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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. We are focused on the meeting later today between Donald Trump and Chi Chen Ping. These leaders are set to finalize call it a detante as they meet on the sidelines of the APEX Summit in South Korea, and this will put the trade war between the US and China on hold, at least for now. Initial signals seem to indicate an agreement. Here's Bloomberg sherry On.
We're expecting President shigm Paint to arrive here in South Korea. He'll be arriving the city of Pusan, just half an hour ride from where we are hearing in Koonju. Now, this is his first trip to South Korean in eleven years, and is also going to be the first in person meeting with President Trump since twenty nineteen. We're expecting a trade truce between the two largest economies of the world, perhaps something along the lines of purchase agreements on soybean's,
perhaps something around critical minerals. But President Trump said that he'd be open to providing China with access to Nvidia's Blackwell AI processor as part of a trade deal that would be a major concession. Of course, it's really been about those concessions coming from Washington.
That is Bloomberg sherry On. Now. The other big story we are tracking has to do with big cap tech earnings after the bell in the US, we heard from Microsoft, Alphabet and Meta Platforms for some reaction. I'm joined now by Daniel Newman. He is the CEO at the Futurum Group. Daniel, thank you so much for making time to chat with me. So much going on in markets. I'd like to focus on the earnings first that we had after the bell.
We heard from Microsoft, we heard from Alphabet and Meta Platforms, somewhat different stories, but I think the commonality here is the fact that these companies continue to build out AI infrastructure. At what point does that become a concern for you?
For me, it's when the growth stops. One of these CEOs understands something that those that are continuously saying it's a bubble or that this thing is going too fast, is that this is the existential moment for these companies. Mark Zuckerberg's done this before. He made a bet on the metaverse that didn't yet pan out, and so people
are kind of skeptical of his decision making. But if you actually look at the value he's brought to shareholders over time, he's continued to bring growth and the numbers overall were very good. That one time charge related to the taxes, that non cash charge threw a lot of people off. But if you actually if you actually credited for that, they actually beat on the top and bottom line. But if you listen to Amy Hood and Sati Inadella, if you listened just under Pachai, and if you listen
to Mark, they're all saying the same thing. We have constrained. We need more energy, we need more data centers, we need more AI compute because their plans of how they want to build their businesses and deliver to the future require this.
So you were at the Nvidia conference in Washington, d C in the last day or two, and I'm wondering what you took away from what Jensen Wong had to say.
Well, Jensen delivered his best keynote at a GtC so far. It was crisp, it was clear, it was tight. He had the partners aligned, he had the growth story aligned. But he really put one number out that I think sent that parabolic move that brought the company's market cap over five trillion dollars, and that was when he showed that he had visibility. By the end of twenty twenty
six into a half a trillion dollars in revenue. Basically every one of those CSPs that we just spoke about, all of these partners He had partnerships with Service Now, with CrowdStrike, with pal Andeer, he announced a big partnership with the Department of Energy, all of them boring investment building products on the Nvidia platform. And this just shows that there is so much momentum here. But the other thing Doug that I thought was really important was the
diversification through all these partnerships. He went into quantum, he went into physical AI and robotics, into you know, of course the traditional data center, the edge computing, and autonomy and vehicles. The business of AI is so much bigger than just the data centers. But what people have to kind of realize is it has to start there. It's like the brain of all of this buildout starts with these data centers and it proliferates into every part of our economy.
So in Vidia, i think, is trading it around forty four times forward earnings. That seems to be historically a pretty rich multiple, but it doesn't seem to concern you at all.
Well, it actually traded much higher multiples before this sort of boom at different times. You know, you see AMD, you see Tesla. They traded these great premiums mostly because people have this belief. Now in Vidia, I think gets a rerating to some extent based on those forward comments about the visibility into the size of it of its business. But the company operates in the mid seventies percent margins,
it delivers net income in the fifty percent. It looks like it could do three hundred billion dollars and revenue next year. So when you look at how it qualifies, and then you say, well, if open ai is going to be a trillion dollar company coming out the gate, then Nvidia delivering you know, nearly one hundred and twenty to one hundred and fifty billion of net income depending on the exact outcome next year. It seems like that would be a business that could be very investible at
that forward earnings. I like it better at thirty to thirty five, and that's where it's been trading. I wouldn't be surprised to see some new estimates based on Jensen's comments this week at GtC.
So, I'm glad you mentioned open Ai because the company is reportedly preparing an IPO soon. I guess maybe as soon as next year. Reuter is saying that it could value the company at as much as a trillion. You and I talked a moment ago. That's pretty much what you said to say a while back. And we know as a result of a deal in the last week, Microsoft now will have about a near thirty percent stake
in open Ai. But here's the thing. After the bell, Microsoft reports a steeper increase in spending than the street was expecting, and the stock in late trading on Wednesday gaps down by more than seven percent. What's happening here with the Microsoft story.
Well, these two things are somewhat codependent, but somewhat not. Obviously, Microsoft, in this new way of physiciing its relationship in the twenty seven percent or so that it holds now has to report the losses in open Ai. While it might have a trillion dollar valuation and its an investment may have a great mark to market valuation for Satia and Microsoft, the cash losses are a responsibility of Microsoft at least for their share, so that obviously is weighing, But I
don't think that's what brought the market down. I think there was a couple of things that happened. One is it had a very strong run up into earnings. It had seen its earnings, It's seen the stock price appreciate significantly. It went up over four trillion dollars as well. I think there was a lot of enthusiasm people were thinking there would be this big number. Did deliver a forty percent azure growth number, It did deliver an RPO number.
You know, they're saying they have four hundred billion dollars in revenue booked over the next two years. That these are booked orders, not potential orders. And to some extent, I think there was a little bit of just sell the news, Doug. I think people saw it run up, they saw more capex, more spending, and it's going to spook investors. I'm going to take some gains right here.
But most of the thoughtful tech forward thinkers that I've been speaking to today have all said, all commonly believe that these companies, the CEOs, Zuckerberg, Satia, Sundar, they are all doing the critical things they need to do to make sure that their businesses can survive. I think Zuckerberg keeps saying it best. I would rather be overinvested than underinvested here. So investors may have to be a little patient with the with the gyrations of the market when
people react to that. But I overall think that these CEOs are doing the right thing, and I think this AI trade is very real.
Okay, so let's go to Thursday after the bell. Tomorrow we'll hear from Apple, Amazon, what are your expectations from these companies.
Well, Apple, it's going to be all about the new iPhone seventeen. We've heard a lot of positives about that pro device, a lot of excitement. We've also heard some questions about some of those lower end devices that thinner air device hasn't necessarily done well. Apple's sort of been able to get that growth at software trillion dollars as
well without ever actually really identifying its AI strategy. And I think that's because the market just believes its platform is so close to its consumer the commitment level people to stay on the Apple platform. So when you hear about open AI building something that's going to disrupt it or Meta. I just don't think people believe it, and they think Apple might be a safer investment. They certainly haven't laid out those capex dollars to nearly the extent
of these other mag seven companies. Amazon, they had that big outage. They've got to show some growth in that AWS business. You had Google over thirty percent, I think thirty four percent today you had Azure's Microsoft's cloud business. For Amazon's been trailing, and it's been trailing because it came out late. It underinvested to the point that I made earlier, they underinvested with Nvidia, didn't build out enough capacity. Their growth, despite being the biggest player, their growth has
been much slower. They've been in the teens, you know, trying to get back to the twenties, and I think the market needs to see that growth. I think their commerce business will do well. I think Amazon's absolutely knocked out of the park there. They've been, you know, finding these cost efficiencies that obviously comes with two sides. People don't love all the cost cutting, you know, from the
world standpoint, but investors tend to like those actions. So Amazon, though, I think it's going to ride the way the market will respond on does aws grow enough? And have they shown that they've been able to overcome those capacity constraints that have worried investors in the last few quarters.
Before I let you go, I want to get your take on Qualcom. Earlier in the week we had news that the company is developing a new AI chip, and I think it was Monday, the stock popped about eleven percent. What's your story on on Qualcom here? Is it worthwhile? Do you think that this company has a chance to go up against in Vidia in any way?
I think the everything against Nvidia train of thinking is a bit problematic here. I think Qualcom has a lot of engineering prowess. They hold, you know, in an abscorbinate amount of patents. They understand low power efficient design, and they have invested and bought some really good intellectual property for compute. I think what they actually launched is complementary. I think in many ways, there's this and Doug you've
probably heard about inference versus this training boom. Nvidia owns that market and AMD has basically taken what's left along with some of those custom broadcom chips. I think Qualcomm, in that deal that they signed with humane they're really going after this inference, which is going to be this higher volume, this more efficient computing at the edge. I think they're going to find some efficiencies in their pricing and how they market themselves. But here's the biggest thing
for investors to think about. This is a company that's been trading around thirteen fourteen times. Maybe they got a little boost after Monday for as we talked about, you know, Invidiot forty five, this wild company at thirteen fourteen. They got a little bit of a boost here. But they win one or two percent of the market share. Our estimates show that that could be six to twelve billion dollars of incremental revenue for them by the end of the decade. So I think they can win big even
if they only win small in that market. I think they have the abilities to win a small piece of that market.
Daniel will leave it there, Thank you so very much. Daniel Newman is the CEO of the Futurum Group, joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Deck Chrisner. Let's turn next to the Federal Reserve. We had policymakers cutting the Fed funds rate by a quarter point during the last session. Now, that move was widely expected. The aim is to support
a softer labor market. However, the path forward seems less clear, especially since there's been a lack of economic data resulting from the government shutdown. That's one reason why Fedchair j Powell cautioned against assuming the FED will cut rates again in December.
In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course.
At the same time, Powell said the FED will stop shrinking its balance sheet after some recent stress in money markets. Joining me now for a closer look. As Sean Clark, he is the CIO at Clark Capital. Sean is on the line from Philadelphia, Pennsylvania. Sean, thank you for making time to chat with me. This move on the part of the FED to lower interest rates at quarter point
today was widely expected. There's been a lot of suggestions recently that the FED needs to pay attention to a weaker labor market, but Powell seemed to push back on this idea that the market is expecting a rate cut in December. He said, it's far from a foregone conclusion. But what do you think is driving his thinking here?
I think you're right about that. He actually said that, I believe three times in the in the press conference. I think I was driving him. I think it's he's he's looking at a more balanced picture when it comes to weakening labor conditions and a little bit of you know, elevated inflation. I still do think, however, I do think that the FED still is more worried about weakening UH employment than they are inflation. And I think, you know, the FED does see that there's continued gradual cooling of
the labor markets. I just think for right now, with a lot of lack of data given the government shutdown, I think the FED wants to take a little more of a measured pace.
Financial conditions, I think you could agree with me, are pretty much have been regarded as being very loose right now, and I'm wondering whether that creates a bit of concern for you.
Actually, no, you know, I think when we look at the bigger inflation picture, it's still we still remain within the context of a deflationary trajectory that has really defined the cyclicobal market that began in twenty twenty two. A lot of that DOUG, as you mentioned, has to do with easy financial conditions, lower interest rates, lower dollar, higher stocks.
I think we get a continuation of that into your end and well into next year before I think we start to run into some volatility into and ahead of the midterm election. So my opinion is, no matter what the FED does right now, I think they're still going to be cutting into next year. Whether or not they cut in December, is more of a coin toss right now, and overall market expectations that now back FED cuts by one rate cut into the end of next year, I
am not too concerned. I actually think it's a positive that the market that the FED is going to be cutting in a more gradual pace, not so much in a reactionary tone, but you know, maybe a little bit of precaution.
What does it say to you that the FED is going to stop shrinking the balance sheet. One of the things I think Powell focused on was some recent stress that we have seen in money markets, and I'm wondering whether that represents any concern for you that the FED is going to stop a process that the market had been kind of looking forward to.
Almost Yeah, I think the FED really needed to deliver on three key points today. That one one was a rate cut check. Second was they needed to message the QT and you know ending the balance sheet runoff check two and third is dubbish language. We didn't quite get that. But then back to back to the balance sheet runoff comments.
You know, there have been signs that reserves are no longer really abundant, and I think a lot of that's evident by the fact that we've seen repo rates that have been running pretty much consistently above the midpoint of the FED funds target range for for quite a quite a while. So there were some signs of stress. Now we do know that the VET did message that they're going to be ending the runoff and keep the balance
sheet at a constant level starting on December first. They are still going to be reinvesting treasuries at the auction, they're going to be rolling those over, but principal payments and payments from nbs, they're going to be reinvested in T bills. I think what that potentially does longer term possibly increases demand on the short end of the curve, and I think that actually could steep in the yeld curve, which you know for bank earnings, that probably is not a bad thing.
I'm interested in getting your perspective on the banks in a moment, But talk first about this move lower pretty dramatic across the curve in terms of yield. We've got a ten year right now around three sixty Would you put money to work at the short end of the curve right now on the long side.
Who No, I would not. I would go more to the belly of the curve, or maybe extend a little bit more in narration. I would stay away from the short end of the curve, just because I think a lot of the gains have been had. With that said, I do think the path of least resistance for most most of the Yelk curve probably is still a little bit lower. Right we already defined downtrend in yields when you look at the two year yield, the five year yield,
ten year, and thirty year yields. From a technical standpoint, all of those yields fifty day moving averages are creating below there are two hundred day moving averages, which two wats is one of the key definitions for a downtrend. So I still think we get lower yields. The fact that we punctured four percent on the tenure to the downside. We're a little bit elevated above that right now with a little bit of backup in yields over the past
couple of days. You know, getting through that four percent on the ten year tells me next stop is probably three point eight percent on the ten year yield, and after that we might be looking at three sixty.
And yet inflation remains above target. It's rising still, and Powell today said near term inflation expectations have risen. That doesn't concern you in the least well.
Inflation ceremony, But I still believe that we are in a disinflationary trajectory. When we look at the components of CPI, most of those components are actually in deflationary territory. And we look at you know what Powell said today with regards to the various components and how the Fed breaks it into three different three different subsets shelter x, hotels or shelter goods. Inflation is being affected by the tariffs, which is elevated. That's to be expected. Housing services has
been down. That's a reflection of shelter costs thing as a LAG. Shelter costs represent about forty three percent of course CPI. They are deflating. That should continue because they operate with the LAG. Finally, non housing service in inflation. Pop comment is being you put all of that together, it doesn't seem like the inflation picture is all that bad.
Okay, let's go back to the banks.
Now.
We're talking about maybe a little bit more steepening of the curve, albeit in an environment where rates overall are drifting lower. Do you like the bank stocks here we do going bad.
I think they've had a pretty big correction given some of the concerns with regional banks and quite frankly, some of the loans. I would use this weakness in banks as a buying opportunity as opposed to getting overly conservative and too cautious on the industry group by itself.
Is there a risk that some of these banks may still be exposed to problems in the credit space where we're talking about maybe a credit line to a private credit firm or something else that remains at this point unseen, undisclosed. We don't really have a lot of visibility here, and I'm wondering whether that represents the slightest concern for you.
Well, there's always risks, and certainly that is a risk. I do think the whole private credit space is a risk. What we saw a couple of weeks ago with some bad loans and some defaults. Yeah, I mean Jamie Diamond's comments about cockroaches. Sure there may be more. We really focus on overall credit conditions, and when I look at
credit spreads, credit spreads are historically low. When we begin to see credit spreads rising, that's when we're going to start to get concerned with overall credit conditions, which normally rise, credit spreads normally begin to elevate prior to market turmoil. We just quite frankly, are not seeing any of that at the moment.
Okay, Sean, we'll leave it there. Good stuff, Thank you so much. Sean Clark is CIO at Clark Capital, joining from Philadelphia here on the Daybreak Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets finance and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm crazy and this is Bloomberg.
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