Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Calsey Barrow of JP
Speaker 2: Morgan Asset Management has this to say. While the Fed
Speaker 2: may have been uncomfortable with the lack of government data,
Speaker 2: our conclusion from the information that is available is that
Speaker 2: the labor market continues to gradually weaken. Calsei joins us
Speaker 2: now from More Cassie, good morning, Good morning, and looking
Speaker 2: forward to having you through the jobs number in about
Speaker 2: ten minutes time. Let's talk about that job's number. Is
Speaker 2: it stou? Does it make a difference to the debate
Speaker 2: on December.
Speaker 3: Tenth, Well, if we look at it, it's been seventy
Speaker 3: six days since the last jobs report, So if anything
Speaker 3: was in my fridge for seventy six days, I would say, yeah,
Speaker 3: that's stale. Now, I think the most important thing that
Speaker 3: we've learned over the last twenty four hours as it
Speaker 3: relates to the rates market is the new BLS schedule.
Speaker 3: So the fact that the FED is not going to
Speaker 3: see the October or November jobs report until after the decision,
Speaker 3: and as a result, probabilities that the FED is going
Speaker 3: to cut in December has come down. Now I'm going
Speaker 3: to go into a little bit of what the Fed
Speaker 3: could do or will do, versus should do. Now, what
Speaker 3: they will do, I think is probably skip the meeting
Speaker 3: unless we get a really poor payrolls report today because
Speaker 3: of the lack of data, because they are quote flying blind,
Speaker 3: but I don't really believe they're flying blind. You know,
Speaker 3: we've all been in planes. You go on a plane,
Speaker 3: you fly through clouds, you fly through a fog. Right,
Speaker 3: If I'm not a pilot, but I'm pretty sure sure
Speaker 3: that when a pilot is slying a plane, they're not
Speaker 3: looking out the window.
Speaker 2: Right.
Speaker 3: They have all of these technical radars and instruments that
Speaker 3: they're using, and honestly, I think that there is enough
Speaker 3: data out there for them to assess the labor market,
Speaker 3: and as I said in that opening, to view it
Speaker 3: as generally weakening over time. And that's even if this
Speaker 3: job's report today comes out a little stronger. And if
Speaker 3: we were to do a whisper number, which I know
Speaker 3: we don't have for today's number, I would say it
Speaker 3: feels like the market is prepared for a modestly stronger
Speaker 3: number relative to what's on the echo screen for consensus.
Speaker 4: So let's say it is moderately stronger and you don't
Speaker 4: get a twenty five basis point rate cut next month,
Speaker 4: Does that mean that a fifty basis point rate cut
Speaker 4: in January is more likely?
Speaker 3: I don't think so. I think that they feel moving
Speaker 3: gradually is appropriate, particularly when you're so close to neutral.
Speaker 3: So I think that if they do skip, we're still
Speaker 3: looking for twenty five basis point rate cut in January.
Speaker 3: The market has been very efficient in terms of its repricing,
Speaker 3: so the past few days you've seen the probability of
Speaker 3: December go down. But all of those rate cuts have
Speaker 3: really just been pushed into twenty twenty six, and the
Speaker 3: terminal rate for the Fed Funds rate hasn't actually changed
Speaker 3: very much, so it's still around three point one percent approximately,
Speaker 3: So the market is really looking at this as a skip,
Speaker 3: not a pause, not a hold. And I think that
Speaker 3: the dot plot is also going to communicate that, meaning,
Speaker 3: even if they don't cut in December, the twenty twenty
Speaker 3: six dot is going to be below the current Fed
Speaker 3: funds rate.
Speaker 4: I don't want to go back to this, but the
Speaker 4: idea of the expiration date of the food in your fridge,
Speaker 4: seventy six day oled wonderbread or canned beans are very
Speaker 4: different than seventy six day old strawberries, And I just
Speaker 4: wonder how useful it potentially could be. Even if fee
Speaker 4: maybe you don't want to eat it, you could eat
Speaker 4: it and not get sick. I mean, is there something
Speaker 4: in this job data that's going to be relevant how
Speaker 4: you see the trajectory for the Fed Reserve?
Speaker 2: Yeah?
Speaker 3: Absolutely, But what I would say is if you look
Speaker 3: at the NFPCHR, you pull it up on the Bloomberg terminal,
Speaker 3: you type in GP, what you're going to see is
Speaker 3: a saw tooth pattern. Right, The jobs numbers don't go
Speaker 3: in a straight line. You have a slightly hotter, you
Speaker 3: have a slightly weaker. You have to focus on the trend,
Speaker 3: and so that's what I'm going to be focused on.
Speaker 3: In a few minutes time, I'm going to be looking
Speaker 3: at what the three and six month moving averages are.
Speaker 3: I'm also going to be looking at how much of
Speaker 3: the jobs are cyclical versus a cyclical So most of
Speaker 3: the hiring that we've been seeing really in the last
Speaker 3: six to twelve months has been a cyclical hiring, which
Speaker 3: is I think an indication of the fact that the
Speaker 3: labor market under the surface is a little bit more squishy.
Speaker 3: Why that matters for the Fed. It doesn't mean that
Speaker 3: they need to do emergency cuts, but it does mean
Speaker 3: that if they do continue to cut, it doesn't threaten
Speaker 3: their inflation mandate. And that's really the question here is
Speaker 3: if they continue to cut, does that threaten their ability
Speaker 3: to get back to two percent on inflation? And we
Speaker 3: would say no, that we're not really seeing evidence in
Speaker 3: the cyclical sides of the economy that wages are reaccelerating
Speaker 3: or the labor market is retightening.
Speaker 5: From your view, how political has December gotten.
Speaker 3: I'm not sure it's gotten particularly political. I think this
Speaker 3: is actually more about the fact that we are getting
Speaker 3: close to estimates of neutral, and so every single decision
Speaker 3: from here on out just gets harder. And to be fair,
Speaker 3: it is harder for them without some of the data
Speaker 3: that they had, So I wouldn't necessarily say it's more political.
Speaker 3: I just think that it's a tougher part of the
Speaker 3: economic cycle to try to determine what's going on.
Speaker 2: I'm really asked this question earlier on. I'd love your view,
Speaker 2: your opinion as a market participant, how you would react
Speaker 2: if they delayed the meeting until after the dates had
Speaker 2: dropped on December sixteenth. I'm not saying they're going to
Speaker 2: do that, just as a market participant, how would you
Speaker 2: respond to that? Is that a good thing?
Speaker 3: I would be very surprised. I think the market would
Speaker 3: be very surprised.
Speaker 2: I mean that's surprisingly in a negative way, though.
Speaker 3: I mean I'm thinking through this as as you're laying
Speaker 3: it out your net worries, and I guess the market
Speaker 3: would probably view that as the risk that the data
Speaker 3: that they're going to receive is weaker, and so you know,
Speaker 3: the Fed wants to pause so that they don't miss
Speaker 3: an opportunity to cut and then have to wait all
Speaker 3: the way till January. But it seems like a pretty
Speaker 3: high hurdle. I mean, they put out those dates for
Speaker 3: the schedule years in advance.
Speaker 2: In the number drop just moments ago. Payrolls came in
Speaker 2: at one nineteen. That's an upside surprise. The estimate was
Speaker 2: fifty one k. That's a big upside surprise, but a
Speaker 2: lot of nuance now swear a few of the data
Speaker 2: points that points out negative revisions. Unemployment climb into four
Speaker 2: point four percent from four point three The estimate was
Speaker 2: for that to stay at four point three percent, and
Speaker 2: some more timely data. If you're looking at continuing claims.
Speaker 2: Continuing claims the wrong kind of upside surprise. So if
Speaker 2: you're out of work in America at the moment, it's
Speaker 2: getting harder and harder to get back into the labor force.
Speaker 2: And that's what you see from that number. Almost repeatedly
Speaker 2: over the last several months, they got the market reaction
Speaker 2: equity features stillness, session highs on the S and P
Speaker 2: five hundred and on the NASTAK supported by decent earnings
Speaker 2: from Nvidia. Bond yields off the back of this initially lower,
Speaker 2: they stay lower, down by three basis points on a
Speaker 2: two year at three fifty five Calsie Barrow. If JP
Speaker 2: Morgan still with us, Calsie, You've had ten minutes to
Speaker 2: go over these numbers.
Speaker 6: What jumps down to you?
Speaker 3: Yeah, So, first of all, on the market reaction, clearly
Speaker 3: the market was somewhat prepared for a stronger number as
Speaker 3: it relates to September. But then what you had in
Speaker 3: the mix of it is a number of things that
Speaker 3: pointed to less strength than just the headline number alone.
Speaker 3: So to me, you know, the number of the things
Speaker 3: that stood out were the unemployment rate moving higher and
Speaker 3: on an unrounded basis that actually moved to four point
Speaker 3: four to four, so not far away from four point five,
Speaker 3: So you know, that's a meaningful thing to me. Continuing
Speaker 3: claims also, new cycle high, as you mentioned, means it
Speaker 3: is harder to find a job. And then the third
Speaker 3: thing I would say is the concentration of job growth
Speaker 3: is still very high. So as I see it, fifty
Speaker 3: nine thousand jobs created in healthcare and education, which is
Speaker 3: an acyclical area of the economy, and that's more than
Speaker 3: half of the job gains. Where you have the cyclical
Speaker 3: areas like manufacturing, professional business services.
Speaker 2: Negative ay Stein, there's a chance we might get a
Speaker 2: right cut next month.
Speaker 3: Yeah, this really is an interesting development. I mean, our
Speaker 3: base case has been that you will see a December
Speaker 3: rate cut. We tempered our expectations because of the announcement
Speaker 3: from the BLS, but our general view is that the
Speaker 3: FED is going to maintain an easing bias, and that's
Speaker 3: ultimately what's important. What's most important for the FED is
Speaker 3: that the labor market is cooling, and as a result,
Speaker 3: it means they're able to cut rates without threatening their
Speaker 3: inflation objective. We see wages continue to mind moderate, We
Speaker 3: see inflation outside of tariffs as fairly benign. The bond
Speaker 3: market tends to agree with us as it relates to
Speaker 3: you look at the inflation market itself, fairly benign pricing there.
Speaker 3: And so I think this is an interesting report that
Speaker 3: leaves December potentially still on the table, although it's going
Speaker 3: to remain a pretty close.
Speaker 4: Call if they do. If they decide not to cut
Speaker 4: in December, do you get more conviction to go into
Speaker 4: long duration bonds the idea that this actually will cause
Speaker 4: the cracks to widen that we're seeing in the labor market.
Speaker 3: So I think what we've experienced over the last few
Speaker 3: weeks are great examples of fixed income behaving the way
Speaker 3: that you would expect in periods when the market is
Speaker 3: trading risk off, serving as the ballast, serving as the
Speaker 3: diversifier within your portfolio, and that obviously comes down to
Speaker 3: having duration in your portfolio.
Speaker 7: So that is.
Speaker 3: Something that we have liked. We have a range for
Speaker 3: the tenure of three seventy five to four and a quarter.
Speaker 3: When we're at the top of that range, you have
Speaker 3: the opportunity to increase that position. When we move down
Speaker 3: to the bottom of that range, we need to be
Speaker 3: thinking about two things. Are we still in a soft
Speaker 3: landing or is the economy changing. If we're still in
Speaker 3: a soft landing, there's a limit to how much lower
Speaker 3: yields can go. If we are concerned about a harder landing,
Speaker 3: then there's even more space for rates to rally from here.
Speaker 5: Kelsey, you brought up a great point. We're a hair
Speaker 5: away from that line in the sand, really that Jay
Speaker 5: Powell's outlined four point five percent unemployment rate. We were
Speaker 5: almost just there. Isn't that going to give the impetus
Speaker 5: on the FED that they should be concerned with the
Speaker 5: labor market.
Speaker 3: Quite possibly, But I do think that there are still
Speaker 3: two core groups that are going to not necessarily change
Speaker 3: their view as a result of this job support. I
Speaker 3: just don't think it's enough so that the people who
Speaker 3: wanted to stay on hold probably aren't going to look
Speaker 3: at this immediately and say I need to change my view,
Speaker 3: but they may be more likely to be less vocal
Speaker 3: in terms of their descent. So it's kind of maybe
Speaker 3: a nuance there of they're less intensely against it because
Speaker 3: they are seeing that there are things happening on the
Speaker 3: other side. But you know, for those who are more
Speaker 3: concerned about inflation, that picture hasn't changed. We didn't get
Speaker 3: any new data on inflation yet. Maybe a little bit
Speaker 3: on the wage side, but you know that's limited, and
Speaker 3: you know they can still say for four and a
Speaker 3: half percent, that was what was in our forecast, So
Speaker 3: not surprising us to the upside, and still a relatively
Speaker 3: low unemployment rate versus history.
Speaker 2: Stay with US multile impag Savannah's coming up off to
Speaker 2: this iterprise on the headline number, but plenty of nuance
Speaker 2: beyond that. Slightly one key but another number that's interesting
Speaker 2: is eighty point two percent. Here's what's coming from the BLS. Today.
Speaker 2: The September estimates from the Establishment Survey include both data
Speaker 2: collected on our normal schedule prior to the shutdown and
Speaker 2: also September data that business is self reported electronically during
Speaker 2: the shutdown. As a result, the Establishment Survey collection rate
Speaker 2: eighty point two percent for this initial release of September
Speaker 2: twenty five data is higher than usual, So a higher
Speaker 2: quality report, if we can call it that.
Speaker 4: Yeah, so what does this leave us? Does this leave
Speaker 4: us with a good report or a bad report? And
Speaker 4: you talk about how it's going to be a roar
Speaker 4: shock test. That said, the fact that this is backward
Speaker 4: looking at seventy six day old data at the same
Speaker 4: time that you're seeing the ongoing continuing claims tick even
Speaker 4: higher does seem to indicate there could be some kind
Speaker 4: of shift on the FMC that leans toward where the
Speaker 4: market would like it to be.
Speaker 2: Nida Richardson of ADP joins us now for more, Nila,
Speaker 2: welcome to the program. Some timely data, some not so
Speaker 2: timely data. How many things set up in the labor
Speaker 2: market from your vantage point?
Speaker 7: The rule of my house is three days and it's out.
Speaker 7: That's why we have a weekly But I'm going to
Speaker 7: say that good news bad news, it's always good needs
Speaker 7: to see job gains. So I'm cheering this September number.
Speaker 7: I'm sharing the fact that seems to be stronger in
Speaker 7: terms of the response rate, But I have to go
Speaker 7: back to August because that's where the ADP numbers and
Speaker 7: the BLS numbers are almost in sync. We saw four
Speaker 7: thousand drop in August at ADP and that's very similar
Speaker 7: to what the BLS saw as well. So going into September,
Speaker 7: there's strength there, but we note that in October that
Speaker 7: strength may have been mollified. September is an easy month
Speaker 7: for seasonal adjustment. There's not as much hiring, but when
Speaker 7: you go into that October November December period of seasonal workers,
Speaker 7: it's going to be a little bit more challenging to
Speaker 7: offset the seasonal factors. And to note, the private sector
Speaker 7: was driving this jobs report, but it was the consumer
Speaker 7: facing private sector that really carried the water in this
Speaker 7: jobs reports. So so goes the consumer when it comes
Speaker 7: to healthcare, when it comes to leisure and hospitality, so
Speaker 7: goes the labor market. The connection between the consumer and
Speaker 7: the labor market has never been stronger.
Speaker 1: When you look at this report.
Speaker 4: Right now, Neila, given that backdrop, does this give you
Speaker 4: the justification in your head for the Federal Reserve to
Speaker 4: cut rates next month? If you could just sort of
Speaker 4: go there and get a sense. Is this a strong
Speaker 4: read or a weak read in your view?
Speaker 7: The whole context of the FED view of the labor
Speaker 7: market is that labor demand and labor supply are falling
Speaker 7: in lockstep. I think this report challenges that notion because
Speaker 7: you see what you see is that the unemployment rate
Speaker 7: ticked up, and on the worker side, you also saw
Speaker 7: a bit of a rise in the labor force participation rate.
Speaker 7: To me, that suggests that more people came into this
Speaker 7: market looking for work and didn't find it. And that's
Speaker 7: especially supported if you look at the continuing claims number
Speaker 7: that is continuing to edge up, telling us it's taking
Speaker 7: longer to get a job. This is a highly concentrated
Speaker 7: labor market. Only a few sectors are strongly producing jobs.
Speaker 7: It makes it challenging for workers with a general skill
Speaker 7: set to find employment. And I think that's what's going
Speaker 7: to challenge the Fed in December. It's not just a
Speaker 7: strong jobs market. They have to look at the demand side.
Speaker 7: It's how the supply side is faring in a very
Speaker 7: concentrated labor market.
Speaker 4: Does a FED rate cut change this picture? I guess
Speaker 4: that is the key question that everyone keeps start coming
Speaker 4: back to.
Speaker 7: Well, if this data is backward looking, a FED policy
Speaker 7: move is very much forward looking, right. We won't immediately
Speaker 7: see if the effect of a rate cut on main street.
Speaker 7: It will take several months for that apparatus to trickle in,
Speaker 7: especially when you look at the key way that FED
Speaker 7: policy transitions into main street is through the borrowing markets,
Speaker 7: through the credit markets. Our consumer's positioned right now for
Speaker 7: those big ticket purchases a house, a car, a refrigerator,
Speaker 7: that really drives the labor market forward.
Speaker 1: In terms of new hires.
Speaker 7: I think when you come to the holiday season, that's
Speaker 7: where the rubber meets the road. That's where the disconnect
Speaker 7: between the wealthy consumer and the low in consumer really matters.
Speaker 7: Because if that low end consumer, that low income consumer,
Speaker 7: can't purchase in the same way as they do over
Speaker 7: the holidays generally, then we won't get the growth factor
Speaker 7: leading into the first quarter of the year. So a
Speaker 7: lot is going to be born on the shoulders of
Speaker 7: that low and can come consumer over the next three months,
Speaker 7: both when it comes to seasonal hiring and when it
Speaker 7: comes to seasonal spending.
Speaker 2: Stay with US mult Bloomberg Surveillance coming up off to this.
Speaker 2: Looking ahead to the Federal Reserve meeting, Sarah manx b
Speaker 2: C Iowa moving writing December rate cut as a toss up,
Speaker 2: but three rate cuts are expected over the next twelve
Speaker 2: months as the Fed leans incrementally davish in the second
Speaker 2: half of twenty six. Sarah joins us now for more
Speaker 2: Sarah welcome. We've got to reflect on the data around
Speaker 2: just moments ago. Something for absolutely everyone is it changed
Speaker 2: the debate for December tenth on the f WEBC.
Speaker 1: But we got two new.
Speaker 8: Data points today to help us determine whether we're going
Speaker 8: to get that rate cut in December. This is first
Speaker 8: of all economic data trickling in with this employment data
Speaker 8: and also technology.
Speaker 1: And consumer earning.
Speaker 8: So first of all, on the payils number for September,
Speaker 8: the number scale, so.
Speaker 1: There's something for everybody in it.
Speaker 8: While we beat on paerils, we have downward revisions and
Speaker 8: increasing unemployment rate, so I think that's mixed. In general,
Speaker 8: we saw the odds of a rate cut move up
Speaker 8: from thirty percent to forty percent on this number four December. Second,
Speaker 8: the good news is earnings, which has been the good
Speaker 8: news for the past few weeks, and video earning strong
Speaker 8: Walmart showing the consumer is still shopping. That's good for
Speaker 8: earnings and good for large cat tech. The bubble that
Speaker 8: people were talking about in the markets was mostly in
Speaker 8: unprofitable tech and speculative tech. But I think from here,
Speaker 8: given in Vidia soothing the markets, tech will lead. We
Speaker 8: will get three rate cuts over the next twelve months,
Speaker 8: but December still a toss of We may approach close
Speaker 8: to fifty percent chances of a rate cut, but most
Speaker 8: of the FED has been leaning pockets recently. We heard
Speaker 8: that in the Fed Minutes yesterday.
Speaker 4: So you said that tech will lead, and this is
Speaker 4: an important point. Will tech lead because the FED has
Speaker 4: been more reluctant to cut rates aggressively, or will it
Speaker 4: lead despite the fact that the FED is more reluctant
Speaker 4: to cut rates.
Speaker 1: Tech leads for two reasons.
Speaker 8: The first one is a moderately weakening economy we are
Speaker 8: seeing that in the payroll data, and second is a
Speaker 8: slower pace of rate cuts. The moderate growth is good
Speaker 8: for tech because they have their own structural drivers. Artificial
Speaker 8: intelligence is alive and well debate when where we see
Speaker 8: the ROI on all of the dollars spent on AI,
Speaker 8: But we will see AI continue to increase productivity for
Speaker 8: companies and eventually boost their revenues out of That's the
Speaker 8: main structural driver for technology stocks, and I think they
Speaker 8: will continue to lead from here unless the economy shows
Speaker 8: significant signs of accelerating or the FED dramatically decreases rates.
Speaker 2: Talk about timely. Speaking of the labor market, this from
Speaker 2: Verizon just moments ago. Today, we will begin reducing our
Speaker 2: workforce by more than thirteen thousand employees across the organization
Speaker 2: and significantly reduce our outsourced and other outside labor expenses. Sarah.
Speaker 2: Efficiency and operational efficiency? Is that going to be a
Speaker 2: big theme for next year?
Speaker 1: The two themes will be for twenty twenty six.
Speaker 8: First of all, is that efficiency because of artificial intelligence,
Speaker 8: every company seems to be talking about that. And also
Speaker 8: because of inflation, we're hearing more and more about affordability
Speaker 8: and actually some decreases in tariffs and areas like beef
Speaker 8: and coffee.
Speaker 1: Is the economy still affordable for the consumer?
Speaker 8: Hearing a lot out of walmart on that today those
Speaker 8: are two themes I think that are bubbling up and
Speaker 8: will continue through twenty twenty six as we talk about
Speaker 8: how are we going to incorporate the value of artificial
Speaker 8: intelligence into our business models?
Speaker 2: Sarah, just before you go topics right now into the
Speaker 2: new year, what are they at the moment?
Speaker 8: We love infrastructure infrastructures has tailwinds more building in the
Speaker 8: United States, shift to artificial intelligence and electrification of our economy.
Speaker 8: One stock, in particular, Ni Source in Indiana based utility,
Speaker 8: will be a nice play on this.
Speaker 1: It's one of the fastest growing utilities in the region.
Speaker 8: And we also like more conservative stocks that grow their dividends.
Speaker 8: Dividend growers also and nice Source is one that pays
Speaker 8: a three percent dividend yields.
Speaker 2: Stay with us mul Bloomberg Surveillance coming up after this.
Speaker 2: Angelo Zino of CFRA writing this and videos data center
Speaker 2: revenue demonstrating sequential acceleration that validates sound thesis on sustained
Speaker 2: hyperscale of spending. Angelo joined us Now for more Angelo,
Speaker 2: these numbers, is it sufficient to restore the faith in
Speaker 2: this story? Once again?
Speaker 9: So John, thanks for having me, and I'd say you know,
Speaker 9: for today, Yes, I mean, I think some of the
Speaker 9: concerns that are out there in the market continues to linger,
Speaker 9: you know, and we all know what that is. I mean,
Speaker 9: I think probably the biggest issue out there is on
Speaker 9: the you know, the concern about financing and you know,
Speaker 9: getting the necessary financing from a number of these customers,
Speaker 9: not necessarily the hyperscalers, which we all know over the
Speaker 9: last three years have been absolute monsters, spending spenders. But
Speaker 9: as we look here kind of over the next three
Speaker 9: to five years and we get this broadening out trade
Speaker 9: within it the AI ecosystem, the likes of you know,
Speaker 9: the the Oracles, the core weaves of the world, open
Speaker 9: a eyes of the world, they're going to be bigger
Speaker 9: contributors in these forecasts that you have out there for
Speaker 9: in video, as well as the rest of the AI ecosystem.
Speaker 9: And the question is, you know, clearly is the financing
Speaker 9: going to be there as we find the broadened out here.
Speaker 2: Angela, I'm so pleased you've gone there, because we've been
Speaker 2: drained the distinction between the company and the way the
Speaker 2: company is perceived in the stock market as a stock
Speaker 2: because they're two very different stories and Angela. When it
Speaker 2: came to the earnings of video, Yes they're fantastic, Yes
Speaker 2: the guy is solid, But in many ways some of
Speaker 2: that was inevitable because we know what's happening Gusequare, their
Speaker 2: biggest customers are spending a lot of money and promising
Speaker 2: to spend even more, Angela. What I'm trying to understand
Speaker 2: this morning is whether what they've unveiled overnight yesterday afternoon
Speaker 2: is sufficient to reshift the story around the way people
Speaker 2: are treating the stock because over the last several months,
Speaker 2: for a long long time, over the last several years,
Speaker 2: there was a view in this market that this story
Speaker 2: was built on the balance sheets of the hyperscalers, and
Speaker 2: this all made sense. It was strong. Now there's a
Speaker 2: worry that this is built on something else. They're fueled financing,
Speaker 2: maybe very skinny revenues developing over open AI and a
Speaker 2: loss of confidence. Angelo, And this is what I want
Speaker 2: to keep going back to. Have they said anything in
Speaker 2: the last twenty four hours that gets the markets to
Speaker 2: reshift is thinking again about how it addresses this story
Speaker 2: in the stock market.
Speaker 9: So not necessarily, but that being said, listen, I think
Speaker 9: when you kind of look out here over the next
Speaker 9: couple of years. I think the expectations out there, I
Speaker 9: think from most of the analyst community is not one
Speaker 9: where you know, we're necessarily expecting north of a trillion
Speaker 9: dollars and spent from open AI at least that's not
Speaker 9: in the forecast, in the consensus estimates at this top
Speaker 9: point in time.
Speaker 6: So I think that's a good thing.
Speaker 9: But when you kind of look at the you know,
Speaker 9: the broader investment community there, they're kind of looking at, hey, listen,
Speaker 9: there are these promises that are being made or commitments
Speaker 9: being made, and there's no way they're going to meet
Speaker 9: these commitments. What I would tell you is that they
Speaker 9: don't necessarily need to see those full commitments being made
Speaker 9: in many respects, and there are going to be many
Speaker 9: different ways that in video is going to continue to
Speaker 9: see higher revenue and bringing out of their ecosystem. And
Speaker 9: I think it's also important to note that these hyperscalers
Speaker 9: will probably get much bigger in nature here over the
Speaker 9: next five to six years.
Speaker 6: I mean, looking for Microsoft.
Speaker 9: To see their revenue double here over the next six years,
Speaker 9: We're looking for Alpha Bit to see their revenue go up,
Speaker 9: you know, seventy hundred percent, So that cloud business for
Speaker 9: these hyperscalers are going to continue to get much bigger
Speaker 9: and bigger. We've seen the great momentum out of two
Speaker 9: three earning season from these hyperscalers, so we do think
Speaker 9: those companies will continue to pave the way, and then
Speaker 9: that broughting out trade is going to be the question mark.
Speaker 9: But again, I think as long as it's incremental in
Speaker 9: nature and we see some sovereign AI opportunities like we
Speaker 9: just saw announced yesterday, I think that's going to help
Speaker 9: the overall narrative and get the sot hire here.
Speaker 4: Angelo, that's a key key point there, the sovereign purchases.
Speaker 4: And we'll get to China in just one second. And
Speaker 4: how feasible that opening reopening could potentially be. I just
Speaker 4: wonder if you were satisfied by the response to having
Speaker 4: to finance some of your customers to continue buying your chips.
Speaker 4: So fear around circular financing and why in video feels
Speaker 4: the need to do that if there is so much
Speaker 4: ex ternal demand.
Speaker 9: I think in some respects in video feels like it's
Speaker 9: an obligation of theirs, And you know, I would necessarily
Speaker 9: go as far as to say they're doing anything that
Speaker 9: isn't prudent in nature. I think this is one of
Speaker 9: those instances where it's extremely expensive to build a data center.
Speaker 6: You're looking at it can gig a why you know.
Speaker 9: Data center read about fifty billion dollars in nature, and
Speaker 9: in Vidia is essentially taking the line's share of the
Speaker 9: profits for the industry. So in many respects, what they
Speaker 9: are doing is reinvesting those profits into the eCos to
Speaker 9: help build the AI ecosystem. In some respects, I don't
Speaker 9: necessarily think that's a bad use of funding. I also
Speaker 9: think it helps to kind of improve the stickiness across
Speaker 9: you know, where they are within the ecosystem. So overall,
Speaker 9: I'm not necessarily concerned about some of these circular financing
Speaker 9: issues however, and I'd actually expect to see more of
Speaker 9: this take place here over the next couple of years.
Speaker 9: So it is something that I think investors need to
Speaker 9: get somewhat comfortable with. But again, I mean if it
Speaker 9: gets to a level where it gets just out of control,
Speaker 9: I think that's what becomes problematic.
Speaker 4: How much upside is they're doing video shares. If President
Speaker 4: Trump gets his way and the Congress is forced to
Speaker 4: drop some of the restrictions in terms of sales into
Speaker 4: places like China from Nvidia.
Speaker 6: So i'd say in Video, I'd say China itself.
Speaker 9: We're looking potentially at least at least twenty to thirty
Speaker 9: billion dollars in annual you know, sales added to in
Speaker 9: Video's revenue.
Speaker 6: We think that would be conservative in nature.
Speaker 9: And you know, again that would probably add let's call
Speaker 9: it about eight to ten percent to their to their
Speaker 9: revenue trajectory, and you know you'd see a likewise impact
Speaker 9: in terms of the stock price move. Let's call it
Speaker 9: a ten to fifteen percent initial boost we think from
Speaker 9: that approval. So you know, we'll see whether or not
Speaker 9: there's going to be upside if there's approval, and then
Speaker 9: you know to what extent those companies will spend on
Speaker 9: in Video's ecosystem. But you know the good thing is
Speaker 9: it's at zero dollars at this point in time, and
Speaker 9: their significant upside potential if they're able to get into China.
Speaker 5: When you think about the upside potential, I know the
Speaker 5: Commerce Department yesterday came out with the green light to
Speaker 5: sell chips to the UAE in Saudi Arabia. Is it
Speaker 5: big enough to fill that gap that exists right now,
Speaker 5: that whole when it comes to Beijing.
Speaker 6: Probably not, I mean, and maybe over time it will be.
Speaker 6: And again, you know, the good.
Speaker 9: Thing is it's zero dollars in revenue or essentially zero
Speaker 9: coming out of China. I would say this, China's got
Speaker 9: the second large, you know, the second largest ecosystem of
Speaker 9: hyperscalers out there, right you do want to sell into
Speaker 9: the Ali Baba's bydus ten cents of the world, and
Speaker 9: that would be an enormous positive if they can do that.
Speaker 9: I'd also say, you know, when you kind of think
Speaker 9: about the developers that are out there, the developer community,
Speaker 9: it's something that Jensen has repeatedly said he wants he
Speaker 9: wants to make sure he's got access to and that
Speaker 9: they continue to build on in Video's ecosystem. That's not
Speaker 9: something you're going to get in any other area of
Speaker 9: the world.
Speaker 6: So it's extremely important.
Speaker 9: We think from that perspective that you know, in Vidia
Speaker 9: gets into China.
Speaker 5: Given that what you just said about how he talks
Speaker 5: to Chinese developers, how difficult is this line to walk
Speaker 5: for Jensen Wang when it comes between Washington and Beijing.
Speaker 9: I think if I think it's a difficult line, I
Speaker 9: think if there's anyone that can can successfully do it,
Speaker 9: it's it's Jensen. And you know, maybe you throw you know,
Speaker 9: Tim Cook in there in some respects, and how he's.
Speaker 6: Handled, you know, kind of the China US relations.
Speaker 9: I think there aren't many CEOs that can do a
Speaker 9: good job with that. The great thing with Jensen is
Speaker 9: it seems like he's got the ears of both nations
Speaker 9: at this point in time, and that that's a huge positive.
Speaker 9: He's got that power, and we think, and you know,
Speaker 9: in many respects, we'll see how all this plays out,
Speaker 9: but you know, it's it's taken longer than we've thought.
Speaker 9: To be honest with you, we thought at this point
Speaker 9: in time we probably would have seen in nvidio, you know,
Speaker 9: back into China. But again, these geopolitical uncertainties and you
Speaker 9: never know how long they're going to drag out.
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