บทถอดความฉบับเต็มของ Nvidia Probe Into CEO Affair Raises Thorny Questions for AI

investments and perhaps through the next earning cycle, even though to some extent investors are getting weary of the big capex numbers that these hyperscalers are posting. If the narrative is around diversification away from NVIDIA, then perhaps now that's going to seem like a good investment. 00:03:18 Speaker 6: I mean, we pretty much know that Jensen Huang is going to be very distracted by the unraveling of this announcement. We already know that Key House Republicans last week requested a briefing with Jensen Huang to talk about all of this, his relationship with this alleged spy. With him not out of the picture, but certainly distracted, who in the industry takes his place, Matt, as kind of the proselytizer of A.I. 00:03:45 Speaker 1: Good question. 00:03:46 Speaker 7: I mean, I guess it's going to be a multitude of people, you know, clearly in the near term. Some of the spotlight is on the likes of Anthropic and on OpenAI and their leaders, perhaps Elon Musk to a degree, perhaps Google. So maybe it's not going to be one single personality, but it's going to be the industry as a whole. And maybe some of these people that have been standing there shoulder to shoulder with Jensen in a lot of these kind of big public forums, not least with President Trump, they're going to perhaps step into the limelight a little bit more. 00:04:22 Speaker 1: Elon Musk is certainly divisive if we're going to look to him as the ambassador, right? 00:04:26 Speaker 2: Yep, exactly right. Matthew, I guess the question is when we hear from some of these tech companies coming up here, where are we with the AI and spending? I mean, do we have any sense that these hyperscalers are going to pull back at all, whether it's because of a Change in Washington, D.C. congressional leadership or maybe this issue with NVIDIA. 00:04:47 Speaker 5: Any sense that they're going to pull back? 00:04:50 Speaker 7: Oh, it doesn't seem that way so far. I mean, even though the share prices reacted negatively in the most recent updates, many of those companies were still indicating that year on year, 2027 would be a bigger spending year than 2026, which is already a huge year. Now, maybe it's going to be that actually, even if the appetite to spend more is there, that perhaps these companies The greater regulatory and policy friction we might get out of Washington is going to limit their ability to spend as much as they want to. We saw that to some degree in the most recent quarter from memory. Microsoft in particular posted a lower than expected CapEx number, not because it didn't want to spend the money, but because There were delays with some of the projects that was planning to put into place. So, yeah, you know, I still think that the appetite is there. It's more going to be external forces that might constrain them if there are any constraints. 00:05:52 Speaker 1: Matt, if you were China, what would you be doing right now? 00:05:56 Speaker 6: If you have this opportunity to kind of,

you know, game out. what you're going to do, how you're going to develop your industry with Jensen Wong now clearly distracted and perhaps not able to advocate for selling more chips, advanced chips to you, what would you do? 00:06:14 Speaker 7: I think China has always kind of played a very long game. They've already kind of shied away from using too much of the NVIDIA technology stack and been promoting their own internal industry. I think I would imagine they'll be encouraging their own domestic industry to kind of double down, produce their products and look for international markets for them or perhaps see it as a bit of an opportunity in those markets. markets that are open to taking things from China or the U.S. and don't really kind of necessarily respect any kind of sanctions that are out there. So, you know, it's clearly an opportunity for them. 00:06:53 Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this. 00:07:00 Speaker 4: 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. 00:07:15 Speaker 2: Let's stay on the NVIDIA story a bit more from the investor perspective. Michael Monahan joins us. He's a portfolio manager and principal of the Founders 100 ETF. This is an ETF that focuses on investing in companies where the founder is. is still very active in the company, and that would certainly include NVIDIA. Michael, thanks so much for joining us here. As an investor, that really places a lot of value on founders and their ongoing involvement in the company. What do you make of this NVIDIA news? 00:07:46 Speaker 8: Well, as you know, we invest solely on founders, and we think that the founders' vision, execution, and grit is very important. Based on the information that we've seen so far, we're supportive of Jensen and We certainly don't see any reason why Jensen won't be the CEO in the short, medium and long term. Obviously, we'll have to wait and see and get the full report from the board and outside legal counsel. 00:08:10 Speaker 9: But at this point, you know, certainly it's some headlines. 00:08:15 Speaker 8: But given how fast the news cycle moves, we think as quickly as the November 18th congressional hearing, this could be moved on and put behind us. But again, we don't have all the information and we'll all have to wait and see. 00:08:28 Speaker 2: Right. 00:08:28 Speaker 6: But I mean, it brings up the question of key man risk and Jensen Huang kind of embodies that. This is someone who may not have a huge personal stake in the company, only 3.4%, but he runs that company. He's got 60 direct reports who rapidly implement his decisions. 00:08:44 Speaker 1: He has no successor in place. 00:08:46 Speaker 6: What's your level of concern that As he's focused on whatever congressional testimony he needs to provide over the next few weeks, he's going to be distracted and he can't run the company the way he has been. And there isn't a structure necessarily set up to keep the company running. 00:09:03 Speaker 9: Great question. 00:09:04 Speaker 8: And we think if it were to only take a few weeks, that would be really favorable. 00:09:09 Speaker 9: Unfortunately, I think there's risk it could take longer than that. 00:09:13 Speaker 8: The reality is this isn't the first time and it won't be the last time a large company has had its CEO terminated. and founder have to mitigate some external issues. We think that those 60 reports are likely highly qualified, highly competent people will be able to step in. If you really think about it, the risk for Jensen being distracted, he is the face and the key salesperson and the key dealmaker for the company. And certainly that part of his role will be at risk over the upcoming weeks. 00:09:46 Speaker 2: Generally speaking, Given that you place so much value on a founder, how do you typically look at succession planning in general? How does that factor into your process? 00:09:59 Speaker 8: So for our fund, we're so dedicated and disciplined to investing in founders only as our strategy in FFF that if a founder is to leave our process is to sell the stock. So we certainly don't want to see Jensen go. I think in any shareholder vote, we're quite supportive of Jensen staying. But in the unlikely scenario Jensen were to go, we would exit our position. 00:10:27 Speaker 6: Oh, interesting. So we know that you, like NVIDIA, that you see long-term value in it. We're going to get an earnings update from the company on November 17th. And as you mentioned, the closed door on congressional briefing shortly thereafter. What will you be listening for from the earnings call, separate from the questions that will inevitably arise about this latest disclosure, but when it comes to the business itself? 00:10:52 Speaker 8: You know, we'll want to see the update that we expect that, you know, we're still looking at another 70 percent earnings, excuse me, revenue growth for next year. 00:11:02 Speaker 9: We want to see that that's on track. 00:11:04 Speaker 8: But as you point out, really all that anyone's going to be focused on is what are we going to see post that November 18th testimony? 00:11:12 Speaker 9: Is that the end of this inquiry or is the inquiry over? drag on. 00:11:17 Speaker 8: I think until we get resolution on that, the stock's going to be range bound with some downside volatility, perhaps. 00:11:24 Speaker 2: I mean, there's a concern here, I would think, by a lot of shareholders that this could become very political very quickly. How do you discount that risk at this point? Or maybe you just don't have enough information because, again, the New York Times is reporting that the Commerce Department chip inquiry was halted after NVIDIA intervention. 00:11:44 Speaker 5: So you can see how this could get political pretty quickly.

00:11:48 Speaker 8: I think it's really important that you've pointed that out and is probably the key thing that we and other investors are looking at. Jensen certainly has some enemies within the China hawks. He has some enemies within the anti-data center crowd. And I think what we saw over the last couple of weeks is those two groups aligning to try and get leverage. And so the bigger question is, do we see that across both additional CEOs in the AI space and technology in a broader sense as well? 00:12:22 Speaker 6: Before we let you go, Michael, do you see any risk to the NVIDIA-tied, NVIDIA-affiliated companies that the company has really helped finance in many ways? 00:12:37 Speaker 8: I think we have to evaluate that risk. As you're pointing out, Jensen is the grandfather of artificial intelligence. NVIDIA sells into the entire ecosystem, providing all of the frontier models and also backing many of its customers, whether it being Neo Clouds, guaranteeing residual values of chip purchases. So I think we do have to be sober. to the fact that NVIDIA really is the leader and the guiding light in the entire AI complex. 00:13:17 Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this. 00:13:24 Speaker 4: 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. 00:13:37 Speaker 2: Our good friends at Berkshire Hathaway, Omaha, Nebraska. 00:13:41 Speaker 5: They reported numbers that were generally in line. They do it over the weekend. 00:13:45 Speaker 3: Why? 00:13:46 Speaker 2: Because they're Berkshire Hathaway. They can do whatever they want, I guess. 00:13:48 Speaker 10: Tradition. 00:13:49 Speaker 5: I mean, who else reports earnings on like a Saturday? 00:13:51 Speaker 3: Exactly. 00:13:52 Speaker 2: Stock down about 1% here today, but it's up about 12% a year today. So we want to talk Berkshire and Warren Buffett. We talked to Matthew Palazzola. 00:14:00 Speaker 5: He's a senior analyst. 00:14:01 Speaker 2: Covering the insurance space, including Berkshire for Bloomberg Intelligence. He joins us here in studio. Matthew, what's the read through here from Berkshire's earnings over the weekend? 00:14:11 Speaker 9: What'd you learn? 00:14:12 Speaker 3: Yeah, Paul. So the earnings were pretty in line with what we expected. The numbers came out. I sent my associate an instant Bloomberg message, giving myself a pat on the back of how close we were, given all the complexities. Then I looked deeper at the numbers, and we were close, but there was a lot of puts and takes. The insurance business, so my bread and butter... declined a lot. The earnings declined about 50%, but we expected that because Geico had been over-earning. But the underlying trends in that business were actually a little worse than I expected. So the insurance underlying worse, the rail and energy were better, the consumer-facing businesses, their retail businesses actually a little bit worse, but those are a smaller part of the company. 00:14:58 Speaker 6: So I want to focus on the insurance part of the business because there wasn't really any significant catastrophic events that the insurance companies had to really pay out. So what does it say that the insurance business underperformed at a time when things were fairly solid and the environment should have been decent? 00:15:15 Speaker 3: Yeah, good point and question, Scarlett. What happened is Geico. So Geico was, if you've driven a car over the past couple of years, maybe you know that Geico and all the insurance carriers raised their prices significantly. They did that in response to supply chain issues from COVID way back in 2020, and they overcorrected. So all of the auto insurance companies overcorrected and started over-earning Geico. So Geico was earning way more. The profitability is way better than it had been historically. And what they're now all doing is competing. So if anyone watches a football game, you'll probably see a lot more insurance ads because they're all competing for customers now. So what that means is Geico's profitability went from exceptionally good to still good. 00:15:59 Speaker 1: So they're lowering prices? 00:16:01 Speaker 3: Yes, but here's the pro tip. Don't expect your prices to just go down. You'll have to shop around. And if you do, I think you will get a lower auto insurance price because all of those companies are competing. 00:16:11 Speaker 9: Interesting. 00:16:11 Speaker 3: Good to know. 00:16:12 Speaker 10: Yeah. 00:16:12 Speaker 5: All right, here's the money question. 00:16:14 Speaker 2: How much money do they have on the balance sheet, and what are they going to do with it? 00:16:18 Speaker 3: A lot of money. A lot of beach houses on the Jersey Shore. So they had $ 357 billion about. That was down a little bit sequentially. They're... 6.8 billion acquisition of Taylor Morrison home builder did actually close in the quarter. So cash came out. They were not a big buyer of stocks in the quarter. So by 500 million, they were a net seller of stocks in the quarter, but it wasn't a real big stock move. They did buy back a lot of shares. So we expected them to buy back at least four and they bought back 9.6 billion of shares. So I think that was, that was the story. We get a 13 F next week, which will show you the stock moves, but unfortunately, I don't think that's going to be very exciting. 00:17:04 Speaker 6: So a lot of times people like Berkshire because it's kind of an anti-AI play. They invest in real businesses and physical businesses. Buffett used to like to say he doesn't invest in anything he doesn't understand. But under Greg Abel, the new CEO, they've started to move towards AI. The timing could not be worse. How much do we know about their exposure to AI and how that's likely to grow? 00:17:26 Speaker 9:

Yeah. 00:17:27 Speaker 3: Good point. So a couple of things. One, back to Geico. Geico is significantly underperforming bigger auto insurance peers in terms of technology. So as Abel took over, they undertook this. And so he took over the beginning of this year, but it's been ongoing, a kind of multi-year process to refine technology. systems and technology at Geico. And they've done that. I don't know how successful it's been so far, but they're through that process. And what Abel said is, we are using that as a repeatable process across businesses. And this is not something you heard from Buffett really a lot. Buffett was not a hands-on manager. Abel seems to be much more of a hands-on manager. Again, we don't have concrete. What I just told you is what they told us. We don't have much more detail, but they are deploying AI solutions across a lot of their businesses. Also, they have this large investment in Google or Alphabet. We ran some numbers on that and we'll refine them next week when the 13F comes out. But even with the sell-off in Google stock, it's probably about a $ 2 billion unrealized loss for them, which is, in the terms of their entire portfolio, not that much. 00:18:44 Speaker 2: What's Warren Buffett doing day-to-day as it relates to the company? 00:18:47 Speaker 5: Is he involved at all? 00:18:49 Speaker 3: He's retired. He's chairman Emerus. He's chairman for life, but he apparently still talks to Able, but he had notably stepped down from that actual chairman role earlier this year, which leads me to believe he's probably doing less and less. 00:19:05 Speaker 2: Do we know how he is physically or at all? 00:19:09 Speaker 3: He hasn't called me recently, but he's looked older in recent showings. He was at the last annual meeting. We didn't know if he was going to do or say anything. He did end up doing an interview in the middle of it. He's walking with a cane, moving slower. So he's 96. Yep, yep, yep. 00:19:32 Speaker 2: So is there any expectation that nothing's really going to change in the company until he passes, like releasing earnings on a Saturday or sitting on $ 350 billion in cash? Or, I mean, things like that. 00:19:44 Speaker 3: No dividends. 00:19:45 Speaker 9: Yeah, no dividends. 00:19:46 Speaker 5: Is that kind of the expectation out there in the marketplace? 00:19:49 Speaker 3: I think so, but... I would push back a little bit and say, Abel has been, he's been working, right? He's been deploying capital. We put out a note before earnings saying he has put, I think... half the capital to work in nine months that Berkshire did in the prior five years. 00:20:09 Speaker 1: Oh, good stuff. 00:20:09 Speaker 3: Yeah. So he is doing, he's doing stuff. It's just, it's not, he's doing the things, but they're not moving the needle all that much. 00:20:16 Speaker 1: So is he being tentative? He's just not making big, bold moves? 00:20:20 Speaker 3: I think it's a problem that we all wish we had. They literally have so much

money that it's hard to deploy it in a meaningful way. They've been buying back shares. They bought companies. 00:20:31 Speaker 1: It doesn't make a dent. 00:20:33 Speaker 3: It doesn't make a huge dent. The companies they bought have helped the earnings in the quarter a little bit, but it doesn't move the needle a lot. Are they going to buy something for... $ 80 billion or whatever. Maybe they will, and that will move the needle. But I think he's probably being cautious on that stuff. But otherwise, I think he's really showing a willingness to deploy capital. 00:20:55 Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this. 00:21:02 Speaker 4: 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. 00:21:17 Speaker 6: All right, let's talk a little bit about healthcare because Nancy mentioned that's an area she likes. Of course, the big news in healthcare is not just the change in congressional makeup, but also the announcement out of CVS that it is selling off or spinning off its pharmacy business. It plans to break up the conglomerate that it built up into. 00:21:37 Speaker 1: When it acquired CVS. 00:21:38 Speaker 6: A health insurance business, Aetna, and then also Caremark before that. Let's bring in right now Bloomberg Intelligence Senior Credit Analyst, Jan-Yves Kupin, to join us. 00:21:48 Speaker 1: He is in studio with us. 00:21:50 Speaker 6: Jan, you look at CVS bonds as opposed to CVS stock. What does the announcement to spin off the retail pharmacy business mean for the bonds? 00:21:59 Speaker 9: I think it means a lot. 00:22:01 Speaker 10: If we look back at the announcement, first of all, I think it came as a surprise. The company had, the new management team has indicated they wanted to keep the two businesses together, and now they're coming up with this announcement. It's important for the bonds because of the uncertainty with regard to the future financial profile of the group, whether the bonds will stay at the parent company or will travel to the spin co. And just to provide maybe a little bit of context, so CVS is looking to spin off its retail pharmacy business, and then they will retain the PBM and the health insurance of the managed care business. We looked at numbers and at potential capital structure for the group. In general, what happens, the spin-off company... incur some debt on its own, which we're thinking about, you know, three to three and a half times leverage for that entity, given that, you know, profits have been under pressure in recent years. As you know, they've recovered, but they're, you know, it's a sort of 4% operating margin, give or take. And then the parent will benefit from this, the debt that will be incurred at the subsidiary will be upstream through in the form of dividends to the parent,

and the parent will use that cash maybe to pay down debt. So that's, I think, the angle for bondholders, the bonds that could be repaid when the split happens later in 2008, as a company indicated. 00:23:29 Speaker 2: Talk to us about the credit profile of this company, pre-deal and kind of. 00:23:36 Speaker 5: how you think it might shake up post-deal? 00:23:38 Speaker 7: Yes. 00:23:39 Speaker 10: So pre-deal, I think we've seen an improvement. Leverage is about around four times now. It's come down from a high of five times in 2024. As you maybe remember, CDS had a pretty tough year in 24. Pretty much every businesses was under pressure, including the retail business. There was some profit squeeze because of the PBM reimbursement. So we are looking at a company which is give or take around four times leverage with some potential for improvement. Now, post-split, of course, there's a lot of uncertainty. We don't know exactly. The company hasn't commented on, you know, what will be the financial profile of both groups. But I think if we look at other spinoffs and, you know, management's indication that they are targeting a solid investment grade, that points to sort of mid to high BBB. And in this respect, I think what's interesting is that S & P opined recently a couple of days after the announcement, and they placed the ratings on review for upgrade, which is kind of a little surprising because of the lack of information that we have. I mean, Moody's, where I used to work before joining Bloomberg, took a much more prudent approach by, you know, adopting a bit of a wait-and-see attitude. 00:24:55 Speaker 3: But anyway. 00:24:56 Speaker 10: I think it's reasonable to expect that, at least at S & P, they will be looking at a new entity as an insurance company. And therefore, the methodology that they are applying is different and therefore will lead, as S & P indicated, to potentially two notches of rating upgrade. 00:25:15 Speaker 6: So this announcement from CVS came Wednesday morning at about 6 in the morning. And it kind of felt like a lot of people overlooked it because we were so focused on the election news. Was this timed, do you think, to the Democrats winning so big across Congress? I mean, is there a component of timing to this that you think is worth noting? 00:25:35 Speaker 10: I think no one could have probably predicted the outcome of the election, and I'm sure certainly not CVS as well. But I think what's interesting in terms of the timing is I think two things. Number one, both businesses are improving, an improving trend, and I think they will, it's probably the right time to consider a spinoff when the outlook is a little better. But also I think for maybe a pure PR perspective for the company, they are showing some goodwill that they are, you know, this business has been under political pressure because of the integration between the PBMs and the pharmacy and the health insurance. And I think it is showing that they are going one step towards maybe more transparency. 00:26:25 Speaker 9: I'm sure we will see more calls. 00:26:26 Speaker 10: And to your point, going forward, I'm pretty sure we'll see a lot of regulatory risk and Congress will probably look into PBMs and the relationship between PBMs and health insurers, which And also the lack of transparency maybe that some people have been upset about. So I think we are, my positive view on the bonds because of the potential for improvement might also be longer term. We could also see some pressure and headline risk. 00:27:00 Speaker 4: 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.