SpaceX comes to save the AI trade. Bloomberg Open Interest starts right now. Wall Street is split on AI: Ken Griffin sees a bubble. United misses estimates and warns of a tough quarter ahead.
SpaceX is higher after beating estimates, up about 7%. It is not lifting the broader indexes that much in the premarket, but good news for SpaceX. Tesla is up about 1.6%. This is after Musk says SpaceX and Tesla are exploring a potential merger.
Something I felt we all knew, but good to get verbal confirmation from the man himself. So we get those earnings, and we also have Netflix yesterday lower after it reported, down nearly 6% in the premarket. Investors were focused on softer growth and guidance. Meta is next, with AI spending and demand in focus. Meta earnings will be a gut check. Larry Fink weighed in on the bubble talk.
There are bubbles in this moment in time, and any radical transformation of the economy is generally intertwined with a bubble.
Two-thirds of the U.S. economy's capital expenditure is on technology, whether it is cloud, AI, capex, making sure they are competitive. And if we slow down the build-out of this technology, I think it does jeopardize the economy.
Let's discuss that — AI and the potential SpaceX-Tesla merger — with Ed Ludlow. We knew this was coming, so what have we learned about potentially this mega-merger?
The mechanics: special committees on both sides are looking at it. That is not a surprise. It was interesting to hear Elon Musk say it is at the request of shareholders that this is happening. Elon Musk is a conflicted party, so he does not participate in the special committees. But the more interesting part is to debate whether the stock in the premarket, up as much as 8% because of this news, adds up — because, as pointed out, it was never a matter of if, it was a matter of when for the markets. We talk about the massive outperformance SpaceX posted in quarterly earnings. It is interesting that Musk emphasized for a lot of people the merger of the companies is a certainty, and to his mind that would be overstating it. They have not reached any agreement on terms. A lot of people do not know. You said it would be a $3.5 trillion company combined. Would it? What kind of premium will you have to get to get shareholders on board? These are all outstanding questions.
Can we get into the numbers? AI contributing to nearly half of total revenue, increasing from a year ago. Is this just confirmation that SpaceX can keep spending because of the AI returns they are getting?
Great table there, because it showed what was the story this quarter. The story of this quarter is an AI company; last quarter it was a connectivity company. In simple terms, AI is a segment that encompasses a lot. A lot of this activity is terrestrial — it is renting capacity to third parties for earth-based data centers, not what is going on in space, which is the future. Even on the bottom line, that is what was astonishing. Connectivity is still the cash cow, but a lot of people thought the AI segment would have an operating loss. It did not — it came in at $431 million. The CEO emphasized in the near term the growth of this company, SpaceX, has nothing to do with space. It is driven by data centers on planet Earth.
A data center landlord — at least in the near future. Elsewhere in earnings, United Airlines forecast. Weaker growth heading into the holiday season as fuel prices eat into profits. Bloomberg chief aviation correspondent Siddharth joins us. The United CEO on Surveillance just moments ago: is this finally the moment where consumers are not willing to continue to pay up for pass-along prices of higher fuel costs?
United is talking about how demand continues to be robust. They are forecasting fuel costs going up further into the winter quarter. So that is where the airlines are struggling, in terms of how much more can they pass along to consumers before the consumers stop spending. Delta and United talk about how demand continues to be strong, but I think the industry is waiting to see where is the push, where consumers push back and say, 'We cannot take it anymore, we are going to downgrade or fly less.' That has not yet come here, and airlines continue to talk about demand being strong even as ticket prices go up.
If demand is strong, does that mean anyone booking a flight will see higher ticket prices?
We have been seeing higher ticket prices for a while as airlines have struggled with fuel costs. Fuel is the second largest cost of their operation, and since fuel costs have surged 61%, they have sort of had to come up with ways to try and get consumers to pay more and pass along those costs. And some airlines have gone into segmentation, where they are sort of offering business class seats. Delta has done that, offering business class seats without the frills as a way of lowering the cost of entry and trying to get people who would fly business to continue flying business.
I disagree with the concept. If I am paying a lot, I should get business or not get business. We are also going to hear from Southwest. Have they also made strides in trying to offer something more premium that can weather this moment of inflation around fuel?
That is where every airline in the U.S. is going today. They are all adding business class, lounges, bells and whistles, and trying to attract that top end of the economy which we keep hearing about. The top end is much more important for the airlines, and so the airline CEOs are sort of pitching for premium. We have seen Southwest go premium with lounges and extra legroom, charging for bags. We are seeing Alaska do flat seats. So across the board, premium is where the industry seems to be going.
Thank you for joining us. Meta reports very soon. What are the expectations for the market?
This is hugely important considering the selloff we have had, and the return on investment will be such a huge portion from them. And pleased to say we have someone joining us who can discuss this further. Joining us now is Mandeep Singh from our Bloomberg Intelligence team. What are you looking for when Meta reports after the bell?
SpaceX reported last night, and they said they probably will be doubling their capex, and they plan to add 10 gigawatts of capacity. And the reason is they are able to monetize at a rate where compute rentals could be a big business for them — and with 1.6 gigawatts they are generating $30 billion. So if you extrapolate that, that would be north of $100 billion next year. So why is Meta not doing the same in terms of compute capacity? They have a frontier-tier model, but they could be generating north of $100 billion by renting compute to frontier labs. So I think that question will come up in terms of usage within their own apps versus renting it out, given the opportunity cost.
Is all the focus for Wall Street on AI? They still have other businesses — they still have Facebook, they still have Instagram. Does the market care about that?
I hope they do not lose more money on the metaverse segment. They probably have a lot to invest in terms of their core business, and we will probably see acceleration in their core business. I expect that to be part of the pricing being better than the rest of their peers. But when you're talking about $200 billion-plus in capex, and I'm guessing that given what we heard from SpaceX, with that kind of capex investment you have to have a tangible line of business beyond your core business, and that is where the compute rentals would have made it easier for them to showcase that, given their models are still not being used in terms of monetization and that sort of business line.
Why do you think they have not gone there? It feels like low-hanging fruit. Maybe we need to get into the mind of Mark Zuckerberg and be bullish about committing to their own internal AI — but is there any argument you could see to really hesitate and make this move?
He said on a recent podcast they took a risk in terms of getting to the frontier, and it was a risk. But now that they are close to that frontier with Muse, they feel confident they can use that capacity for their own usage. If you talk about deploying use across 3 billion-plus users, you need all that capacity, but you have to make sure there is no other model consumers are using, and this is the primary consumer agent. I do not think we are there yet. It could happen, but it is still a big if.
Looking forward to catching up with you tomorrow after we hear from Meta. That is the latest on tech, and tech is rebounding this morning, getting a lot of help from SpaceX. The Nasdaq is up 0.6%, so not a huge rebound. SpaceX is one of the examples of they committed to spending a lot of money, but investors can forgive it if there is some sort of return.
It sets us up for the Meta earnings: is this another company that will come out and say we are spending more on AI, we are actually going to upgrade capex projections? These are huge numbers, but this is a huge company with a huge balance sheet. They can afford this.
I hope they keep spending on safety provisions for Muse. Let's get a look at other movers on our radar. AT&T added fewer wireless phone customers than expected, dragging Verizon and T-Mobile down with it, overshadowing an otherwise solid quarter of revenue. AT&T raised its full-year outlook as well.
Super Micro is pointing to continued AI demand as a key driver.
Abbott plans to spin off its nutrition business into a separate company by the end of 2027. It stays focused in the meantime on medical products.
Coming up, Netflix reporting its slowest sales jump in three years. More on the streaming giant next. This is Bloomberg Open Interest.
Let's get a look at what is making headlines around the world. France's president is accusing foreign leaders of exploiting riots for political gain. He says misleading images and reports have falsely portrayed France, while insisting there is no evidence of direct interference. Elsewhere, United Airlines is warning jet fuel costs will pressure profits. The CEO joined Bloomberg TV earlier to talk about what it will mean for airfare.
We passed about 72% of the increase in fuel price. It is a remarkable demonstration of the industry changes in resilience, and also the commoditizing of air travel. While we are not earning as much in the second half as we did last year, and not as much as we expected to come out, we are still profitable and ahead when the situation does normalize.
Netflix is forecasting slowing sales growth. Its advertising business fell short of expectations. It is also shaking up leadership after a stretch without major breakout hits.
For more on Netflix, we are joined by a Citizens equity research analyst. Citizens maintains its perform rating on the stock following the results. Slowest sales jump in three years for Netflix — what is troubling here?
I think the quarter was largely in line. There was a little bit of noise in advertising. But the big question facing Netflix has not changed: since the company walked away from trying to acquire Warner Bros., what is next? Decelerating over the past year, engagement is lackluster. Competition continues to intensify. Netflix became the premier streaming destination in the early days of streaming and is still benefiting from that position. Now that Netflix has to reassert itself as a must-have streaming service the consumer will turn to when they sit in front of the TV, investors are concerned about what is the path to engagement going forward.
What is the path? How do they get there?
One of the biggest developments is the hiring of the chief content officer. He is well respected. I think he can bring creative talent back to the platform, or back to Netflix. I think they are going to focus on prestige and getting back to their roots. Finally, you have seen Peter Rice in the past — I think he may be willing to go after sports rights.
Lucas Shaw is reminding us in his coverage today that Netflix is still a leader in streaming, right? So they have more than 325 million subscribers. So do they need any more subscribers, or is it, like you said, just basically making better content so those existing subscribers continue pulling up Netflix more often than they are now?
I think that is right. They need to drive engagement. More subscribers, of course, but in the U.S. they need to focus on driving more and more of that engagement, and I think that you are going to get more prestige content. I think they have this narrative out there that they tried to create content for everyone, and in doing so they have created content for no one. And I think that by going back to having more prestige-type content, more culturally resonant hits, they can get back there and get people coming back. There has not been one of those key hits in some time. I think live sports is where culture is today. I can see them going more aggressively after live sports, or partnering with something like a Peacock or a Fox One. You have seen a deal with YouTube. We could see them do something similar with Peacock to bring sports and news content onto the platform. That increases and broadens the value of the platform and the entertainment they serve to consumers, and I think that can drive engagement over time, which gets at retention and pricing increases as well.
Lionsgate is for sale. Reporting suggests Apollo will buy them. Should Netflix get involved in the bidding war? Could this help them in the wake of Warner Bros. Discovery?
Netflix is disciplined in how they acquire capital and what they purchase, in a good way. We are seeing consolidation happening in the industry. I think that is what Lionsgate has with some of its shows. It has this hit list with The Housemaid. To bring that content that people know could help Netflix engagement. The question is, what do you pay for that? I do think there are ways in acquisitions or something of the sort that Netflix can lean into and potentially do it. With Lionsgate as a potential acquisition, it comes down to a price they are willing to pay for it.
If they are doing M&A or even sports, presumably that means they are paying a higher price tag. How patient should investors be with the amount that Netflix might and will spend to right the ship and make sure viewers are there and stay with them?
There are a couple of components here, and they do not necessarily need to spend more. It is more about how you are spending that and what projects you are going after, and that is where Peter Rice will come in and focus content spend. Live sports: there are two ways they can go about doing this. They can go after sports themselves, or they can partner with Peacock or Fox One, and it is a way of bringing content onto the platform but that way they do not have to spend billions of dollars on sports rights, and they can still get the retention, pricing, and engagement benefits of having sports rights on their platform. I think it is more of a points strategy, not necessarily going forward, but we will see. They might want to think about increasing spend behind these initiatives as he comes in, but that remains to be seen.
Thank you for your post-earnings analysis as Netflix is down about 6% in the premarket. Coming up at the top of the hour, more on tech earnings and AI bubble fears with Andy Goldberg. This is Bloomberg Open Interest.
Significant chop in yesterday's session. The Nasdaq is up 0.75% this morning. You have easing in Brent crude helping, with yields down 0.5%. 10-year yields down by about two basis points, trading at 5.08. Meta earnings will come after the bell, one of the first reporting after SpaceX. We are less than four minutes until the opening bell. We are going to begin our trading day on the other side of the break. You are watching Bloomberg.
You're watching Bloomberg Open Interest. Matt Miller still out. We are looking at a market rallying, about 1.5% to 1.56%. We await Meta earnings next on the docket. We have Simplified Asset Management ringing the New York Stock Exchange bell, celebrating one of their — ETA is the name. We also have the U.S. Ski and Snowboard ringing the opening bell at the Nasdaq. I see a gold medal, a bronze medal, a silver one, another bronze. I am not sure why they're here, but pretty cool.
They are kicking off the ski season.
We are going to pivot from skiing to space. We have SpaceX up after those earnings. Tesla is up about 2.3% now, not lifting the equity indexes much, but we are green across the board, and the focus here is SpaceX and Tesla — Musk saying they are exploring a possible merger.
I am also looking at another set of earnings: Netflix lower after their results, investors focused on softer growth and guidance. AI spending is in focus. Joining us is Aoifinn Devitt. I would love to get how you're thinking about these big tech earnings here — SpaceX reports in a big way about their AI results. How important is it to see revenue and return on investment as they continue to up capital expenditure?
Increasingly important. Capex was in focus — it went up quarter on quarter, but what is interesting is expectations and where it goes into 2027 and 2028. That is going to be up to $200 billion annually, according to some analysts' estimates. It is not clear where the return is coming from in AI. It is speculative in terms of where the spending goes; the actual return on investment is not quite as clear-cut as it is in more established business models. So for SpaceX, this is more important than ever, that we could see this return. So far, demand looks good.
This potential merger the market has known about for a while. We got a little more insight into what that would look like last night. As someone in the market, do you want to see this? Do these companies benefit combining? Are they that much stronger if they are together?
This has to be one of the worst-kept secrets in financial markets, the idea there were aspirations for Tesla and SpaceX to be combined. It is not concrete. But as far as — when we look at the separate companies, SpaceX is getting the attention and market cap and infrastructure edge, and definitely dominance in these areas. Tesla was an early adopter, and now we know there is a lot of market share loss and incursion on its position, so there needs to be growth. That is what a merger would do, and we can see that is where both stocks have ended up today — seeing that development could be the next leg it needs, but it needs something desperately to reignite that growth, not just the turbo boosters.
Certainly something to see. I also look at it the other way: why not add another business that could give more cash flows? That is part of the hyperscaler story. I wonder how much, as the market is trying to grapple with bubble risk — Ken Griffin says he sees parts of the market that seem like a bubble. Is that the distinction we need to make? Hyperscalers that have cash businesses versus neo-clouds that have been troubled in recent weeks?
The neo-cloud problem is specific to them, and CoreWeave is the poster child in terms of the dependence on financing and how precarious that can be, and when that financing is becoming increasingly more expensive. Revenue is there for now; a lot of revenue may be in a more discriminatory fashion, while spenders need to demonstrate there is proper return. So I understand about wanting to show steady cash flows — this is the advantage hyperscalers have. I am not sure that the Tesla piece is the steady cash flow that SpaceX would need, given what I said before about the declining market share and the challenge in EVs.
I want to get your take on the market now. A pretty brutal week for anyone risk-on last week. This morning, we have SpaceX up 10%. The S&P 500 only up 0.2%. What does that tell you about how high the bar is now for the rest of these earnings?
The bar has been set fairly high, given investors are coached to want 27% earnings growth. That is outside where it had been before, and where stocks like Netflix are the losers in this, because they are not showing that degree of growth. They do have growth coming from parts of their business, but nobody is in the double digits, so the bar is set high. Investors are nursing wounds — not in terms of actual portfolio losses; the last week was the worst since Liberation Day in terms of market performance. We are sitting on fairly healthy gains, so investors should not be too concerned about last week. What we are seeing is reticence around leaping back on a narrative quite so quickly, though as we can see the SpaceX numbers went a long way to assuring investors we are still in positive growth territory.
We also heard from Citadel that this midterm election will be an event, and once that is out of the way this will be an investing base that dives into AI. What is the midterm for you? Is it an increased risk, or is it a clearing event?
I see it as a clearing event, with a bifurcated outcome in terms of where the actual balance of power ends up. That could thwart or reignite some policy decisions the current administration wants to put in place. So I think we are at a fork in the road, and that will be the outcome that is hard to predict. And I think there have been declines in defense stocks because it looks like a Democrat victory could be in the cards. That is similar for AI infrastructure stocks, because we know that has a massive tailwind from the superintelligence approach the current administration has. So I'm not sure it is a clearing event, because when the dust clears we need to see the reality that the market faces. They have been relatively immune from political developments, whether domestic or traditional — so that is a strong thing, and I think the momentum is strongly supported by earnings. I do not think we have clarity until we know what the results hold.
Ken Griffin said investors are almost certainly in the middle of an AI bubble, so how should investors be thinking about that? As you said, momentum is still there. Is it a bigger risk to sit on the sidelines now? Bubbles can go on for a long time.
Bubble is an amorphous term. Is it on the spending side, supply side? Is the financing a bubble? That could be precariously based on interest rates that will not be seen in the future. So, so many areas. We know CoreWeave is unlikely to pause across the entire edifice. It is its own unique financing structures. I believe demand is a critical piece of this, but if we are only in the first leg of this demand cycle — in London I would say the expenditure in Europe is probably well behind the expenditure in the U.S. There is more demand coming. Where that demand will go, whether to the platforms, whether to the open architecture and open models, whether it goes to European companies, that is a question. So I would say it is too complex to say it is a bubble. Few investors have sat on the sidelines unless they were completely out of the market. Very few investors have been out of the market, which will ensure any correction is likely to be short-lived.
Thank you for joining us. That is Aoifinn Devitt. Let's get a check on your equity market, because we are pushing higher but a lot of hyperscalers are doing poorly. We are up 0.25%. AI-related stocks are having a good day after earnings from SpaceX. I mentioned hyperscalers not doing well: Alphabet is lower, Microsoft and Netflix after their earnings — Amazon is down, too. Looking at the sectors, it will be a push and pull of semis versus hyperscalers. For now, semis are winning. Utilities and real estate — on the bottom of the pile, communication services. That is the hyperscalers that will be reporting results after the bell today. We will see what difference that makes.
Coming up, an exclusive interview with Per Franzen on Bloomberg Open Interest.
Looking at analyst action in focus this morning: Wall Street weighing in on United Airlines after a weaker-than-expected outlook, with analysts largely calling it a fuel-driven earnings reset rather than a sign of softer travel demand. They call any weakness a buying opportunity. The stock is up higher after the open. Next, Zoom gaining traction faster than expected. The firm says Zoom's shift beyond video meetings will create meaningful growth. Finally, downgrading Chipotle to hold and cutting its price target, raising doubts about a fourth-quarter rebound and making next year's growth targets harder to reach.
Let's pivot to private markets, because private equity giant EQT is warning about a more volatile investment environment ahead. In a soon-to-be-released report called 'The New Rules of Capital,' the CEO says the risk is false reassurance. Pleased to say that Per Franzen joins us. Great to see you. Thank you for stopping by. I think this risk is interesting. When talking to LPs about various exposures and looking at the industry, what is the single biggest misconception about exposure, and what are the risks that many may not fully realize?
We publish this report, and there is a number of interesting findings. One of them is that portfolios that might look diversified on paper are correlated, and the private markets can play an important role in creating uncorrelated returns and improving diversification that you need in your portfolios.
You get into various interesting topics. Some investors might say, 'I'm allocating to the U.S., to Europe, I have geographical diversity and I am fine.' Is that enough?
That is one of the conclusions: that portfolios that might look well diversified across geographies are still very much dependent on the same underlying drivers, for instance AI capex spending. And therefore it is important that you take a step back and reassess the portfolio and the true underlying drivers of the portfolio, and try to create also uncorrelated returns and achieve better diversification. And private markets can play an important role.
You mentioned AI. Talk about where the risks are.
I would say that if I take a step back, whenever you have a technology like we see with AI, there are always going to be winners and losers, and a risk of overspending. That is going to be the case also this time around, whether it is in AI infrastructure or speculative bubbles emerging in some of the emerging AI companies. But if I take a big-picture view, I would say the bigger risk is to stay on the sidelines. So you want to be invested into this generational investment opportunity. You want to do it in a diversified way, and I think that is where the private markets land, given the breadth and scale. We can play an important role.
Are there red flags to look at? You have a big infrastructure business and you are involved in the data center business. Are there red flags that are signs of overcapacity, and specific areas you are more hesitant towards?
I would say what you see today is the cost of capital is going up for many players, and that has to have an impact also in terms of the build-out of data center capacity.
The Broadcom CEO flagged that this is the biggest bottleneck — capital and the availability of it. Could that be a big hindrance for this project, for this rollout of making sure we build the AI infrastructure that is necessary?
I would look at it from a different perspective. What it is leading to is more discipline now in terms of the build-out of data center capex, and that build-out cannot keep up with demand for AI compute that we are seeing, at least in our AI infrastructure business. So we are the big investor into one of the largest data center operators globally, and in this business we still see a huge demand-supply imbalance in terms of demand for AI compute. And so in 2026 we will be the second-largest provider of new data center capacity globally. And if I look at the value creation, operating profits have grown from $100 million to $4.5 to $5 billion by the end of the year, and we continue to have a positive outlook on this part of our business.
I want to get your thoughts on the exit environment and how creative you have to get to come up with liquidity solutions.
It has been a challenge for the industry. I think the industry is still working through investments done during the zero-interest-rate environment, and that is going to take more time. But it is also a time when you can differentiate, and so if you have good capabilities you can continue to have good performance in your portfolio, and if you continue to have the trust of public market investors you can continue to float companies, and you can still stay disciplined and manage cash flows for the long term for investors. And over the last 12 months we have sent back $35 billion to our investors. Over the last two years, $67 billion. So we have outperformed the rest of the industry. That is why we continue to have good fundraising momentum across our strategies.
And dealmaking at EQT has been robust this year. You are at the edge of a blockbuster deal. One of the major shareholders has recommended — do you feel confident on this one?
I do not want to comment on this deal, but what I can say is because of the volatile environment we have seen, some of the geopolitical uncertainty, we have seen attractive deal flow for the last two months, and we had Q3 results last weekend and we announced deal flow was up 90% year-over-year. So approximately $35 billion of capital across a number, and this public-to-private is an opportunity for private equity. So just this week we announced public-to-private of a waste management business in Australia, and a corporation in the U.S. earlier this year, which was one of the largest public-to-privates for this year in the U.S., and our private equity business in Europe. And we continue to have good deal flow when it comes to public-to-private, and we are excited.
Can I talk about another deal? I'm nearly positive you are able to talk about it. You announced a partnership with the ATP. How is it going?
We are off to a good start. We have had a number of successful events here in the U.S., in Cincinnati and Washington also, in Europe and Asia. And here this week we have our U.S. investors in New York, and last night we had a special guest appearance during our dinner — John McEnroe joined us, and we had a great chat with him.
Did you get to play tennis?
Not yet. He did give me his mobile number, so we will make sure to have a hit next time I am in New York.
If we could live-televise the hit, we would happily do that. Thank you so much for joining us. Really great to see you. That is EQT CEO Per Franzen.
And aspiring tennis star.
I have heard you are one of the best of the best in your industry at playing tennis. Coming up, we talk with Sagar Gupta.
A better day than yesterday. We ended up yesterday, but started down here and we have rebounded. These are markets in the midst of earnings season, and we got SpaceX yesterday, so that seems to be helping. But I will remind you SpaceX is not in the S&P 500, still a small part of the Nasdaq, so maybe that is why you are not seeing a bigger boost after that strong number. Small caps are doing well. 10-year yields are coming down with Brent crude moving lower. Nvidia and Meta both up. What will they say about compute? I mentioned SpaceX having a strong day, up 10%. Elon Musk is saying they are looking into a merger between the two of them. United Airlines turning things around, now higher by 4%. Some concerns about fuel costs. Netflix down after their earnings. At the top of the hour we are going to catch up with Andy Goldberg as we await tech earnings.
We are 30 minutes into your trading day. Welcome to Bloomberg Open Interest. Coming up on the show: Wall Street split on AI — Larry Fink: keep building. More of my exclusive conversation with the Citadel CEO.
