WEBVTT - Microsoft Drops Most Since 2020 Amid Slowing Cloud Growth 

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<v Speaker 2>Tech stops are really in focus.

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<v Speaker 3>The NASA Compson Index Paul is down two and a

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

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<v Speaker 3>really a split view here when it comes to those big,

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<v Speaker 3>big tech names.

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<v Speaker 2>And another one is on the docket tonight.

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<v Speaker 3>You've got Apple reporting this evening at four thirty pm

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<v Speaker 3>Wall Street Time, and of course we know that the

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<v Speaker 3>latest Apple iPhone came out. So this is a huge

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<v Speaker 3>quarter for the company. On o Agranta is our technology

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<v Speaker 3>analyst and he covers all things big tech.

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<v Speaker 4>Hona Microsoft here.

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<v Speaker 5>I mean it's north of a three billion, three trillion

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<v Speaker 5>dollar mark cap. Company puts up thirty eight percent, cloud

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<v Speaker 5>revenue growth, stock it down twelve percent.

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<v Speaker 4>What's going on?

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

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<v Speaker 6>last quarter the growth rate of Azure was thirty eight

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<v Speaker 6>or thirty nine. This quarter was thirty eight they've guided

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<v Speaker 6>to thirty seven to thirty eight, and that's not good

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

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<v Speaker 6>And you know, they said it on the call that

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<v Speaker 6>if they allocated all the GPUs to Azure, they would

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<v Speaker 6>have grown north to forty percent. What's happening right now

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<v Speaker 6>within Microsoft is the cloud capacity that they have built,

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<v Speaker 6>and they've done a very good job about it in

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

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<v Speaker 6>their kit helb co pilot, which is the coding agent,

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<v Speaker 6>or the the M three sixty five copilot, their Azure business,

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<v Speaker 6>and also internally for their R and D, and that

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<v Speaker 6>you if you can only have this much capacity, you

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<v Speaker 6>can you know, you will realize the revenue only on

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<v Speaker 6>the Azure side. And I think that's where the mismatch is.

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<v Speaker 6>The biggest question people are asking, is well, the capix

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<v Speaker 6>is growing in the sixties, but their cloud revenue is

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

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<v Speaker 6>to be very honest with you. You know, they know

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<v Speaker 6>what they're doing in terms of R and D for

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<v Speaker 6>future growth, but frankly, from our side, thirty eight percent

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<v Speaker 6>growth is not a bad number.

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<v Speaker 2>No, it's hard to hold your nose at that.

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<v Speaker 3>But is this a company that you know gets worried

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<v Speaker 3>about this kind of market reaction or like you said,

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<v Speaker 3>they're confident in their strategy overall. They're going to move

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<v Speaker 3>forward with this regardless of whatever message investors might be

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<v Speaker 3>trying to send.

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<v Speaker 6>No, I don't think they will change their strategy. I

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<v Speaker 6>mean they have to. They are doing whatever it is

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<v Speaker 6>right for the Microsoft product of families. They and because

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<v Speaker 6>you think about it this way, in seven years, by

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<v Speaker 6>twenty thirty two, they will lose the ip that they

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<v Speaker 6>get from Opening Eye. They need their own models by

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<v Speaker 6>that they have to have it. So if they're going

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<v Speaker 6>to put some RND dollars to take care of that,

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

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<v Speaker 6>They will be They are actually even now one of

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<v Speaker 6>the bigger beneficiaries of all the GENII spending that's out there.

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<v Speaker 6>You know, it will all come back to the cloud,

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<v Speaker 6>whether it takes a year, two years, I don't think

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<v Speaker 6>that's a that's a problem from a long term point

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<v Speaker 6>of view.

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<v Speaker 5>How about cappex, We saw a meta put a huge

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<v Speaker 5>CAPEX number up their way above where the street was

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<v Speaker 5>forecasting here from Microsoft, their CAPEX dramatically as well, up

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<v Speaker 5>sixty six percent from a year earlier. How do you

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<v Speaker 5>think about capex or how's some market thinking about capex?

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<v Speaker 6>So it depends on who's spending the capex. So when

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<v Speaker 6>we think about it, the three most important companies in

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<v Speaker 6>our view is Amazon, Google, and Microsoft because they have

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<v Speaker 6>really strong cloud business that can monetize it. How Meta

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<v Speaker 6>monetizes it, I don't know, And frankly, the reason for

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<v Speaker 6>that is because they're saying they're going to drive more

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<v Speaker 6>engagement internally with their products, but they don't have a

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<v Speaker 6>cloud business that can monetize it. Their model is not

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<v Speaker 6>being bought by Apple to put it in the operating system.

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<v Speaker 6>So I have no idea what the future for that

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<v Speaker 6>capex is. But I feel very comfortable the capex that's

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<v Speaker 6>driven by the three large hyperscale cloud providers because they

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<v Speaker 6>we know the business that they're in and where the

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<v Speaker 6>monetization is going to happen.

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<v Speaker 3>Okay, before we let you go, just a quick recap

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<v Speaker 3>of what happened with IBM good enough for an almost

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<v Speaker 3>five percent gain?

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<v Speaker 2>What were investors responding to?

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

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

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<v Speaker 6>They came at the total revenue growth was nine percent,

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<v Speaker 6>but the software division was around eleven percent, So I

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<v Speaker 6>think that's really the benefit. But think about it, Service

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

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<v Speaker 6>same thing, So it's all a matter of relative expectations,

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<v Speaker 6>you know today.

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<v Speaker 4>Same with us. More from Bloomberg Intelligence coming up after this.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

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<v Speaker 1>weekdays at ten am Eastern on Apple, Cocklay and Android

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<v Speaker 5>It's been tech here. We had a lot of tech

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<v Speaker 5>numbers after the close yesterday. One of the ones that

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<v Speaker 5>just I think surprising people is just is Microsoft and

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<v Speaker 5>we talked about that with Anorak Grana Meta.

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<v Speaker 4>We want to talk about meta as well.

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<v Speaker 5>Here men, Deep Singh joins this global tech research head

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<v Speaker 5>for Bloomberg Intelligence, joining us live here in our studio.

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<v Speaker 5>Their top line came in better than expected, gave a

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<v Speaker 5>pretty strong forecast for the current period. So from a

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<v Speaker 5>revenue perspective, the story seems very much on track, would

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<v Speaker 5>you take away, Mandy, Yeah.

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<v Speaker 7>I mean it's hard to find a business in max

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<v Speaker 7>seven that's growing thirty percent top line at the revenue

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<v Speaker 7>base that Meta is at, and that probably explains why

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<v Speaker 7>they got a green light when it comes to the

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<v Speaker 7>CAPEX increase that they had in their guide. And I

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<v Speaker 7>mean Mark was asked a number of questions around large

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<v Speaker 7>angrid models and what he's doing, and his answer was,

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<v Speaker 7>I don't have a ton of clarity in terms of

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<v Speaker 7>what those products are going to look like. All I

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<v Speaker 7>know is we have a great team, we have all

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<v Speaker 7>the compute. In fact, they're renting compute from third party

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<v Speaker 7>neocloud providers because they feel they've got a lot of

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<v Speaker 7>ideas and they'll be launching a lot of new products

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<v Speaker 7>this year. So that's what got everyone excited.

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<v Speaker 3>Right, But they didn't give any details on these new

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<v Speaker 3>products or services Person three, So I wonder is this

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<v Speaker 3>just he was able to craft a better tell, a

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<v Speaker 3>better story than he had in the quarters past.

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<v Speaker 7>Yeah, and look when you are raising your guide. So

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<v Speaker 7>consensus was twenty five percent growth for one que they

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<v Speaker 7>said will do thirty three percent at.

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<v Speaker 2>The high end but no details.

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<v Speaker 4>No, that's just core advertising, rebit core advertising.

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<v Speaker 7>And they said this quarter so they beat this quarter

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<v Speaker 7>fourth quarters print by two hundred basis points. They attributed

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<v Speaker 7>that to you know, all the AI ad conversions that

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<v Speaker 7>they are seeing in the current So without even launching

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<v Speaker 7>an LLM or a new product, they're applying AI and

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<v Speaker 7>GPU clusters to the existing ads.

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<v Speaker 2>That's the execution.

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

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<v Speaker 7>Reddit are not even able to grow twenty percent. So

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<v Speaker 7>that's the difference between you know, a company like Meta

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<v Speaker 7>and what the smaller digital ad companies are doing.

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<v Speaker 5>Can that be their AI story or does the market

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<v Speaker 5>longer term want to see new products?

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<v Speaker 7>Absolutely?

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<v Speaker 4>And what would those be?

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<v Speaker 7>Well AI assistant And there were references of you know,

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<v Speaker 7>Meta's AI is going to look different from the leading

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<v Speaker 7>frontier models like Open AI or you know Gemini, So

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<v Speaker 7>they their standalone app Meta AI doesn't have any usage

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<v Speaker 7>right now, so you compare that to a Gemini and

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<v Speaker 7>chat gipt Meta nobody uses Meta AI. But what they're

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<v Speaker 7>saying is will have something different in terms of the

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<v Speaker 7>content what you can do with Meta AI and you

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<v Speaker 7>have to take a leap of faith with marks that be.

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<v Speaker 5>Embedded in Facebook in every Graham that's what the kids

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

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<v Speaker 5>and that will be the use case.

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

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<v Speaker 7>If you have meta AI that actually works, how many

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<v Speaker 7>things a user can ask a meta AI when you are,

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<v Speaker 7>you know, reading the group notes or something like that,

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<v Speaker 7>So it can be very conversational. And that's where the

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<v Speaker 7>audio part, the text, chat pot part, all that would

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<v Speaker 7>be customized to the family of fams.

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<v Speaker 3>So when it comes to the advertising business, I wonder

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<v Speaker 3>if what Meta told us based on how it's implementing

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<v Speaker 3>AI might inform how a Snap, a Pinterest, a Yelp,

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<v Speaker 3>or Reddit might harness that technology as well, because you

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<v Speaker 3>look at the share price reaction in those stocks and

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

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<v Speaker 3>names are down I think.

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<v Speaker 7>I mean, there's nothing that's stopping a Pinterest or a

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<v Speaker 7>Snap from applying AI to their ad ecosystem, So do

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<v Speaker 7>my MI. In fact, Meta called out e commerce specifically

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<v Speaker 7>as a vertical where they're seeing the most traction in

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<v Speaker 7>terms of ad convergence, and these are companies smaller ones.

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<v Speaker 7>Pinterest is heavily exposed to e commerce, so to my mind,

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<v Speaker 7>they should come out with a print where they also

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<v Speaker 7>talk about some benefits of leveraging AI and their ads stack.

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<v Speaker 4>Stay with us. More from Bloomberg Intelligence coming up after this.

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<v Speaker 1>You're listening to the Bloomberg Intelligence Podcast. Catch us live

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<v Speaker 1>weekdays at ten am Eastern on Apple, Cocklay and Android

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<v Speaker 1>Auto with the Bloomberg Business App. Listen on demand wherever

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<v Speaker 1>you get your podcasts, or watch us live on YouTube.

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<v Speaker 4>Tesla reported numbers last night.

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<v Speaker 5>One of the things that jumped out of folks is

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<v Speaker 5>Tesla said it will spend over twenty billion dollars on

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<v Speaker 5>a dramatic reshow a factory line to ramp up production

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<v Speaker 5>of cars, batteries and robots.

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<v Speaker 4>Across the hast a dozen plans. So a lot going

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<v Speaker 4>on at Tesla as usual.

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<v Speaker 5>Let's get the latest analysis there from Steve Man, covers

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<v Speaker 5>all the auto companies globally for Bloomberg Intelligency. Stand there

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

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<v Speaker 5>you that right now. Steve, talk to us about Tesla.

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<v Speaker 5>What's going on there?

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

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<v Speaker 8>Yeah, Paul, I think the most what stood out for

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<v Speaker 8>me was really that the AI investments that they've made

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

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<v Speaker 8>and that visibility of that return is much better after

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<v Speaker 8>the call. You know, they actually codified and putting black

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<v Speaker 8>and white in their presentation the rollout plan for the Robotaxi,

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<v Speaker 8>and you know they're looking to roll out into nine

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<v Speaker 8>different cities, mostly in the South, in the first half

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<v Speaker 8>of this year.

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<v Speaker 3>Okay, so some visibility is always great when it comes

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<v Speaker 3>to Tesla because so much of the story driving Tesla

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<v Speaker 3>is Elon Musk's storytelling skills and capabilities. Here tell us

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<v Speaker 3>a little bit more about what Elon Musk said when

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<v Speaker 3>it comes to Tesla needing to build its own semiconductor factory.

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<v Speaker 3>I mean, we're just getting our head around the cars

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<v Speaker 3>and the you know, the self driving vehicles, AI robotics,

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<v Speaker 3>and now we're talking about chip making.

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<v Speaker 8>Yeah, that's that's that's the that's the Tesla business model.

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<v Speaker 8>They they are vertically integrating. They're looking at the whole

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<v Speaker 8>supply chain, whole value chain to see where they can

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<v Speaker 8>cut costs. But the other thing that you know Elon

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<v Speaker 8>must mention is geopolitics. That plays a role in why

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<v Speaker 8>they want to build their own chips. But the other

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<v Speaker 8>thing is there is a huge demand for chips across

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<v Speaker 8>the board, AI chips, memory chips. We've already are seeing

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<v Speaker 8>some shortages on memory chips in the automotive apply chain.

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

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<v Speaker 8>want to ensure there's a source and they want to

0:12:07.920 --> 0:12:11.640
<v Speaker 8>make sure that the technology stays in house and they

0:12:11.640 --> 0:12:13.600
<v Speaker 8>have control of that technology.

0:12:14.440 --> 0:12:18.600
<v Speaker 5>Optimist humanoids what is that and is that something that's

0:12:18.600 --> 0:12:20.000
<v Speaker 5>going to be material for this company.

0:12:20.840 --> 0:12:24.880
<v Speaker 8>Yeah, according to what the company's saying, they are making progress.

0:12:25.200 --> 0:12:28.560
<v Speaker 8>They're going to launch the next version of the humanoid robot.

0:12:28.600 --> 0:12:32.840
<v Speaker 8>They're actually stopping the Model S and X production in

0:12:32.920 --> 0:12:38.000
<v Speaker 8>sales it's pretty low anyway, and converting that factory to

0:12:38.200 --> 0:12:41.520
<v Speaker 8>two humanium robots. But we still think it's years away.

0:12:41.679 --> 0:12:46.680
<v Speaker 8>I think for it to be commercially viable and interest

0:12:46.720 --> 0:12:49.760
<v Speaker 8>from the marketplace, it's probably won't be until the end

0:12:49.760 --> 0:12:51.680
<v Speaker 8>of the decade, but they will use some of that

0:12:51.800 --> 0:12:53.520
<v Speaker 8>robot within their own factories.

0:12:55.360 --> 0:12:59.560
<v Speaker 3>Steve what about Tesla sinking another two billion dollars into

0:12:59.640 --> 0:13:03.520
<v Speaker 3>Elon Musk's own startup, the Xai. Have we I mean,

0:13:03.559 --> 0:13:06.079
<v Speaker 3>do people have a way of seeing whether that has

0:13:06.120 --> 0:13:08.760
<v Speaker 3>a return on that investment? I mean, is it just

0:13:08.800 --> 0:13:10.240
<v Speaker 3>money that goes that one direction.

0:13:11.320 --> 0:13:14.000
<v Speaker 8>Yeah, there seems to be a lot of confusion in

0:13:14.000 --> 0:13:16.760
<v Speaker 8>the market, but to me, it is actually a right

0:13:16.800 --> 0:13:19.840
<v Speaker 8>thing to do because, first of all, Grock, which is

0:13:19.880 --> 0:13:24.760
<v Speaker 8>part of Xai, it's already in their vehicles, operating in

0:13:24.760 --> 0:13:29.720
<v Speaker 8>their vehicles as a navigational assistant. And then as robo

0:13:29.760 --> 0:13:33.520
<v Speaker 8>Taxi rolls out, I think they want to personalize those

0:13:33.600 --> 0:13:37.880
<v Speaker 8>robal taxis, and Grock through Xai is the perfect tool

0:13:37.960 --> 0:13:41.120
<v Speaker 8>to do that. System to do that. So you know,

0:13:41.200 --> 0:13:44.960
<v Speaker 8>if this Tesla is going to use the services from Xai,

0:13:45.000 --> 0:13:46.800
<v Speaker 8>I think they need to pay for it. So two

0:13:46.840 --> 0:13:49.960
<v Speaker 8>billion dollar investment in the Xai makes sense.

0:13:51.720 --> 0:13:54.840
<v Speaker 4>Stay with us more from Bloomberg Intelligence coming up after this.

0:13:58.320 --> 0:14:01.679
<v Speaker 1>You're listening to The Bloomberg Intelli Leigion's podcast. Catch us

0:14:01.760 --> 0:14:05.160
<v Speaker 1>live weekdays at ten am Eastern on Applecarclay and Android

0:14:05.200 --> 0:14:08.480
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0:14:08.559 --> 0:14:11.680
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0:14:12.360 --> 0:14:14.720
<v Speaker 4>All right, you're looking for an AI stock. How about

0:14:14.720 --> 0:14:16.360
<v Speaker 4>this one? I bet you didn't think about this one.

0:14:16.400 --> 0:14:21.080
<v Speaker 5>Caterpillar got an earning spoost from selling power generation equipment

0:14:21.080 --> 0:14:24.840
<v Speaker 5>to AI data centers in its fourth quarter. Stocks trading

0:14:24.920 --> 0:14:26.240
<v Speaker 5>up today, it's hitting.

0:14:26.080 --> 0:14:29.240
<v Speaker 4>A fifty two week high. How about that, Chris.

0:14:29.120 --> 0:14:32.720
<v Speaker 5>Gilino, he covers a Caterpillar and all those other construction companies,

0:14:32.720 --> 0:14:37.920
<v Speaker 5>manufacturing companies, senior US machinery analysts for Bloemberg Intelligence. So, Chris,

0:14:38.000 --> 0:14:39.560
<v Speaker 5>I bet you didn't think early in your career that

0:14:39.920 --> 0:14:42.520
<v Speaker 5>Caterpillar would be a tech play. Talk to us about

0:14:42.520 --> 0:14:42.960
<v Speaker 5>their quarter.

0:14:44.200 --> 0:14:45.280
<v Speaker 9>Yeah, No, certainly not.

0:14:45.480 --> 0:14:46.840
<v Speaker 10>And you know it was one of the I think

0:14:46.880 --> 0:14:49.880
<v Speaker 10>the top performers last year in the market, and certainly

0:14:49.960 --> 0:14:53.760
<v Speaker 10>off to a good start this year quarter with solid,

0:14:53.800 --> 0:14:56.280
<v Speaker 10>you know, beats both on the top and bottom line,

0:14:56.760 --> 0:15:00.000
<v Speaker 10>really driven by higher than expected volume in their power

0:15:00.240 --> 0:15:03.720
<v Speaker 10>energy business, as you alluded to. But I think the

0:15:04.200 --> 0:15:07.000
<v Speaker 10>real standout and the takeaway this quarter was really the

0:15:07.200 --> 0:15:11.280
<v Speaker 10>unprecedented order and backlog growth that we saw. Now we

0:15:11.320 --> 0:15:13.720
<v Speaker 10>came into the quarter with backlog already sitting at a

0:15:13.760 --> 0:15:17.320
<v Speaker 10>record level, but we saw orders increase more than seventy percent,

0:15:17.360 --> 0:15:21.000
<v Speaker 10>which drove nearly a thirty percent increase sequentially in the backlog.

0:15:22.200 --> 0:15:24.600
<v Speaker 10>And what's encouraging it seems that it's pretty broad based.

0:15:24.640 --> 0:15:27.880
<v Speaker 10>It's not just the data centers and AI, it's construction

0:15:27.960 --> 0:15:31.480
<v Speaker 10>starting to contribute, mining starting to contribute. So you're really

0:15:31.560 --> 0:15:33.960
<v Speaker 10>starting to see a lot of momentum starting to build

0:15:34.080 --> 0:15:36.880
<v Speaker 10>moving into twenty six. As we get these not only

0:15:36.920 --> 0:15:40.760
<v Speaker 10>the cyclical recovery start to materialize, but also the secular

0:15:40.800 --> 0:15:42.320
<v Speaker 10>tailwinds kind of converging here.

0:15:42.800 --> 0:15:44.600
<v Speaker 3>So it sounds like a number of different drivers and

0:15:44.640 --> 0:15:47.280
<v Speaker 3>do they all move to their own timeline in terms

0:15:47.320 --> 0:15:49.800
<v Speaker 3>of that cycle, you know, they're all kind of hitting

0:15:49.800 --> 0:15:50.880
<v Speaker 3>their stride at the same time.

0:15:52.560 --> 0:15:55.440
<v Speaker 10>Yeah, I think as we go into twenty six, you

0:15:55.520 --> 0:15:58.480
<v Speaker 10>are starting to see those those cycles converge.

0:15:59.120 --> 0:16:00.880
<v Speaker 9>The more cyclical mining.

0:16:00.600 --> 0:16:03.720
<v Speaker 10>And construction businesses have kind of been bouncing.

0:16:03.320 --> 0:16:04.800
<v Speaker 9>Along trough for a couple of years.

0:16:04.840 --> 0:16:08.440
<v Speaker 10>Now we're finally starting to see some stronger order activity

0:16:08.560 --> 0:16:12.880
<v Speaker 10>and activity momentum building on the non resident and even

0:16:12.920 --> 0:16:15.720
<v Speaker 10>on the residential side. In the North America mining, you're

0:16:15.760 --> 0:16:18.720
<v Speaker 10>starting to hear of some more projects on copper and gold,

0:16:19.120 --> 0:16:22.440
<v Speaker 10>and then obviously they can't add capacity fast enough.

0:16:22.440 --> 0:16:24.560
<v Speaker 9>When it comes to power generation.

0:16:24.360 --> 0:16:26.760
<v Speaker 10>They're going to be more than doubling their large engine

0:16:26.800 --> 0:16:29.440
<v Speaker 10>capacity through the end of the decade. So that's more

0:16:29.480 --> 0:16:32.520
<v Speaker 10>of a supply constraint as we look here at least.

0:16:32.520 --> 0:16:35.800
<v Speaker 5>And then your term, Chris, So when you talk to

0:16:35.800 --> 0:16:38.840
<v Speaker 5>institutional investors about your group, do people just buy the

0:16:38.880 --> 0:16:43.480
<v Speaker 5>group ie machinery, construction and when the cycles are coming together,

0:16:43.520 --> 0:16:44.520
<v Speaker 5>and then sell them on or not?

0:16:44.680 --> 0:16:47.200
<v Speaker 4>Is that where do I have to be real bottoms

0:16:47.280 --> 0:16:48.320
<v Speaker 4>up on individual companies?

0:16:49.640 --> 0:16:52.160
<v Speaker 10>You know, it varies, and I think it is becoming

0:16:52.200 --> 0:16:56.840
<v Speaker 10>a little bit more bottom up. You know, historically, for example, trucks, right,

0:16:56.840 --> 0:16:59.440
<v Speaker 10>you'd always buy when truck orders were at their worst

0:16:59.440 --> 0:17:02.360
<v Speaker 10>and bottom that's a short cycle business. You'd kind of

0:17:02.360 --> 0:17:06.000
<v Speaker 10>pile into those names at that point in time. Agg

0:17:06.440 --> 0:17:09.400
<v Speaker 10>is a little bit idiosyncratic in terms of how those

0:17:09.400 --> 0:17:12.119
<v Speaker 10>cycles work and a little bit detached from your traditional

0:17:12.160 --> 0:17:15.400
<v Speaker 10>economic cycles in that it's more driven by crop prices

0:17:15.400 --> 0:17:19.720
<v Speaker 10>and farmer incomes and then construction equipment certainly more cyclical

0:17:19.800 --> 0:17:23.760
<v Speaker 10>GDP type play. But what you're seeing now is you're

0:17:23.800 --> 0:17:26.800
<v Speaker 10>starting to see some divergence between those names that have

0:17:27.240 --> 0:17:29.919
<v Speaker 10>the data center AI exposure like the Caterpillars in the

0:17:29.920 --> 0:17:32.640
<v Speaker 10>comings of the world, and those have really outperformed over

0:17:32.640 --> 0:17:35.840
<v Speaker 10>the last twelve months because of their exposure, where a

0:17:35.840 --> 0:17:38.000
<v Speaker 10>lot of the other machinery names just aren't as a

0:17:38.280 --> 0:17:40.600
<v Speaker 10>lever to the data center play.

0:17:41.119 --> 0:17:43.280
<v Speaker 2>How exposed is Caterpillar to tariffs?

0:17:43.359 --> 0:17:45.199
<v Speaker 3>I mean there are some tariffs in place, and there

0:17:45.240 --> 0:17:48.160
<v Speaker 3>is on a daily basis, threats of new tariffs being

0:17:48.160 --> 0:17:48.760
<v Speaker 3>put in place.

0:17:50.359 --> 0:17:54.119
<v Speaker 10>Yeah, if you want to pick apart one negative in

0:17:54.160 --> 0:17:56.240
<v Speaker 10>the quarter, it was the tariffs. They did come in

0:17:56.280 --> 0:17:58.520
<v Speaker 10>a little bit higher than we expected, and it continues

0:17:58.560 --> 0:18:01.840
<v Speaker 10>to weigh on margins, particularly in the construction and mining businesses.

0:18:02.760 --> 0:18:06.000
<v Speaker 10>Tariffs and aggregate we're roughly a one point seven billion

0:18:06.040 --> 0:18:08.960
<v Speaker 10>dollar headwind in twenty twenty five. That's going to step

0:18:09.040 --> 0:18:11.679
<v Speaker 10>up in twenty twenty six to about two point six billion.

0:18:12.520 --> 0:18:15.760
<v Speaker 10>We've really seen Caterpillar with kind of hesitant to push

0:18:15.800 --> 0:18:18.760
<v Speaker 10>price to start to offset these I think that's really

0:18:18.800 --> 0:18:21.919
<v Speaker 10>been a concerted effort to try to gain market share,

0:18:22.119 --> 0:18:24.760
<v Speaker 10>particularly as we are at a softer part in the cycle.

0:18:25.000 --> 0:18:26.639
<v Speaker 10>I think pricing is going to become much more of

0:18:26.680 --> 0:18:29.399
<v Speaker 10>a contributor as we look into twenty six. Right now,

0:18:29.440 --> 0:18:32.080
<v Speaker 10>they're guidding to about a two percent contribution on the

0:18:32.080 --> 0:18:34.399
<v Speaker 10>pricing side, but I won't be surprised to see that

0:18:34.440 --> 0:18:36.440
<v Speaker 10>go a little bit higher, particularly as some of their

0:18:36.480 --> 0:18:38.000
<v Speaker 10>end markets start to recover.

0:18:42.119 --> 0:18:44.919
<v Speaker 4>Those front loaders, dump trucks, all that kind of stuff.

0:18:44.960 --> 0:18:47.720
<v Speaker 4>Where do they actually manufacture this stuff.

0:18:48.800 --> 0:18:49.920
<v Speaker 9>All over the world? Right?

0:18:49.960 --> 0:18:53.600
<v Speaker 10>They are the largest equipment producer globally. They have a

0:18:53.640 --> 0:18:57.199
<v Speaker 10>pretty extensive manufacturing footprint here in North America, but it

0:18:57.320 --> 0:19:00.760
<v Speaker 10>is a very global business and they certainly have a

0:19:00.800 --> 0:19:03.920
<v Speaker 10>market leadership position in most of the products that they sell.

0:19:04.760 --> 0:19:06.639
<v Speaker 3>I know, we'd like to look at Caterpillar as kind

0:19:06.640 --> 0:19:10.000
<v Speaker 3>of this barometer for global GDP because it's so exposed

0:19:10.000 --> 0:19:12.760
<v Speaker 3>to all over the world. Did the company say anything

0:19:12.800 --> 0:19:15.760
<v Speaker 3>in regards to what it is anticipating for growth for

0:19:15.880 --> 0:19:19.040
<v Speaker 3>this year, like hotspots and maybe slower parts of the world.

0:19:20.440 --> 0:19:20.680
<v Speaker 9>Yeah.

0:19:20.680 --> 0:19:23.880
<v Speaker 10>So they put out back in November at their analyst

0:19:24.000 --> 0:19:27.280
<v Speaker 10>a a five to seven percent revenue cag or target

0:19:27.280 --> 0:19:30.000
<v Speaker 10>through the end of the decade. They're kind of guiding

0:19:30.040 --> 0:19:32.480
<v Speaker 10>us to twenty six, being kind of towards the top

0:19:32.560 --> 0:19:34.719
<v Speaker 10>end of that range. So think, you know, seven percent

0:19:35.080 --> 0:19:38.040
<v Speaker 10>plus type growth. We actually think that might end up

0:19:38.080 --> 0:19:41.080
<v Speaker 10>being a little conservative, just given the strength that we're

0:19:41.080 --> 0:19:43.920
<v Speaker 10>seeing in the order book, just given that the backlock

0:19:43.960 --> 0:19:45.879
<v Speaker 10>continues to sit at a record level. So we have

0:19:46.000 --> 0:19:49.959
<v Speaker 10>really extended production visibility here for twenty twenty six. So

0:19:50.080 --> 0:19:52.760
<v Speaker 10>I actually think that outlook could be a little bit conservative,

0:19:53.200 --> 0:19:55.400
<v Speaker 10>particularly as we continue to see a lot of their

0:19:55.480 --> 0:19:56.920
<v Speaker 10>end markets come off to draw.

0:19:58.160 --> 0:20:02.879
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