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Apple’s $2,000 iPhone Duon Debuts With Limited Supply · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg audio studios, podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg intelligence podcast. Catch us live weekdays at 10 a.m.
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  Speaker 1: Eastern on Apple car play and Android auto with the
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  Speaker 1: Bloomberg business app. Listen on demand, wherever you get your
• 0:20
  Speaker 1: podcasts or watch us live on YouTube.
• 0:24
  Speaker 2: And again, one of the cool stories out there is
• 0:26
  Speaker 2: Apple's out with a new phone, the foldable phone. It's,
• 0:29
  Speaker 2: it's a first for Apple, uh, Of course, there are
• 0:32
  Speaker 2: other foldable phones in the marketplace, but like a lot
• 0:34
  Speaker 2: of things, Apple takes its sweet time.
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  Speaker 3: And it looks better, usually.
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  Speaker 4: Yeah, it looks.
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  Speaker 3: It's more expensive.
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  Speaker 2: Yeah, $ 2, 000. What's it mean to Apple and to the
• 0:42
  Speaker 2: P & L at Apple and to the stock of Apple?
• 0:44
  Speaker 2: Maybe the investment psyche around Apple. Let's check it out
• 0:47
  Speaker 2: with Anurag Rana, Senior Tech Analyst for Bloomberg Intelligence. Anurag,
• 0:51
  Speaker 2: frame out for us what this new iPhone kind of
• 0:54
  Speaker 2: means for the company and for the phone business at Apple.
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  Speaker 5: I think the biggest thing is going to be, you're
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  Speaker 5: going to see a shift from customers that are used
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  Speaker 5: to the Pro or the Pro Max models, which is
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  Speaker 5: the most expensive models that they have. And they are
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  Speaker 5: the ones who are going to migrate towards this duo.
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  Speaker 6: And we think it's only going to be a small
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  Speaker 6: portion of that.
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  Speaker 5: At any given time and any given year, Apple sells
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  Speaker 5: somewhere between 225 to 250 million units globally. We think
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  Speaker 5: going into the next first 12 months of the launch,
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  Speaker 5: they will do somewhere between 10 to 14 million units.
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  Speaker 5: So that's about, you could say, 7% of the base
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  Speaker 5: and not too much. But that's really where we are
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  Speaker 5: right now. Given what we have heard on the demand
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  Speaker 5: side of it, given the orders, we think it's going
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  Speaker 5: to be perhaps towards the top end of this bucket.
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  Speaker 5: And it could be even a little higher if they
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  Speaker 5: are able to meet the demand.
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  Speaker 2: Scarlett, just looking at the stock, I've been reading a lot.
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  Speaker 2: seeing a lot recently that maybe Apple's kind of the
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  Speaker 2: anti-AI stock within the tech space that has much less exposure,
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  Speaker 2: not really spending the money. Stock's up 27% year-to-date, hitting
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  Speaker 2: a 52-week and an all-time high today.
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  Speaker 7: Well, it's kind of like the safe haven play among
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  Speaker 7: the big tech names. Anurag, talk about the Duo and
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  Speaker 7: how it fits in with Apple's strategy to lease the iPhone,
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  Speaker 7: to make the iPhones more accessible to people who may
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  Speaker 7: not be able to afford the price tag to buy
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  Speaker 7: it outright.
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  Speaker 5: Yeah, I think this is one of the most important
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  Speaker 5: factors about Apple. We've always said that, you know, think
• 2:26
  Speaker 5: of Apple or these products as a subscription-based business, because
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  Speaker 5: it's very rare if you get into the Apple ecosystem,
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  Speaker 5: and for that matter, you know, Samsung as well on
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  Speaker 5: the higher end, you're not going to leave the ecosystem.
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  Speaker 5: So each individual has their own refresh cycle. You know,
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  Speaker 5: some people keep it for three years, four years, and
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  Speaker 5: five years. So when you look at Duo, This is
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  Speaker 5: a very expensive phone. But if you think about the
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  Speaker 5: leasing plan, even on the base model, it starts at $ 55, $ 60.
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  Speaker 6: Now, for me, it's a little bit higher.
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  Speaker 5: But for a lot of people who use Uber, Lyft,
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  Speaker 5: and Uber Eats, this is probably not that large amount
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  Speaker 5: of money. But I think that's going to be one
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  Speaker 5: big factor that drives the adoption of this particular phone.
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  Speaker 2: So give us a sense of just kind of how
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  Speaker 2: Cupertino is today in terms of product launches. I mean,
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  Speaker 2: is there still the same feeling on Wall Street, on Arag,
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  Speaker 2: that this company can continue to deliver really, really good
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  Speaker 2: products that customers want?
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  Speaker 5: In all fairness, that has not been the case for
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  Speaker 5: Apple for many, many years. This is the first time,
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  Speaker 5: I would say, within a 10-year period, you're seeing a
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  Speaker 5: new form factor that has some coolness factor to it.
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  Speaker 6: And from what we have heard from Mark Gurman.
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  Speaker 5: And nobody writes better than him in the space about Apple,
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  Speaker 5: The new CEO is very focused on design and products,
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  Speaker 5: not so much about supply chain, not so much about
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  Speaker 5: tariffs and other things. And if that's the case, then
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  Speaker 5: we should anticipate a lot more new products showing up.
• 3:54
  Speaker 5: Whether they are hit in the market, to be honest,
• 3:56
  Speaker 5: it doesn't matter, but at least shows that these guys
• 3:59
  Speaker 5: are trying their best to actively play a part in
• 4:03
  Speaker 5: our daily life. For example, this new segment around home, really,
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  Speaker 5: that's not going to drive a lot of revenue. But
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  Speaker 5: frankly speaking, Right now, a lot of people don't talk
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  Speaker 5: to Siri in their house. Everybody talks to Alexa. It's
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  Speaker 5: a small instrument, but that's where you have the mindshare
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  Speaker 5: of the consumer because you're talking to Alexa about what's
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  Speaker 5: the weather, order something for me.
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  Speaker 6: Why shouldn't be that Siri?
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  Speaker 5: Because Apple controls your biggest ecosystem when it comes to
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  Speaker 5: phones and also laptops.
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  Speaker 6: Why not the home then?
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  Speaker 7: Right. It feels very insidious, but once you hook someone in,
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  Speaker 7: you hook them in. So does that mean with this
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  Speaker 7: new CEO, Anurag, that we're going to see less innovation
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  Speaker 7: in Apple services and just more products thrown out there,
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  Speaker 7: even if it's kind of spaghetti on the wall? You
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  Speaker 7: don't know if it's going to work, but at least
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  Speaker 7: they're keeping everyone on their toes with new products all
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  Speaker 7: the time?
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  Speaker 5: I actually don't think that, only because from what we
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  Speaker 5: have read, he's very focused on design. So they are
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  Speaker 5: going to experiment a lot, but they're only going to
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  Speaker 5: release stuff, in my view, that is going to be design-centric,
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  Speaker 5: that is going to have some cool feature around it,
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  Speaker 5: which is It's going to wow the consumer. I think
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  Speaker 5: that is the most important part. I think a lot
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  Speaker 5: of people feel that the innovation has left Apple and
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  Speaker 5: it's not the same what we used to see from
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  Speaker 5: the Steve Jobs era. And I'm hoping for the sake
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  Speaker 5: of the company, frankly, that that comes back because that
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  Speaker 5: really is completely needed for them at this point.
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  Speaker 2: Anurag, what's the AI call today when you talk to clients?
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  Speaker 2: Where are we today? Because it seems like it's a
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  Speaker 2: very fluid situation about how people think about the AI trade.
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  Speaker 5: Yeah, the AI trade is absolutely in shambles right now
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  Speaker 5: because the big question is, where are the frontier models
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  Speaker 5: going with it?
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  Speaker 6: What would be the adoption rate?
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  Speaker 5: There's a lot of angst about the open models coming
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  Speaker 5: out and having an impact on it. We recently published
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  Speaker 5: a few notes around this topic, and the core of
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  Speaker 5: the things is this. We have a very massive backlog
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  Speaker 5: on everybody's balance sheet. So when it comes to growth
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  Speaker 5: rates over the next one year or two years, I
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  Speaker 5: think we are going to be okay with that.
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  Speaker 6: That's not the issue.
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  Speaker 5: The big issue that's showing up or the cracks that
• 6:10
  Speaker 5: they are showing up are what would happen if we
• 6:14
  Speaker 5: are not able to get some data center capacity online?
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  Speaker 5: What could happen after the midterms if there is even
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  Speaker 5: more opposition of new data centers being built up?
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  Speaker 6: What would happen if the capital.
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  Speaker 5: Funding costs have gone up, and that's probably the biggest
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  Speaker 5: reason now is the increase in funding costs.
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  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
• 6:37
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 6:41
  Speaker 1: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 6:44
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• 6:47
  Speaker 1: you get your podcasts or watch us live on YouTube.
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  Speaker 6: I don't know.
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  Speaker 3: I mean, let's talk valuation in the AI space here.
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  Speaker 7: Go back to what Anurag said when we asked him
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  Speaker 7: how the AI trade is doing.
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  Speaker 4: Yeah.
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  Speaker 6: Oh, your colleague.
• 7:03
  Speaker 2: Oh, this is Mandeep Singh. He covers tech technology for
• 7:05
  Speaker 2: Bloomberg Intelligence. Your colleague, Anurag, we asked, how's the AI
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  Speaker 2: trade out there in the marketplace?
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  Speaker 3: It's in shambles.
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  Speaker 8: Really?
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  Speaker 6: Okay.
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  Speaker 3: Talk to us about open AI because that doesn't look
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  Speaker 3: like shambles. I'm seeing maybe going to get a valuation
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  Speaker 3: of $ 1.
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  Speaker 6: 25 trillion.
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  Speaker 2: What's going on with OpenAI?
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  Speaker 8: Yeah, I mean, they're trying to do another round. And
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  Speaker 8: all these companies need a lot of money because of
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  Speaker 8: all the compute commitments they have. We know Anthropic has
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  Speaker 8: close to $ 750 billion in compute commitments for the next
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  Speaker 8: few years. So... You know, $ 30 billion is a small amount,
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  Speaker 8: but they need to raise because how else are you
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  Speaker 8: going to be able to pay for all the compute
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  Speaker 8: that you need to grow the revenue? So this is
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  Speaker 8: a high variable cost business. There is no leverage, inherent
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  Speaker 8: leverage in the business like software companies have typically.
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  Speaker 6: And I don't know why.
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  Speaker 2: What is the economic model for these companies? I mean,
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  Speaker 2: Is it just a top line growth story?
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  Speaker 8: For every dollar of incremental revenue, you need to spend
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  Speaker 8: right now about 50 cents on compute.
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  Speaker 6: Plus all the other overheads. Just the compute costs.
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  Speaker 7: How long do you spend on compute? Is this like
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  Speaker 7: a recurring cost, constant cost? Or is this, you know,
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  Speaker 7: you invest in it now and then later on you
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  Speaker 7: just kind of maintain and upgrade every once in a while?
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  Speaker 8: No, so software used to be, you develop the software
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  Speaker 8: and then the incremental costs were like negligible. Because we
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  Speaker 8: started off with, you know, disks. You used to ship
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  Speaker 8: the software and then it was like 100% margins, incremental margins.
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  Speaker 6: Then it was cloud.
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  Speaker 8: And now with AI, you're spending, like I said, 50
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  Speaker 8: cents on every dollar you generate. And that's just compute cost.
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  Speaker 8: That's your GPU consumption and all the... uh overheads that
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  Speaker 8: come the power you need to run those gpus you
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  Speaker 8: need that there is no shortcut in terms of ai
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  Speaker 8: compute so do we.
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  Speaker 2: Have any sense of what the net income margin is
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  Speaker 2: for these companies vis-a-vis a traditional software company like a.
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  Speaker 8: Good question yeah so look uh what these companies will
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  Speaker 8: tell you and we are waiting for anthropic uh s1
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  Speaker 8: is they will say, we are spending still half of
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  Speaker 8: our compute on training the next model. So Anthropic, it
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  Speaker 8: already has Opus 5.5 and Mythos 5.1. It's training the
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  Speaker 8: Mythos 5.5, the next version, whatever they want to call it,
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  Speaker 8: and spending almost 40% to 50% of their compute on
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  Speaker 8: training the model. That's a big upfront investment they have
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  Speaker 8: to train that next frontier model because you want to
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  Speaker 8: stay ahead. Open rate models are catching up and that's
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  Speaker 8: why your net income margin is most likely going to
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  Speaker 8: be negative on a gap basis because you're spending so
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  Speaker 8: much on keeping up with the frontier.
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  Speaker 2: Is that an ongoing thing to Scarlett's question or is
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  Speaker 2: it some point we're going to get to a mature.
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  Speaker 9: P & L?
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  Speaker 8: And that's the thing with every tech company, a new
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  Speaker 8: technology that comes about, you spend a lot upfront, but
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  Speaker 8: you know there is a mature state where you will
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  Speaker 8: generate tons of free cash flow.
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  Speaker 6: That's the hope here because.
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  Speaker 3: I was going to say, how confident are we in that?
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  Speaker 8: But these companies are already $ 100 billion in revenue.
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  Speaker 6: I've heard the revenue number. I'm asking about the profits.
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  Speaker 9: They will.
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  Speaker 8: Look, if you look at my 35% to 40% R &
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  Speaker 8: D on training the next model, if tomorrow they decide
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  Speaker 8: everyone is facing the frontier, which they have talked about
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  Speaker 8: facing the frontier, what does that mean? Don't spend any
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  Speaker 8: more on training costs. So now suddenly you start to generate,
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  Speaker 8: you know, 30 cents on every dollar you generate as revenue.
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  Speaker 8: And that could be your free cash flow. You don't
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  Speaker 8: spend on training the next version of the model.
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  Speaker 2: Two days ago, I thought I had cocktail party knowledge
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  Speaker 2: of AI that I can hold my own. blown it's
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  Speaker 2: blown to smithereens yeah i got nothing i got nothing and.
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  Speaker 7: Now that everyone's kind of questioning the ai trade you
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  Speaker 7: know i feel things that felt certain before that were
• 11:19
  Speaker 7: like just assumed maybe you can't assume them anymore all.
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  Speaker 2: Right i don't know well i'll try again on monday
• 11:24
  Speaker 2: i'll try again stay with us more from bloomberg intelligence
• 11:28
  Speaker 2: coming up after.
• 11:29
  Speaker 1: This You're listening to the Bloomberg Intelligence Podcast. Catch us
• 11:37
  Speaker 1: live weekdays at 10 a.m. Eastern on Apple CarPlay and
• 11:40
  Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand
• 11:43
  Speaker 1: wherever you get your podcasts or watch us live on YouTube.
• 11:48
  Speaker 7: We are in the thick of earnings season and most
• 11:50
  Speaker 7: of the banks have reported. So now it's time for
• 11:53
  Speaker 7: the non-bank lenders. American Express being an example of one
• 11:57
  Speaker 7: of those. It means a credit card company, credit card issuer.
• 12:00
  Speaker 7: And Ben Stein is our consumer finance analyst who covers
• 12:03
  Speaker 7: American Express. And Ben, American Express under pressure to keep, retain,
• 12:10
  Speaker 7: add to its premium card members. How's it been doing
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  Speaker 7: in that effort?
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  Speaker 9: Look, Amex is doing great, right? They're running at a 10%
• 12:19
  Speaker 9: top line revenue growth and a 15% bottom line EPS growth.
• 12:24
  Speaker 9: You know, Warren Buffett is still one of the largest
• 12:26
  Speaker 9: shareholders in Amex or the largest shareholder. And that's for
• 12:30
  Speaker 9: a reason. I mean, it's got an incredible growth algorithm.
• 12:33
  Speaker 9: It's built on the wealthiest, most resilient customers. And, you know,
• 12:36
  Speaker 9: spending growth is strong and credit is pristine.
• 12:40
  Speaker 2: You know, Ben, just give us a sense. I just
• 12:42
  Speaker 2: have to refresh my memory. How global is Amex? What's
• 12:45
  Speaker 2: their business kind of U.S. versus rest of the world?
• 12:48
  Speaker 2: And are there growth opportunities geographically for them?
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  Speaker 9: So they're predominantly in the U.S. They have a couple
• 12:55
  Speaker 9: different international markets that are pretty important to them, including
• 12:58
  Speaker 9: the U.K.
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  Speaker 8: And Japan.
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  Speaker 9: And anecdotally, Paul, I don't know if you ever tried
• 13:04
  Speaker 9: to swipe your Amex card in Europe, but can be
• 13:07
  Speaker 9: quite challenging, even though they're, they've spent years trying to
• 13:10
  Speaker 9: work on parity of acceptance over there. Um, but, but importantly,
• 13:14
  Speaker 9: international is growing faster than the U S it's growing
• 13:17
  Speaker 9: at like a mid teens rate. Um, so it's a
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  Speaker 9: big part of their strategy in the future, but right
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  Speaker 9: now it's still predominantly a U S business.
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  Speaker 7: And my apologies, Ben Elliott, not Ben Stein.
• 13:28
  Speaker 4: My fault there.
• 13:29
  Speaker 7: Ben, when we go back and talk about American Express
• 13:32
  Speaker 7: for a moment here, not popular in Europe, even though
• 13:35
  Speaker 7: they tout the benefits of this card when you're traveling,
• 13:38
  Speaker 7: presumably sometimes overseas. Also in the US, you now start
• 13:42
  Speaker 7: to see companies saying, if you charge by credit card,
• 13:45
  Speaker 7: we're going to charge you that extra 2% or 3% fee.
• 13:47
  Speaker 7: A lot of those stores won't even accept American Express
• 13:50
  Speaker 7: because the interchange fee is even higher than for Visa
• 13:53
  Speaker 7: and MasterCard. How is that showing up for American Express?
• 13:56
  Speaker 7: I mean, do you see that making a dent in
• 13:59
  Speaker 7: its revenue and its bottom line?
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  Speaker 9: So it's not showing up yet. You know, the bulk
• 14:06
  Speaker 9: of the spending is things like airlines and hotels, places
• 14:10
  Speaker 9: that are sort of always going to accept American Express.
• 14:13
  Speaker 9: But I think looking forward, the value proposition of the
• 14:17
  Speaker 9: Amex Platte in particular is really core to earnings growth.
• 14:22
  Speaker 9: And as they sort of increasingly kind of try to
• 14:24
  Speaker 9: pull in the cost of the Amex plat and you see,
• 14:30
  Speaker 9: you know, the sort of like reduced acceptance at certain
• 14:34
  Speaker 9: smaller merchants, I think it does sort of wear on
• 14:36
  Speaker 9: the sheen of the brand and it affects how loyal
• 14:40
  Speaker 9: customers might be in the future. But obviously right now,
• 14:42
  Speaker 9: you know, they're having, they have like a 99% retention
• 14:46
  Speaker 9: rate on their Amex plat. So it's really not.
• 14:48
  Speaker 5: An issue yet.
• 14:49
  Speaker 7: I like the way that he calls it the Amex plaque.
• 14:51
  Speaker 7: I know. It's for people in the know.
• 14:52
  Speaker 6: What do you do?
• 14:53
  Speaker 2: You're one of those crazy people with cars, right?
• 14:54
  Speaker 7: Yes, I did sign up for it because I got
• 14:56
  Speaker 7: this massive sign-up bonus. And whether I keep it or
• 14:58
  Speaker 7: not depends on what the perks are, although they did
• 15:01
  Speaker 7: add Airbnb to one of the perks where you can
• 15:05
  Speaker 7: get a certain amount of credit and apply it towards that.
• 15:07
  Speaker 7: So that might be worthwhile.
• 15:09
  Speaker 6: Let's go there, Ben.
• 15:09
  Speaker 2: I mean, I'm old school.
• 15:11
  Speaker 3: I got the green card, dude, that I got back
• 15:12
  Speaker 3: in like 1986.
• 15:13
  Speaker 7: OK, you're one of those members since 1986.
• 15:16
  Speaker 3: Yeah.
• 15:17
  Speaker 2: You know, but talk to me about like these affinity
• 15:20
  Speaker 2: programs like like my daughter and Scarlett. They're all into,
• 15:24
  Speaker 2: you know, comparing the cards and arbitraging the cards and
• 15:26
  Speaker 2: doing all this and maximizing the points. How big of
• 15:29
  Speaker 2: the part of the business is that kind of stuff become?
• 15:34
  Speaker 9: It's a really big part because MX is leaning into
• 15:36
  Speaker 9: growth in millennials and Gen Z in particular. And they
• 15:41
  Speaker 9: tend to be lower spenders today, but in the future,
• 15:43
  Speaker 9: they're sort of the future high spenders. And a lot
• 15:46
  Speaker 9: of that lifestyle sort of coupon book stuff is focused
• 15:49
  Speaker 9: on millennial and Gen Z customers. And so that's where
• 15:51
  Speaker 9: they're getting their new account growth. But the risk you
• 15:55
  Speaker 9: see there is the fatigue and sort of the existing
• 15:58
  Speaker 9: Gen X, Boomer Plus spenders who, you know, they don't
• 16:03
  Speaker 9: want to spend... oh, they're free time gaming out a
• 16:05
  Speaker 9: coupon book and then they just want a core value proposition.
• 16:09
  Speaker 9: But by and large, it's working and it's driving their
• 16:13
  Speaker 9: growth algorithm. And so I think we'll continue to lean
• 16:16
  Speaker 9: into that.
• 16:16
  Speaker 7: It's tiresome when you have to consult an Excel spreadsheet
• 16:19
  Speaker 7: first before you decide how to pay for something.
• 16:22
  Speaker 3: You know, I'll get phone calls.
• 16:24
  Speaker 2: I'm like, and she'll get these crazy deals.
• 16:26
  Speaker 6: You know, I'm like, why are you in Barcelona?
• 16:28
  Speaker 2: Oh, because I got a special tip from my.
• 16:30
  Speaker 3: X and Y and Z card. I was like, all right,
• 16:32
  Speaker 3: all right.
• 16:33
  Speaker 6: And they wanted to.
• 16:34
  Speaker 5: Go to Barcelona.
• 16:35
  Speaker 9: Yeah. And I think Amex's response to that is they've
• 16:40
  Speaker 9: just recently introduced a new business card, the Graphite card,
• 16:42
  Speaker 9: which is a pure 2% cash back card. So I
• 16:46
  Speaker 9: think they understand the fatigue there. And I would imagine
• 16:48
  Speaker 9: that in the future, if it becomes an issue, you'll
• 16:51
  Speaker 9: start to see a return to sort of more traditional
• 16:54
  Speaker 9: rewards and less coupon book. But so far, it's working.
• 16:59
  Speaker 8: Why fix it?
• 17:01
  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
• 17:08
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 17:12
  Speaker 1: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 17:15
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 17:18
  Speaker 1: you get your podcasts or watch us live on YouTube.
• 17:23
  Speaker 2: We talk about tech spending. It just seems like the
• 17:24
  Speaker 2: numbers are going up, up, up, up, up with no
• 17:27
  Speaker 2: end in sight. That's true for the AI stuff. But
• 17:29
  Speaker 2: for the rest of the tech stack, it seems like
• 17:31
  Speaker 2: those folks have to fight for the crumbs here. One
• 17:33
  Speaker 2: of those companies is Infosys. Tamlin Basin joins us here,
• 17:37
  Speaker 2: tech analyst for Bloomberg Intelligence.
• 17:39
  Speaker 3: He's based in London. So Tamlin, talk to us about Infosys.
• 17:43
  Speaker 2: What is Infosys and what are they telling you about
• 17:47
  Speaker 2: their results and their guidance here?
• 17:49
  Speaker 4: Yeah, sure. So Infosys is an IT services company. Now,
• 17:53
  Speaker 4: so this is a company that's not in the software space.
• 17:55
  Speaker 4: What they do really is a lot of the implementation
• 17:58
  Speaker 4: for enterprises. They make sure that that tech stop is
• 18:01
  Speaker 4: operating from top to bottom. So they reported earnings earlier
• 18:06
  Speaker 4: this morning. They reduced their fiscal year 2027 sales guidance.
• 18:11
  Speaker 4: Now they've lowered that range both at the top end
• 18:13
  Speaker 4: and the lower end. And this is the second consecutive year.
• 18:17
  Speaker 4: cut to their fiscal guidance following 1Q results. So what
• 18:21
  Speaker 4: they're pointing at is a continued muted discretionary spending backdrop.
• 18:27
  Speaker 4: All of this money, as you said, is going to AI.
• 18:30
  Speaker 4: And a lot of that is putting pressure on spending elsewhere.
• 18:33
  Speaker 4: And this is a company that's definitely feeling it. And
• 18:36
  Speaker 4: so they're reducing their near-term guidance. They do see AI
• 18:39
  Speaker 4: as a tailwind. Their AI revenues accelerated 29% from last quarter.
• 18:44
  Speaker 4: But that's just so far not enough to really lift
• 18:47
  Speaker 4: revenues overall.
• 18:48
  Speaker 3: So, you know, there's a lot of uncertainty out there.
• 18:51
  Speaker 2: And if I'm spending money on my tech budget, I mean,
• 18:53
  Speaker 2: I got geopolitical issues. I got surging energy prices. I
• 18:56
  Speaker 2: got overall inflation. So what does it mean for, like,
• 18:59
  Speaker 2: IT services? That used to be such a steady, steady
• 19:02
  Speaker 2: growth business there. But, you know, I guess they're not
• 19:05
  Speaker 2: immune to just uncertainty in general, plus the AI industry.
• 19:08
  Speaker 3: Crowd out.
• 19:10
  Speaker 4: Yeah, and I think it is a lot of that
• 19:12
  Speaker 4: AI crowd out coupled with those macro pressures that you
• 19:16
  Speaker 4: just pointed at. So growth is not going negative necessarily,
• 19:19
  Speaker 4: but we're looking at very low single digits rather than
• 19:22
  Speaker 4: sort of the mid single digit growth that we were
• 19:24
  Speaker 4: seeing sort of pre-COVID. Through COVID, it expanded, accelerated faster
• 19:29
  Speaker 4: than that. But really, the industry is used to that
• 19:33
  Speaker 4: mid single digit growth, but it is a lot of
• 19:35
  Speaker 4: that AI crowd out. You know, decision makers want to
• 19:38
  Speaker 4: invest heavily in AI. They don't want to miss the
• 19:41
  Speaker 4: boat there. And what that does mean is going back
• 19:43
  Speaker 4: to their services providers and saying, you know, what, we're
• 19:45
  Speaker 4: not going to be able to raise our budget with
• 19:48
  Speaker 4: you to the extent that you're used to from years past.
• 19:50
  Speaker 4: So I think that's where a lot of this is
• 19:52
  Speaker 4: coming from, coupled with those macro pressures that are really
• 19:55
  Speaker 4: tightening enterprise budgets elsewhere.
• 19:58
  Speaker 2: So when I see a scenario like that where an
• 20:01
  Speaker 2: industry is undergoing what might be a secular process, you know,
• 20:05
  Speaker 2: kind of reduction in growth rates. I've been a part
• 20:08
  Speaker 2: of them myself in the media space. Suggest maybe consolidation
• 20:12
  Speaker 2: might be a solution for some of the companies that
• 20:13
  Speaker 2: really want to make a go of it. How do
• 20:15
  Speaker 2: you think about the IT services sector from a consolidation
• 20:19
  Speaker 2: M & A standpoint?
• 20:20
  Speaker 4: Sure, absolutely. And we have seen some consolidation, especially with
• 20:24
  Speaker 4: companies wanting to sort of expand their AI capabilities. So
• 20:29
  Speaker 4: we've seen Accenture is probably the leader in the space,
• 20:31
  Speaker 4: and it's been most aggressive recently. on M & A. However,
• 20:34
  Speaker 4: we haven't seen them necessarily go off after a larger
• 20:38
  Speaker 4: peer for acquisitions. What they are doing is doing a
• 20:40
  Speaker 4: lot of bolt-on acquisitions, especially in the consulting space, especially
• 20:44
  Speaker 4: for smaller firms who are focused on lifting consulting and
• 20:49
  Speaker 4: lifting AI exposure in niche areas, whether it be financial services,
• 20:54
  Speaker 4: whether it be healthcare or So I think that's where
• 20:56
  Speaker 4: we're looking to see is probably more of the acquisitions
• 21:00
  Speaker 4: going forward, not necessarily tie-ups of two large behemoth firms. Again,
• 21:04
  Speaker 4: these are companies that have 500,000, 600,000 employees. They are
• 21:08
  Speaker 4: quite massive overall. So I don't think we're necessarily expecting
• 21:13
  Speaker 4: consolidation at that level. Probably downstream, we'll see more bolt-on
• 21:17
  Speaker 4: acquisitions to sort of enhance AI capabilities.
• 21:21
  Speaker 7: Now, Tamlyn, President Trump or his administration named Infosys as
• 21:26
  Speaker 7: one of the companies abusing immigration policies. There's an imposition
• 21:30
  Speaker 7: on restrictions on those H-1B visas. What does that mean
• 21:33
  Speaker 7: for an Infosys, for other companies that it competes with,
• 21:36
  Speaker 7: like a Wipro?
• 21:38
  Speaker 4: Yeah, absolutely. And this certainly is risk at retaining talent.
• 21:43
  Speaker 4: So these are really mid-level executives who are already living
• 21:46
  Speaker 4: in the U.S. It's going to be harder for them
• 21:48
  Speaker 4: to get permission to continue staying with this company and
• 21:51
  Speaker 4: working in the U.S. So this is really targeting those mid-level.
• 21:55
  Speaker 4: This is not necessarily the H-1B exposure where they're trying
• 21:57
  Speaker 4: to attract talent to the U.S. to begin with. What
• 22:00
  Speaker 4: all these companies have so far said is that they
• 22:02
  Speaker 4: have already reduced their reliance on a lot of these
• 22:05
  Speaker 4: visa permissioning. This is sort of as Trump came into
• 22:09
  Speaker 4: the second term, they could sort of see the headwinds
• 22:12
  Speaker 4: coming their way. But certainly we are going to see,
• 22:14
  Speaker 4: you know, it's going to be a little bit harder
• 22:16
  Speaker 4: to retain that mid-level talent. There's going to be more
• 22:18
  Speaker 4: competition within the space for that. So I think this
• 22:21
  Speaker 4: is definitely a, you know, it's a political risk. It's
• 22:24
  Speaker 4: a reputational risk. But I don't know if it's really
• 22:26
  Speaker 4: going to change their operations over the near term because
• 22:29
  Speaker 4: they've reduced their reliance on those visas.
• 22:32
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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