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Speaker 1: Bloomberg Intelligence with Scarletfoo and Paul Sweeney on Bloomberg Radio, YouTube,
Speaker 1: and Bloomberg Originals.
Speaker 2: On today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week, we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries that are analysts cover worldwide.
Speaker 2: Today, we'll look at why Wall Street's Vegas Banks report
Speaker 2: quarterly earnings that surpassed almost all analyst expectations.
Speaker 3: Plus look at how the tech company Oracle will commit
Speaker 3: to the widespread use of AMD chips.
Speaker 2: But first, We begin with some big news in the
Speaker 2: tech sector because.
Speaker 3: This week the AI research and development company OpenAI signed
Speaker 3: a multi year agreement with Broadcom. It is to collaborate
Speaker 3: on custom chips and networking equipment.
Speaker 2: The plan is to add ten gigawats worth of AI
Speaker 2: data center capacity, with the companies beginning to deploy racks
Speaker 2: of service containing the gear in twenty twenty six.
Speaker 3: OpenAI will design the hardware and work with Broadcom to develop.
Speaker 2: It for more. We were joined by mandeep Seeing Bloomberg Intelligence,
Speaker 2: senior tech industry analyst. You first asked man Deep, first
Speaker 2: take on the latest deal.
Speaker 4: Look, OpenAI is going after heading as much compute capacity
Speaker 4: as they can, and they did. First ten gigawatts with Nvidia,
Speaker 4: six gigawatts with AMD, and now ten gigawats with Broadcom.
Speaker 4: And the difference here is with Broadcom they get to
Speaker 4: use their own chips. Nvidia and AMD are what we
Speaker 4: call merchant silicon. I mean that's basically generalized chips where
Speaker 4: you can deploy the workload you want, whether it's from
Speaker 4: OpenAI or Microsoft or any other vendor. In the case
Speaker 4: of custom silicon, which is what Broadcom does, a company
Speaker 4: like open AI or Google. Google makes up almost you know,
Speaker 4: fifty percent plus of Broadcom's AI revenue. So Google has
Speaker 4: their chip called TPUs. They use it for everything run
Speaker 4: on Google's platform, whether it's YouTube, whether it's AI, whether
Speaker 4: it's cloud. Everything inside Google's run on their TPU. So
Speaker 4: OpenAI's strategy here is to use an approach which is
Speaker 4: similar to Google TPUs because it saves you a lot
Speaker 4: of money. I mean, imagine, an Nvidia AI chip costs
Speaker 4: you thirty grand. A custom silicon that Broadcom is making
Speaker 4: for Google costs you six grand. That's the cost differential
Speaker 4: we are talking about. And it's not because has to
Speaker 4: spend thirty grand to make that chip. They have a
Speaker 4: seventy five percent gross margin on the chip that they're
Speaker 4: selling to the customer. So Nvidia's cost is also low,
Speaker 4: but they mark up the price of their silicon. Same
Speaker 4: thing with AMD. In the case of Google, they are
Speaker 4: going directly to Broadcom to make that chip at a
Speaker 4: far lower price, and it's for their own use, which
Speaker 4: is why they don't have to pay the markup to
Speaker 4: Nvideo or AMD. And that's why having your custom silicon
Speaker 4: strategy is so good because it really saves you so
Speaker 4: one gigaw with Nvidia silicon would cost you about forty
Speaker 4: to fifty billion. One gigawat with a Broadcom open Ai
Speaker 4: silicon would cost you twenty five to thirty billion. So
Speaker 4: if you're talking about you know, thirty to forty percent
Speaker 4: cost differential, and it's huge, I mean in the context
Speaker 4: of what these guys are trying to do, you know,
Speaker 4: scaled infrastructure.
Speaker 3: In addition to that distinction, there's also no investment or
Speaker 3: stock component to this open Ai Broadcom deal, which makes
Speaker 3: it different from the deal that it struck with Nvidia
Speaker 3: and AMD. So I guess my question is how would
Speaker 3: open Ai finance the purchase or the chips in general?
Speaker 4: That's a great question because right now they have to
Speaker 4: do a lot of financing. It's one thing that's a
Speaker 4: common thread in the Invidia transaction where even though Invidia
Speaker 4: is putting ten billion dollars in open Ai, they still
Speaker 4: have to find the remainder of the money. So if
Speaker 4: you imagine, you know, forty to fifty billion dollars per gigawatt,
Speaker 4: ten gigawatts costume around five hundred billion, Nvidia is only
Speaker 4: investing up two hundred billions, so they still have to
Speaker 4: figure out the remainder of four hundred billion in the
Speaker 4: case of AMD, I mean, yes, they are getting some stock,
Speaker 4: but you still have to figure out the financing for that,
Speaker 4: you know, three hundred billion or so. Here, it's the
Speaker 4: same thing. You need the money. And open eyes bet
Speaker 4: is if we keep ramping up our revenue, that is
Speaker 4: obviously a big source of the funding. We'll do a
Speaker 4: lot of private deals because we already have the buy
Speaker 4: in from these big player whether it's Nvidia or Microsoft
Speaker 4: and other sovereign providers. And I think it's a lot
Speaker 4: of scale game right now, because once we keep hitting
Speaker 4: our milestones, we'll keep raising more money. And that's the
Speaker 4: hope when it comes to open air.
Speaker 2: One name I hadn't heard during all this dance between
Speaker 2: all these tech companies is Apple. Yeah, what's going on there?
Speaker 3: Glaring absence exactly.
Speaker 4: I think that's the right way to frame it. And look,
Speaker 4: at some point, I think they are going to go
Speaker 4: the broadcom route. Out of the three partnerships that Openei
Speaker 4: has had, a company like Apple will never go for
Speaker 4: merchant silicon. I mean, look at what they have done
Speaker 4: in their own devices. It's all custom silicon. And that's
Speaker 4: where if I had to pick a strategy for Apple,
Speaker 4: it will likely be custom Silicon using Broadcom or Marvel
Speaker 4: or one of these asay providers. But the hard thing
Speaker 4: for them is because they have missed out all the
Speaker 4: action in the past last three years, it's so hard
Speaker 4: to catch up. Even if you throw money and you
Speaker 4: know your capex dollars, the time is off the essence,
Speaker 4: and the longer they delay this, I feel either is
Speaker 4: Broadcom or a partnership with Google now that antitrust is behind,
Speaker 4: so they may very well adopt Google's LM across their
Speaker 4: huge That will be huge, But I think you know,
Speaker 4: with the regulatory overhand going away, that could be a
Speaker 4: very likely strategy.
Speaker 3: Apple has a ton of cash. It can't buy its
Speaker 3: way to a solution.
Speaker 2: Here, what do you buy?
Speaker 4: I mean these are all scale players, a broad coom.
Speaker 4: Maybe you could say Marvel is a smaller player, but
Speaker 4: you need the best and chips. That's why everyone is
Speaker 4: buying Nvidia because they have the highest performance per what.
Speaker 4: So you can't really get a second or a third
Speaker 4: player because then you compromise on the performance per what.
Speaker 4: When the biggest constraint out there is power, so you
Speaker 4: know you need the leading later and it comes to
Speaker 4: the chip side of the equation.
Speaker 3: Our thanks to Man Deep Saying, Bloomberg Intelligence senior tech
Speaker 3: industry analysts.
Speaker 2: We moved next to corporate earnings from the pizza chain Dominoes.
Speaker 3: Dominoes reported better than expected third quarter earnings this week.
Speaker 3: They were fueled by demand for promotions and the stuffed
Speaker 3: crust pizza.
Speaker 2: From where we were joined by Michael Haylen, Bloomberg Intelligence
Speaker 2: Senior restaurant and food service analyst.
Speaker 3: We began by asking Michael to break down the latest results.
Speaker 2: It was a great quarter.
Speaker 5: I mean five point two percent same star sales in
Speaker 5: the US, and everyone knows quick service restaurants, you know,
Speaker 5: have been struggling due to low income consumer weakness.
Speaker 2: They did it with stuffed crust pizza.
Speaker 5: They were the only major national pizza chain that did
Speaker 5: not have stuff crust pizza. So they added that to
Speaker 5: the repertoire and this year and that that's boosted sales value.
Speaker 5: This quarter was the best deal ever nine ninety nine
Speaker 5: for any pizza and no matter how many toppings you
Speaker 5: want on it, right, So giving people a discount that
Speaker 5: they really want on an item they really want, and
Speaker 5: then you know DoorDash, George is the first quarter they
Speaker 5: were fully rolled out on door Dash and that has
Speaker 5: really helped them take a chunk of that third party
Speaker 5: delivery aggregator business, boosting same source sales.
Speaker 3: Okay, that all makes sense, but is that sustainable, especially
Speaker 3: the promotions like nine ninety nine, which definitely sound appealing
Speaker 3: in this day and age. I mean, these campaigns might
Speaker 3: drive volume, but at some point don't they erode profitability?
Speaker 6: Well?
Speaker 5: I think you know what we saw was margins were flat,
Speaker 5: you know, so to your point, you know, but what
Speaker 5: Madgeman said and what they're right about is that you know,
Speaker 5: you don't take margin to the bank, you take dollars
Speaker 5: to the bank.
Speaker 6: Right.
Speaker 5: And so they did this nine ninety nine deal and
Speaker 5: they actually ran it longer than expected because franchises were
Speaker 5: making so much money off of it, right, And so yeah,
Speaker 5: they're willing to sacrifice a little bit of margin expansion
Speaker 5: here for that track because it's making franchisees happy and
Speaker 5: that's the key when running, when being a franchise or so, yeah,
Speaker 5: I think this is sustainable, right.
Speaker 7: They are.
Speaker 5: They have only a fraction of the third party delivery business, right,
Speaker 5: but they have a third of the pizza market in
Speaker 5: the US. So that's a huge slug of business that
Speaker 5: we think is a great opportunity that's going to continue
Speaker 5: to build over time. You know, Uber Eats, it took
Speaker 5: them quite some time to build some momentum there. This
Speaker 5: was just the first quarter of being fully rolled out
Speaker 5: on door dash, So we think it's going to have
Speaker 5: a big impact over the next three quarters. But it
Speaker 5: sounds like it can continue to build stuff Cruss Pizza, right,
Speaker 5: this is something that's a permanent menu item. This is
Speaker 5: not something that is you know, just a limited time
Speaker 5: offer that's going to be run for a few weeks, right.
Speaker 5: And then value, they have a bunch of different value
Speaker 5: things they do these boost weeks, and they have a
Speaker 5: tip promotion and so they run different value at different times.
Speaker 5: But what they've done has been able to like, you know,
Speaker 5: create a name for themselves and are owning certain type
Speaker 5: of discounts that they run throughout the year. And so
Speaker 5: I think that is important for national pizza players. It's
Speaker 5: it's a business that's heavily weighted towards low income consumers,
Speaker 5: and you know, to my point earlier, they're struggling right now.
Speaker 2: So Mike, explain the economics or explain the strategy of
Speaker 2: using these third party delivery of folks like Uber Eats
Speaker 2: or door dash. What changed for Dominoes, for example? Why
Speaker 2: would they not use them but then make the decision
Speaker 2: to use them.
Speaker 5: Yeah, great question. So you know, at first it was
Speaker 5: really about the cost, right, And you know years ago
Speaker 5: third party delivery companies were charging thirty percent plus Dominos
Speaker 5: number one, they waited till the prices came down. Also,
Speaker 5: their business is really just using the marketplace. They're still
Speaker 5: using their own delivery drivers, right, and so they're able
Speaker 5: to use door dash on for their marketplace and play
Speaker 5: a much much lower vig to the company for the listing, right.
Speaker 5: And so they were the last of all the major
Speaker 5: pizza players and QSR names. They were the final holdout.
Speaker 5: A big part of it was they were just so
Speaker 5: big in delivery and they didn't want to cannibalize the
Speaker 5: margin on that business. But what we're seeing is it
Speaker 5: really dry transactions. This quarter, we saw positive same store
Speaker 5: sales growth with carry out as well as delivery. They
Speaker 5: saw same store sales growth with every income cohort. It
Speaker 5: was a very strong quarter across the board.
Speaker 3: You can count on people to not want to get
Speaker 3: off their couch and always order in, and that's guaranteed
Speaker 3: money made.
Speaker 2: The only offspring that's still on my dole is my
Speaker 2: last guy. He's in college, and he knows he has
Speaker 2: to call me, text me. Does he to get pre
Speaker 2: approval to use any third party deliveries because I hate
Speaker 2: that cost?
Speaker 3: Yeah, I mean, well as Gen xers and older, you know,
Speaker 3: the thought of paying out extra for someone to deliver
Speaker 3: food too is just so.
Speaker 2: I haven't heard from him in like six months.
Speaker 3: That's good progress. So, Michael, is Domino's attracting higher income
Speaker 3: consumers who are perhaps trading down and looking for those
Speaker 3: deals like the nine ninety nine pizza, and I wonder
Speaker 3: how much more market share they can pick up that way.
Speaker 5: Well, same store sales, to your point, did grow with
Speaker 5: higher income consumers. They didn't talk about whether that's a
Speaker 5: trade down naturally, though. You will see that from increasing
Speaker 5: your third party delivery sales, right because those customers tend
Speaker 5: to skew younger and skew more affluent.
Speaker 2: So we do know that's kind of card.
Speaker 5: Yeah, yeah, exactly.
Speaker 2: Thanks to Michael Halen Bloomerg Intelligence Senior restaurant and food
Speaker 2: service analysts.
Speaker 3: Coming up look at how the luxury goods maker LVMH
Speaker 3: unexpectedly returned to sales growth last quarter.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries.
Speaker 3: You can access Bloomberg Intelligence via bi go on the terminal.
Speaker 3: I'm Scarlet Foom.
Speaker 2: And I'm Paul Sweeney.
Speaker 8: This is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: Return next to US bank earnings.
Speaker 3: This week, Wall Street's biggest banks reported third quarter earnings
Speaker 3: that surpassed almost all analyst estimates.
Speaker 2: They included Goldman Sachs, Bank of America, Morgan Stanley, JP,
Speaker 2: Morgan Chase, and Wills Fargo. The results were driven by deals, investment, banking,
Speaker 2: and market volatility.
Speaker 3: For a closer look at Bank of America and Morgan Stanley,
Speaker 3: we were joined by Alison Williams, Bloomberg Intelligence, senior analysts
Speaker 3: for global banks and asset managers.
Speaker 2: First asked Alison what she made of Morgan Stanley's quarterly results.
Speaker 8: Obviously, it's a strong environment for equities, especially the third
Speaker 8: quarter was a very strong environment. We hit records multiple times,
Speaker 8: including in the end of September. We had new records
Speaker 8: earlier this quarter. But you know, as we know, when
Speaker 8: you manage a team, when you have that strong environment,
Speaker 8: you want people that are going to take advantage of it.
Speaker 8: And I mean equities trading really jumping. We saw we
Speaker 8: saw strong growth actually at JP Morgan and Morgan Stanley.
Speaker 8: Goldman trailing a bit so, raising maybe some questions about
Speaker 8: what happened there, but also equity fees Morgan Stanley doing well.
Speaker 2: And then the wealth.
Speaker 8: Business, I mean that's really the focus for investors. Those
Speaker 8: flows really strong.
Speaker 3: Yeah, wealth management net revenue of eight point two to
Speaker 3: three billion, it was estimated to increase seven percent to
Speaker 3: seven point seven to eight billion, So that was a big,
Speaker 3: big beat. And this is the part of the business
Speaker 3: that Morgan Stanley has really been focused on to kind
Speaker 3: of separate it from Goldman Sex because this is the
Speaker 3: steady eddy business where it's fee generated, it's recurring, you're
Speaker 3: not dictated by the whims of the market and volatility
Speaker 3: and anything that could happen in any quarter.
Speaker 6: Right.
Speaker 8: So, yeah, So to your point, that wealth and asset
Speaker 8: management tends to be more favored by investors because it
Speaker 8: does tend to be more of a recurring revenue model.
Speaker 8: You know, obviously if the market goes down twenty percent
Speaker 8: or up twenty percent, that has an impact on fees,
Speaker 8: but it's not parable to something like the underwriting or
Speaker 8: the pure transactional business. Recall the pandemic when things completely
Speaker 8: shut down. I mean, granted they recovered, but the fact
Speaker 8: of the matter is like it's less volatility, more recurring revenue.
Speaker 8: Investors like that fee income and they like sort of
Speaker 8: the relative stability of that business.
Speaker 3: So one thing that really jumped out at me, Allison,
Speaker 3: when I was looking at the earnings is the fact
Speaker 3: that all the bank's provision for credit losses Japan, Morgan
Speaker 3: set aside more than what analysts thought it would set aside.
Speaker 3: Golden Sacks set aside less. Morgan Stanley was estimated to
Speaker 3: have set aside ninety seven million. It ended up setting
Speaker 3: aside zero zero for bad losses bad loan losses. What
Speaker 3: does that say they did?
Speaker 8: And I mean for Morgan Stanley, lending is such a
Speaker 8: small part of their business. It's the least out of
Speaker 8: all the banks, So if you're going to see zero,
Speaker 8: you would see it there. But the one question we
Speaker 8: do have, which I think will become clear as we
Speaker 8: see many of the other bank report is you know,
Speaker 8: we're seeing a very strong consumer at these big banks,
Speaker 8: but is there differentiation in terms of the high end
Speaker 8: consumer or lower income consumer? A lot of these banks,
Speaker 8: you know, the focus really is on the higher end consumer.
Speaker 8: JP Morgan. They're despite a lot of the headline figure
Speaker 8: or headlines that came out from Jamie's comments. We look
Speaker 8: at the credit card business and the credit trends in
Speaker 8: that business super strong. Their charge off rate, they actually
Speaker 8: guided it down because they had to because the delinquencies
Speaker 8: are coming in, you know, so much lower. We know
Speaker 8: that JP Morgan really focuses on that Sapphire card, that
Speaker 8: high end card. So they are seeing a strong consumer.
Speaker 8: But will we see something different when we see some
Speaker 8: of the other card companies report.
Speaker 2: You know, when you think about it, the drivers of
Speaker 2: the investment banking business are pretty darn simple. Listen to
Speaker 2: chief executive chief financial Officer Alistair Borthwick. Here's what he
Speaker 2: told analyst on Wednesday. Quote, we've seen more certainty now
Speaker 2: around trade and tear and around taxes as well. It's
Speaker 2: a louder client base to make longer term decisions. That's
Speaker 2: reflected in our investment banking activity. Yeah, it's as simple
Speaker 2: as that, but again it's hard to predict kind of
Speaker 2: what those macro trends are going to be. Switching gears
Speaker 2: to the Bank of America, their bankers did really well,
Speaker 2: not that that's a surprise, but they put us a
Speaker 2: big growth.
Speaker 8: Rate, they did, and you know, to your point, Paul,
Speaker 8: I mean, you've been in this business, right, so the
Speaker 8: having clarity is generally helpful for the investment banking business.
Speaker 8: That's why we did see sort of a fall off midyear.
Speaker 8: But what we've heard from the banks and their bankers
Speaker 8: is that, look, clients are beginning to accept that there
Speaker 8: is some level of uncertainty they'll have to deal with.
Speaker 8: It's not going away necessarily anytime soon. So if you
Speaker 8: need to come to market now, it's probably a good time.
Speaker 8: And by the way, record equity prices fed cutting rates,
Speaker 8: you know, those are also helpful and bringing some of
Speaker 8: those deals to market. Bank of America, by the way,
Speaker 8: talking about their backlog up very strongly for the fourth quarter.
Speaker 8: So this momentum into this next quarter is likely to
Speaker 8: show up again in the in the fourth quarter results.
Speaker 3: So for Bank of America, it feels like investors were
Speaker 3: singularly focused on the net interest income number because it
Speaker 3: had not done so well just a year ago, and
Speaker 3: Bank of America was really focused on improving that. This
Speaker 3: was a big beat on the NII number here and
Speaker 3: they actually guided higher for the fourth quarter. The bank
Speaker 3: is going to hold its first investor day I think
Speaker 3: since twenty eleven next month. How does this set up
Speaker 3: Bank of America for this investor day?
Speaker 8: So I think they are set up well for the
Speaker 8: investor day. And keep in mind investor Day will be
Speaker 8: focused I think on the long term trends. We have
Speaker 8: gotten some management changes, some announcements related to succession planning,
Speaker 8: and I think, you know, Brian moynihan has done a
Speaker 8: great job with the bank. I think the investor day
Speaker 8: is really going to be focused on, you know, what
Speaker 8: is the look forward? And AI is something that we've
Speaker 8: heard a little bit about Bank of America talking about
Speaker 8: that this quarter, Goldman Sachs bringing out their three point
Speaker 8: zero program. Morgan Stanley actually had been talking about that
Speaker 8: with their cuts last year. How is AI going to
Speaker 8: contribute to the structural profitability of Bank of America? You know,
Speaker 8: so cyclical, some very strong trends' quarter structural they've done
Speaker 8: a good job, but what is next for the bank?
Speaker 2: I mean, I just forgot how big Bank of America is,
Speaker 2: and they meet They grew through so many acquisitions, two
Speaker 2: hundred and thirteen thousand employees. It's got a market cap
Speaker 2: of almost four hundred billion dollars. They seem like they've
Speaker 2: got the right mix of assets at this point.
Speaker 8: Yeah, So to your point, they did grow a lot
Speaker 8: through acquisitions under prior managements. And I think you know
Speaker 8: what Brian oinnihan has come in and said was they're
Speaker 8: really going to focus on organic growth. They focused on
Speaker 8: this strategy responsible lending. There's some noise around that when
Speaker 8: times are good, right because everyone said, well, are you
Speaker 8: being too conservative? But then when times are bad, that
Speaker 8: is really helpful to managing the downside. And that's one
Speaker 8: of the things that I think can give investors come
Speaker 8: for as we worry about recession risks in the coming quarters.
Speaker 3: Our thanks to Alison Williams, Bloomberg Intelligence, Senior Analyst for
Speaker 3: Global Banks and Asset managers.
Speaker 2: We move next to earnings from the luxury goods maker LBMH.
Speaker 3: This week, LVMH reported third quarter earnings that beat analyst
Speaker 3: estimates in all five business units after two quarters of declines.
Speaker 3: The rise of revenue and China sales also suggest that
Speaker 3: the slump and luxury demand might be easy.
Speaker 2: For more on this, we were joined by Deb Aik
Speaker 2: and Bloomberg Intelligence luxury goods analyst.
Speaker 3: We began by asking Deb for her take on LVMH's
Speaker 3: results and whether it signals that luxury is back.
Speaker 9: Really a very big sentiment indicator. The comments from the
Speaker 9: company were more positive than the market anticipated. When we
Speaker 9: look at the numbers in terms of the organic sales growth,
Speaker 9: the market expected around minus one minute plus one. But
Speaker 9: it's about the sequential improvement from Q two to Q
Speaker 9: three and the fact that all five of the business
Speaker 9: units are improved versus Q two, and more than that,
Speaker 9: China is mid to high single digit growth versus a
Speaker 9: year ago. The US is robust, Europe is doing the
Speaker 9: same as it did across the board, doing okay but
Speaker 9: missing out on tourism and Asia. Extra Pan is positive.
Speaker 9: We know four q US will face a bit more
Speaker 9: of a difficult comp after the spent in last year
Speaker 9: beyond the election and the Trump win. But into the
Speaker 9: first half of twenty twenty six, the market is looking
Speaker 9: more positive and it's certainly rallied the whole of the sector.
Speaker 9: This morning and this afternoon.
Speaker 2: Hey, dev, what's the correlation between luxury spending and just
Speaker 2: kind of the broader stock market around the world, Because
Speaker 2: markets are really performing well, how does that correlate to
Speaker 2: just luxury spending.
Speaker 9: The big thing on luxury spend has been that the
Speaker 9: very high end has done well, so Airmyre's Brunellokucinelli, where
Speaker 9: they work with a restricted volume operating model, They've done
Speaker 9: well in terms of their top line growth. But when
Speaker 9: I think about an LVMH, you know they're given how
Speaker 9: big they are, they need a big volume there, even
Speaker 9: with some price in to manage growth in this category.
Speaker 9: And instead, what we saw last year and the beginning
Speaker 9: of this year was maybe a little bit of trading down.
Speaker 9: So brands like Tapestry's Coach Ralph Lauren they became really
Speaker 9: so popular, not only in the US, but more on
Speaker 9: a globalized basis too. And so the view has been
Speaker 9: that the sentiment around the share prices has very much
Speaker 9: been opposed and opposite to what's been happening on the
Speaker 9: stock market, but with the exception of the mid range,
Speaker 9: and the mid range have done better because the view
Speaker 9: in the investor mindset has been the luxury buyer will
Speaker 9: trade down. They've done that in some brands, but not
Speaker 9: all brands, in some categories, not all categories, and generally
Speaker 9: we expect the biggest and the best to come back first.
Speaker 3: What about LVMH's wines and spirits division. We've been hearing
Speaker 3: from Constellation brands and other spirits companies that you know,
Speaker 3: there's been this massive shift in consumer tastes away from alcohol,
Speaker 3: certainly the younger generation. Does that affect a company like LVMH.
Speaker 9: So a different kind of thing with LVMH. I think
Speaker 9: at the very high end we had some US weakness,
Speaker 9: so they operate in wines, fine wines, high end champagnes, cognacs,
Speaker 9: and others. Champagne is doing well and is back to
Speaker 9: growth in the US. Rose Wine is doing very very well,
Speaker 9: but some of the spirit side is still struggling a
Speaker 9: little bit, and I think that's because we've seen some
Speaker 9: trading down. So we had China very heavily and the
Speaker 9: US not so solid through the first half the year,
Speaker 9: but there are signs of that coming back. If I
Speaker 9: look at the numbers on the Q three for wines
Speaker 9: and spirits, they're at plus one and they were at
Speaker 9: minus four for Q two and minus nine for Q one,
Speaker 9: So it seems as though inventory is leveled out and
Speaker 9: we're starting to see some selling.
Speaker 2: Deba I learned from you long ago, and looking at luxury,
Speaker 2: you have to also pay attention to what's happening in
Speaker 2: China and the Chinese consumer. Are the Chinese spending either
Speaker 2: in China or are they traveling to the London Parish,
Speaker 2: New York Milan type thing? What are you seeing?
Speaker 9: Yeah, we're still seeing a lot of the spend. We're
Speaker 9: getting mid high single digit growth in that Q three
Speaker 9: from alviw Majia onny is on localized spending. We are
Speaker 9: seeing pockets of growth on the tourism side. So there
Speaker 9: is a more positive view and mixed linked into the
Speaker 9: commentary from these results, but overall we are still absolutely
Speaker 9: the missing Asian tourist, Chinese tourists from Europe, and also
Speaker 9: in Europe, we're missing the strength of the dollar having
Speaker 9: swung over last year with US purchases here and you're
Speaker 9: you are seeing in some but not as many in
Speaker 9: terms of full recovery versus twenty nineteen. There's growth year
Speaker 9: on year, but not versus twenty nineteen into the USI.
Speaker 9: But when it comes to the Chinese tourist, we used
Speaker 9: to say a third of luxury goods just over we're
Speaker 9: on the we're from the Chinese cohort, and that would
Speaker 9: include on land and traveling right, and we still think
Speaker 9: there's a way for that to go, but certainly on
Speaker 9: land and locally they're doing better than they were.
Speaker 2: Oh thanks to deb Aik and Bloomberg Intelligence, Luxury Goods analyst.
Speaker 3: Coming up, look at why the global snacking company Kelenova
Speaker 3: is adding a jolt of protein to its big as snack.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: research and data on two thousand companies and one hundred
Speaker 2: and thirty industries.
Speaker 3: You can access Bloomberg Intelligence Big on the terminal. I'm
Speaker 3: Scarlet Foo.
Speaker 2: And I'm Paul Sweeney. This is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: We move now to news from the consumer good sector, because.
Speaker 3: This week the global snacking company Kelenova announced it'll offer
Speaker 3: a version of pop tarts with higher protein content. This
Speaker 3: will begin in November.
Speaker 2: The news comes this company start to add protein to
Speaker 2: food with hopes of louring shoppers who've moved away from
Speaker 2: highly processed products.
Speaker 3: In other news, the retail giant Walmart announced a partnership
Speaker 3: with AI research company open Ai. This deal would allow
Speaker 3: shoppers to browse and purchase his products on the AI
Speaker 3: chotbot chat GPT. For more on all of.
Speaker 2: This, we were joined by Jen bartashis Bloomberg Intelligence Senior
Speaker 2: retail analyst.
Speaker 3: We began by asking Jen for her take on Kelenova's
Speaker 3: protein boost.
Speaker 7: Really, what we're seeing is a lot of these package
Speaker 7: fry companies are tapping into this protein trend. It's something
Speaker 7: that consumers are really looking for. And at the end
Speaker 7: of the day, when it comes to PepsiCo or it
Speaker 7: comes to Kelenova, this is really about making people feel
Speaker 7: marginally better about eating food that is bad for them. Right,
Speaker 7: Let's let's just be honest about it, right, So you know,
Speaker 7: when you put protein on the package, people feel like
Speaker 7: even if they're making a bad choice. It's not as
Speaker 7: bad as it could have been. And that's really what's
Speaker 7: behind this.
Speaker 3: It's like the equivalent of vanity sizing at retailers. Right,
Speaker 3: you know, you're actually a size six, but we're going
Speaker 3: to tell you you're a size two so you feel better
Speaker 3: and buy more clothes. Is this as simple jen as
Speaker 3: just adding protein powder on top of the Kellogg's pop
Speaker 3: tarts excuse me, Kelenova pop darts.
Speaker 7: Yes, So what they've done is they've they've added protein
Speaker 7: into the pastry part of the pop tart and that
Speaker 7: changes the texture and the taste just a little bit.
Speaker 7: But what's really interesting is the consumer trend behind it.
Speaker 7: You know, we ran a proprietary protein study back in
Speaker 7: the middle of the summer, and what we saw was
Speaker 7: that almost forty percent of consumers eat something with protein
Speaker 7: enhanced whether it's a snack or a beverage, on a
Speaker 7: weekly basis, and you know, at at least thirty eight
Speaker 7: percent so that they're eating more protein enhanced products in
Speaker 7: the last three months. So clearly there's a consumer uptake,
Speaker 7: there's interest in this, and that's what these companies are
Speaker 7: really tapping into.
Speaker 2: Do I want more protein do I need more protein?
Speaker 3: I'm eating more egg whites, but that's because it's available
Speaker 3: at work.
Speaker 2: What are you doing, I don't know, use the same thing.
Speaker 3: Your goldfish do not have extra protein on them.
Speaker 2: Have extra protein.
Speaker 7: Neither of you are on GLP one drugs, right, But
Speaker 7: protein is a big solution for people who are on
Speaker 7: those drugs because you tend to lose muscle mass as
Speaker 7: a side effect of those drugs, and so as the
Speaker 7: uptake of GLP one goes up, there's more and more
Speaker 7: demand for these protein and Harry products.
Speaker 2: That's what I needed. Okay, Now I'm at a cocktail
Speaker 2: party and I need to sound smart on proteins. Now
Speaker 2: I got mine.
Speaker 3: But apparently fiber is the new protein and jen Is
Speaker 3: didn't the PepsiCo CEO say something about.
Speaker 7: This, yeah, you know, whether it's yeah, anything that helps
Speaker 7: kind of enhance the product. So when you talk about
Speaker 7: Dorito's that they have additional milk protein being added, you know,
Speaker 7: higher fiber products. All of these things are things that people,
Speaker 7: the average consumer perceives as having a health or wellness benefit,
Speaker 7: and people are trying, in small steps to be a
Speaker 7: little bit better about their health.
Speaker 2: All right, let's get to another story I thought was
Speaker 2: really interesting Walmart partners with open Ai to offer shopping
Speaker 2: on chat GPT. This sounds like a natural what's going
Speaker 2: on here?
Speaker 6: Jen?
Speaker 7: Yeah, this is an interesting move, but I think it
Speaker 7: really illustrates sort of that trend of what's happening across
Speaker 7: retail in general. Walmart's really been very good about doing
Speaker 7: experimentation and kind of checking out what the opportunities are
Speaker 7: when it comes to social media and social commerce particularly,
Speaker 7: and this lead us to partnership with with Open Eye.
Speaker 7: This really does tap into that as well. Now, social
Speaker 7: spending is still very small in terms of the overall
Speaker 7: percentage of what retailers are achieving, but it's important to
Speaker 7: be present and I think that's what's most notable about
Speaker 7: this announcement.
Speaker 3: What is social spending and how do the numbers differ
Speaker 3: from from normal shopping through Walmart's website or going into
Speaker 3: Walmart's actual stores.
Speaker 7: Yeah. So social commerce is when you're on a platform,
Speaker 7: whether it's on chat, gptin now or whether it's on TikTok,
Speaker 7: or whether it's on Facebook or any of the social
Speaker 7: media platforms, and you have the ability to add to
Speaker 7: cart and buy now. That's that's social commerce, but it's
Speaker 7: still a tiny, tiny fraction of the overall e commerce
Speaker 7: that happens for these companies.
Speaker 4: So while it's.
Speaker 7: Important in terms of their showing that they're present and
Speaker 7: that they're aware of new technologies, it's not going to
Speaker 7: move the needle with regards to their overall e commerce
Speaker 7: sales or their overall business mix.
Speaker 2: At this point, Jen, we've got a little bit more data,
Speaker 2: a little bit more time and has it relates to tariffs?
Speaker 2: What's your best guest says to what your package food companies,
Speaker 2: your retailers, how are they kind of segmenting the terrors
Speaker 2: before maybe passing along something to the consumer.
Speaker 7: Yeah, it's a complicated situation, Paul, And really what's happening
Speaker 7: is where they can find alternative sourcing. A lot of
Speaker 7: companies have been trying to do that. There are some
Speaker 7: companies in package food where that's not as easy. So
Speaker 7: I would take McCormick as an example, where a lot
Speaker 7: of spices you can't produce domestically or you can't source domestically,
Speaker 7: and then it becomes a question of how do you
Speaker 7: negotiate with partners, do you find alternative countries of origin
Speaker 7: that maybe have slightly lower tariff levels, and it's also
Speaker 7: a lot of effort right now is going into finding
Speaker 7: efficiencies that can help offset those costs so that they
Speaker 7: can absorb some of that cost and not have to
Speaker 7: pass it on to consumers. Ultimately, most of the companies
Speaker 7: we're talking to are saying that where needed, they will
Speaker 7: very strategically pass price through, but they're trying to avoid
Speaker 7: a uniform, unilateral price increase just due to tariffs.
Speaker 3: How much of this work has been done what you
Speaker 3: just described, and I guess I wonder how much of
Speaker 3: it will be covered in the earnings calls this quarter.
Speaker 7: I think it will be definitely a topic of the
Speaker 7: earnings calls this quarter. But when we had tariffs back
Speaker 7: in twenty eighteen, a lot of companies started the process
Speaker 7: of identifying other options for sourcing. So there's probably been
Speaker 7: more progress made than people would recognize because it didn't
Speaker 7: just start this year, and so it's been sort of
Speaker 7: a gradual shift. And once they have those plans in place,
Speaker 7: they can sort of accelerate that and then the focus
Speaker 7: really is on efficiencies, and that's where the technology comes
Speaker 7: back into play, where it helps them be better with
Speaker 7: regards to their sourcing, their negotiations, and really in terms
Speaker 7: of understanding what products they actually need to carry and
Speaker 7: which products they could perhaps suspend or discontinue.
Speaker 2: Our thanks to Jen Bartashi's Bloomberg Intelligence Senior retail analyst.
Speaker 3: We move next to news in the tech sector.
Speaker 2: This week, we heard that the chip maker Advanced micro
Speaker 2: Devices received a major order from Oracle for its new
Speaker 2: AI chips. This announcement is part of a frenzy of
Speaker 2: deals by big tech and AI companies.
Speaker 3: And in other news, the cloud based software companies Salesforce
Speaker 3: expanded its partnership with open Ai. This will allow companies
Speaker 3: to access Salesforce's agent Force app and chat GPT, enabling
Speaker 3: instant checkout in its commerce platform.
Speaker 2: For more, we would joined by anaag Rana, Bloomberg Intelligence
Speaker 2: technology analyst. We first asked Anarak if the recent deal
Speaker 2: between AMD and Oracle is unusual.
Speaker 6: The slight and usual part is that the AMD chip
Speaker 6: seems to be doing at parity at what Nvidio chips
Speaker 6: are for this particular case. Now, I do not know
Speaker 6: what kind of workloads Oracle will put on it, so
Speaker 6: you really can't do an apples to apples comparison. But
Speaker 6: The story at this point is Oracle has a massive
Speaker 6: backlock of orders and it needs to invest money to
Speaker 6: get them converted into revenue. They need to open more
Speaker 6: data centers or rent out more data centers. They need
Speaker 6: to buy more chips, buy more hardware, and combine all
Speaker 6: that together and eventually then they're going to get paid
Speaker 6: for all that stuff. So they're going anywhere they can
Speaker 6: find chips right now, and you know, it seems that
Speaker 6: AMD is their next stop.
Speaker 3: So there are a couple of threads to pull on there.
Speaker 3: It feels like AMD is increasingly the number one alternative
Speaker 3: to invidios chips. We can talk about that a little bit.
Speaker 3: But what struck me is that there's no dollar amount
Speaker 3: disclosed in this deal or partnership or promise. The previous
Speaker 3: deal that AMD struck with open Ai just said tens
Speaker 3: of billions of dollars in new revenue. Why are firms
Speaker 3: keeping it so vague.
Speaker 6: Well, because they do not know how many chips they
Speaker 6: would need at what point, at what capacity. This is
Speaker 6: a you know, it's not you know, it's more so
Speaker 6: signaling that we are not just truly dependent on in video,
Speaker 6: we have other options as well. It helps them with
Speaker 6: navigating in terms of pricing from in video. Also, you know,
Speaker 6: we know in video chips are getting expensive over the
Speaker 6: last few years, so there could be one reason. The
Speaker 6: other thing we don't know is what the workloads there are.
Speaker 6: Because we know, for the absolute best of the best,
Speaker 6: you you have to use in video chips. That's what
Speaker 6: we know. Whether all of that changes in twelve to
Speaker 6: eighteen months, we don't know. But there are other workloads
Speaker 6: that may not require that amount of you know, firepower
Speaker 6: or horse power you could say. For that you may
Speaker 6: use you know, AMD chips or something even more inferior.
Speaker 2: And even yet another announcement in your space an rock Salesforce,
Speaker 2: a company you've been talking to us about for many,
Speaker 2: many years, Salesforce and open Ai announced an expanded strategic partnership.
Speaker 2: What's going on there?
Speaker 6: Yeah, So for me, this is actually a far bigger
Speaker 6: news and has more ramifications in the long run. If
Speaker 6: you see what's been happening in the software landscape over
Speaker 6: the past two years, the threat is that Opening I
Speaker 6: will come and it will take away you know, basically
Speaker 6: the businesses of all the application software vendors. You know,
Speaker 6: whether that's Adobe, Workday Salesforce, HubSpot, you name it. Because
Speaker 6: open ai has shown capabilities that their model can help
Speaker 6: out in functions such as finance, human resources, sales automations,
Speaker 6: et cetera. This integration between the world's biggest CRM software vendor,
Speaker 6: which is Salesforce, and open Ai shows that both of
Speaker 6: them will be working together and you know, it'll be
Speaker 6: easier for enterprises to go inside open ai chart GPT
Speaker 6: ask for what they want that gets connected to the
Speaker 6: data that resuldes in Salesforce. Makes it very easy for
Speaker 6: the enterprise customers to do their work as well, rather
Speaker 6: than just going into you know, Salesforce. So I think
Speaker 6: this is a bigger news in the long run. But
Speaker 6: you know we are all talking about Oracle as well.
Speaker 3: Yeah, open Ai announces a new deal with someone every day, Paul.
Speaker 3: This is kind of what you're getting back to. And
Speaker 3: this really both of these announcements are the latest in
Speaker 3: the string of big tech building more computing infrastructure and
Speaker 3: meeting this demand, this and satual demand. I've really lost
Speaker 3: track of the permutations, an what were you about? These
Speaker 3: back and forth announcements and partnerships, and you know, the
Speaker 3: billions of dollars that may or may not change hands.
Speaker 3: Do do we think that these are just announcements that
Speaker 3: may not come to fruition if circumstances change, for instance,
Speaker 3: in the next six months.
Speaker 6: See from a salesforce point of view, and which is
Speaker 6: which I was? You know, you would say most of
Speaker 6: us are worried about as the legacy software names. It's
Speaker 6: a good thing because opening I is a new channel
Speaker 6: of communication with you know, the rest of the world.
Speaker 6: If you can integrate your product with them, it kind
Speaker 6: of saves you from getting disrupted. The question is and
Speaker 6: the long run, and then we'll find out what happens
Speaker 6: is will Opening I have that much level of funding
Speaker 6: to keep up with all the promises that they have.
Speaker 6: They have given very high revenue estimates for the next
Speaker 6: few years. But at the same time, I mean, the
Speaker 6: rest of the bigger you know, tech vendors are not
Speaker 6: you know, just sleeping. At that point, I would say,
Speaker 6: we'll find out whether open I will be able to
Speaker 6: gain market share from the likes of you know, Microsoft, Topple,
Speaker 6: Google and Meta or Amazon, or this is going to
Speaker 6: be just an expansion of the overall market.
Speaker 3: Our thanks to Honor Agrana Bloomberg Intelligence Technology analyst.
Speaker 2: It's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
Speaker 2: providing in depth research and data on two thousand companies
Speaker 2: and one hundred and thirty industries.
Speaker 3: And remember you can access Bloomberg Intelligence via b I
Speaker 3: go on the terminal. I'm Scarlett Foo and I'm Paul Sweeney.
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