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Speaker 2: Tech stops are really in focus.
Speaker 3: The NASA Compson Index Paul is down two and a
Speaker 3: quarter percent. The maximum names began reporting yesterday, and it's
Speaker 3: really a split view here when it comes to those big,
Speaker 3: big tech names.
Speaker 2: And another one is on the docket tonight.
Speaker 3: You've got Apple reporting this evening at four thirty pm
Speaker 3: Wall Street Time, and of course we know that the
Speaker 3: latest Apple iPhone came out. So this is a huge
Speaker 3: quarter for the company. On o Agranta is our technology
Speaker 3: analyst and he covers all things big tech.
Speaker 4: Hona Microsoft here.
Speaker 5: I mean it's north of a three billion, three trillion
Speaker 5: dollar mark cap. Company puts up thirty eight percent, cloud
Speaker 5: revenue growth, stock it down twelve percent.
Speaker 4: What's going on?
Speaker 6: Yeah? I think that's really what you're saying is you know,
Speaker 6: last quarter the growth rate of Azure was thirty eight
Speaker 6: or thirty nine. This quarter was thirty eight they've guided
Speaker 6: to thirty seven to thirty eight, and that's not good
Speaker 6: enough for investors. So I think that's really what it is.
Speaker 6: And you know, they said it on the call that
Speaker 6: if they allocated all the GPUs to Azure, they would
Speaker 6: have grown north to forty percent. What's happening right now
Speaker 6: within Microsoft is the cloud capacity that they have built,
Speaker 6: and they've done a very good job about it in
Speaker 6: the last twelve months. They're allocating it differently, whether it's
Speaker 6: their kit helb co pilot, which is the coding agent,
Speaker 6: or the the M three sixty five copilot, their Azure business,
Speaker 6: and also internally for their R and D, and that
Speaker 6: you if you can only have this much capacity, you
Speaker 6: can you know, you will realize the revenue only on
Speaker 6: the Azure side. And I think that's where the mismatch is.
Speaker 6: The biggest question people are asking, is well, the capix
Speaker 6: is growing in the sixties, but their cloud revenue is
Speaker 6: growing on the thirty eeth. I think it's a bit silly,
Speaker 6: to be very honest with you. You know, they know
Speaker 6: what they're doing in terms of R and D for
Speaker 6: future growth, but frankly, from our side, thirty eight percent
Speaker 6: growth is not a bad number.
Speaker 2: No, it's hard to hold your nose at that.
Speaker 3: But is this a company that you know gets worried
Speaker 3: about this kind of market reaction or like you said,
Speaker 3: they're confident in their strategy overall. They're going to move
Speaker 3: forward with this regardless of whatever message investors might be
Speaker 3: trying to send.
Speaker 6: No, I don't think they will change their strategy. I
Speaker 6: mean they have to. They are doing whatever it is
Speaker 6: right for the Microsoft product of families. They and because
Speaker 6: you think about it this way, in seven years, by
Speaker 6: twenty thirty two, they will lose the ip that they
Speaker 6: get from Opening Eye. They need their own models by
Speaker 6: that they have to have it. So if they're going
Speaker 6: to put some RND dollars to take care of that,
Speaker 6: so be it. I mean, I don't think that's a problem.
Speaker 6: They will be They are actually even now one of
Speaker 6: the bigger beneficiaries of all the GENII spending that's out there.
Speaker 6: You know, it will all come back to the cloud,
Speaker 6: whether it takes a year, two years, I don't think
Speaker 6: that's a that's a problem from a long term point
Speaker 6: of view.
Speaker 5: How about cappex, We saw a meta put a huge
Speaker 5: CAPEX number up their way above where the street was
Speaker 5: forecasting here from Microsoft, their CAPEX dramatically as well, up
Speaker 5: sixty six percent from a year earlier. How do you
Speaker 5: think about capex or how's some market thinking about capex?
Speaker 6: So it depends on who's spending the capex. So when
Speaker 6: we think about it, the three most important companies in
Speaker 6: our view is Amazon, Google, and Microsoft because they have
Speaker 6: really strong cloud business that can monetize it. How Meta
Speaker 6: monetizes it, I don't know, And frankly, the reason for
Speaker 6: that is because they're saying they're going to drive more
Speaker 6: engagement internally with their products, but they don't have a
Speaker 6: cloud business that can monetize it. Their model is not
Speaker 6: being bought by Apple to put it in the operating system.
Speaker 6: So I have no idea what the future for that
Speaker 6: capex is. But I feel very comfortable the capex that's
Speaker 6: driven by the three large hyperscale cloud providers because they
Speaker 6: we know the business that they're in and where the
Speaker 6: monetization is going to happen.
Speaker 3: Okay, before we let you go, just a quick recap
Speaker 3: of what happened with IBM good enough for an almost
Speaker 3: five percent gain?
Speaker 2: What were investors responding to?
Speaker 6: Yeah, I think it's again a game of low expectations.
Speaker 6: That's where the revenue growth rate you know, was better.
Speaker 6: They came at the total revenue growth was nine percent,
Speaker 6: but the software division was around eleven percent, So I
Speaker 6: think that's really the benefit. But think about it, Service
Speaker 6: now down so big. Their growth rate was in the twenties. Microsoft,
Speaker 6: same thing, So it's all a matter of relative expectations,
Speaker 6: you know today.
Speaker 4: Same with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: It's been tech here. We had a lot of tech
Speaker 5: numbers after the close yesterday. One of the ones that
Speaker 5: just I think surprising people is just is Microsoft and
Speaker 5: we talked about that with Anorak Grana Meta.
Speaker 4: We want to talk about meta as well.
Speaker 5: Here men, Deep Singh joins this global tech research head
Speaker 5: for Bloomberg Intelligence, joining us live here in our studio.
Speaker 5: Their top line came in better than expected, gave a
Speaker 5: pretty strong forecast for the current period. So from a
Speaker 5: revenue perspective, the story seems very much on track, would
Speaker 5: you take away, Mandy, Yeah.
Speaker 7: I mean it's hard to find a business in max
Speaker 7: seven that's growing thirty percent top line at the revenue
Speaker 7: base that Meta is at, and that probably explains why
Speaker 7: they got a green light when it comes to the
Speaker 7: CAPEX increase that they had in their guide. And I
Speaker 7: mean Mark was asked a number of questions around large
Speaker 7: angrid models and what he's doing, and his answer was,
Speaker 7: I don't have a ton of clarity in terms of
Speaker 7: what those products are going to look like. All I
Speaker 7: know is we have a great team, we have all
Speaker 7: the compute. In fact, they're renting compute from third party
Speaker 7: neocloud providers because they feel they've got a lot of
Speaker 7: ideas and they'll be launching a lot of new products
Speaker 7: this year. So that's what got everyone excited.
Speaker 3: Right, But they didn't give any details on these new
Speaker 3: products or services Person three, So I wonder is this
Speaker 3: just he was able to craft a better tell, a
Speaker 3: better story than he had in the quarters past.
Speaker 7: Yeah, and look when you are raising your guide. So
Speaker 7: consensus was twenty five percent growth for one que they
Speaker 7: said will do thirty three percent at.
Speaker 2: The high end but no details.
Speaker 4: No, that's just core advertising, rebit core advertising.
Speaker 7: And they said this quarter so they beat this quarter
Speaker 7: fourth quarters print by two hundred basis points. They attributed
Speaker 7: that to you know, all the AI ad conversions that
Speaker 7: they are seeing in the current So without even launching
Speaker 7: an LLM or a new product, they're applying AI and
Speaker 7: GPU clusters to the existing ads.
Speaker 2: That's the execution.
Speaker 7: It is execution, and they're able to do it when Pinterests, Snapchat,
Speaker 7: Reddit are not even able to grow twenty percent. So
Speaker 7: that's the difference between you know, a company like Meta
Speaker 7: and what the smaller digital ad companies are doing.
Speaker 5: Can that be their AI story or does the market
Speaker 5: longer term want to see new products?
Speaker 7: Absolutely?
Speaker 4: And what would those be?
Speaker 7: Well AI assistant And there were references of you know,
Speaker 7: Meta's AI is going to look different from the leading
Speaker 7: frontier models like Open AI or you know Gemini, So
Speaker 7: they their standalone app Meta AI doesn't have any usage
Speaker 7: right now, so you compare that to a Gemini and
Speaker 7: chat gipt Meta nobody uses Meta AI. But what they're
Speaker 7: saying is will have something different in terms of the
Speaker 7: content what you can do with Meta AI and you
Speaker 7: have to take a leap of faith with marks that be.
Speaker 5: Embedded in Facebook in every Graham that's what the kids
Speaker 5: call it, the Graham instaf It'll be embedded in those apps,
Speaker 5: and that will be the use case.
Speaker 7: I mean, imagine Facebook groups, They've got so many users.
Speaker 7: If you have meta AI that actually works, how many
Speaker 7: things a user can ask a meta AI when you are,
Speaker 7: you know, reading the group notes or something like that,
Speaker 7: So it can be very conversational. And that's where the
Speaker 7: audio part, the text, chat pot part, all that would
Speaker 7: be customized to the family of fams.
Speaker 3: So when it comes to the advertising business, I wonder
Speaker 3: if what Meta told us based on how it's implementing
Speaker 3: AI might inform how a Snap, a Pinterest, a Yelp,
Speaker 3: or Reddit might harness that technology as well, because you
Speaker 3: look at the share price reaction in those stocks and
Speaker 3: it's pretty mixed. Reddit is change, but all the other
Speaker 3: names are down I think.
Speaker 7: I mean, there's nothing that's stopping a Pinterest or a
Speaker 7: Snap from applying AI to their ad ecosystem, So do
Speaker 7: my MI. In fact, Meta called out e commerce specifically
Speaker 7: as a vertical where they're seeing the most traction in
Speaker 7: terms of ad convergence, and these are companies smaller ones.
Speaker 7: Pinterest is heavily exposed to e commerce, so to my mind,
Speaker 7: they should come out with a print where they also
Speaker 7: talk about some benefits of leveraging AI and their ads stack.
Speaker 4: Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
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Speaker 4: Tesla reported numbers last night.
Speaker 5: One of the things that jumped out of folks is
Speaker 5: Tesla said it will spend over twenty billion dollars on
Speaker 5: a dramatic reshow a factory line to ramp up production
Speaker 5: of cars, batteries and robots.
Speaker 4: Across the hast a dozen plans. So a lot going
Speaker 4: on at Tesla as usual.
Speaker 5: Let's get the latest analysis there from Steve Man, covers
Speaker 5: all the auto companies globally for Bloomberg Intelligency. Stand there
Speaker 5: in Princeton, home of the best Bloomberg Lunch. I'll tell
Speaker 5: you that right now. Steve, talk to us about Tesla.
Speaker 5: What's going on there?
Speaker 4: With Elon. How's he kind of shuffling up this company?
Speaker 8: Yeah, Paul, I think the most what stood out for
Speaker 8: me was really that the AI investments that they've made
Speaker 8: in the past few years, it's actually being converted into returns,
Speaker 8: and that visibility of that return is much better after
Speaker 8: the call. You know, they actually codified and putting black
Speaker 8: and white in their presentation the rollout plan for the Robotaxi,
Speaker 8: and you know they're looking to roll out into nine
Speaker 8: different cities, mostly in the South, in the first half
Speaker 8: of this year.
Speaker 3: Okay, so some visibility is always great when it comes
Speaker 3: to Tesla because so much of the story driving Tesla
Speaker 3: is Elon Musk's storytelling skills and capabilities. Here tell us
Speaker 3: a little bit more about what Elon Musk said when
Speaker 3: it comes to Tesla needing to build its own semiconductor factory.
Speaker 3: I mean, we're just getting our head around the cars
Speaker 3: and the you know, the self driving vehicles, AI robotics,
Speaker 3: and now we're talking about chip making.
Speaker 8: Yeah, that's that's that's the that's the Tesla business model.
Speaker 8: They they are vertically integrating. They're looking at the whole
Speaker 8: supply chain, whole value chain to see where they can
Speaker 8: cut costs. But the other thing that you know Elon
Speaker 8: must mention is geopolitics. That plays a role in why
Speaker 8: they want to build their own chips. But the other
Speaker 8: thing is there is a huge demand for chips across
Speaker 8: the board, AI chips, memory chips. We've already are seeing
Speaker 8: some shortages on memory chips in the automotive apply chain.
Speaker 8: So it's not a surprise that they're going vertical. They
Speaker 8: want to ensure there's a source and they want to
Speaker 8: make sure that the technology stays in house and they
Speaker 8: have control of that technology.
Speaker 5: Optimist humanoids what is that and is that something that's
Speaker 5: going to be material for this company.
Speaker 8: Yeah, according to what the company's saying, they are making progress.
Speaker 8: They're going to launch the next version of the humanoid robot.
Speaker 8: They're actually stopping the Model S and X production in
Speaker 8: sales it's pretty low anyway, and converting that factory to
Speaker 8: two humanium robots. But we still think it's years away.
Speaker 8: I think for it to be commercially viable and interest
Speaker 8: from the marketplace, it's probably won't be until the end
Speaker 8: of the decade, but they will use some of that
Speaker 8: robot within their own factories.
Speaker 3: Steve what about Tesla sinking another two billion dollars into
Speaker 3: Elon Musk's own startup, the Xai. Have we I mean,
Speaker 3: do people have a way of seeing whether that has
Speaker 3: a return on that investment? I mean, is it just
Speaker 3: money that goes that one direction.
Speaker 8: Yeah, there seems to be a lot of confusion in
Speaker 8: the market, but to me, it is actually a right
Speaker 8: thing to do because, first of all, Grock, which is
Speaker 8: part of Xai, it's already in their vehicles, operating in
Speaker 8: their vehicles as a navigational assistant. And then as robo
Speaker 8: Taxi rolls out, I think they want to personalize those
Speaker 8: robal taxis, and Grock through Xai is the perfect tool
Speaker 8: to do that. System to do that. So you know,
Speaker 8: if this Tesla is going to use the services from Xai,
Speaker 8: I think they need to pay for it. So two
Speaker 8: billion dollar investment in the Xai makes sense.
Speaker 4: Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to The Bloomberg Intelli Leigion's podcast. Catch us
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Speaker 4: All right, you're looking for an AI stock. How about
Speaker 4: this one? I bet you didn't think about this one.
Speaker 5: Caterpillar got an earning spoost from selling power generation equipment
Speaker 5: to AI data centers in its fourth quarter. Stocks trading
Speaker 5: up today, it's hitting.
Speaker 4: A fifty two week high. How about that, Chris.
Speaker 5: Gilino, he covers a Caterpillar and all those other construction companies,
Speaker 5: manufacturing companies, senior US machinery analysts for Bloemberg Intelligence. So, Chris,
Speaker 5: I bet you didn't think early in your career that
Speaker 5: Caterpillar would be a tech play. Talk to us about
Speaker 5: their quarter.
Speaker 9: Yeah, No, certainly not.
Speaker 10: And you know it was one of the I think
Speaker 10: the top performers last year in the market, and certainly
Speaker 10: off to a good start this year quarter with solid,
Speaker 10: you know, beats both on the top and bottom line,
Speaker 10: really driven by higher than expected volume in their power
Speaker 10: energy business, as you alluded to. But I think the
Speaker 10: real standout and the takeaway this quarter was really the
Speaker 10: unprecedented order and backlog growth that we saw. Now we
Speaker 10: came into the quarter with backlog already sitting at a
Speaker 10: record level, but we saw orders increase more than seventy percent,
Speaker 10: which drove nearly a thirty percent increase sequentially in the backlog.
Speaker 10: And what's encouraging it seems that it's pretty broad based.
Speaker 10: It's not just the data centers and AI, it's construction
Speaker 10: starting to contribute, mining starting to contribute. So you're really
Speaker 10: starting to see a lot of momentum starting to build
Speaker 10: moving into twenty six. As we get these not only
Speaker 10: the cyclical recovery start to materialize, but also the secular
Speaker 10: tailwinds kind of converging here.
Speaker 3: So it sounds like a number of different drivers and
Speaker 3: do they all move to their own timeline in terms
Speaker 3: of that cycle, you know, they're all kind of hitting
Speaker 3: their stride at the same time.
Speaker 10: Yeah, I think as we go into twenty six, you
Speaker 10: are starting to see those those cycles converge.
Speaker 9: The more cyclical mining.
Speaker 10: And construction businesses have kind of been bouncing.
Speaker 9: Along trough for a couple of years.
Speaker 10: Now we're finally starting to see some stronger order activity
Speaker 10: and activity momentum building on the non resident and even
Speaker 10: on the residential side. In the North America mining, you're
Speaker 10: starting to hear of some more projects on copper and gold,
Speaker 10: and then obviously they can't add capacity fast enough.
Speaker 9: When it comes to power generation.
Speaker 10: They're going to be more than doubling their large engine
Speaker 10: capacity through the end of the decade. So that's more
Speaker 10: of a supply constraint as we look here at least.
Speaker 5: And then your term, Chris, So when you talk to
Speaker 5: institutional investors about your group, do people just buy the
Speaker 5: group ie machinery, construction and when the cycles are coming together,
Speaker 5: and then sell them on or not?
Speaker 4: Is that where do I have to be real bottoms
Speaker 4: up on individual companies?
Speaker 10: You know, it varies, and I think it is becoming
Speaker 10: a little bit more bottom up. You know, historically, for example, trucks, right,
Speaker 10: you'd always buy when truck orders were at their worst
Speaker 10: and bottom that's a short cycle business. You'd kind of
Speaker 10: pile into those names at that point in time. Agg
Speaker 10: is a little bit idiosyncratic in terms of how those
Speaker 10: cycles work and a little bit detached from your traditional
Speaker 10: economic cycles in that it's more driven by crop prices
Speaker 10: and farmer incomes and then construction equipment certainly more cyclical
Speaker 10: GDP type play. But what you're seeing now is you're
Speaker 10: starting to see some divergence between those names that have
Speaker 10: the data center AI exposure like the Caterpillars in the
Speaker 10: comings of the world, and those have really outperformed over
Speaker 10: the last twelve months because of their exposure, where a
Speaker 10: lot of the other machinery names just aren't as a
Speaker 10: lever to the data center play.
Speaker 2: How exposed is Caterpillar to tariffs?
Speaker 3: I mean there are some tariffs in place, and there
Speaker 3: is on a daily basis, threats of new tariffs being
Speaker 3: put in place.
Speaker 10: Yeah, if you want to pick apart one negative in
Speaker 10: the quarter, it was the tariffs. They did come in
Speaker 10: a little bit higher than we expected, and it continues
Speaker 10: to weigh on margins, particularly in the construction and mining businesses.
Speaker 10: Tariffs and aggregate we're roughly a one point seven billion
Speaker 10: dollar headwind in twenty twenty five. That's going to step
Speaker 10: up in twenty twenty six to about two point six billion.
Speaker 10: We've really seen Caterpillar with kind of hesitant to push
Speaker 10: price to start to offset these I think that's really
Speaker 10: been a concerted effort to try to gain market share,
Speaker 10: particularly as we are at a softer part in the cycle.
Speaker 10: I think pricing is going to become much more of
Speaker 10: a contributor as we look into twenty six. Right now,
Speaker 10: they're guidding to about a two percent contribution on the
Speaker 10: pricing side, but I won't be surprised to see that
Speaker 10: go a little bit higher, particularly as some of their
Speaker 10: end markets start to recover.
Speaker 4: Those front loaders, dump trucks, all that kind of stuff.
Speaker 4: Where do they actually manufacture this stuff.
Speaker 9: All over the world? Right?
Speaker 10: They are the largest equipment producer globally. They have a
Speaker 10: pretty extensive manufacturing footprint here in North America, but it
Speaker 10: is a very global business and they certainly have a
Speaker 10: market leadership position in most of the products that they sell.
Speaker 3: I know, we'd like to look at Caterpillar as kind
Speaker 3: of this barometer for global GDP because it's so exposed
Speaker 3: to all over the world. Did the company say anything
Speaker 3: in regards to what it is anticipating for growth for
Speaker 3: this year, like hotspots and maybe slower parts of the world.
Speaker 9: Yeah.
Speaker 10: So they put out back in November at their analyst
Speaker 10: a a five to seven percent revenue cag or target
Speaker 10: through the end of the decade. They're kind of guiding
Speaker 10: us to twenty six, being kind of towards the top
Speaker 10: end of that range. So think, you know, seven percent
Speaker 10: plus type growth. We actually think that might end up
Speaker 10: being a little conservative, just given the strength that we're
Speaker 10: seeing in the order book, just given that the backlock
Speaker 10: continues to sit at a record level. So we have
Speaker 10: really extended production visibility here for twenty twenty six. So
Speaker 10: I actually think that outlook could be a little bit conservative,
Speaker 10: particularly as we continue to see a lot of their
Speaker 10: end markets come off to draw.
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