Trump Urges World Leaders to Seize Momentum for Gaza Peace

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2:02Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Masser and Tim Stenevek. on Bloomberg Radio. All right, we want to stay on this story. Joining us right now is Mona Yakubian. She's director and senior advisor, Middle East program at the Center for Strategic and International Studies. She joins us from Washington, D.C.

2:43Mona, should President Trump be taking a victory lap here? I think the president does deserve to take a victory lap considering what has been accomplished today. The release of the last 20 remaining hostages who are alive in Gaza. The cessation of hostilities for now, the flowing in of much needed assistance into Gaza, these are important milestones. However, I think the president is perhaps premature in saying the war is over. The difficult steps ahead are the ones that we will have to watch closely to see if, in fact, his aspirations become reality. And Mona, how does that play out? If you were going to say that this is presumably some form of a stopgap and not necessarily a conclusion and marking a next chapter, what plays out?

3:41How does this play out? And kind of what's your view on that? Well, what will distinguish what happened today from ceasefires in the past is if the various points that are laid down in President Trump's 20-point plan are, in fact, implemented. Critical among them is the disarming of Hamas. Hard to know how exactly that's going to happen. The agreement itself is very short on details. There's also the envisioning of an international stabilization force that would surge into Gaza and be responsible for security. Not at all clear how that's going to happen. And of course, questions around governance and the constituting of a committee of Palestinian technocrats to be overseen by former British Prime Minister Tony Blair.

4:34I mean, there are so many details that have yet to be ironed out, let alone implemented. And I think these are the key potential sticking points in the coming days and weeks and likely months. Mona, and I think it's fair to say, right, a conflict like this that has gone on, not just in the last two years of a war, but it's been going on for a long time between Israel and Gaza and Hamas. What is Hamas, though, in a world where there is no conflict between Hamas and Israel? I mean, they have been designated a terrorist group. So I'm just curious, what is Hamas potentially going forward and if there's real peace in this region?

5:20Well, I think you point to a really important issue here. I mean, Hamas's raison d 'etre is resistance, resistance against Israel and against Israeli occupation. Now, presumably, if all of the various elements that would bring actual peace between Israelis and Palestinians come into fruition, then that would indeed sort of, I think, dramatically undermine the rationale for Hamas to continue to exist. But I do think it's really important, Carol, to note, this agreement talks about and calls for the disarming of Hamas. It does not call for the destruction of Hamas, as Prime Minister Netanyahu has called for and made a centerpiece of his policies on Gaza.

6:05So, okay. So that's an important distinction, correct? Very much so. I mean, we're already seeing reporting that as Israeli troops withdraw from limited areas of Gaza, there is reporting that Hamas is filling in and is taking over. And so, again, this just gives you a sense of how daunting this challenge is going to be going forward. And Mona, you have more than 30 years of experience in the Middle East and North Africa. With that in mind, what do the next weeks and months, years look like? Well, I think immediately what's going to need to happen is more meat on the bones of exactly how it is that this agreement that all of these various leaders just signed off on in Sharm el-Sheikh, how will those points actually be implemented?

7:04So I think the first order of the day is going to be figuring out how to establish security on the ground as Israeli troops withdraw. And in not at all clear how that's going to happen, what are the mechanisms by which Hamas is going to be disarmed and to whom? Whom will they give their arms to? And then, of course, the other key element of any post-conflict stabilization is governance. You've got to have governance. You've got to have authorities on the ground. Who will they be? How will that structure be set up? Those are really critical questions. And we're a long ways from understanding what the details are that will govern those various arrangements.

7:44There's a disarmed Hamas, just to kind of tie this up. Do they want a Gaza, a Palestinian state that actually thrives? Presumably, they have called and would be in agreement with that. But as always, the devil is in the details. For example, they are saying that Israel must withdraw 100 % from Gaza. That is not envisioned by the plan. And ultimately, what does a Palestinian state look like? Is there a way to actually build a Palestinian state from the current set of circumstances that we see on the ground, that is also going to be extraordinarily difficult. As long as these questions remain, there will be space for resistance.

8:30There will be space for groups like Hamas or its successor to cause trouble. Yeah, it's fascinating, right? And you talk about, you know, the building of a Palestinian state, and then there's just the actual build of a land that has just been devastated. So much more to come. And I know we'll lean on you in the future because I'm sure there'll be more to come. Mona Yakubian, she's Director and Senior Advisor, Middle East Program at the Center for Strategic and International Studies. Stay with us. More from Bloomberg Business Week Daily coming up after this.

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12:26Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Well, Big AI is a big market story as well today. Once again, driving the trade, pushing semi as a group, semiconductors that is. Hired today, led by Broadcom, whose stock jumped after OpenAI agreed to buy the company's custom chips and networking equipment in a multi-year deal. Part of an ambitious plan by the startup to add AI infrastructure. So we wanted to just dig a little bit deeper into it. Amy talked about it. We certainly are seeing it playing out in the market. Got a great voice, though, Bailey, to walk us through it.

13:00One of my favorite people, I will say. Bailey must have said Mandeep's name about five times on the call this morning. Immediately. Was like, we need to get him in studio. So perfect timing. And that's why we're joined now by Bloomberg Intelligence, Global Head of Technology Research, Mandeep Singh here in the studio. Mandeep, walk us through this deal because it feels like every other day OpenAI has a new agreement with some chip manufacturer and the terms are slightly different, whether it's an ownership stake or front buying chips. What's up with this Broadcom pact? I mean, they are really going after, you know, data center capacity right now.

13:36And the way they are doing it is by diversifying their supplier base. So it's not just relying on NVIDIA, which everyone does right now for compute, but really leveraging Broadcom, which is a custom silicon maker. So think about, you know, NVIDIA giving you a generic chip where you can run your AI workloads, whether it's training or inferencing. Custom silicon is used just for, you know, the specific workload that OpenAI has to run for its proprietary model. So no one else has any benefit of using a custom silicon because OpenAI is not looking to sell its own chips to compete with NVIDIA. It's looking to use its chips for its own ChatGPT app or any other custom app that it has developed in-house.

14:25And Google is a prime example of what a custom silicon looks like because they have their own TPUs, which when you compare it to NVIDIA GPUs is more customized in nature, but it does a terrific job of running YouTube or any other AI workloads that Google wants to run on its chips. So that's what OpenAI is doing. And it has a tremendous cost advantage because it costs a lot lower than the NVIDIA price tag of$30 ,000 on an average for a GPU. TPU, Tensor Processing Unit. I just want to make sure I understand. What's interesting, though, is I do feel like there's this move trend to get chips that maybe don't cost as much, maybe don't use as much power, but do exactly what we need.

15:07Is that fair? Yeah. I mean, look, one gigawatt requires up to 500 to 600 ,000 accelerator chips. So we're talking 0.5 to 0.6 million chips for one gigawatt data center. Imagine if you can save up to$5 ,000, how it multiplies, you know, in terms of cost savings. The real constraint right now is power. It's not as if you get a cheaper chip and you are all good. You still need the performance per watt, which is why NVIDIA is so good, because it gives you 5 to 10x more performance per watt than the nearest competitor. So why wouldn't you do it, right? Exactly. I want to show, there's a graphic, and one of our producers made it, Elizabeth Sedran, and I think we've all been looking at this.

15:51It's about open AI and all of the companies that they're doing deals with, and it's not even been a month, but they have done deals with NVIDIA, Oracle, CoreWeave, AMD, now Broadcom. And again, it's just late September to mid-October. So is that what this is, is just giving them a smarter supply chain and having access to what they need? Is it as simple as that? Well, it's not as simple because they're going across the stacks. Think of, you know, how AI applications are deployed. You need the chip. You need the infrastructure. You need the cloud because that's where you're doing your inferencing.

16:26So they've cut deals with different parts of the stack here, not just the chip makers, not just the power guys, also the cloud guys. So from that perspective, it's... Like CoreWeave, right? CoreWeave, exactly. And look, I mean, to my mind, they are going aggressive in terms of adding more capacity than they probably need because they think if they get market share, they get the companies or users to use their product, then they will be able to monetize and probably drive some companies out of, you know, competing with them because of the scale involved here. Well, are XAI and Anthropix striking similar deals or is this the OpenAI show?

17:06I think right now, XAI must be thinking, and they are doing a$20 billion deal with some private financing. But look, when OpenAI announces a 10 gigawatt deal, we're talking$500 billion, not$20 billion anymore. So the numbers are getting bigger and bigger. Is OpenAI, in this moment in time, on October 13th, the most important company in the world? Well, when I look at Mag7, your Broadcom is not in Mag7. It's a$1.6 trillion company. You know, OpenAI probably, you know, it's what I'm doing. And they're up 10 % because of this. I mean, also the whole space sold off on Friday. So I don't want to downplay that too much.

17:44But like. They're not even public. They're not even profitable as much as we know, right? No. I mean, look. OpenAI. So right now their gross margins would be negative if you factor in the training costs. Inferencing wise, yes. they are making some money. But clearly, if you include everything, and just to compare it with Google, Google has an annual cost of revenue of around$100 billion. That powers all of their apps, you know, Google, YouTube, everything that they run. OpenAI's compute costs are probably north of$20 billion right now. And if they're adding 26 gigawatt more capacity, we're talking, you know, compute costs to multiply at least 25 fold.

18:27So from that perspective, you have to ask yourself, how much incremental revenue do you want to see from OpenAI to justify this, you know, one trillion, potentially one trillion dollar in compute infrastructure spend? And that's where Google's infrastructure is so efficient because just, you know, less than five gigawatt of compute gets you to over 400 billion in revenue. That's pretty cool, to say the least. in a non-financial analysis terminology. Mandeep, thank you. Always a gem. Bloomberg Intelligence Global Head of Technology Research, Mandeep Singh. AI spend and the build-out is one read on the U.S.

19:04economy and certainly the tech economy. Now to another great read, Bailey, on U.S. economic activity. And we're talking about the industrial supplier, Fastenal, which reported earnings earlier this morning and shares, I think they were the worst performing the S &P 500 at one point. Yeah, right now down about 6%. And keep in mind, this is a$50 billion company. So this is no small fish in the, again, in the industrial space. One of the first reads we get every quarterly earning season. Missing Wall Street views, broadly speaking. So interesting what's driving that. Well, let's ask the CEO, Daniel Flournis, who's with us.

19:39He is chief executive officer of Fastenal. He joins us from Winona, Minnesota. Dan, it is great to have you back with us. Talk to us about the quarter, because it does seem like analysts were noting that the pricing during the quarter was weaker than expected and marks the second straight quarter of softer pricing. And maybe that's why we're seeing the stock down. What do you want to say to investors? Well, part of the reason our stock's down is it's priced to perfection. If you look at what it's done year to date and where the multiple has gone. But, you know, we had a really good quarter. We had a double-digit quarter.

20:18We hadn't seen that for a couple years. Double-digit growth, sorry. And pleased with the outcome. One of the challenges we had this year was there's a lot of fluidity around tariffs and what it means for pricing. and we will raise price to address costs in our customer supply chain. We really don't want to raise more than that because we believe it impairs our ability to grow as fast as we'd like. And, you know, coming into the quarter, we estimated, you know, X for impact of pricing came in a little bit less. We lowered our number for the fourth quarter. But the most important aspect is on a price cost basis, we are neutral.

21:03And that's what we aspire to be. We'd rather just grow. And Dan, to your point, Fastenal, even with the pullback today, returning 22 % year to date, so outperforming the S &P 500 and comparable stocks in the industrial space. But just one more question on pricing in terms of expectations. Would you want to raise pricing? Like, do you get the sense that consumers and customers would push back just given how you've been shifting into bigger customers spending much more money? Yeah. Customers always push back on pricing. It doesn't matter the size customer. We are having conversations with our customer.

21:40We will be doing some price increases in Q4. I suspect we'll be doing some price increases as we move into 2026. But again, our first discussion with the customer, they understand it. They're willing to move on price. Our first discussion is always, what are alternatives to this product that maybe doesn't mean we have to raise your prices 5%. Maybe it means it only has to be 2%. And we'd rather go to 2 % because that's what a supply chain partner does. Well, Dan, how do tariffs fit into this? Just given that, according to analysts across the street, when we look at certain industries, now is when we're going to see tariffs showing up in the third quarter in guidance as it relates to 2026.

22:23What are you seeing and how are you kind of attacking or addressing any pressures from tariffs? Yeah. So for us, tariffs have been in the in the equation since the early part of the second quarter, a little bit of first quarter. I think in the individual that handles pricing, historically, he will provide us an update once a month. He'd gotten to the point where he was not only providing us updates. He was up to video number 14 as of July that he was serving out to the field, giving them guidance into what we were seeing in our supply chain. And so we've been adding price as we've gone through the year.

23:01And these have been discussions with customers. And I hope that answers your question. No, I think it does. But I think the big thing is, are you mitigating the impact of tariffs? Are you shifting your supply chain? Is the expectation that you can have some kind of knock-on effect as it relates to pricing if we do continue to see threats from the president going after countries like China or others? We are going to talk to one of the members of Levi's management team, and they called out that they had to dial up their expectations for the impact of tariffs from other countries. So how is that impacting when you look at your supply chain and when you look at the potential for pricing impacts in 2026?

23:38We've been moving supply chain around the planet in earnest since 2017, 2018 timeframe. As our name would imply, we sell a lot of fasters. And most of the fasters in North America come from either mainland China or Taiwan. And the automotive industry took the production there back in the 50s and 60s, actually took it to Japan and South Korea, and it migrated from there. If I look at our resources, we now have a sourcing team in Shanghai, but we have a sourcing team in Bangkok. We have a sourcing team in northern India, and we have worked to diversify our supplier base around the planet and a little bit more in North America, but really around the planet.

24:27So to have diversity in supply so you're not caught off guard by some price change or a tariff change. In addition to that, we've taken supply chains coming into North America, which traditionally came in through the West Coast of the United States, and then we would redistribute from there. We have moved supply chains, so they're bringing product directly into the West Coast of Canada or the West Coast of Mexico, because those two countries represent about 14 % of our revenue. Now, you bypass the tariff. However, it's more expensive to break shipments down over in Asia and bring them in. But it's a lot less than a tariff.

25:06One of the things I want to ask you, you know, you talk about supply chains. Is the endgame, Dan, we're talking with Dan Flournis, he's chief executive officer of Fastenal. Is it about, though, largely reducing your exposure to China, which has been a pretty big one? it's it's reducing our customers exposure to any market in this case uh china and or taiwan but to any market that are on the receiving end of some of the political wins and create an unstable supply base for our customer here it happens to be china another month it might be a different country another year it might be a different country it's diversifying your supply chain, so your eggs are not all in one basket.

25:47Got to be ready. So whichever customer, yeah, whichever way the winds blow. Hey, one of the things I want to ask you just big broadly, the earnings update today, you talked about the industrial environment still sluggish. We've heard similar commentary on this persistent sluggishness elsewhere from manufacturers, as well as caution around project delays. At what point does this become something more worrying than just sluggishness? For us, it's been sluggish since November of 2022. when we really key on what the Institute for Supply Management puts out, the PMI index. And that's been sub-50, which really plays into our customer base.

26:28Other than January and February of this year, that's been sub-50 since November of 2022. So we've been in a sluggish economy for a long time from our perspective. And other than living through the first part of it where you had customers that were downshifting, And the reason our growth is shining through in a different way, A, I think we're executing at a higher level. But B, once you get through that downshifting, now you're just, even if your customers are at a subdued level, you can grow in that kind of environment. And that's what's shining through in our numbers right now. All right. One thing I want to ask you, because as you would imagine, I don't know how much of this is pervasive in your world, but AI is like the nonstop conversation that we are having, certainly when it comes to activity and market impact.

27:13To what extent is AI maybe sucking up the oxygen in the economy? Are you seeing any signs of that? Or your world, they're going to still need what you guys supply, no matter what's going on with the AI spend and enthusiasm? Well, first off, we have a meaningful improvement in our revenue as it relates to things like data centers, because we sell into a wide range of customer needs and end market needs, whether that is the actual construction. I visited many data centers being built where we have people on site there. After it's built, we're supplying into that facility with things like air handling and maintenance equipment.