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Speaker 2: Man Deep Sing is here with us.
Speaker 3: He's the Global Tech research head and mandeep this idea
Speaker 3: of big tech being called upon to pay for their
Speaker 3: own rising energy costs. As Bailey pointed out, this is
Speaker 3: authorugh a non binding statement of principles. He pointed out
Speaker 3: the winners and losers on the utility side. What does
Speaker 3: this mean for big tech? I mean, can any of
Speaker 3: them come out of this ahead with something like this
Speaker 3: kind of pressure?
Speaker 4: Well, right now, I think everyone is looking at gigawat
Speaker 4: data centers right and when you think about what is
Speaker 4: existing in terms of AI data centers, these are fifty
Speaker 4: to one hundred megawont data centers. We're already talking about
Speaker 4: power requirements going ten x to one gigawat. And so
Speaker 4: how will a seventy to eighty year old grid supply
Speaker 4: electricity which is ten times more than what these data
Speaker 4: centers already consume? And so from that perspective, it is
Speaker 4: a very topical question that needs to be asked. Where
Speaker 4: are you getting the ten times power that you need
Speaker 4: to run your one gigawot data center? And I think
Speaker 4: that's the realization that's coming in now. It's being reflected
Speaker 4: in the prices that consumers have to pay because prices
Speaker 4: have gone up for electricity. But I mean the computing
Speaker 4: that AI does requires ten times more power. That's getting
Speaker 4: starts a realization and I think everything will follow through.
Speaker 5: Now, Man deep, is there a sense that big tech
Speaker 5: leaders might be open to working with the White House
Speaker 5: on this to kind of be in Trump's favor here
Speaker 5: and what might be impact be on their profit growth?
Speaker 4: I mean, there's no doubt that AI data centers are
Speaker 4: a much lower gross margin business for hyperscalers. And these hyperscalers,
Speaker 4: I mean, Amazon, Microsoft, and Google, the three big ones
Speaker 4: have huge footprint. When it comes to the traditional CPU
Speaker 4: data centers. They were able to get to, you know,
Speaker 4: sixty five to seventy percent gross margins on the public
Speaker 4: cloud businesses they had. Now with AI workloads, we're talking
Speaker 4: about a sub fifty percent gross margin business. No matter
Speaker 4: what kind of scale you have just because of the
Speaker 4: economics involved. These are sub fifty percent ross margin businesses.
Speaker 4: So on premise software used to be eighty to ninety
Speaker 4: percent gross margin. With public cloud we got to sixty
Speaker 4: five to seventy. With AI we are sub fifty gross margin.
Speaker 4: So from that perspective, I mean, even if you're Microsoft,
Speaker 4: you don't have a choice, but your margins will have
Speaker 4: to come down.
Speaker 3: We're also looking at semiconductor saw as the best performers
Speaker 3: in the S and P five hundred by two dozen
Speaker 3: industry groups, and it feels like that TSMC bullish forecast
Speaker 3: was very much a tailwind for the industry. Obviously this
Speaker 3: is good news in terms of demand, But does anyone
Speaker 3: lose out here when TSMC is can't even meet the
Speaker 3: demand that is being required of it, Well.
Speaker 4: Lose out, I think. I mean, what we've seen really
Speaker 4: is Intel really benefiting, So I wouldn't say anybody is
Speaker 4: losing out, But clearly everyone is so focused right now
Speaker 4: on the AI side that I feel suddenly everyone realized, oh,
Speaker 4: storage isn't short supply. We didn't talk about storage up
Speaker 4: until you know, the beginning of this year, so there
Speaker 4: will be you know, instances like this where one of
Speaker 4: the components gets neglected and suddenly everyone finds that to
Speaker 4: be in short supply and you need it, So it
Speaker 4: could happen. I think CPUs. Nobody talked about CPUs in
Speaker 4: the past twelve months. Suddenly CPUs are in short supply.
Speaker 4: So that's where the IT infrastructure needs to be upgraded
Speaker 4: every four or five years. And when the time comes
Speaker 4: to upgrade the infrastructure, certain components, even if they're not
Speaker 4: tied to AI, could be short supply because we have
Speaker 4: reallocated their resources towards meeting the AI demands.
Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 3: Some earnings that we want to bring you your attention
Speaker 3: to JB Hunt, the truck carrier reporting quarterly revenue that
Speaker 3: missed analyssessments. Although some people might say that the bar
Speaker 3: was kind of high for this company, even as we've
Speaker 3: seen this continued weakness in freight demand. Lee Colascow is
Speaker 3: Bloomberg Intelligence's senior transport logistics shipping analysts and he joins
Speaker 3: us now to give us his stake on what we're seeing.
Speaker 2: So what is the story with JB.
Speaker 3: Hunt and how it's positioned for the current market environment.
Speaker 6: Yeah, if you take a look at the stock, it's
Speaker 6: been up a lot over the last couple months, and
Speaker 6: some of that has been in anticipation of the trucking
Speaker 6: spot market to kind of turn more positive more positively,
Speaker 6: and that would be through more supply coming out of
Speaker 6: the market. So the stock is off a little bit
Speaker 6: off today, It was off a lot in the after
Speaker 6: markets last night, but it's come back a little bit
Speaker 6: and that's really being driven I think because of that,
Speaker 6: you know, kind of high expectations. But at the end
Speaker 6: of the day, the company did report a pretty good print.
Speaker 6: Their earnings came in above consensus. It was driven by
Speaker 6: their intermodal, their truckload and their final mile businesses.
Speaker 4: JB.
Speaker 6: Hunt is a kind of an integrated transportation company. They
Speaker 6: provide a lot of different types of transportation services. UH,
Speaker 6: some of the ones that fell maybe short of expectations
Speaker 6: where they're freight brokerage business UH and dedicated business uh,
Speaker 6: and that you know, the dedicated business is being driven
Speaker 6: by Uh. It takes you know, their winning business, but
Speaker 6: it takes a while for some of those businesses to
Speaker 6: ramp up and to kind of drive the margins uh
Speaker 6: that they're expected to because those you know, those ramp
Speaker 6: up costs.
Speaker 7: UH.
Speaker 6: You know, what I would say is that I think
Speaker 6: a lot of people were somewhat surprised by management's tone
Speaker 6: on the earnings call last night.
Speaker 4: Uh.
Speaker 6: You know, they noted that the market was fragile, uh,
Speaker 6: and that the supply that we've been seeing coming out
Speaker 6: of the truckload market, while it's been good, they don't
Speaker 6: want to get ahead of themselves and call this, you know,
Speaker 6: we're in full recovery mode because you know, we've had
Speaker 6: some false positives in the past. So they're pretty I guess,
Speaker 6: I guess cautiously optimistic about the outlook when it comes
Speaker 6: to the truck spot market, and that's so important because
Speaker 6: it wants the trucks the spot market. Titans rates will
Speaker 6: go up in that market and that will kind of
Speaker 6: ripple across its contractual business. It's dedicated business, it's brokerage business,
Speaker 6: it's intermodal business. So it's kind of like the Canary
Speaker 6: and the coal Mine for freight transportation logistics providers lead JB.
Speaker 5: Hunt is of course a big macroeconomic bell weather. What
Speaker 5: is it telling us about the broader economy and the
Speaker 5: year ahead.
Speaker 6: Yeah, you know, companies like this will really do well
Speaker 6: when demand grows. Obviously, you know, they have seen, you know,
Speaker 6: a somewhat resilient consumer.
Speaker 4: They did note that, you know, while.
Speaker 6: There wasn't a lot of imports coming into the country
Speaker 6: for peak season, they benefited from a lot of freight
Speaker 6: that was already in the country moving across the country.
Speaker 6: So it does seem like, you know, they did see
Speaker 6: some peak demand during the fourth quarter, which is obviously positive.
Speaker 6: But you know, I don't need to tell you guys,
Speaker 6: it does seem like this economy is a Casehape economy
Speaker 6: and it's really not kind of a widespread economic growth
Speaker 6: that we're seeing, where there's pockets of strength and pockness
Speaker 6: of pockets of weakness.
Speaker 3: So cost cuts helped limit The downside for JB. Hunt
Speaker 3: is that the catalyst to get people excited again about JB.
Speaker 2: Hunt.
Speaker 3: You know what kind of cost savings that can realize
Speaker 3: this year. Maybe it can go further than what it
Speaker 3: had projected. When it comes to reducing expenses.
Speaker 6: Yeah, I think there's two things here that people can
Speaker 6: get excited about. I think there is the prospect of
Speaker 6: a better pricing environment for JB. Hunt and the broader transports.
Speaker 6: That's one. Secondly, you know, they're not just sitting and
Speaker 6: resting on their laurels. They are actively trying to take
Speaker 6: out costs. They took out around twenty five million dollars
Speaker 6: in a fourth quarter. Their run rate was somewhat over
Speaker 6: one hundred million. Management didn't really want to guide too
Speaker 6: much and what they expect that they can take out
Speaker 6: in twenty twenty six. But I suspect that they're going
Speaker 6: to continue, you know, that trend next year and they
Speaker 6: could bring some of their you know, margin targets. You know,
Speaker 6: most of their margins right now are trending below their
Speaker 6: kind of long term targets. And you know, through these
Speaker 6: cost cutting initiatives, productivity gains. And it's not just you know,
Speaker 6: you know, cutting to the bone. We're not talking about that.
Speaker 6: They're trying to get more productive. So whether it's better
Speaker 6: utilization rates or their trailers, maybe it's better quicker turns
Speaker 6: for their draage fleet. All these things you know, will
Speaker 6: lower lower the overall costs, and if you put on
Speaker 6: top of that higher rates, it really could drive margins
Speaker 6: significantly higher and closer to those longer term targets.
Speaker 3: Stay with us more from Bloomberg Intelligence coming up after this.
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Speaker 1: you get your podcasts, or watch us live on YouTube through.
Speaker 5: Sax Global Files four Chapter eleven bankruptcy protection a humbling
Speaker 5: turn for the lux or retailer following a stretch of losses,
Speaker 5: flagging turnaround efforts, and a substantial merger related debt. There
Speaker 5: are also hidden costs to luxury consumers and brands. To
Speaker 5: discuss this with us is Rania set Home, managing partner
Speaker 5: at set Home Law Group Rania. What does this bankruptcy mean?
Speaker 5: Also for sax As shoppers and the brands that work
Speaker 5: with it.
Speaker 8: A lot of the brands that worked with it are
Speaker 8: no longer working with it, which also you know, precipitated
Speaker 8: it's decline. It is sad. As you were saying, and
Speaker 8: I'm sure it's humbling. So it started I would say
Speaker 8: at least a year and a half ago. I started
Speaker 8: hearing from smaller brands, some of whose only footprint in
Speaker 8: the United States is with saxoth Avenue and Meme and
Speaker 8: Marcus Group, which is owned by the same company. They
Speaker 8: were not paying for consigned goods, although the goods were selling.
Speaker 8: So this was the start of the end, really, And
Speaker 8: if you've tried to go shopping recently Sax with Avenue,
Speaker 8: you will notice a shift in the products that are
Speaker 8: available to you. And this is one of the reasons
Speaker 8: for consumers. You know, it's it's tough to say. When
Speaker 8: there's a bankruptcy estate they do not have to honor
Speaker 8: any kind of credit or rewards program, but I understand
Speaker 8: in this instance they will be honoring it. The issue
Speaker 8: becomes for you, is there something there that you want
Speaker 8: to purchase? And how are you feeling about the brand
Speaker 8: in general? Something that I think Sacks did poorly was communicate.
Speaker 8: I received my first email from them about the bankruptcy yesterday,
Speaker 8: nothing prior to yesterday, So I think there's some room
Speaker 8: for growth there on the communication end. And you know,
Speaker 8: going back to the brands. What's going to happen to them?
Speaker 8: It's you know, it's too late, you know for them
Speaker 8: to do anything. But on a going forward basis, if
Speaker 8: you are a brand and you're consigning your goods, there
Speaker 8: are a few things that you need to look out for.
Speaker 8: The first thing is is your contractual provision. It should
Speaker 8: state in this agreement that you own your merchandise until
Speaker 8: it is sold. That's the very first thing. And then
Speaker 8: once that provision is there, there's something called a UCC filing.
Speaker 8: You should file a lean because this will give you
Speaker 8: an interest in the merchandise and you're no longer an
Speaker 8: unsecured creditor for purposes of bankruptcy, so you may actually
Speaker 8: get something.
Speaker 3: So there's legal recourse for the vendors of sacks, many
Speaker 3: of which we're not getting paid regularly in the last
Speaker 3: couple of months. How does SAX go about repairing its
Speaker 3: relationship not just with customers, but with these brands, the
Speaker 3: brands that relies on in order to bring customers through
Speaker 3: the doors.
Speaker 8: Yeah, I think, you know, people really discount the efficacy
Speaker 8: of good communication. But you know, as an attorney, I
Speaker 8: can tell you that as of paramount importance In fact,
Speaker 8: usually when there's a breakdown in relationship, it's because of communication.
Speaker 8: So the first thing that SAX needs to do, in
Speaker 8: my mind is tell everyone why this happened and what
Speaker 8: steps they're taking to remedy it, because we don't want
Speaker 8: them to be repeat offenders five years from now. We
Speaker 8: don't want to be sitting in the studio talking about
Speaker 8: the other bankruptcy that they're undergoing. So it's important to
Speaker 8: figure out the why when it's such a drastic step
Speaker 8: that you have to take, and tell everyone, tell your
Speaker 8: vendors what you're doing to and help build trust again.
Speaker 5: Rania. When you get this type of bankruptcy filing, what
Speaker 5: does Sex owe its investors and creditors?
Speaker 2: Well, I don't know what the numbers are.
Speaker 8: However, the Bankruptcy Code ranks people by importance secured versus unsecured,
Speaker 8: and you know, the landlord is certainly a secured creditor
Speaker 8: to the extent that they owe them money, they will
Speaker 8: be paid first. Any kind of loan they'll be paid,
Speaker 8: you know, amongst one of the first as well. So
Speaker 8: it's too early. I don't have the list yet.
Speaker 5: You were talking about some of the MNA debt and
Speaker 5: this BA and gripscy, of course, comes a year after
Speaker 5: investors handed Sacks billions of dollars for its acquisition of
Speaker 5: Nieman Marcus, which was also struggling. What kind of risk
Speaker 5: was it putting investors through by acquiring Neman Marcus.
Speaker 8: I'm not sure that that marriage was off to a
Speaker 8: good start from the beginning. You know, we as shoppers,
Speaker 8: I can speak for women, or at least for myself,
Speaker 8: we shop at a whole host of different places, and
Speaker 8: you could have one customer shop in multiple stores for
Speaker 8: different types of items. But in general, it's safe to
Speaker 8: say that the Marcus Group shopper is not the same
Speaker 8: as the Sasith Aveny shopper, who's not the same as
Speaker 8: Bloomingdale's or Macy's shopper. So I think that marriage was
Speaker 8: rocky to begin with, and it was a.
Speaker 2: Hefty price that was paid.
Speaker 8: I'm hoping, as a consumer and for everyone's sake, that
Speaker 8: someone else buys name and Marcus Group, or perhaps they
Speaker 8: can buy themselves back. We do see that sometimes where
Speaker 8: you purchase yourself back from your acquirer.
Speaker 1: Yeah.
Speaker 5: I just went across the street to sas off Fifth
Speaker 5: thinking that I could get a nice deal on something
Speaker 5: and they just, yeah, I got rid of everything. What
Speaker 5: is next for SAX here? Do you think it makes
Speaker 5: it out of this?
Speaker 8: I think SAX does make it out of this. But
Speaker 8: I'm an optimist by nature, just so everyone listening knows that.
Speaker 8: But I do think they're going to have to contract
Speaker 8: in order to grow. So this is the time to
Speaker 8: be extremely self aware, extremely scrutinous, and determine which stores
Speaker 8: are going to provide you with the most relevance to
Speaker 8: your customers, and which ones can you stock well and
Speaker 8: have pre eminent customer service, and then close the others.
Speaker 8: You can always reopen stores. It's not a good idea
Speaker 8: to just have a huge footprint that's lackluster.
Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay, and Android
Speaker 1: Otto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 5: John, when was the last time you ate at McDonald's
Speaker 5: or Taco Bell?
Speaker 7: Ah, it's been a while Taco Bell, never McDonald's, maybe
Speaker 7: like years. Look at me, I can't that's stuff anyway. Well,
Speaker 7: apparently it is approaching noontime, so lunch is here.
Speaker 2: Yeah, maybe you'll have to go there for lunch. We'll
Speaker 2: have to check out Taco Bell.
Speaker 5: Apparently those restaurants are going to get a boost from
Speaker 5: December economic data that is poised to lift US restaurant
Speaker 5: same store sales. That's along with cheaper gas prices and
Speaker 5: relief from new tax rules. We'll get more into this
Speaker 5: with Michael Halen, Bloomberg Intelligence Senior restaurant and food services analyst. Michael,
Speaker 5: what is your outlook for restaurants sales going into twenty
Speaker 5: twenty six.
Speaker 9: Yeah, we think sales are set to improve here in
Speaker 9: twenty twenty six, especially in the first half. You know,
Speaker 9: oil guessling prices are down, you know, thirteen ish percent
Speaker 9: versus one queue of last year. We're lapping you know,
Speaker 9: bad weather, cold weather, snow, and a really bad flu
Speaker 9: season from a year ago. And then we have tax relief,
Speaker 9: which which historically really helps restaurants spending, and you know,
Speaker 9: and then we have a couple of things on the upside.
Speaker 9: I mean, this administration is looking into, you know, potentially
Speaker 9: credit card reform, and I don't know, if they're done
Speaker 9: with the tax reform, and we could see more interest
Speaker 9: rate cuts. So all of those things we think are
Speaker 9: going to feed into better consumer sentiment. And we saw
Speaker 9: that in some of the economic data last month, and
Speaker 9: we think it spells, you know, a much better a
Speaker 9: year for restaurants spending.
Speaker 7: Were were talking about Daniel Blues Restaurants or Mickey D's.
Speaker 9: Well, you know, we think McDonald's, you know, a lot
Speaker 9: of these chains we cover are going to benefit, but
Speaker 9: we think you know, McDonald's in Taco Bell in our
Speaker 9: most recent note, we're two that we pointed to because
Speaker 9: low income consumer are going to benefit from the tax reform.
Speaker 9: They're they're the segment of the consumer that I have
Speaker 9: kind of pulled back from restaurants in the last couple
Speaker 9: of years and so giving them a boost with tax reform.
Speaker 9: They're the ones that you know, are most sensitive to
Speaker 9: gasoline prices, so the cheaper gas is going to help
Speaker 9: them the most. And like I said, we've seen it
Speaker 9: in the consumer sentiment data that the improvement in University
Speaker 9: of Michigan consumer sentiment was due to low income consumers.
Speaker 9: So these things are all pointing to, you know, better
Speaker 9: results at fast food chains like McDonald's and Taco Bell.
Speaker 5: Are there any specific chains that you think will be
Speaker 5: bigger beneficiaries than others?
Speaker 9: Well, outside of those two, you know, cav and Wingstop
Speaker 9: are a couple of the names that we think can
Speaker 9: have big bounce back years. You know, Cava, you know,
Speaker 9: in a vacuum. It had a very good year, right,
Speaker 9: but they didn't hit lofty targets that they had set,
Speaker 9: and earning slowed off of a very strong twenty twenty four,
Speaker 9: and so we think they're set up really nicely to
Speaker 9: see an acceleration here in same store sales and kind
Speaker 9: of same thing in Wingstop. Both of them were victims
Speaker 9: in twenty twenty five of incredible twenty twenty four success,
Speaker 9: and now that they have much more reasonable same store
Speaker 9: sales comps to LAP, you know, we think we could
Speaker 9: see a big boost there.
Speaker 7: You know.
Speaker 9: Wingstop, one of the big things that they have going
Speaker 9: on is a new smart kitchens that are gonna massively,
Speaker 9: massively help the operations improve sea service and get people
Speaker 9: their wings hotter and faster.
Speaker 7: Oh okay, what are you talking about the intersection of
Speaker 7: AI and chicken wings?
Speaker 9: Yeah, I mean, you know, restaurant business. Listen, the restaurant
Speaker 9: businessman has been historically underinvested in technology, you know, and
Speaker 9: they've been quickly.
Speaker 7: And a deep fryer. What technology?
Speaker 9: Yeah, Well, listen, when you go and sit down in
Speaker 9: a restaurant and you have five people ordering five different things, right,
Speaker 9: you don't start them all at the same time, right,
Speaker 9: Like your sushi is going to be done a lot,
Speaker 9: maybe faster or slower than my chicken karaaki, right. And
Speaker 9: so technology is being used in the kitchen to let
Speaker 9: the cooks know when to fire each meal so that
Speaker 9: everything comes out at the exact same time hot. Right.
Speaker 9: So there's definitely a lot of uses for artificial intelligence
Speaker 9: and small kitchens in this industry.
Speaker 5: So, Michael, what does that mean. Are we going to
Speaker 5: go into a McDonald's and see robots making our fries?
Speaker 5: What does this mean for jobs at restaurant chains?
Speaker 9: Well, you know, restaurant chains have been able to reduce
Speaker 9: labor hours by increasing the amount of automation. Me personally,
Speaker 9: you know, I don't and I don't think we're going
Speaker 9: to go into restaurants that don't have humans working in
Speaker 9: them anytime soon or maybe ever. But you'll continue to
Speaker 9: see kiosks right, because that takes away labor at the
Speaker 9: at the counter. You'll continue to see upgrades to kitchens
Speaker 9: and more kitchen automation to help decrease the labor needs
Speaker 9: in the kitchen. It will it will continue to be
Speaker 9: a point of focus as minimum wage continues to increase
Speaker 9: and labor continues to become hard to find. So yeah,
Speaker 9: it's it's going to continue to move this direction. Like
Speaker 9: I said, we've this business is underinvested in technology for
Speaker 9: a very long time, and so they have a long
Speaker 9: way to catch up to you know, competitors say in
Speaker 9: packaged food, where they're our plants are very automated.
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