This is a much more complicated midterm, a lot more at stake. If it's very extreme and you get a very big loop, there may be a kick-off or more volatility. Democrats should not over-read a win as an endorsement of everything they stand for. When uncertainty is removed from the market, it provides upside. The market is now up to this truth: what happens in 2028.
This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz, and Annmarie Hordern.
Live from New York City, good morning, good morning. For our audience worldwide, Bloomberg Surveillance starts now. Tuesday, Election Day in America, the bulls hoping for a clearing event as big tech's big capital demands are risking the patience of investors. Market participants are reportedly souring on Anthropic's valuation, pushing for a lower number.
The Wall Street Journal reported over the last 24 hours that investors are going back to Anthropic saying the $2 trillion number you're talking about, maybe bring it back to $1.6 trillion. If you check out what's going on in markets, there's a growing chorus of investors, and we don't know what the valuation should be. You have the likes of PIMCO talking about how ultimately at some point it's going to be too much. The anxiety, you can see bleeding into markets in all different ways, putting out just how big of a concern it is for some of these IPOs.
Reuters reported something similar, something closer to 1.5. The reasons: toppy markets, to your point, Bramo, overexposure to AI, uncertainty about monetization elsewhere, and number four, the one we talk about repeatedly throughout this morning, political backlash. The politics of tech on the agenda today.
Think about this twofold: who gets elected to some of the seats on the Senate side as well as in the governorships. Remember the Texas governor had to have a pause, a moratorium on data centers. Someone super bullish about bringing data centers to this energy-filled state because of the electorate pushing back. Then, of course, specific jurisdictions saying, no, stop them, I don't want data centers in my community. We will get a real-time feel by tomorrow morning about how this country feels about AI and the entire trade.
This may take time to play out. There's a belief on Wall Street after the vote is done the views on data centers will change, and these things will get built. Still to play out. Let's see how this actually looks a year from now, two years from now.
I'm struggling to get my head around this, to be fair. I don't understand why data centers are going to different communities saying, I will build a gym, a pool, 15 different roads, give each of you a check for $1,000. It's going to get more expensive for them to get these data centers done. I'm not sure it's going to stop them altogether because the demand is there and they can offer these sweeteners. It's the cost that's causing real concern. That's what I keep coming back to.
Bingo. It's going to cost a lot more money. I'm looking at Trenton, Ohio. They have an initiative, 'prohibit the construction of large-scale data centers.' You're potentially going to see all of these communities say, no, we don't want it, they need to go elsewhere.
Alphabet in Europe, Oracle quickly following, Meta reportedly considering doing the same thing sometime soon.
Curious to see the clearing price from Meta that will be acceptable to them. If they don't have to raise capital, why would they right now, unless they think that ultimately things are only going to get worse in terms of how much it costs? You're seeing concessions, and Oracle debt came in with half a percentage point concession. That said, it's not astronomical. Ultimately, are we seeing the ones that are still the strongest players able to raise money?
Slightly softer, down around 0.1%. Coming up, we catch up with Bob Michele as the AI trade struggles to reboot. Tobin Marcus on why the polls may be overselling a so-called blue wave. And Dan Ives as they reassess Anthropic's lofty valuation. Revenues, AI capex growing at low double-digit rates. Bob joins us for more. Good morning. It's good to see you. Talk me through the cracks emerging in your credit space right now. How isolated are they?
Pretty isolated. When you look at yield changes quarter to date, it's a small sample, but when you look at the AI and related to hyperscalers, euros in credit spreads out 25 to 30 basis points. When you look at the rest of the deals, they are out to 2-4 basis points. Oracle comes to markets, it lightens the spreads a little bit. 3.5 times oversubscribed. I've been here before. I've heard a lot of moaning about the high-yield market and narrow credit spreads, and really you have to buy stuff that is 200 over that 7%. There you have it. You have BBB Oracle rated 10 years. That went well, but it was the non-tech related deals that were six times oversubscribed. The differentiation is there, but there is still money coming into the bond market looking for yield.
Still a lot of supply as well?
A lot of supply. Not surprising. I think the issuers are becoming a lot more sensitive to that. Some of the deals were scaled back by 5 billion or so yesterday. That's a good sign. They are more thoughtful and telling us this is our plan. We're going to issue today and then it will be three to six months before the next issuance. That is easy for us.
This is what Lisa was talking about. Bramo, you mentioned the same thing, we need to see more guidance about what these guys are going to issue and when they are going to issue it.
That is what Oracle did and why they had better execution. They were going to... By the way, I'm not moaning about what is going on in the high-yield space.
Did I say your name once?
You gave me a serious death stare. There is a sense at a certain point you will get so much pushback that certain companies are not going to come to market or be able to raise financing. Are you seeing any deals not come to market that you were expecting, or names decide to look for other creative ways of financing? Are you seeing the risk kind of shift away from public markets as a result of some of this pressure?
The chip financing, the GPU financing, that's all out there. I think when you look at the transaction serving as a blueprint, I think those are pretty smart transactions. At times those older deals come to the market to make room for some of the newer deals. Those present value. There's a lot of conversation going on, so far there has not been a barrier to issuance. Everyone is happy to come up with some capital to place these deals.
I'm with Annmarie on the election. I've been following the gubernatorial races because I think that's critical. We are trying to put together our own spreadsheet of what happens where. Happily overnight a cheat sheet came out for us. The three to watch are like SEC football weekend: Texas, Oklahoma, and Georgia. There the expectation is if the Republicans manage to win those gubernatorial races, you may see conditions around data center builds. The things you were talking about where you will build bridges and schools and roads and power, versus the Democrats who are saying there are conditions.
Does that make you more or less willing to lend if you, for example, get some clarity on where data centers can be built but they get a whole lot more expensive?
Yeah, and again, just looking at some of the work that was done, there are 37 gigawatts of power production coming online next year. That is largely under construction. That is what is at risk with the data centers, if there is enough populace pushback. There could be a lot of bartering back and forth. We know these companies have a lot of profit. They can share that with communities.
How are you viewing the election? Do you think it is a clearing event for the bond market?
This year there were two things yet to get great. One is the repricing of the Treasury market. Yields went up over 100 basis points from below 4% to about 5%. And the other is the amount of AI issuance. I think we talked about, watch the governor races for AI. For us, thinking about the potential for a blue wave here and sweeping Congress, I think it is mixed for the bond market. I think it is good for Treasuries, but it's a bit of a risk for credit because you are going to have a Congress that can be emboldened to antagonize the administration. There are all of the things about the appointments to the Supreme Court, to the Federal Reserve. Those are going to be controversial. There are going to be debt ceilings and all kinds of stuff. Credit risk doesn't like that kind of animosity in Washington.
What would be the worst case scenario for the bond market?
It would actually be a Republican sweep. I imagine the equity guys would be rejoicing because they would be thinking about some continued fiscal spend, $5,000 checks. I know it's not going to happen, but there would be a lot of talk. Given that, the Federal Reserve, you have to think, uh-oh, the floodgates are open on borrow and spend, we have to push back on that.
The Treasury will be in focus and on brand. This program will be covering that while the rest of the country focuses on the election.
I will help the Treasury now, get rid of the 20-year, no one likes it, it is a play in the long end. What do you issue it for? It made sense in another era, it doesn't make sense now. Just say it is done for. It was an orphan issue. We are just going to dump it into the front end where there is a trillion in money market fund assets plus a lot of other liquidity sloshing around the system. We can finance ourselves there with ease.
Is that sufficient, get rid of 20s and rebalance the long end efficiently?
Don't forget they are still coming into the market and buying about $6 billion a month on the long end, but the two together you get some pretty nice support out there. It is the equivalent of what Janet Yellen said, paint drying. It just happens. No one is really talking about it anymore. It will create a level of support that holders of the long end will like.
This bond market has been nothing like watching paint dry for the year so far. How much support is coming from that?
It first started when we went from below four to about five. You run out of adrenaline. But if you've created a big short in the market, where do you cover? You're at 5.30, you wait for 5.50 to come in to start the covering, and I think that brought us closer to 5. If it was out there it would have given our clients more time to buy, but now it is the anxiety about what's going on in the AI buildout. I think the bond market went through its demons from March to September into October. Now the equity market, which held up nicely, is going to go through some of its demons and the bond market will benefit from that.
For the bond market? I think we are at a point now where we can easily see the Fed funds rate and Treasury yield curve converging around 4.5%. We put that out there in September. We still believe it. Are there going to be fits and starts along the way? I think it is an interesting first level to reach, the 100-day moving average. It's a Fibonacci retracement level. There's all kinds of stuff there. I think the days of pushing well above 5% are in the past for now.
Super flat curves is basically what you're looking for, it sounds like?
It sounds like it, because I think there is an expectation that higher rates do exact a cost on the economy. They do help to slow things down. I think everyone is parsing through the economy and we recognize the third quarter was a strong quarter. There will be some payback in the fourth quarter. I think everyone is getting comfortable with, hey, the Fed funds rate can get into the mid-fours, or four and 5/8. That is higher than three and 5/8, where we were a few months ago. It is not at 5% or 6% yet in this cycle.
Bob Michele of JPMorgan Asset Management on for a long time. Frankly, there are mixed feelings. Some people enjoy the 20-year, the gap between 10 and 30.
Some people just like to watch the auction.
It looks like an orphan on the curve.
There is a lot of logic, but also a lot of affection.
I don't know anyone else who wants to see it.
Make the 20-year great again.
I just want to moan about something. [Laughter]
Let's cross to Isabelle Lee with your Bloomberg Brief.
U.S. officials discussing a possible summit between President Donald Trump, Xi Jinping, and Vladimir Putin. Talks are ongoing with Chinese and Russian counterparts to arrange a meeting later this month. President Trump will travel before Xi is expected to travel to Miami before the G20 in December. Nvidia telling data center partners to cut exposure to China. The chipmaker told customers to make sure they sell at least 51% of their services to companies outside of China. Dan Driscoll to support the AI buildout. In a statement the company announced Driscoll will join the newly-created role of senior counselor for national security modernization where he will focus on advancing responsible AI use. That is your Bloomberg Brief.
More from Isabelle Lee later this hour. Election Day in America. Take a bus, Ken Paxton represents everything that's wrong with our politics.
James Talarico, he does have a plan for your money. It just doesn't include you.
Next, Tobin Marcus of Wolfe Research. Live from New York City this morning, good morning.
Equities a little softer, down 0.1% on the S&P 500 so far this morning following three days of losses dominated by tech and yesterday dominated by energy too. Chip stocks taking the losses from the June high down close to 30%, 29% plus off the highs. A big repricing. Still up on the year. A crazy year for some of those names. In the bond market, 2s, 10s, 30s, killed a 20-year bond. Bob Michele's feedback to the Treasury from JPMorgan. We hear from the Treasury tomorrow. No doubt getting buried by some of the news flow elsewhere from the election, but it will be focused on by us on Bloomberg Surveillance, Bramo will make sure of that. 2s around 4.60. Crude down 11% in yesterday's session, about 2.02%.
A deal on, a deal off, talks on, talks off?
The Qataris went to Tehran attempting to bridge a deal. At the same time, the Wall Street Journal said there have been minor attacks on an island in the Strait of Hormuz that have been going on for the past few days and over the weekend. So it is a little bit of a push/pull over the weekend and that is what the market is trying to digest, the whiplash, headline after headline when it comes to this conflict.
Under surveillance, it's Election Day in America.
We are running against the most corrupt politician in Texas. Ken Paxton represents everything that's wrong with our politics. James Talarico, he does have a plan for your money. It just doesn't include you. He is a radical who has never met a tax increase he didn't love.
Senate candidates in Texas making their final plea to voters as Republicans fight to keep control of Congress. Polls are set to open around the country this morning with millions of early ballots already cast.
It is a huge midterm election. The question facing a lot of people, the Cook Political Report, is it going to be a... but will it be a tsunami, will they take back the Senate? That is the key question when it comes to a state like Texas. Polymarket, Talarico 47% versus Paxton 27%, pretty incredible given this state would probably not be competitive if John Cornyn was actually the Republican candidate.
Race. We are confident the polls are overstating Democratic strength. No matter how it turns out we see limited policy and market implications from a blue sweep. Let's dig into the first line and interrogate it. Why do you think the polls are overstating their strength?
Not just that the polls are always wrong and overstate Democrats, we were making the opposite argument in 2022, pushing back against the buzz of a red tsunami at that time. We do see patterns that give us pause about taking results at face value. When you get into the details of the generic ballot polling, the bigger advantage for one party tends to not fully translate into the result, and we have a very clear pattern where the blue shifts from 2024 to 2026 have been bigger in redder places, which looks like the past polling error. We still had a pattern where Democrats were more overestimated in redder places where they need to perform well to retake the Senate today and where they have been performing surprisingly well to date. It's fairly clear to me that the error will be in that direction. The question is magnitude. If the error is big enough to overcome the margins.
And the key red states, what do you think Democrats have the best favorability?
Ohio looks good. Texas I think has the clearest candidate quality advantage but is a redder state. I felt better about Alaska but they are fairly flat. Iowa is a bigger reach. Kansas recently made its way into the set of reach states for Democrats with quite good polling recently, but across Ohio, Texas, and Alaska it is fairly flat and it wouldn't be that surprising about any particular...
Forget the polls. Polymarket has Talarico some 75% in Texas. The betting markets are pricing in a Trump win in the presidential. What do you say to that? Should people be putting money on the race, it's not pollsters making cold calls?
I don't think it's really possible this cycle to look at the betting markets and say put the polling aside because they have so strongly followed polling all cycle long at the national level in terms of Senate control. And you dig down into some of these races. In situations where the polling has been very wrong, the betting markets have been wrong in the same way. The particular example that comes to mind for me is the Wisconsin Democratic gubernatorial where you had Francesca Hong, who I think everyone would acknowledge is a weak candidate, yet quite ahead in the polling, was 95% plus to win on the eve of that election before losing out. If ever there was a situation where sophisticated betting market participants ought to be able to sniff out a weak candidate, sniff out the possibility of an upset, you think that would be one of them. They haven't covered themselves in glory this cycle and internationally we have situations like Brazil where there were huge misses recently.
How are mature investors pricing in increased regulation on data center build? The idea that some governors will win on the mandate of reducing or completely prohibiting any new data centers from being built?
It has been a very active talking point for investors. I don't get the sense that there has been that much active portfolio positioning around it. Texas is clearly the biggest question. If Governor Abbott loses in Texas, that is the thing that everyone involved in the trade has circled as something that could spook markets. The rest of the shifts, states like Ohio that are kind of moving in a more restrictive direction, the Democrat and Republican are running on more data center-skeptical platforms than the current Republican incumbent. In general we think that in most states, we are going to be able to absorb a little bit of a shift in that direction. Even the most right-leaning critics are saying we want to build it right, under certain conditions, rather than saying we don't want to build it at all. I think you were talking about in the previous segment, the impacts largely are falling further in the future and even with shovels in the ground it's not going to be effective right now. We've had a little bit of the steam taken out of that trade over the course of the past week or so, does put us in a little better position into the midterm. I feel a little more worried about the data center trade getting spooked if everyone were really overextended in a bullish direction and that swung back a little in the other direction recently.
Significant repricing into this vote for sure. Tobin Marcus of Wolfe Research interrogating reality.
Interrogating the election results.
For information. It is an information-rich 24 hours.
Coming up, Dan Ives as investors cast doubt on Anthropic's valuation. Apple shares falling as sales growth slows and margins face a little bit of a headwind. That stock is down by 4%.
No bounce this morning on the S&P. Down 0.1% on the S&P, adding to losses on the high for the year by about 3.5%. In the Nasdaq, correction territory. Down across the board, big numbers for some of these tech names. For the chip names, they are down 30%, 29% plus, from the highs of the year. Year-to-date, up by more than 40%. But the losses are picking up steam heading into year end off the back of doubts about the buildout and the ability for some of these companies to raise money.
The Philadelphia Semiconductor Index down 12% in the past three days. These are massive moves. As you mentioned, it does seem like they are accelerating. You are seeing the divide between the equal weight and the market cap weight of the S&P widen to levels we have not seen in terms of performance going back to 2023 or potentially before that. People are looking at this and saying, is this going to affect the broader universe? Is this just a blowing off of steam that have been fueling this bubble?
As you see those moves lower in chips, nice gains into Treasuries, nice reset into the quarterly funding announcement from the Treasury in the next 24 hours. We were in a very different place a month ago, well north of 5%. 2s at 4.60, we had been looking at a 5 handle.
A lot of people are saying it is correlated to the tech trade, and as the tech trade goes, so too does optimism go for the overall future. If you have a pitfall in what we are seeing in tech, that might imply a lot slower growth, considering this is a pillar of support for the U.S. economy. The one fly in the ointment is the economic data, which has been coming in strong. We saw the incredible manufacturing number in ISM. At what point do people dismiss that as backward looking and continue to look at what we see in tech as the true forward looking indicator?
That is the ability of tech, that forward look. How can the move lower in yields in the last 24 hours or so compete with the data? This move in crude, we had an 11% decline in Brent from yesterday's session. This morning, just a bit of a bounce. Talks on, talks off.
The Wall Street Journal talking about how there have been over the course of some strikes. And as of Monday, the U.S. attacked an island in the mouth of the Strait of Hormuz. Some of the officials described these as defensive. But if you read this report, you obviously look at a Middle East that is incredibly still fragile, and if there are still attacks, clearly they are far away from a negotiating deal.
Let's take the opportunity to get some single name morning movers.
Let's start with Apple. Shares under pressure after results disappointed on key metrics, including revenue in China. Analysts say margin pressures and a slowdown disappointed the upbeat sales forecast. This is also the first earnings report under the new CEO John Ternus, and he has had to contend with lofty investor expectations. Up next, Palantir, down by more than 8%. This after the company pointed to a slowdown in sales growth. Revenue forecast beat estimates, but that implies a roughly 60% sequential growth, lower than the 20% seen last quarter. This is the slowest pace since the first half of 2025. Let's wrap it up with CrowdStrike. They agreed to acquire two AI security startups. So CrowdStrike added this, because it protects more stages of enterprise AI operations. And they are trying to shift away from traditional security to AI threat governance and compliance.
Triple digit gain for that stock this year. Up by 106% year-to-date, for good reason. Story after story of someone being hacked.
And if you think about the budgets for the big banks, where is it going? One place: cybersecurity.
Refrigerators in Europe on the agenda. Have you seen that? They have been hacked.
What are they doing, putting Cheetos in there?
I am trying to understand, but apparently that is what is happening. On our radar this morning, an important story from the Wall Street Journal reporting for strikes on Iran, just as the president downplays returning to work.
Easily winning. I do not even know if you could call it a war. They want to make it a deal.
U.S. officials say the strikes will prevent Iran from attacking commercial ships in the Strait of Hormuz. Disney planning to lay off thousands of workers. Sources telling us here at Bloomberg, the CEO is planning to reinvest a portion of the funds into content, tech, theme parks, and cruises. And Apple shares falling in the premarket. New CEO John Ternus delivering mixed results in his first quarter as margins guided lower due to higher memory costs. Growth also slowing.
They forecasted a sales growth slowdown, which was concerning to a lot of people. Clearly the bar is incredibly high given how much these stocks have outperformed before reporting earnings so far this year. The thing I thought most interesting is they are reaching the point of raising prices and seeing consumer pushback. In other words, they have to offset them using memory costs rising at an unprecedented pace. And you are seeing some consumer fatigue.
The CFO had this to say on the earnings call: when you remove tariff refunds from the June and September quarter, both company product gross margin would be down one point, driven by memory costs. Actually, tariff refunds helped them in this case. They are really suffering when it comes to these memory costs. It looks like it will continue well into 2027.
It is close to a percent in the S&P 500, and it is barely on the radar, because the attention is firmly elsewhere. Kind of crazy.
Apple is sort of old school, and ultimately, it is sort of a utility more.
A boomer stock. Is that what you're calling Apple? [Laughter]
Apple is a boomer stock now.
You just laid out the reason why.
You heard it here first, evidently.
Gen Z. They are not even public yet, so.
Let's get to Anthropic. Wall Street Journal reporting investors are pushing for lower valuation. A growing list of concerns push the target. From Dan Ives writing, this deal still gets done but valuation will be the question. He joins us now this morning. $500 billion swing. What underpins that?
The amount they need to spend. If you look at the S-1, that is something, especially in this broader market, what we see in terms of credit and bond yields. For Anthropic, the growth is not the question. It is just getting there. From a monetization perspective, the amount of capital that they will need to raise. You can call it $1.5 trillion, maybe baseline. It could even go lower mid-November.
They are looking to spend close to $500 billion through 2030. If they do not get an investment grade credit rating, how compromised is their ability to meet those commitments?
It will be tougher. No doubt the investment grade, that was something of a gut punch. If you go back to the market, when that news came out, you look at the updated S-1 yesterday, that put pressure on the tech trade. Because Anthropic, it's foundational to the AI revolution, from Nvidia to Microsoft to Amazon. The tech trade needs this to go public. Not just for what they will raise from the capital perspective, but the valuation of what's to come. $1.5 trillion, $1.4 trillion?
When I think of Dan Ives, I think of someone who says it is always 10:00 at this all-night rager party.
The clock stopped 10 years ago, didn't it? [Laughter]
What's the sweat factor when suddenly these valuations seem to be in freefall, regardless of what they post in earnings, regardless of what they can finance in debt markets?
I would say the nervousness, SaaS apocalypse type feel, going back to March or April, and maybe even worse. Because the capital raises we are seeing are kind of flooding the market. In terms of my fear in terms of the tech trade, it is a tale of two cities. The hyperscaler numbers, the capex, check, check. Look at Palantir, the use cases, that is accelerating. But then the level of disruption we have seen: memory, Intel, advertising when it comes to Google, software when it comes to ServiceNow. I think that is what caused this to be not just a white-knuckle moment but this is a gut check period. This is the start of winners and losers and who ultimately gets through it.
That sounds like a diplomatic way of saying the bubble has burst.
No. To me, I view it differently. We're entering, in my view, the next phase, where it is not just because you say AI 30 times in your conference call you can raise capital. It's more discriminate in terms of who the winners will be, not just in terms of raising capital but in terms of executing. And to my view, patience is maybe wearing thin.
To me, Anthropic may not have an investment grade rating is a watershed moment. It highlights these companies that used to be asset light and revenue heavy are completely flipped on their heads. In order for them to keep expanding, they will have to pay so much more money to give us roads if they want to build a data center, and to debt investors, to raise money. Do you think fundamentally equity valuations will be compromised as a result of all these extra costs?
There is a line in the sand. I think Oracle would be more the poster child, where there is a line in the sand where you are like, okay, this is the amount we will raise. We will not raise more. We will build out these data centers. All 800, 1,000 data centers in the U.S. the next 12, 18 months. If that gets cut down and it comes down to who is the winner. But it will be a gut check moment, not just for investors but for these companies. It is ultimately healthy to get to the other side of this, but we are going through one of those periods where not everyone is going to come out of this party in good shape.
What time of the party is it? Are the neighbors calling the cops?
It is about 11:00 p.m. at the party. [Laughter] But in the party, you can have the DJ stop playing music, the cops come to break it up for a noise violation...
It is more than I thought we were at the party, that I was just the neighbors, the cops have not arrived.
We are going through a gut check moment in the thesis, but I believe the fundamentals will bear it out.
Let's lock it in. 30% off the highs on chips. [Laughter]
I think another 10% to 12% down. Then we have to...
Another 10% down? In what?
On the stocks. The 10% to 12% down, then we start to look at suits and go suit shopping, to potentially see...
I'm not paying it, for the record. [Laughter]
I know what Jon wears, so buckle up.
You are a fashionista, come on, I think she would like it.
Trying to figure this out. Thank you. Good to see you. Dan Ives of Wedbush on the difficulties. A period of winners and losers. Sounds like you are removing some of the froth.
We have been talking about this with a number of different investors, saying ultimately the hyperscalers probably are fine. It is everybody else, and how much is the everybody else also been some of the players bidding up the cost of the semiconductors, the chips, data centers?
What did Gil Luria say yesterday, in two or three years, ultimately does it not matter if OpenAI or Anthropic is not successful? It comes down to their bigger hyperscalers like Microsoft.
That sounded like a stretch.
I think it looks like Dan will be wearing a black or navy suit every time he joins us on television. Also he threw it in there right before commercial break, a little cheeky.
$500 billion valuation... it is noticeable, the pushback.
The idea you're talking about half a trillion as another day, another move gives you a sense of what is on the line and the lack of comprehension on what it would be if we get more swings like this to the downside.
Meta futures down. With your Bloomberg Brief, Isabelle Lee has more.
Meta weighing at least $20 billion from a potential cross-border bond offering. Sources telling Bloomberg the company asked Citi and Morgan Stanley to hold investor calls to gauge investor demand. No final decision has been made on the offering. The U.S. Supreme Court delivering a blow to the Trump administration, rejecting a bid to set aside thousands of California ballots on unproven election fraud allegations. The court delivering its ruling hours after the DOJ claimed to have identified thousands of noncitizens on California voter rolls. In Michigan, Abdul El-Sayed's campaign raised $2.4 million Sunday after fellow Democrat Congresswoman Haley Stevens withdrew her endorsement and publicly backed Republican Mike Rogers. It was the campaign's largest single fundraising day so far.
Thank you. Up next on the program, too much AI debt.
The amount is gigantic. Gigantic. At some point in time, it is going to be too much. I'm in awe of the hyperscalers, but someone is going to lose.
Ashok Bhatia joins us next. You are watching Bloomberg Surveillance.
Futures negative. Down by about 0.1% on the S&P, looking for a bounce in tech. Up by about one third on the Nasdaq following a three-day slide on the S&P. Choppy session yesterday for tech, and chip stocks continue to get hammered. Under surveillance, we will talk about those capital demands. Too much AI debt.
The amount is gigantic. That at some point in time, it will be too much. I am in awe of hyperscalers, but someone is going to lose. We want to think about this from the offensive but also very defensive way from a high-risk.
Some of the world's top money managers sounding the alarm on the risk of the AI boom. Sources telling us that Meta is exploring another $20 billion in IG bond offerings after a massive raise last week. Ashok Bhatia of Neuberger joins us now. It has been issue after issue, supply after supply. Are we starting to choke a bit?
Yeah. We will issue about $450 billion of investment grade hyperscaler debt this year. So call it $500 billion. That number is about how much the U.S. Treasury issues each year in 20-year and 30-year debt. It is a big number. It is up from zero. If we look at Oracle, it is about 200 basis points wider on the year. The market starting to have a reaction. It is also because this debt continues to underperform broad markets. One of the positives is Oracle adjusted its issuance. They did not issue any 30-year debt in this latest tranche, and they signaled the exact amounts they have to issue. That is the path we will have to see in the market, those adjustments.
Something has changed. For much of the year, we would see this supply and say it is either crowding out Treasuries or it is feeding nominal GDP, keeping yields elevated. What changed?
The bond market started on the AI hyperscaler trade, saying these are good businesses, we will get our money back. I think that is still broadly absolutely true. But these businesses are changing. They have gone from cash flow positive to free cash flow negative. As we see some evidence that what is happening to the margins of compute and who is going to capture those margins, that is starting to introduce these questions of are the hyperscalers the winners with this trade, or is it going to be the models, the model companies, or will it be the neoclouds, or companies that do not even exist today? As we see pressure on the margins, that will feed into when these investments be profitable and when do they turn free cash flow positive again?
We have heard from a lot of debt investors getting excited, saying we can get 8% on bonds that are almost investment grade, that looked pretty good for 5, 10 years. Do you feel like that, or do you feel like it has to be more, given how much debt is coming and that there is almost a note of desperation they need to get it across the finish line?
We have been very defensive on the whole AI sector to start the year, and we really have not added a whole lot, even at these wider levels. I think there are still a lot of strategic structural issues where the profits of this ecosystem will live. For a bond investor, we will not participate in the upside of the economics of these businesses as much as the equity. The second element is there are a lot of other interesting things to do in the bond market. Oracle or some of these names at 7% or 8%, they are 6% opportunities in short maturity, high quality investment grade debt, would you prefer to own a bit of that? That is the decision we are making in a lot of our portfolios.
If you look at the Treasury rally in the last couple weeks, the implication is souring AI trade could essentially slow growth in the U.S. I wonder at what point that...
Our entire economy is now one big bet on AI. There is cooling demand. It has been kind of the wild west, and the sheriffs are coming in. You are seeing cash flows, really at the hyperscalers, are under a lot of pressure. When you look over your shoulder and you see so many double-digit declines, can you not say a bit of a bubble has burst?
This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz, and Annmarie Hordern.
Live from New York City this morning, good morning, good morning. For our audience worldwide, the second hour of Bloomberg Surveillance starts right now. No bounce on the S&P. Three days of losses. It could be become four. Lower on the S&P by 0.2%. The damage on the Nasdaq, back in correction territory. The damage to chip stocks close to 30% from the highs of the summer.
In the bond market, repricing in Treasuries over the past few weeks, keeping 2s around 4.60 and 10s below 5%.
Coming up, tons of event risk on the horizon. Lots of economic data continues this morning into tomorrow. Job openings data at 10:00 a.m. Eastern Time, payrolls Friday. A Treasury refunding announcement Wednesday morning. Plus, of course, rounding out, closing out the outcome of the midterm elections in America.
Event risk is a perfect way to describe possibly what we are seeing. How much is the selloff we are seeing in big tech really just a risk-clearing event ahead of the risk events we are seeing potentially with the election? Ultimately, earnings have not mattered. People have picked out the one part of the earnings they do not like and punished those stocks. So how much is this a momentum unwind that has taken on a life of its own?
And today is a really important day when it comes to big tech. A look at the Wall Street Journal story when it comes to Anthropic. Political backlash to data centers and uncertainty around how soon hyperscalers would show AI-related profits are also weighing on how investors think. When voters go to the polls today, they will cast a vote not just for who will be their senator or governor or congressman or congresswoman, but also what those individuals represent in how they view data centers. In 10 states, 41 ballot measures strictly, specifically about data centers.
Politics can dial up or down the volume the next couple years. The same tone in the credit market. In this level stuff, spreads are much wider than the past couple months. But getting to the index, look at what has happened to hyperscaler debt. The indigestion starting to build in credit markets. That is at the epicenter of this story. Some of the math does not math when you see some of the rates at these levels.
Anything under the size of Oracle are essentially getting locked out of the market. And without having access to capital, certainly capital at an affordable rate, some of these companies just do not have the same justification to exist in the same kind of way. You have seen this in credit default swaps, in the short positioning of a lot of the big hedge funds. You start to wonder, at what point does it have a broader implication for the AI trade?
The supply monster keeps getting bigger as well. That is what is notable. Meta, in the last week, close to $100 billion. Microsoft into the weekend, we talked about that. Oracle, equity and debt, what was it, $25 billion? Now, Meta, according to our sources at Bloomberg, Meta exploring doing the same thing. I have to say, the last 24 hours, it was like we might have to, too, let's put it out there and see how it is received.
What are the rates going to be, will be the implication for the equities? What they need to take a page from Oracle, that is the message from the bond market. Tell us what you're going to do. If you are going to issue a sovereign debt player, you have to tell us what you're going to issue in sequential timing so we can prepare because it has been one of the biggest challenges.
That is the feedback from Bob Michele. Let's see if the Treasury responds to that.
Bob, we're going to do it.
Investment is going to move.
This is his moment, because the market is girding for it.
We will be the only show talking about the Treasury refunding --
Not everyone at this table will be only talking about that.
We will be talking about the price of the money.
Coming up, Kristen Bitterly of Citi, Kurt Reiman of UBS, Paul Sankey of Sankey Research. We begin this hour with stocks under pressure, tech sellers pushing the Nasdaq to its third correction of the year. Kristen Bitterly of Citi staying positive, writing, with overall fundamentals remaining solid, we expect continued volatility may create attractive opportunities to put cash to work in equities. Where are the opportunities opening up this morning?
So this morning is an interesting day with the elections. As Lisa was saying earlier, this is one of those important clearing events. I do not think it will drive the ultimate trajectory of equities from here on out in 2026. It will be much more important for the bond market in 2027. That being said, the correction in technology and the Nasdaq, there are so many opportunities out there, and you are talking about the supply of credit, people being able to get high single-digit yields on attractive bond issuance, so that rotation is quite healthy.
Lisa's been asking what is more attractive — that credit yield. Has it changed for you?
Not necessarily. When you look at the credit markets at the levels we have seen, if you can get a high-quality bond portfolio without stretching too much in terms of duration, because that has been something very important to us, getting mid- to high-single-digit yields there is attractive. But equities are the better investment here. If earnings continue to deliver, and Q2 earnings were nothing short of spectacular — this quarter is still delivering. We have breadth in the market across 11 sectors. You cannot totally check fundamentals out the door.
That said, it is getting harder to understand the fundamentals of tech in particular. At what point do you pile into the selloff, saying they look cheap now, versus say the market is sending a signal about what valuations could look like given the changing number of balance sheets and the cost of credit going up?
There are two things to watch. First is small versus large. When you look at the interest rate environment, credit spreads widening out — you made a comment earlier in the show. It is a very different market if you are one of the megacap hyperscalers versus a smaller company in this market. The other thing is the clarity around how you're using capital. So I am just quoting you over and over again, Lisa. [Laughter]
You will not add bond stocks to the end of your sentence.
For the clarity of earnings, how you are using — the market loves transparency. Same thing with elections. They like certainty, transparency. Same with earnings.
So would you lean into tech and say that will take the leadership and shift away from equal weight, because outperformance has been so significant?
I think it will appear within our portfolios. We have been leaning into the entirety of the AI story, so yes. You have semis, hyperscalers, but you also have the entirety of the value chain across infrastructure, energy. So we look at that more broadly, but absolutely, that is something that will be short-lived in terms of people taking some money off the table, looking at other opportunities. But it is more of these events including risks.
You mentioned it a lot. It is election day. When you say the market wants certainty, does it matter as much as the composition of Congress in terms of the fiscal trajectory, or actually the market just wants to move past the actual event?
The market at this point for 2026 just wants to move past to get to year end. What is already priced in? We kind of learned this from Brazilian elections. Candidly, it is like what is priced into the market? The market is pricing either one right now in terms of a purer blue way versus kind of the divided government. I think 2027 will be interesting. Many people this morning have talked about the debt ceiling, government shutdowns, these types of events that can bring real volatility to the market. Granted, short-lived, but it can make things complicated.
How are we thinking about AI and this election? While Michael is talking about how he is also focusing on the governor's races, like Texas, you had Abbott come out and push for the Democratic candidate to say we will have a pause when it comes to data centers. How much is that level of politics impacting it?
It impacts our investors in two ways. One, it is more at the state and local than the federal level. The governor races are really important in terms of where capital will flow. I also think, when you look at what can actually be changed at the local and state level, you are looking at tax policy and things like that, in terms of portfolio positioning, how you are managing certain positions going into year end. That is important depending what jurisdiction you live in.
These midterms feel different from a market perspective. Typically people will say a gridlock is a buying event. But you're talking about the governors races here, that is not something that typically comes up on days like today from the market perspective.
And that is where the local legislation, both in terms of data centers and any kind of slowdown that could happen within those particular states, but looking through the composition and saying where could you actually make changes when it comes to taxation and things like that, that is really important for wealth management clients. You have to let it happen. You have to see the result before you make any changes or decide to reposition, but that will be important going into year end.
Kristen Bitterly of Citi. Does the traditional playbook hold up?
It seems potentially there could be more risk. I just wonder what kind of positioning there could be if particular governors elections are won or not. Is there positioning when it comes to certain stocks or in terms of homebuying? I will point out people thinking of moving as a result? I'm serious.
When she was talking about wealth clients, I was thinking, they are picking up a moving house.
How much is that the issue?
People are moving, for 183 days, to places like Florida, where they have to spend six months and a day, then come back and forth and work in New York.
Are you considering building a studio?
I love it. Good morning, good morning, Miami.
That works. Let's see if they will spend money on that. Let's get an update on news elsewhere — with your Bloomberg Brief is Isabelle Lee.
The United States has reportedly struck an Iranian island, the latest in a string of quiet missile operations. President Trump telling reporters, "We won," even as officials say all options remain on the table after today's midterms. Apple shares falling in premarket. New CEO John Ternus delivering a mixed quarter as margins guided below expectations on memory costs. Sales growth decelerated from 16% as Apple's iPad and wearable business disappointed. The L.A. Dodgers' owner is reportedly exploring a sale of his Serie A team, Sportico reporting Walter is changing course following comments in August that the team was not for sale. Walter most recently sold the L.A. Lakers for $2.5 billion.
This is the part of the program where Jon speaks to himself.
I'm not even trying. I've given up.
F1 and the Fed. On both those things, I will not discuss either. [Laughter] Look out the window, I just can't. Are we doing this in December?
We're not. Up next, a majority on the line.
We are going to start the same way we end.
Once Abdul El-Sayed got through that primary, our world changed. If we turn out, we win.
Up next, Kurt Reiman of UBS. Live from New York City this morning, good morning. ♪
Big week coming up here, lots of economic data. We kick things off with PMI. Treasury refunding comes Wednesday morning. We close out the midterm elections a little bit later this evening. Talk about the market action over the last few days. A downdraft for tech. Three days of losses on the S&P. Some real damage done to big tech players, not just the hyperscalers. Chip names were flying high through the summer, got to the highs of June, and have declined by close to 30% as the pushback continues to build in their credit market, and the pushback continues in stocks.
Peripheral players have been building out data centers, neoclouds in particular, increasingly challenged on a fundamental basis. If they are not buying chips, if the likes of Anthropic does not have the same balance sheet to buy chips, all of a sudden, does that mean chips have less room to run in terms of ultimate pricing power? Not to mention token prices are going down. The economics of the AI trade have fundamentally changed, and no one is willing to catch a falling knife to say we have reached the bottom.
They are hoping the next 24 hours is a clearing event. Or is it a source of volatility? Under surveillance this morning, a majority on the line.
We will start the same way we end. My name is Abdul El-Sayed, and I hope to be your next United States Senator. Once Abdul El-Sayed got through that primary, our world changed. Show up and vote. If we turn out, we win.
Pitch to voters. Polls opening across the country as Republicans battle a so-called blue wave threatening their grip on the House and Senate.
