July 3, 2025 • 20 mins
Watch Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence hosted by Paul Sweeney and Isabelle Lee
- Anurag Rana, Bloomberg Intelligence Technology Analyst, discusses OpenAI agreeing d to rent a massive amount of computing power from Oracle Corp. data centers as part of its Stargate initiative. The rental will total about 4.5 gigawatts of data center power in the US, which could power millions of American homes. Oracle will develop multiple data centers across the US to meet the additional demand from OpenAI, with sites in several states under consideration.
- Reshmi Basu, Bloomberg News Credit Reporter, on JPMorgan’s Risky, 5-Day Dash to Help Warner Bros. Split in Two
- Ira Jersey, Bloomberg Intelligence Chief US Interest Rate Strategist, on how the June jobs report could affect Fed, Interest Rates cuts this year
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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Listen on demand wherever you get your podcasts, or watch
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Speaker 2 (00:24):
I think there's a lot of news in the technology
side of the business on open ai. Open ai has
agreed to rent a massive amount of computing power from
Oracle data centers as part of its Stargate initiative, totally
about four point five gigawats. I don't know what a
gigawatt is, but it sounds big of data center power
in the US. So I have no idea what that means.
(00:44):
And open ai is not. I mean, Bloomberg ais give
me some stuff, but I need to go to the
source on a Ragrana technology analysts for Bloomberg Intelligence on
a rocket. It seems like we're seeing a lot of
deals getting inked here in the tech space. This open
this ai story is still moving along at a rate pace.
Talk to us about what's going on at Oracle.
Speaker 3 (01:03):
Yeah, so this is something we discussed a few days
ago when Oracle was up you know, sharply at that point.
They didn't disclose the name of the client, but that
seems like, you know, as we said, it is open Ai.
This is part of the Stargate project that came out
right after the president gard elected at the beginning of
January or the middle of the end of jan This
is a big project. It's going to take several years
to build out. It's going to be very humongous data
(01:27):
centers across the country and perhaps even globe where open
ai is basically buying computing capacity from Oracle with the
help of SoftBank, you know, funding part of that particular project.
Speaker 4 (01:39):
What is your sense of this deal, because we have
credit ratings SMP saying that Oracle clouds infrastructure and buildings
free was training cash flow and that the current spending
pace is hired and anticipated. Is that also the view
you have?
Speaker 5 (01:52):
Yeah, it's going to be much higher.
Speaker 3 (01:53):
In fact, we think the company gave guidance of about
capex of twenty five billion.
Speaker 5 (01:57):
We think that's going to be low.
Speaker 3 (01:59):
It's going to be you know, north of that over
the long term, I mean over the next three to
five years. Remember, just a few years ago they were generated,
they were only spending about five six billion dollars a year.
But frankly speaking, if you really want to play in
the cloud infrastructure game or AI infrastructure game, you really
need to spend the money up front in order to
get those workloads down the road. Microsoft is spending, Amazon
(02:21):
is spending, and you know, frankly, for Oracles, you know,
good fortune they actually have a client who's willing to
pay them ahead of time, or they have an agreement
so that they can go out and build this data
center and they can recognize revenue.
Speaker 5 (02:33):
Over the next few years.
Speaker 2 (02:35):
Oracle will develop multiple data centers across the US with partners,
with sites in several states on consideration, including Texas, Michigan,
and Wisconsin. Here where does Oracle fit within kind of
your broader AI theme.
Speaker 5 (02:50):
On a run? Yeah, just about five years ago.
Speaker 3 (02:53):
To be honest, they were pretty much absent in this
game because their cloud infrastructure was there to take care
of their clients only, and you know, nobody else was
renting it from them. I mean there were certain clients,
but not so big. I think the TikTok deal really made,
you know, helped them out because TikTok runs on Oracle
cloud infrastructure.
Speaker 5 (03:10):
They gave them some credibility.
Speaker 3 (03:12):
You know, they've been spending a lot of money to
expand their data center footprint.
Speaker 5 (03:16):
I think they can afford to do.
Speaker 3 (03:17):
That because they have a very incredible profitable, you know,
database business where they are the market leaders. They have
a lot of cloud applications where they generate a lot
of free cash flow. So they established this business and
now they're getting the reaping the benefit of it. As
it relates to let's say AWS, They're still very small
in size and their infrastructure as a service business. Last
(03:40):
year day ten billion dollars in revenue as compared to
let's say Amazon, which is running about one hundred billion
or so. But this particular customer or this customer and
a few others by f FY twenty eight will add
another thirty billion dollars on top of the ten that
we are talking about. So their cloud business really becomes
much stronger down the road because of this deal.
Speaker 4 (04:01):
What about Microsoft? Lots of news here too. Their gaming
division laid off hundreds of employees, and specific to Xbox,
this is the fourth mass layoff at least in the
last eighteen months. What is their strategy here?
Speaker 5 (04:13):
The strategy I think is by the CEO saying, listen,
you use these.
Speaker 3 (04:18):
AI tools, become more productive, and I'm not going to
hire at the same pace as we used to hire before.
Speaker 5 (04:23):
And I think that is the game now.
Speaker 3 (04:26):
I think this is going to go on and carry
on to other tech firms, whether it's on the software
landscape or any of the other subsectors. But I think
you're going to see this theme recurring over the next
twelve months where CEO's CEOs are saying, you really need
to figure out your productivity before you ask for a headcount.
And I think that is frankly speaking, that's not good
(04:47):
for the downstream players, people who are selling software packages
to these companies HR software sales software. But there's not
a whole lot anybody can do about it at this point.
Speaker 2 (04:57):
Anrag, I know you and Mandeep and your technology team
have done deep, deep dives into AI, and folks, there's
lots of great Bloomberg intelligence research out there on the
terminal and so check it out. But there's some serious
and deep dive work, some the best on Wall Street.
If you want to learn about what AI is, check
that out. I'll tell you what what I say, which
(05:19):
I don't hear many people talking about this will replace people.
AI is going to replace people across I think countless industries.
What do you guys think?
Speaker 5 (05:30):
No, I think that's a very valid view.
Speaker 3 (05:31):
And as I was telling you on the Microsoft's case,
when we go pre you know, pre chart gpt ERA,
for every dollar one percentage points increase in revenue for Microsoft,
that headcount used to grow somewhere around point seven zero.
Speaker 5 (05:45):
Point eight times.
Speaker 3 (05:46):
We're close to a point that it's going to be
very difficult to see that ratio now because Microsoft revenue
is going to grow, let's say, over the next twelve months,
somewhere around thirteen to fifteen percent, but I don't think
the HeadCount's going to grow anywhere more in four to
five percent. And that's, frankly, is the asymmetric growth between
revenue and headcount that's going to recur throughout the entire
(06:09):
technology you know space, And that's you know, frankly speaking,
it is good for the shareholders, but not so good
for if you are a tech worker in this landscape.
Speaker 4 (06:19):
What about the tens of billions of dollars spent on
data centers and application development. We have Microsoft, for instance,
pledging that it will put a lid on that cost.
Are you also hearing that same vibe from other companies?
And by the way, to paulsepoint, that's kind of sad
because I hope we still have a job, which is
why I keep cooking, because I say cooking will not
be replaced by AI. Back to AIS in Microsoft.
Speaker 5 (06:43):
Yeah, I see.
Speaker 3 (06:43):
For Microsoft, they have already pledged you know, let's say
over the next twelve months, somewhere close to one hundred
dollars billion dollars for the expansion of their data center
and all the AI infrastructure build. That revenue that the
piece of that growth is going to slow down over
the next let's say, twenty four months.
Speaker 5 (06:59):
But what we don't know is beyond in.
Speaker 3 (07:01):
F F twenty seven or twenty eight, whether it's going
to continue that level or not. Right now, it is
driving some growth for them, but it's also hurting margins.
All this reveting that's coming up is actually has a
much lower margin structure than their core business.
Speaker 5 (07:15):
So we really have to see, you know, how.
Speaker 3 (07:17):
They're going to deal with margins, and one of the
ways they can do that is by reducing headcounts.
Speaker 5 (07:21):
So I think they're going to give guidance.
Speaker 3 (07:23):
By the end of this month when they report results
for the next their fiscal yer, which is have Fight
twenty six, and I think that's where they're going to
see some of the margin benefits of these layoffs.
Speaker 2 (07:33):
And Agrana thanks so much, appreciate it as always on
our Agrana Senior Technology aannels for Bloomberg Intelligence.
Speaker 1 (07:40):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (07:54):
One of the stories I really enjoyed the most on
the Bloomberg terminal today is the company I to cover
for years and years and years and did a lot
of work with Warner Brothers Discovery. This was a company
too nay famed media companies put together a few years
ago to get scale to compete, but they probably don't
have enough scale even there. So now they are and
(08:14):
the stock is underperformed since putting that those two companies together.
So now they're doing what I would have recommended as
a banker, which is let's take them apart again. But
part of it is you got to deal with the
balance sheet. There's a lot of debt there for this company,
so you have to figure out a way to deal
with that. Rushmi Basu joins us here Bloomberg News, a
credit reporter, Rushmi, I loved your story here today talks
about what JP Morgan, the banker for Warner Brothers Discovery,
(08:39):
what deal did they kind of craft to deal with
the debt problem at Warner Brothers Discovery before they could
even split the company apart.
Speaker 6 (08:48):
In order for the split to happen, JP Morgan needed
to doruct a restructuring of the debt stack. So basically
what they did is they provided seventeen point five billion
dollar bridge, which is biggest bridge, massive, and they use
those funds to take out existing debt. They cut about
(09:10):
three point two billion of thirty two point five billion
of outstanding debt. And it was just a deal that
really used a lot of distressed restructuring tools and applied
it to an investment grade company, something we've never seen before.
Speaker 4 (09:25):
Can you talk about how this has the potential to
set a new president for companies, especially those in investment grade,
to just renegotiate their debt moving forward.
Speaker 6 (09:34):
So this kind of introduces a new playbook to the
investment grade community in that it was an unbelievably short consent.
It was only five days, and it was even shorter
for some funds because they had to turn in their
consent within three days given the processing times like they
were depending on software, et cetera. So really, this deal
(09:58):
prevented lenders from being able to organize a group and
fight for better terms.
Speaker 2 (10:04):
How did they get away with that? I mean, if
I ever tried that back in the day when I
was at Chase, the bondholders would just smack back at me,
right back in my face. How did they get that done?
Speaker 6 (10:14):
They really relied on kind of a prison prisoner's dilemma
in that there were winners and losers created in the
structure and they kind of stapled it to consent. There's
no kind of rules around how long a consent can be,
so they really utilized that deadline to prevent lenders from organizing.
And also they you know, to Jpmerican's Credit and to
(10:35):
the other advisors of Acorn Kirkland, they did provide an
exchange rate that was higher than where the debt was
currently trading.
Speaker 2 (10:44):
Okay, I see, but still.
Speaker 6 (10:45):
There a loss on the face value, yes, but a
premium to current trade lot.
Speaker 2 (10:49):
These are investment This isn't junk. I mean these bonds
were investment grade.
Speaker 7 (10:53):
Weren't they?
Speaker 5 (10:53):
Yep?
Speaker 6 (10:53):
I mean it kind of took investment great bombholder.
Speaker 2 (10:56):
I'm not taking this deal. I just I've never seen
anything like it.
Speaker 6 (11:00):
No, neither have we. And this is kind of the
concern in the market that this is going to be
the playbook that we're going to see for more and
more investment grade companies. So the distressed kind of mechanisms
are coming to investment grade.
Speaker 4 (11:12):
But they must be taking a victory lap right now.
Although we do have the European Leverage Finance Association releasing
a statement warning that the whole process was quote a
worrying negative development, and they say that this might be
coercive in nature. How are others receiving this and will
it even be a president given warnings with certain language
like this.
Speaker 6 (11:31):
So they're talking about the anti boycott language, which basically
prevents lenders from kind of banding together and deciding not
to take part in a new issuance. So that kind
of is the first time we've seen that language. And
you know, as we know in the distressed land. We
see a ton of like no so called liability management exercises.
(11:51):
We see groups kind of forming locking arms together with
these cooperation packs. But this one just basically prevents life
unders from again coming together and not partaking in a
new issuance. And you know, eventually JP Morgan is going
to have to issue new debts.
Speaker 2 (12:09):
So this kind of in what's system again. What was
also interesting to me was this, you know, huge bridge
loan that JP Morgan did. Because I know a lot
of boutique investment banks they're really good at doing these
debt restructurings and maybe taking some business away from the
JP Morgans and the Goldman Sachs of the world. I
guess this is JPMorgan coming back and saying, listen, we've
got this big balance sheet. It can help you get
(12:30):
deals done.
Speaker 6 (12:31):
And that's so long ago we reported on a story
about how JP Morgan was trying to take a bite
out of restructurings and lmes, et cetera. And one thing
that we were hearing is that they have the balance
sheet to do so something that boutique firms may not.
So this kind of gives them more validation and.
Speaker 4 (12:48):
An interesting thing in your stories you said the whole
thing was so important, important enough that even Jamie Diamond
received updates on it. So it's not like this one
little niche group risking something big. Even the CEO, Yes,
Kepta breast.
Speaker 6 (13:01):
This front to the top. So this was a big
deal for JP Morgan and it's bankers, the M and
A bankers, the capital markets bankers, the restructuring desks.
Speaker 2 (13:10):
This was all right, JP Morgan and the company may
be doing a victory lap, but at some point in
the next year, two three, they're gonna have to come
back to the bond market and these people are going
to remember, and there could be a price to pay there.
I know I would hold a grudge if I were
a bond holder there. So anyway, great story. It got
a green bee, folks, and that means that it's a
(13:30):
really really good, cool story, and it's unique and into
scoopish and all those kinds of things of the journalists
worry about. Resh me, Bossu, thank you so much for
joining us credit reporter for Bloomberger's great story right down
my hallway. And what I did notice is JP Morgan
actually was the M and A advisor on the deal
coming together to put the company together, and now they're
(13:52):
getting paid to take them apart.
Speaker 5 (13:53):
That is beautiful.
Speaker 1 (13:56):
You're listening to the Bloomberg Intelligence podcast live weekdays at
ten am Eastern on applecar Play and Android Auto with
the Bloomberg Business App. Listen on demand wherever you get
your podcasts, or watch us live on YouTube.
Speaker 2 (14:10):
The bond market's certainly taking notice here. I got the
fun end of the curve up nine basis points on
the two year. So the bond market cares, which means
Ira Jersey cares. Ira Jersey, chief US interest rate Strategies.
Bloomberg Intelligence esconced in that Princeton office. I keep ting,
we have a nice office here in New York, but
it's not budgeting at all. My man is comfortable down there,
and I respect that. Hey, Ira, what did you and
(14:33):
what did your bond market take away from some of
all this economic data we had today, including ism, which
came in a little bit better and expected as well.
Speaker 7 (14:42):
Yeah.
Speaker 8 (14:42):
Well, I think in particular, people were concentrating on that
unemployment rate as well as the fact that you didn't
have a signific you know, you had to slow down
in private payrolls, but you didn't have as significant a
slowdown in aggregate payrolls, and those were.
Speaker 7 (14:55):
The things that people were worried about.
Speaker 8 (14:56):
So the reason why the two year yield is off
nine basis points right now is basically we were starting
to price in for the chance of a July rate cut,
and that's basically off the table at this point.
Speaker 7 (15:06):
So September is now.
Speaker 8 (15:07):
Priced about three quarters of a seventy five percent chance
of a September cut. I still think that's probably going
to be a little bit too early, but nonetheless, you know,
taking out July meant no nine basis points on twoes,
and that's exactly what we've seen.
Speaker 4 (15:21):
We have Gregory Faranello, if a mayor of it Security,
saying the Fed will take the summer off. It's really
a surprising report. To your point, rate cuts for July
basical punches zero September is kind of ify. How did
this shape your view moving forward? Did you immediately have
to write a report? Did you and your team really
were surprised and had to reshape or re angle your outlook?
Speaker 7 (15:46):
Yeah, it was, I mean, I guess a little bit.
Speaker 8 (15:48):
You know, you know, the consensus for the unemployment rate
was for it to go up a tenth and set
it went down a tenth, and I think that that
was the single biggest surprise, you know, you know, we
don't our colleagues over at Bloomberg geconom they own that
unemployment call, but the you know, I think it didn't
really reshape our views very much at all, because we've
been suggesting that we'll continue to kind of muddle along
(16:10):
with okay, employment situation, with this overhang of tariffs, keeping
the Fed on hold probably until at least the October meeting,
which happens in very late October. So we're looking at
the fourth quarter in our view, before the Federal Reserve
makes any moves at all.
Speaker 7 (16:27):
Or we'll get enough data, you know.
Speaker 8 (16:28):
You know, I think the market is more sensitive to
data now thinking that oh, they're going to change on
a dime. One bad data print means that the Federal
Reserve may go or not. But that's that's quite frankly
not the case. And one of the you know, necessary
conditions for the Fed to cut rates is a weakening
employment situation. And while it's it's weakening, it's not getting weaker, right,
(16:50):
So so it's you know, the the we're not yet
at a point where the FED will feel compelled to
cut because of the job situation.
Speaker 2 (16:59):
So sent that the market now has maybe a better
feel on the labor market, and maybe the FED has
a better feel on the labor market with today's data focused,
can then maybe move to inflation. What are the expectations
in the market here. We haven't really seen any inflation
creep into this market of any note here, which some
people had feared with the tariffs and so on.
Speaker 8 (17:21):
What's the view there, Yeah, well, there's a couple of
things going on under you know, underlying some there were
some when you look at the May data, there were
some sectors that did see a little bit of an
uptick in inflation in the good sector, but that was
offset in large part and will be offset again by
lower energy prices and as well as rents that are
(17:42):
starting to flow through. Keep in mind, you know, when
we talk about rents and owner's equivalent rent, which is
the housing component of the consumer price index, that will
continue to fall just naturally because it takes a long
time for you know, twelve months basically right for rents
to be adjusted to these new prices. So you're going
to wind up seeing, yes, it, prices will increase but
(18:03):
they're increasing at a slower pace. That means that inflation
is falling. And I think we're in an environment where okay,
goods prices go up a little, but with energy prices
and housing prices starting to come down, the only variable
left is what are service prices doing? And in today's
report you saw that wages in the services sector were
(18:23):
a little bit lower.
Speaker 7 (18:24):
Month on month in June than they were in May.
Speaker 8 (18:26):
So yeah, I agree with you, Paul, Like, we haven't
seen inflation and probably won't.
Speaker 2 (18:30):
Interesting all right, folks, Ira Jersey we know him as
one of the leading voices on US interest rates in
Global Wall Street, but he's also our soccer correspondent as well. Ira,
can you explain to me.
Speaker 7 (18:44):
Club World Cup?
Speaker 2 (18:46):
Where did that come from?
Speaker 8 (18:48):
It was the attempt by FIFA for money grab and
quite frankly, I think it's underwhelmed. You know, there's in
the summer you're kind of used to seeing Major league soccer,
and then you know international tournaments like the Women's Euros.
Speaker 7 (19:02):
Just kicked off.
Speaker 8 (19:03):
That's all the national women's teams in Europe kicking off,
and we have the Gold Cup here in North America
where we just saw last night Guatemala lose to the
United States, and you know, so now we're set up
for a final in this weekend. You know, the Club
World Cup is an idea that maybe some people will like,
but it's really underwhelmed. The times of games have been
(19:26):
really poor. It hasn't been good for the health of
some players playing in you know, summer.
Speaker 7 (19:31):
Heat in the United States at noon.
Speaker 8 (19:34):
I'm not not a huge fan of the tournament so far,
the way it's been run.
Speaker 2 (19:37):
Yeah kind of yeah. I kind of was there, but
I didn't really know what was there, and I'm like,
where did that come from? So all right, now I've
a little bit more clear. Irid Jersey, he gives you
what you need to know on the interest rate space.
It gives you what you need to know about global soccer.
He tells me what I need to pay attention to
him when I don't, So we appreciate that. Irid Jersey,
Chief US Interest rate Strategist at Bloomberg Intelligence, coming to
us from our Princeton office.
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Speaker 2 (00:24):
I think there's a lot of news in the technology
side of the business on open ai. Open ai has
agreed to rent a massive amount of computing power from
Oracle data centers as part of its Stargate initiative, totally
about four point five gigawats. I don't know what a
gigawatt is, but it sounds big of data center power
in the US. So I have no idea what that means.
(00:44):
And open ai is not. I mean, Bloomberg ais give
me some stuff, but I need to go to the
source on a Ragrana technology analysts for Bloomberg Intelligence on
a rocket. It seems like we're seeing a lot of
deals getting inked here in the tech space. This open
this ai story is still moving along at a rate pace.
Talk to us about what's going on at Oracle.
Speaker 3 (01:03):
Yeah, so this is something we discussed a few days
ago when Oracle was up you know, sharply at that point.
They didn't disclose the name of the client, but that
seems like, you know, as we said, it is open Ai.
This is part of the Stargate project that came out
right after the president gard elected at the beginning of
January or the middle of the end of jan This
is a big project. It's going to take several years
to build out. It's going to be very humongous data
(01:27):
centers across the country and perhaps even globe where open
ai is basically buying computing capacity from Oracle with the
help of SoftBank, you know, funding part of that particular project.
Speaker 4 (01:39):
What is your sense of this deal, because we have
credit ratings SMP saying that Oracle clouds infrastructure and buildings
free was training cash flow and that the current spending
pace is hired and anticipated. Is that also the view
you have?
Speaker 5 (01:52):
Yeah, it's going to be much higher.
Speaker 3 (01:53):
In fact, we think the company gave guidance of about
capex of twenty five billion.
Speaker 5 (01:57):
We think that's going to be low.
Speaker 3 (01:59):
It's going to be you know, north of that over
the long term, I mean over the next three to
five years. Remember, just a few years ago they were generated,
they were only spending about five six billion dollars a year.
But frankly speaking, if you really want to play in
the cloud infrastructure game or AI infrastructure game, you really
need to spend the money up front in order to
get those workloads down the road. Microsoft is spending, Amazon
(02:21):
is spending, and you know, frankly, for Oracles, you know,
good fortune they actually have a client who's willing to
pay them ahead of time, or they have an agreement
so that they can go out and build this data
center and they can recognize revenue.
Speaker 5 (02:33):
Over the next few years.
Speaker 2 (02:35):
Oracle will develop multiple data centers across the US with partners,
with sites in several states on consideration, including Texas, Michigan,
and Wisconsin. Here where does Oracle fit within kind of
your broader AI theme.
Speaker 5 (02:50):
On a run? Yeah, just about five years ago.
Speaker 3 (02:53):
To be honest, they were pretty much absent in this
game because their cloud infrastructure was there to take care
of their clients only, and you know, nobody else was
renting it from them. I mean there were certain clients,
but not so big. I think the TikTok deal really made,
you know, helped them out because TikTok runs on Oracle
cloud infrastructure.
Speaker 5 (03:10):
They gave them some credibility.
Speaker 3 (03:12):
You know, they've been spending a lot of money to
expand their data center footprint.
Speaker 5 (03:16):
I think they can afford to do.
Speaker 3 (03:17):
That because they have a very incredible profitable, you know,
database business where they are the market leaders. They have
a lot of cloud applications where they generate a lot
of free cash flow. So they established this business and
now they're getting the reaping the benefit of it. As
it relates to let's say AWS, They're still very small
in size and their infrastructure as a service business. Last
(03:40):
year day ten billion dollars in revenue as compared to
let's say Amazon, which is running about one hundred billion
or so. But this particular customer or this customer and
a few others by f FY twenty eight will add
another thirty billion dollars on top of the ten that
we are talking about. So their cloud business really becomes
much stronger down the road because of this deal.
Speaker 4 (04:01):
What about Microsoft? Lots of news here too. Their gaming
division laid off hundreds of employees, and specific to Xbox,
this is the fourth mass layoff at least in the
last eighteen months. What is their strategy here?
Speaker 5 (04:13):
The strategy I think is by the CEO saying, listen,
you use these.
Speaker 3 (04:18):
AI tools, become more productive, and I'm not going to
hire at the same pace as we used to hire before.
Speaker 5 (04:23):
And I think that is the game now.
Speaker 3 (04:26):
I think this is going to go on and carry
on to other tech firms, whether it's on the software
landscape or any of the other subsectors. But I think
you're going to see this theme recurring over the next
twelve months where CEO's CEOs are saying, you really need
to figure out your productivity before you ask for a headcount.
And I think that is frankly speaking, that's not good
(04:47):
for the downstream players, people who are selling software packages
to these companies HR software sales software. But there's not
a whole lot anybody can do about it at this point.
Speaker 2 (04:57):
Anrag, I know you and Mandeep and your technology team
have done deep, deep dives into AI, and folks, there's
lots of great Bloomberg intelligence research out there on the
terminal and so check it out. But there's some serious
and deep dive work, some the best on Wall Street.
If you want to learn about what AI is, check
that out. I'll tell you what what I say, which
(05:19):
I don't hear many people talking about this will replace people.
AI is going to replace people across I think countless industries.
What do you guys think?
Speaker 5 (05:30):
No, I think that's a very valid view.
Speaker 3 (05:31):
And as I was telling you on the Microsoft's case,
when we go pre you know, pre chart gpt ERA,
for every dollar one percentage points increase in revenue for Microsoft,
that headcount used to grow somewhere around point seven zero.
Speaker 5 (05:45):
Point eight times.
Speaker 3 (05:46):
We're close to a point that it's going to be
very difficult to see that ratio now because Microsoft revenue
is going to grow, let's say, over the next twelve months,
somewhere around thirteen to fifteen percent, but I don't think
the HeadCount's going to grow anywhere more in four to
five percent. And that's, frankly, is the asymmetric growth between
revenue and headcount that's going to recur throughout the entire
(06:09):
technology you know space, And that's you know, frankly speaking,
it is good for the shareholders, but not so good
for if you are a tech worker in this landscape.
Speaker 4 (06:19):
What about the tens of billions of dollars spent on
data centers and application development. We have Microsoft, for instance,
pledging that it will put a lid on that cost.
Are you also hearing that same vibe from other companies?
And by the way, to paulsepoint, that's kind of sad
because I hope we still have a job, which is
why I keep cooking, because I say cooking will not
be replaced by AI. Back to AIS in Microsoft.
Speaker 5 (06:43):
Yeah, I see.
Speaker 3 (06:43):
For Microsoft, they have already pledged you know, let's say
over the next twelve months, somewhere close to one hundred
dollars billion dollars for the expansion of their data center
and all the AI infrastructure build. That revenue that the
piece of that growth is going to slow down over
the next let's say, twenty four months.
Speaker 5 (06:59):
But what we don't know is beyond in.
Speaker 3 (07:01):
F F twenty seven or twenty eight, whether it's going
to continue that level or not. Right now, it is
driving some growth for them, but it's also hurting margins.
All this reveting that's coming up is actually has a
much lower margin structure than their core business.
Speaker 5 (07:15):
So we really have to see, you know, how.
Speaker 3 (07:17):
They're going to deal with margins, and one of the
ways they can do that is by reducing headcounts.
Speaker 5 (07:21):
So I think they're going to give guidance.
Speaker 3 (07:23):
By the end of this month when they report results
for the next their fiscal yer, which is have Fight
twenty six, and I think that's where they're going to
see some of the margin benefits of these layoffs.
Speaker 2 (07:33):
And Agrana thanks so much, appreciate it as always on
our Agrana Senior Technology aannels for Bloomberg Intelligence.
Speaker 1 (07:40):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (07:54):
One of the stories I really enjoyed the most on
the Bloomberg terminal today is the company I to cover
for years and years and years and did a lot
of work with Warner Brothers Discovery. This was a company
too nay famed media companies put together a few years
ago to get scale to compete, but they probably don't
have enough scale even there. So now they are and
(08:14):
the stock is underperformed since putting that those two companies together.
So now they're doing what I would have recommended as
a banker, which is let's take them apart again. But
part of it is you got to deal with the
balance sheet. There's a lot of debt there for this company,
so you have to figure out a way to deal
with that. Rushmi Basu joins us here Bloomberg News, a
credit reporter, Rushmi, I loved your story here today talks
about what JP Morgan, the banker for Warner Brothers Discovery,
(08:39):
what deal did they kind of craft to deal with
the debt problem at Warner Brothers Discovery before they could
even split the company apart.
Speaker 6 (08:48):
In order for the split to happen, JP Morgan needed
to doruct a restructuring of the debt stack. So basically
what they did is they provided seventeen point five billion
dollar bridge, which is biggest bridge, massive, and they use
those funds to take out existing debt. They cut about
(09:10):
three point two billion of thirty two point five billion
of outstanding debt. And it was just a deal that
really used a lot of distressed restructuring tools and applied
it to an investment grade company, something we've never seen before.
Speaker 4 (09:25):
Can you talk about how this has the potential to
set a new president for companies, especially those in investment grade,
to just renegotiate their debt moving forward.
Speaker 6 (09:34):
So this kind of introduces a new playbook to the
investment grade community in that it was an unbelievably short consent.
It was only five days, and it was even shorter
for some funds because they had to turn in their
consent within three days given the processing times like they
were depending on software, et cetera. So really, this deal
(09:58):
prevented lenders from being able to organize a group and
fight for better terms.
Speaker 2 (10:04):
How did they get away with that? I mean, if
I ever tried that back in the day when I
was at Chase, the bondholders would just smack back at me,
right back in my face. How did they get that done?
Speaker 6 (10:14):
They really relied on kind of a prison prisoner's dilemma
in that there were winners and losers created in the
structure and they kind of stapled it to consent. There's
no kind of rules around how long a consent can be,
so they really utilized that deadline to prevent lenders from organizing.
And also they you know, to Jpmerican's Credit and to
(10:35):
the other advisors of Acorn Kirkland, they did provide an
exchange rate that was higher than where the debt was
currently trading.
Speaker 2 (10:44):
Okay, I see, but still.
Speaker 6 (10:45):
There a loss on the face value, yes, but a
premium to current trade lot.
Speaker 2 (10:49):
These are investment This isn't junk. I mean these bonds
were investment grade.
Speaker 7 (10:53):
Weren't they?
Speaker 5 (10:53):
Yep?
Speaker 6 (10:53):
I mean it kind of took investment great bombholder.
Speaker 2 (10:56):
I'm not taking this deal. I just I've never seen
anything like it.
Speaker 6 (11:00):
No, neither have we. And this is kind of the
concern in the market that this is going to be
the playbook that we're going to see for more and
more investment grade companies. So the distressed kind of mechanisms
are coming to investment grade.
Speaker 4 (11:12):
But they must be taking a victory lap right now.
Although we do have the European Leverage Finance Association releasing
a statement warning that the whole process was quote a
worrying negative development, and they say that this might be
coercive in nature. How are others receiving this and will
it even be a president given warnings with certain language
like this.
Speaker 6 (11:31):
So they're talking about the anti boycott language, which basically
prevents lenders from kind of banding together and deciding not
to take part in a new issuance. So that kind
of is the first time we've seen that language. And
you know, as we know in the distressed land. We
see a ton of like no so called liability management exercises.
(11:51):
We see groups kind of forming locking arms together with
these cooperation packs. But this one just basically prevents life
unders from again coming together and not partaking in a
new issuance. And you know, eventually JP Morgan is going
to have to issue new debts.
Speaker 2 (12:09):
So this kind of in what's system again. What was
also interesting to me was this, you know, huge bridge
loan that JP Morgan did. Because I know a lot
of boutique investment banks they're really good at doing these
debt restructurings and maybe taking some business away from the
JP Morgans and the Goldman Sachs of the world. I
guess this is JPMorgan coming back and saying, listen, we've
got this big balance sheet. It can help you get
(12:30):
deals done.
Speaker 6 (12:31):
And that's so long ago we reported on a story
about how JP Morgan was trying to take a bite
out of restructurings and lmes, et cetera. And one thing
that we were hearing is that they have the balance
sheet to do so something that boutique firms may not.
So this kind of gives them more validation and.
Speaker 4 (12:48):
An interesting thing in your stories you said the whole
thing was so important, important enough that even Jamie Diamond
received updates on it. So it's not like this one
little niche group risking something big. Even the CEO, Yes,
Kepta breast.
Speaker 6 (13:01):
This front to the top. So this was a big
deal for JP Morgan and it's bankers, the M and
A bankers, the capital markets bankers, the restructuring desks.
Speaker 2 (13:10):
This was all right, JP Morgan and the company may
be doing a victory lap, but at some point in
the next year, two three, they're gonna have to come
back to the bond market and these people are going
to remember, and there could be a price to pay there.
I know I would hold a grudge if I were
a bond holder there. So anyway, great story. It got
a green bee, folks, and that means that it's a
(13:30):
really really good, cool story, and it's unique and into
scoopish and all those kinds of things of the journalists
worry about. Resh me, Bossu, thank you so much for
joining us credit reporter for Bloomberger's great story right down
my hallway. And what I did notice is JP Morgan
actually was the M and A advisor on the deal
coming together to put the company together, and now they're
(13:52):
getting paid to take them apart.
Speaker 5 (13:53):
That is beautiful.
Speaker 1 (13:56):
You're listening to the Bloomberg Intelligence podcast live weekdays at
ten am Eastern on applecar Play and Android Auto with
the Bloomberg Business App. Listen on demand wherever you get
your podcasts, or watch us live on YouTube.
Speaker 2 (14:10):
The bond market's certainly taking notice here. I got the
fun end of the curve up nine basis points on
the two year. So the bond market cares, which means
Ira Jersey cares. Ira Jersey, chief US interest rate Strategies.
Bloomberg Intelligence esconced in that Princeton office. I keep ting,
we have a nice office here in New York, but
it's not budgeting at all. My man is comfortable down there,
and I respect that. Hey, Ira, what did you and
(14:33):
what did your bond market take away from some of
all this economic data we had today, including ism, which
came in a little bit better and expected as well.
Speaker 7 (14:42):
Yeah.
Speaker 8 (14:42):
Well, I think in particular, people were concentrating on that
unemployment rate as well as the fact that you didn't
have a signific you know, you had to slow down
in private payrolls, but you didn't have as significant a
slowdown in aggregate payrolls, and those were.
Speaker 7 (14:55):
The things that people were worried about.
Speaker 8 (14:56):
So the reason why the two year yield is off
nine basis points right now is basically we were starting
to price in for the chance of a July rate cut,
and that's basically off the table at this point.
Speaker 7 (15:06):
So September is now.
Speaker 8 (15:07):
Priced about three quarters of a seventy five percent chance
of a September cut. I still think that's probably going
to be a little bit too early, but nonetheless, you know,
taking out July meant no nine basis points on twoes,
and that's exactly what we've seen.
Speaker 4 (15:21):
We have Gregory Faranello, if a mayor of it Security,
saying the Fed will take the summer off. It's really
a surprising report. To your point, rate cuts for July
basical punches zero September is kind of ify. How did
this shape your view moving forward? Did you immediately have
to write a report? Did you and your team really
were surprised and had to reshape or re angle your outlook?
Speaker 7 (15:46):
Yeah, it was, I mean, I guess a little bit.
Speaker 8 (15:48):
You know, you know, the consensus for the unemployment rate
was for it to go up a tenth and set
it went down a tenth, and I think that that
was the single biggest surprise, you know, you know, we
don't our colleagues over at Bloomberg geconom they own that
unemployment call, but the you know, I think it didn't
really reshape our views very much at all, because we've
been suggesting that we'll continue to kind of muddle along
(16:10):
with okay, employment situation, with this overhang of tariffs, keeping
the Fed on hold probably until at least the October meeting,
which happens in very late October. So we're looking at
the fourth quarter in our view, before the Federal Reserve
makes any moves at all.
Speaker 7 (16:27):
Or we'll get enough data, you know.
Speaker 8 (16:28):
You know, I think the market is more sensitive to
data now thinking that oh, they're going to change on
a dime. One bad data print means that the Federal
Reserve may go or not. But that's that's quite frankly
not the case. And one of the you know, necessary
conditions for the Fed to cut rates is a weakening
employment situation. And while it's it's weakening, it's not getting weaker, right,
(16:50):
So so it's you know, the the we're not yet
at a point where the FED will feel compelled to
cut because of the job situation.
Speaker 2 (16:59):
So sent that the market now has maybe a better
feel on the labor market, and maybe the FED has
a better feel on the labor market with today's data focused,
can then maybe move to inflation. What are the expectations
in the market here. We haven't really seen any inflation
creep into this market of any note here, which some
people had feared with the tariffs and so on.
Speaker 8 (17:21):
What's the view there, Yeah, well, there's a couple of
things going on under you know, underlying some there were
some when you look at the May data, there were
some sectors that did see a little bit of an
uptick in inflation in the good sector, but that was
offset in large part and will be offset again by
lower energy prices and as well as rents that are
(17:42):
starting to flow through. Keep in mind, you know, when
we talk about rents and owner's equivalent rent, which is
the housing component of the consumer price index, that will
continue to fall just naturally because it takes a long
time for you know, twelve months basically right for rents
to be adjusted to these new prices. So you're going
to wind up seeing, yes, it, prices will increase but
(18:03):
they're increasing at a slower pace. That means that inflation
is falling. And I think we're in an environment where okay,
goods prices go up a little, but with energy prices
and housing prices starting to come down, the only variable
left is what are service prices doing? And in today's
report you saw that wages in the services sector were
(18:23):
a little bit lower.
Speaker 7 (18:24):
Month on month in June than they were in May.
Speaker 8 (18:26):
So yeah, I agree with you, Paul, Like, we haven't
seen inflation and probably won't.
Speaker 2 (18:30):
Interesting all right, folks, Ira Jersey we know him as
one of the leading voices on US interest rates in
Global Wall Street, but he's also our soccer correspondent as well. Ira,
can you explain to me.
Speaker 7 (18:44):
Club World Cup?
Speaker 2 (18:46):
Where did that come from?
Speaker 8 (18:48):
It was the attempt by FIFA for money grab and
quite frankly, I think it's underwhelmed. You know, there's in
the summer you're kind of used to seeing Major league soccer,
and then you know international tournaments like the Women's Euros.
Speaker 7 (19:02):
Just kicked off.
Speaker 8 (19:03):
That's all the national women's teams in Europe kicking off,
and we have the Gold Cup here in North America
where we just saw last night Guatemala lose to the
United States, and you know, so now we're set up
for a final in this weekend. You know, the Club
World Cup is an idea that maybe some people will like,
but it's really underwhelmed. The times of games have been
(19:26):
really poor. It hasn't been good for the health of
some players playing in you know, summer.
Speaker 7 (19:31):
Heat in the United States at noon.
Speaker 8 (19:34):
I'm not not a huge fan of the tournament so far,
the way it's been run.
Speaker 2 (19:37):
Yeah kind of yeah. I kind of was there, but
I didn't really know what was there, and I'm like,
where did that come from? So all right, now I've
a little bit more clear. Irid Jersey, he gives you
what you need to know on the interest rate space.
It gives you what you need to know about global soccer.
He tells me what I need to pay attention to
him when I don't, So we appreciate that. Irid Jersey,
Chief US Interest rate Strategist at Bloomberg Intelligence, coming to
us from our Princeton office.
Speaker 1 (20:00):
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