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Speaker 6: We're going to get back to this.
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Speaker 7: Anthropic filing for its IPO to become the first frontier AI lab to list. Ed Ludlow joins us, Bloomberg Tech co-host here. Ed, the day has finally come for AI. This is their time to really get out there and talk the story. What do you expect to hear from AI when they go on the road to sell this monster, monster IPO?
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Speaker 8: Yeah.
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Speaker 9: I mean, it's probably easier to start with the things that are missing from the S1. The obvious things, because they never are in the S1 when it's public, is the size of this IPO and the target raise. But what was interesting as well is, like, there aren't any really contemporaneous financials. There's no Q3 numbers.
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Speaker 6: They're out there.
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Speaker 9: They've been reported. I think what's amazing in the document, and you know as well as anyone, Paul, right, the boilerplate does a lot of work. So the risk factors, the language they have to put in these– But the really simple story is Anthropic has presented massive, incredible growth through to the first half of this year or the nine months through September 30th. But there could not be a starker warning that that growth won't continue for lots of reasons which we can get into. And so when they hit the road, you know, they're going to need to sort of explain the positive on that, the upside on that.
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Speaker 3: Very much big risk, big reward kind of thing.
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Speaker 7: Yeah.
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Speaker 3: They're determined, it seems, to go public this year. What does that say about their need for capital, Ed?
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Speaker 9: Yeah, I think what's interesting is they have minimum contracted spending commitments of about $ 250 billion. Those are the things that they are absolutely on the hook for. But the way that they explain this is that they have operated in an environment historically where they are compute constrained. In other words, they cannot get access to the level of computing power that they think they need to to service the current demand for their products. And so if you go through, whether it's with Amazon, Google, SpaceX, Broadcom, AMD, the number is actually far greater than $ 250 billion in what they've lined up to have access to. But the issue is that they, and they say it again in the risk language, they are asking the cloud computing providers to give them more than those cloud computing providers are willing or able to do. And that's an interesting thing. So the capital, they did a huge round in May, right?
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Speaker 1: And we don't know what.
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Speaker 9: They're going to try and raise in this IPO, but it's there long term. It's not just they need it right now.
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Speaker 7: So one of the key things for an IPO, Ed, is the quality of management.
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Speaker 6: You're really betting on management. What do we know about this management team at Anthropic?
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Speaker 9: Yeah, so basically things stay the same. Dario Amodei stays on as the CEO. Daniela Amodei, who is his sister, remains in the role of president, but also chair of the board. There is a long-term benefit trust, which appoints the majority of board members. And then there is an issue of control. which we are learning about every day in the world of technology recently. When you look at what Meta did with its Class C shares. Anthropic has a group of seven founders. And each of those founders, those founders collectively will net out with 50, 5, 0.1% of shareholder voting power. And there are some stipulations about the common stock they have to hold to do that. But that is a really interesting outcome when you also take into account that this is a public benefit corporation structure, right? And that Anthropic has other philanthropic goals and societal goals that it's trying to meet while still being a public company with fiduciary duty to its shareholders.
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Speaker 3: And if you're open AI, what are you hoping to learn, not just from this S1 filing, but from the roadshow, the investor roadshow that Anthropic is about to go on?
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Speaker 9: You know, Scott, you're the first person to ask me that, which I'm surprised about. Like, I thought this would come up sooner. And the answer to your question is, well, what did Anthropic learn from SpaceX's S1? You know, if you think about when SpaceX flipped the S1 in May, they decided to go with this just out-of-this-world total addressable market number.
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Speaker 1: Of $ 26.
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Speaker 9: 5 trillion specifically for AI. Anthropic did not... put any total addressable market number. They had some brief commentary about how in 2025, they felt the value, the economic value of knowledge work from AI was about 40 trillion. So they've resisted the urge to say, here's the future that we see too much. I think going into this, all signs point that Anthropic is going to try and do this IPO by Thanksgiving. But my understanding from the companies and from the investor base is that OpenAI was pretty calm about the idea that Anthropic would go first. and the open AI would be at some point in 2027. You know, there's a chronology to it. What did they learn? Maybe how to choose your risk language.
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Speaker 3: Exactly.
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Speaker 10: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.
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Speaker 1: The anthropic S1 filing finally dropped.
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Speaker 11: Boom.
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Speaker 1: And how many pages was it? I don't know.
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Speaker 6: I haven't seen it yet. It's still printing.
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Speaker 3: Okay. Still printing, but we know that the risks section is really long and it includes things like existential risks to humanity, including attempts to resist shutdown and conceal or manipulate information.
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Speaker 1: I mean, you could write a book on this already on its own.
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Speaker 3: Michael Shepard, he is our Bloomberg News Senior Tech Editor joining us right now. Michael, what do we need to know about the S1 filing from Anthropic, short of the risks section.
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Speaker 1: Just let's start with the business first.
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Speaker 11: Let's look at the top lines in all of this. And for our audience, of course, who is leading this IPO? Well, Goldman Sachs Group and Morgan Stanley. There are 20 other banks involved. The filing shows The timing on this, we've been told to expect a formal marketing of the IPO to begin as soon as the week of November 9. Anthropic is really trying to get this done before the end of the year and, in fact, before Thanksgiving. So this is the timetable that they're on. And it's happening, of course, even during this time. moment of, let's say, churn and turmoil surrounding the AI trade and AI market and all the concerns that maybe some companies are taking on a little bit too much debt and too much risk in trying to deploy the technology. But anthropic a pioneer in developing those models is forging ahead. They emphasized, of course, that, yes, we talked about the risks, but they also pointed to their business. They reported having $ 16. 3 billion in revenue for the first six months of this year versus a loss of $ 80. 7 billion in that same period. Now, When you look back to the comparable stretch just a year earlier, they had a $ 13 billion loss on just $ 1. 2 billion in revenue. So we really are seeing the trajectory of the business growing very fast, and that also points to why they may want to get to market sooner rather than later.
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Speaker 7: So the company's not making money. Has management said when they expect to be profitable? Have they indicated that yet?
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Speaker 11: It's unclear from the filing exactly what that timing is. And as they market this to investors, we may get a clearer picture of that. There were sure a lot of caveats in this, as Scarlett alluded to in the risk section about all the challenges. that they could face in terms of their ability to deliver on the promises of their product. And it really depends so much on the infrastructure that they need to do all the computing to continue to advance their cutting edge or so-called frontier models. And the risks are not only the safety ones that we've been talking about, but being able to build all those data centers that are needed to run the models. And they even point to the risk of opposition there.
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Speaker 3: So being able to build all those data centers means they're going to have to spend a lot more money. And that's partly why they're moving forward with this IPO. What do we know about how much debt or how much debt is willing to take on?
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Speaker 11: Well, that's another great question. And they did point a little bit to debt in the filing. They said that, well, to go back to their spending on computing power, they had put nearly $ 9 billion toward computing power and infrastructure for the first six months of this year. And that's almost a fourfold increase from the year earlier. So it just gives you an idea of of what, um, you know, the investment that it's putting out and, you know, really, uh, in the filing, they also talked about just how much they've expanded their agreements for computing power. And some of these include a substantial amount of debt, minimum obligations in these, uh, computing power agreements of $ 417 billion. And those agreements, uh, will carry out through, uh, As you know, as long as 2046, some of these are very long term. They talked about their debt. They said their total debt is six point two billion as of June 30th. And they do have a revolving facility above. to $ 15 billion. They don't have investment grade credit rating yet. So once they need that, they may be able to make that revolving loan unsecure. But that still hasn't yet for those who pay close attention to how companies structure their debt.
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Speaker 1: Stay with us.
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Speaker 10: More from Bloomberg Intelligence coming up after this.
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Speaker 9: This is Bloomberg Intelligence with Scarlett Fu and Paul Sweeney on Bloomberg Radio.
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Speaker 7: All right, Scarlett Philp, Paul Sweeney, we're live here in our Bloomberg Interactive Broker Studio in New York City.
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Speaker 6: We're streaming live on YouTube as well.
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Speaker 7: All right, two years after Donald Trump's promises to bring down the high cost of living helped him get elected to an historic second term, his failure to deliver has disappointed many of the supporters he won over.
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Speaker 1: And that is the.
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Speaker 7: Subject of our big take story today on the Bloomberg Terminal. Mark Nickette joins us here. He's a real economy reporter. for Bloomberg News. What is a real economy reporter covering the intersection of government and politics and the economy? And boy, with the midterm elections a week from tomorrow, that is spot on here. Mark, thanks so much for joining us here. How much is this economy characterized by very good economic growth, full employment, but very high inflation? How much is that going to be a problem for the Republicans here in this midterm?
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Speaker 8: I think it's driving a lot of the campaigns, particularly in these tossed-up Senate races, because the focus that voters have is all on high prices and affordability, even with, as you mentioned, the solid job market and booming stock market. I mean, it's sort of an interesting dichotomy where we have sort of strong economic growth and positive economic indicators.
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Speaker 5: But in particular, the.
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Speaker 8: High prices for gasoline and diesel are really driving negative consumer sentiments and backlash really against Republicans because of Donald Trump's promises to bring down prices on day one if he was elected to a second term.
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Speaker 6: And it's interesting.
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Speaker 7: I mean, it must be frustrating for the Republican National Committee. I always highlight that because some of his policies are direct contradiction to that. Thinking simply about tariffs. Obviously, most economists say that is a tax on the U.S. consumer, higher prices to some degree. And then starting a war in the Middle East, which not unexpectedly drives up the cost of energy on a global scale. How is the president trying to kind of work around those issues?
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Speaker 8: Well, he's been really, as far as the war is concerned, been really focused on the message that prices are going to come down quickly once the Iran war is settled. He's been doing rallies almost every day leading up to the midterms and essentially saying the same thing, that sure, your gas prices might be high now, but one, it's a small price to pay for denying Iran from getting a nuclear weapon, but also that prices are going to come down really quickly. The problem, of course, is that the conflict has continued much longer than the administration promised at the beginning, at the outset. And there's even concerns that we'll see an escalation in fighting after the midterms. So it's sort of a tough needle for the president to thread because on the one hand, he can talk about prices coming down once the conflict is resolved, but there's no clear indication of when that's going to happen. And meanwhile, consumers are seeing high prices at the pump, you know, every day when they drive past the gas stations.
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Speaker 2: Yeah, absolutely.
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Speaker 7: So, Mark, we've seen President Trump pretty aggressively out on the campaign trail on a daily basis over the last several weeks, and the expectation now will continue through Election Day. What are the folks down ballot? How are they embracing the president? How are they using the president, given that his polling numbers are so low, given that many of his policies have driven up pressures here?
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Speaker 8: It's kind of a difficult balancing act, particularly in states that have toss-up Senate races or these, you know, really competitive swing congressional districts. Because on the one hand, the Republicans need strong turnout from the Trump supporters in particular and the Republican base in general. So, you know, they don't want to distance themselves too much from Trump because they need sort of Trump's help to get their voters to turn out. On the other hand, Trump's also a motivating factor on the other side in encouraging Democratic participation, if nothing else, to put a check on the final two years of the Trump administration. And there's been a push by some Republicans in these competitive districts to sort of back away from the Trump or at least not emphasize their connections to Trump or even, you know, promoting their willingness to oppose the president if they think that will help them in these districts with, you know, independent voters.
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Speaker 7: And Mark, in this story, you guys interview a gentleman in McAllen, Texas. He's on his lunch break from a retail job. And his quote is, I thought stuff was going to get cheaper and that life was going to be better, but that never happened.
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Speaker 6: End quote.
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Speaker 7: How common is that kind of thinking in different parts of the country?
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Speaker 1: It's pretty common.
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Speaker 8: It's pretty common among different demographic groups. We looked at demographic groups that had big swings to Donald Trump in 2024 from 2020, primarily Latinos. low-income voters and.
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Speaker 2: Young voters.
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Speaker 8: And we saw a big shift, I think, of those voters to Trump because of the economy, the expectation that, or the belief at least, that Trump would be better on the economy than Kamala Harris. And also, you know, Donald Trump was promising throughout the campaign that he would bring down prices immediately and fight inflation. So while these voters swung to Trump in 2024 because of the economy, their disappointment in the fact that prices have not come down is sort of driving them away from Republicans this cycle.
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Speaker 6: Stay with us.
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Speaker 10: More from Bloomberg Intelligence coming up after this.
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Speaker 5: You're listening to the Bloomberg Intelligence Podcast.
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Speaker 1: Catch us live weekdays at 10 a.m.
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Speaker 5: Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, I.
00:16:58
Speaker 7: Took my first cruise on a Viking cruise ship. Had a good time on the Sun River. I think we actually put a deposit down for something else.
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Speaker 9: Wait, really?
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Speaker 6: Yeah, I think so.
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Speaker 1: When did you do that? Like a day in, towards the end?
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Speaker 6: After, I think.
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Speaker 1: Oh, okay.
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Speaker 6: But yeah, so anyway, so we're locked in again.
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Speaker 1: He's a lifer now.
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Speaker 6: So I guess.
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Speaker 7: The other person I know that knows this cruise business and appreciates it is Jody Laurie. She's a senior credit analyst for Bloomberg Intelligence. She follows all these consumer-facing kind of fun companies, think casinos, hotels, cruise ship lines, all that kind of good stuff. They need capital to grow.
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Speaker 6: That's particularly the case for these cruise liners.
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Speaker 7: Jodi, thanks so much for joining us here. Talk to us about Norwegian cruise lines. I know you keep close tabs on that credit profile. What are you seeing from Norwegian?
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Speaker 4: So I think, Paul, the thing about Norwegian is that they've been lagging. their peers in terms of the deleveraging story. So you talk about Viking, they have some of the lowest leverage in terms of debt leverage across the board. And by this, we mean is that management took the strategy of trying to grow margins, grow EBITDA in order to delever as opposed to actively repaying debt. And that sort of put them in a little bit of a challenging situation, you know, especially for someone like Norwegian, that's a When they're cutting costs, you sort of wonder what kind of quality service they have as a result.
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Speaker 3: Whoops, didn't press the mic in time. So how do they move forward with that kind of situation? How do you see them using their financials to their advantage?
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Speaker 4: So, Scarlett, I think the challenge is what are they going to do next?
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Speaker 2: And something that we.
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Speaker 4: Did as an exercise a few days ago was looking at Norwegian and comparing it to Caesars. And you think, okay, gaming company versus cruise line, yes, there's gaming on cruises, but what do they have to do with one another? Well, in fact, we actually see that their stories are a little bit similar in a lot of ways.
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Speaker 2: You know, they're operators within a very sort of.
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Speaker 4: Al Gopli kind of industry, right? You know, you have a couple of key players. They've been lagging their peers. Both of them have been beating the drum on deleveraging, on improving their balance sheet, but haven't quite hit the mark. And now Caesars is getting taken private by Fertitta. or potentially taken private, you know, it's moving along. And Norwegian, you know, is also a company that was private at one point.
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Speaker 2: They are lagging.
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Speaker 4: They now have a new CEO and you sort of wonder, okay, what are they going to do next in terms of the company? They've been selling off assets. They've been entering into these charter agreements as well to increase their cashflow and to get a little bit more creative with their balance sheet. But I'm not quite sure what that means for Norwegian short-term and long-term.
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Speaker 2: Talk to us about it.
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Speaker 7: Just the fundamentals of the cruise business in general. Like, John, you'll appreciate this. I did take the free, you know, all the booze included option.
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Speaker 3: Oh, you definitely have to do that.
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Speaker 6: You know, I cost Viking a lot of money on that one.
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Speaker 7: They're going to have to talk about that in their quarterly results. Talk to us about the fundamentals just of the cruise business in general. It seems like the demand story Remains pretty darn strong, but boy, the feel's got to be a big issue for them.
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Speaker 8: Yeah.
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Speaker 2: Yeah, Paul.
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Speaker 4: I mean, you know, taking the beverage package, if you like to drink quite a bit, does help you.
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Speaker 2: But, you know, most people, I don't know if you could hit the mark, but I'm just kidding.
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Speaker 4: So in terms of costs, in terms of, you know, appetite, we are seeing that bookings are still very strong. We've seen a few blips along the way as a result of the Iran war, as a result of fuel prices, as a result of consumers just getting a That said, we've seen momentum still in bookings. The exception being the Norwegian brand management made a comment that it's lagging what they expected in terms of bookings. And I think that's problematic when you compare that to even Viking or Royal or Carnival that have been communicating that bookings have been rather strong. From a fuel perspective, it really is a difference of stories among the companies in terms of strategies. Some of them, such as Royal and Norwegian, are both at least partially or fully hedged for what they expect to spend. Some of them Like Carnival, it's a little touch and go depending on the situation. And so that does definitely creep into it, but they do benefit from this onboard spending that creates a cash flow to offset some of it.
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Speaker 3: So when it comes to the bookings out in advance, what prompts customers to cancel some of their bookings? I know that they book out a year, maybe a year and a half out. Do we have a track record of how often people say, oh, I can't actually go on this or I'm going to delay this?
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Speaker 2: So a good portion, Scarlett, actually will go on their cruises.
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Speaker 4: You know, people who book cruises in advance say, I'm going on this cruise. The only reasons why it will change is obviously if they have a personal situation or if the cruise company has to cancel that specific charter. Now, what the cruise companies try to do is they encourage onboard or they encourage a credit as opposed to a full cancellation, right? A lot of the times past a certain point, you only get a partial refund back. But even if you do get a full refund, a lot of times the companies will say, well, actually, how about you just rebook to a different cruise? We do have examples, especially this weekend, of situations that went a little bit differently, such as the cruise that was supposed to go to the Bahamas and the weather caused them instead to go to Canada. And the cruise companies will make it right by giving you some onboard credit. Now, of course, going to Halifax isn't as luxurious as going to, say, Grand Cayman or the Bahamas or what have you.
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Speaker 2: Some are warm.
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Speaker 4: But I would probably venture to guess that most people are grateful that they're not going to a Bermuda Triangle situation and then ending up lost at sea.
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Speaker 5: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.
Speaker 1: Bloomberg Audio Studios.
00:00:04
Speaker 2: Podcasts.
00:00:05
Speaker 3: Radio.
00:00:06
Speaker 4: News.
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Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.
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Speaker 6: We're going to get back to this.
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Speaker 7: Anthropic filing for its IPO to become the first frontier AI lab to list. Ed Ludlow joins us, Bloomberg Tech co-host here. Ed, the day has finally come for AI. This is their time to really get out there and talk the story. What do you expect to hear from AI when they go on the road to sell this monster, monster IPO?
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Speaker 8: Yeah.
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Speaker 9: I mean, it's probably easier to start with the things that are missing from the S1. The obvious things, because they never are in the S1 when it's public, is the size of this IPO and the target raise. But what was interesting as well is, like, there aren't any really contemporaneous financials. There's no Q3 numbers.
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Speaker 6: They're out there.
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Speaker 9: They've been reported. I think what's amazing in the document, and you know as well as anyone, Paul, right, the boilerplate does a lot of work. So the risk factors, the language they have to put in these– But the really simple story is Anthropic has presented massive, incredible growth through to the first half of this year or the nine months through September 30th. But there could not be a starker warning that that growth won't continue for lots of reasons which we can get into. And so when they hit the road, you know, they're going to need to sort of explain the positive on that, the upside on that.
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Speaker 3: Very much big risk, big reward kind of thing.
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Speaker 7: Yeah.
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Speaker 3: They're determined, it seems, to go public this year. What does that say about their need for capital, Ed?
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Speaker 9: Yeah, I think what's interesting is they have minimum contracted spending commitments of about $ 250 billion. Those are the things that they are absolutely on the hook for. But the way that they explain this is that they have operated in an environment historically where they are compute constrained. In other words, they cannot get access to the level of computing power that they think they need to to service the current demand for their products. And so if you go through, whether it's with Amazon, Google, SpaceX, Broadcom, AMD, the number is actually far greater than $ 250 billion in what they've lined up to have access to. But the issue is that they, and they say it again in the risk language, they are asking the cloud computing providers to give them more than those cloud computing providers are willing or able to do. And that's an interesting thing. So the capital, they did a huge round in May, right?
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Speaker 1: And we don't know what.
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Speaker 9: They're going to try and raise in this IPO, but it's there long term. It's not just they need it right now.
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Speaker 7: So one of the key things for an IPO, Ed, is the quality of management.
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Speaker 6: You're really betting on management. What do we know about this management team at Anthropic?
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Speaker 9: Yeah, so basically things stay the same. Dario Amodei stays on as the CEO. Daniela Amodei, who is his sister, remains in the role of president, but also chair of the board. There is a long-term benefit trust, which appoints the majority of board members. And then there is an issue of control. which we are learning about every day in the world of technology recently. When you look at what Meta did with its Class C shares. Anthropic has a group of seven founders. And each of those founders, those founders collectively will net out with 50, 5, 0.1% of shareholder voting power. And there are some stipulations about the common stock they have to hold to do that. But that is a really interesting outcome when you also take into account that this is a public benefit corporation structure, right? And that Anthropic has other philanthropic goals and societal goals that it's trying to meet while still being a public company with fiduciary duty to its shareholders.
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Speaker 3: And if you're open AI, what are you hoping to learn, not just from this S1 filing, but from the roadshow, the investor roadshow that Anthropic is about to go on?
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Speaker 9: You know, Scott, you're the first person to ask me that, which I'm surprised about. Like, I thought this would come up sooner. And the answer to your question is, well, what did Anthropic learn from SpaceX's S1? You know, if you think about when SpaceX flipped the S1 in May, they decided to go with this just out-of-this-world total addressable market number.
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Speaker 1: Of $ 26.
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Speaker 9: 5 trillion specifically for AI. Anthropic did not... put any total addressable market number. They had some brief commentary about how in 2025, they felt the value, the economic value of knowledge work from AI was about 40 trillion. So they've resisted the urge to say, here's the future that we see too much. I think going into this, all signs point that Anthropic is going to try and do this IPO by Thanksgiving. But my understanding from the companies and from the investor base is that OpenAI was pretty calm about the idea that Anthropic would go first. and the open AI would be at some point in 2027. You know, there's a chronology to it. What did they learn? Maybe how to choose your risk language.
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Speaker 3: Exactly.
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Speaker 10: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.
00:05:33
Speaker 1: The anthropic S1 filing finally dropped.
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Speaker 11: Boom.
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Speaker 1: And how many pages was it? I don't know.
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Speaker 6: I haven't seen it yet. It's still printing.
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Speaker 3: Okay. Still printing, but we know that the risks section is really long and it includes things like existential risks to humanity, including attempts to resist shutdown and conceal or manipulate information.
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Speaker 1: I mean, you could write a book on this already on its own.
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Speaker 3: Michael Shepard, he is our Bloomberg News Senior Tech Editor joining us right now. Michael, what do we need to know about the S1 filing from Anthropic, short of the risks section.
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Speaker 1: Just let's start with the business first.
00:06:09
Speaker 11: Let's look at the top lines in all of this. And for our audience, of course, who is leading this IPO? Well, Goldman Sachs Group and Morgan Stanley. There are 20 other banks involved. The filing shows The timing on this, we've been told to expect a formal marketing of the IPO to begin as soon as the week of November 9. Anthropic is really trying to get this done before the end of the year and, in fact, before Thanksgiving. So this is the timetable that they're on. And it's happening, of course, even during this time. moment of, let's say, churn and turmoil surrounding the AI trade and AI market and all the concerns that maybe some companies are taking on a little bit too much debt and too much risk in trying to deploy the technology. But anthropic a pioneer in developing those models is forging ahead. They emphasized, of course, that, yes, we talked about the risks, but they also pointed to their business. They reported having $ 16. 3 billion in revenue for the first six months of this year versus a loss of $ 80. 7 billion in that same period. Now, When you look back to the comparable stretch just a year earlier, they had a $ 13 billion loss on just $ 1. 2 billion in revenue. So we really are seeing the trajectory of the business growing very fast, and that also points to why they may want to get to market sooner rather than later.
00:07:46
Speaker 7: So the company's not making money. Has management said when they expect to be profitable? Have they indicated that yet?
00:07:54
Speaker 11: It's unclear from the filing exactly what that timing is. And as they market this to investors, we may get a clearer picture of that. There were sure a lot of caveats in this, as Scarlett alluded to in the risk section about all the challenges. that they could face in terms of their ability to deliver on the promises of their product. And it really depends so much on the infrastructure that they need to do all the computing to continue to advance their cutting edge or so-called frontier models. And the risks are not only the safety ones that we've been talking about, but being able to build all those data centers that are needed to run the models. And they even point to the risk of opposition there.
00:08:39
Speaker 3: So being able to build all those data centers means they're going to have to spend a lot more money. And that's partly why they're moving forward with this IPO. What do we know about how much debt or how much debt is willing to take on?
00:08:51
Speaker 11: Well, that's another great question. And they did point a little bit to debt in the filing. They said that, well, to go back to their spending on computing power, they had put nearly $ 9 billion toward computing power and infrastructure for the first six months of this year. And that's almost a fourfold increase from the year earlier. So it just gives you an idea of of what, um, you know, the investment that it's putting out and, you know, really, uh, in the filing, they also talked about just how much they've expanded their agreements for computing power. And some of these include a substantial amount of debt, minimum obligations in these, uh, computing power agreements of $ 417 billion. And those agreements, uh, will carry out through, uh, As you know, as long as 2046, some of these are very long term. They talked about their debt. They said their total debt is six point two billion as of June 30th. And they do have a revolving facility above. to $ 15 billion. They don't have investment grade credit rating yet. So once they need that, they may be able to make that revolving loan unsecure. But that still hasn't yet for those who pay close attention to how companies structure their debt.
00:10:18
Speaker 1: Stay with us.
00:10:19
Speaker 10: More from Bloomberg Intelligence coming up after this.
00:10:25
Speaker 9: This is Bloomberg Intelligence with Scarlett Fu and Paul Sweeney on Bloomberg Radio.
00:10:32
Speaker 7: All right, Scarlett Philp, Paul Sweeney, we're live here in our Bloomberg Interactive Broker Studio in New York City.
00:10:36
Speaker 6: We're streaming live on YouTube as well.
00:10:38
Speaker 7: All right, two years after Donald Trump's promises to bring down the high cost of living helped him get elected to an historic second term, his failure to deliver has disappointed many of the supporters he won over.
00:10:52
Speaker 1: And that is the.
00:10:52
Speaker 7: Subject of our big take story today on the Bloomberg Terminal. Mark Nickette joins us here. He's a real economy reporter. for Bloomberg News. What is a real economy reporter covering the intersection of government and politics and the economy? And boy, with the midterm elections a week from tomorrow, that is spot on here. Mark, thanks so much for joining us here. How much is this economy characterized by very good economic growth, full employment, but very high inflation? How much is that going to be a problem for the Republicans here in this midterm?
00:11:28
Speaker 8: I think it's driving a lot of the campaigns, particularly in these tossed-up Senate races, because the focus that voters have is all on high prices and affordability, even with, as you mentioned, the solid job market and booming stock market. I mean, it's sort of an interesting dichotomy where we have sort of strong economic growth and positive economic indicators.
00:11:55
Speaker 5: But in particular, the.
00:11:57
Speaker 8: High prices for gasoline and diesel are really driving negative consumer sentiments and backlash really against Republicans because of Donald Trump's promises to bring down prices on day one if he was elected to a second term.
00:12:15
Speaker 6: And it's interesting.
00:12:16
Speaker 7: I mean, it must be frustrating for the Republican National Committee. I always highlight that because some of his policies are direct contradiction to that. Thinking simply about tariffs. Obviously, most economists say that is a tax on the U.S. consumer, higher prices to some degree. And then starting a war in the Middle East, which not unexpectedly drives up the cost of energy on a global scale. How is the president trying to kind of work around those issues?
00:12:45
Speaker 8: Well, he's been really, as far as the war is concerned, been really focused on the message that prices are going to come down quickly once the Iran war is settled. He's been doing rallies almost every day leading up to the midterms and essentially saying the same thing, that sure, your gas prices might be high now, but one, it's a small price to pay for denying Iran from getting a nuclear weapon, but also that prices are going to come down really quickly. The problem, of course, is that the conflict has continued much longer than the administration promised at the beginning, at the outset. And there's even concerns that we'll see an escalation in fighting after the midterms. So it's sort of a tough needle for the president to thread because on the one hand, he can talk about prices coming down once the conflict is resolved, but there's no clear indication of when that's going to happen. And meanwhile, consumers are seeing high prices at the pump, you know, every day when they drive past the gas stations.
00:13:54
Speaker 2: Yeah, absolutely.
00:13:55
Speaker 7: So, Mark, we've seen President Trump pretty aggressively out on the campaign trail on a daily basis over the last several weeks, and the expectation now will continue through Election Day. What are the folks down ballot? How are they embracing the president? How are they using the president, given that his polling numbers are so low, given that many of his policies have driven up pressures here?
00:14:17
Speaker 8: It's kind of a difficult balancing act, particularly in states that have toss-up Senate races or these, you know, really competitive swing congressional districts. Because on the one hand, the Republicans need strong turnout from the Trump supporters in particular and the Republican base in general. So, you know, they don't want to distance themselves too much from Trump because they need sort of Trump's help to get their voters to turn out. On the other hand, Trump's also a motivating factor on the other side in encouraging Democratic participation, if nothing else, to put a check on the final two years of the Trump administration. And there's been a push by some Republicans in these competitive districts to sort of back away from the Trump or at least not emphasize their connections to Trump or even, you know, promoting their willingness to oppose the president if they think that will help them in these districts with, you know, independent voters.
00:15:21
Speaker 7: And Mark, in this story, you guys interview a gentleman in McAllen, Texas. He's on his lunch break from a retail job. And his quote is, I thought stuff was going to get cheaper and that life was going to be better, but that never happened.
00:15:35
Speaker 6: End quote.
00:15:36
Speaker 7: How common is that kind of thinking in different parts of the country?
00:15:42
Speaker 1: It's pretty common.
00:15:42
Speaker 8: It's pretty common among different demographic groups. We looked at demographic groups that had big swings to Donald Trump in 2024 from 2020, primarily Latinos. low-income voters and.
00:16:02
Speaker 2: Young voters.
00:16:03
Speaker 8: And we saw a big shift, I think, of those voters to Trump because of the economy, the expectation that, or the belief at least, that Trump would be better on the economy than Kamala Harris. And also, you know, Donald Trump was promising throughout the campaign that he would bring down prices immediately and fight inflation. So while these voters swung to Trump in 2024 because of the economy, their disappointment in the fact that prices have not come down is sort of driving them away from Republicans this cycle.
00:16:36
Speaker 6: Stay with us.
00:16:37
Speaker 10: More from Bloomberg Intelligence coming up after this.
00:16:43
Speaker 5: You're listening to the Bloomberg Intelligence Podcast.
00:16:46
Speaker 1: Catch us live weekdays at 10 a.m.
00:16:48
Speaker 5: Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, I.
00:16:58
Speaker 7: Took my first cruise on a Viking cruise ship. Had a good time on the Sun River. I think we actually put a deposit down for something else.
00:17:04
Speaker 9: Wait, really?
00:17:05
Speaker 6: Yeah, I think so.
00:17:06
Speaker 1: When did you do that? Like a day in, towards the end?
00:17:10
Speaker 6: After, I think.
00:17:11
Speaker 1: Oh, okay.
00:17:11
Speaker 6: But yeah, so anyway, so we're locked in again.
00:17:14
Speaker 1: He's a lifer now.
00:17:15
Speaker 6: So I guess.
00:17:16
Speaker 7: The other person I know that knows this cruise business and appreciates it is Jody Laurie. She's a senior credit analyst for Bloomberg Intelligence. She follows all these consumer-facing kind of fun companies, think casinos, hotels, cruise ship lines, all that kind of good stuff. They need capital to grow.
00:17:31
Speaker 6: That's particularly the case for these cruise liners.
00:17:33
Speaker 7: Jodi, thanks so much for joining us here. Talk to us about Norwegian cruise lines. I know you keep close tabs on that credit profile. What are you seeing from Norwegian?
00:17:43
Speaker 4: So I think, Paul, the thing about Norwegian is that they've been lagging. their peers in terms of the deleveraging story. So you talk about Viking, they have some of the lowest leverage in terms of debt leverage across the board. And by this, we mean is that management took the strategy of trying to grow margins, grow EBITDA in order to delever as opposed to actively repaying debt. And that sort of put them in a little bit of a challenging situation, you know, especially for someone like Norwegian, that's a When they're cutting costs, you sort of wonder what kind of quality service they have as a result.
00:18:24
Speaker 3: Whoops, didn't press the mic in time. So how do they move forward with that kind of situation? How do you see them using their financials to their advantage?
00:18:34
Speaker 4: So, Scarlett, I think the challenge is what are they going to do next?
00:18:39
Speaker 2: And something that we.
00:18:40
Speaker 4: Did as an exercise a few days ago was looking at Norwegian and comparing it to Caesars. And you think, okay, gaming company versus cruise line, yes, there's gaming on cruises, but what do they have to do with one another? Well, in fact, we actually see that their stories are a little bit similar in a lot of ways.
00:18:58
Speaker 2: You know, they're operators within a very sort of.
00:19:02
Speaker 4: Al Gopli kind of industry, right? You know, you have a couple of key players. They've been lagging their peers. Both of them have been beating the drum on deleveraging, on improving their balance sheet, but haven't quite hit the mark. And now Caesars is getting taken private by Fertitta. or potentially taken private, you know, it's moving along. And Norwegian, you know, is also a company that was private at one point.
00:19:26
Speaker 2: They are lagging.
00:19:28
Speaker 4: They now have a new CEO and you sort of wonder, okay, what are they going to do next in terms of the company? They've been selling off assets. They've been entering into these charter agreements as well to increase their cashflow and to get a little bit more creative with their balance sheet. But I'm not quite sure what that means for Norwegian short-term and long-term.
00:19:49
Speaker 2: Talk to us about it.
00:19:50
Speaker 7: Just the fundamentals of the cruise business in general. Like, John, you'll appreciate this. I did take the free, you know, all the booze included option.
00:19:58
Speaker 3: Oh, you definitely have to do that.
00:19:59
Speaker 6: You know, I cost Viking a lot of money on that one.
00:20:02
Speaker 7: They're going to have to talk about that in their quarterly results. Talk to us about the fundamentals just of the cruise business in general. It seems like the demand story Remains pretty darn strong, but boy, the feel's got to be a big issue for them.
00:20:13
Speaker 8: Yeah.
00:20:13
Speaker 2: Yeah, Paul.
00:20:14
Speaker 4: I mean, you know, taking the beverage package, if you like to drink quite a bit, does help you.
00:20:21
Speaker 2: But, you know, most people, I don't know if you could hit the mark, but I'm just kidding.
00:20:26
Speaker 4: So in terms of costs, in terms of, you know, appetite, we are seeing that bookings are still very strong. We've seen a few blips along the way as a result of the Iran war, as a result of fuel prices, as a result of consumers just getting a That said, we've seen momentum still in bookings. The exception being the Norwegian brand management made a comment that it's lagging what they expected in terms of bookings. And I think that's problematic when you compare that to even Viking or Royal or Carnival that have been communicating that bookings have been rather strong. From a fuel perspective, it really is a difference of stories among the companies in terms of strategies. Some of them, such as Royal and Norwegian, are both at least partially or fully hedged for what they expect to spend. Some of them Like Carnival, it's a little touch and go depending on the situation. And so that does definitely creep into it, but they do benefit from this onboard spending that creates a cash flow to offset some of it.
00:21:31
Speaker 3: So when it comes to the bookings out in advance, what prompts customers to cancel some of their bookings? I know that they book out a year, maybe a year and a half out. Do we have a track record of how often people say, oh, I can't actually go on this or I'm going to delay this?
00:21:49
Speaker 2: So a good portion, Scarlett, actually will go on their cruises.
00:21:53
Speaker 4: You know, people who book cruises in advance say, I'm going on this cruise. The only reasons why it will change is obviously if they have a personal situation or if the cruise company has to cancel that specific charter. Now, what the cruise companies try to do is they encourage onboard or they encourage a credit as opposed to a full cancellation, right? A lot of the times past a certain point, you only get a partial refund back. But even if you do get a full refund, a lot of times the companies will say, well, actually, how about you just rebook to a different cruise? We do have examples, especially this weekend, of situations that went a little bit differently, such as the cruise that was supposed to go to the Bahamas and the weather caused them instead to go to Canada. And the cruise companies will make it right by giving you some onboard credit. Now, of course, going to Halifax isn't as luxurious as going to, say, Grand Cayman or the Bahamas or what have you.
00:22:47
Speaker 2: Some are warm.
00:22:47
Speaker 4: But I would probably venture to guess that most people are grateful that they're not going to a Bermuda Triangle situation and then ending up lost at sea.
00:22:55
Speaker 5: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.
