WEBVTT - UPS Plans to Slash Amazon Business By Half 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, Podcasts, radio news. 0:00:08.640 --> 0:00:12.640 This is Bloomberg Business Week Insight from the reporters and 0:00:12.800 --> 0:00:16.800 editors that bring you America's most trusted business magazine, plus 0:00:17.000 --> 0:00:20.799 global business, finance and tech news. The Bloomberg Business Week 0:00:20.840 --> 0:00:25.760 Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio. 0:00:26.520 --> 0:00:28.480 We did want to go back to IBM hitting a 0:00:28.560 --> 0:00:31.000 record in traday, up the most since April of nineteen 0:00:31.080 --> 0:00:33.960 ninety nine, after it reported fourth quarter results that beat 0:00:34.000 --> 0:00:37.839 expectations on key metrics thanks to robust growth in IBM 0:00:37.920 --> 0:00:40.360 software business. It also gave a strong forecast for free 0:00:40.360 --> 0:00:43.239 cash flow. It was the number one gainer in the 0:00:43.320 --> 0:00:44.040 S and P five. 0:00:43.960 --> 0:00:44.879 Hundred for most of the day. 0:00:44.920 --> 0:00:48.479 It's now slipped into second place, just behind Vistro, which 0:00:48.520 --> 0:00:50.600 we know has been beaten up over questions about the 0:00:50.600 --> 0:00:53.200 AI build out and boost Energy. 0:00:53.240 --> 0:00:54.400 But anyway, we wanted to. 0:00:54.320 --> 0:00:56.520 Talk IBM, especially Tim, in a week where we've been 0:00:56.520 --> 0:00:59.480 so focused on some of them other megacap tech names. 0:00:59.520 --> 0:01:01.959 But it's interest to see the app performance that we're 0:01:01.960 --> 0:01:02.840 getting in IBM. 0:01:03.000 --> 0:01:06.759 So watching closely is Ryan Lstelica. He's Bloomberg News Equities reporter. 0:01:06.800 --> 0:01:09.520 He joins us from our Chicago bureau. Ryan. It's a 0:01:09.560 --> 0:01:12.000 funny week because we're focusing on AI. We're focusing on 0:01:12.040 --> 0:01:14.880 the megacap tech names. You've got Apple reporting after the bell, 0:01:15.280 --> 0:01:20.160 Microsoft and Meta reported after the bell yesterday. IBM's rallying. 0:01:20.160 --> 0:01:23.479 It's not performing the other companies that we talk about 0:01:23.520 --> 0:01:26.720 so much. What was so interesting about this quarter for 0:01:26.800 --> 0:01:29.040 IBM is this a real turnaround moment for the company? 0:01:30.160 --> 0:01:32.559 Hey, thanks for having me. IBM has actually been doing 0:01:32.600 --> 0:01:34.880 pretty well over the past year or so. For a while, 0:01:34.880 --> 0:01:37.479 it was kind of viewed as an underappreciated value name 0:01:37.520 --> 0:01:40.840 within tech. They do have a lot of AI related businesses, 0:01:40.840 --> 0:01:43.200 a lot of AI related patents, and while it was 0:01:43.240 --> 0:01:46.200 sort of underappreciated when it comes to you the whole 0:01:46.280 --> 0:01:49.400 artificial intelligence space overall, people have been kind of like 0:01:49.560 --> 0:01:51.920 warming to the stock. It's really come up quite nicely 0:01:52.040 --> 0:01:54.080 over the past twelve months or so, and we did 0:01:54.120 --> 0:01:56.520 see in this most recent report very strong cash flow, 0:01:56.640 --> 0:01:59.960 very strong cash flow forecast, a lot of positive AI booking. 0:02:00.080 --> 0:02:01.960 So the trends there seem pretty strong, and I don't 0:02:02.000 --> 0:02:04.120 think people really caught onto it in the same way 0:02:04.120 --> 0:02:06.280 that you might. You know, name some of the other 0:02:06.320 --> 0:02:08.280 bigger names within the AI space. 0:02:08.760 --> 0:02:11.120 So Ryan though, if you look at the analyst community, 0:02:11.120 --> 0:02:13.440 there's been a bunch that actually been raising their price targets, 0:02:13.440 --> 0:02:15.760 even if it's just a little bit, but raising their 0:02:15.760 --> 0:02:17.800 price targets and IBM today, So maybe a little bit 0:02:17.800 --> 0:02:18.760 of a rethink here. 0:02:19.880 --> 0:02:20.480 Yeah, I think so. 0:02:20.600 --> 0:02:23.120 I mean, I think the consensus is slowly growing more positive. 0:02:23.120 --> 0:02:25.680 People seem pretty positive with the direction of the company 0:02:25.760 --> 0:02:28.359 software business. Like I said, the cash flow, you know, 0:02:28.360 --> 0:02:29.960 it kind of remains to be seen how big they 0:02:29.960 --> 0:02:31.639 are going to be in the AI landscape. But they've 0:02:31.680 --> 0:02:33.680 been in this area for a while. If you remember 0:02:34.639 --> 0:02:37.880 IBM's Watson program that I think at won Jeopardy or 0:02:37.919 --> 0:02:39.880 something a while. Yeah, so they've been around there for 0:02:39.880 --> 0:02:41.519 a while, but it's only kind of recently that people 0:02:41.560 --> 0:02:43.519 are sort of contenting them in a more pronounced way. 0:02:43.960 --> 0:02:45.880 Is it about the clients that they're getting. Is it 0:02:45.880 --> 0:02:47.839 about spin offs that they've done over the last couple 0:02:47.880 --> 0:02:50.720 of years that have changed the business. What specifically is 0:02:50.760 --> 0:02:53.359 it about IBM that has people optimistic? 0:02:53.880 --> 0:02:55.520 Yeah, they have gotten rid of a couple of businesses. 0:02:55.560 --> 0:02:57.920 They've also done a couple of acquisitions that have been 0:02:57.919 --> 0:03:02.680 greeted kind of warmly, know totally red hat so and yeah, 0:03:02.840 --> 0:03:04.239 a lot going on there, but that's the name that 0:03:04.440 --> 0:03:06.320 it seems like they're finally, after a period of pretty 0:03:06.360 --> 0:03:08.040 low growth, starting to pick up a little bit and 0:03:08.080 --> 0:03:10.040 that's being reflected in the share price. 0:03:10.160 --> 0:03:12.520 Hey, just quickly, we want to since we've got you, 0:03:12.639 --> 0:03:13.480 let's not forget that. 0:03:13.600 --> 0:03:13.959 All right. 0:03:14.040 --> 0:03:15.600 It's been about, you know, a bunch of the Max 0:03:15.680 --> 0:03:18.760 seven companies this week for them, we get another one 0:03:18.840 --> 0:03:22.239 after the close today. Apple just yesterday it was downgraded 0:03:22.280 --> 0:03:26.040 to perform from outperform at Oppenheimer. The latest sign of 0:03:26.720 --> 0:03:29.080 kind of some caution ahead of earnings this evening. And 0:03:29.120 --> 0:03:31.280 it's not the first downgrade that we've seen as of 0:03:31.360 --> 0:03:32.560 late when it comes to Apple. 0:03:33.400 --> 0:03:35.200 Yeah, I think the count was about five or so 0:03:35.280 --> 0:03:37.960 so far this month. A lot of concerns about the 0:03:38.000 --> 0:03:41.160 iPhone business. How quickly is that growing? What is the 0:03:41.160 --> 0:03:43.080 state of play in China right now? There's been a 0:03:43.120 --> 0:03:45.920 lot of competition there, a lot of concerns there. You know, 0:03:45.960 --> 0:03:48.839 sales there haven't been all that robust. People really were 0:03:48.920 --> 0:03:51.800 banking on the iPhone sixteen, the one that has the 0:03:51.840 --> 0:03:54.240 AI features. People really hoping that that would lead to 0:03:54.240 --> 0:03:57.480 a big upgrade cycle. So far, we haven't really seen that. 0:03:57.760 --> 0:03:59.480 Are they going to give you an outlook that kind 0:03:59.480 --> 0:04:01.240 of points to adoption is going to pick up a 0:04:01.240 --> 0:04:03.440 little bit more. What's the outlook for the seventeen? That's 0:04:03.440 --> 0:04:05.640 gonna be the real focus, you know tonight? 0:04:05.840 --> 0:04:07.600 All right, Gonna leave it on that note, Hey, Ryan, 0:04:07.640 --> 0:04:08.280 thank you so much. 0:04:08.320 --> 0:04:12.920 Ryan Lestelica News Equities reporter with the second biggest gainer 0:04:13.080 --> 0:04:15.240 in the S and P five hundred today IBM up 0:04:15.240 --> 0:04:16.320 about twelve percent him. 0:04:16.360 --> 0:04:18.280 All right, how about the biggest decliner? Can we go there? 0:04:18.320 --> 0:04:18.960 Yes, let's do it. 0:04:19.000 --> 0:04:21.840 Okay, that one is none other than Eups down close 0:04:21.880 --> 0:04:24.920 to fifteen percent as we speak, shares plunging the most 0:04:25.000 --> 0:04:27.680 ever down to its lowest level going back more than 0:04:27.760 --> 0:04:30.080 four and a half years. The company did project annual 0:04:30.120 --> 0:04:34.120 revenue well below expectations. It told investors that a long 0:04:34.120 --> 0:04:36.960 awaited rebound and demand for its parcel services will not 0:04:37.120 --> 0:04:39.719 arrive this year, and it also prompted it to slash 0:04:39.760 --> 0:04:42.520 its low margin business with Amazon. So let's break this 0:04:42.560 --> 0:04:45.599 one down with Bloomberg Intelligence Senior Transport, Logistics and Shipping 0:04:45.640 --> 0:04:49.160 analyst Lee Glascow, who joins us from BI headquarters in Princeton, 0:04:49.160 --> 0:04:52.560 New Jersey. Explain the Amazon move here because it's certainly 0:04:52.960 --> 0:04:55.920 the biggest customer, but it's not the most profitable. Why 0:04:55.960 --> 0:04:56.880 make a move such as this. 0:04:58.120 --> 0:05:02.400 Yeah, so Amazon accounts or roughly twelve percent of UPS's 0:05:02.480 --> 0:05:06.479 consolidated revenue. It accounts for, call it twenty twenty five 0:05:06.520 --> 0:05:10.920 percent of their domestic volumes. And the volume that they're 0:05:10.960 --> 0:05:14.800 doing for Amazon is lower margin business A because you know, 0:05:14.880 --> 0:05:18.360 delivering to somebody's home has higher costs and therefore usually 0:05:18.440 --> 0:05:22.680 has hot lower margins, so that B two C business 0:05:23.360 --> 0:05:25.640 tends to be much lower business. Then you have the 0:05:25.680 --> 0:05:27.359 fact that you know, Amazon has a lot of purchasing 0:05:27.360 --> 0:05:29.679 power because it is so big, so they were able 0:05:29.720 --> 0:05:33.360 to negotiate even lower rates. And you know, at the time, 0:05:33.440 --> 0:05:35.760 probably you know, a UPS and a FedEx they were 0:05:35.760 --> 0:05:40.400 happy to take on Amazon. But as Amazon grew, you know, 0:05:40.480 --> 0:05:44.000 it became kind of deluded to margins, and FedEx you know, 0:05:44.080 --> 0:05:48.400 said bye bye to Amazon back in twenty nineteen. So 0:05:48.800 --> 0:05:50.640 you know, we kind of knew this was going to 0:05:50.880 --> 0:05:54.640 happen eventually. I think maybe the pace was surprising and 0:05:54.680 --> 0:05:57.839 the timing was surprising, and I also think that you know, 0:05:58.080 --> 0:05:59.880 one of the reasons that the market is down so 0:06:00.120 --> 0:06:02.160 much is that you know this year is not going 0:06:02.200 --> 0:06:04.560 to be as great as what you know a lot 0:06:04.600 --> 0:06:08.320 of folks for expecting, and not just in their domestic business, 0:06:08.360 --> 0:06:11.240 but they're international and the supply chain businesses as well. 0:06:11.279 --> 0:06:14.200 All Right, So, as we mentioned, lee that UPS is 0:06:14.200 --> 0:06:16.239 the biggest decliner in the S and P five hundred, 0:06:16.360 --> 0:06:19.960 Carol Tomey, the CEO, saying, Amazon is our largest customer, 0:06:20.000 --> 0:06:22.480 but it's not the most profitable customer. You just walked 0:06:22.560 --> 0:06:25.320 us through those metrics. But even so, even if it's 0:06:25.360 --> 0:06:27.560 not the most profitable, is it a big loss? I 0:06:27.560 --> 0:06:30.760 mean so much so that investors are right in sending 0:06:30.800 --> 0:06:31.200 the stock. 0:06:31.920 --> 0:06:32.200 I don't know. 0:06:32.240 --> 0:06:34.120 It's biggest one day drop since two thousand and eight, 0:06:34.160 --> 0:06:35.120 down about fifteen percent. 0:06:35.160 --> 0:06:36.440 It looks like at its lows. 0:06:37.080 --> 0:06:40.520 Let's just think if you know, if you lost fifty pounds, right, 0:06:41.000 --> 0:06:43.960 you'd go out and you'd probably buy yourself a new wardrobe. Well, 0:06:44.279 --> 0:06:46.520 while UPS isn't buying a new wardrobe. What they are 0:06:46.520 --> 0:06:49.560 doing is they're restructuring their network so they can now 0:06:49.600 --> 0:06:52.920 get rid of facilities they can you know, maybe not 0:06:52.960 --> 0:06:55.400 have as many planes and operations, maybe they have not 0:06:55.520 --> 0:06:58.800 as few trucks or people. So their cost base is 0:06:58.800 --> 0:07:01.760 going to go down considerable and the fact that they're 0:07:01.760 --> 0:07:05.400 investing in a lot of productivity initiatives that are driven 0:07:05.400 --> 0:07:07.640 by technology, they're going to be able to do a 0:07:07.640 --> 0:07:11.400 lot more with less. And you know, they're going to 0:07:11.440 --> 0:07:13.960 fill some of the capacity that they do have with 0:07:14.080 --> 0:07:17.600 much higher yielding business, whether that's for small, medium size 0:07:18.080 --> 0:07:22.559 shippers or other types of shippers. You know, even their 0:07:22.640 --> 0:07:25.600 their shut post business, their ship post is their kind 0:07:25.600 --> 0:07:30.600 of economy ground delivery that the postal service used to 0:07:30.720 --> 0:07:34.840 deliver the majority of those packages to people's houses. And 0:07:34.880 --> 0:07:37.480 what UPS has been able to do through technology and 0:07:37.520 --> 0:07:40.000 AI and machine learning and all that good stuff is 0:07:40.400 --> 0:07:44.560 insert that freight back into their network and build density 0:07:44.640 --> 0:07:47.440 within their trucks and so lower the average costs of 0:07:47.480 --> 0:07:49.880 delivering that. And they decided to take all that in 0:07:50.160 --> 0:07:52.280 and they're able to do that through technology, and they 0:07:52.280 --> 0:07:55.320 also announced that about a nine point nine percent rate 0:07:55.360 --> 0:07:59.200 increase on that business. So you know, I think that 0:07:59.280 --> 0:08:02.000 you know, if you're looking past twenty twenty five, I 0:08:02.000 --> 0:08:04.960 think in twenty twenty six, UPS is going to be 0:08:05.080 --> 0:08:09.960 pretty pretty well positioned for growth and better margins, especially 0:08:09.960 --> 0:08:13.240 as it focuses on kind of higher yielding businesses or 0:08:13.320 --> 0:08:16.640 higher margin businesses like it has with the growth of 0:08:16.680 --> 0:08:17.679 its healthcare business. 0:08:17.880 --> 0:08:20.320 At least certainly, the focus of our conversation is UPS 0:08:20.360 --> 0:08:22.480 but doesn't exist in a vacuum here. Amazon is a 0:08:22.480 --> 0:08:25.000 big part of this conversation, and I'm wondering where this 0:08:25.120 --> 0:08:28.240 leaves Amazon, given that the company has invested so much 0:08:28.280 --> 0:08:30.640 over the last decade plus into building out its own 0:08:30.720 --> 0:08:37.400 delivery infrastructure network, including planes and including last mile as well. 0:08:37.679 --> 0:08:39.839 Where does it leave a company like Amazon. Does it 0:08:39.880 --> 0:08:45.000 eventually go entirely all under Amazon's umbrella. 0:08:45.160 --> 0:08:48.079 I think to go entirely under Amazon or umbrella is 0:08:48.200 --> 0:08:50.880 possible over time. But you know, when I'm talking about time, 0:08:50.920 --> 0:08:53.640 I'm not talking about twenty five, twenty six, I'm talking 0:08:53.679 --> 0:08:56.920 about over the long term. You know, what they've been 0:08:56.960 --> 0:08:59.760 able to build through their independent contractors is a good 0:08:59.760 --> 0:09:02.520 way to take the stuff that people buy and deliver 0:09:02.600 --> 0:09:05.000 it to people's homes. What they really haven't been able 0:09:05.000 --> 0:09:08.120 to do is pick things up along the way in 0:09:08.600 --> 0:09:11.200 mass so like their network is kind of like a 0:09:11.200 --> 0:09:14.240 one way network where a FedEx or a UPS are 0:09:14.320 --> 0:09:16.599 two way where you know, they do deliver stuff and 0:09:16.640 --> 0:09:19.480 they do pick up stuff at the same time, and 0:09:19.559 --> 0:09:22.520 so you know, until that that happens, you know, they 0:09:22.520 --> 0:09:25.520 are still going to rely on the UPS for returns. 0:09:26.600 --> 0:09:28.920 So you know, UPS as a lot of listeners know 0:09:28.960 --> 0:09:31.400 they have stores all over the place. You can go 0:09:31.440 --> 0:09:34.120 to the store and drop off an Amazon return and 0:09:34.160 --> 0:09:36.800 it's pretty easy. So you know, there's that there's that 0:09:36.880 --> 0:09:41.960 ability that UPS will probably you know, always have Amazon 0:09:42.040 --> 0:09:44.839 as a customer, but but it's just going to be 0:09:44.840 --> 0:09:48.240 a much smaller and it might be you know, eventually 0:09:48.360 --> 0:09:50.880 the majority of the business might just be returns, but 0:09:50.920 --> 0:09:52.440 you know, again that's going to be over time. 0:09:52.679 --> 0:09:55.280 Hey, Lee, FedEx is also down about two point two 0:09:55.280 --> 0:09:58.480 percent in today's session. I know we always say they're 0:09:58.520 --> 0:10:01.200 not the exact same companies, but but is there some bigger, 0:10:01.240 --> 0:10:04.400 broader thing here too about just the business overall or 0:10:04.480 --> 0:10:06.840 the you know moving around of goods and stuff that 0:10:07.080 --> 0:10:08.400 maybe it's just not as strong. 0:10:09.679 --> 0:10:09.920 Yeah. 0:10:10.000 --> 0:10:12.920 So, you know, a lot of the impact of the 0:10:12.960 --> 0:10:17.560 Amazon business was in UPS's domestic business, and you know, 0:10:17.600 --> 0:10:20.960 when they gave their twenty twenty five guidance, their international 0:10:21.040 --> 0:10:24.440 business was not nearly as strong, and you know, so 0:10:24.800 --> 0:10:27.760 I think the read through for that is maybe demand 0:10:27.800 --> 0:10:29.679 is not going to be as great in twenty twenty 0:10:29.720 --> 0:10:32.760 five as it was originally thought. I mean, I think 0:10:32.800 --> 0:10:37.200 people were expecting low single digit growth in volumes. You know, 0:10:37.240 --> 0:10:39.880 maybe that's just more at the low end of that 0:10:40.040 --> 0:10:45.080 low single digit growth kind of expectations. So, you know, 0:10:45.160 --> 0:10:47.760 I suspect that you'll see analysts be taking down their 0:10:47.840 --> 0:10:51.120 numbers not only on ups but maybe on FedEx as well, 0:10:51.200 --> 0:10:53.199 you know, just tweaking things here or there. But I 0:10:53.200 --> 0:10:56.800 don't think it's like a it's a huge call that, oh, 0:10:56.800 --> 0:11:00.200 the consumer is dead, it's time to panic. It's not 0:11:00.280 --> 0:11:02.480 time to panic. The consumer in the US has been 0:11:02.559 --> 0:11:06.280 extremely resilient and that has been good for these parcel 0:11:06.280 --> 0:11:06.920 providers and. 0:11:06.880 --> 0:11:09.400 One of those consumers know it well. Lee, Thank you 0:11:09.440 --> 0:11:10.640 so much, really appreciate it. 0:11:10.679 --> 0:11:11.800 Prober Maa sure you welt. 0:11:11.800 --> 0:11:16.200 Bloomberg Intelligence Senior Transport, Logistics and Shipping Alice Lee Clascow. 0:11:16.679 --> 0:11:20.040 You were listening to the Bloomberg Business Week podcast. Catch 0:11:20.120 --> 0:11:23.360 us live weekday afternoons from two to five pm Eastern 0:11:23.520 --> 0:11:27.360 Listen on Applecarplay and Android Auto with the Bloomberg Business app. 0:11:27.520 --> 0:11:29.320 Or watch us live on YouTube. 0:11:30.480 --> 0:11:33.319 Another great need on the economy, and really the consumer 0:11:33.360 --> 0:11:35.880 comes from the restaurant space. It was just in December 0:11:35.920 --> 0:11:39.760 that Bloomberg reported on how casual restaurant bankruptcies had accelerated 0:11:39.840 --> 0:11:42.959 last year, with restaurants filing for bankruptcy at the fastest 0:11:43.000 --> 0:11:46.640 pay since twenty twenty as customers retreated. The view for 0:11:46.720 --> 0:11:50.760 this year was that advertising value promotions would ultimately helped 0:11:50.760 --> 0:11:53.880 restaurants sales. So let's see what is going on in 0:11:53.920 --> 0:11:56.480 the environment with us. As the chairman CEO of the 0:11:56.520 --> 0:12:00.760 family run fast casual restaurant chain Golden Crust. Jackie Hawthorne 0:12:00.960 --> 0:12:04.360 Robinson is with us. She recently took over as cp CEO, 0:12:04.880 --> 0:12:06.480 and she joins us here in studio. 0:12:07.040 --> 0:12:09.000 Welcome, Welcome, nice to have you here. How are you? 0:12:09.160 --> 0:12:11.360 Oh, thank you so very much. And I must say 0:12:11.360 --> 0:12:14.679 it's great to be here. Ah. Yeah, So I'm doing great. 0:12:14.679 --> 0:12:15.280 How about you? 0:12:15.440 --> 0:12:16.560 We're doing okay, trying. 0:12:16.640 --> 0:12:18.760 There's a lot coming at everybody, and I think there's 0:12:18.760 --> 0:12:21.439 a lot coming at investors, there's a lot coming at consumers. 0:12:21.920 --> 0:12:24.240 You guys are some thirty years into this. 0:12:24.240 --> 0:12:27.160 If we're got five years thirty five correct, So you know, 0:12:27.520 --> 0:12:29.960 how would you describe today's business environment, because what's going 0:12:29.960 --> 0:12:32.280 on in restaurants can tell us a lot about the economy, 0:12:32.320 --> 0:12:33.800 small business and the consumer. 0:12:34.280 --> 0:12:37.480 Well, basically, for us, from a Golden Cross perspective, we 0:12:37.559 --> 0:12:40.760 are doing great in our business. We are functional, we 0:12:40.800 --> 0:12:44.560 are operational, we are making profit, and we we are 0:12:44.640 --> 0:12:47.560 rolling the dice, so to speak. But I see it, 0:12:47.640 --> 0:12:50.080 I see the concept. I see what's happening to other 0:12:50.520 --> 0:12:53.400 restaurant business how they are failing. But for us, as 0:12:53.400 --> 0:12:55.319 Golden Cross, we are progressing. For sure. 0:12:55.760 --> 0:12:58.400 We saw the last couple of years punctuated by the 0:12:58.480 --> 0:13:02.440 highest inflation that we've seen in a generation. That's correct, 0:13:02.520 --> 0:13:03.400 Is that gone for you? 0:13:04.800 --> 0:13:07.360 I would say no, it's not going for us. But 0:13:07.480 --> 0:13:10.120 what we are doing, we are trying to keep the 0:13:10.120 --> 0:13:14.040 market alive. We're trying to bring quality still and even 0:13:14.080 --> 0:13:16.880 though inflation is up, we haven't raised prices for a 0:13:16.880 --> 0:13:20.120 few years, so we are trying to hold so we 0:13:20.160 --> 0:13:21.640 can maintain and stay in business. 0:13:21.640 --> 0:13:24.280 Well, where specifically are you still seeing prices increase. 0:13:24.440 --> 0:13:27.120 I'm seeing prices price increases in big box stores. I'm 0:13:27.160 --> 0:13:29.960 seeing price increases in the walmarts and in all those 0:13:30.000 --> 0:13:33.600 other locations we are seeing price increases in the products 0:13:33.600 --> 0:13:37.680 that we're purchasing coolds overall. Yes, for sure, definitely. 0:13:37.880 --> 0:13:39.880 So if you're not passing along to consumers, that puts 0:13:39.880 --> 0:13:42.400 pressure on you guys. Right in terms of the margin 0:13:42.440 --> 0:13:44.040 side of this is where we know it can be 0:13:44.040 --> 0:13:46.239 already kind of slim and tough in restaurants. 0:13:46.320 --> 0:13:47.520 Yes, I agree with that. 0:13:47.640 --> 0:13:48.360 How difficult? 0:13:48.400 --> 0:13:50.440 And then how do you manage like is there some 0:13:50.960 --> 0:13:52.679 can you cut costs elsewhere? 0:13:53.280 --> 0:13:56.440 Cutting costs elsewhere is also very difficult because as we 0:13:56.559 --> 0:14:00.520 know just about cost is being increased from every perspective 0:14:00.559 --> 0:14:03.319 right now. If it's rental is being increased. If it's good, 0:14:03.400 --> 0:14:06.120 so the cost of goods a high, So it's there. 0:14:06.160 --> 0:14:09.880 We are trying to shoulder it where inflation is concerned, 0:14:10.320 --> 0:14:13.400 just to keep our customers happy and to create the 0:14:13.440 --> 0:14:14.240 best product. 0:14:14.400 --> 0:14:17.640 One thing I've noticed at fast casual restaurants is in 0:14:17.679 --> 0:14:20.960 recent years is embracing technology and the way that companies 0:14:21.000 --> 0:14:23.440 have come out with apps to allow people to order 0:14:23.480 --> 0:14:26.160 ahead of time. In some cases, you go to a 0:14:26.200 --> 0:14:28.920 restaurant and you're not ordering from a person, you're ordering 0:14:29.000 --> 0:14:32.800 using a key exactly. All of that. The idea there 0:14:32.960 --> 0:14:34.800 is to help with costs and that's a decrease the 0:14:34.800 --> 0:14:37.200 amount of money somebody has to pay for employees, or 0:14:37.240 --> 0:14:40.160 decrease the number of employees. How are you guys embracing tech? 0:14:40.280 --> 0:14:43.840 Well, we're embracing tech. Were getting there not quick enough, 0:14:43.840 --> 0:14:47.800 but we are definitely entertaining tech and we're moving towards it. 0:14:47.840 --> 0:14:51.480 We have apps, we're operating in apps, we're serving from apps. 0:14:51.520 --> 0:14:54.320 We've got Uber Eats, and we've got all those different 0:14:54.360 --> 0:14:56.520 apps that we are utilizing right now. 0:14:57.240 --> 0:14:59.560 You know, we're talking about, you know, the business side 0:14:59.640 --> 0:15:02.280 of of what you guys do, and we are talking 0:15:02.320 --> 0:15:05.640 a lot, Jackie, about what might come down from Washington. 0:15:05.680 --> 0:15:09.240 We're already, you know, getting glimpses. We're seeing activities already 0:15:09.240 --> 0:15:13.240 around immigration. Is that impacting you in terms of a 0:15:13.280 --> 0:15:14.200 workforce or. 0:15:15.000 --> 0:15:19.640 It hasn't impacted us yet, so I know going forward 0:15:19.680 --> 0:15:21.720 it might be. But right now we are okay and 0:15:21.720 --> 0:15:24.360 we are still operational, yes for sure. 0:15:24.840 --> 0:15:26.760 You know, during the pandemic, we saw a lot of 0:15:26.800 --> 0:15:30.880 consumers embrace those third party delivery services. One challenge was 0:15:30.920 --> 0:15:35.280 for restaurants to have their products actually survive delivery and 0:15:35.360 --> 0:15:38.280 taste is good when somebody gets it at their home 0:15:38.360 --> 0:15:40.920 or apartment right versus when they get it in a restaurant. 0:15:41.080 --> 0:15:43.760 Did you guys have to make changes during that time 0:15:44.440 --> 0:15:45.560 how the product was delivered? 0:15:45.680 --> 0:15:48.040 I think for us, I would say absolutely not. Our 0:15:48.040 --> 0:15:51.960 products are delivered on time. It's still hot, it's still 0:15:51.960 --> 0:15:54.440 holding up in those boxes that we use, So we 0:15:54.520 --> 0:15:56.680 do not at present have a problem with. 0:15:56.800 --> 0:15:59.720 Did you see have you seen delivery as a portion 0:15:59.760 --> 0:16:02.760 of your overall business fall off significantly since the heights 0:16:02.800 --> 0:16:04.840 of the pandemic or of consumers now long of them, 0:16:04.880 --> 0:16:08.760 we have increased sales just as far as delivery does. 0:16:08.880 --> 0:16:11.320 I'm talking about in restaurant versus delivery. You're you're still 0:16:11.320 --> 0:16:12.400 seeing growth in delivery. 0:16:12.480 --> 0:16:14.600 Yeah, we're still seeing growth in delivery, and we're still 0:16:14.600 --> 0:16:18.080 see growth in the restaurant. Were Tire's duality and it's 0:16:18.160 --> 0:16:19.760 for us, and both of them were still functional. 0:16:20.200 --> 0:16:22.760 I just want to mention some headlines crossing the Bloomberg terminal. 0:16:22.760 --> 0:16:24.840 This house to do with open AI, of course, really 0:16:24.920 --> 0:16:27.480 at the center of the push that we've seen in 0:16:27.560 --> 0:16:29.880 artificial intelligence over the last couple of years, coming from 0:16:29.880 --> 0:16:33.120 the Wall Street Journal, Open AIS and talks for investment 0:16:33.280 --> 0:16:36.720 around valuing it up to three hundred and forty billion dollars, 0:16:37.080 --> 0:16:38.800 and it is in talks to raise up to forty 0:16:38.840 --> 0:16:41.560 billion dollars in a new round of financing, and that 0:16:41.600 --> 0:16:44.760 would include up to twenty five billion from SoftBank. But 0:16:44.840 --> 0:16:47.000 again open AI and talks to raise up to forty 0:16:47.040 --> 0:16:49.640 billion dollars that would ultimately give it a three hundred 0:16:49.680 --> 0:16:51.080 and forty billion dollar valuation. 0:16:51.760 --> 0:16:54.120 This again tim coming from the Wall Street Journal. 0:16:53.880 --> 0:16:56.920 So I guess not really a lot of concern over 0:16:56.960 --> 0:16:58.200 what happened on Monday. 0:16:58.760 --> 0:17:00.880 Or maybe I don't know. It's interesting the timing. 0:17:01.000 --> 0:17:03.400 I feel like this week has been chock full of 0:17:03.440 --> 0:17:05.840 news around on artifles intelligence. 0:17:05.880 --> 0:17:08.880 Just to remind the journal reminding us that one hundred 0:17:08.920 --> 0:17:11.359 and fifty seven billion dollars is the valuation that open 0:17:11.400 --> 0:17:13.480 AI recently had that was only a couple months ago, 0:17:13.520 --> 0:17:15.400 back in October. So a three hundred and forty billion 0:17:15.440 --> 0:17:19.000 dollar valuation, if this does indeed come true, would be 0:17:19.720 --> 0:17:21.120 quite an increase in a short time. 0:17:21.200 --> 0:17:24.199 Yeah, big bump up. Anyway, We're continue to track that. 0:17:24.320 --> 0:17:27.600 I want to get back to Jackie Hawthorn Robinson, CEO 0:17:27.600 --> 0:17:29.639 at Golden Crust, you know, for those who are not 0:17:29.720 --> 0:17:30.760 familiar and Jackie. 0:17:30.560 --> 0:17:31.840 I'll be quite honest with you. 0:17:31.880 --> 0:17:34.439 When we were reading in and getting ready to do 0:17:34.480 --> 0:17:36.199 this interview, I'm like, I don't know that I know 0:17:36.280 --> 0:17:38.520 these restaurants. So tell us, because you're around the United 0:17:38.520 --> 0:17:40.480 States a lot of them in the textos. 0:17:40.640 --> 0:17:41.840 Are you how to food at all? 0:17:42.119 --> 0:17:42.560 You have not? 0:17:42.920 --> 0:17:43.760 So tell us. 0:17:43.800 --> 0:17:45.720 Tell us about what you guys do. What's to you. 0:17:46.040 --> 0:17:49.520 Golden crusts basically to bring the taste of the Caribbean 0:17:49.960 --> 0:17:54.040 to worldwide, to everybody, whichever country, Urian, whatever state, Urian. 0:17:54.119 --> 0:17:57.480 So Golden Cross does exist for that. We carry a 0:17:57.640 --> 0:18:01.159 niche kind of recipe for all the food items that 0:18:01.200 --> 0:18:06.119 we offer with a Caribbean flavor, authentic Caribbean flavor. We 0:18:06.240 --> 0:18:09.520 stry for that and that's what we produce every day. 0:18:09.880 --> 0:18:13.320 So we're bringing most of our items. Core items do 0:18:13.440 --> 0:18:16.120 come out of Jamaica, right, so we import those items 0:18:16.160 --> 0:18:18.840 like the Scotch bonded pepper. I'm not sure if you've 0:18:18.920 --> 0:18:20.680 ever had that spicy. 0:18:21.200 --> 0:18:23.000 I do like a little bit of spicy. Yes, my 0:18:23.040 --> 0:18:24.560 family likes spicy, yep. 0:18:24.760 --> 0:18:26.720 And not only is it spicy, it's flavorful. 0:18:26.960 --> 0:18:29.320 Jackie, Where are you guys, mostly in terms of where 0:18:29.320 --> 0:18:30.240 your stores are right now? 0:18:30.240 --> 0:18:31.040 Your restaurants in the know. 0:18:31.200 --> 0:18:34.120 We are located over the metropolitan area. Yeah, that's where 0:18:34.119 --> 0:18:37.280 we are right now. And we're also in eight states. 0:18:37.400 --> 0:18:41.160 In eight states, Yes, that is correct, Connecticut, Florida, Georgia, Maryland, 0:18:41.480 --> 0:18:43.680 North Carolina, Texas, New York, and New Jersey. Yes, that's 0:18:43.720 --> 0:18:46.760 Does that footprint grow, Yes it does where. 0:18:46.640 --> 0:18:50.920 Yes, it grows. I mean we have growth monthly growths 0:18:51.280 --> 0:18:54.440 that from coming from all these footprints. We have areas 0:18:54.480 --> 0:18:58.440 that are doing better than other areas. But the footprints works. 0:18:58.840 --> 0:19:01.399 Where where will you grow next? Web states? Will you 0:19:01.480 --> 0:19:02.040 expand into? 0:19:02.119 --> 0:19:06.080 Well, we're in Texas. We're trying to expand more into Texas. 0:19:06.359 --> 0:19:09.760 We currently have three locations there. We're looking to probably 0:19:10.000 --> 0:19:13.800 possibly put another two to three locations in the Texas region. 0:19:14.160 --> 0:19:16.920 We want to go back and go full blast back 0:19:16.960 --> 0:19:20.320 in California. So those are the that's where we are 0:19:20.320 --> 0:19:23.080 looking to go to now. California will be the next 0:19:23.160 --> 0:19:24.120 state up for us. 0:19:24.240 --> 0:19:25.520 Who is your typical customer? 0:19:25.560 --> 0:19:27.119 And I am curious, Like we talked a little bit 0:19:27.119 --> 0:19:29.879 about the business environment earlier, what you have seen in 0:19:29.960 --> 0:19:32.160 terms of the spend if that you know, we talked 0:19:32.160 --> 0:19:34.840 about inflation and pressures and you haven't been really taught 0:19:35.040 --> 0:19:38.960 spending that or passing that along time the customer. But 0:19:39.040 --> 0:19:41.920 are you increasingly seeing customers look for kind of like value? 0:19:42.400 --> 0:19:45.240 Hyeah, definitely, they do that every day. Everybody wants a deal. 0:19:45.640 --> 0:19:49.080 We understand, yeah, and we do understand that. But our 0:19:49.200 --> 0:19:52.880 niche right now is Caribbean people, mostly Jamaicans coming in 0:19:53.200 --> 0:19:55.680 and then outside of that, we sure have a broader 0:19:57.200 --> 0:20:01.080 customer base, so we serve to every body just about now. 0:20:01.200 --> 0:20:02.840 One thing that I always wonder about when it comes 0:20:02.880 --> 0:20:06.160 to restaurants is supply chain and how you keep consistency 0:20:06.200 --> 0:20:08.640 across different parts of the country when some restaurants are 0:20:08.680 --> 0:20:12.080 thousands of miles from the other restaurant. Correct, how do 0:20:12.080 --> 0:20:14.280 you what's your distribution center? How do you make sure 0:20:14.280 --> 0:20:17.760 that the experience that somebody has at the location on 0:20:17.760 --> 0:20:20.680 Fourteenth Street in Manhattan, for example, is the same as 0:20:20.680 --> 0:20:21.720 the location in Texas. 0:20:21.960 --> 0:20:24.680 I think keeping everything the same is how we operate. 0:20:25.080 --> 0:20:28.680 We have field officers, we have people that are responsible 0:20:29.000 --> 0:20:31.639 for each state. Of course, we do testings all the 0:20:31.680 --> 0:20:34.240 time to ensure people are keeping up with what they 0:20:34.320 --> 0:20:38.240 need to. We as also a delivery company. We do 0:20:38.359 --> 0:20:40.960 deliver all of our items from the main office, whether 0:20:41.040 --> 0:20:44.600 it's the beef patties boxed and frozen, and all your 0:20:44.600 --> 0:20:47.320 other items like your fresh hard or bread and the 0:20:47.400 --> 0:20:50.080 fresh heart of buns and all the other items that 0:20:50.119 --> 0:20:54.800 we produce we do deliver daily to these customers and 0:20:54.840 --> 0:20:55.919 to these franchises. 0:20:56.119 --> 0:20:59.280 How do you determine you know, you talk about the franchisees, 0:20:59.320 --> 0:21:01.440 so in some ways that offload some of the risk 0:21:01.520 --> 0:21:04.560 for you guys. That is correct directly, but you want 0:21:04.600 --> 0:21:07.439 to make sure those franchises do well because correct, it 0:21:07.480 --> 0:21:11.880 impacts the overall brand bottom line brand totally get totally get. 0:21:12.000 --> 0:21:12.920 Yeah. 0:21:13.040 --> 0:21:18.720 So in terms of expansion, how do you determine where 0:21:18.760 --> 0:21:20.720 you are going? Is it just where you're seeing is 0:21:20.760 --> 0:21:22.800 a basic demand in terms of customers and you know 0:21:22.800 --> 0:21:24.399 that you're going to be able to grow that market, 0:21:24.480 --> 0:21:27.080 or how do you determine where to go? 0:21:28.280 --> 0:21:31.880 Just as you mentioned, the demand definitely is a factor. 0:21:32.400 --> 0:21:35.000 I mean, we have customers that comes into our stores 0:21:35.000 --> 0:21:37.520 every day and whichever state they are from, they are 0:21:37.520 --> 0:21:39.439 going to come and say, hey, you guys need to 0:21:39.440 --> 0:21:42.120 get into Texas, right, I need your product, you need 0:21:42.160 --> 0:21:44.480 to get there. So of course we'll take that, we 0:21:44.520 --> 0:21:47.760 will listen to it. We will do demographics and we'll 0:21:47.920 --> 0:21:49.960 see if it fits us, and then we'll move into 0:21:50.000 --> 0:21:50.440 that state. 0:21:50.680 --> 0:21:54.400 If the gives an understanding of a company run stores 0:21:54.680 --> 0:21:56.680 versus franchise stores right. 0:21:56.560 --> 0:21:59.240 Now, right, so give you an understanding, Yeah. 0:21:59.160 --> 0:22:01.840 How many do you have that company run versus. 0:22:01.600 --> 0:22:03.879 Now we're down to like two company stores and the 0:22:04.520 --> 0:22:05.520 stores are franchises. 0:22:05.680 --> 0:22:08.280 What is the what is the commitment that a franchise 0:22:08.320 --> 0:22:10.240 he has to make in order to open one of 0:22:10.240 --> 0:22:10.800 these restaurants. 0:22:10.840 --> 0:22:12.720 Well, they have to commit to the brand, They have 0:22:12.800 --> 0:22:15.560 to commit to keep the brand alive, they have to 0:22:15.600 --> 0:22:18.200 commit to use our products, and they have to commit 0:22:18.240 --> 0:22:19.120 to consistency. 0:22:19.560 --> 0:22:21.440 I was looking for a financial commitment. 0:22:21.359 --> 0:22:23.920 Financial commitment or you need a number, I need a number, 0:22:24.119 --> 0:22:26.840 You need a number for that. If I were to 0:22:26.880 --> 0:22:30.800 throw a number out, there'd probably say, on this platform 0:22:30.880 --> 0:22:33.919 right now, probably about four hundred and fifty thousand. 0:22:34.040 --> 0:22:36.159 Okay, So that's the upfront cost, and then. 0:22:36.800 --> 0:22:38.440 That can be construction costs. 0:22:38.520 --> 0:22:40.239 Upfront costs, and then there are the costs that are 0:22:40.240 --> 0:22:44.440 associated with the licensing exactly, and that's a different cost 0:22:44.480 --> 0:22:44.879 as well. 0:22:45.359 --> 0:22:46.280 Not really not. 0:22:46.520 --> 0:22:48.879 So the percentages that you take is just a just 0:22:48.920 --> 0:22:49.920 a licensing. 0:22:49.600 --> 0:22:52.560 Yes, licensing and at that point you do take your 0:22:52.920 --> 0:22:55.560 percentage once they open and become operations. 0:22:55.560 --> 0:22:57.160 Okay, yes, you do well. 0:22:57.200 --> 0:23:00.600 And what's interesting is you, guys, yep, you have the restaurants, 0:23:00.640 --> 0:23:02.680 you have the franchisees, but you also have a lot 0:23:02.680 --> 0:23:04.480 of products right in grocery stores. 0:23:04.520 --> 0:23:05.119 We sure do. 0:23:05.320 --> 0:23:07.399 What's tell us attle bit about the growth of that 0:23:07.520 --> 0:23:09.080 business and what you're seeing there? 0:23:09.200 --> 0:23:11.320 Okay, Well, basically for us, we're in a lot of 0:23:11.359 --> 0:23:16.320 big box stores. We're in the Costcos, we're in Dollar Trees, 0:23:16.880 --> 0:23:20.359 we are in Walmart, and as a matter of fact, 0:23:20.400 --> 0:23:24.080 we are pulling out rolling out a new item for Walmart, 0:23:24.119 --> 0:23:27.320 which is scheduled to roll out February twenty sixth a 0:23:27.480 --> 0:23:32.680 two pack select patty just for Walmart prices only. Yeah, 0:23:32.840 --> 0:23:34.520 so that's what we're doing right now. 0:23:34.560 --> 0:23:37.080 What's the connection between a sales increase at a big 0:23:37.080 --> 0:23:41.359 box store when a restaurant opens in that local area. 0:23:41.440 --> 0:23:43.000 Do you see a lift? 0:23:44.119 --> 0:23:45.760 Yes, we do, We definitely do. 0:23:46.000 --> 0:23:47.679 Like, if you have a restaurant open up in a 0:23:47.680 --> 0:23:50.840 new location and you've already been selling the products in 0:23:50.880 --> 0:23:52.879 one of the big box stores, how much does it 0:23:52.960 --> 0:23:54.760 increase the sales in the big I would. 0:23:54.600 --> 0:23:57.760 Say because of visibility. So that big new restaurant is 0:23:57.800 --> 0:24:01.000 now creating more visibility for us. Most of the time, 0:24:01.080 --> 0:24:02.400 it does not affect us at all. 0:24:03.160 --> 0:24:05.000 Yeah, all right, we're gonna leave it on that note. 0:24:05.000 --> 0:24:08.000 Really interesting to hear. Let us know as things continue. 0:24:07.640 --> 0:24:08.480 To grow and expand. 0:24:08.560 --> 0:24:11.960 So very much, Jackie, Thank you so much, Jackie Hawthorne Robinson. 0:24:12.000 --> 0:24:14.680 She's chairman and chief executive officer of Golden Crust. Joining 0:24:14.760 --> 0:24:16.760 us here in studio. 0:24:17.000 --> 0:24:20.679 You're listening to the Bloomberg Business Week podcast. Catch us 0:24:20.760 --> 0:24:23.760 live weekday afternoons from two to five e's during Listen 0:24:23.800 --> 0:24:27.480 on Applecarplay and Android Atto with the Bloomberg Business. 0:24:27.080 --> 0:24:29.800 App, or watch us live on YouTube. 0:24:30.480 --> 0:24:32.359 Well, it's hard to think back to Monday, Carol, given 0:24:32.560 --> 0:24:33.520 what a week it's been so far. 0:24:33.640 --> 0:24:35.160 It's been kind of crazy the ride here. 0:24:35.359 --> 0:24:37.200 Okay, it was a day that the stock market reckoned 0:24:37.200 --> 0:24:39.520 with a startup called deep Seek, even though lot of 0:24:39.560 --> 0:24:42.840 people knew about what it could do. In our one 0:24:43.280 --> 0:24:46.000 last week. On that day, though, you'll recall in VIDAFL 0:24:46.040 --> 0:24:48.040 seventeen percent in a single day at e rased five 0:24:48.080 --> 0:24:51.080 hundred and eighty nine billion dollars in value, a record 0:24:51.160 --> 0:24:54.439 drop for a single day. Meir here, they said, was 0:24:54.480 --> 0:24:57.000 watching what happened in the stock market that day closely. 0:24:57.040 --> 0:24:59.919 He's the Mizuho Financial Group Professor of Finance at our 0:25:00.200 --> 0:25:02.320 Business School. He's also a professor at the law school. 0:25:02.800 --> 0:25:05.520 He's also contributed to Bloomberg's weekend edition. He did right 0:25:05.560 --> 0:25:08.080 in the New York Times this week that Monday's value 0:25:08.119 --> 0:25:12.000 destruction illustrates something concerning happening in financial markets and can 0:25:12.080 --> 0:25:15.520 best be explained by an ancient myth. They've a serpent 0:25:15.960 --> 0:25:18.640 eating itself, Professer. They said, it's good to have you 0:25:18.800 --> 0:25:22.000 with us. Why was Nvidia losing nearly a fifth of 0:25:22.040 --> 0:25:24.439 its value in a day? Not that surprising to you? 0:25:25.119 --> 0:25:28.200 Well, so I think what the big surprise is is 0:25:28.520 --> 0:25:31.919 why and how seven companies constitute one third of our 0:25:31.960 --> 0:25:35.199 market capitalization. That's really the big surprise. And so the 0:25:35.280 --> 0:25:36.879 question of the day is really how is that going 0:25:36.920 --> 0:25:40.480 to reconcile itself? And so what I tried to put 0:25:40.520 --> 0:25:42.800 forward in this piece was just the theory that actually 0:25:42.840 --> 0:25:46.359 it's pretty unsustainable and that in effect, big tech is 0:25:46.400 --> 0:25:49.040 eating its own tail. This serpent image that you might 0:25:49.040 --> 0:25:51.320 have seen of a snake eating itself has been around 0:25:51.320 --> 0:25:53.800 for millennia, and I think that's kind of what's going on, 0:25:54.000 --> 0:25:57.240 which is just a way of saying this AI frenzy 0:25:57.400 --> 0:26:00.520 has in some sense been manifested by these Big seven 0:26:00.560 --> 0:26:03.440 companies having a very low cost to capital. They've become 0:26:03.440 --> 0:26:05.399 the safe asset in the world. So if you are 0:26:05.480 --> 0:26:08.359 around the world you want a dollar denominated asset, but 0:26:08.440 --> 0:26:12.600 with better management teams than maybe governments, better balance sheets 0:26:12.600 --> 0:26:15.040 than maybe governments, you're gonna flock to them. Well what 0:26:15.080 --> 0:26:17.280 does that mean. Well, if that happens and they become 0:26:17.280 --> 0:26:19.800 the safe asset, then people don't expect much in terms 0:26:19.840 --> 0:26:22.560 of return, because that's what happens with safe assets. Well, 0:26:22.560 --> 0:26:24.480 how to managers respond to that? And the answer is 0:26:24.520 --> 0:26:26.480 you invest a lot. And that's what they've been doing. 0:26:26.520 --> 0:26:28.280 And they've been investing a lot in each other, and 0:26:28.280 --> 0:26:31.680 they've been spending like crazy. So, for example, in videos, 0:26:32.119 --> 0:26:34.919 more than half their revenues is coming from their siblings 0:26:34.960 --> 0:26:38.600 in the Big seven. So the Amazon Microsoft are spending 0:26:38.800 --> 0:26:42.960 literally two hundred billion dollars a year in infrastructure spend, 0:26:43.359 --> 0:26:46.560 and they're doing buybacks hand over fist, So they are 0:26:46.600 --> 0:26:50.359 literally eating themselves and literally eating each other. And the 0:26:50.520 --> 0:26:52.480 underlying story I think is going to be that these 0:26:52.520 --> 0:26:55.080 is going to end up having low returns. So when 0:26:55.119 --> 0:26:56.919 you end up giving them the prize of being a 0:26:56.920 --> 0:26:59.360 safe asset, you don't expect much from them, and they 0:26:59.400 --> 0:27:02.800 invest like crazy and then they deliver slow returns. That's 0:27:02.880 --> 0:27:04.880 what we are going to see. It won't happen today 0:27:04.920 --> 0:27:07.560 or tomorrow. It'll happen over the next five or ten years, 0:27:08.040 --> 0:27:09.960 like it happened at the beginning of the last century 0:27:10.280 --> 0:27:13.040 with railroads and steel. I think that is why it 0:27:13.040 --> 0:27:13.920 wasn't that big a surprise. 0:27:14.040 --> 0:27:15.119 I want to dig a little bit into this. 0:27:15.160 --> 0:27:15.320 You know. 0:27:15.359 --> 0:27:17.160 One of the things that we love looking at here 0:27:17.240 --> 0:27:21.320 at Bloomberg is that the supply chain functions. You pull 0:27:21.400 --> 0:27:24.280 up something like Nvidia, and so Microsoft is responsible for 0:27:24.280 --> 0:27:27.360 about nineteen percent of their revenue. Meta is about ten 0:27:27.400 --> 0:27:31.280 percent according to our latest data, super Micro about eight percent, Alphabet, 0:27:31.400 --> 0:27:35.639 Google about six percent, Amazon about five percent, Dell about 0:27:35.640 --> 0:27:37.520 three percent. Like, we love to kind of get an 0:27:37.520 --> 0:27:41.359 idea of who's who's buying and so the exposure, especially 0:27:41.359 --> 0:27:42.880 if we get bad news from them, what it means 0:27:42.880 --> 0:27:46.320 for an Nvidia. So you're saying what to concentrated or 0:27:46.520 --> 0:27:49.879 what's your point about you know that they're kind of 0:27:50.080 --> 0:27:53.000 it's like there's almost closed circle, right of a closed circle, 0:27:53.160 --> 0:27:55.240 and they all are kind of like supporting one another. 0:27:55.440 --> 0:27:57.920 Yeah, so I mean effectively, what's happening is they're investing 0:27:57.920 --> 0:28:01.200 in spending money on each other and that closed circle. 0:28:01.480 --> 0:28:02.280 Why are they doing that? 0:28:02.320 --> 0:28:04.119 Because some would say that what we've seen over the 0:28:04.200 --> 0:28:06.720 last couple of years is that everybody has all of 0:28:06.760 --> 0:28:08.880 a sudden realized, oh my god, look at what generative 0:28:08.920 --> 0:28:11.119 AI can do, and so we have to build out 0:28:11.119 --> 0:28:12.160 our own. 0:28:11.880 --> 0:28:14.959 Systems exactly right. And the promise is that it is 0:28:14.960 --> 0:28:17.360 not a closed circle, that one day it'll all be 0:28:17.560 --> 0:28:21.080 manifest to us what those revenues and profits are. And 0:28:21.119 --> 0:28:23.320 that is a huge bet. We are all levered to 0:28:23.400 --> 0:28:25.000 the MAG seven in a way that I don't think 0:28:25.000 --> 0:28:27.280 we understand. When one third of the market cap is 0:28:27.359 --> 0:28:29.760 MAG seven, we're levered to it, and the global economy 0:28:29.800 --> 0:28:31.800 is levered to it. And all of that is going 0:28:31.840 --> 0:28:33.480 to be a function of the productivity of all this 0:28:33.560 --> 0:28:36.640 capital they're spending on each other. And what I tried 0:28:36.640 --> 0:28:38.960 to raise in that article is it's not clear that 0:28:38.960 --> 0:28:41.320 that is going to be manifest and in fact, deep seek. 0:28:41.800 --> 0:28:45.000 I think people misunderstood the Deep Seak lesson in part. 0:28:45.240 --> 0:28:47.880 The story about Deep Seak is it is very hard 0:28:47.880 --> 0:28:51.040 to create a competitive advantage in this industry. You know, 0:28:51.200 --> 0:28:53.600 people think there's a lot of money to be made. Well, 0:28:53.840 --> 0:28:55.000 to make a lot of money, you need to be 0:28:55.000 --> 0:28:57.720 able to capture the rents. And what Deep Seak showed 0:28:58.120 --> 0:29:01.280 is that it's not clear that these rents are easily captured. 0:29:01.520 --> 0:29:03.760 And so if it's easily accessible to everyone, that doesn't 0:29:03.760 --> 0:29:05.840 mean it's not going to be transformational, Carol. What it 0:29:05.880 --> 0:29:06.440 means is. 0:29:06.480 --> 0:29:08.720 Because some would say that if it's more accessible, more 0:29:08.720 --> 0:29:10.960 people can tap into it, and first people who are 0:29:10.960 --> 0:29:14.440 supportive of it, like hence the software guys, right, we 0:29:14.480 --> 0:29:16.240 all of a sudden said they were often. 0:29:16.040 --> 0:29:18.680 Running yeah, and it could be transformational, but will a 0:29:18.720 --> 0:29:20.000 company be able to capture it? 0:29:20.000 --> 0:29:20.120 All? 0:29:20.200 --> 0:29:20.360 Right? 0:29:20.360 --> 0:29:23.640 So the whole premise of their market capitalizations is there's 0:29:23.680 --> 0:29:25.640 going to be seven big winners, and we know who 0:29:25.680 --> 0:29:28.520 they are. It's those seven companies, And maybe that's not 0:29:28.640 --> 0:29:32.200 right even if it is transformational. If it isn't transformational, 0:29:32.200 --> 0:29:36.000 then we're all really in trouble because they're literally deploying 0:29:36.000 --> 0:29:38.400 capital at really, really low rates of return, maybe negative 0:29:38.480 --> 0:29:38.960 rates of return. 0:29:39.080 --> 0:29:41.560 Your question about a mode or differentiation is an interesting one. 0:29:41.600 --> 0:29:43.880 It came up yesterday during our conversation with Caroline Hide 0:29:43.880 --> 0:29:47.160 of Bloomberg Technology about what the difference is between Gemini 0:29:47.280 --> 0:29:52.440 a GPT, Lama, you know, anthropics, Claude, what is the 0:29:52.440 --> 0:29:55.120 difference between these? Apart from the way they look that question, 0:29:55.160 --> 0:29:57.360 I think still a lot of investors in the private 0:29:57.400 --> 0:29:59.200 markets and the public markets are asking themselves. 0:29:59.280 --> 0:30:02.600 Yeah, and one theory is that it's about scale. You 0:30:02.640 --> 0:30:04.400 have to get big, and you have to get big fast, 0:30:04.520 --> 0:30:07.160 and the answer is maybe deep seek suggests maybe not. 0:30:07.880 --> 0:30:10.480 And also we should just remember that having access to 0:30:10.520 --> 0:30:13.000 a lot of capital and spending it is not a 0:30:13.040 --> 0:30:15.960 competitive advantage. That is not what a competitive advantage is. 0:30:16.240 --> 0:30:18.440 Capital is not like the scarce resource in the world, 0:30:18.480 --> 0:30:19.880 and especially. 0:30:19.480 --> 0:30:21.160 For some of these big tech companies, right, Like we 0:30:21.200 --> 0:30:23.680 talk about their balance sheets and typically you would say 0:30:23.680 --> 0:30:25.800 a higher rate environment would bother them. But they have 0:30:25.920 --> 0:30:28.920 so much cash that they don't have to really tap 0:30:28.960 --> 0:30:30.080 into the capital markets. 0:30:30.480 --> 0:30:33.120 So but I think they're in a race, right, So 0:30:33.160 --> 0:30:36.240 they're spending cash handover fist and the answers will weap 0:30:36.400 --> 0:30:38.600 But if you don't have a sustainable advantage, then what 0:30:38.760 --> 0:30:41.680 is this race about? And I don't think there is 0:30:41.720 --> 0:30:43.680 a real mode there, and then you really have to 0:30:43.760 --> 0:30:44.560 question the whole story. 0:30:44.640 --> 0:30:46.080 So I think it raises a lot of questions about 0:30:46.080 --> 0:30:48.600 where investors should be putting their money in the public market. 0:30:49.000 --> 0:30:50.640 You know, we've been talking. We talk a lot about 0:30:50.680 --> 0:30:54.440 single stocks in retirement portfolios. A lot of people are 0:30:54.480 --> 0:30:57.040 invested in indexes. If you're not playing the stock market. 0:30:57.080 --> 0:30:59.280 All the experts say, hey, just invest in the S 0:30:59.320 --> 0:31:01.719 and P five hundred index funds. What happens though, when 0:31:01.760 --> 0:31:03.800 the S and P five hundred exactly is dominated by 0:31:03.800 --> 0:31:05.480 these companies, where should people put their money? 0:31:05.720 --> 0:31:07.959 Well, that's exactly right, because the unque circumstance is that, 0:31:08.320 --> 0:31:10.719 you know, I talk about the unmagnificent four ninety three 0:31:10.760 --> 0:31:13.000 because there's a magnificent seven and there's an unmagnificsten four 0:31:13.080 --> 0:31:15.400 ninety three. And the answer is that is still the 0:31:15.440 --> 0:31:20.040 best advice. However, I think it's a good time to 0:31:20.080 --> 0:31:23.440 rethink certain things. So for example, as you know, we 0:31:23.480 --> 0:31:27.160 are living in the twentieth year of the value growth split, 0:31:27.640 --> 0:31:31.760 where growth has just outperformed value forever, and I think 0:31:31.760 --> 0:31:34.560 it's a good occasion to revisit that. And for those 0:31:34.600 --> 0:31:37.440 of you who are listening who want to BEBB still, 0:31:37.480 --> 0:31:39.600 I just want to index. I just want to do that. Well, 0:31:39.680 --> 0:31:41.880 you want to think about broader indsease, You want to 0:31:41.880 --> 0:31:43.959 think about value in disease, and you want to think 0:31:44.000 --> 0:31:46.080 about whether that whole mantra that has been good for 0:31:46.080 --> 0:31:49.160 the last twenty years is good again, especially as rates 0:31:49.880 --> 0:31:52.560 stay relatively speaking high in a way they haven't been 0:31:52.560 --> 0:31:53.520 for fifteen twenty years. 0:31:53.560 --> 0:31:56.040 Although one challenge, though, someone might push back and say, 0:31:56.080 --> 0:31:59.280 well VTI, which is the Vanguard Total stock Market Index, 0:31:59.680 --> 0:32:02.360 is pretty heavily correlated to the S and P five hundred. 0:32:03.400 --> 0:32:05.239 That is true, and that's a challenge. If you want 0:32:05.280 --> 0:32:07.600 to buy the entire market, you're still just buying that's 0:32:07.600 --> 0:32:08.160 biggest company. 0:32:08.240 --> 0:32:08.640 That is true. 0:32:08.640 --> 0:32:10.640 I mean in a way that is a little bit 0:32:10.640 --> 0:32:11.760 of the point of the piece, which is we are 0:32:11.760 --> 0:32:13.960 all levered to the max seven in a way that 0:32:14.000 --> 0:32:16.120 we can't get away. I think the answer is though, 0:32:16.160 --> 0:32:19.280 there are narrower, you know, value indices that can help you, 0:32:20.560 --> 0:32:23.600 and there are international ways to go. So I am 0:32:23.640 --> 0:32:25.800 not a huge believer in stock pickers, So I think 0:32:25.840 --> 0:32:29.360 indices are fantastic, But there are other kinds of indices. 0:32:29.560 --> 0:32:33.080 There's non US indices, there's yield, there's fixing. There's lots 0:32:33.080 --> 0:32:34.760 of things that we, for the last fifteen years have 0:32:34.800 --> 0:32:37.440 forgotten about. My previous piece was about magical thinking and 0:32:37.480 --> 0:32:40.280 how kind of long periods of low rates have infected 0:32:40.280 --> 0:32:43.160 people to think like this goes on forever, and growth 0:32:43.200 --> 0:32:46.200 the stuff happens forever, and technology solves everything. And so 0:32:46.480 --> 0:32:48.240 look when rates get back up where they are, you 0:32:48.320 --> 0:32:50.480 got to think hard in your portfolio about fixed income 0:32:50.480 --> 0:32:52.800 in a way and cash in a way that you 0:32:52.840 --> 0:32:54.200 haven't thought about it in a long time. 0:32:54.320 --> 0:32:58.560 All right, So, Professor Veisi, so how does this potentially end? 0:33:00.000 --> 0:33:02.880 People have made the comparisons to the tech bubble of 0:33:02.960 --> 0:33:05.680 nineteen ninety nine two thousand. I don't know that it's 0:33:05.720 --> 0:33:08.080 the exact same thing, but you tell me that in 0:33:08.160 --> 0:33:10.680 terms of then how does this ultimately work its way out? 0:33:10.800 --> 0:33:15.800 Or do these companies possibly ultimately deliver if AI is 0:33:15.800 --> 0:33:17.760 as transformative as we think it might be. 0:33:17.960 --> 0:33:21.440 Yeah, So I think the analogy to the dot com 0:33:21.440 --> 0:33:25.440 bubble isn't that great in some ways because those a 0:33:25.440 --> 0:33:27.680 lot of those companies were not real companies and it 0:33:27.720 --> 0:33:30.440 was all a little sketchy. Exactly, these are real companies, 0:33:30.600 --> 0:33:32.840 like this is, these are really the best companies in 0:33:32.880 --> 0:33:35.200 the world, Okay, And so what's more likely to be 0:33:35.240 --> 0:33:37.800 true is something like the nifty to fifty Yeah, going 0:33:37.800 --> 0:33:40.360 to the early seventies or the early part of last century, 0:33:40.360 --> 0:33:42.880 which is railroads and steel. And what does that tell you? 0:33:43.120 --> 0:33:46.440 It's a grind. It's not a pop of a bubble. 0:33:46.680 --> 0:33:50.760 It's like five years of like zero of like zero returns, right, 0:33:50.800 --> 0:33:51.680 So it's grind. 0:33:51.840 --> 0:33:54.640 So five years of this stuff just kind of going sideways. 0:33:54.720 --> 0:33:57.520 Yeah, perhaps like sideways, right, because it's not is it? 0:33:57.520 --> 0:34:00.040 Because the bill takes so long a lot. 0:34:00.000 --> 0:34:02.400 And then we realize that the returns aren't there, right, 0:34:02.480 --> 0:34:05.320 And for us to realize that and understand that, I mean, 0:34:05.320 --> 0:34:07.840 these folks are spending hundreds and hundreds of billions of dollars. 0:34:08.000 --> 0:34:11.000 We won't really know the productivity of that capital spend 0:34:11.080 --> 0:34:13.720 for a long time and that's why it takes longer. 0:34:13.800 --> 0:34:16.000 And they're not like fly by night folks, right, take 0:34:16.080 --> 0:34:18.960 serious people, and so it's going to take years and 0:34:18.960 --> 0:34:21.120 that I don't know if that's good news or bad news, Carol, 0:34:21.160 --> 0:34:22.800 but I think that is the right way to understand. 0:34:22.800 --> 0:34:25.000 It's it's three to five years of a grind, which 0:34:25.040 --> 0:34:28.960 also helps you understand why valuation levels are high right 0:34:29.000 --> 0:34:31.960 now and how they come back down, just very slowly 0:34:32.360 --> 0:34:34.680 and in a very boring, unexciting way. 0:34:35.400 --> 0:34:39.839 It's interesting because we saw in the president's first week 0:34:39.920 --> 0:34:42.839 of his term an announcement where he was flanked by 0:34:42.920 --> 0:34:45.920 Larry Ellison of Oracle, Pascio Shei's son of soft Bank, 0:34:46.440 --> 0:34:49.440 Sam Alltman of Open Ai, and he was tatting a 0:34:49.480 --> 0:34:52.640 one hundred billion dollar up to five hundred billion dollar investment. Yeah, 0:34:53.280 --> 0:34:56.600 is that something that concerns you when we're talking about 0:34:56.640 --> 0:34:58.560 figures of that size, Well, what. 0:34:58.680 --> 0:35:01.320 Would concern me is if capital you know, this is 0:35:01.360 --> 0:35:03.799 all by capital allocation, like everything is in the economy, 0:35:03.960 --> 0:35:06.160 and so if capital allocation is going to be guided 0:35:06.200 --> 0:35:10.000 by political litmus tests, which is, you got to spend 0:35:10.040 --> 0:35:11.520 one hundred billion, and if you're not good for the 0:35:11.600 --> 0:35:13.640 hundred billion, you know, we're not sure if you're a 0:35:13.640 --> 0:35:16.799 real deal. If it becomes a political litmus test and 0:35:16.840 --> 0:35:19.719 it's not being guided by the tenets of capital allocation, 0:35:20.080 --> 0:35:22.359 we're all going to suffer on that over the long run. 0:35:22.560 --> 0:35:25.400 So that's what concerns me. It's about whether this is 0:35:25.440 --> 0:35:28.200 becoming a political litmus test, like are you with us 0:35:28.280 --> 0:35:31.120 on AI or not? And then of course, as you know, 0:35:31.920 --> 0:35:33.880 CEOs have to respond, which you know, I'm good for 0:35:33.880 --> 0:35:37.040 thee hundred billion, Yeah, which now starts to feel like 0:35:37.080 --> 0:35:40.360 a poker match as opposed to foughtful capital allocation and 0:35:40.440 --> 0:35:43.359 feels a little bit like a political litmus test. 0:35:43.400 --> 0:35:45.680 Well, it's certainly something we've talked about that even with 0:35:45.719 --> 0:35:48.600 some of the announcements that came out of the administration. Right, 0:35:48.640 --> 0:35:51.359 but of course no government money, but nonetheless commitments by 0:35:51.360 --> 0:35:53.879 companies and some say, you know, it's a commitment, doesn't 0:35:53.880 --> 0:35:56.680 mean ultimately the spend gets carried out. So it's something 0:35:57.280 --> 0:35:59.399 to keep an eye on, right, to see ultimately how 0:35:59.400 --> 0:36:01.960 it plays at I think we're in this interesting place 0:36:02.000 --> 0:36:04.080 where we've talked a lot too about we're waiting for 0:36:04.320 --> 0:36:06.919 the payoff and understanding whether this all makes sense. 0:36:07.640 --> 0:36:09.799 Great stuff, Thank you so much, oh my pleasure, really 0:36:09.800 --> 0:36:10.279 appreciate it. 0:36:10.320 --> 0:36:13.680 Professor me here today say he is, of course with 0:36:14.280 --> 0:36:17.120 Harvard Business School. He's the Mizuho Financial Group Professor of 0:36:17.120 --> 0:36:19.479 Finance at Harvard Business School. And a professor of law 0:36:19.680 --> 0:36:22.640 at Harvard as well. Interesting column here in the New 0:36:22.719 --> 0:36:24.640 York Times. Thank you so much, really appreciate it. 0:36:25.239 --> 0:36:28.120 Rob Mac, I'll bet you let me drive. 0:36:28.360 --> 0:36:31.920 Oh no, no, no, no, this is not a toy jug. 0:36:32.800 --> 0:36:35.200 Honey, please, I'll do the riding gravels. 0:36:35.400 --> 0:36:39.280 Excuse mate, I want to try it. 0:36:39.280 --> 0:36:41.160 It's a good question time. 0:36:44.040 --> 0:36:46.880 This is the drive to the clothes dot plum for me. 0:36:47.080 --> 0:36:50.400 Thing well don on Bloomberg Radio. 0:36:50.600 --> 0:36:52.839 All right, everybody, just about eighteen minutes left to go 0:36:53.040 --> 0:36:55.760 in the trading session. Carol Master along with Tim Stanovic 0:36:55.840 --> 0:36:59.480 live here in our Bloomberg Interactive Broker's studio. And as 0:36:59.520 --> 0:37:02.600 Tim and both mentioned, we did see stocks roll over here. 0:37:02.680 --> 0:37:06.160 We've now got the Dow in negative territory. But you 0:37:06.200 --> 0:37:08.080 are definitely off the best levels of the session, but 0:37:08.520 --> 0:37:11.040 a leg down. And we did have some comments from 0:37:11.080 --> 0:37:14.839 President Trump from the Oval Office talking to reporters, and 0:37:14.920 --> 0:37:18.000 the President saying that there are plans to announce Canada 0:37:18.320 --> 0:37:22.560 Mexico TIFFs because of fentanyl shipments we would assume coming 0:37:22.600 --> 0:37:25.560 into the United States, and particularly and specifically I should 0:37:25.600 --> 0:37:28.560 say that the President saying twenty five percent tariffs when 0:37:28.600 --> 0:37:30.920 it comes to Canada and Mexico. So we're going to 0:37:30.920 --> 0:37:33.279 look for some more clarifications on that, more detail, if 0:37:33.280 --> 0:37:36.440 you will. But investors noticing and sending stocks in a 0:37:36.480 --> 0:37:38.719 straight leg down over the last few minutes, not. 0:37:38.719 --> 0:37:41.240 Just stocks, keeping on currencies as well. The Mexican peso 0:37:41.320 --> 0:37:43.560 has sunk to a session low on those comments from 0:37:43.600 --> 0:37:45.800 Trump about tariffs. Let's see what Sam Stoveall has to 0:37:45.840 --> 0:37:49.480 say about this. He's chief investment strategist at CFRA Research. 0:37:49.520 --> 0:37:53.040 He's back with us from Allentown, Pennsylvania. Sam, was an 0:37:53.080 --> 0:37:55.799 interesting trade today even before just a few minutes ago, 0:37:55.840 --> 0:37:59.120 and we got those comments from reporters saying that Trump 0:37:59.160 --> 0:38:02.280 would impost twenty five percent tariffs on Canada and Mexico. 0:38:02.400 --> 0:38:05.080 Do defense and all. How are you looking at tariffs 0:38:05.640 --> 0:38:06.920 over at CFRA. 0:38:07.840 --> 0:38:11.280 Hey, Tim, Well, certainly we are paying attention to whatever 0:38:11.320 --> 0:38:15.280 the President says one day to the next. We still think, however, 0:38:15.360 --> 0:38:18.759 that a majority of this tariff talk is more to 0:38:18.800 --> 0:38:23.919 do with negotiating and trying to get to squeeze out 0:38:24.080 --> 0:38:28.600 whether it's from Columbia, Venezuela as well as Mexico and Canada, 0:38:28.719 --> 0:38:32.040 to try to get whatever it can to improve the 0:38:32.080 --> 0:38:33.400 trade situation. 0:38:33.360 --> 0:38:38.640 The sensitivity though sam of the markets to headline on 0:38:38.760 --> 0:38:42.279 possible tariffs, the sensitivity even on Monday to the news 0:38:42.320 --> 0:38:44.439 out of deep Seak in terms of AI, many were 0:38:44.760 --> 0:38:46.960 saying that, you know what, investors are just looking for 0:38:47.000 --> 0:38:49.600 a reason to sell after two years of just moving higher. 0:38:49.840 --> 0:38:52.040 Do you agree that there's a sensitivity in the market 0:38:52.080 --> 0:38:55.040 or do you think the fundamentals are there that investors 0:38:55.080 --> 0:38:57.320 don't need to be so nervous about the outlook, especially 0:38:57.360 --> 0:38:58.640 when it comes to further gains. 0:39:00.040 --> 0:39:03.560 Well, I think certainly that we could easily go through 0:39:03.560 --> 0:39:06.880 a pullback or even a mild correction, because those things 0:39:06.920 --> 0:39:10.200 do happen every so often. But I still call myself 0:39:10.239 --> 0:39:13.360 a bull. I think that we are likely to see 0:39:13.400 --> 0:39:16.359 prices higher at the end of the year, but volatility, 0:39:16.440 --> 0:39:19.040 I think certainly is going to be on the upswing. 0:39:19.760 --> 0:39:22.120 But I would tend to say also that because the 0:39:22.160 --> 0:39:26.080 market has been very willing to rotate from the high 0:39:26.200 --> 0:39:31.359 growth areas, showing some interest in healthcare, in materials, in 0:39:31.360 --> 0:39:35.600 industrials areas that had been under performers in twenty twenty four, 0:39:35.920 --> 0:39:37.960 that says a lot to me that investors are not 0:39:38.120 --> 0:39:40.120 willing to give up the shift just yet. 0:39:40.239 --> 0:39:43.080 Did you change your view given the stock market action 0:39:43.640 --> 0:39:46.479 that we saw on Monday with some big name tech 0:39:46.560 --> 0:39:49.719 names sell off as a result of the deep Seek news. 0:39:50.960 --> 0:39:53.800 Well, Tim, we didn't change our view because we're taking 0:39:53.880 --> 0:39:56.600 sort of a wait and see attitude like the FED. 0:39:57.280 --> 0:40:01.960 We did acknowledge absolutely that it is news that should 0:40:02.000 --> 0:40:06.799 probably be taken quite seriously. We still think that these 0:40:06.840 --> 0:40:10.040 companies are likely to stress the need for greater compute 0:40:10.360 --> 0:40:14.640 as we shift toward ngetic AI and physical AI. But 0:40:14.760 --> 0:40:18.880 at the same time, these semiconductor companies could probably end 0:40:18.960 --> 0:40:22.920 up experiencing a bit of pressure in the near term, 0:40:23.520 --> 0:40:27.319 but our feeling is that it could end up then 0:40:27.400 --> 0:40:30.359 experiencing a buy on the dip a little later on. So, 0:40:30.840 --> 0:40:34.120 right now, technology is the worst performing sector in the 0:40:34.120 --> 0:40:38.680 month of January, and historically the four worst performers in 0:40:38.719 --> 0:40:42.480 the month of January tend to underperform the SMP in 0:40:42.520 --> 0:40:44.000 the full calendar year. 0:40:45.160 --> 0:40:48.440 Hey, Sam, I do wonder too that within the AI community, 0:40:48.520 --> 0:40:51.719 the big megacap tech names that are all spending big. 0:40:51.480 --> 0:40:55.320 Time on AI at this point. 0:40:55.160 --> 0:40:57.920 Don't think at some point kind of have to support 0:40:58.440 --> 0:41:01.120 the AI story in the AI narrative, even if they 0:41:01.160 --> 0:41:03.160 think that there might be a competitor. I mean they 0:41:03.200 --> 0:41:07.319 all were, so I feel like, you know, congratulatory backslapping, 0:41:07.360 --> 0:41:10.800 if you will, on Monday over Deep Seek in terms 0:41:10.800 --> 0:41:13.879 of their findings, And you do wonder do they kind 0:41:13.920 --> 0:41:16.840 of have to all be like AI be supportive of 0:41:16.920 --> 0:41:19.120 it because there's so much money at stake, so much 0:41:19.160 --> 0:41:20.320 that's already been invested. 0:41:21.440 --> 0:41:25.880 Sure, and also Carol that we're starting to see AI 0:41:26.040 --> 0:41:31.120 profits exceed AI expenditures, and so that is something where 0:41:31.239 --> 0:41:34.960 companies are expecting it to get a reward in this 0:41:35.080 --> 0:41:38.880 year and also in future years, where it's not just 0:41:39.400 --> 0:41:43.840 investments in the product that will then bear fruit years 0:41:43.880 --> 0:41:47.480 from now. They're actually expecting to see nice returns beginning 0:41:47.480 --> 0:41:47.919 this year. 0:41:48.160 --> 0:41:51.560 When do we start to see AI affecting the companies 0:41:51.560 --> 0:41:54.279 that are not hyperscalers, When do we start to see 0:41:54.320 --> 0:41:58.400 them affecting consumer packaged goods companies, automakers and the like. 0:42:00.400 --> 0:42:02.600 Well, I would tend to say that that is something 0:42:02.600 --> 0:42:04.880 that is certainly down the road. I don't have a 0:42:04.920 --> 0:42:08.640 specific timeframe for you, but when you think about a 0:42:08.680 --> 0:42:11.840 lot of the minor AI that we experience on a 0:42:11.920 --> 0:42:16.080 daily basis, whether we're just communicating with others, or whether 0:42:16.800 --> 0:42:22.040 we are doing calculations. Certainly that's already being beneficial to 0:42:22.520 --> 0:42:24.240 consumers and investors today. 0:42:24.520 --> 0:42:26.920 Sam love talking with you for so many different reasons. 0:42:26.960 --> 0:42:29.120 I feel like we've talked so much over the years, 0:42:29.840 --> 0:42:33.840 whether it's earnings, whether it's fundamentals. But I appreciate someone 0:42:33.840 --> 0:42:36.480 who has seen a lot of cycles, a lot of 0:42:36.480 --> 0:42:40.440 strains and stresses in the financial system, and seeing innovation disruption, 0:42:41.120 --> 0:42:43.960 things that people thought would be something big that ultimately 0:42:44.000 --> 0:42:48.239 do not memestock so much. I'm just thinking about just 0:42:48.280 --> 0:42:49.839 got about a minute and a half left here. How 0:42:49.880 --> 0:42:51.960 you think about the market environment. Is there a lot 0:42:51.960 --> 0:42:54.719 of clarity and transparency about kind of where we go 0:42:54.800 --> 0:42:55.320 from here? 0:42:55.600 --> 0:42:56.880 Or are there more questions? 0:42:58.800 --> 0:43:01.480 I think that there are questions. I guess it depends 0:43:01.480 --> 0:43:04.120 on what we mean by where we go from here. 0:43:04.280 --> 0:43:06.640 Is it in the next couple of months, is it 0:43:06.760 --> 0:43:09.440 this calendar year, or is it five or ten years 0:43:09.480 --> 0:43:13.600 down the road. I am a bit concerned about valuations 0:43:13.640 --> 0:43:17.080 and how people tend to just dismiss them and say, well, 0:43:17.360 --> 0:43:20.120 it's because now is different. I mean, the S and 0:43:20.160 --> 0:43:23.160 P is trading at a twenty one percent premium to 0:43:23.280 --> 0:43:26.560 its forward pe average over the last ten years and 0:43:26.800 --> 0:43:30.080 close to a forty percent premium over the last twenty years. 0:43:30.440 --> 0:43:33.600 Tech is at thirty five percent premium over the ten 0:43:33.680 --> 0:43:38.640 year period and more than sixty sixty five percent over 0:43:38.640 --> 0:43:41.759 the twenty year period. So I would tend to say 0:43:41.800 --> 0:43:44.520 that we're going to have to see a very large 0:43:44.520 --> 0:43:48.680 pickup in earnings because I don't expect PE multiples to expand, 0:43:49.719 --> 0:43:53.560 and if the economy is likely to be contracting as 0:43:53.560 --> 0:43:56.759 we move into this year and next, it's going to 0:43:56.760 --> 0:44:00.200 be a tough hurdle I think to see expanding profits 0:44:00.400 --> 0:44:04.240 rather than simply focusing on maintaining profit margins. 0:44:04.320 --> 0:44:06.759 Yeah, super solid point for us to wrap up on. 0:44:06.840 --> 0:44:10.360 Sam, Thank you, as oways Sam Stovell, chief investment strategist 0:44:10.360 --> 0:44:14.120 at CFA Research, joining us from Allentown, Pennsylvania. 0:44:14.200 --> 0:44:19.040 This is the Bloomberg Business Week podcast, available on Apple, Spotify, 0:44:19.160 --> 0:44:22.880 and anywhere else you get your podcasts. 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