Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Intelligence
Speaker 1: with Alex Steel and Paul Sweeney.
Speaker 2: The real app performance has been the US corporate high yield.
Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
Speaker 2: The semiconductor business is a really cyclical business.
Speaker 1: Breaking market headlines and corporate news from across the globe.
Speaker 3: Do investors like the M and A that we've seen?
Speaker 2: These are two big time blue chip companies.
Speaker 3: The window between the peak and cut changing super fast.
Speaker 1: Bloomberg Intelligence with Alex Steel and Paul Sweeney on Bloomberg Radio.
Speaker 2: Today's Bloomberg Intelligence Show, we dig inside the big business
Speaker 2: stories impacting Wall Street and the global marketings.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll look at why Microsoft and Apple have dropped
Speaker 2: plans to take board seats at OpenAI.
Speaker 3: Plus, we'll discuss research from bloom Intelligence on ten companies
Speaker 3: to watch during the third.
Speaker 2: Quarter, But first we dive into the pharmaceutical space. This week,
Speaker 2: Eli Lilly reread to buy US gut drug maker Morphic
Speaker 2: for about three point two billion dollars.
Speaker 3: Lily will pay fifty seven dollars a share in cash,
Speaker 3: and this comes as eli Lilly's CEO, Dave Riggs, has
Speaker 3: promised more early stage deals to acquire new technologies.
Speaker 2: For more on all of this, we were joined by
Speaker 2: Sam Fazzelli, Bloomberg Intelligence, Director of Research for Global Industries
Speaker 2: and Senior Pharmaceuticals.
Speaker 3: We first asked Sam about his thoughts on this deal.
Speaker 4: This deal is about adding to their immunology franchise. Of course,
Speaker 4: everybody knows Lily for the endless the headlines that are
Speaker 4: related to GLP ones and obesity and cancer. Today we
Speaker 4: have apparently ten cancers that are not cured but risk
Speaker 4: is reduced with those types of drugs. But the reality
Speaker 4: is there's a lot more to this company before the
Speaker 4: GLP one business ballooned with regards to obesity. And one
Speaker 4: of the areas they're in is immunology or otherwise known
Speaker 4: as immunology and inflammation or inflammation and immunology I and
Speaker 4: I and I and I is also a very attractive
Speaker 4: area because these are areas where we all have issues
Speaker 4: with arthritis, psoriasis, Crow's disease, if elamentary bowel disease. All
Speaker 4: these things are stuff that we have been suffering from
Speaker 4: for years. Obsitly probably increases the risk too. So there've
Speaker 4: been a very active company in that space with three
Speaker 4: drugs four drugs on the market already and they've been
Speaker 4: doing deals adding to it.
Speaker 2: SAM three point two billion dollars is not a big,
Speaker 2: big deal for Lily, But is this typical of what
Speaker 2: we see at a big pharmer companies in terms of
Speaker 2: if they see a therapeutic or just a piece of
Speaker 2: science as interesting to them, it's better to buy than develop.
Speaker 4: Internally, I would say they're around thirty to forty percent
Speaker 4: of pharmaceutical companies pipelines comes from this type of interaction, either.
Speaker 5: An m and a deal. I e.
Speaker 4: Bought the whole thing lock stock and Barrel I license
Speaker 4: a specific product in this case.
Speaker 5: So I'm looking at Lily. We have a database.
Speaker 4: Of of course, we have the MAA function in the
Speaker 4: Bloomberg terminal, but we've taken that and dissected a little
Speaker 4: bit more and added on the BI dashboard and detail
Speaker 4: about the types of drugs that are in those deals,
Speaker 4: and MNA is one of that.
Speaker 5: So I'm looking at twelve deals that Lily has done
Speaker 5: in the.
Speaker 4: Past five years, and I'd say that only like three
Speaker 4: of them are in the cardiovascular metabolic space, I either
Speaker 4: of diabetes obesity. The rest are oncology CNS, and of
Speaker 4: course two are inflammation and immunology, and this is one
Speaker 4: of them.
Speaker 5: So now it becomes three, right because that's not quite
Speaker 5: updated yet. And they're all in that sort of range
Speaker 5: eight billion for lockso one point one eight hundred eighty million,
Speaker 5: two point four billion, So we've got a good bunch
Speaker 5: of deals and they're all in that level which the
Speaker 5: farmer company is called Bolton Acquisitions, and that's their sweet
Speaker 5: spot of M and A.
Speaker 2: See how everybody thinks that the smart people in bi
Speaker 2: pharma healthcare researcher guys people like Sam faz Elliot, that's
Speaker 2: not really the case. It's this young lady named Grace
Speaker 2: and she's crazy and she maintains a world class model
Speaker 2: that tracks the millions of drugs that are in various
Speaker 2: stages of you know, reviews around the world, and clients
Speaker 2: put huge value on that work that she does, and
Speaker 2: that allows Sam and some of the other animals to
Speaker 2: go out there and talk about these drugs. So Grace,
Speaker 2: great job.
Speaker 3: As always, we love the Paul shout out.
Speaker 4: That was awesome, so true, and he needs this particular
Speaker 4: shout out goes to another great lady who's called Mila
Speaker 4: Mila ban who's also part of our team.
Speaker 5: But nobody matches up to Grace. Of course, Grace has
Speaker 5: been in the catlist.
Speaker 4: Calendar that should I don't match up to her, nobody matches.
Speaker 5: On to her.
Speaker 3: Okay, So based on that, what are some of the
Speaker 3: cool things that are out there, like cool drugs that
Speaker 3: we should be talking about. We never get to talk
Speaker 3: to you when there's no crisis, really, so what are
Speaker 3: some cool things out there?
Speaker 4: Yeah, So obviously the OBC space, there's there's breakneck evolution
Speaker 4: of different modalities being combined, trying to make it much
Speaker 4: more focused on fat, preserving some muscle, making it work
Speaker 4: better for the liver part of the disease. And that's
Speaker 4: all going to come to fruition over the next two
Speaker 4: or three years. Oncology, as have been saying all along,
Speaker 4: is seeing amazing developments. You know, we're developing these disease hubs,
Speaker 4: as you might know, and just for lung cancer, we're
Speaker 4: developing almost thirteen different subgroupings of lung cancer, and it
Speaker 4: just shows you where treatment.
Speaker 5: Of these diseases have got to.
Speaker 4: And the same applies in inflammation and immunology, and in
Speaker 4: that space we're dealing with technology that is really cool.
Speaker 4: This particular acquisition and the one that they recently did
Speaker 4: almost exactly a year ago, called dice therapeutics are all
Speaker 4: about dealing with proteins that are very intractable to inhibition
Speaker 4: and normal drug discovery, and these two companies have developed
Speaker 4: oral drugs, small molecules that interact with these targets.
Speaker 5: The beauty of this, of course, is you remember all
Speaker 5: that worry that what.
Speaker 4: People were having about what happens with the IRA inflection
Speaker 4: reduction actions and its impact on small molecule development, because
Speaker 4: it specifically puts them out saying after nine years, irrespective
Speaker 4: of your patterns, we're going to come back in and
Speaker 4: negotiate prices. Well, here's Lily who's done two deals that
Speaker 4: are specifically small molecule deals. When the biology is interesting,
Speaker 4: when the drugs are interesting, I think the deals happen. Now,
Speaker 4: whether these will get to market or not, who knows.
Speaker 4: I mean, pharma isn't infallible when it comes.
Speaker 5: To these deals.
Speaker 4: But at this shows that when they they see something interesting,
Speaker 4: they go for it, irrespective of small or big.
Speaker 2: Molecule sam People are, for better or worse, are living
Speaker 2: longer and longer lives. Which makes every family seems like
Speaker 2: it's dealing with some type of dementia, Alzheimer's and things
Speaker 2: like that. How does the farmer industry, healthcare austry, how
Speaker 2: do they think about that? How are they kind of
Speaker 2: getting ready for that?
Speaker 5: Yeah, so you know the beginnings. Can I just give
Speaker 5: you an example.
Speaker 4: An analogue for Alzheimer's disease is obesity.
Speaker 5: We've been at this obesity.
Speaker 4: Game for a year, ten years, fifteen years, twenty years.
Speaker 4: I remember one of the old drugs from Rush Pharmaceuticals
Speaker 4: that's still around, called ally that reduced the amount of
Speaker 4: fat you absorb as you eat. Of course, what does
Speaker 4: that create? Fat left in your stomach, lubrication. I'm going
Speaker 4: to leave the rest of it to your imagination, right, So,
Speaker 4: that was the idea that was going to be helping
Speaker 4: you lose weight maybe three percent, four percent, five percent.
Speaker 4: And then it took a lot of time before somebody
Speaker 4: started discovering these things saying, oh, gosh, we can get
Speaker 4: to fifteen twenty percent. If you're a two hundred and
Speaker 4: fifty pound person, we can help you drop seventy pounds.
Speaker 5: That happened in obesity.
Speaker 4: I'm hopeful that the same happens in dementia and neurodegeneratic diseases.
Speaker 5: It's very much tougher.
Speaker 4: I mean, all biology is tough, but CNS is tougher
Speaker 4: because it's a black box. It's a disease that evolves
Speaker 4: over twenty years, thirty years, and by the time you
Speaker 4: your disease manifests, you've already had a lot of organic
Speaker 4: change to your brain. But there is the first products
Speaker 4: that are approved. With the first products approved, you do
Speaker 4: get a bit more incentive to develop the next one.
Speaker 4: Go better, go another mile further. And that's where I'm hoping.
Speaker 4: At the very least in Alzheimer's disease and Parkinson's, we're
Speaker 4: going to be going there.
Speaker 5: Other diseases are a bit tougher.
Speaker 3: Still, do you think that we'll ever have a preventative
Speaker 3: drug for Alzheimer's or just a treatment to.
Speaker 4: Delay well, I think it's very tough to prevent because
Speaker 4: how do you know who's going to get it? That
Speaker 4: means you and I especially I, because you guys are
Speaker 4: much longer than me. Paul is he's just coming out
Speaker 4: of school, right, So at what point do you start
Speaker 4: taking these drugs?
Speaker 5: Right? How do I do that? So that becomes difficult?
Speaker 5: Who pays for it?
Speaker 4: And if they're preventative, how long do I have to
Speaker 4: take them before I know?
Speaker 5: I mean, how do you even do a trial there?
Speaker 4: So don't forget though in Alzheimer's disease, you can go
Speaker 4: into the early mild dementia and try and slow down
Speaker 4: the disease. But step at the time, at a step
Speaker 4: at the time, and I think we'll have something. Might
Speaker 4: take a decade or two, but hopefully we'll have them.
Speaker 2: Is this something if we see announcements on this front,
Speaker 2: will likely be, you know, the big farmer companies that
Speaker 2: you cover, making and acquisitions of some of these smaller
Speaker 2: companies that are just focused on this one particular thing.
Speaker 4: Probably, and don't forget that also, the large farmer companies.
Speaker 4: I mean, then the two drugs that we have on
Speaker 4: the market today, let can be and I forget what
Speaker 4: the nanamaps call. It has just been approved, so I
Speaker 4: can't remember his A branded name I'm sorry, Illily. They
Speaker 4: both came from within either the farmer company or the
Speaker 4: a Japanese partner. However, in the case of the can
Speaker 4: be that came from a Scandinavian biotech So both of
Speaker 4: these are true. The question is who's got the firepower,
Speaker 4: the money to spend the billions required to develop these
Speaker 4: That's often ends up being a farmer company.
Speaker 5: It's the large farmer companies.
Speaker 3: Do you feel like, no matter who gets to be
Speaker 3: president in here in November, here in the US, are
Speaker 3: we going to see massive drug pushback? Like I realized
Speaker 3: it's probably a campaign tactic. But President Biden coming out
Speaker 3: last week and talking about how all the things were
Speaker 3: so expensive and really blaming like Novo Nordous. He wrote
Speaker 3: an app that with Bernie Sanders in USA today, what
Speaker 3: do you.
Speaker 4: Think I think this is a hot potato. I don't
Speaker 4: think they are aiming their guns at the right group
Speaker 4: of companies. I think you could always argue that drug
Speaker 4: pricing because it's the easiest thing. It's a drug that
Speaker 4: people have to buy, and it says Lily on it right, is.
Speaker 5: Difficult for some people. A lot of people can't afford them.
Speaker 4: But there's a lot of middlemen that need to be
Speaker 4: looked at to where the increasing cost comes from. And
Speaker 4: you know what, the best way to entice people to
Speaker 4: develop obcity drugs, to bring down the price, to bring
Speaker 4: up competition is to allow the market to do his job.
Speaker 4: The market will do it already. These things are not
Speaker 4: costing tenth one thousand dollars a month.
Speaker 5: We're more. You're closer to five hundred net.
Speaker 4: Let the market to the job, bring more drugs on
Speaker 4: the volume goes up, you can drop the price.
Speaker 2: Our thanks to Sam Fazzelli, Bloomberg Intelligence, director of Research
Speaker 2: for Global Industries and senior pharmaceuticals analysts.
Speaker 3: Coming up, we're going to break down Delta airline earnings
Speaker 3: and what they mean for summer travel.
Speaker 2: We're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: their research and data on two thousand companies and one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: b I go on the terminal on Paul Sweeney.
Speaker 3: And I am Alex Steel and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 3: We moved now to big tech. This week we heard
Speaker 3: that Microsoft and Apple drop plans to take board roles
Speaker 3: at open Ai.
Speaker 2: It's a surprise decision that comes as regulators in the
Speaker 2: US and Europe have expressed concerns about microsoft sway over
Speaker 2: open Ai.
Speaker 3: For more, we were joined by man Deep saying Bloomberg
Speaker 3: Intelligence and your tech industry analysts. We first asked man
Speaker 3: Deep for some more context on the story.
Speaker 6: I mean, if you roll back to last year when
Speaker 6: we had the open Ai drama, you know, the board
Speaker 6: firing Sam Altman and then open Ai adding four new members,
Speaker 6: and I think everyone so far has been just sort
Speaker 6: of interested in how open ai has evolved since then
Speaker 6: in the sense that they have even though they have
Speaker 6: added independent board members. Microsoft, you know, and now Apple
Speaker 6: probably would have joined the board. It doesn't make sense,
Speaker 6: like when you have vested interests. In the case of
Speaker 6: Micro they have a forty nine percent stake in open
Speaker 6: ai and they're the primary cloud provider for open Ai.
Speaker 6: How can you do a good job of being an
Speaker 6: independent board member and That's where you know the regulatory
Speaker 6: scrutiny comes into play, because the regulators obviously are concerned
Speaker 6: about how Microsoft bought inflection Ai, even though it wasn't
Speaker 6: an acquisition, they got all the employees of inflection Ai.
Speaker 3: Breakdown for me again, what the relationship is now with
Speaker 3: open ai and Apple versus open Ai and Microsoft.
Speaker 6: So Microsoft has a forty nine percent stake in open Ai.
Speaker 6: They made a ten billion dollar investment, and so you
Speaker 6: could argue, if you're an investor in a company, you
Speaker 6: should get a board set as a Sequoia and some
Speaker 6: other private investors that open Ai has. Apple, on the
Speaker 6: other hand, just partnered with open ai, which is going
Speaker 6: to be one of the providers of Genai model on
Speaker 6: their iOS and other devices, and so it's more of
Speaker 6: a custustomer supplier relationship if you want to call it
Speaker 6: that way. That Apple is using open ee as a supplier,
Speaker 6: why were they getting a board seat. Well, you could
Speaker 6: argue they could be an independent board member like Fijisimo
Speaker 6: is one of the board members for open Ei. She's
Speaker 6: the CEO of Instacart. Now, I think that's where the
Speaker 6: fact that these technologies are so intertwined in terms of
Speaker 6: AI being deployed on Apple devices, you could argue the
Speaker 6: independence of the board comes into question, and given how
Speaker 6: important AI ethics and guardrails and all the things that
Speaker 6: regulators care about that everyone cares about, frankly, I think
Speaker 6: the independence of the board was questionable and these companies
Speaker 6: decided to proactively not join the board, which I think
Speaker 6: is good for optics.
Speaker 2: So Microsoft is under scrutiny in Europe and by US
Speaker 2: regulators into I guess, their alleged dominance of AI. What's
Speaker 2: the view on the street about that risk to Microsoft?
Speaker 2: And I don't know because at some point maybe Apple
Speaker 2: one on it, but certainly Microsoft.
Speaker 6: I mean, the best way to look at it is
Speaker 6: these companies require a lot of compute for training their models,
Speaker 6: whether it's open ai and Tropic, any of the independent
Speaker 6: GENI model providers, they need a lot of compute. Now,
Speaker 6: in the case of Microsoft, the arrangement is really you know,
Speaker 6: full of their interest because open ai ends up using
Speaker 6: Microsoft Compute for training their models.
Speaker 2: What does that mean? What is compute?
Speaker 6: So think of all the Nvidia GPUs that open ai needs,
Speaker 6: but it's deployed on Microsoft Cloud. So if I need
Speaker 6: compute to train the models. I'm not setting up my
Speaker 6: data center and tropic open ai. They're not setting up
Speaker 6: data centers. They're using Microsoft data centers to get access
Speaker 6: to that compute. And that's where they could have gone
Speaker 6: to Amazon or Google to get that compute. The reason
Speaker 6: they're going to Microsoft is because of the you know,
Speaker 6: the stake they have and the board seed And so
Speaker 6: if you are open ai and Microsoft is sitting in
Speaker 6: that board, are you really going to pick any of
Speaker 6: the alternative cloud providers for training your models? Probably not.
Speaker 3: Do you feel like open ai will ever go public
Speaker 3: or be bought by Microsoft? Like, how does that situation
Speaker 3: play out?
Speaker 6: I mean, everyone knows their antitrust concerns around bit tech
Speaker 6: buying any of these companies, So the acquisition is definitely
Speaker 6: out of the window. And that's why the way Microsoft
Speaker 6: got all the employees of Inflection Ai, it was a
Speaker 6: pseudo acquisition. You get all of the employees, you pay
Speaker 6: six hundred million dollars, and you're not calling it an acquisition.
Speaker 6: So in the case of OpenAI, obviously that's not going
Speaker 6: to happen, but they Microsoft does have a forty nine
Speaker 6: percent stake. Google bought DeepMind for six hundred million. Now
Speaker 6: they bought it, you know, a few years back. But
Speaker 6: it just goes to show how, you know, these companies
Speaker 6: positioned themselves for the future and they end up buying
Speaker 6: a lot of the startups. So I don't see an
Speaker 6: acquisition on the cards. But my open ai is unique
Speaker 6: in the sense it's a nonprofit and then they are
Speaker 6: looking to build a business out of it. So their
Speaker 6: structure was sort of very weird to begin with. And
Speaker 6: now they had that board trouble where it was a
Speaker 6: three percent board that fired their CEO. Now they're expanding
Speaker 6: with independent board members. So I don't think they've got
Speaker 6: it right still, but at least, you know, not having
Speaker 6: Microsoft and Apple on the board is good in terms
Speaker 6: of optics. And that's what I can conclude here.
Speaker 2: Our thanks to man Deep Sing, Bloomberg Intelligence Senior Tech industry.
Speaker 3: Analyst, we moved next to the airline industry. This week.
Speaker 3: Delta Airlines reported worse than expected quarterly results, and the
Speaker 3: airline also said that domestic carriers are struggling to fill
Speaker 3: planes during the summer travel See in.
Speaker 2: For more on this. We were joined by George Ferguson,
Speaker 2: Bloomberg Intelligence Senior aerospace, defense, and airlines generalists.
Speaker 3: We first asked George for his take on Delta's recent
Speaker 3: earnings report.
Speaker 7: What we do know is that the weakest part of
Speaker 7: the business right now appears to be sort of basic
Speaker 7: economy or those economy classes, and that's weighing it down.
Speaker 7: So actually, I expect that Delta's earnings report will be
Speaker 7: better than most this quarter. So I think it'll get
Speaker 7: worse and worse as you get into the low costs
Speaker 7: and ultra low cost carriers, because again that's I think
Speaker 7: where the majority of the pain is in fairs.
Speaker 3: Yeah, because you know, going through the quarter, like corporate
Speaker 3: travel rose thirteen percent for Delta in the second quarter.
Speaker 3: Revenue from international passengers also increased, and premium products just
Speaker 3: ten percent. So basically, business people are traveling, we're going
Speaker 3: overseas and we're buying business class or first class, So
Speaker 3: like is no one going to Idaho and economy people
Speaker 3: are going.
Speaker 7: They're just they're going for lower fares right there. Load
Speaker 7: factors were great on Delta, right they were like a
Speaker 7: eighty seven percent, So they're filling airplanes as well as
Speaker 7: they filled the year prior. I think, you know, Delta
Speaker 7: will get a bit of a tailwind as business comes back.
Speaker 7: That you know, that tailwin applies that Delta United American,
Speaker 7: the big business airlines management always paints a really nice
Speaker 7: picture of how everything is going. But every market but
Speaker 7: Atlantic showed lower yields year of a year and yields
Speaker 7: the price of the customer pace per mile they fly.
Speaker 7: So to me, that's synonymous with fares. So what I
Speaker 7: saw was weaker fares that were really bad. Into Latin
Speaker 7: America down I think it was twelve percent or something
Speaker 7: like that. They're down a couple percent for the domestic market.
Speaker 7: Into Europe it was up up one percent. But if
Speaker 7: you do it on a unit revenue basis, I don't
Speaker 7: want to get too complicated about how that works, but
Speaker 7: let's just say that factors in load factors there it
Speaker 7: was down. And so what that's telling me is that
Speaker 7: they're having a harder time filling airplanes going across to
Speaker 7: Europe at the price point they want to fill. So
Speaker 7: they notched back a little bit how full those airplanes were.
Speaker 7: So I generally think, you know, from a revenue standpoint,
Speaker 7: not boting well at all for the rest of the
Speaker 7: airlines they're going to report. I didn't see any sort
Speaker 7: of silver lining, you know, for three Q. I just
Speaker 7: it looks like a weakening market to me.
Speaker 2: So talk to us about capacity out there, George. I
Speaker 2: thought that there's some capacity constraints out there which might
Speaker 2: push fares higher because maybe Boeing wasn't delivering as many
Speaker 2: aircraft that they want, maybe even airbus as well, So
Speaker 2: the airlines didn't have as many aircraft as they really needed.
Speaker 2: What is the capacity of the industry these days?
Speaker 7: Yeah, So I think that's a narrative that's definitely been
Speaker 7: going around the street, and I think that's pushed you know,
Speaker 7: some investment in airlines. So we just really we haven't
Speaker 7: seen that, right. I think there's a there's a couple
Speaker 7: of things that are kind of working against that, and
Speaker 7: I think one, I think US airlines in particular have
Speaker 7: been taking plenty of deliveries they are prioritized by by Boeing. Right,
Speaker 7: Boeing sort of lost business in China. China has been
Speaker 7: so I don't even know if China needs as many
Speaker 7: airplanes as Boeing used to send to them, but they
Speaker 7: you know, they went around and got a bunch of
Speaker 7: orders from Southwest, United Alaska and Boeing had been feeding
Speaker 7: them airplanes before we had the you know that some
Speaker 7: of the problems earlier this year with the Alaska you know.
Speaker 1: Flight you know.
Speaker 7: So that means most of the US airlines had the
Speaker 7: airplanes they expected. We saw Delta. They added I think
Speaker 7: five percent more seats and available seat miles they added
Speaker 7: eight percent. When we look at this market, we see
Speaker 7: in both two Q and three Q additions kind of
Speaker 7: in that five five percent, six percent, seven percent range
Speaker 7: for seats and domestics, seats in Latin America, seats going
Speaker 7: into Europe, and that's well above GDP growth rates. And
Speaker 7: so what I think also is going on here is
Speaker 7: if you were an airline and you thought this bounce
Speaker 7: back travel post pandemic, Hey, there's all this pent up demand,
Speaker 7: they're all going to fly this summer and it's going
Speaker 7: to be growth greater than GDP. I think you were wrong. Right.
Speaker 7: We're basically saying we think growth in travel is recoupling
Speaker 7: with GDP like it was prior to the pandemic. And
Speaker 7: you can't add five percent seats to this market. The
Speaker 7: US market isn't growing that fast.
Speaker 3: What part of any of this? And you kind of
Speaker 3: sort of answered it. It's just also tough comps because
Speaker 3: we were expecting the scenario that you just lined out.
Speaker 5: Well.
Speaker 7: I mean, another thing we've put together recently, it's on
Speaker 7: the Bloomberg terminal under a bi space AI r LN
Speaker 7: dashboard and EROG dashboard. We looked at return on invested capital.
Speaker 7: We looked at margins at US and global airlines and
Speaker 7: you know they did you know, they did better last year,
Speaker 7: but if you look at last year, those margins weren't
Speaker 7: pre pandemic margins. I mean, Delta is a bit of
Speaker 7: a standout. Their returns in invested capital are doing better
Speaker 7: than a lot of their competitors, and at Bastian called
Speaker 7: that out a bunch of times today on the call,
Speaker 7: of course, but most airlines in the US market are
Speaker 7: not getting returns in invested capitol or margins like they
Speaker 7: were in you know, prior to the pandemic. So it
Speaker 7: is a tougher copy that's coming out of the pandemic.
Speaker 7: But this is not the airline industry we saw in
Speaker 7: the past decade. And that's because we got record revenues.
Speaker 7: But those pilots took a big chunk right when they
Speaker 7: got their twenty percent increases and the airlines aren't pricing
Speaker 7: to get that back our.
Speaker 2: Thanks to George ferguson Bloomberg Intelligence, senior aerospace, defense and
Speaker 2: airlines analysts.
Speaker 3: Coming up on the program, we take a deep dive
Speaker 3: into hydrogen and why it's important as we move towards
Speaker 3: the green future.
Speaker 2: They're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: b I go on the terminal upfull Sweening.
Speaker 3: And I'm Alex Steel and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am staring on applecar Play and Android
Speaker 1: Otto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 3: Bloomberg Intelligence recently put out research on ten companies to
Speaker 3: watch for in the third quarter of twenty twenty four,
Speaker 3: and for more on the list. We were joined by
Speaker 3: Tim craighead Bloomberg Intelligence, a global Chief Content officer.
Speaker 2: Who first asked Tim about a couple of the companies
Speaker 2: we should be watching for it in three Q.
Speaker 8: I'll give you a smidge of a backdrop on this,
Speaker 8: if that's okay to put it into context. These are
Speaker 8: all part of what we call our focus ideas, which
Speaker 8: is a list of companies that we have a strong
Speaker 8: point of view on fundamentally that we think is different
Speaker 8: from what the market currently believes, and there's catalysts ahead
Speaker 8: to hopefully turn the market towards our view. The thing
Speaker 8: that sets these ten off is that they all have
Speaker 8: catalysts coming up in the third quarter. A lot the
Speaker 8: ten companies to watch for this quarter, and I guess
Speaker 8: the first group that you have to start. It seems
Speaker 8: like with any conversation these days is AI, and there's
Speaker 8: certainly a couple of AI related ideas here, even though
Speaker 8: Nvidia is not on the list. Corning.
Speaker 5: Oh interesting, visit fiber optic cable.
Speaker 8: You can't have AI going through all of these data
Speaker 8: centers if you can't connect the data centers together. And interestingly,
Speaker 8: with fiber optic cable, there was actually a down cycle
Speaker 8: over the course of the past year where there was
Speaker 8: excess inventory and this, that and the other, with some
Speaker 8: telco build related to five G that sort of has
Speaker 8: worked its way through, and we expect data center build
Speaker 8: out to really drive demand for fiber optic cables going forward,
Speaker 8: allah the potential for positive surprise. There's another one called THCHK.
Speaker 8: My guess is you've never heard of this one. It's
Speaker 8: a machinery company out at Japan and they have a
Speaker 8: fifty percent share in something called, now I'm going to
Speaker 8: make sure I pronounce it correctly, linear motion guide rails.
Speaker 8: And you're saying, what, Yeah, if if you think about
Speaker 8: how you picture semiconductors being manufactured, there's the equipment that
Speaker 8: buzzes across and etches these patterns into silicon. The rails
Speaker 8: that they run on are these things, and they have
Speaker 8: a fifty share, So.
Speaker 3: It's it's like the things.
Speaker 8: Yeah, so you know these are things that you can't
Speaker 8: do AI unless you have these things. So we're looking
Speaker 8: for those types of opportunities. You could you could draw
Speaker 8: a little bit of a further sort of second or
Speaker 8: third degree connection with Sandvik. This is another machinery company
Speaker 8: based in Scandinavia. Fifty percent of their business is mining related,
Speaker 8: and you're saying, what, well, the current hot topics these days,
Speaker 8: and mining, among others is copper, and we're seeing a
Speaker 8: capex cycle in copper. You can't dig and mine copper
Speaker 8: without Sandi's stuff, so it's another adjunct play on AI.
Speaker 5: So those are a couple of things.
Speaker 2: I like this. I mean that that's I like the
Speaker 2: way you guys are thinking about this, you know, kind
Speaker 2: of by the you know, kind of the tools of
Speaker 2: AI as supposed to be, you know, kind of the
Speaker 2: direct plays here. Another one is that I think about
Speaker 2: the Olympics in Paris this summer, and I think it's
Speaker 2: going to be just just a monster monster event. Fingers crossed.
Speaker 2: Everything goes well, but that's good for all the companies
Speaker 2: associated with the Olympics. You've got one here, Nike. Talk
Speaker 2: to us about that.
Speaker 8: Yeah, So Nike's interesting. You've got the Olympics coming up.
Speaker 8: They've got new product that's going to be displayed there
Speaker 8: and promoted there with all the advertisement and visibility that
Speaker 8: happens running shoes like the new pegasusts.
Speaker 5: There's other products as well.
Speaker 8: They've lagged for two years in innovation, and Puma and
Speaker 8: Adidas have taken share. You might remember we've talked about
Speaker 8: Adidas before where we had a focus idea that Puna
Speaker 8: mcgoyl was behind. She since closed that shifted gears towards
Speaker 8: Nike because she sees market share recovery with Nike because
Speaker 8: they finally got on board with some new innovation. So
Speaker 8: interesting story there, and I would say similarly, you could
Speaker 8: kind of throw into the same bucket Galaxy, which is
Speaker 8: one of the big casino operators in Macau who think
Speaker 8: about innovation and new product. They opened a big new
Speaker 8: phase of their Cotai based resort and they're starting to
Speaker 8: gain market share and summer is the big season for
Speaker 8: travel China. Travel is back up, and there's a big
Speaker 8: story there that again revolves around new product innovation, right time,
Speaker 8: right place.
Speaker 3: What do you also have on the list which is
Speaker 3: interesting is our age? This is restoration hardware? Is that
Speaker 3: what this is?
Speaker 5: Yeah?
Speaker 3: Okay, because the corn wasn't that good, right, and like
Speaker 3: their stuff is so expensive but in a downturn, that
Speaker 3: feels a little hard to.
Speaker 2: Swallow a discount. You can't get a sales.
Speaker 3: Okay, even the outlets store at Industry City, which is
Speaker 3: they've outlet stores in Brooklyn and stuff is just insanely expensive.
Speaker 3: You can get something for good quality that's not going
Speaker 3: to be like eight grand for like a table. I
Speaker 3: don't know.
Speaker 8: Well, so you're playing into the idea here, Alex, and
Speaker 8: I am going to date myself. I remember being an
Speaker 8: equity research salesperson back at Goldman on the day and
Speaker 8: we were doing the IPO for restoration hardware, and I
Speaker 8: remember traveling around with management. But that's another story. RH
Speaker 8: is one of our cautious ideas, along with HCA, the
Speaker 8: big US hospital company, as well as Nintendo the gaming
Speaker 8: software electronics company. We do have negative focus ideas as
Speaker 8: well as positive focus ideas. And the thing with RH
Speaker 8: management guidance and still consensus is guiding for a recovery
Speaker 8: from what you're just talking about. But now, withstanding the
Speaker 8: resilient US consumer, we still expect the recovery that's anticipated
Speaker 8: to disappoint, you know, for int, your sales last year,
Speaker 8: we're disappointing, notwithstanding the consumer, and we think a recovery
Speaker 8: is going to be delayed and expectations are going to
Speaker 8: be cut again.
Speaker 5: So that's that one.
Speaker 2: That's on the cautious side, right Yeah, Okay.
Speaker 8: Yes, indeed, I would throw out similarly in terms of
Speaker 8: we think overly optimistic expectations. And Nintendo obviously totally different story,
Speaker 8: but we all know game Boy and Switch and.
Speaker 6: Things like that.
Speaker 8: Boy yeah, yeah, going back in the day. But you
Speaker 8: know their current console is the Switch and there is
Speaker 8: a new console coming out called Switch too. And Paul,
Speaker 8: you know from your background these console stories are big deals,
Speaker 8: whether it be for Nintendo or Microsoft or what have you.
Speaker 8: This one is sort of like waiting for Goodough.
Speaker 5: We hit that point. We thought.
Speaker 8: We've been thinking they were going to announce a date,
Speaker 8: but it still is yet to come, and we think
Speaker 8: it causes room for disappointment relative to where consensus expectations
Speaker 8: are still setting our.
Speaker 2: Thanks to Tim Craig at Bloomberg Intelligence, Chief Global Content Officer,
Speaker 2: we have something here.
Speaker 3: At Bloomberg called Bloomberg New Energy Finance. The idea behind
Speaker 3: it is to provide data on commodities, power, transport, industries,
Speaker 3: buildings and agricultural plus new technology.
Speaker 2: This week we looked at hydrogen and why it's important
Speaker 2: as we move towards a green future.
Speaker 3: For more. We were joined by Martin Tangler Bloomberg, THENEF
Speaker 3: head of hydrogen Research, and we asked him first to
Speaker 3: break down what green hydrogen.
Speaker 9: Is green hydrogen is one way of producing hydrogen via electrolysis.
Speaker 9: So that's splitting water into oxygen and hydrogen using green electricity.
Speaker 9: So that's what green hydrogen is.
Speaker 2: So explain to us where the technology green hydrogen? Where
Speaker 2: are we in terms of the development of this technology.
Speaker 9: Yeah, so this is a really it's an old technology.
Speaker 9: At its core. We've used it for more than one
Speaker 9: hundred years. We've done electrolysis of breaking up water molecules
Speaker 9: into hydrogen oxygen. What's new, though, is that this time
Speaker 9: we want to use green electricity in order to reduce
Speaker 9: the emissions from the production of what's called gray hydrogen.
Speaker 9: Gray hydrogen being hydrogen made from fossil fuels without any
Speaker 9: capturing of the resulting CO two, which is how we
Speaker 9: might make the vast majority of the hydrogen today, and
Speaker 9: many countries, many governments have been incentivizing the production of
Speaker 9: green and sometimes also so called blue hydrogen that's gray
Speaker 9: with carbon capture and storage attached to that, so that
Speaker 9: we can decarbonize a deproduction of the gray hydrogen that
Speaker 9: we already produced today one hundred millions. It's a lot
Speaker 9: of hydrogen we make. And also to use hydrogen in
Speaker 9: some other sectors to decarbonize things like steel production for example,
Speaker 9: or shipping where it's really hard to do electrification.
Speaker 3: Why do we want hydrogen? It is very expensive to split.
Speaker 3: It is more expensive if you are going to split
Speaker 3: a hydrogen and oxygen using renewable energy. So why do
Speaker 3: we want it? What's the end product? So awesome?
Speaker 9: Yeah, so we want it, as I've said, in order
Speaker 9: to reduce emissions. That's the only reason honestly. Today, making
Speaker 9: green hydrogen, as you said, Alex, is more expensive than
Speaker 9: making gray hydrogen, and in turn, making gray hydrogen is
Speaker 9: more expensive than using fossil fuels because hydrogen is made
Speaker 9: gray hydroen is made from those fossil fuels. So we
Speaker 9: only use hydrogen in sectors where it is required for
Speaker 9: the chemical properties of it today, so that's production of fertilizers,
Speaker 9: things like ammonia NH three. You cannot make NH three
Speaker 9: without putting H in there. Right, same goes for all refining.
Speaker 9: You need hydrogen and for future as I've said, we're
Speaker 9: going to need it for sectors that are going to
Speaker 9: be really hard to decarbonize using electrification. For example, it's
Speaker 9: really hard to run a ship that runs across half
Speaker 9: the world on batteries, you just don't have enough batteries.
Speaker 9: Batteries are too heavy, they take up too much space.
Speaker 9: We need something denser, and one way we could do that,
Speaker 9: for example, is to combine hydrogen and nitrogen into ammonia
Speaker 9: or hydrogen carbon and oxygen into methanol and use those
Speaker 9: to power the ship instead as a more energy dense fuel.
Speaker 2: Martin Which countries or which parts of the world are
Speaker 2: leading in this green hydrogen move.
Speaker 9: This is a really hard one to say. If you
Speaker 9: ask people five years ago, they tell you it's totally
Speaker 9: Japan that's leading. Japan is the first country that had
Speaker 9: a hydrogen strategy way back when, in twenty fourteen, when
Speaker 9: nobody has even thought about hydrogen to the extent that
Speaker 9: many people are today. But now we could say the
Speaker 9: real leaders are the US and European Union and its
Speaker 9: member states. In the US, as you're probably aware, the
Speaker 9: Inflation Reduction Act was passed back in August twenty twenty two.
Speaker 9: There were some pretty generous tax credits for the production
Speaker 9: of green and blue hydrogen, and we're seeing especially the
Speaker 9: blue hydrogen projects in the US now coming through because
Speaker 9: the economics could actually work out on green It's a
Speaker 9: bit more difficult because companies are still waiting on guidance
Speaker 9: as to the rules under which they could claim these credits.
Speaker 9: In Europe, there's a lot of excitement. Europe is the
Speaker 9: one place since probably the most sincere desire to decarbonize
Speaker 9: and the strongest policies to do that. We have carbon prices,
Speaker 9: we have mandates to use hydrogen. There's very few other
Speaker 9: places where we have actual mandates that require use of
Speaker 9: hydrogen for for example, shipping or aviation. That's what we're
Speaker 9: seeing in Europe.
Speaker 3: Thanks to Martin Tangler. Bloomberg be any Head of Hydrogen
Speaker 3: Research is.
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