Latest / Bloomberg Intelligence / Oracle to Raise Up to $50 Billion in Debt and Equity This Year

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Oracle to Raise Up to $50 Billion in Debt and Equity This Year · Bloomberg Intelligence

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  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 ten am.
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  Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts,
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• 0:24
  Speaker 2: It is earning season and Paul, you gave a stat
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  Speaker 2: earlier of Z one hundred and seventy companies have reported.
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  Speaker 3: Yes, SMP five hundred.
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  Speaker 2: The banks are all done, most of the MAGS seven
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  Speaker 2: is done, but we still have a couple of stray
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  Speaker 2: names reporting this week and then of course in videos
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  Speaker 2: not till much later. But all the spending on AI continues.
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  Speaker 2: And Oracle is the latest one. I mean, it's it's
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  Speaker 2: been in the headlines for a while now, but we're
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  Speaker 2: learning that it wants to raise up to fifty billion
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  Speaker 2: dollars in debt and equity this year. That's a tremendous
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  Speaker 2: number here for Oracle, so we needed to bring in
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  Speaker 2: Man Deep Sing. He's our global tech research head here
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  Speaker 2: at Bloomberg intelligen and Oracle raising up to fifty billion,
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  Speaker 2: A big chunk of that, up to twenty five billion
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  Speaker 2: of it will be through debt is really eye opening
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  Speaker 2: given that it's credit has not traded as well, meaning
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  Speaker 2: the spreads have widened and credit default swaps on Oracle
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  Speaker 2: have also blown out a little bit. They've come back
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  Speaker 2: in certainly, but there are a lot of questions over
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  Speaker 2: the financial health of a company like Oracle versus say
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  Speaker 2: a company like Microsoft.
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  Speaker 4: Yeah. Look, I mean Oracle had given a revenue guide
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  Speaker 4: for the next four years. So what they said was,
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  Speaker 4: we have an eighteen billion dollar cloud business that's going
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  Speaker 4: to go to one hundred and fifty billion dollar plus
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  Speaker 4: over the next four years. The problem that the street
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  Speaker 4: had was there wasn't really explanation of how they would,
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  Speaker 4: you know, raise the funding, build the infrastructure, and how
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  Speaker 4: that revenue would come about because it was all attached
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  Speaker 4: to Open AI, the three hundred billion dollar backlog, which
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  Speaker 4: is saying sixty billion dollars per year just from one company.
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  Speaker 4: So now what they're saying is, Okay, we have visibility
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  Speaker 4: to how we are going to build the initial tranch
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  Speaker 4: of that AI infrastructure and data centers we need for
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  Speaker 4: the twenty twenty seven target, which is essentially forty four
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  Speaker 4: billion dollars in revenue that they want to have by
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  Speaker 4: twenty twenty seven.
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  Speaker 5: So for that to.
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  Speaker 4: Happen, they need to invest, you know, up to fifty
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  Speaker 4: billion dollars plus. So I compare them to the capex
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  Speaker 4: that Meta and Google and Amazon will be making this year,
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  Speaker 4: which is all in excess of one hundred billion. Where
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  Speaker 4: does Oracles stack up so far? The consensus was they
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  Speaker 4: would be below fifty billion dollars in capex. Then how
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  Speaker 4: do you add forty four billion dollars in revenue when
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  Speaker 4: Microsoft is not adding forty four billion dollars in cloud
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  Speaker 4: revenue in twenty twenty seven. And that's where I think
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  Speaker 4: they are making that upfront investments you need, which all
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  Speaker 4: these companies are making. Yes, you have to do it
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  Speaker 4: through debt, and you're already over levered to your point
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  Speaker 4: that their CDs spreads were head widened, and that's where
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  Speaker 4: you know they may they're using a combination of equity
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  Speaker 4: issuance and debt to raise that money set up the
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  Speaker 4: AI data centers, which in turn will translate into forty
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  Speaker 4: four billion dollars in cloud revenue by twenty twenty seven.
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  Speaker 4: So that's where if you believe their plan is going
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  Speaker 4: to be successful, which cloud demand is the one thing
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  Speaker 4: you know with AI, whether or not they are you know,
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  Speaker 4: big applications, nobody knows, but everyone will be consuming compute
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  Speaker 4: on the cloud. That's the kind of the part of
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  Speaker 4: the business that's visible, right.
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  Speaker 3: Chech investors that you've been dealing with for years, they've
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  Speaker 3: been used to funding big cappecs, big R and D
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  Speaker 3: out of internal cash.
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  Speaker 5: Now that's changed.
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  Speaker 3: They need to go to the capital markets where that's
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  Speaker 3: the debt capital markets, equity capital markets. This is something
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  Speaker 3: new for your investors. How are they digesting it there?
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  Speaker 4: That's why you know there was a panic around Oracle
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  Speaker 4: and you saw that for twenty percent draw down because
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  Speaker 4: you're right in the case of Microsoft Meta, you know Google,
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  Speaker 4: they generate up two hundred billion dollars in free cash
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  Speaker 4: flow in a year. So with an Oracle it generates
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  Speaker 4: about twenty billion dollars in free cash flow. How do
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  Speaker 4: you make a fifty billion dollar plus capex investment? And
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  Speaker 4: that's where you know the gap needs to be bridge.
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  Speaker 4: And I think they're just maybe thinking too big in
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  Speaker 4: terms of how they want to ramp up that cloud business.
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  Speaker 4: And you know right now they are four percent of
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  Speaker 4: the overall cloud market share pile based on the numbers
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  Speaker 4: that they have given in terms of the guidance, they
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  Speaker 4: would be fifteen to twenty percent of overall cloud market,
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  Speaker 4: which is growing, by the way thirty forty percent plus
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  Speaker 4: and expanding at that growth rate. So that's where I
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  Speaker 4: think there was some skepticism around what is it that
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  Speaker 4: Oracle can accomplish given they don't have the free cash
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  Speaker 4: flow to fund this build out. And it will be
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  Speaker 4: interesting to see how the bond trades and they you know,
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  Speaker 4: issue this and there are a lot of unknown still
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  Speaker 4: when it comes to the Oracle story.
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  Speaker 2: Like I said, tremendous numbers here for Oracle. Another story
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  Speaker 2: we're following, mandeep is Elon's Musk said to be in
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  Speaker 2: advanced talks to combine SpaceX with Xai, his startup AI company.
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  Speaker 2: What does this mean for SpaceX's planned IPO later on
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  Speaker 2: this year.
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  Speaker 4: Well, so I tie it to you know, the funding
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  Speaker 4: needs for building your AI large angrid model infrastructure and
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  Speaker 4: then rolling it out to millions of users. Same thing
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  Speaker 4: with xai X When you compare XAI GROC to let's
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  Speaker 4: say Gemini or you know, open AICHGPT XAI. Even though
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  Speaker 4: they are frontier model, their user base is like twenty
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  Speaker 4: thirty million compared to open ai, which is nine hundred million.
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  Speaker 4: So one, they have a much smaller customer base when
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  Speaker 4: it comes to the traffic that they're serving. And these
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  Speaker 4: companies have to constantly invest in training their large anguid
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  Speaker 4: model because you know, the three frontier models, Open Ai
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  Speaker 4: and Thropic, Gemini are going forward in terms of you know,
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  Speaker 4: the capabilities that they're adding. So Xai doesn't have a
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  Speaker 4: choice but to keep investing. Problem is because of their
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  Speaker 4: smaller user base. No one wants to keep you know,
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  Speaker 4: funding Xai with another ten billion round or twenty billion
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  Speaker 4: when they don't have free cash flow either. So it's
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  Speaker 4: the same problem that Oracle has and they don't even
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  Speaker 4: have you know, that user base. So that's where combining
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  Speaker 4: Xai with SpaceX does make sense because SpaceX is a
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  Speaker 4: much bigger entity. At least they have EBITDA margins for
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  Speaker 4: around fifty percent, even though it's a very high fixed
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  Speaker 4: cost business, so the roiic is much lower for you know,
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  Speaker 4: some like an entity like SpaceX, but combining it makes
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  Speaker 4: it more palatable for anybody who is putting money in
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  Speaker 4: that combined entity and saying okay, at least you've got
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  Speaker 4: two entities where I am ready to put some money
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  Speaker 4: as opposed to just to XAI.
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  Speaker 2: And SpaceX also has visibility. I mean, it's got these
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  Speaker 2: projects with the governments. Yeah, it can project out.
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  Speaker 3: Which we have any sense when that IPO might happen.
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  Speaker 3: They're suggesting this year.
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  Speaker 4: They are suggested. I mean even open Ai and Entropic
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  Speaker 4: want to go public this year. So this year could
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  Speaker 4: be huge in terms of you know IPOs.
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  Speaker 3: Oh, by the way, the underwriters can't write research on
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  Speaker 3: these companies, but who can? Yes, Bloomberg Intelligence be ahead,
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  Speaker 3: and so what happens is we write the definitive research
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  Speaker 3: report on these big IPO companies and.
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  Speaker 4: Already have primers on opening Idanthropic.
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  Speaker 5: 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 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 7:52
  Speaker 1: you get your podcasts, or watch us live on YouTube.
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  Speaker 2: Let's talk about media companies because Disney just reported results
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  Speaker 2: and the company reported record revenue in the last quarter,
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  Speaker 2: which jumps six percent of record ten billion dollars, but
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  Speaker 2: it's outlook for this quarter not so great. Keetha Rongganathan
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  Speaker 2: is our US media analyst here at Bloomberg Intelligence and Keetha,
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  Speaker 2: how do you square this idea that the forecast it's
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  Speaker 2: given is kind of tappid, saying that it expects international
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  Speaker 2: tourists to perhaps not show up at its different parks
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  Speaker 2: when revenue did very well in the quarter ended. Is
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  Speaker 2: this a case of Disney lowering expectations for a new
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  Speaker 2: CEO that it plans a name pretty soon.
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  Speaker 6: Would very well be Scarlet? I mean, this is your
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  Speaker 6: classic case of you know, when good is you know,
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  Speaker 6: not good enough? I guess. But yeah, they absolutely, I
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  Speaker 6: think performed very well in the quarter that they just reported.
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  Speaker 6: They have been citing some headwinds when it comes to
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  Speaker 6: international visitation at domestic parks, but I think they are,
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  Speaker 6: as you just mentioned, setting the bar a little bit lower,
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  Speaker 6: not coming out, not raising guidance for the full year,
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  Speaker 6: even though they had a really strong fiscal first quarter. Remember,
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  Speaker 6: we do expect, I mean, we think that there will
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  Speaker 6: be a lot of international visitation this year just because
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  Speaker 6: of the World Cup, and you know, who knows, maybe
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  Speaker 6: there could be some tailwinds there for Disney too. But
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  Speaker 6: other than that, if you just look across the board,
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  Speaker 6: I mean you look at the parks overall. Yes, there
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  Speaker 6: has been some slow down in attendance here and there,
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  Speaker 6: but they are undertaking investments across the board. So even
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  Speaker 6: in this quarter alone, we're going to see this big
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  Speaker 6: opening of World of Frozen, which will almost double the
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  Speaker 6: size of Disneyland Paris. That's a huge investment. Again, yeah,
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  Speaker 6: we're going to see some preopening costs, which is why
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  Speaker 6: we're seeing that deeped outlook in the fiscal second quarter.
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  Speaker 6: But I think if you look at the long term
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  Speaker 6: thesis that is still very very much intact.
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  Speaker 3: Scarlett and Githa looks like we're gonna get a new
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  Speaker 3: CEO for Disney. Tell us how that may take place
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  Speaker 3: and who this person may be.
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  Speaker 6: Yeah, so there have been, you know, a two front
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  Speaker 6: for the job, Paul, it's been internal candidates, Josh Tomorrow,
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  Speaker 6: who heads the parks division, and Dana Walden, who came
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  Speaker 6: to Disney from Fox and who heads up all of content. Now,
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  Speaker 6: as you know Dana Walden, she's a huge, huge, She
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  Speaker 6: has a huge presence in Hollywood. I mean, stars absolutely
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  Speaker 6: love her. She's she's got a great presence within the
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  Speaker 6: creative community. But I think, you know, there has been
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  Speaker 6: obviously rumors that Josh Tomorrow is in the leading position
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  Speaker 6: right now, and I think that just really reflects how
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  Speaker 6: the company's, you know, Earning's position has completely changed. I
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  Speaker 6: mean a few years ago, as you just pointed out,
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  Speaker 6: you know, a while ago, this was really a TV
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  Speaker 6: networks company, and that has completely changed now with this
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  Speaker 6: being really the biggest theme park operator in the world,
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  Speaker 6: attracting about one hundred and fifty million global visitors each
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  Speaker 6: year and only poised to get stronger and stronger. So
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  Speaker 6: they're already making about sixty percent of company profits comes
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  Speaker 6: from just theme parks division alone. And as we kind
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  Speaker 6: of look forward, Paul, I mean, you look at all
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  Speaker 6: of the new cruise ships they're planning to basically double
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  Speaker 6: triple capacity in the next three to four years. You
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  Speaker 6: look at all of the park expansions. You know, park
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  Speaker 6: profit could very well be three quarters of you know,
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  Speaker 6: total company profits in the next few years time.
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  Speaker 2: What is your confidence, Githa, that they're going to get
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  Speaker 2: the succession right this time around, because not so long
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  Speaker 2: ago they appointed Bob Chapek, who also headed up the
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  Speaker 2: park's division to succeed Bob Eiger, and that lasted for
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  Speaker 2: no more than a year, was it? I know, whatever
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  Speaker 2: it was, it didn't last very long. Bob Iger ended
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  Speaker 2: up coming back. Why is it different this time around?
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  Speaker 6: I think it's different this time around because the company
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  Speaker 6: isn't you know. I think they finally got their priority straight.
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  Speaker 6: I think at that point, Disney was really trying to
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  Speaker 6: still figure out what it was. Was it a TV
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  Speaker 6: network company, was it a Disney plus streaming company? Was
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  Speaker 6: it really a theme parks company? Was it a film studio?
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  Speaker 6: So I think there were just so many different you know,
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  Speaker 6: they had so many different balls up in the air.
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  Speaker 6: But I think right now and streaming, obviously, they were
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  Speaker 6: kind of in the early innings of streaming, chasing subscribers
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  Speaker 6: at all costs, and that's the game that kind of
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  Speaker 6: Bob Chapek played, but didn't play very well because he
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  Speaker 6: was not very you know, obviously not very well versed.
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  Speaker 6: But the content part of the business ended up really
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  Speaker 6: overpaying in terms of content costs. We saw Disney pay
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  Speaker 6: something like thirty two billion dollars in content costs, which
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  Speaker 6: led to about I think four billion dollars in losses
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  Speaker 6: for the streaming unit alone. They've come down from thirty
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  Speaker 6: two billion dollars in content costs to twenty three billion
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  Speaker 6: under Bob Eiger. So that was a lot of you know,
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  Speaker 6: the right sizing of costs, really riding the ship, you know,
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  Speaker 6: course correction, all of that happened. So I think definitely
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  Speaker 6: the company is in much much better shape right now.
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  Speaker 6: And again this is now I think people who were
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  Speaker 6: kind of underappreciating the theme park portion of the business
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  Speaker 6: now really look at this as mainly a parks company.
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  Speaker 6: And yes they do have streaming, and yes we can
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  Speaker 6: see some upside from streaming and films, but this is
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  Speaker 6: really a theme park operator.
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  Speaker 3: Oftentimes, when the board picks the CEO and the person
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  Speaker 3: who did not get the role leaves the company, what's
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  Speaker 3: the risk here that Dana Walden again, as you mentioned
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  Speaker 3: so widely respect it and important, that she would leave
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  Speaker 3: the Walt Disney Company.
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  Speaker 6: Yeah, definitely, definitely possible. But they do have a deep bench.
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  Speaker 6: I mean, along with data Walden, Alan Bergman also heads
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  Speaker 6: you know, the content, so he's been overseeing some of
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  Speaker 6: the film and TV businesses as well. So you know,
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  Speaker 6: obviously there is the risk of her leaving, but at
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  Speaker 6: the same time, I think they do have a deep
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  Speaker 6: bench that could, you know, fill her shoes.
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  Speaker 3: Hopefully stay with us.
• 13:22
  Speaker 5: More from Bloomberg Intelligence coming up after this.
• 13:28
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 13:32
  Speaker 1: weekdays at ten am. He's done on Apple, Cocklay and
• 13:35
  Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand
• 13:38
  Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
• 13:43
  Speaker 3: The big global farmer companies reporting earnings. We got a
• 13:46
  Speaker 3: couple down, a couple more to go. Sam Fazzelli joins us.
• 13:49
  Speaker 3: He's the director of research for Global Industries.
• 13:51
  Speaker 5: Have no idea what that means.
• 13:52
  Speaker 3: I know him as a senior pharmaceutical zanols to Bloomberg Intelligence.
• 13:55
  Speaker 3: He's over there in London ostensibly, but he's always traveling
• 13:58
  Speaker 3: around the world, you know, check on all the latest
• 14:01
  Speaker 3: drugs and that kind of stuff.
• 14:03
  Speaker 5: That's how those folks get smart.
• 14:04
  Speaker 3: Hey, sam Sonfi, Roach, Roache and no I'm pronouncing incorrectly.
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  Speaker 5: They reported some results here.
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  Speaker 3: What did you see from the big some of those
• 14:12
  Speaker 3: big farmer companies.
• 14:14
  Speaker 7: Yeah, thanks, Paul. I think the most interesting of the
• 14:18
  Speaker 7: company of everything so far, that there are three companies,
• 14:21
  Speaker 7: so Santa Fe, Rosch and Johnson and Johnson who reported
• 14:24
  Speaker 7: so far was the fact that nobody really seemed to
• 14:28
  Speaker 7: be saying much about I mean, the people ask about
• 14:30
  Speaker 7: the MFN and the impact of FEN, but numbers were
• 14:33
  Speaker 7: in line and growth is as expected. So somehow these
• 14:38
  Speaker 7: companies are managing it. I mean, you know, we're going
• 14:40
  Speaker 7: to have to wait and see what happens to the
• 14:42
  Speaker 7: European countries drug sales, et cetera as they come on.
• 14:46
  Speaker 7: But nothing in there. And the one thing that specifically
• 14:49
  Speaker 7: stood out in the we talked about Johnson and Johnson
• 14:52
  Speaker 7: last time was Santa Fe where they called out the
• 14:55
  Speaker 7: vaccine sales in the US. Remember they still traditional vaccines,
• 14:58
  Speaker 7: not the m RNA, so it's not like it could
• 15:01
  Speaker 7: be something that people don't like. And they're still calling
• 15:03
  Speaker 7: for a for a down year in twenty twenty six,
• 15:07
  Speaker 7: which is interesting in that we have another company, Moderna,
• 15:11
  Speaker 7: that does make amoro vaccines and they're saying that they're
• 15:13
  Speaker 7: looking for an up here in twenty twenty six. So
• 15:16
  Speaker 7: there's some differences there that I think we need to
• 15:18
  Speaker 7: be ironed out between the companies, you know, And that's
• 15:23
  Speaker 7: and it's not a good thing that we're seeing less
• 15:25
  Speaker 7: vaccine US in the US.
• 15:27
  Speaker 4: Right.
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  Speaker 2: We need to figure out if this is a company
• 15:29
  Speaker 2: specific issue or something that tells us about the take
• 15:32
  Speaker 2: up in the US. Can they make up these vaccine makers?
• 15:35
  Speaker 2: Can they make up that potential loss of business in
• 15:38
  Speaker 2: the US in other parts of the world.
• 15:42
  Speaker 7: Well, that's the thought potentially for Moderna I mean Sanofi,
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  Speaker 7: you know, I mean the volume of vaccines that are
• 15:51
  Speaker 7: sold the rest of the world. The prices are not
• 15:54
  Speaker 7: anywhere near as strong as they are in the US,
• 15:57
  Speaker 7: so they can maybe work on the margins. I think
• 16:00
  Speaker 7: there's vaccine hesitancy across the board. I mean, why do
• 16:02
  Speaker 7: we have quite a few European countries we've lost their
• 16:05
  Speaker 7: measles elimination status too, not just the US problem.
• 16:10
  Speaker 3: Sam this Most Favored Nations status that President Trump is
• 16:14
  Speaker 3: talking about. What are the companies saying. Are they saying, hey,
• 16:18
  Speaker 3: this is real, this is going to happen, and are
• 16:20
  Speaker 3: they quantifying the potential costs?
• 16:22
  Speaker 5: Where are we in that whole process now?
• 16:25
  Speaker 7: I mean the cost is potentially coming from them repatriating
• 16:29
  Speaker 7: or moving some more investments into the US. What exactly
• 16:33
  Speaker 7: that number is? Time will show a lot of these
• 16:36
  Speaker 7: companies give big numbers fifty billion, fifty five billion over
• 16:39
  Speaker 7: the next five years, but that includes their standard R
• 16:42
  Speaker 7: and D, a lot of which is actually a release
• 16:44
  Speaker 7: spent in the US. So what that incremental increase of manufacturing,
• 16:48
  Speaker 7: et cetera in the US is, I don't know. And
• 16:51
  Speaker 7: I think you might have seen in numbers recently that
• 16:53
  Speaker 7: came at manufacturing headcamp isn't going up. In fact, they're shrunk.
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  Speaker 7: So unless Farmer is such a small part of the
• 17:01
  Speaker 7: overall manufacturing numbers. But coming to the latest numbers that
• 17:04
  Speaker 7: we saw that came out last week, it didn't go up.
• 17:07
  Speaker 7: So something's not quite working out here, and maybe it's
• 17:10
  Speaker 7: just going to take a year two years before these
• 17:12
  Speaker 7: sites are operational before we see those numbers go up.
• 17:15
  Speaker 2: Yeah, it feels like there's a lot of room to
• 17:17
  Speaker 2: be vague in those big, big committments, right, And we
• 17:22
  Speaker 2: know this administration likes big, big numbers, so you can
• 17:25
  Speaker 2: kind of include everything under the sun all the better.
• 17:27
  Speaker 2: So let's talk a little bit sam about Eli Lilly,
• 17:31
  Speaker 2: which will be reporting earnings in two days on Wednesday.
• 17:34
  Speaker 2: The outlook right now is for a pretty broad guidance
• 17:37
  Speaker 2: for the full year. Walk us through the different things
• 17:39
  Speaker 2: that Eli Lilly needs to contend with as it offers
• 17:42
  Speaker 2: up guidance.
• 17:44
  Speaker 7: Yeah, it's not, by the way, it's not just really
• 17:46
  Speaker 7: both Lily and Nova reporting on the same day. That
• 17:48
  Speaker 7: makes it more fun for thin Wednesday is an awful
• 17:50
  Speaker 7: day for large farmer reporting or fun or fun. Wrong,
• 17:52
  Speaker 7: it's six seven well hopefully terms that you have to come.
• 17:56
  Speaker 7: You know, you need everybody on the desk to be
• 17:58
  Speaker 7: to be listening to these calls. So, I mean they
• 18:00
  Speaker 7: there's a few things that we're looking for for both
• 18:01
  Speaker 7: of them, frankly, and remember Nova is the first one
• 18:04
  Speaker 7: that's launched a oral drug that's out there Oral we
• 18:07
  Speaker 7: go be and the prescription volumes for that you can
• 18:10
  Speaker 7: check out on the terminal. Are going one of the
• 18:13
  Speaker 7: strongest diabete obviousity launchers that we've had in I think
• 18:18
  Speaker 7: maybe even ever. So that's looking pretty strong. What the therefore,
• 18:22
  Speaker 7: the timing of O forglypron Glypron that's coming from Lily,
• 18:26
  Speaker 7: I think that's expected to Queue. Maybe a little update
• 18:28
  Speaker 7: on that when exactly to que. Everyone wants to know
• 18:31
  Speaker 7: early to Que is the current date. We're also looking
• 18:33
  Speaker 7: to see how these deals that they've done with slightly
• 18:37
  Speaker 7: lower prices you might have seen those with the medicare prices,
• 18:40
  Speaker 7: et cetera. Are they beginning to show in increased volume.
• 18:44
  Speaker 7: The theory is if price comes down, volumete go up, right,
• 18:47
  Speaker 7: because this is an insatiable market. And then lastly, one
• 18:50
  Speaker 7: of the tough things to keep an eye on is
• 18:53
  Speaker 7: x US. We have prescription data for US promises, but
• 18:56
  Speaker 7: xuas is much harder to follow. So people are going
• 18:59
  Speaker 7: to be looking to see how these obesity drugs are
• 19:01
  Speaker 7: doing outside of the United States. That's the key thing.
• 19:07
  Speaker 5: Stay with us. More from Bloomberg Intelligence coming up here
• 19:10
  Speaker 5: for this.
• 19:13
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 19:17
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• 19:20
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• 19:24
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• 19:28
  Speaker 3: Well, folks, the experts continue to tell us we're in
• 19:30
  Speaker 3: the early early innings of this AI story here, and
• 19:34
  Speaker 3: a lot of investors continue to look for ways to
• 19:36
  Speaker 3: play it, as do we. Fortunately here in Bloomberg Intelligence,
• 19:39
  Speaker 3: we've got a lot of technology channels who cover all
• 19:42
  Speaker 3: parts of the tech stack, and that includes Woojin host
• 19:44
  Speaker 3: senior technology channels for Bloomberg Intelligence. Talk about the global
• 19:49
  Speaker 3: communications and networking equipment space what to look for in
• 19:52
  Speaker 3: twenty twenty six. Woods, thanks so much for joining us here.
• 19:55
  Speaker 3: When your conversations with investors and they say, wooje in
• 19:58
  Speaker 3: your space, in the communications space, the network equipment space.
• 20:02
  Speaker 5: What's the best way to play AI? How do you
• 20:04
  Speaker 5: kind of shape that conversation?
• 20:06
  Speaker 8: Yeah, hey, thanks Paul. So it's fairly straightforward, right, It's
• 20:11
  Speaker 8: a very fairly concentrated space. The AI networking space is
• 20:15
  Speaker 8: expected to grow ninety one percent on the switching hardware
• 20:18
  Speaker 8: alone to twenty one billion dollars. Right, The way to
• 20:22
  Speaker 8: play it is fairly straightforward. It's A three c's, an
• 20:26
  Speaker 8: A and an N. Right, that's my new networking than Cisco, Celestica,
• 20:32
  Speaker 8: Corning and CNSO. Four c's Arista and Nvidia, right, and
• 20:38
  Speaker 8: those are going to be the leading beneficiaries for the
• 20:40
  Speaker 8: networking space in AI.
• 20:42
  Speaker 3: So give us a sense of kind of how investors
• 20:46
  Speaker 3: should think about the investment cycle for AI.
• 20:48
  Speaker 5: I mean, I'm going to say we're two three years
• 20:51
  Speaker 5: into it.
• 20:53
  Speaker 3: I'm just not sure.
• 20:54
  Speaker 5: How do you guys think about the duration here.
• 20:56
  Speaker 8: Yeah, you know, it's it's quite odd, right because you know,
• 21:00
  Speaker 8: some of us say it's two three years into it.
• 21:03
  Speaker 8: Michael Dell had this interesting quote a couple of weeks
• 21:06
  Speaker 8: ago saying, what inning are we and his response was,
• 21:11
  Speaker 8: we're just entering the stadium.
• 21:12
  Speaker 5: Wow.
• 21:12
  Speaker 8: Right, Yeah, so he still thinks it's early on in
• 21:15
  Speaker 8: terms of the investment phase. You just had a mendeep
• 21:18
  Speaker 8: on he and he was talking about the Oracle investment,
• 21:21
  Speaker 8: and look, fifty billion dollars is a massive amount of
• 21:23
  Speaker 8: money and it's all going into the infrastructure space, and
• 21:26
  Speaker 8: networking is going to be one of the leading beneficiars
• 21:29
  Speaker 8: of it.
• 21:30
  Speaker 3: So how are the networking equipment companies that you follow,
• 21:34
  Speaker 3: how are they financing some of their capex? Because again,
• 21:36
  Speaker 3: I think most of us grew up when technology companies
• 21:39
  Speaker 3: had so much cash flow that they could self fund
• 21:42
  Speaker 3: their R and D, their capex, that type of stuff.
• 21:44
  Speaker 3: Now many of them need to come to the capital markets.
• 21:49
  Speaker 6: Yeah.
• 21:50
  Speaker 8: Fortunately for the networking guys, it's a low capex type
• 21:55
  Speaker 8: of business. Right, We're talking about seb ten percent of
• 21:59
  Speaker 8: the flow to capex or ten percent of capex ratio
• 22:03
  Speaker 8: to sales. So it is a fairly self funded business,
• 22:07
  Speaker 8: and it's also high margin business as well. As long
• 22:10
  Speaker 8: as the hyperscale cloud providers as well as the tier
• 22:14
  Speaker 8: two cloud providers like the Neo clouds, are funded, they'll
• 22:18
  Speaker 8: be able to buy the networking gear.
• 22:20
  Speaker 3: So how do you I mean, it's interesting here think
• 22:23
  Speaker 3: about the tech space and it's hardware, it's software, it's
• 22:26
  Speaker 3: the networking equipment here. Who's kind of driving this.
• 22:31
  Speaker 5: This AI thing?
• 22:32
  Speaker 4: Is?
• 22:33
  Speaker 3: Are your networking in communications companies?
• 22:35
  Speaker 5: Are they kind of dependent upon I don't know.
• 22:37
  Speaker 3: What the hyperscalers are doing or what the chip makers
• 22:40
  Speaker 3: are doing.
• 22:40
  Speaker 5: Who's kind of leading this?
• 22:42
  Speaker 8: So at the end of the day, it's how quickly
• 22:46
  Speaker 8: and how fast and how large of the investments that
• 22:50
  Speaker 8: the hyperscalers are making on the AI side. I will
• 22:53
  Speaker 8: tell you, as these language models grow and the scale
• 22:59
  Speaker 8: of the these compute investments grow, you actually need a
• 23:03
  Speaker 8: lot more networking. And networking is if you think about
• 23:06
  Speaker 8: it as the arteries and the veins of a human body.
• 23:12
  Speaker 8: Networking is probably at the center of that right now,
• 23:14
  Speaker 8: and that's why you're having a lot of investment on
• 23:16
  Speaker 8: their networking front.
• 23:17
  Speaker 3: Who are I mean, how are they dealing with again,
• 23:20
  Speaker 3: these networking companies I think of these big global companies,
• 23:23
  Speaker 3: is that manufacturing dispersed around the globe. Is there a
• 23:26
  Speaker 3: pressure to bring it to the US. How are they
• 23:28
  Speaker 3: dealing with some of the changes we've seen in global logistics,
• 23:32
  Speaker 3: whether it's tariffs or just you know, most favorite nation status,
• 23:36
  Speaker 3: those types of things.
• 23:37
  Speaker 8: Yeah, that's a fantastic question, Paul. I will tell you
• 23:40
  Speaker 8: that there's a couple of things. Right when we had
• 23:43
  Speaker 8: the tiraff situation number one, and also the COVID situation
• 23:47
  Speaker 8: a few years back, the companies have actually done a
• 23:49
  Speaker 8: good job rearranging the supply chain. A lot of manufacturings
• 23:52
  Speaker 8: happening out of Mexico. There's some manufacturing that's happening in
• 23:57
  Speaker 8: Taiwan as well as in Canada. So we're by passing
• 24:00
  Speaker 8: some of the tarriff situation. And quite frankly, tariff's have
• 24:02
  Speaker 8: become a non story for the majority of my networking guys.
• 24:07
  Speaker 8: And on top of that, the dram story is inconsequential
• 24:11
  Speaker 8: for the networking games as well.
• 24:12
  Speaker 3: However, the stocks performing here, I've seen so many parts
• 24:16
  Speaker 3: of the tech space just rip.
• 24:18
  Speaker 5: How have your stocks been doing?
• 24:20
  Speaker 8: I will tell you if you know if you looked
• 24:23
  Speaker 8: at the Celestica two years back, you're seeing a ten
• 24:27
  Speaker 8: time performer to where it is right now. You know,
• 24:31
  Speaker 8: it has slowed down because I think people are starting
• 24:33
  Speaker 8: to catch up to the name Arista. It's a double
• 24:37
  Speaker 8: from from two to three years back. And Cisco, I
• 24:41
  Speaker 8: mean we've finally got back to it's two thousand and
• 24:45
  Speaker 8: one highs because of the business has actually stabilized, so
• 24:49
  Speaker 8: the stocks in itself have done well. The multiples have
• 24:53
  Speaker 8: actually gotten a little bit rich.
• 24:56
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