WEBVTT - Microsoft Forecasts Show Data Center Crunch Persisting Into 2026 

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

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<v Speaker 2>Speaking of technology, piece of news out, I thought it

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<v Speaker 2>was really interesting Scarlett Microsoft saying, hey, we're not gonna

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<v Speaker 2>have as much I guess data center capacity as we thought.

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<v Speaker 2>We're not going to have as much as we need

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

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<v Speaker 2>as Jay was just pointing out, there's lots of ways

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

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<v Speaker 2>not just the tech stack.

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<v Speaker 3>But there's still logjams nonetheless.

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

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<v Speaker 2>with our good friends at Microsoft. On rog Rana joins

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<v Speaker 2>this technology analyst for Bloomberg Intelligence. Again, what do you

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<v Speaker 2>make of this Microsoft news anorog that they say, you know,

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<v Speaker 2>data center crunch is going to persist into twenty twenty six.

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<v Speaker 4>Yeah, you know, Microsoft talked about a little bit of

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<v Speaker 4>this in the earning scoll about let's say twelve months

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<v Speaker 4>ago and then they said things are easy or things

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<v Speaker 4>are improving, and it does have an impact on their

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<v Speaker 4>cloud business growth rate when things are night Now this news,

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<v Speaker 4>I think it was an excellent article written by Bloomberg News,

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<v Speaker 4>and you know, it gives us a lot of things

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<v Speaker 4>to think about as to what's going to happen over

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<v Speaker 4>the next twelve to eighteen months. We think capex could

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<v Speaker 4>go up, we think cloud realization of the rates could

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<v Speaker 4>go down. And you know, the AI boom is going

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<v Speaker 4>to continue, or the AI infrastructure boom is going to continue,

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<v Speaker 4>because if Microsoft needs more capacity, it's going to go

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<v Speaker 4>to people like Corevive, Nevia's Oracle, They're going to go

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<v Speaker 4>to their you know, companies that they work with to

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<v Speaker 4>create the data centers. And then you know the downstream

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<v Speaker 4>effect of that. So positive news for the AI infrastructure space,

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<v Speaker 4>but maybe has an impact on Microsoft's cloud growth rate.

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<v Speaker 3>Does it have an impact on Microsoft's well and how

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<v Speaker 3>will that show up in the earnings when the company reports.

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<v Speaker 4>Yeah, I think it can have an impact on their

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<v Speaker 4>gross margins. You may see it take down. They they

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<v Speaker 4>have said that, you know that their next financial years,

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<v Speaker 4>the next fiscal year they're going to spend more on

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<v Speaker 4>capex than last year, but the rate of growth is

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

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<v Speaker 4>so you can drive a big truck in that particular

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<v Speaker 4>range because they are giving themselves the flexibility to say that.

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<v Speaker 4>One could argue that the year after that now they're

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

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<v Speaker 4>that really, you know, has an impact on the entire cycle.

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<v Speaker 4>So that means Oracle has to spend more, That means

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<v Speaker 4>Meta has to spend more, Amazon has to spend more,

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<v Speaker 4>and that that you know, continues this big boom of

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<v Speaker 4>all the downstream companies. We have anything from chips to

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<v Speaker 4>you know, data center cooling and water, et cetera.

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<v Speaker 2>What inning on do you think we are in this

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<v Speaker 2>AI tech build out?

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<v Speaker 4>I think we're in a fairly early innings because unlike

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<v Speaker 4>software coding or you could say, you know, the buildout

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<v Speaker 4>of a new e commerce website, this one's going to

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<v Speaker 4>take some time because every data center takes a long

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<v Speaker 4>time to come up. I mean from breaking ground, getting permits,

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<v Speaker 4>to getting power to actually building it and putting it together.

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<v Speaker 4>I mean, it takes a few years for that to

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<v Speaker 4>build out. So I do not see any reason why

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<v Speaker 4>in five to seven years we'll still not be talking

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<v Speaker 4>about this topic.

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<v Speaker 3>You know, when we come back to this data center

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<v Speaker 3>crunch for Microsoft, is this a zero sum game where

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<v Speaker 3>it's Microsoft's loss for now in the short term as

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<v Speaker 3>it builds these things out, and it's competitors gain. And

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<v Speaker 3>if so, what are the names that are likely to

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<v Speaker 3>be most able to benefit.

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

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<v Speaker 4>So the crunch that they are having, I bet the

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<v Speaker 4>same thing is happening with Google, same thing is happening

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<v Speaker 4>with Meta and Amazon. They are all going out to

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<v Speaker 4>these third party neocloud providers to see wherever they can

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<v Speaker 4>find capacity, and at the end of the day, whoever

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<v Speaker 4>has any capacity left, you know they will find a

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<v Speaker 4>customer from one of these large vendors. Because what not

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<v Speaker 4>only what they're doing is selling products to the third

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<v Speaker 4>parties outside their internal processes, they are actually improving it

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<v Speaker 4>as well. Somebody like a Meta, They really are improving

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<v Speaker 4>their ads to add business because of AI, and they

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<v Speaker 4>need more capacity because of that as well.

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<v Speaker 2>Earnings will be kicking off the season next week for

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<v Speaker 2>the banks, and then we'll get the tech companies a

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<v Speaker 2>little bit later. What are you going to be listening

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<v Speaker 2>for anaag during this earning cycle for your tech names.

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

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<v Speaker 4>going to see actual drop in discretionary spending, so any

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<v Speaker 4>of the consulting names that they're not going to have

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<v Speaker 4>a good time. Any of the traditional software names, even

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<v Speaker 4>SaaS names, they're not going to have a good time

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<v Speaker 4>because subscription growth is going to slow down. But on

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<v Speaker 4>the other side, you know, somebody like a code Weave

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<v Speaker 4>or an Oracle or a Microsoft, they will talk about

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<v Speaker 4>more bookings. Oracle is not going to report in this

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<v Speaker 4>particular running season, but a month after that, I think

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<v Speaker 4>they will all see a good increase in the backlog

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<v Speaker 4>or the order book. But the rest of the space,

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<v Speaker 4>I think is going to struggle.

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<v Speaker 3>Once upon a time, a lot of the companies benefited

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<v Speaker 3>from the end of the year rush to use up

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<v Speaker 3>the IT budget. You know, every company had a certain

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<v Speaker 3>amount of money allotted to spending on IT, and a

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<v Speaker 3>lot of times companies didn't get around using it until

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<v Speaker 3>the fourth quarter, and then they would do so in

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<v Speaker 3>a big rush. Do you see that happening this time around?

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<v Speaker 4>Yes, it would happen, but only happen on the AI

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<v Speaker 4>side of things, the non A side of the tech spending.

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<v Speaker 4>I think that's still going to struggle. We may not

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<v Speaker 4>have a resolution of that till the global macro environment improves.

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<v Speaker 4>Still we have a resolution between US China trade war

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<v Speaker 4>till we know what's happening to interest rate. I think

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<v Speaker 4>that part of the equation is going to struggle.

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

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<v Speaker 3>course is affected by tariffs directly, and that is the

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<v Speaker 3>auto sector. Steve Man is Bloomberg Intelligence Global Autos and

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<v Speaker 3>Industrials research analysts, and he joins us down to talk

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<v Speaker 3>about Stilantis Silantis.

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<v Speaker 5>It's Chrysler, right, Paul, Jeep, Chrysler, all those good perds.

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<v Speaker 4>Okay, I'll just get to us.

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<v Speaker 3>Because I see Stilantis, I'm like, what company is this?

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<v Speaker 4>I don't get it.

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

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<v Speaker 3>led by rise in North America, so there is a

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<v Speaker 3>bit of a recovery here after the carmaker has been

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<v Speaker 3>working down inventory in the US.

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<v Speaker 5>Steve, thanks for joining us.

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<v Speaker 3>Let's talk a little bit about Stilantis and how sensitive

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<v Speaker 3>vulnerable it is to President Trump's tariffs.

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<v Speaker 5>Yeah.

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<v Speaker 6>I think they are very sensitive to tariffs. But I

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<v Speaker 6>think a lot of the impact on companies like Stillentis

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<v Speaker 6>and the Detroit Trio is really their operations in Mexico

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<v Speaker 6>and Canada. I think Trump is looking for them to

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<v Speaker 6>actually move some of those production back into the US

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

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<v Speaker 6>a lot of rhetoric and a lot of you know,

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<v Speaker 6>potential changes. Changes are impending, but I think for now,

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<v Speaker 6>auto tariffs has been pretty quiet, and I don't think

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<v Speaker 6>you know, the Trump you know, the tweets are going

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<v Speaker 6>to impact the Detroit three.

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<v Speaker 2>So where are we in terms of implementing tariffs on

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<v Speaker 2>Auto's just incoming and outcoming in the US.

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<v Speaker 5>We're already actually being loving at the moment.

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

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<v Speaker 6>lot of news on and you know companies moving production

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<v Speaker 6>back to the US. GM have moved some of their

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<v Speaker 6>Silverado production, one of the highest profit vehicles, you know,

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<v Speaker 6>from from Canada back to the US. So we're hearing

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<v Speaker 6>that from four and some other automakers. You know, Hyundai

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<v Speaker 6>is investing a lot in the US, you know, likely

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<v Speaker 6>to move some of the production from South Korea into

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<v Speaker 6>the US. So we are already starting to hear and

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<v Speaker 6>see the effects of those auto tariffs.

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<v Speaker 3>See, this might be an unanswerable question, but with companies

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<v Speaker 3>making the moves to do that, this will take a

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<v Speaker 3>long time. This is a multi year process, right. You

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

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<v Speaker 3>happens the next day. Is just saying that you're going

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<v Speaker 3>to do that enough to appease the administration?

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<v Speaker 6>Well, it's it's I look at it as a two

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<v Speaker 6>phase process. There's what I call low hanging fruits. So

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<v Speaker 6>you know, for example, I gave earlier on the really

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<v Speaker 6>Silverado that GYM shifted to back to the US. You know,

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<v Speaker 6>if they have spare capacity, uh in the US, that's

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<v Speaker 6>that's a no brainer. They can shift that back quickly.

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

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<v Speaker 6>to take years to kind of unravel, uh, the the

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<v Speaker 6>North American supply chain chain to focus more in the US.

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<v Speaker 6>It's going to take years because you know, plants take

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<v Speaker 6>years to build, and then you also have to bring

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<v Speaker 6>back the suppliers. The suppliers rather produce their parts near

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<v Speaker 6>the manufacturing, near the assembly plants rather than you know

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<v Speaker 6>other you know, uh in other countries where you know,

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<v Speaker 6>shipping cross could cost could be very high, so it

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<v Speaker 6>could take, if not years, a couple of decades to

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<v Speaker 6>actually turn.

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<v Speaker 5>That ship around.

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<v Speaker 2>So where is Stillans is just from a positioning perspective

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<v Speaker 2>right now relative to the other automakers out there.

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<v Speaker 6>Yees, stillent Is has been losing quite a bit of

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<v Speaker 6>market share on their high you know, the higher profit

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<v Speaker 6>vehicles like the ram trucks, the jeeps, and you know,

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<v Speaker 6>with the new CEO coming on board, you know, the

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<v Speaker 6>shift the strategy has shifted from more of achieving cost

0:10:16.760 --> 0:10:21.199
<v Speaker 6>savings from the mergers that created Silentists back in two

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<v Speaker 6>thousand and one to more of an outreach. You know,

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<v Speaker 6>how are we going to how are they going to

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<v Speaker 6>answer the demands of the consumer They really want the

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

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<v Speaker 6>that vight heav me back, and you know I they'd

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<v Speaker 6>also bring the mid sized cheep Cherokee back, which has

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<v Speaker 6>been very popular with consumers.

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<v Speaker 5>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

0:10:53.800 --> 0:10:56.320
<v Speaker 1>weekdays at ten a m. Eastern on Apple, cor Play

0:10:56.360 --> 0:10:59.320
<v Speaker 1>and Android Auto with the Bloomberg Business app. Listen on

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<v Speaker 1>on YouTube.

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<v Speaker 2>Let's talk about the consumer here. How's the consumer doing

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<v Speaker 2>out there? There's lots of ways you can kind of

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<v Speaker 2>get a sense for that. We talked to Mike Halen

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<v Speaker 2>from Bloomberg Intelligence about how the restaurant traffic is doing.

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<v Speaker 5>And we also can.

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<v Speaker 2>Talk to Lindsay Dutch. She covers the consumer hardlines retail companies.

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<v Speaker 2>She's a senior analyst of Bloomberg Intelligence.

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

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<v Speaker 5>You've got a couple of companies that.

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<v Speaker 2>Are going to be reporting earnings coming up, and what

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<v Speaker 2>do you expect from these companies?

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<v Speaker 7>Yeah, thanks Paul for having me. We are taking a

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<v Speaker 7>look at full year guidance going into the third quarter

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<v Speaker 7>earnings and of course that important holiday shopping season, and

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

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<v Speaker 7>very wide for these retailers. It's baking in a lot

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<v Speaker 7>of uncertainty surrounding the consumer. But when we look at

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<v Speaker 7>the demand trends and sort of first half results, first

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<v Speaker 7>half results were pretty solid for many of the hardline retailers,

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

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<v Speaker 7>better demand for electronics even and home furnishing, some categories

0:12:08.880 --> 0:12:11.800
<v Speaker 7>that have really been struggling. And when I look at

0:12:11.800 --> 0:12:14.040
<v Speaker 7>this guidance range, I sort of think that we might

0:12:14.040 --> 0:12:16.680
<v Speaker 7>be able to trend sort of towards the middle upper

0:12:16.760 --> 0:12:20.240
<v Speaker 7>half of the range if that demand can hang on

0:12:20.720 --> 0:12:22.800
<v Speaker 7>through the second half into twenty twenty six.

0:12:23.559 --> 0:12:26.920
<v Speaker 3>Can that demand hang on if prices increase or the

0:12:26.960 --> 0:12:30.240
<v Speaker 3>supply is limited. We're hearing again these headlines from President

0:12:30.320 --> 0:12:33.480
<v Speaker 3>Trump that there could be a massive increase of tariffs

0:12:33.480 --> 0:12:35.959
<v Speaker 3>on goods from China. Dick Sporting Goods, all to Beauty

0:12:36.040 --> 0:12:40.400
<v Speaker 3>certainly do rely on China for their supply chain. So

0:12:40.440 --> 0:12:42.800
<v Speaker 3>I'm curious whether that gets folded in.

0:12:44.120 --> 0:12:46.320
<v Speaker 7>So I think when we think about the second half,

0:12:46.559 --> 0:12:49.240
<v Speaker 7>I think a lot of that inventory is already in place,

0:12:50.160 --> 0:12:53.200
<v Speaker 7>and there have been price increases that have occurred on

0:12:53.280 --> 0:12:56.760
<v Speaker 7>that inventory. We're expecting to see that. We do think

0:12:56.840 --> 0:12:59.000
<v Speaker 7>this shopper is going to come out a lot like

0:12:59.040 --> 0:13:03.160
<v Speaker 7>they did last year, selective value focused, but they're still

0:13:03.280 --> 0:13:06.800
<v Speaker 7>willing to spend, you know, on certain things. And I

0:13:06.840 --> 0:13:08.800
<v Speaker 7>think that you know, the key draw there is, you know,

0:13:08.840 --> 0:13:13.800
<v Speaker 7>anything that's new Nintendo switch to, you know, anything exclusive

0:13:13.960 --> 0:13:16.240
<v Speaker 7>or like a premium type product, you know, which does

0:13:16.280 --> 0:13:18.880
<v Speaker 7>skew to Addict's sporting goods. I think when I think

0:13:18.920 --> 0:13:21.600
<v Speaker 7>about the risk, you know, of these headlines that we're seeing,

0:13:21.679 --> 0:13:25.839
<v Speaker 7>you know, best Buy, you know, is responding to those headlines.

0:13:26.240 --> 0:13:29.600
<v Speaker 7>I think if we see a big, much higher levey

0:13:29.720 --> 0:13:32.280
<v Speaker 7>on goods from China, you know, that's something that they're

0:13:32.280 --> 0:13:35.000
<v Speaker 7>going to have to address. In the twenty twenty six year,

0:13:35.640 --> 0:13:38.640
<v Speaker 7>they have significantly reduced their exposure, you know, of those

0:13:38.679 --> 0:13:41.160
<v Speaker 7>hardlines names we were talking about. Best Buy is probably

0:13:41.160 --> 0:13:44.800
<v Speaker 7>the most exposed thirty three percent of cogs. But it's

0:13:44.840 --> 0:13:48.480
<v Speaker 7>all indirect exposure, so it's not stuff that they're directly importing.

0:13:49.080 --> 0:13:51.760
<v Speaker 7>It's just some of the inventory that they have on hand.

0:13:53.080 --> 0:13:56.640
<v Speaker 2>Lindsay, the companies you cover, the hardline retailers, what's their

0:13:56.840 --> 0:13:58.280
<v Speaker 2>I don't know if they have a collective view of

0:13:58.280 --> 0:14:00.520
<v Speaker 2>how the consumers doing out there.

0:14:00.320 --> 0:14:01.960
<v Speaker 5>What are they telling you guys.

0:14:03.720 --> 0:14:07.720
<v Speaker 7>Yeah, again, I think they're what we've seen, and this

0:14:07.840 --> 0:14:09.960
<v Speaker 7>is sort of going back all the way, you know,

0:14:10.000 --> 0:14:13.959
<v Speaker 7>to last year's holiday season, is that newness is driving

0:14:14.040 --> 0:14:17.400
<v Speaker 7>demand and that's no matter what the category. So like

0:14:17.440 --> 0:14:21.760
<v Speaker 7>beauty electronics, we saw explosive demand for that Nintendo switch

0:14:21.880 --> 0:14:26.400
<v Speaker 7>to But even in the sporting goods market, you know,

0:14:26.680 --> 0:14:31.240
<v Speaker 7>new product or a premium type product is really drawing

0:14:31.280 --> 0:14:34.280
<v Speaker 7>that consumer in, even if it's a higher price point.

0:14:34.600 --> 0:14:38.440
<v Speaker 7>So consumers are definitely value focused, but they're making sacrifices.

0:14:38.440 --> 0:14:42.080
<v Speaker 7>They're choosing to shop value on certain things and then

0:14:42.080 --> 0:14:45.800
<v Speaker 7>they're splurging on other things. It's really hard to discern.

0:14:45.960 --> 0:14:49.320
<v Speaker 7>But like I said, we've seen improvement broadly in the

0:14:49.360 --> 0:14:54.480
<v Speaker 7>home furnishings category, also in electronics, and then beauty, which

0:14:54.560 --> 0:14:57.400
<v Speaker 7>kind of took a leg down last year, is looking

0:14:57.440 --> 0:14:58.520
<v Speaker 7>a lot better this year.

0:15:00.000 --> 0:15:01.680
<v Speaker 3>We talk a little bit about these companies and their

0:15:01.680 --> 0:15:04.360
<v Speaker 3>efforts to make sure that the consumer stays with them

0:15:04.520 --> 0:15:06.560
<v Speaker 3>no matter what happens, even if they can go to

0:15:06.600 --> 0:15:08.720
<v Speaker 3>say TJ Max and get it for cheaper, because they

0:15:08.720 --> 0:15:13.080
<v Speaker 3>have these loyalty programs that tie the consumer so closely

0:15:13.200 --> 0:15:16.200
<v Speaker 3>to their brand. Even as an aggregator, Dick Sporting Goods

0:15:16.320 --> 0:15:18.920
<v Speaker 3>does not sell its own branded merchandise. It sells Nike,

0:15:18.960 --> 0:15:21.800
<v Speaker 3>it sells New Balance, but people go back repeatedly to

0:15:21.920 --> 0:15:22.360
<v Speaker 3>the store.

0:15:23.960 --> 0:15:24.200
<v Speaker 4>Right.

0:15:24.680 --> 0:15:28.320
<v Speaker 7>Yeah, those loyalty programs, you know, for the retailers are

0:15:28.360 --> 0:15:30.400
<v Speaker 7>great because that gives them a lot of data on

0:15:30.640 --> 0:15:34.240
<v Speaker 7>their their customers that shop the most with them. You know,

0:15:34.280 --> 0:15:36.760
<v Speaker 7>I think this is where, you know, assortment matters and

0:15:36.880 --> 0:15:41.680
<v Speaker 7>exclusives matter. So, you know, Dick's smaller peer, Academy Sports,

0:15:41.720 --> 0:15:44.440
<v Speaker 7>they have not seen the growth that Dix is seeing.

0:15:44.480 --> 0:15:47.520
<v Speaker 7>And it's just because they also carry Nike, but they

0:15:47.600 --> 0:15:50.920
<v Speaker 7>might not carry the brand new Nike basketball sneakers for

0:15:51.000 --> 0:15:55.040
<v Speaker 7>the season whereas Dix does. So the assortment you really

0:15:55.080 --> 0:15:57.800
<v Speaker 7>have to dive in and look at very specifically. You

0:15:57.800 --> 0:16:00.080
<v Speaker 7>know what some of these retailers have. They have to

0:16:00.160 --> 0:16:03.240
<v Speaker 7>have that newest product. They have to have you know,

0:16:03.360 --> 0:16:05.920
<v Speaker 7>exclusive items where you can't go elsewhere to get it,

0:16:06.800 --> 0:16:09.680
<v Speaker 7>and that is really key to keeping that customer back.

0:16:09.760 --> 0:16:12.280
<v Speaker 7>I also think you know, when you have a positive

0:16:12.320 --> 0:16:15.320
<v Speaker 7>experience shopping at a retailer, you know you're going to

0:16:15.360 --> 0:16:18.640
<v Speaker 7>go back to them as well for that customer service

0:16:18.760 --> 0:16:21.040
<v Speaker 7>or whatever it is that they're providing to you that

0:16:21.400 --> 0:16:22.440
<v Speaker 7>no one else can give you.

0:16:23.040 --> 0:16:27.720
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