Nvidia Invests $2 Billion in Nebius for New Data Center Deal

14:02Matt Miller:Tom, it's very hard nowadays. I think the podcast recently where Satya is speaking or when the Google CEO is speaking, those are the ones you really have to follow because the tech speed of the innovation is just so fast that anything from six months ago, I mean, it's just antique.

14:18Scarlet Fu:And of course, you're listening to these podcasts at double or triple times the speed, I'm sure. When Satya talks, when the CEO... Who's Satya? Satya Nadella. of Microsoft. When Satya talks,

14:31Tom Keene:I just love Mark busting her chops. It's the greatest thing.

14:35Scarlet Fu:How much does he really reveal or is it in what he does not say that you get your most insightful thoughts on what's next?

14:43Matt Miller:I think I really look for him to figure out how much is he going to spend more because at the end of the day, he is not somebody who benefits from buying Nvidia chips. I mean, he's the one who's funding a lot of this expansion with, you know, let's say, according to our calculations, He's spending on a year$50 to$60 billion just on NVIDIA GPUs. That's a very big amount. So if he's doing it for a reason, I have to see that there is some ROI to that.

15:09Tom Keene:So I'm at Palladino's down at Grand Central Station at the Bourbon Bar with Joseph. He's just like old school bartender. He's like he's out of Mad Men or something like that. Somebody comes up to me and they go, do they really not let Mandeep Singh and Anurag Rana in the same room? Do you guys, when you're at 731 Lexington, are you too allowed to speak? No, no, we sit next to each other, absolutely. Really? Yeah. Okay, that came up to me and I said, I really don't know. I mean, there's just so much, you know, Scarlett, there's just so much voltage there.

15:37Scarlet Fu:There's a lot of voltage there and we tend to have them both on, but at separate times because we've got to make sure that we sprinkle their expertise throughout the hours.

15:45Tom Keene:Yeah, well, also there's the security issues as well. How many players are there going to be in five years?

15:51Matt Miller:See, on the hyperscale cloud providers, we know of the top three for sure. It's Amazon, Microsoft, neck to neck, then Google, then Oracle. Then you have the new cloud providers. That's CoreWeave and Nebius. So these are the five I watch most closely right now because they have the capital. They are the ones with the leading chips right now. And they are the ones everybody is going through to build their applications or run their inference or training workloads.

16:17Scarlet Fu:Anurag, you were saying that Oracle has made clear that it wants to maintain its investment grade credit rating. And, of course, there were some concerns about that. And that's why we saw the CDS, the credit default swaps climb in recent weeks, although it's come back down a little bit here. How convinced are you that they can do that?

16:33Matt Miller:Yeah. And I talk to Rob Schiffman all the time as well. And he and I are on the same page that they are very careful about that investment gate rating. And whenever they come up with a bond deal, it gets gobbled up very quickly.

16:44Scarlet Fu:How much does that matter to equity investors?

16:47Matt Miller:I mean, it does matter because, you know, you don't want to be financially irresponsible for a company like this that houses one of the most important software products, their database business. That is really the cash cow for them that can allow them to expand. What we saw last night was the expansion is going to be there, but maybe with a little bit more measured means rather than going, you know, all in.

17:08Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

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17:47Mandeep Singh:If you're building software of any kind, you're really going to want to check out Sentry. When something goes wrong, Sentry gives you a whole chain of events in one place, from errors, traces, replays, logs, and it's all connected. So you can see exactly what led to the issue without digging through five different dashboards. Sentry is used by millions of developers behind some of the biggest apps like Claude, Disney Plus, and Duolingo. Century supports over 100 languages and frameworks across front-end, back-end, and mobile. Try it free at S-E-N-T-R-Y dot I-O. The world is transforming faster than ever, and standing still isn't an option.

18:31Mandeep Singh:At Oppenheimer, we're working at the forefront of the innovation economy to invest where progress begins, finding opportunities that build and protect wealth for individuals and institutions that want a seat at the edge of tomorrow. Put the power of Oppenheimer Thinking to work for you. Wealth Management, Capital Markets, Investment Banking.

18:56Scarlet Fu: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. All right, let's go to another one of our talented analysts, Herman Chan. He is our senior analyst covering U.S. banks. And Herman, there's a big headline today that got everyone's attention. JP Morgan marking down the value of some private credit loans, mainly to software companies, in the latest sign of stress in private credit. I guess it's not a surprise if you recall that Jamie Dimon, the CEO, had talked about the possibility of more cockroaches.

19:34Tom Keene:That's right. Right. So we view this as a prudent risk management measure by J.P. Morgan. Basically, by reducing the value of these loans, it means that the private credit companies can borrow less from J.P. Morgan. So it reduces their exposure in the case that there's some more volatility ahead for the private credit folks.

19:55Mandeep Singh:uh so to me what was the most interesting about this news was not that jp morgan marked some of these credits down or some of these assets down rather but that its competitors aren't allowed to do that i hadn't realized before i read the ft piece and then the bloomberg um uh uh cover that that JP Morgan, that JP Morgan's competitors and probably a lot of other lenders that lend a smaller direct lenders have it in their covenants that they're only allowed to mark their assets during like change. When there's a credit event. Exactly. Like open enrollment, right? That's insane. Is that a reason that we see so many of these private credit assets going from like 97 to zero?

20:45Tom Keene:It just goes to show that J.P. Morgan is the big kahuna, and they can dictate credit terms, whereas others may not have the same capacity. So having those advantageous credit terms helps them protect themselves in the event that we have potential loss. We've seen headlines and expectations and predictions of 15 % potential losses in the credit software books for these private credit companies. So I think banks will continue to try to get ahead of it. And then you speak to some of the credit terms and conservative underwriting at J.P. Morgan. I think that's one of the reasons why Western Alliance was dinged a little bit with the Jeffries news, because they thought they had pristine credit terms.

21:30Tom Keene:But then Jeffries eventually just backed out of paying back the loan.

21:33Scarlet Fu:So the back story here, if we take a step back, is that these Wall Street banks, like a JP Morgan, are not making a lot of private loans directly because they de-risked following the great financial crisis. Regulators were breathing down their necks, but they are exposed indirectly because they lend to private credit funds. Do we have a sense, Herman, or is this still kind of something vague of just how exposed Wall Street banks are to private credit funds?

21:57Tom Keene:We have some data that the Federal Reserve puts out every quarter, and we calculate it. So it's about, for the banks that I cover, it's about 15 to 20 percent of their total loan portfolio is to non-bank financial institutions, which private credit is a subset of. So it's a growing piece of the banking industry's pie. And it's really, last year, was the sole growth driver for banks. For J.P. Morgan, as an example, they grew their non-bank financials book 78 % year over year. So it's a hefty position for banks across large and regional banks. And really, that's because that's where the growth was because of this financial arbitrage where banks have lower risk-weighted assets on these loans.

22:51Tom Keene:So it helps from a capital treatment standpoint to lend to these non-bank financials.

22:56Mandeep Singh:So you say that JP Morgan's book there grew, what, 7 % or 8 %? 78%. 78%. That's a massive growth. Are there other banks that also grew those loan portfolios massively and maybe are more reluctant to mark them down?

23:13Tom Keene:It's across the board, right? So Wells Fargo was particularly aggressive in the fourth quarter. The banks that have larger markets businesses like a JP, like a B of A, like a Citi have grown much faster than some of the regionals. But the regionals have also participated as well.

23:31Scarlet Fu:Yeah, I think about the headline just last month about Bank of America committing$25 billion of its own cash to private credit deals. In that instance, it's making those loans directly as opposed to indirectly through private credit funds, right?

23:43Tom Keene:That's right. So there is a bit of a regulatory arbitrage, as I mentioned before, where you have to hold less capital when you lend to private equity or private capital versus doing the loan yourself.

23:56Scarlet Fu:Does this feel like, I don't know, 2007 when different firms were trying to get in on subprime mortgage after the boom of the growth had already been seen and there's a little bit of FOMO driving the activity?

24:07Mandeep Singh:Leading the witness. It does feel like that. We're not in a court of law.

24:11Tom Keene:We are feeling a bit of froth in the markets. We're seeing some stress, but we're not at that level where we think things are seizing up at this point. And private credit as a whole, the industry is about$1.7 trillion. So it could be fairly absorbed within the industry. You have banks like JP Morgan, B of A, Wells Fargo, City themselves, their entire balance sheet's over a trillion dollars.

24:42Scarlet Fu:So not 2007, but maybe like, I don't know, 2006, Matt?

24:45Mandeep Singh:Well, I mean, the question is, what's the fallout, right? I know it's only$1.7 trillion. And frankly, software is probably less than 30 percent of that. So you're talking about 500 billion max. Right. But the question is, what kind of fallout do you have? Because a lot of these banks don't have the kind of direct lending approach that Scarlett's talking about with B of A. Rather, they'd lend money to the BDC and then the BDC lends it out. And then those BDCs, when they're looking at everybody headed for the gates, sell off their best assets first so that they can say, we got 97 cents on the dollar.

25:23Mandeep Singh:And then they're left with bad bank holdings. Right.

25:25Tom Keene:Yeah. So you do have that phenomenon where companies like you've seen it from from some BDCs and the direct lenders where they're selling the assets that they can sell now. So it remains to be seen what's still remaining on the books, how the credit performance is. And, you know, you have to put on your credit lens of probability of default and loss given default and how that shakes out. So we're still waiting. This is more at this point a end client and investor are a bit more skittish on the performance going forward. But we haven't really yet seen that performance sour. So this is like early endings of the private credit story in our view.

26:11Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

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27:14Mandeep Singh:front-end, back-end, and mobile. Quit bugging and try it free at s-c-n-t-r-y dot i-o. The world is transforming faster than ever, and standing still isn't an option. At Oppenheimer, we're working at the forefront of the innovation economy to invest where progress begins, finding opportunities that build and protect wealth for individuals and institutions that want a seat at the edge of tomorrow. Put the power of Oppenheimer Thinking to work for you. Wealth Management, Capital Markets, Investment Banking.

27:51Scarlet Fu: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.

28:06Mandeep Singh:Matt Miller here at 731. Lex filling in for Paul Sweeney and Scarlett's rushed off to do our weekly deal show. Every Wednesday at noon on Bloomberg Television, we have a show focused completely on M &A. Scarlett and Danny Berger, my co-host on Bloomberg TV, anchor that show. Definitely one you want to tune into if you care about deals. Right now, though, we're going to drill into consumer staples and specifically the Campbell's company because it cut its profit outlook to the lowest level in a decade as consumers are avoiding the kind of snacks that Campbell's makes. It's not just a soups company, which is why they changed the name.

28:46Mandeep Singh:They also make Snyder's pretzels and kettle brand chips, as well as Pepperidge Farm Cookies and Goldfish. So let's get over to Bloomberg Intelligence analyst Diana Rosero-Penas. Now, she she covers this sector for us. And Diana, what's the story at Campbell's? I guess it makes sense that they're focused not as much on chicken soup, but more on potato chips.

29:11Anurag Rana:Yes. And basically, this company is is suffering from what the industry as a whole has been suffering in terms of, you know, volumes do not seem to be growing. Pricing is still elevated. consumers are being very strategic with their spending. They're moving to private label. They're curving their expenditure on things, for example, snacks and chips, which was one of the biggest disappointments in the quarter for Campbell's.

29:44Mandeep Singh:By the way, private label products, not to take us on too much of a tangent here, but when I was a kid, we said generic products, right? The store brand. But they've really picked up in popularity. It seems like consumers feel almost more sophisticated when they, you know, save 25, 30 cents buying the private label product.

30:06Anurag Rana:Yes, for sure. And not only that, retailers have invested in their private label portfolio. They've entered different tiers in terms of private labels. So you have the cheaper versions, you have the medium, you know, price and then the high end. And that actually brings people into the store and definitely builds loyalty for the retailer.

30:31Mandeep Singh:And all inside private label, right? Kirkland is the one at Costco. I go to ShopRite, they have Bowling Basket. And you can buy just the ground level Bowling Basket product, or you can buy their super fancy organic Bowling Basket product. All right. All right. Back to Campbell's, the Campbell's company, because I want to zero in on the pricing issue. A real concern about the impact of this war has been that it drives prices higher. We were already worried about tariffs driving prices higher, as well as immigration policy driving prices higher. And as you point out, or as our reporting points out, they have had elevated pricing on some of their products, but that hits volume.

31:11Mandeep Singh:So what do they do here?

31:12Anurag Rana:Yeah, that is the question that it keeps avoiding these types of companies, particularly with not only oil prices being so high at this point, spiking in such a rapid pace. You also have the conflict itself in the Strait of Harum, I believe it's called. And that obviously is going to affect supply chains for these companies. So they seem they want to be a little bit more strategic in lowering prices. They don't necessarily want to do that. They want to compete on the marketing side. So you will probably see for the remainder of the year more hit on gross margin or EBIT margin for Campbell's because they're investing more on marketing rather than just a race to the bottom on pricing.

32:05Yeah.

32:06Mandeep Singh:More fertilizer, by the way, travels through the Strait of Hormuz on the way to international markets than hydrocarbons. So it's more about moving fertilizer than oil. Obviously, oil is the product we pay more closely attention to as consumers. Most of us buy gas. Fewer of us buy fertilizer. But one third of the global fertilizer trade passes through the Strait of Hormuz. It's massive. And of course, we're coming up back again to planning season. You could see real price reverberations in foodstuffs from this war, right? It's not just about the price at the pump.

32:46Anurag Rana:Yes, exactly. I mean, even if the disruption delays, you know, let's say 90 days, that is probably going to have a significant headwind to COGS for these companies. The problem is, is that usually when disruptions like this happen, you will have the ability to increase prices to match that disruption. And that usually will take about 12 months. Now, they're probably talking about a longer time to get those prices back because, you know, already the consumer is tapped out. Right.

33:21Mandeep Singh:Campbell's Soup stock, by the way, or the Campbell's company. Sorry, I keep forgetting they changed their name. The Campbell's company, and they're serious about that. Very serious. I got a note, actually, to the principal when I said it wrong once. Campbell's company stock down over the last five years, 52 percent. They've lost half of the value of their company. At what point is it cheap enough for investors to go in and pick it up?

33:47Anurag Rana:Well, I would say when volumes start to at least normalize, which we could probably see a more on the like that will be a more of a 4Q story, fiscal 4Q story, even the beginning of fiscal 2027. So those are I think that will be the main point and the main driver of any any appreciation.

34:09Scarlet Fu: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.

34:35Mandeep Singh:If you're building software of any kind, you're really going to want to check out Century. When something goes wrong, Sentry gives you a whole chain of events in one place, from errors, traces, replays, logs, and it's all connected. So you can see exactly what led to the issue without digging through five different dashboards. Sentry is used by millions of developers behind some of the biggest apps like Claude, Disney +, and Duolingo. Sentry supports over 100 languages and frameworks across front-end, back-end, and mobile. Try it free at S-E-N-T-R-Y dot I-O.

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