WEBVTT - Eli Lilly, Morphic Deal, Delta Earnings 0:00:02.440 --> 0:00:11.119 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Intelligence 0:00:11.160 --> 0:00:12.879 with Alex Steel and Paul Sweeney. 0:00:13.039 --> 0:00:16.239 The real app performance has been the US corporate high yield. 0:00:16.400 --> 0:00:18.800 Are the companies lean enough? Have they trimmed all the fats? 0:00:18.840 --> 0:00:22.640 The semiconductor business is a really cyclical business. 0:00:22.120 --> 0:00:25.720 Breaking market headlines and corporate news from across the globe. 0:00:25.760 --> 0:00:28.400 Do investors like the M and A that we've seen? 0:00:28.600 --> 0:00:31.680 These are two big time blue chip companies. 0:00:31.840 --> 0:00:35.440 The window between the peak and cut changing super fast. 0:00:35.600 --> 0:00:40.200 Bloomberg Intelligence with Alex Steel and Paul Sweeney on Bloomberg Radio. 0:00:41.680 --> 0:00:44.560 Today's Bloomberg Intelligence Show, we dig inside the big business 0:00:44.560 --> 0:00:46.760 stories impacting Wall Street and the global marketings. 0:00:46.880 --> 0:00:48.800 Each and every week we provide in depth research and 0:00:48.880 --> 0:00:50.640 data on some of the two thousand companies and one 0:00:50.680 --> 0:00:53.360 hundred and thirty industries our analysts cover worldwide. 0:00:53.479 --> 0:00:55.920 Today, we'll look at why Microsoft and Apple have dropped 0:00:55.960 --> 0:00:58.360 plans to take board seats at OpenAI. 0:00:58.480 --> 0:01:01.640 Plus, we'll discuss research from bloom Intelligence on ten companies 0:01:01.640 --> 0:01:03.000 to watch during the third. 0:01:02.800 --> 0:01:06.479 Quarter, But first we dive into the pharmaceutical space. This week, 0:01:06.520 --> 0:01:10.320 Eli Lilly reread to buy US gut drug maker Morphic 0:01:10.680 --> 0:01:12.120 for about three point two billion dollars. 0:01:12.360 --> 0:01:14.920 Lily will pay fifty seven dollars a share in cash, 0:01:14.920 --> 0:01:17.920 and this comes as eli Lilly's CEO, Dave Riggs, has 0:01:17.959 --> 0:01:21.039 promised more early stage deals to acquire new technologies. 0:01:21.240 --> 0:01:22.800 For more on all of this, we were joined by 0:01:22.800 --> 0:01:26.360 Sam Fazzelli, Bloomberg Intelligence, Director of Research for Global Industries 0:01:26.400 --> 0:01:27.640 and Senior Pharmaceuticals. 0:01:27.680 --> 0:01:29.959 We first asked Sam about his thoughts on this deal. 0:01:30.400 --> 0:01:34.679 This deal is about adding to their immunology franchise. Of course, 0:01:34.720 --> 0:01:39.880 everybody knows Lily for the endless the headlines that are 0:01:40.000 --> 0:01:43.760 related to GLP ones and obesity and cancer. Today we 0:01:43.840 --> 0:01:47.200 have apparently ten cancers that are not cured but risk 0:01:47.319 --> 0:01:50.480 is reduced with those types of drugs. But the reality 0:01:50.520 --> 0:01:52.200 is there's a lot more to this company before the 0:01:52.280 --> 0:01:57.600 GLP one business ballooned with regards to obesity. And one 0:01:57.600 --> 0:01:59.960 of the areas they're in is immunology or otherwise known 0:02:00.040 --> 0:02:04.400 as immunology and inflammation or inflammation and immunology I and 0:02:04.480 --> 0:02:07.000 I and I and I is also a very attractive 0:02:07.000 --> 0:02:10.200 area because these are areas where we all have issues 0:02:10.400 --> 0:02:15.399 with arthritis, psoriasis, Crow's disease, if elamentary bowel disease. All 0:02:15.480 --> 0:02:19.280 these things are stuff that we have been suffering from 0:02:19.360 --> 0:02:23.040 for years. Obsitly probably increases the risk too. So there've 0:02:23.080 --> 0:02:25.840 been a very active company in that space with three 0:02:25.919 --> 0:02:28.480 drugs four drugs on the market already and they've been 0:02:28.480 --> 0:02:29.720 doing deals adding to it. 0:02:29.919 --> 0:02:32.359 SAM three point two billion dollars is not a big, 0:02:32.400 --> 0:02:36.239 big deal for Lily, But is this typical of what 0:02:36.280 --> 0:02:38.280 we see at a big pharmer companies in terms of 0:02:38.360 --> 0:02:41.760 if they see a therapeutic or just a piece of 0:02:41.800 --> 0:02:45.760 science as interesting to them, it's better to buy than develop. 0:02:45.800 --> 0:02:49.359 Internally, I would say they're around thirty to forty percent 0:02:49.400 --> 0:02:55.800 of pharmaceutical companies pipelines comes from this type of interaction, either. 0:02:55.600 --> 0:02:57.239 An m and a deal. I e. 0:02:57.520 --> 0:03:01.000 Bought the whole thing lock stock and Barrel I license 0:03:01.080 --> 0:03:02.679 a specific product in this case. 0:03:02.720 --> 0:03:04.920 So I'm looking at Lily. We have a database. 0:03:05.000 --> 0:03:06.720 Of of course, we have the MAA function in the 0:03:06.760 --> 0:03:11.079 Bloomberg terminal, but we've taken that and dissected a little 0:03:11.120 --> 0:03:16.120 bit more and added on the BI dashboard and detail 0:03:16.160 --> 0:03:19.040 about the types of drugs that are in those deals, 0:03:19.400 --> 0:03:20.520 and MNA is one of that. 0:03:20.600 --> 0:03:22.640 So I'm looking at twelve deals that Lily has done 0:03:22.680 --> 0:03:22.919 in the. 0:03:22.880 --> 0:03:27.800 Past five years, and I'd say that only like three 0:03:27.840 --> 0:03:31.079 of them are in the cardiovascular metabolic space, I either 0:03:31.120 --> 0:03:35.360 of diabetes obesity. The rest are oncology CNS, and of 0:03:35.400 --> 0:03:38.960 course two are inflammation and immunology, and this is one 0:03:38.960 --> 0:03:39.280 of them. 0:03:39.480 --> 0:03:42.160 So now it becomes three, right because that's not quite 0:03:42.200 --> 0:03:44.600 updated yet. And they're all in that sort of range 0:03:44.680 --> 0:03:48.600 eight billion for lockso one point one eight hundred eighty million, 0:03:48.840 --> 0:03:51.240 two point four billion, So we've got a good bunch 0:03:51.280 --> 0:03:53.920 of deals and they're all in that level which the 0:03:53.920 --> 0:03:57.160 farmer company is called Bolton Acquisitions, and that's their sweet 0:03:57.160 --> 0:03:58.000 spot of M and A. 0:03:58.160 --> 0:04:01.360 See how everybody thinks that the smart people in bi 0:04:01.880 --> 0:04:04.880 pharma healthcare researcher guys people like Sam faz Elliot, that's 0:04:04.920 --> 0:04:07.640 not really the case. It's this young lady named Grace 0:04:07.720 --> 0:04:12.360 and she's crazy and she maintains a world class model 0:04:12.400 --> 0:04:15.440 that tracks the millions of drugs that are in various 0:04:15.440 --> 0:04:19.600 stages of you know, reviews around the world, and clients 0:04:20.040 --> 0:04:23.080 put huge value on that work that she does, and 0:04:23.080 --> 0:04:25.160 that allows Sam and some of the other animals to 0:04:25.160 --> 0:04:26.760 go out there and talk about these drugs. So Grace, 0:04:27.520 --> 0:04:28.440 great job. 0:04:28.560 --> 0:04:30.160 As always, we love the Paul shout out. 0:04:30.200 --> 0:04:34.000 That was awesome, so true, and he needs this particular 0:04:34.000 --> 0:04:36.559 shout out goes to another great lady who's called Mila 0:04:36.640 --> 0:04:39.280 Mila ban who's also part of our team. 0:04:39.600 --> 0:04:42.039 But nobody matches up to Grace. Of course, Grace has 0:04:42.120 --> 0:04:43.880 been in the catlist. 0:04:43.400 --> 0:04:46.400 Calendar that should I don't match up to her, nobody matches. 0:04:46.200 --> 0:04:46.560 On to her. 0:04:46.680 --> 0:04:49.000 Okay, So based on that, what are some of the 0:04:49.040 --> 0:04:51.680 cool things that are out there, like cool drugs that 0:04:51.880 --> 0:04:53.440 we should be talking about. We never get to talk 0:04:53.480 --> 0:04:55.760 to you when there's no crisis, really, so what are 0:04:55.760 --> 0:04:56.760 some cool things out there? 0:04:57.680 --> 0:05:02.360 Yeah, So obviously the OBC space, there's there's breakneck evolution 0:05:02.920 --> 0:05:05.920 of different modalities being combined, trying to make it much 0:05:05.960 --> 0:05:09.560 more focused on fat, preserving some muscle, making it work 0:05:09.600 --> 0:05:11.920 better for the liver part of the disease. And that's 0:05:11.960 --> 0:05:14.120 all going to come to fruition over the next two 0:05:14.200 --> 0:05:16.839 or three years. Oncology, as have been saying all along, 0:05:17.200 --> 0:05:21.200 is seeing amazing developments. You know, we're developing these disease hubs, 0:05:21.240 --> 0:05:24.320 as you might know, and just for lung cancer, we're 0:05:24.320 --> 0:05:29.680 developing almost thirteen different subgroupings of lung cancer, and it 0:05:29.800 --> 0:05:32.159 just shows you where treatment. 0:05:31.760 --> 0:05:33.440 Of these diseases have got to. 0:05:33.640 --> 0:05:36.760 And the same applies in inflammation and immunology, and in 0:05:36.800 --> 0:05:40.440 that space we're dealing with technology that is really cool. 0:05:40.480 --> 0:05:43.760 This particular acquisition and the one that they recently did 0:05:44.240 --> 0:05:47.240 almost exactly a year ago, called dice therapeutics are all 0:05:47.279 --> 0:05:51.080 about dealing with proteins that are very intractable to inhibition 0:05:51.880 --> 0:05:55.680 and normal drug discovery, and these two companies have developed 0:05:55.839 --> 0:05:59.440 oral drugs, small molecules that interact with these targets. 0:06:00.000 --> 0:06:02.720 The beauty of this, of course, is you remember all 0:06:02.760 --> 0:06:03.440 that worry that what. 0:06:03.480 --> 0:06:06.960 People were having about what happens with the IRA inflection 0:06:07.080 --> 0:06:11.039 reduction actions and its impact on small molecule development, because 0:06:11.040 --> 0:06:15.160 it specifically puts them out saying after nine years, irrespective 0:06:15.160 --> 0:06:16.760 of your patterns, we're going to come back in and 0:06:16.760 --> 0:06:20.200 negotiate prices. Well, here's Lily who's done two deals that 0:06:20.320 --> 0:06:24.919 are specifically small molecule deals. When the biology is interesting, 0:06:25.000 --> 0:06:28.360 when the drugs are interesting, I think the deals happen. Now, 0:06:28.400 --> 0:06:30.520 whether these will get to market or not, who knows. 0:06:30.560 --> 0:06:33.039 I mean, pharma isn't infallible when it comes. 0:06:32.880 --> 0:06:33.680 To these deals. 0:06:34.000 --> 0:06:38.720 But at this shows that when they they see something interesting, 0:06:38.760 --> 0:06:41.200 they go for it, irrespective of small or big. 0:06:41.000 --> 0:06:44.360 Molecule sam People are, for better or worse, are living 0:06:44.640 --> 0:06:48.560 longer and longer lives. Which makes every family seems like 0:06:48.560 --> 0:06:51.640 it's dealing with some type of dementia, Alzheimer's and things 0:06:51.680 --> 0:06:54.640 like that. How does the farmer industry, healthcare austry, how 0:06:54.640 --> 0:06:57.159 do they think about that? How are they kind of 0:06:57.160 --> 0:06:57.880 getting ready for that? 0:06:59.440 --> 0:07:02.680 Yeah, so you know the beginnings. Can I just give 0:07:02.720 --> 0:07:03.320 you an example. 0:07:03.560 --> 0:07:07.040 An analogue for Alzheimer's disease is obesity. 0:07:07.560 --> 0:07:09.560 We've been at this obesity. 0:07:09.040 --> 0:07:12.720 Game for a year, ten years, fifteen years, twenty years. 0:07:12.920 --> 0:07:15.840 I remember one of the old drugs from Rush Pharmaceuticals 0:07:16.000 --> 0:07:20.360 that's still around, called ally that reduced the amount of 0:07:20.400 --> 0:07:23.600 fat you absorb as you eat. Of course, what does 0:07:23.640 --> 0:07:27.640 that create? Fat left in your stomach, lubrication. I'm going 0:07:27.680 --> 0:07:30.320 to leave the rest of it to your imagination, right, So, 0:07:30.360 --> 0:07:32.120 that was the idea that was going to be helping 0:07:32.120 --> 0:07:34.680 you lose weight maybe three percent, four percent, five percent. 0:07:35.360 --> 0:07:38.040 And then it took a lot of time before somebody 0:07:38.080 --> 0:07:40.240 started discovering these things saying, oh, gosh, we can get 0:07:40.280 --> 0:07:42.440 to fifteen twenty percent. If you're a two hundred and 0:07:42.440 --> 0:07:45.000 fifty pound person, we can help you drop seventy pounds. 0:07:45.280 --> 0:07:46.400 That happened in obesity. 0:07:46.760 --> 0:07:51.560 I'm hopeful that the same happens in dementia and neurodegeneratic diseases. 0:07:51.960 --> 0:07:53.440 It's very much tougher. 0:07:54.080 --> 0:07:57.080 I mean, all biology is tough, but CNS is tougher 0:07:57.120 --> 0:07:59.720 because it's a black box. It's a disease that evolves 0:07:59.760 --> 0:08:03.040 over twenty years, thirty years, and by the time you 0:08:03.480 --> 0:08:06.760 your disease manifests, you've already had a lot of organic 0:08:06.840 --> 0:08:09.400 change to your brain. But there is the first products 0:08:09.400 --> 0:08:12.040 that are approved. With the first products approved, you do 0:08:12.200 --> 0:08:15.200 get a bit more incentive to develop the next one. 0:08:15.400 --> 0:08:18.840 Go better, go another mile further. And that's where I'm hoping. 0:08:19.040 --> 0:08:22.040 At the very least in Alzheimer's disease and Parkinson's, we're 0:08:22.080 --> 0:08:22.840 going to be going there. 0:08:22.880 --> 0:08:24.200 Other diseases are a bit tougher. 0:08:24.240 --> 0:08:26.320 Still, do you think that we'll ever have a preventative 0:08:26.400 --> 0:08:28.600 drug for Alzheimer's or just a treatment to. 0:08:28.640 --> 0:08:32.000 Delay well, I think it's very tough to prevent because 0:08:32.240 --> 0:08:33.880 how do you know who's going to get it? That 0:08:33.920 --> 0:08:37.200 means you and I especially I, because you guys are 0:08:37.320 --> 0:08:41.839 much longer than me. Paul is he's just coming out 0:08:41.840 --> 0:08:45.440 of school, right, So at what point do you start 0:08:45.440 --> 0:08:46.360 taking these drugs? 0:08:46.520 --> 0:08:49.760 Right? How do I do that? So that becomes difficult? 0:08:49.760 --> 0:08:50.439 Who pays for it? 0:08:50.720 --> 0:08:53.000 And if they're preventative, how long do I have to 0:08:53.040 --> 0:08:54.040 take them before I know? 0:08:54.160 --> 0:08:55.840 I mean, how do you even do a trial there? 0:08:56.480 --> 0:08:58.959 So don't forget though in Alzheimer's disease, you can go 0:08:59.080 --> 0:09:02.280 into the early mild dementia and try and slow down 0:09:02.360 --> 0:09:04.760 the disease. But step at the time, at a step 0:09:04.760 --> 0:09:07.360 at the time, and I think we'll have something. Might 0:09:07.360 --> 0:09:10.480 take a decade or two, but hopefully we'll have them. 0:09:10.800 --> 0:09:12.720 Is this something if we see announcements on this front, 0:09:12.720 --> 0:09:15.560 will likely be, you know, the big farmer companies that 0:09:15.600 --> 0:09:19.120 you cover, making and acquisitions of some of these smaller 0:09:19.120 --> 0:09:21.520 companies that are just focused on this one particular thing. 0:09:22.960 --> 0:09:25.520 Probably, and don't forget that also, the large farmer companies. 0:09:25.600 --> 0:09:27.440 I mean, then the two drugs that we have on 0:09:27.480 --> 0:09:31.280 the market today, let can be and I forget what 0:09:31.320 --> 0:09:33.760 the nanamaps call. It has just been approved, so I 0:09:33.800 --> 0:09:38.120 can't remember his A branded name I'm sorry, Illily. They 0:09:38.160 --> 0:09:43.440 both came from within either the farmer company or the 0:09:44.040 --> 0:09:47.240 a Japanese partner. However, in the case of the can 0:09:47.280 --> 0:09:51.920 be that came from a Scandinavian biotech So both of 0:09:51.960 --> 0:09:56.040 these are true. The question is who's got the firepower, 0:09:56.200 --> 0:09:59.400 the money to spend the billions required to develop these 0:10:00.080 --> 0:10:02.040 That's often ends up being a farmer company. 0:10:02.080 --> 0:10:03.439 It's the large farmer companies. 0:10:03.720 --> 0:10:06.440 Do you feel like, no matter who gets to be 0:10:06.559 --> 0:10:09.840 president in here in November, here in the US, are 0:10:09.840 --> 0:10:12.760 we going to see massive drug pushback? Like I realized 0:10:12.760 --> 0:10:15.679 it's probably a campaign tactic. But President Biden coming out 0:10:16.080 --> 0:10:18.880 last week and talking about how all the things were 0:10:18.920 --> 0:10:21.600 so expensive and really blaming like Novo Nordous. He wrote 0:10:21.600 --> 0:10:24.360 an app that with Bernie Sanders in USA today, what 0:10:24.440 --> 0:10:24.640 do you. 0:10:24.640 --> 0:10:29.480 Think I think this is a hot potato. I don't 0:10:29.520 --> 0:10:32.720 think they are aiming their guns at the right group 0:10:32.760 --> 0:10:36.400 of companies. I think you could always argue that drug 0:10:36.440 --> 0:10:39.080 pricing because it's the easiest thing. It's a drug that 0:10:39.120 --> 0:10:41.920 people have to buy, and it says Lily on it right, is. 0:10:42.160 --> 0:10:45.240 Difficult for some people. A lot of people can't afford them. 0:10:45.600 --> 0:10:48.800 But there's a lot of middlemen that need to be 0:10:48.800 --> 0:10:52.080 looked at to where the increasing cost comes from. And 0:10:52.160 --> 0:10:55.640 you know what, the best way to entice people to 0:10:55.679 --> 0:10:58.200 develop obcity drugs, to bring down the price, to bring 0:10:58.280 --> 0:11:02.240 up competition is to allow the market to do his job. 0:11:02.840 --> 0:11:05.400 The market will do it already. These things are not 0:11:05.480 --> 0:11:08.079 costing tenth one thousand dollars a month. 0:11:08.160 --> 0:11:10.319 We're more. You're closer to five hundred net. 0:11:10.559 --> 0:11:12.719 Let the market to the job, bring more drugs on 0:11:13.000 --> 0:11:15.199 the volume goes up, you can drop the price. 0:11:15.400 --> 0:11:18.400 Our thanks to Sam Fazzelli, Bloomberg Intelligence, director of Research 0:11:18.400 --> 0:11:20.840 for Global Industries and senior pharmaceuticals analysts. 0:11:20.960 --> 0:11:23.080 Coming up, we're going to break down Delta airline earnings 0:11:23.120 --> 0:11:24.640 and what they mean for summer travel. 0:11:24.920 --> 0:11:28.120 We're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:11:28.120 --> 0:11:30.400 their research and data on two thousand companies and one 0:11:30.440 --> 0:11:33.520 hundred and thirty industries. You can access Bloomberg Intelligence via 0:11:33.600 --> 0:11:36.280 b I go on the terminal on Paul Sweeney. 0:11:36.040 --> 0:11:38.160 And I am Alex Steel and this is Bloomberg. 0:11:48.120 --> 0:11:52.000 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:11:52.080 --> 0:11:54.800 weekdays at ten am Eastern on Apple Car Playing and 0:11:54.920 --> 0:11:57.800 broud Otto with the Bloomberg Business app. Listen on demand 0:11:57.840 --> 0:12:01.559 wherever you get your podcasts, or just live on YouTube. 0:12:03.160 --> 0:12:05.199 We moved now to big tech. This week we heard 0:12:05.240 --> 0:12:08.040 that Microsoft and Apple drop plans to take board roles 0:12:08.040 --> 0:12:08.680 at open Ai. 0:12:09.080 --> 0:12:11.640 It's a surprise decision that comes as regulators in the 0:12:11.720 --> 0:12:15.160 US and Europe have expressed concerns about microsoft sway over 0:12:15.200 --> 0:12:15.680 open Ai. 0:12:16.080 --> 0:12:18.040 For more, we were joined by man Deep saying Bloomberg 0:12:18.040 --> 0:12:20.679 Intelligence and your tech industry analysts. We first asked man 0:12:20.679 --> 0:12:22.760 Deep for some more context on the story. 0:12:23.120 --> 0:12:25.960 I mean, if you roll back to last year when 0:12:26.000 --> 0:12:29.280 we had the open Ai drama, you know, the board 0:12:29.320 --> 0:12:34.679 firing Sam Altman and then open Ai adding four new members, 0:12:35.320 --> 0:12:40.720 and I think everyone so far has been just sort 0:12:40.760 --> 0:12:44.640 of interested in how open ai has evolved since then 0:12:44.840 --> 0:12:46.880 in the sense that they have even though they have 0:12:47.040 --> 0:12:52.160 added independent board members. Microsoft, you know, and now Apple 0:12:52.559 --> 0:12:55.559 probably would have joined the board. It doesn't make sense, 0:12:55.679 --> 0:12:59.720 like when you have vested interests. In the case of 0:12:59.760 --> 0:13:02.680 Micro they have a forty nine percent stake in open 0:13:02.720 --> 0:13:07.520 ai and they're the primary cloud provider for open Ai. 0:13:07.880 --> 0:13:10.520 How can you do a good job of being an 0:13:10.520 --> 0:13:13.920 independent board member and That's where you know the regulatory 0:13:13.960 --> 0:13:18.079 scrutiny comes into play, because the regulators obviously are concerned 0:13:18.120 --> 0:13:21.640 about how Microsoft bought inflection Ai, even though it wasn't 0:13:21.679 --> 0:13:25.160 an acquisition, they got all the employees of inflection Ai. 0:13:25.440 --> 0:13:28.960 Breakdown for me again, what the relationship is now with 0:13:29.040 --> 0:13:32.160 open ai and Apple versus open Ai and Microsoft. 0:13:32.480 --> 0:13:35.920 So Microsoft has a forty nine percent stake in open Ai. 0:13:36.040 --> 0:13:38.560 They made a ten billion dollar investment, and so you 0:13:38.600 --> 0:13:40.840 could argue, if you're an investor in a company, you 0:13:40.840 --> 0:13:43.520 should get a board set as a Sequoia and some 0:13:43.600 --> 0:13:46.840 other private investors that open Ai has. Apple, on the 0:13:46.880 --> 0:13:50.840 other hand, just partnered with open ai, which is going 0:13:50.920 --> 0:13:54.640 to be one of the providers of Genai model on 0:13:54.760 --> 0:13:59.520 their iOS and other devices, and so it's more of 0:13:59.559 --> 0:14:02.960 a custustomer supplier relationship if you want to call it 0:14:02.960 --> 0:14:05.840 that way. That Apple is using open ee as a supplier, 0:14:06.240 --> 0:14:08.320 why were they getting a board seat. Well, you could 0:14:08.400 --> 0:14:11.360 argue they could be an independent board member like Fijisimo 0:14:11.520 --> 0:14:14.800 is one of the board members for open Ei. She's 0:14:14.840 --> 0:14:19.560 the CEO of Instacart. Now, I think that's where the 0:14:19.720 --> 0:14:24.120 fact that these technologies are so intertwined in terms of 0:14:24.400 --> 0:14:28.760 AI being deployed on Apple devices, you could argue the 0:14:28.840 --> 0:14:32.520 independence of the board comes into question, and given how 0:14:32.600 --> 0:14:36.680 important AI ethics and guardrails and all the things that 0:14:36.800 --> 0:14:41.040 regulators care about that everyone cares about, frankly, I think 0:14:41.120 --> 0:14:45.240 the independence of the board was questionable and these companies 0:14:45.320 --> 0:14:49.280 decided to proactively not join the board, which I think 0:14:49.880 --> 0:14:51.560 is good for optics. 0:14:52.120 --> 0:14:57.440 So Microsoft is under scrutiny in Europe and by US 0:14:57.680 --> 0:15:03.520 regulators into I guess, their alleged dominance of AI. What's 0:15:03.560 --> 0:15:06.520 the view on the street about that risk to Microsoft? 0:15:06.520 --> 0:15:08.480 And I don't know because at some point maybe Apple 0:15:08.480 --> 0:15:09.680 one on it, but certainly Microsoft. 0:15:10.040 --> 0:15:13.160 I mean, the best way to look at it is 0:15:13.720 --> 0:15:17.800 these companies require a lot of compute for training their models, 0:15:17.840 --> 0:15:21.640 whether it's open ai and Tropic, any of the independent 0:15:21.760 --> 0:15:25.240 GENI model providers, they need a lot of compute. Now, 0:15:25.320 --> 0:15:29.240 in the case of Microsoft, the arrangement is really you know, 0:15:29.680 --> 0:15:33.200 full of their interest because open ai ends up using 0:15:33.280 --> 0:15:37.040 Microsoft Compute for training their models. 0:15:37.080 --> 0:15:39.160 What does that mean? What is compute? 0:15:39.200 --> 0:15:43.400 So think of all the Nvidia GPUs that open ai needs, 0:15:43.800 --> 0:15:48.160 but it's deployed on Microsoft Cloud. So if I need 0:15:48.400 --> 0:15:52.160 compute to train the models. I'm not setting up my 0:15:52.400 --> 0:15:55.480 data center and tropic open ai. They're not setting up 0:15:55.560 --> 0:15:59.640 data centers. They're using Microsoft data centers to get access 0:15:59.640 --> 0:16:02.920 to that compute. And that's where they could have gone 0:16:02.920 --> 0:16:06.280 to Amazon or Google to get that compute. The reason 0:16:06.320 --> 0:16:09.120 they're going to Microsoft is because of the you know, 0:16:09.200 --> 0:16:12.000 the stake they have and the board seed And so 0:16:12.400 --> 0:16:16.000 if you are open ai and Microsoft is sitting in 0:16:16.040 --> 0:16:18.440 that board, are you really going to pick any of 0:16:18.480 --> 0:16:22.360 the alternative cloud providers for training your models? Probably not. 0:16:23.360 --> 0:16:27.480 Do you feel like open ai will ever go public 0:16:27.920 --> 0:16:31.479 or be bought by Microsoft? Like, how does that situation 0:16:31.680 --> 0:16:32.200 play out? 0:16:32.520 --> 0:16:36.840 I mean, everyone knows their antitrust concerns around bit tech 0:16:36.880 --> 0:16:39.880 buying any of these companies, So the acquisition is definitely 0:16:39.920 --> 0:16:42.920 out of the window. And that's why the way Microsoft 0:16:43.160 --> 0:16:46.080 got all the employees of Inflection Ai, it was a 0:16:46.120 --> 0:16:49.680 pseudo acquisition. You get all of the employees, you pay 0:16:49.720 --> 0:16:53.040 six hundred million dollars, and you're not calling it an acquisition. 0:16:53.440 --> 0:16:56.200 So in the case of OpenAI, obviously that's not going 0:16:56.280 --> 0:16:58.680 to happen, but they Microsoft does have a forty nine 0:16:58.720 --> 0:17:02.840 percent stake. Google bought DeepMind for six hundred million. Now 0:17:02.840 --> 0:17:05.199 they bought it, you know, a few years back. But 0:17:05.320 --> 0:17:08.840 it just goes to show how, you know, these companies 0:17:08.880 --> 0:17:12.320 positioned themselves for the future and they end up buying 0:17:12.600 --> 0:17:14.960 a lot of the startups. So I don't see an 0:17:15.000 --> 0:17:18.160 acquisition on the cards. But my open ai is unique 0:17:18.160 --> 0:17:21.479 in the sense it's a nonprofit and then they are 0:17:21.680 --> 0:17:24.280 looking to build a business out of it. So their 0:17:24.320 --> 0:17:28.440 structure was sort of very weird to begin with. And 0:17:28.880 --> 0:17:31.119 now they had that board trouble where it was a 0:17:31.160 --> 0:17:34.600 three percent board that fired their CEO. Now they're expanding 0:17:34.640 --> 0:17:37.680 with independent board members. So I don't think they've got 0:17:37.720 --> 0:17:41.119 it right still, but at least, you know, not having 0:17:41.160 --> 0:17:44.080 Microsoft and Apple on the board is good in terms 0:17:44.080 --> 0:17:46.560 of optics. And that's what I can conclude here. 0:17:46.640 --> 0:17:50.240 Our thanks to man Deep Sing, Bloomberg Intelligence Senior Tech industry. 0:17:49.920 --> 0:17:52.640 Analyst, we moved next to the airline industry. This week. 0:17:52.720 --> 0:17:55.520 Delta Airlines reported worse than expected quarterly results, and the 0:17:55.520 --> 0:17:58.359 airline also said that domestic carriers are struggling to fill 0:17:58.400 --> 0:18:00.400 planes during the summer travel See in. 0:18:00.520 --> 0:18:02.479 For more on this. We were joined by George Ferguson, 0:18:02.480 --> 0:18:05.719 Bloomberg Intelligence Senior aerospace, defense, and airlines generalists. 0:18:05.760 --> 0:18:08.040 We first asked George for his take on Delta's recent 0:18:08.119 --> 0:18:09.240 earnings report. 0:18:09.560 --> 0:18:11.800 What we do know is that the weakest part of 0:18:11.800 --> 0:18:14.040 the business right now appears to be sort of basic 0:18:14.119 --> 0:18:17.680 economy or those economy classes, and that's weighing it down. 0:18:17.760 --> 0:18:22.360 So actually, I expect that Delta's earnings report will be 0:18:22.359 --> 0:18:26.080 better than most this quarter. So I think it'll get 0:18:26.119 --> 0:18:28.040 worse and worse as you get into the low costs 0:18:28.080 --> 0:18:30.800 and ultra low cost carriers, because again that's I think 0:18:30.800 --> 0:18:32.760 where the majority of the pain is in fairs. 0:18:33.080 --> 0:18:35.480 Yeah, because you know, going through the quarter, like corporate 0:18:35.560 --> 0:18:38.840 travel rose thirteen percent for Delta in the second quarter. 0:18:39.560 --> 0:18:43.280 Revenue from international passengers also increased, and premium products just 0:18:43.440 --> 0:18:45.920 ten percent. So basically, business people are traveling, we're going 0:18:45.960 --> 0:18:48.879 overseas and we're buying business class or first class, So 0:18:49.160 --> 0:18:53.400 like is no one going to Idaho and economy people 0:18:53.440 --> 0:18:53.920 are going. 0:18:53.960 --> 0:18:56.720 They're just they're going for lower fares right there. Load 0:18:56.760 --> 0:18:59.320 factors were great on Delta, right they were like a 0:18:59.400 --> 0:19:03.520 eighty seven percent, So they're filling airplanes as well as 0:19:03.560 --> 0:19:06.600 they filled the year prior. I think, you know, Delta 0:19:06.640 --> 0:19:09.640 will get a bit of a tailwind as business comes back. 0:19:09.680 --> 0:19:13.240 That you know, that tailwin applies that Delta United American, 0:19:13.320 --> 0:19:17.000 the big business airlines management always paints a really nice 0:19:17.040 --> 0:19:20.080 picture of how everything is going. But every market but 0:19:20.160 --> 0:19:23.679 Atlantic showed lower yields year of a year and yields 0:19:23.720 --> 0:19:25.680 the price of the customer pace per mile they fly. 0:19:26.160 --> 0:19:29.119 So to me, that's synonymous with fares. So what I 0:19:29.160 --> 0:19:32.080 saw was weaker fares that were really bad. Into Latin 0:19:32.119 --> 0:19:34.399 America down I think it was twelve percent or something 0:19:34.480 --> 0:19:38.040 like that. They're down a couple percent for the domestic market. 0:19:38.560 --> 0:19:42.439 Into Europe it was up up one percent. But if 0:19:42.520 --> 0:19:45.160 you do it on a unit revenue basis, I don't 0:19:45.160 --> 0:19:47.040 want to get too complicated about how that works, but 0:19:47.119 --> 0:19:50.920 let's just say that factors in load factors there it 0:19:51.000 --> 0:19:53.520 was down. And so what that's telling me is that 0:19:53.560 --> 0:19:56.159 they're having a harder time filling airplanes going across to 0:19:56.240 --> 0:19:58.720 Europe at the price point they want to fill. So 0:19:58.800 --> 0:20:02.520 they notched back a little bit how full those airplanes were. 0:20:02.800 --> 0:20:06.040 So I generally think, you know, from a revenue standpoint, 0:20:06.440 --> 0:20:08.119 not boting well at all for the rest of the 0:20:08.119 --> 0:20:10.760 airlines they're going to report. I didn't see any sort 0:20:10.800 --> 0:20:14.439 of silver lining, you know, for three Q. I just 0:20:14.520 --> 0:20:16.040 it looks like a weakening market to me. 0:20:17.200 --> 0:20:20.159 So talk to us about capacity out there, George. I 0:20:20.200 --> 0:20:23.359 thought that there's some capacity constraints out there which might 0:20:23.400 --> 0:20:27.080 push fares higher because maybe Boeing wasn't delivering as many 0:20:27.080 --> 0:20:29.600 aircraft that they want, maybe even airbus as well, So 0:20:29.640 --> 0:20:32.439 the airlines didn't have as many aircraft as they really needed. 0:20:32.520 --> 0:20:34.280 What is the capacity of the industry these days? 0:20:34.640 --> 0:20:36.640 Yeah, So I think that's a narrative that's definitely been 0:20:36.680 --> 0:20:39.240 going around the street, and I think that's pushed you know, 0:20:39.280 --> 0:20:43.040 some investment in airlines. So we just really we haven't 0:20:43.040 --> 0:20:44.960 seen that, right. I think there's a there's a couple 0:20:45.000 --> 0:20:47.560 of things that are kind of working against that, and 0:20:47.600 --> 0:20:52.040