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This is the Bloomberg Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.
Joining us now for look at markets in the Asia Pacific and globally is Jamie Cox, Managing partner at Harris Financial Group. Jamie, thanks very much. So I was characterizing the CPI report as offering some positives to the market and the FED meeting. Well, I suppose you could take that either way. One rate cut penciled in this year instead of three and then one more next year still means that for the next eighteen months a year and a half, FED policymakers are expecting one fewer rate cut
than what the market is thinking. Yet the markets were buoyant. So just your thoughts on the current environment.
Well, I mean, this is the third consecutive session that you've seen, you know, all time highs for the S and P five hundred. Markets don't need rate cuts. That's the bottom line. I mean, we're sitting at a situation. Yeah, I really believe that it's that investors are begging for the wrong thing when they're asking for the Fed to
cut rates. You know, historically, the time between the last increase in the FED funds rate and the first decrease in the FED funds rate sometime later is when the markets are strongest and and the majority of the return during that period is front loaded. So investors need to be careful what they wish for when they when they're talking about rates. If rates are pushed into the future, it's actually very very positive for stocks. It's been It's
actually the Goldilock scenario in markets. So I believe that most people will be happy to for the Fed to be you know a little bit more sanguine in their need to cut rates quickly.
Soldilocks and no bears looking around the corner. Is that the way you see it now, Jamie, Well.
You know, it's really interesting. I mean, we were sitting at a very similar time to the mid nineties, where you have this massive productivity wave that is yet to be realized. You're seeing you know, massive infrastructure investment, the likes we haven't seen in such a long time try to, you know, build out the AI infrastructure. We have not yet seen the benefits of it. We've only seen the beginning of the investment component, and that's going to be
very negative for inflation in the future. So I think markets are looking beyond the temporary factors that have you know, you know, kept the last mile of inflation from coming down to the target from the Fed, and looking at the future and saying, gosh, there's some really positive things that are happening in tech and energy and industrials. This is a really good time to invest. And you know, there's a lot of people who are afraid and that is and they think markets aren't good and it's just
not true. I mean, people aren't paying attention to all of the benefits and all the earnings, all the money that's being made. And now, what's interesting to me, I work with a lot of retired people, and for the first time in the long time, people's retirements are a lot more secure now because they can actually earn respectable face income rates on their investments. It's the irony is not lost on me on how much better things are when rates are higher.
Doug, you listen to me every day. This guy's in my head. This is what I've been talking about. I mean, I couldn't agree more. Who cares what I think? But we do care what you think, Jamie, and I know that you're sort of big on the broadening theme, and I was just having a look a little bit earlier this morning. The S and B five hundred is up about twenty four percent over the past twelve months, and the equal weight S and P is up sixteen percent. Now that's not as much, but it's not bad.
No, it's actually good.
I'm actually glad because it's been way worse than that over the past couple of years. I mean, you've had, you know, the top tech stocks which are consistently bringing the average hire, but you're so already to see the rest of the rest of the field catch up, and last year financials were a gigantic drag on the equal weight SMP. That seems to be turning around some and you're also seeing some of the other the other areas of utilities and things like I start to get some
life behind them. So the broadening out of of the of the sector weightings I think is very positive. It's been talked about and talked about and talked about that never happened, and I believe it's happening in earnest now and there's a lot of people who had diversified portfolios who have really been kicking themselves for not having it all in the Nasdaq or in the queues are finally going to benefit from that diversification. So so here here to that.
Yeah, I'm wondering whether we can't make the same statement about being overly diverse in geographically when it comes to equity markets around the world. Proof it kind of the data points that Brian just mentioned that maybe you really needed to be overly exposed to the US through this period.
Yeah, that's that is for sure. There is no question that the US markets have dominated everything, and I don't think that's going to change. I mean, there are some divergence, you know, in central bank policy that may change the dynamic a little bit, But when everything is so tech dominant, there's really no other part of the world that can compete. And that's just the bottom line. And as long as that persists, I think that's the way it's going to be.
Unless there's a major turnover in tech. I think that US markets will remain the leader period in the discussion.
So that said, the tai X in Taiwan is up sixteen percent year to date. That's more than the S and p's thirteen percent. And also the EK in yen terms is up sixteen percent. There's only up four percent in dollar terms. But that's kind of the crux of the problem, isn't it. The dollar has been so strong that it's kind of pummeled a lot of foreign markets.
Yeah, it's been.
It's been difficult to be a US US investor and devote some of your capital overseas. That is definitely the currency translation is in your way, But that doesn't mean that there aren't plenty of opportunities. And you know, it has been such a long time since international markets dominated. At some point the pendulum will switch, but I don't
think that's any time soon. I think that it's very much a sector specific story, perhaps in Taiwan, but I don't think that you're going to see much change, not for a while. The US is so dominant from a consumption point of view, it's really difficult to change the narrative there.
All right, Jamie, thanks very much for joining us here live on the program. Enjoyed the chat. We'll get you back again, Jamie Cox, managing partner at Harris Financial Group.
Well after the belt here in the US, Broadcom reported quarterly results and gave an annual forecast, both topping estimates. This is a reflect reduction of robust demand for artificial intelligence products. We have a bit more from Bloomberg's Charlie Pellett.
Broadcom is a chip supplier to Apple and other big tech companies. It said sales in the full fiscal year, which runs through October, will be about fifty one billion dollars. Analysts had projected about fifty point six billion. The race to build artificial intelligence systems has benefited semiconductor companies like Broadcom, even though they don't sell the highly prized AI chips that are made by Nvidia in New York, Charlie Pellett Bloomberg Radio, and.
The stock jumped almost fifteen percent in late trading. Joining us for more on Broadcom is Kunjhon Sobani, senior semiconductor analyst for Bloomberg Intelligence. Kunjohn, thanks very much for coming in. So we had a revenue beat and a profit beat, and then we also had a forecast beat. But these were not really massive beats. There is this stock split, but it's a little tricky trying to figure out what drove the stock up nearly fifteen percent in late trading.
So I'll put that question to you. What did.
Yeah?
So, I mean, the short answer is everything that investors and as analysts were looking and hoping for during the call sort of came in line. There were three things going into Gold. We wanted to see an upside to the AI numbers, which did happen, actually significant upside to the AI specific numbers, even though on a total revenue as you said, it was not a big upside. Second, we wanted to look at better or upside to the VMware numbers, both for the quarter and the outlook, which
did happen. VMware numbers came better than what the speed estimated, and the outlook looks again better both in terms of revenue growth as well as the cost cutting and the integration part of it. And Third, we wanted to see a sort of a confirmed bottom and a clarity of recovery in its non AI sychnical business, which again did happen, most of it non AI cyclical business. The company said Q two will be the bottom except for broadband, which will continue to persist weakness.
Con John, you know, semiconductor is such a broad category. We talk about the AI accelerators, when we talk about in Nvidia, we talk about the memory chips companies like Micron and Samsung. Sk Heinex help me understand the products that Broadcom is involved in manufacturing and how that fits into the overall chip ecosystem.
Yeah, so I'll Broadcom has many semiconductor businesses, but for this I'll stick to the AI portion.
So it has two.
Major products when it comes to AI. One is the accelerators, which is the ACIC accelerators that it only sells to these large cloud providers and hyperscalers like Google and Facebook, And this is sort of an alternative to the merchant GPU Silicon do, Nvidia and AMD Cell. So there's a portion of that market where Dotcom is the leader actually and the number one and has majority share in that market.
Other than that, in AI, they sell a lot of networking and connectivity chips, so you need to connect all of these memories and GPUs on networks and optics. So there's a lot of chips and components involved here that Broadcom sort of supports the ecosystem.
Yeah, it's a it's a very complex and big company. There's a there's a big software component too. And one of the reasons that maybe Broadcom stock had lagged a little bit over the past quarter. And I say that because a week ago the stock was at about thirteen hundred dollars and change, and you know, it had gotten to over fourteen hundred way back when it announced earnings a quarter ago. Hasn't done all that much. And that coincided with a lot of selling and software company, I
mean software has struggled quite a lot. And if you look at Broadcoms mix you talked about the semiconductors, I think they run about sixty seventy percent. You've got twenty percent VMware another ten or fifteen percent in software. So maybe a little bit of relief from investors today that yeah, the software portion was okay.
Yeah, you're definitely on spot.
And one of the concerns with this VMware deal is their largest and a bit different than the typical software assets that they've acquired in the past, where they only focus on select few large customers. But VMware has hundreds of thousands of customers, so exactly put right, you know, the coster coming down better than what they had laid out, and the revenue growth is not being impacted as some had worried. So a relief over there that the software per piece is still doing.
Fine, Kunchan.
When you look at the overall industry right now, so much of this, as we've been discussing, revolves on the around the AI trade. Are you seeing signs of any type of a slowdown in demand or is thing? Are things still firing on all cylinders.
From our perspective, for the pure play AI chip makers, not the ones you know, not the wannabes, but the ones who are currently selling, see don't see any slowdown. One proof point of that is if you look at all the biggest US hyperscalers and cloud service providers, they inaggregate have raised their CAPEX spending for twenty twenty four by forty percent over twenty three levels, which were already
at sky high. So as long as those guys don't pause or slow down spending, the AI chip pure play names should be fine, because those are the ones who are they're spending the most money on.
You know, it's kind of funny. I was just looking inside the costp here for some of the gains this morning, and you know you can imagine after the broadcon print and the reaction to it, information technology is up two and a half percent, But it's not the biggest gainer. What's the biggest gainer utilities? So you know that's kind of tied now utilities and power producers sort of tied to the AI trade. A lot of people exposed to this. So my question to you, Ken John is what's the
most important thing to watch for? Is it a warning from in video when in Vidia finally does say worn on revenue? Is that the time you know, up until that time, you're okay, but then look out?
Yeah, I think Nvidia could be definitely a good bogie. So if Nvidia says any concerning comments, that's definitely a big signal given that they have about more than ninety percent share there. Another good proxy point could be again the CAPEX spending from the large four or five cloud to the providers and hyperscalers. If they come out and say that they're reducing their spend for twenty twenty five, that could be to say.
Another concern you mentioned the wannabes, and I'd like you to expand on that the companies that are aspiring to rise to the level of Nvidia, maybe they've got a heavy lift ahead of them, but the R and D spending that would be required to engineer a chip as sophisticated as some of the AI accelerators that in Vidia manufacturers. Can you imagine a world where a company rivals in Vida at some point?
I mean, you could never say never.
You know, we have a good precedent from Intel at one point the largest semiconductor company by revenue, by unit sales, etc. And we used to you know, I've covered this sect. I've been in this industry for twenty years. I used to think of like, nobody could ever overtake Intel, right, but it did happen, So you can.
Never say never. But yes, you're right.
I mean, at this point you were talking about tens, if not in fifties, you know, billions.
Of dollars of R and D to catch up to Nvidia.
So it's really that Nvidia has to misstep itself or hit itself in the foot to get someone else ahead of them.
All right, Cunjohn, thanks so much for joining us. Some great information there. Kunjohn's Bonnie Senior semiconductor analyst for Bloomberg Intelligence looking at Broadcom in its earnings earlier today. Joining us here on the program is Sarah Ponzak, financial advisor at UBS Private Wealth Management. Well, let's talk about the
FED here. On the face of it, this was actually a hawkish FED meeting, given the one rate cut this year down from three in the dot plots, and also the raising of the core inflation forecast by the end of the year. But the market response was, as we know, quite positive, with the S and P five hundred up almost one percent. I think many would say that this is that the market has confidence in disinflation and confidence in the FED. Would you agree, I.
Would absolutely agree with you.
I think, especially if you just look at today's market action, the market would agree.
With you as well. Look, when it comes.
To the FED meeting today, you highlighted it. Really what the big news was was that dot plot, the fact that the median dot in the dot plot is now only pointing to one rate cut in twenty twenty four.
But if you listen to many market watchers strategists, you.
Even look at what the market is pricing, what a lot of people are thinking is that, well, maybe you know these FED officials submitted their dots before this morning's inflation data. Because this morning's inflation data, and you laid it out right at the top of the show, the fact that we saw CPI rise year every year by three point four percent in May, that's the slowest pace of more than three years. I think the Fed might be patting themselves on the back a little bit saying, all right.
We're seeing disinflation now.
The market really latched onto that and said, okay, well, inflation's coming down. Sure, the Fed is saying only one cut this year, but you add it all together, what do you get. You have a market that's still pricing in two cuts this year. So the market is still called the fence bloff there.
So maybe we can agree that the degree of easing really hasn't changed much. I mean, Brian talked about the fact that now there are more rate cuts forecast in twenty twenty five. Timeline has changed a little bit here. But in your view, Sarah, what does it mean for the market, for the equity market in particular, correct, So.
I don't think today's events really mean all that much as it pertains to change for the equity market. Sure, if we get a cut one quarter or one month later than expected before, that's not that big of a difference as long as the direction of travel remains the same, and.
The direction of travel for interest rates.
As of now still remains lower. The expectation is that the Fed's going to start cutting. Whether it's at the end of twenty four or the beginning of twenty twenty five, doesn't really matter, as long as they start cutting interest rates and they continue.
Along that path.
So when we look at the outlook for the equity market, we actually see reason for its stocks to potentially grind higher from here. A few fundamental factors there, one of course being the expectation that interest rates are going.
To come down.
But behind that, really the fact of the matter being that the US economy remains solid. But we have seen this modest deceleration towards a soft landing. If you look at JOLDS data, if you look at housing data, credit card spending, ism, manufacturing data, we've seen a softening, but not to a point that would warrant a complete falling out of the economy, rather to a point in which we can say, all right, we're seeing the economy slow.
We're seeing dissinflation. That's exactly what the Federal Reserve wants, and that means that interest rates can come down over the next year or so.
Yeah, it's kind of a quirky world though, Sarah, in that if let's say interest rates come down, that will actually hurt megacaps to a certain degree. And all of us, all of you listening, who have more interest in yield income than you have loans. That's a lot of people. I mean, not all of us have a whole lot of loans, but we're all taking advantage of getting five percent yield, you know, in short term treasuries and in
cash equivalents. So I want to put it to you that it might be one reason to hire for longer. Is actually a good thing for many in this in this economy, for savers.
And retireies, it is. And we have plenty of clients who.
Well, not just that, but think of the megacaps. They have all this cash and no loans. The megacaps themselves, there's a well.
Within the within the tech space, yes, megacap.
Now, megacap tech sucks are seen as quality stocks because they have extremely.
Sturdy balance sheets. But if you think of tech as a whole and growth. There are a lot of tech companies and a lot of growth companies that still are hanging on to a lot of debt.
And look, a lot of these you know, a lot of these corporations, a lot of their executives are very smart, and they locked in lower interest frees years ago. But at some point in time, there is going to be this wall of deep that's coming due, and there are a lot of corporations out there that are going to have to figure out what to do if all of a sudden they have fixed debt maturing at higher interest.
Rates and now they have to work that into.
Their balance sheet and revenues and profits and whatnot.
So, yes, you're right. Look, if you're talking about the biggest of the big.
Megacap tech SUCs that have strong balance sheets, and they're in a fine place no matter what.
But at the same time, if you think about the majority of the growth space, the majority.
Of the tech space, a lot of these companies do have dit on their balance sheet. And if we see interest rates come down, we probably will see that as a boon to some growth stocks as well.
Yeah, and lower rates obviously going to take a lot of pressure off of some of the regional banks. We've been talking about potential stress in things like commercial real estate. Powell kind of pushed back against that notion. Today thought the financial system was doing pretty well. Let's talk about the AI trade. Brian was mentioning Broadcom earlier. This is part of the narrative that we've been discussing for months. It's the Nvidia story, is it's the open AI Microsoft story.
Are you still feeling positive about this now?
We are.
You know, everyone's been talking about AI now quite some time, and it seems like there's so much hype surrounding artificial intelligence.
You know, it's the aihive. You hear AI.
All of our clients are constantly asking about it, calling, oh am I invested in AI?
How are we investing in AI?
You know it's important, but we do.
We believe in it, even considering the games that we've already seen. I mean, if you think about what's really fueling AI into the future, it is semiconductors, which we've seen.
You just mentioned.
But if you look at the socks the Philadelphia Semiconductor Index this year already here to date, it's up another thirty percent. So we just continue to see semi conductors move higher, but there's reason behind that, you know, if we look.
At the numbers, if we look at the earnings behind what's fueling this.
Our Chief Investment Office actually expects global semi conductors to deliver earnings growth of fifty percent this year in twenty twenty four, and another twenty five percent in twenty twenty five. So what's amazing is that, Yes, there's a lot of talk, there's a lot of high expectations here, but there's numbers behind it as well.
Yeah, especially the Nvidia numbers, but if you look at Broadcom, the revenue and the profit piece were hardly knocked out of the park numbers, nor was the forecast. I guess there's this stock split, but it's hard to fathom a fifteen percent jump on those numbers, don't you think.
Yeah, look, I can't speak to any one individual stock, but when you look at what's been happening at large, is already there's such high expectations baked into these stock prices before these earnings reports. And what's happening is if these companies just report, they don't necessarily have to be they just have to meet these lofty expectations and investors are clearly happy with that.
Okay, Sarah, thank you so much for joining us. Sarah Ponzak, Financial advisor at UBS Private Wealth Management.
This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.