Markets Face Central Bank and Earnings Volatility

Summary

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Podcast Summary: Bloomberg Surveillance

Episode: Markets Face Central Bank and Earnings Volatility
Date: July 27, 2026
Hosts: Tom Keene, Edgar Denny
Guests: Isabel Mateo (BNP Paribas), Amanda Lyon (Goldman Sachs), Alvina Lowe (BNY Mellon Wealth), Celine Wu (Lazard Asset Management)

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Episode Overview

This episode explores the volatility facing global markets as central banks prepare for pivotal decisions and earnings season heats up. Featuring interviews with financial experts, the episode delves into macroeconomic trends, inflation, credit and private markets, the ongoing “great wealth transfer,” and the evolving tech sector amid massive AI and data center capital expenditure. Thoughtful commentary from the hosts weaves together distinct macro, credit, and tech themes.

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Key Discussion Points & Insights

1. Central Bank Policy and Inflation Dynamics

Guest: Isabel Mateo, Chief Economist, BNP Paribas
Timestamps: 02:04 – 07:12

• Central Bank Inaction Expected:
  • The Fed is likely to maintain its current stance. While there is internal debate ("good family fights" within the FOMC per Kevin Walsh), a no-action outcome is still the base case.
  • Quote: "My base case is they don't act either on Wednesday and we get some stern talk about commitment to deliver price stability and being prepared to act." — Isabel Mateo (02:28)
• Inflation Pressures:
  • Energy prices have dropped in the short term, but not enough to bring lasting disinflation. Central banks must look to other inflation drivers, especially in the US, where inflationary pressures are more broad-based than in Europe or the UK.
  • Quote: "We're unlikely to get meaningful disinflation from energy prices for the foreseeable future... that's number one." — Isabel Mateo (03:24)
• Regional Differences in Inflation:
  • US inflation is chiefly demand-driven, contrasting with Europe where supply shocks dominate, especially due to energy.
  • European consumption and consumer sentiment remains weak, with growth mainly supported by corporate and manufacturing sectors, especially defense and infrastructure in Germany.
  • Quote: "The consumer sector in Europe has been relatively weak and we expect that's going to remain that way until we get significant relief from energy prices." — Isabel Mateo (05:14)

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2. Private Credit Markets, Defaults, and Data Center Boom

Guest: Amanda Lyon, Credit Strategist, Goldman Sachs
Timestamps: 10:14 – 16:14

• Default Risks and "Left Tail":
  • Default rates are rising at the edge of high-yield and private credit, especially among borrowers not contributing to the overall resilience.
  • Key risk: The "2028 maturity wall"—a large pool of debt that needs refinancing, but for now, refinancing has progressed well.
  • Quote: "Default forecast... we did raise our default forecast last week because we're a little bit concerned about this left tail of borrowers..." — Amanda Lyon (10:29)
• Data Center Financing and AI:
  • Remarkable surge in private market data center deal activity—estimated $200bn since 2025, with $500bn in deal flow YTD.
  • The sheer scale ("extraordinary numbers") is only the early stage, backed by $4.5 trillion in "dry powder" (private market capital).
  • The private markets are expected to play a critical role in this multi-year issuance cycle.
  • Quote: "Private markets, there's four and a half trillion of dry powder... that $200 billion sounds large, we think it's actually just the early stages." — Amanda Lyon (11:42)
• Borrower Structure and Risks:
  • Data center borrowers are typically separate SPVs, sometimes backed by large 'hyperscalers' like Microsoft.
  • Investors are increasingly aware of issuer concentration and market saturation risks.
  • Not all financial commitments related to forthcoming data centers appear on traditional balance sheets, which can obscure total leverage.
  • Quote: "There's about $1.2 trillion of lease commitments for data centers. Of that, $700 billion is for data centers that haven't started yet." — Amanda Lyon (13:12)
• Regional Credit Trends:
  • European AI-related credit is faring slightly better due to lower levels of issuance. Smaller regional markets in Europe, like CAD and CHF, have less capacity—expect private markets to fill the gap.

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3. Intergenerational Wealth Transfer – “Wealth in Motion”

Guest: Alvina Lowe, Head of Advice, Planning, and Fiduciary, BNY Mellon Wealth
Timestamps: 16:54 – 24:38

• Nature of the Great Wealth Transfer:
  • $124 trillion is set to move from baby boomers to the next generation, but the transfer is happening more slowly than anticipated.
  • Quote: "The great wealth transfer is still happening, but it's happening a little different than when we all anticipated. It's happening slower." — Alvina Lowe (18:35)
• Factors Slowing Wealth Transfer:
  • Longevity—people living longer.
  • Lack of perceived readiness among heirs to handle wealth.
  • Uncertainty about future tax and regulatory environments.
  • Quote: "There is a huge gap between intention and execution. In our survey...91% want to leave a charitable legacy, only 36% have a plan to do so." — Alvina Lowe (19:59)
• Trusts and Planning:
  • Two-thirds of clients have at least one trust in place, but planning is an ongoing conversation—not a task completed by simply setting up structures.
• Advice for Families:
  • Start with defining goals/values with a financial advisor, not just legal/tax strategy.
  • Engage heirs in financial discussions and philanthropic activities early, focusing on practical involvement rather than just education.
  • Quote: "Just because you have one trust in place and you have the document, it doesn't mean your plan is finished. It is just the beginning." — Alvina Lowe (21:04)

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4. Tech Sector: AI, Data Center Capex, and Global Competition

Guest: Celine Wu, Portfolio Manager, Lazard Asset Management
Timestamps: 28:07 – 34:00

• AI Capex and ROI at Big Tech:
  • Central question for big tech this earnings season: Will large-scale AI/data center investment translate into meaningful ROI and revenue growth?
  • The biggest immediate benefit comes from hyperscalers’ cloud services, where demand continues to exceed supply (backlog a key indicator).
  • Quote: "The core businesses, their cloud services platform... revenue growth has started to accelerate starting from the second half of last year." — Celine Wu (29:14)
• Enabling Technologies Within the AI Boom:
  • Critical to invest not only in infrastructure but enabling software: cybersecurity vendors, observability software, EDA (electronic design automation) tools—foundational for the tech stack's safety and functionality.
• Changing Notions of Tech Competitiveness:
  • Software company moats are evolving amid AI innovation; firms must prove defensive capabilities and leverage AI for accelerated revenue.
• China and Global AI Competition:
  • China prioritizes rapid open-source model proliferation to stimulate AI app development.
  • The differences between open-source strategies in China and Western closed frontier models will shape future competitive dynamics.
  • Quote: "One thing for sure is what China is trying to build... is just trying to proliferate open source models as soon as possible." — Celine Wu (32:23)
• What to Watch This Earnings Season:
  • Continued capex trajectories, revenue growth reconciliation.
  • "Vertically integrated" business models are gaining favor as tech companies aim to own more of the AI value chain, not just be model or distribution providers.

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Notable Quotes & Memorable Moments

• On Policy Uncertainty:
  "All talk, no action: Are we going to see from a Central Banker to the World on Wednesday? All talk and no action?" — Edgar Denny (02:04)
• On the Real Threats in Credit:
  "There’s a lot of software debt that needs to be refinanced... but that’s the key point we are watching." — Amanda Lyon (10:29)
• On the Wealth Transfer Gap:
  "There’s a huge gap between intention and execution—91% want to leave a charitable legacy, only 36% have a plan." — Alvina Lowe (19:59)
• On Family Readiness:
  "A lot of people confuse financial education with financial readiness... That’s why we actually need to engage them in doing." — Alvina Lowe (22:37)

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Key Timestamps

• 02:04 – Isabel Mateo (BNP Paribas): Central bank outlooks, inflation drivers
• 10:14 – Amanda Lyon (Goldman Sachs): Private credit, defaults, data center financing
• 16:54 – Alvina Lowe (BNY Mellon Wealth): The great wealth transfer, trusts, heir engagement
• 28:07 – Celine Wu (Lazard AM): AI capex and tech sector, global competition, China’s approach

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Episode Tone

The discussion is intellectually curious, grounded, and conversational, with a mix of humor ("send a raven," “the last check I write is going to bounce”) and candid host-guest rapport. Technical segments are balanced with pragmatic advice, helping listeners make sense of major market themes—without shying away from uncertainty.

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For Listeners

This episode is essential for understanding how macro uncertainty, systemic credit shifts, generational wealth, and transformative AI investments are all reshaping finance and investment—both now and for years to come.

Transcript

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[Edgar Denny]

Isabel Mateo's Eligo joins us with BNP Perry. Bob and I want to take a moment here with just bulletproof academics out of Ena Science PO and of course her work at Cambridge as well. Just a wonderful synthesis of here All Talk, no Action Are we going to see from a Central Banker to the World on Wednesday? All talk and no action.

[Isabel Mateo]

Good morning Tom. So I think of the four central banks making decisions this weekend and last week, the Fed is perhaps the least unlikely to to stick to Just Talk, although our base case remains that they they also do nothing. However, there is a case to hike and several of the FOMC members have been making it and so it will probably be one of these good family fights that Kevin Walsh has been has been talking about. But on balance my my base case is they don't act either on Wednesday and we get some stern talk about commitment to deliver price stability and being prepared to act.

[Tom Keene]

Isabelle we do have energy prices pulling back today, but of course they're much higher than everyone would like them. And that leads to the discussion of inflation here. What's your underlying view of inflation out there?

[Isabel Mateo]

Well, first of all, on energy prices, I think what's been happening over the last two weeks that when the strikes resumed and now some instant relief, even though the situation in the strait hasn't really changed in terms of ability of oil to, to flow out, what it's telling us is we're unlikely to get meaningful disinflation from energy prices for the foreseeable future. And the sharp decline that we saw in June was probably excessive. So, so that's number one. And so that means all the central banks have to look at what are the other drivers of inflation. And that's where we were a bit more concerned about the situation in the US than say in the Eurozone or in the UK where there are no other meaningful drivers of inflation. Whereas in the US you see much more broad based inflation drivers.

[Edgar Denny]

Isabel Edgarden, Bloomberg Money on Friday partitioned America into supply side dynamics and demand side dynamics. Can you do the same in Europe? I mean, are these supply side shocks in Europe?

[Isabel Mateo]

Well, in the US you see much more. Well, you see both, you see demand and supply, but principally demand. And remember that energy, the US Being a net energy producer, doesn't face the supply angle to the same degree, whereas in Europe it is principally a supply, a supply shock. Demand has been resilient, but it's not per se a driver of inflation in the way that we're seeing it in the, in the U.S. so Isabel, in

[Tom Keene]

Europe, what is the, the sense of the consumer there? How is the consumer faring across Europe these days?

[Isabel Mateo]

Not great. The consumer is facing at least as far as the second quarter is concerned. Purchasing power has been knocked backwards. If you believe the ECB projections for the year as a whole, the consumer will still be a little bit ahead in terms of purchasing power. However, consumption is, is growing at about half the pace it normally does. And what's been sustaining the resilience of growth that we've seen is really the corporate sector and in particular the manufacturing sector, which has been supported by the defense industry and by resumption of construction activity, infrastructure in a number of economies, especially Germany. But the consumer sector in Europe has been relatively weak and we expect, expect that's going to remain that way until we get significant relief from energy prices.

[Tom Keene]

So on that front there in terms of business and state investment here we had when the Trump tariffs came out initially in his first year of the second term, Europe really stepping up on some of their infrastructure spending, their defense spending. How has that played out?

[Isabel Mateo]

Yes, so the, the tariff shock in the end has been quite manageable for, for Europe and in fact the of course at subsectoral level, I don't want to say nobody's been impacted but at the end of the day exports to the US have, have remained pretty resilient and more importantly, Europe is shifting to a more domestically driven growth growth story with very historically large stimulus out of Germany, which took a bit of time to to kick in but now is going at full steam. Defense and infrastructure principally, but also the rest of Europe investing in AI, investing in defense and that's really sustaining domestic demand very meaningfully.

[Edgar Denny]

Isabel, thank you so much. Isabel. Matteo Silagos too short. A visit with BNP Paribas from Queen Victoria street in London. Stay with us. More from Bloomberg Surveillance coming up after this.

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[Edgar Denny]

watches live on YouTube is like oops Defaults Credit left tail fold in private credit in the angst over the weekend on private credit, public credit, private credit, is there a left tail risk?

[Amanda Lyon]

Good morning. Thank you for having me. So taking them in too. So in the high yield market we did raise our default forecast last week because we're a little bit concerned about this left tail of borrowers that haven't been contributing to the overall resilience in the credit markets. The that coupled with higher related issuance in the high yield market, that market's not immune. Higher commodity costs, higher rates translating into a higher cost of capital leaves us on the margin somewhat concerned on the private credit point. I mean in many ways we actually just treat this like broader credit. We have flagged recently that non accruals in credit and private credit have increased a little bit in the first quarter, but it's not outsized relative to the broader trend. The key point we are watching in private credit and the leveraged loan market is the 2028 maturity wall is there's a lot of software debt that needs to be refinanced so far that refinancing months out. Yeah. And we've already started your job for 18 months. Well, we've already started chipping away at that. It's been encouraging, but that's the key point we're watching.

[Tom Keene]

All right, Tom and Amanda's latest report, Exhibit 5, we estimate nearly $200 billion of data center deal activity in the private market since the start of 2025. Man, I did not know that. Who's buying this stuff?

[Amanda Lyon]

It's happening under the surface above and beyond the very meaningful supply that we've already had from the ecosystem. We estimate that's 500 billion year to date. So just the numbers here are extraordinary. Private markets, there's four and a half trillion of dry powder in private markets across all categories right now. So that 200 billion sounds large. We think it's actually just the early stages. The good, I think the good thing about the private markets as it relates to this multi year issuance cycle is is that we do expect the private markets will provide some certainty of financing in the later years. The simple point is that credit markets work best in funding releveraging when it's quantifiable and there's an end in sight. That's not really the case with this build out. So we do see a large role for private markets.

[Tom Keene]

Who are the borrowers? When a data center gets announced and gets built is the borrower the construction company?

[Amanda Lyon]

So typically the borrower is an SPV that is separate from the hyperscaler. But I think what you are alluding to is something that we've noticed in our investor conversations is that a lot of investors are increasingly counting their data center exposure in their hyperscaler bucket.

[Tom Keene]

Yes.

[Amanda Lyon]

And so I think it further increases our view, this is actually something we outlined in April that issuer concentration and market saturation constraints will be binding.

[Edgar Denny]

Okay. To Paul's brilliant question and you're even better answer is this visible accounting is as could fancy people like you or Frank Fabozzie actually go in and understand the balance sheets of this new debt?

[Amanda Lyon]

You can if you're willing to look at 10Ks and 10Qs which we do and actually just using the hyperscaler universe there's about 1.2 trillion of lease commitments for data centers. Of that 700 billion is for data centers that haven't started yet, they haven't begun construction. So to your question Tom, that's not yet reflected in traditional leverage metrics that that commitment for a data center that hasn't begun isn't yet counted in the financials. Some rating agencies and many investors are adjusting that after the fact but that it is possible to do it if you're willing to get into the financials.

[Tom Keene]

So there are special borrowers here. But again is it if I'm going to My credit officer, I'm getting approval for this loan. Can I tell him at the end of the day Microsoft is backstopping this thing.

[Amanda Lyon]

All of the deals are different and whether or not they're fully amortizing or how the guarantee works or for example if there is a construction delay, who's on the hook? I unfortunately can't paint it with a broad brush. But I think what is most critical from our perspective is that there's, there's a lot of focus on the hyperscaler data issuance. But actually data centers like the ones you are referencing have represented more than 20% of AI related supply this year. So it's important to track the AI related issuance from the broader tech ecosystem, not just the hyperscalers and it further increases that competition for capital.

[Edgar Denny]

Edgar Denny joined us 12 new in on Friday and he said something profound. It went out of the zeitgeist nicely. He said these rates were at now are what were normal years ago. So that's, you know to me that's a really profound idea. I looked at a yearly chart of the tenure going back to Eisenhower and the answer is after the great moderation I guess we're back to something new to, to Dr. Yardeni's point is it's something that's normal.

[Amanda Lyon]

I listened to that interview, it was great. I did 42 the uniques. I think while that's true Tom, the important consideration for credit investors though is that the credit markets have grown so much since that time and the shape of the credit markets is very different. And so the last time when we were at these rate levels, so kind of pre financial crisis, the credit markets were tiny. We didn't have as much refinancing that was happening. We didn't have this capital intensive build out where again I think it's hard to understate the, the importance of this being a multi year issuance cycle. And so that's really what we think is most critical.

[Tom Keene]

So I see a lot of these companies not borrowing, not just in the U.S. but in Canada, in Europe. I think that's a good thing, isn't it? Show the breadth of this.

[Amanda Lyon]

Yes. Borrowing capacity and that's something we expect to continue. The thing that jumped out to us actually European AI related credit has been holding in a little bit better than the U.S. and so we dug under the surface as to why. It's exactly the point you raised. There's been a global amount of issuance but it hasn't been as heavy in Europe. So we do see scope for the issuance in Europe to increase in smaller regional markets like Canadian dollar, Swiss franc. Those markets are tiny, so they're not going to be able to do the heavy lifting. That's where we think the private markets will come in.

[Edgar Denny]

Amanda, thank you so much. Let us know, give us a front. You know, and Goldman Sachs is doing the next hyperscaler piece. You know, give us a ring, send a raven. It's like House of Dragons, Game of Thrones, Send a raven. So we know Amanda Lyon in there with Goldman Sachs. Stay with us. More from Bloomberg Surveillance coming up after this.

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[Edgar Denny]

Vina lo dark as the door Head of advice, planning and fiduciary services. Bny mouth I don't care. You had the most coveted scholarship in the world, the Thomas Jefferson Scholarship. Uva, how in God's name did you get from civil engineering to working for the bank of New York?

[Alvina Lowe]

Ah, great question. So as a tax attorney, right? I went from civ engineering into law thinking I was going to be a patent attorney. Then I just fell in love with trust and estates law when I sort of started practicing. Because Thomas, you can imagine the tax code is very much like a puzzle which is what engineers do, right? We reverse engineering and figure out the math. I'm probably the only lawyer out not only, but I'm probably one of the few lawyers out there who are not afraid of numbers. I love people and I think families and wealth is messy and it's great. So that's how I got into it.

[Edgar Denny]

So engineer, this is the bull market in order. Is the bull market bull market in place right now?

[Alvina Lowe]

Well, the way I think about it is that your wealth planning actually has drive a lot with investments. And while a lot of our clients are of course asking is the bull market in place, they're also asking question about what it looks like in the long horizon. And this is where wealth transfer planning come in. As you know, we just published our wealth in motion report by BMI wealth and it tells us that a lot of our clients are thinking about wealth transfer. They know they need to do it but the conversation is not over and it's not quite done.

[Tom Keene]

So how are people? Are people prepared? What are they doing for this? Because we hear about this great wealth transfer from my generation to the Rugrats and I told my kids last check I write is going to Bounce, don't wait on anything. How, how, how are people doing this?

[Alvina Lowe]

So you're right. You know, we're looking at the so called great wealth transfer, the $124 trillion that's expected transfer from the baby boomer generation to the next generation. The next 20 years would tell you that the great wealth transfer is still happening, but it's happening a little different than when we all anticipated. It's happening slower. And so I would look at it more as a journey as opposed to a single.

[Edgar Denny]

Listen to you. Okay, so it's happening slower. Is it happening slower because we're all living longer, which is actually real, or is it happening slower because the brats have no interest in Bloomberg surveillance?

[Alvina Lowe]

We hope they do. So I would say it's just three things, two of which you hit. The first is longevity. Right. People are living longer, a little bit more worried.

[Edgar Denny]

Washington posted a great article on that this weekend, so.

[Alvina Lowe]

And the second is, is that people do feel like the heirs are not quite ready.

[Celine Wu]

Right.

[Alvina Lowe]

And they're not ready to assign responsibility.

[Edgar Denny]

The middle child was at a Backstreet Boy concert this weekend. They're not ready.

[Alvina Lowe]

They're not ready. Yeah. And so, and then the third third that we found in our survey is actually fear of changing regulatory and tax environment. So those are the three factors. You've got two of them right on the nail.

[Edgar Denny]

I'll take in the taxes.

[Tom Keene]

So how about philanthropy? Are people concerned about philanthropy? Are they just thinking about what's the most tax efficient way for me to get my asses to my heirs?

[Alvina Lowe]

It's a little both because sometimes your philanthropy plan can actually marry with your own estate plans of how to get to your ears. There's a lot of strategies were used that benefit both charity and personal. But speaking of philanthropy, this is one of the things that to me was the most startling, most interesting data point from this whole entire report because it highlights the theme, which is that for wealthy families, there is a huge gap between intention and execution. In our survey, for example, we found 91% of our respondent wants to leave a charitable legacy. And guess what? Only 36 of them actually have plan to do so.

[Edgar Denny]

It rings true. I mean to say at least. Alvina Lowe with this right now, head of advice, planning and fiduciary services, passing on the money to the kids bny wealth. I look at this and at the end of the day, it's the reality of the modern world. We're under willed and are we under trusted? Are we not using the legal vehicles we need to use to transfer and yet maintain control.

[Alvina Lowe]

Quite the contrary actually in our report 2/3 of a respondent actually at least have one trust in place. The average is 2.7 trust in place. So no, I don't think we're under trusted or under execute and under carry out the plan because just because you have one trust in place and you have the document, it doesn't mean your plan is finished. It is just the beginning.

[Tom Keene]

All right, for our listeners and viewers, what's the first step? Go to their tax person, go to their financial advisor, call up a wealth management. I mean how did they start?

[Alvina Lowe]

Yeah, great question. No, I will not call your lawyer to start because they are a part of this but not the starting point. I always feel like you need to start with the why. You need to start with your end goal. So I would be working with your financial advisors to figure out what your end goal is, what is your North Star and then assemble the team. And one thing I do not want to forget and this is definitely the trend that we're seeing in the last ten plus years or so. Don't just focus on the tax and legal structure. Honestly that's the easy part. The harder part, which is what's holding a lot of people back because we have all these brats in our system is that you have to have the conversation with your children. And air in our survey we found that only 20% feels that there are children are ready for this because they simply have not had.

[Edgar Denny]

Yeah, I would say that number is high. I mean, you know, I mean I grew up in a twisted house folks. It was decidedly not normal like me. But the answer is even the kids that weren't engaged 40 years ago were somewhat engaged. I find not just you know, my wonderful offspring, most of the kids, they're literally like removed from thinking about financial issues.

[Alvina Lowe]

Right. And a lot of people confuse financial education with financial readiness. This right. A lot of people.

[Edgar Denny]

Nice.

[Alvina Lowe]

Talk to us about hey can you come and talk to our kids about basic investing? What is the reason they have no

[Edgar Denny]

interest is what I what I see day to day.

[Alvina Lowe]

That's why we actually need to engage them in doing. Right. So it's not just teaching, right? Anybody could get information.

[Edgar Denny]

What do you mean doing? Set up an account at BNY Mel. We would love that trade SpaceX.

[Alvina Lowe]

Well we, we would love to get them engaged in a conversation. So for example getting them to be co trustee of their trust, not necessarily of all the decision when they come of age but be at a seat at the table. So they have a vote. Getting them involved with philanthropy. Set up a donor advice fund. Do something small to incremental to start, but have them actually making decision rather than talking to them. Let's bring them along.

[Edgar Denny]

I mean, you bought all your kids nine shares of Paramount, right? That worked out.

[Tom Keene]

What's the reasonably proper age to start these discussions with your children?

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[Alvina Lowe]

Well, I think it depends on. It depends on what type of conversation. I think they can start as early as elementary school. Not necessarily tell them your net worth and every dollar, but just talk to them about investing and saving. So I know we started off with this. My son is actually on his college orientation today, and he had a job last summer at the local pool, right. I got him to do a Roth ira and I opened him of a small account. I told him I would mommy match you, which means if you put your money into the ira, I will give you an equivalent amount to spend. So he has this tiny little account, you know, and he invested in, you know, he looks up the app, he looks at the investment. Right. And he gets to watch it. I want to engage him.

[Edgar Denny]

Right.

[Alvina Lowe]

Doing early on in civil engineering.

[Edgar Denny]

To me, it's like microeconomics and economics. There's a point like your sophomore year, you take static and dynamics.

[Alvina Lowe]

Oh, yes, I remember that.

[Edgar Denny]

That separates. That separates the. The women from the girls or the

[Alvina Lowe]

men from the boys.

[Edgar Denny]

And then you jump to thermodynamics, and

[Alvina Lowe]

it's like, okay, you see, that's why the tax code doesn't scare me.

[Edgar Denny]

Yeah, exactly. Are you based in New York or.

[Alvina Lowe]

No, I'm in New York. I am in New York. Right down the block.

[OnDeck Advertiser]

There you go.

[Edgar Denny]

She used to put up with Jeff. You.

[Tom Keene]

Yep.

[Edgar Denny]

You know Alicia Levine.

[Alvina Lowe]

Oh, I love Alicia.

[Edgar Denny]

Some prodigious math skills there.

[4imprint Advertiser]

Yeah.

[Tom Keene]

There another one.

[Edgar Denny]

I mean, you talk about civil engineering. This has been great. Alvino Low, thank you so much for coming in. Let me know when the kids figure it out, because I don't see it. She is with BNY Melt. Stay with us. More from Bloomberg Surveillance coming up after this.

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[Tom Keene]

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[Bloomberg Surveillance Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Edgar Denny]

So Peter Orzig shows up at Lazard and they go yeah. On the watch on AI Em. We got a French literature major from Seoul, Korea that works out. Joining us, Celine Wu, Portfolio Manager, Lazard Asset Management Right now in the Zeitgeist this weekend with Satya Nadella there was others, Jensen was out there but Satya Nadella at Microsoft has a lot of headaches. I don't want you to do buy, hold, sell. I know that's inappropriate on Microsoft, but what is the character in the earnings season of the headaches of someone like Microsoft?

[Celine Wu]

Well, I guess, I mean thank you for having me First. I guess the key events in development we continue to watch and scrutinize are how much is going to be the capex spending just to support this massive data center build out and where are the use cases, where are the return on investment? Where are you seeing in terms of generating and accelerating revenue growth?

[OnDeck Advertiser]

Love it.

[Edgar Denny]

I get the use cases. How in God's name can they generate a conference call? An arrow? I now I don't see it.

[Celine Wu]

You don't see any ROI use cases from their conference call?

[Edgar Denny]

I'm asking you.

[Celine Wu]

Well, I mean let's start with the hyperscalers. I think where we see the most immediate and the tangible areas seeing the revenue acceleration is their core businesses, which is their cloud services platform. Look at these companies. If you see their year on year revenue growth for their cloud services it had started to accelerate starting from the second half of last year. We just saw that from the Alphabet last year which is pretty fantastic. And these companies continue to highlight that how it is so difficult for them to meet all the customer the demand for their cloud services. Hence the backlog number which is another very important data point that we would like to monitor. And I think all in all those are the most important in the short to medium term data points. Guiding lights you continue to have to monitor and understand why they continue to come in to spend a lot of

[Tom Keene]

money you say to focus on enabling technologies. Examples of what are enabling technologies?

[Celine Wu]

Yeah, I mean that's actually one of the most important and it may be relatively underappreciated compared to hardware infrastructure companies. When you think about spending for techie we currently allocate about 20 to 25% of the portfolio for this companies. These are basically referring to selective software and technology companies, for example, cybersecurity vendors which are critical to maintain the AI systems seamlessly and safely as well. And some of the infrastructure software companies including observability software or eda, which is electronic design automation software, which is critical set of tools that you need when you want to design and then manufacture electronic systems, including semiconductors. I think there are a lot of selective companies that present compelling investment opportunities within this tech stack and they are foundational underlying software tools that they're critical to maintain AI systems.

[Tom Keene]

A company like Microsoft stocks down 21% year to date. It kind of got drawn down, pulled down with some of the software as a service sector here. How do you think about that scenario? Maybe Microsoft in particular?

[Celine Wu]

Well, I can really comment specifically about one stuff but that being said what I can present instead is the definition of competitiveness for the traditional software are clearly changing in the face of innovation from the AI labs we have seen major development and consequences and implications coming out of the cloud code beginning of this year. So that being said, I think a lot of incumbent companies it's critical for for you to prove to the market not only from the offense but from the defense perspective that not going to be disrupted but you can actually use this innovation to be accelerate your revenue

[Edgar Denny]

something with this lazard as we dive into some of the niceties particularly involving other nations. So over the weekend see XMT was a transaction in China and yet at the same time President Xi is pulling back from overt economics and investment and finance outside of China. Is China going to be capitalistic in the AI world or are they going to be some unique calculus?

[Celine Wu]

We don't know and that's a great question. One thing for sure is what China is trying to build and intend to innovate is just trying to proliferate open source models as soon as possible, as fast as possible because ultimately that is, that is going to result in proliferation in terms of AI applications.

[Edgar Denny]

So non sophisticates like me go there. The phrase we use Celine is they're cleaning our clock.

[Celine Wu]

Are they to clean the clock? I mean it remains to be seen but basically you know that open source compared to the closed source frontier models in the U.S. in the west have different use cases, different cost understanding, analysis. So we will just like we will monitor what how that pans out in terms of the application layer in China.

[Tom Keene]

What are you going to be looking for from the big tech names this week? Are you doing more spending? Better ROI discussions? What are you looking for from some of the big tech names that are reporting this week?

[Celine Wu]

I'm looking forward to see definitely the trajectory in terms of capex spending not just for this year and next year and how that reconciles with their expectation and outlook for their revenue growth. But more importantly I think again for this hyperscalers and peak tech companies, the definition of traditional competitiveness and modes are changing as well. And I think we're actually seeing more intention and interest for them to build more vertically integrated business models across the tech stack. You just don't want to be just frontier model providers or the software or the distribution or data. You just want to own as much as possible within the across the AI tech stack because ultimately that is what what is going to pay off in the long term.

[Edgar Denny]

Celine thank you so much Lu Great brief Portfolio Manager, Lazard Asset Management thank you for coming in.

[Bloomberg Surveillance Announcer]

This is the Bloomberg Surveillance Podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 7 to 10am Eastern on bloomberg.com the iHeartRadio app, TuneIn and the Bloomberg Business App. You can also also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.

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[Bloomberg Surveillance Announcer]

flow crunch OnDeck's small business line of credit gives your business immediate access to funds up to $200,000 right when you need it. Cover seasonal dips, manage payroll, restock inventory or tackle unexpected expenses without missing a beat. With flexible draws, transparent pricing and control over repayment, get funded quickly and confidently. App [e-mail] funds could be available as soon as tomorrow, depending on certain loan attributes. Your business loan may be issued by Ondeck or Celtic bank. Ondac does not lend in North Dakota. All loans in amount subject to lender approval.

[Edgar Denny]

Oregon this is our home. From its wide Pacific shore to its majestic peaks and open desert, this state has it all. But one careless spark could take all of this away. Whether you're at home, at play or on the job, the power and responsibility of Wildfire is in your hands. Please keep Oregon Green.