¶ Intro / Opening
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Let's go now to talk about tech. Really focus in on core Weave. Corewave is one of those neocloud companies. The shares are a big time today a fourteen percent after it has secured a fourteen billion dollar deal with Meta. Let's bring in on rog Rana. He has Bloomberg Intelligence technology analyst on more of this deal.
So on rag.
This is a deal that will provide Meta access to Invidia's latest GB three hundred systems. What is that? Are those in video's most advanced chips or systems run by in Video's most advanced chips.
Yeah, so you know corviv is basically is is a company that takes all these GPUs and rents it out to people for whatever they want to use. So they do get the dips on the most latest equipment that is sold by Nvidia, and then the clients can and now I did show that Meta is buying directly from
Nvidia as well. But in this case, they're just going and outsourcing the entire infrastructure for an amount of fourteen billion dollars, which you know, may be a very small piece of it has overall capex for AI infrastructure, but it's still a start that they are now leasing capacity rather than building it in house.
So how should we think about this in the overall growth of AI. I mean, this feels like incremental spending to me, but I'm not sure if it's just shifted somewhere else. Happy when you see announcements like this from Core we've had, do you kind of welded in or you know, kind of weave it into the larger picture.
So every company, every hyperscale cloud provider right now, you know,
¶ CoreWeave's AI Infrastructure Deal
whether that's Microsoft or whether that's Meta or any other company that's out there that is spending a lot on capital expenditures on expanding their AI capabilities. They have two options. They can either build it themselves and they can go to a specialized spended like Core Weave and rent it
from them or lease it from them. Microsoft has said that they are really into expanding their leasing capacity or capabilities down the road, which is good for companies like core we've their job is to build this only this infrastructure and rent it out to whoever wants it.
Okay, okay, got it. My other question when it comes to core Weave and you know all this, all these deals it's making with these cloud providers, is that they're also raising a lot of money. Core Weave is tapping the debt market, or there's there's there's expectations that it may tap the debt market. Is there going to be enough demand to meet, you know, what, what it wants to sell.
So here is the case when it comes to a customer like Microsoft or Meta, which all of us know have a lot of cash flow come in. If they have signed let's say a five year deal, seventy eight deal, you kind of know that the money is good. It's much easier to raise capital then then let's say from a brand new company that may not have that amount of cash flow coming in. So I would say, I mean, you know, one should not be concerned that Meta is
not good for that money. I don't think that's going to be you know a concern for anybody who's giving them the bonds of their debt for.
That Yeah, Meta raised twenty nine billion dollars in a financing package for a massive data center in Louisiana. Last week, Oracle raised eighteen billion dollars in bonds as it builds infrastructure for open AI. So the markets are open for this kind of trade.
It seems like, yeah, apparently they are. And the other thing with Corewave, of course, is that it has an increased commitment from open AI. It's got this big customer in Microsoft I think makes up seventy one percent of its revenue. How diversified is Coreweave's customer base right now?
See when you see the core piece's first biggest customer was Microsoft. Microsoft didn't have the capacity to run a lot of there I workloads, so they went to core beef. So, you know, frankly speaking, I understand that seventy percent. But you know, this is an area where everybody needs capacity. So you know, for us it is an issue, but it's not like, you know, it's not a deal breaker when it comes to the quality or even you look
at the fundamentals of somebody like a corevief. Now what's happening is other cloud providers are going to them and say, whatever access capacity that you have, you know we will take that as well.
Are there other companies that are going to come public here, like core weave, these neo cloud companies.
Yeah, I mean, I'm sure a lot of them are gearing up for it. Core Weef is probably the biggest one that's out there. You know, we saw Microsoft signing another deal recently with the Nebius, I believe, and you know that was a very similar arrangement where Microsoft is going to them and saying, Okay, for the next several years, this is the kind of money that I are the capacity that I want from you, and this is how I'm going to give you the money to fund it.
Basically, So an rag when you look at these kinds of deals and you know, fourteen billion dollars here, ten billion dollars somewhere else, what gets your attention in terms of, you know, I need to look into this a little bit more versus this is just one in a long string of deals that these companies will continue to sign.
The biggest thing you want to think about is what
are these companies doing these deals for. So, say, somebody like a Microsoft, are they giving a lot of their inference workloads or the outcome of chart GPT running on Microsoft's cloud workloads or are they giving model training workloads because there is a there is a there is a narrative out there in the market that the long tail of the AI revenue comes from people using apps, which we you know, think of this as infrince revenue compared to the model training revenue, which make ups and down
depending on what kind of technological advancement we see in you know, software development.
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Looking at Exxon Mobil, say they're cutting about two thousand people from their headcount, the stocks off about one percent. This is a company that has almost sixty one thousand employees, so you know, a meaningful number there, and we've seen job cuts around other energy companies as well. When you get a sense of what's happening there, Vince Piazza joins us here. Vince's senior energy analysts for Bloomberg Intelligence. Vince talk to us about what this news from Exon Mobile means.
How material is it to you and to investors.
Well, I think it's part of managing through the cycle. Right in prior cycles the sector was exposed to more extreme volatility, higher highs, lower lows. The industry is trying to manage through what seems to be a rather clouded backdrop right now. So we're sitting here and you got neck gas somewhere around three point thirty Henry Hubb. You got WTI in the low sixties. You have OPEC bringing back on capacity and maybe even speeding up that the
capacity ads. You have a more clouded, broader economic backdrop across the globe. You have geopolitical issues, so lots of uncertainty, and not only Exon. Exon's probably going to cut somewhere about two three four percent of its global workforce. It's Canadian affiliate a much more substantial cut, roughly about twenty percent over the next two years or so. You're seeing it at Conico Phillips, You're seeing it at Chevron, even BP,
the major European energy conglomerate. You're seeing it across the board and so Paul, as you know, when you're not growing revenue, right, You're not getting the revenue increase on price, you're not growing production because your investor base does not want to see that production growth. You are looking at
very steady revenue, maybe even declining revenue. You have to manage that netback from the cost perspective, and you have to support that cash flow stream, and so you're doing it via these cost cuts over a number of years too, maybe even three years, to sort of bring that cost structure in line with a new reality of uncertainty in the marketplace, to reduce that volatility.
Well, there's cost cuts, and then there's Exon mobiles cost cuts. Since twenty nineteen, it's trimmed thirteen and a half billion dollars in annual cost That is more than all the other big oil companies combined. How much more room is there for Exon to slash expenses.
Well, it bought Pioneer, so it has a relatively sizable workforce. In general, it doesn't necessarily mean that those cuts are going to come there, but there are ways you cut
you gain efficiency. In this technological era where we have advancements across the energy value chain, you will consistently and continually seek out ways to get efficiency, to bring down that cost structure and to bring unit costs in line with a very anemic outlook for global energy prices in general, and also a very clouded outlook for the global economy too.
¶ ExxonMobil's Job Cuts & Energy Outlook
So Vince kind of looking out, you know, one to two years, what is the view of the companies you talk to about energy prices, oil and gas. Is it still going to be a challenge market here?
It looks like it. It looks like it's going to be a very challenge market, especially for the WTI side, for the oil side of the equation. On natural gas, Paul, I know you and I have talked about this numerous times. You have a contructural growth trajectory for natural gas here in the US via export LNG, whether it's seaborne energy or whether it's pipeline gas into Mexico to help fuel
their economy. As well. You have the AI build out, which will be a which will digest significant amounts of energy, and that's beneficial for natural gas. But on the oil side, you have very anemic growth. You have your transportation fuels having to compete with alternative and renewable fuels, So there's a greater competition there. The growth trajectory and the outlook for the demand side on the liquids fuels seems to be very clouded and seems to be somewhat less secure
relative to the natural gas side of the house. And that's why we much more favorably disposed to Henry Hub and natural gas relative to WTI, Brent and the various liquid fuels.
And before we let you go, Vince, Opek Plus will be holding a meeting this weekend on Sunday, and there's talk that they will increase or fast tracked the return of halted production. There's a lot of concern that China, and it's a build up of its strategic oil reserve, might be distorting some numbers or distorting the demand picture.
What's your take, So, in general, demand across the globe seems to be less than robust because of well, you have a global economy that's uncertain you have PARAFT policy that has injected more volatility and uncertainty across the globe. That so demand concerns are an issue. The supply side, well, we know where the supply is and opick is reasserting
its market share dominance in the US. We don't want that production growth, and so it's really coming from the OPEC side of the house, and the demand side of the house is going to be somewhat in NEEMA. From here, stay with us.
More from Bloomberg Intelligence coming up after this.
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Spotify. You know, I'm not a Spotify user, so I don't pay that much attention to it.
I should.
One hundred and forty four billion dollars in market cap. The stock's up fifty percent this year to date. Just extraordinary. The Spotify founder Daniel Eck stepping down as CEO, stocks off about five percent on the news. He's forty two years old. I mean, I don't know.
It's got a lifetop ahead of Oh.
He's got ten billion dollars according to Rich, go is his net worth? Keith wrong Andathan joins as she's the US media analyst for Bloomberg Intelligence follows this company. H Keith to talk to us about Spotify, talk to us about Daniel Eck. What's going on here today?
Yeah?
Absolutely, pause, But this is you know, one of your classic cases of the founder finally kind of establishing a really good transition plan and handing it off to his you know, two lieutenants here. So we're having a co
CEO structure. And really, I mean the first when I heard this, I mean, this really kind of harkens back to what Reed Hastings did with Netflix, you know, kind of left right at the peak, right when the companies, you know, everything was kind of you know, all cylinders were firing away and left it to Greg Peters and and Ted Surrandos to kind of take charge. And it
seems like Spotify is in a very similar position. So they had a couple of things that had to get done this year, which was new contracts with all of the music labels. It looks like Daniel Eck has you know, accomplished all of that, and I think he's really kind of left the company in a good position for for its next phase of growth. And this is really you know, a huge story in the Internet space, the possibility to
get to a billion users very very quickly. They already have about seven hundred million.
Okay, so there are almost three quarters of the way there. He's leaving on top as George Costanzo wood in Seinfeld. But my question, Gita, is you talk about the new phase of growth, how much of that will rely on continued price increases. Unlike Paul, I do subscribe to Spotify, and it's alarming how frequently the price changes come.
Yeah, and it is going to keep coming, Scarret, There's absolutely no doubt about it. I mean, this whole story is kind of predicated on those price increases. Remember though, that they never took up prices for the first ten to twelve years, and then it started coming fast and furious.
Right.
We had one price increase in twenty twenty three, another in twenty twenty four, We're going to have probably another one in twenty twenty six. But if you kind of look at all of the streaming services out there, you know, Spotify is, of course the leader in audio streaming. They have a thirty five percent global market share in terms of subscribers. You kind of look at their price, let's say in the US, it's twelve dollars for an individual plan.
You compare that to let's say the video leader Netflix. Again, I go back to the Netflix example, they are priced at eighteen dollars, so I think Spotify still has quite a lot runway when you kind of compare it to the rest of the field. And the other thing that I like to point out here is when you're kind of subscribing to an audio service, it's typically only one service that you're subscribing to as opposed to a video service.
So I think people really like their you know, if they like Spotify, they're absolutely going to hold on to it at any cost. And the other thing is, you know, Spotify is adding new features all the time, so they are like really getting down on you know, monetizing more and more, but it's not they are innovating also constantly, so I think I think people don't mind paying for it.
What's the biggest challenge to them on the cost side of the business.
KEITHA music royalty is all.
I mean that, you know, for every dollar that they make, they're paying out about seventy cents in terms of musical royalties back to the labels. So it is definitely a very you know, from that perspective, the model is hard. But one of the things that they've done very well is you know, they've obviously renegotiated a lot of the deals kind of try to prove investors with a lot
more visibility into the cost space. But more importantly for them, they're really trying to go away from you know, licensed content to more owned content, so kind of going into you know, podcasts, going into more non music content, where again they have a lot more leverage, you know, whether it's audiobooks, whether it's video podcasts, getting away from you know, just being a core music service to more of kind of a global kind of an audio service, and they're
doing that really well, and that's going to help them with their margin expansion story as they get better unit economics.
Right and introducing premium tiers on top of that, you have to unlock in order to unlock some of the more I don't know, high profile podcasts, you then have to pay extra. Keith talk a little bit about AI, because I keep reading about how AI generated music is a challenge, but in what way and could it actually become an opportunity as well for Spotify?
I think so, I think it is going to become, you know, an opportunity as we go. They're already actually using you know a lot of AI features when it comes to curation, you know, when it comes to music discovery, when it comes to providing better features, and they're already and you just brought up the super Premium tier and
¶ Spotify's CEO Transition & Growth
a lot of that is actually going to be having like an AIDJ type of a feature there, you know, for both listeners as well as music creators. So I think it is definitely going to be, you know, a good opportunity for them to present a much better product. I mean, we've already seen AI being used by a lot of the other platforms. Again, I go back to Netflix because they've done this really well in terms of, you know, having a much better algorithm now to serve
up better content. And I think that's exactly what Spotify is doing in terms of its playlists as well.
CA you thinking about thirty seconds left, where's Apple in this audio game?
So just in terms of subscribers share, Paul, I mean, Spotify, as I said, leads with about thirty five percent share of the market. Apple is really far behind. They have about a ten percent share, so very very hard for them to catch up in terms of subscribers.
At least.
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