Update 13 June on VTC & YTL Power

US stocks rebounded Thursday, bolstered by better-than-expected Producer Price Index (PPI) inflation data for May. Pricing pressures remain tepid despite the Trump tariffs, and the lack of immediate price volatility impacts are re-igniting market expectations of a Federal Reserve rate cut in September.

PPI inflation rebounded in May, and previous data saw a slight upward revision, but the overall figures still came in below median market forecasts. Annualized core PPI inflation eased to 3.0% YoY, while headline PPI inflation rose to 2.6% YoY.

The week’s overall tepid inflation data for both consumers and producers has galvanized market bets for the start of the Fed’s next rate-cutting cycle. According to the CME’s FedWatch Tool, rate traders are pricing in nearly 80% odds of at least 25 bps rate cut when the Fed gathers for its September rate call meeting. In the meantime, the Fed is expected to continue holding rates flat for the next two rate meetings.

The University of Michigan’s (UoM) Consumer Sentiment Index for June will land on markets on Friday to wrap up the trading week, and median market forecasts expect an overall rebound in aggregated consumer sentiment survey results. Investors will also keep a close eye on the UoM’s 1-year and 5-year Consumer Inflation Expectations, which are holding uncomfortably high at 6.6% and 4.2% respectively.

China affirms trade deal with US, says it always keeps its word

Reuters, June 12, 2025

BEIJING: China on Thursday affirmed a trade deal announced by US President Donald Trump, saying both sides needed to abide by the consensus and adding China always kept its word.

The deal, reached after Trump and China’s President Xi Jinping spoke on the telephone last week, brings a delicate truce in a trade war between the world’s two largest economies.

“China has always kept its word and delivered results,” Lin Jian, a foreign ministry spokesman, said at a regular news conference. “Now that a consensus has been reached, both sides should abide by it.”

The Trump-Xi telephone call broke a standoff that had flared just weeks after a preliminary deal was reached in Geneva. The call was quickly followed by more talks in London that Washington said had put “meat on the bones” of the Geneva agreement to ease bilateral retaliatory tariffs.

The Geneva deal had faltered over China’s continued curbs on minerals exports, prompting the Trump administration to respond with export controls preventing shipments of semiconductor design software, jet engines for Chinese-made planes and other goods to China.

Trump on Wednesday said he was very happy with the trade deal. “Our deal with China is done, subject to final approval with President Xi and me,” Trump said on Truth Social.

“Full magnets, and any necessary rare earths, will be supplied, up front, by China. Likewise, we will provide to China what was agreed to, including Chinese students using our colleges and universities (which has always been good with me!). We are getting a total of 55% tariffs, China is getting 10%.”

Still, specifics of the latest deal and details on how it will be implemented remain unclear.

A White House official said the 55% represents the sum of a baseline 10% “reciprocal” tariff Trump has imposed on goods imported from nearly all US trading partners, 20% on all Chinese imports associated with his accusation that China had not done enough to stem the flow of fentanyl into the US, and pre-existing 25% levies on imports from China put in place during Trump’s first presidential term.

Asian shares stumble after Trump’s latest trade threat

AFP, June 12, 2025

HONG KONG: Asian shares were rattled Thursday after Donald Trump said he would impose unilateral tariffs on partners in the next two weeks, reigniting trade war fears soon after reaching a deal with China to dial down tensions between the superpowers.

The mood was also shaded by geopolitical concerns after the US president said personnel were being moved from the Middle East as nuclear talks with Iran faltered and fears of a regional conflict grew.

The equity losses snapped a recent rally fuelled by talks between Beijing and Washington in London that saw them hammer out a framework agreement to move towards a pact to reduce levies.

Investors have been on edge since Trump’s “Liberation Day” tariff blitz on April 2 that sent shockwaves through stock and bond markets and stoked global recession fears.

Days later he announced a pause in those measures until July 9 to allow for countries to cut deals with the White House, sparking relief rallies that have pushed some markets towards all-time highs.

However, he once again shook confidence by saying Wednesday that he intended to send letters telling governments what levies Washington would be imposing.

“We’re going to be sending letters out in about a week and a half, two weeks, to countries, telling them what the deal is,” he told reporters.

“At a certain point, we’re just going to send letters out. And I think you understand that, saying this is the deal, you can take it or leave it.”

While some analysts indicated that previous threats had been rowed back, the comments added to the ongoing uncertainty about Trump’s policies, reviving fears about sky-high levies and the impact on the economy.

They also came not long after he had flagged the London agreement, and posted on social media that “President XI and I are going to work closely together to open up China to American Trade”, referring to his counterpart Xi Jinping.

“The uncertainty doesn’t help,” Nick Twidale at AT Global Markets Australia said. “And his overall comments overnight have led to more uncertainty for the market rather than the clarity we were hoping for.”

Most Asian markets fell on Thursday, with Tokyo, Hong Kong, Shanghai, Wellington, Taipei and Jakarta in the red after a broadly healthy run-up this week. There were gains in Sydney, Singapore and Seoul.

The weak performance followed losses on Wall Street, where trade worries overshadowed another below-forecast inflation reading that provided fresh speculation the Federal Reserve will cut interest rates.

Oil prices slipped but held most of Wednesday’s surge of between four and 5% that came after Trump said US personnel were being moved from the potentially “dangerous” Middle East as Iran nuclear talks stutter.

The move came as Tehran threatened to target US military bases in the region if a regional conflict broke out.

The US president said the staff were “being moved out because it could be a dangerous place”.

“We’ve given notice to move out and we’ll see what happens.”

With regard to Iran, he then added: “They can’t have a nuclear weapon, very simple. We’re not going to allow that.”

Trump had until recently expressed optimism about the talks, but said in an interview published Wednesday that he was “less confident”.

My take: The evacuation of US embassy staffs at Iraq is a strong signal that things may be getting out of control in the Middle East soon. A 5% jump in international crude oil prices yesterday is another signal for heightened unrest in the region.

As the US has successfully negotiated with the UK and China, President Trump may force a stronger hand onto other trading partners. The UK has bought over US$15 billion of US debts in May, bringing it to become the second largest US debt holder surpassing China, hence enjoying the lowest 10% tariffs by the US. China has used rare earths mineral export controls to force the US to relax trade restrictions on AI and advanced technology exports to China, and forced the US to reduce the tariffs from 145% to 30%.

Things may not be so easy for other trading partners, such as Australia. Japan may be forced to use its large holdings of US debts as a bargaining chip in trade talks with the US. I am not sure what leverage Malaysia will have in trade talks with the US when Tengku Zafrul meets up with US officials in Washington next Wednesday.

Hundreds died in Air India crash

The New York Times, June 13, 2025

An Air India passenger jet crashed into a medical college’s dining hall moments after takeoff in Ahmedabad, India, yesterday, killing more than 260 people. It was India’s worst aviation disaster since 1996.

One British citizen survived, Air India confirmed. Indian news media showed a video clip of a man with injuries who said he came from “inside” the plane. The man was later identified by his brother as Viswash Kumar Ramesh.

The plane, a Boeing 787-8 Dreamliner bound for London Gatwick Airport, had 242 people aboard, including 169 Indian citizens, 53 British, seven Portuguese and one Canadian.

What caused the crash? It could take months or years to determine the cause of the crash, but safety experts questioned why the plane appeared to descend so soon after it took off. The Dreamliner has been under scrutiny for years, but had never been involved in a fatal crash before yesterday.

On the ground: Officials at the chaotic crash site at B.J. Medical College said that the plane most likely skidded after it came down, damaging buildings before bursting into flames.

Why Israel may be considering an attack on Iran

The New York Times, June 13, 2025

President Trump acknowledged yesterday that Israel could soon attack Iran, but said “I don’t want them going in” while the U.S. and Iran hold nuclear talks. Officials believe that Israel could strike Iran’s nuclear sites, which risks igniting a regional war.

It isn’t clear whether Israel has a genuine plan of attack or is saber rattling to influence the nuclear talks. Still, the spike in tensions prompted the U.S. to withdraw some diplomats from the region to keep them safe.

Why now? Israel has vowed to prevent Iran from obtaining a nuclear weapon. Yesterday, the International Atomic Energy Agency declared that Iran was not complying with its nuclear nonproliferation obligations, the first such censure in two decades. Iran already has enough highly enriched uranium that is near weapons-grade to build 10 bombs in less than a year, according to the I.A.E.A.

A small window: Iran has been weakened, with Hamas and Hezbollah, both backed by Tehran, decimated in wars with Israel. Prime Minister Benjamin Netanyahu has privately argued that Israel has a limited window in which to launch an attack.

What’s next: A new round of talks between the U.S. and Iran is scheduled to take place in Oman on Sunday.

My take: As warned yesterday, this is a worrying development in the Middle East. But Israel Prime Minister Netanyahu may not have a free hand now to take aggressive attacking stance as the opposition is forcing him to step down and the parliament dissolved. Furthermore, Netanyahu seems to have lost the backing from Donald Trump. But we need to monitor if the situation there would worsen to a regional war.

Oracle Hits Record After Seeing ‘Dramatically Higher’ Sales

Bloomberg, June 13, 2025

(Bloomberg) -- Oracle Corp. shares soared to a record high after the software maker projected a 70% gain in cloud infrastructure sales this fiscal year, giving a bullish outlook for the closely watched business.

The company, long known for its database software, has been gaining traction in its effort to become a major player in the business of cloud computing — renting out computing power and storage — by targeting clients focused on artificial intelligence work. Earlier this year, it announced a joint venture dubbed Stargate to provide OpenAI with massive sums of computing power.

The shares gained 13% to $199.85 at the close Thursday in New York, marking the biggest single-day increase in a year. Oracle had already climbed 17% in the last month as investors grew more optimistic that tariffs and other geopolitical issues wouldn’t disrupt the software industry.

The race to develop and sell AI software and services has led to a frenzy of demand for data center capacity. Oracle has found a niche in renting out AI-focused computing power as traditional industry giants like Amazon.com Inc. have been stretched to the limit. It has inked deals with customers such as Elon Musk’s xAI and Meta Platforms Inc.

Chief Executive Officer Safra Catz said in a statement Wednesday that Oracle is on its way to becoming “one of the world’s largest cloud infrastructure companies.” The past year “was a very good year, but we believe FY26 will be even better as our revenue growth rates will be dramatically higher,” she said.

The company said remaining performance obligations — watched as a measure of bookings — were $138 billion in the period that ended May 31, compared with $130 billion in the previous quarter.

“We recently got an order that said we’ll take all the capacity you have, wherever it is,” Oracle Chairman Larry Ellison said on a call with analysts after the results were released. “This could be in Europe, it could be in Asia, we’ll just take everything. I mean, we never got an order like that before.”

Ellison — one of the world’s richest people — saw his wealth climb more than $20 billion Thursday, according to the Bloomberg Billionaires Index.

The most “exceptional” part of the report was Catz’s long-term outlook, which suggests revenue acceleration, Brent Thill, an analyst at Jefferies, said in an interview on Bloomberg TV. Bookings growth may come from work with OpenAI and Stargate, he said.

On the call, Oracle executives said the Stargate project is still in the early stages and not fully reflected in the financial outlook.

“If Stargate turns out to be everything as advertised, then we’ve understated our RPO growth,” Ellison said.

To win more cloud business, Oracle is spending money to build and equip data centers across the globe.

Oracle’s capital expenditures more than tripled to $21.2 billion for the year ended May 31. Establishing massive data centers such as Stargate’s first site in Abilene, Texas, is cash intensive. Those expenses will increase to about $25 billion this year, Catz said.

“The reason demand continues to outstrip supply is we can only build these data centers, build these computers, so fast,” Ellison said.

In the fiscal fourth quarter, sales increased 11% to $15.9 billion. Analysts, on average, projected $15.6 billion, according to data compiled by Bloomberg. Profit, excluding some items, was $1.70 a share, compared with the average estimate of $1.64.

Total cloud sales increased 27% to $6.7 billion, in line with estimates. Revenue from the cloud infrastructure unit expanded 52% to $3 billion, just falling short of Wall Street projections.

The slightly miss in quarterly cloud revenue was likely driven by supply constraints rather than a lack of demand, wrote Anurag Rana, an analyst at Bloomberg Intelligence.

ByteDance Ltd.’s TikTok, a major customer of Oracle’s cloud, is in limbo in the US after a law passed requiring it to find an American buyer. President Donald Trump extended an initial April deadline to mid-June, and is eyeing another extension for the app to find a buyer, the Wall Street Journal reported.

Oracle inked another cloud contract with a Chinese tech company: e-commerce marketplace Temu, owned by PDD Holdings Inc. “They are basically moving their infrastructure to the Oracle cloud,” Ellison said on the call.

My take: Oracle is expanding its cloud business fast with the latest quarterly cloud business sales hitting almost $10 billion in the Q4. If not for supply constraints, the quarterly revenue from cloud sales would have exceeded $10 billion. Sales booking hit a high of $138 billion as of May 2025. Capex will increase to $25 billion in FY2026.

It looks to me that Oracle’s planned spending of US$6.5 billion to expand its cloud business in Malaysia and Singapore is well on track. As projected before, for it to recoup this investment costs, Oracle will need to secure cloud business sales of over US$10-13 billion over next few years. That would translate into cloud business sales of some US$1.0-1.5 billion a year in Malaysia and Singapore for next 10 years. That would still be a tiny sum of its sales booking of US$138 billion as of May 2025.

Hence, there will be opportunities for Oracle’s partners here such as VTC to implement cloud service contracts of some RM4bn to RM6bn a year for next 10 years. Assuming VTC could secure some 10% of Oracle’s cloud service contracts, that would translate into RM400 million to RM600 million of potential revenue for VTC every year for the next 10 years. That would be about 10 times the size of VTC’s historical annual revenue.

AI boom now a threat to Big Tech profits

Bloomberg, June 12, 2025

SAN FRANCISCO: Some investors are questioning the amount of cash Big Tech is throwing at artificial intelligence (AI), fuelling concerns for profit margins and the risk that depreciation expenses will drag stocks down before companies can see investments pay off.

“On a cash-flow basis, they’ve all stagnated because they’re all collectively making massive bets on the future with all their capital,” said Jim Morrow, founder and CEO at Callodine Capital Management.

“We focus a lot on balance sheets and cash flows, and so for us they have lost their historical attractive cash flow dynamics. They’re just not there anymore.”

Alphabet Inc, Amazon.com Inc, Meta Platforms Inc and Microsoft Corp are projected to spend US$311bil on capital expenses in their current fiscal years and US$337bil in 2026, according to data compiled by Bloomberg.

That includes a more than 60% increase during the first quarter (1Q) from the same period a year ago. Free cash flow, meanwhile, tumbled 23% in the same period.

“There is a tsunami of depreciation coming,” said Morrow, who is steering clear of the stocks because he sees profits deteriorating without a corresponding jump in revenue.

Much of the money is going toward things like semiconductors, servers and networking equipment that are critical for AI computing.

However, this gear loses its value much faster than other depreciating assets like real estate.

Microsoft, Alphabet and Meta posted combined depreciation expenses of US$15.6bil in 1Q, up from US$11.4bil a year ago. Add in Amazon, which has pumped more of its cash into capital spending in lieu of buybacks or dividends, and the number nearly doubles.

“People thought AI would be a monetisation machine early on, but that hasn’t been the case,” said Rob Almeida, global investment strategist at MFS Investment Management. “There’s not as fast of AI uptake as people thought.”

Of course, investors still have a hearty appetite for the technology giants given their dominant market positions, strong balance sheets and profit growth that, while slowing, is still beating the rest of the S&P 500.

This explains the strong performance of AI stocks recently.

Since April 8, the day before President Donald Trump paused his global tariffs and turned a stock market swoon into a boom, the biggest AI exchange-traded fund, the Global X AI & Technology ETF, is up 34%, while AI chipmaker Nvidia Corp has soared 49%.

Meta has gained 37%, and Microsoft has climbed 33% – all topping the S&P 500’s 21% advance and the tech-heavy Nasdaq 100 Index’s 29% bounce.

Just Tuesday, Bloomberg News reported that Meta leader Mark Zuckerberg is recruiting a secretive AI brain trust of researchers and engineers to help the company achieve “artificial general intelligence,” meaning creating a machine that can perform as well as humans at many tasks.

It’s a monumental undertaking that will require a vast investment of capital. And in response, Meta shares reversed Monday’s decline and rose 1.2%.

But with more and more depreciating assets being loaded on the balance sheet, the drag on the bottom line will put increased pressure on the companies to show bigger returns on the investments.

This is why depreciation was a frequent theme in 1Q earnings calls.

Alphabet chief financial officer (CFO) Anat Ashkenazi warned that the expenses would rise throughout the year, and said management is trying to offset the non-cash costs by streamlining its businesses.

“We’re focusing on continuing to moderate the pace of compensation growth, looking at our real estate footprint, and again, the build-out and utilisation of our technical infrastructure across the business,” she said on Alphabet’s April 24 earnings call.

Other companies are taking similar steps. Earlier this year, Meta Platforms extended the useful life period of certain servers and networking assets to five and a half years, from the four-to-five years it previously used.

The change resulted in a roughly US$695mil increase in net income, or 27 cents a share, in 1Q, Meta said in a filing.

Amazon, however, has taken the opposite approach.

In February, the eCommerce and cloud computing company said the lifespan of similar equipment is growing shorter rather than longer and reduced useful life to five years from six.

To Callodine’s Morrow, the big risk is what happens if AI investments don’t lead to a dramatic growth in revenue and profitability.

That kind of market shock occurred in 2022, when a contraction in profits and rising interest rates sent technology stocks plummeting and dragged the S&P 500 lower.

“If it works out it will be fine,” said Morrow. “If it doesn’t work out there’s a big earnings headwind coming.” — Bloomberg

YTL Power stock to catch up with US AI stocks

As the above article shows, US AI-related stocks have rebounded strongly since the emergence of DeepSeek in January and Trump’s Liberation Day: Nvidia stock has soared 49%, Meta 37%, Microsoft 33% and Nasdaq 100 Index 29% since April 8. In comparison, YTL Power share price has rebounded some 23% since a low of RM3.00 on April 9. If we add back the 19 sen adjustment for the bonus warrants, YTL Power share price will have rebounded almost 30%.

Alphabet Inc, Amazon.com Inc, Meta Platforms Inc and Microsoft Corp are projected to spend US$311bil on capital expenses in their current fiscal years and US$337bil in 2026 as the above article suggests. That shows that US Big Techs’ spending on AI has not slowed down at all since the emergence of DeepSeek, but has actually increased due to surging AI inference demand as Nvidia CEO Jensen Huang once argued.

On local front, United Overseas Bank (Malaysia) Bhd (UOB) announced its role as joint coordinator, mandated lead arranger, underwriter, and bookrunner in one of Southeast Asia’s largest data centre financing deals.

The landmark transaction, which involves a dual currency loan of RM15bil, is also the largest syndicated green Islamic facility in Malaysia.

The deal supports DayOne’s transformative data centre development in the Johor-Singapore Special Economic Zone (JS-SEZ). UOB arranged the financing in syndication with six other banks.

This development is another example of data centre boom in Johor. If banks are not satisfied with the potential revenue the new data centres will bring in, they will not lend money to the data centre developers like DayOne.

This landmark financing deal will also signify the financial close for one large data centre project in Johor. There are many more new data centre projects at various development stages, and data shows that there will be over 2,000MW of new data centres coming onstream in Johor by 2030.

This bores well for the dark fibre infrastructure project undertaken by YTL Power in Johor. For instance, DayOne will be a potential customer to lease the dark fibres as it links up this new data centre in Johor with its other data centres in Singapore.

The continued spending on AI by US Big Techs will brighten the prospects for YTL Power to secure more leases for its AI data centres in Kulai. One of these US Big Techs is already leasing for a 40MW colocation data centre at JDC4 of YTL Power Green Data Centre Park n Kulai, it has the option for leasing another 40MW at JDC4. YTL Power has secured about 188MW of data centre leases so far, and has capacity for another 300MW of AI or colocation data centres in Kulai.

Net short positions on YTL Power increased slightly to 22.2m shares at close Thursday while net short positions on YTL increased by about 800k shares to 24.3m shares.