Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Speaker 1: Wait inside from the reporters and editors who bring you
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Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Messer
Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Listen to Walmart shares as we talked about at the
Speaker 2: top surgeing pushing the retailer's market value over five hundred
Speaker 2: billion dollars for the first time after I posted stronger
Speaker 2: than expected first quarter earnings and boosted it annual.
Speaker 3: Sales and profit forecasts. So we wanted to know more.
Speaker 2: It's the e commerce business, it's the store business, it's
Speaker 2: the average ticket spend. There's a lot going on, Tim,
Speaker 2: when we talk about.
Speaker 4: Well, also the outlook, we welcome Bloomberg Intelligence Senior Retail,
Speaker 4: Staples and Packaged Food analyst Jen bartashis at a Bloomberg
Speaker 4: Intelligence headquarters in Princeton. Okay, Jen, break it down for
Speaker 4: us investors. Certainly loved it, But what do we learn
Speaker 4: about the business today and what can you tell us
Speaker 4: about the broader economy?
Speaker 5: So we learned a couple of things about the business today.
Speaker 5: The first is that some of the investments Walmart has
Speaker 5: been making are really starting to play out. They're able
Speaker 5: to consistently grow operating income ahead of revenue, which is
Speaker 5: a great story for them to be able to tell
Speaker 5: they're gaining market share, and ultimately their e commerce business
Speaker 5: is a really showing signs of taking off. So all
Speaker 5: of these things together really are working for the company.
Speaker 5: We're also seeing that consumers are still value focused and
Speaker 5: Walmart is offering that value to people not just from
Speaker 5: a price perspective, but also from things like convenience, and
Speaker 5: that's what's helping to draw in some of those higher
Speaker 5: income households that they've been talking about.
Speaker 2: Well, when it comes to what they expect in terms
Speaker 2: of adjusted earnings coming at the high end or slightly
Speaker 2: above its original guidance of two twenty three to two
Speaker 2: thirty seven per share revenue growth of three to four
Speaker 2: percent for the full year, it was it analyst just
Speaker 2: too low on it, or was that's kind of what
Speaker 2: the business was, and Walmart's just surprising and doing better
Speaker 2: than not everybody really thought.
Speaker 5: And the thought, yeah, well, Walmart, you know, came into
Speaker 5: the year with their initial guidance a little bit conservative
Speaker 5: because it was really unsure where where the consumer was
Speaker 5: and where they would be. So you know, today they
Speaker 5: nudged up that guidance.
Speaker 4: A little bit.
Speaker 5: They're at the high end of their previously stated range.
Speaker 5: I wouldn't be surprised if at second quarter earnings they
Speaker 5: actually adjust their guidance for the full year. But it's
Speaker 5: really they're staying a little bit conservative just because there
Speaker 5: are a lot of factors at play that affect consumers.
Speaker 2: Still listen, they're massive, right, and they certainly play into
Speaker 2: a certain sect. I would say, I think it's fair
Speaker 2: to say of the consumer. Although we've known, you know,
Speaker 2: coming off the pandemic and just other times that we
Speaker 2: feel like their customer base has widened out, has it?
Speaker 2: What do we know really about the demographics of who
Speaker 2: is the Walmart chopper?
Speaker 5: Well, historically you would have considered about fifty percent of
Speaker 5: their customer base to be in that lower income household
Speaker 5: type of demographic. But today what they talked about was
Speaker 5: that when they did write their demographics, between those who
Speaker 5: aren't under fifty thousand, those fifty thousand to one hundred
Speaker 5: thousand households over one hundred thousand dollars a year. It's
Speaker 5: about a third of their business each So that's a
Speaker 5: meaningful shift in the way that their consumer based and
Speaker 5: it really does bode well for them going forward that
Speaker 5: they should be able to retain some of those higher
Speaker 5: income consumers who tend to spend more and they tend
Speaker 5: to buy more discretionary items as well.
Speaker 4: Hey, Jen, those higher income consumers, those folks who are
Speaker 4: in more than one hundred thousand dollars a year, are
Speaker 4: they flocking to Walmart right now because they're looking for value?
Speaker 4: Or is Walmart doing a good job of offering items
Speaker 4: that those wealthier households tend to go out and shop for.
Speaker 4: Which one is it? If you were to say it's one.
Speaker 5: Of these things, well, I would say initially when we
Speaker 5: had really high food inflation, it was the price draw.
Speaker 5: But Walmart's been investing in upgrading their stores, improving the
Speaker 5: customer experience, and once you got those customers in the door,
Speaker 5: they saw that there were other changes that were happening
Speaker 5: with regards to merchandising that is appealing to them. So
Speaker 5: it's a story of two parts. The first part was price,
Speaker 5: and now it's also about service conveniences that leads into
Speaker 5: that omnichannel e commerce growth of over twenty one percent
Speaker 5: from a global basis. People like the idea of being
Speaker 5: able to order, have it shipped to their house or
Speaker 5: pick it up a curbside, and that's really driving a
Speaker 5: lot of the interest in the company.
Speaker 4: Yeah, talk a little bit about that. How is Walmart
Speaker 4: Plus doing, especially when compared to Amazon Prime. How do
Speaker 4: you look at these two programs together.
Speaker 5: Well, it's a good question. When I look at Walmart Plus,
Speaker 5: it's really about locking in loyalty. The majority of the
Speaker 5: uses for things that are shipped to home and a
Speaker 5: lot of grocery orders you can order unlimited amounts, you know,
Speaker 5: and have it delivered or ship. When it comes to Amazon,
Speaker 5: they did launch a new subscription program for grocery at
Speaker 5: nine to ninety nine a month on top of your
Speaker 5: annual membership Prime fee. But so clearly Amazon is seeing
Speaker 5: some of the success that Walmart has had with that
Speaker 5: subscription model and see that there is a convenience play
Speaker 5: to be had with consumers who are who are interested
Speaker 5: in that sort of service.
Speaker 4: Are the folks who are using buy online pickup in store?
Speaker 4: Is it true that they're going in and actually buying
Speaker 4: more once they get to the store, because that's a
Speaker 4: way that you know, that's a way that companies hope,
Speaker 4: that brick and mortar companies hope to get folks inside
Speaker 4: the store to buy more.
Speaker 5: It does happen more often than you would think, because
Speaker 5: people are on their way to the store and they think, oh,
Speaker 5: I forgot to add this to my order. I'm just
Speaker 5: going to hop it and grab it. And when they're
Speaker 5: in the store, then that adds like two or three things,
Speaker 5: three things wow by the time they get to the checkout.
Speaker 5: So it is something that actually really does happen. It's
Speaker 5: not with every order, but it's it's more often than
Speaker 5: most people would think.
Speaker 3: All right, sounds really rosy.
Speaker 2: And you know they also saw what traffic and unit
Speaker 2: increases that helped out sales growth grocery business fueling the growth.
Speaker 3: Over at Walmart.
Speaker 2: Yet they did cut workers, right, They are very cognizant
Speaker 2: of higher costs generally, I guess across their world as
Speaker 2: well as kind of everybody's world. So any commentary color around.
Speaker 5: That, Yeah, sure, Walmart is a very much an everyday
Speaker 5: low cost provider as well as an everyday low price provider,
Speaker 5: and part of that is really being disciplined with regards
Speaker 5: to costs. Now, we saw announcements in the last month
Speaker 5: about things like closing down the health clinics. We saw
Speaker 5: the announcements about corporate job cuts. Those are in fact
Speaker 5: likely related to a certain degree. But Walmart is one
Speaker 5: of the things they do is they're not afraid to
Speaker 5: try something, but if it doesn't pan out, they pull
Speaker 5: back and they reassess, and so some of those cuts
Speaker 5: that we saw are really a reflection of that attitude
Speaker 5: towards their business.
Speaker 2: Hey, if there's one business that you think that we
Speaker 2: should be kind of keeping on our radar that maybe
Speaker 2: Walmart's going to be moving into aggressively that could move
Speaker 2: the needle top and bottom line.
Speaker 3: Just twenty seconds left, what would it be?
Speaker 2: I think I thought I heard you say fintech on
Speaker 2: TV earlier, but I don't know if that's it.
Speaker 5: If we looked at what Walmart's doing in their international
Speaker 5: segment with fintech, there's a lot to be excited about.
Speaker 5: And so whatever they can adapt and bring more into
Speaker 5: the US and what they're trying to do with fintech
Speaker 5: here could be a catalyst.
Speaker 3: All right, interesting stuff.
Speaker 2: As always, Hey, thank you so much Bloomberg Intelligence senior
Speaker 2: retail Staples and packaged food analysts, our own Jen buttarsis
Speaker 2: uh with really the rundown on everything to do with Walmart.
Speaker 1: Today, you're listening to the Bloomberg Business Week podcast Can't
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Speaker 3: You may have done it or someone in your family.
Speaker 2: We're talking about DNA testing with a company like twenty
Speaker 2: three and me or ancestry dot com. Interesting to find
Speaker 2: out more about you know, of course, where your family's
Speaker 2: ancestry composition is, right, We all talk about it. We
Speaker 2: find out, Hey, you know, did you know my family's
Speaker 2: done it?
Speaker 5: All right?
Speaker 2: Well, the DNA testing industry was aiming for a bit more,
Speaker 2: to a world where the medical community added genetic testing
Speaker 2: to its standard operating procedures.
Speaker 4: I don't know, Carol. Maybe you find out stuff you
Speaker 4: don't necessarily want to know sure about your family or relative.
Speaker 4: That's part of the story.
Speaker 3: Hey, I've got a half sister. It's all part of
Speaker 3: the cell. Don't I don't, at least I don't know.
Speaker 4: Yet after here's and millions of spit kits, the doctors
Speaker 4: still don't care when it comes to this type of testing,
Speaker 4: at least for companies that are mass market. Mass market
Speaker 4: genetic streamings remain well apart from the medical mainstream, and
Speaker 4: for one of the players in the industry, twenty three
Speaker 4: and meters, it's actually never made a profit. Carol. It's
Speaker 4: the cover story of the new issue of Bloomberg BusinessWeek.
Speaker 4: It's on newstands, it's online on the Bloomberg and here
Speaker 4: with us as Bloomberg News healthcare reporter Kristin B. Brown
Speaker 4: joining us in the studio.
Speaker 3: Great story.
Speaker 2: I'm so glad you could be here. DNA tests for everyone,
Speaker 2: lots of genetic data, and bam, research gets a boost
Speaker 2: and moves faster, and we create a roadmap for living
Speaker 2: to age one hundred. That's in your story. That was
Speaker 2: the plan.
Speaker 6: That was the plan, Yes, and yet it did not
Speaker 6: quite go according to plant, which I will say is
Speaker 6: often the case in science. Right we have a big finding,
Speaker 6: more like wow, we just have to do this like
Speaker 6: one or two things, and then we'll solve all disease,
Speaker 6: which is almost literally what.
Speaker 3: They thought would happen.
Speaker 6: With the human genome. But then as we start on
Speaker 6: hangling it, we realized, oh, this is just like way
Speaker 6: more complicated than we realized, and that turned out to
Speaker 6: be trouble for a company. It's like twenty three and
Speaker 6: meters that wanted you to be able to just spit
Speaker 6: in a tube and learn, you know, all of the
Speaker 6: diseases you might be at risk for, But it turns
Speaker 6: out there's not just one gene for heart disease. There
Speaker 6: are so many genes we don't even know what they all.
Speaker 6: It's so complicated and they all interact and we don't
Speaker 6: know how they interact. So they're they're trying to for
Speaker 6: some of these things do what's called a polygenic risk
Speaker 6: wore and say, based on all of these genes, you
Speaker 6: might have a risk, But it winds up being more
Speaker 6: like you're slightly more elevated to risk, not an actual
Speaker 6: roadmap for what do you do to stay healthy and
Speaker 6: live to one hundred.
Speaker 4: And in a small portion of the folks who do
Speaker 4: the test, it does come back with some sort of
Speaker 4: result that says, Okay, you do have the characteristics of
Speaker 4: this sort of genetic you know, I don't even know
Speaker 4: the proper terminology variant, genetic variant, thank you. But then
Speaker 4: treatment for that, as you note in your story, can
Speaker 4: be incredibly expensive.
Speaker 6: Right, So, monogenic diseases, there's a lot of them. That's
Speaker 6: that's genes, a single gene that causes a disease. There's
Speaker 6: a lot of them, but they're usually.
Speaker 3: Very very rare.
Speaker 6: And because they're rare, and the therapies are also very complicated,
Speaker 6: you know, fancy high tech things, they're expensive, small population,
Speaker 6: small market. So we have gotten a few of these
Speaker 6: therapies so far, but definitely not the you know, therapies
Speaker 6: that we expected for very common diseases like Alzheimer's, like cancer.
Speaker 6: So we've gotten therapies that have a small market and so.
Speaker 3: Therefore they're really really pricey.
Speaker 2: We talked about people spitting in a tube. I'm not
Speaker 2: gonna ask for show of hands in the control room.
Speaker 3: We're here. But you did it.
Speaker 5: I did it.
Speaker 4: Yeah, I did not do it.
Speaker 6: I have spitt in so many tubes in the course
Speaker 6: of my journalism career, but I did for this particular.
Speaker 4: Story too, And it wasn't the typical twenty three and
Speaker 4: me twenty dollars.
Speaker 6: Thing, right, This is a very high Yeah, so twenty
Speaker 6: three meters. Latest offering is it's doing sequencing, not genotyping,
Speaker 6: which is a fancier They're literally decoding every little bit
Speaker 6: of all of the protein coding regions of your genome,
Speaker 6: which are the ones that we think cause disease, and
Speaker 6: in doing that they really hope to get this really holistic,
Speaker 6: nuanced picture of the genome for me. In the sequencing,
Speaker 6: they actually didn't find anything. And then in the genotyping,
Speaker 6: which is a sort of more low budget option, they
Speaker 6: found that I might be at risk risk or Celiac disease.
Speaker 6: But I can tell you I had avocado toast this
Speaker 6: morning for breakfast. It went fine. It went fine, So
Speaker 6: for me at least, this is almost one thousand dollars test,
Speaker 6: and I learned that I might have a disease that
Speaker 6: I don't have, So I don't know, Well, did.
Speaker 2: You do anything about that? Like I'm curious. Did it
Speaker 2: cause you to say, well, maybe I'll have a doctor
Speaker 2: look into this.
Speaker 6: Well, you know, usually if you have Celiac disease, you
Speaker 6: know you have a violent reaction when you eat gluten,
Speaker 6: So I was I felt pretty confident. It also said
Speaker 6: I might one day develop glaucoma, I have a slightly
Speaker 6: increased risk, but you can't actually do anything about that.
Speaker 6: So it's it's I don't know what to do with
Speaker 6: that knowledge. I felt like I sort of have spent
Speaker 6: that thousand dollars on some shoes instead. Maybe I don't know,
Speaker 6: preach into the choir.
Speaker 2: Well, the medical community right has been to some extent
Speaker 2: they haven't embraced this idea. Yeah, So I mean, is
Speaker 2: that part of the problem. Is it just a case
Speaker 2: that it's complicated and maybe it is the right idea
Speaker 2: or like in your reporting, like, how are like what's
Speaker 2: the kind of feedback on this?
Speaker 6: So I started looking into I wrote this story because
Speaker 6: I started wondering, you know, for for the decade I've
Speaker 6: covered this topic, people have told me, you know, this
Speaker 6: is the year genetics is going to catch on, this
Speaker 6: is the year, this is finally the year. No this year,
Speaker 6: and it just it just never happened. And so I
Speaker 6: started asking some of my longtime sources, you know, is
Speaker 6: this is this happening? You know, what's what's the status.
Speaker 3: Here, guys?
Speaker 6: And I was surprised to hear from many people who
Speaker 6: who had been boosters for the genome, who are now
Speaker 6: saying we're not sure it's ever going to happen, and amazing, Yeah,
Speaker 6: and you know, with science, you never you never know.
Speaker 6: Maybe we'll turn a corner, we'll find something that will
Speaker 6: suddenly unlock everything. But based on what we know now,
Speaker 6: it does feel like it's just so complicated that for
Speaker 6: the average healthy person, there won't be value really in
Speaker 6: getting a genetic street. Now, if you have a history
Speaker 6: of cancer in your family, if you want to become
Speaker 6: a parent and you want to make sure you don't
Speaker 6: have any genetic conditions lurking in your genome, you could
Speaker 6: pass on that stuff all worth it. But if you're
Speaker 6: just an average healthy person trying to live their best life,
Speaker 6: it just really seems like there's not going to be
Speaker 6: value in these tests.
Speaker 4: It raises the question about what the future is for
Speaker 4: twenty three and METERI, And that's a big part of
Speaker 4: your cover story for Bloomberg Business Week, the idea that
Speaker 4: the stock has been under pressure over the last few years,
Speaker 4: down more than ninety four percent over that period of time.
Speaker 4: Richard Branson lost over one hundred million dollars on it
Speaker 4: going public. What is the future for twenty three and me?
Speaker 4: As a business.
Speaker 6: Yeah, So, I mean they're in a real tough spot.
Speaker 6: They just got an extension to try and get their
Speaker 6: stock back up over a dollar. They have until I
Speaker 6: believe November they'll be delisted. Yeah, the concern is that
Speaker 6: they will be delisted, and I think and a move
Speaker 6: to prevent that from happening, CEO and Wojiski has filed
Speaker 6: an intent to take the company private herself to you know,
Speaker 6: buy it, buy it back basically, So that could be
Speaker 6: one thing we see. But I think that you know,
Speaker 6: it's a really rocky road ahead for them.
Speaker 2: Well, you know, it's interesting and I don't know, is
Speaker 2: this a company that might benefit being private in terms
Speaker 2: of having the time, the luxury, maybe the money, you know,
Speaker 2: to kind of figure this.
Speaker 6: Out based on what the stock did when she filed
Speaker 6: that eight k I would say that the market things
Speaker 6: that would benefit from from going private. It's it's it's
Speaker 6: a hard company because it's part consumer, part drug development,
Speaker 6: and the investors in those two different kinds of companies,
Speaker 6: and has said this herself, they kind of have different expectations.
Speaker 6: So it's a weird blend of things, and that has
Speaker 6: created an additional challenge on top of you know, having
Speaker 6: a consumer product that a lot of consumers maybe don't
Speaker 6: want anymore.
Speaker 4: So what about the data and the data breaches that
Speaker 4: we've heard about the security of this information? I mean
Speaker 4: years ago, years ago, I'm going to say, my mom
Speaker 4: was right. She was like, why would I want to
Speaker 4: give a company this type of information once it's out there?
Speaker 4: And I was actually defended. I was saying, no, you
Speaker 4: know these you know, this type of stuff stays safe.
Speaker 4: Fast forward a few years, there's a big data breach.
Speaker 6: Yeah, I mean, Anne has said that she thinks that
Speaker 6: privacy concerns has been one of the reasons kit sales
Speaker 6: have slowed. She said that in the past, and you
Speaker 6: know that could definitely be what's going on. One analyst
Speaker 6: joke to me that twenty three and meters would probably
Speaker 6: do better to just give the kit away for free
Speaker 6: in exchange for getting people's data, because that is the
Speaker 6: most valuable as they have.
Speaker 2: How much we've talked about generative AI, and you think
Speaker 2: about the more data that comes into the pool, whether
Speaker 2: or not that can help kind of be a turning point,
Speaker 2: like more information.
Speaker 6: I mean, they have fifteen million genomes. That is one
Speaker 6: of the biggest genetic databases on par with ancestry and
Speaker 6: the you know, country of China. So that's that's really valuable.
Speaker 6: And so if they can keep growing that asset, that
Speaker 6: could be big.
Speaker 4: And to be clear, there was a data breach of
Speaker 4: people's personal information.
Speaker 6: Yes, there was a data breach my personal and it
Speaker 6: did contain some genetic information.
Speaker 2: All right, Elizabeth our producer, YouTube producer and me, we're
Speaker 2: both with your mom about this in terms of the information.
Speaker 2: Any questions that you still have, you've reported this story out,
Speaker 2: you're thinking about it, what questions are still kind of
Speaker 2: top of mind for you?
Speaker 6: Yeah, I mean I think for me, you know, having
Speaker 6: covered this field for a decade, it was sort of
Speaker 6: an existential crisis to actually do this story and be,
Speaker 6: you know, questioning whether the thing that I have governed
Speaker 6: for a decade really doesn't matter. So I think that
Speaker 6: I just want to see how this science unfolds and
Speaker 6: what value we will wind up getting from the genome,
Speaker 6: because I don't think that it's going to wind up
Speaker 6: having been for not that we sequenced the human genome
Speaker 6: twenty years ago, but I think what we're going to
Speaker 6: get isn't what we expected. So that's still to be written.
Speaker 3: It's fascinating.
Speaker 2: I remember kind of early on in my career, like
Speaker 2: you know, they'd map something and we do a story,
Speaker 2: and then when they finally completed it, like it was
Speaker 2: just like why, you know, now we have all the
Speaker 2: information what we can do with it? But here, we
Speaker 2: are here, we are here, we are more to come.
Speaker 2: That means more stories from you, more cover stories. Bloomberg
Speaker 2: News healthcare reporter Kristin V. Brown on this week's Bloomberg
Speaker 2: BusinessWeek cover story, which you can get online on the
Speaker 2: Bloomberg and catch it also on the newstand.
Speaker 4: So you didn't you haven't done one of the customers,
Speaker 4: I have it.
Speaker 3: One of my brothers had.
Speaker 4: Yeah, my sister did it. But I think, okay, if
Speaker 4: she did it, then it's out there.
Speaker 6: Yeah, we know people, it's definitely out there.
Speaker 4: Connected.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 4: Sony Music group, one of the world's biggest record labels.
Speaker 4: They got Lil naz k Selene, dionn or artists. They
Speaker 4: came out today warning AI companies and music streaming platforms
Speaker 4: not to use the company's content without explicit permission. They
Speaker 4: don't want any unauthorized use in the training, development or
Speaker 4: commercialization of AI systems. That's according to a letter obtained
Speaker 4: by Bloomberg News. Also of note to daycare.
Speaker 2: Ownership in a bigger exact way.
Speaker 4: So don't use our songs to train your models. Got
Speaker 4: the memo, You got it?
Speaker 3: Yeah?
Speaker 1: Okay.
Speaker 4: Also of note today in the world of AI, ampier Computing,
Speaker 4: the chip startup backed by Oracle teaming up with Qualcom
Speaker 4: to make equipment for AI computing. It's an area that's
Speaker 4: currently dominated by in video.
Speaker 2: There's just a couple of the AI related headlines today.
Speaker 2: I got to say every morning that we read in
Speaker 2: there's just a lot of stuff going on, partnership, strategic alliances,
Speaker 2: or just news from an AI related company. Fair to say,
Speaker 2: no shortage for more on AI. We're joined by Durgat Malati.
Speaker 2: He's head of AI at qual Comedy joins us from
Speaker 2: San Diego. So great to have you here. With Tim
Speaker 2: and me here on Bloomberg Business Week. Tell us kind
Speaker 2: of about your world and what's top of mind when
Speaker 2: it comes to AI. People say, we're early on in
Speaker 2: this game. If it was a baseball game, it's maybe
Speaker 2: what the first inning, perhaps, But tell us what's top
Speaker 2: of mind when it comes to you guys at Qualcomm.
Speaker 7: First of all, thanks for having me here. There's a
Speaker 7: lot of things that are going on in the space
Speaker 7: of AI as it runs on devices that you and
Speaker 7: I usually use, whether it's handsets or phones, whether it
Speaker 7: is tablets or PCs and so on. So let me
Speaker 7: spend a little bit of time in terms of explaining
Speaker 7: what's really going on out there. So in the last
Speaker 7: two years or so ever, since generative AI started making
Speaker 7: waves in terms of its capabilities, pretty spectacul capabilities, and
Speaker 7: in terms of the kinds of use cases that it
Speaker 7: can unleash. As Qualcom, we've been focused on trying to
Speaker 7: bring that technology into devices that you and I can use.
Speaker 7: And you know, usually one of the questions that comes
Speaker 7: in is why why do you want to run this
Speaker 7: on a device? Why can't you just run it on
Speaker 7: the cloud? I mean, we do use the cloud for
Speaker 7: so many different things and what's wrong actually, So it's
Speaker 7: kind of important to understand what are the benefits that
Speaker 7: you actually have when you run these amazing generitive AI
Speaker 7: models directly on devices. The very first one is related
Speaker 7: to privacy and security. A lot of the times when
Speaker 7: you actually go through generative AI use cases, you might
Speaker 7: be wondering, maybe it's just a chat pot. Maybe I
Speaker 7: ask a question, I get a response, But it doesn't
Speaker 7: have to be just a chat pot. It could be.
Speaker 7: These days we use a lot more of both voice
Speaker 7: based interaction with devices in addition to using camera and
Speaker 7: something else to bring in additional context to the question
Speaker 7: that you're asking. For example, you could be holding up
Speaker 7: your phone and pointing in a certain direction and saying
Speaker 7: what am I looking at? The question itself is meaningless
Speaker 7: unless you kind of put in the rest.
Speaker 4: Of the context, right, The context is important.
Speaker 3: There you are?
Speaker 7: You said, then that's a ton of information that's actually
Speaker 7: going in and that information you want to actually do
Speaker 7: process it locally. You might not be fully comfortable actually
Speaker 7: dealing with all of this in the cloud.
Speaker 4: So Jerga, you say, I totally get it. Why this
Speaker 4: makes sense to have on device, whether that's a smartphone,
Speaker 4: or a PC. We'll talk about PCs in just a minute.
Speaker 4: You said you've been working on this a qual Com.
Speaker 4: Why hasn't it happened yet? Why is it still something
Speaker 4: that you're working on and not something that you've been
Speaker 4: able to bring to market to the extent that you
Speaker 4: want to.
Speaker 7: So, actually, if you take a look at it, at
Speaker 7: least on the smartphone segment, if you take a look
Speaker 7: at some of the premium t your smartphones, whether it's
Speaker 7: a Samsung Galaxy S twenty four or a pixel device
Speaker 7: or something that we are seeing in China with Shaomi
Speaker 7: and Honor and some of the other devices, all these
Speaker 7: devices now are capable of based upon keeping aside the
Speaker 7: pixel part, but everything else based upon snap Dragon platforms
Speaker 7: from Pollcom, running very large language models directly on the device,
Speaker 7: up to seven billion parameters, and these devices are now
Speaker 7: capable of a lot more things than you're used to.
Speaker 7: I do admit that the use cases are still gradually
Speaker 7: waking up to what are the capabilities in the smartphones,
Speaker 7: because that is something that takes a little bit of time.
Speaker 7: But if you've kind of taken a look at some
Speaker 7: of the live translate features or AI based voice assistance,
Speaker 7: the capability to run very large models directly on device
Speaker 7: starts today. It's already exists today in smartphones, and the
Speaker 7: use cases are gradually coming up, and we're doing our
Speaker 7: part on the use cases as well as I kind
Speaker 7: of go through the rest of the discussion.
Speaker 2: Jar you guys have you know, you've been talking about
Speaker 2: phone specifically, but I'm assuming that you're thinking also PC
Speaker 2: as well, And I'm just curious if that's the case,
Speaker 2: and you know, you guys have been trying for years
Speaker 2: to get into the PC market, Why though, hasn't it
Speaker 2: happened so far, and why maybe is it different this
Speaker 2: time around? If that's also on your radar and your mission.
Speaker 7: So absolutely right, and in fact, when we think of devices,
Speaker 7: we usually think in terms of smartphones, PCs, XR devices,
Speaker 7: consumer and industrial iety. So it's the whole gamut of
Speaker 7: devices that we're actually talking about. Of course, automotive sector
Speaker 7: is in a category by itself. Let's talk about PCs
Speaker 7: over here. There is a massive disruption that's coming to
Speaker 7: this specific segment in the context of AIPCS. Now, the
Speaker 7: definition of AIPC is, you know, it's up to different people,
Speaker 7: but from our perspective. It is a PC in which
Speaker 7: not only do you have like the equivalent of everyone
Speaker 7: has heard about copilots, in which you are constantly using
Speaker 7: something else that is run with which you interact with
Speaker 7: quite frequently, and use it for productivity, whether it's in
Speaker 7: creation of documents, edition of the editing documents, are taking
Speaker 7: one kind of a document and translating into another, and
Speaker 7: so on and so forth. This is what we would
Speaker 7: call as like a on demand AI. It's a little
Speaker 7: bit like a thadboard. You ask a question, you get
Speaker 7: an answer. It is more, it is more to it.
Speaker 4: Okay, So if there's more to this and we can
Speaker 4: why do we need an AI PC to do this?
Speaker 4: Why can't we just do this on the powerful machines
Speaker 4: that we already have. Why do they need to be
Speaker 4: AI specific?
Speaker 7: So one thing that I mean these productivity tools are
Speaker 7: they make it significantly more simpler to actually not just
Speaker 7: interact with your device, but actually make it a lot
Speaker 7: a lot of the things that you end up doing
Speaker 7: tend to be far more richer in terms of the
Speaker 7: capabilities in itself. Let me give an example of that.
Speaker 7: By the way, imagine that you're actually on a chat
Speaker 7: session with your colleague and you're actually talkingalking about a
Speaker 7: specific meeting that you just had, and the next thing,
Speaker 7: you know, something pops up saying okay, you want reready
Speaker 7: share the meeting notes with the person and you just
Speaker 7: lick yes and that it immediately goes in. Just think
Speaker 7: through exactly all the things that happened in that whole process.
Speaker 7: First of all, this is now the equivalent of what
Speaker 7: we have been calling as pervasive AI AI, which is
Speaker 7: constantly running inside your PC. It's actually kind of trying
Speaker 7: to encapsulate you as the end user and the PC
Speaker 7: into like one single state and you're constantly predicting, you're
Speaker 7: thinking on its you know, the PC is actually kind
Speaker 7: of almost thinking and anticipating the next move from the
Speaker 7: user and then being very proactively helpful process.
Speaker 2: So we've all got a couple of minutes though, So
Speaker 2: is that why we need an AI PC?
Speaker 7: Specifically combination of the two of the productivity tools plus
Speaker 7: this along with a few other things associated with you know,
Speaker 7: as a as a as a code generator, or as
Speaker 7: a content creator. It is something thing that's constantly running
Speaker 7: in the background. Now, keep in mind that we use
Speaker 7: our PCs regardless of whether we are connected somewhere to
Speaker 7: the cloud or not. I mean, the simplest example is
Speaker 7: you might be on like a long flight and you
Speaker 7: want to actually get some work done during the flight,
Speaker 7: but all you have is just you and the laptop
Speaker 7: at that point in time, regardless of what the connectivity is,
Speaker 7: and you still want to have the same kind of productivity.
Speaker 7: So it does actually really start growing on you. Quite
Speaker 7: a few of us insight qualcomm have been dog footing
Speaker 7: exactly that experience with our own internal reference designs on
Speaker 7: these aipcs, and trust me, it does change the user expedience.
Speaker 2: But what does an AIPC do for the consumer? What
Speaker 2: do they get out of this? The regular consumer?
Speaker 7: A regular consumer? I mean, if you categorize between we
Speaker 7: talked about productivity tools, let's talk about content creation. Content
Speaker 7: creation is also kind of a productivity in its own way,
Speaker 7: so that part is actually quite clear. But if you
Speaker 7: start thinking about all the other things, even when it
Speaker 7: comes to the social interactions and emails and documents, it's
Speaker 7: on a regular use it at the end of the day,
Speaker 7: goes through a mix and match of these different kinds
Speaker 7: of use cases, and we believe that it's actually a
Speaker 7: pretty big differentiator between the before and after. Now, is
Speaker 7: it like a big bang moment that happens? That is
Speaker 7: something that remains to be seen. But we are on
Speaker 7: the cusp of all these launchers that are coming up
Speaker 7: over the next few weeks, and let's see how that
Speaker 7: plays out.
Speaker 4: Do you want me to be replaced Carol by an
Speaker 4: AI PC? Is that where you're hinting at?
Speaker 3: Come on, No, not gonna happen.
Speaker 4: Hey, not gonna happen this year. Avatar Avatar to prepare
Speaker 4: for the show and then the real life Carol and
Speaker 4: Tim get to do that.
Speaker 2: Avatars can do all the work and uh, and then
Speaker 2: we just step in. Yeah, I'm down with that turret.
Speaker 2: Thank you so much. Really appreciate getting some time with you.
Speaker 3: Malati.
Speaker 2: He's head of AI over at Qualkam, joining us from
Speaker 2: San Diego.
Speaker 7: Marco.
Speaker 1: Journal.
Speaker 4: Let me drive, honey, please, I'll travel.
Speaker 2: I want to try.
Speaker 8: It's good question.
Speaker 1: This is the drive to the Clothes well down on
Speaker 1: Bloomberg Radio.
Speaker 4: It is that time. Can you believe it, Carol? About
Speaker 4: eighteen minutes from the clothes on Thursday. Neur loves. They
Speaker 4: can't stocks can't go up every day, Carol.
Speaker 2: They can't. Okay, thank you too.
Speaker 4: You're welcome.
Speaker 3: I do not I know that you just started doing that.
Speaker 4: You just started doing this.
Speaker 3: I remember the drop during the pandemic. Yeah, great financial crisis.
Speaker 4: I'm just kidding so much.
Speaker 3: We're a little punchy today.
Speaker 4: We have reason to be punchy, though, we do. You
Speaker 4: got you got a four day week. I have a
Speaker 4: three day week.
Speaker 3: Yeah.
Speaker 1: So yeah, I don't know.
Speaker 4: This is your Friday.
Speaker 3: Yeah, I'm happy.
Speaker 4: Hey, I want to get Ryan Kelly's thoughts. He's Chief
Speaker 4: investment officer portfolio manager at Hennessy Funds. Ryan manages the
Speaker 4: Hennessy Cornerstone MidCap thirty Fund. It's concentrated a portfolio with
Speaker 4: thirty small and mid cap stocks and carol its performance
Speaker 4: so far this year, it's at twenty three percent. It
Speaker 4: puts it in the ninety eighth percent tile of its peers,
Speaker 4: and it's in the ninety eight or ninety ninth percentile
Speaker 4: on a one, three and five year time for him too.
Speaker 4: So pretty good performance, Ryan.
Speaker 2: You gotta feel good. You just pack it up, go
Speaker 2: home and say, folks were done for the year. There's
Speaker 2: my year to date. No, so good to have you
Speaker 2: here with us. Once again, I don't know. Do I
Speaker 2: hate to ask like macro for you because I feel
Speaker 2: like what we really care about is like what you're
Speaker 2: thinking and buying because you guys kind of drill down
Speaker 2: and have a limited portfolio. Having said that, is there
Speaker 2: anything in the macro that you care about that you
Speaker 2: think investors should keep on your radar that you keep
Speaker 2: on your radar?
Speaker 8: Well, you know, I mean, thanks for having me on.
Speaker 8: First of all, Carol and Tim, I was looking back
Speaker 8: and I think the first time we spoke was almost
Speaker 8: ten years ago.
Speaker 5: CA.
Speaker 8: We're talking about gas utilities, so prior to the Great
Speaker 8: Financial Crisis, as you mentioned.
Speaker 2: Which is a reminder, right, which is a reminder we
Speaker 2: have market cycles, That's right.
Speaker 8: But you know, I would say that when we look
Speaker 8: at this fund and thinking about more macro, we like
Speaker 8: the mid cap space, and this is a mid cap portfolio,
Speaker 8: small to mid cap. We really look at companies that
Speaker 8: are between one and ten billion in market cap, and
Speaker 8: we like that space for a few different reasons. Number one,
Speaker 8: these are companies that are usually big enough that they
Speaker 8: already have a good track record, they've already seen some growth,
Speaker 8: they're big enough to matter, but yet they're still small
Speaker 8: enough that they can continue to grow into different use
Speaker 8: there whatever they or do, or whatever technology they have,
Speaker 8: they can move it into different industries. They can continue
Speaker 8: to grow and take market share from the bigger guys,
Speaker 8: and that kind of puts them in a unique space.
Speaker 8: And then we also like them because they can also
Speaker 8: be an acquisition target for some of the larger companies
Speaker 8: as well, and they actually could make a difference. So
Speaker 8: for this reason we like mid caps. They also are
Speaker 8: more attractively valued, and that's certainly helped this fund over
Speaker 8: many years. You know, these are companies that are not
Speaker 8: quite well, you're not going to find as many of
Speaker 8: the you know, large cap techs that are in the
Speaker 8: AI stocks that are trading at really high valuations. But
Speaker 8: rather than some of these companies are, especially the ones
Speaker 8: we look at, are you know, more attractively valued, maybe
Speaker 8: less growth, maybe simpler and less exciting to look at.
Speaker 4: But let's talk about some of these companies because they're
Speaker 4: no judgment, but like they're not the shiny objects of
Speaker 4: AI like you mentioned be kind in fact, well, look,
Speaker 4: I mean performance speaks for itself. Yeah that's true, no question,
Speaker 4: But I mean some people might be surprised to find
Speaker 4: that your number one position is in the gap at
Speaker 4: six point three percent your portfolio. This is a company
Speaker 4: that has seriously struggled. This is not the gap of
Speaker 4: the nineties these days.
Speaker 8: Absolutely.
Speaker 4: What is it about gap? Fo hows you bullish?
Speaker 8: Sure? Well, it really just fits all their criteria. We
Speaker 8: look for companies that are out of favor. We look
Speaker 8: for companies that they end up being out of favor
Speaker 8: and they show up because they're trading at lower valuations.
Speaker 8: One of our biggest metrics that we look at is
Speaker 8: a price to sales of less than one point five times.
Speaker 8: That's actually pretty strict. There's only about a third of
Speaker 8: the companies in the entire market that are trading at
Speaker 8: one point five times sales are less. And then what
Speaker 8: this usually gives us is either sectors or companies that
Speaker 8: are good companies overall but just don't see that same
Speaker 8: kind of valuation that others will. We'll see. Then what
Speaker 8: we do is we make sure we look at only
Speaker 8: the companies that have seen earnings growth on a year
Speaker 8: year basis and that have three and six months positive
Speaker 8: stock performance. If you have all that, we look at
Speaker 8: your twelve month performance and we add you into the portfolio.
Speaker 8: So what happens is we see this time and time again.
Speaker 8: We saw this with Energy four years ago when nobody
Speaker 8: liked energy. We saw at one point with homebuilders, and
Speaker 8: we saw this year as you mentioned, with Gap and
Speaker 8: Abercrombin Fitch and even Guests. These are all apparel retail
Speaker 8: We bought them all prior to the holiday season, and
Speaker 8: we buy them at a three percent position when we
Speaker 8: rebalance in October. And as you said, Gap is now
Speaker 8: six and a half percent, so it's doubled since we
Speaker 8: bought it. And that's just the way that we do it.
Speaker 8: We want to buy these companies as they have some
Speaker 8: momentum and just hold on to them for a period
Speaker 8: of time about a year each time, before we rebalance
Speaker 8: again the next year.
Speaker 2: Really interesting eight point one billion dollar market cap. The
Speaker 2: Gap company is down to about fourteen percent of the
Speaker 2: float is shorted up about four and a quarter percent
Speaker 2: this year. But interesting, and I guess I think we
Speaker 2: all are kind of waiting for some next chapter, certainly
Speaker 2: for this name and whether I don't.
Speaker 3: Know, we'll see where it goes.
Speaker 2: You like, another retailer, Abercromi Fitch is in there also
Speaker 2: I don't know take us to Is there any one
Speaker 2: in particular that's one of your more recent ads?
Speaker 7: Sure?
Speaker 1: Well.
Speaker 8: Actually, all those stocks we're talking about, except for three,
Speaker 8: were added in October. The way that we do this
Speaker 8: is we only rebalance once per year. So we like
Speaker 8: to buy them and hold them and see what happens,
Speaker 8: and we let the winners ride, and if some stocks
Speaker 8: aren't doing well for a period of time, we continue
Speaker 8: to own them as well. And when you buy all
Speaker 8: stocks at an equate position at three percent three point
Speaker 8: three percent, because there's thirty of them, we'll get some
Speaker 8: that really outperform others. So we've talked about the retail,
Speaker 8: the apparel retail gap in Abercrombie. We also have a couple,
Speaker 8: believe it or not, of stocks that have done very well.
Speaker 3: Can I say Sprouts?
Speaker 2: Oh, in the industrial space, Sprouts is up sixty percent
Speaker 2: this year.
Speaker 3: It's now wow.
Speaker 8: Yeah, that's been a great holding for us. Sprouts two companies,
Speaker 8: Moting Manufacturing and Comfort Systems. They do HVA system HVAC systems,
Speaker 8: they do heating and cooling, and they're up very nicely
Speaker 8: since we purchased them last October. So these are the
Speaker 8: types of companies that the fund buys and that we
Speaker 8: put in the fund, and sometimes they're just not quite
Speaker 8: as exciting or interesting as other stocks out there. But
Speaker 8: over time, as you can see it, it's done pretty well.
Speaker 3: You know, it's fascinating.
Speaker 2: Modine by the way, up about seventy four percent this year,
Speaker 2: coming back from milking, like you know, private equity and
Speaker 2: so on and so forth, you talk to them, even
Speaker 2: private credit. Like so many people play in that mid
Speaker 2: cap space that we focus so much on the big
Speaker 2: caps and then we get into kind of small caps
Speaker 2: or venture and so on and so forth, but there's
Speaker 2: so much happening in the mid cap space that is
Speaker 2: so much I feel like when we talk about really
Speaker 2: you know, backbone of the economy, it's so many of
Speaker 2: these companies.
Speaker 3: Ryan always fun, ten years in counting.
Speaker 2: Really great to check in with your congratulations because you're fun,
Speaker 2: as we said.
Speaker 3: Just beating pretty much everyone out there. Yeah, so well done,
Speaker 3: Well done.
Speaker 2: Brian Kelly, chief investment Officer portfolio manager at Hennessy Funds,
Speaker 2: joining us there from Chapel Hill, North Carolina.
Speaker 3: I love talking names with him, and.
Speaker 4: I love gap Abercrombie, Sprouts, Low.
Speaker 2: Dean Manufacturing, cool, really cool stuff.
Speaker 3: This is Bloomberg.
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