Nvidia Gives Strong Forecast, Countering Fears of AI Bubble

24:34Carol Massar:No, Ed, as you think about, you know, your conversation, Jensen, you've had many conversations with him at, you know, different venues, different events. Um, I don't know, what are you, what is really, you think the most important thing to, to hear from him? We talked about depreciation and some other things, but I'm just curious what's top of mind for you here and what you really want to hear from him. Electricity. Um, I've, I, it's fair to say I've had more terminal client IBs, more messages on social media, more people in the newsroom come up to me and say, like, you know, we should probably talk about electricity and energy because, you know, we don't really have a good line of sight to whether if they can build all these data centers and Jensen Wong does have a good line of sight on that, when the data center is built, finished, ready to turn the lights on, is the electricity there?

25:23You know, and the answer is no. There's loads of deals out there, right? You guys would have done the red headline on the show today about the US or the DOE taking government ownership of nuclear reactors. But these are all deals on paper. They don't exist in the real world. I think that's really critical. The other thing is the press release says they're sold out of GPUs. I just ask him, what do you mean by sold out? Because they're ramping output. You know, they're supply constrained. The demand is greater at any given moment than their ability to supply but to say that something is sold out uh is a bit confusing to be honest and so we'll you know ask for some clarity on that hey ed before we let you go last question ian king writing that inventory took a jump in the quarter normally at chip makers and just remind everybody ian king has covered chip makers for more than 20 years that's a worrying sign meaning the amount of unused product is going up the company said it's to quote ordering to secure long lead time components, meet the demand for Blackwell and support future architecture roadmaps is a little different than what it's traditionally done.

26:23Carol Massar:I thought they don't, can't meet demand. Yeah. Inventory is typically bad depending on the type of chip, because it signals that you, you know, no one's building up there. The customers aren't building inventory. And by the way, Ian's covered semiconductors since 1998 at Bloomberg. So, so longer than 20 years, but I, you know, Nvidia's argument has always been, we keep telling our customers, our suppliers and our partners what we're doing for the next five years that includes the memory chip makers and telematics data center server design builders so that everyone can keep pace and the argument that they're making is that when they want to ship blackwell accelerated computer systems at scale the gpu it can't just be the gpu that's ready to go you need all the other components to go with it.

27:12And, you know, with the stock up, whatever it is now and after hours, 4 % still, I don't think anyone's worried about that inventory number. Yep. Inventory days.

27:21Carol Massar:All right. All right. Good stuff. Hey, listen, kiddo, we will be watching, all of us will be watching a co-host of BTEC, Ed Ludlow, as you know, catch him at 11 a.m. Wall Street time every Monday through Friday, but he will be speaking exclusively this evening with NVIDIA CEO Jensen Wong. That's at 6.30 p.m. Wall Street time. And you can catch that on both Bloomberg Television and Bloomberg Radio. So be sure to check that one out. It is an exclusive. So he's got the conversation. Stay with us. More from Bloomberg Business Week Daily coming up after this.

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31:18Carol Massar:Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Well, NVIDIA gave a strong revenue forecast for the current period, with sales expected to be about$65 billion in the fiscal fourth quarter. I want to bring in Bloomberg News big tech team leader, Sarah Fryer. She's also the author of No Filter, the inside story of Instagram. She joins us from Bloomberg's San Francisco Bureau. So going into this, Sarah, there was this narrative emerging that there was concern that the AI bubble, you know, if we're calling it that, maybe losing a little bit of air if we're going to stay with that metaphor.

31:54Concern about the hyperscalers, CapEx. We saw what happened with meta platforms a few weeks ago. Is that concern gone after reports such as this? Is everything all fine and dandy now?

32:05Carol Massar:I don't think the concern is gone because I do think there are still some trends that are, you know, as noted in my colleague Ian King's stories, somewhat worrisome, right? The fact that NVIDIA is investing in a lot of the entities that are buying its chips, right? So is there a way that they are indirectly sending demand for their product? There is the concern about China sales. We still don't have any forecast of sales to China, despite some of the loosening of the most restrictive policies from the Trump administration. And then there's also the question of everyone trying to come up with NVIDIA alternatives for their chips.

32:51Carol Massar:And some of the rivals starting to gain a little bit of traction. We saw a little bit from AMD. And then furthermore, just the idea that so much of the spending on chips, on data centers, depends on having the physical infrastructure to really put them to work, and especially the energy, making sure that there is power to make all these data centers come to life with NVIDIA's chips. So I think that, you know, although this is a company on its hair, we are in the NVIDIA economy. It is really popping up the stock market right now. It has altered the financial future of a lot of the companies my team covers.

33:40But, you know, can it last longer?

33:44Carol Massar:Probably. And that's what this report is showing. But is it inevitable that it will, you know, are all the fears in our past? and we're not thinking about that anymore? Certainly not. We're going to keep looking at all those trends and making sure that we can explain to people what is putting pressure on the future. The one thing I want to, though, bring out, Saren, you're, you know, there on the West Coast, San Francisco, you know, the tech community front and center. So you hear things in and around, not just in the newsroom, but just in the area. And I'm, you know, I'm looking at, you know, the concerns about, like you said, maybe this doesn't put concerns to rest, But I'm looking at, you know, NVIDIA is certainly up in the aftermarket.

34:24Carol Massar:I'm looking at NASDAQ 100 E-mini futures. They're up about one and a half percent. S &P 500 futures are up about nine tenths of a percent. NVIDIA is big. It's big. I look at the SOX. That's a big effect. The SOX is up almost two percent. There's a bunch of other names in the space. So it's I think there was just so much fear that what if they miss those numbers and they, you know, met on the data center revenue number for the third quarter and fourth quarter revenue was upbeat in the outlook, right? So I think, does it feel like, I mean, I don't know, you know, this community, just a little bit of a sigh of relief that, okay, they hit these numbers, they actually did better than what the street was expecting.

35:01Carol Massar:And maybe that puts some of the concerns, I don't know, under wraps for a little bit. I think here, you know, you're asking about the perspective here in the Valley. Here in the Valley, AI doesn't sound like anything that, there's a sense that we're just at the beginning of this grand movement that will change the world, right? Maybe it's not even the LLM that will be the model that secures the future with AI. And so we're just now starting to see the applications of AI, the payback, really, for all of this investment. We haven't quite solved that. Where is all this revenue, the actual sales to companies that are going to pay for all of the chips that NVIDIA makes?

35:49Carol Massar:We haven't really solved that problem to the tune of the billions that have been spent. But I think that here in the Valley, it is very much all systems go on AI. There is not as much of a concern about whether this is a bubble. People are seeing these big numbers and they're thinking the world is about to change even further. How so? People are thinking about how their jobs are going to change. They're using AI very much in their jobs and in their personal lives, relying on AI to help them make decisions for themselves and their families. And I think people are eager to create products that are going to take advantage of this as a new resource.

36:38Whether that is going to dramatically lead to efficiency, more profits for the companies, given all the investment so far, it's sort of yet to be

36:53Carol Massar:seen. Yeah, it's just kind of interesting, right? I mean, here we are, what, almost three years in to this AI story. And most people say it's just early innings on all of this. But it's hard for, right? All of us who covered, you know, booms and busts and crises. And I'm not saying that this is any of that. But it's hard not to be a little bit skeptical when you see, you know, sour the spend over and over. And again, the conversations around the circular financing. And, you know, it's hard. The logical side of your brain says, well, wait a minute. Does this ultimately make sense? Two things can be true, right?

37:28Carol Massar:It's not necessarily either or. There can be a dramatic revolution in technology that will change our lives. And there can be irresponsible spending at the same time, right? We saw in the dot-com boom, for instance, that there were a lot of companies that had very dire circumstances at the end when that bubble burst and they had to shut down. But, hey, we still use the Internet. The Internet is still a thing. It's a huge thing. The what? The what? The Internet? Pets.com, not so much. Sorry, Sarah, go ahead. Yeah, no, we're not necessarily talking about, you know, a bubble burst. And that means that AI wasn't a thing and we shouldn't have thought that it was going to be so big.

38:15Carol Massar:It could be that, you know, there is still potential for a large financial correction down the road. but AI remains a force that changes how we do business and how we live our lives. So, so I think to put it in that stock of a either or is missing the larger trend. This is why we come to you because it's really - She sees the big picture. Yeah. And it's very balanced and thoughtful. Sarah, thanks so much. I really appreciate Bloomberg News big tech team leader, Sarah Fryer. She's also the author of No Filter, the inside story of Instagram. And she is, of course, there from our Bloomberg San Francisco Bureau.

38:56Stay with us. More from Bloomberg Business Week Daily coming up after this.

39:04Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined.

39:42An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., Member FINRA, and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

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40:49Carol Massar:Make every journey more rewarding with a$300 annual travel credit and access to a network of airport lounges, whether you're looking for pre-flight productivity or time to rest and recharge. Chase Sapphire Reserve for Business. It's the card that gives back all you put in. Learn more at chase.com forward slash reserve business. Chase for Business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank N.A., member FDIC. Game night rush, or any night of the week, really. Genius keeps every order moving. From online ordering, to your kitchen, to the front counter.

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42:04Carol Massar:You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. The U.S. government plans to buy and own as many as 10 new large nuclear reactors that could be paid for using Japan's$550 billion funding pledge. It's part of a push to meet surging demand for electricity. Carol, our BNF team, independent analysts who provide perspectives on global commodity markets and the tech driving the energy transition, writing recently that the surge of AI is turning data centers into giant energy users.

42:45Carol Massar:Well, listen, our own man Deep Singh, when we talked about demand and what's really constraining things in terms of the build-out is the access to power and energy. Electricity demand, here's some background for you, from AI training and services, is set to quadruple within a decade, making data centers one of the fastest-growing electricity users on the planet. Like, listen, this is something we've been drumming big time, I feel like, over the last year or so, Tim. Well, let's bring in Sam Son. He's Managing Partner and Portfolio Manager at Hazelview Investments. It's a real estate firm with more than$11 billion in assets under management.

43:15He joins us here in the Bloomberg Interactive Brokers Studio. Sam, welcome. You and the team out with the new white paper on how AI is changing real estate investment in the U.S. globally. We're going to get to that. But first, just explain the asset breakdown of the$11 billion and really where you guys play in the industry. We play across the board. We play in private credit. We play in private equity and publicly traded real estate securities. Okay. So in terms of the publicly traded real estate securities, what type of real estate? It's again, it's across the map. It runs the gamut. It runs the gamut.

43:46So with different property types like data centers that we're going to talk about today, we're in cell towers. So another piece of the technology continuum, we're in traditional property types like hotels, office, retail, apartments, as well as other niche oriented sectors like single family rentals, as well as, I would say, senior housing. So on the data center, oh, sorry, Carol. On the data center side of things, like in recent years, how much has that grown in terms of your real estate portfolio? Like how much has that become a priority? Significantly. It's doubled. It's doubled over the last three years.

44:21We started looking at data centers 20 years ago. The asset class was very different then than it is now. But over the last two, three years, the magnitude of data center exposure in our portfolio has gone from mid-single digits to more than double digits. So meaning what?

44:39Carol Massar:So almost 20 %? I would say probably low double digits, 10 to 15 % overall. So your overall exposure now is 10 to 15 % as data centers. Are you looking to increase that? We have increased it significantly. Already? Already. Do you want to do it more? I think we're happy with where it is today. When you look at the stocks year to date, they've actually been laggards this year relative to other property types. And given what's going on with the amount of CapEx investing in AI, we think it's actually a good place for investors to think about allocating capital. But is it getting to be a little bit of a glut, especially with maybe not having the access to necessary power?

45:14So like you said earlier, power is a challenge, right? And power is what is that stumbling block for a lot of the developers that are going to go out and build new hyperscale facilities that Meta, Google, Amazon, and Microsoft want to populate. You know, what we're seeing is, you know, companies are entertaining new partnerships to bring energy to data centers until they could get on the grid. So that is one of the solutions people are looking for. Who are your data centers for? So our data centers run the gamut from enterprise users to those cloud service providers that I just mentioned. The hyperscalers?

45:53Yes. How do you make sure that when you make a data center investment, you know that that data center will be one that will have access to power? It's a good question. The reason I bring it up is just a couple of weeks ago, our own John Gittleson and Michelle Ma had this story about data centers in Santa Clara, California, NVIDIA's hometown, that have been there for a while. And they're standing empty right now because they do not have hookups to the grid. Yeah. So there's a lot of due diligence and work that happens behind the scenes to be able to get that power from the grid to the center. You know, so when the companies that we invest in, like a digital realty trust, that is a$10 billion pipeline around the world, you know, they're generating 11 to 12 percent unlevered returns on that capital.

46:42They are spending a lot of time with the municipalities to ensure that the data center is going to be powered with the grid, with the necessities they need to be able to make it function. I just want to do a little sort of callback to an earlier story that we did, Carol. Stack Infrastructure was acquired earlier this year by Blue Owl Capital, has a 48 megawatt project close to the Santa Clara, California area that is also vacant still.

47:14Carol Massar:Yeah. And I think was it the journal who did a whole thing about Blue Owl and what they're doing? You know, they're it's exposed like exposure to data centers. Well, so I'm looking at digital realty and you say, you know, you guys have exposure stock. or the REIT, I should say, data center REIT, is down about 10 % this year, but it's definitely moved off its lows. Why? What's going on? I think it's more emblematic of the REIT industry than it is Digital Realty Trust as a company. Because of rates or what? I think part of it is when you look at the component of the broad equity market that's worked really well this year.

47:48It's been AI, it's been tech, it hasn't been real estate. So part of what swept Digital Realty and other tech oriented real estate investments to experience some softness in pricing has been just overall fun flows out of the asset class, not necessarily the health of the business, because the business is performing really well.

48:07Carol Massar:Because it was up 34 % in 2023. It was up almost 32 % last year. So it's been on quite a run. Correct. Along with that big AI story that we've talked about nonstop. Correct. And if you kind of rerun the clock, when COVID happened, there was a lot of investments that took place into the IT architecture of companies around the world to be able to get them kind of into the cloud. And then you fast forward to the end of 2022, beginning of 2023, before really NVIDIA came onto the scene, that's when a lot of the companies, like a digital realty trust, were sowing the seeds for AI data centers. And that's when we significantly increased our investment into that component of the market.

48:48As far as the data center effects on the rest or the investment in data centers, those effects and AI's effects on the rest of the real estate world, I want to sort of branch out a little bit and hear from you about efficiencies when it comes to hiring practices and if that is actually leading to less of a need for office space for workers. It's a good question. It's a question that a lot of folks are asking. We're not seeing that today in terms of the AI component impacting jobs and that's having less demand in office space. In fact, we're seeing the opposite. What we're seeing is companies are wanting to upgrade their space.

49:22They want to ensure that they have the best quality space in a market to attract the talent that they need to be able to deliver on their investment objectives.

49:32Carol Massar:So this white paper that you did, the impact of AI on public real estate, we've obviously just drilled down data centers. Is it just the data center story or is it much more than that? It is more than that. So like we mentioned in the white paper, cell towers as a tangent to what's happening within data center space. If you think about mobile data consumption, that's growing at high teens, low 20s per year over the next five years. There's mobile AI apps that are being downloaded at significantly high rates. Over time, as more of those apps use generative AI, more of the data is going to be pushed to the edge.

50:10cell towers are right in the fulcrum of what's happening on the edge. And we think 5G becomes a very big source of investment. So what's the play there? American Tower? There's American Tower, there's Crown Castle, there's SBAC Communications. So there's a number of cell tower REITs that investors can participate in in the growth of 5G. There's also Starlink. There is Starlink. But it's not publicly traded.

50:37Carol Massar:So we created saying that as a competition to these. So that created a lot of news two months ago. What I would say is what we found just have about 30, 35 seconds. Sorry. What we found is there's a lot of use for satellites in rural areas, but in dense markets, in tier one markets like we are today in New York city, satellites are not as functional as it is in terms of the latency that's needed for a lot of these applications. So we don't think it's as applicable today as it is in sort of tier three areas. All right. Good stuff. Come back soon. This was really fun. Thank you for having me. Samson, he's a managing director, managing partner, excuse me, portfolio manager at Hazelview Investments.

51:18Carol Massar:As we said, real estate firm with more than$11 billion in assets under management, joining us right here in studio. This is the Bloomberg Businessweek Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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