00:00:02 · Tracy Alloway, Alex Altmann, Joe Weisenthal
[00:00:02] S0: Bloomberg Audio Studios. Podcasts. [00:00:05] S1: Radio. News. [00:00:09] S0: Hello and welcome to another episode of the Odd Lots. I'm Tracy Alloway. [00:00:22] S2: And I'm Joe Weisenthal. [00:00:23] S0: Joe, interesting times in markets. [00:00:25] S2: You know what? [00:00:26] S0: What? [00:00:27] S2: I kind of feel like I lost the plot. [00:00:29] S0: I know. [00:00:29] S2: I was like, I had this realization. I don't know what anything's going on anymore. We're just talking markets. And obviously I lost the plot with life in general. Like no one's disputed that. But just as like, what are the consensus trades these days? Like what are people actually worried about with some of these data center stuff? Like what, CoreWeave, what, et cetera. I have no idea what anyone thinks anymore. Like I need a reality check badly. [00:00:54] S0: So we're recording this on October 28th. And in terms of market reality checks, we're actually doing better on this one because we often end up recording these right before a Fed decision or right before an S-1 comes out or right before earnings guidance or something. This time, we've timed it pretty well. So we just had the FOMC decision. Earlier this week, we had the S-1 filing from Anthropic. During the Fed presser, Oracle came out with some additional guidance. There's a lot of stuff going on, even though we're going to be able to talk about some of it. There's more stuff coming up later this week. And so I feel like it's a really good moment in time to kind of stop and figure out what's going on.
00:00:54 · Tracy Alloway, Joe Weisenthal
[00:00:54] S0: So we're recording this on October 28th. And in terms of market reality checks, we're actually doing better on this one because we often end up recording these right before a Fed decision or right before an S-1 comes out or right before earnings guidance or something. This time, we've timed it pretty well. So we just had the FOMC decision. Earlier this week, we had the S-1 filing from Anthropic. During the Fed presser, Oracle came out with some additional guidance. There's a lot of stuff going on, even though we're going to be able to talk about some of it. There's more stuff coming up later this week. And so I feel like it's a really good moment in time to kind of stop and figure out what's going on. [00:01:35] S2: What's going on? So you mentioned Oracle had some investor day data coming out. The stock is up 12%. I know. I would say this was a bigger story today than the FOMC. [00:01:47] S0: Yeah. [00:01:48] S2: Right. Like the questions about Capital expenditures, how much debt the big hyperscalers and so forth are going to take on. Clearly, I would say in the minds of many participants, much bigger questions than like, oh, did they are going to hold in October or whatever. [00:02:03] S0: Not a high bar given Kevin Warsh's ability to deflect. [00:02:08] S2: I tuned in for a few minutes of that press conference. [00:02:10] S0: But you're right. [00:02:10] S2: That guy's good at not saying that.
00:02:10 · Joe Weisenthal, Tracy Alloway, Alex Altmann
[00:02:10] S2: That guy's good at not saying that. [00:02:12] S0: All right. Well, we do in fact have the perfect guest. We're going to be speaking with someone who we've had on the podcast before. Last time we were talking about levered ETFs. This time we're going to get a general sort of market overview. It's Alex Altmann, Global Head of Equities Tactical Strategies over at Barclays. So Alex, thank you so much for coming back on OddLots. [00:02:29] S1: Thank you very much for having me again. [00:02:31] S0: So what's going on? No, I mean, is there like a consensus AI outlook at the moment? [00:02:40] S2: Yeah, there is. [00:02:41] S1: The consensus AI outlook is that AI is still going to, this train is in motion. We're not stopping this train. That's still the consensus, to be very clear. And let's say if you were to sort of take a sample of a bunch of investors across different cohorts, whether it's in the US, Europe, Asia, and ask them, gun to their head, do you want to still be bullish or bearish the AI story? You're going to get an overwhelming positive answer. [00:03:10] S2: Yeah. Right. [00:03:11] S1: And we can debate like where people are on the position scale, but like that's the general view. Right. And this is why I think that if you, you know, you've probably seen that chart of where we are in like the bubble kind of thing. And then as it begins to roll over, the first dip down is the denial one. [00:03:30] S0: Yeah.
00:03:30 · Tracy Alloway, Alex Altmann, Joe Weisenthal
[00:03:30] S0: Yeah. [00:03:31] S1: I'm not going to say we're at kind of this bubbles popped. I know there's commentary out there that actually has said that, but I definitely, if you were to sort of juxtapose those two narratives, we're in the denial phase right now because everyone is still extremely bullish. [00:03:43] S2: Yeah. [00:03:45] S1: You got guys saying like, oh, semiconductors, you got Hynix or whatever, or some of these Korean memory stocks, they're on three times earnings. I'm like, you can look up three times earnings on a Bloomberg terminal. That requires no work at all. [00:03:56] S2: Right. [00:03:57] S1: So everyone is out there. [00:03:58] S0: Thank you for plugging the utility of the Bloomberg terminal, by the way. [00:04:01] S2: What do you mean there are 3X earnings? [00:04:05] S1: There are memory stocks that are. [00:04:07] S2: They're traded with an EPS, not an EPS, a PE of three. Correct. Because people there is. And because the perception is that we're at such a peak and we know how cyclical of an industry it is that when the earnings are this good, you're not going to pay up for them. Exactly. [00:04:26] S1: The old mantra is you don't buy cyclical companies, especially ones as historically cyclical as semiconductors, when they're at peak earnings. [00:04:35] S2: I didn't realize they were that low. Okay. So let's put some pieces together. So we have the fact that the P.E. is actually quite low. People do not expect exponential growth from the memory companies in terms of their EPS anytime soon as implied by the P.E. [00:04:51] S1: Ratios.
00:04:51 · Alex Altmann, Joe Weisenthal, Tracy Alloway
[00:04:51] S1: Ratios. [00:04:51] S2: What is going on with the neoclouds? Why is it that despite, as you say, the consensus is bullish, still everyone wants to be long, the AI trade, suddenly there's all this anxiety about, you know, people are quoting CoreWeave CDS charts. [00:05:06] S0: Sure. [00:05:06] S2: All right. [00:05:07] S1: So let's take a step back for a second, right? Because I want to talk about neoclouds in the context of the broader AI ecosystem. So obviously neoclouds are a group of businesses that are effectively in some way, shape or form mandated to build compute, which they will then sell to predetermined customers, some of which predetermined, some of them will be speculative. Regardless of what you may believe in that business model or not, these are tip of the spear. These businesses don't have operating cash flow today or minimal operating cash flow today in many cases. And so they represent the riskier part of the financing aspect of the AI spectrum. [00:05:48] S0: Right. [00:05:48] S1: And I think that's, that's an irrefutable fact. You know, people can talk about, well, actually they're REITs in disguise and actually they're not, they're nowhere near as risky as people think they are. [00:05:57] S0: Sure.
00:05:57 · Tracy Alloway, Alex Altmann, Joe Weisenthal
[00:05:57] S0: Sure. [00:05:57] S1: Let's have that debate. But compared to say the hyperscalers, whether it's, you know, the Googles and the Amazons who have got huge, I mean, they're cash volcano businesses. They are different, different sort of category. And the reason I want to make that distinction is because if you think of neoclouds as periphery and hyperscalers as core. [00:06:15] S0: Yeah. [00:06:16] S1: And I want you to draw a parallel, not directly, cause I'm not trying to make some sensationalist statement here, but draw a parallel to the GFC. Right. The problem doesn't didn't start with GC banks. [00:06:29] S0: Right. [00:06:29] S1: It started with subprime vehicles, 12, 18, 24 months beforehand. [00:06:34] S0: Right. [00:06:35] S1: And so what's I find most interesting is that there is evidently a financing problem within Neo clouds, right? That is evident Cipher try to, they did their convert. nuked their own share price in doing so because they clearly couldn't tap the debt markets directly. [00:06:50] S2: I don't even know who. Cipher? [00:06:51] S1: It's another neocloud. Exactly. A company that you've never heard of. And yet the reason why CoreWeave bonds sold off was not because of CoreWeave. They didn't say anything that week. It was because Cipher, another neocloud, tried to tap financing. And in doing so, materially hurt their own share price. And then all of a sudden, a bunch of investors, quick off the mark, put two and two together. [00:07:16] S0: Right.