Nvidia Boosts Share Buyback Program by $150 Billion

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0:56reliability for any business. That's genius. Bloomberg 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. Paul, I'm looking at all the headlines And, of course, it's all the Iran war, all oil, all rising bonos. And then there's a lot of stories, of course, on what's going on in big tech. NVIDIA with this massive$150 share buyback. I can't even imagine how much cash flow it throws off that it can just buy$150 billion of its own shares.

1:44I like to be the trader on Wall Street that gets this buyback. I'm just out there buying stock with no risk. How cool is that? All right. Let's bring in Jonathan Bloxham. He's with us right now. Matthew Bloxham. Excuse me, Matthew. No problem. He's with us right now. He's our senior media and tech analyst, normally in London. Yes. But here in New York with us for the week. Especially for you, right? Great to see you here in office, in studio. Really, really appreciate your joining us today. NVIDIA buying its shares back. Is that a sign that the shares are undervalued? Because that's what typically people say when you embark on a massive buyback.

2:17And this is a massive buyback. Yeah, that's certainly one interpretation. The other is that, you know, maybe they're running out of things to invest the money in. And I think it's probably a mixture of the two. I mean, you know, given the trillions of dollars going into AI right now, I don't think there's so much of a constraint on what they can invest in. But they are, you know, spreading their financial muscle quite broadly across the industry. You know, they've got lots of investments in partners. they've obviously kind of recently spent what kind of 18 to 20 billion if I remember correctly on Hugging Face so you know they're kind of spreading the money around I think obviously you know particularly in the US market buybacks are a very popular way to return shares the cash to shareholders and so I think it's not that surprising given you know that I think in this financial year they'll generate something like 200 billion dollars of cash flow next year it's expected by consensus to go up to about 330 billion dollars so So I think this is them saying to the market, look, you know, there's lots of kind of noise around AI right now.

3:21Our forward pipeline, at least in the next one to two years, is looking incredibly healthy. No need to worry about our runway of growth. Matt, what's the conversation you're having with clients these days, just broadly about AI? You know, we kind of had that level of uncertainty kind of get interjected several weeks ago when some of the founders, Sam Altman, Elon Musk, not founders, but some of the original executives in this technology, maybe said, let's put the brakes on this a little bit. And that was a, you know, pause. It's kind of become a little political by President Trump weighing in as well.

3:54What are investors thinking about that now? Yeah, you know, I mean, when we look back, actually, the reaction was initially quite positive. And, you know, there's obviously lots of different ways you can take this messaging. I think a lot of people took it as a view that, you know, that these open AI, open AI and Anthropic in particular, looking to strengthen the moat they have against, for example, the likes of Meta, obviously news today that they're taking a new CEO for their enterprise business. And that, you know, actually, as much as there may be some concerns about the pace at which AI is developing and our control over it, that actually this could be a good mechanism for them to kind of protect the moat they have, because it would constrain the whole industry in terms of the pace of development.

4:34And, you know, I think broadly speaking, obviously, there are still concerns about the kind of three to five year outlook for AI. But, you know, certainly in the near term, and again, reflected in what NVIDIA has done today, the market is pretty confident that there's enough momentum to sustain the next one to two years. And enterprises are still at an early stage of deploying AI into their businesses. And even if you didn't have any further evolution of the frontier models from where they are today, there's still lots of technology capability there for enterprises to play with and really shift the way their businesses are run.

5:09So we're approaching the end of the third quarter. The fourth quarter will begin soon on October 1st. And that means earnings season is kind of around the corner. The big tech names report at the end of October. What are we likely to hear from them when it comes to CapEx? I mean, are they going to continue to increase capex at the rate that they've been increasing in thus far? Or will all the political discussion over AI and whether we should slow development mean that some of the hyperscalers will start to see the numbers reflect that slowdown? Great question. My sense would be that the market is still anticipating growth in spending next year.

5:51They're obviously nowhere near the pace we've seen this year, but I think we're still expecting to see it increase. As much as there's been a lot of fanfare around slowing the pace of model development, there's still a huge amount of implementation spend to come through. So probably right now the biggest constraint on the pace of capital spending growth is the supply side, all the way from the kind of fab units to the chips to the capacity to make the chips, and then also all the way through to energy and space and how quickly can you actually deploy data centres, which is where ultimately a lot of this CapEx ends up.

6:33So that's probably the biggest natural constraint, I'd say, on spending. Matt, it probably doesn't surprise you, but I am way ahead of both John and Scarlett on AI. I'm way out there. I've got the window on my phone that's got the apps. I got ChatGPT, I got Gemini, I've got Claude. He added Muse. I added Muse some way. But I'm guessing I'm not the monetization that these gajillion dollar CapEx are being spent for. Talk to us about enterprise integration of AI. Is that happening? Because it's not cheap to deploy AI and use AI in an enterprise. It certainly isn't. I mean, it's definitely happening across every sector.

7:13and if anything, you know, this year, the enterprises are kind of running into some spending, you know, kind of constraints or kind of obstacles they probably hadn't anticipated because, you know, they've kind of largely let their engineers run loose with, you know, playing around with this stuff. And then they suddenly realised that the consumption is ahead of the budget they put in there and they're now having to scratch their heads and go, okay, do we increase our dollar budgets to continue with the pace of development or do we have to start to kind of find ways to kind of moderate or change the way our engineers are using AI tokens to kind of develop things.

7:47And the answer's so far been a bit of a mixture of the two. But yeah, the enterprise market's huge. It's a massive, massive, massive multi-trillion dollar market when you look at technology as a whole. And I think it's becoming the new, you know, kind of theatre of competition, if you like, between the big players. And, you know, this is where Meta's coming in with its enterprise strategy. historically Meta, very much a consumer-focused, ad-funded business, and looking to kind of compete with OpenAI and Anthropic in that space. I think it's going to be a really interesting space over the next 12 to 24 months to see how that competition evolves.

8:23But it's kind of really a huge opportunity for all of them. Yeah, and Meta's doing that, as we mentioned, by tapping MongoDB's president and CEO to lead this new AI platform for enterprise customers. Has Meta ever done anything at an enterprise level targeting enterprise customers? I mean, is this the first? I think if it isn't the first, then it's kind of close to a first. Certainly, I think their kind of biggest, most significant push into this. I mean, they've been working and engaging with corporates indirectly, I'd say, in the AI space so far because their models are open source. And so a lot of companies do use them.

9:01but I guess that's kind of a bit of an arm's length interaction because there's not so much direct involvement. This is much more significant, almost like kind of consulting evolution of, I guess, kind of forward deployed engineers. That's the kind of phrase that we never used to talk about, kind of helping organizations to kind of figure out how they can use AI in their specific enterprise use cases to kind of improve efficiency or create new opportunities. Matthew, you're based in London. You spend a lot of time with companies. all across Europe. Is there going to be any AI created in Europe?

9:38Because there's not a lot of technology companies in Europe. Is it going to be left to China and the US to drive this bus? Because, boy, it'd be amazing if European companies did not get involved. Yeah, it's, yeah. I mean, I guess the poster child still is Mistral AI, which is the kind of closest we've got to a frontier model company. Very small. And I think where I used to hear a lot about them a year or two back, they've kind of gone into the shadows a little bit, given everything that's going on with the US and the Chinese frontier models. So I think something like that is kind of one of Europe's biggest opportunities.

10:17There are some initiatives underway across a number of European markets to try to shift people away from using US tools to European tools. but when those tools either don't exist or they're kind of significantly inferior, that's a kind of really hard thing to kind of ask people to do. So my sense would be that, you know, like with a lot of technology in the past, Europe's going to be a taker of another region's technology. And so the opportunity, if there is one, is for European businesses to excel at leveraging the use of that technology, almost kind of the kind of second derivative of the services that sit on top of that.

10:55And also one of the big issues for Europe is how they safely deploy this technology infrastructure into the region. We've got this kind of back and forth debate about where does the data reside. If it has to be in Europe, then that's a massive investment in infrastructure. Stay with us. More from Bloomberg Intelligence coming up after this. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT Work. I'm Carol Masser. AI is creating a new path for musical stardom. As Bloomberg's Lucas Shaw and Ashley Carman report, Suno, an AI-generated music company, lets users generate a song in any style based on a text prompt.

11:38People can upload their own lyrics or start from scratch, record their own voices, or rely on ones provided by Suno. While most of the songs generated on the service go unheard of by the masses, A few have taken off, including a recent TikTok trend that involves users uploading text messages to Suno and turning them into musical performances, like taking the text from a crazy night out and making it a gospel song. Suno's pitch to investors is that it'll democratize music creation, leading to a more than$5 billion valuation for the company. The music industry, it's watching, as its biggest concern about AI is whether record labels, rights holders, and artists will be compensated for the work they claim built the training models for companies like Suno.

12:22Another question? Will these AI bangers have any staying power or just be one-hit wonders? That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChachiPT.com today by selecting Work Mode, available on Plus and Pro plans.

13:05Every detail. Your logo, your message, your presentation, so your gift feels personal and on-brand. And with expert support, dependable service, and thousands without a setup fee, creating something thoughtful doesn't mean making it complicated. Every order is backed by 4imprint's 360-degree guarantee, so you can be 4imprint certain it'll arrive exactly as expected, on time, and with the care your brand deserves. Because when the moment matters, the right gift speaks volumes. And the right partner makes it easy. Explore gifting with purpose and certainty at 4imprint.com. 4imprint. 4certain. You're listening to the Bloomberg Intelligence Podcast.

13:44Catch 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. Meta. Muse. Big news last week. Meta stock jumped big time. Some people are questioning, all right, what's the risk here from AI, Muse, and all this kind of stuff, particularly in creating content? And that's one of the areas that the BITMT team, Tech Media Telecom team, took a look at here. Geetha Ranganathan leads it up there. So, Geetha, talk to us about, you know, Muse. You guys are suggesting maybe a target telecom and some of the moats from telecom companies and media.

14:29Talk to us about that. Yeah, absolutely. Thank you so much, Paul. So, you know, any place where you see a lot of consumer inertia, I mean, that is the perfect place for Muse. So, I mean, this is not just comparing prices, right? You think about your internet plan, like your broadband subscription plan that you're paying for, or even, you know, telecom wireless plans. I mean, this is all just perfect, a perfect place for Muse to kind of come in, because remember, Muse is not just comparing prices. it is actually helping you to take the next step, compare all of these different plans, and then go shopping.

15:04So, you know, traditionally we've seen telecom companies or cable companies, a lot of consumer inertia there because people just basically subscribe. They pay their bill. They don't really go back and check and shop around just because of customer service, right? It's such a painful process. You know that, you know, your cable company is the most hated company in America. So nobody wants to be sitting on the line talking to a customer service rep for like five hours and trying to figure out what to do. Muse now kind of takes over that whole process, makes it so simple. And this is really scary, I would say, for both the cable companies.

15:37You think about a Comcast or a Charter and even some of the telecom companies, especially when all of them are fighting off each other in this really, really competitive landscape. And you have the looming threat of a new competitor in Starlink. Yeah, it's amazing. See, I'm going to send this report to Matt Miller because he and I have a running feud. I arbitrage Uber and Lyft. And I save 10, 20 percent often. But it takes effort on your part. It takes another. Yeah. But now Muse can do it for me. OK, so you have a Muse app on your phone. Are you going to deploy it? I'm going to start doing it.

16:10All right. Matt Miller does not do this. He just. No, he just he just goes to, you know, one or the other Uber, I think. Oh, he's got. Yeah. So it's a big running feud we have. That makes a lot of sense, Geeta, what you say about how Muse can do a lot of the heavy lifting on the kind of work that people don't feel like doing. But after a period of time, even with this AI agent doing the work for you, people still have to think of it and move forward with it. And that inertia is pretty powerful. I mean, do you have any numbers in terms of like what percentage of the population are going to start working on this or, you know, moving forward with something like this to compare prices and actually try to, you know, try to pin down these lower prices?

16:53Absolutely. I mean, we've run some surveys, some proprietary BI surveys, not specifically for Muse itself, Scarlett, but just in general, kind of looking at the pricing landscape across a lot of these subscription services. And believe it or not, for broadband, you know, it used to be that speed was everything and now price is everything. And in some of the surveys that we ran, we've seen that at least 35 to 40 percent of the population are willing to switch and make that effort, you know, if they have a more competitive price. And now you introduce muse into the equation. You know, I think it's going to be much, much higher than 40 percent.

17:29And if you have somebody who's already doing all of the heavy lifting for you, all of the dirty work, it just makes that whole process, the friction go away and makes the process so much more painless and easier. So is Muse going to argue on the phone for three hours with a Comcast or a T-Mobile rep? It's getting there, Paul. It's first starting off like on the Internet, talking with the chatbots. So it did that actually. Yeah, I mean, we've had a couple of examples posted all over the Internet of news, kind of talking to some of the chatbots, the customer service chatbots, and arguing for a better price.

18:02And it managed to even switch for a few customers. So, you know, I mean, if I were a telecom company or a cable company, I would definitely, you know, be pretty concerned at this point. Stay with us. More from Bloomberg Intelligence coming up after this. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT Work, I'm Carol Masser. AI is creating a new path for musical stardom. As Bloomberg's Lucas Shaw and Ashley Carman report, Suno, an AI-generated music company, lets users generate a song in any style based on a text prompt. People can upload their own lyrics or start from scratch, record their own voices, or rely on ones provided by Suno.

18:44While most of the songs generated on the service go unheard of by the masses, A few have taken off, including a recent TikTok trend that involves users uploading text messages to Suno and turning them into musical performances, like taking the text from a crazy night out and making it a gospel song. Suno's pitch to investors is that it'll democratize music creation, leading to a more than$5 billion valuation for the company. The music industry, it's watching, as its biggest concern about AI is whether record labels, rights holders, and artists will be compensated for the work they claim built the training models for companies like Suno.

19:21Another question? Will these AI bangers have any staying power or just be one-hit wonders? That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChachiPT.com today by selecting Work Mode, available on Plus and Pro plans. A business gift is never just a gift. It's a thank you, a milestone, a moment of appreciation. It's a message about how much someone matters and what your brand stands for. At 4imprint, you'll find thousands of customizable options, like premium apparel, branded drinkware, tech, totes, and more, each chosen not just for function, but for meaning.

20:02You can tailor every detail, your logo, your message, your presentation, so your gift feels personal and on-brand. And with expert support, dependable service, and thousands without a setup fee, creating something thoughtful doesn't mean making it complicated. Every order is backed by 4imprint's 360-degree guarantee, so you can be 4imprint certain it'll arrive exactly as expected, on time, and with the care your brand deserves. Because when the moment matters, the right gift speaks volumes, and the right partner makes it easy. Explore gifting with purpose and certainty at 4imprint.com. 4imprint, 4certain.

21:02for to close their Warner Brothers discovery deal. So that's kicking off. So we want to get the latest on what's happening in that part of the market. Steve Flynn joins us here. He covers all the tech media, telecom credit out there. So$44 billion. This is talk to us about this deal. What's going on here? Hey, Paul. Well, this deal is to help fund Paramount's acquisition of Warner Brothers, which should close relatively soon. There's significant debt financing behind that. But the good thing there's also significant equity checks coming in from the Ellison family, coming in from Redbird Capital.

21:32coming in from some sovereign wealth funds. So you have a lot of equity capital behind it, but it is a big bond deal. They want to raise$44.4 billion. It's a complicated deal because they're hitting two big bond markets, right? They have first lien debt, which is considered an investment grade. They're going to do about$32 billion of that, which is going to be, I believe, all dollar denominated debt. But then they're also tapping the high yield markets. So they have second lien obligations, which are high yield. There they want to do about$12.4 billion equivalent, hitting both the dollar market and the euro market in high yield.

22:06Nice. Bankers are making money. But interest rates are blowing out. I mean, they're paying more in interest than I'm sure they probably thought they would. Yes. So we've had underlying treasury rates moving up, up, up, which is pushing, you know, the spreads were pretty good holding in there, both investment grade and high yield. They've started to bump out over the past couple of weeks. So all in, And, you know, your investment grade market is probably about 6 % right now. I think it was like 5.9 % close on Friday. It's definitely probably around 6 % now. High yield market overall is over 8%.

22:38So, yes, they're going to be paying a lot of interest pro forma for this deal. All right. I'm going to quote you the market back in the early 90s when I was lending to these companies from the Chase Manhattan Bank. I'll lend three, maybe four times EBITDA. You want to put any sub debt on top of that? That's your problem. What's the total leverage going to look like on this company, Proforma? And I'm going to ask you or tell you, pre-synergies, don't get me any other synergy stuff. What's the leverage on the Proforma, Paramount, Warner Brothers discovery? So leverage is high. Leverage all in will probably be about mid-six times Proforma this year when you combine the two companies.

23:13EBITDA, which is about$12 billion combined together for this year. Net debt is expected to be around$79 billion. So you're like six, four-ish times. But the company sees significant cost synergy. So again, combined, they're about$12 million of EBITDA. They see$6 billion of cost savings within three years. So that gives you pro forma. I know you don't want to hear it, but pro forma EBITDA, about$18 billion, and leverage, which is much lower. The second thing to know here is that they're issuing first and second lien bonds. there is debt securities that are subordinate to that, right? So there's some leftover unsecured debt from Paramount, some stub pieces from Warner Brothers, and some Paramount subordinated debt.

23:59So when you look at those leverage numbers, that's all in the debt that they're selling is higher priority. And these are businesses, the core businesses, they're not really growing that well. I mean, so it's not like they can really earn their way out of this leverage. So how are you guys? How's the market? And how are the rating agencies viewing this capital structure? Yeah, you know, it's interesting. If you look at combined EBITDA for Warner Brothers and Paramount over the past couple of years and consensus forecasts like this year and next year, it's about$12 million. It's basically been about flat because the revenue has been challenging.

24:33These companies have done a good job of taking out costs, but it's been very challenging to grow revenue because the top line has been under pressure, right? Like traditional linear television under significant pressure. Now they're growing in, you know, streaming. Studios has been doing well. But overall, that is a challenge for this company. So the real EBITDA growth is going to come from cost takeout. Again, the$6 billion synergy number. There's a fair amount of upfront costs to achieve those synergies within the first year or so. But then after that, you should see significant free cash flow.

25:04So as a bondholder, you're really supported by two things. Number one, you love the huge equity checks coming in behind you, supporting the deal. You love the commitment from the Ellison family. And you really do like the significant free cash flow that should be generated a year to two out and going forward. That will help repay your debt. How about the consent decree that the Paramount Skydance signed with the state's attorney general? Does that put pressure on their ability to generate those synergies? Like they can't close down one of the lots, which I thought would have been. Yeah, and I think also the, I believe I read that the negotiating with the distributors to carry their television stations or their cable stations, I believe they still have to negotiate that separately, the Paramount channels and the Warner Brothers channels so that it eliminates some leverage there.

25:50So I don't think the consent degree is significantly troubling, and I still think that they have a good chance of getting their synergy target. And do we have, real quick, do we have any pro forma ratings from the agencies yet? Yes. So all the three rating agencies came out. The big key point here is that the secured will have two investment grade ratings, which puts it in the Bloomberg Investment Grade Index. And the second liens will have high yield ratings. So that's important because you need to have that in the investment grade index because that presumably result in more buyers. It was key.