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

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

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Speaker 1: Eastern on Applecarclay and Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: Speaking of technology, piece of news out, I thought it

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Speaker 2: was really interesting Scarlett Microsoft saying, hey, we're not gonna

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Speaker 2: have as much I guess data center capacity as we thought.

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Speaker 2: We're not going to have as much as we need

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Speaker 2: until maybe sometime next year. It's just another data point that,

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Speaker 2: as Jay was just pointing out, there's lots of ways

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Speaker 2: to play AI. Money's being spent all throughout the economy,

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Speaker 2: not just the tech stack.

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Speaker 3: But there's still logjams nonetheless.

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Speaker 2: Yeah, still logjams nonetheless. So let's see what's going on

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Speaker 2: with our good friends at Microsoft. On rog Rana joins

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Speaker 2: this technology analyst for Bloomberg Intelligence. Again, what do you

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Speaker 2: make of this Microsoft news anorog that they say, you know,

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Speaker 2: data center crunch is going to persist into twenty twenty six.

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Speaker 4: Yeah, you know, Microsoft talked about a little bit of

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Speaker 4: this in the earning scoll about let's say twelve months

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Speaker 4: ago and then they said things are easy or things

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Speaker 4: are improving, and it does have an impact on their

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Speaker 4: cloud business growth rate when things are night Now this news,

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Speaker 4: I think it was an excellent article written by Bloomberg News,

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Speaker 4: and you know, it gives us a lot of things

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Speaker 4: to think about as to what's going to happen over

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Speaker 4: the next twelve to eighteen months. We think capex could

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Speaker 4: go up, we think cloud realization of the rates could

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Speaker 4: go down. And you know, the AI boom is going

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Speaker 4: to continue, or the AI infrastructure boom is going to continue,

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Speaker 4: because if Microsoft needs more capacity, it's going to go

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Speaker 4: to people like Corevive, Nevia's Oracle, They're going to go

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Speaker 4: to their you know, companies that they work with to

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Speaker 4: create the data centers. And then you know the downstream

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Speaker 4: effect of that. So positive news for the AI infrastructure space,

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Speaker 4: but maybe has an impact on Microsoft's cloud growth rate.

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Speaker 3: Does it have an impact on Microsoft's well and how

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Speaker 3: will that show up in the earnings when the company reports.

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Speaker 4: Yeah, I think it can have an impact on their

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Speaker 4: gross margins. You may see it take down. They they

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Speaker 4: have said that, you know that their next financial years,

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Speaker 4: the next fiscal year they're going to spend more on

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Speaker 4: capex than last year, but the rate of growth is

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Speaker 4: going to go down. Now they haven't given any figure,

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Speaker 4: so you can drive a big truck in that particular

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Speaker 4: range because they are giving themselves the flexibility to say that.

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Speaker 4: One could argue that the year after that now they're

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Speaker 4: you know, maybe they're going to spend even more. So

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Speaker 4: that really, you know, has an impact on the entire cycle.

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Speaker 4: So that means Oracle has to spend more, That means

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Speaker 4: Meta has to spend more, Amazon has to spend more,

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Speaker 4: and that that you know, continues this big boom of

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Speaker 4: all the downstream companies. We have anything from chips to

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Speaker 4: you know, data center cooling and water, et cetera.

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Speaker 2: What inning on do you think we are in this

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Speaker 2: AI tech build out?

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Speaker 4: I think we're in a fairly early innings because unlike

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Speaker 4: software coding or you could say, you know, the buildout

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Speaker 4: of a new e commerce website, this one's going to

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Speaker 4: take some time because every data center takes a long

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Speaker 4: time to come up. I mean from breaking ground, getting permits,

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Speaker 4: to getting power to actually building it and putting it together.

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Speaker 4: I mean, it takes a few years for that to

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Speaker 4: build out. So I do not see any reason why

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Speaker 4: in five to seven years we'll still not be talking

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Speaker 4: about this topic.

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Speaker 3: You know, when we come back to this data center

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Speaker 3: crunch for Microsoft, is this a zero sum game where

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Speaker 3: it's Microsoft's loss for now in the short term as

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Speaker 3: it builds these things out, and it's competitors gain. And

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Speaker 3: if so, what are the names that are likely to

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Speaker 3: be most able to benefit.

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Speaker 4: No, I don't think it's anybody's gain in this point.

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Speaker 4: So the crunch that they are having, I bet the

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Speaker 4: same thing is happening with Google, same thing is happening

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Speaker 4: with Meta and Amazon. They are all going out to

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Speaker 4: these third party neocloud providers to see wherever they can

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Speaker 4: find capacity, and at the end of the day, whoever

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Speaker 4: has any capacity left, you know they will find a

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Speaker 4: customer from one of these large vendors. Because what not

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Speaker 4: only what they're doing is selling products to the third

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Speaker 4: parties outside their internal processes, they are actually improving it

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Speaker 4: as well. Somebody like a Meta, They really are improving

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Speaker 4: their ads to add business because of AI, and they

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Speaker 4: need more capacity because of that as well.

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Speaker 2: Earnings will be kicking off the season next week for

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Speaker 2: the banks, and then we'll get the tech companies a

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Speaker 2: little bit later. What are you going to be listening

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Speaker 2: for anaag during this earning cycle for your tech names.

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Speaker 4: It's a big tale of two cities. One side, we're

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Speaker 4: going to see actual drop in discretionary spending, so any

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Speaker 4: of the consulting names that they're not going to have

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Speaker 4: a good time. Any of the traditional software names, even

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Speaker 4: SaaS names, they're not going to have a good time

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Speaker 4: because subscription growth is going to slow down. But on

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Speaker 4: the other side, you know, somebody like a code Weave

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Speaker 4: or an Oracle or a Microsoft, they will talk about

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Speaker 4: more bookings. Oracle is not going to report in this

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Speaker 4: particular running season, but a month after that, I think

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Speaker 4: they will all see a good increase in the backlog

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Speaker 4: or the order book. But the rest of the space,

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Speaker 4: I think is going to struggle.

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Speaker 3: Once upon a time, a lot of the companies benefited

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Speaker 3: from the end of the year rush to use up

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Speaker 3: the IT budget. You know, every company had a certain

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Speaker 3: amount of money allotted to spending on IT, and a

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Speaker 3: lot of times companies didn't get around using it until

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Speaker 3: the fourth quarter, and then they would do so in

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Speaker 3: a big rush. Do you see that happening this time around?

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Speaker 4: Yes, it would happen, but only happen on the AI

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Speaker 4: side of things, the non A side of the tech spending.

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Speaker 4: I think that's still going to struggle. We may not

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Speaker 4: have a resolution of that till the global macro environment improves.

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Speaker 4: Still we have a resolution between US China trade war

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Speaker 4: till we know what's happening to interest rate. I think

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Speaker 4: that part of the equation is going to struggle.

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Speaker 5: 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 3: All right, let's turn now to a sector that, of

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Speaker 3: course is affected by tariffs directly, and that is the

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Speaker 3: auto sector. Steve Man is Bloomberg Intelligence Global Autos and

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Speaker 3: Industrials research analysts, and he joins us down to talk

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Speaker 3: about Stilantis Silantis.

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Speaker 5: It's Chrysler, right, Paul, Jeep, Chrysler, all those good perds.

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Speaker 4: Okay, I'll just get to us.

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Speaker 3: Because I see Stilantis, I'm like, what company is this?

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Speaker 4: I don't get it.

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Speaker 3: In any case, it's third quarter shipment's climb to thirteen percent,

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Speaker 3: led by rise in North America, so there is a

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Speaker 3: bit of a recovery here after the carmaker has been

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Speaker 3: working down inventory in the US.

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Speaker 5: Steve, thanks for joining us.

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Speaker 3: Let's talk a little bit about Stilantis and how sensitive

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Speaker 3: vulnerable it is to President Trump's tariffs.

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Speaker 5: Yeah.

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Speaker 6: I think they are very sensitive to tariffs. But I

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Speaker 6: think a lot of the impact on companies like Stillentis

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Speaker 6: and the Detroit Trio is really their operations in Mexico

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Speaker 6: and Canada. I think Trump is looking for them to

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Speaker 6: actually move some of those production back into the US

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Speaker 6: and employing more US workers. So, I mean, there's been

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Speaker 6: a lot of rhetoric and a lot of you know,

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Speaker 6: potential changes. Changes are impending, but I think for now,

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Speaker 6: auto tariffs has been pretty quiet, and I don't think

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Speaker 6: you know, the Trump you know, the tweets are going

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Speaker 6: to impact the Detroit three.

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Speaker 2: So where are we in terms of implementing tariffs on

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Speaker 2: Auto's just incoming and outcoming in the US.

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Speaker 5: We're already actually being loving at the moment.

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Speaker 6: Yeah, it's it's happening at the moment. We've heard a

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Speaker 6: lot of news on and you know companies moving production

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Speaker 6: back to the US. GM have moved some of their

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Speaker 6: Silverado production, one of the highest profit vehicles, you know,

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Speaker 6: from from Canada back to the US. So we're hearing

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Speaker 6: that from four and some other automakers. You know, Hyundai

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Speaker 6: is investing a lot in the US, you know, likely

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Speaker 6: to move some of the production from South Korea into

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Speaker 6: the US. So we are already starting to hear and

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Speaker 6: see the effects of those auto tariffs.

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Speaker 3: See, this might be an unanswerable question, but with companies

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Speaker 3: making the moves to do that, this will take a

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Speaker 3: long time. This is a multi year process, right. You

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Speaker 3: don't just decide that you're going to reshore manufacturing. It

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Speaker 3: happens the next day. Is just saying that you're going

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Speaker 3: to do that enough to appease the administration?

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Speaker 6: Well, it's it's I look at it as a two

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Speaker 6: phase process. There's what I call low hanging fruits. So

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Speaker 6: you know, for example, I gave earlier on the really

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Speaker 6: Silverado that GYM shifted to back to the US. You know,

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Speaker 6: if they have spare capacity, uh in the US, that's

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Speaker 6: that's a no brainer. They can shift that back quickly.

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Speaker 6: But you're absolutely right. You know, longer term, it's going

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Speaker 6: to take years to kind of unravel, uh, the the

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Speaker 6: North American supply chain chain to focus more in the US.

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Speaker 6: It's going to take years because you know, plants take

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Speaker 6: years to build, and then you also have to bring

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Speaker 6: back the suppliers. The suppliers rather produce their parts near

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Speaker 6: the manufacturing, near the assembly plants rather than you know

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Speaker 6: other you know, uh in other countries where you know,

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Speaker 6: shipping cross could cost could be very high, so it

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Speaker 6: could take, if not years, a couple of decades to

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Speaker 6: actually turn.

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Speaker 5: That ship around.

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Speaker 2: So where is Stillans is just from a positioning perspective

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Speaker 2: right now relative to the other automakers out there.

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Speaker 6: Yees, stillent Is has been losing quite a bit of

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Speaker 6: market share on their high you know, the higher profit

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Speaker 6: vehicles like the ram trucks, the jeeps, and you know,

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Speaker 6: with the new CEO coming on board, you know, the

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Speaker 6: shift the strategy has shifted from more of achieving cost

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Speaker 6: savings from the mergers that created Silentists back in two

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Speaker 6: thousand and one to more of an outreach. You know,

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Speaker 6: how are we going to how are they going to

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Speaker 6: answer the demands of the consumer They really want the

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Speaker 6: v eight back, which is what they're doing to bring

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Speaker 6: that vight heav me back, and you know I they'd

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Speaker 6: also bring the mid sized cheep Cherokee back, which has

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Speaker 6: been very popular with consumers.

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Speaker 5: 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 a m. Eastern on Apple, cor Play

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Speaker 1: and Android Auto with the Bloomberg Business app. Listen on

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Speaker 1: demand wherever you get your podcasts, or watch us live

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Speaker 1: on YouTube.

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Speaker 2: Let's talk about the consumer here. How's the consumer doing

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Speaker 2: out there? There's lots of ways you can kind of

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Speaker 2: get a sense for that. We talked to Mike Halen

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Speaker 2: from Bloomberg Intelligence about how the restaurant traffic is doing.

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Speaker 5: And we also can.

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Speaker 2: Talk to Lindsay Dutch. She covers the consumer hardlines retail companies.

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Speaker 2: She's a senior analyst of Bloomberg Intelligence.

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Speaker 5: Lindsay, let's talk like, I know Dick's Sporting goods ALTA.

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Speaker 5: You've got a couple of companies that.

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Speaker 2: Are going to be reporting earnings coming up, and what

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Speaker 2: do you expect from these companies?

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Speaker 7: Yeah, thanks Paul for having me. We are taking a

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Speaker 7: look at full year guidance going into the third quarter

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Speaker 7: earnings and of course that important holiday shopping season, and

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Speaker 7: what we've noticed is, you know, the guidance ranges are very,

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Speaker 7: very wide for these retailers. It's baking in a lot

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Speaker 7: of uncertainty surrounding the consumer. But when we look at

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Speaker 7: the demand trends and sort of first half results, first

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Speaker 7: half results were pretty solid for many of the hardline retailers,

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Speaker 7: and we're seeing better demand in the beauty space, you know,

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Speaker 7: better demand for electronics even and home furnishing, some categories

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Speaker 7: that have really been struggling. And when I look at

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Speaker 7: this guidance range, I sort of think that we might

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Speaker 7: be able to trend sort of towards the middle upper

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Speaker 7: half of the range if that demand can hang on

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Speaker 7: through the second half into twenty twenty six.

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Speaker 3: Can that demand hang on if prices increase or the

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Speaker 3: supply is limited. We're hearing again these headlines from President

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Speaker 3: Trump that there could be a massive increase of tariffs

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Speaker 3: on goods from China. Dick Sporting Goods, all to Beauty

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Speaker 3: certainly do rely on China for their supply chain. So

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Speaker 3: I'm curious whether that gets folded in.

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Speaker 7: So I think when we think about the second half,

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Speaker 7: I think a lot of that inventory is already in place,

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Speaker 7: and there have been price increases that have occurred on

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Speaker 7: that inventory. We're expecting to see that. We do think

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Speaker 7: this shopper is going to come out a lot like

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Speaker 7: they did last year, selective value focused, but they're still

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Speaker 7: willing to spend, you know, on certain things. And I

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Speaker 7: think that you know, the key draw there is, you know,

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Speaker 7: anything that's new Nintendo switch to, you know, anything exclusive

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Speaker 7: or like a premium type product, you know, which does

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Speaker 7: skew to Addict's sporting goods. I think when I think

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Speaker 7: about the risk, you know, of these headlines that we're seeing,

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Speaker 7: you know, best Buy, you know, is responding to those headlines.

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Speaker 7: I think if we see a big, much higher levey

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Speaker 7: on goods from China, you know, that's something that they're

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Speaker 7: going to have to address. In the twenty twenty six year,

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Speaker 7: they have significantly reduced their exposure, you know, of those

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Speaker 7: hardlines names we were talking about. Best Buy is probably

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Speaker 7: the most exposed thirty three percent of cogs. But it's

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Speaker 7: all indirect exposure, so it's not stuff that they're directly importing.

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Speaker 7: It's just some of the inventory that they have on hand.

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Speaker 2: Lindsay, the companies you cover, the hardline retailers, what's their

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Speaker 2: I don't know if they have a collective view of

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Speaker 2: how the consumers doing out there.

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Speaker 5: What are they telling you guys.

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Speaker 7: Yeah, again, I think they're what we've seen, and this

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Speaker 7: is sort of going back all the way, you know,

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Speaker 7: to last year's holiday season, is that newness is driving

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Speaker 7: demand and that's no matter what the category. So like

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Speaker 7: beauty electronics, we saw explosive demand for that Nintendo switch

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Speaker 7: to But even in the sporting goods market, you know,

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Speaker 7: new product or a premium type product is really drawing

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Speaker 7: that consumer in, even if it's a higher price point.

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Speaker 7: So consumers are definitely value focused, but they're making sacrifices.

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Speaker 7: They're choosing to shop value on certain things and then

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Speaker 7: they're splurging on other things. It's really hard to discern.

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Speaker 7: But like I said, we've seen improvement broadly in the

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Speaker 7: home furnishings category, also in electronics, and then beauty, which

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Speaker 7: kind of took a leg down last year, is looking

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Speaker 7: a lot better this year.

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Speaker 3: We talk a little bit about these companies and their

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Speaker 3: efforts to make sure that the consumer stays with them

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Speaker 3: no matter what happens, even if they can go to

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Speaker 3: say TJ Max and get it for cheaper, because they

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Speaker 3: have these loyalty programs that tie the consumer so closely

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Speaker 3: to their brand. Even as an aggregator, Dick Sporting Goods

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Speaker 3: does not sell its own branded merchandise. It sells Nike,

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Speaker 3: it sells New Balance, but people go back repeatedly to

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Speaker 3: the store.

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Speaker 4: Right.

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Speaker 7: Yeah, those loyalty programs, you know, for the retailers are

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Speaker 7: great because that gives them a lot of data on

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Speaker 7: their their customers that shop the most with them. You know,

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Speaker 7: I think this is where, you know, assortment matters and

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Speaker 7: exclusives matter. So, you know, Dick's smaller peer, Academy Sports,

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Speaker 7: they have not seen the growth that Dix is seeing.

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Speaker 7: And it's just because they also carry Nike, but they

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Speaker 7: might not carry the brand new Nike basketball sneakers for

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Speaker 7: the season whereas Dix does. So the assortment you really

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Speaker 7: have to dive in and look at very specifically. You

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Speaker 7: know what some of these retailers have. They have to

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Speaker 7: have that newest product. They have to have you know,

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Speaker 7: exclusive items where you can't go elsewhere to get it,

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Speaker 7: and that is really key to keeping that customer back.

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Speaker 7: I also think you know, when you have a positive

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Speaker 7: experience shopping at a retailer, you know you're going to

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Speaker 7: go back to them as well for that customer service

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Speaker 7: or whatever it is that they're providing to you that

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Speaker 7: no one else can give you.

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