AI Integration and Stock Fears

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1:37This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Rick Worcesters with the Charles Schwab Corporation. He's making the media circuit today. Okay. But now we're going to do a real interview about what matters. So he's a tuck up at Dartmouth. But before that, he's at Villanova, where he was captain of the golf team. Oh, sh - Have you played golf with Jalen Brunson? That's all we want to know.

2:11Rick Wurster: No, I haven't. He's probably better than me given how well he plays basketball. Yeah, really. He'll just pick up the clubs. Yeah. Maybe he's played with the Pope. I don't know. Maybe Rick's played with the Pope. He's at Villanova. Well, that's true. We wish the Pope good health here after the challenging week he's had with a recovery, I would say, from his distressed lungs. Rick Worcester, I have to talk about Schwab and the misconceptions about Schwab. I dealt with this decades and decades ago. What's the number one thing people don't know about Charles Schwab within asset management today? Well, we're operating from a position of strength.

2:47Rick Wurster: We just had a quarter with record results. Most importantly, record results with clients. We brought in$190 billion of new assets from clients, an all-time record for a quarter. And to me, that's a sign that clients trust us. And they're doing more with us. We're deepening relationships with them in wealth and in lending. And I think that's misunderstood of how much we do for clients across their financial life. I would say one of the few things people don't know is the commitment of Charles Schwab International to Americans abroad. But very few people are doing this. And Charles Schwab is out there for Americans who need financial services worldwide.

3:25Right.

3:26Rick Wurster: Absolutely. And international has been a source of growth for us. And the person that loves to invest in the U.S., they love what we do outside the U.S. because we give them personalized support, advice and the platform that makes it easy to invest here in the U.S. What are you seeing in flow? I thought this is I'm just asking the same questions as Lizanne Saunders. Exactly. This is nothing new. Rick, what do you see in flows right now? What are we doing with our money? A couple of things. Number one, clients are still heavily engaged in equity markets. They're trading at about 50 % more than they were last year.

4:00Rick Wurster: Their margin levels have grown as the market has gone up. So they're engaged in equities. Number two, we're seeing a record level of interest in fixed income. And clearly that's a shift driven by interest rates. So that's a big deal. The third thing is we're seeing a lot more interest in tax-aware investing. Clients have generated a lot of gains in a few number of stocks, and they want to protect those gains from capital, from taxes. And so they're coming in and looking for help. And then finally, the fourth theme I would highlight is clients really are looking for advice. There is a bull market for advice in our country, and we're doing more than ever to help them in their financial life from tax planning to estate planning to how to invest.

4:44Rick, I know it's always important for you guys to gather new assets and coordinate new assets in Q3 reach$190 billion, up 38 % year over year. Who are these people? Where's this money coming from?

4:55Rick Wurster: Interestingly, 70 % of new to firm clients are Gen Z or millennials. We are winning the young investor. And we're winning them because no one can match our value proposition. We have a combination of research, and you get to talk to our research folks all the time. broad support. We've got thousands of people who pick up the phone every day, including trading professionals to help support the young investor. We've got content and platforms that can't be beat. And we're going to find them where they are. We're big on social media. We're the most followed financial services company on YouTube. I will agree that you have pioneered the social media.

5:34He sounds like a CEO. Everything is record with Rick Wurster. Okay, there's a fee war out there. We're seeing mutual funds absolutely crater down to ETF structure fees. How do you people make money five years from now, given the fee compression that's out there?

5:52Rick Wurster: Well, I look at that and I look at it as a good thing because it's putting more money back in the client's pockets. Our singular mission as a company is to help our clients live their best financial life. And we bring technology, we bring research, we bring our platforms, And we have been at the forefront of bringing those fees down across the industry. We have, we think, the lowest passive fees in the industry. We're constantly trying to drive more money into our clients' pockets. So the fact that fees are coming down, I view, is a good thing. What's AI mean for your business, for your reps out there, for the folks that interact with your clients?

6:27Rick Wurster: AI is a big accelerant to our company. For our client-facing professionals, it's allowing them to have deeper, richer conversations because we have provided them with AI tools that allow them to prepare more deeply for meetings, to have more insights about what might be of interest to the client, and to be able to answer their questions in the most thoughtful way. We're also using AI to directly engage with clients, both through our own AI assistant, which we're launching named Charlie, and through power allowing other LLMs to come in, but to come in in a safe and secure way. There was an ugly 2023 for select banks who simply screwed up their management of assets.

7:09Schwab was peripheral to that. But in 2023, you had some balance sheet. I'm going to call it worries and angst. How did you manage your way out of that?

7:19Rick Wurster: By seeing through clients' eyes, focusing on what's most important to them and delivering against their needs. We want the balance sheet to be secondary. We never want a client walking into our offices and asking about our balance sheet. Right. Which is why we've never taken credit risk. And so we've never had to face the credit events, you know, that sometimes will come into the financial services industry. We're squarely focused on delivering the products, solutions and services that clients need. But when Silicon blew up, Silicon Valley Bank, what are you doing now that's changed for them? because I think there's a huge mystery, Rick, about all the skeletons we know in the closet with all this hyper bull market and AI and all that.

8:01There's an angst out there about shadows. What's the process you're doing now to make an ever stronger balance sheet?

8:08Rick Wurster: Well, for us, we invest in two things, generally government securities, or we loan to our clients. And so our balance sheet is extremely clean. We feel great about it, and it's historically not been an issue, and I don't see it going forward. It's what's allowed us to invest in our clients and provide the kind of service and platforms that we do. Rick, Arthur Levitt, a former chairman of the U.S. Securities and Exchange Commission, Bloomberg Opinion Colum, is out with a column today saying the SEC should protect investors from a lot of these alternative investments that are being made more available to retail.

8:46How do you guys think about that? Because I know your clients, they're demanding from you guys more alternative investment opportunities. How do you think about that?

8:53Rick Wurster: Yeah, I believe in investor choice. And privates have been a way that large institutions have made a lot of money over time. And it's been both diversifying and return enhancing. I believe retail investors should have access to those very same investments. I also believe at the same time that they should be delivered in a very thoughtful way so that the retail client knows what they're getting and knows the risks. And so the way we handle that is we do have a platform for retail alternatives. But in order for a retail client to access that, they need to speak to a professional. And we want to make sure that it's right for them, that they understand the risks, and that they understand how to position it within their portfolio in terms of size.

9:33Rick Wurster: So I believe retail investors should have access to all the capabilities that an institutional investor does. Alts are one important part of that. But we want to deliver that in a really thoughtful way. Rick Wurster with us. Charles Schwab here. this morning as we get a sense of moving into 2027, I should say. Paul, what's great about this is like Worcester was at McKinsey a million years ago, and they walk in and they say, we need a report in two weeks, make it 42 pages. So I just go to the McKinsey private market report 2026 so I can almost get smarter. Leavitt wants guardrails. What do Rick Worcester guardrails look like?

10:13I mean, you got to sit the client down and say you're locked up for seven years, right?

10:17Rick Wurster: Yeah, I think education, awareness, that's the key to making this appropriate for retail clients. Every retail client at Schwab that wants an alternative, we want to give them a great platform. We want to give them multiple ways to invest, and we're doing that. They can invest with one of the leading private equity or venture firms. They can go and buy individual private companies if they would like. But when a client wants to access alternatives, they've got to talk to a professional because we've got to make sure they understand what they're getting, they understand the risks, and they make sure it's part of their broader asset allocation and that it fits in.

10:53So when I think of Charles Schwab Corporation, I think of San Francisco, the Bay Area. But about five years ago, you guys, like a lot of other companies, relocated to Westlake, Texas, which I'm just guessing is some suburb of Dallas or Fort Worth or something like that that popped up in the last 15 minutes. Talk to us about why you guys moved to Texas and what are you finding there that you've been here for several years?

11:16Rick Wurster: There's a number of things we love about Texas. It's a friendly place to do business, number one. Number two, one of the things I personally love is you can get anywhere and back in a day. And so for a company that is across the country, being able to be out and see clients on the West Coast or the East Coast pretty quickly is terrific. And then third, it's a great source of talent. A lot of young people are moving there and a lot of young financial services talent. So we love being in Texas. It's a great way to serve investors across our country right from the middle. The Texas Stock Exchange, where's it going to be in five years?

11:48Rick Wurster: Well, I think it'll be a lot bigger. We are there as a secondary listing. We're also an investor in the Texas Stock Exchange. There's so much capital and money moving to Texas. And so I expect it'll expand over time. That was compliance approved. Well, I mean, you know. Are you kidding me? We have this institution in Manhattan. What is going to be the distinctive feature of the Worcester Exchange in Texas? Well, I think the exchanges in New York are going to be hard to unseat. Thank you. But I do believe that the Texas Stock Exchange has a role to play, and there are lots more companies moving to Texas, and they're likely to be involved with it.

12:27Rick Wurster: But I don't see the NYSE or NASDAQ going away. I predict, Paul, in X number of years, there'll be some bombshell announcement that will change this tone. Well, I'll see when some of the IPOs start going to different markets, that's when you pay attention. Rick, what are the young, your young investors, what are they telling you they need here today? Because there's this whole concept of a wealth transfer that my money from the boomers is going to go to my kids, which I tell them it's not. My last check's going to bounce. But that's a big thing in your business is this wealth transfer. How do you guys think about that?

12:58Rick Wurster: I want to separate two things. First on the wealth transfer, people get wrong often where the money's going to go. The money's going to go from a 95-year-old to a 65-year-old. It's not going to the 24-year-old. But more specifically, the first part of your question, our young investors, what they're looking for and what we're able to deliver for them, which is why we're winning, is they want the combination of great technology and the ability to get education about how to invest, where to invest, what's an asset allocation, what's diversification. How much should I be saving? They want research on that.

13:33Rick Wurster: And they want to be able to talk to someone at the right time when they're placing their first trade. If they're learning about options, they want to talk to an options expert. OK, just to wrap this up, back to ERISA of 74. We have had a retirement experiment in this nation. Folks, Bloomberg Money today, Scarlett Foenow, do that at 12 minutes. Sometime we'll get worse. They're on to flog them. But the retirement experiment for so many Americans is failed. Period. Actuarially, too many Americans are way behind. What do you see as a solution to make our retirement system more successful? Well, I look at the defined contribution retirement system, and I think it's worked for many, many people.

14:15Rick Wurster: And if you look at the wealth that's been created, we have more wealthy investors at Schwab than we've ever had. 80 % of our clients now have more than a million dollars. Five, 10 years ago, we couldn't have said that. Say that again? 80 % of our clients have more than a million dollars with us now. And it's a shock. I had no idea. The amount of wealth or of our assets, not of our client, not the percentage of clients, but the percentage of wealth, 80 % sits with clients that have a million dollars. A lot of that wealth has been created through employee-sponsored defined contribution plans. And so I do think that is working.

14:47Rick Wurster: You know, for the investor that's not benefiting from that, I think things like the Trump accounts, like our teen accounts, which we just launched for the age 13 to 17. We've got to, and your programs like yours do a great job of this. We've got to get the everyday investor and person in our country to realize the power of compounding. Greg in Canada, out on Twitter like 20 minutes ago, he forces his kids to watch us in the car. Oh, boy. But they're Toronto Maple Leaf fans. Yeah, that's good. So, okay, I got one final thing before you go. You need to watch every step of the way this young Turk, Kevin Gordon.

15:22He is out of control. I mean, he's working. He's good. You have him working a way too short work week. He's working a Pepperdine work week. I mean, he's popping like 23 hours a week. You know, he's not working from home. He's working from the beach.

15:37Rick Wurster: Kevin's a hard worker. I sent him a question, you know, in preparation for meeting with you two. You know, what's your latest view on the markets? And he wrote back to me within five minutes a really detailed and thoughtful note. So he's a hard worker. I think he might be wrong on the number of hours he's logging. Okay, Rick Worcester, thank you so much for Schwab. Stay with us. More from Bloomberg Surveillance coming up after this. If you invest or lead a business, one-sided views aren't enough. Join me, Brad Rogoff, and my team at Barclays Research as we debate what's driving markets on the Flipside podcast.

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17:35You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. Robert Hormans has been so kind to me over the years. He has served Republicans and Democrats, of course, associated with Secretary Clinton in a previous regime with Kissinger Associates and someone with a broad arc of where we are with our State Department in our multiple wars. Bob, I don't know where to begin. Have you ever seen the cacophony now? I mean, it used to be simple. It was good guys and the bad guys.

18:14And now I got multiple fronts. Is it a multiple front America? Absolutely. I think you've used the right word. We're dealing with growing sets of problems in the Middle East, not just the ones we had before, but not just Iran. We've still got the issues relative to Hamas. And now we have the Houthis. So we've got sort of a three-front war right there. And then Hezbollah in Lebanon. So you actually, when you add that, it's four fronts. And we're involved in all of them to varying degrees. Then you have Ukraine. And Ukraine's fighting for its freedom, for its democracy. democracy and Putin is doing everything he can to undermine a constructive settlement.

19:03And then you also have the buildup of Chinese assets all around the world. The far side of the world, as Patrick O 'Brien would say, Bob Hormans, on Ukraine, can Europe come to the rescue? If President Trump walks away, is there a set of people in Europe that can say, no, we're not going to let this happen? I think Europeans can certainly play a more substantial role. The difficulty comes in the fact that they don't have or make some of the advanced technologies like Patriots and Tomahawks and things of that nature. And we're in a difficult spot because our own stocks are not as strong as they should be.

19:45Moreover, intelligence, the Europeans do not have the intelligence capability that we have using satellites that can help Ukrainians on the battlefront. So they can do certain things, and they will, but there's really no substitute for certain types of American military assets and certain types of American intelligence, and particularly satellite intelligence. Bob, it's probably not as well known as it should be, but the Fletcher School of Law and Diplomacy at Tufts University has trained generations of U.S. diplomats, the State Department, who negotiate with our allies and are not so allies for the benefit of the United States.

20:31this diplomacy that we're seeing around the world all the issues you talked about around the world it seems like it's one person in the White House and maybe a couple of his confidants I don't see the State Department I don't see that institutional wisdom helping us out here what's going on down I think morale in the State Department is very low I think a lot of very good people who were there are no longer there and what's sad about it is that when a new administration comes in they have a ready-made set of assets in the brains and the experience of people in the State Department who've been working there 20 and 30 years and when they come in for a new administration they work for that administration they're very loyal to a new president or a new White House and the White House I think could do very well in the particularly these very sophisticated long-term negotiations with Iran, we've got people who've had a lot of experience there in the Middle East in general, in China, in Eastern Europe, who can be very helpful and want to be very helpful, but they're not being called on as much as they should be.

21:38Are you an optimist that we can rebuild off of Fletcher and Georgetown and the rest? Oh, I think we can rebuild our diplomacy. I think there are a great many people who would like to play an active, constructive role. A lot of people, myself included, when you first come out of grad school, you want to do something bigger than yourself. You want to help build a better global order and are highly motivated to do it. And if they're listened to and treated seriously, they will come in. If they don't think they're listened to and don't think they're treated seriously or they're maligned or they're kicked out for their political views, they won't.

22:21And it's a there are plenty of talent. There's plenty of talent coming out of those schools. The question is, do we use it for the benefit of the country or does it go somewhere else? I'm not going to mince words, folks. For those of you shell shocked by what you've seen over the last number of years, your foundational book on this to get back in touch with our diplomacy is the book Diplomacy by Henry Kissinger. Whatever your politics, I don't want to hear about it. Diplomacy is the definitive one-volume read to get the nation back on track. It's from ages ago, but boy, does it work. Paul, you're going to love it.

22:59912. It's a fabulous book. Get on that, Pop. But I think it illustrates one point, and that is we need to have a strong military. I'm a strong believer in that, and if we need to put more money up to strengthen our military, we should. Okay, then cut to the quote. But then I go, military is useful in getting you to the diplomatic outcomes you need to achieve. This came up over beverages. Paul wants to jump in here. I'm going to be rude and take one more question, Ambassador Hormats. You said you're big on military, which is the Hormats charm. The Democratic Party has tinges of still living McGovern in 1972, where they are perceived from sea to shining sea being anti or tepid military.

23:43When does the Democratic Party get back to scoop Jackson and HHH? Well, I think it needs to be understood that the military, we've got all these fronts that we were talking about just a moment ago, but the military aspect doesn't get you to the end game in most cases. You need to use the military to strengthen your capacity to get the right diplomatic negotiated outcome. That's why I think it's important to put more pressure on Putin from a military point of view and to help the Ukrainians do so as well. And if you want a negotiated settlement that's fair, then you have to put pressure on Putin with respect to energy and a whole range of other things.

24:28And the Chinese are watching, too. They're building up their Navy. They're building up their Army. They're building up their Space Corps. they're watching to find out if we have a a credible military and be the will to exercise whatever military not not for war but just as a uh as a precaution as a deterrent right the best way to avoid a war is a strong military deterrent and now folks i will put the surveillance cork in my mouth so sweeney can take over the interview bob you mentioned that the we have so many balls in the air from the geopolitical perspective. And I think a lot of folks are just saying, yeah, Iran is important.

25:05We have to fix that. Ukraine, we have to address that. But boy, if you step back and you think about a little bit longer term, China is something we really need to get right. What do you think the U.S. broad policy with China? Should it be engagement? Should it be trying to isolate them? It's a great question. Having been there with Kissinger, when we started engaging with China, I'm still of the view that there are areas where we need to engage in China, just as don't forget during the Cold War, even during this existential Cold War, we had four or five arms control agreements while the Cold War was going on, because we both realized that there were dangers to each of us if this got out of hand.

25:46I would say the same thing with China. We can compete and will compete with them and should compete with them, including by strengthening our research capability here. If you want to compete with China, you've got to give more money to basic research in this country because they're certainly putting a lot into it. The other part of it is that on AI, there are a lot of risks that affect both sides, rogue users of AI, autonomous AI that goes out of its sandbox. You have open models, You have open waiting, which give people a chance to meddle with AI in ways that can be very dangerous to our systems.

26:29So we need to work with China just as we worked with Russia. It's hardly the same thing. With AI, you can have a very few people with enormous impact if they use AI in a bad way. With the Soviets, there were two actors, us and them. And here you can have actors all over the world and they can use it for very detrimental purposes. So you've got to now, since a lot of the horses are out of the barn, you've got to have a much stronger defensive capability on our side. And they understand this, too. So I do think there is a chance of doing this, not so much to impede our growth in AI, or they're also suspicious we're trying to impede theirs.

27:16But we do share a common interest in avoiding these dangers to our systems, to our societies, to large numbers of people and figure this out. And we could do it unilaterally for us, but we're talking about a global problem. And if you're dealing with a global problem, you're going to have to deal with the Chinese, like it or not. And they have an interest, not in everything we agree on. We don't agree on everything, but we certainly both agree you need more defensive capabilities. Real quickly here, Iran, arguably the U.S. started this situation here. Is it up? Can the U.S. end it at any time?

27:53How do you think this should be resolved? Because global Wall Street, all we see are energy prices and inflation. And we're like, boy, if we could just deal with that Iran issue, a lot of that pressure would come out of the economy. That's true. And I think that the president is certainly going to try to up the ante on the military side. But I don't think we understand the Iranian culture as much as we should. They are very determined to protect their culture. And the people who are leading Iran know that if the place falls apart, their lives are on the line. So I wish I were more optimistic on Iran.

28:26I would certainly have very tough military action, but I would not lead myself to conclude that you can solve the problem only with the military. There has to be some kind of negotiated outcome that's reasonable. But the military might get you there, but it won't solve the overall problem. The one volume there, Vali Nasser folks, NASR, Vali Nasser, Iran's Grand Strategy. I can't say enough about it. It was really one of my tour de force books of the summer. Just a superb effort. Bob, where were you? I just had up the date. I'm looking for it now, Paul. I'm going down in flames here. May 4th, 1982, 44 years ago, Ambassador Hormats, when a French fighter took out a British ship in the Argentinian War, the Exocet missile debate.

29:22Where were you? Any idea? Yes, I think I was in the State Department at that point. But I do think, yeah, I mean, obviously it was a mistake. but so I think I was somewhere in the state. Are drones our new Exocet missile? Well, drones now. See, the asymmetric warfare that we now have enable countries that were not major powers before. Like Argentina. Like Argentina. Even Iran was not a major power before. Others can use them. Look at the way Ukraine is using these. Or the Houthis. Or the Houthis. I mean, the Houthis are sort of a tribal ideological group in southern Yemen. So you can use these things.

30:11And that's what's so difficult about the war. You have AI that can be utilized and put in the hands of malfactors, of rogues, of bad countries, bad people, which do a lot of damage. The same with drones. It used to be one great power versus another. Now you have great powers, but you also have very small powers or individuals who can use these things spread out around the world for bad things. I don't care. I got to go to the news. Bob, the email in from Topeka. Good morning in Topeka. Thrilled you listening to us. What in God's name is Hormats doing to be this cut and chiseled? It's 79 years old.

30:54Hang in. What's the Hormats secret? it. Exercise, having really good people around me and having stimulating issues to deal with and recognizing that individuals can make a difference in our society. So if you have that energy and you have that commitment and you desire to make the world a better place, it motivates you. I'm going to throw up here. Are you on a Peloton? No, I'm not. Good. Okay. You can come back. But I do work out on a treadmill every day. Very good. Robert Hormance, wellness expert here at Surveillance. Thank you so much. With Kissinger Associates. Stay with us. More from Bloomberg Surveillance coming up after this.

31:45You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Dan Ice joins Yorkville Ice. Dan, have you seen, have you held, do you own the foldable iPhone?

32:06Dan Ives: Yeah, you should have it soon. But, you know, look, I've seen it. I mean, in my opinion, this could be 5 % to 10 % of iPhone Pro and Pro Max users that go down that route. And I think this is it's significant because it speaks to this new era of hardware innovation that we're going to see under Ternus. Dan, give us your perspective on what's going on with CoreWeave here. A lot of volatility there. What's your perspective? What does it mean for CoreWeave and what's it mean for the just the AI discussion these days? Yeah, I mean, I literally just got back from Korea yesterday. And when I think about what's happened in memory stocks, we've seen just a further acceleration.

32:48Dan Ives: So 13 to 1 demand is flat. When you think about what's happening in CoreWeb right now and the worries in terms of the debt and what's happening with the CDS spreads, I view it similar to the SaaS apocalypse earlier this year. I'm not saying there's not some issues in terms as rates go higher. But given the demand, given backlog, I think this is ultimately a false narrative as it will ultimately play out. And we view it as a buying opportunity to buy these stocks that have sold off the way they have so hard this last few days. What did you learn in Korea, Dan? Obviously for tech investors, Korea has always been, but maybe even more so, so important to the overall tech stack here.

33:28What did you learn in Korea?

33:30Dan Ives: Yeah, I mean, memory, if I look at chips, we've seen demand accelerating at 30%, 40 % over the last 60 and 90 days. So what that's basically showing is that this is all accelerating in terms of as it plays out. And that, to me, continued to be the best barometer for what we're seeing in AI. I think we're going to see that in earnings relative to the hyperscalers, relative to broader chips. And that's, look, the rate issue, I get the nervousness. I'm focused on demand and demand's telling you we are third inning relative to this AI game. So what's the key thing when you're talking to clients over there?

34:08Is there what are the clients really want to get a handle on right now? Because this AI story is a fluid to say the least.

34:15Dan Ives: Yeah, I think it's trying to understand what percent of data centers could get voted down. What percent of data centers might not happen? Is there going to be capacity? How is this going to play out relative to numbers? And I just think when you put the pieces together in the puzzle, from NVIDIA to the hyperscalers, to what we see in Palantir, to what we see in memory stocks, I just believe this is the tech market that ultimately will make new all-time highs, despite obviously the pressure that we're seeing in terms of the 10-year and some of the debt raises. That's what I focus on relative to the demand story.

34:54Dan, is there a risk here that to the extent there's political pushback and just pushback from people in general that some of these AI data centers move offshore? Is there that risk out there? We assume 5 % to 10 % of data centers will ultimately either get voted down or the political, especially as we go into midterms, that that will ultimately push them further down.

35:18Dan Ives: But still to that point, you're going to have 800 to 1 ,000 data centers out there. For every dollar spent in CapEx, there's a$67 multiplier relative to the rest of tech. That continues to be central to our core AI thesis. The heart of the matter, Dan, and the Ives is the piñata. I mean, I don't even have time to make a joke on Penn State, Dan, because it's so sad up at State College that we won't make a joke about it. But Dan, 18 months ago, Apple was flat on its back. Microsoft's been flat on its back. Boy, have they come back, come back. Why have they come back so big? Well, Apple has come back because, I mean, you know, we've talked about it on your show many times.

36:08Dan Ives: Investors underestimated that on the consumer AI revolution, Apple could be late to the game, but with an install base of 1.5 billion iPhones, they're going to be the toll collector on the consumer AI highway. And that's now starting if you look at essentially what's playing out. Plus, if you look at Meta and some of the deals that they've done, it's worth$75 per share of the stock. I think this is a$400 base case. It could be a$40,$50. And Microsoft, Enterprise, that is right in their backyard in terms of these AI Azure buildouts. Dan, we got to go. Let's talk Penn State football Monday morning.

36:43Dan Ives, Yorkville Ives here on the tech earnings to come. Stay with us. More from Bloomberg Surveillance coming up after this.

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39:16You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Molly Pierroni with his partner Yakman Asset Management and the time here couldn't be better. Last night Mark Carney, goalie, was in his Edmonton, he was in Calgary actually, trying to keep Alberta in the Canadian province system. And I saw on the Globe and Mail in Toronto, Paul, that one of the basics thing is if Alberta secedes from Canada in some form, the brain drain from Alberta will be to beat the band.

39:55That's one of the major emotions right now. And all of this, as Molly knows, wraps around the huge success of the Canadian Sands. Explain within your investment world, why are the Canadian Sands different from Gulf of Mexico oil or Permian Basin oil? Yes, we think a lot about risk at Yakman. And so Canadian Natural Resources, the company we invest in, that takes a lot of the risk out of the oil business. because you've got this giant oil sand. There's nothing that you have to drill for or speculate about. It's right there. And you get to mine it and extract it, much like manufacturing oil as opposed to drilling for oil.

40:41And this has been over 20, 30 years of success. And they've got 30, 40 years of proven reserves that are right there ready to mine. They get to pick also when they mine them. And think about it from an IRR perspective. You get to choose when you do your maintenance CapEx because you know what oil prices are or where they're headed. And you're able to time your extraction to meet the right economics. Tom, I'm going to bring back a name you're going to love here. One of Molly's first jobs was at a firm called Dean Witter. Oh, my word. Yeah, talking about bringing back a classic name. She was 15.

41:15Exactly, back in the day. Molly, I know you guys at Yachtman historically have focused on value. How do you guys define value these days? Yeah, it's a bit of a lost art, first of all. We think that there are actually very few value investors who've really stuck to it over many years because it's been a pretty tough momentum market and value doesn't like momentum. We think a lot about the price we pay for an investment. So we're able to invest in companies at very attractive prices. And then you can sustain some of the moves up or down, especially down if multiples contract or if we go into a time period where the momentum reverses.

41:53So we think a lot about just the price you pay for an investment. And then we behave like business owners. We own these companies and their stream of cash flows for often very, very long periods of time. It's interesting. And, Naim, I'll get some tech analysts that'll come in here and they'll say, NVIDIA is a value name. I mean, on a trailing basis, 30 times earning, okay, that's techie. But you go one year out in earnings, it's 20 times. You go two years out in earnings, and we've got great visibility on those earnings. It's like 14, 15 times. That's a value stock. Do you guys ever think about names that way?

42:24We've heard that argument, and we don't invest like, you know, a 12 times or a seven times multiple isn't what we define as value. And I've heard the argument. We actually prefer to play the AI trade a little differently. We can own names like Samsung in the business, and they get to be in the foundry business producing a lot of these AI chips. Well, yesterday, where do you stand on the experiment, the ginormousness? That's MBA talk. Ginormousness of Taiwan's semiconductor. I mean, I think most of our listeners and viewers either are ignorant like I am or underestimate this huge thing in Taiwan worldwide.

43:07Yeah, it is a ginormousness asset. And the foundry business is the most precision manufacturing that we do on the whole planet. I mean, to produce a two nanometer chip, you know, you can't have like, I mean, it's right here. Right here, folks. You got it. Two nanometers. So we have a lot of respect for TSMC. We actually love the foundry business because you've got, it's like a scale business once you're in it. So how do you play that right now without losing your shirt? Yeah. So you invest in Samsung, which is the number two foundry business on the planet. And it's actually coming online in Texas, just a few miles up the road from us in Taylor, Texas.

43:46And they're building actually four new foundry plants right now. And this is your wheelhouse. OK. Now, I was in Phoenix where the same effervescence is there as well. Can Samsung, can the Asians, with all the stereotypes, bring the labor excellence that they have there over to Texas? That's the biggest bottleneck. When you hear them talk about, Margaret Hahn, who runs U.S. Foundry, spoke about this just a month ago when I was chatting with her. The labor issue is the hardest part. Yep. So what are we going to do about it? It's a brick-by-brick process, and they bring in people. Person-by-person process.

44:24Yeah, and you bring in people who actually are very skilled, not only in the running of them, but first you have to build them, right? So you've got a huge amount of infrastructure going in, and they're bringing in experts from abroad, and they're teaching people here in the U.S. how to do it. And there's proof or evidence that we will be able to do what they do? Oh, yeah, 100%. You mentioned Samsung, and that brings the whole concept of investing in Korea, which is something most investors, I don't think we really, I'm going to speak for myself, never really thought about it too much. But boy, I have a lot in the last couple of years as this AI trade has taken off and we start seeing all these companies in Korea that are either directly or indirectly impacted.

45:06How do you guys think about Korea? Because it has been kind of a value play, I guess, relative to some other Asian markets. Yeah, it's been, they have what they talk about as the Korean discount. which has been around for 30 years. And the Korean administration's making very specific moves to get that to be unlocked. But we're able to own Hyundai, Mobus, or Samsung, or really prominent companies globally, and we can own them for a price where the risk in that investment thesis is de-risk in a huge way relative to paying high multiples for effectively the same competitive companies. I like your notes on Hyundai Mobus.

45:43It's an auto parts manufacturer in Korea. and is a sneaky way to participate in AI without paying for it because apparently it owns a chunk of some robotics company, Boston Dynamics. So you guys have to do the research and find these things, don't you? Yeah, we do. And we love reading about these companies and finding them. You've seen Atlas and Spot, the Boston Dynamics robotics company. It's really, those are right up there. I saw a chart this week, like two days ago, of this boom in Texas, which we all know. Is there a point where Austin reaches a limit of expansion and growth? Austin city limits?

46:17Yeah, exactly. And we have, you know, the Formula One. We have a lot of great things going on in Austin. When we see helicopters moving people around, I think that's when we've reached the edge, is my view. Because right now it's pretty jammed on traffic and it's a very, very sort of boom type of cycle in Austin still. But, you know, those things will be cyclical and they will come and go. We've been there for quite a long time, as a firm, since the early 2000s. It seems, it kind of reminds us, we were all starting out in our global Wall Street, you know, 40 years ago. Atlanta, I mean, Atlanta just, and it continues to be this incredible growth story 40, 50 years later.

46:54Now, they've had their own logistical and infrastructure issues that a lot of people will tell you they have not fixed. You think about Knoxville, Nashville, Austin, some of these cities that have exploded in growth. No, it's true. And we're working on the airport, getting the right kind of direct flights where we need to be. But you can get barbecue while you wait. Oh, stop. Get barbecue while you wait. You're on Dell's Gulfstream all the time, right? No, I am not. I see his very high towers or their very high towers just out of our conference. So can you fly New York to Austin direct? Yes. More than like once a week?

47:29Twice a day. Wow. Twice a day. The first direct flight out of Austin was called the Nerd Bird. It was Austin to San Jose back in 1990. Very cool. Yeah, very cool. Don't be a stranger. Molly Perori, thank you so much. With Yakman, they're one of the most venerable firms, I should say, in asset management. Just can't say enough about their work. That was great. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

48:07You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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