OpenAI inks AMD Chips Deal Worth Tens of Billions of Dollars

0:00Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, head of government and economics at Bloomberg. Every week, I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy.

0:38Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio.

1:14All investing is subject to risk, Vanguard Marketing Corporation Distributor.

1:20Bloomberg 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. The big, I think, news that probably really surprised people to the upside was this news on advanced micro devices signing that deal with OpenAI. And AMD just ripping, adding$100 million in market cap today on that news. The numbers around these AI stories are just bigger and bigger every single time. I tell you, it makes me feel uncomfortable, some of the numbers that are being thrown around.

2:06It makes me think about, like I woke up this morning looking at this news, and I felt like, man, it just feels toppy to me, this whole AI story. Toppy as in early 2007 or like mid-2007 or late 2007? I don't know. It just feels like there's just too many big numbers being thrown around too quickly. I'm not sure where the returns are. It's one of those types of things. But Ed Ludlow, this is his bailiwick. He's a Bloomberg Tech co-host. He is out there in Silicon Valley, supposedly. Who knows where this guy is all the time? Ed, what do you make of this news? These are some big names, OpenAI, AMD?

2:38Yeah, I mean, the deal, the specifics of the deal are really important. What is OpenAI going to use AMD's technology for? It's going to use it for inference. In other words, running the models that already exist, not training them. It is six gigawatts of capacity. The reason that that figure is critical is that it equates to the peak electricity demand of most major US cities. Like these are huge numbers, as you say, but it just speaks to what's happening to the mind of the participants in the industry, which is they will need this capacity. You guys are using words like top and bubble. And I think that's completely fair.

3:20Maybe you saw my column this morning on the debt role in what's happening. But I would say that AMD has done something interesting here, which is different to what NVIDIA did, which is they will issue stock to OpenAI. AMD shares going to OpenAI. But only once OpenAI has spent some money and actually built some stuff. So where's OpenAI going to get the money? Well, that's why Sam Altman has been traveling the world, meeting with all kinds of investors, trying to get some funding. You said the specifics matter, Ed, but we don't know how much this partnership, this deal is worth beyond the very generic tens of billions of dollars, right?

4:04That could be$10 billion, that could be$99 billion. Yes, that's correct. I mean, AMD CFO framed it as being tens of billion dollars of revenue opportunity. But that's why I think the specifics of the terms, I've made a careful examination of them, are really important to understand versus what NVIDIA did with OpenAI. So NVIDIA said it was going to invest$100 billion into OpenAI. We don't even know if that was cash or chips in lieu of cash. But basically, NVIDIA would get some equity in OpenAI in return. In this instance, AMD and OpenAI, OpenAI is getting AMD shares, but they are deliverable in tranches against milestones which relate to literally building the data centers.

4:48So for each gigawatt of capacity that comes online, AMD would then say, here is this tranche of stock. And that's why I'm saying focus on the OpenAI obligation here. They need actual money to dig up the dirt, put the foundations in, get the data center up and put the servers in before any of this stock comes into play. Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day.

5:31But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com slash audio. That's Vanguard.com slash audio. All investing is subject to risk Vanguard Marketing Corporation Distributor. The news doesn't stop on the weekends.

6:08Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg This Weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. Then on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead.

6:45Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television, Listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast. That's Bloomberg this weekend, Saturdays and Sundays starting at 7 a.m. Eastern on February 28th. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts.

7:13You'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. Got an M &A trade in the regional bank business. I think it's kind of a big one. I like this one. Fifth Third Bank corporate buying Comerica for about$10.9 billion in stock. JP Morgan, Goldman Sachs, and Keith Bretton Woods, those are the bankers getting paid. I always take a look at that. First and foremost, I go to the last paragraph of every column, every story about an M &A trade to see who gets paid.

7:49Herman Chan joins us here. He covers the regional banks for Bloomberg Intelligence. You like this deal, Herman? Yeah, I think it's a win-win for both. Comerica's been sort of in the doldrums over the past couple years after the SVB debacle. It's taken some long time to get it under its own footing. And they've gotten a lot of agitated investors and activists pushing for a sale. And this was a great outcome. On the other hand, for Fifth Third, it's a great deal. It moves them into growthier markets in Texas and California, supplements their Michigan presence, and really builds out their branching presence across the Southeast and Southwest.

8:31So within the regional banking space, what does this deal put pressure on? Who does this deal put pressure on to make a move of their own? Yeah, so that's a question, the follow-on question, like who's next? So there are other banks that are operating within the size of a fifth third that have also done deals like a PNC and Huntington. And the others that are still on the sidelines are banks like Regions in the southeast, Key Corp in Ohio as well, and M &T and Citizens in the northeast. So those are the ones that probably are going to get asked a lot of questions on the 3-2 earnings call about M &A.

9:07So what do we know about the Trump administration and its view towards bank consolidation? Are they opined on this at all? Yeah, so we can see that these bank deals are getting approved at a much faster clip. So I mentioned Huntington earlier. They're buying a bank in Texas named Veritex. That's right. And it's going to take them about 98 days from deal close from merger announcements. And that contrasts with under the Biden administration, it's taken 400 to 600 days for a large bank money deal. So these deals under Trump are being fast tracked, and it's really encouraging the management teams to really go out there and search for deals.

9:45So for so long, a lot of people had commented that the U.S. is overbanked. By one count, there's almost 4 ,500 FDIC insured banking institutions here. Are we still overbanked, Herman? I would say so. There's a lot of competition. And that's the reason why Comerica is looking to sell, because they were lacking in a retail branch presence. They mostly bank middle market commercial customers that are great, but it doesn't create the diversity that they needed during times of stress like the SVB environment. And so that was a lesson learned for a lot of the banking industry that you need to diversify your deposit base.

10:28And one way to diversify is to sell to a larger organization. Which segment of the banking industry is bloated, needs to streamline the most? Yeah. So you mentioned 4 ,500 banks. Like, does there need to be that many banks within the United States? Probably not. They don't have to scale to operate a retail branch presence. They don't have the capabilities on the fee side and the advisory side to really help their customers on the commercial side. And you see so much competition from not only larger banks, but also the fintechs that are just biting at the heels on the consumer side. So it's a really tough operating environment.

11:10And we expect more consolidation over the next several years. All right. Riddle me this here. Why do banks even have branches? I hear folks talking about adding branches. I haven't been into a branch in years. Across the street from Bloomberg headquarters. City branch right across. A lot of it is marketing, and a lot of it is scale. So for a bank like Fifth Third, they're growing organically in the southeast, and that's been a major growth driver for them. But I need a branch? You don't need a branch, but you need the branch for a marketing aspect. So it's like a big billboard. Right. It's a big billboard.

11:48Big, expensive billboard. In markets where you have a lot of foot traffic and higher growth markets. So it's a big billboard, and it's been a proven growth driver for banks. But on the other hand, branches are declining. So if you have critical mass and scale in your existing markets, you can trim your branch presence and not affect your depositors. But if you're entering new markets, then opening new branches is the way to go. I don't even think I could find my checkbook. Well, that raises a question. Does a fintech that wants to be a bank need to therefore have a retail presence? Do they need to open up a branch also across the street from our office?

12:23So that's the beauty of the fintech mottos, that they're issuing the branches. It's not a requirement. It's a lower cost to serve because you don't have the physical retail presence. And it's one way to really compete effectively with these legacy banks where you have a really easy-to-use app and you aren't burdened by this cost basis of owning the physical presence. All right. So when we had a couple of little blobs in your world a couple of years ago, I did. I found this KRE, the Spider S &P Regional Banking ETF. That's right. How are you? How are the regional banks trading these days? Yeah.

13:04So they're they're really doing all right. So we're talking about price, the tangibles around 1.5 to 1.0 times during the height of the weakest point during the SBB debacle. It was less than one time. So they've rebounded really nicely. despite some of the uncertainty on the economy and with tariffs. And so we've seen some growth from them, especially on the commercial lending side, that's really helped grow their top line. Stay with us. More from Bloomberg Intelligence coming up after this. Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London.

13:45We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens.

14:21It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

14:40You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am 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. A bit of management change in the telecom space, Verizon Communications named Dan Schulman, chief executive officer, replacing Hans Vestberg. That's effective immediately. Looking over at the stock for Verizon, down 4 % today, although it's up about 4 % year to date. Let's see what this means for Verizon and for the telecom space. We're joined by John Butler, senior telecom analyst for Bloomberg Intelligencies down there in our Princeton office.

15:20Hey, John, so a change at the top for Verizon. Was this expected or is this something new for the company? Not at all, Paul. I mean, you know, when you think merger Monday, I've had a lot of busy Mondays lately. But the last piece of news I expected was this change in leadership at Verizon. The company had really been sort of, I guess, prepping the head of the consumer business, or grooming is a better word, Somarayan Sampath, who is just a phenomenal talent, in my opinion. And he's been sort of pushed out there doing a lot of investor conferences and giving the investment community the impression that he was the next in line.

16:05So when the news broke this morning that Dan is taking over as CEO, it really surprised a lot of people, including me. So what's the company saying here? Why do you think they chose this outsider versus somebody that, again, an insider that maybe the street thought was going to be the next in line? You know, I think for telecoms, all three of the majors, the wireless business is slowing very rapidly on them. We're seeing subscriber growth down a lot this year. There's a lot of pressure on pricing. And I think the thought is Dan Schulman used to be CEO of PayPal. He's got experience at Amex in the consumer finance business.

16:46So they're thinking in terms of how to monetize the 150 million consumer relationships they have to move into adjacencies. The naming of Schulman in my mind tells me they're looking to tap the consumer finance market. You know, they've already got a credit card business. I think it's probably doing pretty well, but they're not actually in the loan business there. But they're doing a lot of device financing. And so I think the hope may be, this is my speculation, maybe that they can take that perhaps a step deeper into the consumer finance market and maybe other adjacencies to be able to monetize that base a little bit more and diversify away from the slowdown in wireless.

17:33Yeah, I know Verizon, they've kind of dabbled over the years in other businesses, purchasing AOL and Yahoo. So what's the focus going forward here? Is it to try to just manage the wireless business, you know, the decline in the wireless business as best they can? So again, the strategy here, Paul, I think, is to sort of build off that base that they have. The wireless business is stable. It's not going anywhere. It's typically a GDP plus business. Again, we're seeing a slowdown now. So it could move down to a GDP-like growth rate. But again, it's all about extension. So all three of the majors here are pushing hard into consumer broadband.

18:20They're doing very well there, both in the fiber and the fixed wireless access business. But even that business is starting to mature a bit as it saturates here in the U.S. So the question becomes, what's next? And maybe the what's next could be consumer finance. If you look at T-Mobile, they've tapped the outdoor advertising market, which actually is growing double digit. I never would have guessed. But the thought is, hey, as people carry around these phones, we know where they are. Perhaps we can leverage that and come up with very innovative ways of increasing eyeballs on our outdoor advertising.

19:03So I think they're looking for that type of creative thinking to come up with new ways of generating growth. And again, you're trying to leverage that huge core base of wireless subs that you have. Just going at their balance sheet, John, this is it. This is company Verizon's got$170 billion of total debt there. How's the how does the market feel about their balance sheet? So I think of the big three, Verizon is probably at a point where they want to be in terms of financing the business. Can they load on a bunch more debt? It's hard to say. I'm going to defer to our credit analyst for that, Steve Flynn.

19:46But I don't view their ability to finance new ventures as an issue here at all. It's a very cash rich business, wireless, that is. And, you know, I think that will allow Verizon to bankroll any of the new ventures they plan to push into from here. And one thing I certainly pro shareholders is 6.6 percent dividend yield. Is that safe? I think it is safe. That's a good question. I think Verizon of the big three really sort of gets it when it comes to the importance of the dividend to the investment community. There's a lot of telecoms out there, AT &T included, that have cut the dividend in the past and learned the hard way that that really I call it the third rail of telecom.

20:35I mean, you do not want to cut the dividend. Yeah. So my call here is that I think the dividend is safe. Yes. Stay with us. More from Bloomberg Intelligence coming up after this. This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. 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. And I'm Alexis Christophorus. Bloomberg Surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment, and international relations.

21:17We do all this live each and every weekday that bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keene, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. 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.

21:58Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's get an update on what's going on in the auto industry, particularly its transition from internal combustion engines to electric vehicles. I'm not sure where we are in the process now, if we've kind of lost some momentum or what's going on there. But let's check in with our next guest. They have some thoughts here. Adrian Balfour, he's the founder and chairman of Envorso, joining us. And Vorso is a consulting firm specializing in digital transformation, AI and software driven innovation with a focus in part on the auto industry.

22:34Adrian, thanks so much for joining us here. Give us a sense of kind of where you think we are here in this country. And then we can go globally if you want on this, I guess, transition to electric vehicles. Yeah, no, thanks for having me. I think, you know, if you take a look at it, we are transitioning to an electric vehicle sort of infrastructure and a future going forward with software-defined vehicles. Various sort of like companies have got certain advantages over others. Companies like Stellantis have pulled back a little bit. I think some of the traditional autos have spent too much money on it and have achieved less than stellar results.

23:12And they tend to be pulling back a little bit. whereas companies like Tesla, Lucid, Rivian are kind of pushing forward. I think overall, the next sort of 2026, 2027, you're going to see an increasing acceptance of the electrical vehicle market as we go forward in the marketplace. Yeah, you're a former employer, Ford, among those legacy automakers that have perhaps spent too much and maybe aren't seeing enough return in the meantime. Where are we, Adrian, now that the$7 ,500 US EV tax credit is gone? How much momentum did that halt? I think, you know, you saw like a 7%, 7.4%, I think, increase in quarter to quarter revenues for Tesla.

23:55I think that's going to be hard to sustain going into Q4. So that will be difficult primarily because it was a bit of a pull ahead. But as you look going into 2026, you're going to see, in particular with Tesla, with the advances of a sort of sub -$30 ,000 model. Ford are working hard to come out with a sub -$30 ,000 model as well. So I think there's a big shift to apply software-defined vehicles, but the major issue is that the costs weren't too high. So a lot of the automotive makers are now focusing on the sub -$30 ,000 category to try and get something in there to try and get a sort of market presence.

24:32In particular, I'm interested in seeing how Tesla's launch goes with the Model 2. And I think if that goes well, and if you can get some of the robo taxi legislation slash proveouts, pilots to improve, I think you're going to see a really big uptick because the technology is pretty cool. Right. Well, you mentioned a couple of times a sub 30 ,000 EV. And of course, we're not there yet. But you do see that around the world. Chinese EVs are cheap and incredibly technologically advanced and they're available everywhere except the United States. Do we get to a point where we might one day see Chinese made EVs in the US?

25:12I think that's an ecumenical decision up to the Congress. So I think right now there's very serious sort of tariffs on the Chinese vehicles coming into the U.S. And I think the idea there is to give the U.S. automakers a chance to play catch up. I mean, if you go to Europe, you will see some$30 ,000 Chinese EVs that are really high quality. And I think it's really in the U.S. We're really sort of like playing catch up a little bit. So I think the tariffs there are there designed to give us a head start or to give us. Well, not a head start, but catch up time. Play catch up. Yeah. What's this mean for the legacy automakers, the boards, the GMs, the Volkswagens?