OpenAI Finalizes $110 Billion Funding at $730 Billion Value

12:52John Tucker:Yeah, so I think this is one of the reasons why the stock is up so much, right? The sentiment going into the print was really, really negative, primarily because of the component and memory pricing. HPQ said on just the other day that their memory pricing doubled over the past month, DRAM pricing alone so that ate away the margins we actually did the math memory pricing plus a higher mix of AI servers that's eating away 100 % 100 basis points of gross margin and the thing is that just a relative scale of the AI server revenues is helping to lift DPS altogether

13:35Caroline Hyde:So talk to us about the shortage of chips out there. Because we hear from a lot of your companies and other companies in the tech stack. What is it? Why is it? How does it get fixed?

13:45John Tucker:We can blame AI on everything, yes. Right? So essentially, AI servers, they use HBM, high bandwidth memory that's stacked. And it's sucking up a lot of the memory capacity that's out there. If we come off of the COVID period, essentially the memory makers, whether it's Microns, SK Hynix, or Samsung, they were hesitant to building out more capacity because they just didn't know if this AI thing was going to be real. And now it's starting to catch up to them. It's causing this domino effect of everything else, servers, smartphones, PCs. They're just scrambling for supply right now.

14:22Paul Sweeney:How do you read the buybacks around$10 billion? Is that confidence in future cashflow or more like, oh no, the stock is still undervalued?

14:31John Tucker:Well, you know, when the stock was at$120, I'm sure Michael Dell thought the stock was undervalued and wanted to breed a lot more confidence, not only in the business outlook, but also in the cash generation, right? We are hearing mixed things on the cash generation front from my hardware companies, at least.

14:50Caroline Hyde:Did IDC take down, IDC is the third-party independent data provider for pretty much the whole technology industry. Did they take down their forecast for PCs, was it? Took them long enough.

15:01John Tucker:Yeah. Now, we had minus 7 % unit declines.

15:08Caroline Hyde:Is that because there's not enough chips to make the PCs?

15:11John Tucker:It's twofold, right? Not enough chips. And number two, PCs are very, very elastic, right, from a supply-demand perspective. And essentially what they did was they cut their forecast from minus 3 % to minus 11 % on the PC side. And they also cut their forecast to smartphones to minus 13%. There's a couple of things going on. The PC makers are going to focus more on the high margin businesses. So it leaves the lower end PCs at a large. So they're not going to start supplying those. And also the low end market tends to be a lot more price sensitive. So they're probably not going to upgrade.

15:53Paul Sweeney:And then we have server and networking margins. I think those came above expectations. Is Dell gaining pricing power in AI hardware, or is it just because maybe they're executing better than their peers? How do you read that?

16:05John Tucker:Yeah, so there's a couple of things going on, Isabel. The first thing is that they're raising prices, right? And the term sheets are getting shorter. Instead of like three months, it's two weeks. So that's happening as well. It's less price elastic. And then on top of that, from a margin perspective, as you were talking about earlier, storage has a higher margin overall. And the storage business is doing very, very well, quite frankly.

16:37Caroline Hyde:Stay with us. More from Bloomberg Intelligence coming up after this.

16:43Woo Jin Ho:I'm Carol Masser. And I'm Tim Stenevek, inviting you to join us for the Bloomberg Business Week daily podcast. Now, every day, we are bringing you reporting from the magazine that helps global leaders stay ahead.

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17:48Woo Jin Ho:For decades, people traveled across the world to see John of God, desperate for cures no doctor could offer. And when they arrived, they saw things they couldn't explain. This is real. This guy's actually doing surgery, and it's a miracle. I never believed that miracles were real until that point. But behind those adoring crowds was something much darker. One of the reasons why I never went to the police is because I saw at least five or six men with guns everywhere he went. That was clear to me, like, close your mouth, don't open your mouth, don't say anything. I'm your host, Martina Castro. And in the podcast Two-Faced, John of God, we'll look back on a man who claimed he could perform miracles and got people from all around the world to believe him.

18:36Woo Jin Ho:From Exactly Right and Adonde Miria, this is Two-Faced, John of God. Listen on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. 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.

18:58Paul Sweeney:Listen on demand wherever you get your podcasts or watch us live on YouTube. Got big earnings yesterday, CoreWeave, and it wasn't good because the stock fell by the most in more than six months. That's after the company reported a better than expected loss and boosted capital expenditures. So this spurred some concerns that the company is overspending on infrastructure. And who else can talk to us about this better than Anurag Rana? He's Bloomberg Intelligence Technology Analyst all the way from Chicago. So Anurag, revenue exploded to$1.9 billion last year, but losses widened. Is this a classic gross at any cost when it comes to the AI story?

19:37Paul Sweeney:Or is it something a little more concerning?

19:40Isabelle Lee:Yeah, I mean, that's what the CEO is saying that, listen, we have so much back orders of, you know, 60 plus billion dollars in orders and we really need to fill it. And we're going to go spend as much as we can. And today, it seems investors are not liking it. But, you know, I think what happened was they gave a bit of a outlook of what the expenses are going to be. And they missed on that. And I think people are extremely, no, I wouldn't say extremely, but somewhat concerned that, you know, whether they have the capital down the road to keep on continuing this particular flow. I think that's really what it comes down to is where is the profitability going to come and at what point?

20:17Isabelle Lee:Because as we know, some of these businesses, you have to invest upfront and then realize the profit later.

20:23Woo Jin Ho:Yeah, you got to back up for me and explain the basis. What in God's name is a Neo cloud?

20:29Isabelle Lee:Yeah, well, that's just a nomenclature. But at the end of the day, this is just a cloud. at the, you know, what you do is you open a data center, you buy GPUs from NVIDIA, and then you rent it out to people. It's a very simple business model, nothing so complicated about it. But what happens is you need to put that upfront capital to create that data center. Then you need to buy the chips and put it in there. And then after that is what you start realizing the revenue when people use it. We have enough evidence that the backlog of that is absolutely stellar right now. There is so much demand. These guys are running around and trying to, you know, put the data centers together and then go out and service that.

21:07Isabelle Lee:So there is a mismatch between how much you're putting in terms of cost versus what's coming in as revenue.

21:13Woo Jin Ho:Well, can you explain a little further? How interwoven are they with NVIDIA at this point? And what's the significance of that?

21:21Isabelle Lee:Well, think of this as NVIDIA is selling the chips. They are really the distribution arm for the services around it. NVIDIA is a shareholder in Goldweave. And this is a pure play, you could say, NVIDIA shop where it's basically going out and renting their chips out there. Now, it is, and again, this is not so much NVIDIA trying to just, you know, give them capital to stay in business. They actually have orders from everybody, you know, whether it's Microsoft or Meta or a bunch of, a lot of enterprises as well. So, I mean, CoreWeave has real orders that it needs to fulfill. Well, the question again, as I said, is how much you have to put up front for those chips and services versus how much you're going to realize as revenue.

22:00Paul Sweeney:And 77 % of revenue came from just two customers with Microsoft accounting for nearly two thirds. How big of a red flag is that? Or if it's even a red flag for IPO investors?

22:13Isabelle Lee:Yeah, to me, it's not a red flag. It is a concentration issue. I get that. But at the end of the day, I think Microsoft is good enough in terms of, you know, they will pay the bill to CoreWeave if they have promised some revenue. So I'm not concerned about that part. But CoreWeave is now seeing a lot more demand from other vendors. That's also not an issue. As I said, this is not a demand issue. The question at hand is, because one of the things CoreWeave has to do is it has to go out, borrow money, issue some bonds, and then go out and create new data centers. So it's a financing question, how much the rate of that is going to be, how much they're going to charge for these services.

22:48Isabelle Lee:So, I mean, it's pretty much most of a cost overrun story at this point.

22:52Woo Jin Ho:Did they give much clarity on when this is all going to pay off?

22:57Isabelle Lee:They basically said, listen, long-term margins are very good. They are expecting margins to improve in the second half of 2026. But, you know, they gave some guidance for operating income or adjusted operating income for 4Q. And they came below that. So the big question for the analyst is, you know, you are telling me that it's going to improve in the second half of 2026. You know, what if it doesn't happen? So I think there are some doubts around that capabilities at this point.

23:23Paul Sweeney:And so the company could ask for a valuation north of$35 billion in this market. Do you think that's justified by the fundamentals or do you think it's kind of driven by AI momentum?

23:37Isabelle Lee:I think the question always happens is, you know, one week, the entire AI infrastructure world is very happy and, you know, bubbly. And then the next week, people start getting concerns. The question, what the CoreWeave has to show right now is they have to go out and raise some debt. I mean, you know, that's tied to their contracts. And we'll see what's the cost of that debt, because that's going to dictate how the next funding is going to be. Although, you know, I call it not so much funding round, but more so a debt raise round, and how that's going to go about.

24:08Caroline Hyde:Stay with us. More from Bloomberg Intelligence coming up after this.

24:13Woo Jin Ho:This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day.

24:22Caroline Hyde:I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel.

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24:55Caroline Hyde:On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up.

24:59Woo Jin Ho:That's the Bloomberg Surveillance Podcast with Tom Keen, Paul Sweeney, and me, Alexis Christophorus. Subscribe today, wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. For decades, people traveled across the world to see John of God, desperate for cures no doctor could offer. And when they arrived, they saw things they couldn't explain. This is real. This guy's actually doing surgery and it's a miracle. I never believed that miracles were real until that point. But behind those adoring crowds was something much darker. One of the reasons why I never went to the police is because I saw at least five or six men with guns everywhere he went.

25:45Woo Jin Ho:That was clear to me, like, close your mouth, don't open your mouth, don't say anything. I'm your host, Martina Castro. And in the podcast Two-Faced, John of God, we'll look back on a man who claimed he could perform miracles and got people from all around the world to believe him. From Exactly Right and Adonde Miria. This is Two-Faced, John of God. Listen on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

26:34Caroline Hyde:being Netflix walking away. So now Paramount Skydance, it's their deal. Good for them. And let's check in with Geetha Ranganathan. She covers all the media stocks for Bloomberg Intelligence. Geetha, we got Netflix stock trading higher. I guess the shareholders like them kind of passing on this deal.

26:52Woo Jin Ho:Yeah, big relief rally, Paul. You know, I mean, this was always kind of muddying the narrative. I mean, we've spoken about this multiple times. Netflix is such a clean, organic growth story and them just pursuing Warner Brothers discovery, I mean, just kind of added so much of uncertainty. You know, you have the regulatory risks, of course, integration, execution risks. Plus, we were talking about something like, you know, their debt levels going up to beyond$100 billion. And yes, they do have the financial firepower. But at the end of the day, they have always been builders versus buyers. And once again, they showed, you know, that they deserve, you know, they've always gained this reputation of being very, very disciplined, spenders when it comes to M &A.

27:36Woo Jin Ho:And I think they once again exercised that discipline and investors are cheering.

27:41Paul Sweeney:So it seems that this is a smart move, according to analysts, including you, this signal that the company is confident in its organic growth versus M &A, especially in a very crowded streaming market.

27:53Woo Jin Ho:Yeah, Isabel, I mean, that had, you know, been the question. I think that's what spooked investors so much when they actually went ahead with this$83 billion deal for warner about whether they were actually seeing a slowdown internally and them not just abandoning the deal but also going ahead and resuming buybacks once again just kind of signals confidence in their underlying growth model so i think you know we know very well that their operating metrics are really strong i mean this is a company that has guided to double-digit revenue growth we're going to we're going to see about 12 to 14 percent revenue gains this year we're looking at operating margin expansion of almost, you know, a thousand basis points.

28:32Woo Jin Ho:It's gone up 10 % over the past two years. So, and of course, we also have fabulous, you know, free cash flow generation. So, all of their, you know, financial levers and all of their growth drivers very much in place. And, you know, not having this distraction anymore just helps them kind of really double down on their organic growth story.

28:54Caroline Hyde:On the other side of the equation, Keetha, But be careful what you wish for. So Paramount, they've got this great asset in Warner Brothers Discovery. What do we what's the street think about this management team at Paramount? Pretty much unknown, untested. This Mr. Ellison from the media community. Is there any report card to date? Do we think there's a market think that this is a management team that can make this acquisition work?

29:20Woo Jin Ho:They probably can, Paul. I mean, they do have, you know, financial, they do have some financial firepower here. Although I would point out that leverage at this company is going to be extraordinarily high. We're looking at pro-former leverage of around almost seven times. Those are, you know, dangerously high levels. Yeah, and it's something that they're going to have to contend with. But at the same time, you know, they've spoken to synergies. We're looking at about$6 billion in synergies that they've committed to. And remember, this is a team with a fairly tech-heavy bent. So that might be something that kind of really serves them well as they poise themselves for this new streaming future.

29:56Woo Jin Ho:You know, you do have now, they kind of are turbocharging their content offering, they're turbocharging their streaming business, and they have all of the pieces in place to make this a really good business. We'll have to wait and see how they execute. But you're right. I mean, the management team is a little bit of an unknown, although we do have Jeff Schell, who has experience from NBC. But again, it's going to be a little bit of a wait and watch.

30:20Paul Sweeney:And Netflix also said they plan to invest$20 billion this year in films and shows. Is that enough to keep them ahead again in this really competitive streaming wars?

30:30Woo Jin Ho:Yeah, the$20 billion that they committed was actually a pretty significant step up, Isabel, from prior years. I mean, we've seen them increasing content costs by roughly about 6 % to 7%. This year was going to be a much more significant jump to about 10%. And this is just basically Netflix saying that they are willing to diversify into different forms of content. I mean, the big investments that they're making are in live, in sports, in international content, just to kind of keep up that engagement metric and make sure that, you know, they keep building on that competitive mode that they already have.

31:02Woo Jin Ho:And now, you know, the icing on the cake for them with this Warner deal is that they're getting$2.8 billion in termination fees. So, hey, much more K-dramas, I guess. 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.

31:38Woo Jin Ho:I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast.

31:44John Tucker:Every week, we bring you fascinating conversations with the people who shape markets, investing, and business. CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, Everybody that affects what's going on in the market, whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations. Sometimes it's behaviorists like Dick Thaler or Bob Schiller. Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short and Moneyball. Regardless of the conversation, these are the folks that move markets each week.

32:29Woo Jin Ho:That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify, or wherever you get your podcasts.

32:41John Tucker:People who didn't do what John of God wanted them to do, they usually disappeared.

32:48Woo Jin Ho:John of God was once Brazil's most famous spiritual healer. But in this limited series podcast, we uncover the darker truth behind his global empire of faith and fear. From Exactly Right and Adonde Media, this is Two-Faced, John of God. Listen on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.