Lazard Pres. talks markets, AI energy needs, election risks

The Milken Institute Global Conference continues in California, with Lazard (LAZ) President Ray McGuire joining Yahoo Finance executive editor Brian Sozzi and anchor Akiko Fujita to discuss market outlooks, AI investments, election risks, and more.

McGuire says that investors approach markets from two perspectives: "What's in front of us and what's ahead of us." Regarding the immediate concerns, he notes that Lazard clients are primarily focused on "the impact of inflation, the markets, and valuations," as well as the Federal Reserve's policy decisions. On the other hand, the "what's ahead of us" perspective focuses on geopolitical and geo-economic risks that may materialize.

Turning to the generative AI front, McGuire highlights the energy requirements associated with this rapidly evolving technology. He cites the Chips Act, emphasizing "the recognition that we need to be able to manufacture our own chips." This realization has prompted companies to invest heavily in capital expenditures, driving the construction of data centers and other AI infrastructure. However, McGuire says this movement will force the United States to simultaneously develop new energy sources to support the demand.

As the US presidential election nears, McGuire notes that companies are "actively" considering the potential outcome and its impact on markets. Lazard aims to assist organizations with "scenario planning" for such pivotal events. However, McGuire notes that the risks extend beyond just the US election, as global elections could significantly influence supply chain investments.

McGuire characterizes the current regulatory environment as "a headwind." He emphasizes that regulations "have become a factor in ways they haven't historically" when companies contemplate growth or expansion through mergers, acquisitions, and other deals.

Catch more of Yahoo Finance's coverage at the 2024 Milken Institute Global Conference.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video transcript

So much attention here at the Milken Institute conference on inflation and the outlook for interest rates.And maybe we haven't talked enough about the global outlook and some of the biggest risks ahead.Let's bring in President at Lazar Ray Maguire, Ray.Good to see you again.It's been a while.Good to see you.Great to be here in person.One of the one of the biggest risks, I don't know if we talked enough about is China globalization risks.What are some of these conversations like with clients right now?So I would separate the the limbs in two parts one.And I'm gonna come back to clients because the view for the clients are somewhat different, not diverging but different focus.What's in front of us and what's ahead of us today?Clients are thinking about impact of inflation, the market valuation, both the asset management clients as well as the corporate clients.That's what's in front.What is the fed policy?What is it going to do with borrowing rates?How does that reflect in the valuation if I want to monetize if I want to go fund the transaction where the asset manage for the Corporates, what's my currency?If I want to make a strategic transaction, reliance on equity as a source stock, as a source, the benefit of which is that I get to share in the upside and I get to share in the synergies.So let's part, that's what's in front of us.What's ahead of us is as you've described, what's taking place geo economically and geopolitically, the global north and the global south, the dependence at the global north, especially America has on the global south is not insignificant.For example, as we think about one of the macro trends, energy transition.If you look at the dependence that the US has on the global South China refines 70 to 90% of the precious minerals that are necessary for energy transition.If I look at the continent of Africa, the source of many of those raw materials or Peru or Chile.If I look at the global South and see the dependence, unless we somehow figure out how to invest, so we become more self reliant, we have exposure which is not insignificant.Today, we're energy secure tomorrow, we need to make certain that we're as energy secure tomorrow as we are today.So from the perspective of your corporate clients, when you think about the over reliance on other countries, does that drive investments as a way to safeguard the future?How do you think they think about that?The answer is not only from a corporate standpoint from a sovereign standpoint, the Chips Act as an example, the recognition that we need to be able to manufacture our own chips to perfect the manufacturing of chips.So yes, for the sovereigns and for the Corporates.Absolutely.And what does that translate into?We now have three or four of the large tech companies gonna put $200 billion investment into capital expenditures.So yes, Corporates are thinking Capex.how do I invest today?Data centers as an example, energy sources.Remember in order to in order to get to A I today, it takes up 4% of the country's energy.The prediction by 2030 it takes up 25% of the country's energy.So we have to build energy sources in order to be able to power anything to happen to generative A I.So yes, our corporations are actively thinking about how they go through and make Catholic expenditures for the future.Are corporations prepared correctly for either election outcome or the presidential outcome in November?I get the sense that ceos are, they know it's there, but they're not really planning their business for either outcome yet.Well, I think that it may not be visible but corporations at moments in time like this go through scenario planning.We do, we try to help them out.We have a geopolitical advisory group which is, you know, which is populated by some of the best thinkers on the planet.And we put a lot of thinking in scenarios of what happened with this election outcome.What happens if there's a different, a different election outcome?So the answer is yes, they're thinking actively about it.Our group is very active globally.And so the answer is yes.What's the worst outcome?What's the worst outcome?There are a few scenarios out there to which we need to attend in order to be prepared.Well, I guess my question would be if we're talking about the US election are the scenarios between a second Biden term or Trump term really that different from a corporate standpoint, they could be.But across the planet you got 50 some odd elections.So look at what?So the risk that we have, as we think about investing in the supply chain offshore, there are two risk, fundamental risks that investors look to one is currency and the other is political risk.So let me ask you about that piece of it.You mentioned a I you mentioned chip supply chain.These are massive projects.We were talking about the Chip Act $39 billion in subsidy.Do you look at what's happening in Europe?More than $40 billion at a time?Rates are still incredibly high or not incredibly high, relatively high?I should say, how do companies make that calculation about investing in the future?But knowing that debt, they have to incur as a result is still going to be pretty high.So the question is because it is so fundamental to how companies and the country operates.The thing with scenario if we don't make the investments.So the answer is from return standpoint, we need to make sure that we're risk adjusted to have appropriate returns.But we also have to think strategically, remember, strategy drives financially in the corporate world and even in the asset management world strategy drives how they think about allocating.Today.Today, we have $10 trillion of capital on the sidelines, deciding how it allocates itself in order to generate a return for the for the for the shareholders.We have to do the same thing in terms of how we allocate our resources.So companies are thinking very strategically about how they go about doing this.And so yes, the risk profile is critical.They need to make returns for their investors, for their shareholders and we advise them that is a primary concern, but we also advise them on how they remain competitive.They're not, they're one and the same in order to maintain the focus on making sure that they do what is necessary as a corporate citizen.So we're seeing, we're seeing all of it come into play at a moment in time when you have such geo and geo economic and geopolitical challenges.We've spent decades doing big deals, one of the most celebrated folks on the street doing deals.What's company's sense on the regulatory environment.Are they tepid on trying to do a big deal with a backdrop like this?So, uh you're great to ask the question.That's a head wind.And so corporations are trying to figure out as they go through and assess how they're going to grow and grow strategically.Will there be impediments to a strategic combination?And that has become a factor here in ways that it has been historically, maybe not as profile as it is today going through that like purchase price and maybe there's more breakup fees and you'll see it get played out in different transactions.But the risk apart from the economic consequences, the strategic consequences, remember the vast majority of these transactions are strategically driven very rarely in this environment are things just solely economic and again, strategy is driving financing.So the answer is yes, as you think about a strategic transaction, you have to ask yourself the question and get as much advice as you can on what the, what the likely the the likely regulatory sponsor is going to be.That is now part of the calculus to pick up on Brian's point though, when you talk regulation, it's not just about concerns about anti trust getting flagged.There's also concerns about any kind of foreign investment getting flagged, particularly in the tech space too.And I wonder if somebody who has been in this space for a while, where do you see this all going?Where's it all going to, you know, it will play out for so long as we make the investments to remain competitive and get beyond the divisiveness which we have to do.In order for this country's best days to continue to be ahead of us.We got to make those strategic investments.We have to reduce our exposure to the supply chain.We have to reduce that risk profile, foreign supply chain, foreign supply chain.Today, we're energy secure, admittedly based on traditional energy sources.Tomorrow, we need to be energy secure and technologically secure.Remember today, we're the most advanced technology that exists anywhere on the planet.We have to maintain that lead, which means we got to continue to invest.All right, we're, we're going to leave it there.The President Lazarre Ray mcguire.Good to see you again.We appreciate it.Great to see you all.