CoreWeave Tumbles on Data Center Delay

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1:30Bloomberg 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, SoftBank sells its entire stake in NVIDIA for close to$6 billion. This to help bankroll its other AI investments. Plus, we sit down with CoreWeave CEO Michael Intrator to talk about the company's earnings. and that data center delay. And more earnings with Paramount Skydance as the company reports its first results since David Ellison's takeover. Much to digest when it comes to the fundamentals of businesses today, Ed. But overall, we've got a bit of risk aversion here.

2:09We've got some of the biggest players in technology on the downside. You're going to drill into the individual movers, but there is a question of AI infrastructure. There's a question of pressure on some of these market capitalizations. We're just off 0.8 % after yesterday's bounce back on hopes that the government shutdown might be reaching some sort of end. But Ed, take us to the individual movers. Yeah, CoreWeave is where we start. The stock down about 13 percent, on track for its biggest drop since mid-August, the stock trading at its lowest level since early September. In a few minutes' time, we're going to speak to the CEO, Michael and Trader.

2:39The company cut its revenue outlook for fiscal 25 or trimmed it really because of a delay to a specific project. The other thing that's weighing on the markets right now is NVIDIA. NVIDIA down around two percentage points when last I checked. The issue is right now, 3 % now, that SoftBank sold its remaining stake in NVIDIA in its entirety. It's not unprecedented. SoftBank has sold out of NVIDIA before. I'd also remind our audience, yesterday NVIDIA jumped almost 6 % on track for its biggest jump or was its biggest jump since April. But the market's a little nervous here. There's a lot to unpack, Caro.

3:15There is. And let's unpack it with our executive global tech editor, Peter Elstrom. Peter, talk us through what is happening, because as Ed says, this is not unheard of. And in many ways, what they use the money for could end up being a benefit to NVIDIA longer term. Yeah, that's exactly right, Caroline. So SoftBank reported earnings for the quarter. They were really blowout earnings. They reported about $16 billion in net income. That's roughly six times what had been expected. A lot of that came from some of their investments in AI, including their stake in OpenAI in particular. But as you mentioned, they decided that they were going to sell their entire stake in NVIDIA and take the $6 billion so that they could make other investments with it.

3:58Now, a big part of where they're going to put that money is into their Stargate venture, where they're building these AI data centers in the U.S. and they're going to buy NVIDIA chips to put into those data centers. So partly Masayoshi Sun is getting this cash so it can make investments in AI. Some people may be reading it as a negative sign for AI and for NVIDIA in particular, but in fact, he's going to use that money to make investments. Again, not unprecedented. NVIDIA was a stock that SoftBank sold out of in 2019. And then in 2020, they started building up a stake again. And some of those paper gains have been to SoftBank's benefit.

4:31The issue is that management faced a lot of questions, both about what they're doing here, their rationale, what they're going to use the cash for, but also, are we in an AI bubble, Peter? What did they say? Yeah, that was one of the questions that came up. So Masayoshi-san doesn't do the earnings calls anymore. He stopped doing those a few years ago when he was taking ARM public, but he has said a number of times that he regrets selling NVIDIA shares in 2019, as you referred to. Those shares would have been worth more than$200 billion now, which is more than the market cap for SoftBank at this point.

5:02But so the person who subs in for him is the CFO Yoshimitsu Goto. And he talked through these issues. He did get some questions about the Nvidia shares. He said it's not that they don't believe in Nvidia anymore. He also got the question you're referring to. Are we in an AI bubble? And he said it's hard to tell at this point. Not quite the same kind of conviction you would hear from Sam Altman or from Jensen Wong, but he's realistic about we're not really sure where we are in this cycle. But to be clear, Masayoshi Son is going to keep making investments. Peter Elstrom, breaking it down. We thank you so much.

5:32Let's talk about where we are in this cycle, because CoreWeave shares, as Ed pointed out earlier, under pressure. That's after it lowered its annual revenue forecast due to delay at a third party developing a data center. It really overshadowed impressive growth in revenue and order backlog. Let's get straight to it with CoreWeave CEO Michael Intrator. How frustrating is it that you don't own your entire supply chain? How much of an issue is the sort of power you have to give to third parties? Oh, so look, I think it's important to understand that every single part of this ecosystem is dependent upon other parts of the ecosystem.

6:09Nobody controls the entire supply chain. And that's just the nature of doing business at this scale on projects that are as complicated this, whether it's, you know, you know, the design and architecture of the chips, through the fabrication of the chips, through the building of the data center, through the concrete that has to go into the data center. Like, it's just, you know, like, it's really hard to even contemplate a world in which you have true control over every aspect of it. And so you're going to work with partners, and you're going to work with good partners that are able to help you drive your business forward.

6:51Is this a good partner who's had issues at this PowerShell level? Yeah, look, they are a good partner, right? Like we've been working with these guys since 2018. There has been a stumble. There's an issue. The issue is going to be cleaned up rapidly. But I wouldn't say that they're not a good partner. I think that, you know, we've gone back and contracted with them again and again. And, you know, they've contracted with us again and again because, you know, we do work well together. It's just, you know, occasionally you hit a bump in the road. You know, what we're talking about here is a contract that gets pushed back by, you know, one quarter, let's say.

7:31And the impact of that on our revenue is a delay of revenue, not a loss of revenue. And, you know, I think that is the definition of working with an ecosystem of good partners. Michael, good morning. which customer was it pleased that was impacted by this delay? We don't speak to specific customers within the data centers. That's not how we look at it. But we really are working with the whole material part of the broader kind of ecosystem that consumes compute at this scale. So this is a large project. It's from a large counterpart. and, you know, like I said, you know, they understand the impact of this delay and that they are shifting with us the contract back to ensure that the total contract value that was being contemplated is going to be captured at this facility.

8:30I thought you might say that, but I wanted to offer you the opportunity to explain who the customer was anyway. I appreciate that. This is going to sound a little bit like I work in your internal audit team or in your risk team, But there is a bigger issue here of managing third party risk as much as you can. So if your supply is tight today, what procedures are you putting in place for the event that your backlog doubles and supply is even tighter down the road? Listen, that is the question that we work on across our company continuously. And if you think about the messages that I was trying to communicate during the earnings crawl yesterday, I talked about the incredible impact of the effort that we've had to diversify our clients.

9:21We started the year with, you know, 85 % of our revenue to a single client. And we are coming out of the year with our backlog with, you know, which has reached, you know, all-time highs where no specific client is more than 35 % of it. And that is down from 50 % even last quarter. So you're seeing tremendous progress on the contracting side. On the supply side, when you're looking at the power shells, the data center providers, you know, there is no single provider of data centers that represents in excess of 20 percent of our 2 .9 gigawatts of power that we will be delivering to the market over the next 24 months.

10:07So you're seeing a real focus by our company to diversify on both sides of the ledger. The clients that we are delivering infrastructure to, as well as the suppliers that are delivering us the components that we need to be successful. What can be done? Because we hear about power issues. We hear about how much people maybe need government to help speed up contracts, supply chain headaches. What is it in this particular data center issue that won't be replicated down the road? How are you making sure? Or is it just something we are going to see time and time again, do you think? So, look, the way that we are handling this is we are doing several discrete things to ensure that we are future-proofing ourselves against these type of delays, right?

10:59So we have our team that has been built out over the past year that builds and delivers data center. And so we have a self-build organization to be able to deliver our own data centers. For instance, Kenilworth in New Jersey or Lancaster in Pennsylvania, where we are building from the ground up. Those skill sets, being able to deploy those individuals with those talents down to the data centers as they're being constructed by third parties, if they encounter problems where we can be useful, helpful, thinking through ways of solving and driving the process forward, is really important to being able to mitigate these type of delays.

11:42We have massively diversified our data center providers, so we're not exposed to any specific data center provider in too large of a component. And then the third piece of it is it's important to understand that as we get larger, as our delivered power gets larger, the relative impact of a delay at any one given site becomes less and less meaningful and less and less impactful on our run rate. And that's really important. Like you're encountering scaling issues within a company that's encountering scaling issues within a supply chain. Both of those will get better. Time solves that. Scale solves that.

12:34We are currently seeing that time isn't particularly helping the share price as we speak. It's now down 14.3 percent, worst day since August. We are here with Michael and Trader across radio and TV. And I want to sort of ask whether you think more broadly the US is stunted by the supply chain headache, or do you think there is something that can be done from a federal perspective here to ensure that you can build at the rate you want to build? You're not having these sorts of headaches. So we and many others have been quite forceful in making the case that there is a role for government in helping us with some of the permitting issues, speed to which we can get our infrastructure and others can get their infrastructure attached to the grid.

13:23You know, all of those type of things where there's a great role for the government to help in that. They are the organization or government entity that is correctly positioned to help facilitate that. And I think that's a great role where government can lean in and make an impact across the space broadly. Michael, you have an agreement with NVIDIA that lots of people find very interesting, that down the road, if there is spare capacity, there's some flexibility for you to deploy it elsewhere. That's a simple summation of it. But I'm wondering how you're thinking about serving some of the smaller AI labs and casting that net even wider in your customer base if indeed that capacity gets freed up down the line.

14:09Yeah, it's a contract I'm actually incredibly excited about, right? It's a contract that we did with NVIDIA where we will deliver them compute for the next six years. But in the contract is the capacity to interrupt the flow of compute to them. And that will allow us to repurpose that compute to new companies, startups, companies that have struggled to get access to the compute that they require to bring new companies, organizations, ideas into existence. And I think it's just an incredibly important component of how the infrastructure is so important to allowing the ecosystem itself of these startups, of these new companies, of these new ideas to become more resilient, to become more scaled.

15:01And it's just a great contract for us to be able to position ourselves. It also provides this wonderful on-ramp for us to be able to work with the new amazing companies that are coming into existence so that they integrate into our solution and get to make use of the best alternative that exists in the market as they're scaling their companies. Michael, to finish, to what extent is NVIDIA still the gold standard, NVIDIA's GPUs for your customer base? And what data are you tracking on demand for those kind of more inference-specific chips that are offered by others? So, look, we have always been client-led, right?

15:42Our clients come to market and tell us, hey, we would like you guys to help us build a cluster. we need it to be this size and this location and this type of network. And we work with them in a very kind of interactive way to ensure that the infrastructure that we're building is the best infrastructure for them, is fungible for us, like all of these type of requirements to make for successful delivery of infrastructure. Right now, the reality of the situation is the buy signals from our clients overwhelm our capacity to deliver infrastructure to the market. Matter of fact, they overwhelm the entire market's capacity to deliver infrastructure to the market.

16:28You have a systemic shortage of ability to deliver the GPUs, the computing infrastructure for the buildout of artificial intelligence. And we have never wavered from that position. We have been very, very clear that when we look at the demand signals coming into CoreWeave, the totality of that overwhelms the capacity of the market to deliver that. And we'll continue to do that for quite a while. Michael Intraitor, CoreWeave CEO, thank you for coming back on Bloomberg Tech. Okay, I'm also taking a look at shares of Nebius. This is the neocloud spun out of Russia's Yandex a year ago. The US listed shares down more than 3%, but in the quarter saw growth of 300 % year on year and has added a major contract with Meta that's positive upside.

17:19Maybe this was a high bar kind of quarter where the market saw it coming in. But Cara, I think you'd agree, Nebby is a name that's coming up more often in the context of hyperscalers and in this case, Meta, using them for off-ramp compute. All about the supply of AI infrastructure. But coming up, we steer towards earnings again. Paramount Skydance raising its target, though, for job cuts and for cost-saving measures. We'll dig in next. This is Bloomberg Tech.

17:49Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, Go see the record for yourself at vanguard.com slash audio.

18:31That's vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation Distributor.

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19:39Back to earnings with Paramount Skydance, which reported its financial results for the first time since a new investor group took over in August. The company raised its target for job cuts and cost saving measures and is forecasting$30 billion in revenue next year. Let's break it all down with Laura Martin, senior entertainment analyst at Needham. I don't know, like, hello, what's being cheered here? You know, sometimes cutting your way to profit and cutting your way into a good financial position is not the most exciting story. What is the Laura Martin main takeaway? Well, the Laura Martin main takeaway was I thought they left more questions unanswered than they answered.

20:18So I think one of the big questions is they just did an affiliated transaction with Oracle, which for enterprise software, which is the dad's company. So now you can, through pricing, move money between these two public companies. That sort of was weird. And then also they said they're going to spend a billion five on content and double their film slate from seven films a year to 15 films a year, starting in 2026. And the problem with that is the Skydance track record is one theatrical release a year. So going to 15 means not only spending the money on the negative cost, but now you're going to spend about 100 million each marketing, which all just sounds like an awful lot of money that you're spending in the near term, which is a tax on public shareholders before you get the return.

21:03It takes about three years to release a movie between greenlining and a release, which means you have a couple investment years ahead of you, which doesn't sound like, you know, so we're going to stay on the sidelines here in terms of the shares. I want to go back to that relationship between Oracle and the affiliated transaction that you mentioned, implying that the value can be transferred between the two public companies. How much is that a help if you're thinking about the sheer scale of money David Ellison needs, perhaps from Larry Ellison to keep on buying in WBD assets? Or how much is it a concern just in what are you actually buying, an entertainment company here or a tech and AI infrastructure bet?

21:43So I think that is one of the differentiated things they're saying, is they're saying that our content storytelling is complimentary to our tech stack and our tech stack needs investment because Paramount, the old Paramount sort of starved it. So we, Peace Sky, are gonna invest in the tech stack. So from a fundamental point of view, they're gonna try to marry storytelling with Gen AI tech, which is sort of a cool messaging, although expensive in the near term. I would say the Oracle point was just a new piece of information we got. But having nothing to do with Warner Brothers, like if if the dad writes a 70 billion dollar check to Warner Brothers, like, you know, that's a bigger deal than a contract might be several million a year.

22:27So it's just an affiliated transaction that I just would really like to see the pricing on when they have to disclose it in a 10K. But there's just a new piece of information. I think the big issue is you don't know what you're buying here. Are you buying a$16 billion subscale Paramount Skydance? Or are they going to use money to make a$70 billion acquisition of all of Warner Brothers? And then that's round numbers,$100 billion scaled player with bigger everything, including studios. So then you wouldn't have to double the films because Warner Brothers got 15 by itself already. So I think they might be justifying of Warner Brothers bid in some ways with some of their cost estimates here.

23:09Laura, very quick pivot here. You just heard the CallWeave interview. You published your research on hyperscaler capex. Just a quick reaction to what you heard? Yeah. So, I mean, I think one of the biggest question we get is, are the hyperscalers spending too much money on infrastructure? And we published a note this morning showing that the Gen.AI implementations at Amazon, Meta, and Alphabet are accelerating their revenue growth and cutting their operating costs. So they're getting margin expansion by using generative AI tools, which gives them the confidence to invest in these infrastructure plays to then sell to third parties those same capabilities to lower costs and drive faster product innovation for the rest of the U.S.

23:58economy. So I actually think that the biggest funders of generative AI infrastructure are seeing the biggest benefits already in their own businesses. Nora Martin on optimistic mode for the end. We really appreciate it always from Needham. Keep coming back. Thank you. The valuations don't look crazy, but they do if there's nervousness on the growth story. And that's why I think the AI story, of which we do remain bullish, and we do think that there is a lot further to go, it is likely to be a volatile ride. That was BlackRock's Helen Jewell discussing the nervousness we're seeing in AI stocks right now.

24:33You can see that in NVIDIA, and you can see it in CoreWave, as we've been discussing all morning. The risks aren't only about lack of growth. Bloomberg opinion columnist Chris Bryant writing about that. There's a quote, a danger of depreciation tsunami linked to the short lifespan of AI chips. His piece focuses on AI investors ignoring warnings from short seller Michael Berry. You can check that out on the Bloomberg Terminal or.com. Cara. Yeah, now though, Ed, it's time for Talking Tech. First up, Microsoft is planning to build a$10 billion AI data center along the Portuguese coast. It's working with Start Campus, a Portuguese developer, and British startup Nscale, one of Microsoft's biggest European investments this year.

25:14Plus, Intel's chief technology and AI officer, Sachin Khatti, has left to join OpenAI, where he'll be working on the startup's infrastructure efforts back at Intel, while CEO Lit Boutin will take over Khatti's role. And reports on another major departure, Meta, is set to lose its chief AI scientist, Jan LeCun, according to Financial Times. LeCun is reportedly leaving to launch his own startup, focusing on what he calls world models. He's in early talks with investors to raise funds.

25:48Welcome back to Bloomberg Tech. If you're just joining us, our top stories are CoreWeave and NVIDIA. NVIDIA down 3%. SoftBank is selling out of the entirety of its almost$6 billion stake in the company because it needs cash to finance its other AI ventures. The Street not really seeing this as a concern about NVIDIA itself. But in aggregate, taken with CoreWeave's almost 14 % drop, there are some jitters in the market. CoreWeave is down after just slightly trimming its outlook for sales in 2025 because of a delay on a specific data center project. That delay attributable to a third party. And in an interview with the CEO earlier in the program, we didn't really get any answers on who the customer impacted is.

26:28But with time and with scale, such supply issues will go away. The market right now not buying it, Cara. They're not. And let's stick in with the fact the market's not buying it. Bloomberg Equities reporter Carmen Roinecke is here with us. And it's interesting, the jitters around AI of late have been around an AI bubble and demand concern. But ultimately, these are supply side issues, constraints for core. with maybe cash constraints for SoftBank and needing to sell off NVIDIA. Yeah, it's really interesting how this has shifted really from the dip buying that we saw yesterday that drove NVIDIA up.