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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: easterne on Apple, Cocklay 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: Tech stops are really in focus.

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Speaker 3: The NASA Compson Index Paul is down two and a

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Speaker 3: quarter percent. The maximum names began reporting yesterday, and it's

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Speaker 3: really a split view here when it comes to those big,

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Speaker 3: big tech names.

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Speaker 2: And another one is on the docket tonight.

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Speaker 3: You've got Apple reporting this evening at four thirty pm

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Speaker 3: Wall Street Time, and of course we know that the

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Speaker 3: latest Apple iPhone came out. So this is a huge

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Speaker 3: quarter for the company. On o Agranta is our technology

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Speaker 3: analyst and he covers all things big tech.

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Speaker 4: Hona Microsoft here.

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Speaker 5: I mean it's north of a three billion, three trillion

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Speaker 5: dollar mark cap. Company puts up thirty eight percent, cloud

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Speaker 5: revenue growth, stock it down twelve percent.

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Speaker 4: What's going on?

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Speaker 6: Yeah? I think that's really what you're saying is you know,

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Speaker 6: last quarter the growth rate of Azure was thirty eight

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Speaker 6: or thirty nine. This quarter was thirty eight they've guided

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Speaker 6: to thirty seven to thirty eight, and that's not good

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Speaker 6: enough for investors. So I think that's really what it is.

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Speaker 6: And you know, they said it on the call that

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Speaker 6: if they allocated all the GPUs to Azure, they would

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Speaker 6: have grown north to forty percent. What's happening right now

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Speaker 6: within Microsoft is the cloud capacity that they have built,

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Speaker 6: and they've done a very good job about it in

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Speaker 6: the last twelve months. They're allocating it differently, whether it's

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Speaker 6: their kit helb co pilot, which is the coding agent,

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Speaker 6: or the the M three sixty five copilot, their Azure business,

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Speaker 6: and also internally for their R and D, and that

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Speaker 6: you if you can only have this much capacity, you

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Speaker 6: can you know, you will realize the revenue only on

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Speaker 6: the Azure side. And I think that's where the mismatch is.

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Speaker 6: The biggest question people are asking, is well, the capix

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Speaker 6: is growing in the sixties, but their cloud revenue is

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Speaker 6: growing on the thirty eeth. I think it's a bit silly,

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Speaker 6: to be very honest with you. You know, they know

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Speaker 6: what they're doing in terms of R and D for

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Speaker 6: future growth, but frankly, from our side, thirty eight percent

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Speaker 6: growth is not a bad number.

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Speaker 2: No, it's hard to hold your nose at that.

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Speaker 3: But is this a company that you know gets worried

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Speaker 3: about this kind of market reaction or like you said,

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Speaker 3: they're confident in their strategy overall. They're going to move

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Speaker 3: forward with this regardless of whatever message investors might be

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Speaker 3: trying to send.

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Speaker 6: No, I don't think they will change their strategy. I

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Speaker 6: mean they have to. They are doing whatever it is

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Speaker 6: right for the Microsoft product of families. They and because

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Speaker 6: you think about it this way, in seven years, by

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Speaker 6: twenty thirty two, they will lose the ip that they

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Speaker 6: get from Opening Eye. They need their own models by

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Speaker 6: that they have to have it. So if they're going

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Speaker 6: to put some RND dollars to take care of that,

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Speaker 6: so be it. I mean, I don't think that's a problem.

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Speaker 6: They will be They are actually even now one of

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Speaker 6: the bigger beneficiaries of all the GENII spending that's out there.

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Speaker 6: You know, it will all come back to the cloud,

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Speaker 6: whether it takes a year, two years, I don't think

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Speaker 6: that's a that's a problem from a long term point

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Speaker 6: of view.

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Speaker 5: How about cappex, We saw a meta put a huge

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Speaker 5: CAPEX number up their way above where the street was

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Speaker 5: forecasting here from Microsoft, their CAPEX dramatically as well, up

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Speaker 5: sixty six percent from a year earlier. How do you

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Speaker 5: think about capex or how's some market thinking about capex?

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Speaker 6: So it depends on who's spending the capex. So when

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Speaker 6: we think about it, the three most important companies in

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Speaker 6: our view is Amazon, Google, and Microsoft because they have

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Speaker 6: really strong cloud business that can monetize it. How Meta

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Speaker 6: monetizes it, I don't know, And frankly, the reason for

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Speaker 6: that is because they're saying they're going to drive more

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Speaker 6: engagement internally with their products, but they don't have a

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Speaker 6: cloud business that can monetize it. Their model is not

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Speaker 6: being bought by Apple to put it in the operating system.

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Speaker 6: So I have no idea what the future for that

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Speaker 6: capex is. But I feel very comfortable the capex that's

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Speaker 6: driven by the three large hyperscale cloud providers because they

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Speaker 6: we know the business that they're in and where the

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Speaker 6: monetization is going to happen.

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Speaker 3: Okay, before we let you go, just a quick recap

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Speaker 3: of what happened with IBM good enough for an almost

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Speaker 3: five percent gain?

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Speaker 2: What were investors responding to?

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Speaker 6: Yeah, I think it's again a game of low expectations.

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Speaker 6: That's where the revenue growth rate you know, was better.

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Speaker 6: They came at the total revenue growth was nine percent,

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Speaker 6: but the software division was around eleven percent, So I

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Speaker 6: think that's really the benefit. But think about it, Service

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Speaker 6: now down so big. Their growth rate was in the twenties. Microsoft,

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Speaker 6: same thing, So it's all a matter of relative expectations,

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Speaker 6: you know today.

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Speaker 4: Same 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 5: It's been tech here. We had a lot of tech

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Speaker 5: numbers after the close yesterday. One of the ones that

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Speaker 5: just I think surprising people is just is Microsoft and

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Speaker 5: we talked about that with Anorak Grana Meta.

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Speaker 4: We want to talk about meta as well.

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Speaker 5: Here men, Deep Singh joins this global tech research head

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Speaker 5: for Bloomberg Intelligence, joining us live here in our studio.

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Speaker 5: Their top line came in better than expected, gave a

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Speaker 5: pretty strong forecast for the current period. So from a

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Speaker 5: revenue perspective, the story seems very much on track, would

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Speaker 5: you take away, Mandy, Yeah.

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Speaker 7: I mean it's hard to find a business in max

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Speaker 7: seven that's growing thirty percent top line at the revenue

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Speaker 7: base that Meta is at, and that probably explains why

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Speaker 7: they got a green light when it comes to the

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Speaker 7: CAPEX increase that they had in their guide. And I

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Speaker 7: mean Mark was asked a number of questions around large

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Speaker 7: angrid models and what he's doing, and his answer was,

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Speaker 7: I don't have a ton of clarity in terms of

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Speaker 7: what those products are going to look like. All I

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Speaker 7: know is we have a great team, we have all

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Speaker 7: the compute. In fact, they're renting compute from third party

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Speaker 7: neocloud providers because they feel they've got a lot of

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Speaker 7: ideas and they'll be launching a lot of new products

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Speaker 7: this year. So that's what got everyone excited.

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Speaker 3: Right, But they didn't give any details on these new

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Speaker 3: products or services Person three, So I wonder is this

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Speaker 3: just he was able to craft a better tell, a

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Speaker 3: better story than he had in the quarters past.

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Speaker 7: Yeah, and look when you are raising your guide. So

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Speaker 7: consensus was twenty five percent growth for one que they

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Speaker 7: said will do thirty three percent at.

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Speaker 2: The high end but no details.

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Speaker 4: No, that's just core advertising, rebit core advertising.

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Speaker 7: And they said this quarter so they beat this quarter

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Speaker 7: fourth quarters print by two hundred basis points. They attributed

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Speaker 7: that to you know, all the AI ad conversions that

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Speaker 7: they are seeing in the current So without even launching

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Speaker 7: an LLM or a new product, they're applying AI and

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Speaker 7: GPU clusters to the existing ads.

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Speaker 2: That's the execution.

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Speaker 7: It is execution, and they're able to do it when Pinterests, Snapchat,

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Speaker 7: Reddit are not even able to grow twenty percent. So

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Speaker 7: that's the difference between you know, a company like Meta

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Speaker 7: and what the smaller digital ad companies are doing.

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Speaker 5: Can that be their AI story or does the market

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Speaker 5: longer term want to see new products?

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Speaker 7: Absolutely?

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Speaker 4: And what would those be?

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Speaker 7: Well AI assistant And there were references of you know,

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Speaker 7: Meta's AI is going to look different from the leading

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Speaker 7: frontier models like Open AI or you know Gemini, So

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Speaker 7: they their standalone app Meta AI doesn't have any usage

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Speaker 7: right now, so you compare that to a Gemini and

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Speaker 7: chat gipt Meta nobody uses Meta AI. But what they're

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Speaker 7: saying is will have something different in terms of the

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Speaker 7: content what you can do with Meta AI and you

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Speaker 7: have to take a leap of faith with marks that be.

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Speaker 5: Embedded in Facebook in every Graham that's what the kids

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Speaker 5: call it, the Graham instaf It'll be embedded in those apps,

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Speaker 5: and that will be the use case.

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Speaker 7: I mean, imagine Facebook groups, They've got so many users.

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Speaker 7: If you have meta AI that actually works, how many

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Speaker 7: things a user can ask a meta AI when you are,

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Speaker 7: you know, reading the group notes or something like that,

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Speaker 7: So it can be very conversational. And that's where the

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Speaker 7: audio part, the text, chat pot part, all that would

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Speaker 7: be customized to the family of fams.

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Speaker 3: So when it comes to the advertising business, I wonder

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Speaker 3: if what Meta told us based on how it's implementing

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Speaker 3: AI might inform how a Snap, a Pinterest, a Yelp,

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Speaker 3: or Reddit might harness that technology as well, because you

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Speaker 3: look at the share price reaction in those stocks and

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Speaker 3: it's pretty mixed. Reddit is change, but all the other

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Speaker 3: names are down I think.

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Speaker 7: I mean, there's nothing that's stopping a Pinterest or a

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Speaker 7: Snap from applying AI to their ad ecosystem, So do

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Speaker 7: my MI. In fact, Meta called out e commerce specifically

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Speaker 7: as a vertical where they're seeing the most traction in

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Speaker 7: terms of ad convergence, and these are companies smaller ones.

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Speaker 7: Pinterest is heavily exposed to e commerce, so to my mind,

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Speaker 7: they should come out with a print where they also

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Speaker 7: talk about some benefits of leveraging AI and their ads stack.

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Speaker 4: 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: Tesla reported numbers last night.

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Speaker 5: One of the things that jumped out of folks is

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Speaker 5: Tesla said it will spend over twenty billion dollars on

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Speaker 5: a dramatic reshow a factory line to ramp up production

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Speaker 5: of cars, batteries and robots.

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Speaker 4: Across the hast a dozen plans. So a lot going

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Speaker 4: on at Tesla as usual.

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Speaker 5: Let's get the latest analysis there from Steve Man, covers

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Speaker 5: all the auto companies globally for Bloomberg Intelligency. Stand there

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Speaker 5: in Princeton, home of the best Bloomberg Lunch. I'll tell

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Speaker 5: you that right now. Steve, talk to us about Tesla.

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Speaker 5: What's going on there?

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Speaker 4: With Elon. How's he kind of shuffling up this company?

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Speaker 8: Yeah, Paul, I think the most what stood out for

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Speaker 8: me was really that the AI investments that they've made

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Speaker 8: in the past few years, it's actually being converted into returns,

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Speaker 8: and that visibility of that return is much better after

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Speaker 8: the call. You know, they actually codified and putting black

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Speaker 8: and white in their presentation the rollout plan for the Robotaxi,

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Speaker 8: and you know they're looking to roll out into nine

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Speaker 8: different cities, mostly in the South, in the first half

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Speaker 8: of this year.

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Speaker 3: Okay, so some visibility is always great when it comes

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Speaker 3: to Tesla because so much of the story driving Tesla

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Speaker 3: is Elon Musk's storytelling skills and capabilities. Here tell us

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Speaker 3: a little bit more about what Elon Musk said when

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Speaker 3: it comes to Tesla needing to build its own semiconductor factory.

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Speaker 3: I mean, we're just getting our head around the cars

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Speaker 3: and the you know, the self driving vehicles, AI robotics,

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Speaker 3: and now we're talking about chip making.

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Speaker 8: Yeah, that's that's that's the that's the Tesla business model.

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Speaker 8: They they are vertically integrating. They're looking at the whole

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Speaker 8: supply chain, whole value chain to see where they can

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Speaker 8: cut costs. But the other thing that you know Elon

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Speaker 8: must mention is geopolitics. That plays a role in why

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Speaker 8: they want to build their own chips. But the other

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Speaker 8: thing is there is a huge demand for chips across

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Speaker 8: the board, AI chips, memory chips. We've already are seeing

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Speaker 8: some shortages on memory chips in the automotive apply chain.

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Speaker 8: So it's not a surprise that they're going vertical. They

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Speaker 8: want to ensure there's a source and they want to

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Speaker 8: make sure that the technology stays in house and they

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Speaker 8: have control of that technology.

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Speaker 5: Optimist humanoids what is that and is that something that's

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Speaker 5: going to be material for this company.

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Speaker 8: Yeah, according to what the company's saying, they are making progress.

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Speaker 8: They're going to launch the next version of the humanoid robot.

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Speaker 8: They're actually stopping the Model S and X production in

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Speaker 8: sales it's pretty low anyway, and converting that factory to

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Speaker 8: two humanium robots. But we still think it's years away.

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Speaker 8: I think for it to be commercially viable and interest

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Speaker 8: from the marketplace, it's probably won't be until the end

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Speaker 8: of the decade, but they will use some of that

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Speaker 8: robot within their own factories.

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Speaker 3: Steve what about Tesla sinking another two billion dollars into

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Speaker 3: Elon Musk's own startup, the Xai. Have we I mean,

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Speaker 3: do people have a way of seeing whether that has

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Speaker 3: a return on that investment? I mean, is it just

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Speaker 3: money that goes that one direction.

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Speaker 8: Yeah, there seems to be a lot of confusion in

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Speaker 8: the market, but to me, it is actually a right

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Speaker 8: thing to do because, first of all, Grock, which is

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Speaker 8: part of Xai, it's already in their vehicles, operating in

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Speaker 8: their vehicles as a navigational assistant. And then as robo

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Speaker 8: Taxi rolls out, I think they want to personalize those

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Speaker 8: robal taxis, and Grock through Xai is the perfect tool

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Speaker 8: to do that. System to do that. So you know,

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Speaker 8: if this Tesla is going to use the services from Xai,

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Speaker 8: I think they need to pay for it. So two

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Speaker 8: billion dollar investment in the Xai makes sense.

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Speaker 4: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to The Bloomberg Intelli Leigion's podcast. Catch us

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Speaker 1: live weekdays at ten am Eastern on Applecarclay and Android

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Speaker 4: All right, you're looking for an AI stock. How about

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Speaker 4: this one? I bet you didn't think about this one.

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Speaker 5: Caterpillar got an earning spoost from selling power generation equipment

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Speaker 5: to AI data centers in its fourth quarter. Stocks trading

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Speaker 5: up today, it's hitting.

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Speaker 4: A fifty two week high. How about that, Chris.

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Speaker 5: Gilino, he covers a Caterpillar and all those other construction companies,

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Speaker 5: manufacturing companies, senior US machinery analysts for Bloemberg Intelligence. So, Chris,

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Speaker 5: I bet you didn't think early in your career that

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Speaker 5: Caterpillar would be a tech play. Talk to us about

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Speaker 5: their quarter.

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Speaker 9: Yeah, No, certainly not.

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Speaker 10: And you know it was one of the I think

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Speaker 10: the top performers last year in the market, and certainly

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Speaker 10: off to a good start this year quarter with solid,

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Speaker 10: you know, beats both on the top and bottom line,

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Speaker 10: really driven by higher than expected volume in their power

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Speaker 10: energy business, as you alluded to. But I think the

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Speaker 10: real standout and the takeaway this quarter was really the

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Speaker 10: unprecedented order and backlog growth that we saw. Now we

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Speaker 10: came into the quarter with backlog already sitting at a

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Speaker 10: record level, but we saw orders increase more than seventy percent,

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Speaker 10: which drove nearly a thirty percent increase sequentially in the backlog.

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Speaker 10: And what's encouraging it seems that it's pretty broad based.

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Speaker 10: It's not just the data centers and AI, it's construction

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Speaker 10: starting to contribute, mining starting to contribute. So you're really

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Speaker 10: starting to see a lot of momentum starting to build

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Speaker 10: moving into twenty six. As we get these not only

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Speaker 10: the cyclical recovery start to materialize, but also the secular

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Speaker 10: tailwinds kind of converging here.

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Speaker 3: So it sounds like a number of different drivers and

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Speaker 3: do they all move to their own timeline in terms

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Speaker 3: of that cycle, you know, they're all kind of hitting

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Speaker 3: their stride at the same time.

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Speaker 10: Yeah, I think as we go into twenty six, you

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Speaker 10: are starting to see those those cycles converge.

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Speaker 9: The more cyclical mining.

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Speaker 10: And construction businesses have kind of been bouncing.

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Speaker 9: Along trough for a couple of years.

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Speaker 10: Now we're finally starting to see some stronger order activity

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Speaker 10: and activity momentum building on the non resident and even

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Speaker 10: on the residential side. In the North America mining, you're

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Speaker 10: starting to hear of some more projects on copper and gold,

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Speaker 10: and then obviously they can't add capacity fast enough.

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Speaker 9: When it comes to power generation.

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Speaker 10: They're going to be more than doubling their large engine

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Speaker 10: capacity through the end of the decade. So that's more

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Speaker 10: of a supply constraint as we look here at least.

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Speaker 5: And then your term, Chris, So when you talk to

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Speaker 5: institutional investors about your group, do people just buy the

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Speaker 5: group ie machinery, construction and when the cycles are coming together,

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Speaker 5: and then sell them on or not?

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Speaker 4: Is that where do I have to be real bottoms

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Speaker 4: up on individual companies?

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Speaker 10: You know, it varies, and I think it is becoming

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Speaker 10: a little bit more bottom up. You know, historically, for example, trucks, right,

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Speaker 10: you'd always buy when truck orders were at their worst

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Speaker 10: and bottom that's a short cycle business. You'd kind of

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Speaker 10: pile into those names at that point in time. Agg

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Speaker 10: is a little bit idiosyncratic in terms of how those

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Speaker 10: cycles work and a little bit detached from your traditional

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Speaker 10: economic cycles in that it's more driven by crop prices

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Speaker 10: and farmer incomes and then construction equipment certainly more cyclical

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Speaker 10: GDP type play. But what you're seeing now is you're

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Speaker 10: starting to see some divergence between those names that have

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Speaker 10: the data center AI exposure like the Caterpillars in the

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Speaker 10: comings of the world, and those have really outperformed over

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Speaker 10: the last twelve months because of their exposure, where a

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Speaker 10: lot of the other machinery names just aren't as a

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Speaker 10: lever to the data center play.

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Speaker 2: How exposed is Caterpillar to tariffs?

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Speaker 3: I mean there are some tariffs in place, and there

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Speaker 3: is on a daily basis, threats of new tariffs being

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Speaker 3: put in place.

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Speaker 10: Yeah, if you want to pick apart one negative in

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Speaker 10: the quarter, it was the tariffs. They did come in

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Speaker 10: a little bit higher than we expected, and it continues

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Speaker 10: to weigh on margins, particularly in the construction and mining businesses.

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Speaker 10: Tariffs and aggregate we're roughly a one point seven billion

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Speaker 10: dollar headwind in twenty twenty five. That's going to step

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Speaker 10: up in twenty twenty six to about two point six billion.

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Speaker 10: We've really seen Caterpillar with kind of hesitant to push

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Speaker 10: price to start to offset these I think that's really

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Speaker 10: been a concerted effort to try to gain market share,

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Speaker 10: particularly as we are at a softer part in the cycle.

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Speaker 10: I think pricing is going to become much more of

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Speaker 10: a contributor as we look into twenty six. Right now,

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Speaker 10: they're guidding to about a two percent contribution on the

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Speaker 10: pricing side, but I won't be surprised to see that

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Speaker 10: go a little bit higher, particularly as some of their

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Speaker 10: end markets start to recover.

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Speaker 4: Those front loaders, dump trucks, all that kind of stuff.

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Speaker 4: Where do they actually manufacture this stuff.

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Speaker 9: All over the world? Right?

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Speaker 10: They are the largest equipment producer globally. They have a

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Speaker 10: pretty extensive manufacturing footprint here in North America, but it

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Speaker 10: is a very global business and they certainly have a

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Speaker 10: market leadership position in most of the products that they sell.

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Speaker 3: I know, we'd like to look at Caterpillar as kind

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Speaker 3: of this barometer for global GDP because it's so exposed

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Speaker 3: to all over the world. Did the company say anything

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Speaker 3: in regards to what it is anticipating for growth for

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Speaker 3: this year, like hotspots and maybe slower parts of the world.

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Speaker 9: Yeah.

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Speaker 10: So they put out back in November at their analyst

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Speaker 10: a a five to seven percent revenue cag or target

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Speaker 10: through the end of the decade. They're kind of guiding

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Speaker 10: us to twenty six, being kind of towards the top

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Speaker 10: end of that range. So think, you know, seven percent

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Speaker 10: plus type growth. We actually think that might end up

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Speaker 10: being a little conservative, just given the strength that we're

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Speaker 10: seeing in the order book, just given that the backlock

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Speaker 10: continues to sit at a record level. So we have

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Speaker 10: really extended production visibility here for twenty twenty six. So

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Speaker 10: I actually think that outlook could be a little bit conservative,

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Speaker 10: particularly as we continue to see a lot of their

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Speaker 10: end markets come off to draw.

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