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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple Coarclay, and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Once again, you know, leading kind of the winners out

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Speaker 2: there in the world. Is Nvidia just extraordinary accomplishment today

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Speaker 2: reaching five trillion dollars in market captains always always news

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Speaker 2: around this story. Michael Sheppard joins US Bloomberg Senior editor

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Speaker 2: for Technology and Strategic Industries. Michael, first of all, just

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Speaker 2: I don't know. I guess it's just a number, but boy,

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Speaker 2: five trillion dollars suggests that this market continues to see

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Speaker 2: extraordinary value in this thing we call AI. What do

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Speaker 2: you make of it?

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Speaker 3: Well, you can see not only in the share price

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Speaker 3: which is more well above forty percent this year, but

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Speaker 3: you really can sense the enthusiasm for artificial intelligence and

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Speaker 3: all the capex that has gone into it. We're going

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Speaker 3: to be hearing later today from some of the Hyperscaler's

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Speaker 3: Microsoft Meta and Amazon reporting results, and they are some

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Speaker 3: of the biggest buyers of Nvidia's technology, so there is

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Speaker 3: a real symbiosis and we haven't seen any slowdown from them.

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Speaker 3: We'll get some signaling after the results come out in

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Speaker 3: their various conference calls about what their plans are for

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Speaker 3: investment in this area going forward. But at least based

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Speaker 3: on yesterday's GtC event here in Washington, the big industry

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Speaker 3: comfab sponsored by Nvidia, we're really getting a sense of

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Speaker 3: no sign of an end to the momentum. And Jensen

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Speaker 3: Wang was emphatic and saying that he sees no sign

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Speaker 3: of a bubble coming and that he expects another five

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Speaker 3: hundred billion in revenue over the next five quarters tied

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Speaker 3: to all of that.

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Speaker 4: I'm so glad you bring that up because we wanted

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Speaker 4: to play some sound from that conversation Jensen Wog, the

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Speaker 4: CEO of Vidia, had with our Ed Ludlow, Bloomberg Tech

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Speaker 4: co host ed spoke with both Jensen Wang and Nokia's

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Speaker 4: CEO Justin Hothard.

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Speaker 5: Let's take a listen.

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Speaker 6: I don't believe we're inn AI bubble, and the reason

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Speaker 6: for that is we're going through a natural transition from

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Speaker 6: an old computing model based on general purpose computing to

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Speaker 6: accelerated computing. We also know that AI has now become

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Speaker 6: good enough because of reasoning capability, research capabilities, its ability

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Speaker 6: to think. It's now generating tokens and now generating intelligence

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Speaker 6: that's worth paying for.

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Speaker 4: Mike, What gets my attention is Jensen Hang coming out

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Speaker 4: and saying definitively that he does not think there's an

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Speaker 4: AI bubble. Do you think any of the CEOs of

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Speaker 4: the three companies that are reporting today the two that

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Speaker 4: are reporting tomorrow are likely to go out on a

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Speaker 4: lim and.

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Speaker 3: Say that, you know, they have put so much into

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Speaker 3: artificial intelligence themselves that they would be loath to issue

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Speaker 3: any kind of a bubble warning. That'll come much more

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Speaker 3: from the outsiders. The interesting thing, though, is when Nvidio

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Speaker 3: talks about AI, it is not thinking just chet, GPT

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Speaker 3: and the other chatbots that we are familiar with. They're

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Speaker 3: talking about so many more things and uses. And one

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Speaker 3: priority for Jensen Wong is really to accelerate the adoption

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Speaker 3: of artificial intelligence across the economy in a variety of platforms.

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Speaker 3: It ranges from robotics to cybersecurity to business automation, all

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Speaker 3: sorts of things that they were talking about and really

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Speaker 3: infused all the partnerships in deals that the company was

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Speaker 3: announcing yesterday. Let's we could do a quick review, Scarlett.

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Speaker 5: It's Uber, it's.

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Speaker 3: Lucid when it comes to transportation, it's CrowdStrike when it

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Speaker 3: comes to cybersecurity, it's Palenteer when it comes to business automation.

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Speaker 3: So the company really is not only trying to push

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Speaker 3: this narrative, but it's trying to show it as well.

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Speaker 3: And they even began to talk about some of the EDUCASEU.

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Speaker 3: This is for quantum computing, which is another area of

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Speaker 3: keen interest for investors, and it's been an area that

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Speaker 3: Nvidia has been edging toward in the past few years.

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Speaker 2: Michael, there are some investors out there that are obviously

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Speaker 2: a little reticent about this whole AI story and the

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Speaker 2: momentum behind it, and maybe they want to tap the

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Speaker 2: brakes every once in a while. And I think their

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Speaker 2: argument is basically, Okay, I get to be expending by

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Speaker 2: the hyperscalers, but what's their return on investment? Again, every

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Speaker 2: once in a while we hear from those people. Where

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Speaker 2: do you think that narrative is today?

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Speaker 3: Well, it remains one of the big questions. When does

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Speaker 3: revenue actually become something measurable and tied to artificial intelligence

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Speaker 3: use and Jensawong was trying to point yesterday to look,

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Speaker 3: AI has not only the use case, but it is

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Speaker 3: actually starting to pay off. The models are starting to

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Speaker 3: pay off, and this is why he sees the world

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Speaker 3: not being in a bubble right now. But it is

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Speaker 3: something that companies will have to try to demonstrate more

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Speaker 3: visibly as they release results to justify all the expenditures

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Speaker 3: that they had been making on data centers and on

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Speaker 3: all the technology that goes into them to power these

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Speaker 3: models that they intend to use.

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Speaker 4: All right, Michael Shepherd, really appreciate your joining us and

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Speaker 4: giving us a wrap up of what we're seeing right

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Speaker 4: now in video. Once again, five trillion dollars in market

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Speaker 4: cap five trillion, Paul.

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Speaker 5: That is a lot of zeros.

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Speaker 2: That is and when you see the movements in these stocks,

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Speaker 2: I'm just thinking some of these big tech stocks that

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Speaker 2: have been announcing these big investments with each other and CHAP, GPT,

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Speaker 2: and the amount of dollars, the absolute dollars of gains

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Speaker 2: and losses in the stock market every day on some

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Speaker 2: of these names is staggering because you are, you know,

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Speaker 2: a five percent movement a four billion dollar for trillion

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Speaker 2: dollar market cap stock.

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Speaker 4: That's real money, right, And the spending that they're all

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Speaker 4: doing on products or services and things like chips from

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Speaker 4: each other that is responsible for a big chunk of

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Speaker 4: the GDP as well. So if anyone slows down their

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Speaker 4: spending just a little bit or pulls back a little bit,

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Speaker 4: that could have a ripple effect.

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Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: One of the earnings is that there's Caterpillar. Are good

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Speaker 2: friends at Cat? Statchup thirteen percent today, fifty two week high.

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Speaker 2: I think the market likes what they heard from Caterpillar.

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Speaker 2: Let's bring in Chris Chiolino. He covers all those big

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Speaker 2: industrial companies for Bloomberg Intelligence. Chris, talk to us about Cat.

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Speaker 2: What do we hear from them today?

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Speaker 7: It was a great quarter, you know, despite pretty elevated

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Speaker 7: expectations coming into the print, a bigger tariff headwind, Cat

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Speaker 7: really delivered very solid three key results. It is really

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Speaker 7: driven by higher volumes across all three of their core businesses,

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Speaker 7: with particular strength and energy and transportation. Again, but I think,

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Speaker 7: you know, one of the more encouraging signs that we

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Speaker 7: took away from the results this morning were that orders

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Speaker 7: accelerated here in the quarter, and we also saw a

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Speaker 7: backlog improved sequentially to a record forty billion dollars. So

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Speaker 7: we think we see you know, above average production and

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Speaker 7: earnings visibility as we begin to think about next year.

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Speaker 4: Did the company say a lot about the power producing

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Speaker 4: equipment including turbines and generators that have investors excited about

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Speaker 4: it being kind of a derivative play to the AI story.

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Speaker 7: Absolutely, so, you know, we continue to hear more and

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Speaker 7: more about AI and data centers and Cat's exposure there. Today,

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Speaker 7: you know, power gens probably you know, roughly thirty percent

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Speaker 7: of the energy and transportation business, roughly you know, fifteen

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Speaker 7: percent of the overall enterprise, but it continues to be

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Speaker 7: the fastest growing part of the portfolio. They're bringing on

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Speaker 7: a lot of capacity here over these next three years.

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Speaker 7: I think you really begin to see a step change

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Speaker 7: as we move into twenty twenty seven. And particularly on

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Speaker 7: the on the large engine side. So there is more

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Speaker 7: of a focus and investment on the energy and transportation

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Speaker 7: business and it has become, you know, the biggest part

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Speaker 7: of their portfolio.

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Speaker 2: Wow, are there other companies or let me put it

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Speaker 2: this way, who does cat compete with in that segment

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Speaker 2: of the business.

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Speaker 7: Yeah, So there's a number of different competitors, and it

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Speaker 7: really breaks down on relative by size on some of

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Speaker 7: the gen sets. Cummins is a is a big one,

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Speaker 7: Siemens Energy, and then you also have a few other

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Speaker 7: European and Asian players. But you know, this is certainly

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Speaker 7: a market that's growing, you know, pretty exponentially. Here. Backlogs

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Speaker 7: extend several years, so we think we have pretty good

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Speaker 7: visibility at least through you know, the next three years.

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Speaker 4: Does this part of the business mean that Caterpillar will

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Speaker 4: need to rely more on domestic market opportunities as opposed

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Speaker 4: to global market opportunities.

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Speaker 7: So their footprint is the largest, the energy transportation footprint

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Speaker 7: is the largest in North America, but you know, I

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Speaker 7: think the opportunity is global. They are a large global

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Speaker 7: producer that they serve you know, essentially almost all markets

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Speaker 7: around the world. I think even particularly with an energy

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Speaker 7: and transportation It's like something like one hundred different countries.

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Speaker 7: So while I think the immediate near term excitement is

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Speaker 7: more focused here in North America, I do think longer

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Speaker 7: term there's an opportunity international as well.

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Speaker 2: What's what's the company saying about the impact, if any,

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Speaker 2: on tariffs on their business now going forward?

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Speaker 7: Yeah, so tariffs were actually a much bigger headwind than

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Speaker 7: we anticipated in the quarter, and even KAT I think

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Speaker 7: it kind of shook out somewhere around a six hundred

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Speaker 7: million dollar headwind in three Q. But margins, margins were

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Speaker 7: better than expected, really pretty remarkably resilient despite these price

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Speaker 7: costs headwinds. Four Q will actually see a step up

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Speaker 7: in the tariff costs. And then as we think about

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Speaker 7: next year, you know, Kat's really been kind of kind

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Speaker 7: of hesitant to pull the pricing lever on a lot

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Speaker 7: of tariffs thus far. We think that's you know, more

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Speaker 7: of an opportunity for them here in the near term

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Speaker 7: to gain some market share. So as we think about

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Speaker 7: twenty twenty six, it'll be interesting to see, you know,

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Speaker 7: do they continue to offset through more costs and productivity efficiencies,

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Speaker 7: or do they lean into pricing a little bit more,

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Speaker 7: but tariffs will step up here in the near term,

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Speaker 7: and then you know, twenty twenty six, it still remains

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Speaker 7: to be seen, but I'd expect a demand backdrop to improve,

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Speaker 7: so they certainly should have the opportunity to push pricing

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Speaker 7: a little bit more aggressively next year.

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Speaker 5: Wow, six hundred million dollars is no small change when

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Speaker 5: it comes to tariff impact.

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Speaker 2: And they these companies are finding margin improvement in other areas.

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Speaker 2: I guess it's really amazing.

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Speaker 5: All right, Thank you so much for speaking with us.

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Speaker 4: Chris Fergiolino is Bloomberg Intelligence senior US machinery analysts on

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Speaker 4: Caterpillars earnings and the stock right now of about thirteen

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Speaker 4: percent training at five hundred and ninety three dollars off

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Speaker 4: fifty side all time high.

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Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 4: One of the laggards in the Downdustrials is Boeing, it's

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Speaker 4: taking twenty six points off of the off of the

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Speaker 4: Downdustrials is two hundred and thirty point gain, and part

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Speaker 4: of that is because of its latest earnings report. Let's

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Speaker 4: bring in George Ferguson, who of course covers Boeing among

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Speaker 4: other aerospace, defense and airlines companies for Bloomberg Intelligence, and George,

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Speaker 4: I thought Boeing was in turnaround mode.

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Speaker 5: Do the report? Do the latest earnings back that idea up?

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Speaker 3: Yeah?

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Speaker 8: I think it did.

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Speaker 2: So.

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Speaker 8: You know what I saw from earnings today is that

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Speaker 8: the commercial airplane business had about a four hundred thirty

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Speaker 8: million dollar loss from your back out that about five

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Speaker 8: billion dollar charge for triple seven. That number was a

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Speaker 8: bit better than consensus, a little bit better than what

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Speaker 8: we were looking for. I think it's another sign that

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Speaker 8: commercial airplane is getting closer to break even. And then

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Speaker 8: in the cash flow statement, Boeing was cash flow positive

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Speaker 8: and at an operating level and free cash flow it

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Speaker 8: was about a billion dollars in the operating level and

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Speaker 8: free cash flow a couple hundred million. I think that

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Speaker 8: you know, that's above where consensus expected it. We saw

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Speaker 8: five billion dollars an inventory get unlocked during the quarter,

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Speaker 8: meaning you know, Boeing has been sitting on something like

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Speaker 8: ninety billion dollars inventory because like eighty seven I think

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Speaker 8: was exact number, and that came down to eighty two

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Speaker 8: billion because they've been buying from suppliers, putting things on

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Speaker 8: shelves as they try to keep the supply base healthy

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Speaker 8: while they've been going through some of their challenges here,

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Speaker 8: and now they're starting to take that, you know, that

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Speaker 8: inventory off the shelves put it into airplanes. That's that's

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Speaker 8: going to hyper drive some of the cash generation of

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Speaker 8: Boeing as they bring that inventory I think down to

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Speaker 8: probably a sixty or fifty billion dollar level. So I

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Speaker 8: think those are both big positives in the charge was

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Speaker 8: largely non cash for an airplane that I think is

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Speaker 8: still very competitive, just gets delayed a bit.

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Speaker 2: All right, how about the deliveries of the seven thirty seven.

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Speaker 2: What's the guidance there, George, because we know that's the

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Speaker 2: big cash driver.

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Speaker 8: I think, yeah, so they're you know, Boeing's kind of

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Speaker 8: out of the game of giving guidance right now. But

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Speaker 8: they've they said, you know, the FAAS allowed them to

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Speaker 8: go to forty two a month build rate, which would

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Speaker 8: be above what they've done in the last quarter. I

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Speaker 8: think we've got a modeled at about forty four or

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Speaker 8: forty five per month for the next three months. It's

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Speaker 8: because there's still some inventory airplanes they'll deliver as as

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Speaker 8: well as what they're building. Just heard Kelly Orpburg say

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Speaker 8: on the call that he would anticipate sort of cranking

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Speaker 8: up those build rates from forty two in income it's

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Speaker 8: of five every six months. No sooner obviously won't break

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Speaker 8: unless they feel like they've got things stabilized. So I

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Speaker 8: think we've got a path here to hire build rates over,

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Speaker 8: you know, to the end of the decade. So you know,

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Speaker 8: I would expect that as they get a year down

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Speaker 8: the road here will be probably break even in this business,

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Speaker 8: you know, maybe a little bit longer, but I think

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Speaker 8: we'll be break even in that business. And again that's

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Speaker 8: I think all part of the turnaround is getting seven

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Speaker 8: three seven to perform. That's that's going to be the

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Speaker 8: financial driver.

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Speaker 4: So Kelly Orpbrook has now been CEO for just over

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Speaker 4: a year. He started in August of twenty twenty four.

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Speaker 4: I can't believe it's been that long already, I know

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Speaker 4: I know, and a lot has happened clearly, And what

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Speaker 4: I didn't realize is that Boeing is still facing some

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Speaker 4: labor issues. Saint Louis Aria machinists still strike.

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Speaker 5: They've been striking for more than three months.

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Speaker 4: What does this say about Kelly Orberg's leadership and what

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Speaker 4: kind of grade would you give him, George for his

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Speaker 4: leadership so far?

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Speaker 8: Yeah, I mean I'd give him a very high grade.

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Speaker 8: Right again, I think that, you know, the biggest thing

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Speaker 8: he needed to do was like improve morale, improve quality,

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Speaker 8: and it appears to you know, to be the case.

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Speaker 8: I think, you know, the proof is again build rates

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Speaker 8: the FA, returning some uh you know, giving Boeing the

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Speaker 8: ability to go to forty two, and returning some of

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Speaker 8: their ability to certify some of the airplanes. So I

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Speaker 8: think i'd give it all high in Saint Louis right now,

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Speaker 8: you know, Saint Louis is where the defense business is centered.

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Speaker 8: Out of right now, the defense business not performing great,

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Speaker 8: but getting better.

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Speaker 3: You know.

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Speaker 8: I think there's there's definitely more to come in the

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Speaker 8: defense business as they start building the F forty seven,

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Speaker 8: which is the sixth generation fighter that they won, but

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Speaker 8: that's still some preliminary work. My guess is that the

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Speaker 8: sides are still a little bit a part on, you know,

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Speaker 8: where they want to be for an a green and

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Speaker 8: it's not as critical to get those folks back to

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Speaker 8: the production lines as it was to get a commercial

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Speaker 8: seven thirty seven machinists back to production lines. So he's

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Speaker 8: probably doing the right thing for the business here, and

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Speaker 8: you know, making sure he can get an agreement he

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Speaker 8: can live with, especially in defense where it's harder to

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Speaker 8: bear increased costs. And again i'd give him, I'd give

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Speaker 8: him high grades. I think the company's at a turnaround

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Speaker 8: right now and doing well.

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Speaker 5: George about the thirty seconds left.

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Speaker 2: Just we don't talk about the triple seven much. How

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Speaker 2: does that kind of figure into their portfolio, into the

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Speaker 2: economics of Boeing.

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Speaker 8: Yeah, when it finally gets certified, it'll be the biggest

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Speaker 8: airplane in production, so it kind of replaces seven four

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Speaker 8: seven and eight three eighty as the Queen of the skies,

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Speaker 8: A three fifty tosh one thousands, the closest competitor. It

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Speaker 8: can't it can't be as densified, it can't have as

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Speaker 8: many seats inside it, So I think you'll find a

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Speaker 8: seat cost advantage in the Triple seven. It's got core

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Speaker 8: customers in those you know, in those Lee's carriers, those

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Speaker 8: Asian carriers that are the big sort of East West connectors.

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Speaker 8: And I think it'll be fine. I think that delay

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Speaker 8: we won't hurt its ability to be sold. And it's

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Speaker 8: already got five hundred in the backlog.

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Speaker 2: And I'll put my order in for the surveillance Triple

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Speaker 2: seven for tom My favorite.

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Speaker 4: You know, I'll need one of those.

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Speaker 2: George, thanks so much for joining us. George ferguson Senior Aerospace,

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Speaker 2: Defense and Airlines anists. And if it flies, George covers

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Speaker 2: it for Bloomberg Intelligence. That's kind of how I think

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Speaker 2: about it.

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