Nvidia’s $1 Trillion Slide Sends Valuation to Pre-AI Boom Levels

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1:46Scarlet Fu: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. Let's talk a little technology. Why not? Mandeep Singh, Global Tech Research Head from Bloomberg Intelligence. He joins us here. So I'm seeing this Bloomberg news story. NVIDIA stock is at its cheapest it's been since before the AI boom after losing roughly$1 trillion in market value over less than two months.

2:25What's going on there? Taking some profits? What are we doing? Taking profits. And look, I think when it comes to the chip space, we've heard quite a few announcements in the last few months, both from the hyperscalers ramping up their efforts, whether it's Amazon or Microsoft. So it's not just Google TPUs anymore. Meta, all these hyperscalers are focused more on the inference side of things, which is where you're generating most of your revenue if you're focused on AI. And they've left the training market to NVIDIA. But when it comes to inferencing specifically, you've got more competition. Even OpenAI and Anthropic are looking to make their own chips.

3:09Now, the timeline for this is all two, three years out. There will be nothing imminent in terms of, you know, something that can compete with NVIDIA. But the market is anticipatory in that sense. And the fact that everyone is looking to build their own chips is a sign that there will be more competition for NVIDIA down the line.

3:30Scarlet Fu:That makes it sound like it's easy for them to make their own chips. They partner up with someone and they just make it. It can't be that easy, is it? Can't be that easy, which is why the timelines are already two years out. There's nothing that I could say over the next six months, oh, you know, there will be a competitor to NVIDIA or Google TPUs. Google TPU is what is inspiring all these companies to build their own chips because they have seen Google has released eight versions of their own chip. And the Enthropic models, which are the best in class models, were trained on Google TPUs. And also they use Google TPUs for inferencing for the most part.

4:08So now they have started to use NVIDIA, but your best model out there wasn't using NVIDIA. And so from that perspective, there is a case to be made that there could be potentially more competition given what Google has accomplished over the years. The AI rotation trade is gathering pace in Asia as investors pull money from chip makers and hunt for cheaper ways to play the technology boom. What are the cheaper ways to play the technology boom? Do I just go buy a utility company? I don't think so. Look, I think right now we are in that risk of sentiment when it comes to the AI infrastructure trade.

4:46People seem to be panicking. And whenever something like this happens, there's indiscriminate selling of all AI infrastructure names. People don't try to sort things out or this company, like memory, for example. I mean, all their earnings, whether whether it's Samsung or Micron, these are companies that have the highest margins they've ever had, shown incredible pricing power. And their customers are looking to lock in the pricing at this point because they don't want to pay higher prices three months from now. So in terms of pricing power, if there's any sector that has the best pricing power right now, it's memory.

5:28And so from that perspective, I don't see a reason why you would want to, you know, sell these companies, especially companies with pricing power, with margin expansion, with probably the best margins they ever had, just because you feel, you know, they're hitting peak earnings. I don't see that as a reason.

5:46Scarlet Fu:We were talking about NVIDIA earlier. NVIDIA shares have shot up. They're now up about nine-tenths of 1 % from being in the red. And this is on a headline from The Information, which is a tech publication saying that China will let its top AI companies buy some NVIDIA H200 chips. This is the lower grade NVIDIA AI chips, right, Mandi? Yes. Okay. This is the hopper, not the nerfed version, but the version that probably they were allowed to sell in China. And yeah, the US companies have the better versions available. Okay, so it's a downgraded version from what NVIDIA offers to the US customer, But the U.S.

6:26Scarlet Fu:government has allowed NVIDIA to sell to China. China just didn't allow its own companies to buy these chips up until now. Easy come, easy go. China can turn on permission and turn off permission like a switch, right? I mean, that's the risk here. That's the risk. And look, when it comes to the Chinese open source models, so far what we have seen from them is they are probably six to nine months behind when it comes to the capabilities of the models. And even though they didn't have access to the latest NVIDIA chips, at the end of the day, these chips are deployed on a cloud somewhere. And that cloud may not be in China, but the customers could be these Chinese model companies.

7:08So from that perspective, there is that aspect around accessing the compute wherever it's available on the cloud. And that may go beyond the geographic boundaries. 30 seconds. SK Hynix, they want to do a$20 billion equity offering here in the U.S. to trade Friday. Is that going to happen? I think so. Yes. That's a tough tape to sell that into. Yeah, but look, I think investors who believe in this memory cycle, that it's going to be durable and long, they will want a piece of it.

7:39Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the risk.

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10:25Scarlet 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. One of the big stories, obviously, in capital markets over the last, really, couple of months has just been the issuance of investment-grade debt by technology companies associated with their AI capital spending plans. The most recent deal was Amazon coming with a big deal,$25 billion. That's issuing more than$60 billion across currencies just recently. Rob Schiffman, he's been on fire on this stuff, way ahead of it.

11:03Senior tech credit analyst for Bloomberg Intelligence. Amazon, just talk to us. That's the most recent deal, Rob. Just give us a sense of how that was received in the marketplace and how the market's thinking about some of these tech players that have really become big issuers. Sure. If you read Bloomberg News, it reads like it was received terribly. And quite frankly, I don't think that was the case. you know, when they've actually issued almost$100 billion of debt this year across currencies. When you issue that much paper, every time you do a deal, you need to pay a little bit more. So new issue concessions on this were higher than traditionally.

11:39That being said, they were probably about 10 or 15 beeps higher. And when you're talking about a company that's raising 30-year money at spreads over treasuries at 110 basis points, quite frankly, it's just a rounding error, the ability to raise$25 billion in a couple of hours, I don't care if it's oversubscribed by two times or five times. Amazon could raise as much money as they want, whenever they want. They just might have to pay a little bit more.

12:07Scarlet Fu:So that paying a little bit more, you're attributing it to the fact that they've already raised quite a bit of money. And I think you're referring to the big bond sale they did in Canada, the Looney offering last month. Or is it that maybe sentiment has turned a little bit. I think that's what we're trying to get at. Yeah. No, I don't think sentiment is turned. Actually, doing alternative currencies, non-dollar currencies, is actually good from a US dollar trading perspective. Because for every dollar that they issue that is in alternative currencies, they don't have to do in US dollars. What starts to happen is large money managers just get full on the name.

12:40Amazon has about$200 billion of debt outstanding now. And these are large positions. So to incentivize people to take on more. You just have to pay a little bit more. But what I'm saying is the overall cost of borrowing for them from a spread perspective is still somewhat tiny. So yes, sentiment is getting a little bit weaker. That happens when you have record issuance and it's likely to continue. Also, Amazon's not ruling out they're going to be back in the markets later this year. That said, you know, if they did an alphabet style equity deal and raised 75,$85 billion of equity next month, I think you're going to see spreads tighter.

13:18And in fact, with all this Middle East news, it's actually somewhat mildly positive for credit spreads. What happens is yields end up going higher. So the bid from the buy side, particularly out the curve, goes up. You can basically buy the same names at the same or tighter spreads, but higher yields. So you're seeing some of that today. So Amazon is tighter today. And even names like SpaceX are trading tighter today. So this concept that the large hyperscalers are not going to be able to raise as much money as we say that they're going to need, I think that's just sort of a misnomer because it cost them a little bit more this time than it did last time.

13:58You mentioned SpaceX and Tom follows those bonds. Tom Keene follows those bonds and he's been noting that they've been trading lower relative. Talk to us about how they've been trading and why. Well, it's the nomenclature is important. So lowers, are you talking about spreads? Are you talking about price, right? Because it's the opposite. So, you know, spreads on the break widen 20 to 25 basis points. And now they've settled in, you know, a nickel or so tighter. So they're in a much more narrow trading range. Again, I think that these basis point moves are reasonably small. They're not telling a story that I think we see across news, which is news knows bad news sells and they put out the sky is falling.

14:40And quite frankly, it just isn't. there's a deep bid for SpaceX bonds, there's a bid for Oracle bonds, and there's a bid for these AA hyperscaler bonds. It's just at a little bit of an incremental cost over what historically they had paid. And it makes sense. Part of the SpaceX issue is that they're going to come back, and they're going to come back again and again and again. And people just need to position that, if you're a BBB name, where should you be trading? Well, they're trading inside of where Oracle is. So all of a sudden, I think Oracle levels, which are, you know, 30, 40 wider, create a backstop where I think SpaceX might be going.

15:14Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English, like if the VIX hits 25, buy a put option on the S &P 500. Or if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest.

15:52Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

16:29Scarlet Fu:Let's talk about health care for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a health care company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together.

17:07Scarlet Fu:Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how.

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18:01Scarlet 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. Let's move over to the tech space here. Apple, a chip deal with Broadcom. Expected to exceed$30 billion. dollars. Big move for Broadcom, big move for Apple. Let's check in with Anurag Rana, senior tech analyst for Bloomberg Intelligence. Anurag, talk to us about this Apple deal. So when you look at it, you know, at first when we heard about this deal a couple of days ago, you know, we thought this would be something new, but it seems a little bit like, you know, similar smaller chips that they have been buying from Broadcom for a while.

18:45But I think the big portion is they are being built in the U.S. or being manufactured in the U.S. And I think that's really the big difference here because, you know, as we know, most of these parts do come from Asia. So this is the first part of the commitment Tim Cook has made to President Trump that is going to be buying more products in the U.S. So I think that's the angle that's more important. Now, it is important from Broadcom's point of view because Broadcom did make the modem for the iPhone and Apple's been in-housing that particular piece. Now, that was not good for It was a big overhang for Broadcom for a while.

19:20But this deal for them says Apple's still going to them for other chips and other parts. So it's a good deal more so for Broadcom. And for Apple, it's basically telling President Trump that we are buying more products in the U.S. And Broadcom stock is up 3.5 % today, up about 11 % year to date. And over the trailing 12 months, up about 41%. So it's been well received by the marketplace here. So how does Apple think about its supply chain these days? You know, they've been working so hard since the pandemic and then with President Trump's pressures to kind of rejigger its supply chain. Where are we in that process now, Anwar?

19:56So, you know, I think they are doing the right thing in terms of if you look at bill of materials of any product of any big phone, the chip is a very expensive part of it. You really I don't think you can logically think about them trying to assemble the phone. You know, that's a very, very low cost product. somewhere in the U.S. because it's not mathematically economical for them. You know, let them do that portion somewhere in Asia where they have the scale, low-cost labor, and the factories are already set up. But the expensive parts can be made in the U.S. if we have funding from the government, if there are bigger factories that do that kind of stuff.

20:33So I think they're going about it the right way. We've also heard from Mark Gurman that there is a possibility that Apple may work with Broadcom to do some AI server chips. That's going to be actually a very expensive chip if they actually go out and do that. And that can be done in the U.S. also. So looking at the right part of the supply chain, the more expensive parts being built, I think that's the right way to look at it. What do we know of the role of Tim Cook these days? What is he doing and what's the focus for him going forward, do you think? I think going forward, it's very clear in the announcement that he's going to make that he's going to be making sure, taking care of some of the government affairs, which to me means attending dinners both in China and in the U.S.

21:18with the respective presidents or basically wherever the president wants him to go, he will tag along. I mean, I think that's really something that even in the first three months of President Trump's inauguration, he was not happy that Tim Cook was not in one of the particular functions. But since then, he's been seen everywhere. So I think that's going to be his legacy and work going forward. And it's hugely valuable. No question about it. That's the way a lot of CEOs have come to the they've come to the inclusion. That's the best way to deal with this administration. Any latest thoughts here on Microsoft?

21:51You know, it's you know, it goes to that whole AI as a competitive threat to software broadly defined. And I can get it for some companies, but it doesn't ring true for Microsoft. Microsoft, they just seem to have too big of a moat, but that's not what the market's saying. I think the market's a little bit worried about CapEx. We published a note yesterday saying that maybe they need to lighten up a little bit on that narrative, because if you look at the valuation gap now, it's trading at, what, less than 20 times earnings. And that was not the case. I think the valuation's down almost 39, 40 percent over the last 12 months.

22:24And I think a lot of how it has to do with the money they're going to spend. By our calculation, they're going to hit closer to$190 billion by calendar 2026. That's about 54 % of revenue. And that number is going to go up next year. So you have to really think that you really need to spend that much money down the road, especially when you have a very profitable software business. It's okay to give back on a little bit of revenue growth. But boy, you do want to keep that free cash flow going, because that's what some of the investors are looking for. Yet, you know, we had your credit colleague on earlier today, Rob Schiffman from Bloomberg intelligence.