Bloomberg Surveillance TV: October 21st, 2026

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1:38This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App. We begin this hour with stocks adding to gains as AI enthusiasm powers the market. Matt Sturkey of Northwestern Mutual writing, The key question is no longer whether earnings are growing, but whether companies can demonstrate that today's growth rates are sustainable into 2027.

2:17Matt joins us now for more. Matt, welcome. Do you think they are sustainable? You know, I certainly hope so for the sake of the market. You know, 40 percent of the market now is really linked to AI. And so for the market to be sustainable, you're somewhat confirming that artificial intelligence is sustainable. I think, you know, last night we got a pretty good indication that at least in the near term, things are fairly sustainable from a return perspective for hyperscalers. You know, what we're seeing is just the difference between contract rates and spot rates with SpaceX really leaning into the spot rate for compute.

2:50And that continues to be strong. You know, just a data point that continues to stick out in my mind is sentiment has been widely shifting back and forth between the second and the third into the fourth quarter here is that spot prices for compute year to date are up 30 percent. I mean, that's the bleeding edge of where supply is hitting demand and that continues to tighten. Matt, do you think there's a better pocket of the market to take advantage of the more positive trends? And where is it? You know, I think whether you're looking at frontier models, whether you're looking at the hyperscalers or the neoclouds, one thing is true is that it requires compute.

3:23And so if you're looking for a passive exposure to this trade in terms of kind of where to monetize it with stronger margins and less reliance on the capital markets, at least directly, it continues to be in the infrastructure side and specifically semiconductors. I wouldn't necessarily just concentrate it in one part of the XBU or the memory or the optical. I would say remain diversified across all of it, because in a world where this is sustainable, all of those players who are on the value chain are going to do fairly well. How do you remain diversified? We were just having this conversation with Carlisle at a time where so many of the names out there on the S &P 500 or NASDAQ are all in one trade right now.

4:07You know, diversification outside of AI, I think that's a different conversation versus where it's at within AI. I would say for investors out there, absolutely diversification is something that you always want to have in your portfolio. So outside of AI, that's things like global equity. It's things like real estate, real assets, high quality fixed income. Those are all important sources of diversification in a market that kind of pings and pings and pongs back and forth between sentiment towards this trade. which is increasingly reliant on the capital markets to participate to build it out. So, you know, diversification there, I think, is the first way you look at it.

4:50And then within AI, you know, hyperscalers continue to do fairly well. The higher quality ones, you know, certainly picking up some steam here lately after kind of really struggling in the front half of 2026. But underlying it all is, you know, semiconductors continue to do well fundamentally. And from a valuation perspective, you know, things have certainly cheapened up quite a bit here in recent weeks. Taking a step back, I mean, the fact that they've cheapened up, is this sort of a good entry place, especially if you do get some of the earnings coming in that have been as robust as what we saw last night?

5:22I think so. I mean, take NVIDIA, everybody's north star as it comes to this trade. If we're looking at kind of where we were last year or where investors were expecting earnings to fall in calendar year 2027, It's up more than 110%. The stock's up just less than 20 % during that time period. There's been a massive amount of multiple compression. And you can point to situations like this across different semiconductor players. Let's take SK Hynix as an example. That stock is trading roughly 90 cents on the dollar of expected book value in 2028. Those aren't types of sentiment levels that you would associate with investors getting over their ski tips in terms of underwriting multiple years of up into the right earnings growth.

6:08Those are types of situations that you see some pessimism about the sustainability of the trade kind of leaking into the valuation. And so that, to me, I think creates an opportunity for the wall of worry to be met if the current momentum that you see in the build-out sustains itself into next year. How concerned are you, though, about every time there's something like a failed IPO, then a customer comes in and adds that company. I'm thinking of NVIDIA and what they're doing with the Australian company, the fact that Microsoft pulled out of a recent deal with Nscale and then Anthropik comes in.

6:44Does that concern you? It does. I think if you look at the marginal players, take the neoclows as an example. In 2025, they're roughly around 10 % of existing capacity, but they are the fastest growing suppliers of new compute to the marketplace. And if you think over the next 10 years, I was looking at some research earlier today, and they're expected to be 40 percent of incremental supply. So, you know, certainly there is the concern that if, you know, the sentiment and the financing just make it untenable for continued build out, that there's going to be some volatility in the main players today that are really monetizing it, you know, the semiconductors specifically.

7:19But at the end of the day, if the demand is there, you know, we just saw it last night for like SpaceX that's monetizing roughly 50 billion per gigawatt or so. That's going to attract capacity from the main, the main will capitalized players, you know, the Microsofts of the world. And so, yeah, there could be volatility between here and there. But certainly the demand is the most important question we have to answer. Matt, how are you looking to spread your risk right now across equity and debt? I remember, and correct me if I'm wrong, I do recall that you were underweight high yield coming out of the summer.

7:51I'm sure you benefited from the fact that spreads are a lot wider, avoiding that spread widening. What's the approach now? You're correct, Jonathan. Good memory there, just in terms of our positioning. We continue to remain underweight high yield. From a portfolio construction perspective, we just think that the starting point for investment grade fixed income is attractive today. today is a fantastic diversifier. So take the 10-year Treasury as an example, and that's not necessarily indicative of our complete positioning. But the skew on a one-year forward based on shocking rates up or down 100 basis points is attractive.

8:27It's somewhere between a 1.5 % drawdown to a 12.5 % upside based on rates moving 100 basis points either direction. We want that type of risk profile in our portfolio as a diversifier. Leaking into high yield to us starts to correlate more and more with equities. And we would rather just kind of lean in directly into traditional equities if we're looking for that type of risk. Stay with us. More Bloomberg Surveillance coming up after this.

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9:53So here's the latest this morning. President Donald Trump putting a new focus on so-called superintelligence, calling on data centers to sell excess power back to local grids. The president urging companies to, quote, make deals and get them built as infrastructure remains a key issue into the midterms. George Pollack of Signum writing the following. not expecting Washington to regulate AI anytime soon. Quote, we will need a disaster of some sort to drive the need for regulation. George joins us now for more. George, welcome. It's good to see you. I just want to start with the president's position.

10:22How much daylight is there between his position on this issue and the Republican candidates on the ground heading into the midterms? I think there's quite a bit of daylight between the president and the Republican candidates. They're trying to be as positive about the president's message while also trying to avoid the voter pushback against data centers. That's why you've even seen states like, Ohio and Michigan. The Republican candidates push back and try to frame it as the Democrats being pro data centers are in upstate New York. But Mike Lawler is facing off against Kate Conley. Lawler has said that Conley is, in fact, pro data center development.

10:53So there is quite a bit of daylight. But again, that doesn't mean there'll be daylight in legislation, as most Republicans are too concerned to be crosswise with the president and with the administration. Well, it's definitely going to be come down to a localized issue, given the fact that it's on a number of ballots. The president in his Truth Social post said that basically, if companies want to make it popular than give money back to the communities, have a dividend. Do you think there's going to be a lot of force from the executive branch on these companies to do that? I mean, the companies are already doing that.

11:19For example, in Richmond Parish in Louisiana, where the Meta is building a significant base of operations, they've given teachers$50 ,000 bonuses. And counties in Virginia, they're concerning rolling back property taxes. In places like Pennsylvania, these data center developers are offering 10K to residents to allow them to build these data centers in their communities. But that money's not moving votes because the voter concern about data centers goes well beyond the money. It goes to the effect of their property values. It goes to the perception of the impact on their energy costs. It goes to the good old American nimbyism.

11:48That's not going anywhere soon, no matter how much money you put in front of American. Who do you think is striking the right tone right now when it comes to AI and data centers on the campaign trail? Honestly, I think the right tone is the negative tone for AI because the right tone for the voters is being against it. So for example, former Senator Sherrod Brown in Ohio has been the one who's been leaning into the anti-data center message and has seen him rewarded with polling. Senator Husted is trying to push back and say, this is what I'm doing. This is why it's good. And this is why it's a productive thing.

12:15And make that national security argument that is correct. But to the voters, it doesn't matter. So I think in terms of the midterms, the right argument, unfortunately, electorally, is the wrong argument for the long-term future of AI in the United States. George, we're 13 days out from the election. Do you still have Texas going blue? I still have Texas going blue. And while I always avoid looking at early voting data because anyone can tell a story with that data. I do find that with even a Republican increase in their spending, state rep James Tallarico has been able to set out a pretty compelling message that Ken Paxson has not been able to really push against.

12:50Even if you look at Tallarico's final ad, the whole framing was, I've never been indicted. I'm not under investigation. I've never been impeached. And even in a state like Texas, in a time when corruption is on the top of voters' minds, I think that's a compelling message that will prove beneficial for Tallarico. We've been talking about data centers because a lot of people have pinpointed this as the main agenda item for Democrats where they could get some bipartisan support. I wonder about corporate taxes as well. We heard from Ken Griffin last night that he thinks it was a mistake to cut corporate taxes to the degree that the U.S.

13:23administration did last year because of the fiscal deficit and that it created a problem. Do you think that there could be some sort of increase in corporate taxes that comes down the pike sooner rather than later and it could be a bipartisan issue? Yes, and I think you have to look at it. If we get a Democratic Senate, we get a Senator Elizabeth Warren as chair of Senate Banking. Well, I know that will make corporates and the markets quite nervous. Senator Warren and the president surprisingly worked together to pass that housing legislation that included a pretty populist restriction on investors from purchasing single family homes.

13:53And my understanding is there is legitimate concern that they can work on some kind of deal to increase the corporate tax rate by four or seven percent, go from 21 to 25 or 21 to 28. And that could address concerns of the bond markets. That could address concerns with the deficit. And politically, look, we're in a populist age. Who's going to step up and say we have to defend the corporations from higher taxes when most Americans are more focused, of all political stripes, on keeping their own taxes lower? To the extent that this would be a headwind for stocks, some people have said, well, this isn't going to come through under President Trump's tenure.

14:25He won't necessarily see this through. What kind of timeline would there be for this type of proposal, given that some people think it's one of the biggest headwinds? I think we would have to do this proposal early in the next Congress, I would say in the first six months. As we get beyond the first six months, we're going to get into the presidential cycle. Really, we're going to have the more investigations, the more intense investigations of the president, his family, the corporations that I think is going to create a very negative environment for the president to make any such deals. So for me, first six months are probably where we start to see some momentum.

14:55George, I just want to finish where you went into Texas on Tallarico. And I just want to take a step back and think about what this might look like in early November. Let's say you're right. Still feels like a stretch to see that flip to blue in Texas, but let's say you're right. George, what would happen with regards to the president and his choice through the primaries? Because a lot of people will blame his selection of Paxton in Texas for that result. Does he lose any weight within the party to basically bless and ordain who may or may not be the next candidate for the Republicans into 28?

15:27So behind closed doors, there was absolutely consternation about the president's choice. I mean, that's already starting today because the party has had to spend 300, 400, 500 million dollars in the state. When if Senator Cornyn was a nominee, they would have been likely pacing to easy re-election. But the fundamental reality is the president is still in control of a significant part of the Republican base. Last week, he relaxed sanctions and waivers on Russia. Senator James Lankford went on one TV show, and Senator Lankford has a serious mind on the Russia-Ukraine war and was asked about what the president decided to do.

15:58And his answer was the president is putting the American people first. The reason for that, Senator Lankford is up for a re-election in 2028, and he knows he's not getting through that Republican primary without the support of the president. It's the same thing in a state like Indiana, where Senator Todd Young, who's a serious foreign policy mind, is also up for re-election in 2028, and he knows his only way to get the president's support is to take a step back. So while it may be behind closed doors consternation, I think in the public they're going to still say, we're with the president. Do you think there will be a proper primary process, or will they make the mistake that the Democrats made with Biden and Harris?

16:31Look, I think Senator Ted Cruz, for example, is going to make a run because that's what he wants to do. He wants to make more of the old-school Republican pro-foreign policy, pro-conservative internationalism argument. But I think this race is made for J.D. Vance to become the next nominee. And I suppose it's the old joke from the West Wing where if you look at the vice presidential seal, close one eye, look just right, it says President of the United States. And I think for Republican-based voters, that's what they're going to think of Vice President Vance. Stay with us. More Bloomberg Surveillance coming up after this.

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18:39We'll be right back. a welcome. There's been changes, big changes to this company. They've got rid of their chief content officer. They've replaced that individual. They've cut a lot of staff as well. At what point does the pressure just start to build on a change in leadership at the very top of the company? Yeah, sure. And it should because they, you know, it was a management error how this all happened. This is not necessarily structural. People are watching more YouTube, watching more TikTok, and that is putting pressure on engagement. But these are issues they could resolve. These are, you know, issues that they can resolve and still can.

19:18So it's incumbent upon them to make some really great decisions with the extra cash they get from these layoffs in terms of increasing or being more targeted with their content spend. I think Peter Rice was brought in to do just that and to firm up their ad tech and get better targeting, get better ad placement and better integrations and get that off the ground much quicker than they have so far. Alicia, could you build on the mistakes they've made with regards to content and the changes you expect them to make in the quarters to come? I don't think it's necessarily mistakes with content so much as mistakes in the ad rollout.

19:56The content has worked by and large. You can see that with the price increases and the low churn against those price increases. And really, the survey work that we do has indicated that there's very, very low churn, very high retention across those price increases and across regions. And it's really comforting to know that they can continue to do that. The expansion of the live content and specialty content and also platforming other services content through licensing and partnerships is where they should be going. and where they are going. So we're comforted by that. We are also really comforted by management's comments that they do not intend to go head-to-head with YouTube on short-form content.

20:39So they're not changing the model on that front. That's really, really great for them because they're doing it right and they shouldn't change. What they do need to change is expanding the tech that they have for their ad platform, getting significantly more dollars for the engagement that they already have, and then improving the engagement overall. And there's a lot of runway, and they certainly can. They just have to put one foot in front of the other to do that. So in other words, they need to raise prices for advertisers, not necessarily increase the number of ads that we all experience. Actually, I'd say, yes, on both fronts, they can.

21:14The ad load is the industry low on Netflix. And what they're doing right now with the ad load is that they're really not advertising against their most premium content, where they could get more higher CPMs for that. They are delivering quite a few more ads across serial content, licensed content, stuff that you typically see ads against on linear TV. And so they're being very, very surgical with the ads. And they can do that more so and increase that CPM and increase the overall ad load across their service while increasing the targeting and getting better at the CPMs on that side. I do wonder what you think the ramifications for Netflix and other streaming sites will be by the advent of Muse and other types of consumer products to compare the cost and to really keep track of subscriptions in a more real-time way.

22:10There was a belief that it was sort of a sticky factor. People aren't going to cancel so quickly. Are you seeing more churn in that area? Is that something that's more of a risk? Across services, not Netflix, though. And this is why we're still outperform on Netflix because the price increases that they implemented resulted in significantly lower churn than we would have thought at this level. Our survey work corroborated what Netflix said on its call. And some other stats that they gave on the call were really comforting as well. You have so much more engagement per dollar spent on the subscription on Netflix than any of the other services.

22:48And that's why you're seeing a lot of licensing happening, why Disney is bringing their content over to Netflix for broader distribution ahead of a movie release. And so this just feeds into the facts that Netflix can leverage all of this engagement in a better way than they have so far on the ad tier to broaden the service. And it's not going to result in significant churn. And they still have room to increase the price even more and keep that stickiness on this platform. As they create more of a platform and bring more content to their service from others, it'll only become more so. Alicia, maybe it's just me, but I don't remember the last Netflix series or movie I watched that I was very excited about.

23:38And now they're bringing in someone from Disney. This is establishment. Don't you think Netflix potentially had an opportunity to do something a little bit different, cater to a younger audience? You said that a lot of people now are watching things on TikTok and Instagram, etc. Was this the right call? Yeah, remember, you know, Peter Rice is from Fox Searchlight. He came into Disney from that angle. And so he has a lot of really good talent relationships. He's very well-liked in the business. And so with Netflix kind of shifting their tune with regard to a theatrical exhibition, I think he will be able to bring in more talent.

24:18And the reputation that he has, I think, will shift so that there's more talent that wants to come over to Netflix and work with them across the platform. With the theatrical exhibition burgeoning at Netflix, I think there's a lot more he can do. Should they have brought on someone younger? Sure, if they wanted to go the direction of YouTube and go head-to-head with them. But that's a little tougher, and I think Netflix made the right choice. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6 a.m.

24:58to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business Out.

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