The Chip Giant Helping Anthropic Buy More Chips

(upbeat music) Broadcom goes to bat for anthropic, helping the AI company to land a mammoth debt deal to power its future chip purchases. Plus, white next Tuesday's midterms will decide a lot more than who controls Congress. Investors and data center developers are closely watching to see if unfavorable results make it even harder to build the facilities powering the artificial intelligence boom. And the FTC and 20 states take on dollar general over alleged price manipulation targeting vulnerable customers. It's Tuesday, October 27th. I'm Luke Vargas for the Wall Street Journal. And here is the AM edition of What's News, the top headlines and business stories moving your world today. In the hours since anthropic unveiled its hotly anticipated IPO paperwork yesterday, we've learned more news about a massive debt deal totaling some $63 billion. It's led by Bank of America, city group and Morgan Stanley, and is the largest ever AI infrastructure deal, which is meant in this case to help anthropic keep scaling up purchases of chips that it otherwise couldn't afford on its own. And that's not all. As our Alexander Saidi, Anisa Gardese, and Matt Wertz, exclusive report, the CEO of chip maker Broadcom helped to bring the deal together following months of lobbying banks to pony up some $40 billion of the money. Journal reporter Ben Dumbit covers dealmaking for us. Ben, there is so much to sink our teeth into here. Let's start perhaps with the, can we call it executive maneuvering from Broadcom CEO Hawk Tan here. We report he essentially leveraged Broadcom's credit rating to get increasingly anxious banks to participate in this deal. I mean, what jumps out to you about all this? - For me, this represents an extreme example of a new type of financing that is emerged as well the AI, the growth AI sector called circular financing. And you have a situation here where the suppliers of chips like Broadcom are also on the other end and making huge equity or debt commitments to the anthropics of the world that are buying these chips. It speaks to the fact that anthropic or open AI, it's rival, they do not have the money themselves to act alone, to raise sufficient funding to buy the chips they need to fuel their incredible growth. - And so leading Broadcom in this case to not only be, as you said, the supplier, but a negotiator of the deal and come in as a guarantor financially in some capacity to protect banks against losses should anthropic default on its loans. So I guess we could say the lucrative nature of the AI build out inspiring, at least one company Broadcom to put on a lot of hats all at once here. And as we report, we're seeing it also bring together financial institutions that rarely work together. - Yeah, we've got some of the big banks, as you mentioned, and some of the big private credit firms such as Blackstone. And what, again, that speaks to the fact that neither group of lender, type of lender, is big enough or willing to take the risk to fund the build out of anthropics, AI operation or open AI's operation alone. So we've got a situation where the, you know, the two sides are coming together to meet that demand. At the same time, it speaks to the fact that different types of lenders are willing to take on different types of risk. And in this case, in the anthropic deal, part of the debt is not gonna be guaranteed by Broadcom, and a large part of that debt is gonna be taken on by Blackstone. It speaks to the greater risk that private credit are often willing to take as compared to the banks, which are typically more conservative. - Got it. And finally, Ben, I wanna look at one other thing that's been observed in our reporting here, which is that debt markets have lately been dealing with some indigestion as it was phrased around recent AI issuances. Do you see this deal as likely tempering market fears of an AI bubble that all these companies and finances are able to come together here? Or does it, in some ways, contribute to those concerns? Because after all, anthropic is one of the more promising AI bets out there, and even here, we reported some banks were wary of not being compensated enough for taking on the risk of signing onto this deal. - I mean, time will tell, really, because everyone is gonna be watching this anthropic IPO, this coming up. If anthropic is a poster child of the AI sector, currently, and if this IPO falls short of expectations, then that is definitely gonna make the banks, other types of lenders, like private credit firms, investors, more wary of the so-called AI trade. If it succeeds, it will add fuel to investors' appetite for continuing to bet on this sector in a big way. If the IPO's successful, they're gonna raise a lot of money, that's gonna sort of help bolster their finances in order to meet their debt obligations over time, but it's gonna take time to be concerned right now by the bank, by investors, is that the demand for AI is just not gonna justify the investment that we've seen so far to fund this build out. I harken back to my original comment, where we talk about circular financing, that's neither bad nor good necessarily, but where it becomes bad is if the suppliers of these chips are financing the buyers of these chips only to prop up their business. And if we find out that the anthropods of the world aren't generating the growth, that the market is betting they will over time, then that's going to really undermine both sides of the equation, and we're gonna see some real problems. - Ben Dammett covers deal-making for us here at the journal. Ben, thanks so much for the update. - My pleasure, thanks for having me. - And for more details about Anthropics, Revenue, the operational risks that it's flagging, and the likely timing of its public listing, check out the latest PM edition of Wants News, right before this one in your podcast feed. (gentle music) With just a week to go before the midterms, AI mega projects are on the minds of many voters. Nationwide dozens of projects worth hundreds of billions of dollars have been delayed or disrupted by local opposition this year. And our Omrath-Rom Kumar reports that some 40 local ballot measures, three dozen governors races, and many mayoral and other county contest next Tuesday could result in increased restrictions on data center development. Across the country, Democrats have been tapping into voter anger over data centers and these fears that they're consuming a lot of local power and water and pushing up prices. That's led a lot of people to a really attack Republicans again for this issue. Omrath says that if all those races, the AI industry will be most closely watching results from four states. They're really focused on Texas, where Gina Inahosa and Greg Abbott are locked in a tight race for governor. Inahosa has pledged to essentially put forth the moratorium on new data centers until there are strict new rules in place that limit the impact data centers can have on local communities. And that would potentially go much further than governor Abbott's recent pause on new development while the state reviews applications. The state is one to watch because Texas has the second most data centers and is seen as a conservative stronghold that is a very business-friendly state. People are also keeping an eye on the Senate race. There where Democrat James Tauriko has attacked Ken Paxton on this issue. And that's a trend we've seen throughout the country with Democrats painting Republicans as cozy with big tech and favorable to data center developers and in favor of tax exemptions. Investors are also watching Ohio, where there are a lot of local ballot initiatives regarding data center restrictions. And both Goon editorial candidates for Vagram Swamy and Amy Acton have pledged to make it harder for the sector moving forward to get blanket new approvals. In Michigan, the Democratic Gubernatorial candidate Jocelyn Benson has proposed that there need to be more restrictions on data centers. And people are also keeping an eye on the Senate race there between Abdul Al-Sahed and Mike Rogers. Abdul Al-Sahed has attacked Rogers on this issue. And has basically gotten behind a proposal from Bernie Sanders and Alexandria Ocasio-Cortez to ban new data centers and essentially stop all development of AI. So Owen there would really be a symbol that a lot of people would be watching, particularly going into the 2028 cycle about potentially where a lot of Democrats are going, not really favoring AI and data centers. I'm worth that a bit. One big question coming out of the midterms will be whether those campaign pledges from Democrats actually turn into real action. That's as a recent WSJ poll found that some 57% of Americans want the US government to regulate AI immediately. Jonathan Cantor was an assistant attorney general for the Justice Department's anti-trust division under President Biden. And speaking on the WSJ's take on the weak podcast, he said that gridlock in Congress has made it difficult to create effective regulation, but there could still be ways to incentivize companies to create safer products. The end of the day, they have shareholder obligations. And so what you want to do is you want to create duties such that those fulfilling those shareholder obligations requires safe and secure products and failure to do so would create significant consequences for shareholders such that they will hold their companies accountable. This will make the products better. They're still going to be wildly successful. They're still going to make money hand over fist. They're still going to be plenty of opportunity for great returns. I think what we're hearing, including from the shareholders, is just tell us where the lines on the road are. Tell us where the stop signs and the traffic lights are and then make the consequence significant enough so that we can adhere to them. But when I hear that they want to slow down, there's a degree of suspicion, which is, if you really think you're building something harmful, you don't have an obligation to ship it. If Boeing has a door flying off mid-air, It doesn't. need air bus to ground its planes in order to figure out how to fix its problem, right? My view is we want companies competing to develop safe and secure products and we want to give them the incentive to do that. And I think that is good for shareholders' returns. It's good for the public. And a federal appeals court has rejected a Trump administration request to force California to set aside mail-in ballots that it receives from 20,000 people that the federal government says might not be citizens. In a two-to-one decision, the panel said that the emergency, the administration is claiming, was at least in part, "a self-constructed one." And that it could have filed suit earlier as a part of its months-long battle with California over the accuracy of its voter rolls. Trump and top administration officials have alleged that hundreds of thousands of ineligible people are registered to vote around the country. California says that it prohibits non-citizens from voting, and that voters have to repeatedly attest to their US citizenship in order to cast ballots. Coming up, it's only just starting to get chilly in Europe, but the continent is already drawing down its gas reserves. We'll look at what that could mean for energy prices heading into winter and much more after the break. Oil prices are ticking higher this morning amid continued attacks on commercial shipping in the Persian Gulf. In addition to elevated oil futures, AAA reports that average gasoline prices in the US are hovering around $4.27 a gallon, roughly flat, from a week ago, in spite of a diplomatic push to try and restore free navigation through the Strait of Hormuz. Meanwhile, tensions in the Middle East are pushing natural gas prices in Europe to levels not seen since 2022, setting up what our Julia Petroni reports could be a tenuous winter for countries entering the season with low supplies. That 74.6 percent that we're seeing at the moment is actually well below the historical average for this time of year, and that is leaving the European market more vulnerable if supply constraints intensify or a demand exceeds expectations. The situation is particularly concerning in Germany where storage facilities are only 61 percent full. In Italy, on the other hand, storage is 90 percent full. The EU requires its member states to fill storage to at least 80 percent by November 1st, which is widely considered the end of the summer restocking season. So that gap between countries across the European Union exists because some rely on private energy traders to purchase and fill their storage facilities for longer before intervening. Normally, traders make a profit when summer gas is cheap and winter gas is more expensive. Because the summer prices were already high, companies fear they would lose millions of winter prices dropped, and that left facilities largely empty for months. In some other countries, governments stepped in faster, using state frameworks to support both state-backed and private buyers to keep importing gas, especially liquefied natural gas. Europe has also become increasingly reliant on American shipments of LNG, and with production facilities in Qatar still damaged after Iranian attacks earlier this year, Julia says that intensifying competition between European and Asian buyers for available LNG cargoes could keep prices elevated. What analysts are telling me is that obviously the weather and the war in the Middle East will be the key market drivers. Qatar in particular will continue to play a huge role, especially in Asia. Before the war, it supplied roughly a quarter of Asia's LNG needs, compared with less than 10 percent of LNG imports into the EU and the UK. That means that Qatar's eventual return to the market could be basically the single biggest factor in bringing prices to Asia. And because LNG cargoes compete across regions, that could also put downward pressure on tea prices in Europe. If disruptions last for longer, obviously we could see prices spike even higher, and spikes in oil gas and electricity prices are intensifying. Inflationary pressures across Europe, European Union governments have spent around 17.9 billion this year to cushion the effect of more expensive oil and gas on households and businesses. And that was through a mix of short-term emergency relief and structural market interventions. And we could see more of that in the coming months if prices keep going higher. Back in the US, the Federal Trade Commission and 20 states are suing dollar general, accusing it of long-standing and staggering deceptive pricing. In the complaint, which was backed by both Republican and Democratic-led states, the discount retailer is ledged to have knowingly advertised one price while charging higher prices at checkout. And that despite almost 30,000 customer complaints in recent years, the company, quote, "failed to correct the issue." Dollar General says it intends to vigorously defend itself against the lawsuit. And finally, the NFL has announced that Jay-Z will headline the Super Bowl halftime show, marking an about-face for a star who in 2018 bragged about turning it down again. The NFL revealed the selection during last night's Monday Night Football game between the Dallas Cowboys and Philadelphia Eagles. Jay-Z's company Rock Nation has helped the league with its live music strategy since 2019. And while Jay-Z hasn't released new music lately, it's been a big year for him on the back of an HBO docuseries and live shows. And that's it for what's news for this Tuesday morning. Today's show was produced by Hatty Moyer, our supervising producer, was Daniel Bach, and I'm Luke Vargas from the Wall Street Journal. We will be back tonight with a new show. And until then, thanks for listening.