well.
Speaker 8: This week, Treasury Secretary Besson said the FED has lost
Speaker 8: the confidence of the American people. Do you think you
Speaker 8: have lost the confidence of the American people in your district?
Speaker 8: Do you hear people raising questions about that?
Speaker 7: That's not been my experience. As I go around the
Speaker 7: sixth district, people tell me we're grateful for what you're doing.
Speaker 7: You have a very hard job, and we want you
Speaker 7: to be as data dependent and as open to information
Speaker 7: so you can make the best judgment that you can. Look,
Speaker 7: the world is very complicated. It's actually more complicated today
Speaker 7: than it has been my whole time.
Speaker 9: Here.
Speaker 7: So what I think most people understand that and they
Speaker 7: know that we're doing the best job that we can
Speaker 7: under very difficult circumstances.
Speaker 2: Right That, of course is Fedbank of Atlanta President Raphael
Speaker 2: Bostic an exclusive interview with Bloomberg TV and Radios own
Speaker 2: Michael McKee earlier from Atlanta to get into the economic
Speaker 2: macro situation, if you will, what faces the FED and
Speaker 2: so much more some of the things we just talked about,
Speaker 2: and great to really.
Speaker 3: Have back with us.
Speaker 2: And it's not a job's Friday, which I have to
Speaker 2: keep reminding everybody, which kind of blows my mind. Gregory Doco,
Speaker 2: he is chief economist at EY, he is here in studio.
Speaker 3: Welcome back, pleasure to be here.
Speaker 2: There's so much right even there, you know, housing affordability,
Speaker 2: and then kind of the bigger broader of what the
Speaker 2: White House does to help the US economy and more Americans.
Speaker 2: There's Rafael Bostek talking about FED confidence, two percent inflation,
Speaker 2: important to make sure that we have inflation under control.
Speaker 2: What's important and a job's Friday where it is in
Speaker 2: a job's Friday, but we'll get that read. When you
Speaker 2: think about the US economy, what is front and center
Speaker 2: for you.
Speaker 10: Well, I think it's the paradox of having strong growth
Speaker 10: but underlying weakness across different sectors and across different stratas
Speaker 10: of the economy. I don't really like the case shaped
Speaker 10: format because to signify that there are two groups of consumers,
Speaker 10: there are two groups of businesses. The reality is that
Speaker 10: there is polarization across the US economy. Whether you're looking
Speaker 10: at certain income groups, not just the lowest income groups,
Speaker 10: but the meat in income groups. They are increasingly struggling
Speaker 10: with high prices. When you look at business investment, there
Speaker 10: is polarization between those that are focused on AI investment
Speaker 10: and those that are not. There is polarization between large
Speaker 10: businesses and small businesses that are struggling more in the
Speaker 10: face of some of these palsy headwinds. So it's not
Speaker 10: necessarily a ca shaped economy as much as it is
Speaker 10: a polarized economy within which you're still seeing strong averages.
Speaker 10: Average consumer spending still doing well, average business investment still
Speaker 10: doing well, Average GDP still doing well.
Speaker 3: What's that masking?
Speaker 4: Though?
Speaker 3: I think taking the massage, taking the average is just
Speaker 3: that it's the average. It's yeah, and so what's it masking?
Speaker 10: It's masking an underlying fragility in the fact that you
Speaker 10: have these narrow pillars of growth that I've talked about
Speaker 10: in the past. And I think if you bring it
Speaker 10: back to income, which is really the fundamental pillar of
Speaker 10: economic activity, that is where there is pressure. The income
Speaker 10: growth for consumers is relatively low. We're talking about one
Speaker 10: percent growth for real disposable income growth, while consumer spending
Speaker 10: growth is at two and a half percent. That explains
Speaker 10: why the personal saving rate has fallen two percentage point
Speaker 10: since April and the early implementations.
Speaker 2: Nothing left to spend to save, right, people.
Speaker 10: Are dipping into their savings, They're using credit. And that's
Speaker 10: why I'm a little bit more cautious than others when
Speaker 10: it comes to this notion that there will be a
Speaker 10: lot of fiscal stimulus during the tax refund season. Yes,
Speaker 10: tax refunds may be higher, but what is this money
Speaker 10: going to be used for? Is it going to be
Speaker 10: used for spending or reimbursing some of the credit and
Speaker 10: replenishing savings.
Speaker 2: Listen, we've talked with you too about the wealthier consumer,
Speaker 2: and you know, you get into the A pillars or
Speaker 2: the three A pillars. You know, we had consumer sentiment
Speaker 2: come out today improved to the highest in six months,
Speaker 2: largely propelled by wealthier Americans have benefited from stock market gain.
Speaker 2: So yay, good. We know the wealthier consumer is very
Speaker 2: important to the US economy. But I am curious what
Speaker 2: was going through your mind this week? We were kind
Speaker 2: of talking about it amongst ourselves, with the AI trade
Speaker 2: a little bit in question and some nervousness around that.
Speaker 2: We saw that play out that has been important to
Speaker 2: stock market wealth, especially among the affluent. So I'm just curious,
Speaker 2: should we be a little worried that this could come
Speaker 2: undone this year?
Speaker 10: We should be very careful about the potential of an
Speaker 10: AI bust. This is a real downside risk, and it's
Speaker 10: interconnected with other potential risks to the US economy. We're
Speaker 10: seeing a great degree of focus on the fiscal situation.
Speaker 10: We're seeing a great degree of focus on pressures on
Speaker 10: the FED. Why do these matter because they can suddenly
Speaker 10: lead to changes in financial asset prices, And we know
Speaker 10: how the financial market has been behaving over the course
Speaker 10: of the past eighteen months. A lot of gains on
Speaker 10: the equity front, but also a lot of movements across
Speaker 10: different asset and nominations, a lot of movements into gold
Speaker 10: when things are not going well, not so much treasuries
Speaker 10: and not so much the US dollars. So these are
Speaker 10: important developments and everything happens together. And so if we
Speaker 10: are to see a little bit more of a downbeat
Speaker 10: sentiment in terms of the prospects for AI and importantly
Speaker 10: the return on investment, then that could metastize into something
Speaker 10: that is worse for higher wealth individuals and they're spending
Speaker 10: desires and spending capability. If you see a negative hit
Speaker 10: on financial markets, it could lead to some businesses pulling
Speaker 10: back on AI investment. We saw just today the four
Speaker 10: largest hyperscalers are promising to invest a lot in the US.
Speaker 10: What if that does not materialize? Is there a downside
Speaker 10: risk there?
Speaker 3: Yeah, Amazon just saying yesterday two hundred billion dollars and
Speaker 3: sixty billion more than analysts thought they would spend in
Speaker 3: twenty twenty six. So when you say we have to
Speaker 3: be careful about an AI bust, how does that manifest?
Speaker 3: What exactly does that look like? Because as Carol was
Speaker 3: referring to, it's been kind of a complicated week when
Speaker 3: it comes to really just tracking what these companies have done,
Speaker 3: or the stocks at least have done, because there's this
Speaker 3: concern about a SASS apocalypse with the software as of
Speaker 3: service companies as a result of what Anthropics Claude was
Speaker 3: shown to do this week. And then there's also the
Speaker 3: concern about some of the hyperscalers and spending. So when
Speaker 3: you say AI bust, what does that look like.
Speaker 10: Well, I think we're seeing a lot of pragmatism right now.
Speaker 10: We're seeing this notion of economics of necessity, what is
Speaker 10: necessary to drive growth? Where are going to be the
Speaker 10: next avenues of growth? And I think not many people
Speaker 10: know and very few actually know what the situation will
Speaker 10: be in a year's time, two years time when it
Speaker 10: comes to which sectors will be leading the way. We're
Speaker 10: in the midst of a technological revolution. There are always
Speaker 10: going to be excesses in terms of upside risks that
Speaker 10: are taken in downside.
Speaker 3: Risk there so we're definitely in the midst of this.
Speaker 10: We are in the midst of an AI technological revolution.
Speaker 2: And it's interesting because Amazon CEO Jassey told investors he's
Speaker 2: confident the company is going to see a return on
Speaker 2: its massive investments in artificial intelligence Listen, these guys have
Speaker 2: fiduciary responsibilities right when they make these spend So I
Speaker 2: guess to some extent, you've got to trust that whatever
Speaker 2: he's seeing, he feels comfortable enough to say that right,
Speaker 2: and doesn't want to put his company or his share
Speaker 2: price or any of this at risk. But again people
Speaker 2: will also say, well, these people are talking their books.
Speaker 2: I mean, like this is a big thing for them.
Speaker 2: So it's a hard thing to kind of weave through
Speaker 2: to figure out what's really going on.
Speaker 10: You know, when I say narrow foundation to growth. One
Speaker 10: thing that I find really amazing is that the announced
Speaker 10: investment in CAPEX from these four largest hyperscalers is worth
Speaker 10: about two hundred and fifty billion dollars. Assuming that materializes
Speaker 10: over the course of twenty twenty six, and assuming only
Speaker 10: a fourth leads to stronger economic activity domestically, so that
Speaker 10: three quarters are imported not necessarily counted in GDP, that
Speaker 10: would lead to a lift of GDP of zero point
Speaker 10: two percent. That's a significant boost from four companies. Yeah, right,
Speaker 10: So that is where the narrow foundation to growth is lying.
Speaker 10: You're seeing a lot of growth that is reliant on
Speaker 10: a few actors in the economy, wealthier individuals and larger
Speaker 10: firms and smaller businesses and lower income families are increasingly struggling.
Speaker 10: And where I start to worry a little bit is
Speaker 10: that we're seeing this bifurcation between the prospects for strong
Speaker 10: productivity growth but not necessarily the accompanying income growth that
Speaker 10: usually accompanies a strong productivity cycle. And that's because of
Speaker 10: this polarized economy.
Speaker 2: Great point like where okay, for more productive where's the
Speaker 2: income to Usually.
Speaker 10: That's the story, you get more productivity and more real
Speaker 10: wage growth. You're not seeing that right now.
Speaker 3: Hey, just the last forty seconds we have with you.
Speaker 3: On any normal friday, at this time, we'd be talking
Speaker 3: about labor.
Speaker 6: How many right?
Speaker 3: Yeah? Well, what does your analysis tell you about the
Speaker 3: health of the labor market right now? And just have
Speaker 3: about thirty seconds.
Speaker 10: It's in balance, but it's a fragile balance because we've
Speaker 10: seen a historical negative shock to labor supply from reduced immigration.
Speaker 10: So we have a break even rate that's close to zero,
Speaker 10: but we are seeing labor demand being hesitant. Business leaders
Speaker 10: that we speak to are very hesitant as to who
Speaker 10: they hire, what skilled they hire for, and at what salaries.
Speaker 10: And that is downward pressure on income, which in turn
Speaker 10: will feed into software consumer spending and going into the
Speaker 10: rest of the year.
Speaker 1: You're listening to the Bloomberg Business Week Daily podcast. Catch
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Speaker 2: Hey, one of the things we wanted to get to
Speaker 2: was one of the most read stories on the Bloomberg Today.
Speaker 2: For the biggest US tech companies together have forecast capital
Speaker 2: expenditures that will reach about six hundred and fifty billion
Speaker 2: dollars this year, which is really kind of a mind
Speaker 2: boggling tide of cash earmark for new data centers and
Speaker 2: all the gear that is housed within them. That is
Speaker 2: the spending plan by Alphabet, Amazon, Meta, and Microsoft, all
Speaker 2: in pursuit of dominance in the still nascent market for
Speaker 2: AI tools is a boom without a parallel this century,
Speaker 2: no doubt about it.
Speaker 4: Tim.
Speaker 3: Yeah, it's a lot, Okay, it's a lot. Look, we're
Speaker 3: talking about Alphabet, Amazon, Meta Platforms, and Microsoft. Each of
Speaker 3: these companies estimates for this year expected either near or
Speaker 3: to surpass their budgets for any of the past three
Speaker 3: years combined, the investors over the past two weeks have
Speaker 3: reacted to the news differently when it comes to earnings
Speaker 3: and quarterly updates from these companies. We've got a great
Speaker 3: voice joining us, Carol, who studied these companies for a
Speaker 3: very long time.
Speaker 2: Curious to see what he has to say. Mark Mahaney
Speaker 2: is with us, senior Managing director and head of Internet
Speaker 2: Research at Evercore, author of Nothing but Net ten, timeless
Speaker 2: stock picking lessons from one of Wall Street's top tech analysts.
Speaker 2: He joins us from San Francisco. By the way, he's
Speaker 2: got an outperform on both on actually Alphabet, Meta and Amazon,
Speaker 2: all of them.
Speaker 3: Mark, how are you good to have you back?
Speaker 6: Good to see you, Carol.
Speaker 2: Hey, one thing I got to ask you before we
Speaker 2: get into the individual cup and he's something like fifty
Speaker 2: thousand on the Dow. Does it mean anything to you
Speaker 2: when you think about the overall market trade?
Speaker 6: I'm sorry, I was surprised by that number two.
Speaker 9: That says a lot, I guess if I'm honest about it.
Speaker 6: No fair enough, which is what we want.
Speaker 2: We love the honesty. Hey, Let's get to what has
Speaker 2: been a trade depending on the company reporting the AI
Speaker 2: spend and AI trade. Some have been punished, some have
Speaker 2: been not any logic to it in your view.
Speaker 6: Yeah, I think so. We're going through a free cash
Speaker 6: flow desert.
Speaker 9: So there's no question that the level of investments is
Speaker 9: higher than we all thought, you know, a month ago
Speaker 9: at the beginning of the year, and certainly a lot
Speaker 9: higher than we thought a year ago. I don't nobody
Speaker 9: that I know of, and I didn't forecast this amount
Speaker 9: of CAPPEC spend by the major hyperscalers, the four companies
Speaker 9: you mentioned earlier, Amazon, medic Google and Microsoft. So I
Speaker 9: understand the market's hesitation, and what it means is that
Speaker 9: free cash flow is going to be tested in Amazon's
Speaker 9: going to have negative free cash flow this year, first
Speaker 9: time since twenty twenty two. I think Google is going
Speaker 9: to be positive cash flow. I think Meta is. But
Speaker 9: these huge amounts of CAPEC spend are challenging that free
Speaker 9: cash flow generation, and investors are right to be concerned.
Speaker 9: When investors should also, though, focus on, is what are
Speaker 9: they seeing in terms of ROAI, Like what kind of returns.
Speaker 6: Are we getting?
Speaker 9: So you know, Google is ramping up its CAPEX by
Speaker 9: ninety billion that's actually the biggest dollar increase. But what
Speaker 9: they gave you this last quarter was an acceleration in
Speaker 9: search growth was the fastest that they've had in four years.
Speaker 9: What they also gave you was almost fifty percent growth
Speaker 9: in cloud revenue and one hundred and fifty percent growth
Speaker 9: growth in cloud backlog. That is all generated or in
Speaker 9: large part generated by AI. So there's an example here
Speaker 9: of a return. And by the way, Google had record
Speaker 9: high operating margins in the last quarter.
Speaker 6: Amazon just gave you.
Speaker 9: Twenty four percent search I'm sorry, cloud revenue growth, AWS
Speaker 9: revenue growth fastest in four years, also with very consistent margins,
Speaker 9: and the backlog jump by more than they've ever had
Speaker 9: in a single quart or something like forty billions. So
Speaker 9: I'd argue that there is an ROAI on these for
Speaker 9: these companies that can make the same point about META,
Speaker 9: and I think investors just need to be able to
Speaker 9: work through this free cash flow troph year. If I'm
Speaker 9: right there, it's the troph year, and you're going to
Speaker 9: have accelerating growth that will take you into twenty seven.
Speaker 9: I think that sets up these stocks given their current valuations,
Speaker 9: very well.
Speaker 3: So Amazon right now is down just about seven percent
Speaker 3: as we speak. You've got an outperform rating on the
Speaker 3: company two hundred and eighty five dollars price target. Andy
Speaker 3: Jasse said yesterday that the money would predominantly go to
Speaker 3: the company's AWS, most of it would be for AI workloads.
Speaker 3: He said, quote, I think this is an extraordinarily unusual
Speaker 3: opportunity to forever change the size of AWS and Amazon
Speaker 3: as a whole. We see this as an unusual opportunity,
Speaker 3: and we're going to invest aggressively to be the leader.
Speaker 3: Is he right?
Speaker 6: Well, he's right that they're investing aggressively.
Speaker 9: He's right also that almost certainly this is a huge opportunity.
Speaker 6: I mean, the market certainly thinks.
Speaker 9: So we wouldn't be going through sasmageddon or whatever, you know,
Speaker 9: this sell off in soft podcast software STUF, Yeah, DEAs apocalypse.
Speaker 9: We wouldn't be going through that if the market didn't
Speaker 9: think that some of the innovations they're seeing out of
Speaker 9: open AI and Anthropic weren't potentially, uh, you know, dramatically
Speaker 9: negative for these names. Now, the market may be overreacting,
Speaker 9: but the market is reacting, and then I just you know,
Speaker 9: ask you all to step back a little bit. Here
Speaker 9: have we seen material improvements in the products and the
Speaker 9: services that we use because of jen Ai, and I
Speaker 9: think we're for honest about it. The answer is yes,
Speaker 9: you know how much search has improved, like as a product,
Speaker 9: as an experience, how much better it is the things
Speaker 9: you can do now, This is like your Google moment
Speaker 9: of fifteen years ago, Like what was life like before Google?
Speaker 6: It's kind of hard to remember.
Speaker 9: I think we're gonna have that same moment, like what
Speaker 9: was life like before Generative AI when you can you know,
Speaker 9: and we're just we're still scratching the service, like we
Speaker 9: haven't we still haven't had the task, you know, we
Speaker 9: haven't circled to the task. Like I'm you know, great,
Speaker 9: you've given me all this information about a Hawaiian vacation package,
Speaker 9: but then put it all together and book it for
Speaker 9: me too, Like make that and then you know, I
Speaker 9: really want a personal digital assistant. I think we're all
Speaker 9: going to have one, you know, in three to five years.
Speaker 9: By the way, GEM and I personal intelligence has sort
Speaker 9: of become that for me already in a pretty short
Speaker 9: period of time. And the ability for this to improve
Speaker 9: improve people's productivities, you know, their lifestyles.
Speaker 6: If you will.
Speaker 9: I just think that these are their ability to educate themselves,
Speaker 9: train themselves, learn new skills. I think it's extraordinary what
Speaker 9: we're seeing. And so yeah, I believe. I believe in
Speaker 9: the cycle. I'm sure there's going to be overbuilding during it,
Speaker 9: but I believe in this cycle. And and I think
Speaker 9: there's a couple of companies that are really going to
Speaker 9: come out financially much better because of it.
Speaker 6: And I think these are three or the four of
Speaker 6: the companies that can do it. That's where I.
Speaker 2: Wanted to go because reading in you know, this kind
Speaker 2: of winner takes all or most, winner takes most kind
Speaker 2: of view out there, and that's why these guys are
Speaker 2: all doing a MEGACAPC spend, Meta, Microsoft, Amazon, and Alphabet.
Speaker 2: Are they right about that? And I do wonder like
Speaker 2: will there be one leader or is it going to
Speaker 2: be enough that all for these mark our companies we
Speaker 2: will continue to talk about five years from now, three
Speaker 2: years from now, ten years from now.
Speaker 9: Well that's a tough question, Carol. I think we'll be
Speaker 9: talking about them. The questions are whether they're going to
Speaker 9: be materially larger from here or not. The advantage that
Speaker 9: they have is that they already begin with these massive
Speaker 9: bases of users and businesses and applications, and so you're
Speaker 9: taking productivity enhancements, productivity dramatic improvements to you know, massive
Speaker 9: retail advertising platforms, entertainment platforms, and my guess is that
Speaker 9: they of the I guess is that these large platforms
Speaker 9: are going to be a lot better. They're going to
Speaker 9: be more efficient, they're going to have higher margins, they're
Speaker 9: going to have higher revenue bases than we would have
Speaker 9: thought three years ago. Yeah, the capex in twenty twenty six,
Speaker 9: the investments are greater than we were thought two years ago,
Speaker 9: if we're honest with ourselves.
Speaker 6: The revenue bases are also bigger than we thought.
Speaker 9: In the profit pools, not free cash flow yet, but
Speaker 9: I think that's going to snap back next year. Profit
Speaker 9: pools are going to be bigger than we would have
Speaker 9: thought two or three years ago.
Speaker 3: Mark, we've talked about, you know, where you're optimistic in
Speaker 3: some of the winners, But where are you not optimistic
Speaker 3: when it comes to this spend. Who ends up losing
Speaker 3: as a result of this capex spend of this investment.
Speaker 9: Well, companies that you know aren't able to make this
Speaker 9: the shift the one, the shift, the one company, the
Speaker 9: one set of companies. I've wondered about the travel companies.
Speaker 9: This is an information intensive transaction. I think it lends
Speaker 9: itself to an agentic solution. You know, somebody, I think
Speaker 9: the average person you know would have spent three hours
Speaker 9: planning an annual summer family vacation. You know, you all
Speaker 9: think about all the things that go into that decision,
Speaker 9: and then the booking and then the checking and checking
Speaker 9: out alternatives and flights and blah blah blah. And I
Speaker 9: think this is wonderful, you know, opportunity for urgentic solutions
Speaker 9: to really sharpen that, to make the whole planning booking
Speaker 9: process a lot better. Booking dot Com, Expedia, and Airbnb
Speaker 9: better be effectively and successfully investing in in agentic travel
Speaker 9: and having their own augentic agents on their sites, because
Speaker 9: if they don't, then those are companies that I think
Speaker 9: are going to be could be dramatically smaller three to
Speaker 9: five years.
Speaker 3: And you do cover those investment. You do cover those
Speaker 3: three companies too, so you know, you know, what are
Speaker 3: they do? You think they're doing a good job as
Speaker 3: of now.
Speaker 9: I think so, but I haven't seen a proof yet
Speaker 9: by the way, nobody's really put together a great agentic
Speaker 9: travel experience.
Speaker 6: Yet it's TBD.
Speaker 9: You know, you look, you can use chat, GBT and Gemini,
Speaker 9: but you know you've come up with great for travel planning,
Speaker 9: but you can't.
Speaker 6: You can't.
Speaker 9: Like then you still got to go somewhere to do
Speaker 9: the booking that somebody's going to put all that together.
Speaker 9: I just I don't know who's going to do that first,
Speaker 9: but I think there's a decent chance that Expedia Booking
Speaker 9: will do it. And then I step back and think
Speaker 9: about valuations across these names, and if you're telling me
Speaker 9: that you're going I'm going to get Expedia at fifteen
Speaker 9: times earnings, Booking at seventeen times earnings, Amazon and Meta
Speaker 9: at twenty times earnings, Hey, I'm in You know, I
Speaker 9: think those are very reasonable multiples. In fact, I think
Speaker 9: they're pretty dislocated. So, you know, I think a lot
Speaker 9: of the fears already in these stocks.
Speaker 7: Yeah.
Speaker 2: I was just looking at Expedia. It's down about seventeen
Speaker 2: percent year to date, and you've got Booking down about
Speaker 2: eighteen percent. I'm not saying that there's a clear connection,
Speaker 2: but just just putting.
Speaker 3: That out there.
Speaker 2: Ye, Mark, Mark just got thirty seconds. As we go
Speaker 2: through this, I mean there's going to be stops and starts,
Speaker 2: right because we are very early in when it comes
Speaker 2: to this AI spend and build out.
Speaker 9: Yeah, you're right, Yeah, we are. Still we don't agentic commerce.
Speaker 9: There's some interesting examples. I love what I'm seeing out
Speaker 9: of Amazon, Ruth rufus to see more rufuses out there,
Speaker 9: and rufus can still improve materially. So I think we're
Speaker 9: still early, and but I want to see people closing
Speaker 9: the loop, you know, in terms of the information and
Speaker 9: the transaction you want. You want the gentic task agents.
Speaker 9: They're not enough of those yet.
Speaker 3: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 3: up after this.
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Speaker 3: We're talking about bitcoin. It's kind of a special edition
Speaker 3: of Drive to the Clothes because Bitcoin reclaimed almost all
Speaker 3: losses registered during Thursday's crypto market meltdown, largest since the
Speaker 3: collapse of FTX royaled. The market just a little over
Speaker 3: three years ago. Yesterday we spoke to Nova Lauriate Paul
Speaker 3: Krugman about the sell off. Here's what he had to say.
Speaker 11: A lot of people sold bitcoin as being the next gold.
Speaker 11: It turns out, in the face of doubts about stability,
Speaker 11: doubts about politics, the next goal turns out to be gold,
Speaker 11: not Bitcoin. I think it's a big wake up for people.
Speaker 11: You know, maybe this isn't actually going to be an
Speaker 11: enduring answer. If you ask what when people make four
Speaker 11: price forecasts for bitcoin? I always wonder on what basis. Yeah,
Speaker 11: it's not like you could do a price earnings ra
Speaker 11: issue on this thing, because there's no no earnings, no services.
Speaker 11: It's all just pure faith.
Speaker 3: A lot to unpack there, Nobel Lauriate Paul Krugman on
Speaker 3: Business Week yesterday. That was yesterday, This is today. We've
Speaker 3: got Bloomberg News Executive editor for Crypto Payments and Digital
Speaker 3: Finance Strategy, Stacy Marieschmael. Actually, yeah, you're everything. I'm just
Speaker 3: giving you new titles.
Speaker 2: Can we just make her crypto Queen?
Speaker 3: We just want you to stay there, We just want.
Speaker 2: You to stay Sorry, No, okay, don't call her that,
Speaker 2: So okay, that was yesterday, this is today.
Speaker 3: First things First, we saw the selloff, why the recovery today.
Speaker 12: There's a phrase that folks like using, which is dip buying,
Speaker 12: which we're you know, essentially says bitcoin hit a threshold
Speaker 12: at which folks were like, Okay, there's no way this
Speaker 12: is reasonable. But the problem for people who like to
Speaker 12: do fundamental analysis and just you know, going back to
Speaker 12: what Krugman said, is it's very hard to do fundamental
Speaker 12: analysis on an asset that's been defined by like momentum
Speaker 12: trading for so long. You know, our colleague Zeke on
Speaker 12: the Investigations team put out a bit of BusinessWeek newsletter
Speaker 12: saying like, why did bitcoin fall? Because prices fell? And
Speaker 12: that can feel like a tautology, but so much of
Speaker 12: this asset class, in this industry has been defined by narrative,
Speaker 12: and so many of the big spikes up have been
Speaker 12: driven by like events, right, So it's you know, the
Speaker 12: introduction of crypto ETFs or the election of President Trump
Speaker 12: or then President Trump saying we're going to have a
Speaker 12: bitcoin reserve, and we've really been lacking those kinds of
Speaker 12: narrative driven like positive events for the past several months.
Speaker 2: Does any of the trade that we're seeing as of late,
Speaker 2: stay see like kind of say to you that because
Speaker 2: we've always said like what is it? Still does it
Speaker 2: help kind of tell the picture or maybe say, Okay,
Speaker 2: it's just this thing that people like to play around with,
Speaker 2: like you know, whether or not this is going to
Speaker 2: be so disruptive and really something bigger in terms of
Speaker 2: our financial system going forward, rather than just to kind
Speaker 2: of a play thing.
Speaker 12: So if you go back to the twenty twenty four
Speaker 12: a phrase that was very popular was people believe in
Speaker 12: the underlying technology, right, this idea of the blockchain, and
Speaker 12: actually coming into twenty twenty six, that has really become
Speaker 12: actually mainstreamed in a very different kind of way. You
Speaker 12: have major Wall Street investment banks saying they're looking into
Speaker 12: things like tokenization and you know, putting assets on the blockchain.
Speaker 12: You have a number of different companies, including Stripe, making
Speaker 12: big bets on stable coins. You know, you have multiple
Speaker 12: different governments saying this is something that we need to
Speaker 12: take seriously. So I think there's been this shift in
Speaker 12: the narrative that the only way to get exposure to
Speaker 12: this technology is bitcoin, and now people have many other
Speaker 12: options and not all of those options are you can
Speaker 12: invest in them through like the strain forward mechanism. I'm
Speaker 12: going to hold a token. So I think some of
Speaker 12: this repricing actually reflects the sort of the changing maturity
Speaker 12: of the market itself. Right, you have more ways to
Speaker 12: play how you might feel about the prospects of this
Speaker 12: technology than merely buying and holding its largest, most liquid tool.
Speaker 5: That actually makes a lot of sense.
Speaker 3: What surprised me about yesterday's move is if you think
Speaker 3: back to sort of the last big decline, it was
Speaker 3: this cross asset plunge in equities, we had the meltdown
Speaker 3: of FTX, so there was concern about this big player
Speaker 3: melting down. There was no external event yesterday that was
Speaker 3: really tied to the plunge.
Speaker 6: Is that.
Speaker 3: I know that's happened before in the history of bitcoin,
Speaker 3: but it's like that that felt a little different because
Speaker 3: the size of the of the industry is so much
Speaker 3: bigger this the market cap of the asset is bigger.
Speaker 3: Why was there no sort of catalyst.
Speaker 12: There's a few things that we're paying attention to. I
Speaker 12: would say there's been no single explicit catalyst, but you know,
Speaker 12: there was a similar a similar thing happened a few
Speaker 12: months back October when it was like, oh, like normal Monday,
Speaker 12: and sudden you're like whoa, Like why is the screen
Speaker 12: a sea of red? And at that point we heard okay,
Speaker 12: So some people's positions got tripped and that started a
Speaker 12: chain of liquidations, right, so, like a price was activated
Speaker 12: and margins got called and people started selling to meet
Speaker 12: those margins. There have been other times when it's like, actually,
Speaker 12: there are certain parts of digital assets that are like
Speaker 12: increasingly correlated with AI. And because you know, you've had
Speaker 12: companies that used to be I'm a bitcoin minor, now
Speaker 12: they're like, I'm a data center provider and I'm striking
Speaker 12: deals with Google because the infrastructure that we have can
Speaker 12: also power the AI revolution. So when you have you know,
Speaker 12: negative sentimental AI because everybody's like I need a billion
Speaker 12: dollars of capex, like like, that has a READO cross effect.
Speaker 12: So we've moved from an asset class that was positioned
Speaker 12: as not correlated with anything to an asset class that's
Speaker 12: actually increasingly correlated with lots of different kinds of things
Speaker 12: in interesting ways. At the same time that within the
Speaker 12: asset class itself, you've had this fragmentation into Okay, the
Speaker 12: most liquid traditional tokens bitcoin and ether and ripple and
Speaker 12: so on. Then you have like the stable coin play.
Speaker 12: Then you have the most speculative part of the market,
Speaker 12: the you know, the meme coins, the doges, et cetera.
Speaker 12: And then you've got the products built on top of
Speaker 12: those things, like the ETFs, like the strategy like and
Speaker 12: other types of digital asset treasury. So I think what
Speaker 12: we're also seeing is having to be much more sophisticated
Speaker 12: about the like the niches that we're analyzing, because it's
Speaker 12: no longer just one story that's driving everything.
Speaker 2: So a smarter market perhaps is where we're going.
Speaker 12: I think that's the hope.
Speaker 2: Yeah, no, no, but right like we're kind of like
Speaker 2: understanding maybe where there is super potential.
Speaker 12: Yeah. You know, the folks who I've spoken to who
Speaker 12: are the most like, the most bullish and optimistic are
Speaker 12: also the ones who like have a kind of like
Speaker 12: sense of irony about it because they're, like, you know,
Speaker 12: one of the reasons that stable coins et cetera are
Speaker 12: taking off is because the investment banks who were supposed
Speaker 12: to be the enemy, right right, If you think of
Speaker 12: going back to like the white paper, like bitcoin was
Speaker 12: invented in rejection of the sovereign states and the traditional
Speaker 12: financial system. That's really brought a totally different perspective on
Speaker 12: large chunks of what people are interested in.
Speaker 3: Did has what bitcoin has done over the last year
Speaker 3: killed the narrative that it is digital.
Speaker 12: Called according to the gold people, yes, well they are,
Speaker 12: you know. I think the idea of it being a
Speaker 12: safe haven asset has always been a little bit challenging
Speaker 12: because it's really tricky to maintain the idea of being
Speaker 12: a safe haven asset when it has like such high
Speaker 12: beta performance when people are selling risk you know, so
Speaker 12: it's like, okay, if people are selling risk assets and
Speaker 12: bitcoin is also going down, it's like that doesn't quite
Speaker 12: qualify as a haven. But I think ideologically what folks
Speaker 12: were really talking to is like they really wanted this
Speaker 12: to be something that was removed moved from other parts
Speaker 12: of the financial system. And really what we've seen over
Speaker 12: the past couple of years with all of these different
Speaker 12: exchanges and like the US really embracing crypto in very
Speaker 12: different ways that it's almost become much more institutionalized.
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