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AI Cost Reality Check Hits Tech Stocks as Apple Hikes Price · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 2: This memory chip shortage, it's becoming a thing. I mean
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  Speaker 2: for people like me and you and our listeners and
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  Speaker 2: our viewers.
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  Speaker 3: Here.
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  Speaker 2: Apple's raising prices for a lot of stuff now it's
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  Speaker 2: starting to hit home for a lot of people. Ed
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  Speaker 2: Ludlow b Tech hosts, he covers all this stuff. He's
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  Speaker 2: out there in our San Francisco offers.
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  Speaker 4: Ed.
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  Speaker 2: I think, you know, people who weren't really paying too
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  Speaker 2: much attention to this chip shortage thing. I guess they're
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  Speaker 2: going to start thinking about it when they go to
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  Speaker 2: their Apple store and they're gonna have they have to
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  Speaker 2: pay more for some of those products. What's going on?
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  Speaker 4: Yeah, you kind of nailed what's been a very recent
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  Speaker 4: change in psychology of the market. We've gone from a
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  Speaker 4: place in the middle of the week where Micron is
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  Speaker 4: absolutely surging and the market is cheering a situation where
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  Speaker 4: memory chip supply is so tight and the memory names
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  Speaker 4: have pricing power to now looking at it from completely
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  Speaker 4: the other perspective, from the seller of memory to now
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  Speaker 4: the buyer and that Apple case study, you know, the
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  Speaker 4: way that Bloomberg put it is Apple raising prices because
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  Speaker 4: one single component cost is so high is an extreme measure.
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  Speaker 4: And so now extrapolating out and looking at what happened
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  Speaker 4: in Asia trading overnight a little bit, the trading of
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  Speaker 4: this morning's market, the concern is the next step is
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  Speaker 4: we come full circle and demand for consumer electronics is
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  Speaker 4: dampened because of high prices, and by extension, memory ironically
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  Speaker 4: sees demand dampen a bit. So it's a really sort
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  Speaker 4: of circular debate the market's having with itself here.
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  Speaker 5: Well, you know, when it comes to the memory chip Schwartz,
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  Speaker 5: it is this something that is a hute at the
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  Speaker 5: moment or is this going to be the new normal,
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  Speaker 5: especially with all the demand for just from everywhere.
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  Speaker 4: Essentially it's incredibly severe. So like, in very simple terms,
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  Speaker 4: all these data centers that are getting built specifically within
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  Speaker 4: video GPUs require lots of what's called high bandwidth memory.
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  Speaker 4: High bandwidth memory is just dram. Everyday DRAM goes into
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  Speaker 4: your own consumer electronics layered upon one on top of
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  Speaker 4: the other. For every Nvidia GPU you have, there are
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  Speaker 4: eight corresponding high bandwidth memory chips, so lots of layers
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  Speaker 4: of DRAM. And because A Micron and other memory names
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  Speaker 4: have pricing power, and b that those building the data
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  Speaker 4: centers have lots of money, that's where the supply is
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  Speaker 4: being prioritized. The net result is that the consumer electronics industry,
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  Speaker 4: not just Apple Xbox, raised prices on its consoles too.
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  Speaker 4: They have no choice but to pay that higher pricing
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  Speaker 4: in order to secure supply. It is a very severe situation.
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  Speaker 4: And you know, the weirdness was that in the moment
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  Speaker 4: again there was euphoria in the markets Wednesday into Thursday.
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  Speaker 4: Good for you, Micron stock surges. It's a really enviable
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  Speaker 4: position to be in. And what Micron said is that
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  Speaker 4: this situation is going to last for at least eighteen
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  Speaker 4: months before it improves. So it's a lot for the
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  Speaker 4: market to decide, like what is good news and what
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  Speaker 4: is bad news.
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  Speaker 2: Here ed, when we had those higher egg prices coming
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  Speaker 2: under the pandemic, my genius solution was to just make
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  Speaker 2: more chickens and then basically as well after the egg
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  Speaker 2: prices came down that largic I don't think it's going
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  Speaker 2: to apply to memory chips, will it.
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  Speaker 6: So.
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  Speaker 4: Historically, before this whole AI thing, memory was highly cyclical,
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  Speaker 4: highly commoditized. It was an industry that went through boom
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  Speaker 4: and bus. When consumers got disinterested in PCs and smartphones,
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  Speaker 4: the memory market crashed, both in terms of pricing, and
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  Speaker 4: so that is an industry that's so sensitive to getting
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  Speaker 4: supply right. The story under this administration in particular, but
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  Speaker 4: for a longer period of time, has been let's get
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  Speaker 4: the these companies to build more capacity. The problem is,
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  Speaker 4: what if they build all these memory chip fabs and
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  Speaker 4: then demand evaporates and they're left with very large facilities
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  Speaker 4: that aren't doing anything well. That would be a really
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  Speaker 4: less than prudent financial move that is still there. The
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  Speaker 4: difference is is that the data center demand seems to
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  Speaker 4: be here forever, it has staying power. It's not as
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  Speaker 4: cyclical as the consumer electronics industry has been. It's a
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  Speaker 4: really hard one for them.
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  Speaker 3: To get right.
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  Speaker 5: All right, and let's switch gears and talk about this
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  Speaker 5: open AIIPO, which may not be coming now until twenty
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  Speaker 5: twenty seven.
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  Speaker 7: What can you tell us about that.
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  Speaker 4: I'm just looking at my bio to see if we've
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  Speaker 4: published yet. We haven't. What I can say is that
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  Speaker 4: it's consistent with what open ai said on June eighth
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  Speaker 4: when it disclosed its confidential filing, that they would stay
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  Speaker 4: private for quite a long time because they're things that
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  Speaker 4: they want to do that are more achievable as a
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  Speaker 4: private company. In the public company. There is a lot
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  Speaker 4: going on in capital markets. As you know, we had
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  Speaker 4: the biggest ip of all time in SpaceX. There is
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  Speaker 4: a lot of activity in the bond market, not just SpaceX,
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  Speaker 4: tapping the bond market in video as well, being the
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  Speaker 4: most recent, and there is a finite pool of capital.
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  Speaker 4: It's consistent that open ai would take its time. But
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  Speaker 4: I think what I can say safely on air is
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  Speaker 4: like I think open ai is also pretty calm about
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  Speaker 4: the idea that Anthropic goes public before then, you know,
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  Speaker 4: if you put it in the context of a race
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  Speaker 4: between two AI companies.
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  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 2: Switch it over to the auto business. Wait, I saw
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  Speaker 2: this headline some big numbers Volkswagon. I was cutting one
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  Speaker 2: hundred thousand jobs, closing plants. That's big news, David watch
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  Speaker 2: Bloomberg Detroit Bureau Chief Joints is here. Hey, what's going
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  Speaker 2: on with our friends at Volkswagen. Yeah.
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  Speaker 3: Look, the company's been struggling for a while now, with
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  Speaker 3: revenue flatlining, profits you know, stagnant at best, and they're
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  Speaker 3: facing costs from tariffs in the United States. They're facing
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  Speaker 3: competition in Europe from China. In their Chinese business, you know,
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  Speaker 3: like General Motors, Volkswagen is one of the first pioneers
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  Speaker 3: there and the Chinese have been first off. Their companies
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  Speaker 3: have waged price wars and taken up a lot of
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  Speaker 3: market share. The Chinese government doesn't love foreign companies in
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  Speaker 3: the market so much anymore, and it's just been tougher
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  Speaker 3: for them to compete. So they're really they're seeing their
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  Speaker 3: business challenged in every major market where they play. And
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  Speaker 3: they've always had a massive industrial complex in Europe with
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  Speaker 3: their parts units, engine units, different brands, and with the
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  Speaker 3: way things are running Europe, it's always tough to cut jobs,
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  Speaker 3: and so they've always kind of pushed that reckoning off
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  Speaker 3: as much as possible because it's politically foreigny to go
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  Speaker 3: and lay off a bunch of factory workers. And they've
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  Speaker 3: got union people on their boards. The unions are very
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  Speaker 3: tough over there as well, and I think they're finally
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  Speaker 3: at a point where they have to really get the
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  Speaker 3: company weener in order to compete with everything that's going
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  Speaker 3: on around the world and keep their profits up. They're
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  Speaker 3: in a tough spot and they've got a lot of
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  Speaker 3: work to do. They've started some of it, but it's
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  Speaker 3: going to be difficult for them going forward because it's
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  Speaker 3: just it's hard in Europe to cut a lot of jobs,
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  Speaker 3: and they really have earmarks some massive numbers here.
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  Speaker 8: Yeah, I mean definitely.
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  Speaker 5: Part of the challenge, of course, is implementing those plans
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  Speaker 5: to cut labor. And as you mentioned, David, a lot
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  Speaker 5: of labor leaders probably going to be pushing back on
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  Speaker 5: this latest round. But how difficult would it be to
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  Speaker 5: implement the plans at this stage or is the direness
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  Speaker 5: of the situation kind of going to overtake any of
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  Speaker 5: that issue.
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  Speaker 3: It's gonna be really hard.
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  Speaker 6: Uh.
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  Speaker 3: You know, e gay Mental is the big German union
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  Speaker 3: and they're gonna be pushing back. Volkswagen has operations in
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  Speaker 3: other countries with different unions, they will push back. It's
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  Speaker 3: and and politicians too, Uh. The German government doesn't love
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  Speaker 3: people laying workers off either. And you know, Volkswagen's got
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  Speaker 3: some government ownership with Lower Saxony, the province that that
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  Speaker 3: owns some of the company. So you know, when when
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  Speaker 3: you've got government kind of playing around in the business
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  Speaker 3: as well with people on the board, you know, it
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  Speaker 3: all becomes politically very difficult to do. And I think
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  Speaker 3: they'll make some cuts, you know that, and it's clear
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  Speaker 3: that they probably have to. But how much can they
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  Speaker 3: they do and how fast can they do it? Those
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  Speaker 3: are the big questions. You notice the stock didn't roar
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  Speaker 3: on this thing. Usually when companies say they're gonna cut
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  Speaker 3: a bunch of people, investors love it and the stock
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  Speaker 3: goes up a lot. I think the last time I
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  Speaker 3: looked at it was up like one point two percent,
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  Speaker 3: which is not a big bump. And I think investors,
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  Speaker 3: particularly European investors, know that these things are time consuming
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  Speaker 3: and difficult to do. And look at Stollantis. You know,
• 9:05
  Speaker 3: they've acquired a bunch of different European brands over the years,
• 9:09
  Speaker 3: you know, starting with Fiat and Puggio. They bought Opal
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  Speaker 3: from General Motors and put all that together and they
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  Speaker 3: made honestly pretty decent sense out of it, but still
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  Speaker 3: not a super profitable unit for them. And they have
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  Speaker 3: leaned up, they've made it more efficient, they've cut workers,
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  Speaker 3: they've merged up engines and vehicle platforms and all kinds
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  Speaker 3: of hardware, but still tough to work through those stuff
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  Speaker 3: over the years and undo, you know, many decades of
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  Speaker 3: how these companies work in terms of their factories and
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  Speaker 3: all this sort of thing.
• 9:37
  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 9:58
  Speaker 2: I want to get real quickly to Boeing. Boeing Inc.
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  Speaker 2: The deal with China Southern Airlines to sell some jets.
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  Speaker 2: It's not a huge deal. Three point six billion dollars
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  Speaker 2: by aerospace standards. But it's my signal, at least to me.
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  Speaker 2: I'm wondering if its signals maybe an opening up of
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  Speaker 2: these China market which has been kind of closed to
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  Speaker 2: Boeing for maybe ten years now, and that would be
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  Speaker 2: a significant positive. George Ferguson joins us. He's been covering
• 10:21
  Speaker 2: Boeing for decades. He's a senior aerospace, defense and airlines analysts. George,
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  Speaker 2: what should we take away from this China Southern Airlines
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  Speaker 2: deal with Boeing?
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  Speaker 6: I think, first of all, First of all, good afternoon.
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  Speaker 6: Every order is a good order, right. There used to
• 10:37
  Speaker 6: be a song out there. I guess every love is
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  Speaker 6: good love, right, So good to see it when I
• 10:45
  Speaker 6: took a look at it. I've been seeing an official
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  Speaker 6: announcement on Boeing site, but I've seen it reported in
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  Speaker 6: some news outlets. It's Triple Seven's Triple seven freighters. You know,
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  Speaker 6: Boeing's got a pretty strong product lineup in that that
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  Speaker 6: Triple seven freighter. World, that's Triple seven is going to
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  Speaker 6: be the biggest airplane in the sky with the new
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  Speaker 6: version of it. Freighter's quite large, pack it up pretty well,
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  Speaker 6: you know, so again it's a good order, but I
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  Speaker 6: would have liked to have seen things like narrowbody orders.
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  Speaker 6: I'd like to see seven thirty seven orders going into China.
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  Speaker 6: That would get me more excited. That's a bigger portion
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  Speaker 6: of the marketplace. So again good, good to see China
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  Speaker 6: on the book here. But this is an airplane that
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  Speaker 6: Boeing has a really strong, you know airplane to offer.
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  Speaker 6: Airbus doesn't have as good good of an offering, and
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  Speaker 6: so I could have seen them potentially order this even
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  Speaker 6: away from the Trump visit and the you know and
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  Speaker 6: hopefully the re approach.
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  Speaker 5: Momp Well, George, as Paul mentioned, you know, it seems
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  Speaker 5: like for years, China, the China airlines market just in
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  Speaker 5: general seems to have been close off to a lot
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  Speaker 5: of the outsiders. But you know, with this deal, do
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  Speaker 5: you foresee some of that starting to thall And could
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  Speaker 5: this be the beginning of even more deals between the
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  Speaker 5: US and chin companies.
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  Speaker 6: Well, so we've put actually a China calculator on the
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  Speaker 6: Bloomberg terminal because we really look at that market. Prior
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  Speaker 6: to the pandemic, it was the most important market in
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  Speaker 6: the world I think for Boeing, and Airbus. You know,
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  Speaker 6: they were selling there was over three hundred narrow bodies
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  Speaker 6: going in their year. It was a significant portion of
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  Speaker 6: narrowbody production. It's really slowed down, but I would say
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  Speaker 6: it's still open for Airbus. Airbus has made you know
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  Speaker 6: a lot of deliveries into the market and orders in
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  Speaker 6: the market, and so it's been closed largely to Boeing
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  Speaker 6: since the first Trump administration. I think they kind of
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  Speaker 6: used the grounding of the Max. The Max crash grounding
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  Speaker 6: the Max's reason not to take it. Now, China's slowed
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  Speaker 6: since then considerable, and so China just doesn't need the airplanes.
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  Speaker 6: We think right there, the GDP growth is, you know,
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  Speaker 6: from eight percent down into the fours. Now China has
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  Speaker 6: been a little bit inward looking, and you know, they're
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  Speaker 6: building their own competitor to the Airbus and Boeing AIRBSA
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  Speaker 6: through twenty bowing seven thirty seven, the Comac C nine
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  Speaker 6: one nine that is ramped much slower than we expected.
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  Speaker 6: I want to say there were some twenty some deliveries
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  Speaker 6: of that last year. In time, I would expect them
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  Speaker 6: to replace Boeing an Airbus orders and deliveries with that airplane.
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  Speaker 6: But again, like you know, right now, the way it
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  Speaker 6: looks to us is they're absolutely still buying from Airbus,
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  Speaker 6: taking the majority of their deliveries from Airbus, and Boeing
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  Speaker 6: has just been blocked out since the first Trump administration
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  Speaker 6: where we sort of entered into the trade war, and
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  Speaker 6: so that's kind of what we're looking for to lift
• 13:57
  Speaker 6: because it could be more opportunity for Boeing. But we
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  Speaker 6: see a lot of orders on the books for Airbus.
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  Speaker 6: It feels like they're pretty full with orders.
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  Speaker 2: So that's why we're.
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  Speaker 6: Kind of watching closely to see what they do.
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  Speaker 3: Here.
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  Speaker 2: George, you got about thirty seconds left. Where is Boeing
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  Speaker 2: now on the monthly deliverables for seven thirty seven. It's
• 14:13
  Speaker 2: because you've told us in the past that's really critical
• 14:15
  Speaker 2: for their cash flow story.
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  Speaker 6: Move into forty seven, which is what we expected midyear.
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  Speaker 6: So I think go do forty seven a month in
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  Speaker 6: the seven thirty seven through the end of the year,
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  Speaker 6: which is quite strong. They're actually getting better performance out
• 14:27
  Speaker 6: of their supply chain and production build than Airbus is now,
• 14:31
  Speaker 6: albeit Airbuses at higher absolute levels. But Boeing's doing a
• 14:36
  Speaker 6: decent job at catching up right now. So it's looking nice.
• 14:40
  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
• 14:47
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 14:51
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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• 14:57
  Speaker 1: you get your podcasts, or watch us live on into.
• 15:01
  Speaker 2: Three natural joints. This year, he's a chief Wall Street
• 15:04
  Speaker 2: correspondent for Bloomberg News. Talk to us about what's going
• 15:07
  Speaker 2: on at JP Morgan and who are the potential heirs
• 15:11
  Speaker 2: to mister Jamie Dimmon.
• 15:13
  Speaker 7: It's the latest iteration of Wall Street's favorite parlor game,
• 15:17
  Speaker 7: right who will be in position to take on the
• 15:19
  Speaker 7: most consequential job in American finance? Jamie Diamond has been
• 15:23
  Speaker 7: in that role for twenty years. He does not at
• 15:26
  Speaker 7: least doesn't look like he wants to step away anytime,
• 15:28
  Speaker 7: so he wants to be there for a few more years.
• 15:30
  Speaker 7: But the news yesterday helped narrow the field a little
• 15:33
  Speaker 7: bit from potentially three candidates to two. One long time
• 15:38
  Speaker 7: arguably the front runner, maryon Lake, over the last year
• 15:42
  Speaker 7: or so has been forced to step aside, or at
• 15:45
  Speaker 7: least has stepped aside, and now the two new names
• 15:48
  Speaker 7: in the mix are. I guess if we think.
• 15:53
  Speaker 2: About it, when I read it as a voluta, hey,
• 15:56
  Speaker 2: I got my plenty though I'm gone.
• 15:58
  Speaker 7: I think there's certainly a difference between the news early
• 16:01
  Speaker 7: lost year and this time around, because early last year,
• 16:04
  Speaker 7: if you remember, JP Morgan came out and said Jen Peepsak,
• 16:07
  Speaker 7: who's now the CEO of the bank but was widely
• 16:10
  Speaker 7: considered as one of the front runners to replace Diamond,
• 16:13
  Speaker 7: put her hand up and said, I'm not interested in
• 16:16
  Speaker 7: being CEO. I love my job, I'm comfortable in my skin.
• 16:20
  Speaker 7: I want to continue doing what I'm doing. She's still
• 16:22
  Speaker 7: at the bank, but she very clearly voluntarily put up
• 16:25
  Speaker 7: her hand and said I do not want to be
• 16:26
  Speaker 7: ceoh in the case of Mary and Lake, we haven't
• 16:30
  Speaker 7: seen any announcement to that effect. It does feel like
• 16:33
  Speaker 7: a Jamie in the board's decision that maybe she wasn't
• 16:36
  Speaker 7: in you were necessarily going to get the top job,
• 16:40
  Speaker 7: and that seems to have precipitated this change where now
• 16:43
  Speaker 7: you have Doug Petno, who will have sole charge of
• 16:45
  Speaker 7: all of JP Morgan's vast Wall Street operations, and Troy Robot,
• 16:50
  Speaker 7: the fifty six year old who's now going to be
• 16:53
  Speaker 7: moved to the other side, the other big pillar of
• 16:55
  Speaker 7: the bank, which is its sprawling consumer business, after having
• 16:59
  Speaker 7: run the Wall Street busines. So he's certainly getting that
• 17:01
  Speaker 7: cross training that Jamie definitely loves to see in his lieutenants.
• 17:06
  Speaker 5: Yeah well, okay, so very different portfolios now for these
• 17:09
  Speaker 5: human this is effectively an audition for both of them
• 17:13
  Speaker 5: from a top job, I would presume one hundred percent.
• 17:16
  Speaker 7: It's definitely an audition. Both of them have very strong
• 17:18
  Speaker 7: experience on the Wall Street side of the business, and
• 17:21
  Speaker 7: you know, you could say that is in some ways
• 17:23
  Speaker 7: the tougher part, because that's all about managing risk. The
• 17:26
  Speaker 7: retail bank, if you get it into decent shape, it
• 17:30
  Speaker 7: is very predictable and it ebbs and flows with the
• 17:33
  Speaker 7: broader macroeconomy, with the Wall Street business. Your skills as
• 17:37
  Speaker 7: a risk manager are extremely important. Even today, Jamie Diamond
• 17:41
  Speaker 7: is regarded as one of the top CEOs out there,
• 17:44
  Speaker 7: largely in partant thanks to the way the bank navigated
• 17:48
  Speaker 7: the two thousand and eight financial crisis. It came out
• 17:51
  Speaker 7: stronger than everyone else, and today it is fortress Jamie Diamond, right,
• 17:56
  Speaker 7: the fortress balance shape that they talk about it is
• 17:58
  Speaker 7: the most powerful bank institution in the United States. So
• 18:02
  Speaker 7: the Wall Street side of the business is important. But
• 18:04
  Speaker 7: when you if you want to be CEO, you can't
• 18:07
  Speaker 7: forget the retail business. That is about as important as
• 18:10
  Speaker 7: anything else out there. When you mess up on your
• 18:14
  Speaker 7: trading desk, you might get an angry call from I
• 18:17
  Speaker 7: don't know, Easy england Er, milandym or Steve Cohen at
• 18:19
  Speaker 7: zero point seventy two. But if you mess up on
• 18:21
  Speaker 7: the retail bank, a grief party on the other side
• 18:24
  Speaker 7: could very well be the President of the United States,
• 18:27
  Speaker 7: something that the bank is currently facing. So it's a
• 18:29
  Speaker 7: very important job, even if it's not as profitable as
• 18:33
  Speaker 7: the banking and trading site.
• 18:35
  Speaker 2: Right then, there were two Troy Warball and Doug pet No.
• 18:40
  Speaker 2: I know nothing about either With them, what should I know?
• 18:43
  Speaker 7: Well, the thing you should know about Troy is he
• 18:45
  Speaker 7: grew up in the Baltimore area. Big fan of Baltimore
• 18:49
  Speaker 7: area sports. He got a start in the nineteen nineties
• 18:52
  Speaker 7: growling pit of the Philadelphia Stock Exchange. To just the
• 18:55
  Speaker 7: transformation from that point to now being a heartbeat away
• 18:58
  Speaker 7: from one of the most important job in finance is
• 19:01
  Speaker 7: sort of an incredible journey complete trading veteran, came up
• 19:04
  Speaker 7: through the ranks, has spent most of his time there.
• 19:07
  Speaker 7: He is known as a little bit of a non
• 19:10
  Speaker 7: showy character, more risk, fusses more about market risk than
• 19:15
  Speaker 7: splashy leadership displays. Whereas Doug Petno, you know, smooth investment banker,
• 19:21
  Speaker 7: was a top energy banker, then ran the commercial bank.
• 19:24
  Speaker 7: Now we'll have sole charge over the commercial and investment bank.
• 19:27
  Speaker 7: Easy with clients, exhudes the charm of a natural leader.
• 19:32
  Speaker 7: But he's sixty one. And if Jamie Diamond wants to
• 19:35
  Speaker 7: stick around for three audios and then perhaps another couple
• 19:38
  Speaker 7: of years after that as chairman. Where if you have
• 19:41
  Speaker 7: Jamie Diamond as your chairman, are you necessarily the final say?
• 19:43
  Speaker 7: At any place the clock starts sticking, and you do
• 19:46
  Speaker 7: wonder at sixty five, does JP Morgan look at a
• 19:49
  Speaker 7: Doug Petno and say you're our man for the possibly
• 19:52
  Speaker 7: the next ten to fifteen twenty years, or do they
• 19:54
  Speaker 7: go with the safer Troy Robobbett.
• 19:57
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify
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