Ed Ludlow (6:53)
And I'm pretty sure Jensen Huang will be responding to any concerns about erosion in market share. Run the Celica. We so appreciate you joining. Let's dig into further analysis here with Stephanie Allagai to the conversation. She's global market strategist at JP Morgan Asset Management and has $4 trillion in assets under management. 4 trillion. Rather similar to the market capitalizations of some of these companies. And I'm interested, Stephanie, does it matter to you from a market sentiment perspective if there's squabbling at the top of the US domiciled companies? Is it a worry that we'll see perhaps Nvidia being questioned in terms of its dominance? I think it's quite healthy. We've seen the AI trade has delivered enormous returns for markets over the last two years and we're I think all kind of experiencing the sigh of relief or this exhale. I guess in a way we've moved from a rising tide lifting all boats to more choppier waters and investors are being far more scrutinizing when it comes to how much is being spent. The quality of those investments we're seeing as this AI trade continues to grow in its enormity, the investment being made and the moats and such being questions and shifting. So I think it's quite healthy that we're focusing on selectivity. I mean this is what you want to see to Prevent a.com bubble. And when looking at valuations today, you know, we don't really see a big risk of that happening amongst the big tech firms. So even these worries about debt in particular, and you are coming to us with a viewpoint that is cross asset in many ways we have seen a real desire to get into AI related debt. Some of the bond sales have come from the likes of Alphabet and the likes of Matter and Oracle have been scooped up. But there's been this worry that in the longer term it might start to maybe pull back on overall demand. We might see some of these big hyperscalers coming to market so often that it drives up prices. For others this, it's possible. I mean I think first just looking at the magnitude of how much investment is needed or being spent already by any way that you cut it, the amount of spending right now is enormous. But just like Cartier isn't that expensive for a billionaire. When looking at these capex relative to the sales from these companies relative to their current revenue growth which has also grown significantly, it's actually not that extreme. So we're seeing this increasing move to tap into debt markets. But for us it's not so much these companies getting overextended but actually more so a reflection of, you know, a better, sorry, a better capital structure. You know, there are some investments like these data centers that are going to be invested over multiple years. It might make more sense to tap debt markets for some of these deals or an off balance sheet structure. So for example, we're going to be looking not only at investment surging but, but credit default swaps of Oracle surging, has that just been acting as a bellwether and a necessary bellwether to start reflecting some of the risks that maybe people had been ignoring for the past few months? No, I think it's, it's very apt. And not all of these companies have the establishments. You know, they differ in many different ways and also in their sources of revenue. And I think it makes sense that, you know, Oracle is one of the more, you know, riskier companies that is tapping these bond markets and you're seeing that being reflected and CDS spreads, but that also can't be extrapolated to the entire shift right now towards debt markets to help finance these datacenter bills. And I'll also add, look, when it comes to cloud services, that business model is one of the most cash generative business models in the world. So at the end of the day, these bonds are also being tied to services business operations that have tended to do quite well for these companies. It's interesting of course, that deciding where the margin accrues, we're going to have Dell, HP after the bell. Many feeling that margin is being eroded because of the cost of memory. Meanwhile, we'll get Micron next week with its earnings and many anticipating they're strong because of the memory demand there. From your perspective, is there still room to run in just the tech trade more broadly or has that shift into more value names? And certainly with the context of the Fed changed things longer term into the end of the year, we still think we're quite, quite early in this wave, but we've seen a chapter or two. And moving forward, I think the focus is not going to only be on compute needs and capacity needs, but also on AI utilization and what companies are really critical for that. Whether it's in software, what companies are leading the way in financials and entertainment, in adopting AI, and then also how, once we learn more about the end user demand for AI in the pricing power of these services, that's going to give us a lot of clarity around the ROI around these investments. So is that what we need? Is it ultimately the revenues of companies outside of the world of tech to vindicate that? What pushes us higher in terms of real context for you? Is it December when we get the Fed decision? What is the catalyst, do you think, for us to reassess where we are in valuations? I'd say it's less of the kind of macro backdrop really here and much more of the kind of proof point around the monetization of AI. I think the more that you see businesses ramping up their IT budgets, the stickiness that you see in those investment spending and then also AI delivering and we've seen some proof cases of that so far. Coding has been a huge factor of that. But once you see more companies, particularly outside of tech, maybe tech adjacent coming other earnings calls and talking about their AI generated savings, I think that's going to be a really important next lever for the trade. And then what about the lever for actually the companies that are adopting the clients that are calling you on a daily basis, Are they saying do I double down more in tech or are they saying I need to double down outside of the world of tech? I think it's, it's diversifying that tech exposure. You know, after a long run in these names, you don't want all your eggs in one basket because it is all in Nvidia. No, probably, probably not. At least you want to right size some of that exposure, build on top of all of those gains that we've experienced and position for how this wave is going to evolve. There will undoubtedly be losers and winners and but we also don't want to be out of the market. And that's another thing that we're trying to talk to clients about because even when you call a bubble correctly, if you weren't in the market from 1995 to 1999, you would have missed out on over 400% and total return in the Nasdaq. You were right. But you locked in years of underperformance to so when it comes to US Equity markets today, we don't see that real risk of a systemic bubble. But we do see a real opportunity to just make sure that portfolios are built for resiliency and they're also built to take advantage of how this wave continues to evolve. Well hopefully keep having you on as a bubble or indeed the narrative does evolve. We so appreciate Stephanie Aliaga of JP Morgan Asset Management can cross tech for us. Meanwhile, coming up with China's Xi Jinping revives talk talks to sovereignty over Taiwan in a phone call with President Trump. More on that next. This is Bloomberg Tech. Chinese President Xi Jinping well has revived the topic of China's sovereignty over Taiwan in a phone call with President Trump yesterday discussion that didn't come up during their face to face meeting last month in Beijing. Bloomberg senior tech editor Mike shepherd joins us for the latest. And Mike, remind us from a tech perspective, Taiwan, we know its dominance in chips. We understand its integral nature to the tech ecosystem. What is happening between Xi Jinping and Trump on this?
