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Speaker 1: Bloomberg Audio Studios. Podcasts Radio News.
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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m.
00:00:27
Speaker 1: Eastern.
00:00:28
Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.
00:00:36
Speaker 3: We begin today with stocks rebounding after wiping out nearly $ 4 trillion in market value. Nadia Lovell of UBS writing, equities may stay under pressure near term, but we expect to grind higher over the coming months. Politics and physical bottlenecks might make AI harder to build, but.
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Speaker 1: Not less needed. Nadia joins us today. Thank you for being here. Is this healthy, what we're seeing right now in markets?
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Speaker 4: Look, I don't think that is unhealthy. I think what you're seeing is a repricing of some finance and executioner is now given the policy changes. But I mean, that said, you know, we're not necessarily calling a bottom here. We do think that there are opportunities, but it's not a wholesale buy the dip. It's just sort of have to be selective in this. And we do think that you could continue, like we said, to see some continued selling pressure because some key technical levels have been broken through in this market. And that could fuel some additional systematic selling, some forced selling. So we don't think that this is, you know, done yet. And I do think that the fact that there is this concern about financing and execution is warranted a bit of a repricing. But I think also we have to remember that, you know, the uncertainty around what the outlook could look from a political standpoint in terms of the build out of data centers does not fly in the face of this great demand that is there. You could see some project delays, but that is very different than cancellation, Lisa.
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Speaker 3: What yesterday did we see that was fundamentally justifiable on some level, even if maybe it was overdone, versus just indiscriminate throwing out the baby with the bathwater?
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Speaker 4: I think it's fair to say that, you know, the fact is that there's a lot of spending happening in the data center space that is against future cash flows. And now there's a question of the timing of the revenues of recognizing some of the revenues if you have projects or delay. And what that could mean for the semiconductor space specifically. Because if you do have projects, we know that this is not about 2027.
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Speaker 1: We do expect.
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Speaker 4: That you already have permitted for about across these five states that are now democratically led that accounts for 40% of the data center plan build out. 30 gigawatts is already sort of already permitted. And so over the next 18, 24 months, this is more about 2028 into 2029. So you could have some slippage Right. Into twenty twenty nine. And so therefore you could have an air gap within the semiconductors, particularly around the memories, the memory chips.
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Speaker 6: And so forth.
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Speaker 4: And that inventory glut can put some price and pressure and therefore cause margins into into into questions as well as ultimately profits. That's what the market is trying to price yesterday. But we do think that is quite encouraging. You know, my utilities analyst pointed out to me yesterday that you heard Southern Company, who reported yesterday, say on their earnings call that they're already in talks with, you know, governor-elect of Georgia.
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Speaker 1: Now— Of course.
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Speaker 4: Not a deal, but engagement. It feels that there is a path to resolve some of these constraints. And we've also heard overnight from the governor in Texas, she's not anti-data center. So I think this is more about the terms of construction than a permanent ban on construction. And I think that's what the market is still trying to read through.
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Speaker 1: But this is what I don't understand.
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Speaker 7: If these governors are coming out and sounding a little bit more pragmatic than they were on the campaign trail, And you're saying that it's delayed, not dumped, when it comes to data centers.
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Speaker 1: Why the sell-off we saw? Why so deep? And why don't you think it's the bottom?
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Speaker 4: It's the triggers, you know? Some of this is machines, right? And so it's reality. Well, not entirely. But some of this is sort of, you know, the selling just begets selling and begets selling. And so you sort of need more of that to come out. Again, these are the beginnings of discussions, right? And I think you need to see more of that happen in coming weeks, more concreteness around it. Now, the next six months is going to matter because it's a plan in for 2028 and 2029. And so how we are dealing with this market is that we have been selective. And this is even before the election. But what we have done is accelerate that selection. Lisa, you pointed out some of the semis that are up today. We wouldn't go out and buy everything.
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Speaker 1: What we're looking for is quality, right?
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Speaker 4: We're also looking for those companies... where margins haven't been inflated quite a bit over the last couple of years, where there hasn't been as much margin pickup. So we're more focused on the compute, less so on the memory. You know, I mean, historically, you sort of see memory, you know, stocks sort of bottom out at.
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Speaker 1: One time's price a book.
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Speaker 8: We're at one.
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Speaker 4: 1.2 times, so there could be some more downside for that. That's when we would look to step into memory.
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Speaker 1: But we're not there yet.
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Speaker 4: We're more focused on computing. We're also focused on the hyperscalers because reality is the value of those permitted has now gone up. And so that's where we're at in.
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Speaker 1: Very true.
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Speaker 7: The ones that have been permitted, you mean like in Texas, Georgia?
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Speaker 5: Right.
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Speaker 4: And the ones already have capacity, right?
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Speaker 1: And power. They don't have other political headwinds, are you worried about?
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Speaker 4: You know, they could have a lot of political headwinds. But, you know, again, this goes back to the strength of these companies' balance sheets and the profitability and the ability to negotiate with these communities. And they're not against paying their own share, right? You know, in terms of the upgrading the grids, you know, in terms of being mindful of water. and the cost to the consumer, you know, and higher electricity prices. So I think that you will see more deals around that. Now, yes, the costs go up, but given the opportunity and the capex, we don't think that is going to be a major hit to earnings. This is about more like going up and staying up in quality is what's important here.
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Speaker 1: Do you care about non-farm payrolls today?
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Speaker 5: We do. All right.
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Speaker 1: So where does that fall out of this?
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Speaker 4: You know, like one data point, as we know, in the Fed, particularly around payrolls, is not going to change the narrative.
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Speaker 1: The Fed is very concerned. You're not making a good argument.
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Speaker 7: I know.
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Speaker 5: We care.
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Speaker 1: We care. It's just one thing that wouldn't matter.
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Speaker 6: We care.
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Speaker 4: The market care from the standpoint of strength, right? If we see a really weak number like in this environment, that's.
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Speaker 1: Not very helpful, right?
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Speaker 4: Right. But from a Fed standpoint, it's more about inflation. I mean, if we see some relief in oil prices, right, more sustained relief in oil prices and some sort of negotiation around the conflict in the Middle East, that could help the inflation outlook. But we're sticking to our view of one rate high in December and another one in March because we do think that the Fed is very focused on bringing down inflation.
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Speaker 6: Stay with us.
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Speaker 2: More Bloomberg surveillance coming up after this.
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Speaker 3: Nvidia wiping out nearly a half trillion dollars in market value in Thursday's trade, pushing the stock into a bear market. Jay Goldberg of Seaport holding the lone sell on Nvidia with a $ 180 price target. Jay is probably the one person who doesn't seem depressed to the semi trade this morning. Jay, are we seeing a washout that actually makes you really kind of like Nvidia a little bit more?
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Speaker 5: I think this sell-off in the last few weeks, especially yesterday, is overdone. I think what really caught my eye recently is how indiscriminate the selling is. Good companies, bad companies, everything was down double digits yesterday on what I think is no real tangible news.
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Speaker 6: So, it seems a little silly. I upgraded CyTime today.
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Speaker 5: I'm It's been a long week, but I'm going to take the weekend and go look at my whole ratings for all my stocks and figure out where things stand. But I think this is, as bearish as I am, and the fact, you know, I think this is overdone. I mean, NVIDIA hit my price target yesterday, which I don't think anyone saw coming, except me.
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Speaker 6: So I think.
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Speaker 5: There's a lot here that's starting to look very, very attractive.
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Speaker 3: Jay, who do you think has gotten sort of thrown out with the bathwater? Who do you think has gotten beaten up disproportionately?
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Speaker 1: You mentioned NVIDIA.
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Speaker 3: Are there others that you think kind of got taken for a ride that start to look attractive?
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Speaker 5: I think AMD is firing on all cylinders. They had a really good quarter. Like I mentioned, I upgraded Sightime, really interesting mid-cap size company that is doing all kinds of incredible things and growing incredibly fast.
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Speaker 6: I think the list goes on. I'm not sure about NVIDIA yet. I got to look real hard at that. Remember, we haven't had any news. Nothing's really changed for a lot of these companies. And so.
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Speaker 5: I want to work through all of these. I think the really big question is going to be Anthropic. That's the one that we got to think hard about.
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Speaker 7: Do you think anthropic potential is going to be another source of volatility in the sense that we just have reporting following on Wall Street Journal reporting that valuation was once again slashed? How do we go from $ 2 trillion to 1.2, 1.3.
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Speaker 1: Maybe 1.5?
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Speaker 7: I mean, this is a ton of money that's being wiped off.
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Speaker 5: So I officially launched coverage of Anthropic last week. So I have a pretty good view on valuation there. I think they merit the higher valuation. The real question, and what I suspect is sort of leading the charge down for a lot of these names, is two days ago, they released their amended S1, which showed their Q3 numbers, where growth really slowed.
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Speaker 6: And people are I think that speaks to still there's a lot of underlying demand.
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Speaker 5: You look at Cloudflare's numbers yesterday were incredible. That's all driven by AI demand in the enterprise. And so I think anthropic You know, Anthropix in this weird spot where IPO valuations are more art than science. So they're going to have to negotiate between the big holders and their investment banking syndicate.
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Speaker 6: I really hope they do go public.
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Speaker 5: I think that they, you know, maybe they lower their expectations and how much they raise.
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Speaker 6: There is less now.
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Speaker 5: They do a secondary in nine months when they've proven themselves a little bit. But I can get to their valuation so long as their growth is still strong. But I always say that an IPO is like a wedding.
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Speaker 6: It's the wedding that doesn't matter. It's the marriage that matters.
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Speaker 5: You've got to think for the long term. And so I think they should take the plunge, go public, take whatever valuation the market accepts, and then just let us see their growth.
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Speaker 6: And that will solve the problem.
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Speaker 7: Well, if they're the bride, is the groom going to be there waiting for them? If they go public, is it going to be successful in this environment?
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Speaker 1: I mean, we're talking about two weeks' time.
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Speaker 5: Yeah, I know.
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Speaker 6: And I feel for them.
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Speaker 5: I'm sure their management team is going through all kinds of it's going to be a tough decision making weekend for them. I would say that a lot of it is going to come down to what they say on the roadshow, how they guide for Q4 and for the future, what their actual growth looks like. There was some initial reporting this morning. It looked like their October sales had picked up again. If the issue is that they're compute constrained, they can't get enough GPUs, that tells me there's a lot more demand.
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Speaker 6: And again, I go back to Cloudflare.
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Speaker 5: Cloudflare is a decent proxy for what people are doing with AI.
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Speaker 6: I think there is a lot of demand out there.
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Speaker 5: And so long as Anthropic can communicate clearly.
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Speaker 6: What they can do and how they can return.
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Speaker 5: To this triple-digit sequential growth they've been seeing, then I think they should do it.
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Speaker 1: Yeah.
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Speaker 3: Joe, Jay, you had a line in your notes that made me laugh, where you said that a lot is going to depend on whether or not for the market, Anthropic goes ahead with this IPO. So the whole stock market depends on Dario Amadei's communication skills.
00:12:28
Speaker 1: What could go wrong?
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Speaker 3: A real question about what the consequence would be if they don't end up going public in the next couple of weeks.
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Speaker 1: What do you think the consequences would be?
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Speaker 5: So for them, it's pretty challenging. They've already delayed their IPO, I think, twice. And delaying it a third time is a bad look. It probably means they have to take a longer pause before they go. They won't go public until probably next year at this point. They'll have to wait six to nine months to go at it again. And that's always risky. This is a company that has now told us they have almost $ 900 billion in compute commitments, a form of debt. They have to start paying those soon. They have $ 100.
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Speaker 6: Billion-ish on the balance sheet.
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Speaker 5: So they can afford it to some point. But I think it'd be better for them if they could go public sooner, get the cash, and just build all the compute they need to meet that demand. If they don't go public, I think the market will continue to sort of remain very cautious.
00:13:32
Speaker 6: People are going to be worried, is there another shoe going to drop? I think that will be the fear. Stay with us.
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Speaker 2: More Bloomberg surveillance coming up after this.
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Speaker 9: 165,000 jobs created.
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Speaker 3: The expectation had been for 70,000. We got the unemployment rate falling to 4.1% from 4.2%.
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Speaker 1: We had the hourly wages.
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Speaker 3: Rise to 0.4% from the expected 0.3%. When you take a look at markets, is this a Goldilocks report on a surface? Doesn't seem like Goldilocks to me. Seems a lot like a hot report pretty much across the board. Yet markets remain unmoved to 1.4 percent gain on the Nasdaq futures.
00:14:19
Speaker 1: You're seeing a two tenths of a percent gain on S & P futures in the bond space. Two tens and thirties.
00:14:23
Speaker 3: Yes, the sell off has deepened, particularly at the front end of the yield curve of about seven basis points.
00:14:29
Speaker 1: Now pricing in a 78 percent chance. of a rate hike at.
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Speaker 3: The December Fed meeting, up from 70% before the nonfarm payrolls report. And yes, you see 10-year yields up about four basis points, 4.87%. But AMH, not necessarily some sort of big move that you might think if you saw the headline number.
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Speaker 7: Yeah, normally you would think that this would have much bigger impact on terms of where markets are trading right now because it was hot, hot, hot. across every measure when it comes to this and including the revisions.
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Speaker 3: So traders are adding to December rate hike bets following that number. Jeff Rosenberg of BlackRock joins us now for more. Jeff, are you surprised the market isn't responding more to this report?
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Speaker 1: Not really, to be honest.
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Speaker 8: I think the market is focused on what happened yesterday and what happened overseas and what's happening in futures markets. We've seen a return to negative stock bond correlation. And the AI trade, which has been so beneficial and so impactful to the macro view, as we were just discussing, I was listening to you, and certainly we've seen in the GDP impact, a lot of that impact is impacting the macro expectations on growth and inflation. And so what we saw yesterday was a little bit of an issue, if you could say it that way, to that outlook. And so one of the things that is a place to find diversification and some offset in your portfolios has been fixed income. And why that is, is because if AI is really powering the growth engine, if there's a wobble in AI, then maybe that growth and inflation comes down. then rates can come down. And certainly when it comes to the front end and the Fed expectations, the Fed will be very focused on financial conditions and financial conditions tightening. We heard Warsh talk about that in the last press conference, the impact of rising rates and tightening financial conditions.
00:16:22
Speaker 1: So there's a lot of pricing.
00:16:23
Speaker 8: Here going on beyond the minutia and unpacking the details of the report, which we certainly could do, that is really related to the broader AI implications.
00:16:33
Speaker 6: Jeff, oh.
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Speaker 1: What actually did happen yesterday?
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Speaker 3: Because it didn't seem like there was any news, and today you're seeing some of the biggest losers as the potential biggest winners, at least in pre-market trading. Does this feel like a healthy, kind of well-reasoned sell-off and rebound?
00:16:51
Speaker 8: Well, one thing I can say about whether it's healthy or not, we have this saying, small forest fires prevent large forest fires. So if yesterday was really about a spark, what was the spark? The spark was the change in the elections, the change in the expectations of the political environment around AI and data centers. But it was a spark that followed a couple of other sparks. We had some weakening earnings report from large Bellwether techs.
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Speaker 1: We saw some big.
00:17:21
Speaker 8: Stock market idiosyncratic responses to that. We've seen a rise in the credit markets concerns around AI financing and a transparency in viewing that through rising CDS spreads, rising hyperscaler debt spreads. All of this is kind of happening in an environment where The amount of exposures, particularly levered exposures, both in credit and in equity, by some measurements, we get these measurements from prime brokerage desks measuring hedge fund leverage in gross terms, was pointing to a very elevated level. So you have a spark and you have a lot of vulnerability. You can have an unwind in those exposures that might reflect a reaction that is maybe greater than what you would otherwise think is deemed by the trigger event on its own.
00:18:14
Speaker 7: Jeff, the politics portion of it, I don't quite understand because we knew these results Wednesday.
00:18:20
Speaker 1: And the market actually rallied.
00:18:23
Speaker 7: What happened yesterday in terms of the politics that the market started to look at this and say, oh, some of this is some political issues on the horizon for this massive build-out of artificial intelligence?
00:18:33
Speaker 1: Yeah.
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Speaker 8: Yeah, it's hard to know. But, you know, sometimes it's not. Where's Jonathan Farrow when we need him?
00:18:41
Speaker 2: Right.
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Speaker 6: It's not the first response.
00:18:42
Speaker 8: You know, we talk about this on this morning. It's not the first response necessarily to the payroll report or the first response. to the election. And then it's the cascading effect of what can happen in levered positions around changes in direction. So, that first direction may be relatively small, but the cascading effect to the multiplier effect of leverage might be, you know, somewhat related to that delay between Wednesday and Thursday.
00:19:11
Speaker 7: When it comes to potentially a massive IPO coming to market but now valuations starting to report that it's going to be lower, I'm talking about anthropic, $ 2 trillion to maybe $ 1. 2 trillion, how is that going to impact potentially or maybe make this sell-off worse?
00:19:26
Speaker 8: Well, I think it's important to kind of put the IPO and the equity raise in the broader context of what we're debating here. What we're really debating is this incredible technology requires and has fueled an incredible investment boom. So the macroeconomic impact of AI is that it's brought about this incredible investment.
00:19:51
Speaker 1: Expansion.
00:19:52
Speaker 8: And that investment expansion, you were just talking about it, we're seeing it in the payroll reports, the impact on construction, the impact on manufacturing, the impact on downstream growth, the broadening of the AI benefit. But that investment boom requires And that's the shift, and it's a really important sort of observation. We've been in this AI theme since ChatGPT launched in November 2022. What's different in 2026 is that the financing requirements to finance the accelerating expectations of capital expenditures no longer can be met through internally generated cash flows. So now it's a capital markets issue. And that's what is the broader context of the equity IPOs is, well, how much of that financing will be met by the equity markets? If that size is reduced, then Will capital expenditures go down, or will the size of capital expenditures keep pace with the anticipated demand from agentic and other new uses that continue to lead to these expectations of exponential growth in demand that's fueling the required build-out? Well, then you're going to have to fund it in some other way if the equity raise is going to be lower. And that's what a lot of the angst has been coming into this, is that the credit markets are not unlimited in their ability to price that capital. And that also becomes at what price. So, if the quantity is not unlimited, well, then where will markets clear? They'll clear at a higher, or in this case, a lower price, a higher spread. And what that means is just all the costs of the build-out go up. Well, if the costs of build-out go up, goes up, then that intersection point somewhere down in the future that no one knows what is the intersection of the endpoint of the price of demand, price times quantity in the future, how much revenues do we actually deliver from this incredible technology relative to the cost of the supply, that essential intersection becomes a little bit harder when the prices for funding.
00:22:02
Speaker 1: That supply go up.
00:22:03
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.
Speaker 1: Bloomberg Audio Studios. Podcasts Radio News.
00:00:11
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m.
00:00:27
Speaker 1: Eastern.
00:00:28
Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.
00:00:36
Speaker 3: We begin today with stocks rebounding after wiping out nearly $ 4 trillion in market value. Nadia Lovell of UBS writing, equities may stay under pressure near term, but we expect to grind higher over the coming months. Politics and physical bottlenecks might make AI harder to build, but.
00:00:52
Speaker 1: Not less needed. Nadia joins us today. Thank you for being here. Is this healthy, what we're seeing right now in markets?
00:00:58
Speaker 4: Look, I don't think that is unhealthy. I think what you're seeing is a repricing of some finance and executioner is now given the policy changes. But I mean, that said, you know, we're not necessarily calling a bottom here. We do think that there are opportunities, but it's not a wholesale buy the dip. It's just sort of have to be selective in this. And we do think that you could continue, like we said, to see some continued selling pressure because some key technical levels have been broken through in this market. And that could fuel some additional systematic selling, some forced selling. So we don't think that this is, you know, done yet. And I do think that the fact that there is this concern about financing and execution is warranted a bit of a repricing. But I think also we have to remember that, you know, the uncertainty around what the outlook could look from a political standpoint in terms of the build out of data centers does not fly in the face of this great demand that is there. You could see some project delays, but that is very different than cancellation, Lisa.
00:01:59
Speaker 3: What yesterday did we see that was fundamentally justifiable on some level, even if maybe it was overdone, versus just indiscriminate throwing out the baby with the bathwater?
00:02:08
Speaker 4: I think it's fair to say that, you know, the fact is that there's a lot of spending happening in the data center space that is against future cash flows. And now there's a question of the timing of the revenues of recognizing some of the revenues if you have projects or delay. And what that could mean for the semiconductor space specifically. Because if you do have projects, we know that this is not about 2027.
00:02:29
Speaker 1: We do expect.
00:02:31
Speaker 4: That you already have permitted for about across these five states that are now democratically led that accounts for 40% of the data center plan build out. 30 gigawatts is already sort of already permitted. And so over the next 18, 24 months, this is more about 2028 into 2029. So you could have some slippage Right. Into twenty twenty nine. And so therefore you could have an air gap within the semiconductors, particularly around the memories, the memory chips.
00:03:00
Speaker 6: And so forth.
00:03:01
Speaker 4: And that inventory glut can put some price and pressure and therefore cause margins into into into questions as well as ultimately profits. That's what the market is trying to price yesterday. But we do think that is quite encouraging. You know, my utilities analyst pointed out to me yesterday that you heard Southern Company, who reported yesterday, say on their earnings call that they're already in talks with, you know, governor-elect of Georgia.
00:03:28
Speaker 1: Now— Of course.
00:03:29
Speaker 4: Not a deal, but engagement. It feels that there is a path to resolve some of these constraints. And we've also heard overnight from the governor in Texas, she's not anti-data center. So I think this is more about the terms of construction than a permanent ban on construction. And I think that's what the market is still trying to read through.
00:03:51
Speaker 1: But this is what I don't understand.
00:03:52
Speaker 7: If these governors are coming out and sounding a little bit more pragmatic than they were on the campaign trail, And you're saying that it's delayed, not dumped, when it comes to data centers.
00:04:01
Speaker 1: Why the sell-off we saw? Why so deep? And why don't you think it's the bottom?
00:04:06
Speaker 4: It's the triggers, you know? Some of this is machines, right? And so it's reality. Well, not entirely. But some of this is sort of, you know, the selling just begets selling and begets selling. And so you sort of need more of that to come out. Again, these are the beginnings of discussions, right? And I think you need to see more of that happen in coming weeks, more concreteness around it. Now, the next six months is going to matter because it's a plan in for 2028 and 2029. And so how we are dealing with this market is that we have been selective. And this is even before the election. But what we have done is accelerate that selection. Lisa, you pointed out some of the semis that are up today. We wouldn't go out and buy everything.
00:04:51
Speaker 1: What we're looking for is quality, right?
00:04:53
Speaker 4: We're also looking for those companies... where margins haven't been inflated quite a bit over the last couple of years, where there hasn't been as much margin pickup. So we're more focused on the compute, less so on the memory. You know, I mean, historically, you sort of see memory, you know, stocks sort of bottom out at.
00:05:11
Speaker 1: One time's price a book.
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Speaker 8: We're at one.
00:05:12
Speaker 4: 1.2 times, so there could be some more downside for that. That's when we would look to step into memory.
00:05:18
Speaker 1: But we're not there yet.
00:05:19
Speaker 4: We're more focused on computing. We're also focused on the hyperscalers because reality is the value of those permitted has now gone up. And so that's where we're at in.
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Speaker 1: Very true.
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Speaker 7: The ones that have been permitted, you mean like in Texas, Georgia?
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Speaker 5: Right.
00:05:34
Speaker 4: And the ones already have capacity, right?
00:05:36
Speaker 1: And power. They don't have other political headwinds, are you worried about?
00:05:39
Speaker 4: You know, they could have a lot of political headwinds. But, you know, again, this goes back to the strength of these companies' balance sheets and the profitability and the ability to negotiate with these communities. And they're not against paying their own share, right? You know, in terms of the upgrading the grids, you know, in terms of being mindful of water. and the cost to the consumer, you know, and higher electricity prices. So I think that you will see more deals around that. Now, yes, the costs go up, but given the opportunity and the capex, we don't think that is going to be a major hit to earnings. This is about more like going up and staying up in quality is what's important here.
00:06:15
Speaker 1: Do you care about non-farm payrolls today?
00:06:18
Speaker 5: We do. All right.
00:06:19
Speaker 1: So where does that fall out of this?
00:06:22
Speaker 4: You know, like one data point, as we know, in the Fed, particularly around payrolls, is not going to change the narrative.
00:06:27
Speaker 1: The Fed is very concerned. You're not making a good argument.
00:06:29
Speaker 7: I know.
00:06:30
Speaker 5: We care.
00:06:30
Speaker 1: We care. It's just one thing that wouldn't matter.
00:06:32
Speaker 6: We care.
00:06:34
Speaker 4: The market care from the standpoint of strength, right? If we see a really weak number like in this environment, that's.
00:06:40
Speaker 1: Not very helpful, right?
00:06:41
Speaker 4: Right. But from a Fed standpoint, it's more about inflation. I mean, if we see some relief in oil prices, right, more sustained relief in oil prices and some sort of negotiation around the conflict in the Middle East, that could help the inflation outlook. But we're sticking to our view of one rate high in December and another one in March because we do think that the Fed is very focused on bringing down inflation.
00:07:05
Speaker 6: Stay with us.
00:07:06
Speaker 2: More Bloomberg surveillance coming up after this.
00:07:18
Speaker 3: Nvidia wiping out nearly a half trillion dollars in market value in Thursday's trade, pushing the stock into a bear market. Jay Goldberg of Seaport holding the lone sell on Nvidia with a $ 180 price target. Jay is probably the one person who doesn't seem depressed to the semi trade this morning. Jay, are we seeing a washout that actually makes you really kind of like Nvidia a little bit more?
00:07:42
Speaker 5: I think this sell-off in the last few weeks, especially yesterday, is overdone. I think what really caught my eye recently is how indiscriminate the selling is. Good companies, bad companies, everything was down double digits yesterday on what I think is no real tangible news.
00:08:00
Speaker 6: So, it seems a little silly. I upgraded CyTime today.
00:08:03
Speaker 5: I'm It's been a long week, but I'm going to take the weekend and go look at my whole ratings for all my stocks and figure out where things stand. But I think this is, as bearish as I am, and the fact, you know, I think this is overdone. I mean, NVIDIA hit my price target yesterday, which I don't think anyone saw coming, except me.
00:08:24
Speaker 6: So I think.
00:08:27
Speaker 5: There's a lot here that's starting to look very, very attractive.
00:08:31
Speaker 3: Jay, who do you think has gotten sort of thrown out with the bathwater? Who do you think has gotten beaten up disproportionately?
00:08:37
Speaker 1: You mentioned NVIDIA.
00:08:37
Speaker 3: Are there others that you think kind of got taken for a ride that start to look attractive?
00:08:44
Speaker 5: I think AMD is firing on all cylinders. They had a really good quarter. Like I mentioned, I upgraded Sightime, really interesting mid-cap size company that is doing all kinds of incredible things and growing incredibly fast.
00:08:58
Speaker 6: I think the list goes on. I'm not sure about NVIDIA yet. I got to look real hard at that. Remember, we haven't had any news. Nothing's really changed for a lot of these companies. And so.
00:09:10
Speaker 5: I want to work through all of these. I think the really big question is going to be Anthropic. That's the one that we got to think hard about.
00:09:18
Speaker 7: Do you think anthropic potential is going to be another source of volatility in the sense that we just have reporting following on Wall Street Journal reporting that valuation was once again slashed? How do we go from $ 2 trillion to 1.2, 1.3.
00:09:29
Speaker 1: Maybe 1.5?
00:09:29
Speaker 7: I mean, this is a ton of money that's being wiped off.
00:09:36
Speaker 5: So I officially launched coverage of Anthropic last week. So I have a pretty good view on valuation there. I think they merit the higher valuation. The real question, and what I suspect is sort of leading the charge down for a lot of these names, is two days ago, they released their amended S1, which showed their Q3 numbers, where growth really slowed.
00:09:59
Speaker 6: And people are I think that speaks to still there's a lot of underlying demand.
00:10:15
Speaker 5: You look at Cloudflare's numbers yesterday were incredible. That's all driven by AI demand in the enterprise. And so I think anthropic You know, Anthropix in this weird spot where IPO valuations are more art than science. So they're going to have to negotiate between the big holders and their investment banking syndicate.
00:10:35
Speaker 6: I really hope they do go public.
00:10:38
Speaker 5: I think that they, you know, maybe they lower their expectations and how much they raise.
00:10:42
Speaker 6: There is less now.
00:10:42
Speaker 5: They do a secondary in nine months when they've proven themselves a little bit. But I can get to their valuation so long as their growth is still strong. But I always say that an IPO is like a wedding.
00:10:55
Speaker 6: It's the wedding that doesn't matter. It's the marriage that matters.
00:10:58
Speaker 5: You've got to think for the long term. And so I think they should take the plunge, go public, take whatever valuation the market accepts, and then just let us see their growth.
00:11:07
Speaker 6: And that will solve the problem.
00:11:08
Speaker 7: Well, if they're the bride, is the groom going to be there waiting for them? If they go public, is it going to be successful in this environment?
00:11:17
Speaker 1: I mean, we're talking about two weeks' time.
00:11:20
Speaker 5: Yeah, I know.
00:11:21
Speaker 6: And I feel for them.
00:11:23
Speaker 5: I'm sure their management team is going through all kinds of it's going to be a tough decision making weekend for them. I would say that a lot of it is going to come down to what they say on the roadshow, how they guide for Q4 and for the future, what their actual growth looks like. There was some initial reporting this morning. It looked like their October sales had picked up again. If the issue is that they're compute constrained, they can't get enough GPUs, that tells me there's a lot more demand.
00:11:51
Speaker 6: And again, I go back to Cloudflare.
00:11:53
Speaker 5: Cloudflare is a decent proxy for what people are doing with AI.
00:11:58
Speaker 6: I think there is a lot of demand out there.
00:12:01
Speaker 5: And so long as Anthropic can communicate clearly.
00:12:07
Speaker 6: What they can do and how they can return.
00:12:08
Speaker 5: To this triple-digit sequential growth they've been seeing, then I think they should do it.
00:12:14
Speaker 1: Yeah.
00:12:15
Speaker 3: Joe, Jay, you had a line in your notes that made me laugh, where you said that a lot is going to depend on whether or not for the market, Anthropic goes ahead with this IPO. So the whole stock market depends on Dario Amadei's communication skills.
00:12:28
Speaker 1: What could go wrong?
00:12:30
Speaker 3: A real question about what the consequence would be if they don't end up going public in the next couple of weeks.
00:12:37
Speaker 1: What do you think the consequences would be?
00:12:39
Speaker 5: So for them, it's pretty challenging. They've already delayed their IPO, I think, twice. And delaying it a third time is a bad look. It probably means they have to take a longer pause before they go. They won't go public until probably next year at this point. They'll have to wait six to nine months to go at it again. And that's always risky. This is a company that has now told us they have almost $ 900 billion in compute commitments, a form of debt. They have to start paying those soon. They have $ 100.
00:13:11
Speaker 6: Billion-ish on the balance sheet.
00:13:13
Speaker 5: So they can afford it to some point. But I think it'd be better for them if they could go public sooner, get the cash, and just build all the compute they need to meet that demand. If they don't go public, I think the market will continue to sort of remain very cautious.
00:13:32
Speaker 6: People are going to be worried, is there another shoe going to drop? I think that will be the fear. Stay with us.
00:13:38
Speaker 2: More Bloomberg surveillance coming up after this.
00:13:41
Speaker 9: 165,000 jobs created.
00:13:52
Speaker 3: The expectation had been for 70,000. We got the unemployment rate falling to 4.1% from 4.2%.
00:14:00
Speaker 1: We had the hourly wages.
00:14:02
Speaker 3: Rise to 0.4% from the expected 0.3%. When you take a look at markets, is this a Goldilocks report on a surface? Doesn't seem like Goldilocks to me. Seems a lot like a hot report pretty much across the board. Yet markets remain unmoved to 1.4 percent gain on the Nasdaq futures.
00:14:19
Speaker 1: You're seeing a two tenths of a percent gain on S & P futures in the bond space. Two tens and thirties.
00:14:23
Speaker 3: Yes, the sell off has deepened, particularly at the front end of the yield curve of about seven basis points.
00:14:29
Speaker 1: Now pricing in a 78 percent chance. of a rate hike at.
00:14:32
Speaker 3: The December Fed meeting, up from 70% before the nonfarm payrolls report. And yes, you see 10-year yields up about four basis points, 4.87%. But AMH, not necessarily some sort of big move that you might think if you saw the headline number.
00:14:48
Speaker 7: Yeah, normally you would think that this would have much bigger impact on terms of where markets are trading right now because it was hot, hot, hot. across every measure when it comes to this and including the revisions.
00:14:58
Speaker 3: So traders are adding to December rate hike bets following that number. Jeff Rosenberg of BlackRock joins us now for more. Jeff, are you surprised the market isn't responding more to this report?
00:15:09
Speaker 1: Not really, to be honest.
00:15:12
Speaker 8: I think the market is focused on what happened yesterday and what happened overseas and what's happening in futures markets. We've seen a return to negative stock bond correlation. And the AI trade, which has been so beneficial and so impactful to the macro view, as we were just discussing, I was listening to you, and certainly we've seen in the GDP impact, a lot of that impact is impacting the macro expectations on growth and inflation. And so what we saw yesterday was a little bit of an issue, if you could say it that way, to that outlook. And so one of the things that is a place to find diversification and some offset in your portfolios has been fixed income. And why that is, is because if AI is really powering the growth engine, if there's a wobble in AI, then maybe that growth and inflation comes down. then rates can come down. And certainly when it comes to the front end and the Fed expectations, the Fed will be very focused on financial conditions and financial conditions tightening. We heard Warsh talk about that in the last press conference, the impact of rising rates and tightening financial conditions.
00:16:22
Speaker 1: So there's a lot of pricing.
00:16:23
Speaker 8: Here going on beyond the minutia and unpacking the details of the report, which we certainly could do, that is really related to the broader AI implications.
00:16:33
Speaker 6: Jeff, oh.
00:16:34
Speaker 1: What actually did happen yesterday?
00:16:36
Speaker 3: Because it didn't seem like there was any news, and today you're seeing some of the biggest losers as the potential biggest winners, at least in pre-market trading. Does this feel like a healthy, kind of well-reasoned sell-off and rebound?
00:16:51
Speaker 8: Well, one thing I can say about whether it's healthy or not, we have this saying, small forest fires prevent large forest fires. So if yesterday was really about a spark, what was the spark? The spark was the change in the elections, the change in the expectations of the political environment around AI and data centers. But it was a spark that followed a couple of other sparks. We had some weakening earnings report from large Bellwether techs.
00:17:20
Speaker 1: We saw some big.
00:17:21
Speaker 8: Stock market idiosyncratic responses to that. We've seen a rise in the credit markets concerns around AI financing and a transparency in viewing that through rising CDS spreads, rising hyperscaler debt spreads. All of this is kind of happening in an environment where The amount of exposures, particularly levered exposures, both in credit and in equity, by some measurements, we get these measurements from prime brokerage desks measuring hedge fund leverage in gross terms, was pointing to a very elevated level. So you have a spark and you have a lot of vulnerability. You can have an unwind in those exposures that might reflect a reaction that is maybe greater than what you would otherwise think is deemed by the trigger event on its own.
00:18:14
Speaker 7: Jeff, the politics portion of it, I don't quite understand because we knew these results Wednesday.
00:18:20
Speaker 1: And the market actually rallied.
00:18:23
Speaker 7: What happened yesterday in terms of the politics that the market started to look at this and say, oh, some of this is some political issues on the horizon for this massive build-out of artificial intelligence?
00:18:33
Speaker 1: Yeah.
00:18:34
Speaker 8: Yeah, it's hard to know. But, you know, sometimes it's not. Where's Jonathan Farrow when we need him?
00:18:41
Speaker 2: Right.
00:18:41
Speaker 6: It's not the first response.
00:18:42
Speaker 8: You know, we talk about this on this morning. It's not the first response necessarily to the payroll report or the first response. to the election. And then it's the cascading effect of what can happen in levered positions around changes in direction. So, that first direction may be relatively small, but the cascading effect to the multiplier effect of leverage might be, you know, somewhat related to that delay between Wednesday and Thursday.
00:19:11
Speaker 7: When it comes to potentially a massive IPO coming to market but now valuations starting to report that it's going to be lower, I'm talking about anthropic, $ 2 trillion to maybe $ 1. 2 trillion, how is that going to impact potentially or maybe make this sell-off worse?
00:19:26
Speaker 8: Well, I think it's important to kind of put the IPO and the equity raise in the broader context of what we're debating here. What we're really debating is this incredible technology requires and has fueled an incredible investment boom. So the macroeconomic impact of AI is that it's brought about this incredible investment.
00:19:51
Speaker 1: Expansion.
00:19:52
Speaker 8: And that investment expansion, you were just talking about it, we're seeing it in the payroll reports, the impact on construction, the impact on manufacturing, the impact on downstream growth, the broadening of the AI benefit. But that investment boom requires And that's the shift, and it's a really important sort of observation. We've been in this AI theme since ChatGPT launched in November 2022. What's different in 2026 is that the financing requirements to finance the accelerating expectations of capital expenditures no longer can be met through internally generated cash flows. So now it's a capital markets issue. And that's what is the broader context of the equity IPOs is, well, how much of that financing will be met by the equity markets? If that size is reduced, then Will capital expenditures go down, or will the size of capital expenditures keep pace with the anticipated demand from agentic and other new uses that continue to lead to these expectations of exponential growth in demand that's fueling the required build-out? Well, then you're going to have to fund it in some other way if the equity raise is going to be lower. And that's what a lot of the angst has been coming into this, is that the credit markets are not unlimited in their ability to price that capital. And that also becomes at what price. So, if the quantity is not unlimited, well, then where will markets clear? They'll clear at a higher, or in this case, a lower price, a higher spread. And what that means is just all the costs of the build-out go up. Well, if the costs of build-out go up, goes up, then that intersection point somewhere down in the future that no one knows what is the intersection of the endpoint of the price of demand, price times quantity in the future, how much revenues do we actually deliver from this incredible technology relative to the cost of the supply, that essential intersection becomes a little bit harder when the prices for funding.
00:22:02
Speaker 1: That supply go up.
00:22:03
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.
