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00:00Alphabet, IBM, Intel, and Tesla, all reporting second quarter earnings in the coming days.
00:03With us now in studio from Washington, Nathan Hager, co-host of Bloomberg Daybreak, and
00:07Bailey Lipschelz with us as well, Bloomberg Senior Equities Reporter.
00:11Nathan, great to see you.
00:13Nice to be seen.
00:14Nice to be seen.
00:15I love that.
00:15For our radio audience, this is what I look like.
00:18The grand reveal did not disappoint.
00:21How about that?
00:22Nathan, just set the table for us here.
00:24There has been a lot of kind of anxiety and agita just about the AI spend.
00:28And what are we going to learn this week in broad terms from these companies?
00:30Well, I think one of the first things we're going to learn in terms of the CapEx is, I
00:34mean, obviously we've seen so much projection into how much of these companies, these four
00:40major hyperscalers are going to be spending over the next year projecting something like
00:43what, $725 billion.
00:45So when we hear from Google Parent Alphabet on Wednesday, I think that for a lot of analysts
00:49is going to be the big focus on how they set the table for when we hear from Meta, Microsoft,
00:55Amazon a week from now.
00:57It's a busy season.
00:58It's going to be a busy earnings season.
01:01You guys can't leave, okay?
01:02You're just going to stay here through the earnings season.
01:04We're going to lock you down.
01:05We had this Chinese startup, this AI startup Moonshot, started kind of all of this, but
01:10they are maybe eyeing a Hong Kong IPO after this big AI breakthrough.
01:14It's crazy how fast life changes.
01:15We just did this.
01:18How does that work?
01:19How big do we think it would be?
01:20And how realistic do you think that is?
01:21They're closing a funding round right now at $30 billion, so smaller relative to $1.75 trillion,
01:27which is what SpaceX went public at.
01:29I think we've been expecting DeepSeek, the other well-known Chinese AI company, is targeting
01:34an IPO in mainland China early next year.
01:37So it does seem like the kind of table has been set for these two companies to raise money.
01:41But kind of keeping in mind, $30 billion private round, $70 billion private round, even if
01:46they raised large IPOs, and those would be big IPOs in a normal year, when you compare
01:50that to SpaceX's $86 billion IPO, and you compare that to what we're expecting from Anthropic
01:56and OpenAI, it's kind of small potatoes.
01:58And again, it's also a very different market.
02:00It's the opposite.
02:01As Nathan was mentioning, it's an opposite market where you say, okay, meta, Facebook, or
02:05meta is Facebook, meta, Google, Alphabet.
02:07I do that all the time.
02:08It's okay.
02:08When you're expecting these big companies with big checks.
02:10Yeah, absolutely.
02:12Bailey, somebody said something to me last week that stuck with me, and that is, with
02:15China, you've got a closed state that has a very open approach to AI, and here it's
02:19the opposite.
02:20You've got an open society, and yet these kind of closed-off companies that are doing all
02:24the pioneering work on AI.
02:26How does that manifest itself just in the way you see AI's development going forward here?
02:30When you look at a company like Moonshot versus Anthropic or an open AI?
02:34The argument, David, when you look even at the cost of tokens or the cost of performing
02:38kind of menial tasks, it's so cheap, and it becomes kind of this overarching debate between
02:43the U.S. and China is, is there a race to the bottom?
02:46And kind of the pitch going back to that deep-seek moment a year and a half, two years ago,
02:50that
02:50was kind of an, oh, wow, they're able to execute just as well, if not better, on a lot of
02:55tasks
02:55for a small fraction of the price.
02:57There's still a lot of uncertainty around what chips are actually performing these products,
03:01so you have to keep that in mind.
03:02But when you think about this potential future of AI, the debate here in New York, the debate
03:08probably in D.C. and around the world is, do you want companies like Bloomberg or others
03:13using Chinese models, or would you rather use an Anthropic or an open AI product?
03:19And I think that's a big debate.
03:21Is cheaper better if you're utilizing it for important tasks?
03:25But, Nathan, this goes to the other issue, which is, can you really monetize these products?
03:30And if you're competing with an open-source format, this is, like, the big thing that people
03:34are whispering.
03:35What is the answer to that?
03:36I know we don't know, but also, why are you seeing that hesitancy or even that questioning
03:40really reflected in the enthusiasm for these massive ideas?
03:42And it certainly gets into the question of, you know, why these hyperscalers are spending
03:46so much money, projecting so much.
03:48We saw just in the first quarter after Google reported then, I'm calling it Google, it's Alphabet.
03:54Alphabet projected something like $190 on the top side, a billion dollars that they're
03:59going to spend in CapEx, a huge chunk of that $725 billion number, if on Wednesday we hear
04:05from Google that they're going to project it even higher.
04:09What does that mean in terms of, to your point, whether they should be going for something
04:13like a cheaper model?
04:14And then to the question about whether the government is involved in this, how much of
04:20the parameters can be sort of...
04:27It's also interesting to me because when you look at...
04:31Think about your iPhone, right?
04:32When you look at the development of these smartphones, at first you had a bunch of different competitors
04:36and it was Apple that made it open source and made other developers able to access the
04:40code so that they could put apps, so they could put it on the phone, and that's the one
04:43that took off.
04:44And you would think that that had been a proven business model, but go ahead, Bailey.
04:47No, that just becomes the underlying debate, though, that we're seeing in this market right
04:51now is, are you better off overspending, something Google and Meta have been vocal about?
04:55We'd rather overspend than underspend and lose.
04:58And to that point, the big question, five years from now, three years from now, 10 years
05:01from now, is this similar to Cisco building the internet?
05:05Is this going to lay the groundwork for companies to come in and make a lot of money?
05:09Because yes, you do have companies that were around in the dot-com bubble that fueled kind
05:15of this technological shift, but what does an open AI or an anthropic look like?
05:19And what companies are we not even discussing now that are going to come out of these?
05:22Well, it gets to the question as I was, when I lost my train of thought, when I was thinking
05:26about whether, you know, China is potentially taking some of the technology that some of these
05:33American companies are building, whether the federal government wants to try to stop that
05:37as well, getting into the difficulties of regulating these Chinese models and having
05:47them potentially be stolen by American, or from American companies.
05:51Yes.
05:52Bailey, you've been living through the undulations in the chip sector last week, and we saw that
05:56sell-off by the end of the week.
05:59What's the messaging from them, from these chip companies in specific?
06:02It seems like there's kind of a relentless optimism to them.
06:04It's fine.
06:04Everything's fine.
06:05It's a little meme with the guy.
06:06Everything's fine.
06:07Everything's fine.
06:07And how are investors processing that?
06:09I mean, they say that there is demand.
06:11They're making strides to fulfill that demand.
06:12And yes.
06:13It pays to be optimistic.
06:15The big question comes back to, when does this chip bottleneck no longer exist?
06:20And David, I think the bigger thing to keep in mind when we look backwards to look forward,
06:24Taiwan Semi crushed their earnings report.
06:27They gave terrific guidance, and the stock was down tremendously, on top of falling 12% before
06:32the print.
06:33So this is an environment, as we would talk about on our desk calling it,
06:36price to perfection, where the bar is very high, and you're looking at a semiconductor
06:40index that's up over 100% still in the last 12 months after a 20% pullback.
06:45So Nathan and I were talking about this on Friday, and it's kind of a question of, okay,
06:49well, what does a good print look like that actually drives stocks?
06:53Yeah, and that's the thing.
06:54I mean, Intel is up over 150% year to date.
06:57And if Intel is potentially getting some of the spend that IBM in their preliminary results
07:04was saying that we didn't catch, that some of this shifting spending was going to be
07:08going to chips and AI data servers, whether Intel can grab some of that.
07:14If it doesn't reach that high bar that's already priced into the stock at 157% plus, is there
07:20going to be potentially some profit taking?
07:22I also wonder, as you look at these huge CapEx expenditures, when it comes to competing
07:26with China, that is a place that can do things very differently, especially when it comes
07:30to investment and with energy.
07:32How big is the price of energy going to start factoring into where people think they're going
07:36to pick winners and losers here?
07:37I think it's already playing out.
07:38And we're looking at a market that's trying to, and has been spending the last few months
07:41thinking about what does, again, 2030 look like if we're already betting on the companies
07:47making these chips.
07:48Is it nuclear?
07:49Is it geothermal?
07:50How can we address the energy bottleneck?
07:52Because right now we're dealing with semiconductors being a bottleneck.
07:55Well, the next step will be, how do we actually address powering these?
07:59And China has really diversified its energy in a top-down way.
08:02That we haven't really done here in the U.S.
08:04Bailey, I want to ask you about SpaceX, if I could pull an audible here.
08:07We have seen that stock really come down precipitously since the debut.
08:11I've been thinking of Newton's third law.
08:13I mean, what goes up must come down, I guess.
08:15And we're kind of seeing that in real terms here in the stock price.
08:18What explains that?
08:18A dose of realism on investors' part?
08:20That what they were sold at the beginning might not be coming to pass?
08:23Or it's unlikely that it would be guaranteed to come to pass?
08:25What do you make of the sharp downturn that we've seen?
08:27I guess a trillion dollars wiped off the market cap there in recent days.
08:30No, if you look at the chart, it looks a lot like Cerebros, which went public a few weeks, month
08:34and a half before.
08:35And there's a lot of excitement around the IPO.
08:37People are on social media talking about it.
08:39Everyone at a dinner party.
08:40A lot of funbo.
08:41You don't want to miss out on it.
08:42When I was at my grandma-in-law's birthday party, everyone was like, should I buy the IPO?
08:47And I'm like, no.
08:48Wait, really?
08:48I don't give investment advice.
08:49It doesn't give advice.
08:50No, 100%.
08:50Bailey, let's just not give investment advice.
08:51I do not give investment advice.
08:53But there was so much excitement.
08:54And then you kind of step back and say, we're in a market right now that we've seen a pullback.
08:58So if you're an investor and you're selling Micron or you're selling Intel, SpaceX gets a lot more difficult to
09:05justify a $1.75, $2 trillion valuation.
09:07So naturally, you'll take some chips off the table.
09:09We haven't seen a true fundamental change to the underlying thesis.
09:12Starship delay was small on the margin.
09:15You should see a typical pullback.
09:17But that's not really – shouldn't equate to a 35% pullback.
09:20The big question now is, is this a company that is going to deliver news flow between now and their
09:26first earnings report, sometime likely next month, and then an unlock of hundreds of billions of dollars of shares?
09:32No one knows what that looks like.
09:33So you have short sellers betting that the company will either – at least the stock price will continue to
09:38go down.
09:38And then you have just the uncertainty around the next Starship launch and uncertainty around what the earnings looks like
09:45on top of an unlock.
09:46There's a lot going on there.
09:48Nathan, we've got about 30 seconds before we let you go.
09:50Intel, IBM earnings this week.
09:52What do we expect?
09:52So IBM, as I said, mentioned that they were surprised or caught off guard by the shift over to chip
09:59and AI spending.
10:00The question for Intel is, do they draw in some of that spending as well and potentially overperform later on
10:06this week?
10:07And IBM really punished for that over the last week.
10:09Down 20 – not since the Nixon administration.
10:12Wow.
10:12We've seen a drop.
10:13There you go.
10:14There's a lot of Nixon-ing in the news recently.
10:17It's rare for us to be able to say that.
10:18It's like a third Nixon-related headline I've heard.
10:20Did I miss Nixon-maxing earlier?
10:21Nixon-maxing, that's what I was referencing.
10:23We will not be Nixon-maxing here on set, but I do appreciate you both coming in on a Sunday.
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