CoreWeave Inks $14 Billion Meta Deal, Highlighting AI Demand

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1:24Scarlet Fu:Let's go now to talk about tech. Really focus in on CoreWeave. CoreWeave is one of those neocloud companies. The shares are up big time today, up 14 % after it has secured a$14 billion deal with Meta. Let's bring in Anurag Rana. He is Bloomberg Intelligence Technology Analyst on more of this deal. So Anurag, this is a deal that will provide Meta access to NVIDIA's latest GB300 systems. What is that? Are those NVIDIA's most advanced chips or systems run by NVIDIA's most advanced chips? Yeah. So, you know, CoreVive is basically is a company that takes all these GPUs and rents it out to people for whatever they want to use.

2:07Scarlet Fu:So they do get the dips on the most latest equipment that is sold by NVIDIA. And then And the clients can now I'm dead sure that Meta is buying directly from NVIDIA as well. But in this case, they're just going and outsourcing the entire infrastructure for an amount of$14 billion, which may be a very small piece of Meta's overall CapEx for AI infrastructure. But it's still a start that they are now leasing capacity rather than building it in-house.

2:34Paul Sweeney:So how should we think about this in the overall growth of AI? I mean, this feels like incremental spending to me, but I'm not sure if it's just shifted somewhere else. When you see announcements like this from CoreWeave, how do you kind of weave it into the larger picture?

2:50Scarlet Fu:So every company, every hyperscale cloud provider right now, whether that's Microsoft or whether that's Meta or any other company that's out there that is spending a lot on capital expenditures, on expanding their AI capabilities, they have two options. They can either build it themselves or they can go to a specialized vendor like CoreWeave and rent it from them or lease it from them. And Microsoft has said that they are really into expanding their leasing capacity or capabilities down the road, which is good for companies like CoreWeave. Their job is to build only this infrastructure and rent it out to whoever wants it.

3:26Okay.

3:27Scarlet Fu:Okay, got it. My other question when it comes to CoreWeave and, you know, all of this, all these deals it's making with these cloud providers is that they're also raising a lot of money. CoreWeave is tapping the debt market, or there's expectations that it may tap the debt market. Is there going to be enough demand to meet what it wants to sell? So here is the case. When it comes to a customer like Microsoft or Meta, which all of us know have a lot of cash flow coming in, if they have signed, let's say, a five-year deal, seven-year deal, you kind of know that the money is good. It's much easier to raise capital then.

4:07Scarlet Fu:than let's say from a brand new company that may not have that amount of cash flow coming in. So I would say one should not be concerned that Meta is not good for that money. I don't think that's going to be a concern for anybody who's giving them the bonds or the debt for that.

4:23Paul Sweeney:Yeah, Meta raised$29 billion in the financing package for a massive data center in Louisiana. Last week, Oracle raised$18 billion in bonds as it builds infrastructure for OpenAI. So the markets are open for this kind of trade, it seems like.

4:37Scarlet Fu:Yeah, apparently they are. And the other thing with CoreWeave, of course, is that it has an increased commitment from OpenAI. It's got this big customer in Microsoft, I think makes up 71 % of its revenue. How diversified is CoreWeave's customer base right now? See, when you see the CoreWeave's first biggest customer was Microsoft. Microsoft didn't have the capacity to run a lot of their AI workloads, so they went to CoreWeave. So, you know, frankly speaking, I understand that 70%, but, you know, this is an area where everybody needs capacity. So, you know, for us, it is an issue, but it's not like, you know, it's not a deal breaker when it comes to the quality or when you look at the fundamentals of somebody like a CoreWeave.

5:17Scarlet Fu:Now what's happening is other cloud providers are going to them and say, whatever excess capacity that you have, we will take that as well.

5:24Paul Sweeney:Are there other companies that are going to come public here like CoreWeave, these NeoCloud companies?

5:31Scarlet Fu:Yeah, I mean, I'm sure a lot of them are gearing up for it. CoreWeave is probably the biggest one that's out there. You know, we saw Microsoft signing another deal recently with Nebius, I believe. And, you know, that was a very similar arrangement where Microsoft is going to them and saying, OK, for the next several years, this is the kind of money that I or the capacity that I want from you. And this is how I'm going to give you the money to fund it, basically. So, Anurag, when you look at these kinds of deals and, you know,$14 billion here,$10 billion somewhere else, what gets your attention in terms of, you know, I need to look into this a little bit more versus this is just one in a long string of deals?

6:12Scarlet Fu:that these companies will continue to sign? The biggest thing you want to think about is what are these companies doing these deals for? So say somebody like a Microsoft, are they giving a lot of their inference workloads or the outcome of ChatGPT running on Microsoft's cloud workloads or are they giving model training workloads? Because there is a narrative out there in the market that the long tail of the AI revenue comes from people using apps, which we think of this as inference revenue, compared to the model training revenue, which may see its ups and downs depending on what kind of technological advancement we see in software development.

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7:33Anurag Rana: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.

7:47Paul Sweeney:Looking at ExxonMobil, say they're cutting about 2 ,000 people from their headcount. The stock's off about 1%. This is a company that has almost 61 ,000 employees. So, you know, a meaningful number there. And we've seen job cuts around other energy companies as well. We want to get a sense of what's happening there. Vince Piazza joins us here. Vince is a senior energy analyst for Bloomberg Intelligence. Vince, talk to us about what this news from ExxonMobil means. How material is it to you and to investors? Well, I think it's part of managing through the cycle, right? In prior cycles, the sector was exposed to more extreme volatility, higher highs, lower lows.

8:29Paul Sweeney:The industry is trying to manage through what seems to be a rather clouded backdrop right now. So we're sitting here and you got NatGas somewhere around 330, Henry Hub. You got WTI in the low 60s. You have OPEC bringing back on capacity and maybe even speeding up that capacity adds. You have a more clouded, broader economic backdrop across the globe. You have geopolitical issues. So lots of uncertainty. And not only Exxon. Exxon's probably going to cut somewhere about 2%, 3%, 4 % of its global workforce. Its Canadian affiliate, a much more substantial cut, roughly about 20 % over the next two years or so.

9:17Paul Sweeney:You're seeing it at ConocoPhillips. You're seeing it at Chevron, even BP, the major European energy conglomerate. You're seeing it across the board. And so, Paul, as you know, when you're not growing revenue, right, you're not getting the revenue increase on price. You're not growing production because your investor base does not want to see that production growth. You are looking at very steady revenue, maybe even declining revenue. You have to manage that net back from the cost perspective. And you have to support that cash flow stream. And so you're doing it via these cost cuts over a number of years, two, maybe even three years, to sort of bring that cost structure in line with the new reality of uncertainty in the marketplace to reduce that volatility.

10:02Scarlet Fu:Well, there's cost cuts and then there's ExxonMobil's cost cuts. Since 2019, it's trimmed$13.5 billion in annual costs. That is more than all the other big oil companies combined. How much more room is there for Exxon to slash expenses?

10:17Paul Sweeney:Well, it bought Pioneer. So it has a relatively sizable workforce in general. It doesn't necessarily mean that those cuts are going to come there. But there are ways you cut, you gain efficiency in this technological era where we have advancements across the energy value chain. You will consistently and continually seek out ways to get efficiency to bring down that cost structure and to bring unit costs in line with a very anemic outlook for global energy prices in general and also a very clouded outlook for the global economy, too. So, Vince, kind of looking out, you know, one to two years, what is the view of the companies you talk to about energy prices, oil and gas?

11:08Paul Sweeney:Is it still going to be a challenge market here? It looks like it. It looks like it's going to be a very challenge market, especially for the WTI side, for the oil side of the equation. On natural gas, Paul, I know you and I have talked about this numerous times. You have a structural growth trajectory for natural gas here in the U.S. via export LNG. whether it's seaborne LNG or whether it's pipeline gas into Mexico to help fuel their economy as well. You have the AI build-out, which will digest significant amounts of energy, and that's beneficial for natural gas. But on the oil side, you have very anemic growth.

11:52Paul Sweeney:You have your transportation fuels having to compete with alternative and renewable fuels. So there's greater competition there. The growth trajectory and the outlook for the demand side on the liquids fuels seems to be very clouded and seems to be somewhat less secure relative to the natural gas side of the house. And that's why we much more favorably dispose to Henry Hubb and natural gas relative to WTI, Brent and various liquid fuels.

12:29Scarlet Fu:And before we let you go, Vince, OPEC Plus will be holding a meeting this weekend on Sunday. And there's talk that they will increase or fast track the return of halted production. There's a lot of concern that China and its buildup of its strategic oil reserve might be distorting some numbers or distorting the demand picture. What's your take?

12:51Paul Sweeney:So in general, demand across the globe seems to be less than robust because of, well, you have a global economy that's uncertain. You have tariff policy that has injected more volatility and uncertainty across the globe. So demand concerns are an issue. The supply side, well, we know where the supply is. And OPEC is reasserting its market share dominance in the U.S. We don't want that production growth. And so it's really coming from the OPEC side of the house and the demand side of the house is going to be somewhat anemic from here. Stay with us. More from Bloomberg Intelligence coming up after this.

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14:57Anurag Rana: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.

15:12Paul Sweeney:Spotify. You know, I'm not a Spotify user, so I don't pay that much attention to it. I should. $144 billion in market cap. The stock's up 50 % this year to date. Just extraordinary. The Spotify founder, Daniel Ek, stepping down as CEO. The stock's off about 5 % on the news. He's 42 years old. I mean, I don't know.

15:34Scarlet Fu:He's got a lifetime ahead of him.

15:35Paul Sweeney:He's got$10 billion, according to Rich Go, is his net worth. Geetha Ranganathan joins us. She's the U.S. media analyst for Bloomberg Intelligence, follows this company. Geetha, talk to us about Spotify. Talk to us about Daniel Ek. What's going on here today?

15:49Vincent Piazza:Yeah, absolutely, Paul. So this is, you know, one of your classic cases of the founder finally kind of establishing a really good transition plan and handing it off to his, you know, two lieutenants here. So we're having a co-CEO structure. And really, I mean, the first when I heard this, I mean, this really kind of harkens back to what Reed Hastings did with Netflix, you know, kind of left right at the peak, right when the companies, you know, everything was kind of, you know, all cylinders were firing away and left it to Greg Peters and Ted Sarandos to kind of take charge. And it seems like Spotify is in a very similar position.

16:24Vincent Piazza:So they had a couple of things that had to get done this year, which was new contracts with all of the music labels. It looks like Daniel Ek has, you know, accomplished all of that. And I think he's really kind of left the company in a good position for its next phase of growth. And this is really, you know, a huge story in the Internet space, the possibility to get to a billion users very, very quickly. They already have about 700 million.

16:49Scarlet Fu:OK, so there are almost three quarters of the way there. He's leaving on top, as George Costanza would in Seinfeld. But my question, Geeta, is you talk about the new phase of growth. How much of that will rely on continued price increases? Unlike Paul, I do subscribe to Spotify. And it's alarming how frequently the price changes come.

17:10Vincent Piazza:Yeah, and it is going to keep coming, Scarlett. There's absolutely no doubt about it. I mean, this whole story is kind of predicated on those price increases. Remember, though, that they never took up prices for the first 10 to 12 years. And then it started coming fast and furious, right? We had one price increase in 2023, another in 2024. We're going to have probably another one in 2026. But if you kind of look at all of the streaming services out there, you know, Spotify is, of course, the leader in audio streaming. They have a 35 percent global market share in terms of subscribers. You kind of look at their price.

17:42Vincent Piazza:Let's say in the U.S., it's$12 for an individual plan. And you compare that to, let's say, the video leader, Netflix. Again, I go back to the Netflix example. They are priced at$18. So I think Spotify still has quite a lot of runway when you kind of compare it to the rest of the field. And the other thing that I like to point out here is when you're kind of subscribing to an audio service, it's typically only one service that you're subscribing to as opposed to a video service. So I think people really like their, you know, if they like Spotify, they're absolutely going to hold on to it at any cost.

18:11Vincent Piazza:And the other thing is, you know, Spotify is adding new features all the time. So they are like really getting down on, you know, monetizing more and more. But it's not they are innovating also constantly. So I think I think people don't mind paying for it.

18:28Paul Sweeney:What's the biggest challenge to them on the cost side of the business, Keita?