Amazon, OpenAI Strike $38 Billion Nvidia Chip Deal

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1:59Bloomberg 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, Amazon's cloud unit signs a$38 billion deal to supply open AI with computing power. Plus how Xiaomi's pivot from smartphones to electric vehicles may have come at a human cost. And all eyes on Palantir posting its earnings results after the closing bell. This is defense tech spending is ramping up. But first, we check in on the markets also ramping up. Not quite at a record high for the Nasdaq 100, but we are up some four tenths of a percent for the big tech benchmark as we focus in once again on earnings and the never ending desire for AI compute.

2:44Let's go there because the key points drivers on this particular benchmark are two stocks we shine a light on. Amazon pushing on 4.5 % higher after significant gains on Friday after its earnings. This is a company that is, of course, shrinking its workforce, but focusing in on AWS growth. And it manages to sign OpenAI as that new client. $38 billion deal. We'll dig into it. NVIDIA, well, they're the GPUs that go inside all these data centers. It too climbs in terms of market capitalization up another 2.7%. I just want to go to the top story that is Amazon and OpenAI as they sign a$38 billion deal for further cloud compute.

3:19And it's Bloomberg's Seth Fiegelman that we turn to. Seth, in the grand scheme of things, it's not$300 billion of Oracle cloud that we saw before, but it is notable that OpenAI turns to more and more cloud providers at this moment. I think that's right. It really is telling about this moment for both companies. OpenAI just is tapping every possible resource it can to meet its cloud computing needs. And Amazon, which had previously been invested in Anthropic, is also trying to have a piece of OpenAI and possibly other players down the road. So it contributes to that incestuous web. We keep talking about everyone is backing everyone else.

3:49And of course, we've seen a deal to offer OpenAI's open large language models into the overall bedrock offering of AWS. But this is different. This is a seven-year deal. It goes out. But actually, by end of 2026, we're going to see the amount of compute already necessary for OpenAI to go on to AWS. A bit more near-term than some other deals we've seen OpenAI broker and OpenAI is leaving the door open to expanding with more investment down the road. I do think it's telling, though, that this is Amazon providing NVIDIA chips, not Tranium, not in-house. So on the one hand, it's a testament to Amazon's ability to build up cloud computing infrastructure at scale to meet OpenAI's needs, but you have to wonder what that means about the quality of Amazon's own chips.

4:32I mean, go into that for us, because they talk about the tens of thousands of NVIDIA chips that are going to be used, But they then talk about the millions of potential CPUs that they might eventually help using. Is that where AWS's own vertical integration comes in? You know, it's possible because I think the larger industry is also thinking more about investments in inference as opposed to training. So with training, you want those GPUs the best possible. But with inference, CPUs and some maybe second tier GPU type chips could meet the need. So maybe that's where we see them play more. And then take us to how AWS continues to therefore show this 20 % growth that we saw on the Friday.

5:07is it going to be more deals coming from OpenAI? How much farther can they sprawl? Or is it more about individual enterprises or sovereign AI, for example? I think it's a little bit of all those. And I think what we're seeing with OpenAI in particular is that now that the exclusivity arrangement with Microsoft is kind of a done deal, they can tap everyone. They already have Google as a partner. They have Amazon. They've NVIDIA, Brocom, everyone. And I think Amazon's ready to play ball in that category. Well, Seth Fiegelman playing ball with us this morning. We really appreciate it. Meanwhile, NVIDIA, of course, as we just talked about it, the GPU supplier.

5:35It made history last week with the first company to ever hit a$5 trillion market cap. According to Loop Capital Markets, though, the company could add trillions more as NVIDIA leads the, quote, golden wave of Gen AI adoption. Let's get out to Bloomberg's Ryan Vlastelica because all paths lead back to NVIDIA when we talk about any of these compute deals right now, Ryan. Yeah, absolutely. It certainly feels that way. This is the latest in a series of street high price targets that we've seen on NVIDIA. Before Loop, we had HSBC, which forecasts, I think, 70 % or 80 % upside. Before that, we had an additional Loop street high price targets.

6:12People keep sort of outdoing each other, trying to estimate how high up this stock is going to go. So right now, the latest estimate points to about$8.5 trillion market capitalization. Like you said, it just hit$5 trillion. So that points to still a lot more potential upside from here. And the story hasn't really changed. People continue to see a lot of long-term demand for all kinds of AI-related hardware and infrastructure. And certainly it will expand out a little bit. NVIDIA has a very important software business, for example. But in general, this is all about the GPUs that have been driving the AI trade really for the past couple of years now.

6:49And look, their GPUs are also part of the Microsoft iREN deal that we're talking of today. A$9.7 billion look for compute of Microsoft using yet another NeoCloud, this time an Australian one. We've also got in the news how Alphabet's selling a huge amount of debt to be able to finance the overall AI trade and compute purchase. But Ryan, you've got a great story in just showing how last week, if we reflect a bit, we started to be discerning about which companies were going to celebrate AI investment and ones that we're not going to. Yeah, absolutely. So really the poster child on the other end of this trade is Meadow.

7:22That stock fell quite sharply last week after it came out, really talked about its expense growth, its CapEx growth. It's talking about taking write-offs and all of this. There, I think there is more skepticism. People want to see that all of the spending is being done in a diligent and disciplined kind of way, and that this is really going to lead to some kind of pronounced return on all this investment. Now, I think there's still a lot of support for AI-related strategies overall, especially at companies like Amazon and Alphabet, which are showing a pretty direct link between all of this spending and improved performance in their cloud computing businesses.

7:57But for someone like Meta, which doesn't have an equivalent cloud type business, the story is getting a little bit trickier for them. People are getting a little bit more discerning. And like you said, we did see the stock come down last week as I think people just are maybe getting a little bit of cold feet. What's interesting, Ryan, is also you shine a light on how we've had a bit of dispersion outside of the key, well, Mag7 and then some names, Broadcom and others thrown in. We've got some of the suppliers to the data centers or suppliers to some of these compute powers that are also winning.

8:27I mean, Micron's another key winner on the day, but you shine a light on other companies that have outperformed. Yeah, certainly. I mean, it's not purely an A or an NVIDIA story anymore by any stretch of the imagination. Anything that is involved in any kind of components here, I mean, we've certainly seen Broadcom, another major winner. Micron storage companies like Seagate and Western Digital. These have been some of the biggest performers of the year. They're a little bit less high profile, but they are certainly seeing very strong growth inflections because they are just part of the overall ecosystem that is required to build out all these data centers, power all the data centers, do storage, memory, all the stuff that is involved with AI and having it produce the material that people are using.

9:09It's a much bigger trade than it was a couple of years ago for sure. Right, Vestelica. Always with a must reads. We thank you. Let's get more on this AI compute trend that's never ending. Tony Wong's with us, T. Rowe Price, Science and Technology Fund, Portfolio Manager. Your top holding is NVIDIA and all parts lead back. But Microsoft's a big one, Broadcom, Alphabet. Really, all of the big winners. Is this playing out as you anticipated? Yeah, well, I think that AI is a huge productivity driver, in my opinion. And I think that these companies are really well positioned to essentially capture that and be the platforms for, I think, growth in the economy.

9:47And, you know, what I'm looking for going forward is like, you know, the new use cases really come through like agentic AI, for example. I think it's to fill this capacity, it can't just be you and me using Chacham ET. It's got to be thousands of agents for each company, like making decisions and executing and unlocking. I think labor essentially is what I'm looking for. And that's what's exciting going forward. It's exciting when you see NVIDIA's name referenced in about three of the compute deals just on this Monday alone. But take us to perhaps the one that you don't own. Interestingly, you don't have exposure to Amazon and AWS, but it signs its deal with OpenAI.

10:25Has there been methodology around that about its own cloud prowess or perhaps worries about the lack of growth that we'd seen in previous quarters, bar from the previous numbers they just reported Friday? Hey, well, I think that they had a nice earnings report. And I do think that there seems to be a lot more momentum now. You know, you talk about the deal that they just did today. And just essentially, like, rolling out a lot more compute and accelerating AWS, I think, is really good for the business. I think they're well positioned to essentially leverage AI in their e-commerce business as well as be an infrastructure provider.

11:03So I don't think you can count them out at all. And it's good to see them outperforming. What's interesting is someone who got beaten up is in the portfolio, which is Meta. And I'm interested in your take of how we're deciding who we reward of capital expenditure and who we don't. Yeah, well, I think that AI is a long-term investment for Meta. And I think that the market is probably digesting the, you know, heightened level of CapEx and the depreciation that's coming through the P &L. But I think that's a little bit too short term to view it. And you look past that, you know, the returns are there and these are going to be great investments.

11:44And, you know, Meta definitely has the digital formats to leverage, you know, AI and tremendous scale across customers. And so I think it's exciting what they're doing in the SMB segment as well. It unlocks a lot of ability for companies to essentially reach customers with just a credit card and asking for the ROI from ad campaigns. I just want to go to what President of Microsoft was telling our network a little bit earlier today about the risks of underinvesting really here. We spoke with Brad Smith. Just take a listen, Tony. Our biggest challenge is not a risk of getting ahead of demand. It's actually keeping pace with demand.

12:26And what we are finding is that our customers, whether they be enterprises across the economy or governments or nonprofits, they are looking to us to build out this capacity. They want to use this computer. So for us, if we build it, it will be put to use. as it's put to use. There will be a return to our shareholders. You, of course, have exposure to Microsoft, Tony. Brad really talking about how they're expanding more geographically as well and investing over in the Middle East, not just taking money from the Middle East. And I'm interested in what you think about Microsoft's need to depend on neoclouds.

13:04We saw them strike a deal with an Australian neocloud provider for Texas data centers. Is that something you like to see, that use of their money and capital expenditure on NeoCloud as well as their own? Yeah, I think it allows them to be flexible and nimble. I think that standing up these data centers is no small feat, and a lot of times it requires various players, it requires the data center capacity, the power, and so I think it's encouraging to see Microsoft collaborate with the ecosystem and plug in partners. To me, I think it makes sense. I think it's also a testament to the demand signals they're seeing, and And kind of the workloads really take off.

13:44And, you know, I think AI is really hard to do. Not every company that is trying to do it is successful. But I think the ones that are finding success are seeing tremendous promise. And so I think that's what essentially gives people confidence to invest here. Confidence to keep adding when we've seen runaway performance, not just of NVIDIA at$5 trillion, but another one of your holdings, Micron, for example. I mean, significant outperformance. When do you decide that you want to cash in, profit take? Yeah, we're all constantly managing position sizes in the portfolio. But, you know, in my opinion, I think that you want to be invested in areas where there is essentially a bottleneck.

14:26There's scarcity and that performance depends on it. So I think that HBM, memory, you know, HDDs and now, you know, NAND, there's becoming more of a shortage. And so to me, the industry is getting better and it's a critical component. So, you know, from my perspective, there is opportunity for these companies to compound value over time. You are, of course, equity focused. But when we have Alphabet selling debt in Europe and the U.S., any of that financing of this AI spend give you pause? Yeah, well, I think it's novel. But, you know, you look at the cash generation of a lot of these companies, they're really blue chip.

15:11And, you know, to me, I think that this investment is smart. And to do some appropriate level of debt financing, I think, can make sense. In addition, I think that the infrastructure, you know, there's a lot of debate of, like, the useful life of this. I know that NVIDIA comes out with a new generation every year. But I think that these are longer lived assets than people appreciate potentially. And they're not just like three years obsolescence, but probably more like five or six. And so, you know, in terms of the appetite to lend against it, I think that in three or four years, it's going to be more commonly accepted.

15:47And I think we're probably on the path there because these are really like, I think, you know, revenue generating assets. And there's a lot of productivity coming off of them. And Tony, that productivity, as you started the conversation, is about how we use, deploy generative AI. And Palantir is one that really has. But how do they fight also the macro headwinds, the government shutdown? Do you have any concerns at the valuations that some of these companies trade at? Hey, absolutely. I mean, these are, you know, very elevated multiples. And so they need to keep delivering the growth here. You know, Palantir is definitely, I think, at the tip of the spear in terms of implementing AI.

16:24I mean, they started doing that in the government and now the commercial business is growing rapidly. And so, you know, I think the government shut down. Like, I think that's probably a temporary thing. They could get a pass for that just because government's not going to be shut down forever. And, you know, you look forward. I think what really matters is that they're driving significant ROI for their customers and they're able to do it in a way that connects their data. And I think that's like the change in IT services is I think that you need to come with a solution and the engineers to help your customers instead of implementing like a SaaS-based off-the-shelf solution.

17:04So I think that's what's exciting. And yeah, we'll see later on today. Tony Wang, it's always great catching up with you. Another busy week with Ballantir after the bell. We so appreciate your expertise. T. Rowe Price, thank you. Coming up, Xiaomi's pivot from smartphones to electric vehicles. when it may have come at a very high human cost. More on that next. This is Bloomberg Tech.

17:36China's Xiaomi, it set a relentless pace to pivot from smartphones to EVs, but it may have come at a human cost. Bloomberg Spotlight story this week follows the intense schedule of Wang Peiji as he transformed Xiaomi's retail network before ultimately collapsing of a heart attack in 2024. Bloomberg's Peter Elstrom joins us now. It's a deeply reported story through the bravery of a widow who is convinced that it was his work schedule that in many ways contributed to his death at the age of 34, Peter. That's right. So Wang was one of the key managers as Xiaomi, the company best known for its smartphones, decided that they were going to push into electric vehicles.

18:18The founder, Lei Jun, said this was going to be one of his last strategic plays for the company. He had really earned a fantastic reputation for himself in the smartphone arena, but he wanted to succeed in EVs too. Remember, this is something that Apple tried and wasn't able to pull off. Xiaomi has actually designed a very good car. They've been able to succeed in the market. They've been able to gain some traction in that space. But Wang was one of the key employees who was responsible for redesigning stores as they were shifting these stores from really showcases for smartphones to something that could show you a full-size automobile.

18:53They would have the infrastructure to be able to show that off and demonstrate what kind of cars they actually had. So at one point, he was responsible for 267 stores. He was working almost nonstop hours. His wife told our reporter that he would frequently work until the wee hours of the night. We also saw his WeChat messages where he was exchanging messages at 2.30 in the morning and working on and on and on. And as you mentioned, tragically, at the age of 34, he died of a heart attack. And so it's a story really about how these extreme hours can take a toll on managers, especially in an area so competitive like technology.

19:30Xiaomi has responded in part to our investigation and talking about their sympathies that go to the family. But set this in the context of 996, of what is very much a cultural focus on working extremely hard in China and tech. Right. Yeah, you're referring to 996. In China, they talk about working from 9 a.m. in the morning until 9 p.m. six days a week, which is extremely long hours. The World Health Organization defines overwork as working more than 55 hours. Now, in China, they work even harder than the United States. It's about 49 hours on average for full-time workers compared with 45 in the United States.

20:10In the tech industry, it's far beyond those kinds of hours. At Xiaomi, the workers, an independent survey showed that they were working 11 and a half hours a day. So you're talking about, you know, almost 60 hours a week that they were working. And Wang seemed to be one of the workers who was going even beyond that at this point. So, of course, there's a lot at stake here. They're competing for leadership in AI, in chips, in electric vehicles, etc. And there's a lot of money at stake. When you look at the most valuable, the wealthiest people in the world, they're all tech entrepreneurs. Led by Elon Musk, of course, but you've got Larry Ellison and Jeff Bezos in there, too.

20:46There's a lot of money at stake. There's also geopolitical advantage. And Xiaomi was pushing very hard to make this pivot into electric vehicles. Peter Elstrom, thank you so much. It is an emotive story and a must read. We appreciate it. Now coming up, we'll dig into Apple, how it's set for a make or break year on the regulatory front as it gears up to start 2026 with a$140 billion quarter. This is Bloomberg Tech.

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22:00That's Vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. This is Scarlett Fu. And I'm Paul Sweeney, inviting you to join us for the Bloomberg Intelligence Podcast. Every day, we harness the power of Bloomberg Intelligence to bring you deep dives into the companies that are moving markets, from publicly traded companies like Apple to those that are privately owned but known by everyone on Earth, like OpenAI. Now, I helped to build Bloomberg Intelligence to what it is today, Scarlett. And now our analysts are the best in the world, covering more than 2 ,000 global companies.

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23:03Apple, when it's set to kick off its 50th year with what's expected to be a nearly$140 billion quarter. For more, Bloomberg's Consumer Tech Managing Editor, Mark Gurman, has the details on this week's Power On newsletter. Hotly read as always, Mark. And$140 billion is what the math reads out as of what their holiday quarter will look like. Important when April is their 50th anniversary. Yeah, it's quite interesting. They normally, in the last half a decade or so since the beginning of COVID, haven't really given guidance. But for this holiday quarter, they're back to that. So they said that the quarter would grow 10 to 12 percent.

23:37That's the current quarter of the holiday period. And that comes in anywhere between around$135 to$139 billion. Typically, when they've given guidance in the past, they've been conservative. So they like to sort of smash through that. And so you can imagine that internally they're aiming for something north of 140 billion, which obviously would be quite impressive, given where they've been the last few years. And therefore, take us where they're going in the next year or so, because PowerOn really outlines the myriad of areas they're trying to leap forward on, not just Siri, but real hardware and chip updates, too.