Can Big Tech calm investors' AI jitters?

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0:32Good morning from the Financial Times. Today is Tuesday, October 20th, and this is your FT News Briefing. Unrest continues across France, and we'll tell you what to watch as tech earnings kick off this week. Plus, can one of India's richest men pull off the country's largest public listing? I'm Mark Filippino, and here's the news you need to start your day.

1:07France is burning across the country, hundreds of thousands of people, many of them students, are demonstrating against the high cost of living and the declining conditions in French schools. Those protests descended into riots and looting over the weekend. It was some of the worst street violence the country has seen in years. And now there's even more unrest happening in other parts of Europe. The FT's Ben Hall is here to talk about all that. Hey, Ben. Hi. So what kind of pressure have these protests been putting on President Emmanuel Macron's government? Enormous pressure because I think the protests, unfortunately, show that this government is weak and out of steam because the inability of the police to anticipate and then to handle protests on this scale suggests that this is a government that's lost control of the streets, which is a bit excessive, but it plays well into the hands of France's extremist parties.

2:02Yeah, talk about what this does as we head toward an election in the spring, April to be exact. Well, the protests are very much a gift, I would say, to the two extremist parties, the far-right Rassemblement National, led by Marine Le Pen, and the far-left led by Jean-Luc Mélenchon. Start with Mélenchon. He's sort of surfed on these protests, very much encouraged them. And he's actually climbed in the polls over the last few weeks. For Marine Le Pen, it's a gift because it speaks to her narrative of a government that has lost its way, that is too weak, and that you need a sort of firm hand backing in control, i.e.

2:43her. And unfortunately, I think from a centrist's point of view, they're sort of warning that if Marine Le Pen were to be elected, France would descend into disorder. She now has a response response ready at hand, which is to say, well, look, the country is already at disorder. So this argument of après moi le déluge, you know, after me, it's all chaos, doesn't really apply. Right. And let's talk about what's driving the protests. People are upset about the cost of living. And like I said, the conditions of schools. You know, this has been going on for weeks now, Ben. Has the government addressed those things?

3:18Well, they have said that they're holding talks with student representatives and teacher representatives about improving conditions in schools. But the reality is that this government has no money. And in the past, this government and previous governments, whenever faced with social grievance or protests, have sought to diffuse that tension by throwing money at the problem. That is just a pipe dream right now because the government has no money. And if it were to try and throw money at the problem, I think the markets will freak out and will dump French debt again and push up borrowing costs, which will only add to their agony.

3:54And we did see a bit of that worsening on Monday as investors continued to sell off French bonds. And Ben, like I mentioned earlier, there have also been protests in other European countries, notably Italy and Belgium. What does this tell you about what's going on in Europe right now, especially given that several major countries are heading to the polls in the next year? I think they are interconnected in the sense that we are seeing protests about falling living standards, concerns about employment. And I think we're also seeing a bit of an anti-incumbency mood in the air, and it could sprout up in many other places.

4:33I suppose across Europe, there's just a generalised trend in Europe now to a much more volatile electorate, an electorate that is likely to switch candidates, switch parties very, very quickly, depending on what other contenders are offering. And you're certainly seeing that in France, where you've now got the extremes that have the upper hand, it seems, by offering fairly unrealistic policies. But voters seem to believe in them and have lost faith in the mainstream. And I think that is the danger in the election supercycle that's coming up over the next 12 months. That's the FT's Europe editor, Ben Hall.

5:11Thank you so much for your time, Ben. Thank you.

5:18Here's another sign investors are nervous about the risk of an AI bust in the markets. They're racing to buy credit default swaps, or CDS. Those are derivatives that pay out if the company that they're tied to defaults on its debt. And if they sound familiar, you're probably remembering how popular they were in the run-up to the 2008 global financial crisis. So far this year, investors have traded more U.S. corporate CDS than they did in all of last year. That's according to Bloomberg data. And there's so much demand, traders are paying a premium to buy CDS on AI-linked companies. We're seeing extreme nervousness now about the very high level of capital spending, all the money that's being poured into these data centers.

6:02That's the FT's tech writer at large, Richard Waters. The building of these things is going way ahead of demand. Revenue is not catching up. It's growing, but it's not growing anything like the level that we needed to pay off a lot of this investment. And then crucially, interest rates are rising. And a lot of this building now is being done on debt. And suddenly, AI looks a lot more expensive to build. Some AI-related companies will have the chance to soothe those anxieties this week. SpaceX reports quarterly earnings today and Meta is up tomorrow. Richard says he expects those companies to tell investors that in the short term, There's so much demand that they just can't build AI infrastructure fast enough.

6:46And so what that translates into is two things. One is very high prices for selling data center capacity. So SpaceX, for instance, is essentially at the moment building data centers and selling all that AI capacity off to other companies. So that's one thing that the market loves. Richard says we're going to hear this week that new AI services are growing really fast. And that's where Meta comes in. Meta has had a very successful early product launch, the Muse agent, which will do things for you. It'll book you restaurants and monitor plane flights for you and do all kinds of things. And it's the first really successful consumer AI agent we've seen.

7:33Metastock's up 30 % since their last earnings, even though they're not going to make any money on this for a very long time. But the worry sets in when investors start thinking about the long-term path for AI. So we're already starting to see some companies in the data center and chip supply chain talk about excess demand reaching out into 2028. And even beyond that, which is incredible. The problem is that the ultimate services, the ultimate customer endpoints that are going to justify all that spending, we just don't know yet. We don't know how fast any of these new businesses will grow. And that variable is so big, it becomes very hard to know what the picture this time next year is going to be.

8:20That's the FT's tech writer at large, Richard Waters.

8:29Davos in the desert was supposed to start next week in Saudi Arabia, but it's been postponed. The country said yesterday that it'll push the Future Investment Initiative to next year, that's Saudi Arabia's annual flagship investment conference. It's because Yemen's Houthi rebels have recently launched deadly attacks on the airport in the capital of Riyadh. Davos in the desert typically attracts bigwig diplomats and executives from the finance and energy worlds, and pushing the event back is a serious deal. Saudi Crown Prince Mohammed bin Salman has made the conference a platform to diversify the country's economy.

9:02There's no new date set so far. The conference organizers did not immediately respond to a request for comment. Neither did the government's media office.

9:16India is gearing up for its largest public listing ever. GEO is a telecoms and tech conglomerate backed by Meta and Google, and it's run by India's powerful Ambani family. If next week's IPO goes well, it could help the country's struggling public markets. But according to the FT's Christian Kaushik, it comes at a tense time for the company. Hey, Christian. Hi, Bark. So first off, just tell me a little bit more about Gio. So Gio is the telecom arm of the Ambani family, as you mentioned. The Ambani family, they are one of the richest people in this country. Till earlier this year, the patriarch Mukesh Ambani was the richest man in Asia.

9:51But his fortunes are largely tied to oil, and they have been trying to diversify into other business. and Jio is the most prominent of those diversification attempts. So Jio is a 10-year-old company. It is the largest telecom operator in the country right now with more than 530 million subscribers. That's twice the size of AT &T, just to give you an idea. They beat all the entrenched players that were already there for almost two decades before these guys even entered. Undercut them through pricing. Plans could be as cheap as$1 a month,$2 a month. They really gave internet in hands of the common person.

10:21And they have used this massive user-based telecom platform to add more services, which is something that they were not big on earlier. Okay, so it's sprawling, it is established, and it is going public next week. What are the risks for investors who are buying into this IPO? Interestingly, Mark, Jio's success over the last 10 years creates the major risk for the investors as well. That's because the penetration that Jio has created means the Indian market is saturated. Now, there are very few people who do not already have a mobile phone who can be added on. And as the prices go up, because a lot of Jio's customers are low-paying customers, there's a threat that they might stop using these services, which is what people have also realized because the Indian economy has been in a bit of a soft spot.

11:02So while initially, the Ambani's wanted to value the company at about$150 billion, after the roadshows, after talking to investors, they have checked their valuation, which is now pegged at around $107 billion. So you can understand that while the sector still has potential because you can add more services, which Jio is trying to. Still, the economy and the saturation, those create some risks. Okay, so growth has topped out. And the only way to keep making money is to basically go against one of their main principles, which is being cheap. Christian, where do American tech companies come into play here?

11:34I know that they have a relationship with some pretty big tech giants. Absolutely. It's not just the relationship. Because it was Ambani's entering the telecom space, Jio became the best vehicle for these large tech giants, global giants, to enter India by partnering with Jio. Meta is a 10 % owner in Jio platforms. Google owns almost 8 % of the Jio platform as well. So in the current IPO, it's just a fresh issue. There's no offer for sale. So these guys can't really cash out immediately. But of course, once the company is listed, they might have that opportunity at a later stage. But now let's see, do they really want to cash out or do they want to continue partnering with Jio in future as well?

12:08So Christian, we've talked on the show before about these massive Indian conglomerates like Jio. As you watch this company's IPO unfold, What does its success or failure mean for this type of business model? So interestingly, India has had a pretty bad year for its public markets. India does not have an AI champion and investors globally are chasing AI money. A lot of the foreign investors have fled Indian markets in the last one year. But of course, Ambani's have been very strong market players for the past 30, 40 years. And if they managed to make it successful, it really creates a template for succession plans for many of these India's super wealthy families.

12:44because Mukesh Ambani has carved out his business into three neat sectors. One is technology, which goes to the eldest son, and that's Jio. Then there's retail that goes to his daughter. And then there's energy, which has been their mainstay, which goes to the youngest son. So if this IPO succeeds, that really creates a template for others to follow as well later. Sounds like they've got it all mapped out. Christian Kaushik is the Mumbai correspondent for the FT. Appreciate your time, Christian. Thanks, Dr. Mark.

13:12You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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