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Oracle Falls Most in Six Months on Mounting Data Center Costs · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
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  Speaker 2: I thought the story for tech companies, if you spend capex,
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  Speaker 2: that's a good thing.
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  Speaker 3: Once upon a time it was.
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  Speaker 4: Yeah, I don't know, but I guess things have changed
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  Speaker 4: a little bit.
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  Speaker 2: Oracle.
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  Speaker 3: Oracle Corp.
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  Speaker 2: Shares declined in pre market trading after the company reported
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  Speaker 2: quarterly capital expenses that were higher than estimates.
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  Speaker 4: And it's boom. It's trading down down ten point nine
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  Speaker 4: percent here today. I mean, this is a big company.
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  Speaker 2: It's got a half a trillion dollar market cap, so
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  Speaker 2: I mean we're talking some real money here. Anorak Rana,
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  Speaker 2: he can explain this to us. He's a technology channels
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  Speaker 2: for Bloomberg Intelligence, Honor. What's going on with Oracle today?
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  Speaker 2: What did the market not like?
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  Speaker 5: I think one of the things you have to think
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  Speaker 5: about it is there is an unlimited capital in the world. Frankly,
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  Speaker 5: I know everybody is funding data centers, but one of
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  Speaker 5: the things Oracle is also doing is when it's going
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  Speaker 5: to raise capital next year or even this year, it's
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  Speaker 5: going to do some equity offering and it's going to
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  Speaker 5: do some debt offering. So it looks like next year
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  Speaker 5: there's going to be more equity dialution by raising by
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  Speaker 5: them raising at least twenty billion dollars, it's going to
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  Speaker 5: be most likely more than that. And I think that
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  Speaker 5: is something that everybody needs to grapple with because we
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  Speaker 5: understand there is in finite demand, but we don't know
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  Speaker 5: if there's infinite demand for capital. Also, at this point, it.
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  Speaker 2: Kind of goes to what I was thinking when we
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  Speaker 2: hired Rob Schiffman years ago, who's one of the top
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  Speaker 2: tech credit analysts.
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  Speaker 4: I'm like, what are we hiring a tech credit analysts?
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  Speaker 4: They don't issue any debt? Was IRA in the market concreation?
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  Speaker 6: Yeah, And now in many ways even credit investors are
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  Speaker 6: overexposed to tech debt. So when it comes to Oracle
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  Speaker 6: needing more capital, how are these I don't know how
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  Speaker 6: are How is the fundamental performance going to affect how
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  Speaker 6: it and when it seeks that capital, whether it's equity,
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  Speaker 6: whether it's dead.
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  Speaker 5: So they have raised debt this year, they're saying they're
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  Speaker 5: not going to do any more debt rays in twenty
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  Speaker 5: twenty six it's going to be most likely and next
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  Speaker 5: year affair. But you know, remember one thing in this case,
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  Speaker 5: they have said that they will maintain good credit quality
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  Speaker 5: out there, so they have to be very cautious about that.
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  Speaker 5: So Oracle is a name it has backing off, you
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  Speaker 5: know obviously not not just Larry Allison, but also a
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  Speaker 5: very strong, fundamentally cash rich software business, and I think
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  Speaker 5: that helps out. But to be very frank, the numbers
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  Speaker 5: we're talking about is no longer you know, ten to
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  Speaker 5: fifteen billion in capex. We are talking about seventy billion
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  Speaker 5: in north of that. So this is a you know,
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  Speaker 5: the kapex numbers just keep on getting bigger and bigger.
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  Speaker 2: And you know, your industry technology software in particular HOURCK
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  Speaker 2: has historically been characterized by amounts of free cash flow.
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  Speaker 2: That's no longer the case here. How long is is
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  Speaker 2: that going to be the case for your world?
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  Speaker 5: So the one part is this has been bifocated into
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  Speaker 5: two different groups within software. One is that's dedicated to
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  Speaker 5: AI infrastructure, so that's Oracle Cloud Infrastructure, Cold Weave and
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  Speaker 5: Nevius and those guys. The other companies which are Salesforce
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  Speaker 5: and Adobe and those they are still pure software. Their
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  Speaker 5: caplex is not going at that same rate, but they
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  Speaker 5: have a different risk, which is getting disrupted by AI.
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  Speaker 5: On one hand, the other group is benefiting from AI
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  Speaker 5: build up. The other one is under threat. So there
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  Speaker 5: are three or four dimensions that you have to play
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  Speaker 5: with right now. It's no longer an easy case that
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  Speaker 5: just buy the software names and you know it'll just
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  Speaker 5: going to go up.
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  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 2: SpaceX ipo pricing after the close tonight, ready to trade tomorrow.
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  Speaker 2: Lots of the headlines crossing the tape. SpaceX ipo said
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  Speaker 2: to draw more than seventy billion dollars in retail orders,
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  Speaker 2: and remember SpaceX said that it was going to allocate
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  Speaker 2: at least twenty percent of its IPO to retail investors.
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  Speaker 2: And also seeing a headline, SpaceX said to allocate less
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  Speaker 2: than ten percent of IPO.
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  Speaker 4: To international orders. That's a little bit unusual here.
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  Speaker 2: So we'll get to see price tonight and get a
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  Speaker 2: trading tomorrow, and that should be will be the largest
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  Speaker 2: IPO of all time by far. George Ferguson, he's a
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  Speaker 2: senior aerospace, defense and airlines analysts.
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  Speaker 4: For Bloomberg Intelligence. He's been writing.
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  Speaker 2: Research on SpaceX on.
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  Speaker 4: The Bloomberg terminal.
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  Speaker 2: So if you want to get full research on this
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  Speaker 2: company this transaction, go to Bigo on the terminal and
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  Speaker 2: that's where you'll find it. And George's been the analyst
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  Speaker 2: on that. George, what are you hearing here as we
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  Speaker 2: approach the end of this road show? What have you
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  Speaker 2: been hearing back from clients? How they're maybe just looking
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  Speaker 2: at this company, positioning this company because there's a lot
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  Speaker 2: going on here.
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  Speaker 7: There is a lot going on, and so I think
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  Speaker 7: what we're hearing from folks is that there's still I
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  Speaker 7: think a bit of a dearth of information. You know,
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  Speaker 7: people are looking for I think decent models on the
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  Speaker 7: near term to get their arms around it. I think,
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  Speaker 7: you know, the challenge here is really this is a
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  Speaker 7: long term play on AI and XAI specifically, and I
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  Speaker 7: think you know, when you're all done, I think you
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  Speaker 7: I don't know, if you close your eyes and sign
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  Speaker 7: on the dotted line or whatever, you go on a
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  Speaker 7: trip of the elon Musk for AI and connectivity into space.
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  Speaker 2: Yeah, I'm just looking at the FA function and there's
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  Speaker 2: some analyst consensus numbers out there. So just count to
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  Speaker 2: your twenty five about nineteen billion of revenue. Count to
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  Speaker 2: your twenty six to forecast is for close to thirty
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  Speaker 2: billion calendar twenty seven, forty eight billion on calendar twenty eight,
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  Speaker 2: sixty three billions, So some serious revenue growth there.
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  Speaker 4: Howard investors kind.
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  Speaker 2: Of valuing this thing, is this a multiple of revenue
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  Speaker 2: because there's you know, not a lot of earnings yet.
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  Speaker 7: So for you know, for all the businesses at Bloomberg Intelligence,
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  Speaker 7: we undertook our analysis based on some of the parts,
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  Speaker 7: and every single one of the businesses was valued based
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  Speaker 7: on revenue. Right, So I based a launch on revenue,
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  Speaker 7: and I used rocket Lab as it's nearest peer. Multiples
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  Speaker 7: there at rocket Lab or seventy times revenue. I mean, wow,
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  Speaker 7: that's no pun intended. That's astronomical to what I'm used
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  Speaker 7: to in the in the aerospace world. John Butler did
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  Speaker 7: it on the on the connectivity piece. He's again using revenue.
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  Speaker 7: Although that's one business where they're going to make some profit.
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  Speaker 7: I think, you know, we're going to put out a
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  Speaker 7: model next week. I think John's looking at sort of
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  Speaker 7: four billion kind of profit out of that business. But
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  Speaker 7: then the AI business is the sort of the big
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  Speaker 7: sucking sound in the middle of this, and that's going
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  Speaker 7: to be I think a loss for the year, a
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  Speaker 7: big loss. I think it's something like eight billion. Man
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  Speaker 7: Deep Singh leading the charge on that side of it. Again,
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  Speaker 7: valued it on revenue. Look, we don't think it's going
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  Speaker 7: to be profitable for at least the next couple of years.
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  Speaker 7: The question is how far out you want to take
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  Speaker 7: your model. I think again, the AI business will be
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  Speaker 7: heavy in the investment phase, and so you're just not
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  Speaker 7: going to see profitability in that business. I think your
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  Speaker 7: connectivity business, you know, you will see profitability out of
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  Speaker 7: that business. But that's a little bit of a you know,
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  Speaker 7: you're it's competition with terrestrial providers. The product is valuable,
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  Speaker 7: but it's got more latency again than the terrestrial providers.
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  Speaker 7: So it's a growth business. But not a exponentially growth
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  Speaker 7: owing kind of business, and the launch business is a
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  Speaker 7: bit flatish. So I think it's really all about how
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  Speaker 7: you think about AI long term investment in data centers
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  Speaker 7: and getting into space. The launch business is really about
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  Speaker 7: lifting it into space as cheaply as possible, and that's starship.
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  Speaker 2: Now they're gonna be raising seventy five a billion dollars
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  Speaker 2: at the price in this IPO. I got a sense
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  Speaker 2: just thinking about these businesses Georgie and looking at their
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  Speaker 2: capital needs, that they're going to need more money. How
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  Speaker 2: do they expect the finance their growth going forward? Is
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  Speaker 2: this more equity?
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  Speaker 3: Is it debt?
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  Speaker 4: What do we know?
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  Speaker 5: Yeah?
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  Speaker 7: My guess is that you're going to have to see
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  Speaker 7: more equity because again you're inside businesses that aren't really
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  Speaker 7: generating well, not even aren't really aren't generating sufficient cash
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  Speaker 7: for investment. So I feel like they're going to have
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  Speaker 7: to come back to the equity markets. You could try
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  Speaker 7: to pile a bunch of debt in it, there's not
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  Speaker 7: much in there right now, not sure how you'd support it, right,
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  Speaker 7: So I think I feel like you're going to be
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  Speaker 7: back for that, right, So, I think some of these
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  Speaker 7: AI busines. This is a little bit out of my space, right, man,
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  Speaker 7: deep does it more? I think it's all about look
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  Speaker 7: at what you need now to keep your investment going
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  Speaker 7: to strut to try to stay in the lead on AI,
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  Speaker 7: and then figure out your financing as you go. Right,
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  Speaker 7: you can't look too far down the road. These are
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  Speaker 7: big numbers, I.
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  Speaker 2: Think, so before we let you go, George, I mean,
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  Speaker 2: it really comes down to Elon and AI. If you
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  Speaker 2: believe in both of them, you kind of close your
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  Speaker 2: eyes and jump in.
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  Speaker 7: I think that's exactly it, right. The valuation again, is
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  Speaker 7: much larger than what I'm used to dealing with an
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  Speaker 7: aerospace defense. It's a very large valuation. Elon's going to
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  Speaker 7: have the majority of the B shares, which are a
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  Speaker 7: ten vote compared to one vote for the A shares.
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  Speaker 5: Yep.
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  Speaker 7: I think you're going on a trip with Elon. You
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  Speaker 7: got to believe in his vision for the future. If
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  Speaker 7: you're going to step into this and you're not looking
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  Speaker 7: at evaluations intensely.
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  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 4: Nike tough times there.
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  Speaker 2: I mean, you think about Nike is the trailblazer for
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  Speaker 2: ath leisure type in this country, and of course the
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  Speaker 2: shoes and the Jordan's and all that, But the stock's
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  Speaker 2: having a problem.
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  Speaker 4: The company's having a problem.
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  Speaker 2: So let's break it down with Lily Meyer, Bloomberg retail reporter,
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  Speaker 2: talk to us about Nike yet.
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  Speaker 4: I know when new CEO came in, but he's not
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  Speaker 4: been able to work magic yet. What's going on with Nike.
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  Speaker 8: Yeah, so when the new CEO, Elliott Hill, came in,
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  Speaker 8: everyone was static, you know, the stock shot up and
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  Speaker 8: then internally people were popping bottles for Saco. They made
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  Speaker 8: a mocked up meme of the Obama Hope poster with
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  Speaker 8: Hill's face on it. But while he's been in the rule,
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  Speaker 8: the stock is down now forty five percent, and he's
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  Speaker 8: really focused on getting the company back to sport and
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  Speaker 8: that's been a big struggle.
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  Speaker 6: What is his bigger challenge getting Nike back on track
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  Speaker 6: in North America or getting Nike back on track in China, because.
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  Speaker 3: Both of these are huge.
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  Speaker 6: I mean, the US is the whole market, but China
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  Speaker 6: was where the growth was really happening.
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  Speaker 8: Yeah, so in North America things are getting better, but
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  Speaker 8: I would say greater China still remains one of the
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  Speaker 8: bigger challenges. And I think, you know, more broadly, showing
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  Speaker 8: up at big sports moments has been a challenge for Hill,
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  Speaker 8: which is what the story gets into.
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  Speaker 3: Explain what you mean by that.
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  Speaker 8: Yeah, So for example, the World Cup, you know, is
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  Speaker 8: about to kick off, and first Nike's World Cup jerseys
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  Speaker 8: had this design flaw. So if you look at them,
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  Speaker 8: the shoulder puckers up and that's for both players and
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  Speaker 8: in fan jerseys and people you know immediately saw that,
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  Speaker 8: and then the jerseys. There's also been struggles to get
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  Speaker 8: them to retailers on time as well.
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  Speaker 2: You know, how important is having the player endorsement as
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  Speaker 2: a strategy, as a marketing strategist, product launched strategy. I mean,
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  Speaker 2: they nobody did it better, They pioneered it, they perfected
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  Speaker 2: with Michael Jordan, but.
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  Speaker 4: Now we see other athletes going different places. What did
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  Speaker 4: they say about that? How important is that?
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  Speaker 1: Yeah?
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  Speaker 8: I don't know if they've spoken to that explicitly recently,
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  Speaker 8: but I think, you know, it remains one of the
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  Speaker 8: ways that Nike can get in front of shoppers. I
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  Speaker 8: think with basketball and signature shoes, I'm not sure that
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  Speaker 8: market is exactly the same as it was years ago,
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  Speaker 8: but I do think getting athlete endorsement and having people
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  Speaker 8: on the corridor on the field wearing their shoes remains
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  Speaker 8: a big deal. The London Marathon recently Adidas one with
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  Speaker 8: their shoe, their new running shoe that's five hundred dollars.
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  Speaker 8: Two of their athletes beat the sub two hour marathon
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  Speaker 8: record and so that was It's a huge moment for
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  Speaker 8: them as a brand and still kind of shows the
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  Speaker 8: way that shoes show.
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  Speaker 2: I saw Steph Curry, he's now doing he left under armours.
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  Speaker 6: Now for Chinese Leaning, yes exactly, of course, the brand
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  Speaker 6: that was formed by the Chinese gold Olympic medal gymnasts,
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  Speaker 6: who was a big, big star in the nineteen eighty
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  Speaker 6: four Olympics in La Yeah. I remember watching that with
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  Speaker 6: my parents and being a really big deal and I
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  Speaker 6: just gave away my age. Let's go back to Nike
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  Speaker 6: for a moment here, because what is Elliot Hill's strategy?
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  Speaker 6: I mean, and is he thinking outside the box because
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  Speaker 6: he's someone who, if I remember correctly, he was an
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  Speaker 6: Internet Nike and he's kind of a Nike lifer. He
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  Speaker 6: retired and he's come back. Is he capable of bringing
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  Speaker 6: in like a new idea, a new way of thinking.
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  Speaker 3: Yeah, that's a great question.
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  Speaker 8: So I think a lot of his strategy has been
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  Speaker 8: restoring Nike to what it was prior to its last CEO.
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  Speaker 8: So under John Donaho, who is the CEO before Elliott,
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  Speaker 8: Nike went really into lifestyle shoes. It went really into
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  Speaker 8: which direct to consumer channels. That's when it cut ties
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  Speaker 8: with retailers like Macy's and Amazon. And so I would
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  Speaker 8: say Elliott Hill so far has been trying to get
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  Speaker 8: Nike to what it was in the past.
• 14:12
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