Nvidia Reignites AI Rally, Iran-Oman Hormuz Deal, The Free Money Test

0:02 Bloomberg Audio Studios.

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0:09 This is the Bloomberg Day Wake You Up podcast. Good morning. It's Thursday, the 27th of August. I'm Caroline Hepka in London.

0:16 And I'm Stephen Carroll in Brussels. Coming up today, NVIDIA's results add fuel to the AI stock rally as the chip giant predicts a further surge in sales.

0:26 Iran and Oman strike a deal to share fees from the Strait of Hormuz, but Tehran and Washington's standoff continues over control of the crucial waterway.

0:37 Plus, what happens if you give people $ 700 in one of the world's poorest countries? We'll report on a project in Malawi that could be a new model for development aid.

0:47 Let's start with a roundup of our top stories.

0:50 NVIDIA is predicting an AI-fueled spending surge that will extend into next year. The chipmaker announced a bullish sales outlook predicting revenue would grow by approximately 70% between January of next year and early 2028. That compares to Wall Street expectations of 45% growth. NVIDIA's Chief Financial Officer Colette Kress outlined their outlook during a call with analysts.

1:14 The surge in AI demand is driving a global infrastructure build-out supported by an expanding and diverse set of growth opportunities, spanning hyperscalers, AI labs, AI natives, enterprises, and sovereign customers.

1:30 Nvidia CFO Colette Kress added that the firm would be growing faster if it had access to more supplies. The company said revenue for the current quarter will be about $ 108 billion. That's ahead of analysts' expectations of just over $ 105 billion. Nvidia's shares rose by 4.7% in after-hours trading on Wall Street.

1:52 Meanwhile, Bloomberg understands that the US government is investigating Singapore-based Apex Logistics for its suspected role in smuggling NVIDIA chips to China. The news comes after Washington restricted sales of the class of hardware in question to China in 2022 due to concerns about aiding Beijing's military efforts in In a statement, APEC says that it is cooperating fully with the investigation and is, quote, committed to complete compliance with all relevant regulations.

2:25 Iran's military says it has reached a revenue-sharing agreement with Oman to collect fees from ships that travel through the Strait of Hormuz. In a statement, the IRGC said the US is obstructing this process without elaborating further. Iran has also cautioned that any deal with Oman would not equate to an immediate reopening of the waterway. Bloomberg Economics Defence Lead Becca Wasser says the US naval blockade remains a key issue.

2:50 A lot is up in the air, and I think whether the blockade remains in place or could be something that could be ironed out in negotiations is definitely one of the big ones. But I think it's very notable that Iran has said one of the core tenets of this agreement with Oman, if they reach and finalize it, will be no military ships passing through that temporary corridor.

3:13 And that, to me, implies Iran still very much has the blockade in its crosshairs for something that needs to be lifted.

3:21 As Public Economics Defence Lead Becca Wasser, this comes as US allies cast doubt on President Trump's claims that the US Navy has completely demined the Strait.

3:31 Sources close to the Kremlin have told Bloomberg that Russia is preparing to escalate attacks on Ukraine. They say President Vladimir Putin thinks negotiations for a peace deal have reached a dead end. According to them, Russia is weighing an intensification of ballistic missile attacks on Ukrainian cities, including the center of the capital, Kiev. Jennifer Welch is Bloomberg's chief geoeconomics analyst. The strategic landscape has shifted.

3:58 Ukraine, for example, has been able to leverage drone to create an essential no man's land along the front line with Russia. And that's part of the reason, as the Bloomberg reporting is reflecting, that Moscow is considering these other strategies of striking at, for example, more of Ukraine's key cities and economic centers, because they simply aren't able to make gains along the battlefield front as they were in the earlier stages of the war.

4:22 That was Jennifer Welch, Bloomberg's chief geoeconomics analyst. US efforts to end the conflict have failed to produce a breakthrough and negotiations have stalled while President Trump is focused on the war in Iran. The Kremlin also appears to have abandoned what it saw as an understanding between Putin and Trump from their summit in Alaska last August.

4:42 Meta has agreed to pay up to $ 18 billion to settle claims from U.S. states that its platforms harmed young people. The deal also requires the social media giant to put new safety measures on its platforms, according to a U.S. court filing. Spencer Cox is the governor of Utah, one of the states which was suing Meta. He says the settlement sets an example for big tech.

5:04 They knew they were in trouble. They had the whistleblowers. The harms are so clear. And these other companies are feeling that, too. They know that the court cases weren't going well. They don't want to get on the stand and have to testify about how much harm they've done to kids. So I think, I hope that this will be a driver to get everyone to the table.

5:26 Governor of Utah Spencer Cox, their lawyers for the states, argued the platforms themselves were designed to cause harm rather than focusing on their content. Meta shares closed yesterday 1.1% higher, but more major social media cases are expected in the US in the months ahead.

5:43 And lastly, Barclays says the summer heat has changed how UK businesses are investing. A survey of business leaders found that 60% are now weighing how to adapt their companies to extreme heat. Bloomberg's James Walcock has more.

5:58 Have you found it too hot to do much work this summer? Barclays found that above 24 degrees Celsius, consumers don't want to shop or commute. Spending data shows Brits have been going on staycations as summer's record-breaking temperatures cut into productivity. And with businesses also looking to adapt, the heat might lead to economy-wide shifts. In London, James Woolcock, Bloomberg Radio.

6:21 Those are our top stories for you today. Looking at the markets, NASDAQ futures have jumped as much as 1.3% after NVIDIA earnings and its outlook look particularly strong. European stock futures also gaining this morning up by four-tenths of 1%, the KOSPI rising 1.3%. Meanwhile, oil prices continue to ease.

6:42 Brent crude futures down half of 1%, $ 87.

6:44 43.

6:44 Although yesterday, the US inflation index data. The PCE number for July was hotter than expected. Treasury yields edged higher across the curve. And it also now looks like bond markets are fully pricing in a rate increase in the US by December. Those are the markets.

7:04 In a moment, we'll bring you more on the reaction to NVIDIA's Results Plus. Is just giving people cash a new model for development aid? We'll bring you details of one project that's trying that in Malawi. But first, another story that caught our eye this morning on what is that noise?

7:20 Is it perhaps music in the distance?

7:21 Is it your neighbors or is it the data center that's being built next door? A whole industry has been developed or rather a whole industry has been reorientated to around the development of data centres. These are acoustics consultants, people who'd be brought in in previous lives to do things like, you know, soundproof a home cinema, perhaps, or, you know, orchestrate something that might be, you know, helpful to insulate a room from sound. But Sheena Meng's been reporting for Bloomberg Businessweek that now this industry and these consultants are finding themselves flooded with work. to do with data centres. Developers are hiring them to survey the ambient sound levels near data centres and to guide the noise

8:00 limits set by local governments and defend themselves from complaints that they might get when these new data centres are built. On the other hand, local residents are also hiring these consultants to try and get their own data because they're not sure that what they're getting from the companies is actually going to be reliable. That means essentially these people who used to be having work on perhaps ambitious new infrastructure projects are instead all being hired to work on something to do with data centres. Now, data centres house around-the-clock cooling systems, generators, jet engine-based turbines.

8:31 What?

8:38 So they can be very loud. And that's why this has become such a big issue. But it's also provoked a crisis within this profession because people are saying that some of them don't feel comfortable doing this kind of work. It's certainly not what they set out to do. And others are saying that, look, it's just science and you've got to get the science right to be able to provide a pathway for this sort of development.

8:59 Yeah, I think this is totally fascinating. I mean, noise is becoming a real issue. There are lots and lots of stories about it in London, which is a noisy city and is apparently getting noisier. And there are loads of projects in the pipeline in terms of data centres. If you look at the Greater London Authority, the GLA, there's about 26, more than 20 at least, And, you know, noise is becoming an issue about loudcasting. People not using headphones for their mobile phones. Also, the underground.

9:31 Societies and ruins.

9:33 Yeah, the London Underground apparently is one of the noisiest places in London. And now you add the whole data center issue too, if they're being built in local areas.

9:42 I mean, I think the hum would drive me mad. I'm with you on the underground, though. I'm convinced it's gotten much louder. I was in the Central Line last week and I have to say I used to commute on that every day of the week and I cannot remember it being so incredibly loud as it used to be. So this is perhaps my own declining tolerance as well.

10:00 For loudness.

10:00 But a really interesting story on how this whole industry of acoustic consultants are now being brought into the data center universe, which actually brings us neatly to what we're going to talk about next. Because, of course, those data centers are being built because of the demand for AI. And we've had another sign that that demand's not going anywhere.

10:16 And the latest results from NVIDIA lifting stocks in Asia, Wall Street futures to the optimism that the AI trade is further to run is back.

10:24 Did it ever go away?

10:25 You might ask our markets reporter, Anthony Stevens, joins us now for more. Anthony, let's first of all, just talk a little bit about the numbers from NVIDIA. They're obviously very positive looking at the headline levels. I mean, how do we characterize how bullish they were?

10:40 Yeah, they were very British, right? On a headline level, there's triple digit growth year on year on both revenue and data center sales. So data centers did the heavy lifting of the revenue, which beat by around $ 4 billion to put a notional on it. More than that, it was the kind of guy fully a guidance that they provided, which was quite rare. They expect around 70% growth on that number. So it's quite extraordinary for the world's largest company to be putting a 70% handle on terms of revenue growth. And that's against the street expectation that was already pretty strong in the mid-40s. So, obviously, the stock turned around. It had initially dipped a little bit just because people's expectations are so high. But this guidance blew

11:21 past that. And you saw the aftermarket trade quite well, up around 4%. That followed through to Asia. That was interesting because they explicitly said that hanging on to margins would be a struggle given the pop in memory prices. Now, obviously, that was something wonderful for the Koreans to hear. And you see Samsung and Hynix do quite well, along with Nanyatech in Taiwan and a range of memory names. in the mainland on China. What was also interesting is their reference Chinese competition directly with Jensen Huang basically batting away the fact that open weight models can kind of disrupt his business model, saying that all kinds of AI are good kind of AI and the battle for computing power

12:00 is broadly positive for him. And that's got that entire space in China running You see the Chinext and the Star 50, the chip names within those indices are going very strong. So, Asia took a very positive sign overall from this result.

12:14 Yeah.

12:14 Okay.

12:15 That's pretty fascinating. But I suppose the even bigger question then is, does this all mean that the fears about an AI investment bubble are sort of dispelled? Are there any details to watch after this report that could, you know, mean that these sort of doubts return?

12:33 Well, it puts a line under the concern around the NVIDIA's kind of viability as a central banker of AI, right? You get $ 100 billion a quarter, you're in pretty good shape to invest in whatever you want. It's just the aggression of that investment that is coming into play. So, free cash flow dips again. They did reference the circular investing model once again. Obviously, that came up in the analyst call. They remain very bullish and they had some fighting words on their investments earlier With Jensen saying he only wished he had invested even more given the valuations that Anthropic probably comes to market at. And there is some fairness to that comment, right? You know, some of his early venture capital investments in the AI space will

13:13 pay off handsomely if these companies come to market at the current valuation. So, this debate continues. It'll be very interesting to see how the CDS trades. The CDS has been breaking away from a downtrend in equity vols. So, equity investors are far more relaxed than NVIDIA. In fact, in fairness, they probably seem a bit bored of NVIDIA compared to the kind of increasing panic in the credit markets.

13:37 Just coming back to, I suppose, one of the concerns that was flagged by the CFO on the earnings call about the potential shortages in supplies, which might limit their further growth, which, I mean, when you see growth at these levels already seems pretty incredible. But how serious are those concerns about shortages and what does that mean for those suppliers in Asia? Can they ramp up the production that NVIDIA and other companies want?

13:59 Yeah, and the CFO explicitly mentioned that the growth target is constrained by supply. They would have grown faster or they would be planning for faster growth if there was memory supply available. But they are not Hynex and Samsung and Kioxia's only customer. That being said, predefined memory commitments did rocket up to around $ 27 billion. And Asian shipmakers will really love the visibility that gives earnings, right? You have one of the world's biggest customers put a number to that earnings visibility, and investors really like that. Now, going forward, they also are getting visibility around sales. You had a nice kind of timing with Nscale out of Europe planning a big data center, and that's going to

14:42 be populated with the next year of NVIDIA.

14:45 Chips and kind of hardware.

14:48 And then Amazon on the AWS side put in a massive order for Nvidia chips as well. So there was a lot more visibility coming through in terms of earnings, but passing on the kind of price increases that are out of their control around the HBM side. that's going to be difficult. Now, to your question about supply, that is a very controversial topic in Asia because Asian shareholders want more cash returned to them rather than invested at the top of the cycle. So, you do have this constraint that Samsung and Hynix in particular face from a kind of a rebellious shareholder group.

15:24 Yeah, very interesting. Anthony, thank you so much for being with us and explaining the reaction to NVIDIA's results. Our markets reporter, Anthony Stevens. Stay with us. More from Bloomberg Daybreak Hub coming up after this.

15:39 Our project in Malawi, one of the world's poorest countries, is seeking to demonstrate how aid might work in the future. Over 200,000 adults in the country are receiving the equivalent of around 700 US dollars in cash to spend as they please. Our senior Africa reporter, Anthony Squazine, joins us now for more. Anthony, how does this project work?

15:58 With everyone over 18 in a region, in two districts in this case, gets 1.2 million Malawi kwacha, which is about $ 700. They get that through a mobile app, and they can spend that money any way they please. They can basically spend it on groceries, fix their house, or they can start a business.

16:17 It's fascinating and you've got lots of case studies in the reporting. The money is coming from the founders of the Australian design startup Canva. Why are they doing it this way?

16:30 Well, I spoke to the CEO and co-founder Melanie Perkins and her reasoning was that basically she thinks it's best to put money in the hands of people directly and And then they can make their own decisions because obviously people living in a community in Malawi know best what they need, as opposed to a foreign aid organization coming in and imposing something like we think you need wells or chicken rearing or.

16:54 Something like that.

16:54 It's best to let people who understand their own communities make their own decisions. That's her argument.

16:59 What sort of effect is the money having on the local economy in Malawi?

17:02 Well, I went to two villages.

17:04 Well, I went to a number, but the two villages I went to that stood out, one where they were just registering people to get money in a few weeks' time, and the other was where they had the money in February, and I went in early July, so a good few months later. The first village was pretty quiet, not much to do, post-harvest, not much going on, and people were really struggling to keep themselves busy or basically be entertained.

17:28 Whereas the second village was really a hub of activity. I met a tailor, somebody else who'd started up a small cinema.

17:37 Shops were well stocked.

17:39 Builders were busy plastering walls. And it just seemed there was a lot more economic activity, whether it be people running motorbike taxis, just anything really.

17:48 It was a striking contrast.

17:49 And it was just also a much happier place because people had some money and were using it productively.

17:56 Yeah, fascinating. So then, is this a new model for development aid? I mean, there are other examples of this kind of cash handout in lots of different communities, and there's been quite a lively debate about it, hasn't there? Yes, there's been a lot of debate.

18:12 I mean, the assumption has been that the money will be squandered. People don't know how to spend the money. But there's been a number of studies showing that that isn't the case. And generally. It works quite well. Inflation doesn't really go up, which was a fear initially. So I think it is being considered as a model for replacing traditional aid, but obviously it can't do everything. I mean, you're still going to need aid to help developing countries, you know, build power stations, retire roads, things like that. But it does work quite well at an individual level for spurring economic activity in communities.

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