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BI Weekend: OpenAI, AMD Deal, New Verizon CEO · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio, Studios, podcasts, radio news. This is Bloomberg Intelligence
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  Speaker 1: with Scarletfoo and Paul Sweeney.
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  Speaker 2: How do you think the FED is looking at tariffs?
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  Speaker 1: Bloomberg Intelligence with Scarletfoo and Paul Sweeney on Bloomberg Radio,
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  Speaker 2: On today's Bloomberg Intelligence Show, we dig inside the big
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  Speaker 2: business stories impacting Wall Street and global markets.
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  Speaker 3: Each and every week, we provide in depth research and
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  Speaker 3: data on some of the two thousand companies and one
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  Speaker 3: hundred and thirty industries are analysts cover worldwide.
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  Speaker 2: Today, we'll look at how AMD landed a deal with
• 0:56
  Speaker 2: open Ai to build AI infrastructure.
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  Speaker 3: Plus why Dell Technologies is roughly doubling its growth estimates
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  Speaker 3: for sales and profit for the next two years.
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  Speaker 2: First, we begin with a big deal in the banking sector.
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  Speaker 3: This week, Fifth Third agreed to buy Coo America for
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  Speaker 3: about ten point nine billion dollars in stock. It is
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  Speaker 3: the largest US bank deal this year.
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  Speaker 2: The deal will create the ninth largest bank in the
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  Speaker 2: country with about two hundred and eighty eight billion dollars
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  Speaker 2: in assets, according to the two companies.
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  Speaker 3: So we called in Herman Chan Bloomberg Intelligence, senior analysts
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  Speaker 3: for US regional banks, and we began by asking Herman
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  Speaker 3: for his take on the deal.
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  Speaker 4: Yeah, I think it's a win win for both. Comerica
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  Speaker 4: has been sort of in the doldrums over the past
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  Speaker 4: couple of years after the SBB debacle. It's taken some
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  Speaker 4: long time to get it under its own footing, and
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  Speaker 4: they've gotten a lot of agitated investors and activists pushing
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  Speaker 4: for a sale, and this was a great outcome. On
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  Speaker 4: the other hand, for Fifth Third, it's a great deal.
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  Speaker 4: It moves them into growth growth yer markets in Texas
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  Speaker 4: and California, supplements their Michigan presence and really build out
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  Speaker 4: there their branching presence across the southeast and southwest.
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  Speaker 3: So within the regional banking space, what does this deal
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  Speaker 3: put pressure on? Who does this deal put pressure on
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  Speaker 3: to make a move of their own.
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  Speaker 4: Yeah, so that's a question. The follow on question like
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  Speaker 4: who's next. So there are other banks that are operating
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  Speaker 4: within the size of a fifth third that have also
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  Speaker 4: done deals like a PNC and Huntington, and the others
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  Speaker 4: that are still on the sidelines are banks like Regions
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  Speaker 4: in the southeast, Key Corp in Ohio as well, and
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  Speaker 4: M and T and Citizens in the northeast. So those
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  Speaker 4: are the ones that probably are going to get asked.
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  Speaker 4: A lot of questions on the three two earnings go
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  Speaker 4: about M and A.
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  Speaker 2: So what do we know about the Trumpet administration and
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  Speaker 2: its view towards bank consolidation. Are they a pined on
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  Speaker 2: this at all?
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  Speaker 5: Yeah?
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  Speaker 4: So we can see that these bank deals are getting
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  Speaker 4: approved at much faster clips. So I mentioned Huntington earlier.
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  Speaker 4: They're buying a bank in Texas named Vera tex and
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  Speaker 4: it's going to take them about ninety eight days from
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  Speaker 4: deal closed for merger announcements. And that contrasts with under
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  Speaker 4: Biden administration, it's taken four hundred to six hundred days
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  Speaker 4: for a large bank made deals. So these deals under
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  Speaker 4: Trump are being fast tracked and it's really encouraging the
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  Speaker 4: management teams to really go out there and search for deals.
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  Speaker 3: So for so long, a lot of people had commented
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  Speaker 3: that the US is overbanked. By one count there's almost
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  Speaker 3: forty five hundred FDI and C insured banking institutions here.
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  Speaker 3: Are we still overbanked?
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  Speaker 2: Herman I would.
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  Speaker 4: Say, so, there's a lot of competition these and that's
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  Speaker 4: the reason why COO America is looking to sell because
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  Speaker 4: they were lacking in the retail branch presence. They mostly
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  Speaker 4: bank middle market commercial customers that are grades, but it
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  Speaker 4: doesn't create the diversity that they needed during times of
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  Speaker 4: stress like the SVB environments. And so that was a
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  Speaker 4: lesson learned for a lot of the banking industry that
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  Speaker 4: you need to diversify your deposit base. And one way
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  Speaker 4: to diversify the cell to a larger organization.
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  Speaker 3: Which segment of the banking industry is bloated, needs to
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  Speaker 3: streamline the most.
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  Speaker 4: Yeah, so there you mentioned forty five hundred banks, Like
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  Speaker 4: does there need to be that many banks within the
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  Speaker 4: United States? Probably not. They don't have the scale to
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  Speaker 4: operate a retail branch presidence. They don't have the capabilities
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  Speaker 4: on the fee side and the advisory side to really
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  Speaker 4: help their customers on the commercial side. And you see
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  Speaker 4: so much competition from not only larger banks, but also
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  Speaker 4: the FinTechs that are just you know, biding at the
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  Speaker 4: heels on the consumer side. So it's a really tough
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  Speaker 4: operating environment and we expect more consolidation over the next
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  Speaker 4: several years.
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  Speaker 2: All right, riod of me this year. Why do banks
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  Speaker 2: even have branches? I hep adding branches. I've been into
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  Speaker 2: a branch.
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  Speaker 3: In years across the street from Bloomberg headquarters.
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  Speaker 5: City Groups City branch right across.
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  Speaker 4: A lot of it marketing because and a lot of
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  Speaker 4: it is scale. So for a bank like Fifth Third,
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  Speaker 4: they're growing organically in the Southeast and that's been a
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  Speaker 4: major growth driver for them. If you need a branch,
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  Speaker 4: you don't need a branch, but you need the branch
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  Speaker 4: for a marketing aspect, so you need.
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  Speaker 2: To do big ability, right.
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  Speaker 3: It's a big billboard, expensive billboard in markets.
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  Speaker 4: Where you have a lot of foot traffic and higher
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  Speaker 4: growth markets. So it's a big billboard and it's been
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  Speaker 4: a proven growth driver for banks. But on the other hand,
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  Speaker 4: branches are declining. So if you have critical mass and
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  Speaker 4: scale in your existing markets, you can trim your branch
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  Speaker 4: presence and not affect your depositors. But if you're entering
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  Speaker 4: new markets, then opening new branches.
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  Speaker 1: Is the way.
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  Speaker 2: Do you think I could find my checkbook?
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  Speaker 3: That raises a question, does a fintech that wants to
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  Speaker 3: be a bank need to therefore have a retail presence?
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  Speaker 3: Do they need to open up a branch also across
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  Speaker 3: the street from our office?
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  Speaker 4: So that's that's the beauty of the fintech models that
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  Speaker 4: they're issueing the branches. It's not a requirement. It's a
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  Speaker 4: lower cost to serve because you don't have the physical
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  Speaker 4: retail presence, and it's one way to really compete effectively
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  Speaker 4: with these with these legacy banks where you have a
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  Speaker 4: really easy to use app and you you aren't burden
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  Speaker 4: by this cost basis of owning the physical presence.
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  Speaker 2: All right, So when we had a couple of little
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  Speaker 2: blow ups in your world a couple of years ago,
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  Speaker 2: I did I found this k r E the spider
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  Speaker 2: S and P Regional banking ETF.
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  Speaker 6: That's right.
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  Speaker 2: How are you? How are the regional banks trading these days? Yeah?
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  Speaker 4: So they're really doing all right. We're talking about price
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  Speaker 4: the tangibles around one point five to one points times.
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  Speaker 4: Is during the height of the weakest point during the
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  Speaker 4: SBB debacle, it was less than one time. So they've
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  Speaker 4: rebounded really nicely despite some of the uncertainty on the
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  Speaker 4: economy and with tariffs and and so we've seen some
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  Speaker 4: growth from them, especially on the commercial lending side that's
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  Speaker 4: really helped grow their top line.
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  Speaker 2: Our thanks to Hermit Chan Bloomberg Intelligence senior analysts for
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  Speaker 2: US regional banks.
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  Speaker 3: We move next to some news in the telecom space.
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  Speaker 2: This week, for Rizon Communications named Dan Schulman as chief
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  Speaker 2: executive officer, replacing Hans Vesperg. The goal was to boost
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  Speaker 2: mobile subscriber growth and shares.
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  Speaker 3: Schulman is the previous CEO of PayPal and brings financial
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  Speaker 3: and operational leadership experience, as well as expertise in telecoms,
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  Speaker 3: technology and finance. Vessberg will stay on for a year
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  Speaker 3: to help insure a smooth transition for more.
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  Speaker 2: I was joined by John Butler, Bloomberg Intelligence Senior telecom analysts.
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  Speaker 2: First asked John if this change was expected at Verizon.
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  Speaker 7: Not at all, Paul, I mean, you know, when you
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  Speaker 7: think merger Monday. I've had a lot of busy Mondays lately.
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  Speaker 7: But the last piece of news I expected was this
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  Speaker 7: change in leadership at Verizon. The company had really been
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  Speaker 7: sort of I guess prepping the head of the consumer business,
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  Speaker 7: or grooming is a better word, Orian Sampath, who is
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  Speaker 7: just a phenomenal talent in my opinion, and he's been
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  Speaker 7: sort of pushed out there doing a lot of investor
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  Speaker 7: conferences and giving the investment community the impression that he
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  Speaker 7: was the next in line. So when the news broke
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  Speaker 7: that Dan is taking over as CEO, it really surprised
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  Speaker 7: a lot of people, including me.
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  Speaker 2: So what's the company saying here? Why do you think
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  Speaker 2: they chose this outsider versus somebody that, again an insider
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  Speaker 2: that maybe the street thought was going to be the
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  Speaker 2: next in line?
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  Speaker 7: You know, I think for telecoms, all three of the majors,
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  Speaker 7: the wireless business is slowing very rapidly on them. We're
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  Speaker 7: seeing subscriber growth down a lot this year. There's a
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  Speaker 7: lot of pressure on pricing, and I think the thought
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  Speaker 7: is Dan Shulman used to be CEO of PayPal. He's
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  Speaker 7: got experience at Amex in the consumer finance business, so
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  Speaker 7: they're thinking in terms of how to monetize the hundred
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  Speaker 7: and fifty million consumer relationships they have to move into adjacencies.
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  Speaker 7: The naming of Shulman in my mind tells me they're
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  Speaker 7: looking to tap the consumer finance market. You know, they've
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  Speaker 7: already got a credit card business. I think it's probably
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  Speaker 7: doing pretty well, but they're not actually in the loan
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  Speaker 7: business there, but they're doing a lot of device financing,
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  Speaker 7: and so I think the hope, maybe this is my speculation,
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  Speaker 7: maybe that they can take that perhaps a step deeper
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  Speaker 7: into the consumer finance market and maybe other adjacencies to
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  Speaker 7: be able to monetize that base a little bit more
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  Speaker 7: and diversify away from the slowdown and wireless.
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  Speaker 2: I know Verizon they've kind of dabbled over the years,
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  Speaker 2: and other businesses, purchasing AOL and Yahoo. So what's the
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  Speaker 2: focus going forward here? Is it to try to just
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  Speaker 2: manage the wireless business as you know, the decline in
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  Speaker 2: the wireless business as best they can.
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  Speaker 7: So again it's the strategy here, Paul, I think, is
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  Speaker 7: to sort of build off that base that they have.
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  Speaker 7: The wireless business is stable, it's not going anywhere. It's
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  Speaker 7: typically a GDP plus business. Again, we're seeing a slowdown now,
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  Speaker 7: so it could move down to a GDP like growth rate.
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  Speaker 7: But again it's all about extensions. So all three of
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  Speaker 7: the majors here are pushing hard into consumer broadband. They're
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  Speaker 7: doing very well there, both in the fiber and the
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  Speaker 7: fixed wireless access business, but even that business is starting
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  Speaker 7: to mature a bit as it saturates here in the US.
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  Speaker 7: So the question becomes what's next, And maybe the what's
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  Speaker 7: next could be consumer finance. If you look at T Mobile,
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  Speaker 7: they've tapped the outdoor advertising market, which actually is growing
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  Speaker 7: double digit. I never would have guessed, but the thought is, hey,
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  Speaker 7: is people carry around these phones, we know where they are.
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  Speaker 7: Perhaps we can leverage that and come up with very
• 11:06
  Speaker 7: innovative ways of increasing eyeballs on our outdoor advertising. So
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  Speaker 7: I think they're looking for that type of creative thinking
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  Speaker 7: to come up with new ways of generating growth. And
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  Speaker 7: again you're trying to leverage that huge core base of
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  Speaker 7: wireless subs that you have just.
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  Speaker 2: Been at their balance sheet, John, this is a this
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  Speaker 2: is company. Verizon's got one hundred and seventy billion dollars
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  Speaker 2: of total debt there, how's the How does the market
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  Speaker 2: feel about their balance sheet.
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  Speaker 7: So I think of the Big three, Verizon is probably
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  Speaker 7: at a point where they want to be in terms
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  Speaker 7: of financing the business. Can they load on a bunch
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  Speaker 7: more debt? It's it's hard to say. I'm going to
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  Speaker 7: defer to our credit at les for that, Steve Flynn,
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  Speaker 7: But I don't view their ability to finance new ventures
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  Speaker 7: as an issue here at all. It's a very cash
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  Speaker 7: rich business wireless that is, and you know, I think
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  Speaker 7: that will allow Verizon to bankroll any of the new
• 12:12
  Speaker 7: ventures they plan to push into from here.
• 12:15
  Speaker 2: Certainly pro shareholders. Is six point six percent dividend yield?
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  Speaker 2: Is that safe?
• 12:19
  Speaker 7: I think it is safe. That's a good question. I
• 12:22
  Speaker 7: think Verizon, of the Big three, really sort of gets
• 12:26
  Speaker 7: it when it comes to the importance of the dividend
• 12:29
  Speaker 7: to the investment community. There's a lot of telecoms out
• 12:33
  Speaker 7: there at and T included that have cut the dividend
• 12:36
  Speaker 7: in the past and learned the hard way that that
• 12:39
  Speaker 7: really I call it the third rail of telecom. I mean,
• 12:42
  Speaker 7: you do not want to cut the dividend yep. So
• 12:46
  Speaker 7: my call here is that I think the dividend is safe.
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  Speaker 3: Yes, are Thanks to John Butler, Bloomberg Intelligence senior telecom
• 12:52
  Speaker 3: analyst coming up a look at how IBM is planning
• 12:55
  Speaker 3: to integrate AI tech.
• 12:57
  Speaker 2: Listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth
• 13:00
  Speaker 2: research and data on two thousand companies and one hundred
• 13:02
  Speaker 2: and thirty industries.
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  Speaker 3: You can access Bloomberg Intelligence via big on the terminal.
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  Speaker 3: I'm Scarlet Foo.
• 13:07
  Speaker 2: And I'm Paul Sweeney. This is Bloomberg.
• 13:13
  Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
• 13:18
  Speaker 1: on Bloomberg Radio.
• 13:20
  Speaker 2: We moved to some news in the tech space.
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  Speaker 3: This week. Advanced micro Devices landed a deal with open
• 13:25
  Speaker 3: Ai to build AI infrastructure, and this gives the chip
• 13:28
  Speaker 3: maker AMD a chance to challenge in VideA in the
• 13:31
  Speaker 3: AI computing industry.
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  Speaker 2: Open Ai will deploy AMD graphics processing units over multiple years.
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  Speaker 2: The deal also sets the stage for open ai to
• 13:38
  Speaker 2: acquire a large steak in the chip maker, with the
• 13:40
  Speaker 2: ability to buy as many as one hundred and sixty
• 13:42
  Speaker 2: million shares of AMD.
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  Speaker 3: So we asked for contacts from Ed Ludlow, b Tech
• 13:46
  Speaker 3: co anchor. We first asked ed what he makes of
• 13:48
  Speaker 3: this week's deal.
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  Speaker 8: The specifics of the deal a really important. What is
• 13:53
  Speaker 8: open ai going to use AMD's technology for it's going
• 13:56
  Speaker 8: to use it for inference, in other words, running the
• 13:58
  Speaker 8: models that already exist, not training them. It is six
• 14:02
  Speaker 8: gigawatts of capacity. The reason that that figure is critical
• 14:07
  Speaker 8: is that it equates to the peak electricity demand of
• 14:10
  Speaker 8: most major US cities. Like these are huge numbers, as
• 14:13
  Speaker 8: you say, but it just speaks to what's happening to
• 14:18
  Speaker 8: the mind of the participants in the industry, which is
• 14:20
  Speaker 8: they will need this capacity. You guys are using words
• 14:26
  Speaker 8: like top and bubble, and I think that's completely fair.
• 14:29
  Speaker 8: Maybe you saw my column on the debt role that
• 14:32
  Speaker 8: in what's happening. But I would say that AMD has
• 14:36
  Speaker 8: done something interesting here which is different to what Nvidia did,
• 14:40
  Speaker 8: which is they will issue stock two open Ai AMD
• 14:45
  Speaker 8: shares going to open Ai, but only once open Ai
• 14:50
  Speaker 8: is spent some money and actually built some stuff. So
• 14:53
  Speaker 8: where's open Ai going to get the money?
• 14:56
  Speaker 3: Well, that's why Sam Allman has been traveling the world
• 14:59
  Speaker 3: meeting with all kinds of investors trying to get some funding.
• 15:02
  Speaker 3: You said the specifics matter, ed, but we don't know
• 15:06
  Speaker 3: how much this partnership, this deal is worth beyond the
• 15:10
  Speaker 3: very generic tens of billions of dollars, right, that could
• 15:12
  Speaker 3: be ten billion dollars, that could be ninety nine billion dollars.
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  Speaker 8: Yes, that's correct. I mean AMDCFO framed it as being
• 15:18
  Speaker 8: tens of billion dollars of revenue opportunity. But that's why
• 15:22
  Speaker 8: I think the specifics of the terms I've made a
• 15:24
  Speaker 8: careful examination of them are really important understand versus what
• 15:29
  Speaker 8: Nvidia did with open Ai. So Nvidia said it was
• 15:32
  Speaker 8: going to invest one hundred billion dollars into open Ai.
• 15:36
  Speaker 8: We don't even know if that was cash or chips
• 15:39
  Speaker 8: in lieu of cash, but basically in Nvidia would get
• 15:43
  Speaker 8: some equity in open Ai in return. In this instance
• 15:46
  Speaker 8: AMD and open Ai. Open ai is getting AMD shares,
• 15:50
  Speaker 8: but they are deliverable in tranches against s milestones, which
• 15:54
  Speaker 8: relate to literally building the data centers. So for each
• 15:57
  Speaker 8: gig of wat of capacity that comes online, am you
• 16:00
  Speaker 8: would then say, here is this tranch of stock. And
• 16:02
  Speaker 8: that's why I'm saying focus on the open ai obligation here.
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  Speaker 8: They need actual money to dig up the dirt, to
• 16:09
  Speaker 8: put the foundations in, get the data center up, and
• 16:12
  Speaker 8: put the servers in before any of this stock comes
• 16:15
  Speaker 8: into play.
• 16:16
  Speaker 2: Our thanks to ed Lovelow be Tech co anchor Staying
• 16:19
  Speaker 2: with tech.
• 16:19
  Speaker 3: This week, the tech company IBM announced a plan to
• 16:22
  Speaker 3: integrate anthropics AI technologies into its software solutions.
• 16:26
  Speaker 2: IBM said it will make the startups claud family of
• 16:28
  Speaker 2: large language models accessible for its clients. Shares the IBM
• 16:31
  Speaker 2: jump after the news.
• 16:32
  Speaker 3: So for more, we were joined by Ana ag Rana,
• 16:34
  Speaker 3: Bloomberg Intelligence technology analyst. We began by asking anag how
• 16:38
  Speaker 3: he evaluates this latest partnership.
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  Speaker 9: See, when you come to a company like IBM, I
• 16:42
  Speaker 9: think they have done a very good job of being
• 16:44
  Speaker 9: open and partnering with other vendors. I think the acquisition
• 16:48
  Speaker 9: of red Hat was the first such example a few
• 16:50
  Speaker 9: years ago, and frankly speaking, the company has turned around
• 16:52
  Speaker 9: quite a bit. Now it's more of a software company
• 16:55
  Speaker 9: than it is a service order hardware company. IBM still
• 16:58
  Speaker 9: has a lot of footprint in legacy companies and their
• 17:02
  Speaker 9: internal infrastructure, whether that's a regulated entity, whether that's you know,
• 17:06
  Speaker 9: an on premise software. What they're basically saying is for
• 17:10
  Speaker 9: these companies who want to add more AI capabilities into
• 17:13
  Speaker 9: their infrastructure, we're going to use one of the best
• 17:16
  Speaker 9: models that's out there, and that's anthropic. They're not, you know,
• 17:19
  Speaker 9: just solely dependent on IBM's own internal models. But you know,
• 17:23
  Speaker 9: we see more and more of that happening that companies
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  Speaker 9: like IBM and other services companies will go out and
• 17:29
  Speaker 9: partner with you know, anthropic with open ai which M
• 17:31
  Speaker 9: and I and give more enterprise capabilities to to vendors,
• 17:36
  Speaker 9: to companies.
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  Speaker 2: Basically, how does anthropic differ from open ai if at all?
• 17:41
  Speaker 9: That's a very good question, Pauland right now what we're
• 17:43
  Speaker 9: seeing is entropy is pushing more and more stuff on
• 17:46
  Speaker 9: the corporate side or the enterprise side, on open Ai side.
• 17:50
  Speaker 9: You know, their core businesses still chat GPT, which is
• 17:53
  Speaker 9: the app, and that's more of a consumer app right now.
• 17:55
  Speaker 9: And the question is, you know which one of the
• 17:58
  Speaker 9: models will somebody use, Whether if you are let's say,
• 18:01
  Speaker 9: a JP Morgan or a City Corp, you know, would
• 18:03
  Speaker 9: you be going to be using one of their models
• 18:05
  Speaker 9: or an open source model. I think they're going to
• 18:07
  Speaker 9: be using all of the models. What anthropic relationship with
• 18:11
  Speaker 9: IBM does. It actually helps them to spread the word
• 18:14
  Speaker 9: out across their entire customer base. So if you are
• 18:17
  Speaker 9: trying to get more coding done, for example, in an
• 18:20
  Speaker 9: IT department and you have all the legacy products that
• 18:23
  Speaker 9: they're now you can use you know, an AI model
• 18:26
  Speaker 9: from Anthropic rather than using you know, whatever tools you
• 18:29
  Speaker 9: had before.
• 18:29
  Speaker 3: Okay, so it makes sense why Anthropic is a good
• 18:33
  Speaker 3: fit for IBM or how it's going to incorporate Anthropic
• 18:36
  Speaker 3: into IT software. But what does IBM specifically offer Anthropic?
• 18:40
  Speaker 3: What access does IBM have that Anthropic wants and needs.
• 18:45
  Speaker 9: That's another excellent question. And in this case you're looking
• 18:48
  Speaker 9: at IBM's entire customer base. IBM has a very large
• 18:51
  Speaker 9: services business or IBM consulting. These consultant will go out
• 18:55
  Speaker 9: and sell Anthropic software into the enterprises and say, hey, bank,
• 18:59
  Speaker 9: let me help you to you know, automate this particular
• 19:02
  Speaker 9: process and you can use it with this software. It
• 19:04
  Speaker 9: drives their consulting business and it also helps out their
• 19:07
  Speaker 9: software business, which is fairly popular.
• 19:10
  Speaker 2: Right now, IBM hitting all time high on a rug.
• 19:14
  Speaker 2: This stock has found that a new life has.
• 19:15
  Speaker 9: It absolutely and this is something that we've been saying
• 19:18
  Speaker 9: it for almost five years now that you know, the
• 19:21
  Speaker 9: acquisition of red Hat completely changed it. You know, if
• 19:25
  Speaker 9: you go back and look at some of the comments
• 19:27
  Speaker 9: we've made on TV about IBM. Prior to red Hat,
• 19:29
  Speaker 9: it was a very closed company. It only wanted to
• 19:32
  Speaker 9: sell their own products to people and was not very
• 19:34
  Speaker 9: keen on embracing you know, what I would say is
• 19:36
  Speaker 9: open source. With the acquisition of red Hat and the
• 19:40
  Speaker 9: company saying, you know what, red Hat can work with
• 19:42
  Speaker 9: any cloud provider, I think that was the biggest difference
• 19:44
  Speaker 9: to me was it allowed red Hat to work with
• 19:48
  Speaker 9: companies but based on Amazon Web Services or Microsoft, so
• 19:53
  Speaker 9: they were not just pushing their own cloud products, and
• 19:55
  Speaker 9: I think that really made a difference. Their software business
• 19:58
  Speaker 9: has been doing so well competitively to the rest of
• 20:01
  Speaker 9: the world, and I think that's where you see the
• 20:03
  Speaker 9: market validation that this is the right strategy for them.
• 20:06
  Speaker 2: Our thanks to Ana rog Rana Bloomberg Intelligence technology analysts.
• 20:10
  Speaker 3: We moved to some more news in the IT hardware
• 20:12
  Speaker 3: space this week and it's investor day.
• 20:13
  Speaker 2: Dell Technologies roughly doubled its growth estimates for sales and
• 20:17
  Speaker 2: profit for the next two years.
• 20:18
  Speaker 3: Dell also said demand for artificial intelligence products will extend
• 20:21
  Speaker 3: those higher projections at least through twenty thirty.
• 20:24
  Speaker 2: Separately, Cisco system says it is releasing a new chip
• 20:27
  Speaker 2: networking system to connect AIDATA centers across hundreds of miles.
• 20:31
  Speaker 3: So for more on both of these companies, we were
• 20:33
  Speaker 3: joined by Woujin Hoo Bloomberg Intelligence senior technology analysts. We
• 20:36
  Speaker 3: began by asking Woods should break down what we heard
• 20:39
  Speaker 3: from Dell.
• 20:40
  Speaker 5: This is a very seasoned management team. They have a
• 20:42
  Speaker 5: tendency to give out three to four year guidance plans.
• 20:45
  Speaker 5: I think the surprise here is what's driving that seventy
• 20:50
  Speaker 5: nine percent growth outlook for from twenty twenty six to
• 20:54
  Speaker 5: twenty twenty of twenty thirty, and it's going to be
• 20:57
  Speaker 5: AI servers, right, And one of the things that they
• 20:59
  Speaker 5: said at the Animal day that AI servers are going
• 21:01
  Speaker 5: to grow at a twenty to twenty five percent compounded rate.
• 21:04
  Speaker 5: I think there was some skepticism there heading into the
• 21:07
  Speaker 5: print in terms of is there an AI bubble? And
• 21:11
  Speaker 5: by laying out a twenty to twenty five percent AI
• 21:14
  Speaker 5: server growth going through twenty thirty off of already high numbers,
• 21:18
  Speaker 5: shows that there is some durability the aiserver demand.
• 21:21
  Speaker 2: So when you get an analyst meaning together, it's a
• 21:24
  Speaker 2: big day for a company. They put a lot of
• 21:26
  Speaker 2: time and effort in putting getting their senior management together,
• 21:28
  Speaker 2: putting together presentations, presenting a vision here. What were some
• 21:32
  Speaker 2: of the two or three takeaways from you from this
• 21:34
  Speaker 2: investor date.
• 21:35
  Speaker 5: Yeah, so, so the one highlight here is the a
• 21:38
  Speaker 5: server demand, the durability of a server demand. But more importantly,
• 21:44
  Speaker 5: and we talk about this all the time, you know, Paul,
• 21:47
  Speaker 5: It's about earnings and cash flow, right And at the
• 21:50
  Speaker 5: end of the day, we're talking about EPs growth about
• 21:53
  Speaker 5: fifteen percent, and how do we get to that fifteen percent?
• 21:56
  Speaker 5: We're talking about eight percent of the sales growth dropping
• 22:00
  Speaker 5: down to the bottom line. But given all that cash generation,
• 22:03
  Speaker 5: there's going to be a fair amount of capital returns
• 22:05
  Speaker 5: through buybacks, so you're going to get a lift on
• 22:08
  Speaker 5: EPs there. So share holders are going to be happy
• 22:11
  Speaker 5: from an EPs standpoint. We're already seeing that from evaluation standpoint,
• 22:16
  Speaker 5: because it is lifting from an eight to ten times
• 22:20
  Speaker 5: PE to about fifteen times growth, which makes it into
• 22:23
  Speaker 5: a one times peg oo gien.
• 22:25
  Speaker 3: Another story that we're tracking here and that I've been
• 22:27
  Speaker 3: fascinated by, is this idea of legacy tech companies finding
• 22:32
  Speaker 3: their feed in this AI wave, whether it's Oracle, whether
• 22:35
  Speaker 3: it's Dell, and now Cisco as well. Cisco is releasing
• 22:39
  Speaker 3: a new chip and networking system to connect AI data centers,
• 22:43
  Speaker 3: and this is a move that pretty much puts it
• 22:45
  Speaker 3: in more direct competition with Broadcom. How big of an
• 22:49
  Speaker 3: opportunity is this for Cisco? And should Broadcome be worried?
• 22:53
  Speaker 5: Yeah, so we published and react, and essentially I don't
• 22:57
  Speaker 5: think Broadcom should be fully worried. There's a couple of
• 22:59
  Speaker 5: thing that I'll say, right, Cisco is actually one of
• 23:02
  Speaker 5: the biggest chip networking chip manufacturers globally, but more for
• 23:08
  Speaker 5: their legacy enterprise IT chips. Right, they produce their own
• 23:12
  Speaker 5: chips that powers their own networking gear. They're fairly newer
• 23:15
  Speaker 5: to the game in the networking chip side. From a
• 23:20
  Speaker 5: revenue standpoint, it's really not a big driver, but it
• 23:24
  Speaker 5: may be able to push more boxes. A couple of
• 23:27
  Speaker 5: things that I'll say, They did about one billion dollars
• 23:30
  Speaker 5: in AI back end revenue, but to put that into context,
• 23:35
  Speaker 5: you know they're doing about fifty five to fifty six
• 23:37
  Speaker 5: billion dollars in total sales. So you know, from an
• 23:41
  Speaker 5: overall percentage of AI as an overall percentage of sales,
• 23:44
  Speaker 5: it's still about two to three percent of total sales.
• 23:47
  Speaker 5: Are they going to challenge Broadcom? I doubt it, but
• 23:50
  Speaker 5: I do think there'll be a second source to the
• 23:53
  Speaker 5: cloud providers versus Broadcom.
• 23:57
  Speaker 2: Which in your coverage area? What's your best I play?
• 24:00
  Speaker 2: Because I'm sure you get that call from clients all
• 24:02
  Speaker 2: the time.
• 24:04
  Speaker 5: You know, I mean I have a handful. Dell was one.
• 24:10
  Speaker 5: You know. Hp is another one to take a look
• 24:13
  Speaker 5: out for. They have an analyst day next week. But
• 24:16
  Speaker 5: from from a networking standpoint, Arista has actually been one
• 24:19
  Speaker 5: of the high flyers from from the from from a
• 24:21
  Speaker 5: networking standpoint, so I will look at Arista and people
• 24:26
  Speaker 5: have been taking the AI networking angle and using Arista
• 24:32
  Speaker 5: as one of the tools.
• 24:33
  Speaker 3: I like that Arista. I haven't heard that one come
• 24:35
  Speaker 3: up yet. You know, HPE or HPQ Just to clarify.
• 24:38
  Speaker 5: Oh, HPE. So think think of it as a mini
• 24:42
  Speaker 5: Dell and a mini Cisco.
• 24:44
  Speaker 2: In one our thanks to Will Jino Bloomberg Intelligence senior
• 24:47
  Speaker 2: technology analysts.
• 24:48
  Speaker 3: Coming up, we'll look at why the owner of the
• 24:50
  Speaker 3: Corona and Wdella, especially ol brands reported positive quarrely results.
• 24:53
  Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, but riding
• 24:56
  Speaker 2: in depth research and data on two thousand companies and
• 24:58
  Speaker 2: one hundred and thirty industries.
• 25:00
  Speaker 3: You can access Bloomberg Intelligence through Bigo on the terminal.
• 25:03
  Speaker 3: I'm Scarlettfoo and.
• 25:04
  Speaker 2: I'm Paul Sweeney. This is Bloomberg.
• 25:14
  Speaker 1: This is Bloomberg Intelligence with Scarletfoo and Paul Sweeney on
• 25:19
  Speaker 1: Bloomberg Radio.
• 25:21
  Speaker 2: Move next to some news in the consumer product space.
• 25:23
  Speaker 3: This week, Constellation Brands, which owns Corona and Wdella especial
• 25:26
  Speaker 3: brands in the US, reported better than expected results for
• 25:29
  Speaker 3: its fiscal second quarter. The company cited robust beer and
• 25:32
  Speaker 3: wine sales.
• 25:33
  Speaker 2: This comes despite the company stock falling more than thirty
• 25:36
  Speaker 2: percent this year. Beer an alcoholic beverages in general have
• 25:39
  Speaker 2: broadly struggled as younger consumers and women drink less.
• 25:42
  Speaker 3: So for more on this and other news in the
• 25:44
  Speaker 3: consumer space, we were joined by Ken Sha, Bloomberg Intelligence
• 25:47
  Speaker 3: senior consumer products analyst.
• 25:48
  Speaker 2: First, ask Ken more about why Constellation Brands had been
• 25:51
  Speaker 2: struggling this year.
• 25:52
  Speaker 10: It's definitely a slow beer market. Tariffs are playing a role,
• 25:59
  Speaker 10: and also some of the crackdown you know, the ice
• 26:03
  Speaker 10: has had in inner community is hurting the Hispanic community
• 26:07
  Speaker 10: and their socialization trends. All these things have been a
• 26:10
  Speaker 10: factor for the last couple of quarters. The company said
• 26:12
  Speaker 10: that their beer volumes were not quite as poor as
• 26:16
  Speaker 10: a lot of street analysts expected. But the pressures are
• 26:19
  Speaker 10: still on and they're very real for this company. And
• 26:23
  Speaker 10: that's because they're suite of products. As you mentioned Corona Medello,
• 26:27
  Speaker 10: these command high price points about twice the level of
• 26:30
  Speaker 10: a popular beer, so in times where consumers are pulling
• 26:34
  Speaker 10: back a little cautious about expenditures, got to remember, you know,
• 26:37
  Speaker 10: you've had high inflationary pricing in this category for the
• 26:40
  Speaker 10: last few years. These brands aren't doing so well right now,
• 26:44
  Speaker 10: and then compounding that with some of the factors that
• 26:47
  Speaker 10: I mentioned and some longer term issues like cannabis substitution
• 26:51
  Speaker 10: things we talked about GLP one user not drinking as much,
• 26:54
  Speaker 10: moderation among gen Z. All these things are weighing of
• 26:58
  Speaker 10: a company right now.
• 27:00
  Speaker 3: Yeah, I'm super interested in what you said about the
• 27:02
  Speaker 3: last part, Like the structural changes in consumer tastes, especially
• 27:05
  Speaker 3: from gen Z younger people overall, beers just not where
• 27:10
  Speaker 3: people want to be spending their money necessarily.
• 27:14
  Speaker 10: That seems to be the case. You know, it's it's
• 27:16
  Speaker 10: been around a long time. It's one hundred and fifteen
• 27:18
  Speaker 10: billion dollar market that is growing very slowly. It's especially flat.
• 27:23
  Speaker 10: In fact, volumes are expected to be down low single
• 27:26
  Speaker 10: digit this year. So clearly it's a very mature category.
• 27:29
  Speaker 10: And what we've seen in over the last few years
• 27:30
  Speaker 10: is consumers just want different tastes. You know, you have
• 27:33
  Speaker 10: a proliferation of the ray to drink cocktails, you know,
• 27:37
  Speaker 10: like truly and white clothes and more sophisticate you know,
• 27:41
  Speaker 10: Margarita's in a can and so on. That's where a
• 27:44
  Speaker 10: lot of the consumers who wants tastes experimentation are going.
• 27:47
  Speaker 10: And then you have other more mundane factors like just
• 27:50
  Speaker 10: you know, calorie more conscientious, calorie counts, and all these
• 27:54
  Speaker 10: things are just weighing on this very very mature industry.
• 27:58
  Speaker 2: So somebody like Constellation Brands, did they go out and
• 28:00
  Speaker 2: look to maybe buy some of these brands or verticals
• 28:04
  Speaker 2: that within the spirit's business may be growing.
• 28:08
  Speaker 10: Well, they've had kind of a mixed history of M
• 28:13
  Speaker 10: and A over the last few years. I'll put it
• 28:15
  Speaker 10: up me kind say that way, not really, you know,
• 28:19
  Speaker 10: they're downsizing their wine and spirit segment and try to
• 28:22
  Speaker 10: shift it to more of a high end mix, which
• 28:25
  Speaker 10: I think they're having success with. But what that does
• 28:27
  Speaker 10: is it makes their beer business even that much more important.
• 28:30
  Speaker 10: It's now about eighty five percent of their sales. So
• 28:33
  Speaker 10: as beer goes, I mean, the company has really good
• 28:36
  Speaker 10: brands and a lot of brand loyalty there. But again
• 28:41
  Speaker 10: there's not a lot of wiggle room.
• 28:42
  Speaker 3: So with beer becoming less popular, and you mentioned other
• 28:47
  Speaker 3: big trends like ozebic, weight loss, drugs and greater cannabis use,
• 28:52
  Speaker 3: what is Constlation doing about non alcoholic beverages.
• 28:57
  Speaker 10: So they've rolled out a non alcoholic Corona. They've come
• 29:01
  Speaker 10: out a couple of years ago. They came out with
• 29:03
  Speaker 10: a low calorie brand called Medello ro Corona no alcohol
• 29:10
  Speaker 10: I mentioned. So those two brands, while they're relatively small,
• 29:13
  Speaker 10: they see, you know, a lot of opportunity that's on
• 29:17
  Speaker 10: trend with what you said, so you know they're doing that.
• 29:21
  Speaker 10: They're also modifying some of their portfolio for more taste.
• 29:25
  Speaker 10: There's the consumers that want a lot of taste. They're
• 29:27
  Speaker 10: coming out with, you know, a fruity surveysa and so
• 29:33
  Speaker 10: they're doing as much as they can to stay on
• 29:35
  Speaker 10: trend with consumers.
• 29:37
  Speaker 3: I love myself a great fruit beer. Yeah, there's a
• 29:40
  Speaker 3: German great fruit beer that I really like. Yeah, tastes good.
• 29:43
  Speaker 2: Talk to us about this legal cannabis and obesity drugs
• 29:46
  Speaker 2: and the impact that's having on kind of the beer business,
• 29:49
  Speaker 2: the spirits business overall. Ken, is that something that a
• 29:52
  Speaker 2: lot of your companies are calling out.
• 29:54
  Speaker 10: Bi came out of their fourth annual consumer survey on
• 29:57
  Speaker 10: beverage preferences, and again we see that consumers are substituting
• 30:04
  Speaker 10: cannabis for alcohol. Of consumers that do partake in cannabis,
• 30:09
  Speaker 10: now more than half have substituted for alcohol at least
• 30:13
  Speaker 10: once a week, and that's up from forty six percent
• 30:16
  Speaker 10: last year. So that's a trend that just keeps moving.
• 30:19
  Speaker 10: Now you're seeing a lot of these cannabis companies coming
• 30:22
  Speaker 10: out with hemp THC products beverages that are sold in
• 30:26
  Speaker 10: mainstream liquor stores. You know, traditional cannabis, legal cannabis sold
• 30:30
  Speaker 10: in dispensaries. It was not really a big hit, but
• 30:33
  Speaker 10: now that some of these federally legal hemp based THC
• 30:38
  Speaker 10: products beverages are sold in liquor stores right next to
• 30:41
  Speaker 10: the beer rile. In about half the states of the country,
• 30:45
  Speaker 10: that's really chipping away also at beer consumption.
• 30:49
  Speaker 3: Final question to you, Ken, what about return of cash
• 30:51
  Speaker 3: to shareholders. I'm looking at the dividend yield about two
• 30:54
  Speaker 3: point nine percent if you're being generous. Is Constellation Brands
• 30:59
  Speaker 3: still able to make good on its dividends continue buying
• 31:01
  Speaker 3: back its shares?
• 31:03
  Speaker 10: Yeah, that's an important point, Scarlett. Yes, they can despite
• 31:07
  Speaker 10: the pressure on sales. Believe it or not, the operating
• 31:11
  Speaker 10: margins and Constellation generates are best in class. They're about
• 31:14
  Speaker 10: twice that of other alcoholic beverage companies in general, so
• 31:18
  Speaker 10: they have strong cash flows. As a matter of fact,
• 31:20
  Speaker 10: they're winding down construction of a brewery right now. Over
• 31:24
  Speaker 10: the next couple of years, you're going to see free
• 31:26
  Speaker 10: cash flow likely rising. So it's high in rising and
• 31:29
  Speaker 10: that's enabling them to continue to meet their commitments to
• 31:33
  Speaker 10: share buybacks and dividends.
• 31:35
  Speaker 3: Our thanks to Kenneth Shae Bloomberg Intelligence, a senior consumer
• 31:38
  Speaker 3: products analyst.
• 31:39
  Speaker 2: We move next to some news on Intercontinental Exchange or ICE.
• 31:42
  Speaker 3: This week we heard the company plans to invest as
• 31:44
  Speaker 3: much as two billion dollars in cash in polymarket, which
• 31:47
  Speaker 3: is a crypto based betting platform.
• 31:49
  Speaker 2: The transaction values poly market at roughly eight billion dollars,
• 31:53
  Speaker 2: and ICE will become a global distributor of poly markets
• 31:55
  Speaker 2: event driven data.
• 31:56
  Speaker 3: We are joined by Catherine Doherty, Bloomberg Finance Reporter. We
• 31:59
  Speaker 3: first Catherine for some more background on ICE.
• 32:02
  Speaker 6: It runs on the blockchain. So you have this storied institution,
• 32:06
  Speaker 6: ICE that owns the New York Stock Exchange, as you mentioned,
• 32:10
  Speaker 6: and they're putting their money where their mouth is. It
• 32:12
  Speaker 6: really is an indication of where the market is headed.
• 32:16
  Speaker 6: So you have these institutional players that are teaming up
• 32:19
  Speaker 6: with either crypto native firms or in this case it's
• 32:23
  Speaker 6: also the prediction market based players. And we have seen
• 32:28
  Speaker 6: this recently with also CME, the derivatives exchange based in Chicago.
• 32:32
  Speaker 6: They're partnering with FanDuel, and most people associate FanDuel with
• 32:36
  Speaker 6: sports betting, but they are big in prediction markets as well.
• 32:41
  Speaker 6: And with CME and FanDuel, they're doing a markets based
• 32:47
  Speaker 6: prediction of yes or no will for example, gold Bee
• 32:51
  Speaker 6: above a certain benchmark. And this announcement also shows a
• 32:57
  Speaker 6: storied institution kind of getting behind the newer incumbents and
• 33:02
  Speaker 6: showing where they see the next phase of the market headed.
• 33:07
  Speaker 2: What does polymarket really do? I see them quoted around
• 33:10
  Speaker 2: in the press and things like that.
• 33:11
  Speaker 6: So you've probably seen polymarket around the time of the election.
• 33:14
  Speaker 6: They were one of the platforms that users were placing
• 33:18
  Speaker 6: bets on who was going to win the presidential election.
• 33:22
  Speaker 6: They at a time were also in the news around
• 33:25
  Speaker 6: twenty twenty two because they were prohibited from actually operating
• 33:30
  Speaker 6: in the US, and more recently in the last few
• 33:34
  Speaker 6: months in twenty twenty five, they've re entered the US market,
• 33:38
  Speaker 6: and they've done so through two avenues. One, it's a
• 33:42
  Speaker 6: changing regulatory environment, it's a crypto friendly regulatory regime. And
• 33:49
  Speaker 6: number two, they bought their own regulated derivatives platform that
• 33:55
  Speaker 6: essentially allowed them it was a pathway back into the
• 33:59
  Speaker 6: United States market.
• 34:01
  Speaker 3: So with this deal, which values Polymarket at about eight
• 34:04
  Speaker 3: billion dollars, cee ICE becomes the global distributor of Polymarket's
• 34:09
  Speaker 3: event driven data. What does that mean to have that
• 34:12
  Speaker 3: data now in its hands? What can it do with
• 34:15
  Speaker 3: that information? Because exchanges don't just they're not just a
• 34:18
  Speaker 3: platform for collecting commissions on trades. They're also huge source
• 34:22
  Speaker 3: of information data that they then sell.
• 34:24
  Speaker 6: That's right, it's a huge part of their business, and
• 34:27
  Speaker 6: you have these big institutions that are paying millions of
• 34:31
  Speaker 6: dollars for access to this data. And as the market
• 34:36
  Speaker 6: becomes a mix of institutional client base and retail clients
• 34:42
  Speaker 6: that data these companies, you have ICE, you have polymarket.
• 34:47
  Speaker 6: This combination is giving ICE access to retail clients that
• 34:52
  Speaker 6: they otherwise wouldn't necessarily have access to, and vice versa.
• 34:56
  Speaker 6: Polymarket gets now all of their data displayed through ICE
• 35:00
  Speaker 6: channels that institutional clients have been set up and working
• 35:06
  Speaker 6: with ICE for years. So it's a fast entry way
• 35:11
  Speaker 6: for both companies to increase their user base, increase their access,
• 35:16
  Speaker 6: and how they market themselves to an entirely new client.
• 35:22
  Speaker 2: So it just feels like some of these traditional exchanges,
• 35:25
  Speaker 2: if you will, I think, are they saying, basically, if
• 35:29
  Speaker 2: we want to grow in the future, we have to
• 35:30
  Speaker 2: embrace some of these new asset classes, whether it's crypto
• 35:34
  Speaker 2: or whether it's predictive markets and things like. Is that
• 35:38
  Speaker 2: kind of what they're telling us.
• 35:39
  Speaker 6: I think that it's very much where they see their
• 35:42
  Speaker 6: clients headed. There's a blurring line between you have hedge
• 35:47
  Speaker 6: funds and traditional institutional firms, and then you have retail
• 35:51
  Speaker 6: investors that at a time, there was so much news
• 35:56
  Speaker 6: during the memestock era around who these users were that
• 36:02
  Speaker 6: were in their basements, But now these are really sophisticated
• 36:06
  Speaker 6: investors that are playing in the options market prediction markets.
• 36:12
  Speaker 6: Many of the leaders of these exchanges are saying there
• 36:17
  Speaker 6: is no difference between what we've been running and at
• 36:20
  Speaker 6: least a binary yes or no. Is this index going
• 36:25
  Speaker 6: to be above or below a certain threshold. They're combining
• 36:31
  Speaker 6: to what was presumably two different worlds into one now.
• 36:34
  Speaker 3: And competitors at polymarket include Calshi Andcrypto dot Com. Are
• 36:39
  Speaker 3: you anticipating, Catherine, There's going to be similar tie ups
• 36:42
  Speaker 3: for those companies as well.
• 36:43
  Speaker 6: There is a race too. I believe that this is
• 36:46
  Speaker 6: just the start, or really the CME partnership with FanDuel
• 36:50
  Speaker 6: was kind of the first indication. This is just another
• 36:53
  Speaker 6: and I think that it's going to be off to
• 36:55
  Speaker 6: the races in terms of who partners up next, because
• 36:58
  Speaker 6: you to build something for scratch is hard, and when
• 37:02
  Speaker 6: you partner with a existing client base too, it is
• 37:06
  Speaker 6: an easy way in to an entirely new market.
• 37:10
  Speaker 2: It wasn't cheap. I'm reading Bloomberg Intelligence research react from
• 37:14
  Speaker 2: Paul Goldberg. This acquisition applies fifty times revenue.
• 37:18
  Speaker 9: Is the purchase price there.
• 37:20
  Speaker 2: That's not cheap and it's an all cash deal.
• 37:21
  Speaker 3: They're just saying we're in our Thanks to Catherine Doherty,
• 37:25
  Speaker 3: Bloomberg News Finance Reporter.
• 37:26
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• 37:33
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• 37:36
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• 37:38
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