Latest / Bloomberg Intelligence / BI Weekend: Nvidia, Lowe’s, TJX Earnings

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BI Weekend: Nvidia, Lowe’s, TJX Earnings · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
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Speaker 1: with Alex Steina and Paul'sweenye.
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Speaker 2: The real app performance has been the US corporate high yield.
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Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
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Speaker 2: The semiconductor business is a really cyclical business.
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Speaker 1: Breaking market headlines and corporate news from across the globe.
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Speaker 3: Do investors like the M and A that we've seen?
0:30
Speaker 2: These are two big time blue chip companies.
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Speaker 3: The window between the peak and cut changing super fast.
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Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 2: business story impacting Wall Street and the 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 our analysts cover worldwide.
0:54
Speaker 2: Today, we'll look at why shares of the IT company
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Speaker 2: super Microcomputer roast the most since February plaus.
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Speaker 3: We'll discuss how a weak housing market impacted quarterly sales
1:03
Speaker 3: at the department store lows.
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Speaker 2: First, we dive into corporate earnings from AI giant Nvidia,
1:08
Speaker 2: the chip maker delivered a revenue forecast that failed to
1:10
Speaker 2: meet analyst expectations, and this suggests that the company's dizzey
1:14
Speaker 2: and growth has its limits.
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Speaker 3: However, in Nvidia did ashore investors that its new product
1:18
Speaker 3: lineup can maintain the company's AI fueled growth run for more.
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Speaker 3: Paul was joined by man Deep Sing Bloomberg Intelligence senior
1:24
Speaker 3: tech industry analyst.
1:25
Speaker 2: I first asked man Deep for his take on in
1:27
Speaker 2: Vidia's most recent quarter.
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Speaker 4: Any slight miss in the networking side, which was the
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Speaker 4: case here, or even a gross margin degradation which they
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Speaker 4: said will go up in the second half of next year,
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Speaker 4: So it's really a transitory thing. I think overall, the
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Speaker 4: demand side looks pretty solid, they said. Jensen called out
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Speaker 4: there will be no CAPEX digestion until the data center
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Speaker 4: spending hits a trillion dollars.
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Speaker 5: That's huge.
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Speaker 4: I mean, just think about you know how much runway.
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Speaker 4: He thinks, without a pause. Now, does the market believe it?
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Speaker 4: Probably not, Given what we heard at our conference yesterday
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Speaker 4: is it's moving from training to inferencing, and on the
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Speaker 4: inferencing side there is probably more. So if once you
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Speaker 4: have a train model, you're deploying that model in co
2:18
Speaker 4: pilots or chat pots, and it's basically a train model
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Speaker 4: that's being used for answering queries and that's inferencing answering
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Speaker 4: queries or you know, providing some productivity benefit.
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Speaker 5: And that's where do you really need a high end
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Speaker 5: in video chip. The answer is divided.
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Speaker 4: Some people say, for the older versions of in video chips,
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Speaker 4: you could use that for inferencing. The latest one will
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Speaker 4: continue to get used for training, and that's a plausible answer,
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Speaker 4: but as we have learned, there is growing competition on
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Speaker 4: the inferencing side from the likes of AMD as well
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Speaker 4: as startups like sam Banava, Cerebras and all these companies
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Speaker 4: are trying to get some portion of that part.
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Speaker 2: When you listen to this the management team in Nvidia,
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Speaker 2: where do they say, I mean, can they look a
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Speaker 2: year two years in advance? How do they think their
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Speaker 2: business is going to develop?
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Speaker 5: Yeah?
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Speaker 4: I mean, look the fact that they're saying gross margins
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Speaker 4: will go down to around seventy one percent over the
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Speaker 4: next two quarters.
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Speaker 5: But readbound seventy one, seventy one grows.
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Speaker 4: Smart Yes, wow, and it's it's again terrific when you
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Speaker 4: look at it from every angle is just the way
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Speaker 4: expectations were priced for it's mid seventy percent, So the
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Speaker 4: fact that they are going down to seventy one percent,
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Speaker 4: but in Jensen's case, he called out those margins going
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Speaker 4: back to seventy five percent. So it's really a ramp
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Speaker 4: up of their new architecture Blackwell, which is causing the
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Speaker 4: transitory gross margin degradation. But once they get that in
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Speaker 4: full production, he expects gross margins to go back to
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Speaker 4: seventy five percent. Now I do think again there will
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Speaker 4: be more competition, but he clearly doesn't believe that to
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Speaker 4: be the case.
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Speaker 2: All Right, I mean, here are just some crazy numbers
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Speaker 2: of folks, just total Revenue's let's go really simple here.
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Speaker 2: Revenue roughly calendar year twenty two, twenty seven billion of revenue,
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Speaker 2: calendar year twenty four, one hundred and twenty eight billion
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Speaker 2: of revenue. Have you seen anything like this in technology?
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Speaker 4: I mean, the closest thing that comes to mind is
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Speaker 4: the build out of the internet infrastructure back in nineteen
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Speaker 4: ninety nine. I think Cisco had a similar ramp up
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Speaker 4: on the networking side. But what's different is in Vidia
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Speaker 4: clearly has the balance sheet as well as they are
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Speaker 4: in more products than Cisco was. So Cisco was just
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Speaker 4: providing the networking gear. In Nvidia has a software line,
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Speaker 4: they have a networking business and then their core ship business.
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Speaker 5: So clearly in Vidia is going with the.
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Speaker 2: Platform a stupid income statement. They have fifty five percent
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Speaker 2: net income margins, so and they have no capback to
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Speaker 2: speak of two three four poen so the free cash
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Speaker 2: flow is just freakish.
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Speaker 5: So what do they do with the cash?
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Speaker 4: Well, right now they're doing some share buybacks, but acquisitions
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Speaker 4: maybe on the table if the incoming Trump administration loses
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Speaker 4: the regulation.
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Speaker 2: So okay, let's go down that road there. What's the
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Speaker 2: feeling in Silicon Valley in technology about that opportunity, because, boy,
5:22
Speaker 2: your industry, in particularly some of the bigger companies that
5:24
Speaker 2: you cover, the Amazons of the world, the Google's the world,
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Speaker 2: they can't do anything these days. Is the expectation that
5:30
Speaker 2: might loosen up.
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Speaker 4: Well, the overall m andy environment an IP environment may
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Speaker 4: get better, but in terms of big tech, I doubt
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Speaker 4: it's anything is changing on that front, especially for the
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Speaker 4: likes of Alphabet and Meta. Probably an Apple or an
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Speaker 4: Nvidia may be able to do more acquisitions, but I
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Speaker 4: think the companies that are in the crosshairs of you
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Speaker 4: know what the incoming administration feels on the consumer side.
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Speaker 4: I doubt they'll allow them to make any for their acquisition,
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Speaker 4: all right.
6:02
Speaker 3: Thanks to Mandy pep Seeing Bloomberg Intelligence, Senior tech industry analyst.
6:05
Speaker 2: Each week we look at research from Bloomberg and EF
6:08
Speaker 2: previously known as New Energy Finance, so the.
6:10
Speaker 3: Team at Bloomberg that tracks and analyzes the energy transition
6:13
Speaker 3: from commodities to power, transport, industries, buildings, and ag sectors.
6:17
Speaker 2: This week we took a look at what Donald Trump's
6:19
Speaker 2: upcoming presidency will mean for the energy transition for more.
6:22
Speaker 3: We are joined by Derek flakel Bloomberg b and EF
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Speaker 3: lead US policy analyst, and we first asked Derek for
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Speaker 3: his take on what changes will come next.
6:30
Speaker 6: First of all, there's a lot of worries about the
6:31
Speaker 6: future of the Inflation Reduction Act. The US is signature
6:34
Speaker 6: climate subsidy program. We expect that will mostly remain intact.
6:39
Speaker 6: A lot of Republican district states for benefiting fourteen. How
6:42
Speaker 6: Republicans have signed a letter saying they don't want to
6:45
Speaker 6: see those tax credits repealed hastily, and the Speaker of
6:47
Speaker 6: the House has said that he wants to see the scalpel,
6:50
Speaker 6: not a sledgehammer, So we think a lot of that
6:51
Speaker 6: will survive. Where you're likely to see more change is
6:53
Speaker 6: regulations and some voluntary initiatives like the procurement for clean
6:58
Speaker 6: products from the federal government.
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Speaker 2: So I'm just looking. You have a great, great chart
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Speaker 2: graphic here. Fossil fuels are likely to farewell on our
7:07
Speaker 2: Trump administration. Electric vehicles are not. Wouldn't mister Musk have
7:12
Speaker 2: something to say about the fate of electric vehicles?
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Speaker 6: He certainly would, But the question is what is Tesla's
7:17
Speaker 6: strategy going to be visa VI of a electric vehicle producers,
7:21
Speaker 6: most of the valuation comes from the dream of a ROBOTAXI.
7:24
Speaker 6: And we've certainly seen some Bloomberg reporting recently saying that
7:27
Speaker 6: Musk is likely to put for a favorable framework on
7:30
Speaker 6: av's when it comes to evs or electric vehicles. You know,
7:33
Speaker 6: he has said and the business and now may or
7:35
Speaker 6: may not bear this out that Tesla would do better
7:39
Speaker 6: sort of survive the loss of the EV tax credits
7:42
Speaker 6: in a way that some of his EV competitors might not.
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Speaker 6: It ultimately depends on what you and what he thinks
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Speaker 6: tesl's interest is whether it's dominating a smaller EV market
7:50
Speaker 6: or having a smaller share of a larger EV market.
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Speaker 3: Let's move into some of the stuff that feels a
7:54
Speaker 3: little bit disier, and those are the tax credits that
7:57
Speaker 3: are part of the IRA. So one is as a
8:00
Speaker 3: tax credit for carbon that's captured, how you store, how
8:04
Speaker 3: you capture it is debatable in terms of how much
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Speaker 3: tax credit you receive, and the other has to do
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Speaker 3: with hydrogen. How do we feel about those two policies
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Speaker 3: either staying in place or getting reduced.
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Speaker 6: So these tax credits are favored by industrial interests, oil
8:19
Speaker 6: and gas interests. From what I've heard, there's not a
8:22
Speaker 6: lot of Republican appetite to appeal either of the votes.
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Speaker 6: But you're likely to see is looser regulations on both,
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Speaker 6: which actually strengthens the business case for both. We might
8:29
Speaker 6: see a better outlook for both carbon caster and for
8:32
Speaker 6: hydrids than under Trump administration. Now, as for emissions benefits,
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Speaker 6: the market acceptance of that, that might be a little
8:38
Speaker 6: bit diceier, but nevertheless we see the economic case too
8:43
Speaker 6: being a little bit easier as compliance costs go down.
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Speaker 2: So I'm just looking again winners and losers here, how
8:50
Speaker 2: much of this is a day one type of policy
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Speaker 2: thing versus boy, this is just take a while. To
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Speaker 2: the extent that Trump administration may want to shift gears
9:00
Speaker 2: on the energy transition, it seems like a lot of
9:03
Speaker 2: stuff has already been spent. There's a lot of investment
9:05
Speaker 2: already on my ground. What's the timing, do you think?
9:09
Speaker 6: Right? Well, it depends on what you're talking about. If
9:11
Speaker 6: you're talking about taxes, there's going to be a big
9:13
Speaker 6: tax negotiation taking up probably most of twenty twenty five
9:16
Speaker 6: to do with extending the Trump tax cuts, seeing what
9:18
Speaker 6: happens with the IRA et cetera. You're likely to see
9:21
Speaker 6: closure on that by the end of the year. But
9:22
Speaker 6: after that will come regulatory changes and so forth. In general,
9:25
Speaker 6: regulatory changes, including those for existing tax credits, take usually
9:30
Speaker 6: about two or three years, give or take, and so
9:34
Speaker 6: a lot of the stuff can't really happen on day one.
9:36
Speaker 6: You can't really shift to sip on a dime. However,
9:40
Speaker 6: in terms of carrif, those are things that can be
9:43
Speaker 6: done more or less immediately, though politically that might not
9:47
Speaker 6: fly too well. And programs that are sort of voluntary
9:51
Speaker 6: like again federal procurement of clean products, Those could be
9:54
Speaker 6: killed more or less day one by an executive order.
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Speaker 3: What about wind and solar? So to some extent a
9:59
Speaker 3: lot has our been thrown into that, and it's hard
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Speaker 3: to see onshore wind and solar, it's hard for me
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Speaker 3: to reconcile that being really stripped away. But the offshore
10:08
Speaker 3: wind space that has question marks for me.
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Speaker 6: Yeah, it does have quite a few. If you look
10:14
Speaker 6: at BNFS modeling for what might happen if the IRA
10:18
Speaker 6: were repealed at the earliest opportunity, which again we don't
10:20
Speaker 6: think will happen, but even if it did, you would
10:22
Speaker 6: see about a seventeen percent drop overall in the combination
10:25
Speaker 6: of wind, solar, and storage installations. Wind itself, though, would
10:28
Speaker 6: see a much bigger drop because it's very expensive and
10:31
Speaker 6: tax pres dependent. You might see about like thirty percent
10:33
Speaker 6: drop in on store wind and an over forty percent
10:36
Speaker 6: drop in offshore wind, and that's only based on the
10:38
Speaker 6: financial subsidies.
10:39
Speaker 7: Right.
10:40
Speaker 6: Trump has a lot more control over offshore leasing as
10:44
Speaker 6: well as federal permits. There's a pipeline of products that
10:47
Speaker 6: already have both offer leases and permits, but a lot
10:49
Speaker 6: of proposed ones don't have that yet, and there's also
10:52
Speaker 6: questions about how the Unity would approach litigate and against
10:54
Speaker 6: existing off for wind permits. You might see some of
10:58
Speaker 6: that fall by the wayside depending on how lawsuits go.
11:01
Speaker 2: Derek just broadly defined how committed is Congress as a
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Speaker 2: legislative body to this whole energy transition. Do they feel
11:10
Speaker 2: like it's real or how did they feel about it?
11:13
Speaker 3: Are facilities being built in their states? Yeah, so that
11:16
Speaker 3: might act they answer.
11:18
Speaker 6: To exactly from what we attract in clean tech factory deployments,
11:22
Speaker 6: I think about ninety percent is going to red or purple.
11:25
Speaker 6: It has swing states, so there's a lot of electoral consequences,
11:28
Speaker 6: especially if you zoom down at the district level, where
11:31
Speaker 6: overwhelmingly it's Republican districts with the planned better labor costs,
11:36
Speaker 6: rich resource these are the place they're seeing the most investment.
11:38
Speaker 6: And so I think the commitment primarily is to economic development,
11:42
Speaker 6: local opportunity, as well as to some degree on storing
11:46
Speaker 6: and supply chained diversificatement and de risking, and that I
11:50
Speaker 6: think is fairly durable in a bipartisan manner.
11:53
Speaker 2: Our Thanks to Derek flakel BN ef lead US Policy ammost.
11:57
Speaker 3: Coming up, we're going to break down how Wall Street
11:59
Speaker 3: banks are planning money into artificial intelligence as the next
12:02
Speaker 3: big thing.
12:03
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: depth research and data on two thousand companies and one
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Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
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12:12
Speaker 3: I'm Paul Sweeney and I'm Alex Deel, and this is Bloomberg.
12:20
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12:35
Speaker 3: We move next to news on the information technology company
12:38
Speaker 3: super micro Computer.
12:40
Speaker 2: This week, super micro computer shares rose the most since February,
12:44
Speaker 2: and this came after the company hired a new auditor,
12:46
Speaker 2: BDO USA.
12:48
Speaker 3: Super Micro also filed a plan to come into compliance
12:50
Speaker 3: with Nasdaq listing requirements. If the plan is accepted, super
12:53
Speaker 3: Micro's deadline for filing its financial disclosure reports will likely
12:57
Speaker 3: be extended to February.
12:58
Speaker 2: This would allow the company to stay listed on the
13:00
Speaker 2: NASTAC until a final decision is made. For more. We're
13:03
Speaker 2: joined by Woujin Hell Bloomberg Intelligence Senior Technology channelst We
13:06
Speaker 2: first asked.
13:07
Speaker 3: Wujin for his take on this week's news.
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Speaker 8: The fact that they actually got an auditor, given what
13:13
Speaker 8: they've gone through over the last two to three months,
13:16
Speaker 8: is actually positive news for them.
13:18
Speaker 2: Which when I kind of just look at this story again,
13:20
Speaker 2: they've had some real concerns with their auditors and some
13:23
Speaker 2: of the auditors concerns about the risk controls. I guess
13:26
Speaker 2: at the company, can you give us your opinion of
13:29
Speaker 2: management of this company and the board of this company.
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Speaker 8: Yeah. You know, one of the reasons why I and
13:36
Speaker 8: why resigned as an auditor as part of the AK
13:40
Speaker 8: filing was that there were some integrity issues that they
13:45
Speaker 8: found as part of trying to get some financial documents.
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Speaker 8: You know, Paul, I haven't seen the word integrity issues
13:53
Speaker 8: in an AK filing or an auditor resignation since back
13:57
Speaker 8: in the end run days. I'm not saying that this
14:00
Speaker 8: is an Enron, but this is something that you don't
14:03
Speaker 8: typically find in filing. So you know, I have called
14:07
Speaker 8: for you may need an overhaul of the board or
14:10
Speaker 8: greater independence and possibly change of the CFO, because this
14:13
Speaker 8: is not the first rodeo of having delayed filings.
14:17
Speaker 3: Do you feel like the stock move is justified?
14:21
Speaker 8: Yeah, So if we think about the recent moves, there's
14:25
Speaker 8: actually been more headline risk that's been driving the stock
14:30
Speaker 8: than the fundamentals. I think much of this is more
14:33
Speaker 8: of a relief rally that they're not going to get delisted. Now,
14:37
Speaker 8: delisting would have meant a couple of things. First of all,
14:41
Speaker 8: for they get delisted and it is going to start
14:43
Speaker 8: some force selling, but it also potentially well it would
14:47
Speaker 8: have forced the removal of the S and P five hundred,
14:50
Speaker 8: which would have been another round of forced selling when
14:52
Speaker 8: the rebalancing comes in December the fifth. So that eliminates
14:57
Speaker 8: that risk for super micro risk. Some relief there, but
15:01
Speaker 8: they're still not out of the woods.
15:03
Speaker 2: Where does this company fit into kind of your part
15:06
Speaker 2: of the tech stack, Wouge in terms of being a
15:08
Speaker 2: supplier of you know, hardware and components and things like that,
15:11
Speaker 2: Because I mean it's got twenty five billion of I
15:14
Speaker 2: guess revenue. I'm just looking at the FA function forecasted
15:16
Speaker 2: for June twenty five. I mean, it's a big company.
15:19
Speaker 8: Yeah, look, it's all about AI AI AI. The question
15:24
Speaker 8: I have is how reliable are those estimates? Keep in
15:27
Speaker 8: mind there's been several coverage suspensions and I don't know
15:30
Speaker 8: how up to date those estimates are.
15:32
Speaker 3: Who are the customers for zuper Micro?
15:36
Speaker 8: Yeah, so we do know that there's one large cloud customer,
15:40
Speaker 8: which we suspect is Meta, but it's tier two cloud
15:43
Speaker 8: customers company that may be filing for an IPO called
15:47
Speaker 8: core Weave, and also Tesla's XAI. They bought probably about
15:53
Speaker 8: a one point five billion dollars in equipment from super
15:56
Speaker 8: Micro this past year, and.
15:58
Speaker 2: Which to your point about the analyst coverage, right, just
16:01
Speaker 2: pulled up the A and R function for analysts recommendations.
16:04
Speaker 2: Most or a lot of the annals have suspended coverage
16:09
Speaker 2: or not rated. Is kind of what we see. So
16:12
Speaker 2: we of the ones that do have a rating on
16:13
Speaker 2: their three buys, seven holds, and two sells. So it
16:17
Speaker 2: sounds like this company has a lot of ground a
16:19
Speaker 2: head of it to rebuild confidence from the analyst community,
16:22
Speaker 2: probably their customers, and from investors. Is that kind of
16:25
Speaker 2: your thought?
16:25
Speaker 7: Yeah?
16:26
Speaker 8: Yeah, I mean, look, I think some of the headline
16:30
Speaker 8: risk has been eliminated for now, or at least extended.
16:34
Speaker 8: You know, they only received an extension from the Nasdaq.
16:38
Speaker 8: The next milestone, quite frankly, is probably February twenty fifth,
16:41
Speaker 8: when if they don't follow their filings on time by
16:45
Speaker 8: that time, the delisting questions going to start arising again.
16:49
Speaker 8: They essentially kick the can down the road.
16:52
Speaker 3: This might be a super silly question. At one point
16:54
Speaker 3: I probably knew the answer to this, But where does
16:55
Speaker 3: super micro sit in the AI play stack?
17:00
Speaker 8: Yeah, so they're actually in the server space. It's the
17:04
Speaker 8: hardware equipment that helps run the models. Among the US vendors,
17:09
Speaker 8: they actually had the largest amount of AI service sales,
17:13
Speaker 8: larger than Dell and larger than HPE.
17:15
Speaker 3: So they're very much like needed in this market. Like
17:19
Speaker 3: it's going to be hard to replace them either way, right,
17:21
Speaker 3: Like they're needed essential.
17:23
Speaker 8: Well, that's a good comment and good question. Competition has grown.
17:30
Speaker 8: Dell is actually strengthening their AI chops quite a bit.
17:34
Speaker 8: But I came back from a couple of conferences recently
17:36
Speaker 8: and we're starting to see other companies with similar capabilities
17:40
Speaker 8: that we'll be making it much more competitive. And one
17:43
Speaker 8: of the evidence there so far is the lower gross
17:46
Speaker 8: margin they peaked their gross margin at around seventeen percent
17:49
Speaker 8: a couple of years back when they were the sole player,
17:52
Speaker 8: and now that you have more players coming in, their
17:55
Speaker 8: gross margin the last couple of quarters went from went
17:59
Speaker 8: to about three team percent in eleven percent all.
18:01
Speaker 3: Right, thanks to Bujin Hoo, Bloomberg Intelligence Senior Technology Analyst.
18:05
Speaker 2: This week we focused on a Bloomberg Big Take story
18:08
Speaker 2: entitled Wall Street Banker Spot a fat payday in one
18:11
Speaker 2: trillion dollar AI hysteria.
18:13
Speaker 3: You can find it on Bloomberg dot com and the Terminal,
18:15
Speaker 3: and the story looks at how Wall Street banks are
18:17
Speaker 3: plowing capital into artificial intelligence as the next big thing
18:21
Speaker 3: from work.
18:21
Speaker 2: We're joined by one of the stories authors, Neil Callanan,
18:24
Speaker 2: Bloomberg Senior Editor.
18:25
Speaker 3: We first asked Neil to talk to us about how
18:27
Speaker 3: much money Wall Street banks are actually steering towards AI.
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Speaker 7: We're talking about a trillion in credit and two trillion
18:33
Speaker 7: and overall expenditure on data centers and AI and everything
18:38
Speaker 7: related to that. And basically what we have at the
18:41
Speaker 7: moment is the banks and private credit providers saying the
18:46
Speaker 7: flow of capital that's needed to fund these things means
18:49
Speaker 7: that we don't even have to compete with each other
18:51
Speaker 7: because everybody is going to get a slice of the
18:55
Speaker 7: pie regardless of what happens. But having said all that,
18:58
Speaker 7: actually it's probably the that's part of financing right now,
19:01
Speaker 7: and margins are quite tight compared with other types of lending,
19:05
Speaker 7: so you know, less than two percentage points if you've
19:07
Speaker 7: got one of these hyperscalers like Amazon or Meta or
19:12
Speaker 7: Alphabet is one of your tenants in one of these
19:14
Speaker 7: data centers, and each one is massive, so you know,
19:17
Speaker 7: these things are going to cost about twelve billion dollars
19:20
Speaker 7: each to construct. They're about the size of a skyscraper
19:23
Speaker 7: if you put it down sideways, and they're just filled
19:26
Speaker 7: them with rocks of computing powered and tended to drive
19:29
Speaker 7: AI forward.
19:30
Speaker 2: Neil, talk to us about this Morgan Stanley dinner you
19:32
Speaker 2: wrote about in the piece.
19:35
Speaker 7: Yeah, it's a dinner between the bank and a number
19:38
Speaker 7: of private credit firms. You know, usually these these companies
19:42
Speaker 7: are competing quite heavily with each other. Among the invitees
19:46
Speaker 7: are Ares and Blackstone and Apollo, for example. But at
19:51
Speaker 7: that dinner day kind of mood was like, we don't
19:53
Speaker 7: need to compete in the same way in this in
19:55
Speaker 7: this area because there's just a demound for so much
19:58
Speaker 7: capital at the moment and so much credit that we
20:01
Speaker 7: can all make out quite well out of this. And
20:05
Speaker 7: you know, it's kind of a new goal rush as
20:06
Speaker 7: it were.
20:07
Speaker 3: Up Did that message land like, are they all on
20:09
Speaker 3: the same page about that?
20:12
Speaker 7: I think the fact we got a hold of the
20:13
Speaker 7: details suggests perhaps not. And again, the competition seems to
20:17
Speaker 7: be there in terms of the pricing of the loans
20:21
Speaker 7: for the construction of data centers, which are very competitively
20:24
Speaker 7: priced at the moment.
20:25
Speaker 2: And is this equity financing, debt financing both all of
20:29
Speaker 2: the above public private? What kind of capital is being raised?
20:33
Speaker 7: It's pretty much everything. So you know a lot of
20:36
Speaker 7: people I wouldn't get involved in data centers until such
20:39
Speaker 7: time as they're built, so particularly for the pre construction
20:42
Speaker 7: works where you're adding the power and stuff, and that's
20:46
Speaker 7: very much equity driven at the moment. And then the
20:49
Speaker 7: debt comes in for construction of these data centers, but
20:52
Speaker 7: also for the power and the utilities that are needed
20:56
Speaker 7: to service them as well, and that's coming from a
20:58
Speaker 7: mix of public and private sources.
21:00
Speaker 3: So this is enttally un for a question, who do
21:02
Speaker 3: you think is going to win. Like, if they're not
21:04
Speaker 3: all happy, go likely, let's work together and there's enough
21:06
Speaker 3: pie for everybody who's in the lead in this right.
21:08
Speaker 7: Now, I think there will be enough pie for everyone.
21:12
Speaker 7: Maybe I'm being naive Alex by saying that, but I
21:14
Speaker 7: actually think this is going to be a big driver
21:17
Speaker 7: of credit markets in particular coming forward. These bankers have
21:21
Speaker 7: suffered from you know, private equities difficulties, meaning there's been
21:24
Speaker 7: less leverage loans around. That's got to change because these
21:28
Speaker 7: these of the checks that need to be written for
21:30
Speaker 7: these will also drive a bigger resuscitation in the securitization markets.
21:36
Speaker 7: They're they've been quite good in the US, but they've
21:37
Speaker 7: been murbed and in Europe. So you know, overall, this
21:41
Speaker 7: should be a very very positive thing for both banks
21:43
Speaker 7: and private credit.
21:45
Speaker 3: Will there be some idea as long as it works.
21:47
Speaker 7: That should be the qualifier. As long as it works.
21:48
Speaker 7: There is a chance of these things are not going
21:52
Speaker 7: to work, and banks are kind of trying to protect
21:54
Speaker 7: themselves by they're giving lower leverage for data centers that
21:58
Speaker 7: are AI focused on a charge more for them as well.
22:01
Speaker 7: So that's their attempt to protect themselves if AI doesn't
22:04
Speaker 7: come true in the way people hope, Well, that's kind.
22:06
Speaker 2: Of our what I wanted to go neil, because for
22:09
Speaker 2: some folks saying, are we really going to get the
22:11
Speaker 2: return on investment? We being these companies that are making
22:14
Speaker 2: these big capital expenditures, and as equity investors, are we
22:17
Speaker 2: going to get their returns from all this spending? So
22:20
Speaker 2: there's a note caution that's been kind of coming into
22:23
Speaker 2: the AI story a little bit. Are the banks thinking
22:26
Speaker 2: about that as well.
22:27
Speaker 7: Yeah, one hundred percent. It's something that's definitely on their minds,
22:31
Speaker 7: and one of the ways they protect themselves is those
22:34
Speaker 7: kind of higher returns that they're demanding from ai A
22:38
Speaker 7: focused data centers, because the risk is if these things
22:41
Speaker 7: don't work out, you're left with an obsolete auset, So
22:43
Speaker 7: you definitely need some downside protection there. There's also been
22:48
Speaker 7: cases of some of these data centers that have been
22:50
Speaker 7: built and can't get connections, So there there's already talked
22:53
Speaker 7: of what people are calling zombie data centers, and one
22:56
Speaker 7: of the ways investors can protect themselves against those risks
22:59
Speaker 7: to actually do the plumbing instead. And we have some
23:02
Speaker 7: stuff about people advising that the utilities and the power
23:08
Speaker 7: providers may be a better way of playing this game
23:11
Speaker 7: rather than investing directly in the data centers themselves.
23:14
Speaker 3: Yeah, that's what I was going to bring up too.
23:15
Speaker 3: It's not just building the data center, but especially when
23:18
Speaker 3: you have say, you know, the report from the information
23:21
Speaker 3: on video saying that it's just really hot and it's
23:23
Speaker 3: too hot, and that's why sort of we may see
23:26
Speaker 3: some delays in chips AKA you need air conditioning, you
23:29
Speaker 3: need power, et cetera. Is there one company that's making
23:33
Speaker 3: a bigger bed on one area of AI versus the other.
23:38
Speaker 7: I don't think so at this stage, but the difficulty,
23:42
Speaker 7: I mean, you could probably cite some of the power
23:45
Speaker 7: companies in Virginia because Virginia is the kind of capital
23:48
Speaker 7: of data centers globally. You know, the scale of power
23:54
Speaker 7: that's needed for these things is the equivalent in just
23:58
Speaker 7: in the US is the equivalent of Tree New York cities.
24:01
Speaker 7: So that is just huge amount of power. So utilities,
24:06
Speaker 7: particularly around Richmond, which is, as I say, they're kind
24:09
Speaker 7: of capital of these things, they're probably the ones who
24:11
Speaker 7: are taking the biggest risk. But one way that people
24:15
Speaker 7: are looking to mitigate that is they're talking about building
24:17
Speaker 7: small nuclear reactors next to these power centers. They sorry
24:22
Speaker 7: next to these data centers to provide a power for them,
24:26
Speaker 7: because basically, what we don't want to happen is for
24:29
Speaker 7: consumers set up paying higher energy prices in order for
24:31
Speaker 7: people to be able to play on Instagram more than
24:34
Speaker 7: they normally would before.
24:36
Speaker 2: Our thanks to Neil Callanan, Bloomberg Senior Editor.
24:39
Speaker 3: Coming up on the program will take a look at
24:40
Speaker 3: why Ford Motor is cutting more jobs in Europe.
24:43
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
24:46
Speaker 2: depth research and data on two thousand companies in one
24:48
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
24:51
Speaker 2: bio on the terminal Paul Sweeney.
24:53
Speaker 3: And am Malex deal and this is Bloomberg.
25:00
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25:04
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25:07
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25:10
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Speaker 1: Just Say Alexa, playing Bloomberg eleven thirty.
25:18
Speaker 3: We moved next to the Home improvement Space and Lows.
25:20
Speaker 2: This week, the company reported at declining comparable sales for
25:23
Speaker 2: the third quarter. This was due to a weak housing
25:26
Speaker 2: market and high interest rates, which a weight on home
25:28
Speaker 2: improvement spending.
25:29
Speaker 3: For more, we are joined by Drew Reading Bloomberg Intelligence,
25:32
Speaker 3: US home building analyst.
25:33
Speaker 2: We first asked Drew to break down this week's results
25:35
Speaker 2: from Lows.
25:36
Speaker 9: Yeah, not too dissimilar from what we heard from Home
25:39
Speaker 9: Depot was a beaten raise on same store sales. That
25:42
Speaker 9: being said, there were some non core items as you mentioned.
25:45
Speaker 9: You know, we know, we had a prolonged period of warm,
25:49
Speaker 9: dry weather across the US, which provided a lift to
25:52
Speaker 9: some of their seasonal and outdoor categories. At the same time,
25:55
Speaker 9: there were beneficiaries of some of the hurricane activity we
25:59
Speaker 9: saw in the South out one hundred basis point impact
26:02
Speaker 9: to same store sales. Home Deepo called out fifty basis points,
26:06
Speaker 9: So some transitory items in there. But I think when
26:09
Speaker 9: you look at the core business, while it certainly appears
26:13
Speaker 9: that maybe things have stabilized, I think if you were
26:15
Speaker 9: looking for that inflection point, I don't think you got
26:18
Speaker 9: it yet. We continue to see consumers pressured by the
26:21
Speaker 9: cumulative impact of inflation, economic uncertainty, and you know, housing
26:25
Speaker 9: activity which is at the lowest level in over a decade, So.
26:29
Speaker 3: Drew, do you expect then for twenty twenty five consentsus
26:32
Speaker 3: to start coming down to reflect that or just pushed out?
26:36
Speaker 9: Well, I think the recovery in housing has certainly been
26:39
Speaker 9: pushed out, you know. I think expectations for home improvement
26:42
Speaker 9: as a whole are somewhat depressed. But what you have
26:45
Speaker 9: to keep in mind is, although housing activity is very low,
26:49
Speaker 9: home people and Lows will start to lap those comparisons,
26:52
Speaker 9: so strictly from an optics perspective, things will become a
26:55
Speaker 9: little bit easier. So we do think you could start
26:57
Speaker 9: to see a little bit of growth maybe in the
27:00
Speaker 9: back half of next year off of a lower base.
27:03
Speaker 3: Operationally, how is Low's doing, say, compared.
27:06
Speaker 9: To Home Depot, They do have some company specific things
27:10
Speaker 9: going on, and the two that I'd call out and
27:13
Speaker 9: that they point to are what they're doing in their
27:15
Speaker 9: pro business and what they're doing online. When you compare
27:19
Speaker 9: Home Depot and Lows, that's really the big differentiators. Home
27:22
Speaker 9: Depot has a lot more exposure to the professional contractor
27:25
Speaker 9: fifty percent of sales. Lows only has about twenty five
27:28
Speaker 9: percent exposure to that business. But it's over the last
27:30
Speaker 9: summer years, since Marvin Ellison came in and took over,
27:33
Speaker 9: it's really been a point of emphasis for the company.
27:35
Speaker 9: They didn't really have a strategy before. They didn't have
27:38
Speaker 9: proper inventory staffing the brands that pros need it. So
27:42
Speaker 9: they've made significant investments in that part of the business,
27:45
Speaker 9: not only in getting the product into the store and
27:47
Speaker 9: how they're serving their customers, but through supply chain investments
27:51
Speaker 9: and how they're actually getting that product to their contractors,
27:55
Speaker 9: whether it's on the job site, you know, through online
27:57
Speaker 9: delivery or in store pick up, things of that nature.
28:00
Speaker 9: At the same time, we're seeing improvement in their online business. Again,
28:04
Speaker 9: they were operating an antiquated platform which really didn't allow
28:07
Speaker 9: consumers to go in and find the products they need.
28:10
Speaker 9: So they've made significant investments there and we actually saw
28:12
Speaker 9: mid single digit growth in that business. So when you
28:15
Speaker 9: look longer term, certainly you need the macro to turn
28:17
Speaker 9: in order for these businesses to return to growth. But
28:21
Speaker 9: I think once once that happens, they've made the investments
28:25
Speaker 9: in the appropriate place to capitalize on that turnaround.
28:28
Speaker 10: All right.
28:28
Speaker 3: Thanks to Drew Reading Bloomberg Intelligence, US home building analyst We.
28:31
Speaker 2: Moved next to earnings from the department store TJX.
28:34
Speaker 3: The off price retailer reported overall comp sales that beat
28:37
Speaker 3: analyst expectations.
28:38
Speaker 2: TJX also raised its earnings outlook for the full year,
28:41
Speaker 2: but lower than expected sales at the company's TJ Max
28:44
Speaker 2: and Marshall stores dampen investor enthusiasm for more.
28:47
Speaker 3: We were joined by Mary Ross Gilbert Bloomberg Intelligence, senior
28:50
Speaker 3: equity analysts. We first asked Mary for her take on
28:53
Speaker 3: the numbers.
28:54
Speaker 11: The way we look at it is that TGX for
28:57
Speaker 11: the quarter, their comp sales came in at three percent,
29:01
Speaker 11: and that was sort of considered. You know, it's at
29:03
Speaker 11: the high end of their estimate. It was below analyst estimates,
29:07
Speaker 11: particularly on the marmac side, and you said that you're
29:10
Speaker 11: a tjmac shopper. They had strength and home goods and
29:14
Speaker 11: also international up seven percent. But I think if you
29:17
Speaker 11: look at the outlook, they basically raised the profit outlook,
29:21
Speaker 11: but it was below analyst estimates. So in looking for
29:25
Speaker 11: EPs of as high as a four dollars and fifteen
29:28
Speaker 11: cents for the full year, the estimate out there is
29:31
Speaker 11: four nineteen and then for the quarter it's one nineteen
29:35
Speaker 11: versus about one fifteen for the company's guidance. But what
29:40
Speaker 11: we also think with TJX is they like to put
29:42
Speaker 11: out conservative figures. We wouldn't be surprised if they come
29:46
Speaker 11: in at four twenty for the year, and already the
29:48
Speaker 11: fourth quarter is starting out strong for the company.
29:51
Speaker 2: So, Mary, who is a TJX shopper? And what's the
29:56
Speaker 2: company saying about that shopper?
29:58
Speaker 3: Everyone? Everyone is a tj shopper.
30:00
Speaker 11: Mary, That's exactly right. It actually appeals across income bands.
30:06
Speaker 11: But we did notice that when you look at shoppers
30:10
Speaker 11: earning with a household income over one hundred thousand, it's
30:15
Speaker 11: well distributed across that even above two hundred and fifty thousand.
30:18
Speaker 11: And the reason for that is if you look at
30:20
Speaker 11: their assortment, you can actually buy handbags such as Chloe
30:25
Speaker 11: Burberry Valentino and also Botega Vanetta, so here you can
30:31
Speaker 11: get the cream of the crop. But it also appeals
30:34
Speaker 11: to lower income consumers where they have more accessible brands
30:38
Speaker 11: like a Juicy Juicy couture and you can get Nike
30:42
Speaker 11: in tennis shoes. So it's a wonderful place to treasure
30:48
Speaker 11: hunt across income bands. And so they do have that
30:51
Speaker 11: strong appeal.
30:52
Speaker 3: So this is what you've never been in Tjmax, right, Paul, No, right, Okay,
30:55
Speaker 3: So here's how it goes. In most of the stores,
30:58
Speaker 3: they have this runway section. One way section is all
31:00
Speaker 3: the designer stuff that comes from whatever agreements that they
31:04
Speaker 3: have with different other designers or big stores like a SAX.
31:07
Speaker 3: They don't have a SAX, but you get my Drift
31:09
Speaker 3: and then they have that on sale. Then they had
31:10
Speaker 3: the clearance there and you can get some seriously good deals,
31:13
Speaker 3: and then you have other stuff and you got some
31:14
Speaker 3: food you can get you get housewares and that's also
31:17
Speaker 3: not related to the home goods part, which is a
31:19
Speaker 3: whole different store.
31:22
Speaker 1: Store.
31:22
Speaker 3: Yeah, and then you get toys, and then you get
31:24
Speaker 3: kids clothes, and then you get towels and you get sheets,
31:27
Speaker 3: and it's like and in all the stores you get
31:29
Speaker 3: kind of the similar footprint. Did I do justice there? Mary?
31:33
Speaker 11: You did?
31:34
Speaker 6: Absolutely?
31:35
Speaker 11: But they also have beauty, and beauty has been a
31:38
Speaker 11: big draw. So for example, you could get Clinique or
31:41
Speaker 11: even Laura Mercia, so it has incredible options again across
31:47
Speaker 11: the income band, even in beauty. So beauty and fragrance
31:50
Speaker 11: has also been one of the stronger categories for them.
31:52
Speaker 3: So is there a read through to other stores Mary
31:55
Speaker 3: from this or is this a unique TJX thing.
31:59
Speaker 11: You know, if you get the numbers that came out
32:01
Speaker 11: from Target, it was very disappointing, especially when you had
32:05
Speaker 11: such robust figures coming out of Walmart, and Walmart indicated
32:09
Speaker 11: that a big percentage out performance was due to that
32:13
Speaker 11: consumer from a household earning over one hundred thousand, So
32:17
Speaker 11: you can see that that consumer is looking for value everywhere,
32:21
Speaker 11: and with Walmart, they're getting those better prices on essentials,
32:25
Speaker 11: and while they're there, they're also shopping apparel because that's
32:28
Speaker 11: where Target saw some weakness. So some challenges going on
32:32
Speaker 11: with Target, which is always appealed to the premium shopper.
32:36
Speaker 11: So I think that it comes down to execution and
32:39
Speaker 11: then also the fact that we have this hire income
32:42
Speaker 11: consumer really looking for value in TJMAX and TJX as
32:47
Speaker 11: a company, I mean, they sort of fit that they're
32:50
Speaker 11: one of the companies that are picking up share.
32:55
Speaker 2: Our thanks to Mary Ross Gilbert Bloomberg Intelligence Senior Equadanalysts.
32:58
Speaker 3: We move now to the auto industry and Ford. This
33:00
Speaker 3: week we heard that Ford Motor will look to eliminate
33:02
Speaker 3: another four thousand jobs in Europe.
33:05
Speaker 2: The reductions, which to mount about fourteen percent of Ford's
33:07
Speaker 2: europe workforce, will primarily hit operations in Germany and the
33:11
Speaker 2: UK by the end of twenty twenty seven.
33:12
Speaker 3: Now, this comes as the region's transition to electric vehicles
33:15
Speaker 3: is losing traction industry wide and from More. We were
33:18
Speaker 3: joined by Craig Trudell, Bloomberg Global Autos Editor.
33:21
Speaker 2: We first asked Craig, what's behind the recent layoffs at Ford.
33:24
Speaker 10: Yeah, I mean this is a story that's both sort
33:27
Speaker 10: of one that's bigger than just Ford and yet very
33:30
Speaker 10: acute for them. You know, Europe, we've seen just the
33:33
Speaker 10: last few months sort of one automaker after another do
33:37
Speaker 10: profit warnings. Whether you're talking about Volkswagen or Stilantis or
33:41
Speaker 10: BMW Mercedes. It's really been sort of across the board
33:44
Speaker 10: that a lot of manufacturers are having trouble with the
33:48
Speaker 10: increase in competition at a time when we're not seeing
33:52
Speaker 10: demand growth, and so you know, that leads to some
33:57
Speaker 10: real need to kind of take a look at how
33:59
Speaker 10: many people you're employing, how many plants you've got running,
34:03
Speaker 10: and whether you need to take shifts out or even
34:05
Speaker 10: go so far as to potentially take plants down. And
34:08
Speaker 10: so you know, we've seen Volkswagen, you know, for the
34:11
Speaker 10: first time minute's history actually looking at at closing plants
34:14
Speaker 10: in in in Germany. Ford has been pulling back in
34:19
Speaker 10: Europe for quite some time, and they're they're doing just
34:21
Speaker 10: you know, sort of more of the same here. They
34:23
Speaker 10: were really trying to to kind of you know, get
34:26
Speaker 10: off to a fresh start and and move more aggressively
34:29
Speaker 10: to evs and some of their competitors, and that hasn't
34:32
Speaker 10: panned out particularly well.
34:33
Speaker 3: They also said that pricing power on us EV's next
34:36
Speaker 3: year is going to get hit. And then that's on
34:39
Speaker 3: and then we're counting in those rollbacks of the tax
34:41
Speaker 3: credit of cent of f one hundred dollars. Are we
34:44
Speaker 3: going to see more cuts than to the US.
34:47
Speaker 10: I think for Ford, you know, the amount of investment
34:52
Speaker 10: in electric vehicles has been curtailed pretty significantly, so we
34:56
Speaker 10: may not see a ton of pressure for them, although
35:00
Speaker 10: you know we have we have actually you know, seen
35:02
Speaker 10: them you know, already pulling back even some of the
35:04
Speaker 10: existing production of of the F one fifty Lightning and
35:08
Speaker 10: Mustang Machi. Their their two main electric vehicles. We have
35:12
Speaker 10: a development The Automotive News reported that the Bronco SUV
35:16
Speaker 10: actually will have a direction and in production early next year.
35:20
Speaker 10: So you know, this is this is beyond just electric vehicles.
35:23
Speaker 10: I think what we're seeing is is maybe sort of
35:24
Speaker 10: a topping out of sales and and I mean to
35:27
Speaker 10: your question in terms of the outlook for the US
35:31
Speaker 10: next year, I do think there's some some real, uh
35:34
Speaker 10: you know, questions you have to ask yourself about, you know,
35:36
Speaker 10: just how much you can count on electric vehicle demand
35:39
Speaker 10: continuing to grow in the US if Trump follows through
35:42
Speaker 10: with some of the things he was threatening on the
35:43
Speaker 10: campaign trail.
35:44
Speaker 2: Craig just thirty seconds. What's the feeling out there today
35:47
Speaker 2: consent US about demand for evs? Is it really softening?
35:52
Speaker 10: Yeah? I mean I think here in Europe, uh, you know,
35:55
Speaker 10: we were further along in making this transition, and yet
35:58
Speaker 10: that was a large part due to significant and sustained
36:03
Speaker 10: support from governments. And what we've seen is that if
36:05
Speaker 10: that support gets pulled, you see a sort of immediate
36:09
Speaker 10: falling out in terms of demand. And we've seen that
36:11
Speaker 10: in Germany in particular, and that's been very, very troubling
36:13
Speaker 10: all right.
36:14
Speaker 3: Thanks to Craig Drudell, Bloomberg Global Autos Editor.
36:17
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