WEBVTT - Google Erases a Record $500 Billion as AI Eats Into Sales 0:00:02.750 --> 0:00:10.590 Bloomberg Audio Studios, podcasts, radio, news. You're listening to the 0:00:10.630 --> 0:00:14.570 Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. 0:00:14.630 --> 0:00:17.869 Eastern on Apple CarPlay and Android Auto with the Bloomberg 0:00:17.910 --> 0:00:20.989 Business App. Listen on demand wherever you get your podcasts 0:00:21.329 --> 0:00:23.050 or watch us live on YouTube. 0:00:24.650 --> 0:00:28.190 We're looking at Alphabet shares falling as much as 14%. Paul, 0:00:28.210 --> 0:00:31.410 that is the biggest move ever on an intraday basis. 0:00:32.170 --> 0:00:33.190 It's just extraordinary. 0:00:33.390 --> 0:00:36.730 And again, what I think a lot of people are thinking, 0:00:36.790 --> 0:00:40.530 this may be a fundamental re-rating of the stock as 0:00:40.570 --> 0:00:42.200 it relates to the AI threat. 0:00:42.530 --> 0:00:42.730 Right. 0:00:42.800 --> 0:00:45.920 And it all comes down to the Google advertising and 0:00:45.960 --> 0:00:49.160 search business coming in weaker than expected when it comes 0:00:49.180 --> 0:00:52.360 to revenue. Because now when people try to Google something, 0:00:52.600 --> 0:00:55.280 they'll still do that. But you were telling me how 0:00:55.320 --> 0:00:57.420 when you Google a question in there or you post 0:00:57.440 --> 0:00:59.480 something in there, you're not clicking on anything. 0:00:59.500 --> 0:01:01.590 I'm not clicking through nearly as much as I used to. 0:01:02.110 --> 0:01:03.800 And that's how Google makes its money, right? 0:01:04.240 --> 0:01:06.800 Or people need to be clicking on those specific links 0:01:06.860 --> 0:01:08.060 and going into the businesses. 0:01:08.140 --> 0:01:10.360 But instead, you look at the summary, the Gemini summary, 0:01:10.420 --> 0:01:11.039 and you move on. 0:01:11.680 --> 0:01:15.770 And this is going to be... I mean, once we've 0:01:15.790 --> 0:01:19.910 hit this turn, you wonder how long... before more people 0:01:19.950 --> 0:01:22.350 do that and kind of opt out of clicking through 0:01:22.370 --> 0:01:23.490 everything entirely. 0:01:23.810 --> 0:01:25.130 Let's bring in Matt Bloxham right now. 0:01:25.209 --> 0:01:28.520 Matt is one of our senior media and tech analysts 0:01:28.530 --> 0:01:30.470 joining us from London to talk a little bit more 0:01:30.530 --> 0:01:34.360 about Alphabet as well as Microsoft. Matt, how are you 0:01:34.400 --> 0:01:38.300 thinking about what Alphabet told us? Do you get a 0:01:38.340 --> 0:01:41.959 sense that folks within that company as well are regarding 0:01:42.000 --> 0:01:43.220 this kind of as a turning point? 0:01:44.380 --> 0:01:46.440 I think we've been in this kind of transition period 0:01:46.480 --> 0:01:51.640 for a couple of years with Google. As you've been 0:01:51.690 --> 0:01:53.750 talking about then, that there is this big change in 0:01:53.810 --> 0:01:57.810 how people are interacting with Google's products and potentially using 0:01:57.970 --> 0:02:00.450 different products. And so there are two things that they're 0:02:00.490 --> 0:02:03.630 grappling with here. One is that as people move from 0:02:03.690 --> 0:02:07.740 just regular Google search to AI mode, there's this difference 0:02:07.820 --> 0:02:11.680 in monetization that they haven't quite figured out yet. And 0:02:11.720 --> 0:02:14.940 we've seen that time and time again across Google and 0:02:14.980 --> 0:02:19.100 particularly with meta as new products have been introduced. Initially, 0:02:19.160 --> 0:02:22.440 the monetization isn't that strong and they have to figure 0:02:22.490 --> 0:02:26.270 it out. And brands and media partners have to figure 0:02:26.370 --> 0:02:29.460 out how they're going to spend money against that and 0:02:29.680 --> 0:02:32.260 make it work. So I think to some degree, that's 0:02:32.340 --> 0:02:35.090 just going to take some time, but they will figure 0:02:35.130 --> 0:02:38.609 it out. And I guess what's reassuring, if you're a 0:02:39.270 --> 0:02:43.740 Google investor right now, is that Gemini has gone through 0:02:43.750 --> 0:02:47.380 a billion users. Engagement is going up. So hopefully it 0:02:47.620 --> 0:02:51.880 is a monetization opportunity. challenge that they can address. Obviously, 0:02:52.100 --> 0:02:54.079 the other big threat there is you've got the likes 0:02:54.139 --> 0:02:57.169 of Muse coming in from Meta, which is a rival 0:02:57.210 --> 0:03:00.989 to Gemini and another tool people might use rather than 0:03:01.030 --> 0:03:03.850 Google to search for things and to buy things. And 0:03:03.889 --> 0:03:07.070 so even if they figure out the monetization problem, you've 0:03:07.090 --> 0:03:09.660 got a market share problem. And so that, for me, 0:03:09.720 --> 0:03:12.320 is the kind of twin challenges that they've got and 0:03:12.340 --> 0:03:15.799 the slowdown in ad sales growth. It's still growing, but 0:03:15.820 --> 0:03:18.840 there was quite a big slowdown in this quarter is 0:03:18.860 --> 0:03:21.160 starting to make people feel a bit more that they're 0:03:21.200 --> 0:03:23.840 not fully on top of that. And even though their 0:03:23.919 --> 0:03:27.320 cloud business is growing and grow arguably a little bit 0:03:27.380 --> 0:03:32.390 faster than expected, it's nowhere near enough to compensate for 0:03:33.270 --> 0:03:36.850 the kind of the profit slowdown at their core ads business. 0:03:37.130 --> 0:03:40.330 And at the same time, they're investing $ 200 billion in 0:03:40.390 --> 0:03:43.230 capital spending this year, potentially $ 300 billion next year. So 0:03:43.250 --> 0:03:44.750 the sums don't quite add up yet. 0:03:45.390 --> 0:03:48.010 So Matthew, kind of at its core, most basic level, 0:03:48.070 --> 0:03:54.440 the advertising business for Google is clicks times cost per click, 0:03:54.480 --> 0:03:57.540 what they can charge an advertiser for me clicking on 0:03:57.600 --> 0:04:03.090 an ad. And simply put, I am clicking materially less often. 0:04:03.650 --> 0:04:05.790 So now the question is, okay, how do you solve 0:04:05.810 --> 0:04:06.630 for that issue? 0:04:06.650 --> 0:04:09.630 Has the company identified any kind of strategy there? 0:04:11.400 --> 0:04:14.940 Yeah, you know, I mean, the whole industry is moving 0:04:14.980 --> 0:04:20.490 away from search engine optimization to kind of engine optimization. 0:04:20.510 --> 0:04:23.510 And so both sides of the equation are trying to 0:04:23.550 --> 0:04:25.570 figure out the best way to kind of. 0:04:27.490 --> 0:04:31.950 Replicate that kind of monetization flow into a new environment. And, 0:04:31.990 --> 0:04:36.450 you know, we're not fully there yet. But certainly the 0:04:36.490 --> 0:04:38.130 industry is kind of on its way to kind of 0:04:38.170 --> 0:04:40.810 working that out. And also, you know, sponsored links has 0:04:40.850 --> 0:04:43.070 been a big, big part of it. So not only 0:04:43.110 --> 0:04:45.390 are they kind of getting revenue from click-through, they're getting 0:04:45.440 --> 0:04:49.400 revenue from people wanting to be at the top of 0:04:49.480 --> 0:04:53.080 that list. And again, that same concept applies in a 0:04:54.480 --> 0:05:00.349 a genitive engine optimization world, but the commercials of it 0:05:00.610 --> 0:05:02.640 are still a bit fluid. 0:05:03.790 --> 0:05:07.150 I feel like before AI became a thing, people were 0:05:07.170 --> 0:05:10.330 already kind of getting discouraged or annoyed with Google searches 0:05:10.410 --> 0:05:12.830 because a lot of the times you wouldn't be able 0:05:12.850 --> 0:05:14.909 to get what you wanted in the first screen. You'd 0:05:14.930 --> 0:05:17.130 have to page forward, page forward until you found what 0:05:17.150 --> 0:05:20.610 you needed. So perhaps AI kind of accelerated that. Let's 0:05:20.670 --> 0:05:23.070 talk a little bit, Matt, about Microsoft and what we 0:05:23.130 --> 0:05:27.230 saw from that company. It feels like Microsoft delivered everything 0:05:27.270 --> 0:05:29.469 investors wanted to see, and now it can take advantage 0:05:29.490 --> 0:05:31.990 of that by selling a boatload of debt. 0:05:34.120 --> 0:05:34.940 Yeah. 0:05:35.060 --> 0:05:37.160 So, you know, I guess, you know, the real focus 0:05:37.180 --> 0:05:40.599 with Microsoft has been their Azure business, which is their 0:05:40.660 --> 0:05:43.190 cloud business, a bit like Google Cloud. You know, that 0:05:43.290 --> 0:05:45.690 grew 48% year on year, which is a little bit 0:05:45.730 --> 0:05:50.430 better than the market expected. And, you know, it's kind 0:05:50.450 --> 0:05:52.529 of proven to be profitable and they didn't spend as 0:05:52.589 --> 0:05:57.060 much on CapEx as people thought they might in the quarter. Now, 0:05:57.080 --> 0:06:00.400 I think some of that is because a number of 0:06:00.440 --> 0:06:03.599 the projects that they were planning to spend on have 0:06:03.779 --> 0:06:06.380 got delayed. So I don't think it was necessarily a 0:06:06.420 --> 0:06:09.460 conscious decision by the company to spend less. It's some 0:06:09.480 --> 0:06:11.100 of the things they plan to spend on, just they 0:06:11.140 --> 0:06:14.180 can't spend on yet. But I think in the round, 0:06:15.420 --> 0:06:18.120 the combination of that slightly better than expected to zero growth, 0:06:18.980 --> 0:06:22.860 the fact that their kind of productivity suite of offerings 0:06:23.100 --> 0:06:26.560 remains resilient, that we didn't get a kind of new 0:06:26.600 --> 0:06:29.849 data point on cowork, but I think generally the sense 0:06:29.910 --> 0:06:34.170 is that overall that kind of Microsoft 365 environment is 0:06:34.210 --> 0:06:37.529 still proving very robust. The overall fundamental balance looked good, 0:06:37.550 --> 0:06:39.870 you know, and we're talking about fine margins here, you know, 0:06:40.050 --> 0:06:43.520 Google effectively in aggregate, you know, missed by less than 0:06:43.560 --> 0:06:47.380 half percent on revenue and profit and Microsoft beat by 0:06:47.400 --> 0:06:50.440 a couple of percent. And yet you see a hugely 0:06:50.480 --> 0:06:54.190 different reaction in the share prices and that just kind 0:06:54.200 --> 0:06:57.429 of shows you just quite how much people are extrapolating 0:06:57.510 --> 0:07:00.030 from kind of small directional shifts. 0:07:00.850 --> 0:07:04.010 Stay with us. More from Bloomberg Intelligence coming up after this. 0:07:07.930 --> 0:07:11.630 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:07:11.710 --> 0:07:14.750 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:07:14.810 --> 0:07:18.110 Auto with the Bloomberg Business App. Listen on demand wherever 0:07:18.150 --> 0:07:21.230 you get your podcasts or watch us live on YouTube. 0:07:22.680 --> 0:07:25.740 A lot of news again today in the tech space. 0:07:25.760 --> 0:07:28.920 That DoorDash deal, Marvell Technologies is in talks to buy 0:07:28.940 --> 0:07:29.440 a company. 0:07:29.460 --> 0:07:30.100 A lot going on. 0:07:30.120 --> 0:07:33.640 But first, I need to talk to Mandeep Singh about Google. 0:07:34.000 --> 0:07:37.590 Mandeep Singh, Global Tech Research Head, Bloomberg Intelligence. Mandeep, we've 0:07:37.610 --> 0:07:42.810 been having this conversation all day. Just begs the question, 0:07:42.830 --> 0:07:47.990 Google down 11% here. Does last night's results, do they 0:07:48.030 --> 0:07:52.680 mark a fundamental change in the business community? trajectory of 0:07:52.710 --> 0:07:56.480 Google's revenue on the search business? Or is this not structural? 0:07:56.520 --> 0:08:00.620 Because it feels like AI may in fact be impacting 0:08:00.660 --> 0:08:02.280 their business maybe more than the street thought. 0:08:03.380 --> 0:08:06.200 It is certainly impacting the profitability. 0:08:06.300 --> 0:08:11.080 So look, this company grew 25% top line. When you 0:08:11.240 --> 0:08:15.400 are over $ 400 billion, 25% growth is mighty impressive. 0:08:15.440 --> 0:08:16.380 The problem is. 0:08:16.760 --> 0:08:18.960 A lot of that growth is in the cloud segment. 0:08:19.690 --> 0:08:23.450 and nothing can match the margins of the traditional search business. 0:08:23.870 --> 0:08:27.380 So if search shows any signs of a slowdown, which 0:08:27.480 --> 0:08:30.340 is if I were to compare just the Google search 0:08:30.400 --> 0:08:31.100 growth with. 0:08:31.060 --> 0:08:34.040 Meta's ad revenue growth, it was half of Meta. 0:08:34.679 --> 0:08:38.600 So clearly they have a problem when it comes to 0:08:38.640 --> 0:08:42.380 growing the ad side of the business relative to Meta. 0:08:43.020 --> 0:08:47.380 And that's where I think the streets response shows a 0:08:47.880 --> 0:08:50.820 negative reaction. But other than that, there was nothing wrong 0:08:50.840 --> 0:08:51.460 with the print. 0:08:51.520 --> 0:08:54.580 But you could say, other than that, How was the play, Mrs. 0:08:54.620 --> 0:08:54.900 Lincoln? 0:08:55.120 --> 0:08:58.830 I mean, that is Google from investors' perspective. It's search. 0:08:59.410 --> 0:09:01.429 It's the growth rate I'm associated with search. It's a 0:09:01.450 --> 0:09:04.130 profitability I associate with search. That's the story. 0:09:04.510 --> 0:09:06.630 So my question is, does the street need to kind 0:09:06.670 --> 0:09:10.189 of re-rate the story and say... Maybe I should be 0:09:10.230 --> 0:09:12.050 focusing more on the cloud business or something. 0:09:12.510 --> 0:09:12.850 It is. 0:09:12.950 --> 0:09:17.290 But even the search side has been re-rated already. 0:09:16.770 --> 0:09:17.650 A couple of times. 0:09:17.670 --> 0:09:20.510 So if you go back, you know, 18 months, the 0:09:20.550 --> 0:09:23.949 stock was down. Similar sentiment. Everyone was negative on search. 0:09:24.350 --> 0:09:24.730 Guess what? 0:09:24.770 --> 0:09:28.610 They released another model, Gemini new model. And it was 0:09:28.790 --> 0:09:32.350 at the frontier along with OpenAI and Anthropic. And the 0:09:32.390 --> 0:09:34.429 stock got re-rated and Google touched. 0:09:34.190 --> 0:09:35.550 An all-time high. 0:09:35.620 --> 0:09:38.339 Now they have missed out on the last few months 0:09:38.400 --> 0:09:41.480 in terms of releasing a new model, which is why 0:09:41.580 --> 0:09:44.920 everyone is suddenly concerned. And they have had some attrition 0:09:44.940 --> 0:09:49.380 in terms of their top researchers leaving. So suddenly everyone 0:09:49.440 --> 0:09:52.100 is concerned, are they at the frontier or not? And 0:09:52.140 --> 0:09:54.640 now in the last two weeks, they have released two 0:09:54.720 --> 0:09:58.150 new models. So there is a sense of urgency around 0:09:58.210 --> 0:10:01.699 releasing new models just to make sure that they are 0:10:02.640 --> 0:10:05.960 alongside Anthropic and OpenAI when it comes to what the 0:10:06.020 --> 0:10:09.000 frontier is. And Meta has released a new model, which 0:10:09.059 --> 0:10:11.459 is why the sentiment has changed completely on Meta. 0:10:11.860 --> 0:10:12.060 Why? 0:10:12.100 --> 0:10:15.110 Because they released Muse and it was powered by their 0:10:15.150 --> 0:10:19.450 latest model, which is at the frontier. So- Things change 0:10:19.550 --> 0:10:22.230 very quickly when it comes to these LLM rates, and 0:10:22.270 --> 0:10:25.059 that's what we are seeing. All it takes is a 0:10:25.300 --> 0:10:29.740 good new model release from Alphabet, and it'll be re-rated again, 0:10:29.800 --> 0:10:31.900 and we'll see the stock go back up. 0:10:32.120 --> 0:10:34.030 But as search as we know it, the way that 0:10:34.070 --> 0:10:37.750 we used to use it, not dead, but on the decline, 0:10:37.850 --> 0:10:40.130 I mean, will it ever go back to what it was? 0:10:41.080 --> 0:10:44.690 Well, I look at how these agent tech searches are built. 0:10:45.070 --> 0:10:49.579 They're built on Google's platforms. Every one of the agent 0:10:49.700 --> 0:10:55.370 offerings ties to Gmail. So why is the agentic search 0:10:55.790 --> 0:10:59.189 better in some cases? Because it can be more personalized. 0:10:59.450 --> 0:11:02.550 Why is it more personalized? Because it's reading off of 0:11:02.590 --> 0:11:06.309 Google's surfaces in terms of, you know, the intent that 0:11:06.350 --> 0:11:09.290 a user may have. And that's where I think Google 0:11:09.450 --> 0:11:13.550 has everything to make a good agentic search. It's just 0:11:13.580 --> 0:11:15.960 their models are not at the leading edge right now 0:11:16.360 --> 0:11:18.440 when you compare to Muse or Anthropix. 0:11:18.900 --> 0:11:20.880 Let's talk to you about some M & A deals. 0:11:21.840 --> 0:11:25.330 Marvell is apparently close to a mega deal for a 0:11:25.470 --> 0:11:29.230 laser maker called Lumentum. This is a potential all-stock transaction. 0:11:30.190 --> 0:11:32.050 How critical is this for Marvell? Who is it more 0:11:32.070 --> 0:11:32.480 important for? 0:11:33.590 --> 0:11:37.130 Clearly, Marvell, I mean, they are paying a lot. 0:11:37.210 --> 0:11:40.890 This deal will be definitely close to $ 100 billion if 0:11:40.910 --> 0:11:42.189 you think about the size. 0:11:42.590 --> 0:11:44.110 So pretty big deal. 0:11:45.090 --> 0:11:49.660 And, you know, when you're buying stocks at an all-time high, 0:11:49.720 --> 0:11:52.420 which is the case, you know, with potentially this deal, 0:11:53.280 --> 0:11:55.980 you always run the risk that, you know, the synergies 0:11:56.140 --> 0:12:00.210 or whatever they may frame at the outset may not 0:12:00.260 --> 0:12:03.250 come to fruition. There are execution issues. But with that 0:12:03.270 --> 0:12:06.090 being said, there is a clear trend in the semiconductor 0:12:06.110 --> 0:12:10.590 world with more systems type of approach. That's what NVIDIA 0:12:10.630 --> 0:12:14.250 is doing, end-to-end systems. Google TPUs, I mean, that was 0:12:14.290 --> 0:12:19.420 the bright spot. They're selling TPU systems. So small chip 0:12:19.480 --> 0:12:23.860 makers like Marvell don't have a choice but to go 0:12:23.880 --> 0:12:26.179 the acquisition route. And this is what they seem to 0:12:26.220 --> 0:12:26.699 be doing here. 0:12:27.020 --> 0:12:30.330 Boy, Lamenton's up 150% this year, so they're buying it. 0:12:30.900 --> 0:12:33.800 And there will be a premium on top of this 150% 0:12:33.800 --> 0:12:35.600 that the stock has already gone up. 0:12:36.320 --> 0:12:36.560 All right. 0:12:36.580 --> 0:12:41.240 The other one in your space here, DoorDash, Instacart. What's 0:12:41.260 --> 0:12:41.719 going on there? 0:12:42.540 --> 0:12:45.920 I mean, all of these companies are looking to consolidate 0:12:46.000 --> 0:12:51.000 because they feel agentic AI would change the interface. 0:12:51.100 --> 0:12:54.679 How people order their stuff. And the more they own 0:12:54.730 --> 0:12:56.650 the supply... which in this. 0:12:56.510 --> 0:13:01.340 Case, DoorDash would own Instacart supply in terms of the marketplace, 0:13:01.760 --> 0:13:06.060 that would make them stronger. Even if you're ordering through Muse, 0:13:06.760 --> 0:13:10.520 guess what? DoorDash owns the backend supply. So they have 0:13:10.559 --> 0:13:13.180 a lot more cloud compared to being. 0:13:12.980 --> 0:13:17.030 The smaller player. So scale and consolidation is the name 0:13:17.070 --> 0:13:17.489 of the game. 0:13:18.030 --> 0:13:20.530 So Paul raised a good question, which is, are regulators 0:13:20.570 --> 0:13:23.760 going to step in and allow DoorDash and Instacart to merge? 0:13:24.080 --> 0:13:25.300 I think there will be. 0:13:25.700 --> 0:13:31.010 And our analyst, Jen Rhee, who covers regulation, feels very 0:13:31.110 --> 0:13:35.030 strongly that regulators will look at this and say this 0:13:35.630 --> 0:13:38.290 in the online space, even though there is competition from 0:13:38.340 --> 0:13:42.560 Walmart and traditional retailers, they will not look at the 0:13:42.600 --> 0:13:45.260 broader market. They will look at just the online space. 0:13:45.320 --> 0:13:49.160 And that's emerging number two and three. I don't think 0:13:49.400 --> 0:13:52.730 it'll be something that will get approved right away, even 0:13:52.760 --> 0:13:56.309 though the Trump administration is pro M & A. 0:13:56.390 --> 0:13:57.290 So that's the reason. 0:13:57.309 --> 0:13:58.970 So you think there will be some regulatory pushback? 0:13:59.030 --> 0:14:01.650 Yes, there will be. She thinks there will be some 0:14:01.710 --> 0:14:02.550 regulatory pushback. 0:14:03.350 --> 0:14:03.770 Stay with us. 0:14:04.150 --> 0:14:06.570 More from Bloomberg Intelligence coming up after this. 0:14:10.440 --> 0:14:14.140 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:14:14.220 --> 0:14:17.270 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:14:17.309 --> 0:14:20.630 Auto with the Bloomberg Business app. Listen on demand wherever 0:14:20.670 --> 0:14:23.750 you get your podcasts or watch us live on YouTube. 0:14:25.250 --> 0:14:30.270 Wanted to switch gears. Caterpillar reported numbers as well. In 0:14:30.310 --> 0:14:33.810 this story, you know, big equipment, backhoes, you know, bulldozers, 0:14:33.830 --> 0:14:36.580 all that kind of stuff. That's kind of become kind 0:14:36.620 --> 0:14:40.060 of an AI play because of their power business that 0:14:40.080 --> 0:14:40.760 they also have. 0:14:40.820 --> 0:14:43.060 I remember when we first talked about this earlier this year. 0:14:43.120 --> 0:14:44.920 And at the time, you and I were saying, what? 0:14:45.020 --> 0:14:47.180 How can Caterpillar be an AI play? 0:14:47.830 --> 0:14:49.810 Now maybe the flip side to some of that today. 0:14:50.130 --> 0:14:54.320 Chris Chiolino, Bloomberg Intelligence Senior, U.S. Machinery Analyst, joins us here. Hey, Chris, 0:14:54.340 --> 0:14:56.520 talk to us about CAT and the earnings release. 0:14:56.540 --> 0:14:57.020 What did you learn? 0:14:58.360 --> 0:15:01.600 Yeah, you know, it actually was a decent quarter. Top 0:15:01.680 --> 0:15:05.080 and bottom line beats reiterated the guide. But obviously in 0:15:05.100 --> 0:15:08.330 this market, that's not good enough. You had, again, another 0:15:08.370 --> 0:15:13.990 strong quarter of orders. Backlog continued to set another quarterly record. But, 0:15:14.010 --> 0:15:16.010 you know, their report comes on the heels of some 0:15:16.030 --> 0:15:20.400 pretty underwhelming earnings from some of the AI names last night. 0:15:21.040 --> 0:15:24.240 And Cat, to your point, has certainly been caught up 0:15:24.360 --> 0:15:27.280 in this AI trade given their power generation and data 0:15:27.320 --> 0:15:32.160 center exposure. And that growing drumbeat around the durability of 0:15:32.180 --> 0:15:36.780 AI spending and power generation demand, that doesn't seem like 0:15:36.820 --> 0:15:39.580 it's going to abate any time in the near term here, 0:15:40.300 --> 0:15:43.020 even with what is still a pretty constructive outlook as 0:15:43.040 --> 0:15:44.950 we look into 27. 0:15:44.950 --> 0:15:48.470 Chris, has the investor base of Caterpillar changed because it's 0:15:48.550 --> 0:15:50.580 now more of an AI play than it used to be? 0:15:50.630 --> 0:15:52.520 I mean, it was kind of a boring industrial that 0:15:52.560 --> 0:15:56.360 was very much tied to the fortunes of the global economy, 0:15:56.400 --> 0:15:58.600 and now it's seen as a growthier name. 0:15:59.920 --> 0:16:01.640 So that's one of the key debates, right? I mean, 0:16:01.720 --> 0:16:04.500 is this a secular growth story or is it you're 0:16:04.540 --> 0:16:09.820 still traditional heavy manufacturer, a machinery producer? You know, if 0:16:09.860 --> 0:16:13.000 you looked at the valuation earlier this year, Caterpillar was 0:16:13.040 --> 0:16:16.540 trading north of 30, 35 times. You know, historically, this 0:16:16.580 --> 0:16:19.600 thing will trade 16, 17 times mid-cycle. It was still 0:16:19.660 --> 0:16:22.520 relatively elevated going into the print as well, north of 0:16:22.520 --> 0:16:26.070 20 times. So I think that's also partially reflected in 0:16:26.350 --> 0:16:28.950 the pullback today in terms of some of the expectations. 0:16:29.630 --> 0:16:32.070 But it's been this kind of push and pull debate around, 0:16:32.310 --> 0:16:36.619 is this still a truly cyclical company? Or is it 0:16:36.660 --> 0:16:39.300 more of a secular play on the data center build out? 0:16:39.760 --> 0:16:43.100 I think there's there's aspects to both. And there probably 0:16:43.140 --> 0:16:45.420 does deserve to be, you know, more of a premium 0:16:46.030 --> 0:16:48.750 multiple embedded in the stock relative to what we have 0:16:48.790 --> 0:16:50.790 seen from traditional machinery cycles. 0:16:51.390 --> 0:16:53.910 What is the company saying about kind of how they 0:16:53.950 --> 0:16:57.090 view these the data center build out is because are 0:16:57.110 --> 0:17:00.740 they seeing any delays in from their customers or any 0:17:00.800 --> 0:17:03.980 cancellations from their customers? What are they seeing on the ground? 0:17:05.000 --> 0:17:08.670 You know what? They've been very tight lipped and somewhat unsurprising. 0:17:09.090 --> 0:17:12.669 You know, the pretty uneventful commentary from them on the 0:17:12.710 --> 0:17:17.990 call that, you know, the data center inquiries and conversations 0:17:18.060 --> 0:17:21.080 really haven't changed all that much relative to last quarter. 0:17:21.660 --> 0:17:23.680 I think the one encouraging thing to take away though 0:17:23.720 --> 0:17:26.000 from the print, the implied orders were up like 35% 0:17:26.000 --> 0:17:29.760 in the quarter, which is much better than we were expecting. 0:17:29.820 --> 0:17:32.700 So it does seem that the orders continue to come 0:17:32.790 --> 0:17:36.490 in on some of their large engines and turbines. They're 0:17:36.510 --> 0:17:40.270 already taking orders out into 2029 and 2030. So there 0:17:40.390 --> 0:17:43.270 is extended visibility here. There's going to be a lot 0:17:43.310 --> 0:17:46.910 of capacity coming on though in terms of power generation equipment, 0:17:47.270 --> 0:17:49.190 not only from Caterpillar, but a number of their peers. 0:17:49.869 --> 0:17:53.120 The concerns lie less about, I think, 2027 and more 0:17:53.130 --> 0:17:55.460 in 2028 and 2029 as we get toward the back 0:17:55.480 --> 0:17:58.260 half of the decade. And are we going to be overcapacitized? 0:17:59.700 --> 0:18:02.020 When you look at Caterpillar and how it's become this 0:18:02.800 --> 0:18:06.179 name tied to AI, is there any other industrial company, 0:18:06.220 --> 0:18:08.500 machinery company that kind of follows the same path but 0:18:08.520 --> 0:18:09.830 perhaps offers more value? 0:18:11.710 --> 0:18:14.359 You know, it's an interesting question. I think probably the 0:18:14.460 --> 0:18:17.440 closest comp in that aspect would be someone like a Cummins. 0:18:18.480 --> 0:18:23.520 Right now, Caterpillar and Cummins both have very strong market 0:18:23.540 --> 0:18:26.740 positions when it comes to backup power on the power 0:18:26.760 --> 0:18:30.900 generation side for data centers. Obviously, Cummins has a much 0:18:31.400 --> 0:18:34.510 greater exposure to the more cyclical heavy truck market here 0:18:34.530 --> 0:18:38.490 in North America. And Caterpillar leans more heavily on construction 0:18:38.869 --> 0:18:43.250 and mining. But, you know, they're both have been trading, 0:18:43.290 --> 0:18:48.070 you know, well above their historical valuations, given the secular 0:18:48.130 --> 0:18:51.389 growth opportunity that the data centers have presented themselves. 0:18:52.410 --> 0:18:55.459 Stay with us. More from Bloomberg Intelligence coming up after this. 0:18:59.480 --> 0:19:03.180 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:19:03.260 --> 0:19:06.300 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:19:06.359 --> 0:19:09.660 Auto with the Bloomberg Business App. Listen on demand wherever 0:19:09.700 --> 0:19:12.780 you get your podcasts or watch us live on YouTube. 0:19:14.500 --> 0:19:17.720 One of the most read stories on the Bloomberg terminal here. 0:19:17.600 --> 0:19:20.399 Has to do with dating. Gen Z. I'm not sure 0:19:20.420 --> 0:19:21.230 who Gen Z is. 0:19:21.170 --> 0:19:21.730 Anymore, but. 0:19:22.270 --> 0:19:22.830 Young people? 0:19:22.850 --> 0:19:24.840 I think you have some Gen Zs in your household. 0:19:24.859 --> 0:19:25.120 Do I? 0:19:25.359 --> 0:19:25.580 Yeah. 0:19:25.670 --> 0:19:25.879 All right. 0:19:25.910 --> 0:19:26.280 Very good. 0:19:26.500 --> 0:19:31.240 Dating engagement improves as app use sentiment rise. Nicole D'Souza 0:19:31.260 --> 0:19:34.280 joins us here at Bloomberg Intelligence. Internet and software equity analyst. 0:19:34.740 --> 0:19:35.270 What's going on? 0:19:35.800 --> 0:19:36.800 Doing it from my phone. 0:19:37.140 --> 0:19:38.139 So it's interesting. 0:19:39.320 --> 0:19:41.970 The dating survey that we did this year, the biggest 0:19:42.010 --> 0:19:44.030 difference that we've seen is that Gen Z is actually 0:19:44.150 --> 0:19:47.429 starting to date. Last year when we conducted the survey, 0:19:47.430 --> 0:19:50.780 44 Gen Z respondents said that they were single but 0:19:50.840 --> 0:19:53.520 not dating. And that raised some concerns about the future 0:19:53.680 --> 0:19:57.480 of addressable markets for dating app platforms. But this year, 0:19:57.590 --> 0:20:00.210 only 34% said they were single and not dating, and 35% 0:20:00.210 --> 0:20:03.730 said they were single and dating. So it looks like 0:20:04.270 --> 0:20:07.390 these patterns are starting to change. Gen Z is getting 0:20:07.430 --> 0:20:11.570 out of the house. They're going on dates. So definitely 0:20:11.609 --> 0:20:13.190 a more optimistic survey this year. 0:20:13.780 --> 0:20:15.419 Okay, so many follow-up questions. 0:20:16.640 --> 0:20:18.800 Gen Z also likes to go to the mall now 0:20:18.920 --> 0:20:22.740 and they're indulging in some, I guess, old school behavior. 0:20:23.000 --> 0:20:26.340 They kind of like analog things right now. So why 0:20:26.359 --> 0:20:29.560 have they started to become more open to dating apps 0:20:29.580 --> 0:20:30.970 whereas before they were kind of avoiding it? 0:20:31.340 --> 0:20:33.149 So I think dating apps have released a lot of 0:20:33.180 --> 0:20:35.530 features that really appeal to Gen Z. So one of 0:20:35.590 --> 0:20:38.389 them is in real life events. So they set up 0:20:38.450 --> 0:20:41.820 events in real life where Gen Z can come, mingle, 0:20:42.060 --> 0:20:45.600 meet people, and kind of look for a future partner. 0:20:46.220 --> 0:20:49.680 And so these events were specifically created because Gen Z 0:20:49.840 --> 0:20:53.060 was not swiping. They were not interested in staying on 0:20:53.480 --> 0:20:56.290 platforms and talking to people online. They didn't like AI 0:20:56.330 --> 0:20:58.570 in their dating apps. They wanted to meet in real life. 0:20:58.590 --> 0:21:01.580 I didn't know where to go. 0:21:02.380 --> 0:21:03.900 I'm sorry, we're showing our age in every way. 0:21:03.920 --> 0:21:06.180 I'm just going to ask you, you and your cohorts, 0:21:06.220 --> 0:21:07.740 what are you doing these days? 0:21:08.400 --> 0:21:12.220 So right now, I would say the most popular dating 0:21:12.320 --> 0:21:14.399 app in terms of growing users is Hinge. 0:21:14.600 --> 0:21:14.919