Latest / Bloomberg Intelligence / CoreWeave Credit Risk Hits Record, Pricing 60% Odds of Default

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CoreWeave Credit Risk Hits Record, Pricing 60% Odds of Default · Bloomberg Intelligence

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  Speaker 5: So one of the big stories you just mentioned, CoreWeave,
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  Speaker 5: its credit risk hitting an all-time high, pricing at 60%
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  Speaker 5: odds of a default. Here to dig into that with
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  Speaker 5: us is Vasu Katsibhotla. Vasu, he's Bloomberg Intelligence Senior Industry Analyst.
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  Speaker 5: You have a piece out today speaking about how CoreWeave
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  Speaker 5: sell-off may reflect funding but not compute demand. Walk us
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  Speaker 5: through that.
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  Speaker 3: Yeah, so clearly, you know, Corby stock and the, you know,
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  Speaker 3: some of the parent unsecured debt has come under pressure
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  Speaker 3: in the last few days. Our opinion is that this
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  Speaker 3: has been, you know, building up. You know, the key
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  Speaker 3: catalyst actually has been the rising interest rates, close to 6% now.
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  Speaker 3: So I think that's going to put pressure. across the
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  Speaker 3: AI infrastructure ecosystem. So CoreWeave as one of the marginal
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  Speaker 3: players in this build out, I think is coming under
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  Speaker 3: pressure and particularly within CoreWeave. You know, CoreWeave has multiple
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  Speaker 3: bonds and loans outstanding and the one which is unsecured
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  Speaker 3: at the parent level That was issued at 9.6%. Now
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  Speaker 3: it's trading close to 15%. So I think, but there
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  Speaker 3: are other core loans and bonds which are actually trading
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  Speaker 3: much better. It all depends on what sort of collateral,
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  Speaker 3: what sort of covenants are there and what particularly is
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  Speaker 3: it at a project level debt or is it a
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  Speaker 3: parent debt? A lot of things matter there.
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  Speaker 6: A lot of things matter. I'm curious what you think
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  Speaker 6: about the stock, because there are some analysts who now
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  Speaker 6: say that there's a buying opportunity here. Deutsche Bank, in particular,
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  Speaker 6: says because the sell-off has reached more than 26%, this
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  Speaker 6: is now a rare opportunity to get in. How do
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  Speaker 6: you think about that?
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  Speaker 3: Well, as you know, we don't particularly issue ratings or
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  Speaker 3: price targets, but Corby, at this point, compared to even
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  Speaker 3: its new cloud peers, obviously, as a discount currently at
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  Speaker 3: a relatively low valuation compared to its peers. So that's
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  Speaker 3: one thing you can clearly observe. And the valuation compared
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  Speaker 3: to its own history is also under tremendous pressure. Whether
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  Speaker 3: it's a buying opportunity depends on what happens in the
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  Speaker 3: coming two, three years. CoreWeave, I also hear CoreWeave may
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  Speaker 3: go to zero. There are some extremist views like that.
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  Speaker 3: I think that's pretty unlikely. The refinancing aspect of CoreWeave,
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  Speaker 3: I think, is pretty under control. They have very strong
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  Speaker 3: EBITDA growth in the next two, three years. That's more
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  Speaker 3: than sufficient to pay off the principal. The key risk
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  Speaker 3: is really Is the growth profile going to hold up?
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  Speaker 3: Because to continue to grow at the numbers that consensus
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  Speaker 3: has for them, or even the buy side who's expecting
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  Speaker 3: from them, they need to continue to build out this
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  Speaker 3: AI infra. The CapEx this year itself is guided to
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  Speaker 3: somewhere in the high 30s billion. And I think in
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  Speaker 3: the next two years, it's expected to grow even more.
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  Speaker 3: We have calculators which show that even a single gigawatt
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  Speaker 3: data center capacity with Vera Rubin couldn't be as much
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  Speaker 3: as $ 60 billion. So that doesn't come cheap. So CoreWeave
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  Speaker 3: has aspirations of building close to 9 gigawatts capacity in
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  Speaker 3: a few years. I think so it's... So all of
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  Speaker 3: that requires a lot of capex. And so the key
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  Speaker 3: question is really, can they actually fund it and fund
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  Speaker 3: it at a relatively attractive yield? Because currently, if some
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  Speaker 3: of the parent debt is trading at 15%, the real
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  Speaker 3: question is not really what happens to the existing debt
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  Speaker 3: that they already have, which I think they will pay,
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  Speaker 3: but really more about can they finance the next wave
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  Speaker 3: of capex.
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  Speaker 5: And as we look at whether or not they can
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  Speaker 5: finance the next wave of capex, as there do seem
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  Speaker 5: to be some fundamental issues here, But CoreWeave says the
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  Speaker 5: market is acting irrationally.
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  Speaker 7: Is it?
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  Speaker 3: Well, you know, again, you know, so CoreWeave is one
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  Speaker 3: of the players, but everybody is exposed to the same theme.
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  Speaker 3: CoreWeave is coming under more extreme pressure compared to some
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  Speaker 3: other stocks. But, you know, on the other hand, a
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  Speaker 3: lot of other, you know, semiconductors and other stocks in
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  Speaker 3: the AI complex have also come under a lot of pressure.
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  Speaker 3: So really, I think if you look at anthropic revenue
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  Speaker 3: last night for the, you know, they used to disclose
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  Speaker 3: the error, but now they disclose that, you know, it
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  Speaker 3: seems like they have 16 billion dollars of 16 plus
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  Speaker 3: billion dollars of revenue in the quarter. And so. It's
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  Speaker 3: a tremendous growth, and the numbers for Anthropik are fantastic.
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  Speaker 3: OpenAI is likely to, I think they are coming at
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  Speaker 3: 70 billion by the end of this year. Next year,
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  Speaker 3: some analysts have that growing multiple times again. So as
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  Speaker 3: long as the demand exists, and if you see the
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  Speaker 3: numbers from NVIDIA and other companies, the optical companies, HBM companies, Memory, Micron,
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  Speaker 3: SK Hennix, and so on, they all sold out capacity
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  Speaker 3: in 27 and probably a lot of 28 as well. So,
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  Speaker 3: I think if you look at it, compute continues to
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  Speaker 3: be under tremendous demand still at this point. There has
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  Speaker 3: not been any cancellation. Is the sell-off extreme? Is this
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  Speaker 3: a buying opportunity? That all depends on what investors are thinking.
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  Speaker 3: This can be funded in 27, 28, and 29. I
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  Speaker 3: think 27 is more or less likely to be funded,
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  Speaker 3: but I think 28 and 29 are still up there.
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  Speaker 3: And at what rate? Again, one thing is it can
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  Speaker 3: be funded, but if the yields continue to be high
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  Speaker 3: and if the 10-year and 30-year rates continue to go 6%
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  Speaker 3: and above. I think the cost of financing, cost of
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  Speaker 3: capital is coming under a lot of pressure for everybody.
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  Speaker 3: So I think, you know, and so Corbio, again, Corbio
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  Speaker 3: as one of the marginal players is coming under more
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  Speaker 3: pressure than other companies.
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  Speaker 6: Stay with us.
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  Speaker 1: More from Bloomberg Intelligence coming up after this. You're listening
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  Speaker 1: to the Bloomberg Intelligence Podcast. Catch us live weekdays at
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  Speaker 5: Joining us now, we have Charlie Pellett. Charlie, thanks for
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  Speaker 5: being here.
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  Speaker 8: I am always delighted to be with you, Emma. Let
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  Speaker 8: us continue the conversation on Bloomberg Intelligence this morning now
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  Speaker 8: with a focus on technology. Anthropic, that is the company
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  Speaker 8: behind Claude, formally begins marketing its IPO as soon as
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  Speaker 8: the week of November 9th. Got a possible debut by
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  Speaker 8: the end of the year. Some reports say perhaps by Thanksgiving.
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  Speaker 8: Joining us now, Bloomberg's Bailey Lipschultz and Bailey, thanks for
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  Speaker 8: joining us. Now, Anthropic has been meeting with investors. What
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  Speaker 8: is it telling investors about key metrics such as revenue
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  Speaker 8: and profitability?
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  Speaker 2: Yeah, Charlie, they held their big investor day yesterday at
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  Speaker 2: their headquarters in New York, disclosing at the end of
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  Speaker 2: what really was almost a five-hour kind of ordeal explaining
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  Speaker 2: the company's ambitions, where they see AI going, disclosing to
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  Speaker 2: prospective investors that in the third quarter, revenue hit $ 16. 8
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  Speaker 2: billion this up about 45% quarter over quarter. Also disclosing
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  Speaker 2: that they are generating positive free cash flow. They had
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  Speaker 2: a gross margin of 85% and a greater than 11%
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  Speaker 2: positive adjusted operating margin as of the third quarter. So
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  Speaker 2: really disclosing some of those latest metrics and what the
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  Speaker 2: three months ending at the end of September look like.
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  Speaker 2: Just trying to get investors really up to speed answering
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  Speaker 2: questions around, again, where they see this business firing, where
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  Speaker 2: they see it going. And this has been a tape
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  Speaker 2: where there's been so much of a focus on, can
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  Speaker 2: they justify a potentially up to $ 2 trillion valuation? Can
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  Speaker 2: they justify... a record-setting IPO in terms of proceeds, the
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  Speaker 2: folks I talked to who were in attendance came away
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  Speaker 2: pretty bullish, but there was still a little bit of
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  Speaker 2: uncertainty around what this ultimately means for fourth quarter in 2027.
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  Speaker 5: And so these results might potentially help the IPO, but
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  Speaker 5: what does it mean for the broader AI trade as
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  Speaker 5: this is such a bellwether for what might come?
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  Speaker 2: If we just look at strictly market reaction, we saw
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  Speaker 2: futures fall after these headlines were set late yesterday evening.
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  Speaker 2: We saw weakness overnight in Asia. Do you want to
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  Speaker 2: call out? Yeah, the NASDAQ 100 is still down about
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  Speaker 2: six-tenths of 1%, but it has kind of recouped those
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  Speaker 2: losses since about 10 o'clock. So I think the big
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  Speaker 2: debate that we're hearing from investors is, How do you
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  Speaker 2: position in some of these AI trades that have been
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  Speaker 2: such big winners over the last year and change? And
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  Speaker 2: we've seen them really falling pretty flat. And how does
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  Speaker 2: that ultimately impact kind of expectations, again, going into a
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  Speaker 2: critical earnings season? So you have kind of like this
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  Speaker 2: tale of two cities, if you will, where these are
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  Speaker 2: pretty solid numbers for Anthropic. It's super impressive what they've
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  Speaker 2: been able to do over the last few years. But
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  Speaker 2: if you've been bulled up in the Corweaves, the Cerebrases
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  Speaker 2: of the world, you're kind of taking your medicine and
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  Speaker 2: we're seeing that fall out today.
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  Speaker 8: Speaking of being bulled up, gross margin of 85%. I
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  Speaker 8: heard that correctly from you.
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  Speaker 7: You did.
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  Speaker 8: How does that compare to rivals such as OpenAI?
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  Speaker 2: Oh, man, Charlie, putting me on the spot. I think...
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  Speaker 2: It's tough when we don't have real numbers to compare
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  Speaker 2: apples to apples. So when you're looking at these companies,
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  Speaker 2: you have to think through some of the metrics they
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  Speaker 2: point to. You can point to GAAP gross margins, which
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  Speaker 2: we reported for Bloomberg. When you think about what that
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  Speaker 2: ultimately means for a company like OpenAI, we've been focusing
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  Speaker 2: so much on ARR or the prospect of something resembling ARR.
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  Speaker 2: So I don't know that we have a precise comp.
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  Speaker 8: Right but one cannot deny 85 that is a that
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  Speaker 8: is an unbelievably quote healthy number yeah no i mean
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  Speaker 8: that's great any industry for any industry they also rolled
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  Speaker 8: out that their net revenue retention again measuring their ability
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  Speaker 8: to keep customers increased spending was 900 like these are
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  Speaker 8: huge numbers again when you're talking about a single quarter
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  Speaker 8: that they'd revenue of almost $ 17 billion, like these are
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  Speaker 8: big numbers.
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  Speaker 2: These are strong numbers. The big question does go back to,
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  Speaker 2: what actually is happening under the surface. Some numbers that
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  Speaker 2: were also disclosed was compute margin, something I admittedly had
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  Speaker 2: no idea what that meant, Hema. But according to our colleagues,
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  Speaker 2: it's the revenue left over when you strip out their
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  Speaker 2: computing costs and other costs. That was more than 40%,
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  Speaker 2: which I'm told is still solid.
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  Speaker 5: All of this in the midst of what we're seeing
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  Speaker 5: with CoreWeave struggling pretty significantly. Jensen Huang had said at
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  Speaker 5: an event in Sweden that the cost of capital of
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  Speaker 5: CoreWeave is actually decreasing, that NVIDIA won't need to backstop CoreWeave.
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  Speaker 5: How do we think about Anthropic in the context of
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  Speaker 5: kind of a pretty significant blow up on the other side,
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  Speaker 5: literally within days and weeks of what we're expecting in IPO.
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  Speaker 5: I know there are different companies and different exposures, but
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  Speaker 5: it does speak to the underlying sentiment of quite a
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  Speaker 5: great deal of concern.
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  Speaker 8: No, definitely.
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  Speaker 2: When you look at CoreWeave stock, again, it's down more
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  Speaker 2: than 25% or close to 25% this week alone. We
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  Speaker 2: did see in Australia, I believe last week, Firmis, which
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  Speaker 2: was an AI data center, play. Their IPO was ultimately pulled.
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  Speaker 2: They wanted to raise like $ 5 billion. So sentiment as
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  Speaker 2: it relates to data centers. data center read sentiment as
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  Speaker 2: it relates to these Neo clouds is pretty darn sour.
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  Speaker 2: When I talk to people about AI infrastructure, they're not
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  Speaker 2: optimistic at all right now. Again, if you look at
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  Speaker 2: a CoreWeave chart over the last week, but if you
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  Speaker 2: look at it really sensitive with public, it's insanely volatile.
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  Speaker 2: The counterpoint that people make when we talk about an
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  Speaker 2: anthropic or when we talk about expectations for Meta's Muse
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  Speaker 2: and what they need to do is that these are
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  Speaker 2: companies that are fulfilling a need and they're still seeing
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  Speaker 2: strong growth. There are still questions around what does 27,
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  Speaker 2: what does 2030 look like? But the fundamental argument for
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  Speaker 2: an anthropic, the fundamental argument for real rival peers, meta, Google,
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  Speaker 2: you name it, is still solid. They still are struggling
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  Speaker 2: to get as much compute as they would need, but
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  Speaker 2: the fundamentals are great from all intents and purposes.
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  Speaker 8: Bailey, two other big questions. Unfortunately, only a minute to
• 12:09
  Speaker 8: go here. First of all, we've got New York City's
• 12:11
  Speaker 8: controller saying that this IPO ought to be paused because
• 12:14
  Speaker 8: of safety issues. That's concern number one. Concern number two,
• 12:18
  Speaker 8: the broader market backdrop. Is this a time to be
• 12:21
  Speaker 8: going public?
• 12:22
  Speaker 2: I think people think that Anthropa could go public at
• 12:24
  Speaker 2: any point. We could be in the midst of a
• 12:27
  Speaker 2: terrible bear market and there still would be buyers for
• 12:29
  Speaker 2: this IPO. Do they meet investors on valuation? Does that
• 12:32
  Speaker 2: look closer to $ 1. 8 trillion than $ 2 trillion? That's the
• 12:35
  Speaker 2: big question. But for all intents and purposes, I have
• 12:39
  Speaker 2: not received any kind of pushback on expectations that this
• 12:43
  Speaker 2: is going to be a public company before Thanksgiving.
• 12:45
  Speaker 8: And very briefly, I can't help but bring up SpaceX.
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  Speaker 8: Any comparisons here just in terms of the size, the scope?
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  Speaker 8: They want to be.
• 12:52
  Speaker 2: We reported this earlier in the summer. They want to
• 12:54
  Speaker 2: raise more money than SpaceX, which was 75 billion before
• 12:57
  Speaker 2: the green shoe. They want to be comparable in size. So, again,
• 13:01
  Speaker 2: different but similar companies. But the backdrop in terms of
• 13:04
  Speaker 2: size and scope should be pretty darn similar.
• 13:07
  Speaker 6: Stay with us.
• 13:07
  Speaker 1: More from Bloomberg Intelligence coming up after this. You're listening
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  Speaker 1: to the Bloomberg Intelligence Podcast. Catch us live weekdays at
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  Speaker 1: 10 a.m. Eastern on Apple CarPlay and Android Auto with
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  Speaker 1: the Bloomberg Business App. Listen on demand wherever you get
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  Speaker 1: your podcasts or watch us live on YouTube.
• 13:28
  Speaker 6: Let's talk a little bit about our Bloomberg Big Take.
• 13:30
  Speaker 6: These are the stories that Bloomberg News has deemed to
• 13:32
  Speaker 6: be what we want to feature based on our reporting,
• 13:35
  Speaker 6: based on the information that we've gathered. And today's Big
• 13:39
  Speaker 6: Take is about Volkswagen, the German automaker, and how it
• 13:42
  Speaker 6: is investing heavily in the U.S. market because it sees
• 13:45
  Speaker 6: a huge growth opportunity in the U.S. Gabriella Coppola is
• 13:50
  Speaker 6: our Bloomberg auto reporter. Coppola, excuse me. And she joins
• 13:53
  Speaker 6: us now from Detroit. Hi, Gabrielle. How are you?
• 13:56
  Speaker 7: Good.
• 13:56
  Speaker 4: How are you guys doing?
• 13:57
  Speaker 6: Great, great. So tell us a little bit about VW's
• 13:59
  Speaker 6: plans and how it's intent on taking on Wrangler and
• 14:03
  Speaker 6: Bronco on U.S. home turf.
• 14:06
  Speaker 4: Yeah.
• 14:06
  Speaker 9: So we had a great exclusive interview with the CEO,
• 14:10
  Speaker 9: Oliver Bloom, at the Paris Auto Show earlier this week,
• 14:14
  Speaker 9: and he kind of confirmed for us that Volkswagen is
• 14:17
  Speaker 9: looking at getting into light trucks, body on frame. So
• 14:20
  Speaker 9: think of like a Toyota Tacoma, like a midsize truck,
• 14:24
  Speaker 9: but also things like the Ford Bronco or the Jeep Wrangler,
• 14:27
  Speaker 9: which is really just like the most American and kind
• 14:31
  Speaker 9: of really well-defended niche in America because this is what
• 14:35
  Speaker 9: Detroit's bread and butter is. But they say that they
• 14:40
  Speaker 9: are going to try to enter these segments. And I
• 14:43
  Speaker 9: think it's a response to a lot of different things.
• 14:46
  Speaker 9: It's trying to find profits here because the China business
• 14:48
  Speaker 9: is falling apart. It's a response to tariffs. It's a
• 14:51
  Speaker 9: lot of different pressures here. on Volkswagen kind of coming together.
• 14:54
  Speaker 9: And now they're going to try to do what basically
• 14:57
  Speaker 9: everybody in the global auto industry is doing, which is try.
• 15:00
  Speaker 4: To make more money in the U.S.
• 15:01
  Speaker 9: Market because this is the big profit pool for the
• 15:04
  Speaker 9: global auto industry. It always has been, but even more
• 15:07
  Speaker 9: so now that people are losing share around the world
• 15:09
  Speaker 9: because of competition with China.
• 15:11
  Speaker 5: Gabrielle, execs had urged the CEO to make this pivot
• 15:14
  Speaker 5: years ago. Why didn't they then? And isn't the task
• 15:18
  Speaker 5: just so much harder now? especially because of the competition
• 15:22
  Speaker 5: that you just mentioned?
• 15:24
  Speaker 4: Yeah, it is.
• 15:25
  Speaker 9: And, you know, I think, you know, you can always
• 15:28
  Speaker 9: look at a car company and say, well, how much
• 15:30
  Speaker 9: things were in their control and how much of this
• 15:32
  Speaker 9: was just, you know, crazy factors beyond their control, like
• 15:35
  Speaker 9: governments changing policy. And in this case, I think with Volkswagen,
• 15:38
  Speaker 9: a lot of it really was in their control. And
• 15:41
  Speaker 9: I think it was just a lot of, I mean,
• 15:44
  Speaker 9: they're kind of notorious for having a very slow moving
• 15:48
  Speaker 9: kind of bureaucratic process of decision-making. And that part of
• 15:52
  Speaker 9: that is because Volkswagen is a group, you know, it's
• 15:54
  Speaker 9: not just a Volkswagen brand, it's Audi, it's Porsche, it's Skoda,
• 15:58
  Speaker 9: it's all these different things. And all of those different
• 16:01
  Speaker 9: brands have to compete. It's like, they're all kind of
• 16:03
  Speaker 9: competing for resources, you know, they're all at the same time.
• 16:08
  Speaker 9: And so to get people to, um, kind of pull
• 16:11
  Speaker 9: the trigger, make a decision, you know, and, and one
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  Speaker 9: of the examples we give in our story is, um,
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  Speaker 9: I spoke to a former head of the Volkswagen. He
• 16:20
  Speaker 9: was like the COO of the Volkswagen brand in North America.
• 16:23
  Speaker 9: And he talked about how he was really pushing, uh,
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  Speaker 9: management in Wolfsburg and, you know, VW's headquarters saying, we
• 16:30
  Speaker 9: got to do a hybrid version of the Atlas SUV.
• 16:33
  Speaker 4: We got to do it. This is, you know, where
• 16:34
  Speaker 4: the market's going.
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  Speaker 9: And they did, discussed and discussed and okay, we'll talk
• 16:39
  Speaker 9: about it. And then it was like, well, now it's
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  Speaker 9: too late because now the, you know, the car program
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  Speaker 9: is being built and it's too late to do that.
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  Speaker 7: Right.
• 16:45
  Speaker 6: Yeah.
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  Speaker 4: So now hybrids are taking a huge chunk of the market.
• 16:49
  Speaker 9: They're growing like wildfire in the U S because gas
• 16:51
  Speaker 9: prices are high and.
• 16:52
  Speaker 4: Whoever has a hybrid is winning share.
• 16:54
  Speaker 9: So hello, Toyota, Hyundai, you know, and that there's no
• 16:59
  Speaker 9: reason why Volkswagen couldn't have done that too, if they
• 17:01
  Speaker 9: could get out of their own way and make a decision.
• 17:03
  Speaker 7: Right.
• 17:03
  Speaker 4: And, um, that is, they're suffering for that. And yeah.
• 17:07
  Speaker 6: So inertia got in the way there. So it sounds
• 17:10
  Speaker 6: like they are behind. How did they get up to
• 17:13
  Speaker 6: speed quickly? Are they going to build it from scratch
• 17:15
  Speaker 6: or are they going to partner up with someone?
• 17:18
  Speaker 9: You know, that is a great question. That is the
• 17:20
  Speaker 9: question that we're all following very closely. So the most
• 17:23
  Speaker 9: obvious easy way in would be to partner with Ford
• 17:25
  Speaker 9: because outside of the United States, they already, Volkswagen makes
• 17:30
  Speaker 9: a midsize truck called the Amarok that's built at a
• 17:33
  Speaker 9: plant in South Africa. That's basically a Ford truck that,
• 17:37
  Speaker 9: you know, done with a Volkswagen body on it, but
• 17:40
  Speaker 9: a Ford chassis. And so the easiest thing would be
• 17:43
  Speaker 9: to say, hey, Ford, can we borrow your truck chassis?
• 17:45
  Speaker 7: Yeah.
• 17:46
  Speaker 9: But the reality is I don't think with the U.S.
• 17:50
  Speaker 9: becoming so competitive with, I mean, this, everyone's trying to do.
• 17:54
  Speaker 4: Off-road vehicles, light trucks. It's popular.
• 17:56
  Speaker 9: You know, the Koreans are starting to get into it.
• 18:00
  Speaker 4: Everyone's trying to be more rugged.
• 18:01
  Speaker 9: So why would Ford, which has a major winner, you know,
• 18:04
  Speaker 9: they have a hybrid Maverick, like why would they give
• 18:07
  Speaker 9: the crown jewels to VW in their home market, which
• 18:09
  Speaker 9: is the source of most of their profits? So I
• 18:11
  Speaker 9: think it's, I say they're looking for partnerships, they're in talks,
• 18:14
  Speaker 9: but at the same time, they're saying, well, we could
• 18:15
  Speaker 9: do this ourselves.
• 18:17
  Speaker 4: They certainly have room in their plants.
• 18:19
  Speaker 9: But my question is to build a body on frame truck,
• 18:22
  Speaker 9: meaning you don't just put a chassis and then you
• 18:25
  Speaker 9: stick a top hat on it. You got to build
• 18:26
  Speaker 9: separate stuff because it has to be able to tow
• 18:28
  Speaker 9: and do all this tough stuff.
• 18:30
  Speaker 4: So To do that, it.
• 18:32
  Speaker 9: Takes billions of dollars, separate engineering tooling. So they say
• 18:36
  Speaker 9: they can do it. I have a lot of questions
• 18:38
  Speaker 9: about how they're going.
• 18:39
  Speaker 6: To pull that off. Stay with us. More from Bloomberg
• 18:42
  Speaker 6: Intelligence coming up after this.
• 18:47
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 18:51
  Speaker 1: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 18:54
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
• 18:58
  Speaker 1: you get your podcasts or watch us live on YouTube.
• 19:02
  Speaker 6: We do have some breaking news. I have a headline
• 19:05
  Speaker 6: here that says the European Union will begin assessing additional
• 19:07
  Speaker 6: sectors for China trade quotas. The region is evaluating trade
• 19:12
  Speaker 6: data to detect surges in imports from China and other countries,
• 19:15
  Speaker 6: which could lead to quotas on additional sectors of goods,
• 19:19
  Speaker 6: sectors including chemicals and machinery. And the European Commission may
• 19:23
  Speaker 6: use a recent understanding with China on hybrid vehicle imports
• 19:26
  Speaker 6: as a blueprint for other sectors. We know that Chinese
• 19:29
  Speaker 6: EVs have been flooding into the Eurozone and perhaps posing
• 19:34
  Speaker 6: a lot of competition to European-made electric vehicles. And now
• 19:39
  Speaker 6: the EU is looking to take a closer look at
• 19:43
  Speaker 6: this as it tries to address its trade deficit with China.
• 19:46
  Speaker 6: All right, let's move on to our next guest. And
• 19:49
  Speaker 6: this is something that John Tucker was talking about earlier,
• 19:51
  Speaker 6: which is that with Grand Theft Auto 6 coming out,
• 19:54
  Speaker 6: people are straying away from video game consoles and moving
• 19:57
  Speaker 6: more towards cloud gaming, because a lot of this can
• 20:00
  Speaker 6: be done without a PlayStation or an Xbox. Are you
• 20:03
  Speaker 6: a big video game person?
• 20:04
  Speaker 9: I am not.
• 20:06
  Speaker 5: I am probably not the demographic.
• 20:08
  Speaker 4: Nor am I.
• 20:08
  Speaker 5: Personally, I don't have the interest.
• 20:11
  Speaker 2: There you go.
• 20:12
  Speaker 6: I'm kind of in the same boat. So that means
• 20:14
  Speaker 6: we need to speak with an expert. And our expert
• 20:16
  Speaker 6: today is Nathan Nadeau. He is our Bloomberg Intelligence Technology
• 20:20
  Speaker 6: Research Analyst. They published a deep dive into cloud gaming.
• 20:24
  Speaker 6: And Nathan, how much is GTA 6, the long-awaited arrival
• 20:29
  Speaker 6: of GTA 6, kind of pushing us in that direction
• 20:32
  Speaker 6: of killing the console?
• 20:33
  Speaker 7: As a gamer myself, I think GTA is kind of
• 20:36
  Speaker 7: unique on its own. That, you know, 70... Upward of 70%
• 20:41
  Speaker 7: of gameplay is going to take place on console because
• 20:45
  Speaker 7: that game is that high fidelity, that much graphic processing.
• 20:49
  Speaker 7: But there are simpler games, simpler GTA games from the
• 20:54
  Speaker 7: same franchise. We have seen how that has worked well
• 20:56
  Speaker 7: on Netflix, which actually had GTA trilogy games for a
• 21:00
  Speaker 7: short while. And actually, that was around the time when
• 21:04
  Speaker 7: Netflix actually experienced a spike in its games activity. So
• 21:08
  Speaker 7: we can see how that model would work for the future,
• 21:11
  Speaker 7: but just not for, you know, just this GTA 6
• 21:14
  Speaker 7: that is highly anticipated coming.
• 21:17
  Speaker 2: What is the.
• 21:18
  Speaker 5: Benefit from streaming games from the cloud? If you already
• 21:21
  Speaker 5: own a console and you have a really good experience
• 21:23
  Speaker 5: from that, what is the value add and the growth
• 21:25
  Speaker 5: opportunity from the cloud.
• 21:27
  Speaker 2: Side of it?
• 21:28
  Speaker 7: Yeah, for someone, you're right on the nail there. For
• 21:30
  Speaker 7: someone who already owns a console, you know, cloud gaming
• 21:33
  Speaker 7: is mainly about convenience, assessing the same games across TV, phones, PC, handhelds,
• 21:38
  Speaker 7: without being tied to a home console, the box that's
• 21:41
  Speaker 7: literally feeder to the TV. One example of that use
• 21:45
  Speaker 7: case is as a gamer, hopefully at some point you
• 21:48
  Speaker 7: get your hands on and try some games. The use
• 21:50
  Speaker 7: case is that you could be completing the side task
• 21:53
  Speaker 7: of a game while commuting to work on a train
• 21:56
  Speaker 7: while leaving the main story, the juicy bits for when
• 21:59
  Speaker 7: you're back and you're at your main gaming rig. To
• 22:01
  Speaker 7: your questions, you know, we see the bigger opportunity for
• 22:05
  Speaker 7: cloud gaming is actually reaching people who never own a console.
• 22:09
  Speaker 7: in the first place. So these are especially population in
• 22:13
  Speaker 7: countries where most people access games through mobile devices, speak
• 22:18
  Speaker 7: about India or Brazil. And the main gaming, cloud delivery
• 22:23
  Speaker 7: can make high-end games in this case accessible without the
• 22:26
  Speaker 7: need for an expensive local hardware or consoles. And we
• 22:29
  Speaker 7: have seen recently how Sony and Microsoft have actually high
• 22:33
  Speaker 7: prices of consoles and their consoles is more than midway
• 22:37
  Speaker 7: through their life cycle. Traditionally speaking, consoles become cheaper as
• 22:42
  Speaker 7: the components become cheaper, the components to make them. But
• 22:45
  Speaker 7: in this latest generation, the Xbox Series X, S and
• 22:50
  Speaker 7: the Sony PlayStation 5, we are seeing the reverse. So
• 22:53
  Speaker 7: they're becoming less affordable. So that's really a use case
• 22:56
  Speaker 7: here for cloud streaming gaming to really pick up speed
• 22:59
  Speaker 7: in the future.
• 23:00
  Speaker 6: You mentioned how GTA 6 is kind of an exception
• 23:03
  Speaker 6: and outlier because of the graphics and, you know, the
• 23:05
  Speaker 6: visuals that are involved there. What kinds of games will
• 23:09
  Speaker 6: be more popular, will proliferate with the advent of cloud gaming?
• 23:14
  Speaker 6: I mean, is it going to be, you know, really
• 23:15
  Speaker 6: basic puzzle type games?
• 23:19
  Speaker 7: Definitely puzzle games and also games with a huge, with
• 23:23
  Speaker 7: a big social graphs. You know, talking about Roblox where,
• 23:27
  Speaker 7: you know, anywhere from kids to teenagers to people who
• 23:31
  Speaker 7: play Roblox, sometimes will literally just access the environment, a
• 23:35
  Speaker 7: gaming environment to just hang out, you know, and actually
• 23:38
  Speaker 7: a lot of Roblox activity already come through mobile. And
• 23:42
  Speaker 7: we see the same for other games with a huge
• 23:46
  Speaker 7: social mode or social experience to it that will proliferate
• 23:51
  Speaker 7: on cloud gaming. And also simpler games like you mentioned,
• 23:53
  Speaker 7: whether it's puzzle games, farming games, you know. And for
• 23:58
  Speaker 7: game makers, really just an additional distribution of their games
• 24:02
  Speaker 7: to be able to spread wider beyond the console or PC.
• 24:06
  Speaker 6: Nathan, before we let you go, very quickly, you're a gamer,
• 24:08
  Speaker 6: so what's your favorite game?
• 24:11
  Speaker 7: Well, I'm obliged to say GTA, but really, I'm deep
• 24:14
  Speaker 7: down a Pokemon fan, so I'm not going to have
• 24:16
  Speaker 7: anything to play this year. But I guess, finally, I
• 24:19
  Speaker 7: have the GTA V, but I guess, for research purpose,
• 24:22
  Speaker 7: I have to try the VI.
• 24:24
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
• 24:29
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• 24:32
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• 24:41
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