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Dell Hikes Estimates for Next Four Years on Strong AI Demand · Bloomberg Intelligence

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  Speaker 1: or watch us live on YouTube through Dell.
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  Speaker 2: Let's dig a little deeper into this guidance that the
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  Speaker 2: company offered. I'd say it's more than guidance, is it.
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  Speaker 3: It's kind of a I don't know, kind of a
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  Speaker 3: long term vision, a little bit.
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  Speaker 2: Of yes, where business is going exactly, and you know,
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  Speaker 2: in the tech industry, to be able to kind of
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  Speaker 2: project out that far as pretty notable. Let's bring in
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  Speaker 2: Ed Ludlow, who is our b Tech co anchor based
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  Speaker 2: in San Francisco, and Ed, one thing that I noticed
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  Speaker 2: about Dell is that this is another legacy tech company
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  Speaker 2: that's getting a big boost here from the whole AI play,
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  Speaker 2: and Dell is doing that through its AI servers, but
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  Speaker 2: it still has another part of its conventional business that
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  Speaker 2: is holding up at.
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  Speaker 3: Least Yeah exactly.
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  Speaker 4: I mean, you guys make really good points about is
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  Speaker 4: this guidance or more it's kind of like a reset
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  Speaker 4: on Dell's position in the AI market. It's another example
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  Speaker 4: of like, well, if we're all sort of very hyped
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  Speaker 4: up about data center builds out and in videos getting
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  Speaker 4: all of this love, and we're very focused on energy,
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  Speaker 4: then why do we not talk more about Dell. If
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  Speaker 4: you build a data center, whether that is hyper scale
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  Speaker 4: or it's an on premises smaller facility that any given
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  Speaker 4: sort of software company operates themselves, Dell is likely to
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  Speaker 4: play a part. You know, they assemble servers that needs
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  Speaker 4: to happen. You don't just sort of put all the
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  Speaker 4: chips and a pile on the floor. And so it's
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  Speaker 4: taken a while for investors to kind of give Dell
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  Speaker 4: credit for that. A part of the reason being that
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  Speaker 4: because this buildout of infrastructure is so fast, Dell's margins
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  Speaker 4: on the AI server business have really suffered because you
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  Speaker 4: have to spend money to move quickly. And a big
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  Speaker 4: part of the guidance they gave us through the fiscal
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  Speaker 4: thirties that that profit picture for the AI server business
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  Speaker 4: is really going to improve, and as you say, the
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  Speaker 4: core business, which is kind of PC as well, is
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  Speaker 4: supporting them do that.
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  Speaker 5: In the interim, Dell stock is up two and a
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  Speaker 5: half percent today, it's today fifty two week high.
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  Speaker 3: Today, it's up thirty percent year to dat.
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  Speaker 5: It's not an all time high that was back in
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  Speaker 5: twenty twenty four, but it's certainly gone in the right
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  Speaker 5: direction here. So, ed, how does the company position itself
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  Speaker 5: as an AI player? Are they playing that up or
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  Speaker 5: are they saying, hey, we're in a good position. How
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  Speaker 5: are they kind of positioning their company as.
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  Speaker 3: A yeah my story.
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  Speaker 4: So right now in New York City, all of the
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  Speaker 4: executives are on a stage talking about bigging themselves up,
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  Speaker 4: and the main argument that they're making is that on
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  Speaker 4: premises part I us talking about. So in the future,
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  Speaker 4: Dell argues eighty five percent of all enterprises are going
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  Speaker 4: to have some form of on prem footprint themselves, and Dell,
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  Speaker 4: which has a rich history of selling to businesses of
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  Speaker 4: small and large and the public sector, is best position
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  Speaker 4: to participate in that. And the idea, right is that
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  Speaker 4: this all started with the hyperscalers, the cloud computing companies
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  Speaker 4: and their capital expenditures. But the ripple effect is that
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  Speaker 4: we're now seeing smaller companies in software in particular, justified
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  Speaker 4: budgets to spend on their own technology because they see
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  Speaker 4: a return on the other side, literally revenues driven by AI.
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  Speaker 4: So that's what Dell's argument is here. You know, you guys,
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  Speaker 4: the story is that through twenty thirty, they've basically almost
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  Speaker 4: doubled their forecast for the top and bottom line five
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  Speaker 4: to seven to nine percent top line growth and adjusted
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  Speaker 4: EPs growth of around fifteen percent. And a big part
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  Speaker 4: of that story is just more people doing business with them.
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  Speaker 2: So one thing that stuck out to me Ed is
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  Speaker 2: the comments from the CEO, Jeff Clark, saying we were
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  Speaker 2: all wrong about how big we thought the AI market
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  Speaker 2: was two years ago, and it's nothing but bigger. Does
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  Speaker 2: do have a reputation as being conservative when kind of
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  Speaker 2: guiding along its its vision or is this some a
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  Speaker 2: company that usually nails it in terms of its forecasts?
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  Speaker 4: You know, like, I don't know, conservative is fair? I mean,
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  Speaker 4: like you have to assess the business that they're doing
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  Speaker 4: in the here and now and the pipeline of business
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  Speaker 4: that they say has to come. And so like Dina
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  Speaker 4: Bassar College did a really good job of explaining that
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  Speaker 4: in the quarter, there is the sales that they've had
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  Speaker 4: committed to them. They booked five point six billion dollars
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  Speaker 4: of new AI server business in the quarter. They shipped
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  Speaker 4: eight point two billion dollars worth of business in the quarter,
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  Speaker 4: so like actual sales, and then in the future they
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  Speaker 4: have a backlog of twelve billion. It's not that new
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  Speaker 4: an idea that there's a pipeline of business. It takes
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  Speaker 4: time to assemble servers, you know, ship them out onto location.
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  Speaker 4: The thing that they need to justify is like, what's
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  Speaker 4: the value add that they do. So I told you
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  Speaker 4: earlier in this segment they say margins will improve. The
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  Speaker 4: thing is that all they're really doing is assembling something.
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  Speaker 4: They're not sort of contributing some amazing technology. That's what
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  Speaker 4: Nvidio is doing.
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  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 3: App Lovin stocks up.
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  Speaker 5: That's despite the fact that the app love and this
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  Speaker 5: company's being probe by the SEC over its data collection practices.
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  Speaker 3: I don't know how to play that.
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  Speaker 2: I know the stock is the best performing NAZAC member
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  Speaker 2: in the second half of this year, up seventy nine percent.
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  Speaker 5: Okay, I have to start with the pro We're going
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  Speaker 5: to go to Nathan A Do Bloomberg Intelligence tech anlogy
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  Speaker 5: research analysts.
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  Speaker 3: Nathan, I don't know a lot about this company.
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  Speaker 5: Tell our viewers and our listeners about app love and
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  Speaker 5: number one and number two?
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  Speaker 6: What is this?
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  Speaker 3: Let's the SEC interested in?
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  Speaker 7: So essentially Applevin is in the business of helping advertisers
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  Speaker 7: or helping rather owners of apps primary apps on the
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  Speaker 7: iOS devices on Android, Helping publishers sell at space inside
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  Speaker 7: of their apps to potential advertisers, meaning that help app
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  Speaker 7: app owners advertise, you know, make money off of selling
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  Speaker 7: at space to advertisers, whether that be brands or another
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  Speaker 7: game potentially, and Applevin typically charges a fee in mediating
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  Speaker 7: that transactions. So going on to the SEC prop or
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  Speaker 7: potential SEC proprather because nothing is confirmed as of now.
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  Speaker 7: SEC allegedly is looking into its data collection practices. And
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  Speaker 7: you know, there was a couple of links made to
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  Speaker 7: short salary reports that surfers back in February, and that
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  Speaker 7: was also around the company business practices, particularly in its
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  Speaker 7: inflation of app installation numbers. And actually, you know, in
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  Speaker 7: addition to this SEC probe or potential SEC probe, rather,
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  Speaker 7: there was a class action lawsuit file in March and
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  Speaker 7: it's it's it could advance a trial, according to our
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  Speaker 7: litigation analyst, Matthew based in Washington, d C. And so
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  Speaker 7: that is another that's actually it could be the bigger
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  Speaker 7: fish fish to fry for able in addition to, you know,
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  Speaker 7: alongside this SEC probe. From from my point of view.
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  Speaker 2: Okay, so there's negative catalysts for sure for this company.
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  Speaker 2: Yet as what points out, the stock is rising today.
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  Speaker 2: Is this because Apple love it is a meme stock.
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  Speaker 7: Well, I don't know about Eplepin being a meme stock,
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  Speaker 7: but I mean, the certainly haven't made up all of
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  Speaker 7: the losses that we saw yesterday. The stock was down
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  Speaker 7: fourteen fifteen percent in one day, and then you've made
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  Speaker 7: up partially that in today's gains. And because the SEC
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  Speaker 7: probe is not confirmed, and typically the biggest risk from
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  Speaker 7: this potential SEC probe is a penalty. And if we
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  Speaker 7: look at SEC's published report for its fiscal twenty twenty four,
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  Speaker 7: the heaviest fine was one hundred million Meanwhile, Aplevin at
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  Speaker 7: the moment is pumping pumping out two billion in pre
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  Speaker 7: cash flow every year. So I think the SEC risk
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  Speaker 7: alone is it wouldn't make much of a financial impact
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  Speaker 7: to Aplevin per se, you know. But the bigger risk
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  Speaker 7: that we're watching here is definitely that potential class action
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  Speaker 7: lawsuit because our analyst Matthew estimate that that could be
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  Speaker 7: seven hundred and fifty million in fine if that, you know,
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  Speaker 7: if that goes to trials and Ablevin couldn't win a
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  Speaker 7: motion to dismiss in the next couple of months.
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  Speaker 5: So yeah, Nathan, what does has a company responded at
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  Speaker 5: all or talked about this?
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  Speaker 3: Is this issue?
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  Speaker 7: So the only allegations that the company denied was the
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  Speaker 7: allegations from the shortsellers back in February. The company has
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  Speaker 7: not outwardly denied the allegations or the potential allegations rather
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  Speaker 7: from the late SEC probe. So that's where we stand
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  Speaker 7: right now.
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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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• 9:42
  Speaker 5: All right, I'm thinking Constellation brands. You think in Corona Beer,
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  Speaker 5: Modella beer, Pacifico beer that got some wines stocks down
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  Speaker 5: thirty five percent here to date, and I'm thinking it
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  Speaker 5: has to do with the crackdown on.
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  Speaker 3: The immigration tariffs as well and those brands.
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  Speaker 5: So I'm thinking of all that kind of kind of
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  Speaker 5: just kind of weighing down on the stock.
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  Speaker 3: Let's checking in with Ken Chay.
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  Speaker 5: He's the senior consumer products analyst for Bloomberg Intelligence. Can
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  Speaker 5: talk to us about Constellation brands. What's weighing on the stock,
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  Speaker 5: what's the company doing about it?
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  Speaker 8: Yeah, Hi, Paul and Scarlet. Well, you mentioned two of
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  Speaker 8: the factors right there. It's definitely a slow beer market.
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  Speaker 8: Tariffs are playing a role, and also some of the crackdown,
• 10:29
  Speaker 8: you know, the ice has had in inner community is
• 10:31
  Speaker 8: hurting the Hispanic community and their socialization trends. All these
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  Speaker 8: things have been a factor for the last couple of quarters. Today,
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  Speaker 8: the company said that their beer volumes were not quite
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  Speaker 8: as poor as a lot of street anamals expected today,
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  Speaker 8: but the pressures are still on and they're very real
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  Speaker 8: for this company, and that's because they're they're suite of
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  Speaker 8: products as you mentioned Corona Medello, these off these command
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  Speaker 8: high price points about twice the level of a popular beer.
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  Speaker 8: So in times where consumers are pulling back a little
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  Speaker 8: cautious about expenditures, I remember, you know, you've had high
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  Speaker 8: inflationary pricing in this category for the last few years.
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  Speaker 8: These brands aren't doing so well right now, and then
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  Speaker 8: compounding that with some of the factors that I mentioned
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  Speaker 8: and some longer term issues like cannabis substitution things we
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  Speaker 8: talked about GLP one user not drinking as much, moderation
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  Speaker 8: among gen Z. All these things are weighing of a
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  Speaker 8: company here right now.
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  Speaker 2: Yeah, I'm super interested in what you said about the
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  Speaker 2: last part, Like the structural changes in consumer tastes, especially
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  Speaker 2: from gen Z younger people overall, beers just not where
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  Speaker 2: people want to be spending their money necessarily.
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  Speaker 8: That seems to be the case. You know, it's been
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  Speaker 8: around a long time. It's one hundred and fifteen billion
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  Speaker 8: dollar market that is growing very slowly. It's essentially flat.
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  Speaker 8: In fact, volumes are expected to be down low single
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  Speaker 8: digit this year, So clearly it's a very mature category.
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  Speaker 8: And what we've seen in over the last few years
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  Speaker 8: is consumers just want different tastes. You know, you have
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  Speaker 8: a proliferation of the ray to drink cocktails, you know,
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  Speaker 8: like truly and white clothes and more sophisticated you know,
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  Speaker 8: Margarita's in a can and so on faster a lot
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  Speaker 8: of the consumer who wants tastes experimentation are going And
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  Speaker 8: then you have other more mundane factors like just you know,
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  Speaker 8: calorie more conscious, conscientious, calorie counts and all these things
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  Speaker 8: are just weighing on this very very mature industry.
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  Speaker 5: So somebody like Constellation Brands, did they go out and
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  Speaker 5: look to maybe buy some of these brands or verticals
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  Speaker 5: that within the spirit's business may be growing.
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  Speaker 8: Well, they've had a kind of a mixed history of
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  Speaker 8: m and A over the last few years. I'll put
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  Speaker 8: it up me kind and say that way not really.
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  Speaker 8: You know, they're downsizing their wine and spirit segment and
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  Speaker 8: try to shift it to more of a high end mix,
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  Speaker 8: which I think they're having success with. But what that
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  Speaker 8: does is it may their beer business even that much
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  Speaker 8: more important. It's now about eighty five percent of their sales,
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  Speaker 8: so as beer goes. I mean, the company has really
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  Speaker 8: good brands and a lot of brand loyalty there, but
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  Speaker 8: again there's not a lot of wiggle room there.
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  Speaker 2: So, so with beer becoming less popular, and you mentioned
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  Speaker 2: other big trends like ozebic, weight loss, drugs, and greater
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  Speaker 2: cannabis use, what is Constellation doing about non alcoholic beverages.
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  Speaker 8: So they've rolled out a non alcoholic corona brand. They've
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  Speaker 8: come out a couple of years ago. They came out
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  Speaker 8: with a low calorie brand called Medelo Oro, a corona
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  Speaker 8: no alcohol I think I mentioned. So those two brands,
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  Speaker 8: while they're relatively small, they see, you know, a lot
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  Speaker 8: of opportunity that's on trend with what you said, so
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  Speaker 8: you know they're doing that. They're also modifying some of
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  Speaker 8: their portfolio for more taste. There's the consumers that want
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  Speaker 8: a lot of taste are coming out with you know,
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  Speaker 8: a fruity surveysa and so they're doing as much as
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  Speaker 8: they can to stay on trend with consumers.
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  Speaker 2: I love myself a great fruit beer. Yeah there's a
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  Speaker 2: German great fruit beer that I really like.
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  Speaker 3: Yeah, tastes good.
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  Speaker 5: So this talk to U about this legal cannabis and obesity,
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  Speaker 5: drugs and the impact that's having on kind of the
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  Speaker 5: beer business, the spirits business overall. Can is that something
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  Speaker 5: that a lot of your companies are calling out.
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  Speaker 8: Yes, As a matter of fact, Paul, yesterday we came
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  Speaker 8: out with our BI came out with our fourth annual
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  Speaker 8: consumer survey on beverage preferences, and again we see that
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  Speaker 8: consumers are substituting cannabis for alcohol. Of consumers that do
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  Speaker 8: partake in cannabis, now more than half have substituted for
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  Speaker 8: alcohol at least once a week, and that's up from
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  Speaker 8: forty six percent last year. So that's a trend that
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  Speaker 8: just keeps moving. Now you're seeing a lot of these
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  Speaker 8: cannabis companies coming out with THC products beverages that are
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  Speaker 8: sold in mainstream liquor stores. You know, traditional cannabis, legal
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  Speaker 8: cannabis sold in dispensaries, It was not really a big hit.
• 15:15
  Speaker 8: But now that some of these federally legal HEMP based
• 15:19
  Speaker 8: THC products beverages are sold in liquor stores right next
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  Speaker 8: to the beer rile in about half the states of
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  Speaker 8: the country, that's really chipping away also at beer consumption.
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  Speaker 2: A final question to you, Ken, what about return of
• 15:33
  Speaker 2: cash to shareholders. I'm looking at the dividend yield about
• 15:36
  Speaker 2: two point nine percent if you're being generous. Is consulation
• 15:40
  Speaker 2: brands still able to make good on its dividends continue
• 15:43
  Speaker 2: buying back its chairs.
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  Speaker 8: Yeah, that's an important point, Scarlett. Yes, they can despite
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  Speaker 8: the pressure on sales. Believe it or not, the operating
• 15:52
  Speaker 8: margins the Constellation generates are best in class. They're about
• 15:56
  Speaker 8: twice that of other alcoholic beverage companies in general. So
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  Speaker 8: they have strong cash flows. As a matter of fact,
• 16:02
  Speaker 8: they're winding down construction of a brewery right now. Over
• 16:06
  Speaker 8: the over the next couple of years, you're going to
• 16:08
  Speaker 8: see free cash flow likely rising. So it's high in
• 16:11
  Speaker 8: rising and that's enabling them to continue to meet their
• 16:15
  Speaker 8: commitments to share share buybacks and dividends.
• 16:19
  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
• 16:26
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 16:30
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 16:33
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• 16:36
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 16:40
  Speaker 2: Let's switch gears and take a look at some of
• 16:43
  Speaker 2: the hardware companies or I should say software companies. Once
• 16:46
  Speaker 2: upon a time it was hardware, and I'm talking about IBM.
• 16:48
  Speaker 2: It's a legacy tech company and it is the latest
• 16:51
  Speaker 2: legacy tech company to partner up with an AI startup.
• 16:55
  Speaker 2: Arog Rana is tech analysts here at Bloomberg Intelligence on
• 16:58
  Speaker 2: an rog hear this fancy announcement about IBM inking a
• 17:04
  Speaker 2: partnership with Anthropic to integrate this Claud family of large
• 17:07
  Speaker 2: language models into certain IBM software. What I noticed is
• 17:11
  Speaker 2: that there's no Toller amount mentioned at all. So how
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  Speaker 2: do you evaluate this partnership versus other tie ups.
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  Speaker 6: See, when you come to a company like IBM, I
• 17:20
  Speaker 6: think they have done a very good job of being
• 17:22
  Speaker 6: open and partnering with other vendors. I think the acquisition
• 17:26
  Speaker 6: of red Hat was the first such example a few
• 17:28
  Speaker 6: years ago. And frankly speaking, the company has turned around
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  Speaker 6: quite a bit. Now it's more of a software company
• 17:33
  Speaker 6: than it is a service order hardware company. So when
• 17:36
  Speaker 6: you look at today's announcements, IBM still has a lot
• 17:38
  Speaker 6: of footprint in legacy companies and their internal infrastructure, whether
• 17:43
  Speaker 6: that's a regulated entity, whether that's an on premise software.
• 17:48
  Speaker 6: What they're basically doing saying is for these companies who
• 17:51
  Speaker 6: want to add more AI capabilities into their infrastructure, we're
• 17:55
  Speaker 6: going to use one of the best models that's out there,
• 17:57
  Speaker 6: and that's Anthropic. They're not just so depending on IBM's
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  Speaker 6: own internal models, but you know, we see more and
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  Speaker 6: more of that happening that companies like IBM and other
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  Speaker 6: services companies will go out and partner with you know, anthropic,
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  Speaker 6: with open AI which M and I and give more
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  Speaker 6: enterprise capabilities to to vendors, to companies.
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  Speaker 5: Basically, how does anthropic differ from a open AI if
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  Speaker 5: at all.
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  Speaker 6: It's a very good question, Pauland right now what we're
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  Speaker 6: seeing is entropping is pushing more and more stuff on
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  Speaker 6: the corporate side or the enterprise side, on open AI side.
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  Speaker 6: You know, their code business is still chat GPT, which
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  Speaker 6: is the app, and that's more of a consumer app
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  Speaker 6: right now. And the question is you know which one
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  Speaker 6: of the models will somebody use, Whether if you are
• 18:41
  Speaker 6: let's say a JP Morgan or a City Corp, you
• 18:43
  Speaker 6: know you'll be going to be using one of their
• 18:45
  Speaker 6: models or an open source model. I think they're going
• 18:48
  Speaker 6: to be using all of the models. What entthropic relationship
• 18:52
  Speaker 6: with IBM, does it actually helps them to spread the
• 18:54
  Speaker 6: word out across their entire customer base. So if you
• 18:58
  Speaker 6: are trying to get more coding done, for example, in
• 19:00
  Speaker 6: an IT department, and you have all the legacy products
• 19:03
  Speaker 6: that they're now you can use you know, an AI
• 19:06
  Speaker 6: model from Nthropic rather than using you know, whatterver tools
• 19:09
  Speaker 6: you had before.
• 19:10
  Speaker 2: Okay, So it makes sense why Anthropic is a good
• 19:13
  Speaker 2: fit for IBM or how it's going to incorporate Anthropic
• 19:17
  Speaker 2: into IT software. But what does IBM specifically offer Anthropic?
• 19:21
  Speaker 2: What access does IBM have that Anthropic wants and needs.
• 19:26
  Speaker 6: That's another excellent question. And in this case you're looking
• 19:28
  Speaker 6: at IBM's entire customer base. IBM has a very large
• 19:32
  Speaker 6: services business or IBM consulting. These consultants will go out
• 19:36
  Speaker 6: and sell Anthropic software into the enterprises and say, hey, bank,
• 19:39
  Speaker 6: let me help you to you know, automate this particular
• 19:42
  Speaker 6: process and you can use it with this software. It
• 19:45
  Speaker 6: drives their consulting business and it also helps out their
• 19:48
  Speaker 6: software business, which is fairly popular right.
• 19:51
  Speaker 5: Now, IBM hitting all time high here today on a rug.
• 19:58
  Speaker 5: This stock has found a new life, has it?
• 20:01
  Speaker 6: Absolutely? And this is something that we've been saying it
• 20:04
  Speaker 6: for almost five years now that you know, the acquisition
• 20:07
  Speaker 6: of red Hat completely changed it. You know, if you
• 20:10
  Speaker 6: go back and look at some of the comments we've
• 20:12
  Speaker 6: made on TV about IBM. Prior to red Hat, it
• 20:15
  Speaker 6: was a very closed company. It only wanted to sell
• 20:17
  Speaker 6: their own products to people and was not very keen
• 20:20
  Speaker 6: on embracing you know, what I would say is open source.
• 20:23
  Speaker 6: With the acquisition of red Hat and the company saying,
• 20:26
  Speaker 6: you know what, red Hat can work with any cloud provider,
• 20:28
  Speaker 6: I think that was the biggest difference to me was
• 20:31
  Speaker 6: it allowed red Hat to work with companies but based
• 20:35
  Speaker 6: on Amazon Web Services or Microsoft, so they were not
• 20:39
  Speaker 6: just pushing their own cloud products, and I think that
• 20:41
  Speaker 6: really made a difference. Their software business has been doing
• 20:44
  Speaker 6: so well comparatively to the rest of the world, and
• 20:47
  Speaker 6: I think that's where you see the market validation that
• 20:50
  Speaker 6: this is the right strategy for them.
• 20:52
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