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Speaker 2: Investors are partying like it's nineteen ninety nine. Investors an Oracle,
Speaker 2: that is. And that's because the last time the stock
Speaker 2: rally this much was nineteen ninety nine. Stocks up. As
Speaker 2: John just said, nearly. You weren't even a line back then,
Speaker 2: the two of you.
Speaker 3: Oh go on, we remember the dot com bubble days.
Speaker 2: So I want to bring in Annie Rograna, now Bloomberg
Speaker 2: Intelligence technology analyst. He was around in nineteen ninety nine,
Speaker 2: coming to us from our Chicago bureau. Okay, so we
Speaker 2: know that you know it was a blowout quarter AI
Speaker 2: just driving things there. But I want to talk a
Speaker 2: little bit about traditional software, which is what this company
Speaker 2: is all about, the fact that that's not really working
Speaker 2: at Oracle. But it doesn't seem like investors care today.
Speaker 4: On rug Yeah, so your Oracle is a very unique
Speaker 4: company because it has your traditional software, but also a
Speaker 4: few years ago it started a cloud business called Oracle
Speaker 4: Cloud Infrastructure, something very similar to what Aws tees or
Speaker 4: Microsoft Azure. And one of the advantages it has is
Speaker 4: it just rents out it's you know, servers for people
Speaker 4: to go out and train their AI models or you know,
Speaker 4: run their applications on it. So this is really a
Speaker 4: new business for them, you know, it just came up
Speaker 4: the last few years, and that's where the biggest growth
Speaker 4: is and that's what's driving the stock.
Speaker 3: That's what's driving the stock, and that's probably where Oracle
Speaker 3: is driving its spending as well. What's happening with the
Speaker 3: rest of the company, it's operations, its software business. Is
Speaker 3: it still cutting costs for instance, and reducing headcount?
Speaker 4: Yeah, I think you're absolutely right about it. So the
Speaker 4: advantage Oracle has compared to let's say a company like
Speaker 4: core v for Nebus, is that it has a very
Speaker 4: high margin database business and very high margin application business.
Speaker 4: These businesses have gross margins, you know, let's say, north
Speaker 4: of ninety percent. Now when you marry that with a
Speaker 4: massive AI infrastructure business where you need to spend a
Speaker 4: lot of money, that's problematic for somebody that doesn't have that.
Speaker 4: But Oracle has that luxury that it can spend billions
Speaker 4: of dollars. You know, before yesterday we were thinking they're
Speaker 4: going to spend you know, somewhere in the low thirty
Speaker 4: billion range, which was already higher than what they had guided.
Speaker 4: And you know, even the street was expecting. They came
Speaker 4: out and said they're going to spend over thirty five
Speaker 4: billion and you know the next financial year. So that's
Speaker 4: a lot of money going into expanding data center, buying
Speaker 4: chips by you know, creating a new infrastructure to fulfill
Speaker 4: this demand.
Speaker 2: Now, also we should note that a number of analysts
Speaker 2: are raising the price target on Oracle. TD Cowan caught
Speaker 2: my eye, raising the target to three hundred and seventy
Speaker 2: five dollars from three hundred and twenty five dollars a share.
Speaker 2: But when you look at the competition here, Microsoft, Amazon,
Speaker 2: on Alphabet, what does Oracle or how does Oracle differentiate
Speaker 2: itself not only for the customer the client, but for investors.
Speaker 4: Yeah, And one of the things I would say is
Speaker 4: everybody is having a good time in this particular party.
Speaker 5: It's not just you know, one company that's gaining it.
Speaker 4: It's just the size of their business is far smaller
Speaker 4: than it is for let's say AWS or Microsoft. You know,
Speaker 4: in the last financial year, the revenue was you know,
Speaker 4: roughly about ten billion or so. Aws's rund rate is
Speaker 4: one hundred and twenty five billion. Microsoft's business is seventy
Speaker 4: five billion. Google's business is fifty billion. So you know, please,
Speaker 4: you know, you've got to take that with the context
Speaker 4: of how big Oracle's cloud infrastructure is compared to some
Speaker 4: of the bigger vendors.
Speaker 3: Out there, you know, honorog it feels like Oracle kind
Speaker 3: of came from out of nowhere with its you know,
Speaker 3: contributions to the AI space and being such a big player. Certainly,
Speaker 3: the bookings of almost half a trillion dollars caught my
Speaker 3: eye on It's more than four times what it was
Speaker 3: the same time last year. Are there any other kind
Speaker 3: of dark horses out there that you would be keeping
Speaker 3: your eye on that could be the next Oracle, which
Speaker 3: is already feels like it's the next in VideA.
Speaker 4: Yeah, I think one of the things you have to
Speaker 4: think about it is it's not easy to come up
Speaker 4: with this structure or a business like this, because you
Speaker 4: need billions of dollars to create a data center or
Speaker 4: to lease out a data center then buy equipment like
Speaker 4: in Vidia chips and computing equipment. There are a handful
Speaker 4: of companies like you know, Core beav of Nebus, which
Speaker 4: are smaller neo cloud players that specialize in renting and
Speaker 4: VideA GPUs to customers. Now, the bigger vendors have the
Speaker 4: capital that they are also expanding it. But again, as
Speaker 4: I said, given the size of the increment that they
Speaker 4: are seeing, you know, you're not getting that same growth rate.
Speaker 2: Do you think there's a little over exuberance though in
Speaker 2: the market today with Oracle stock up nearly forty percent,
Speaker 2: especially with so much talk about whether or not we
Speaker 2: are in an AI bubble and what happens if it
Speaker 2: starts to deflate.
Speaker 5: Yeah.
Speaker 4: See, one of the things you have to remember is
Speaker 4: for Oracle, at least they have this backlock of autos
Speaker 4: coming in and it's coming you know. For example, one
Speaker 4: of the biggest customers right now is OPENINGI If Opening
Speaker 4: Eye continues to expand revenue at a good pace over
Speaker 4: the next several years, they are going to be spending
Speaker 4: a lot of money to train their models in order
Speaker 4: to stay ahead.
Speaker 5: So I think there is a lot of relationship over there.
Speaker 4: If let's say you and I don't use chat GPT
Speaker 4: as much, that would have an impact on opening Ay's revenue.
Speaker 4: That would have impact downstream revenue on all the other players,
Speaker 4: you know, whether that's in video oticle.
Speaker 5: But frankly speaking, we are not there yet, you know.
Speaker 3: I'm looking at the mag seven members and how they're
Speaker 3: performing today. In video is up almost five percent, Amazon
Speaker 3: down one point nine percent, Alphabet which is the parent
Speaker 3: of Google up marginally up one point zero point one percent,
Speaker 3: and Microsoft getting six tens of one percent.
Speaker 6: It doesn't feel like this is a situation.
Speaker 3: Where it's a zero sum game Oracle wins and Microsoft,
Speaker 3: Google and Amazon lose, or is it no?
Speaker 4: So there are a few companies that fall into this pocket,
Speaker 4: you know, and those include Amazon Web Services, Microsoft.
Speaker 5: Google Cloud Code, viv Oracle.
Speaker 4: And Mhibius for example. So these are the ones that
Speaker 4: are seeing extra spending right now. But when you look
Speaker 4: at on the application side, you know, whether that salesforce
Speaker 4: or workday, those guys are not seeing that benefit because
Speaker 4: they're not in that infrastructure game. So there's a huge
Speaker 4: difference between the two vendors, or between the two category
Speaker 4: of vendors, right now we are more in the built
Speaker 4: phase of AI, not the implementation phase of AI.
Speaker 2: You know, it's hard to believe, Scarlet, but this stock
Speaker 2: and is now worth more than has a larger market
Speaker 2: cap than Walmart, Eli, Lilly, JP, Morgan Chase.
Speaker 3: Yeah, that is pretty remarkable. And again it feels like
Speaker 3: it kind of came from out of nowhere.
Speaker 2: You're right on that very recently, which is why I
Speaker 2: brought up you know, Amazon, Microsoft, right on your rog
Speaker 2: I mean, the fact that those were the names we
Speaker 2: were really talking about when it came to AI, and
Speaker 2: then sort of Oracle comes out of out of the blue.
Speaker 4: Yeah, but that's the whole point. This particular infrastructure. If
Speaker 4: you're going to run large models, it's very unlikely you
Speaker 4: can do it in house. I mean, you can do it,
Speaker 4: but you require a lot of investment going in. You're
Speaker 4: better off renting out data center capacity or computing capacity
Speaker 4: from one of the cloud vendors. And Oracle has the
Speaker 4: money to spend it, and they have the relationship with
Speaker 4: Nvidia to get those GPUs, And on top of that,
Speaker 4: they're offering this to customers and saying here's my equipment,
Speaker 4: come and test it out the way you like it. Amazon,
Speaker 4: on the other hand, for example, sells it as a
Speaker 4: package and that's where you're not. You're seeing some distinction
Speaker 4: and also the size. As I mentioned before.
Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 6: We're keeping an eye on Novo Nordisk, the drug maker.
Speaker 3: Remember they are the company behind Ozembic and Mogovi has
Speaker 3: decided to cut nine thousand jobs and also cut its
Speaker 3: profit forecasts as well.
Speaker 6: So let's bring in Sam Fazzelli.
Speaker 3: He is Bloomberg Intelligence, Director of Research for Global Industries
Speaker 3: and Senior Pharmaceuticals, our go to guy for all things
Speaker 3: on global drug makers, and Sam for Novo Nordisk. This
Speaker 3: is part of a broader restructuring that the new CEO
Speaker 3: is undertaking. Can you tell us a little bit more
Speaker 3: about the changes taking place?
Speaker 5: Yeah? Sure, and very nice to see you again. All.
Speaker 7: So, the story here is that this is not the
Speaker 7: first time they've lowered guidance for the year. I mean
Speaker 7: this time there's an impact on the EPs front from
Speaker 7: obviously the cost of restructuring, assuming they can get it
Speaker 7: all done this year, but it's a pretty chunky one
Speaker 7: nine thousand people, about eleven percent of the workforce, and
Speaker 7: a lot of that coming from Denmark. If you read
Speaker 7: the essence of the press release that they put at
Speaker 7: there's a couple of things that they bring out.
Speaker 5: They want to invest more on R and D.
Speaker 7: Well, what I think this is telling you is that
Speaker 7: the growth that they have planned for the next five years,
Speaker 7: they may be thinking maybe that won't come as test
Speaker 7: as we were expecting it because of competition from Lily,
Speaker 7: compounders and other products potentially coming to market to the
Speaker 7: pace that they were hoping. So if you want to
Speaker 7: keep investing in R and D, you need to liberate
Speaker 7: some cash. And also it looks like that they're also
Speaker 7: thinking about changing the way that they're doing their marketing
Speaker 7: because of the different channels that they're getting involved with
Speaker 7: direct to consumer. That is not something that FORUMA has
Speaker 7: done very often before. In fact, only Lily had done
Speaker 7: it prior to this, also for obesity drugs. So maybe
Speaker 7: the costs of that are different, and there's an element
Speaker 7: that that they've referred to in there, which is a
Speaker 7: culture of performance related reward, and you think to yourself, well,
Speaker 7: what was it before? So it seems like that they
Speaker 7: want to make it much harder. Focus on you've got
Speaker 7: to deliver because we need the growth. So that's the
Speaker 7: interesting wle to watch, you.
Speaker 2: Know, Sam, I think to a lot of casual investors
Speaker 2: who don't deep dive into you know, Novo Nordisk the
Speaker 2: way you might say, would look at this and say, listen,
Speaker 2: they have the most popular weight loss drugs, right, will
Speaker 2: go vi o Zembek. Why is this company having these
Speaker 2: problems when you drill down or is it just a
Speaker 2: problem with having to scale too quickly? Is it that
Speaker 2: the company isn't nimble enough to sort of change with
Speaker 2: the times.
Speaker 7: Well, Novodordis has been a poster child of how you
Speaker 7: grow from a small company selling to a relatively basic
Speaker 7: set of products twenty thirty years ago to one that's
Speaker 7: become essentially one of the innovators in the space. They
Speaker 7: brought the first jil we want to market, so we
Speaker 7: can't hold them for that. It's just that I think
Speaker 7: this growth that they had to go through where the
Speaker 7: planning was done, you know a lot of I mean,
Speaker 7: we have one hundred billion dollar market potential for or
Speaker 7: obesity as a whole, right, so it's just difficult, I think,
Speaker 7: to judge into this space. And maybe the previous CEO
Speaker 7: had looked and said, I'm pretty sure we're going to
Speaker 7: be fifty percent of that market. We need to plan
Speaker 7: for that growth. And then two things changed. Competition from
Speaker 7: really is superintense. They have what I would call it
Speaker 7: a better drug in terms of the efficacy profile that's
Speaker 7: been shown in head to A trials. And then of
Speaker 7: course you've got on top of that, compounders that don't
Speaker 7: seem to be don't seem to be going away. They
Speaker 7: keep taking cheaper generics or generics manufactured. They'll try and
Speaker 7: making the drugs. So that's where I think the new
Speaker 7: Area issue is in that we all expected the FDA
Speaker 7: to really clamp hard down on that and they haven't
Speaker 7: made issues, you know, statements, but they're allowing them. They
Speaker 7: even found areas outside the US where these compound compounders
Speaker 7: can get their.
Speaker 5: Drugs from, which is counterintuitive. So those are the issues.
Speaker 3: Yeah, So it feels like NOVA Nordics gave up its
Speaker 3: first mover advantage, but has it lost its lead completely
Speaker 3: in the US obsity market to Elila Lee permanently or
Speaker 3: is this still very much a wide open contest.
Speaker 7: No, I mean we have I can't remember what the
Speaker 7: latest number is in terms of what percentage of people
Speaker 7: who would benefit for these from these drugs who should
Speaker 7: be able to get them around it. But it's not
Speaker 7: in the big percentages. I'm pretty sure it's in the
Speaker 7: single digit percentages. So there's a lot of room to
Speaker 7: play for. I think our estimate, and I hope I'm
Speaker 7: not completely off on this, was about one hundred and
Speaker 7: eighty nine million people could be in these drugs by
Speaker 7: twenty thirty. That's enormous. There's lots of other people coming
Speaker 7: with orals with other things. It's not a matter of
Speaker 7: having lost the lead. Yes, really surprised. Within slightly different mechanism,
Speaker 7: it's still the same but with a better drug. There's
Speaker 7: still room for innovation here, which is what the company's saying.
Speaker 7: We need to save to keep investing in that innovation.
Speaker 7: So that's the area I think that they're highly focused on.
Speaker 3: That Stay with us. More from Bloomberg Intelligence coming up
Speaker 3: after this.
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Speaker 2: It's a tough day for investors and Synopsis or the
Speaker 2: chip design software provider missed Wall Street's estimates, hurt by
Speaker 2: weakness and its design IP business. I want to bring
Speaker 2: in naraje Ptel, now Bloomberg Intelligence senior software analyst, for
Speaker 2: more on this. So give us the larger story behind
Speaker 2: this disappointment. I think is an easy word to use
Speaker 2: for this. I mean, I don't know. I feel like contostors.
Speaker 2: Yeah right, all right, Narage, what's your take?
Speaker 8: Yeah, this is a major shock to the investor community,
Speaker 8: and I think you see it in the stock price.
Speaker 8: Specifically the company's design IP business that's about thirty percent
Speaker 8: of sales. It has been growing fifteen percent annually and
Speaker 8: their leader in a subcategory called interface IP. This business
Speaker 8: now is going flat. It was tracking to fifteen percent
Speaker 8: growth as of two Q and the remaining two quarters
Speaker 8: are big shock. This quarter was down nine percent. Next
Speaker 8: quarter it's going to be down some more. And this
Speaker 8: catalyst came out of the blue, I would say for
Speaker 8: a lot of the investor community because design IP has
Speaker 8: a lot of tailwinds related to AI complex chip design
Speaker 8: as well as all this advanced architecture that the semiconductor
Speaker 8: design companies like in video, Broadcom, Intel are pursuing.
Speaker 3: So can we blame or can the company blame factors
Speaker 3: beyond its control and here and referring of course to
Speaker 3: trade war tariffs for that or is this something that
Speaker 3: Synopsis just wasn't prepared for.
Speaker 8: Yeah, there's a lot of interesting points there, Scarlett, and
Speaker 8: I think when we're looking at trade war, yes, a
Speaker 8: little bit of an issue. And the China Eda band
Speaker 8: that initiated end of May that lasted about six weeks,
Speaker 8: that was introduced by the Bureau of Industry and Security
Speaker 8: in the US. But their major peer cadence and competitor,
Speaker 8: which is second in market share, they reported several weeks
Speaker 8: ago they had the same macro issues and they actually
Speaker 8: tuned up their guidance. So this may be a little
Speaker 8: more company specific than macro factors. And I think what's
Speaker 8: hinting us that they made big investments to catch up
Speaker 8: Intel foundry relative to some of the other competing founderies
Speaker 8: with their IP and this hasn't returned any type of
Speaker 8: scale on the revenue side for them, and this reality
Speaker 8: really hit them this quarter and for the next several quarters.
Speaker 2: So did the CEO Gazi say anything on that post
Speaker 2: earnings call to give investors a little light at the
Speaker 2: end of the tunnel here an indication of how they're
Speaker 2: going to turn things around at Synopsis.
Speaker 8: Yeah, I think it was a little marky in terms
Speaker 8: of the numbers to make a deal with Ansis that
Speaker 8: was about thirty five million dollars in mid July. This
Speaker 8: should have added about six hundred million in total revenue,
Speaker 8: So the numbers didn't add up to their guidance of
Speaker 8: seven billion. So a little light in terms of adding
Speaker 8: this acquisition that closed. So that's going to be a
Speaker 8: little bit of a digestion period, we think, and it's
Speaker 8: going to take several quarters for the investor community to
Speaker 8: settle in. And I think, you know, we're facing this
Speaker 8: issue where they have a lot of AI related tailwinds.
Speaker 8: You're building more complicated chips, you're using a lot more
Speaker 8: interface IP for these chips, and they're the market leader
Speaker 8: in this market, so things aren't adding up. I guess
Speaker 8: when we look at, you know, the story and the
Speaker 8: narrative that they've communicated over the last several quarters, the
Speaker 8: AI story that we're hearing from Nvidia and Broadcom, and
Speaker 8: some of the investments that are occurring across the ecosystem.
Speaker 3: So very quickly here is there any bright Is there
Speaker 3: any good news in this reported anything to hang your
Speaker 3: hat on if you are a long term investor and
Speaker 3: you don't want to give up yet.
Speaker 8: Yeah, I think this space is an oligopoly Cadence and Synopsis.
Speaker 8: There's no new entrants, competitive pricesure pressure is very low,
Speaker 8: there's no substitute for technology. You have to use their
Speaker 8: tools to design chips, and the more advanced the chips get,
Speaker 8: the more features you introduce. You introduce a lot of
Speaker 8: verification and sign off steps to make sure all the
Speaker 8: electrical characteristics are working. You're not generating too much heat.
Speaker 8: You have mechanical structures, so you have to use their IP.
Speaker 8: You have to use their EDA Electronic Design Automation tools.
Speaker 8: They're thirty five percent share. Cadence is at thirty two
Speaker 8: percent share, and you have Siemen said about sixteen percent.
Speaker 8: So you don't have a lot of alternatives here, and
Speaker 8: once you build on any of these platforms, it's very
Speaker 8: hard to switch because your engineers are used to the
Speaker 8: type of data and the type of tool sets and
Speaker 8: the type of bugs that they produce and go through
Speaker 8: their workflow.
Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 2: I am taking a look at Chewy right now, the
Speaker 2: online pets supply retailer, taking it on the chin today.
Speaker 2: Profit falling in its fiscal second quarter, and that's despite
Speaker 2: an uptick in sales. The company did add more customers
Speaker 2: last quarter. Let's break this down though, with Diana rosserro
Speaker 2: Penya Bloomberg Intelligence as consumer staples analyst. So, Diana tell me,
Speaker 2: I mean this looks like a mixed quarterly report from Chewy.
Speaker 2: What has gotten investors so hot and bothered here?
Speaker 9: Yes, I think what investors were trying to see in
Speaker 9: this report was that there was an inflection point in
Speaker 9: the industry, and I don't necessarily think that they have
Speaker 9: founded in this report.
Speaker 2: Sales was higher than.
Speaker 9: The company the investors expected, but margin guidance ebidult guidance
Speaker 9: was kept and that was, you know, a little bit
Speaker 9: of any you know, bad news for the company and
Speaker 9: the industry as at a whole.
Speaker 2: Talk to me about innovating in this industry, because I
Speaker 2: would think that if you just stop innovating, that's when
Speaker 2: you start to have the problems. Is that starting to
Speaker 2: happen with Chewi. I mean, it is a leader in
Speaker 2: this space, but does it need to still be one
Speaker 2: step ahead of the curve and innovate here?
Speaker 9: Well, yes, and I think that is one of the
Speaker 9: things that they were trying to communicate during their earnings call.
Speaker 9: They are actually investing and that is going to probably
Speaker 9: offset some margin momentum going forward at least the second
Speaker 9: half of the year. They have led of offices now in
Speaker 9: four states.
Speaker 2: I've seen that, Yes, exactly.
Speaker 9: They actually launched Chewy Plus, which is a membership program
Speaker 9: and apparently has been very successful. And also they have
Speaker 9: launched private brands with get Real, which is a fresh
Speaker 9: frozen dog food brand.
Speaker 2: So the company also added a pretty decent amount of
Speaker 2: active customers, right one hundred and fifty thousand on a
Speaker 2: sequential basis. So now it's total customer base is nearly
Speaker 2: twenty one million. How much more room is there do
Speaker 2: you think to grow because we know people will spend
Speaker 2: big on their pets.
Speaker 9: Yes, and what we're seeing is probably gonna see a
Speaker 9: greater contribution on the pricing side compared to the customer base.
Speaker 9: And that again, that's another reason. While they did show
Speaker 9: positive momentum on customer base, it was still you know,
Speaker 9: in the mid single sit digits, which is not necessarily
Speaker 9: significant growth or growth that they had seen before. So
Speaker 9: you know, we still see an equal contribution for the
Speaker 9: customer base, but it's not necessarily as impressive as he
Speaker 9: was years before.
Speaker 2: I'm curious if they talked at all on the post
Speaker 2: earnings call about tariffs and how that might be impacting.
Speaker 2: I would imagine a number of their products are coming
Speaker 2: from overseas, China in particular, when you're talking about some
Speaker 2: of these pet toys as well.
Speaker 9: Yes, and they did not quantify the hit that it
Speaker 9: was going to be on because of Good Soul, but
Speaker 9: they have mentioned that private label. Their private brands are
Speaker 9: significantly affected by tariffs, and that is one of the
Speaker 9: reasons they probably help margin guidance for the year because
Speaker 9: they they said that they're going to invest in pricing
Speaker 9: and be more competitive.
Speaker 2: Who does Chewi see as their biggest competitor, I would.
Speaker 9: Say Amazon, and also and mortar retailers like pat Smart
Speaker 9: and Petco And.
Speaker 2: So what about the horizon? I mean, I don't know
Speaker 2: how far they went out, but what are projected projections?
Speaker 2: What kind of guidance are they offering investors?
Speaker 9: So they only have noted the annual guidance. They don't
Speaker 9: necessarily want to speculate on other things. But you know,
Speaker 9: they they still think that there's a lot of momentum
Speaker 9: in the industry, and I think investors are not necessarily
Speaker 9: that they do not agree on the long term potential,
Speaker 9: but they're more worried about what the six months are
Speaker 9: going to bring. The next six months.
Speaker 2: Yeah, and in terms of profit, what what was the
Speaker 2: pressure on profit? They said it was tied to share
Speaker 2: based compensation. There were also some related tax issues. Can
Speaker 2: you just tell us a little bit more about that?
Speaker 9: Yes, that was another thing, and you know what they
Speaker 9: mentioned there was, I mean, margins grew and you know
Speaker 9: it was it was gross margin was up ninety basis
Speaker 9: points year every year. But they mentioned that that was
Speaker 9: going to be the high point of the manage expectation exactly.
Speaker 9: And that is why what the you know, the investor
Speaker 9: community was was phoning in.
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