Notting Time

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0:47BBC Sounds. Music, radio, podcasts. Wake Up To Money from BBC Five Live. Hello and welcome to Wake Up To Money. It's Friday and we'll be reflecting on what's been a breathtaking week of headlines from the tech sector. From those bumper results for NVIDIA to Meta's$18 billion legal settlement. We'll bring you up to speed. Also coming up, as a mountain retreat in Wyoming plays host to the world's central bankers, we'll look ahead to Federal Reserve Chair Kevin Walsh's closely watched speech. Market participants are learning to play the ball, not the referee. We'll hear what that actually means. Meanwhile, the co-founder of the Mochi ice cream brand Little Moons will tell us how it went from humble beginnings in London to a viral sensation online.

1:35And finally... Yes, people, in a carnival. Celestia United Chanter, Lyrical Warrior. Yes, that's right. Notting Hill Carnival is gearing up for its 60th year of celebrations. And with about 2 million people expected to show up, we'll look at why they won't go hungry. We'll be hearing from a family running one of the 300 food stalls at the festival. Wake Up To Money from BBC Radio 5 Live. Good morning, good morning. This is Wake Up To Money on Friday the 28th of August. It's just after five o 'clock in the morning. Theo Leggett with you here for the next hour or so. And unlike many of you, I'm not used to early starts, so I've brought along a very large cup of coffee.

2:18Hope it does the job. Now, people say August is quiet, but that really hasn't been the case this week at all. We've had that settlement by Meta over claims its products encouraged addictive behaviour among children. We've had the rise and rise of NVIDIA's AI sales. And we're still waiting, of course, to hear from Kevin Walsh at Jackson Hole. So plenty for our Friday panel to get their teeth into. And let's welcome them one by one. With me this morning are Vivian Wong, co-founder of the mochi ice cream company Little Moons. Good morning, Vivian. Good morning, good to be here. We'll go into what your company does in more detail later in the programme, but for people who haven't heard of Little Moons, just outline for us what it is you do.

3:01We make mochi ice cream, which is ice cream wrapped in mochi, and they're sort of golf ball sizes for those who are uninitiated. We make them all in the UK. And during the COVID pandemic, you became something of an online sensation, didn't you? Yeah, we did. Back in 2022, our business grew 100 % or more so, actually, over a very short period of time. And for someone who manufactures in the UK, it's quite challenging, particularly during COVID sanctions. Well, I said we have plenty to get our teeth into. That's certainly part of it. Also with me today is Caroline Simmons, who's Chief Investment Officer at Quilter Chevio.

3:44Good morning, Caroline. Good morning. What's been catching your fancy this week? Well, as you say, the earnings results out of the tech space and the fines have been very interesting. And we've got the ongoing negotiations with US and Canada on their trade disputes. So we're never short of things to look at. And what's been happening between the US and Canada? Ten years ago, if somebody had told you the kind of headlines you'd be reading now, you'd have thought they were crazy, wouldn't you? it's certainly since uh since sort of april last year i think the um you know approach to trade discussions has certainly taken a a very different turn to the multi-year approach of the past um you know i think uh they've had this sort of tip-for-tat escalation going on between the us and canada but but it you know it peaked with us essentially um you know putting out a request that was non-negotiable that threatens the sovereignty of Canada about asking them to remove French language from packaging and things.

4:47And I think that's not a negotiation tactic if it's a non-negotiable element that you're trying to remove. So I think the US just backed down on that one, actually. So we'll see where they get to. But just like the China tip for tat last year, they ended up with, I think at one point, tariffs were supposed to be close to 150%. And in the end, they settled at around 30. So we'll be seeing if the taco president is taco in this case. Yeah. OK. And here to complete our Friday panel is the former chief economic advisor to Rishi Sunak, back when he was in number 10 a couple of prime ministers ago, Douglas McNeil.

5:24Good morning, Douglas. Good morning. How's your week been? Very good. Yeah, I'm just back from holiday this week. So tuning back into all the developments of the week. And as you say, there's been a lot going on and lots to talk about. OK, well, lots to talk about there is. And let's start then with those tech headlines. And first of all, NVIDIA, that's the computer chip giant, which is the centre of the AI boom these days. We heard yesterday its revenues soared in three months to July to$96.2 billion or£70 billion. and its data centres provided£65 billion of that alone, up 117 % year on year.

6:08Eileen Burbridge is a tech investor and I spoke to her after those results landed. There is a lot of exuberance and so there is a question about how long things will stay at this level. NVIDIA itself is forecasting 70 % growth for next year as well. Again, that would be unprecedented and absolutely astronomical. There is, of course, a question about whether this trickles down into value for consumers, value for society, where we start to see this pan out. But for now, it's clear that AI infrastructure and compute and chips such as those from NVIDIA are here to stay and everybody's investing in them.

6:44Views there of Eileen Burbridge, who's a tech investor. Caroline, these results came out initially after the US markets had closed. So we only got aftermarket reaction. But what's been happening with our shares since? Yeah, so shares are probably up about 9 % since their results announcement. So it's a good big boost. These results seem to catch some investors, some in the markets at least, a bit by surprise. They were better than expected. Yeah, I think, you know, when we're getting to such sort of very high and accelerating growth rates, particularly with, you know, some of the uncertainties we've had in recent weeks, around the sustainability of the tech expansion, it makes people a little bit nervous, you know, as you come into results as to whether they can really continue to keep beating these very high expectations.

7:41And they did. And when you do, then, you know, that your share price tends to go up on the day. You know, I think what's quite interesting is, you know, the level of earnings growth that they are, well, that the sort of consensus market is expecting them to provide, say next year is still around 40%. And the valuation on a sort of price to earnings basis for 2027 is only 16 times. So, you know, I think it's underpinned by their fundamentals. And I don't think we're in bubble territory. But obviously, there are certain signs that are, you know, causing a bit of concern with with certain parts of the market.

8:21But it is a little bit like it used to be with Apple a few years ago, isn't it? There's a law of diminishing returns. In order to keep investors happy, they have to keep producing more and more, keep the earnings coming in, keep the profits coming in. Yeah. So, yes, to an extent, but it's around your guidance to it as well, right? I don't think anyone would expect growth rates to continue to accelerate into perpetuity. We go through cyclical aspects you know something's new it accelerates the growth rates go faster and then it starts to stabilize but what you get then is the effect of the sort of revenue uplift from the massive structural shift as a result of AI feeds through into different parts of the of the sort of tech value chain if you want so it started in chip design so the NVIDIAs the AMDs then it moves into chip manufacturing, so the TSMCs of the world.

9:18Then you get into the memory manufacturing and the storage of all this information that you're creating, which goes into Micron. Then it broadens out further into the companies that are helping improve the quality of the production of the chips. And then you see it accelerating into the revenue growth for the cloud providers. So the hyperscalers, the AWS, the Microsoft Azure, the Google Clouds, that's where they're now seeing it. So the structural shift we're seeing from AI is enormous, and it will pass through the different areas of tech as it gathers more momentum. Now, I want to bring Douglas in here because, Douglas, you heard Caroline say there that she doesn't reckon there's a bubble forming.

10:02But there is this view in parts of the financial sector that AI companies are becoming very interconnected. They're very reliant on one another. They're investing in one another. Do you think that's a healthy environment? Do you think it's sustainable? Well, it's a little bit puzzling. It's unusual. You know, a lot of these companies have stakes in one another, for example, and NVIDIA is a case in point. It put some money into OpenAI not so long ago in return for shares and in return, OpenAI promised that it would buy some NVIDIA products. And I think NVIDIA also has a stake in Intel, for example.

10:36So you have this this circular financing phenomenon, which makes some people pretty uneasy. It carries the risk that if one company gets into trouble, then you could have a sort of domino effect with its travails bringing down a whole load of others in the sector. I think when you look at NVIDIA's cash performance, as opposed to its profit performance this week, you get some reassurance, in fact. They've made good profits, and that's great. Have they backed it up with cash flow? Well, in this quarter, they have. They've paid out some$25 billion to shareholders in dividends and share buybacks. And they also still have a lot of cash on their balance sheet.

11:16So they've got about$100 billion worth of cash in the bank. So that means that if there is a problem, then there's a sort of firewall against this domino effect, if it ever happens. Looking at the wider AI ecosystem, though, there are huge, huge investments being planned. Surely not all of them can come to fruition. And if they don't, there could be repercussions. Yeah, and I think you have to draw a distinction here between different parts of the AI business. NVIDIA sells mainly to people who are building data centres, the Amazon Web services of this world, for example. And clearly, business is booming there.

11:54Lots of data centres being built and those data centers need kit to go into them. And that is what NVIDIA provides. Ultimately, though, what will determine the success or otherwise of the AI boom is the extent to which real companies, ordinary companies, ordinary people manage to integrate AI into their operations, manage to bring it into their production processes, their administrative processes. And I think we don't still have a clear idea of quite how extensive if that process is going to be and over what timescale it is going to unfold. It's certainly going to be significant. I think we can say that by now.

12:33But the overall extent of that usage is not still entirely clear. And ultimately, that is what will determine the success or failure of these data centres and of the people like NVIDIA who supply the data centres. Well, let's go to a business and ask how AI is fitting in there. Vivian, you have a business. Are you using AI? And if so, how? we are we are as a business just looking how we can integrate it to help i think process things more efficiently rather than sort of take head count out at this point but i think everyone's still learning we haven't um we're working with a business that's helping us formulate those sort of ideas that have worked with other companies as well so i think there's there's a lot of opportunity i think there's a lot of curiosity and it's not only just within the business processes I think, you know, within photography and campaigns and social media, there's a lot of AI being used across all platforms.

13:28And you're a company, which we will go on to this later again, which has really relied on online marketing and that kind of thing. So are you using AI in that respect yourselves at the moment? We are not yet, but I think we're looking at how we can use it just in terms of, you know, image production, sort of generation of content, because it's a lot cheaper, I guess. And it's a lot more efficient sometimes than just filming things to get the lighting right or get to the right place. So we haven't started using it yet. But I know that we're really, because we're such a social media forward company, we have to be on top of all of new sort of ways of using it.

14:09yeah i see i see what you mean but um the thing that everybody worries about of course when it comes to ai is is it going to take my job away and you know i'm as guilty of that as anyone else i wonder if you know radio presenters will be replaced by airs app's voices um you see everything happening online at the at the moment that hasn't happened to you so far though has it no and what we said to our team is you've got to embrace it i don't think it's going to take anyone's job away and like anytime soon for us but we're losing the line to vivian we'll get that back but in the meantime um douglas the other thing that i find very interesting about about the ai boom is it's all moving so fast the investments are really high but the technology is improving at the same time is there a risk that some of these large investments could be obsolete almost before they're in place?

15:01Well, potentially, yes. It's going to be an area that certainly attracts a lot of competition. And I think that is one reason why the NVIDIA share price didn't roar away this week, or at least hasn't roared away this year. It's up about 15 % so far this year. So, you know, that's pretty healthy, but it's not wildly out of line with the overall market. And when you see companies like NVIDIA making the profit margins that they are making, that is bound to attract competition. They made profits of about$60 billion this quarter on turnover of about$100 billion. So that is a pretty healthy profit margin in anybody's book.

15:39And when companies are managing profit margins like that, competition is going to muscle in. And it's not therefore a foregone conclusion that the companies that dominate the business now are going to be the ones that are still dominating it in five or 10 years' time. It'll be survival of the fittest then. Yeah, that's right. And there's a lot of competition around emerging from places like China. You know, we hear a lot about the US companies and much of the most exciting technological advances are taking place out of the US. But China takes all this stuff very seriously as well. It's adopting a slightly different approach.

16:14In general, its companies are more in the area of not focusing so much on technological innovation like the US companies, but making stuff that is cheaper and good enough. And they're having considerable success in Asia with that sort of approach. So there's competition from that source, as well as from very many others. So, Caroline, when it comes to this sort of nationalistic struggle to be the top dog in the world of AI, who do you think is going to be the winner here? Will it be China with the value side of things or the United States or someone else? Yeah, so it's a very good question. I mean, I think we'll just end up with stratification.

16:55So, you know, different areas are better at different things. Some will be cheaper and, you know, less complex tasks and some will be more expensive for more complex tasks or at higher speeds. And I think we'll find that people, industries, you know, end up using different models for different purposes. And even, you know, one company or one person might be using multiple models for different things. And, you know, at some point, you probably sort of build your agent that then decides, you know, which model to use for which particular tasks you're trying to achieve. So I think they'll both be successful in their own, you know, areas.

17:33Well, I think we could chat about this for hours. It's such a fascinating sector, but I do need to move on because we've got other things to get through. And it's been a tougher week for another company in the AI sector, a user of AI. On Tuesday, Meta agreed to restrict American teenagers' use of its platforms as part of an$18 billion settlement with 29 American states. They'd accused it of harming children, of encouraging addictive behavior, that kind of thing. Meta had to agree to all sorts of conditions, including limiting teenagers' time online as the parent of a 16-year-old. I'm actually quite in favour of that one, but, you know, other people might have different opinions.

18:13Arturo Bejar is a former Meta safety engineer, I should say, who became a whistleblower due to the experiences of his own daughter on Instagram. And he warned that plans to heavily restrict children's usage of Facebook and Instagram as part of this settlement won't actually make young people safer online. Mr Behar said that the amount of harm done by the platforms was also far worse than Meta admitted. I think that states have done incredible work to bring the issue to the front. There are some meaningful changes in the agreement, which will do good, but there needs to be independent understanding measurement and reduction of harm, and that's what Meta should be accountable for.

18:54And until that is happening, in any country that's thinking about this, our kids are not going to be any safer. It's important to add here that Meta has consistently denied any wrongdoing and the settlement doesn't involve any sort of admission of liability or anything like that. Caroline, when we look at what Meta has agreed to, what will these protections actually look like? So there's a whole series of measures. There's school mode, which means that children won't be able to access social media during school hours. there's a night time mode so between midnight and 6 a.m there are limits to continuous usage and daily usage I think it's two hours a day and the the light function will not be enabled as a default and then there's the ban on the use of cosmetic filters by by children so I think some of these features can be overruled by parents, I believe, which actually suddenly conjures the image for me of parents sort of pushing the McDonald's through the school gates.

20:05You remember 20 years ago when Jamie Oliver was launching his campaign to ban processed foods in schools. So, you know, let's assume not all parents will be trying to override the new measures. But importantly, I think for the fuller impacts, we're going to need to see a wider range of measures across the whole range of social platforms, obviously not just the meta-owned ones. Now, investors have had a few days to get through all of this, work through it. What's the reaction been? So the shares are up about 1 % on the day. Essentially, the fine was less than it could have been and less than expected.

20:41It's obviously a huge number,$18 billion. But let's remember, it's a$5.5 trillion company. you know if we put that into context of say the tobacco litigation that's an industry obviously that you know has been undergoing litigation for decades now you know that was you know 250 billion type fines that the tobacco industry has paid out so 18 billion is actually relatively moderate and the measures that they've been asked to put in place you know the key for investors is how much of an impact will those measures have on their revenues? And the answer is relatively limited. A lot of their revenue generation is advertising and children scrolling on these platforms is not their main source of revenue generation.

21:34I want to bring you in, Douglas, because this is an American settlement. It depends to a certain extent on what other providers like TikTok and YouTube do as well. But what happens in the States may well happen elsewhere, mightn't it? Is this something that we're likely to see here in the UK? Yeah, I would imagine that the way that Meta operates in the States will become the global standard. It will just be simpler for them to operate in the same way across all jurisdictions. And what is interesting, though, is that the States is kind of responding, I think, in part to developments elsewhere. So we've seen big changes over the past year or so in the way that social media is licensed to operate from wider society is framed.

22:23So most notably, of course, with changes in Australia where they've banned usage for under 16s, I think it is, the UK heading in the same direction. and you feel that that process of change, that changing attitudes still has some way to run and there could be further changes to come both in the US and in other countries. And Vivian, if that happens, if there are restrictions coming in on how you can advertise to children, for example, on their exposure to online platforms, that does have the potential to affect businesses like yours, doesn't it? Because one way you get your message across is through social media.

23:03yeah i mean i hadn't i hadn't really thought about that but yeah we but social media is pretty new to businesses like this i think if that does happen we'd switch back to i guess magazines or we'd see where where you know consumers consume news and and find out about new products and it might be that we just go back to more out of home it could be more you know move towards tv which is something else that a lot of fmcg businesses did in the past so i think we just have to see what happens we We've been hit by so many different changes. I think that's the joy of running a business. You've just got to constantly change with the market.

23:36OK, now on our exhausting run through what's been happening this week, I've got another topic for you guys to talk about. I do apologise for that. We're really getting through stuff at the moment. But for the last couple of days, an idyllic mountain retreat in Wyoming has hosted central bankers and policymakers from all around the world. This is the Jackson Hole Gathering, organised by the Federal Reserve Bank of Kansas. The highlight of it, though, is going to be Federal Reserve Chair Kevin Walsh's speech tonight. Now, Mr. Walsh was appointed back in March. He was nominated by President Trump, who, as we all know, has very strong opinions on things like tariffs and interest rates.

24:15And so far, Mr. Walsh, he does seem to have a bit of a tightrope to tread. But so far, he's taken a very different approach to communication to his predecessors. For example, by doing away with forward guidance from the US Central Bank, arguing that this can distort markets. Here's him breaking down that approach last month. Market participants are learning to play the ball, not the referee. And market prices will continue to respond in the direction and magnitude they see fit. This is, in my view, a change for the better. And we're just getting started. So he's just getting started. He's not going to tell people what to expect.

24:55Douglas, what do you make of this sort of approach? Playing the game, not the referee. Yeah, it's certainly a break with the past. Your past Fed chairs have normally been pretty happy to opine on what is likely to happen, to give lots of hints and nudges and winks to the market about the future direction of the short-term policy rate that the Fed sets. Mr. Walsh thinks that's the wrong approach. He thinks that that makes it more difficult for the central bankers to read what is going on in markets if the markets are trying to second guess what the central bankers are going to do. So he thinks that is a kind of unhealthy feedback loop, and he wants to stop it.

25:37And I think there's quite a lot to be said for this personally. I think that it can be more difficult for central bankers to be flexible, to change their minds when necessary, if they have already dug themselves in with what they've said in speeches and other public interventions, for example. And I think it is easier for central bankers to take tough decisions, i.e. put up interest rates if it's necessary, if they have a relatively low public profile, if they don't have a kind of public image to defend. Now, there are limits to the extent to which you can maintain a low profile if you are the chairman of the Fed or the governor of the Bank of England, for example.

26:16But there are lots of other people on these rate-setting committees, and it's more feasible for them. So, in effect, it's easier to say, we're going to do policy X if we haven't already said that we're likely to do policy Y. That's right. In effect, they'll be saying each time something like, you know, we've set the policy rate this month at whatever rate it is. We think that's the right rate for the time being. And, you know, we'll come back to you at the next meeting in four or six or eight weeks time. And if we think it's wrong, then we'll nudge it up a bit or we'll nudge it down a bit. But really, that's about all we've got to say on the matter.

26:49That's going to be the general approach. OK, so if he's limiting what he's going to say, Caroline, what can we expect from his keynote speech this afternoon, which everybody's waiting for? Yeah, indeed. I mean, And he might concentrate more on sort of how he sees the role of the Fed. There's various debates around, you know, which types of inflation measures we should be using. And a lot of macro data is, you know, being questioned as to whether it's still measuring accurately for the changes that we've got going on in society and in our economies. So maybe some things around that. You know, I think essentially the background is that we've got this, you know, uncertainty over the sort of inflation dynamics, you know, in part because of the closure of the straightforward moves in the Middle East.

27:40And the market is expecting one rate hike by the end of the year from the US. and you know I think there are some doubts as to how determined the Fed would be to want to bring inflation straight back to target if it is particularly driven by these external factors you know to do with the oil price so yeah I think you know he will very much avoid giving the guidance as has been his stance since he's taken his role which you know it may help the central bankers do their jobs better, but it does tend to make markets a little bit more volatile because you've got less sort of insight coming into announcements.