Nvidia’s Latest Round of Deals Spur New Circular AI Fears

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.
This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast with Carol Massar and Tim Stenovec. On Bloomberg Radio.

**Tim Stenovec** (0:32)
On the call this morning, Carol, you drew our attention to this story. Jim Chanos criticizing the company for effectively bankrolling, quote, roughly two-thirds of the cost of its own hardware sales in a reported AI deal. This is Jim Chanos' criticism.

**SPEAKER_1** (0:44)
Correct. You should know.

**Carol Massar** (0:45)
But to be fair, we see it play out in the trade-off and of investors getting a little bit more nervous about these very closely connected companies that are basically doing investments and some of that investments going to be buying something that they make, like the chips.
So let's see what Robert Schiffman has to say. He's been in the hot seat. He's been following all of this. He's Bloomberg Intelligence Senior Technology Credit Analyst. He joins us here in the Bloomberg Businessweek studio. The longer this goes on, do you get more nervous or do you feel like, okay, this is all making sense though because we do see the demand. That's real.

**Robert Schiffman** (1:17)
Yeah, I don't get nervous. I'm pretty confident in my bullish views. I'd love to be the voice of reason at least for 30 seconds. If you take a step back, so Nvidia is in the news today, most read article, the sky is falling. But what has Nvidia done over the last five years? Its stock, I'm a credit guy, its stock is up 1000%.
Its stock is still up 5% year to date. S&P is up 6, 7%, Nasdaq is up 6 or 7%.
We don't go up every single day in equity markets. We don't go tighter every single day in credit markets. So we're going to be a little bit bouncy. But that being said, what gives me my bullish viewpoint is quite frankly, the fundamentals, the evidence that growth is here and it's only getting bigger and better and it's going to stay hasn't gone away. And the evidence is it's only getting bigger and better. Now from the credit markets, it scares people a little bit because you have to finance it. You got to put in the work, the time, the effort and the money up front and you don't see it for a few years.

**Tim Stenovec** (2:18)
Yeah, hello Alphabet last week, cash flow negative.

**Robert Schiffman** (2:21)
Yeah, you know, I would argue, listen, I said this with you guys just three months ago when Nvidia reported, I thought it was the best print potentially in the history of the stock market and the stock was down. Alphabet's numbers were enormous, right? You've heard so many people say the story again today, cloud AI growth was 82% in the quarter, but they boosted CapEx again by another 10 or $15 billion. So the world starts to freak out that they can't afford it, that there's not going to be enough money to lend to these guys, the cost of capital is getting way too high, and the sky is falling, and quite frankly, it just isn't.

**Carol Massar** (2:56)
But as some of these companies, we've always talked about their balance sheet and how much cash is on their balance sheet, and it feels like things are shifting. Is that a worrisome… should we be concerned about that?

**Robert Schiffman** (3:05)
Well, we should be worried that…

**Carol Massar** (3:07)
It means less buybacks and things that investors have enjoyed, but I would push that aside.

**Robert Schiffman** (3:11)
The technicals in the market have clearly gotten weaker. So, if we just also take a step back and think about how trading desks, corporate bond trading desks work today versus how they worked five or seven years ago, is that desks used to take risk. So, when you had sellers, you actually had the banks buying back their deals, sitting on maybe tens, hundreds of billions of dollars of bonds and helping reduce volatility in spreads. Nowadays, no bank takes risk anymore. So, when you have sellers come out, you see exaggerated spread movements. On top of that, when you see deal after deal after deal, and we've heard it, there's fatigue. When there's long dated bond deal after long dated bond deal, and we think that's going to happen again next year, just the cost of having to do business is going to go up. If you're selling something today and you're going to sell another hundred of those tomorrow, the cost is going to change. So the costs are going up. But if you think about cash, there's a lot of cash that's sitting around still.