Oracle’s Huge Bond Sale, Musk Eyes SpaceX and xAI Combo

24:49But let's look at some of the other areas of focus when it comes to individual stocks on the moon. because underneath the hood, NVIDIA has been one of the ways down in terms of points. We're going to dig into why NVIDIA is perhaps reassessing how much it's going to be committing to OpenAI's infrastructure build-up, how it commits to that as well. But we also see how Oracle is up 2.5%, having brought a little bit more transparency as to what they need to raise for its own AI infrastructure, largely for OpenAI. Bonds, stock, the sales are upon us already. Bloomberg's Brody Ford joins us, who was working hard all weekend, because it was on a Sunday that we learned that here's a company that's looking to raise, what, up to$50 billion in a mixture of equity and debt?

25:28Sunday night, it's time to raise more money. Yeah, it was kind of a unique situation to have this kind of large announcement from a company as mature as Oracle on a Sunday. But what that really underscores is how Oracle's become this poster child of all the AI financing fears. It's expected to be negative free cash flow for the next couple of years, as it builds massive data centers. And the big question has been, how much money will they have to borrow to do that? Will they be able to maintain their investment grade? And they essentially were trying to respond to these concerns and say that, no, we have a solid plan.

26:05And it's interesting, maybe they've been learned from past haste with a previous bond sale at the end of last year, where bondholders are now suing because they felt that they didn't get enough, well, clear transparency that this was a company that would be tapping the debt market a lot. When we're looking at what we're getting today, though, there's three-year floating rate notes. There's three-year fixed, five-year fixed, seven-year fixed. Well, it's a long seven-year, 10-year, 30-year, 40-year. How much are they having to pay for the debt side of the equation, which they actually say is the only time they're going to be tapping the bond markets this year?

26:33Well, they're expected to get a ton of free cash flow once you look a couple of years out, once those OAI contracts and others start flowing. And what's particularly interesting today is to see them issue equity. And often when that happens, investors don't like dilution and the stock goes down. So it's funny to see the stock go up on an equity issuance. And what that means is that the company is willing to do what it takes to keep investment grade. It does not want to get saddled with some incredible interest rates. We've heard a lot of concerns on these loans. And so they're trying to show that they're going to do what it takes to maintain a good rating.

27:08And actually, that was really what we heard from the analyst space coming out here saying this should be a positive sign. that they are really committed to avoiding junk. Absolutely. And I think what it is, too, is just clarity. I mean, there's been so much uncertainty about, hey, is Oracle going to be able to get all of the loans it needs? Is it going to be able to complete this build-out seamlessly? Is OpenAI going to pay its bills? That's a lot of the questions that have been weighing on the stock. And so kind of any new information that shows a specific plan, almost whatever that plan is, as long as it seems reasonable, is going to be read as good news.

27:45We'll see how the up to$25 billion bond sale goes today and indeed some of those convertible notes as well. Freddie Ford all over the Oracle story. And let's stay with the AI-related debt story now because the cost of data center build-out, it is expected to top$3 trillion. And Oracle isn't the only tech company borrowing to finance their plans. Bloomberg's senior private credit reporter, Paula Seligson, joins us now. You've been looking across the board at the panacea, All ways in which companies are trying to finance an extraordinary amount to build out right now, how much are they leaning on public bond markets or indeed the rest of the debt system?

28:22So the best way to think about this is they are tapping all debt markets. So we have obviously the typical on-balance sheet corporate borrowing, which you see like with the Oracle deal today, that can be an investment grade bond, a high-yield bond or a leveraged loan or even a private credit direct loan. But there's a lot of off-balance sheet borrowing happening as well. I know that sounds a little bit scary when you first hear the words off balance sheet, but what it simply means is that instead of an investor lending to the company, they're lending to the actual data center project itself. So they create a special purpose vehicle that is the actual builder and owner and borrower to create the data center.

28:55When you tap that, that opens up a whole other realm of markets. So for example, the bank project finance construction loan market has been heavily involved in this space. You're seeing private placements, which are typically insurance companies. You're seeing structured finance investors in the form of commercial mortgage-backed securities and asset-backed securities. You're seeing private credit. You're seeing GPU finance for the chips. It is touching all parts of the debt markets. And we think about, Corwee was very much thinking about financing of the chips to begin with. We saw that deal between Blue Owl and Meta was a real pinup in the private part of their business.

29:26What are they having to pay for all of this, Paula? It really depends. and it can range from just a little bit over investment grade all the way to double digit teens, mid-teens yields. It just kind of depends on the structure. There's also a big difference between something that is a hyperscaler borrowing or ultimately backed by a hyperscaler versus some of the more risky things where maybe it's a small early stage company that needs to borrow money that's all in on AI. We've had a lot of new neoclouds popping up, for example. Just tell us about the need for transparency, though. What's so interesting is the equity market's response to Oracle today is just few.

30:03You're telling us a little bit more. When we have so much private credit getting involved, do investors feel they have enough information about just how broadly the borrowing is going from certain issuers? I think it depends on the issuer. So Oracle, for example, while it is doing this off-balance sheet borrowing, it is still tied to those data centers through lease commitments. And that does show up publicly in their financial statements. But I think for a lot of these deals, it's actually pretty much all private. It's also a lot of times private companies doing it. So then the investor base is just a very different investor base.

30:35And I hope they're getting disclosures, but it's unclear. And I think what makes it nerve wracking for the markets is even if those private company investors are learning about it, maybe the rest of the market doesn't know. And that can just cause unease and uncertainty around the absolute scale of the debt being borrowed right now. Well said. Bloomberg's Paula Seligson. You've got to go and read her. Authors throughout all about the debt markets. Really interesting stuff. Meanwhile, let's go to other AI build-out. NVIDIA CEO Jensen Huang says the company's proposed$100 billion investment in OpenAI was, quote, never a commitment.

31:07Speaking to reporters in Taipei over the weekend, Huang reiterated his support for the chat GPT maker, but did not disclose the total investment. Just take a listen. Sam is closing the realm, and we will absolutely be involved. Home much. Please say home much. And then you say how much? We will invest a great deal of money. Probably the largest investment we've ever made. The largest? Yeah. So is that going to be over 100 billion? No, no, no, no. No, no. Nothing like that. Seth Fiegeman joins us now for what was a busy weekend, as always, from Mr. Wang over in Taipei. Look, are we meant to be surprised that when you've inked some sort of deal and said, look, we're good for up to$100 billion, that actually that hasn't been fully ironed out and agreed?

31:51and it's up to each megawatt coming online? A little bit. I mean, I think it's important to step back. I remember when this deal was announced a few months back, it was a monumental moment for both companies, one that attested to the scope of the build-out that OpenAI had in mind and NVIDIA's role in that, and also a lot of the circular deals concerns. To your point, there was a lot of daylight there. They could ever set a firm timetable or a fixed amount. And so there was room to imagine maybe it wouldn't be$100 billion. But now I think it's a question of just how far away is it from that? And again, over what timetable?

32:20Some of the reporting from other networks and outlets has been that actually NVIDIA is getting uncomfortable with a competitive landscape, uncomfortable with the so-called discipline of OpenAI. Is that something that we're hearing in our reporting? Or is this more this is a company that maybe is aware of the criticism around circular financing and is just being questioning a little bit more? Yeah, I mean, it's unclear and it's a delicate balance here between these two companies. Even if NVIDIA is maybe having those concerns that you laid out, OpenAI is still very central both to the larger landscape and to NVIDIA's own deployment of chips.

32:49It's clear that the relationship between these two firms has not broken down, as Jensen said, will probably be the largest investment they've ever made and will probably be the largest funding round we've ever seen. But it's possible there is some daylight there. Let's just go to that funding round because that's what's currently under negotiation. We know that Middle Eastern investors have been eyed up. We know that Amazon's interested in the round. So what sort of scale are we talking and how will it be related to using certain companies' equipment or gigawatts coming online? Yeah, so, I mean, we've reported that up to$100 billion in this funding round, which, again, would be the largest that we've ever seen, trumping OpenAI's prior$40 billion funding rounds.

33:26We've seen that Amazon, SoftBank, NVIDIA, each willing to potentially commit billions or tens of billions of dollars to this round, does not currently feel like OpenAI is hurting for money in that one respect, remains to be seen. And then to your question, not just NVIDIA, but certainly Amazon, Microsoft, like these are all, if not circular relationships, then continued examples of the companies using the suppliers to fund their ambition. Well, we'll keep a track of it. Seth Fiegeman breaking it all down on that relationship between NVIDIA and OpenAI. Meanwhile, coming up, let's talk about crypto exchanges.

33:59They're under pressure. Plunging trading volumes is really the issue. At the moment, we're off by just a couple of percent. We've recouped some of our losses on the day, but we'll dig into it next. This is Bloomberg Tech.

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35:21Bearish sentiment in crypto. It is weighing on the exchanges. As investors pull back on trading platforms like Coinbase and Gemini, well, they're seeing stock prices and trading volumes drop. For more on the entire ecosystem, let's bring in Bloomberg Cross Asset Reporter Isabel Lee. And no wonder companies exposed to trading and volume are going to be feeling the pain when everyone probably takes a bit of a step back at this moment. Definitely a step back. I was sitting in my sofa nicely over the weekend and then Bitcoin fell. It fell to its lowest since April, the tariff driven volatility. So it made a lot of investors panic.

35:52Granted, thin liquidity over the weekend and fewer traders, fewer online. And we know that when Bitcoin falls, it triggers a wave of liquidations. We saw billions and billions of long and short positions liquidated. But still, investors have been increasingly becoming a little unhappy with Bitcoin because macro factors that used to help it before haven't been really helping. Like a weaker dollar, that's supposed to be good for Bitcoin, but it's not really helping right now. So now we're seeing January decline and it's really one of the longest streaks. I think it's the fourth straight monthly decline, the longest streak since 2018.

36:21I mean, Bitcoin shed nearly 11 percent in January. At one point, it was trading the lowest since President Trump's return to the White House. Much had been hoped for regulatory changes, in particular what might get through Congress. That seems to have been put on ice. Is that also an issue? Definitely. It's put on ice because if this president, which is supposed to be the most crypto-friendly president, can't help it, what can? And you also see it in flows. Flows are drying up. I mean, sure, it's just a bucket. And we still have more than a billion dollars in assets. But you see flows drying up.

36:50I think investors have been spoiled because it used to be always green on the screen, inflows after inflows. when Bitcoin ETFs launched in 2024, which is crazy, it's two years ago, it made records after records. And now, I mean, some would say it's consolidation. Some would say, oh, great, now I can buy it. It's an attractive entry point because for a while Bitcoin has been too high. And if it's too high, I mean, how will that be an attractive entry point? So it's a mixed sentiment out there. But for now, you can't deny that there's some gloom in crypto world. Some blue for Michael Saylor in particular.

37:19I mean, just talk to us about these digital asset treasury companies and how much this pain must be hurting them. Just like Bitcoin, I think digital asset treasuries are, whether you love them or you hate them, but today headlines are making for Michael Saylor because for the first time, the plunge, tokens price fell below the purchase cost of Michael Saylor's leveraged Bitcoin proxy and strategy. So that's really something. There are no margin calls yet. I want to make sure there's no immediate financial stress, no expectation to sell Bitcoin, but it's just something worth noting. Could this be the beginning of something?

37:50Maybe, but maybe it's also just like a bad day, a bad week, a bad month. But it's definitely worth noting because he is the biggest, biggest bull of Bitcoin and Wall Street. Yeah, the company's cost basis is about 76 ,000. And we went below that for a moment. I mean, we see the stock price just get off of its lows, but still under pressure. Once again, Isabel Lee across this asset class for us. We appreciate it. Now coming up, Palantir earnings come up after the bell. We're going to discuss what to expect. This is Bloomberg Tech.

38:27Earnings still coming. All eyes on Palantir reporting after the closing bell today. And actually, for the first time in two years, Palantir shares are not rallying into a quarterly earnings report. Let's break it all down. Bloomberg's tech equity reporter, Carmen Reineke. On the day, they're up just a little bit. But yet to date, it's been brutal, right? It has. And if you look even further back to November, when they hit their record high ahead of their last earnings report, The drawdown is about 25%, which is pretty significant for Palantir for any stock and a very different setup that we've seen going into earnings from previous reports.

38:59So it's definitely looking like, you know, the stock could get a little bit of help. Its valuation is still very high, even though it's come in a little bit with the, you know, the stock's decline. So investors are looking for some very key things. I mean, Palantir is expected to put up another great quarter. The guidance will really be paramount. And there's a lot of volatility in this name. so we could really see big swings in either direction. I mean, revenue is still meant to be 61 % growth, more than 50 % for the fiscal full year. But Dr. Karp's got to be aware of how he in many ways is deemed a bit of a mean stock.

39:34And as we've just been discussing with crypto and Bitcoin, we've seen a lot of changes in where people have been wanting to allocate. Is that anything to do with it? Is it more about just a terrible time for software in general? I think it's a little bit more tied to the software sell-off. We've seen a couple analysts commenting on that. It's just gotten weighed down with the rest of the sector. I think there also could be, you know, there's been some of a rotation away from, you know, the most expensive tech names. This definitely is in that camp. And, you know, a source said to me, if you're looking to rotate and something's over 100 times forward earnings, that's not really maybe the place that you're going to be looking to buy.

40:11So, yeah, we'll just really see. I think Dr. Karp as well. You know, he's such a passionate CEO. people will definitely be listening for his comments on the call. And that could really go either way as well. We always get some pretty choice words from Dr. Karp. Greenberg's Carmen Reineke. Great to have you on today. Thank you. Look, Palantir isn't the only big tech name reporting earnings this week. Look how many we've got coming. I'm pleased to say Fiona Sincotta, senior analyst at City Index Financial, can talk us through. We've got AMD on Tuesday, Qualcomm, Alphabet, Wednesday, Thursday. You've got the big one that is Amazon.

40:43Fiona, how do you brace for some of these numbers? Because, look, Microsoft last week wasn't a bad set of numbers, absolutely beaten up when people were worried about the capital expenditure. Yeah, that's right. I mean, we're definitely seeing this sort of division between those tech that are in favor and those that are not. And I think that's going to be even more under the microscope as these earnings come through. The market is very much more selective about where they're looking to direct capital. You know, before, as we said, it was just very much more jump on that tech trade and ride it higher.

41:20There really wasn't too much in it. But that's just not the case anymore. And we're seeing even numbers that come out relatively good, like we said with Microsoft, end up with a 10 % drop in the stock. And at the same time, we saw Meta driving 10 % higher. So it does feel a little bit more unpredictable in that respect. And it also means that the bar, I would say, is even higher on these companies to impress than it has been before, even though valuations in some cases have come down a bit given that sort of sellout of tech that we had seen since the November highs. So let's just start with Palantir, for example.

41:58What would a software company that is going to deliver more than 60 percent earnings per share growth, more than 60 percent revenue growth, have to articulate, do you think, to change the sentiment on the name? I mean, I think forward guidance is going to be absolutely key. And I feel that's where sort of, you know, Microsoft might have just sort of let the side down a little bit compared to Meta, for example. So I think forward guidance is going to be massively impressive in order to support this valuation. I mean, as we speak about, you know, the valuation here is, what, 140 times expected earnings.

42:33So, you know, it really has a lot to live up to. And given that we've seen all these questions about the AI spend, capital expenditure, what's the monetization, this does mean that investors do actually want to see that something's coming through now. And for that reason, I think forward guidance is going to be key here. Yeah, if anyone can show productivity and articulate what AI is doing, Palantir could likely do that. Meanwhile, Alphabet's that one-stop shop, vertically integrated, showing what it can do with its own chips, doing what it can do with its own tech and hardware and the whole shebang.

43:07Fiona, what do you anticipate? Alphabet has had a lot of mood music to the positive of late. Will that hold? Yeah. So, I mean, I think this is definitely one of the stocks that seems to be in the favored few. I mean, if we look, it's up 8 % across January, which is, you know, pretty good returns for a tech stock in January, up 68 % year on year. But I think, you know, Amazon and again with, sorry, Alphabet again with Amazon are going to be very much a litmus test as far as that whole sort of, you know, AI theme is concerned. Obviously, with Alphabet, you're looking at a$4 trillion valuation. So, you know, investors are really going to want to see whether there's momentum in that Google Cloud and advertising to support that valuation.

43:52So, you know, focus, as I said, will be on that cloud growth, we'll be on AI initiatives, monetization of that, and also spending. I mean, this is what, you know, the market has been getting very nervous about is, you know, what is that AI spending? What are we looking at? How much is it expected to go up? And what are the returns on the back of that? What's interesting is both Alphabet and Amazon will be a bit of a tell for an NVIDIA, maybe AMD as well, which is coming out beforehand of how well are they producing their own chips? How much does that matter to NVIDIA in the future? I mean, we don't get their earnings until later in February, as always, Fiona.

44:27But do you think semiconductor concerns should start to build in, in terms of companies being able to build their own and just turning to a broad comm, for example? Yeah, I mean, it's definitely a question that's on the table and a focus that will be there. And I mean, if we do see that happening, then obviously that will move attention away from NVIDIA and that sort of, you know, first to market momentum that that stock had. I don't think we're necessarily there yet, but I think it is right to expect that to slowly start creeping in. So attention will be on that as well. As you said, you know, NVIDIA, not for a little while yet, but it's always a massive focus as we get past these earnings this week.

45:14How many calls are you taking also about the private side, the question marks around OpenAI's fundraising and what that really means to the rest of the ecosystem to your public investors for a moment? It's definitely a question. And it's that question that we had, and it was very much a concern, I think, you know, around October, November time, where there seemed to be a lot of deals going on. And there was that sense of, or that question, is this sort of an ecosystem that's growing or is it just circular investment? And I don't think that was ever really resolved. The market does seem to be a little bit calmer about those questions for the time being.

45:52But I wonder if we, as we move towards NVIDIAs, whether those questions will start to appear again, and especially after we've had the earnings this week. Fiona St. Cotter, bracing us for a big week at Citi Index Financial Markets. Thanks so much for your time, as always. Meanwhile, that does it for this edition of Bloomberg Tech. Do not forget to check out our podcast, find it on the terminal, as well as online on Apple, Spotify, and iHeart. From New York, this is Bloomberg Tech. I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you fascinating conversations with the people who shape markets, investing, and business.

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