Are AI financing loops efficient or alarming?

Interactive Transcript

spk_0 On the show today we've got investments in AI, consolidation in the banking industry,

spk_0 and a trip to the fridge for a cold, creamy stick of butter.

spk_0 From American Public Media, this is Marketplace.

spk_0 In New York, I'm Kristen Schwab and for Kyra's Doll, it's Monday October 6th.

spk_0 Thanks for joining me.

spk_0 The federal government may be still at a standstill.

spk_0 It's day 6 of the shutdown, but corporate America keeps churning.

spk_0 This morning, OpenAI, the maker of chat GPT,

spk_0 and advanced micro devices, a maker of chips,

spk_0 announced a major partnership.

spk_0 OpenAI says it'll start using AMD's chips to power AI data center infrastructure

spk_0 in coming years, and the arrangement allows OpenAI

spk_0 to take a 10% stake in AMD.

spk_0 It's just the latest in a spree of massive interlocking investments

spk_0 between major players in the AI industry.

spk_0 A ring of deals that has some investors excited,

spk_0 and others worry about the risk of a bubble.

spk_0 Marketplace's Megan McCarty-Kurino explains.

spk_0 Okay, see if you can follow this.

spk_0 So OpenAI is investing in chips from AMD,

spk_0 meanwhile, Chipmaker and Vidya said it's investing

spk_0 a hundred billion in OpenAI,

spk_0 which has reportedly made a deal with Oracle

spk_0 for 300 billion worth of cloud services,

spk_0 which Oracle will build with chips from Nvidia.

spk_0 So it's just a few players who are really making these

spk_0 circular transactions with each other.

spk_0 Doug Oloflin at Semi Analysis says these companies are making a big bet together

spk_0 that collaborating on a massive AI buildout

spk_0 will bring massive returns for all.

spk_0 Let's just say when you're spending this much,

spk_0 odds are you have to pull in a lot of partners,

spk_0 and I think they're really connected and, you know,

spk_0 interlinked with their closest partners,

spk_0 so that their partners have invested interest in them seceding.

spk_0 This kind of spending concentration is somewhat inevitable,

spk_0 says Daniel Newman at the Futurum Group.

spk_0 Only a small number of companies have the capacity to build out AI,

spk_0 so it makes sense for them to leverage each other to grow.

spk_0 The dollars come all the way back around.

spk_0 The investments come in,

spk_0 and then the compute is consumed,

spk_0 and then it's distributed,

spk_0 and then the chips are built,

spk_0 and basically it's very efficient.

spk_0 But that virtuous cycle could easily turn vicious

spk_0 if the demand for AI isn't as strong as the industry hopes,

spk_0 says Tech Critic Ed Zitron of the Better Offline podcast.

spk_0 You're effectively saying,

spk_0 hey, mate, I will sell this to you,

spk_0 but I will also be the creditor

spk_0 that provides you with the money to buy this from me.

spk_0 It's handing money to yourself.

spk_0 He says the interlinked financing arrangements

spk_0 are starting to resemble the wireless infrastructure bubble of 2001.

spk_0 What happens if that stuff isn't real?

spk_0 There's not enough money to pay for any of this.

spk_0 It's funny money.

spk_0 Investors, though, seem to be taking these AI investments seriously,

spk_0 the lease for now.

spk_0 Stock goes up every time a new one gets announced.

spk_0 I'm Megan McCarty, Carino from Marketplace.

spk_0 Wall Street today got a boost from that big AI deal.

spk_0 We'll love the details when we do the numbers.

spk_0 The Cincinnati-based Regional Bank, fifth, third,

spk_0 announced today that it will acquire Dallas-based Regional Bank,

spk_0 America, for nearly $11 billion.

spk_0 If regulators approve the deal,

spk_0 fifth-third will become the ninth largest bank in the US,

spk_0 with nearly $300 billion in assets.

spk_0 Not all that long ago, Regional Bank mergers

spk_0 were a sign of desperation.

spk_0 Remember the Silicon Valley Bank fiasco in 2023

spk_0 when first citizens swooped into by its remnants?

spk_0 And how the same thing happened just a couple months later

spk_0 with JP Morgan Chase buying first republic?

spk_0 While as Marketplace's Matt Levin reports,

spk_0 consolidation in the banking industry means something different this time around.

spk_0 Part of the reason everyone was so worried about Regional Banks a couple years ago,

spk_0 there are big source of lending for office buildings.

spk_0 But those still empty cubicles haven't become the financial contagion many feared.

spk_0 Kevin Fagan is an economist at Moody's Analytics.

spk_0 Banks have done a fairly good job of deleverging,

spk_0 meaning if they had really heavy exposure to the asset class,

spk_0 they've lightened that up or they've increased their reserves.

spk_0 So unlike the emergency shotgun mergers we saw in 2023,

spk_0 the spade of Regional Banking mergers announced this year,

spk_0 fifth, third, and America, PNC, and first bank,

spk_0 pinnacle, and synovus,

spk_0 more about who's in charge of officiating those mergers?

spk_0 Cornelius Hurley is a lecturer at Boston University Law School.

spk_0 The most telling thing is that there's a new sheriff in town when it comes to consolidation

spk_0 in this industry, and it's much more liberally if you can apply the word liberal to the

spk_0 Trump administration. Hurley says Trump's regulatory appointees have signaled a more

spk_0 permissive stance on bank mergers than the Biden administration.

spk_0 And you might think two regional banks combining different depositor bases would minimize

spk_0 the chance of a bank run. Remember part of what sunk Silicon Valley Bank was too many customers

spk_0 from the same industry, tech. But Gregor Motto said Northwestern's Kellogg School of Business says

spk_0 bigger isn't necessarily safer. When ever things tend to grow quickly in finance,

spk_0 we worry about bad things happening because they tend to happen.

spk_0 And there's, you know, what is very quick growth, a lot of big mergers are quickly growing things.

spk_0 Motto says a slowing economy can make regional banks balance sheets much more vulnerable than

spk_0 they've been the past couple of years. I'm Matt Levin for Marketplace.

spk_0 In the first half of this year, the immigrant population in the U.S. declined by one million people

spk_0 according to Pew Research. For reference here, that's equivalent to about the whole city of Jacksonville,

spk_0 Florida. We've talked a lot on this show about how changes to immigration policy is affecting families

spk_0 and businesses. It is also affecting the real estate industry. Marketplaces Elizabeth Troval reports

spk_0 from Houston, an area that last year saw an immigration boom and is now worried about a housing

spk_0 market bust. Claire Pough has been working with refugees at apartment complexes here in Southwest

spk_0 Houston for 15 years. There's a large immigrant population here. In front of a gray leasing office,

spk_0 she tells me that even though the U.S. isn't really resettling refugees anymore, apartment complexes

spk_0 are still calling her, asking if there are any newcomers to fill vacancies.

spk_0 And they're like, why aren't you sending us people? We have open apartments and we're needing people,

spk_0 like they really relied on newcomers to be able to fill their properties. Case in point,

spk_0 this recent voice message she plays for me on speaker.

spk_0 I clear, three at seven, so I put these in Houston. I've been just giving you a call.

spk_0 Have any lines for moving? Pough lost her job in refugee resettlement earlier this year,

spk_0 but she still checks in on families to see how they're doing. I have seen ice here and that

spk_0 I was surprised because it caused a lot of fear with the clients that I've been working with and they

spk_0 have legal permanent statuses. After saying bye to Pough, I drive to a bunch of other leasing offices

spk_0 nearby to see if they've been affected by immigration policies. A lot of working class immigrants

spk_0 live around here. I pass by Pappuso restaurants, hallalgratry stores, and apartment buildings,

spk_0 advertising, move-in offers. I'm here at the leasing office at the brick once again on here in future

spk_0 resident parking. And by the leasing office, this one has gray painted brick. It doesn't look

spk_0 very occupied, I will say. There aren't many porch plants or decorations like you normally see

spk_0 outside apartments. So I go inside the leasing office with the gray brick. The woman inside

spk_0 doesn't want to be recorded, but she does answer my questions. She did say, especially in the last

spk_0 two months, they've seen a decrease in demand for the apartments, a decrease in occupancy,

spk_0 directly connected to immigration rates. And Costa, real estate analyst,

spk_0 Itziat Aguirre says while low-end complexes in Houston have been performing poorly for a while due

spk_0 to ongoing economic stress and inflation, add to the factor of the recent situation with the

spk_0 deportation so that they've also noticed that some residents, especially undocumented immigrants,

spk_0 have left apartments due to fears of deportation. While recently arrived immigrants are more likely

spk_0 to be renters, a smaller, wealthier share of newcomers due by homes. Realtor Jane Bird works

spk_0 with many international clients in Houston. We do see a clear downturn in property sells by foreign

spk_0 buyers who live outside of the U.S. today. Her clients are mostly from Mexico, Canada, China,

spk_0 India, and Europe. I do believe it is due to the immigration policy by the Trump administration,

spk_0 is that foreign buyers are hesitant, they've halted, and they really are buying

spk_0 much less than they were prior to this year. Bird says where she has seen business pickup

spk_0 is clients looking to buy properties abroad. Before this year, people were buying abroad for

spk_0 lifestyle and financial reasons or retiring, but there's more of a strategic move this year

spk_0 because of the political uncertainty and immigration policy. She says people are moving away from

spk_0 Texas to Mexico, Belize, and Panama. So with fewer people coming to Houston from abroad and more

spk_0 people leaving the city because of deportations and other policies, I ask Rice University's Bill

spk_0 King, what happens? We would be the first time since probably the 80s at Harris County

spk_0 lost population. King says Houston's economy has relied on population growth. Sales taxes to

spk_0 apartment occupancies to use car sales to all sorts of things will be impacted if we actually

spk_0 have a population drop. After years of welcoming immigrants, Houston is beginning to grapple with

spk_0 what the downturn in immigration could mean for the housing market and the economy as a whole.

spk_0 In Houston, I'm Elizabeth Trowall from Marketplace.

spk_0 Coming up, people's view this as a little affordable luxury and not some crazy fancy thing.

spk_0 Luxury has hit the butter aisle, but first let's do the numbers.

spk_0 The Dow Jones industrial average fell 63 points to finish flat at 46,694. The NASDAQ added 161 points,

spk_0 710th percent, to close at 22,941, and the S&P 500 gained 24 points at 3rd percent to end at 6740.

spk_0 Megan McCarty Carino reported on the spending deal between OpenAI and AMD that helped drive

spk_0 the NASDAQ higher. AMD shares rocketed up 23 and 710th percent. Competitor Envidia dropped 1 and

spk_0 1 10th percent. Matt Leven had a story about 5th third acquiring Comerica. 5th third shares fell

spk_0 1 and 4 10th percent. Comerica blasted upward 13 and 2 thirds percent. Bonn's fell,

spk_0 lealed on the 10 year T-note rose to 4.16 percent. You're listening to Marketplace.

spk_0 This is Marketplace, I'm Kristen Schwab. When I stepped outside for lunch today in New York,

spk_0 it was 80 degrees and sunny, which doesn't really scream October and definitely doesn't scream

spk_0 holiday shopping season. But it's already started for some, and the thick of it is almost here.

spk_0 A Dobie forecast consumers will spend more than a quarter billion dollars shopping online this season.

spk_0 About 5 percent more than they spent last year. Marketplace's Samantha Fields has more.

spk_0 It's almost the most critical time of the year for retailers.

spk_0 The holiday season is very important to our business. It's usually about 40 percent of our revenue.

spk_0 Matthew Hasett is founder and CEO of lofty, a wellness company that sells alarm clocks and

spk_0 other sleep-related products, many of which are made in China. He says it's been a rough year

spk_0 because of all the uncertainty around tariffs. The hardest year for sure, way harder than COVID.

spk_0 We launched during COVID and that was relatively smooth. Comparatively, this has just been

spk_0 touching go day by day. But Hasett says he's feeling more solid lately after spending much of

spk_0 the summer diversifying and expanding into markets in Europe and the UK.

spk_0 Things are going well so far. September was our strongest month of the year.

spk_0 And he's optimistic about the holiday season. Katie Thomas at the Carney Consumer Institute says

spk_0 she's expecting a strong holiday shopping season this year too overall.

spk_0 Consumer sentiment numbers have not been great. There's been a lot of stress and concern

spk_0 around the economy. But the reality is is in large part, consumers have still been spending.

spk_0 With inflation creeping up again and concerns about tariffs still looming though,

spk_0 she says shoppers are likely to be looking for deals this year more than ever.

spk_0 So even though brands may want to not discount as heavily given tariff implications on their margins,

spk_0 they will likely be forced to because they're really competing for that consumer dollar.

spk_0 To be competitive, Vecpandia at Adobe says it's also critical that businesses figure out how to be

spk_0 visible everywhere, including on social media platforms and in AI search results.

spk_0 Given everything the consumer is dealing with in the economy, what's really standing out to us is

spk_0 how they're leaning on generative AI platforms to get a sense of better deals, product recommendations

spk_0 information. This year he says Adobe is expecting the traffic retailers get from AI platforms to grow

spk_0 by 520%. I'm Samantha Fields from Marketplace.

spk_0 The average entrepreneur is 35 years old when they start a business, according to the US chamber

spk_0 of commerce. Only 6% of entrepreneurs are younger than that, which makes sense I guess,

spk_0 because starting a business takes capital and it takes guts. That brings us to the next

spk_0 installment of our series, My Economy. Hi, my name is Krish Kamalani. I'm currently a junior at

spk_0 Baphsen College, opening my Indian Fast-Counter restaurant, this eats. Basically back home in

spk_0 Puerto Rico, I grew up in an Indian household and we would always eat Indian food at the house

spk_0 for lunch dinner. That's what I would bring to school because I grew vegetarian. But we realized

spk_0 that being vegetarian in a special in Puerto Rico was very difficult because the diet was very

spk_0 meat-based. Us as a family decided that we would switch up our diet a little bit and one way we

spk_0 did this was by changing the recipes that we were working with. Through that I fell in love with

spk_0 I went to NYU to study finance and food science and I wanted to float this idea of starting a restaurant

spk_0 of Indian food that was healthy and also customizable like Chipotle. They're kind of reluctant about it.

spk_0 They didn't like it because I was a student that had no background, no experience, no industry

spk_0 experience. And I knew I would be wasting my time if I stayed there. So I went to Baphsen College,

spk_0 which would give me this kind of lab to test out my business. When I did my first pop-up,

spk_0 it was basically in the dining hall. It was put in the back of the kitchen. People were able to

spk_0 try, I had surveys out from people to give out their feedback and obviously it didn't start at

spk_0 the best. There's always issues I need to deal with. The butter chicken was coming out pink.

spk_0 Not even orange. We had to find out a way to do that but every single pop-up we did got better and

spk_0 better. Babs in the summer told me that we're going to go through with this. We want you on campus

spk_0 as a permanent location. We'll sell your food. What this signifies is I'll be paid as a salary as

spk_0 if I was a manager of the location. I will be using that money obviously back into the business

spk_0 and investing it because at the end of the day the goal is to go to many college campuses and

spk_0 having so many to back it up will make it easier to expand quicker.

spk_0 I come from a family of all entrepreneurs, people that came from nothing and built everything

spk_0 that they have around them. Being around that just built me as a person to want that for myself

spk_0 as well. It's not just a business that I'm stressed to be successful or I guess make money from.

spk_0 It's something that I'm so die-hard passionate about that I don't see it just as a business. I

spk_0 see it as something that I would have loved to have as a child.

spk_0 Krish Kamlani opening his restaurant desi eats at Babs in college. We can't do this series without

spk_0 you whether you're a first-time business owner or a serial entrepreneur. Write to us about what's

spk_0 happening in your economy at marketplace.org slash my economy.

spk_0 I

spk_0 have done a lot of reporting recently looking at how consumer spending has remained resilient

spk_0 in large part because of high earners. People in the top 10% of incomes accounted for nearly

spk_0 half of consumer spending in the second quarter and they're not just spending their money on fancy

spk_0 watches or cars. They're also making serious upgrades when it comes to ordinary everyday items

spk_0 like butter. Christina Peterson, a reporter at Bloomberg recently wrote about this. Christina,

spk_0 welcome to the program. Thank you so much for having me. So I guess there really is a luxury

spk_0 version of everything these days. Even butter? What's behind the push? The folks that I spoke with

spk_0 said this really came from the pandemic when more people started cooking at home and

spk_0 having a little something special in your kitchen made that experience feel a little bit more fun.

spk_0 And so butter is something where for not that much more money people can sort of elevate their

spk_0 toast and biscuits and general butter eating experience at home. Okay, but you say not that

spk_0 much more money, but you talk about a butter that costs $60 a pound in your story.

spk_0 That butter I think is in its own category. What makes it so special?

spk_0 That butter comes from a farm in Vermont with a very small number of cows producing the milk

spk_0 that's used to make it. So it is a very limited supply, largely why it's prices so very high.

spk_0 For the most part, I think people eating fancier butter at home are upgrading a little bit to maybe

spk_0 $7 butter or $10 butter. And in some cases, more expensive butter from France that's been imported.

spk_0 But I think for the most part, people view this as a little affordable luxury and not some crazy

spk_0 fancy thing. What else is behind the push for butter? Is it all just about a luxury version of a regular

spk_0 regular everyday food? I think that butter is benefiting from this backlash against process foods.

spk_0 I think a lot of people are attracted by butter's short ingredients list and a feeling that it's

spk_0 more of a whole food that doesn't have a long ingredient list. So I find that fascinating how much

spk_0 our cultural attitudes towards butter and different fats has evolved.

spk_0 Hmm. And who's buying this stuff?

spk_0 You know, I think in general, I've heard people describe this as sort of a barbell economy where the

spk_0 higher income households are able to spend more on groceries and lower income consumers are

spk_0 really pinching their pennies. But I have spoken to people who are looking for bargains in other foods.

spk_0 Like I talked to a TV producer who is looking for bargains on Greek yogurt, but he will still

spk_0 splurge for a carry gold butter. So I think to some extent this is a pretty accessible food

spk_0 still for a lot of people. You know, one of the themes in your story is about this sort of treat

spk_0 culture that's emerged and how it has carried over into everyday categories like butter.

spk_0 I guess I'm wondering how much you're seeing this happening across different categories and why

spk_0 you think this sort of treat culture in everyday purchases has emerged?

spk_0 Well, my colleague at Bloomberg Businessweek, Deanish Enker, had a really interesting article

spk_0 out recently about condiments also being an area where people are willing to splurge a little bit.

spk_0 And I think that has some of the same rationale. You know, people are cooking at home more.

spk_0 They might be willing to pay $10 for an exciting chili crisp that will last a while. I mean,

spk_0 that's also true with fancier butter. Generally people don't consume it all in a day. And I think

spk_0 there's something about spending a little bit more for a product that you will get to enjoy for

spk_0 days if not weeks that appeals to people. So I grew up in a country crock household.

spk_0 I can imagine that big, big brown tub in my head. Yes. I'd say probably, probably there's

spk_0 some carry gold in my fridge now. What's the butter of choice?

spk_0 Well, I will report that I, in the process of reporting this story, I did try a French butter.

spk_0 It's not a super expensive one, but it was really good. I don't recall it's exact name. I think it was

spk_0 the E-Sung You Sam Mayor butter, but I will say it had those little crunch of sea salt crystals in

spk_0 and my kids were kind of blown away. And I think it took us a full month, six weeks to go through it.

spk_0 So I, I think we might try that one again. It did feel worth it to level up a tiny bit.

spk_0 The special occasion butter. Christina Peterson is a reporter covering the food industry at Bloomberg.

spk_0 Christina, thanks for coming on the show. Thank you so much.

spk_0 This final note on the way out today, RIP to right aid. The chain has closed all of its remaining

spk_0 stores after more than 60 years in business. Right aid was obviously known for its pharmacy services,

spk_0 but also for its ice cream brand, Thrifty, which had a cult following. The retailer

spk_0 filed for bankruptcy twice over two years. Most of the stores have been sold to rivals, CVS,

spk_0 Walgreens, Albertsons, and Crogr. Amir Babawi, Kaitlyn Esch, John Gordon, Noia Carr, Amanda

spk_0 Peacher, and Stephanie Seek are the marketplace editing staff. Kelly Silvera is the news director,

spk_0 and I'm Kristen Schwab will be back here tomorrow.

spk_0 This is APM.

spk_0 I'm Kimberly Adams host of Make Me Smart, a podcast from Marketplace that makes today

spk_0 makes sense. Join me throughout the week as I dig into the biggest stories in tech, culture,

spk_0 and the economy. Whether it's a vibe check on the job market or the latest on China U.S.

spk_0 relations, Make Me Smart helps you understand how the headlines actually impact your daily life.

spk_0 Listen to Make Me Smart on your favorite podcast app.

Are AI financing loops efficient or alarming?

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