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Speaker 2: Let's go back to big tech, because we can't stay
Speaker 2: away from them for too long. We have one more
Speaker 2: mags have a name reporting today. Amazon will be reporting.
Speaker 2: Alphabet reported yesterday. And I want to go back to
Speaker 2: that CAPEX number which just blew people's minds. One hundred
Speaker 2: and eighty five billion dollars all full of your capex,
Speaker 2: much much higher than what was anticipated. Man Deep Singh
Speaker 2: is our go to guy for all things tech. He's
Speaker 2: our global tech research head here at Bloomberg Intelligence and
Speaker 2: joins us now.
Speaker 3: One trader called it alphabets mic drop.
Speaker 2: Capex highlights the have versus havenots and AI capabilities, commitments
Speaker 2: and balance sheet. Once upon a time, spending on you know,
Speaker 2: your future growth was a good thing. But now any
Speaker 2: kind of CAPEX commitment bigger than what people anticipated as
Speaker 2: seen as negative.
Speaker 4: Well, I think in this case the market is thinking
Speaker 4: what comes next. So for twenty twenty six. Yeah, they've
Speaker 4: guided two hundred and eighty five billion dollars. I mean,
Speaker 4: chances are the growth rates are going to decelerate from
Speaker 4: this point on. So twenty twenty six will be the
Speaker 4: peak capex for a lot of these companies, Especially in
Speaker 4: terms of growth rates. You're not going to see you know,
Speaker 4: fifty sixty percent growth in capex going forward.
Speaker 5: From these numbers.
Speaker 4: So that's a given, and that's why you know the
Speaker 4: market will be anticipatory in that sense in terms of
Speaker 4: how that capex growth is going to pan out from
Speaker 4: this point on, because you know, for some of the
Speaker 4: chip makers, their growth is directly correlated to capex growth
Speaker 4: of the hyperscaler So yes, this year is going to
Speaker 4: look phenomenal, but as you look past this year, you
Speaker 4: will see deceleration. The point about I think Alphabet is
Speaker 4: really how is it reflected in their numbers? And to
Speaker 4: my mind, they've already seen a two hundred basis point
Speaker 4: growth in their overall top line. So they were growing,
Speaker 4: you know, fourteen to sixteen percent. Now they are growing
Speaker 4: eighteen percent. And so for a business with four hundred
Speaker 4: billion dollars in run rate, two hundred basis points is
Speaker 4: like almost that's Romney eight billion, you know, So that's
Speaker 4: the ROI on all this capex. Is that eight to
Speaker 4: ten billion dollar left in top line that they're seeing
Speaker 4: across search and cloud and cloud numbers were just monster
Speaker 4: when it comes to what they had did last nine Yeah.
Speaker 5: So is this AI spending?
Speaker 6: Is it one time in nature or does this suggest
Speaker 6: a higher level of ongoing capex question?
Speaker 4: Yeah, I mean, look, we know the public cloud businesses
Speaker 4: were a data center of heavy in the sense you
Speaker 4: had to replace your server gear every five years. So
Speaker 4: there is a depreciation aspect to AI as well. And
Speaker 4: the fact that Alphabet has built this enterprise business which
Speaker 4: is almost a seventy billion dollar rund rate out of
Speaker 4: there four hundred billion. Now it's phenomenal because that cloud
Speaker 4: business is going to accelerate. So what we saw last
Speaker 4: night forty eight percent. I won't be surprised if they
Speaker 4: grow cloud over fifty percent for the next four quarters,
Speaker 4: simply because a lot of that data center capacity that
Speaker 4: they've been building will come online. They'll be renting a
Speaker 4: lot of that, and they're very well taking share at
Speaker 4: this point. Given the numbers we have seen so far
Speaker 4: between Azure and Google Cloud. Google Cloud grew ten percent
Speaker 4: more than Azure, and it probably grew more than twenty percent.
Speaker 4: I mean, even if Amazon has a great quarter tonight,
Speaker 4: they probably won't print more more than twenty five percent.
Speaker 4: So there you go. You probably are seeing Shure shift
Speaker 4: and it sounds like a.
Speaker 2: Behind a weakness called I mean, clearly, Alphabet is the
Speaker 2: big winner among the mag seven names when it comes
Speaker 2: to AI, up sixty five percent over the past twelve months,
Speaker 2: much better than Microsoft.
Speaker 3: Which is down in that period.
Speaker 2: So did this set of results justify that kind of
Speaker 2: price action?
Speaker 4: Yes, the market did anticipate that. And look, there was
Speaker 4: a lot of bearishness around what chat ChiPT could do
Speaker 4: to Alphabet's core search business. I mean, search grew seventeen
Speaker 4: percent talking about ROI on spend. It's reflected not only
Speaker 4: in cloud but also in core search, where the number
Speaker 4: of clicks grew six percent. Who would have thought, you know,
Speaker 4: Alphabet clicks going up when chatchipt has nine hundred million
Speaker 4: monthly actives. I would have imagined pricing would hold steady
Speaker 4: for Alphabet, but not clicks growth. How are the impressions
Speaker 4: and clicks growing? It's unfathomable, you know, in Alphabet's case,
Speaker 4: and partly it has to do with the success of Gemini.
Speaker 4: That's seven hundred and fifty million standalone app users. Those
Speaker 4: are people who are going directly to Gemini beyond.
Speaker 6: Just using how I use it, which is when I
Speaker 6: go to Google. Yeah, first thing that comes up is
Speaker 6: often Gemini. That's my answer.
Speaker 5: I'm done. Yeah, But there's people separately go to a
Speaker 5: Gemini app.
Speaker 4: And they are engaging for a lot longer that So
Speaker 4: it's under which is people monetizing that they're I mean,
Speaker 4: they're monetizing using subscriptions, and what they're saying is we
Speaker 4: will not roll out ads anytime soon. Let Opening Eye
Speaker 4: do it because that's going to interfere with the experience
Speaker 4: that people have. So we'll monetize with subscriptions, and they're
Speaker 4: bundling subscription Stay with us.
Speaker 5: More from Bloomberg Intelligence coming up after this.
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Speaker 2: I've been looking at the Philadelphia Semiconductor Index, which tracks
Speaker 2: chip companies, and it's had a brutal couple of days.
Speaker 2: It's rebounded today off a one month low. But you
Speaker 2: look inside the index and Qualcomm is the biggest loser
Speaker 2: in that group, down more than seven percent at the moment.
Speaker 2: Kunjohn Sabani is our senior analyst on semiconductors, and Kunjohn,
Speaker 2: when you look at Qualcom's results, Qualcomm is primarily making
Speaker 2: chips for smartphones and this forecast that it gave is
Speaker 2: not so great. What does that tell us? Is that
Speaker 2: more a case of, you know, supply chain issues or
Speaker 2: is there just not so much demand for new smartphones?
Speaker 7: No, it's nothing to do with demand. There's two factors here.
Speaker 7: One for Qualcomm, this year was a unique year where
Speaker 7: most of their Android handset makers, so think of Samsung,
Speaker 7: think of Jaumi, Opo, Vivo, launched their phones earlier than
Speaker 7: they used to. So remember the handsut businesses are very
Speaker 7: seasonal business, so you have up quarters when the phone
Speaker 7: chart launched and really down quarters. So in the nutshell,
Speaker 7: a lot of that revenue was sort of pulled ahead
Speaker 7: of time. That's why what you saw is they beat
Speaker 7: so strongly in the current quarter. So the flip part
Speaker 7: of that is the next quarter, which is a tropt quarter,
Speaker 7: is going to be even a word straff on top
Speaker 7: of that. What's happening is as we are all aware
Speaker 7: of the memory crunch happening because of HBM memory and
Speaker 7: data centers and the rising memory costs, that's freaking out
Speaker 7: the Chinese OEMs, which Qualcomm is now really disproposately exposed
Speaker 7: to compared to all other hands at SEMIS. So the
Speaker 7: guys like Apple and Samsung are probably doing fine. They
Speaker 7: have their ability to get access to memory and procure
Speaker 7: memory ahead of time, but the smaller players are not
Speaker 7: as sophisticated. So those players are freaking out and they
Speaker 7: basically have decided, we're going to stop ordering a lot
Speaker 7: more chips and we're going to clear out what we
Speaker 7: have in our inventory. And that's why what we're seeing
Speaker 7: is basically the memory impacting Qualcom's guidance.
Speaker 6: All right, So we step back from some of the
Speaker 6: chip makers and they're earning something at am D and
Speaker 6: that's soft again today Qualcom here, what are some of
Speaker 6: the takeaways from an interships perspective are you chatting about
Speaker 6: with clients?
Speaker 7: Yeah, so you mean you know, the sort of the
Speaker 7: software meltdown is trying to the fever is spreading in
Speaker 7: a little bit into semis. I would not say as
Speaker 7: broad strokes this earning season. What we're seeing is if
Speaker 7: companies didn't come out and blow the quarter out of
Speaker 7: the quarter, of the results and for their outlook, they're
Speaker 7: basically getting punished. A lot of that has to also remember,
Speaker 7: taking to context, a lot of these companies in the
Speaker 7: last six to seven months have seen significant rallies because
Speaker 7: a lot of good expectations, especially for the AI names
Speaker 7: like AMD being priced in. So the market is now
Speaker 7: in the mood where if you're not showing me real excitement,
Speaker 7: you're sort of being ready for a little bit of
Speaker 7: a pullback, right.
Speaker 2: They call it a show me kind of market environment.
Speaker 2: So our colleagues will be speaking with the CEO of Qualcom,
Speaker 2: Christiano Aman, how would you grate his performance so far?
Speaker 7: Con John, Well, look, he's doing everything right. It's just
Speaker 7: the company is in a tough spot. Investors have been
Speaker 7: wanting them to diversify away from handsets for many years now,
Speaker 7: and since he's been the CEO, that's what his primary
Speaker 7: objective has been. They're making good stries on the auto
Speaker 7: and IoT. In fact, both of those segments had much
Speaker 7: better than expected results and outlook.
Speaker 4: But when you still think.
Speaker 7: About the company now, even three four years down the road,
Speaker 7: it's still majority significantly a handset revenue company. So until
Speaker 7: the revenue exposure of hand sets doesn't get to at
Speaker 7: least fifty percent or lower, I think that sort of
Speaker 7: had been on the company. Impact from handsets is going
Speaker 7: to continue, and I think Ristiana just has to keep
Speaker 7: doing what he's doing and write this out.
Speaker 6: So John, I know most of or much of the
Speaker 6: selling in the tech spaces, in the software space, not
Speaker 6: in your chip sector. But when you talk to investors,
Speaker 6: we talk to clients, what's their mood over the last
Speaker 6: week or so, Like they're just kind of selling in
Speaker 6: a panic, selling because hey, I've got it such a
Speaker 6: big gain, I've taken something off the table. My fundamental
Speaker 6: view of AI is change. What's the tone.
Speaker 7: I don't think the fundamental view has changed. I think
Speaker 7: a couple of things. Once you said, if whatever is
Speaker 7: happening in the other sectors will impact this sector as well, right,
Speaker 7: because there is some definitely that risk of profit taking. Also,
Speaker 7: remember getting into this year a lot of investors in
Speaker 7: my sector are trying to reposition their books, right, they're revaluating.
Speaker 4: Last year in.
Speaker 7: Semis was like, look, everything was doing great. AI is
Speaker 7: helping everyone. I think now it's becoming a more of
Speaker 7: a stock pickers market in the sector, where people are
Speaker 7: really focusing deep and thinking which guys are going to
Speaker 7: be the real winners and let's focus on them, but
Speaker 7: let's get off or at least take some profit off
Speaker 7: the other folks which don't seem to be the top
Speaker 7: number and one and two in the areas that they're playing.
Speaker 2: You mentioned earlier how Christian among the CEO, is trying
Speaker 2: to diversify Qualcom to not rely so much on smart
Speaker 2: makers as its main line of business as it tries
Speaker 2: to get into the AI data center business. And you
Speaker 2: make chips that would compete with Nvidia, what kind of
Speaker 2: capex do you anticipate Quacom will have to commit to.
Speaker 7: Yeah, so Quacam predominantly is a fabulous semi company, so
Speaker 7: they don't have or would not have a significant capex
Speaker 7: like you hear from other AI hyperscalers. They would have
Speaker 7: to commit to significant opex, which is R and D dollars.
Speaker 7: If They are going into a new line of business
Speaker 7: where they need to develop newer chips, newer programs. They
Speaker 7: have acquired a company recently to do this, so they
Speaker 7: have spent some capital there and I think they will
Speaker 7: have to really boost of their R and D, which
Speaker 7: is their opecs spending to compete with the likes of
Speaker 7: in media.
Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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Speaker 6: Lots of earnings coming out across the tape this week.
Speaker 6: One of the busier weeks out there. One of the
Speaker 6: names is Peloton or they can just not seem to
Speaker 6: get any positive momentum going in that business. It kind
Speaker 6: of for me at least, I'm like, does this company
Speaker 6: need to be public? You know, it seems like they
Speaker 6: should maybe be a private company.
Speaker 3: But what did everyone call it the most expensive code rack.
Speaker 6: Cot rap That's right exactly, Keith, it wrong enough, and
Speaker 6: she covers Peloton as well as all of the media
Speaker 6: and entertainment names for Bloomberg Intelligence.
Speaker 5: What's the story this time, Keitha. With Peloton, they just
Speaker 5: reported some results.
Speaker 8: Yeah, Paul, So they had their biggest product refresh ever
Speaker 8: in their history last fall. They had this huge price
Speaker 8: increase that they implemented across all of their subscription offerings.
Speaker 8: And even with all that and the benefit of a
Speaker 8: holiday quarter, they basically disappointed on the sales number. And
Speaker 8: you know, you have them kind of making all of
Speaker 8: these making all of these cost efficiencies, You have a
Speaker 8: lot of cost cuts. They are definitely making good progress
Speaker 8: when it comes to profit, but boy, the top line
Speaker 8: is just not moving and that's really causing a lot
Speaker 8: of fear among investors.
Speaker 2: And we always introduce U Gita as our media and
Speaker 2: entertainment analysts here Bloomberg Intelligence.
Speaker 3: Peloton makes exercise.
Speaker 2: Bikes, but for a while it was trying to frame
Speaker 2: itself as a media company. Much how reliant is it
Speaker 2: on that software on the media side of its business?
Speaker 8: Oh, it absolutely depends on the content, Scarlett. It is
Speaker 8: the content that gave it it's cult following that you know,
Speaker 8: gives it all of those sticky, affluent customers. The problem
Speaker 8: for Peloton, right now is they're just not able to
Speaker 8: move the needle. And yeah, you have all of these
Speaker 8: new features that they're adding. I mean, you know you
Speaker 8: have all of these AI powered features they're calling they've
Speaker 8: added it to their entire product lineup. You know, they're
Speaker 8: allowing you to kind of integrate all of your health
Speaker 8: data from like garment and you know, basically making it
Speaker 8: really really comfortable for the user. But those are all
Speaker 8: really just incremental, they are not transformational. And basically the
Speaker 8: company just coming out and saying that, you know, the
Speaker 8: the upgrade cycle that they were expecting from the existing
Speaker 8: customers just hasn't happened. So you know, it's You're absolutely
Speaker 8: right that this is a content company in many ways
Speaker 8: because you know, it relies on the content, but it
Speaker 8: also needs the sales of its hardware to happen in
Speaker 8: order for people to get access to that content, and
Speaker 8: that just is not taking off.
Speaker 2: Have you ever used a peloton before? We have in
Speaker 2: our house, and do you follow any of the Karen from.
Speaker 6: The Jersey Shore rides that every single day bides the
Speaker 6: bike and the treadmill thing in our home.
Speaker 5: You can't hide them. We don't have a basement. If
Speaker 5: you can now take a forty five dollars pill from
Speaker 5: him and hers? Why would you need a bit more?
Speaker 6: So you need to keep tone up when you're losing weight,
Speaker 6: and so they do the weight program.
Speaker 5: So we use it. We haven't we use it, but
Speaker 5: we're they're just not monetizing.
Speaker 1: Uh.
Speaker 6: Sokeitha real quickly, this is almost a time now at
Speaker 6: one point nine billion market cap are people calling for
Speaker 6: this company to go private to be sold? I mean
Speaker 6: it doesn't seem to work as a publicly traded company.
Speaker 8: Yeah, it doesn't fall. And you know, there's been so
Speaker 8: much of chatter about whether an Apple or an Amazon
Speaker 8: should buy this company. Nothing of course, has materialized. There's
Speaker 8: also been you know, constant rumors about private equity maybe
Speaker 8: kind of coming in milking it for whatever free cash
Speaker 8: flow they can get. But again it's nobody really knows
Speaker 8: what's going to happen here, all.
Speaker 5: Right, So I guess I just don't know.
Speaker 6: You know, what's interesting because some of the trainers they
Speaker 6: have huge followings on social media and they're and they're
Speaker 6: selling stuff all like crazy. So Keitha, does does Peloton
Speaker 6: get any of the you know, the their employees, you know,
Speaker 6: social media side hustle revenue at all.
Speaker 8: No, not really. I mean it's it's just I guess
Speaker 8: it's good for the brand.
Speaker 3: But that's about it.
Speaker 5: Stay with us. More from Bloomberg Intelligence coming up.
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Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
Speaker 6: Another area of movement is in the world of luxury Stually,
Speaker 6: a lotter put out some results.
Speaker 5: Market doesn't like it. The stocks down twenty two percent.
Speaker 8: Here.
Speaker 6: Let's check in with deb Ak and she covers all
Speaker 6: the luxury good companies for Bloomberg Intelligence. She's based in
Speaker 6: our London office. Boy, what did Esday Lauder have to
Speaker 6: say here that so spooked the market?
Speaker 9: Deb I think that, you know, we're if we think
Speaker 9: about two years where they've been turning around the US
Speaker 9: and all of a sudden for the Americas, they came
Speaker 9: in flat with the US doing a little bit better,
Speaker 9: but the Latin side pulling somewhatern results and the expectation
Speaker 9: for Q three and Q four is quite subdued. A
Speaker 9: four Q to come.
Speaker 3: So this is their two key report where.
Speaker 9: Actually they beat on the top line, they beat a
Speaker 9: little bit on margin, then they raise their EPs, but
Speaker 9: it all kinds of sits EPs. It's mid or four
Speaker 9: cents below mid consensus ranger on EPs. So although it
Speaker 9: was a beat, it wasn't transformational. And so we have
Speaker 9: yet we have the Americas. We have also the fact
Speaker 9: that Europe is a little bit kind of stabilized, subdued.
Speaker 9: And then when you think about the China market, which
Speaker 9: was one of their big transition markets, they are expecting
Speaker 9: for the second half mid single digit growth. I've had
Speaker 9: some good mid growth in the first half, but you
Speaker 9: still have a big issue with travel retail. So when
Speaker 9: you consider North America and what's happening with department stores
Speaker 9: and then transitioning there to about thirty percent of the
Speaker 9: portfolio overall ninto more multi and then you have some
Speaker 9: retailers in travel retail out of China actually changeovers in retailers,
Speaker 9: which is conflicting and causing issues with their supply chains.
Speaker 9: It isn't an easy story for the next few months ahead.
Speaker 9: And the stock rallied massively ahead of results or thirty
Speaker 9: percent over the three months.
Speaker 2: Yeah, and if you expand that to over the past
Speaker 2: twelve months, the stock had served eighty percent more than
Speaker 2: eighty percent. So there is a lot, a lot built
Speaker 2: into optimism here with this new CEO is the worst
Speaker 2: then behind the company dev I mean, given what we heard,
Speaker 2: sure the results were not good enough to keep the
Speaker 2: stock moving higher. But have you know, have the restructuring
Speaker 2: costs really been priced in and it's done your skies ahead?
Speaker 9: I think so, yes, but I don't think it's going
Speaker 9: to be as quick as some expected. If we think
Speaker 9: about the market overall, the beauty market and what the
Speaker 9: CEOs said and he reiterated it, they're looking for about
Speaker 9: three percent growth in the beauty market this year, and
Speaker 9: others such as Laurel will say that the market should
Speaker 9: grow around four plus. And that's because they Laurel and
Speaker 9: some others have a higher exposure into high end fragrances,
Speaker 9: which are faster growth versus steal order. But aside from that,
Speaker 9: you probably get that. You know, the idea from Steludo
Speaker 9: for the full year is not to three percent on
Speaker 9: constant currency, and they're hoping to get to the top
Speaker 9: end of that. But that would mean that they're kind
Speaker 9: of running a little bit behind the market still, but
Speaker 9: that's because they have high travel retail and not so
Speaker 9: much exposure as appeers on the fragrance side. So where
Speaker 9: valuation sits right now, it's built in expectation that this
Speaker 9: one point two to one point six billion restructuring costs
Speaker 9: which is on track, does come through and that everything
Speaker 9: cleans up through fiscal twenty seven. The company is shifting
Speaker 9: to annual estimates only, which I think the US market
Speaker 9: in particular won't like guidance only, you know, to try
Speaker 9: and prevent volatility, but when it isn't a clear road ahead,
Speaker 9: that's often needed to be able to really understand quarter
Speaker 9: by quarter what's happening. So I think there are pros
Speaker 9: and cons to this company overall, and I can understand
Speaker 9: why it's down today.
Speaker 6: What is este later saying about the market in China
Speaker 6: and what are they saying about Chinese consumers in general?
Speaker 6: Are where are they shopping? Are they coming to Europe?
Speaker 6: Are they coming to the US? Are they staying in
Speaker 6: Japan and China?
Speaker 9: Japan, no, China. South Korea has taking some share and
Speaker 9: some kind of domestic move out of China there's a
Speaker 9: little bit of transition into Europe, but overall the way
Speaker 9: that esther Lord used to account for their travel retail
Speaker 9: in Europe and they shifted it, so it's separated with
Speaker 9: China separate and then Asia, and within Asia you have
Speaker 9: the travel retail business, so it's very clear what's happening
Speaker 9: over there. So China is picking up, it's mid single
Speaker 9: digit growth, but it's still down where it was versus
Speaker 9: two years ago. There's still a lot of repaired to do,
Speaker 9: and that's you know, the story from so many of
Speaker 9: these companies. But certainly for still Auder and I think
Speaker 9: we'll feel a bit of this pain. Also for Laurel,
Speaker 9: they have high exposure to travel retail in China and
Speaker 9: that isn't coming back. He Nan is solid, Macau not
Speaker 9: so much. The Chinese aren't shopping in Japan, partly because
Speaker 9: they're asked to shop at home and because there were
Speaker 9: big comps from one or two years ago. And particularly
Speaker 9: for ESDA Lauder two in Americas, they've already done so
Speaker 9: much with third parties, which I should mention on digital
Speaker 9: with Amazon and others, and they're going to be comping
Speaker 9: against that as well, So it makes it hard there.
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