JPMorgan's Dimon on Financing the AI Boom

Always a great moment, Danny, to speak to Jamie Dimon, of course, the chairman, CEO, of course, of JPMorgan. This is the 14th year of the JPMorgan Tech Summit here in London, bringing together PE, VC and, of course, your tech investment team. Jamie, thank you for your time. This is an environment, as Danny and the team were saying, in New York, where we're seeing the Nasdaq potentially notching a third straight record. Tech stocks are powering ahead. We've got the fundraising news coming through from OpenAI. Investors still willing to put money to work. And yet we've seen the cost of capital increase. We've seen in some AI names, CDS spread starting to rise. How much latitude do you see, Jamie, for further funding for this AI? Thanks for having me here, everyone. Let's start with the good news. This conference used to be 20 people. Now it's 2,000 investors and hundreds of companies around the world. And it is a very positive sign of tech's ability to expand its diaspora. It's not just Silicon Valley anymore. It's everywhere. So that is a very good sign. And a lot of these companies, they're real. They're going to invent things that help mankind for hundreds of years. Debt financing is a short-term kind of issue. But look, rates are going up, a lot of demand for capital, a lot of government financing. In my view, a little bit expected. If it goes up higher than here, does it create risk of credit spreads gap? Yeah, it creates risk for all companies. Changes valuations. And then your market's open and closed, as you know. So there's no permanent state of affairs when it comes to the markets. We are seeing that increased competition for capital. So layering that on top of the forecast around the CapEx spend for AI, $700 billion this year, potentially a trillion next year is the view from your team. What is the potential biggest risk to that forecast? Is it the physical build-out? Is it the monetization? Is it the cost of capital? Is it something else? Well, I think you mentioned, it's all those things. And when we went through this internet, in total, it pays off. But there'll be better models, better semiconductors. There'll be changing schedules. There'll be lawsuits about building these data centers. Look, most of them get built. They'll probably be built where people want them as opposed to where people don't want them. They'll be used. AI itself, I think, creates a lot of value. And so I'm not really worried about it. But you do point out, it is a lot of additional borrowing. So there's normal CapEx borrowing. I don't know if the borrowing's a trillion, because it's more like the commitments, but there's a lot of borrowing. And then the government's borrowing $2 trillion again. And this is a global phenomenon. It's not just the United States. And yeah, there's a supply and demand of capital. If you thought there was a savings glut years ago, now there's not. But it could be a good thing if rates are going up because there's demand for capital and the capital is used productively. The problem part is the government, it's consumption. That's a whole different thing. And then, of course, government spending can drive inflation. So there could be a flip side of how this plays out. I want to get onto that. But you mentioned the politics of AI. What would your advice be to the Frontier Lab founders and to governments in terms of how to resolve the politics of AI and address those tail risks? OK, these are different issues. Data centers, build them where they're wanted. And half of them, half the new ones in America, Texas and Virginia, and people don't want them there. You're not going to win. You get lawsuits. But there are a lot of states who would take it that have access to power. And of course, any big company has to be a good community citizen. So I think a lot of people are doing it. They're going into town. They're being part of the community to help the community get the rights. They make commitments that won't raise consumer electricity costs. It's just things like that. And that will be worked through. And AI has these huge positive effects. I mean, I do think it'll cure a lot of diseases and it'll save accidents in the roads and composite materials. It'll make life unbelievable for people. The downside is what you read about with the agents and mythos and all these things that can cause trouble. And that's a legitimate concern. It's a real thing. I'm not going to get hysterical over is it existential or not. What we're doing is rolling up our sleeves and going to work to fix it. So the banks have always had a system in place where we help each other. We also started a thing called the Alliance for Critical Infrastructure. It's starting with 50 companies. It's starting in the US. It's across six industries, tech, financial services, water, transport. These are industries that the government points out as lifeline, but eventually it should probably expand to healthcare, pharma, agricultural. I mean, every industry is kind of critical. And it should also, we need to help the smaller companies too, because they have different vendors and different needs. And so it's a lot of work. We simply have to do it. AI created vulnerabilities that we didn't know about. And we always worried about cyber before these things. And you've thought about cyber risks for a long time. I know that. It's our biggest risk. It's your biggest risk. Does AI make cyber systemic risks more likely? Oh yeah. So that's what I'm saying. That mythos, whatever you thought it was before. And when I published my chairman's letter, I said, I said, cyber's our biggest risk. And they didn't publish mythos yet. And I would say that went up tenfold after mythos. I want to switch focus, look across the pond to France. What do you make of the bond seller? There's been a bit of pullback today. Yields down a little bit across French, a French debt. What do you make of what you've seen though, in the last few weeks out of France and whether or not you're, are you worried about contagion risk to other Eurozone countries? You know, look, maybe a little bit, I'm not going to talk about France in particular. It's a warning to governments. Okay. We can't borrow endlessly and spend endlessly. And it's been going on for a long time. If you look at the buildup of debt around the world, actually, Europe's been less. I mean, you kind of tapped out at one point, but America's gone from 50% of GDP to 100%. Countries around the world are borrowing money. And I think we can't be complacent. And the lesson is, there will be a point where the market will ask for more and more and more. And yeah, at one point they'll feed into corporate debt, corporate credit spreads and things like that, which is how it normally happens. But I've always said the best thing to do with any of these things is deal with it before it becomes a crisis. If it becomes a crisis, we will deal with it. It just will be in a much less pleasant way. Okay. I mean, some would argue that we're a long way from that in France in terms of avoiding a crisis, given where the politics stands, although Le Pen has given her budget details today. Do you watch for contagion into the credit markets? Is that the transmission mechanism that we should be monitoring? Well, I think yes. I think what you have is all businesses should prepare for different outcomes. I think it's a mistake to say, here's my forecast. I'm going to run my business according to that, because you should be prepared for a wider range of outcomes. Intellectually, it's very good to think about it. You may think the odds of somebody that's less than me or more than me, but I think there's a risk that inflation is sticky, that rates continue to go up. And so for corporations, whether you leverage or not, is when you have to refi or borrow money, are you prepared for higher credit spreads and stuff? So JPMorgan, we have to be prepared for it. So if credit spreads gap out and rates go up, we're completely fine. But the reason we run it that way is so we can continue to service our clients. We're not making bets on those kind of things. We're serving clients through thick or thin. On the US, essentially full employment, growth north of 2%, fiscal expansion, a deficit of 6%, record borrowing. Is that dealt with ultimately through financial repression? Is that ultimately what it has to come down to, or inflation? Yeah, we don't know yet. I mean, half of what you said is good news. And also here's some other good news. Corporate debt is not too much. Consumer debt is not too much. It's government debt. That government debt does fuel a little bit of inflation. It also fuels corporate profits. And so I don't know how it's going to sort out. It doesn't have to be financial repression. I just think rational things make it better. And I should point this out because this may be my next op-ed. Good policy is free. I believe that good policy in the United States and in Europe can drive growth 1% higher. It does not cost money. That is permitting, school education, deregulation, without creating any additional risk. Rational climate policy, different immigration policies can drive growth. Done properly, it's deflationary, and you'll grow more. And in almost every country, that 1% growth will start to drive debt to GDP down. I want to ask you about the treasury markets. Ray Dalio says the Chinese, the Japanese, they're getting more cautious. They want to unwind more of their holdings. In treasuries, that pushes up essentially the long end. It yields up further. Is that underestimated by the markets, the role of Japan, the role of China in the treasury markets? No, because first of all, it's completely public. So it's not transparent. And China has already gone from like 1.2 trillion to 700 billion. That didn't happen today. That's been going on for, I don't know, two years. Japan is a little bit different because they have issues about the dollar and how they're going to advance some of their growth. So they may want to do something different. But I'll leave that to the Secretary of Treasury about how they deal with that. But again, it's just supply and demand. The dollars are a commodity and bonds are a commodity. Interest rates are a commodity. There's a lot of supply and demand issues. And so I'm not worried about it. But yeah, it may cause a problem one day. Structurally higher inflation. Inflation moves higher from here, given supply chain, given the competition, given the spending around CapEx, around AI. We're looking at more inflationary wealth. I don't know yet. So here's why I look at it, because I don't like to predict the future. There are good arguments that some of these things will eventually drive inflation down and drive growth. And growth is good. Growth could be non-inflationary. And it doesn't have to be inflationary. But there are signs that things are inflationary that we are doing, like spending money, re-militarization, or immigration policies are probably a little inflationary. So you've got to balance both. I look at what's the possibility and what's the probability. I think the possibility of it going higher is higher than other people. That's not a given. That's just a probability event. I know you don't want to predict the future, but markets are predicting another hike from the Fed this year, more than two next year. Does that seem reasonable, given what you're seeing? Yeah, look, the markets, whatever they say, they've always been wrong too. The stock market falls 40%. The Fed predicts they were wrong. And then the economy predicts and now it's gone from going down to going up. And so it doesn't tell you anything, in my view. I think they're reacting to short-term data. The thing that may drive inflation may be long-term issues, like oil prices and wars and global deficits and things like that. So it's not clear. There are a lot of forces taking place here. And I don't spend a lot of time guessing about it. Record second quarter for J.P. Morgan. Your team are also forecasting pretty strong third quarter growth in terms of revenues. I can't talk about third quarter, yeah. Third quarter. But you're seeing momentum from the team. I can't talk about that. But I think if you talk about like Europe, IPOs, M&A activity, pretty good. You know, if you talk about the United States, there's probably a little bit of a slowdown in September. But like I pointed out to you and your audience before, the pipeline kind of opens and closes, particularly in IPOs, particularly in like leveraged debt. Corporate debt's not the same thing. So far, so good. But again, I always tell people that so far, so good is good. And that can go on for quite a while, but it may not. So I'm always prepared for the may not part. I wonder if there's a may not involved in the UK budget, October the 28th. There's speculation that maybe they'll go for a windfall tax on banks again. How would that, if they do do, if the Chancellor does go that route here in the UK, how would that reframe the way you look at the UK? You know, look, we've dealt with governments being inconsistent. And well, I mean, the people should know we already pay, we've been paying this windfall tax for 12 years. It lacks principle to be charging banks more than everybody else. It will raise the cost of capital and it will have consequences. I'm not, that's not a threat, because you always write that, oh, he's threatening. I'm not threatening. That is a fact. And you know, I love the UK. I love the people here. I want the UK to succeed. That won't be the good part of it. That would just be another negative for people bringing capital to the UK. There's a debate or there's reporting suggesting they might just target the domestic banks. Would you welcome that? If it's just the domestic banks, you don't get hit? I'm not in favour of things that lack principle. I think tax policy should be fair and consistent. And you know, it's very easy to say, well, charge my friends over here. I just think that's wrong. You know, I wouldn't be in favour of something like that either. And the people, I don't really know, but this has the highest tax rate for banks, probably in the world. And that, you know, capital formation, investment growth, that is what drives countries. You know, it's a mistake to think that somehow, you know, the politics may be great, you're hurting a big bank, but what drives growth is the financial system, putting not just banks, you know, venture capital, probably putting capital with people, inventing things, creating productivity. And, you know, governments should be quite careful to muck around with that. Countries that have very good capital formation tend to have better growth. America, you know, countries in areas that don't have good capital formation have less growth. And when you have growth, it helps all of your citizens. It's not being done for the wealthy. It's being done for the country. So I'd have very thoughtful policies around taxes and regulations and how you want to grow your country. Like I said, a lot of policy is free. It's not expensive to cut regulations and cut permitting and all the things that everyone you talk about, you can talk to anyone in the street and they know that all these things don't work. Why can't you just fix them? And that would drive growth. So I wonder what the midterms leave us in terms of the policy mix. I mean, obviously, polls get it wrong, but the polls are suggesting Democrats win the House. The Senate is even up for grabs. What should investors be thinking about in terms of the potential policy on the back of the midterms if we do get a lame duck president? Yeah, I don't know. Like, look, sometimes divide government's been good for America and presidents have to start doing deals that are in the middle so you get agreement. So if you study it, it's not always bad. And, you know, President Trump likes, you know, the art of the deal, like hopefully he's going to do some things that both sides could agree on. And I'm hoping they focus on that afterwards. Get some good stuff done for the United States of America. That would be great for us. Can I ask you one final question on personal finance? If you were advising a niece or nephew how to invest their money right now, what advice would you give someone? I'm not going to say this on national TV or global TV. It's not about guessing what you do. I mean, the best advice you do is learn how to invest. You know, don't put all your money in this or in that. If you're going to do it over time, do it over time. Get good at it and get used to the fact that markets go up or down. And that, you know, if you think you're going to time it, you're probably making a mistake. And if you buy a good company and the stock goes down 15 percent, don't panic. Be very thoughtful about it. Be more of a long term investor than, you know, trying to game the market all the time.