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Speaker 3: We did want to go back to IBM hitting a
Speaker 3: record in traday, up the most since April of nineteen
Speaker 3: ninety nine, after it reported fourth quarter results that beat
Speaker 3: expectations on key metrics thanks to robust growth in IBM
Speaker 3: software business. It also gave a strong forecast for free
Speaker 3: cash flow. It was the number one gainer in the
Speaker 3: S and P five.
Speaker 4: Hundred for most of the day.
Speaker 3: It's now slipped into second place, just behind Vistro, which
Speaker 3: we know has been beaten up over questions about the
Speaker 3: AI build out and boost Energy.
Speaker 4: But anyway, we wanted to.
Speaker 3: Talk IBM, especially Tim, in a week where we've been
Speaker 3: so focused on some of them other megacap tech names.
Speaker 3: But it's interest to see the app performance that we're
Speaker 3: getting in IBM.
Speaker 5: So watching closely is Ryan Lstelica. He's Bloomberg News Equities reporter.
Speaker 5: He joins us from our Chicago bureau. Ryan. It's a
Speaker 5: funny week because we're focusing on AI. We're focusing on
Speaker 5: the megacap tech names. You've got Apple reporting after the bell,
Speaker 5: Microsoft and Meta reported after the bell yesterday. IBM's rallying.
Speaker 5: It's not performing the other companies that we talk about
Speaker 5: so much. What was so interesting about this quarter for
Speaker 5: IBM is this a real turnaround moment for the company?
Speaker 6: Hey, thanks for having me. IBM has actually been doing
Speaker 6: pretty well over the past year or so. For a while,
Speaker 6: it was kind of viewed as an underappreciated value name
Speaker 6: within tech. They do have a lot of AI related businesses,
Speaker 6: a lot of AI related patents, and while it was
Speaker 6: sort of underappreciated when it comes to you the whole
Speaker 6: artificial intelligence space overall, people have been kind of like
Speaker 6: warming to the stock. It's really come up quite nicely
Speaker 6: over the past twelve months or so, and we did
Speaker 6: see in this most recent report very strong cash flow,
Speaker 6: very strong cash flow forecast, a lot of positive AI booking.
Speaker 6: So the trends there seem pretty strong, and I don't
Speaker 6: think people really caught onto it in the same way
Speaker 6: that you might. You know, name some of the other
Speaker 6: bigger names within the AI space.
Speaker 3: So Ryan though, if you look at the analyst community,
Speaker 3: there's been a bunch that actually been raising their price targets,
Speaker 3: even if it's just a little bit, but raising their
Speaker 3: price targets and IBM today, So maybe a little bit
Speaker 3: of a rethink here.
Speaker 7: Yeah, I think so.
Speaker 6: I mean, I think the consensus is slowly growing more positive.
Speaker 6: People seem pretty positive with the direction of the company
Speaker 6: software business. Like I said, the cash flow, you know,
Speaker 6: it kind of remains to be seen how big they
Speaker 6: are going to be in the AI landscape. But they've
Speaker 6: been in this area for a while. If you remember
Speaker 6: IBM's Watson program that I think at won Jeopardy or
Speaker 6: something a while. Yeah, so they've been around there for
Speaker 6: a while, but it's only kind of recently that people
Speaker 6: are sort of contenting them in a more pronounced way.
Speaker 5: Is it about the clients that they're getting. Is it
Speaker 5: about spin offs that they've done over the last couple
Speaker 5: of years that have changed the business. What specifically is
Speaker 5: it about IBM that has people optimistic?
Speaker 6: Yeah, they have gotten rid of a couple of businesses.
Speaker 6: They've also done a couple of acquisitions that have been
Speaker 6: greeted kind of warmly, know totally red hat so and yeah,
Speaker 6: a lot going on there, but that's the name that
Speaker 6: it seems like they're finally, after a period of pretty
Speaker 6: low growth, starting to pick up a little bit and
Speaker 6: that's being reflected in the share price.
Speaker 3: Hey, just quickly, we want to since we've got you,
Speaker 3: let's not forget that.
Speaker 4: All right.
Speaker 3: It's been about, you know, a bunch of the Max
Speaker 3: seven companies this week for them, we get another one
Speaker 3: after the close today. Apple just yesterday it was downgraded
Speaker 3: to perform from outperform at Oppenheimer. The latest sign of
Speaker 3: kind of some caution ahead of earnings this evening. And
Speaker 3: it's not the first downgrade that we've seen as of
Speaker 3: late when it comes to Apple.
Speaker 6: Yeah, I think the count was about five or so
Speaker 6: so far this month. A lot of concerns about the
Speaker 6: iPhone business. How quickly is that growing? What is the
Speaker 6: state of play in China right now? There's been a
Speaker 6: lot of competition there, a lot of concerns there. You know,
Speaker 6: sales there haven't been all that robust. People really were
Speaker 6: banking on the iPhone sixteen, the one that has the
Speaker 6: AI features. People really hoping that that would lead to
Speaker 6: a big upgrade cycle. So far, we haven't really seen that.
Speaker 6: Are they going to give you an outlook that kind
Speaker 6: of points to adoption is going to pick up a
Speaker 6: little bit more. What's the outlook for the seventeen? That's
Speaker 6: gonna be the real focus, you know tonight?
Speaker 4: All right, Gonna leave it on that note, Hey, Ryan,
Speaker 4: thank you so much.
Speaker 3: Ryan Lestelica News Equities reporter with the second biggest gainer
Speaker 3: in the S and P five hundred today IBM up
Speaker 3: about twelve percent him.
Speaker 5: All right, how about the biggest decliner? Can we go there?
Speaker 4: Yes, let's do it.
Speaker 5: Okay, that one is none other than Eups down close
Speaker 5: to fifteen percent as we speak, shares plunging the most
Speaker 5: ever down to its lowest level going back more than
Speaker 5: four and a half years. The company did project annual
Speaker 5: revenue well below expectations. It told investors that a long
Speaker 5: awaited rebound and demand for its parcel services will not
Speaker 5: arrive this year, and it also prompted it to slash
Speaker 5: its low margin business with Amazon. So let's break this
Speaker 5: one down with Bloomberg Intelligence Senior Transport, Logistics and Shipping
Speaker 5: analyst Lee Glascow, who joins us from BI headquarters in Princeton,
Speaker 5: New Jersey. Explain the Amazon move here because it's certainly
Speaker 5: the biggest customer, but it's not the most profitable. Why
Speaker 5: make a move such as this.
Speaker 8: Yeah, so Amazon accounts or roughly twelve percent of UPS's
Speaker 8: consolidated revenue. It accounts for, call it twenty twenty five
Speaker 8: percent of their domestic volumes. And the volume that they're
Speaker 8: doing for Amazon is lower margin business A because you know,
Speaker 8: delivering to somebody's home has higher costs and therefore usually
Speaker 8: has hot lower margins, so that B two C business
Speaker 8: tends to be much lower business. Then you have the
Speaker 8: fact that you know, Amazon has a lot of purchasing
Speaker 8: power because it is so big, so they were able
Speaker 8: to negotiate even lower rates. And you know, at the time,
Speaker 8: probably you know, a UPS and a FedEx they were
Speaker 8: happy to take on Amazon. But as Amazon grew, you know,
Speaker 8: it became kind of deluded to margins, and FedEx you know,
Speaker 8: said bye bye to Amazon back in twenty nineteen. So
Speaker 8: you know, we kind of knew this was going to
Speaker 8: happen eventually. I think maybe the pace was surprising and
Speaker 8: the timing was surprising, and I also think that you know,
Speaker 8: one of the reasons that the market is down so
Speaker 8: much is that you know this year is not going
Speaker 8: to be as great as what you know a lot
Speaker 8: of folks for expecting, and not just in their domestic business,
Speaker 8: but they're international and the supply chain businesses as well.
Speaker 3: All Right, So, as we mentioned, lee that UPS is
Speaker 3: the biggest decliner in the S and P five hundred,
Speaker 3: Carol Tomey, the CEO, saying, Amazon is our largest customer,
Speaker 3: but it's not the most profitable customer. You just walked
Speaker 3: us through those metrics. But even so, even if it's
Speaker 3: not the most profitable, is it a big loss? I
Speaker 3: mean so much so that investors are right in sending
Speaker 3: the stock.
Speaker 4: I don't know.
Speaker 3: It's biggest one day drop since two thousand and eight,
Speaker 3: down about fifteen percent.
Speaker 4: It looks like at its lows.
Speaker 8: Let's just think if you know, if you lost fifty pounds, right,
Speaker 8: you'd go out and you'd probably buy yourself a new wardrobe. Well,
Speaker 8: while UPS isn't buying a new wardrobe. What they are
Speaker 8: doing is they're restructuring their network so they can now
Speaker 8: get rid of facilities they can you know, maybe not
Speaker 8: have as many planes and operations, maybe they have not
Speaker 8: as few trucks or people. So their cost base is
Speaker 8: going to go down considerable and the fact that they're
Speaker 8: investing in a lot of productivity initiatives that are driven
Speaker 8: by technology, they're going to be able to do a
Speaker 8: lot more with less. And you know, they're going to
Speaker 8: fill some of the capacity that they do have with
Speaker 8: much higher yielding business, whether that's for small, medium size
Speaker 8: shippers or other types of shippers. You know, even their
Speaker 8: their shut post business, their ship post is their kind
Speaker 8: of economy ground delivery that the postal service used to
Speaker 8: deliver the majority of those packages to people's houses. And
Speaker 8: what UPS has been able to do through technology and
Speaker 8: AI and machine learning and all that good stuff is
Speaker 8: insert that freight back into their network and build density
Speaker 8: within their trucks and so lower the average costs of
Speaker 8: delivering that. And they decided to take all that in
Speaker 8: and they're able to do that through technology, and they
Speaker 8: also announced that about a nine point nine percent rate
Speaker 8: increase on that business. So you know, I think that
Speaker 8: you know, if you're looking past twenty twenty five, I
Speaker 8: think in twenty twenty six, UPS is going to be
Speaker 8: pretty pretty well positioned for growth and better margins, especially
Speaker 8: as it focuses on kind of higher yielding businesses or
Speaker 8: higher margin businesses like it has with the growth of
Speaker 8: its healthcare business.
Speaker 5: At least certainly, the focus of our conversation is UPS
Speaker 5: but doesn't exist in a vacuum here. Amazon is a
Speaker 5: big part of this conversation, and I'm wondering where this
Speaker 5: leaves Amazon, given that the company has invested so much
Speaker 5: over the last decade plus into building out its own
Speaker 5: delivery infrastructure network, including planes and including last mile as well.
Speaker 5: Where does it leave a company like Amazon. Does it
Speaker 5: eventually go entirely all under Amazon's umbrella.
Speaker 8: I think to go entirely under Amazon or umbrella is
Speaker 8: possible over time. But you know, when I'm talking about time,
Speaker 8: I'm not talking about twenty five, twenty six, I'm talking
Speaker 8: about over the long term. You know, what they've been
Speaker 8: able to build through their independent contractors is a good
Speaker 8: way to take the stuff that people buy and deliver
Speaker 8: it to people's homes. What they really haven't been able
Speaker 8: to do is pick things up along the way in
Speaker 8: mass so like their network is kind of like a
Speaker 8: one way network where a FedEx or a UPS are
Speaker 8: two way where you know, they do deliver stuff and
Speaker 8: they do pick up stuff at the same time, and
Speaker 8: so you know, until that that happens, you know, they
Speaker 8: are still going to rely on the UPS for returns.
Speaker 8: So you know, UPS as a lot of listeners know
Speaker 8: they have stores all over the place. You can go
Speaker 8: to the store and drop off an Amazon return and
Speaker 8: it's pretty easy. So you know, there's that there's that
Speaker 8: ability that UPS will probably you know, always have Amazon
Speaker 8: as a customer, but but it's just going to be
Speaker 8: a much smaller and it might be you know, eventually
Speaker 8: the majority of the business might just be returns, but
Speaker 8: you know, again that's going to be over time.
Speaker 3: Hey, Lee, FedEx is also down about two point two
Speaker 3: percent in today's session. I know we always say they're
Speaker 3: not the exact same companies, but but is there some bigger,
Speaker 3: broader thing here too about just the business overall or
Speaker 3: the you know moving around of goods and stuff that
Speaker 3: maybe it's just not as strong.
Speaker 9: Yeah.
Speaker 8: So, you know, a lot of the impact of the
Speaker 8: Amazon business was in UPS's domestic business, and you know,
Speaker 8: when they gave their twenty twenty five guidance, their international
Speaker 8: business was not nearly as strong, and you know, so
Speaker 8: I think the read through for that is maybe demand
Speaker 8: is not going to be as great in twenty twenty
Speaker 8: five as it was originally thought. I mean, I think
Speaker 8: people were expecting low single digit growth in volumes. You know,
Speaker 8: maybe that's just more at the low end of that
Speaker 8: low single digit growth kind of expectations. So, you know,
Speaker 8: I suspect that you'll see analysts be taking down their
Speaker 8: numbers not only on ups but maybe on FedEx as well,
Speaker 8: you know, just tweaking things here or there. But I
Speaker 8: don't think it's like a it's a huge call that, oh,
Speaker 8: the consumer is dead, it's time to panic. It's not
Speaker 8: time to panic. The consumer in the US has been
Speaker 8: extremely resilient and that has been good for these parcel
Speaker 8: providers and.
Speaker 3: One of those consumers know it well. Lee, Thank you
Speaker 3: so much, really appreciate it.
Speaker 4: Prober Maa sure you welt.
Speaker 3: Bloomberg Intelligence Senior Transport, Logistics and Shipping Alice Lee Clascow.
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Speaker 3: Another great need on the economy, and really the consumer
Speaker 3: comes from the restaurant space. It was just in December
Speaker 3: that Bloomberg reported on how casual restaurant bankruptcies had accelerated
Speaker 3: last year, with restaurants filing for bankruptcy at the fastest
Speaker 3: pay since twenty twenty as customers retreated. The view for
Speaker 3: this year was that advertising value promotions would ultimately helped
Speaker 3: restaurants sales. So let's see what is going on in
Speaker 3: the environment with us. As the chairman CEO of the
Speaker 3: family run fast casual restaurant chain Golden Crust. Jackie Hawthorne
Speaker 3: Robinson is with us. She recently took over as cp CEO,
Speaker 3: and she joins us here in studio.
Speaker 4: Welcome, Welcome, nice to have you here. How are you?
Speaker 7: Oh, thank you so very much. And I must say
Speaker 7: it's great to be here. Ah. Yeah, So I'm doing great.
Speaker 7: How about you?
Speaker 4: We're doing okay, trying.
Speaker 3: There's a lot coming at everybody, and I think there's
Speaker 3: a lot coming at investors, there's a lot coming at consumers.
Speaker 4: You guys are some thirty years into this.
Speaker 3: If we're got five years thirty five correct, So you know,
Speaker 3: how would you describe today's business environment, because what's going
Speaker 3: on in restaurants can tell us a lot about the economy,
Speaker 3: small business and the consumer.
Speaker 7: Well, basically, for us, from a Golden Cross perspective, we
Speaker 7: are doing great in our business. We are functional, we
Speaker 7: are operational, we are making profit, and we we are
Speaker 7: rolling the dice, so to speak. But I see it,
Speaker 7: I see the concept. I see what's happening to other
Speaker 7: restaurant business how they are failing. But for us, as
Speaker 7: Golden Cross, we are progressing. For sure.
Speaker 5: We saw the last couple of years punctuated by the
Speaker 5: highest inflation that we've seen in a generation. That's correct,
Speaker 5: Is that gone for you?
Speaker 7: I would say no, it's not going for us. But
Speaker 7: what we are doing, we are trying to keep the
Speaker 7: market alive. We're trying to bring quality still and even
Speaker 7: though inflation is up, we haven't raised prices for a
Speaker 7: few years, so we are trying to hold so we
Speaker 7: can maintain and stay in business.
Speaker 5: Well, where specifically are you still seeing prices increase.
Speaker 7: I'm seeing prices price increases in big box stores. I'm
Speaker 7: seeing price increases in the walmarts and in all those
Speaker 7: other locations we are seeing price increases in the products
Speaker 7: that we're purchasing coolds overall. Yes, for sure, definitely.
Speaker 3: So if you're not passing along to consumers, that puts
Speaker 3: pressure on you guys. Right in terms of the margin
Speaker 3: side of this is where we know it can be
Speaker 3: already kind of slim and tough in restaurants.
Speaker 7: Yes, I agree with that.
Speaker 4: How difficult?
Speaker 3: And then how do you manage like is there some
Speaker 3: can you cut costs elsewhere?
Speaker 7: Cutting costs elsewhere is also very difficult because as we
Speaker 7: know just about cost is being increased from every perspective
Speaker 7: right now. If it's rental is being increased. If it's good,
Speaker 7: so the cost of goods a high, So it's there.
Speaker 7: We are trying to shoulder it where inflation is concerned,
Speaker 7: just to keep our customers happy and to create the
Speaker 7: best product.
Speaker 5: One thing I've noticed at fast casual restaurants is in
Speaker 5: recent years is embracing technology and the way that companies
Speaker 5: have come out with apps to allow people to order
Speaker 5: ahead of time. In some cases, you go to a
Speaker 5: restaurant and you're not ordering from a person, you're ordering
Speaker 5: using a key exactly. All of that. The idea there
Speaker 5: is to help with costs and that's a decrease the
Speaker 5: amount of money somebody has to pay for employees, or
Speaker 5: decrease the number of employees. How are you guys embracing tech?
Speaker 7: Well, we're embracing tech. Were getting there not quick enough,
Speaker 7: but we are definitely entertaining tech and we're moving towards it.
Speaker 7: We have apps, we're operating in apps, we're serving from apps.
Speaker 7: We've got Uber Eats, and we've got all those different
Speaker 7: apps that we are utilizing right now.
Speaker 3: You know, we're talking about, you know, the business side
Speaker 3: of of what you guys do, and we are talking
Speaker 3: a lot, Jackie, about what might come down from Washington.
Speaker 3: We're already, you know, getting glimpses. We're seeing activities already
Speaker 3: around immigration. Is that impacting you in terms of a
Speaker 3: workforce or.
Speaker 7: It hasn't impacted us yet, so I know going forward
Speaker 7: it might be. But right now we are okay and
Speaker 7: we are still operational, yes for sure.
Speaker 5: You know, during the pandemic, we saw a lot of
Speaker 5: consumers embrace those third party delivery services. One challenge was
Speaker 5: for restaurants to have their products actually survive delivery and
Speaker 5: taste is good when somebody gets it at their home
Speaker 5: or apartment right versus when they get it in a restaurant.
Speaker 5: Did you guys have to make changes during that time
Speaker 5: how the product was delivered?
Speaker 7: I think for us, I would say absolutely not. Our
Speaker 7: products are delivered on time. It's still hot, it's still
Speaker 7: holding up in those boxes that we use, So we
Speaker 7: do not at present have a problem with.
Speaker 5: Did you see have you seen delivery as a portion
Speaker 5: of your overall business fall off significantly since the heights
Speaker 5: of the pandemic or of consumers now long of them,
Speaker 5: we have increased sales just as far as delivery does.
Speaker 5: I'm talking about in restaurant versus delivery. You're you're still
Speaker 5: seeing growth in delivery.
Speaker 7: Yeah, we're still seeing growth in delivery, and we're still
Speaker 7: see growth in the restaurant. Were Tire's duality and it's
Speaker 7: for us, and both of them were still functional.
Speaker 3: I just want to mention some headlines crossing the Bloomberg terminal.
Speaker 3: This house to do with open AI, of course, really
Speaker 3: at the center of the push that we've seen in
Speaker 3: artificial intelligence over the last couple of years, coming from
Speaker 3: the Wall Street Journal, Open AIS and talks for investment
Speaker 3: around valuing it up to three hundred and forty billion dollars,
Speaker 3: and it is in talks to raise up to forty
Speaker 3: billion dollars in a new round of financing, and that
Speaker 3: would include up to twenty five billion from SoftBank. But
Speaker 3: again open AI and talks to raise up to forty
Speaker 3: billion dollars that would ultimately give it a three hundred
Speaker 3: and forty billion dollar valuation.
Speaker 4: This again tim coming from the Wall Street Journal.
Speaker 5: So I guess not really a lot of concern over
Speaker 5: what happened on Monday.
Speaker 4: Or maybe I don't know. It's interesting the timing.
Speaker 3: I feel like this week has been chock full of
Speaker 3: news around on artifles intelligence.
Speaker 5: Just to remind the journal reminding us that one hundred
Speaker 5: and fifty seven billion dollars is the valuation that open
Speaker 5: AI recently had that was only a couple months ago,
Speaker 5: back in October. So a three hundred and forty billion
Speaker 5: dollar valuation, if this does indeed come true, would be
Speaker 5: quite an increase in a short time.
Speaker 4: Yeah, big bump up. Anyway, We're continue to track that.
Speaker 3: I want to get back to Jackie Hawthorn Robinson, CEO
Speaker 3: at Golden Crust, you know, for those who are not
Speaker 3: familiar and Jackie.
Speaker 4: I'll be quite honest with you.
Speaker 3: When we were reading in and getting ready to do
Speaker 3: this interview, I'm like, I don't know that I know
Speaker 3: these restaurants. So tell us, because you're around the United
Speaker 3: States a lot of them in the textos.
Speaker 7: Are you how to food at all?
Speaker 4: You have not?
Speaker 7: So tell us.
Speaker 4: Tell us about what you guys do. What's to you.
Speaker 7: Golden crusts basically to bring the taste of the Caribbean
Speaker 7: to worldwide, to everybody, whichever country, Urian, whatever state, Urian.
Speaker 7: So Golden Cross does exist for that. We carry a
Speaker 7: niche kind of recipe for all the food items that
Speaker 7: we offer with a Caribbean flavor, authentic Caribbean flavor. We
Speaker 7: stry for that and that's what we produce every day.
Speaker 7: So we're bringing most of our items. Core items do
Speaker 7: come out of Jamaica, right, so we import those items
Speaker 7: like the Scotch bonded pepper. I'm not sure if you've
Speaker 7: ever had that spicy.
Speaker 4: I do like a little bit of spicy. Yes, my
Speaker 4: family likes spicy, yep.
Speaker 7: And not only is it spicy, it's flavorful.
Speaker 3: Jackie, Where are you guys, mostly in terms of where
Speaker 3: your stores are right now?
Speaker 4: Your restaurants in the know.
Speaker 7: We are located over the metropolitan area. Yeah, that's where
Speaker 7: we are right now. And we're also in eight states.
Speaker 5: In eight states, Yes, that is correct, Connecticut, Florida, Georgia, Maryland,
Speaker 5: North Carolina, Texas, New York, and New Jersey. Yes, that's
Speaker 5: Does that footprint grow, Yes it does where.
Speaker 7: Yes, it grows. I mean we have growth monthly growths
Speaker 7: that from coming from all these footprints. We have areas
Speaker 7: that are doing better than other areas. But the footprints works.
Speaker 5: Where where will you grow next? Web states? Will you
Speaker 5: expand into?
Speaker 7: Well, we're in Texas. We're trying to expand more into Texas.
Speaker 7: We currently have three locations there. We're looking to probably
Speaker 7: possibly put another two to three locations in the Texas region.
Speaker 7: We want to go back and go full blast back
Speaker 7: in California. So those are the that's where we are
Speaker 7: looking to go to now. California will be the next
Speaker 7: state up for us.
Speaker 4: Who is your typical customer?
Speaker 3: And I am curious, Like we talked a little bit
Speaker 3: about the business environment earlier, what you have seen in
Speaker 3: terms of the spend if that you know, we talked
Speaker 3: about inflation and pressures and you haven't been really taught
Speaker 3: spending that or passing that along time the customer. But
Speaker 3: are you increasingly seeing customers look for kind of like value?
Speaker 7: Hyeah, definitely, they do that every day. Everybody wants a deal.
Speaker 7: We understand, yeah, and we do understand that. But our
Speaker 7: niche right now is Caribbean people, mostly Jamaicans coming in
Speaker 7: and then outside of that, we sure have a broader
Speaker 7: customer base, so we serve to every body just about now.
Speaker 5: One thing that I always wonder about when it comes
Speaker 5: to restaurants is supply chain and how you keep consistency
Speaker 5: across different parts of the country when some restaurants are
Speaker 5: thousands of miles from the other restaurant. Correct, how do
Speaker 5: you what's your distribution center? How do you make sure
Speaker 5: that the experience that somebody has at the location on
Speaker 5: Fourteenth Street in Manhattan, for example, is the same as
Speaker 5: the location in Texas.
Speaker 7: I think keeping everything the same is how we operate.
Speaker 7: We have field officers, we have people that are responsible
Speaker 7: for each state. Of course, we do testings all the
Speaker 7: time to ensure people are keeping up with what they
Speaker 7: need to. We as also a delivery company. We do
Speaker 7: deliver all of our items from the main office, whether
Speaker 7: it's the beef patties boxed and frozen, and all your
Speaker 7: other items like your fresh hard or bread and the
Speaker 7: fresh heart of buns and all the other items that
Speaker 7: we produce we do deliver daily to these customers and
Speaker 7: to these franchises.
Speaker 3: How do you determine you know, you talk about the franchisees,
Speaker 3: so in some ways that offload some of the risk
Speaker 3: for you guys. That is correct directly, but you want
Speaker 3: to make sure those franchises do well because correct, it
Speaker 3: impacts the overall brand bottom line brand totally get totally get.
Speaker 7: Yeah.
Speaker 3: So in terms of expansion, how do you determine where
Speaker 3: you are going? Is it just where you're seeing is
Speaker 3: a basic demand in terms of customers and you know
Speaker 3: that you're going to be able to grow that market,
Speaker 3: or how do you determine where to go?
Speaker 7: Just as you mentioned, the demand definitely is a factor.
Speaker 7: I mean, we have customers that comes into our stores
Speaker 7: every day and whichever state they are from, they are
Speaker 7: going to come and say, hey, you guys need to
Speaker 7: get into Texas, right, I need your product, you need
Speaker 7: to get there. So of course we'll take that, we
Speaker 7: will listen to it. We will do demographics and we'll
Speaker 7: see if it fits us, and then we'll move into
Speaker 7: that state.
Speaker 5: If the gives an understanding of a company run stores
Speaker 5: versus franchise stores right.
Speaker 7: Now, right, so give you an understanding, Yeah.
Speaker 5: How many do you have that company run versus.
Speaker 7: Now we're down to like two company stores and the
Speaker 7: stores are franchises.
Speaker 5: What is the what is the commitment that a franchise
Speaker 5: he has to make in order to open one of
Speaker 5: these restaurants.
Speaker 7: Well, they have to commit to the brand, They have
Speaker 7: to commit to keep the brand alive, they have to
Speaker 7: commit to use our products, and they have to commit
Speaker 7: to consistency.
Speaker 5: I was looking for a financial commitment.
Speaker 7: Financial commitment or you need a number, I need a number,
Speaker 7: You need a number for that. If I were to
Speaker 7: throw a number out, there'd probably say, on this platform
Speaker 7: right now, probably about four hundred and fifty thousand.
Speaker 5: Okay, So that's the upfront cost, and then.
Speaker 7: That can be construction costs.
Speaker 5: Upfront costs, and then there are the costs that are
Speaker 5: associated with the licensing exactly, and that's a different cost
Speaker 5: as well.
Speaker 7: Not really not.
Speaker 5: So the percentages that you take is just a just
Speaker 5: a licensing.
Speaker 7: Yes, licensing and at that point you do take your
Speaker 7: percentage once they open and become operations.
Speaker 5: Okay, yes, you do well.
Speaker 3: And what's interesting is you, guys, yep, you have the restaurants,
Speaker 3: you have the franchisees, but you also have a lot
Speaker 3: of products right in grocery stores.
Speaker 7: We sure do.
Speaker 4: What's tell us attle bit about the growth of that
Speaker 4: business and what you're seeing there?
Speaker 7: Okay, Well, basically for us, we're in a lot of
Speaker 7: big box stores. We're in the Costcos, we're in Dollar Trees,
Speaker 7: we are in Walmart, and as a matter of fact,
Speaker 7: we are pulling out rolling out a new item for Walmart,
Speaker 7: which is scheduled to roll out February twenty sixth a
Speaker 7: two pack select patty just for Walmart prices only. Yeah,
Speaker 7: so that's what we're doing right now.
Speaker 5: What's the connection between a sales increase at a big
Speaker 5: box store when a restaurant opens in that local area.
Speaker 5: Do you see a lift?
Speaker 7: Yes, we do, We definitely do.
Speaker 5: Like, if you have a restaurant open up in a
Speaker 5: new location and you've already been selling the products in
Speaker 5: one of the big box stores, how much does it
Speaker 5: increase the sales in the big I would.
Speaker 7: Say because of visibility. So that big new restaurant is
Speaker 7: now creating more visibility for us. Most of the time,
Speaker 7: it does not affect us at all.
Speaker 3: Yeah, all right, we're gonna leave it on that note.
Speaker 3: Really interesting to hear. Let us know as things continue.
Speaker 4: To grow and expand.
Speaker 3: So very much, Jackie, Thank you so much, Jackie Hawthorne Robinson.
Speaker 3: She's chairman and chief executive officer of Golden Crust. Joining
Speaker 3: us here in studio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 5: Well, it's hard to think back to Monday, Carol, given
Speaker 5: what a week it's been so far.
Speaker 4: It's been kind of crazy the ride here.
Speaker 5: Okay, it was a day that the stock market reckoned
Speaker 5: with a startup called deep Seek, even though lot of
Speaker 5: people knew about what it could do. In our one
Speaker 5: last week. On that day, though, you'll recall in VIDAFL
Speaker 5: seventeen percent in a single day at e rased five
Speaker 5: hundred and eighty nine billion dollars in value, a record
Speaker 5: drop for a single day. Meir here, they said, was
Speaker 5: watching what happened in the stock market that day closely.
Speaker 5: He's the Mizuho Financial Group Professor of Finance at our
Speaker 5: Business School. He's also a professor at the law school.
Speaker 5: He's also contributed to Bloomberg's weekend edition. He did right
Speaker 5: in the New York Times this week that Monday's value
Speaker 5: destruction illustrates something concerning happening in financial markets and can
Speaker 5: best be explained by an ancient myth. They've a serpent
Speaker 5: eating itself, Professer. They said, it's good to have you
Speaker 5: with us. Why was Nvidia losing nearly a fifth of
Speaker 5: its value in a day? Not that surprising to you?
Speaker 9: Well, so I think what the big surprise is is
Speaker 9: why and how seven companies constitute one third of our
Speaker 9: market capitalization. That's really the big surprise. And so the
Speaker 9: question of the day is really how is that going
Speaker 9: to reconcile itself? And so what I tried to put
Speaker 9: forward in this piece was just the theory that actually
Speaker 9: it's pretty unsustainable and that in effect, big tech is
Speaker 9: eating its own tail. This serpent image that you might
Speaker 9: have seen of a snake eating itself has been around
Speaker 9: for millennia, and I think that's kind of what's going on,
Speaker 9: which is just a way of saying this AI frenzy
Speaker 9: has in some sense been manifested by these Big seven
Speaker 9: companies having a very low cost to capital. They've become
Speaker 9: the safe asset in the world. So if you are
Speaker 9: around the world you want a dollar denominated asset, but
Speaker 9: with better management teams than maybe governments, better balance sheets
Speaker 9: than maybe governments, you're gonna flock to them. Well what
Speaker 9: does that mean. Well, if that happens and they become
Speaker 9: the safe asset, then people don't expect much in terms
Speaker 9: of return, because that's what happens with safe assets. Well,
Speaker 9: how to managers respond to that? And the answer is
Speaker 9: you invest a lot. And that's what they've been doing.
Speaker 9: And they've been investing a lot in each other, and
Speaker 9: they've been spending like crazy. So, for example, in videos,
Speaker 9: more than half their revenues is coming from their siblings
Speaker 9: in the Big seven. So the Amazon Microsoft are spending
Speaker 9: literally two hundred billion dollars a year in infrastructure spend,
Speaker 9: and they're doing buybacks hand over fist, So they are
Speaker 9: literally eating themselves and literally eating each other. And the
Speaker 9: underlying story I think is going to be that these
Speaker 9: is going to end up having low returns. So when
Speaker 9: you end up giving them the prize of being a
Speaker 9: safe asset, you don't expect much from them, and they
Speaker 9: invest like crazy and then they deliver slow returns. That's
Speaker 9: what we are going to see. It won't happen today
Speaker 9: or tomorrow. It'll happen over the next five or ten years,
Speaker 9: like it happened at the beginning of the last century
Speaker 9: with railroads and steel. I think that is why it
Speaker 9: wasn't that big a surprise.
Speaker 4: I want to dig a little bit into this.
Speaker 9: You know.
Speaker 3: One of the things that we love looking at here
Speaker 3: at Bloomberg is that the supply chain functions. You pull
Speaker 3: up something like Nvidia, and so Microsoft is responsible for
Speaker 3: about nineteen percent of their revenue. Meta is about ten
Speaker 3: percent according to our latest data, super Micro about eight percent, Alphabet,
Speaker 3: Google about six percent, Amazon about five percent, Dell about
Speaker 3: three percent. Like, we love to kind of get an
Speaker 3: idea of who's who's buying and so the exposure, especially
Speaker 3: if we get bad news from them, what it means
Speaker 3: for an Nvidia. So you're saying what to concentrated or
Speaker 3: what's your point about you know that they're kind of
Speaker 3: it's like there's almost closed circle, right of a closed circle,
Speaker 3: and they all are kind of like supporting one another.
Speaker 9: Yeah, so I mean effectively, what's happening is they're investing
Speaker 9: in spending money on each other and that closed circle.
Speaker 4: Why are they doing that?
Speaker 3: Because some would say that what we've seen over the
Speaker 3: last couple of years is that everybody has all of
Speaker 3: a sudden realized, oh my god, look at what generative
Speaker 3: AI can do, and so we have to build out
Speaker 3: our own.
Speaker 9: Systems exactly right. And the promise is that it is
Speaker 9: not a closed circle, that one day it'll all be
Speaker 9: manifest to us what those revenues and profits are. And
Speaker 9: that is a huge bet. We are all levered to
Speaker 9: the MAG seven in a way that I don't think
Speaker 9: we understand. When one third of the market cap is
Speaker 9: MAG seven, we're levered to it, and the global economy
Speaker 9: is levered to it. And all of that is going
Speaker 9: to be a function of the productivity of all this
Speaker 9: capital they're spending on each other. And what I tried
Speaker 9: to raise in that article is it's not clear that
Speaker 9: that is going to be manifest and in fact, deep seek.
Speaker 9: I think people misunderstood the Deep Seak lesson in part.
Speaker 9: The story about Deep Seak is it is very hard
Speaker 9: to create a competitive advantage in this industry. You know,
Speaker 9: people think there's a lot of money to be made. Well,
Speaker 9: to make a lot of money, you need to be
Speaker 9: able to capture the rents. And what Deep Seak showed
Speaker 9: is that it's not clear that these rents are easily captured.
Speaker 9: And so if it's easily accessible to everyone, that doesn't
Speaker 9: mean it's not going to be transformational, Carol. What it
Speaker 9: means is.
Speaker 3: Because some would say that if it's more accessible, more
Speaker 3: people can tap into it, and first people who are
Speaker 3: supportive of it, like hence the software guys, right, we
Speaker 3: all of a sudden said they were often.
Speaker 9: Running yeah, and it could be transformational, but will a
Speaker 9: company be able to capture it?
Speaker 8: All?
Speaker 5: Right?
Speaker 9: So the whole premise of their market capitalizations is there's
Speaker 9: going to be seven big winners, and we know who
Speaker 9: they are. It's those seven companies, And maybe that's not
Speaker 9: right even if it is transformational. If it isn't transformational,
Speaker 9: then we're all really in trouble because they're literally deploying
Speaker 9: capital at really, really low rates of return, maybe negative
Speaker 9: rates of return.
Speaker 5: Your question about a mode or differentiation is an interesting one.
Speaker 5: It came up yesterday during our conversation with Caroline Hide
Speaker 5: of Bloomberg Technology about what the difference is between Gemini
Speaker 5: a GPT, Lama, you know, anthropics, Claude, what is the
Speaker 5: difference between these? Apart from the way they look that question,
Speaker 5: I think still a lot of investors in the private
Speaker 5: markets and the public markets are asking themselves.
Speaker 9: Yeah, and one theory is that it's about scale. You
Speaker 9: have to get big, and you have to get big fast,
Speaker 9: and the answer is maybe deep seek suggests maybe not.
Speaker 9: And also we should just remember that having access to
Speaker 9: a lot of capital and spending it is not a
Speaker 9: competitive advantage. That is not what a competitive advantage is.
Speaker 9: Capital is not like the scarce resource in the world,
Speaker 9: and especially.
Speaker 3: For some of these big tech companies, right, Like we
Speaker 3: talk about their balance sheets and typically you would say
Speaker 3: a higher rate environment would bother them. But they have
Speaker 3: so much cash that they don't have to really tap
Speaker 3: into the capital markets.
Speaker 9: So but I think they're in a race, right, So
Speaker 9: they're spending cash handover fist and the answers will weap
Speaker 9: But if you don't have a sustainable advantage, then what
Speaker 9: is this race about? And I don't think there is
Speaker 9: a real mode there, and then you really have to
Speaker 9: question the whole story.
Speaker 5: So I think it raises a lot of questions about
Speaker 5: where investors should be putting their money in the public market.
Speaker 5: You know, we've been talking. We talk a lot about
Speaker 5: single stocks in retirement portfolios. A lot of people are
Speaker 5: invested in indexes. If you're not playing the stock market.
Speaker 5: All the experts say, hey, just invest in the S
Speaker 5: and P five hundred index funds. What happens though, when
Speaker 5: the S and P five hundred exactly is dominated by
Speaker 5: these companies, where should people put their money?
Speaker 9: Well, that's exactly right, because the unque circumstance is that,
Speaker 9: you know, I talk about the unmagnificent four ninety three
Speaker 9: because there's a magnificent seven and there's an unmagnificsten four
Speaker 9: ninety three. And the answer is that is still the
Speaker 9: best advice. However, I think it's a good time to
Speaker 9: rethink certain things. So for example, as you know, we
Speaker 9: are living in the twentieth year of the value growth split,
Speaker 9: where growth has just outperformed value forever, and I think
Speaker 9: it's a good occasion to revisit that. And for those
Speaker 9: of you who are listening who want to BEBB still,
Speaker 9: I just want to index. I just want to do that. Well,
Speaker 9: you want to think about broader indsease, You want to
Speaker 9: think about value in disease, and you want to think
Speaker 9: about whether that whole mantra that has been good for
Speaker 9: the last twenty years is good again, especially as rates
Speaker 9: stay relatively speaking high in a way they haven't been
Speaker 9: for fifteen twenty years.
Speaker 5: Although one challenge, though, someone might push back and say,
Speaker 5: well VTI, which is the Vanguard Total stock Market Index,
Speaker 5: is pretty heavily correlated to the S and P five hundred.
Speaker 5: That is true, and that's a challenge. If you want
Speaker 5: to buy the entire market, you're still just buying that's
Speaker 5: biggest company.
Speaker 2: That is true.
Speaker 9: I mean in a way that is a little bit
Speaker 9: of the point of the piece, which is we are
Speaker 9: all levered to the max seven in a way that
Speaker 9: we can't get away. I think the answer is though,
Speaker 9: there are narrower, you know, value indices that can help you,
Speaker 9: and there are international ways to go. So I am
Speaker 9: not a huge believer in stock pickers, So I think
Speaker 9: indices are fantastic, But there are other kinds of indices.
Speaker 9: There's non US indices, there's yield, there's fixing. There's lots
Speaker 9: of things that we, for the last fifteen years have
Speaker 9: forgotten about. My previous piece was about magical thinking and
Speaker 9: how kind of long periods of low rates have infected
Speaker 9: people to think like this goes on forever, and growth
Speaker 9: the stuff happens forever, and technology solves everything. And so
Speaker 9: look when rates get back up where they are, you
Speaker 9: got to think hard in your portfolio about fixed income
Speaker 9: in a way and cash in a way that you
Speaker 9: haven't thought about it in a long time.
Speaker 3: All right, So, Professor Veisi, so how does this potentially end?
Speaker 3: People have made the comparisons to the tech bubble of
Speaker 3: nineteen ninety nine two thousand. I don't know that it's
Speaker 3: the exact same thing, but you tell me that in
Speaker 3: terms of then how does this ultimately work its way out?
Speaker 3: Or do these companies possibly ultimately deliver if AI is
Speaker 3: as transformative as we think it might be.
Speaker 9: Yeah, So I think the analogy to the dot com
Speaker 9: bubble isn't that great in some ways because those a
Speaker 9: lot of those companies were not real companies and it
Speaker 9: was all a little sketchy. Exactly, these are real companies,
Speaker 9: like this is, these are really the best companies in
Speaker 9: the world, Okay, And so what's more likely to be
Speaker 9: true is something like the nifty to fifty Yeah, going
Speaker 9: to the early seventies or the early part of last century,
Speaker 9: which is railroads and steel. And what does that tell you?
Speaker 9: It's a grind. It's not a pop of a bubble.
Speaker 9: It's like five years of like zero of like zero returns, right,
Speaker 9: So it's grind.
Speaker 4: So five years of this stuff just kind of going sideways.
Speaker 9: Yeah, perhaps like sideways, right, because it's not is it?
Speaker 4: Because the bill takes so long a lot.
Speaker 9: And then we realize that the returns aren't there, right,
Speaker 9: And for us to realize that and understand that, I mean,
Speaker 9: these folks are spending hundreds and hundreds of billions of dollars.
Speaker 9: We won't really know the productivity of that capital spend
Speaker 9: for a long time and that's why it takes longer.
Speaker 9: And they're not like fly by night folks, right, take
Speaker 9: serious people, and so it's going to take years and
Speaker 9: that I don't know if that's good news or bad news, Carol,
Speaker 9: but I think that is the right way to understand.
Speaker 9: It's it's three to five years of a grind, which
Speaker 9: also helps you understand why valuation levels are high right
Speaker 9: now and how they come back down, just very slowly
Speaker 9: and in a very boring, unexciting way.
Speaker 5: It's interesting because we saw in the president's first week
Speaker 5: of his term an announcement where he was flanked by
Speaker 5: Larry Ellison of Oracle, Pascio Shei's son of soft Bank,
Speaker 5: Sam Alltman of Open Ai, and he was tatting a
Speaker 5: one hundred billion dollar up to five hundred billion dollar investment. Yeah,
Speaker 5: is that something that concerns you when we're talking about
Speaker 5: figures of that size, Well, what.
Speaker 9: Would concern me is if capital you know, this is
Speaker 9: all by capital allocation, like everything is in the economy,
Speaker 9: and so if capital allocation is going to be guided
Speaker 9: by political litmus tests, which is, you got to spend
Speaker 9: one hundred billion, and if you're not good for the
Speaker 9: hundred billion, you know, we're not sure if you're a
Speaker 9: real deal. If it becomes a political litmus test and
Speaker 9: it's not being guided by the tenets of capital allocation,
Speaker 9: we're all going to suffer on that over the long run.
Speaker 9: So that's what concerns me. It's about whether this is
Speaker 9: becoming a political litmus test, like are you with us
Speaker 9: on AI or not? And then of course, as you know,
Speaker 9: CEOs have to respond, which you know, I'm good for
Speaker 9: thee hundred billion, Yeah, which now starts to feel like
Speaker 9: a poker match as opposed to foughtful capital allocation and
Speaker 9: feels a little bit like a political litmus test.
Speaker 3: Well, it's certainly something we've talked about that even with
Speaker 3: some of the announcements that came out of the administration. Right,
Speaker 3: but of course no government money, but nonetheless commitments by
Speaker 3: companies and some say, you know, it's a commitment, doesn't
Speaker 3: mean ultimately the spend gets carried out. So it's something
Speaker 3: to keep an eye on, right, to see ultimately how
Speaker 3: it plays at I think we're in this interesting place
Speaker 3: where we've talked a lot too about we're waiting for
Speaker 3: the payoff and understanding whether this all makes sense.
Speaker 4: Great stuff, Thank you so much, oh my pleasure, really
Speaker 4: appreciate it.
Speaker 3: Professor me here today say he is, of course with
Speaker 3: Harvard Business School. He's the Mizuho Financial Group Professor of
Speaker 3: Finance at Harvard Business School. And a professor of law
Speaker 3: at Harvard as well. Interesting column here in the New
Speaker 3: York Times. Thank you so much, really appreciate it.
Speaker 4: Rob Mac, I'll bet you let me drive.
Speaker 9: Oh no, no, no, no, this is not a toy jug.
Speaker 7: Honey, please, I'll do the riding gravels.
Speaker 9: Excuse mate, I want to try it.
Speaker 7: It's a good question time.
Speaker 5: This is the drive to the clothes dot plum for me.
Speaker 2: Thing well don on Bloomberg Radio.
Speaker 3: All right, everybody, just about eighteen minutes left to go
Speaker 3: in the trading session. Carol Master along with Tim Stanovic
Speaker 3: live here in our Bloomberg Interactive Broker's studio. And as
Speaker 3: Tim and both mentioned, we did see stocks roll over here.
Speaker 3: We've now got the Dow in negative territory. But you
Speaker 3: are definitely off the best levels of the session, but
Speaker 3: a leg down. And we did have some comments from
Speaker 3: President Trump from the Oval Office talking to reporters, and
Speaker 3: the President saying that there are plans to announce Canada
Speaker 3: Mexico TIFFs because of fentanyl shipments we would assume coming
Speaker 3: into the United States, and particularly and specifically I should
Speaker 3: say that the President saying twenty five percent tariffs when
Speaker 3: it comes to Canada and Mexico. So we're going to
Speaker 3: look for some more clarifications on that, more detail, if
Speaker 3: you will. But investors noticing and sending stocks in a
Speaker 3: straight leg down over the last few minutes, not.
Speaker 5: Just stocks, keeping on currencies as well. The Mexican peso
Speaker 5: has sunk to a session low on those comments from
Speaker 5: Trump about tariffs. Let's see what Sam Stoveall has to
Speaker 5: say about this. He's chief investment strategist at CFRA Research.
Speaker 5: He's back with us from Allentown, Pennsylvania. Sam, was an
Speaker 5: interesting trade today even before just a few minutes ago,
Speaker 5: and we got those comments from reporters saying that Trump
Speaker 5: would impost twenty five percent tariffs on Canada and Mexico.
Speaker 5: Do defense and all. How are you looking at tariffs
Speaker 5: over at CFRA.
Speaker 10: Hey, Tim, Well, certainly we are paying attention to whatever
Speaker 10: the President says one day to the next. We still think, however,
Speaker 10: that a majority of this tariff talk is more to
Speaker 10: do with negotiating and trying to get to squeeze out
Speaker 10: whether it's from Columbia, Venezuela as well as Mexico and Canada,
Speaker 10: to try to get whatever it can to improve the
Speaker 10: trade situation.
Speaker 3: The sensitivity though sam of the markets to headline on
Speaker 3: possible tariffs, the sensitivity even on Monday to the news
Speaker 3: out of deep Seak in terms of AI, many were
Speaker 3: saying that, you know what, investors are just looking for
Speaker 3: a reason to sell after two years of just moving higher.
Speaker 3: Do you agree that there's a sensitivity in the market
Speaker 3: or do you think the fundamentals are there that investors
Speaker 3: don't need to be so nervous about the outlook, especially
Speaker 3: when it comes to further gains.
Speaker 10: Well, I think certainly that we could easily go through
Speaker 10: a pullback or even a mild correction, because those things
Speaker 10: do happen every so often. But I still call myself
Speaker 10: a bull. I think that we are likely to see
Speaker 10: prices higher at the end of the year, but volatility,
Speaker 10: I think certainly is going to be on the upswing.
Speaker 10: But I would tend to say also that because the
Speaker 10: market has been very willing to rotate from the high
Speaker 10: growth areas, showing some interest in healthcare, in materials, in
Speaker 10: industrials areas that had been under performers in twenty twenty four,
Speaker 10: that says a lot to me that investors are not
Speaker 10: willing to give up the shift just yet.
Speaker 5: Did you change your view given the stock market action
Speaker 5: that we saw on Monday with some big name tech
Speaker 5: names sell off as a result of the deep Seek news.
Speaker 10: Well, Tim, we didn't change our view because we're taking
Speaker 10: sort of a wait and see attitude like the FED.
Speaker 10: We did acknowledge absolutely that it is news that should
Speaker 10: probably be taken quite seriously. We still think that these
Speaker 10: companies are likely to stress the need for greater compute
Speaker 10: as we shift toward ngetic AI and physical AI. But
Speaker 10: at the same time, these semiconductor companies could probably end
Speaker 10: up experiencing a bit of pressure in the near term,
Speaker 10: but our feeling is that it could end up then
Speaker 10: experiencing a buy on the dip a little later on. So,
Speaker 10: right now, technology is the worst performing sector in the
Speaker 10: month of January, and historically the four worst performers in
Speaker 10: the month of January tend to underperform the SMP in
Speaker 10: the full calendar year.
Speaker 3: Hey, Sam, I do wonder too that within the AI community,
Speaker 3: the big megacap tech names that are all spending big.
Speaker 4: Time on AI at this point.
Speaker 3: Don't think at some point kind of have to support
Speaker 3: the AI story in the AI narrative, even if they
Speaker 3: think that there might be a competitor. I mean they
Speaker 3: all were, so I feel like, you know, congratulatory backslapping,
Speaker 3: if you will, on Monday over Deep Seek in terms
Speaker 3: of their findings, And you do wonder do they kind
Speaker 3: of have to all be like AI be supportive of
Speaker 3: it because there's so much money at stake, so much
Speaker 3: that's already been invested.
Speaker 10: Sure, and also Carol that we're starting to see AI
Speaker 10: profits exceed AI expenditures, and so that is something where
Speaker 10: companies are expecting it to get a reward in this
Speaker 10: year and also in future years, where it's not just
Speaker 10: investments in the product that will then bear fruit years
Speaker 10: from now. They're actually expecting to see nice returns beginning
Speaker 10: this year.
Speaker 5: When do we start to see AI affecting the companies
Speaker 5: that are not hyperscalers, When do we start to see
Speaker 5: them affecting consumer packaged goods companies, automakers and the like.
Speaker 10: Well, I would tend to say that that is something
Speaker 10: that is certainly down the road. I don't have a
Speaker 10: specific timeframe for you, but when you think about a
Speaker 10: lot of the minor AI that we experience on a
Speaker 10: daily basis, whether we're just communicating with others, or whether
Speaker 10: we are doing calculations. Certainly that's already being beneficial to
Speaker 10: consumers and investors today.
Speaker 3: Sam love talking with you for so many different reasons.
Speaker 3: I feel like we've talked so much over the years,
Speaker 3: whether it's earnings, whether it's fundamentals. But I appreciate someone
Speaker 3: who has seen a lot of cycles, a lot of
Speaker 3: strains and stresses in the financial system, and seeing innovation disruption,
Speaker 3: things that people thought would be something big that ultimately
Speaker 3: do not memestock so much. I'm just thinking about just
Speaker 3: got about a minute and a half left here. How
Speaker 3: you think about the market environment. Is there a lot
Speaker 3: of clarity and transparency about kind of where we go
Speaker 3: from here?
Speaker 4: Or are there more questions?
Speaker 10: I think that there are questions. I guess it depends
Speaker 10: on what we mean by where we go from here.
Speaker 10: Is it in the next couple of months, is it
Speaker 10: this calendar year, or is it five or ten years
Speaker 10: down the road. I am a bit concerned about valuations
Speaker 10: and how people tend to just dismiss them and say, well,
Speaker 10: it's because now is different. I mean, the S and
Speaker 10: P is trading at a twenty one percent premium to
Speaker 10: its forward pe average over the last ten years and
Speaker 10: close to a forty percent premium over the last twenty years.
Speaker 10: Tech is at thirty five percent premium over the ten
Speaker 10: year period and more than sixty sixty five percent over
Speaker 10: the twenty year period. So I would tend to say
Speaker 10: that we're going to have to see a very large
Speaker 10: pickup in earnings because I don't expect PE multiples to expand,
Speaker 10: and if the economy is likely to be contracting as
Speaker 10: we move into this year and next, it's going to
Speaker 10: be a tough hurdle I think to see expanding profits
Speaker 10: rather than simply focusing on maintaining profit margins.
Speaker 4: Yeah, super solid point for us to wrap up on.
Speaker 3: Sam, Thank you, as oways Sam Stovell, chief investment strategist
Speaker 3: at CFA Research, joining us from Allentown, Pennsylvania.
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