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I'm going to go back to the stock market and look at shares of Broadcom up a whopping nineteen percent. I want to get more with kushon so Bonnie and Bloomberg Intelligence senior semi analyst, so we know the story. The numbers for its AI revenue were super high. Their outlook looked really good. Is it justified in a one trillion dollar valuation right now?
Look going into the earnings, the top concerns where how is AI going to do next quarter? What are the numbers looking like for twenty twenty five and sort of no visibility beyond that. So can this rarey sustain those numbers that are driving the stock?
Really gives investors three to three to.
Four years quantifiable target and milestone to look at and now just track the execution.
And those numbers are pretty huge.
I mean you're talking about three to four x fold growth in just the Sam just from his three customers, not even including the additional two that they're working on.
So Kulj help us think about Broadcom now in comparison to Nvidia and maybe even some of the other players. How's this industry as it relates to AI? How is it shaking out here?
Yeah?
I mean when you look at Broadcom just barely six months or a year ago, people didn't even think of it as an AI company, right. It was primarily the investor base. It was really loved for his free cash flow, generating ability, highly profitable, sustainable, slow, mid to high, high single digit grower. Now suddenly AI is going to become a huge chunk of its semi connective revenues. And in combination, you still have the software revenues at high margin generating
significant amount of cash. So you have this really growing and media type or even growing faster in certain areas going forward than in AI story. Along with all the goodness of what do you want from a large gap which is high profitability, high operating margin, high free cash flow for the.
Non AI stuff like the chips that go into like phones and cars and all that kind of stuff, How is that part of the business doing? Because it hasn't been doing very well. We've were waiting for their cycle globe recovery to kind of kick up.
Where do Broadcom land on this.
Yeah, I mean they are aligned very well to what rest of the cyclical semis are doing. I mean, look, twenty four was the bottom for.
Most of its business.
We do expect recovery starting early next year, but it's going to be really slow turning corners, so we don't expect any sort of fireworks there. But the good news is the way AI is expected to grow, that portion of the business is going to shrink and become a significantly smaller part of the chip business.
All right, So as you step back from the semispace these days, Kunjan, what are the conversations you're having about the space in general? Is it in Vidia all the time? Do I want to own a basket of these things? What are some of the conversations you're having with your investor clients.
Yeah, the top question is sort of searching for the next in media, trying to add more and more AI exposed names and who else in the semi sector and the peripheral sectors, whether it's foundries, whether it's memory, whether it's semiconductor equipment providers can benefit from this broadening AI boom. You know, the first beneficiary, almost entire.
Beneficiary, was just one name in media. So that's a conversion we have and we have been actually.
Calling out Broadcom and Marvell for quite a while now that these are going to be sort of the next set of beneficiaries from the coverage that we cover.
When we take a look at Broadcom though, and the stock reaction in the near term, are we borrowing faith from like twenty twenty five or twenty twenty six, or is this like legit comp number rally?
I mean, there is definitely a huge weightage given on their ability to execute to that large sam that they have laid out. You know, investors have been who have been following Hawk for many years, don't take what he says lightly.
There's a big degree.
Of conviction in what Hawks is and can deliver. So there's definitely a huge reliance in what you see in the stock movement that they will be able to sort of meet or execute on those numbers.
So is the when we see like a big number coming out of the likes of Broadcom, does that give you pause for the NVIDIAs story that maybe there's a market share shift going along, that maybe the competition is starting to step up here.
Not in the near term.
Look, the merchant silicon GPU that and media sells versus the custom that Broadcom does right now are being used for two different use cases, and both of those use cases that demand is booming, right, so it's a win
win for everyone right now. Eventually, in theory, if this demand rarely does normalize and there is some kind of digestion, Look, there's only so much these hyperscalers will spend, right, So eventually down the road we will come to a point where they will have to decide do they want to spend more in their custom and the GPU and what
are people demanding for. At that point there will be wallet share competitiveness, but not at this given point, just because the use cases and applications are very different.
They get the majority of their revenue really from Apple and WT Microelectronics. Right then it comes sort to Alphabet and Meta with about six to eight percent of its revenue.
Thank you so much. Supply chain analysis function on the terminal.
Are they trying to diversify that in a meaningful way or are they comfortable with that sort of waiting.
I think it's just organically going to get diversified.
Right.
The wireless from Apple is not a fast growing business. It's a sort of mid single digit at best. Right, So, and there are some concerns around that it's too mature to talk about it. But even if you assume that business continues, and like the speed at which the AI business is.
Going to increase, the speed at which Google.
Meta and these other hyperskillers are become going to become a larger portion of broadcom, it is organically going to diversify away from the top two customers that you pointed out.
All right, John, thanks so much for joining us.
KU.
John Sobani, senior analyst on semiconductors. He's over there Bloomberg Intelligence, based in our San Francisco office right there in Silicon Valley, close to all those big tech companies that he covers. So that's a real advantage for us, Sir John Cobani Sobani joining us there.
That's a heck of a move for a company, you know, one.
Trillion dollar market cap stock to move twenty percent. I've said it when I was seeing some of the moves from Nvidia, when they were moving ten twenty thirty percent a day. This is huge amounts of shareholder wealth being created in this space. It just the absolute dollars are kind of stunning for to take a look at it. So this isn't any penny stock at there.
So you you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Otto with a Bloomberg Business Act. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
All right, let's get two overseas.
We're going to France President Manuel Maulcrant appointing Francois be Roux as France's new prime minister to navigate a fractured I feel like that's a nice way of saying a political landscape and there's a to do list that's very difficult. Alan Katz's Bloomberg Paris bureau chief joins us. Now, Alan, does he have to get like approved or voted for or is he just in power and then he's going to make it work.
So the latter, he's just in power and he has to make it work in France. The president gets to nominate where he wants as prime minister. So great, so now you've got corns by who. But he has to get a few things done, most importantly as a twenty twenty five budget, and that's what caused his predecessor got nay Michel Bannier to get booted out in an confidence vote last week.
So that's going to be his first order.
Well, his first order of business really is getting a cabinet together, getting in government together, and then it's going to be trying to get a twenty twenty five budget passed. So that's really the first things he's got to start to do, and it's not going to be easy.
So alan, is there any reason to believe that this new prime minister will have any better luck with the right and the left which caused the demise of the predecessor.
So that's a good question. I guess the best answer is maybe he is. He's a centrist, right, so he he has been known to do. I mean, originally sort of his party was more aligned with the sort of the center right back in the in the eighties and the and the nineties, but then he famously voted for a socialist for president in two thousand and seven rather than the conservative guy, so he sort of he's reached
out to both sides over time. He also was very famous for having supported malheinm le Penn's right to run for president in two thousand and two and Francis to get five hundred signatures and local officials to be able to run for presidents, and he said, well, she's very popular. We can't not have her run. That would be really bad for democracy. I don't support her personally, but I supported right to run, and the far right remembers that.
So he's got sort of possibilities. But then really getting people onside is going to be much more difficult. Michelle Baarnier the guy again who just got ousted. He sort of had the far right on side for a while also until they weren't. So far everyone today has been giving, I guess, sort of mildly positive comments. They're going to say we'll wait and see or what depends on what he presents, but it's really not clear that he's necessarily going to have any better luck than Michelle Banier did.
What does The far right and the far left want.
Very different things, but mostly what they want is someone who's going to allow them to look good to their voters as they get toward the twenty twenty seven presidential election. That's one of the problems that we have in France right now, which is that you have this big block on the left and a big block on the right.
On the right is led by a woman in Marine Le penn and there's the most popular politician in many polls in France, and certainly the person who leads polls if the next presidential election was to happen today, the person who's frequently number two, or if not number two, number three is the guy on the far left, Nam Jean Luke Bentent Chanp and the two of them are
definitely looking to the next presidential election. So all of their decisions in the short term, in terms of what happens in parliament, passing a budget or any other laws, is all about what does this mean for how voters are going to perceive me in twenty twenty seven, And that makes for a very difficult relationship because sometimes there are things that you might say, well, that's obvious, sure
they should like this, but then they don't. In the case of Michaud Valgniert, he basically gave in to most of the far rights demands, basically three out of four main ones that they had, and they voted, you know, they voted for emotion of no confidence anyway, because they decided it was in their interest, in their longer term interest to do so. So that makes it really quite difficult.
Alan, thank you so much, appreciate your reporting. Alan Katz, Paris bureau chief for Bloombergers. How cool is it that we get people on the ground, really smart voices pretty much everywhere around the world, and they come on the air with us.
Very cool.
That is such a great and they really know what they're doing advantage and they know exactly what they're talking. I want to ask that next next time we talk to Alan, how big of a story is it in Paris and France the reopening of the Notre Dame, Because I when you saw the damage from that fire five years I'm like, they're never going to fix that stuff.
I mean, how do you fix that?
I mean we went to Paris last summer and it was like, that's it's never gonna You're gonna be so behind, And then they did it. I would think the culturally, yeah, and the message it sounds is pretty It's pretty spectacular.
I mean I give my Corona pat on the back and the French people pat on the back because that was awesome.
I want to go prices and fuel prices, prices and fuel prices. I get it. So we'll have more on that coming up.
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All right, so we get the Fed on Wednesday, highly expect to cut rates in December. The question then becomes what happens in twenty twenty five if that neutral rays moving up, as Bill Dudley, a former FED governor, was talking about on surveillance, If he thinks the neutral rate is three point five are a little bit higher, what does that mean then for the trajectory of cuts, And then what does it mean for sectors that are really waiting for those cuts to kick in, like real estate,
maybe private markets, private equity. We want to deb a little bit deeper into this with Miguel Sosa, head of market research and strategy over Blue Rock. He joins us now from Dallas, Texas. Before we get to the nitty gritty of say, private credit and real estate, just give us your broad views on twenty twenty five.
Yes, thank you, Alex. So we're excited about twenty twenty five. We think that the markets are poised to perform well. We've seen strong performance for twenty twenty four with a change in administration. We think that the administration is very business friendly, so that should provide an additional tailwind in addition to having the high interest rate environment behind us.
And so what we're seeing is gradually moderating interest rates, a predictable and shallow decrease in that interest rate curve on the short end, stable in the ten year side of the interest rate curve of the yield curve. And so we think that twenty twenty five will be a positive year for all asset classes.
All right, let's talk real estate here.
Where do you see opportunities in real estate?
Here?
We've got the Fed cutting rates. I would think that's good for that asset class. Where are you guys seeing the most opportunities?
Yes, sess correct.
So reducing the short end of the curve, the Fed funds rate is beneficial indirectly for real estate because naturally it moderates the cost of capital. We're seeing opportunities in the indust space, in the multifamily space, and really in the specialty space as well, and so these are all sectors that are seeing low vacancy rates, and so that helps to drive lease rates up because there is much
more demand relative to the supply that's available. And if lease rates go up, the net operating income goes up. ANDI for short, is a key driver of value. So what we've seen recently in the last two years is the capital values have come down significantly, but NI has gone up significantly. So in other words, you can buy more real estate at a discount, and that real estate is generating more income and so that will hopefully drive returns in the future.
How much of this is predicated on rates being cut from the FED and how much of it is just sort of the economic cycle.
I would say the majority is driven by the economic cycle. The change in interest rate environment really inflated cap rates, which was the main driver why prices were down. But unlike the global financial crisis, which was the last big drawdown for real estate, there's very strong fundamentals that are
driving real estate. Currently, like I said, vacancy rates are low, and it's much harder to construct new developments new property developments today versus fifteen years ago because of inflation, construction costs are up. The other factor, for example, specifically for the industrial space, is that we're all buying more products online and we want them shipped to our houses faster, and so that causes demand for warehouses that are closer to city centers so they can get to our homes faster.
But nobody wants warehouses in city centers or close to cities, and there's no vacant plots available for those warehouses. So there's that inbound as well. And we have examples across the board. Data centers for example, another great example, because everybody is consuming more and more information constantly every year, so that drives significant demand for data centers.
And tay all those warehouses for servicing New York City and Philadelphia. The right in my backyard, in John Tucker's backyard in Central Jersey, access to the New Jersey Turnpike, Garden, State Parkway, all that kind of stuff to eighty seven. You can serve both Philadelphia and New York.
Maybe that's why the UFOs are there. Maybe, yeah, exactly, I mean we can make that length exactly.
Hey, hey, Miguel, let's say I want to go out and buy some commercial real estate. Is my bank going to lend me money? Where do we get the debt financing these days?
Yes?
So typically commercial developers will go to specialty lenders, and depending on what type of property one is buying. If it's a fully developed and occupied building it's stabilized, as they say, because the occupancy rate is high, then lenders are much more willing to provide capital for that and increase the loan to value on that property. But if it's a empty plot of land and it's a development project, then those are typically construction loans, and so there's a
wide variety of sources for capital. Banks have typically been reluctant, especially recently, to provide capital for sectors that are struggling from the office space, but there's certainly a broad variety of sources of capital, starting from banks all the way to individual investors who are happy to provide some of those short term construction loans.
Before I let you go for say, private credit. Where are the opportunities they are going into twenty twenty five.
Yes, private credit is one of our favorite sectors specifically because, as I mentioned, the interest rate is in this goldilocks phase where we aren't in twenty three year twenty four, where we don't have that visibility or uncertainty of how long and how far interest rates will climb. And so interest rates are at a point where the peak is behind us, but they're not at zero either, and so
that favors the lenders versus the borrowers. Now you can, especially in private credit and alternative private credit, you can receive nine percent, ten percent even interest rate on loans to corporations that are established, they're mature, they're cash flowing, and that are going to pay through that debt until maturity.
Begail, thanks so much for joining us.
Migel Sosa, head of market research and Strategy at Blue Rock, joining Ustart talking about the commercial real estate business, and of course a commercial real estate business, as is residential real estate really dependent upon interest rates.
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Here was a headline that was interesting. Well, I mean, I think for anyone listening it was interesting. Is the Trump advisors are considering raising salt right off limit from ten thousand to twenty thousand.
Why not forty thousands?
Exactly?
Why justinate it twenty just you know, move it up there.
I'm sure your property taxes.
It's a good question. If can you multiply third fourteen thousand? I think, well, okay, is that about?
That's about around these parts?
Is it a wow?
Nothing?
Is it a wow?
That's pans.
You go north of New York City into Westchester and that's really low. It's like in the twenties for just a regular house.
I live in an apartment building. Yeah, like a fourteen hundred square put apartment building. And every year I feel like the property taxes goes up. That's when I knew I was an adult.
But you're here in Brooklyn.
I'm in park Slow Parks is like the non post places where people go to head babies and dogs.
Anyway.
Henry Andaturs is managing partner and director of Economic Policy of Beta Partners. And she joins us, how real can we take this salt tease?
Very seriously? So good news for you, for sure. I commiserate with folks who want it larger. This is the minimum I think they have to have for a tax bill to pass next year the salt caucus. And indeed, a lot of the Republican gains in the House of Representatives have come from new voters that they're finding in New York, Connecticut, New Jersey, California, states where these salt caps are extraordinarily painful, and the members are being very clear and vocal.
They've gotten more and more.
Adamant and united over the last seven years since this tack built passed that they have to see a change to salt if there is any tax title in any legislation going forward. So they'll try to get it in the first reconciliation bill. If there's a second, they'll try to get it into that, and they will threaten their votes, which with the zero of a margin in the House, means that you have to cater to their requests.
Henrietta, can you give us the latest on the expectations for confirmations of some of President Elect Trump's more contentious nominees for cabinet positions.
Have we seen any movement one way or the other.
I think we have a long way to go here, and you can see the various factions coming out behind the scenes trying to sink or lift various candidates. One of the things that would make me expect those stories to continue negatively, for example his nominee hexas or for Tulsi Gabbard, is that there are other folks waiting in the wings who know that in the event that their nominations fail, they could be the ones to gain.
So there's a lot of.
Negativity that you see sort of in the behind the scenes work, specifically on Tulsi Gabbard.
I would say that.
Is going to continue to eat into the next month of the conversation, until the negotiations really start in the confirmation hearing start and they get these folks up for a vote in late January.
So there's a long way to go.
I think Chelsea Gabert in particular is pretty empowerlled right now.
Other news that struck me overnight was the Wall Street Journal reporting that potentially Trump could get rid of the FDIC and put deposit insurance in hands of Treasury now, abolishing a whole unit of the government like that would be very rare.
Can you walk me through it? You think of that potential.
I don't take those claims particularly seriously. One of the things that we should just keep is our base case is understanding that Congress has the power of verse, and that is something that the Supreme Court has stress tested. In nineteen seventy four and in other iterations. Bill Clinton famously tried a line at him Vito where he tried to just cancel out entire lines of funding that the federal.
Government or Congress had authorized. It's just not legal.
It is unconstitutional and runs a foul of so many different things.
Plus you have a lot of members who.
Get really uncomfortable moving agencies into other auspices. Another example to pile on the FDIC thing would be the USTR. Electron has said that he's going to put US Trade Representative and that office underneath the Department of Commerce, and immediately you see members come out of the woodwork and say, Hey, that's not what we're into, that's not.
What it's supposed to be. Keep these two things separate.
That was very similar to what we saw on Trump's first term and Ultimately those did not come to pass.
Elon Musk DOGE.
It's been a week or so of I guess no news on kind of that front. Is that whole cost cutting aspect, How should we think about that and how might that play out in the first one hundred days.
Yeah, I mean we can talk about DOJ, they can have committee hearings, they can form caucuses in the House and the Senate y'or even bipartisan now in the House.
But let's look at what's really happening.
They just voted on in the House a National Defense Authorization Act that increases defense spending by one percent. Next week, starting on Sunday, they will roll all out a continuing resolution that provides one hundred billion dollars in additional funding for hurricanes and typhoons. There is additional a to Ukraine, there's additional aid to of all host of factors, and federal spending next year will continue to rise.
Whether DOGE exists.
In holds meetings or not, federal spending is.
Going to rise into next year.
They'll vote on it as soon as Thursday of next week, and you can take that to the bank.
What else are you paying attention to?
As we head out of twenty twenty four into twenty twenty five as well, not only from President like Trump but also President Biden.
The most important thing for me is watching the Senate and the House budget committees. I know it sounds fluky, but this is the single most important thing to watch going into next year. What we've already seen from Senate Republican leadership and new leader Fune is that they are appreciating and expecting for the tax bill to take all year to write. We started off with the Salt Caucus conversation.
It's because of that one point two trillion dollars revenue raiser being completely unpalatable to eighteen members of the House that they're going to have to negotiate all year on a tax bill. So what that first tells me is that the deficit appetite for the tax bill is going to be very controversial. It's very problematic, and they want
to take that voat much later in the year. They'd like to score some smaller sort of red meat wins on immigration, increasing border spending, increasing energy and oil and gas permitting that kind of legislation, and that strategy is going to come out on January fourth, when House Republican leadership has a meeting with the full Republican Conference to see if they can tolerate a two reconciliation bill strategy or just one.
So the conversations behind.
The scenes are already taking place there. Invessors should be very much following that right now.
It has huge.
Implications for tax policy, for immigration, defense spending, deficit spending, bonds, everything happening now Henrietta.
To what extent, if at all, the folks really the folks inside the beltwagh that people that are there year in year out, do they view President Electrump as a lame duck president.
I think there's two ways of looking at that. One that you have and impetus to actmediately, So that's really relevant for them. On the trade front, it takes forever to negotiate with foreign nations. We've seen that from twenty seventeen. In twenty eighteen, we still do not have a trade agreement with the EU, We do not have a trade agreement with Canada, with China. So I think the trade agencies are going to kick off much earlier in the
second truck term than they did in twenty seventeen. That year we had to wait the full year for the tax builder you're written, and then we could get into the trade universe. This time, I expect the tax agency, excuse me, the tariff agencies USTR, Commerce BIS to come
out guns blazing immediately. So that's acknowledgment that you only have four years to operate, and it takes forever just to hold a meeting with China to pick out what location you're going to be meeting in, if they'll even come to the table and negotiate with you in the first place. So I think Lame Duck has a sense
of nothing will happen on the trade front. I think it means everything needs to happen immediately so that you have and are taking advantage of the limited four years that you do have.
Which I love how you brought that up, because then it's a sequencing conversation, right, If you have taxes, you have immigration, and you have tariffs, and you what's the sequencing of all of that.
Yeah, this sequencing is critical. So the tax bill is not going to be written until the end of the year.
The deadline is not till the summer thirty first, They.
Will not do it until your end Immediately, then you're going to have tariffs, and the tariffs are a massive hit on American consumers one point four billion dollars in real income per month hit from just the existing tariffs.
So when we double them.
And put them at thirty five percent or higher sixty percent, as President life Trump has advocated, that's going to be a substantial hit to the US consumer in advance of any certainty about tax policy that will come.
At the end of the year.
The immigration component also will happen immediately. You're seeing that in both Canada and Mexico now as those two nations try to accommodate Trump before he comes into office uses the IEPA authority to impose tariffs.
And limits immigration that way.
So you're going to see the hit to immigration and the tariffs earlier than you're going to see any certainty around the straight line extension of the existing tax rates. I think it's important to note that we're not talking about additional tax cuts to offset maybe the negatives of these tariffs. You're talking about a four point six trillion dollar cost of just keeping tax cuts.
At their current rate, tax rates at their current rate.
All right, this one we're doing, Alex.
We're sending Henriette to Washington to just fix things, just get stuff done.
That's how good she is.
Henrietta Tres, Manager partner and director of Economic Policy at Vita Partners.
I'd send her at Washington tomorrow to get stuff done. She knows what she's talking about there.
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