AI, Crypto Anxiety Creates Volatile Week for Markets

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0:12Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech coming up. AI and crypto anxiety. It sends stocks on a wild ride amid volatile trading. We'll have the details. This is OpenAI teams up with Foxconn, design AI data center hardware in the United States. And we speak with the CEO of Cerebrus about the U.S.'s approval of selling advanced AI chips to the Middle East. All of this coming in the context of deepening market anxiety after we are whipsawed time and time again. Let's just check out what's happened on the markets over the course of the five trading days.

0:53What a week it has been. It is off by 4 % for the Nasdaq. This is the worst week we've seen for the NASDAQ 100 since April, since, of course, the first concerns about trade tariffs came into the market. We are seeing significant pressure on some of your biggest AI winners. Let's move on and see how some of the NASDAQ key points contributors are doing on this day. NVIDIA off by 2.7%. NVIDIA is now down 8 % over the course of five trading days. But Oracle on course for its worst week since March 2018. teen. The AI bubble anxiety continues, and we want to dig into all of that and the market reaction this week with Bloomberg's Equities reporter Carmen Reinecke, who has been across this story day in, day out.

1:37Carmen, why are we seeing this ongoing pressure on some of the biggest winners? Yeah, it's really interesting. And like, what a week it's been, right? You know, we have NVIDIA with this blowout earnings report and then two down days immediately following it. But really what seems to be happening is there are so many macro pressures on the market right now that that's adding a lot of weight and dragging down the major indexes. But at the same time, we're seeing that NVIDIA's report, as good as it was, wasn't enough to quell some of these overall AI fears. And so we're seeing a sell-off. We're seeing a very risk-off mentality in the markets right now.

2:13And one thing that has been kind of interesting is looking at the stocks that are up today. We're actually seeing Apple outperform, and it usually has lately sort of been opposite of these big AI names because it doesn't have a huge AI piece of the puzzle. And then we're also seeing Google up, which is still really big optimism after Gemini 3. So it's just interesting to see a little bit of the split that's happening there in the market. And much of this, of course, has been built into the worry about, yes, NVIDIA has the demand. People starting to dig into accounts receivable, into inventory, But that felt like a desire to try and, in retrospect, understand why we were seeing a sell-off rather than seeing that and then seeing a stock sell-off.

2:53So can you talk to us about how things are happening in timing-wise? The timing has been so interesting. And I think you're totally right that, you know, I speak to a lot of investors and people were sort of pulling on different things. But there was no real, like, smoking gun great answer as to why, you know, we were seeing this sell-off. But we have been seeing the market sort of react more to things around a Fed cut, if there's going to be a rate cut in December. So this morning, you know, looked like things were kind of positive. And then around the Williams comments. But then, you know, we get you Mish out.

3:27And so it just seems like there's a ton of macro. And that is really what's moving the market. I think one discourse that has been throughout is debt. and debt, particularly among players like CoreWeave in the NeoClouds, but Oracle in particular, the CDS, the credit default swaps of Oracle, have become almost like a way in which we show anxiety in the great debt pileup of certain companies. Is it rational? No one thinks Oracle is suddenly going to default, but it is being used as some sort of hedge here. Yeah, totally. And I mean, the stock has just completely fallen off. You know, it had that huge jump and then we've erased all of that.

4:05And the debt question is a really big thing on investors' minds. And I think it really plays into the fears of the AI bubble or the debate around it being a bubble. Because if these companies start loading up on debt, there's the potential that they could become over-levered. That could be a bigger issue down the line. And with everything as circular as it is, even though these companies keep addressing it, Jensen spoke about it in NVIDIA's calls, investors are just not convinced yet. You know, they're just seeing the house of cards. They're worried about it. They need to see the return on AI.

4:38I believe most Carmen Reineke has been across this story. I have a feeling she'll continue to be so. We thank her. Look, let's turn to the world of digital currencies. There's volatility there too. Bitcoin on track for its worst month since 2022. Look how much it shed. 25 % of its value in November alone. It's not just Bitcoin though. According to data from CoinGecko, the total market value for virtual coins has dropped below$3 trillion for the first time since April. James Seifert is with us, Bloomberg Intelligence. You cover alternative investments. And talk us through some of the selling pressure.

5:09You look at it particularly from the ETF lens. But more broadly, is it institutional money that's stepping away ever since that big sell-off, leverage washout in October? Yeah, so I absolutely think this is still hangovers a little bit from that October 10th sellout that you just mentioned. There's no way to know for sure it's institutional or retail. But it's it's there's some big sellers out there. And what I would say is the ETFs have mostly held strong. I mean, we as a on a percentage basis, the amount of outflows we saw from the ETFs was way bigger in April. It was about six billion that came out right now.

5:40We're about five point three, five point four billion that have come out of ETFs. But it's from a much higher base. So the percentage basis is way smaller. So most of the selling is happening from, you know, the actual spot crypto markets. It's a lot of people like to look at the ETFs and they think like, oh, they're causing this problem or they're exacerbating things. But really, they're just a piece of the pie. And right now, like I said, it's only about 5.3 billion that have come out of ETFs, the U.S. spot products. So for most of this is happening actually to the coins directly. It's interesting that many who have been in this space for a very long time don't see this as particularly anxiety inducing moment because they've seen sell off some pressure before.

6:14It's a volatile asset class. But when you say exacerbating the situation, how much are digital asset treasuries exacerbating the situation, the sudden move we saw for companies to put digital assets on their balance sheet? Yeah, so I absolutely do think that the DATs are exacerbating things here. So, right, I think they were a bit of a flywheel on the way up, right? They were trading at a bit of a premium. They were issuing stock to buy the underlying currencies. They were issuing debt, preferred stock, convertible debt to buy the underlying currencies. And when they're trading at a premium, that's spinning in one direction.

6:45Right now, things are spinning the opposite direction. There are some DATs out there that are selling underlying assets. We know some Ethereum ones and things along those lines. So I think this is, and then also there's a lot of traders out there that are doing things where they're hedging the underlying asset and hedging against the actual DAT companies themselves. So that whole interaction is definitely kind of spinning the opposite direction of the way it's been spinning for the last few months. And then also there's a lot of concerns about quantum computing. There's a blogger who everyone kind of respects in the space has moved up his timelines.

7:13And a lot of people like to say it's FUD, it's not real concern, but people are starting to take this seriously, including the leader and founder of Ethereum, Vitalik. So I think there's a whole bunch of things here that are compounding. Obviously, you just spoke about it. There's a bunch of risk off in AI names and just equity risk assets in general. And then I think also maybe this might be we often see a bit of selling around this time of year, maybe into December, particularly DTS for tax loss harvesting. Maybe that's being pulled forward a little bit. That's interesting. What I want to go back to is the quantum side of the equation.

7:43Look, we know that the DAT situation, digital asset treasuries has been a case in point is Michael Saylor and what he did with strategy and people worrying that maybe that even falls out of some of the key benchmarks and that adds to the selling pressure. But quantum is more about cryptography and how that might be broken. Briefly, James, is that what people are worrying about? Yeah, I mean, I won't pretend to be an expert on quantum cryptography or cryptography in general, but essentially the concern is that quantum computing would be able to hack the encryptions that basically keep, you know, Bitcoin and other cryptocurrencies safe.

8:14There are, you know, quantum resistant cryptographies that can be used and are planned to be used in other cryptocurrencies and even proposals for Bitcoin, but they're not instituted yet. So the concern is, is this going to happen faster than most people are expecting? But the industry is on top of it. It's just, you know, it's a genuine concern at this point, as far as I'm concerned. As you say, hashtag FUD, fear, uncertainty, doubt. Haven't heard that acronym in a little while, James Seifert of Bloomberg Intelligence. Thanks so much for breaking things down. Let's get an investor perspective for you now.

8:43Eric Bailey, Executive Managing Director of the Bailey Group at Steward Partners joins us now. And FUD, fear, uncertainty, doubt, is that what is ripping through the markets? Clearly. Yeah, yesterday was certainly eye-opening with the action in the markets. And it shows investors are nervous. We've seen it pretty much this whole month. And then yesterday really, really was clear that this sell-off has more legs. And, you know, big parts of the market are in a correction. NVIDIA now down 17 percent from its high. You were talking earlier about Oracle. That's down 40 percent. And you're seeing investors are getting more defensive.

9:19You're seeing sectors like utilities, pharmaceuticals outperforming the growth parts of the market. And so this could continue, right? As as we get through the end of the year, you do see rebalancing, tax selling. And that could continue as we need a little more clarity, a little more confidence to come into the market to get the growth trade back heading up. What more clarity could you wish for? We got a relative amount of clarity coming from the world's most valuable company. Jensen Wang doing his best to try and make clear the line of sight he has on future revenues. People questioning maybe the inventory build up now.

9:59But we did get a lot of tangible evidence there. We had people such as Michael Burry saying, who are the auditors on OpenAI? And yes, there was a lot of anxiety in the private markets, but many have pushed back on that sort of concern. What clarity do you want to see, Eric? Yeah, no, you bring up great points. I think, right, it's a valuation issue. And right now, investors are weighing what's the value of these names. They're not clearly sold that the growth can continue. Even though you look at the analyst community, you look at NVIDIA, the average price target is 250. That's a 30 plus percent move from these levels.

10:36So you would think at these prices, it's pretty attractive. So a lot of this is, again, just market reaction, going through kind of a correction phase. And I think the buyers will come back in. It's always unclear when and at what levels, but I do see the buying coming back into the markets. It's an element of catch a falling life. But is the Fed the key question if rates are indeed cut in December? Yeah, the Fed adds a level of confidence to investors and investors clearly want to see the Fed is taking action that's positive for the economy. And that right now is clearly with rate cuts. And so a rate cut would, in my view, bring in confidence to the markets and should help equities, especially growth equities.

11:22Growth equities typically do well as rates come down. And so that would be a big boost next month. Some of these particular numbers that I relate to on a weekly basis do look really ugly. As I say, NASDAQ, worst week since April. NVIDIA, worst week since about April. And you see a similar thing for Oracle, worst week, in fact, since 2018. But looking at a year-to-date basis, we're still in a pretty great spot, right, Eric? Oh, absolutely. Yeah, I mean, the S &P is still up north of 10 percent. Overseas markets have had an incredible year up, you know, across the board, north of 20 percent. So investors, right, they have to step back and be patient and be calm and actually look at these sell offs as an opportunity, because this is where you can make solid returns, right?

12:10Buy great companies at lower levels. I mean, that's the key to investing and not panicking and not selling when everyone else is selling and take losses and hurt yourself long term. So Eric, your thesis with AI, do you think it's a bubble or do you think this is a sort of capital expenditure that's necessary to reap the productivity in the future? You know, the numbers you're seeing committed to this space is certainly eye opening and nervous. And it seems like it's a few of the big, you know, massive players in that space. And so it does it does bring concern. On the other hand, without a doubt, with these earnings results we've seen, you know, just from NVIDIA and you saw from Alphabet and the strength there.

12:53Clearly, AI, you have to be invested in it long term. It's the growth engine. And so if you want growth, AI is the place you want to be. Alphabet at a new record high today. Eric Bailey of the Bailey Group at Steward Partners. Thanks for your time. Happy weekend. And coming up, OpenAI, well, it's partnering up with Honhai, also known as Foxconn, to design AI data center hardware in the United States. Details next. This is Bloomberg Tech.

13:32To keep pushing the frontier, we need to build these new types of AI infrastructure hardware at scale. and I'm excited for that to happen in the US and with Foxconn. Foxconn's experience building complex infrastructure and hardware at massive scale makes them the ideal partner for this, and I'm looking forward to exploring together what this can look like. We'll share insight into emerging hardware needs across the AI industry, and Foxconn will use that to design and prototype new equipment that can be manufactured in America. OpenAI CEO Sam Altman joining Foxconn, also known as Honhai Tech Day in Taipei remotely, to weigh in on the company's partnership with, of course, Foxconn to design AI data center hardware in the United States.

14:15Look, under the partnership, Foxconn will co-design and develop data center server racks with OpenAI and work to ensure such racks can be manufactured across the United States. Look, Bloomberg Tech's Annemarie Drowlers, she caught up with Honhai chairman, Young Lu, to discuss the plan and his goal for scaling up compute capacity. Take a listen. A gigawatt per week would be the goal. Okay, one gigawatt per week? One per week. That would be the same goal. But we can start with one gigawatt per month. So you think you can add one gigawatt per month next year? That's starting next, the second half of the year.

14:55Second half of the year, so you think you can add six gigawatts next year? I'm not sure. It really depends on our study and our new way of doing things. It takes time, but eventually we're going to get there. Let's talk about then this opportunity in the U.S. because as you said, the part of this is about making America. It's very ambitious. What's the capex that you need to also dedicate to the states? The capex wise is in maybe one to five billion to start with. to build the factories, to build R &D centers, but to build the working capital required to build a data center. That's totally different.

15:43That requires a huge amount of money. And with that, we are going to work with SolBank. What are the biggest challenges with scaling up in the U.S.? shortage of labor as I mentioned it's not the labor cost is a shortage of labor how do you get around that what are the conversations like and what are the biggest shortfalls that you see now we have to work closely with schools and the government which we were very familiar when we build factories all over the world. We have to work with local agencies or local government to get their people ready for the kind of job that we require. Honhai Chairman, Young Liu there with our own Annabelle Drulers.

16:37Let's break down that agreement between OpenAI and Honhai. Bloomberg's AI editor, Seth Vigerman, is here. It's interesting timing, given the anxiety around capital expenditure. And we're hearing about how Honhai is using SoftBank, perhaps, for some of that capital expenditure and investment, Seth. But there doesn't seem to be any purchase agreements here, right? That's right. We really don't have any numbers here. I mean, it is another testament to the scale of OpenAI's ambition, in particular on the infrastructure front, as well as Foxconn's desire to diversify away from its reliance on Apple and really gain momentum on the AI server front.

17:12But I think stepping back from it, the really important thing to take away apart from a lot of the rhetoric around what it means for US manufacturing is what it means for OpenAI as it tries to not just move faster on the infrastructure front, even in the face of anxiety about AI spending, but also begin to build more remote or competitive advantage on the infrastructure side. We talk a lot on the show and elsewhere about how much and how quickly AI models are being commoditized and whether there's a competitive advantage there. But I think what you've seen Altman and OpenAI do is try to assert more ownership over the supply chain for data center build out and chips in a way that could give it a different kind of competitive advantage and lower costs in the long term.

17:49Again, it's a foreign company investing in the United States. One to five billion dollars is what they're thinking of spending to grow Foxconn's U.S. manufacturing footprint. But here, this seems to be about the understanding of inefficiencies within data centers, right? What can go wrong and how OpenAI can lend a hand on telling them that? That's right. I mean, look, most people are probably more consumed by thinking about the models that we use in the chatbots, but they're talking about a lot of the key components that go into setting up and operating data centers from the data center server racks to cooling and power equipment to the cabling.

18:22These are not the sexiest things, but they're essential as they're trying to build out a massive scale of data centers here and abroad. Meanwhile, OpenAI is trying to field a ton of questions right now. They are, of course, under some duress about how they're raising funds in and of themselves to spend on all the data center build out. You had Michael Burry like questioning auditors and it seems as though that we got some clarity from that on FT reporting, Seth. But how much pressure is Sam Altman and team feeling at this moment? Immense. And we're not even mentioning what they feel from Google now, which seems to have built a model that either rivals or outcompetes anything that OpenAI is in the market, which gets back to, again, they want to have a competitive advantage, not just on the model side, but on the infrastructure that supports it.

19:04And increasingly, they're tying themselves to all different corners of the market and all different key players in tech to make it so they're too big to fail. Seth Fiegemann, yeah, great context. Thanks for bringing it. Happy weekend.

19:21Shares of Ubisoft, they're climbing today in Paris as trading resumed after week-long suspension for the gaming company. Look, it had delayed its second quarter results after auditors found it improperly recorded revenue from a partnership. Ubisoft helped reassure investors today by saying it will pay off debts with funds from an investment it received earlier this year from Tencent Holdings. Meanwhile, Meta is making a big push into AI. We know that. And to assist in that expansion, the social media giant is actually adding another business to its portfolio, power trading, hoping to help plant developers by committing to long-term energy contracts.

19:56Bloomberg's Riley Griffin covers Meta. Extraordinary story. the amount of diversification these companies are having to do to fulfill the energy and requirements for data centers. It truly is amazing. And it comes back to this idea that Mark Zuckerberg has pitched as front loading capacity, bringing on the energy they anticipate, the compute they anticipate for that big day that they are gunning towards, which is the idea of super intelligence. But in the interim, you know, Meta anticipates a lot more energy needed. And so it is going to enter this power trading market in an effort to ensure that long term capacity.

20:35There was a great interview you did with Ovi Parekh, who is heading up electricity trading for Meta. Why is she vindicating this move and what ultimately is she thinking about doing to build this out? Yeah, so she said that too few buyers are willing to commit to long term electricity contracts that would justify building new power plants. So really, the AI demands are clashing with the demands of the grid. And Meta is taking matters into its own hands here. By becoming a power trader, it would essentially lock in these long-term deals to support its AI ambitions. It's interesting that certain analysts out there, you talk to the managing director of power modeling firm Habitat, saying that this is actually a natural extension of tech companies.

21:21Are investors understanding that, that they're all going to become basically infrastructure companies, energy company trading companies too? Yeah, it's a kind of managing a risk that we've seen in other industries. It allows you to lock in energy. And then if you have too much, you can ultimately sell it back. And Meta is not alone here. So we've seen Apple, Microsoft, other big players make this attempt too. So Meta isn't alone. And I think that's a reassuring thing to investors. The other very interesting comment we heard from Mark Zuckerberg on the last quarterly earnings call was that they're thinking about managing that kind of risk when it comes to excess compute as well.

22:00So we're watching closely to see if they make any moves to diversify into that API business, that cloud business to sell that to. Look, everyone's a hyperscaler. Everyone's a cloud provider. Now everyone's an energy trader too. Bloomberg's Riley Griffin. Fascinating. Thank you very much indeed.

22:20Welcome back to Bloomberg Tech. Let's check in on these markets. Let's give you what we did for the week because it's been under pressure for the course of the week. On the day the Nasdaq is actually trading higher, we're up about a tenth of a percent. On the course of the week, though, we are lower to the tune of 3 percent. Let's call it the worst week since April, since the real torrid anxiety around trade tariffs really hit the market. We look at individual movers. And when you're thinking under the hood, which of the key players have been dragged to the downside? Today is a day of volatility as we think about what the Fed does in December.

22:50on the weakest anxiety of AI bubble or not, about whether we can afford the capital expenditures. NVIDIA is off by 9 tenths of a percent again after stellar numbers, after more than 60 % growth in terms of revenue yesterday for the fiscal quarter just gone and pointing to the fiscal quarter to come. And yet that line of sight on half a trillion dollars worth of revenue, not enough to cool market anxieties. Instead, we're talking about accounts receivables, what they're owed by their customers. What are they owed by Oracle? What is Oracle having to do in terms of debt issuance? That's what the market is questioning.

23:19We're off by 6%. It's having its worst week since March 2018. We're off by 6 % on the day. Let's talk about all of this, the big tech binge on debt. That's what people are talking about. While in the absence of a leverage underpinning the AI build-out has long been used to dismiss bubble concerns, but there has since been a bit of an uptick in borrowing, and it's starting to change the narrative. Vimex tech equity reporter, Ryan Vlastelica, is here. And look, we're not talking that Alphabet or Amazon or Microsoft are suddenly going to go broke here. They have huge cash on hand. But why are Oracle CDS in the line of fire?