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Okay, two hour conversation Frankly got Man Deep coming in a moment. Frankly is with hs BC. Frank what did the Nvidia earnings say to Microsoft? What did they tell Apple? What did they tell Amazon?
I think the key messaging is that Nvideo needs to change up their narrative a bit, right. I think you know what they did here this quarter was quite interesting is how they reclassified their data center revenues. They broke it down between the hyperscalers and the non hyperscalers, and I think this is what investors ultimately want to see, is you know, the growth in the non hyperscalers continue
to show that they're gaining share there. And I think that's the next big narrative that really that the stock needs to really see a bigger rerating.
I'm looking at a Nvidia here again. I thought the results were just really solid. The stock's pretty much unchanged on the market here on the day here pre market trading two hundred and twenty three dollars pretty much unchanged. But stocks had obviously a good run of twenty percent
year to date seventy percent of trailing twelve months. So, Frank, I mean, what's the next step for a story like in Vidia here, because I look out there and I see competition building, whether it's a MD of the world or some other players, even Intel.
What's what's the next step for this story here?
Yeah?
So I think that's exactly the point is that the beaten raised numbers don't really do much anymore. You know, the you know, a strong AI GP ROWMP doesn't do that much anymore.
So what they need to do is.
Really focus on growth in non hyperscillar customers. And so I think you know, they talked about it last year with the enterprise and sovereignty I but they didn't break down revenues for people that get much comfort around you know, how much step business is really growing now it's almost fifty to fifty split.
So that's a good start.
But I think from here, you know, what they need to show is, you know that the non hyperscalers continue to grow more because, as you said, competition on a humpy scare copex is intense. They need to compete with memory networking service CPUs, A bunch of people.
Frank for Global Wall Street. They got a way to average cost to camp I got, I got debt costs three tenths of a percent ninety nine point seven percent equity. You know they're popping the dividend huge. Is Jenson trying to make this a blue chip stock? I mean, if I see the share buyback in the explosive dividend growth, is he basically doing a Tim Cook act?
I think, you know, I think there were some expectations going into his earnings print that there was going to be a big buyback and evidence would go up. But I think what you're talking about, though, is that it's at the end of the day, it's a tech grow stock. And if you're a tech grows stock, people aren't buying you because of buybacks and because of dividends. They want to buy you because you're investing and you're going to continue to grow. So I think we've seen companies try
that in the past. But I think if you are if you are a high growth stock, as we are in a high growth area AI, I don't think it carries out much weight.
Where is their constraint? Is there operating officers within the whole mix of Nvidio when they wake up, what's their biggest headache?
Well, I think there's a lot of areas that continue to be bottlenecks.
Right.
We've talked about, you know, the packaging sign for the last few years. And what's very interesting is in Video's recent deals in the last couple of months with a lot of the optical companies like Coherent Lumentum, that illustrates that they also see a bottleneck when it comes to the optical components. So that's why I think they're locking in these deals to make sure they have supply there.
I mean, Paul, I'm trying to find something negative here. I'm trying to be you know, everything's plus plus plus. The guy with the leather jacket eating noodles in Beijing, you're ready ten year return sixty eight percent of a year. I'm trying to be negative.
Maybe the biggest one is just at of large numbers here. So talk to us about governments here. I mean, if I think about potential new customers, how about the United States, government, everybody's deploying AI into their business models. How about government entities around the world, how do we think about how do we size that market?
Yeah, so that's that's a great point because that's the whole issue with sovereign AI.
Which is government entities.
Right, And so this builds into the thesis that there is a big tam out there outside of these you know, major hyper skillers, and they've been talking about it, but the market hasn't been convinced because we haven't seen the numbers to back that up. But I do think this again is reclassification is a first step. Right now we can actually see more clearly if the non hyperscilic growth
is coming through. But I think on your earlier point and of you know, everything's going great, So what's the problem. I think the problem is they're the A student in the classroom, and right now the market wants to basically look at the C student that might become an A student.
Right.
Yeah, it's beautiful. Paul I was going to say, any A students in the room, good night.
He just walked in.
He'll be get one more in here with frankly.
So, Frank, is there a technological threshold that we should be looking for next. Is there a new speed, Is there a new chip? Is there a new capability that we.
Should be looking for in Vidia to lead the sector.
I think this is a great point. The real map doesn't matter as much as it used to. It used to be that Okay and Video had the best ship, it was leading everybody. But now I think what they really need is a new narrative, right, and they spent more time talking about server CPUs now because this year the big ten, the big trend has been agentic AI and suddenly now CPU has gone from you know, a runover with nobody cared about too. Oh, this is the
next big thing now with the dentak ai. And so I think in Vidia has pivoted now to talk about a CPU market.
Frank really appreciate. Why don't you publish it? Frank you publishing within the hour? Can you give us a head start on it? I'm kidding, I'm kidding, Frankly, thank you so much with HSBC here on Nvidia, Stay with us. More from Bloomberg Surveillance coming up after this.
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This is a really, really important Conversationshelle, you can dude, excuse me, Vishal. It goes back to Calvert and then to eaton Vans and now with Morgan Stanley doing broad market fixed income with a real engineering bent to it. I love at the back end of your note you say we're slipping into our restrictive status now with a FED slip, you know, slipping in with a newslow Describe that to our audience how we can become more restrictive without a raid hike?
Morning, Tom.
Thanks.
The rate hikes are already in the market. So if you were a home or wanting to be a homeowner today, you're already being mortgage rates as if the FED at height twice yesterday. That's what your tenure mortgage is going to be priced off of. So we believe that the market, like the old cliche goes, has already done a lot of the heavy lifting for Kevin worsh coming in on Friday.
So what do you make of the bond market of the last couple weeks here we've had a big, big lift industrates that the thirty year which were going to talk about as much as you know, well North at five percent, we haven't seen that in a while.
What's going on in your market quite a bit.
The actually, if you go back, there were almost like three phases if you will, of the cell of starting March first, no technicals. It was a massive macro shift coming from a massive inflation shock in countries that import.
The inflation shock was priced into be.
Much longer lingering, and the expectations, and we were included in that, was that at these high oil prices at a sustained time, a sustained period, it will have some demand destruction of growth will be off. We're still squinting our eyes. That's start in the economic data, and then the earnings come along, and the next two phases were only led by real yields rather than break evens ex expanding.
So growth has been very resilient throughout this and you can blame the case shiped economy or upper end of the KSE shaped economy, or the AI infrastructure spend. And then the last probably two days I would say that has been very clearly we've seen glimpses of technical selling where convexity headers have to reduce the duration in their book and has extended out. So you've seen some of that price action go through.
All right, you're a Boston guy.
You're probably heading out to your mansion on Cape con or Nantucket this weekend. People are gonna want to talk to you about clipping coupons here. You can get some really nice income. Is that what I actually be doing here in your world?
Fantastic coupons right now?
I think? And then the other two bits there is that you have so much question right now. Two year at the end of December twenty twenty one, just before the massive sell off in twenty two started off at seventy eight basis points. You started off end of feb here in twenty six at about three sixty somewhere around there. At this point, if you buy a two year note, you can withstand about two hundred and fifty basis points of sell off before you even get into the negative territory.
Of quarter or done getting out of Gilbert was just on a TD and he says, look, he got a real yield in the thirty year back to where I was in two thousand and eight two thousand and seventy three percent. Simon White writing off our London Desk, a brilliant story that went worldwide yesterday. On these new high and f adjust yields, what's the most efficacious way to play the real yield?
I think break evans have moved to a point where we don't see as much value as we saw probably four weeks back, So we've actually shifted a little bit to that nominal on the seven year point. Given there are two hikes being priced in by the end of twenty seven, and then there's probably about twenty twenty two basis points of hike being priced in by the end of this year, so we believe that there's quite a bit coming back to your first one.
It's got a y you know, to Paul's point, you know you're out in Nantucket, you get to Hinckley Bermuda. Sure, you know you're hanging and you've got to clip a copot. I mean you're going to go out and grab nominal or real ten uere or twenty or thirty year or brave enough to buy Japanese forty year.
In the US seven to ten years do fantastic. It's not an inflation lingering story. I do get the point that inflation will be here or at least for a quarter or two, and you'll see it in the prices, But nominals will do fantastic from that perspective. In that bit, if you're a foreign investor and have the benefit of hedging the currency back into your domestic domestic liabilities, I think Japanese long and yields also are fantastic given the steepness in the curve there.
If the war ended somehow, the war ended, oil goes under ninety dollars a barrel. How many basis points does a ten year come in? Have you modeled it out in your.
Twenty five approximately?
We think that there is that extra bit of technical selling, extra bit of premium that is built in through the almost like malaise from lack of clarity that we are in. So four twenty five is, we think, is the first stop the moon. We get some clear clarity, not just another headline.
How much credit risk should investors be taking here?
I think we are much more focused on getting credit risk in the secure dice market, where you have secure balance sheets, you have something to go after because spread are not as compensatory for the risks that you're taking on spread durations increasing. You're seeing a lot of AI capex infrastructure spend coming through the investment great corporate market or the high heal market at this point as well, so secure balance sheets. That's where we find you're compensated as a fixed.
Income investor for that extra premium.
All right, asking for a friend in a high tax district municipal bonds, how about.
That screamingly cheap at this point you go to a tax district which is taxing you a lot more. Yep, you get extra basis points apart from that twenty twenty five years high in twenty thirty year years, you are at this point versus treasuries. So yes, extremely attractive for high state, high tax states.
Michelle, thank you so much as you friend, Did you get friend get enough? Yeology, Yeah, very good. Thanks Paul Ladder Sweeney we call them for sho can did you thank you so much? How to broad market's fixed income it Morgan Stanley and of course all the efforts of eating Vase up in Boston. Stay with us. More from Bloomberg surveillance coming up after this.
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Let's turn Notan joins us right now for a brief for the Economic Cycle Research Institute ACARY. What did God's name to cycles say now about our enjoyable inflation? Ooh up.
In a word, we're going to see a four percent print. Well, directionally, we're headed in the upward direction. And the interesting thing is that it's emphatic on the US and it was pre war. It's happening in Europe, it's happening in Asia, in Japan. And so I was listening to your segment before on currencies. Right, Look, everybody's whether they know it or not, they're underlying inflation. Cycle is up and so it's all relative after that, and you have cycles and inflation,
and of course you have cycles and growth. Now the US, it's true, we're knocking it out of the park, right. I've been saying, hey, there's no window vulnerability. I've been super consistent on that, including around the Iran war, and that continues to be the case. And underneath, it gets a little messy. It's a K shaped economy. Underneath, the pain is real on the lower end of the K,
they're really getting squeezed by the higher prices. What's going to happen here, I think is quite interesting because we have our cyclical view, Tom that you're just saying, what the heck the cycles say? So you have this near term cyclical view, that's what the snapshot is. But then you look at the patterns of all this mistakes in reading the cyclical stuff. And there is a hope that oil comes down, and sure, I hope it does too. It let's say it. Let's insist that it will. The
price of oil will come down. Yeah, And everybody says it's temporary.
Jeffrey Moore has never faced these unknown unknowns that we have right now.
Well, no, I don't think that's true. We faced them, and we've seen the misread on the cycle time and time again. In two thousand and seven, the FED thought that stimulus had headed off a recession inside of a recession six months inside, the FED led the market to price in one hundred basis points of hikes. That's a
huge mistake. The cycle read. That thing perfectly. In the middle of the teens twenty fifteen, twenty sixteen, the FED thought, hey, structural healing is done, we could start raising rates.
Dead wrong.
The FIG read that very clearly and remembered COVID twenty twenty two. That was the famous Oh it's it's temporary, don't it's transitory? Was the word, don't worry about it. No, the FIG nailed that thing, and the FED was so late they didn't start hiking until March of twenty twenty two.
What a mess.
Now that What did they learn from all this? This is the amazing part. Later on they do a big investigation for a couple of years and they they believe that skilled monetary policy had caused structural downshift and inflation, and so that's why they could leave a transitory. That's kind of a Bonker's conclusion. Quite frankly. Cycles happen no
matter what. And so right now, what I'm worried about is we're either going to get the Maestro right the nineties, which is fun, or we're going to get Burns, which is the seventies, which is not fun.
The first person, this is brilliant.
Okay, We're going to get green span or Burns, and I'm not sure who right. I got to watch the thing right now, the FING is saying up. Let's say Warsh wants to as soon as he can cut if oil comes down or if AI product.
Comes to interrupt.
And you know this well because you live over there half the time. Are we going to get Mervyn king where the governors and presidents tells Chairman Worsh what to do.
I don't think so. I think there's a huge political pressure. That's why I'm a little worried about the burn situation. If you have the FIG going up and you have huge political pressure to not hike, you get a lot of volatility because you have If you make a mistake on policy on a cyclical basis, it doesn't smooth the cycle out. It makes the cycle bigger. And so that's what I'm worried about. If Worsh starts going towards or the FED starts going towards hikes and it cuts, excuse me,
and the FIG is still going up. Buckle your seat belts. That's going to get bouncy, but it could get bailed out if the FIG turns down. And I don't know, I don't predict the predictors. If the FIG should turn down, then you might get the Maestro to look like the maestro. The mistake here is if oil comes down, it doesn't mean in all clear look at core. The FIG is
looking at the cycles and core. And if core keeps moving up, which is it is doing in the US, it's doing it in Europe, and is doing it in Japan. It's doing it whether you want to watch it or not, It's happening. And that's the risk here and on growth. Right now, I've been saying window vulnerability shut and that remains to be the case long leading indicators of growth. The shine has come off, so that gets interesting later.
So I guess a lot of investors are just trying to figure out how much of this inflation story that we see in the US and around the world is directly from the war in Iran and all the ripple effects versus more underlying stuff.
A great question, and I think everybody's missing the forest for the trees literally. I think it is not it's not about oil. Oil is moving the headline around. I think the big mistake here is if oil comes down. Let's say the sky's clear and oil comes down, or it stops rising and people get used to it and say, Okay, we're fine, it's an inflationary boom. We're fine. Right, the core is going to keep going up, and that ultimately is a problem. And you see the rate market is
starting to try to wonder about this. Real rates are got to we gotta run launchman. But how do you interpret the new rate and the new real yield that they're kind of feeling that the Fed is going to make a mistake. They're going to mix up the structural with the cyclical. And that's my fear too, because they've done it five times in a row over several decades.
Okay, just up at Bard College, folks doing a wonderful event. Was Sheila bar at Bard College? And we know Lachmenajathon's real commitment to that institution. The views, Okay, are you kidding me? Oh my god, it's Paul. Have you been up there? It's spectacular. It's like, you know, it's kids walking around learning Greek and Latin.
And you know, the whole liberal are thing, and on the river with a beautiful house and garden.
It's like tough and black flies. It's on something. Good morning to Bard College and all the good people out there. Latchman, thank you.
All right.
Yeah, well we'll talk about that next time. Lotch went at that greed. Thank you. Stay with us. More from Bloomberg Surveillance coming up after this.
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This is our conversation of the day. Ivan finds it is incredibly grizzled in the technology area. Ivan, what's the number one thing you got rog and tech? Give me give me a buy hold cell where you just didn't get it right at Tiger's financial which.
Is the one you regret. Well, so far I've been disappointed, and don't I've been a bull on Quest for a long time. That finally caught fire. I was early on en VIDI I mean on Intel. I've been saying Intel would regain his former glory.
But so far.
ILB, which is a very powerful AI creation driven creation platform, as yet to be recognized that I think the contribution it makes in content development.
So that's one I have and I'm going to shout out Charles cantrit new bigger bourbon on this. Everybody's looking at Adobe management going what is going on? Ivan? I want you to interpret the AI IPOs that are coming down the block. You're more you're just so qualified at this. How do you look at anthropic ipo? Paul help me here? Open AI is another one, Ivan, how do you translate those? Well?
I mean there's my favorite is still perplexity. I like, you know chat GPT that seems to give me good information and good data. I think on a lot of these when you are looking for specific data on things, I find it does help to quantify the time period because sometimes it defaults to different, you know.
Older time periods.
But there is going to be a lot of interest in these I pos, at least in the beginning. Then they're going to have to perform. I still think one of the best AI players that's not getting the respect I think it deserves as Microsoft, But it seems now to turn again. I mean, they have a very powerful AI platform and Azure, and I don't know if they're gaining the traction that everybody has expected.
Copilot. But again co Pilot is.
It still is driving revenue and they are getting more and more subscriptions now that they've shifted to target to do more commercial or business users.
But okay, I got to get this headline out, Paul. This is too important to Microsoft up one percent instantly anthropic in talks to use Microsoft AI chips from Information. Thank you Alexis for that earlier y apsolutely.
Yeah.
I mean we've seen more and more headlines and the AI story just gating momentum. I haven't you know, we've had the SpaceX ipo out there in the marketplace maybe.
Eighteen hours here today.
How do you think the marketplace will approach this company, this ipo?
I mean, the size is just staggering.
How do you think the markets can approach it?
Very There's huge interest, very enthusiastically. I mean, finally, after a forty year hiatus of focusing on space, you know, we're returning to that. And the ability to with the computing power and AI to actually move this forward also is going to make help make huge leaps. So there's going to be a lot of interest. Everybody loves space.
I mean, I remember I've been around, so I remember the Apollo launches and how exciting that was, and a lot of enthusiasm, and now that it's coming back, I think in an even more receptive environment with a lot more interest. So I think the SpaceX ipo is going to be very well received. Is this even massive size?
Yeah, massive size, And you know a lot of folks or some folks may get hung up on no matter how you try, and no matter how many years you go out, the valuation just makes no sense. But one can make that similar argument for the life of Tesla as well, and that's worked out.
How do you think about.
Valuations for some of these really big companies that have really long term outlooks.
It's having faith in the future. But I also say, if you like Space, you gotta like Boeing.
Yep, yep. But what's your single best guy here before we go Ivan, what's your single best buy right now?
Well, I think big cap tech is Microsoft an interesting play in a lot of different areas. We just put out a new report yesterday on Garman up to our price target to three twenty five.
The stock is like two thirty seven right now.
This is a play in so many areas as far as especially in health and wellness AI driven health and wellness functionality.
So I think right here. Garment is one of my favorite stocks.
Did you talk to Bill Ackman about this on Microsoft? Has he shown a commitment there with Pershy?
I have not spoken to him directly on that.
We interesting left Wear one of the underwriters of the IPO for his management company, Pershing Square and the Pershing Square closed end fund he just launched. And you know, I think the timing is perfect for Microsoft. He was righted to launch the fund at the time we saw a pullback in a lot of tech stocks.
Thank you so much. I've bean with I have a fine sight there with a thought on Microsoft again. We protect the copyright of our guests. Go to Tigris Financial Partners to get his just really special work day.
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