Intel Earnings Signal Possible Comeback

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Lovellow in San Francisco.

1:24This is Bloomberg Tech coming up. Intel returns to profitability and gives an upbeat revenue forecast. Are the chip makers' comeback efforts working? Plus, banks are preparing to launch a$38 billion debt offering to help fund data centers tied to Oracle. It's a record for AI infrastructure. And Mies Drow's CEO, Arthur Mench, joins us on the company's release of a new platform to help enterprise clients make customizable AI tools. An important private market conversation. We get back to the public markets to end this week. We are at a new record high. When you're looking at the S &P, when you're looking at the Nasdaq, we're up 2 % over the course of the last five days.

1:58but a real tick higher on the day, Ed. The macro picture, the inflation, cooler than many had worried about. And indeed, that gives the Fed room to run when it comes to maybe some more cuts that the market had already been pricing in. We've got China, US, we've got plenty to be digesting and you're looking at earnings. Yeah, in the earnings context, Intel's post-earnings rally has basically completely faded. A gain of more than 7 % is now less than 1%. But profitable for the first time in a long time on a net income basis. The PC market was better than they expected. They're making some progress in server, even a little bit in foundry.

2:34The issue is that the quarter was all about getting money from anyone they could, clearing some of the debt, and there's still a lot of unknowns about how far there's left to go on this turnaround plan. Cara? Yeah, let's get about where some of the holds are still left on Intel. Kunjan Sabani is with us, being an intelligent senior analyst covering semiconductors. And we are still left with a lot to chew on, because clearly PC doing a bit better, maybe even CPUs getting into those data centers. But what about the next iteration of fabrication of chips? This result shows the first sign in the right direction, sort of a turnaround, a beginning of a turnaround.

3:09You know, the gross margin headwinds, like you said, the challenges have not gone away. But what they showed yesterday, where their demand is running ahead of the supply, which it will be for the first half 26, There were structural gross margin improvements, though we will not see a gross margin expansion next year, primarily due to the new 18A coming on the exit from the Altera business, which was their highest gross margin business. But structurally, when you peel the onion, we like what they're doing. Most of the 18A will be moving from Oregon to Arizona, which is a better cost structure fab to begin with.

3:43A lot more volume will be coming back to Intel's foundries, which is better for them. And as they go through the initial transition cost and the revenue scale, which is showing from the higher demand in PC and data center, improves slowly, structurally, the overall gross margins should start to creep up. I don't know what happened, Kunjem, but in the time you've been speaking, Intel's now flat and eliminated all of its gain of the day. And I'm not saying that's your fault. I'm just making the observation. Look, when I spoke to the CFO Dave Zinsner on the phone, he was a bit surprised by some of the end markets that they're reliant on on the product side, servers in particular.

4:23The basic argument they're making is the hyperscalers have suddenly realized that you have to, at some point, update your CPUs. You have to invest in them. And so now they're saying that actually on a year-on-year basis, they'll see unit growth. What did you make of that? You know, that is a very credible story to believe in. we have seen signs of this in other markets. For example, the storage server market has been seeing a big demand when it comes to HDD. So, when you think about every time when we are pinging something like a co-pilot, it's going and clearing or analyzing data which was sitting dormant for the past six months.

4:57So, the storage servers were not really using them. Suddenly, now we are pinging them four to five times. So, that does, you know, it is a credible story to believe that the need for CPU, even outside AI servers, is going to increase now as we involve more and more AI in our workday. Kunjan Savani of Bloomberg Intelligence. Later in the show, we'll get more on Intel from the sell side. Meanwhile, banks are reportedly preparing a$38 billion debt offering for data centers tied to Oracle. Sources say the deal could launch as soon as Monday with JP Morgan and MUFG among the lead banks. Here to discuss Bloomberg Intelligence, senior tech analyst, Anarag Rana.

5:38There's a key point of clarification here that Caroline made to the team earlier in the chat. And it's not Oracle taking on this debt. It's Vantage, the developer, who will do the project. Even so, when you see a news piece like that, about that level of debt supporting the build out in infrastructure, what is your reaction to it? No, that's a very good point. And in fact, I had a very good conversation with that credit analyst Rob Schiffman, and we discussed this quite a bit. We have seen something like this coming from other places as well, which is when you have a contract from a particular vendor, you can create an asset-backed securitization product where the contract itself says there is revenue that's going to come in the future.

6:26So the question is whether there are going to be appetite for such large debt deals going forward as well, because I think that's critical for recognizing a lot of that RPO that's coming in into revenue. Otherwise, it's going to be very difficult to convert that into sales. This is about yield. And for the facilities related to Vantage, they're expected to come due in about four years. There's about two one-year extension options. You're getting two and a half percentage points over benchmark those. So people who are clamoring to get exposure to the AI narrative now don't just have to do it through equity.

7:01They can do it through debt and they can do it at a nice yield. More broadly, are we going to see these sorts of packages come in this sort of sheer scale because of the need that we've got out there at the moment? So you have to, because I think about it. If OpenAI has signed a deal worth$300 billion with Oracle, you know, how are you going to finance that? How are you going to convert that contract into sales? And you need data centers to come there. You need equipment. And finally, that needs to be realized. So we are expecting a lot more in the market. The question is whether the private debt market has the ability to, you know, basically absorb this level of debt or not.

7:44Anurag Rana of Bloomberg Intelligence. We'll see how this does get absorbed. It's coming to the market as soon as Monday. But let's just talk more broadly about what's happening in the debt markets when it comes to tech, when it's happening in the equity markets, which are actually tech outperforming in that particular area today. You've got earnings, you've got hopes on the China-US trade talks, we've got stock sickening on record after that CPI number came in with, well, a relief that the Fed will potentially keep on cutting at the rate the market thinks. Martin Norton's with us, Chief Investment Strategist at Empower.

8:11I want to go back to what we were just talking about and the debt that's coming to the market and the absorption that's going to be happening. I'm looking at a story right now saying that the Bank of England is actually probing data center lending because they're worried about AI bubbles brewing. Is this something you're starting to hear about in the market, Martin? Well, it's so interesting because a lot of the rationale for the, I guess, complacency around the AI trade has been that this is largely being funded by very well capitalized, very strong hyperscalers. And the companies are not taking on debt.

8:46They are using what they have to extend into this space. But now, in the most recent month, we are beginning to see more debt issuance. And I think when you think about the scale of investment and the ratio of CapEx to revenue that we're seeing even at the hyperscalers, it does argue that we're going to have to use a broader range of financing to meet some of the targets that we have. And, of course, that's the signal that folks are looking for, that there is an AI bubble. Now, you know, I think there's a real difference between extreme valuations, which is where I think we are, and an AI bubble.

9:20I think the sentiment has to get more aggressive. I think we would have to see far more debt issue. I think we are, I guess, kind of wildness around it. We're getting a few hits to the line, Marta. We need more compute going. I'm interested in, look,$5 trillion is what the spending is likely to be up to 2030 if we're going to get the data center and compute necessary to fuel the AI viewpoint. To that end, when you're thinking about clients coming to you saying, I want exposure, I want it to be cross-asset, Are you saying don't how are you talking about the diversification between equity exposure and debt exposure corporate bonds and the like?

9:58Well, at this point, I mean, the primary exposure to AI is still within the equity market. I think this is something that especially for the active credit managers, it is an opportunity to vet. You know, you can get that added yield as suggested. But I do think people want to be really cautious in terms of adding that debt. One thing that we're talking about a lot in the credit market is just how tight spreads are. And so that is what you want to watch to make sure that isn't, you know, a valuation risk within the credit market. Marta, earnings was a factor in this market this morning when I came to my desk.

10:31We showed Intel actually is now basically flat. Even so, in the course of a conversation we had with Intel CFO Dave Zinsner, he made for an interesting case study, which is that he said they had been very cautious about tariffs, but the impact wasn't there in the end. And actually, in the PC segment on which they depend, shipments were very strong, stronger than they anticipated. Just as a case study, you know, that's really interesting data to me. What do you make of it? I mean, it's totally interesting. And it really echoes what we've seen over the course of 2025, which is this sea change in trade policy.

11:08And yet really no discernible effect from either an earnings perspective or from an inflation perspective. Our emphasis over this period has been expecting to see some hit to earnings, less concern on the inflation front. And I think one thing that we're really learning over this process is that you can see a sea change in policy and yet not necessarily see the impact immediately. I think the concern I would raise to investors is just because you don't see an immediate impact doesn't mean there isn't an impact. When we look at the long term implications of globalization on earnings, it has been a real positive for the U.S.

11:45and globally. And so as we roll that back, it stands to reason that it is a headwind, maybe a headwind that we can overcome, but a headwind nevertheless. Marta, please respond to what is one of the top news stories of the day. President Trump says he's halted trade talks with Canada because of an advertisement that they ran, citing a Reagan-era comment. You're aware of it. In response, Mark Carney says that trade talks were making progress before the president's post on Truth Social. Again, as a case study of trade and policy in this market, your reaction to it? Well, I guess I would say that trade talks are the toddler that just won't go to bed.

12:29I don't think this story is really over yet. I mean, we have a lot of certainty, I guess, in terms of the overall effective tariff rate. But the fine details of what those trade talks look like, yes, with Canada, but also, of course, there's still a lot of negotiation with China. So I think this is something that will be this kind of lingering volatility within the market. Marta, you have a sea of parents of young children who are just feeling that pain, that analogy, really beautifully. Thank you very much. I want to go back to the very start of our conversation and to say that valuations you think are extended.

13:08Where exactly and what will earnings have to vindicate? Which types of companies? Well, when we're looking at the U.S. market broadly, really every sector from our vantage point, with one exception, is quite expensive. And when we talk about expensiveness, we're looking at sectors and deciles of valuation relative to their own history. And what we're seeing is valuations that are really in those ninth and tenth deciles. And that's when that starts to matter to prospective three-year returns. When we look under the hood in technology, we really see it across industries. Now, that doesn't mean that these stocks can't grind higher.

13:46And if we do see upside surprise within earnings, potentially that could push the stock market even further. I think the idea here is that there's just low immunity. So if we were to get an earnings season that people expect, I think that's a lot harder to move the stock market. I will do a shout out to health care. This is something we've been surfacing since the summer. This is one of those areas that is more attractively priced. It has a lot of problems that it faces, but it also has, you know, the potential to benefit from something like AI. So that's one of those areas that we're looking to in this environment.

14:21Martin Orton, Chief Investment Strategist at Empower. Thank you very much. Aclara Resources, an exploration and mining services provider, plans to build a$277 million rare earths plant in Louisiana, the first of its type in the U.S. This comes as Western nations attempt to reduce reliance on China, currently the dominant supplier. The facility will process material from Aclara's clay deposits in Brazil and Chile for magnets used in EVs and wind turbines. And construction is expected to be completed by the end of 2027. Karen? And coming up, so much for pet rocks, hey? JP Morgan takes another big step into the crypto world.

15:00More on that next. This is Bloomberg Tech.

15:17JP Morgan is set to allow clients to use Bitcoin and Ether as collateral for loans. That's according to sources. The move marks a deeper step into crypto for Wall Street. Bloomberg's digital finance reporter Emily Nicole broke the story, joins us now. I think it's really important to go through the mechanics of what we think this will work as, right? Institutional clients, what they can do as collateral, and then what the bank will do in return. Take it away. Yes. So what we've been hearing is that JPMorgan will be allowing this by the end of this year. What the process would look like is where institutional clients come to JPMorgan with holdings of Bitcoin and Ether that they already own.

15:56that would then be transferred to a third party custodian that JP Morgan will appoint who will look after the crypto so the bank doesn't have to touch themselves. And that can be used as collateral for financing that the bank can lend against. What's really interesting is the context of JP Morgan and shall I say Jamie Dimon's relationship with crypto because it was a few years ago he was calling them pet rocks, hyped up fraud. And now most recently in your story, which is a beautiful quote, talking about, I don't think we should smoke, but I defend your right to smoke. Is that why they're not going to be custodian while they're letting others like State Street, Bank of New York, Mellon, Fidelity still play that game rather than JP Morgan itself?

16:36There's definitely a bit of a divide in terms of how banks want to touch crypto. Some, like JP Morgan, are happy for clients to touch it, but they don't necessarily want to be involved in touching it themselves. So earlier this summer, for example, this started out with JP Morgan allowing clients to use crypto ETFs as collateral. So traditional finance represent their use to touching, but it tracks the price of a cryptocurrency. This is a step further than that, but they're still not getting to the point of where they'd want to touch the crypto directly. It should be noted that it is pretty difficult for banks to touch crypto directly sometimes because there are rules like the Basel rules on banking that prevent them from touching crypto without having to hold an equivalent amount of capital in reserve at the same time.

17:14It can get pretty expensive unless you've got the right structures in place. There's a lot of institutions and a lot of private individuals have a lot of crypto games they want to be able to use as collateral. Emily, Nicole, it's a great story. Thank you. Coming up, Google says it's reached another new milestone in quantum technology. It's a step that could bring the long-promised power of quantum computing closer to reality. We're on the next. This is Bloomberg Tech.

17:50This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophorus. Bloomberg Surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment, and international relations. We do all this live each and every weekday that bring you the best analysis in our daily podcast.

18:25Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keen, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. Google says it achieved a major milestone in quantum computing, bringing the technology's immense processing power a step closer to real world use. The company says it ran an algorithm on its Willow quantum chip that is verifiable and 13 ,000 times faster than today's best supercomputers.

19:10let's discuss with Karina Chao, Chief Operating Officer at Google Quantum AI. I think actually the best place to start is the basics of quantum computing versus accelerated or supercomputing. Because if you explain why that 13 ,000x performance is notable in simple terms, it gives some measure of why it's a piece of news this week. Absolutely. Today's computers, classical computers, they use bits, right? Zeros and ones. They use that to calculate. It's useful for a number of different problems across the world. However, quantum computing is different, uses a combination of zeros and ones at the same time.

19:47That enables access to different types of problems like the quantum echoes algorithm we announced this week. You have brought Willow with you. You've put it in an impenetrable, safe housing and casing. There it is on the desk in front of me. I read a lot of academic papers this week, and many point out that you didn't use a scalable or fault-tolerant chip for this demo. And so the argument follows that it would be a big challenge for you to commercialize or scale out that technology. Is that a fair concern from the academic community? That is the goal of quantum computing, to get to fault-tolerant quantum computing.

20:21Nobody is there yet. It is a long journey, but it is very exciting. We've been excited last December to announce for the first time that error correction can work. We demonstrated that with our Willow chip, and we continue on this journey, pushing the number of qubits and also bringing the errors way down. And it's the timing now, Karina. What is it, five years till we get something that actually will show quantum computing being really applicable and useful in the areas of science, in the area of medicine? Why that timeline in particular? Yeah, we are optimistic that we'll see real-world applications that are only possible on quantum computers in the next five years.

21:01You know, this breakthrough that we announced this week is a great milestone towards that path. We showed that Quantum Echoes, this algorithm, is not only 13 ,000 times faster on a quantum chip, but that it can be used to simulate and calculate the exact structure of a molecule. So we think this is an important step on the path. Someone on your team won the 2025 Nobel Prize in Physics as among the winners. You have Hurtminton leading the charge. We have real stellar talent, but also a lot of investment. What did you make of the news, the flow that maybe the U.S. government is there to support other smaller quantum players here in the United States?

21:39Is that important? Yeah, we are really excited and pleased to see all of the investment, the support, the excitement about quantum computing across the board. The U.S. government has been a strong supporter and partner in this for the last many years. And we're very excited about those investments and continued partnership across the ecosystem. Karina, you are the COO of the Quantum Group, right? And we reflected earlier in the week on the show when the headline hit the Bloomberg about this breakthrough. Actually, markets reacted. Alphabet shares moved markedly. Would you reflect a little bit on what the days that followed that were like?

22:17Did the phone ring off the hook from various parties that are interested now to know more about how they might be able to use the tech? Yeah, for us at Google, we are really excited about all the interests that we're seeing across the board. Our mission at Google Quantum AI is to build quantum computing for otherwise unsolvable problems. I think that's why there's increasing interest with every breakthrough. People in other fields are getting excited about what can be possible, and we look forward to continuing. So the bar has been set now for you. What is the next milestone that we should judge you by in progress?

22:50Yeah, there's going to be continued work across the board. One really important marker of progress is continuing to push the hardware. So you can see on this willow chip here, it says 105 Q. That's 105 Q bits on our willow chip. Too fast. Give the cameraman a chance to catch up. He will get it. Yeah. All right. Keep going. Yes, 105 qubits. So that is great. This has been honestly cutting edge chip. But to get to where we want to go to solve these important problems in chemistry, in physics, in material science, batteries, energy and more, we want to get to a million qubits. So we're going to keep pushing the performance of our system.

23:26We're also going to keep pushing the algorithm and software development so that we can solve these problems. What does that take, Karina? What does that take in terms of supply chain? What does that take in terms of talent? What does that take in terms of focus? Yeah, these are all really important questions. I'll start with talent. You mentioned a Nobel Prize winner on our team. We are super proud of Michel Devereux and the entire group of teammates and body of work that's happened over the last many decades. We're super proud of our team. We've got a super talented team of engineers, technicians, research scientists, program managers, and others who are pushing the boundaries of this technology.