Alphabet’s Mega Bond Plans Includes 100-Year Offering

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with 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 It'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

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1:23This is Bloomberg Tech coming up. Alphabet looking to tap the debt markets with$15 billion in US high grade and a super rare 100-year sterling-denominated note. We have the details. Plus, Bitcoin slips back below$70 ,000 after a rollercoaster ride at the end of last week. We'll discuss where it can go from here. And Apple is set to debut a slew of new products in the coming weeks, including a new iPhone 17e and updated iPads and Macs. But first, we check in on these markets that bounce back for a second day. What a Friday close for the Nasdaq 100. And we build on that 2.5 % higher with another 0.6 % rebound as we really try to digest where the risks are in the tech markets.

2:05And of course, as we look ahead to some of that jobs data later in the week. I'm looking at crypto, though. Rollercoaster if you were trading it this weekend. We're back below 70 ,000, having a clip stick for a moment on the weekend trading end. We'll dig into that a little bit later. But you're looking at the equity side of the equation and debt. Yeah, alphabet. but actually I'm going to do something a little unusual and go to the corporate debt and bond market. Really interesting. Alphabet looking to raise$15 billion from a US high-grade dollar bond sale. Bloomberg reporting that, citing sources.

2:35But also going to the banks for a mandate, maybe to look at Swiss franc denominated. And then a super rare 100-year note, sterling denominated, British pound. We haven't seen a 100-year note since like dot-com era, late 90s. But the bigger picture is pretty clear, right, Caro, that we've seen big tech companies use debt markets to fund what's happening in capital expenditures. A lot more to discuss. And a lot more bond sales probably to be digesting. Let's do it all with Robert Shiffman from Bloomberg Intelligence. We knew they had to finance the extraordinary amounts of AI capital expenditure.

3:14Is there enough demand to support these mega bond sales? Yeah, I think, listen, let's start from the beginning. Do they actually need any money? My answer is no. I think they're borrowing money because they can, because it's super cheap, and that there's a concept that demand for not just AI but bonds are so insatiable that they can go out and do 100-year maturity. So, yeah, there's tons of demand. If Oracle is able to build a$130 billion book, Google can build whatever book it wants. This is why going back to basics is probably a good place to start. I agree with you. people would say, well, why is debt a good idea?

3:50They look at some of the MAG7 names and the cash on their balance sheet and say, why is that a useful mechanism for them? This is what they taught me in MathCamp. The weighted average cost of debt capital for all these names, whether it's Meta, Alphabet, Microsoft, Apple, Amazon, is effectively zero. Why do you have AA and AAA balance sheets if you're not going to use them? I think this is extraordinarily visionary. These companies have been prepping for years for greater investment opportunities, and now they finally see it. I think it's just such a bullish sign for this market. And from, again, the bondholder perspective, this is not equity holders being wary about multiples.

4:34Bondholders, I don't think, are going to be able to get enough, and they're going to be able to do it along every single part of the curve. And like you said, this isn't just going to be dollars. They're going to the Swiss franc market, the pound market. I wouldn't be shocked if they went back to the euro market or even to issue yen. I think there's going to be demand all over the globe for high quality Mount Rushmore style credits like this. I want to go to whatever math camp you were going to where you're talking about Swiss yen sterling to nominate in corporate debt. But look, the demand's there.

5:03We've seen in other parts of the AI sector, Infineon in Europe tapping the market. It's a chip maker. We've seen IBM come to the market. There's$400 billion that could get done in corporate bonds, just the investment grade sector alone, JP Morgan forecast for this year. How do you think steady will be for the year? Or do you think we're going to be front-loading this? Are we awaiting Amazon to come straight out the gates, given you've just put out a note about their really strong fundamentals? Yeah, listen, I think this is the tip of the iceberg. I actually think Bloomberg News is underestimating how much hyperscaler spending is going to be this year.

5:36They put out a number of$650 billion just for this year alone. So that's just the four, right? I think it's going to be closer to$750 when you include names like Oracle and Corwee. And if you think about cumulatively, how much spending has gone up? In the beginning of last year, we estimated 2025 through 2030, we're going to see$2 trillion of cumulative spending. We brought that number to$3 trillion in the middle of the year, and now we're up above$4 trillion. So these numbers are astronomical. What do you do on the back end of that? You're going to see a lot of bond deals. Why not borrow when your cost of capital is so low?

6:11So I think you're going to see Amazon. You're going to see Microsoft. And even though Apple is not in this hyperscaler game, you're going to see them come back as well. Robert Shiffman on the corporate credit watch. Math Camp, Bloomberg Intelligence CV. Love it. Another mover today is Oracle. Shares were on a bit of a tear. This comes after a tear, up 9%. This comes after DA Davidson released a note saying improvements from OpenAI would lift the shares of public companies in the chat GPT makers orbit, particularly Oracle. Let's bring in DA Davidson Managing Director Gil Luria. We're just showing the kind of top line of your research.

6:48And clearly, you know, there's some read through right in the move we've seen in Oracle this morning. Why is Oracle such a key beneficiary? beneficiary if OpenAI is basically able to monetize better, offer more products, and particularly strengthen its enterprise business? Yeah, most of Oracle's backlog is OpenAI. So they're building up their whole infrastructure now for OpenAI. And the reason the stock has performed so poorly over the last few months is that there was a concern that OpenAI wouldn't be able to pay for it. And now things have chain. We got to a point last week where the market decided that Google was the only winner in AI.

7:29And you can see that by the relative performance of Google versus the OpenAI complex, which is Microsoft, NVIDIA, Oracle, and CoreWeave. And it got to be too, the pendulum swung too far. What's happened is OpenAI has now become more focused on chat GPT. It's going to start monetizing more through ads. Within the next couple of weeks, it's going to introduce a much better model that will become state of the art again, will overtake Google's Gemini. And importantly, because it now looks like Google is going to win, that created a panic at Microsoft, Amazon, and NVIDIA, who are now going to invest$100 billion in open AI so they can keep a counterbalance to Google.

8:17So with that investment, OpenAI is going to have$100,$140 billion of cash. They'll be able to pay Microsoft, and then they'll have money to pay Oracle, which again, has the biggest exposure to OpenAI. That's why we're upgrading today. Okay. I appreciate that math on what's changed about the situation with OpenAI being good for it. That's been a question for a long time. You just heard Bloomberg Intelligence's, Robert Shiffman, right? Oracle has been at the heart of this question on debt versus payoff. They've had a lot of demand when they've gone to the market, but we are worried, right? They've swung to negative free cash flow.

8:56They are taking on a lot of burden. You seem sanguine about that. It's still risky. To be clear, Oracle really painted themselves in a corner when they took on this much business from OpenAI. And there were two risks. One is, would Oracle be able to get the capital to start the build out and the second risk was would open AI have the capital and the wherewithal to pay Oracle for those services it now looks like Oracle will be successful in the fundraise it'll cause it'll stretch them but it looks like they'll be successful and now it looks like open AI will also be successful in their own fundraise so they'll be able to pay for it so those two risks that we've had up until really a few weeks ago, up until a couple of weeks ago, really, are now look like they're going to go away and Oracle will be able to build the facilities and OpenAI will be able to pay for them.

9:54Who else benefits in this scenario? Because I'm seeing notes out today saying, actually, they don't like NVIDIA. They don't like AMD. I'm talking about Lynx equities, for example, because they are worried that OpenAI isn't going to be there with a better update, with enough conviction to be able to be purchasing the chips that go inside the Oracle data center, Gil? Well, so now it looks like OpenAI will remain in the race for at least the foreseeable future. And the two biggest beneficiaries by far are Microsoft and NVIDIA. Oracle is a marginal play on OpenAI because of how much of it is of their exposure.

10:31But really, if you look at the stock performance of Google versus NVIDIA and Microsoft, That diversion over the last few months is a result of the market deciding Google's won and OpenAI is lost. That is not the case. The race is still on, which means that OpenAI will spend the$250 billion on Microsoft, which now has by far the biggest backlog in AI compute. And then Microsoft, Amazon, Google, and others will turn around and spend that on NVIDIA chips. And so we have NVIDIA and Microsoft with the best business they've ever had for Microsoft maybe in 25 years for NVIDIA forever. They're both trading in the low 20s on earnings, which are historically low multiples.

11:16So it's a historic opportunity in NVIDIA and Microsoft precisely because OpenAI will stay in the race. What's interesting, Gil, is that we've heard a lot about the potential of OpenAI having their own chips. Why not more of a Broadcom win? Why do they even stick with NVIDIA here? everybody still needs NVIDIA. All this AI compute will overwhelmingly be built on NVIDIA chips. There will be some other chips because all these customers of NVIDIA want desperately to diversify, but they can't do it right now because they're building out their capacity so quickly. NVIDIA has the best chip, has the capacity.

11:54It works. It's available. Everybody else will start their own chips. but the only company that really has made any significant progress on their own chips is Google. And that's because they started 10 years ago. That's how long it takes to have a good chip. Ask Amazon. They're five years in and their chip is just starting to get good. It didn't look too bad on the earnings. Microsoft, Meta, and OpenAI can start building their own chips, but they're very far away from those being any significant portion of their compute. It's going to be overwhelmingly NVIDIA. Gil, Luria, it's always great to have you on the show.

12:29Yay, Davison. Thanks for bringing us the latest on your research. Meanwhile, coming up, we're going to discuss Bitcoin's slump, its future in the macroeconomic environment, with Jalak Djiboutra from Future Perfect Ventures. That's next. This is Bloomberg Tech.

12:52Bitcoin, well, it slipped back below 70 ,000, as you can see on the day, following a pretty rollercoaster ride at the end of last week. A slump from a peak of$126 ,000 in October last year, remember, which comes in spite of crypto-friendly White House, surging institutional adoption. Let's just set the scene with Bloomberg's cross-asset reporter, Isabel Lee. Often on the weekend, there's thinner liquidity, so we see bigger moves. And it seemed to be to the upside. It could be to the upside, but to the downside as well. But now we saw Bitcoin kind of steadying, which is great, because it's now hovering around$69 ,000, which is a big sigh of relief.

13:24Last week, it dipped below as much as$60 ,000. And that 16 % decline was a lot because there's a gauge of implied volatility index. It jumped to 97%, which is the highest since the Sandbank Manfred FTX days in 2022. But beyond the price movement, I think it's really just about a reckoning. What is Bitcoin? Is it a hedge against inflation, a hedge against centralized government, a hedge against the dollar? And I feel like a lot of people are feeling confused. Isabel, what's the flows data, the most recent flows data telling us? We are seeing some inflows, at least with U.S. Bitcoin ETFs. They recorded an inflow of$221 million on February 6th.

14:02So you could think of that as maybe optimism again or maybe just dip buying. But then still, it's really kind of, at least to the people I talk to, they're like, what is this? It's a structural change. It's a philosophical change. I want to dip more into the structural because we know that Bitcoin is kind of being institutionalized. And this may in itself be the problem because on October 10, fondly known as 1010, That's when we saw billions of dollars liquidated because of leverage and derivative trades. And last week, we also saw the same,$2.5 billion in forced liquidations according to Coinglass.

14:35So maybe Bitcoin is also kind of possibly becoming a victim of its own success. Bloomberg's Isabel Lee, terrific reporting. Thank you very much. Let's keep the discussion going with Jalak Jobamputra, founder and managing partner of Future Perfect Ventures, early stage VC firm focused on cryptocurrency and blockchain technology. Something identified in the Bloomberg story that Isabel was just discussing is that all of this has been happening in an environment where we have an administration and policymakers who are perceived to be more supportive of the underlying technology and the industry than prior administrations.

15:13Why would would this movement and this market action happen, therefore, in that environment? Well, Isabel pointed to the maturation of Bitcoin. And while we have a very friendly administration, a lot of that was priced into that run up that we saw to the$126 ,000. And we're really seeing Bitcoin act more like a risk asset these days rather than that digital gold narrative that we saw in the earlier days of Bitcoin. And I'd also point to there's a market structure bill, previously known as the Clarity Act, that is still under consideration in the Senate. So that has not moved as quickly as those of us in the industry had hoped.

16:00And I think that's causing a little uncertainty around what the guardrails around Bitcoin and other crypto assets are going to be. The words that Isabel Lee just outlined and a ring in my head, what is this? Is this structural or is this philosophical? That is one of the great soundbites. Good job, Isabel. But it is a question that comes up a lot. Maybe we should phone David Sachs and ask him to your point about the progress of this bill. But again, you mentioned the structural part. What is the philosophical part Isabel was alluding to? Well, the philosophical part, and I've been invested in the sector since 2013, is in the early days, you had a lot of long-term holders, people who believed in the self-sovereign currency, the self-sovereign asset that was not controlled by any government, and was particularly useful to those people in hyperinflationary environments.

16:56So that's where that digital gold narrative came, where it would be a hedge. And what we've seen now, and as Isabel said, it could be a victim of its own success. I don't quite say it's a victim quite yet, but we're seeing more institutional holding. And so the institutions have determined that this will be more of a risk asset. It will trade more in tune with assets like the tech stocks, not commodities. And so that's where that philosophical divide has happened. It's great that we have more institutions. We have more acceptance of the sector of Bitcoin as an asset class, but it may not hold as that digital goal narrative or it may hold as that narrative in emerging markets and not in developed markets.

17:45Jack, does that matter to your investments? Were you building on Bitcoin as the OG and as rails to future infrastructure? Are you broader thinking, actually, we don't need Bitcoin in and of itself to remain a buy and hold asset? I'm more interested in the underlying technology, to use an overused phrase. I'm more interested in the stablecoin side of the equation. Right. When I first saw Bitcoin, I was really interested in it as a self-sovereign currency, having been raised in emerging markets. However, I was even more excited by blockchain technology. So this concept of having data or assets on chain that could create more efficiency in the trading of data.

18:31So if you're going to step away and look at AI and we look at AI agents and for them to communicate and transact with each other, it's much more efficient if they can do it in an on-chain environment. Now that's much further in the future. We're starting to see tokenized securities. We're starting to see real world assets, so private credit going on-chain. We're seeing money market funds go on chain. And we're going to continue to see already regulated assets moving on chain. ICE from the New York Stock Exchange has talked about their initiatives around tokenized equities. So that's all happening, regardless of what happens to the Bitcoin price.

19:13So we're really seeing the financial infrastructure being rebuilt by blockchain technology, which also powers Bitcoin. I don't think either is going away. I think we just have to separate the two. And of note, stable coins, which are run on chain, those were regulated by the Genius Act, which passed last year. And then we've seen a proliferation of activity in that sector because of that regulation. Do you continue to call yourself a crypto first VC briefly, or do you become an AI VC? Well, our thesis has always been around the intersection of blockchain, crypto assets and AI forming the basis of the next Internet.

19:59And we've seen the development of these different areas at different times. I think they're all very important to our future. I think that crypto side may take a bit longer to really form or validate itself in that narrative. Jalak, Jomun Putra of Future Perfect Ventures. We appreciate it. Thank you. Now coming up, Apple prepares for an update to its iPhone, its iPads, its Macs. More on that next. This is Bloomberg Tech.

20:36Apple is set to debut a slew of new products in the coming weeks, including a new iPhone 17e and updated iPads and Macs. Here with a breakdown. Bloomberg's Apple and consumer tech editor, Mark Gurman. The power on drops Sunday, and you basically give us the product release roadmap for the early part of this year. What do we need to know? Yes, there's a new iPhone coming pretty imminently in the next few weeks. It's the iPhone 17e. It's a successor to the 16e that launched about a year ago last year. This new version is going to have the same chip as the iPhone 17, so moving from the A18 to the A19.

21:13and it addresses one of the quirks of the first model, which was the lack of MagSafe, which means no magnetic wireless charging within Apple's MagSafe ecosystem. So that's coming as well. Also an updated in-house modem and updated in-house wireless chip to match the iPhone Air from September. You're also going to see some new iPads in the next month or so. That includes a new version of the iPad Air with the M4 chip, so a better, faster processor there. matching the iPad Pro SKU from 2024. And then you're also going to see a new entry-level iPad moving to the A18 chip. Now, why is that significant?

21:52It'll be the first iPad from the entry-level batch to support Apple intelligence. And you're also going to see new high-end MacBook Pros and MacBook Airs in the coming month as well. So a lot to like if you're into new low-end iPhones, iPads, as well as MacBooks. So who's into it, Mark? Mark, on that note, I can see a lower price point being attractive. But it's interesting that you are pushing forward the view that enterprises might well be interested. Yeah, two tentpoles this year for Apple, education and enterprise. Apple is, I would say, tripling down on moving units into both of those segments.

22:28They have a lot of the consumers already. They're trying to break into other areas that they've struggled to break into in the past. And all these products have price points and feature sets that are going to be heavily applicable to business use cases. and bulk purchases. Also a low-cost MacBook with an iPhone chip coming as well. This will be sub$800. So this is going to be pretty fancy and compelling for both those segments as well. Mark, I'm running a 2019-2020 Mac Air with an M1 chip just on the Mac part. Time to upgrade. Right, time to upgrade. You have 30 seconds. Why? Well, because your laptop is seven years old.

23:05Time to get a new one. But no, in reality is that the chips have gotten much more advanced. They have AI capabilities now, better graphics processors. So if you're on an M1 machine or an Intel machine, definitely think about getting something new. I'm on an M1 myself, and I'm looking forward to the touchscreen MacBook Pro overhaul coming in the fall. So that'll be pretty nifty as well. Get on it, Ed. Bloomberg's Mark Gurman. So great to have you on. Thank you very much indeed. Now coming up, investors look beyond the AI data center play. Apparently, Carol Schleif of Vimo Private Wealth joins us to see how she's looking past them.

23:41This is Bloomberg Tech.

23:51Welcome back to Bloomberg Tech. I'm zeroed in on the chip sector. In the session so far, the Philadelphia Semiconductor Index, or SOX, has swung from a decline of about 1 % at the open to a gain of now 1.6%. Really, it's NVIDIA. as the biggest points gainer that's pushing higher. And there was a lot over the weekend about how confident NVIDIA is right now in the infrastructure build out. One of the lag is Micron, down 2.5%. There was a report over the weekend, we'll bring you the details later in the show, that Samsung, its rival in high bandwidth memory, is going to start shipping latest gen to NVIDIA this month.

24:27Our own colleagues at Bloomberg Intelligence have weighed in this morning saying that actually what's going on with Micron and high bandwidth, latest generation four is kind of muted. But right now, that seems to be a story in the market. And again, bringing those deets a little bit later in the program, Cara. Yeah, you're looking at the hardware. Let's go more broad and look at software and all parts of big tech, the movers therein. Bloomberg TV markets correspondent Nora Melinda is with us. Nora, take us away because it was a volatile previous week. How's this week started? Last week was quite the week.