Anthropic Commits $50 Billion to Build AI Data Centers in US

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1:14All investing is subject to risk, Vanguard Marketing Corporation Distributor.

1:20Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. What a time to be covering tech like you and Ed Luglough do, Caroline. Every day there are major news items from major companies and just amazing amounts of dollars. Today, again, Anthropoc commits$50 billion to build AI data centers in the U.S. How do you put it in context? I mean, we become a bit numb. And then you look to some of the other whopping numbers, like the$600 billion that Mark Zuckerberg has said he's spending in capital expenditure on AI data centers.

2:09You go, oh, actually,$50 billion doesn't feel that much. But interestingly, Anthropic, what's interesting about this one is, look, they've been reliant on investment from strategics for their access to cloud. Google, massive investor in Anthropic. And with that comes access to cloud and to compute. So too has AWS, Amazon and AWS has been a real provider of chips. And particularly, remember, really, Anthropic has been a strategic partner to these cloud companies because they've been helping them build out their chip offering and they've been helping training models on the future generation of those vertically integrated companies.

2:41But now they're saying, look, we think the US needs to continue to build out its AI infrastructure, as you've heard from Sam Altman, who's already saying he's going to be spending trillions on data centers and all the capital expenditure that goes with it. Then, of course, we have the likes of Mark Zuckerberg all in on it as well. So it feels as though Dara Amadei, who was at OpenAI, came over and set up Anthropic to do it in a more cautious, humanity-friendly way. He's now saying, look, us too. We need to put some infrastructure out here. Okay, so OpenAI is to chat GPT as Anthropic is to claw.

3:13That's the chatbot that they use. How widely used is this claw chatbot? So they are really nailing the enterprise space. This is where they've managed to lead, in particular when it comes to coding. So yes, they don't have 800 million weekly users in the same way that ShackGPT does, but people love it in the enterprise. And that really has been their winning formula. They've been really rather profitable thus far, more profitable at least, or seeing more revenue growth than OpenAI has been seeing, because OpenAI has been all about the spending, all about the reinvestment. And in many ways, Anthropocon has been seen as some sort of more asset-like version of this.

3:44Now, they're kind of casting that off a little bit, but they just raised$13 billion. dollars they are valued 183 billion dollars that was back in september and they have 300 000 business customers yeah so they have been managing to show that that the business model works is there any expectation um caroline that these companies may come public at some point down the line because i just think about the money they're spending and i know they a lot of people want to throw money at them but maybe even the public markets are they talking about that well sam altman has been saying look it's not i can't give you a date but clearly they were on a path in the next couple of years to going public.

4:18And that is the idea, because many of these businesses, these founders feel that it's their duty. It's a duty to be able to allow the everyday retail investor, as well as these very deep pocketed venture capitalists to benefit from their businesses and be able to take a chunk in within that. So we're seeing that these companies are talking about going public. We've heard it slightly less from the anthropics of this world, but I think certainly there's going to be a push that these companies can't remain private forever. And these boatloads of cash that they need can't keep on coming from the same group of investors.

4:46My guess is when they do go public, you know, the founders will have a huge swath of the voting shares and everyone else won't. Kind of like the Metas of the world. Yes, exactly. And what's interesting is we mentioned Meta, they accessed the bond market just a couple of weeks ago to fund some of these. Yeah, just incredible. But remember, Sam Altman doesn't actually own any significant equity in opening. Ah, okay. So how they would structure him to have voting shares is another thing entirely. They, of course, are owned by the overall charitable not-for-profit Yes, that can't be in control in some ways, but has stock of OpenAI.

5:21But I don't know what the breakdown of shareholding is by the founders of Anthropic. I'm looking at the markets overall, Caroline. And for a second day, the Dow is outperforming the Nasdaq 100. I don't know how many times you can say that over the past couple of years, but the Nasdaq under pressure. And again, it's this idea that, you know, the AI boom is now a little bit more in doubt. There's a little bit more skepticism and people are asking questions about, you know, is there a clear financial model for profitable AI? There's a lot of nonstop investment. But then how do people see returns in the next year or two years as opposed to 10 years down the road?

5:59How has that conversation unfolded in the tech sector? It's unfolding by having either side of the equation come on the Michael Burry's of this world saying no one's factoring in depreciation of chips. We think that this is ultimately overvalued in a bubble, but then we're going to have Threadneedle come on and really start to say, look, the proof will be in the fundamentals. The proof will be in the earnings. We've just had a cracking set of numbers from most of the Magnificent Seven. We're still waiting on NVIDIA. AMD coming out once again, showing that the total addressable market for their AI accelerators and more broadly, the chips is going to be one trillion dollars.

6:33they're showing that they're going to guide for not just two years three years but up to five years they think that they can be attuning to about 35 percent revenue increases every single year and we're seeing kega numbers coming in in the 80 percent field for an ai accelerator offering that mi is really selling well so i think that every time you question it and yes you can look at the worry about the circular financing the anxiety that a lot of these companies that were very asset light. I think Meta used to be very asset light. And to your point, now we're starting to see them laden on debt.

7:05These things do fill people with some uncertainty. But if really the revenue taps got turned on, if AMD can prove out that they're building a clear line of sight on tens of billions of dollars of revenue, people will give them the better benefit of the doubt. I think everyone's grown very accustomed to seeing the cash and short-term investments line for all these big tech companies at like hundreds of billions of dollars. And that's not going to be the case if they're going to continue investing this much and spending this much. Yeah, and we saw Metastock go down pretty precipitously today when Mark Zuckerberg said they were going to step up their CapEx by that degree.

7:35So that was interesting to see, too, a little bit of caution there. Morgan Stanley out with a report recently I just saw today saying basically, boy, a lot of things have to break right to generate returns on these investments. Just writ large on the industry, a lot of things really got to break right. And we don't know what's going to happen tomorrow with airplanes. Exactly, exactly. Getting to the airport. All the things that actually need to work for us to be able to get the data centers up and running. Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard.

8:07To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com slash audio.

8:47That's Vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation Distributor.

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9:55You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern. On Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts. Or watch us live on YouTube. Circle Internet Group. It's the issuer of the second biggest stablecoin USDC and the shares are tumbling today down about 8%. And this is on kind of what feels like a pretty pedestrian reason, concern that lower interest rates will slow profits. I mean, that's kind of unusual if you think, you know, cryptocurrency or crypto linked company with lower interest rates.

10:31Let's bring in Emily Mason. She is a Bloomberg News fintech and crypto reporter and she joins us now. So Emily, just explain to us the dynamic here why lower interest rates from the Federal Reserve would be a concern for a company like Circle? Yeah, so Circle issues USDC, and that's a stable coin peg to the US dollar, and they maintain that peg by holding reserves in cash and short-term treasuries. They keep the yield from the treasuries, and that's kind of how they make money, and that's where most of their revenue comes from. So if interest rates go down, that shows up in earnings, and that causes some concern for investors and analysts.

11:08So what have their recent results been like? I mean, this is their second time reporting since going public. They benefited heavily from all the hype around Stablecoin, especially before the Genius Act was passed and their stock performed really well. It's kind of been down since their summer highs. And that's kind of because of the concern from the interest revenue, but also because of some of the distribution partners that they have. They have revenue sharing agreements with Coinbase, for example, who helps distribute their coin. So if this company for now is kind of a proxy for a money market fund because its earnings track short-term treasury yields, it must need to do more to diversify its revenue streams.

11:52What is it looking at? Yeah, that's what they're doing. And then if you talk to Jeremy Allaire, who's the CEO, he'll kind of say that lower interest rates are actually good for the company because it means that there's a higher velocity of money. There's more investment. And then people want faster moving money like stable coins. And they also might want to use products like their Circle Payments Network, which recently is experimenting with like a stable coin payouts product, which helps people to pay out globally with USDC. And they're trying to move more USDC volume onto their own platform instead of working with distribution partners like Coinbase.

12:25And that kind of could help them as well. But they see the lower interest rates as a positive thing. And also the USD circulating supply is increasing very heavily as they add new partners. So that also kind of could potentially offset the lower interest rates. Emily, your beat is fintech and crypto reporter. Two things that didn't exist even just a handful of years ago. Talk to us about broadly the kind of the intersection of the growing crypto market and applications like fintech. Yeah, I mean, I think what's kind of the most interesting right now is like fintech when it came onto the scene was sort of like building very sleek interfaces on top of his existing financial infrastructure.

13:10And then crypto's pitch is much more sort of like rebuilding the financial infrastructure with things like blockchains. And now the conversation is kind of about bringing the traditional world and the traditional financial infrastructure together with crypto rails. And Circle's really kind of sitting at the center of that and trying to bring Stablecoin and integrate that with how traditional markets work. And that involves a coming together on both sides. Traditional firms kind of have to upgrade and make their systems interoperable with crypto technology. And then crypto firms also have to kind of move into a regulated environment.

13:46And that's been something that Jeremy Allaire has talked about for a long time. He really thinks that crypto needs to be regulated. and Circle, that's been a big part of their narrative is like we are kind of like the suits in the room and we're going to be regulated and that's how we're going to go about doing business. They're kind of the most trad fi of the DeFi world. In other words, if we want to get technical, this is going to be a dumb question, Emily, but we've seen how Bitcoin and the rest of the cryptocurrencies had a pretty rough October. They're struggling to regain momentum. All these digital coins are not the same as stable coins, but is that shift in sentiment and conviction on Bitcoin and altcoins, especially from institutions affecting demand at all for stablecoins?

14:25Or are those two just not linked? I mean, stablecoin is used a lot of the times, like anytime there's a lot of trading happening in crypto, like and in crypto tokens, like stable coins kind of benefit because they're used to like move in and out of those markets. The stablecoin, the whole point is that it's like a stable currency. It's pegged to the dollar. It's one for one. So the price of it really shouldn't be impacted at all by like crypto market movements. But does demand affect it or does sorry, does the spillover involve like demand waning for stablecoin or increasing for stablecoin? I think we're like the demand growth for stablecoin is going to come from is like it moving out of a tool for just for crypto trading.

15:07It's going to be like people in countries where the local currency is volatile wanting to hold stablecoin or people wanting to actually use it for payments or like stable coin payouts. Like if you're a US based company and you're employing a bunch of people around the world who want to hold a stable currency, like the dollar, the stable coin is the best way to access it. Then you can pay them that way. Like that's where growth from, that's where demand for stable coin is going to come from. I don't think it's like super tied to the trading necessarily. Like people use stable coin to get in and out of crypto markets.

15:37So, you know, they might see more volume of trading activity is high. But their journeys are kind of becoming less linked. Stay with us. More from Bloomberg Intelligence coming up after this.

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17:12you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube all right whether we like it or not the holidays are upon us scarlett foo and paul sweeney live here in our bloomberg interactive broker studio streaming live on youtube and with the holidays upon us that means shopping and for retailers it is obviously the most important time of the year kind of right now through year end so we want to get a sense of how that's shaping up for the retailers out there mary ross gilbert senior equity analyst she covers the retail space for bloomberg intelligence she's based on our los angeles office uh mary thanks so much for joining us here we're you know kind of right into november getting into the thick of it here how's um the holiday shopping season shaping up what are your companies saying thank you paul so if you look at how the holiday shopping is shaping up, I think it looks very positive.

18:12So I think we are going to see an increase, and particularly for apparel retailers, that's usually like the largest category that consumers, if you look at those that have been pulled by all the holiday surveys that have been conducted, including the National Retail Federation. And they have over 8 ,200 respondents in their surveys. And the other ones are pretty sizable, you know, relatively speaking around 5 ,000. So they're showing that there's definitely a higher percentage of shoppers wanting apparel and accessories for gifts. So that should be good news for apparel. But Gen Z is planning to cut back on their overall holiday spending by that, you know, by 23 percent.

19:00Millennials, just one percent. Wow. So the Gen Z, these are the younger folks, maybe tougher time finding a job, maybe, you know, student debt. Is that kind of the driver there? Yeah, I think that could be part of it. Yeah, it could be the job market situation that might be happening there. Because these are really like the 17 to 28 year olds. So we have been hearing some, you know, talk about some of these latest graduates, you know, having difficulty finding a job. I think it's just probably going to take longer because generally unemployment is still very low and soon we'll be getting more data on that.

19:41But we're seeing resilience. If you look at the data so far with Bloomberg's second measure for apparel retailers and department stores and off price, we're seeing good sales coming in for the third quarter. And they'll start reporting their numbers in the next few weeks. So I think we're off to a good start. And I think Black Friday sales are already happening. Macy's is out today with 50 percent off on their private label brand product. And they expect to have other drops every week. Wow. So everyone's focused on starting now. Yep. With the promotions. So, Mary, you know, economists talk about a K-shaped economy out there.

20:22Some consumers, maybe the ones that own assets like stocks and bonds and real estate doing more than good and kind of everybody else struggling a little bit, particularly with inflation. How does that get reflected in retail sales? Does it mean you just kind of if you're an investor, look at an Amazon target where I can get some some some deals? Yeah, and that's actually what's happening. And that's why you see, let's say, pretty robust sales overall coming out of off price. So think of TJ Maxx, Ross Stores, and Burlington Stores. And Burlington's at the very low end. If you look at credit card delinquencies, those rates, and a lot of these companies that we're tracking represent the credit card holders for department stores and for some select apparel brands such as Gap, etc.

21:13And then when you look at that data, delinquencies are actually lower this year versus a year ago, but not for the very low income, which kind of speaks to what you're talking about and inflation. Actually, those are up in the teens, you know, for the very low income consumer. So think like under 50K. Yep. Yep. How about e-commerce, Mary? I know the pandemic, folks are saying, kind of pulled forward maybe four or five years of share shift from bricks and mortar to digital. What's the e-commerce growth story look like these days? You know, econ growth is looking strong. When we look at the data, like I said, for the third quarter that we're seeing from Bloomberg's second measure, it's showing actually online sales were stronger at the department stores, except for Kohl's.

22:05Kohl's online businesses, I mean, not their online business, but actually their credit customer is shopping less, like in the double digits less. So that's kind of an issue for them. But generally, we're seeing stronger pool with online sales there. Now, there is also a delineation between the type of consumer. If it's Gen Z, they tend to prefer shopping more in store. And we see that with Abercrombie and Fitch's Hollister brand. So they are about 70 % of their sales are generated online. And then it's the inverse when you look at their namesake brand, Abercrombie, because that consumer is those are millennials and millennials prefer to shop online.

22:52So 60 % of their sales are being generated online versus in store. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon 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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