Nvidia’s $750 Billion in Deals Reignite Circular AI Fears

0:00I don't love the word retirement because I think it has negative baggage. I like the word financial independence. If you were to be financial independent, like how would you spend your time? I think that's a better way to think about the end of life stage versus quote unquote retirement.

0:15So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM.

0:45Ed Ludlow:Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast.

1:27Catch 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.

1:38Ed Ludlow:NVIDIA is working on a fresh round of AI infrastructure deals potentially worth more than$750 billion, including an AI initiative with SK Hynix for almost half a trillion dollars. The CEO of NVIDIA, Jensen Huang, spoke in an exclusive interview with Ed Ludlow about investing in South Korea. Take a listen. This is the golden ages for Korea, as you know. Their semiconductor business is booming. Their industrial business is booming. You know, this is a country that has the ability to help the world build out the AI infrastructure. They're incredibly adept at adopting new technologies. And it's a really technologically forward-laning society.

2:17All right, that was it. NVIDIA's CEO, Jensen Wang. And joining us now is B-Tech anchor Ed Ludlow. Ed, the numbers just keep coming. The investments just keep coming. The circular deals keep coming. What's the view of that type of structure as this AI infrastructure evolves? What's the feeling out in Silicon Valley about how this is evolving?

2:40Ed Ludlow:Part of the reason there is even a debate about it being circular or not is that there isn't a great explanation of what the numbers actually represent. So you've done the reporting about what Dean has written on the terminal on OpenAI. If we just take SK as a case study, it's$500 billion or half a trillion dollars. And at some point in that conversation with Jensen, I just said, could you just explain what that number actually is? And he was like, well, sure. It's a number that represents what we, NVIDIA, are going to be buying from SK Hynix and memory chips. but it also represents what SK as a group, a conglomerate, will be spending on their own AI infrastructure and then everything in between that we co-invest in.

3:17Ed Ludlow:And there's like no real explanation of like, okay, so you're giving them dollars or are they giving you dollars or are you basically just tallying it up and calling it even at the end of the day? And that's a big part of it, right? That people just don't know the directional travel of those dollars. In the OpenAI case, what we're reporting is much more explicit, where, you know, NVIDIA is both guaranteeing and backstopping, but also providing financing for AI data centers that at the end of the day, they do use NVIDIA's technology. And that is by definition circular. Okay, so going back to that deal or agreement or partnership with SK Hynix worth more than 500 billion, do we know if that ever actually happens?

3:56Ed Ludlow:I mean, it's one thing to announce that you have these grand plans. It's another thing for the two companies to execute on it. So it's over many years. It's over time, but there's no set deadline or time frame. It is literally bucket one NVIDIA buying memory chips from SK Hynix. SK Hynix has 60 % market share in high bandwidth memory. But SK Group, with SK Telecom underneath it, is a big deployer of data center capacity. And where do they buy their, not just GPUs, but their servers from? Now from NVIDIA. So that is, it's a multi-year thing. It won't show up in any one company's one-year financials.

4:35Ed Ludlow:But let me just be honest with you, Scarlett, about it. Jensen and NVIDIA, they like big round numbers. And it's really normal for them to announce it in that way. What do you think Silicon Valley is going to be really listening for this week, Ed, when we get some of these big tech companies reporting on Wednesday and Thursday? Yeah. So it was a really simple arrangement between Wall Street and the biggest technology companies to this point. The biggest technology companies had to say that they were going to spend more every year. CapEx would go up and they needed to show top line growth. And if they did that, I would be on the show of you the next morning and there'd be green on the screen and everything would be rosy.

5:17Ed Ludlow:Now there's a lot more scrutiny. There needs to be much more evidence, not just top line growth, that all of the rising CapEx results in something material. And we learned that lesson through Alphabet, right? So with Amazon, Microsoft in particular, but also Meta to a lesser extent, people want to say like, okay, I understand this metric about how people are using the AI that you've developed, not just that your sales are growing. Alphabet showed really strong growth, but the market was still worried about the rising capex number. Before we let you go very quickly, there was a Chinese chip maker that made a debut.

5:52Ed Ludlow:And in its debut, CXMT jumped, I'm looking at this, it looks like a typo, 466 %? Yeah. And now is mainland China's most valuable company overnight. What you need to know is CXMT is the number four maker of memory chips, but it is the case study for China wanting its own domestic industry. It's the flagship for China finding a domestic hero. It has a long way to go to catch up, but the proceeds of this IPO will help it to establish memory manufacturing in China. And it's also an international success. So those other memory names will be looking over their shoulder. Stay with us. More from Bloomberg Intelligence coming up after this.

6:31I don't love the word retirement because I think it has negative baggage. I like the word financial independence. If you were to be financial independent, like how would you spend your time? And that's exactly what a lot of my clients talk about. And the term they'll use is a work optional lifestyle.

6:44Ed Ludlow:I agree. Like the next gen, millennials and below are not thinking about retirement. We're thinking about let's find something that we enjoy, that we can have financial independence. I think that's a better way to think about the end of life stage versus quote unquote retirement.

7:01Support 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 rest. Monitoring the market, watching for your conditions and executing your strategies exactly as defined.

7:40An 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.

8:18Brex AF, a gentic finance that eliminates that work before it starts. Learn more at brex.com slash AF. 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. Next, I want to bring in Laura Martin. She's a senior analyst at Needham Company. She's out there in L.A. I've known Laura for decades. She's covered the media industry for decades. And what has characterized her work from my perspective is just the level of innovation in her research.

8:56She looks at companies and industries very differently than most of the street. And as an example, I'm going to say 25 years ago, maybe even more, she really put return on invested capital front and center for her research. And I didn't know anybody else doing that back in the day. And that was really unique. And that drove a lot of some really cool research back in the day. Now, I think she takes it one step further. She uses the ratings from Glassdoor, which kind of looks at the culture and values of its employees across her research coverage. And she says, you know what? Happy employees are valuable employees and they create shareholder value.

9:32And that's one of the metrics you should look at. Laura, thanks so much for joining us here. Talk to us about this research. And you guys highlighted meta recently using this type of research. Yes. So what we're doing is we're looking at the fact that out of the 23 stocks we cover, Meta pays the most in stock-based compensation per employee. Both are metrics you can pull out of their public financials. So they're paying every single employee at Meta, which is like 70 ,000 people,$300 ,000 each. So presumably some people like receptionists don't get stock, which means they're probably paying people who do get stock$500 ,000 each in stock-based comp.

10:11So you say to yourself, why are they paying more, a lot more than everybody else in big tech and in big cap? And when you look, you look at the answer out of the 23 companies we cover, their ratings by employees today is a 2.8 out of five, which is the lowest of all the companies we cover by a lot. Like Netflix is 4.4, Google 4.2, and Meta's down at 2.8. That's a huge difference. One of the reasons they have to pay so much is because their culture and values are really low and horrible internally.

10:46Ed Ludlow:OK, say more about this. What do we know about the culture and the values? I mean, you dug into all of this. What did you find? So I think the problem is, you know, the CEO is unimpeachable. He controls the company. Absolutely. And you've seen him pivot really rapidly from the metaverse. Oh, change the company name. But now we're firing all those people. Quest goggles were really in vogue for a year, and now they're sort of getting left by the wayside. So now he's doing generative AI. But three weeks ago, he said, we're getting into the chip business and we're going to compete with NVIDIA. So I think just this strategic pivoting really demoralizes people and confuses them about what the strategic priorities are of the enterprise.

11:30So the net result is to, I guess, attract and retain. They have to pay more. And in Silicon Valley, that means stock. That's not like Laura and I grew up in Wall Street where it was just cash, cash, cash. Out there, it's all stock. What's the long-term impact, do you think, on their equity value, their stock performance? I think it means you have higher employee churn. And the people who churn are the people who can get the next job, which means they're good people. So they're leaving for OpenAI or Anthropic or Google. And so that makes to get the new person to replace that churned out person is just more and more expensive.

12:08And that's bad for shareholders because it's dilutive to shareholders if you have to pay people more to attract them and retain them. So I think it's bad for it is bad for both. I mean, both employees and Wall Street need stock prices to rise. So it's bad for both employees and Wall Street to have them have to give so much equity to attract and retain people, I think.

12:30Ed Ludlow:What does it mean for the company's ability to deliver on these new strategic initiatives? I mean, if Mark Zuckerberg is pivoting the company every six months, every year to something new, he's paying up for the talent. But can they execute if the I mean, if there isn't that allegiance between company and employee the way you might find elsewhere? Right, exactly. So one of the things he just said in a town hall that he's going to lease capacity. He just did a$10 billion leasing deal where he has built too much capacity because he said his AI initiatives aren't going as quickly as he had hoped.

13:05Well, that's exactly the answer to your question, that the employees are either infighting or it's unclear what priorities are. Things are happening slower, regardless of despite the amount of money he's spending on talent. Laura, you're one of their 72 buy ratings on this company, only seven holds. You're one of them. Why is that? because I think he is destroying value by not having strategic focus. That I think he's got, Quest was about trying to go into competition with Apple. He's in the shopping business because he's trying to displace Amazon. Of course, he does search, right? So that tries to, he really is next to search, social and search.

13:44He is the number one competitor to Google. And now he's going in the chip business, which competes with NVIDIA. So I feel like his strategy is reactionary and keeps going into business, you know, sort of trying to compete with the incumbent winner take all, you know, participant. And I just think that won't work in the end. He's much smaller than many of these companies he's going into competition against. I just think it doesn't work in the end, I think. 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.

14:23Buying 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 rest. Monitoring 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.

15:03Go 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. If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a Gentic finance that eliminates that work before it starts. Learn more at brex.com slash AF. Amazon Health AI presents Painful Thoughts.

15:45I, um, I can't stop scratching my downtown. Yeah, but I'm not itching to go downtown and tell a receptionist I'm here to talk about my downtown. Some things you'd rather type than say out loud. There's no question too embarrassing for Amazon Health AI. Chat your symptoms and get virtual care 24-7. Healthcare just got less painful.

16:12You'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, let's get away from the A.I. talk. Let's go to the big take story out there. And it's a good one because it's a non A.I. big take story here. It goes about the tin can industry here. And it goes to tariffs and protectionism. The industry's struggle, that's the tin can industry struggle, is a cautionary tale as the U.S. president tries to rebuild his protectionist regime.

16:52This story went deeply diving into the tin can business, which I don't even think about the tin can business. But apparently we make a lot of tin cans every year. Sean Donovan joins us here at Bloomberg News. He's a senior economics writer. Sean, talk to us about the tin can business in this country and how is it being impacted by tariffs? Sure. Well, thanks for having me. Look, the tin can is this wonderful little case study that we can take into what has happened, actually, with tariffs and the results. I think when we talk about tariffs nowadays, we often talk about the promise that this will mean a return in manufacturing, the promise that lots of jobs will come with it eventually, that there'll be a huge amount of investment in the United States.

17:38And the tin cans are an example that should kind of give us a bit of pause when we hear some of those promises. And I dove into this because in March of 2018, Wilbur Ross went on TV. And this was right as they announced really the first Trump tariffs, which were the tariffs on steel. And the markets were going down. Investors were nervous. and Wilbur Ross went on TV and he held up a Campbell's soup can. And he said, you know what? There's only 2.6 cents worth of steel in this. And these tariffs aren't really going to affect it. And the price of this and moreover, we're going to get tens of thousands of jobs and hundreds of millions of dollars in investment.

18:24Well, he went out that day and he bought a can of Campbell's. It was chicken soup, chicken noodle soup. and he said he went to his local 7-Eleven, bought it for$1.99. So I thought I'd do the same thing as Wilbur Ross. And I went out to my local 7-Eleven and I bought that can of chicken noodle soup and it would cost me$3.49, right? So that's not a surprise that in this kind of era of inflation, prices have gone up, but it's why the price has gone up. And part of the reason for that is there is a 50 % tariff on the steel that is used to make tin cans. And then we started looking at, okay, has there been investment in making that steel that is used in tin cans?

19:04Well, the answer is no, actually. It's gone the opposite way. There were a dozen mills that made tin plate steel when Wilbur Ross held up that can. There's now three running in the United States. In 2018, the U.S. imported 50 % of the steel that was used to make tin cans. Now it imports 80 % of that steel just because domestic production has not gone anyway. And we just haven't seen the jobs. They're now in all of the steel mills in the United States. There are now only about 1 ,300 more people working in those mills than there were in 2018. So it's, you know, it's one of the stories of, I think of it as a story of kind of unfulfilled promises.

19:48Unintended consequences. And that, you know, the promise of tariffs. What actually happens when they go? Now, this is just tin cans, right? This is just tin cans. Just one small part of the can.

19:59Ed Ludlow:What is happening to those tin cans? Because they're made somewhat differently now than they were before, aren't they? Yeah, well, this is really interesting. So, I went up to the Can Corporation of America, which is just outside Allentown, Pennsylvania. And if you go there on the production line, they will tell you that they use roughly the same amount of steel that they did in 2018. And they turn out more cans. Why? Because that tin can that you're buying in the store is actually thinner than it used to be. They're actually reducing the amount of steel in each tin can to try and save on costs.

20:32So we've had some kind of innovation there. That steel is also, as I said before, it's more likely to be coming from overseas. And I love this stat here. Each year, Can Corporation and its 350 employees turn out just shy of 1 billion tin cans in 200 different sizes that are destined to be filled with everything from coffee to industrial adhesives.

20:55Ed Ludlow:You know, I think about this, and I can't remember the last time I used a can opener, because so much soup, for instance, broth, is always in the paper packaging now, instead of tin cans. Oh, no. I go Campbell's Soup big time. New Jersey products. That's why. And if you talk to people in the can industry, they will kind of look at you very skeptically and say there's nothing quite like a tin can in terms of holding up and the ability to stack it and so on. But yeah, that has been one of the threats to the can industry has been kind of alternative packaging. Some of that, which has been prompted by the higher cost of cans.

21:35This 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.

22:01Ed Ludlow:Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? cheaper prescriptions that are easier to get, and care that looks at the whole person how you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a gentic finance that eliminates that work before it starts.