WEBVTT - BI Weekend: Netflix Earnings, Energy Outlook (Podcast) 0:00:00.280 --> 0:00:11.480 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Intelligence 0:00:11.600 --> 0:00:13.720 with Alex Steel and Paul Sweeney. 0:00:13.800 --> 0:00:17.040 The real ap performance has been the US corporate high yield. 0:00:17.200 --> 0:00:19.520 Are the companies lean enough? Have they trimmed all the facts? 0:00:19.600 --> 0:00:23.239 The semiconductor business is a really cyclical business. 0:00:22.880 --> 0:00:26.599 Breaking market headlines and corporate news from across the globe. 0:00:26.640 --> 0:00:29.080 Do investors like the M and A that we've seen? 0:00:29.280 --> 0:00:32.240 These are two big time blue chip companies. 0:00:32.520 --> 0:00:36.240 Window between the peak and cunt changing super fast. 0:00:36.120 --> 0:00:41.200 Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio. 0:00:42.520 --> 0:00:44.879 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:44.880 --> 0:00:47.200 business stories impacting Wall Street and the global markets. 0:00:47.280 --> 0:00:49.240 Each and every week we provide in depth research and 0:00:49.320 --> 0:00:51.080 data on some of the two thousand companies and one 0:00:51.120 --> 0:00:53.760 hundred and thirty industries our analysts cover worldwide. 0:00:53.800 --> 0:00:56.000 Today, we'll look at a new joint venture to fund 0:00:56.040 --> 0:00:58.360 artificial intelligence infrastructure in the US. 0:00:58.600 --> 0:01:01.040 Plus we'll discuss how the energy say will be impacted 0:01:01.120 --> 0:01:02.760 under the new Donald Trump administration. 0:01:02.960 --> 0:01:04.880 But first we begin with a streaming space. 0:01:05.120 --> 0:01:07.840 Netflix shares swored to a record high this week after 0:01:07.920 --> 0:01:11.360 streaming Giant reported its biggest quarterly subscriber gain in history. 0:01:11.640 --> 0:01:13.880 For more, we were joined by Keitha Rong Andathen Bloomberg, 0:01:13.880 --> 0:01:15.639 intelligence analyst on US Media. 0:01:15.880 --> 0:01:18.920 We first asked Etha what stood out most in Netflix's earnings? 0:01:19.319 --> 0:01:22.319 Everything, Alex So, I mean, you know, it was not 0:01:22.480 --> 0:01:23.760 just I mean, we knew they were going to have 0:01:23.760 --> 0:01:27.520 a strong quarter, It was just the magnitude of outperformance, 0:01:27.600 --> 0:01:30.080 which was simply stunning. I mean, they added forty one 0:01:30.120 --> 0:01:33.560 million subscribers throughout the year. Just for some context, that's 0:01:33.560 --> 0:01:36.240 more than the total number of subscribers that some of 0:01:36.240 --> 0:01:38.520 the streaming services even have out their peak for instance, 0:01:38.520 --> 0:01:41.640 has less than forty million subscribers. So, I mean, just 0:01:41.680 --> 0:01:45.160 the scale of the business is absolutely astounding. And it's 0:01:45.200 --> 0:01:49.920 that scale which is now on display in every possible area, right, 0:01:50.000 --> 0:01:53.320 whether it's revenue growth, whether it's you know, content cost 0:01:53.400 --> 0:01:55.640 growth and you know cost per subscriber, which is going 0:01:55.640 --> 0:01:58.120 to be significantly less than you know, the revenue growth 0:01:58.120 --> 0:02:01.960 per subscriber. All of that is just you know, execution 0:02:02.160 --> 0:02:03.400 at the highest level. 0:02:03.800 --> 0:02:06.000 So, Keitha, this kind of raises the question to me, 0:02:06.120 --> 0:02:08.360 yet again, how do you think this industry is going 0:02:08.440 --> 0:02:11.880 to shake out? It just seems like there's Netflix. I'll 0:02:11.919 --> 0:02:15.320 give you Disney because it's Disney, but everybody else. Is 0:02:15.320 --> 0:02:18.360 there any room left for any of these other traditional 0:02:18.360 --> 0:02:20.440 media players that are trying to get into the streaming business? 0:02:21.440 --> 0:02:24.120 I mean, Paul, it's going to become more and more difficult. 0:02:24.120 --> 0:02:26.400 I mean, with Netflix getting to that three hundred million 0:02:26.440 --> 0:02:31.560 subscriber milestone, I would say very much built an insurmountable 0:02:31.639 --> 0:02:34.400 lead in in streaming. There's absolutely no doubt about it. 0:02:34.800 --> 0:02:38.400 They are expecting twenty nine percent operating margins. I mean 0:02:38.440 --> 0:02:40.639 we have always you've always posed this question, I mean, 0:02:40.680 --> 0:02:43.520 can Netflix get to that thirty thirty five percent operating margin? 0:02:43.560 --> 0:02:44.840 And it looks like they're going to be able to 0:02:44.880 --> 0:02:48.400 do that very very comfortably. That, you know, leaves us 0:02:48.800 --> 0:02:52.120 to the all important question, can anybody else replicate this playbook? 0:02:52.600 --> 0:02:54.839 Maybe they can, but it's going to take a very 0:02:54.880 --> 0:02:56.800 long time, and I think by that time, Netflix is 0:02:56.840 --> 0:02:59.720 going to be far ahead of you know, rivals, with 0:03:00.160 --> 0:03:04.040 probably you know, forty percent operating margins, tons of free 0:03:04.080 --> 0:03:07.600 cash flow, and maybe even like five hundred million subscribers. 0:03:08.040 --> 0:03:10.880 So what is your question now? So say, we have 0:03:10.919 --> 0:03:12.680 to be discerning and we have to say okay, well, 0:03:12.720 --> 0:03:14.600 well if it's at a record, but you know, it's 0:03:14.600 --> 0:03:17.440 not all amazing and flowers and sunshine and stuff. 0:03:17.639 --> 0:03:18.760 What's that question. 0:03:19.720 --> 0:03:21.000 Except it is all amazing? 0:03:21.080 --> 0:03:26.200 You know, you'll help me, yeah, I mean you It 0:03:26.280 --> 0:03:29.040 is so hard to find something wrong with this report. 0:03:29.080 --> 0:03:31.160 I mean, if you were looking for Okay, is subscriber 0:03:31.200 --> 0:03:33.200 growth going to slow down? Yeah, probably it's going to 0:03:33.240 --> 0:03:35.600 slow down a little bit. But again they've said that 0:03:35.600 --> 0:03:38.480 subscriber growth is going to be the main driver of 0:03:38.640 --> 0:03:42.080 revenue growth in twenty twenty five. Is operating income momentum 0:03:42.160 --> 0:03:42.680 slowing down? 0:03:42.720 --> 0:03:45.280 No, it's not. Are we getting double digit revenue growth? 0:03:45.360 --> 0:03:47.240 Yes we are. Is free cash flow there? 0:03:47.280 --> 0:03:47.400 Oh? 0:03:47.520 --> 0:03:48.240 Yes it is? 0:03:48.600 --> 0:03:51.120 So I mean, okay, yes, I guess the big question 0:03:51.240 --> 0:03:53.080 is what are going to be twenty twenty five is 0:03:53.080 --> 0:03:55.520 all set because you do have that subscriber momentum, you 0:03:55.560 --> 0:03:58.040 do have those price increases that are going to feed 0:03:58.080 --> 0:04:00.920 that revenue growth. So the big question then is, okay, 0:04:01.120 --> 0:04:03.480 but what about twenty twenty six? What about twenty twenty seven? 0:04:03.800 --> 0:04:05.920 So twenty twenty six and twenty twenty seven, I think 0:04:05.960 --> 0:04:09.160 the levers are really going to be the ad growth story, 0:04:09.160 --> 0:04:11.880 and they're putting everything in place this year so that 0:04:12.000 --> 0:04:15.840 advertising becomes a really big, bigger part of the revenue 0:04:15.880 --> 0:04:19.800 equation starting in twenty twenty six, and they have everything 0:04:19.839 --> 0:04:21.640 set to do that. So yes, they did raise their 0:04:21.680 --> 0:04:24.960 prices on the ad tier a little bit just to smidge, 0:04:25.040 --> 0:04:27.360 but again, remember it's only costing you eight dollars a month. 0:04:27.400 --> 0:04:29.640 That's the same as Disney Plus. So again they have 0:04:29.720 --> 0:04:33.839 a lot more I think, cushion to raise prices and 0:04:33.880 --> 0:04:37.719 then to also increase their ad targeting capabilities and to 0:04:37.760 --> 0:04:40.080 really be able to charge advertisers a premium. So I 0:04:40.080 --> 0:04:42.960 think there's just so many different catalysts out there on 0:04:43.000 --> 0:04:45.839 the Horizon Alyx. It's really hard to find any fault 0:04:45.839 --> 0:04:47.120 with their report here. 0:04:46.960 --> 0:04:49.640 Because now, Paul, I feel like it's not about can 0:04:49.680 --> 0:04:52.560 you get streaming stuff for cheaper than you went on cable. 0:04:52.600 --> 0:04:55.200 It's about the contents more interesting and better. And I 0:04:55.240 --> 0:04:56.640 feel like that's a different thing than when I cut 0:04:56.680 --> 0:04:57.640 the cord and say whatever. 0:04:57.760 --> 0:05:00.839 Yeah, And it's what Ethan her research calls virtuous circle. 0:05:00.920 --> 0:05:03.000 The more subscribers you have, the more money you can 0:05:03.080 --> 0:05:06.279 spend on content, which then gets you more subscribers, and 0:05:06.279 --> 0:05:08.160 it goes and goes and goes, so Gith, I think 0:05:08.160 --> 0:05:11.320 the last big area for them to conquer from my perspective, 0:05:12.000 --> 0:05:14.160 and it goes to your point about advertising being longer 0:05:14.240 --> 0:05:17.640 term growth driver is live sports. When are they going 0:05:17.680 --> 0:05:19.880 to step up and jump into the deep end of 0:05:19.880 --> 0:05:22.719 the pool and take a big NFL package, not just 0:05:22.760 --> 0:05:25.120 a couple of days on Christmas, but a season package 0:05:25.120 --> 0:05:28.680 from the NFL, from the NBA, from English Premier soccer. 0:05:28.720 --> 0:05:31.360 There's really no area they can't go. When do you 0:05:31.360 --> 0:05:32.200 think they're going to do that? 0:05:33.360 --> 0:05:35.800 I think that's still a couple of years out, Paul. 0:05:35.880 --> 0:05:38.880 So they obviously know that the live sports strategy is 0:05:38.920 --> 0:05:40.960 working for them, there's no doubt about it. They had 0:05:41.040 --> 0:05:43.520 the two of their biggest events with which were live 0:05:43.520 --> 0:05:46.560 sports events, and you had those records subscriber gains, So 0:05:46.600 --> 0:05:50.560 obviously sports can be a big subscriber acquisition tool. It 0:05:50.600 --> 0:05:53.080 can also turn into a big subscriber attention tool. 0:05:53.279 --> 0:05:53.800 They do have a. 0:05:53.800 --> 0:05:55.520 Couple of things that they've signed up for, so you know, 0:05:55.640 --> 0:05:57.960 WWE is something that they already have for the next 0:05:57.960 --> 0:06:00.680 five years or so. But the next time huge NFL 0:06:00.720 --> 0:06:03.080 package or an NBA package is really going to become 0:06:03.160 --> 0:06:05.680 available it's probably going to be only in another four 0:06:05.760 --> 0:06:07.960 or five years time. In the meantime, you do have, 0:06:08.160 --> 0:06:10.080 you know, a couple of the smaller rights packages. You 0:06:10.080 --> 0:06:12.920 do have UFC, which is coming up for renewal by 0:06:12.920 --> 0:06:15.719 the end of this year. You do have you know, 0:06:15.839 --> 0:06:18.120 Formula one, which is something that they already have a 0:06:18.120 --> 0:06:20.479 pretty deep relationship with kind of given their success with 0:06:20.560 --> 0:06:23.320 Drive to Survive. So again they could go after that. 0:06:23.480 --> 0:06:26.159 They have the Women's World Cup. They already have got 0:06:26.200 --> 0:06:29.680 the rights to that, So it's going to be smaller investments, 0:06:29.720 --> 0:06:32.200 I would think before they really go after that big, 0:06:32.240 --> 0:06:34.919 splashy package, which and by that time they're advertising what 0:06:35.000 --> 0:06:36.000 they all said sorry. 0:06:35.760 --> 0:06:37.520 Which no, I was gonna say. It's interesting. I was 0:06:37.520 --> 0:06:39.600 talking to somebody that were like, I've never watched wrestling 0:06:39.640 --> 0:06:42.080 in my entire life, but or boxing, but I did 0:06:42.080 --> 0:06:44.320 when Mike Tyson was doing it because it was on Netflix. 0:06:44.320 --> 0:06:46.440 Why not? So I also wonder if you're bringing in 0:06:46.480 --> 0:06:48.960 like a whole ye, you're gonna want the really sexy 0:06:49.040 --> 0:06:52.200 NFL package, but do you actually need that in order 0:06:52.240 --> 0:06:55.960 to continue to grow that momentum. It's kind of amazing. 0:06:56.000 --> 0:06:57.839 So just record high after record high, here is that 0:06:57.839 --> 0:06:59.560 what I'm looking at. 0:07:00.000 --> 0:07:04.560 Pre much definitely a very very strong growth trajectory. Obviously, 0:07:04.560 --> 0:07:06.599 we don't have a lot of visibility now going into 0:07:06.600 --> 0:07:08.680 the subscriber numbers because that was the last time that 0:07:08.720 --> 0:07:10.880 they disclosed that, but I think we're still going to 0:07:10.880 --> 0:07:12.280 continue to see. I think what what's going to be 0:07:12.320 --> 0:07:15.920 really interesting is when they start disclosing more advertising related metrics, 0:07:16.000 --> 0:07:18.360 right that is where we need some visibility now. So 0:07:18.480 --> 0:07:21.680 whether they give us a more updated monthly active user 0:07:21.760 --> 0:07:24.200 number the last number that they disclosed was seventy million, 0:07:24.440 --> 0:07:26.800 or whether they actually give us an actual, you know, 0:07:26.920 --> 0:07:31.640 advertising revenue number, those are going to become the goalposts 0:07:31.720 --> 0:07:34.280 I think in the near term our. 0:07:34.120 --> 0:07:37.559 Thanks to KEITHA. Roungnathan, Bloomberg Intelligence analyst on US media. 0:07:38.000 --> 0:07:40.080 We move next to some news in the banking industry. 0:07:40.120 --> 0:07:42.320 We heard the Goldman Sacks is promoting a slate of 0:07:42.360 --> 0:07:45.040 star executives to run its biggest Wall Street business lines 0:07:45.040 --> 0:07:46.400 as part of the firm's revamp. 0:07:46.640 --> 0:07:49.960 For more, we were joined by Todd Gillespie, Bloomberg Finance reporter. 0:07:50.160 --> 0:07:53.400 We first asked taba Goldman Sachs revamp actually means and 0:07:53.520 --> 0:07:54.160 who is. 0:07:54.120 --> 0:07:56.400 Involved to MA see what they weren't necessarily know the 0:07:56.480 --> 0:07:58.680 names outside of the finance industry either. But these are 0:07:58.760 --> 0:08:01.400 big people rising stuff up and comers, many of whom 0:08:01.440 --> 0:08:03.560 have held senior posts at Goldman Sacks for a long 0:08:03.600 --> 0:08:06.720 time already. But the idea of this is creating a 0:08:06.720 --> 0:08:11.200 new layer of management basically and promoting a lot more people. 0:08:11.320 --> 0:08:13.920 Fifteen new names are going to be sitting on Goldman 0:08:14.000 --> 0:08:17.080 Sacks's management committee. That's up from twenty four, so in 0:08:17.120 --> 0:08:21.280 totally talking about a thirty nine person management committee, which 0:08:21.360 --> 0:08:25.040 which is quite an expansion here and now equities will 0:08:25.080 --> 0:08:28.480 have three of its own heads, fixed income business will 0:08:28.480 --> 0:08:31.080 have three of its own heads, and the banking business 0:08:31.080 --> 0:08:33.520 at Goldman Sachs will also have three heads as well. 0:08:33.559 --> 0:08:36.840 And those people will report into heads of each of 0:08:36.880 --> 0:08:39.720 the overarching umbrellas at Goldman Sacks, who then obviously report 0:08:39.760 --> 0:08:43.040 into the c suite there. So you know, it's quite 0:08:43.080 --> 0:08:44.120 a big shift. 0:08:44.200 --> 0:08:47.840 I don't like it. It just layers on another layer 0:08:47.920 --> 0:08:50.559 of management. Where is the value added here is this? 0:08:50.840 --> 0:08:52.560 I read this story which is a great story about 0:08:52.600 --> 0:08:54.319 by the way, and I feel like they're just rewarding 0:08:54.320 --> 0:08:55.120 people with titles. 0:08:55.240 --> 0:08:57.000 That is certainly one of the concerns. But right here, 0:08:57.000 --> 0:08:58.640 you've got to look at the context of the industry, right, 0:08:58.679 --> 0:09:01.080 what is Goldman trying to do with doing this? They're 0:09:01.120 --> 0:09:04.960 trying to rest off, you know, competition from the alternative 0:09:05.040 --> 0:09:07.960 asset management industry there. You know who's already been trying 0:09:07.960 --> 0:09:10.680 to poach top executives from Goldman Sachs. We've had John 0:09:10.679 --> 0:09:14.880 Woldron just last week handed an eighty million dollar retention 0:09:15.000 --> 0:09:18.040 bonus to stay on for another five years, alongside David Solomon, 0:09:18.040 --> 0:09:21.120 who's looking very comfortable in his seat as CEO. So 0:09:21.679 --> 0:09:23.680 you know, the bank is trying to fend off this 0:09:23.760 --> 0:09:26.560 kind of competition from across the street. We all know 0:09:26.679 --> 0:09:29.280 right now that banks are not in as lucrative shape 0:09:29.360 --> 0:09:32.480 right now as private equity firms like Carlisle, like Apollo 0:09:32.480 --> 0:09:35.600 for instance, who have been reported to have approached people 0:09:35.640 --> 0:09:38.600 like Waldron already. So the bank is trying to you know, 0:09:38.600 --> 0:09:40.959 this is a defensive move as much as a promotional 0:09:41.000 --> 0:09:41.920 move for the people inside. 0:09:42.040 --> 0:09:44.800 Does it work, like, does it say shade people enough 0:09:44.840 --> 0:09:47.920 when they're promoted and stuff like it? Find out eighty 0:09:47.920 --> 0:09:50.280 million in Waldron's a different story. But like this class 0:09:50.679 --> 0:09:51.840 coming up, Yeah. 0:09:51.679 --> 0:09:52.960 I mean this is certainly. I mean, this has been 0:09:53.000 --> 0:09:54.240 in the works for a long time. I mean, this 0:09:54.280 --> 0:09:56.680 is a result of a year long or so set 0:09:56.720 --> 0:09:59.880 of discussions right where people know, you know, that they're 0:10:00.040 --> 0:10:03.280 as a restless, very talented, up and coming group of 0:10:03.320 --> 0:10:06.000 executives who want to be recognized. They want to see 0:10:06.000 --> 0:10:08.720 a path forward, and they hope, obviously the Bank hopes 0:10:08.720 --> 0:10:10.720 by doing this they're going to give them that path forward. 0:10:11.200 --> 0:10:13.920 It certainly doesn't end the internal politics, if anything, also 0:10:13.960 --> 0:10:16.880 creates you know, the potential for new tensions and you know, 0:10:17.040 --> 0:10:20.040 new fiefdoms. But we'll see later down the road how 0:10:20.040 --> 0:10:20.640 this plays out. 0:10:20.880 --> 0:10:23.199 What's interesting for a positive for Goldman Sachs is, you know, 0:10:23.240 --> 0:10:27.360 I think early in his tenure CEO Solomon some shaky ground, 0:10:27.440 --> 0:10:30.360 some missteps, and people were, you know, even suggesting maybe 0:10:30.400 --> 0:10:32.560 he's not the right person for the job. The boys, 0:10:32.559 --> 0:10:35.839 he turned that narrative around. He seems he seems from 0:10:35.840 --> 0:10:38.040 the outside very secure in his position. 0:10:38.120 --> 0:10:39.880 Certainly. Paul, Yeah, I mean the past two years have 0:10:40.000 --> 0:10:42.040 been a real turn around for him. I mean we've 0:10:42.080 --> 0:10:43.760 you know, there was a lot of criticism from early 0:10:43.840 --> 0:10:46.880 on for you know, missteps in the you know, the 0:10:46.880 --> 0:10:50.080 retail adventure that Goldman Sachs was was going on with 0:10:50.200 --> 0:10:54.600 Marcus with you know, with this you know JV with 0:10:54.600 --> 0:10:57.120 with Apple. It now has this cards business that it's 0:10:57.160 --> 0:10:59.560 trying to sell off. Now there's a lot of you know, 0:10:59.600 --> 0:11:02.559 speculation about what's going to happen to that. Now, who's 0:11:02.600 --> 0:11:06.160 going to pick up that portfolio? But certainly David Solomon, 0:11:06.240 --> 0:11:08.280 thanks to you know, a bumper cropper earning his results 0:11:08.280 --> 0:11:10.440 that have come out the past year or so, the 0:11:10.480 --> 0:11:13.319 bank is looking on much steadier ground and he's kind 0:11:13.320 --> 0:11:17.439 of consolidated his grip you could say, perhaps over this bank, 0:11:17.559 --> 0:11:19.960 and you know, and he's but he's also you know, 0:11:20.040 --> 0:11:22.920 he's aware that him being in the seat for longer 0:11:23.040 --> 0:11:25.360 will make other people unsettled, you know this, and the 0:11:25.360 --> 0:11:27.200 board is aware of that as well. And that's partly 0:11:27.280 --> 0:11:29.560 the reason for the John Walter in eighty million dollar 0:11:29.559 --> 0:11:31.680 attention bonus that we saw last week, and it could 0:11:31.720 --> 0:11:33.640 explain some of the moves that we're seeing as well. 0:11:33.920 --> 0:11:36.400 All right, thanks to Todd Gillespie, Bloomberg Finance reporter. 0:11:36.640 --> 0:11:38.959 Coming up, we'll discuss Donald Trump's second term as US 0:11:39.040 --> 0:11:41.679 president and what it may end up meaning for his legacy. 0:11:41.720 --> 0:11:44.600 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:11:44.640 --> 0:11:46.679 depth research and data on two thousand companies in one 0:11:46.760 --> 0:11:50.040 hundred and thirty industuries. You can access Bloomberg Intelligence via Beat. 0:11:50.080 --> 0:11:52.120 I go on the terminal on Paul Swinging. 0:11:51.880 --> 0:11:53.960 And a Malex Steel and this is Bloomberg. 0:11:58.400 --> 0:12:02.200 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:12:02.280 --> 0:12:05.080 weekdays at ten am Easter on Apple car Play and 0:12:05.160 --> 0:12:07.920 the Android Auto with the Bloomberg Business App. Listen on 0:12:08.000 --> 0:12:11.199 demand wherever you get your podcasts, or watch us live 0:12:11.280 --> 0:12:12.440 on YouTube. 0:12:13.920 --> 0:12:16.000 We move now to some big news in the tech space. 0:12:16.200 --> 0:12:19.120 This week, President Donald Trump announced SoftBank, Open Ai and 0:12:19.200 --> 0:12:23.160 Oracle performing a joint venture to fund artificial intelligence infrastructure. 0:12:23.360 --> 0:12:26.000 This includes an initial investment of one hundred million dollars 0:12:26.000 --> 0:12:28.040 and the goal is to speed up the development of 0:12:28.080 --> 0:12:29.600 AI technology for more. 0:12:29.720 --> 0:12:33.040 We're joined by An rag Rana, Bloomberg Intelligence technology analysts. 0:12:33.080 --> 0:12:35.439 We started off by asking the aniog what this announcement 0:12:35.520 --> 0:12:37.760 means for building AI infrastructure in the US. 0:12:38.160 --> 0:12:39.920 We know the funding is going to come, and there's 0:12:39.960 --> 0:12:42.800 a lot of funding coming into AI data centers. Now. 0:12:42.840 --> 0:12:45.360 It has the blessing of the US government. It's going 0:12:45.400 --> 0:12:49.200 to be funded by private equity or private investors. Oracle's 0:12:49.240 --> 0:12:51.920 going to be the biggest cloud provider here, and open 0:12:51.960 --> 0:12:53.520 the I models are going to run on it or 0:12:53.600 --> 0:12:55.839 train on it. So it's a good thing for all 0:12:55.880 --> 0:12:59.440 three of them obviously, but it's also good for AI advancements. 0:13:00.040 --> 0:13:03.200 The interesting part is Oracle is not even the top 0:13:03.240 --> 0:13:05.760 three cloud providers that's out there. You know, it's led 0:13:05.800 --> 0:13:09.439 by Amazon Web Services and then Microsoft and then Google. 0:13:10.120 --> 0:13:12.760 So you know, them getting a piece of this spy 0:13:12.920 --> 0:13:14.959 is a very big deal for them because it's a 0:13:15.040 --> 0:13:17.600 very small business for them right now compared to what 0:13:17.760 --> 0:13:19.640 AWS generates in revenue. 0:13:20.240 --> 0:13:23.520 So how about the other big cloud players, what are 0:13:23.520 --> 0:13:25.079 they thinking not being. 0:13:24.920 --> 0:13:27.600 Yeah, I think the I think if you see the 0:13:27.880 --> 0:13:30.320 when the rumor first came out that this is happening, 0:13:30.640 --> 0:13:33.320 you saw that Microsoft started to you know, trickle down 0:13:33.320 --> 0:13:36.880 a little bit. Because right now, Microsoft is the exclusive 0:13:37.320 --> 0:13:40.920 partner for open AI. Microsoft has outsourced some work to 0:13:40.960 --> 0:13:44.640 Oracle because they can't take care of the whole capacity. Then, 0:13:44.800 --> 0:13:48.880 after the announcement was made, open Ai and Microsoft issued 0:13:48.880 --> 0:13:52.360 a joint press release saying that you know, they're renegotiating 0:13:52.360 --> 0:13:56.920 their own contracts in between and currently their joint venture 0:13:57.000 --> 0:14:00.559 or partnership will be extended into till twenty thirty. Now, 0:14:00.559 --> 0:14:05.240 there are two parts of why open ai uses Microsoft Cloud. 0:14:05.240 --> 0:14:07.679 One is to train their models. Now that's the expensive 0:14:07.960 --> 0:14:10.640 that really where a lot of the capex is going 0:14:11.200 --> 0:14:15.520 in that area. Microsoft will give, you know, allow other 0:14:15.720 --> 0:14:18.319 cloud providers, but they have the right of first refusals, 0:14:18.320 --> 0:14:20.840 which means they will figure out whether they are okay 0:14:20.920 --> 0:14:22.800 with Oracle doing it or not. It seems to me 0:14:22.880 --> 0:14:25.280 that they are doing they're okay with Oracle because they've 0:14:25.320 --> 0:14:27.880 already outsourced some work to Oracle. I don't know if 0:14:27.880 --> 0:14:29.440 it's going to happen or if they're going to share 0:14:29.440 --> 0:14:32.320 that with AWS. We'll see that. But the biggest piece 0:14:32.360 --> 0:14:34.840 of it, the revenue sharing, is if you use open 0:14:34.840 --> 0:14:38.480 ai technology to develop an enterprise application, what we call 0:14:38.520 --> 0:14:42.840 as inferencing revenue from APIs, Microsoft still controls that that's 0:14:42.840 --> 0:14:45.960 going to run on Microsoft Cloud. So Microsoft also got 0:14:45.960 --> 0:14:48.080 the best of it, which is the reason why Microsoft 0:14:48.120 --> 0:14:50.440 is up three percent also in this game today. 0:14:50.560 --> 0:14:53.720 So here's my really dumb question. What are some hurdles here? 0:14:53.960 --> 0:14:56.440 Aka power and permits? 0:14:57.600 --> 0:14:59.440 Yeah, but that's where the government is saying they will 0:14:59.440 --> 0:15:02.360 help you out or help these companies out and taking 0:15:02.400 --> 0:15:05.280 care of it. You know, that is that's not entailed. 0:15:05.360 --> 0:15:07.720 That means like speeding up a permit process, or like 0:15:07.800 --> 0:15:10.520 allowing coal plants to run, Like what does that really entail? 0:15:11.360 --> 0:15:14.240 I think coal plants must be tough because frankly speaking, 0:15:14.280 --> 0:15:16.320 it is very difficult for a cloud provider not to 0:15:16.400 --> 0:15:18.520 use renewable energy. I think there's going to be a 0:15:18.560 --> 0:15:21.240 lot more talk about nuclear. For example, what we heard 0:15:21.560 --> 0:15:25.480 with Microsoft going through, they will build they may build 0:15:25.480 --> 0:15:29.000 their own smaller you know, you could say capacity to 0:15:29.120 --> 0:15:31.440 run some of these things. They have the money to 0:15:31.440 --> 0:15:34.640 fund it obviously. So you know, if it's one hundred 0:15:34.680 --> 0:15:37.800 billion spending, we think maybe twenty twenty five percent of 0:15:37.880 --> 0:15:41.560 that goes towards you know, more tech oriented stuff, whether 0:15:41.600 --> 0:15:44.680 it's chip, whether it's servers, whether it's you know, pipeline 0:15:44.880 --> 0:15:48.640 I mean connecting networking devices and or cloud computing, and 0:15:48.720 --> 0:15:50.720 the rest of that is probably going to go to 0:15:51.320 --> 0:15:53.800 more the building of the data center and you know, 0:15:53.840 --> 0:15:56.440 the cooling units, all that stuff that goes with it. 0:15:57.080 --> 0:16:00.000 So on our When I think of the electric vehicle business, 0:16:00.080 --> 0:16:03.160 I think of a business that China is actually leading 0:16:03.200 --> 0:16:06.440 the way. They are ahead of the US and European 0:16:06.480 --> 0:16:10.760 automakers for AI, which is arguably a much bigger business 0:16:10.800 --> 0:16:14.000 opportunity in a longer term one. Perhaps where is the 0:16:14.120 --> 0:16:16.200 US in terms of a leadership position. It feels like 0:16:16.280 --> 0:16:18.120 we're putting the resources behind it. 0:16:19.240 --> 0:16:21.560 Well, we have in video chips, so that really makes 0:16:21.600 --> 0:16:24.640 a very big difference at this point. One of the 0:16:24.640 --> 0:16:26.880 things we don't know about China is what are they 0:16:26.920 --> 0:16:29.200 doing on the AI side and the government. That's not 0:16:29.280 --> 0:16:32.960 publicly available anywhere, So it's a difficult guess for somebody. 0:16:32.960 --> 0:16:35.320 But one thing is for sure. If you have a 0:16:35.320 --> 0:16:38.600 lot of private money coming in and we have the capacity. 0:16:38.640 --> 0:16:41.360 I mean, as I said, Microsoft itself this year is 0:16:41.360 --> 0:16:43.800 going to spend eighty billion dollars in CAPEX. You know, 0:16:43.800 --> 0:16:45.440 we think it's going to be closer to eighty five. 0:16:45.800 --> 0:16:47.680 So if you look at all these large companies with 0:16:47.840 --> 0:16:50.360 a trillion plus or two three trillion dollar market gap, 0:16:50.680 --> 0:16:54.400 they can raise funds and you know, get a lot 0:16:54.440 --> 0:16:57.240 more AI investments. And now the government is getting involved 0:16:57.240 --> 0:16:59.040 in it. So I mean it's I would say, in 0:16:59.080 --> 0:17:02.680 all directions, seems that US will not let this one slip, 0:17:02.920 --> 0:17:04.480 and it's going to make sure that, you know, we 0:17:04.560 --> 0:17:06.080 remain the dominant force out there. 0:17:06.320 --> 0:17:09.240 Well then speaking of in terms of say Microsoft and 0:17:09.280 --> 0:17:11.960 their capax, maybe hitting eighty five billion, is this it 0:17:12.080 --> 0:17:14.080 was this money that everyone was already planning to spend. 0:17:14.119 --> 0:17:16.520 It was just now packaging a nice little wrapper to everybody. 0:17:17.680 --> 0:17:19.879 Not from Microsoft point of view, because Microsoft is not 0:17:19.960 --> 0:17:22.879 part of this you know, spending ecosystem. So Microsoft is 0:17:22.920 --> 0:17:24.800 going to spend this, but now good part is going 0:17:24.840 --> 0:17:27.200 to be Microsoft may not have to spend this much 0:17:27.240 --> 0:17:30.080 going forward because, as I said, the biggest bulk of 0:17:30.119 --> 0:17:34.000 that spending was going towards helping some of these large 0:17:34.040 --> 0:17:37.400 language model providers train their models on it. Now, if 0:17:37.440 --> 0:17:40.240 that's done with external money, the likes of private equity 0:17:40.320 --> 0:17:42.960 or SoftBank, then Microsoft is not going to take that 0:17:43.080 --> 0:17:45.480 margin head or investors are not going to ask them, 0:17:45.680 --> 0:17:48.679 you know, you're spending eighty billion dollars whereas the corresponding 0:17:48.720 --> 0:17:50.879 eighty billion revenue in it. So I think it really 0:17:50.880 --> 0:17:52.520 helps Microsoft also down the road. 0:17:53.400 --> 0:17:57.520 And to come back a little bit for SoftBank's Masasan here, 0:17:58.600 --> 0:17:59.960 he's back on the think state. 0:18:01.160 --> 0:18:04.239 Yeah, it's been you know, missing hits for him for 0:18:04.280 --> 0:18:06.639 some time. But one thing is for sure. You know, 0:18:06.680 --> 0:18:09.560 the addressable market of everything AI related is going to 0:18:09.560 --> 0:18:13.440 be so large. They specifically mentioned a lot of healthcare initiative. 0:18:13.760 --> 0:18:16.720 If you remember when you look at Larry Allison's acquisition 0:18:16.840 --> 0:18:19.399 of Serner, you know he's spending a lot of his 0:18:19.520 --> 0:18:22.679 personal time trying to fix that healthcare system, which, to 0:18:22.720 --> 0:18:25.680 be very honest, is probably the biggest burden on us 0:18:25.760 --> 0:18:29.600 GDP right now because of the high amount of healthcare 0:18:29.840 --> 0:18:31.240 spending we do as a country. 0:18:31.680 --> 0:18:34.960 Our thanks to Anna rog Rana, Bloomberg Intelligence senior technology analysts. 0:18:35.160 --> 0:18:37.200 This week, we also focus on a Bloomberg Big Take 0:18:37.280 --> 0:18:41.119 story titled Trump Shows he is on competing quests for 0:18:41.280 --> 0:18:43.680