1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am 3 00:00:14,600 --> 00:00:17,880 Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg 4 00:00:17,920 --> 00:00:21,040 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,360 --> 00:00:23,080 Speaker 1: or watch us live on YouTube. 6 00:00:23,960 --> 00:00:27,640 Speaker 2: All right, I listen on the Bloomberg Mobile app. 7 00:00:27,800 --> 00:00:29,800 Speaker 3: Good right, I have the Black app, so I'm always 8 00:00:29,880 --> 00:00:33,880 Speaker 3: listening to Bloomberg Radio on that. When you do, you'll 9 00:00:33,880 --> 00:00:37,239 Speaker 3: hear stories about Nvidia, undoubtedly every single day, as it's 10 00:00:37,280 --> 00:00:41,440 Speaker 3: the largest company in the world. It's investing, to today's story, 11 00:00:41,479 --> 00:00:46,280 Speaker 3: two billion dollars in Nebious. It's a new data center deal. 12 00:00:46,880 --> 00:00:52,360 Speaker 3: Nebbius obviously is one of those neo cloud companies. And 13 00:00:52,440 --> 00:00:55,160 Speaker 3: we've got Man Deep sing here from Bloomberg Intelligence. He 14 00:00:55,480 --> 00:00:58,880 Speaker 3: runs our technology coverage for BI to talk a little 15 00:00:58,920 --> 00:01:03,320 Speaker 3: bit about this in Nvidia deal, as well as what's 16 00:01:03,360 --> 00:01:05,480 Speaker 3: going on with Uber and Zooks, though I guess that's 17 00:01:05,520 --> 00:01:08,119 Speaker 3: far less important. And indeed, what do you make of 18 00:01:08,160 --> 00:01:11,360 Speaker 3: the I mean, it seems relatively small, right compared to 19 00:01:11,520 --> 00:01:14,880 Speaker 3: a four trillion dollar market cap company throwing a easily 20 00:01:14,920 --> 00:01:16,399 Speaker 3: two billion dollars at Nebus. 21 00:01:16,440 --> 00:01:17,440 Speaker 4: But what does it get them. 22 00:01:17,760 --> 00:01:21,960 Speaker 5: I mean things are changing in terms of the ecosystem 23 00:01:22,319 --> 00:01:25,839 Speaker 5: and the partnerships that these companies had. Remember in Vidio 24 00:01:25,959 --> 00:01:29,520 Speaker 5: plan to spend almost one hundred billion dollars with open 25 00:01:29,560 --> 00:01:31,880 Speaker 5: Ai at one point, so they scale that back to 26 00:01:32,000 --> 00:01:34,000 Speaker 5: thirty billion in their latest funding round. 27 00:01:34,360 --> 00:01:34,880 Speaker 2: Oh guess what. 28 00:01:35,160 --> 00:01:39,000 Speaker 5: They are investing a lot more in neoclouds, whether it's 29 00:01:39,000 --> 00:01:43,720 Speaker 5: cor Viv or Nebus. Now, basically from an Invidia standpoint, 30 00:01:43,800 --> 00:01:48,320 Speaker 5: they want more fragmentation. They don't want that cloud world 31 00:01:48,480 --> 00:01:52,000 Speaker 5: to be limited to three hyperscalers. They want as much 32 00:01:52,040 --> 00:01:55,600 Speaker 5: fragmentation as they can for their chips. And really, in 33 00:01:55,640 --> 00:01:58,840 Speaker 5: this case, in Nebus case, they want to build an 34 00:01:59,000 --> 00:02:02,320 Speaker 5: end to end in Vidio stack that Nebus is hosting, 35 00:02:02,360 --> 00:02:05,880 Speaker 5: and they are getting clients to use you know, Nvidia 36 00:02:06,120 --> 00:02:10,320 Speaker 5: throughout whether it's training, inferencing, and really optimize the performance 37 00:02:10,639 --> 00:02:13,360 Speaker 5: to the Nvidia stack because in the end, you know, 38 00:02:13,560 --> 00:02:17,520 Speaker 5: five years down the line, will the supply demand equation 39 00:02:17,600 --> 00:02:20,600 Speaker 5: would be very different. Right now, everyone is supply constrain, 40 00:02:20,919 --> 00:02:23,959 Speaker 5: but they are thinking five ten years ahead when chips 41 00:02:24,000 --> 00:02:27,120 Speaker 5: could again become a commodity. They don't want that to happen. 42 00:02:27,160 --> 00:02:28,920 Speaker 5: They want this to be more fragmented. 43 00:02:29,560 --> 00:02:33,079 Speaker 6: Does this deal, this two billion dollar investment, put NEBS 44 00:02:33,080 --> 00:02:35,400 Speaker 6: on the map? I mean, is this you know, game 45 00:02:35,480 --> 00:02:37,200 Speaker 6: changer for that neocloud company? 46 00:02:37,400 --> 00:02:41,959 Speaker 5: Absolutely? Right now it is all about raising the funds, 47 00:02:42,000 --> 00:02:45,280 Speaker 5: which we heard from Oracle last night. They're not going 48 00:02:45,320 --> 00:02:47,880 Speaker 5: to the band market anymore. And that's why you saw 49 00:02:47,880 --> 00:02:52,119 Speaker 5: a positive reaction. So the market is very sensitive about 50 00:02:52,639 --> 00:02:56,920 Speaker 5: raising more debt to finance the infrastructure build out, and 51 00:02:56,960 --> 00:03:00,480 Speaker 5: that's why Oracle saw such a big pushback. I'm sure 52 00:03:00,520 --> 00:03:02,720 Speaker 5: it's the same for core Weave as well. 53 00:03:03,080 --> 00:03:04,040 Speaker 4: And so if. 54 00:03:03,840 --> 00:03:07,480 Speaker 5: Nebus is getting two billion dollars from in Vidia, and 55 00:03:07,560 --> 00:03:10,639 Speaker 5: you can say it's circular financing to buy in Vidia chips, 56 00:03:11,000 --> 00:03:14,360 Speaker 5: but it alleviates that need to go to the bard 57 00:03:14,440 --> 00:03:17,400 Speaker 5: market to raise a two billion dollars And so from 58 00:03:17,440 --> 00:03:20,160 Speaker 5: that perspective, it does solve that problem that you know, 59 00:03:20,240 --> 00:03:23,080 Speaker 5: they don't have to raise money right away. 60 00:03:23,240 --> 00:03:27,560 Speaker 3: I mean, they're only one of two neo cloud companies 61 00:03:27,600 --> 00:03:31,239 Speaker 3: anyone's ever heard of, right, No one knows core Weave. Yeah, 62 00:03:31,240 --> 00:03:32,799 Speaker 3: beyond core Weave and nebbyus, what is. 63 00:03:32,720 --> 00:03:37,920 Speaker 7: There there are there are you probably know all me 64 00:03:38,000 --> 00:03:42,160 Speaker 7: and Scarlett core Weave and then and that's number one, 65 00:03:42,280 --> 00:03:44,880 Speaker 7: and Nebyus is the also ran right with by the way, 66 00:03:44,920 --> 00:03:47,680 Speaker 7: way to the average cost of capital at Nebus twenty percent. 67 00:03:48,360 --> 00:03:48,880 Speaker 4: There you go. 68 00:03:49,000 --> 00:03:50,760 Speaker 2: So, yes, they don't want to have to go out 69 00:03:50,800 --> 00:03:51,760 Speaker 2: and raise money. 70 00:03:51,760 --> 00:03:54,960 Speaker 3: They'd rather have a chip maker give them money to 71 00:03:55,000 --> 00:03:56,400 Speaker 3: buy that chip maker's chips. 72 00:03:56,640 --> 00:03:58,560 Speaker 6: Yes, that's what they cost her to a financing. And 73 00:03:58,600 --> 00:04:00,640 Speaker 6: that's what has some people concerned. 74 00:04:00,920 --> 00:04:04,720 Speaker 3: I mean, why doesn't in Vidia just its own neo 75 00:04:04,760 --> 00:04:06,440 Speaker 3: cloud company. 76 00:04:06,080 --> 00:04:10,160 Speaker 5: They are, they do have a DGX cloud offering. But look, 77 00:04:10,240 --> 00:04:16,000 Speaker 5: in this case, Nvidia has new architectures every twelve months. 78 00:04:16,360 --> 00:04:18,640 Speaker 2: They have already announced their Ruben architecture. 79 00:04:18,800 --> 00:04:22,480 Speaker 5: So what they want is these neo clouds to have 80 00:04:23,400 --> 00:04:27,120 Speaker 5: those new chips first, as opposed to an Amazon or 81 00:04:27,200 --> 00:04:31,240 Speaker 5: a Microsoft. And that serves them well because these new 82 00:04:31,320 --> 00:04:34,320 Speaker 5: clouds will end up signing up customers which will be 83 00:04:34,360 --> 00:04:37,440 Speaker 5: long term customers, and that I think it's great for 84 00:04:37,600 --> 00:04:39,120 Speaker 5: Nvidia to have that fragmentation. 85 00:04:39,160 --> 00:04:41,480 Speaker 3: Can I I'm gonna throw an audible here if you 86 00:04:41,520 --> 00:04:43,640 Speaker 3: don't mind, because we were going to talk about uber zooks, 87 00:04:43,680 --> 00:04:44,800 Speaker 3: but I mean it. 88 00:04:44,760 --> 00:04:46,440 Speaker 6: Doesn't matter in the context of Invidia. 89 00:04:46,440 --> 00:04:49,200 Speaker 3: I mean, they're cool looking little things, but I don't care. 90 00:04:50,520 --> 00:04:53,160 Speaker 3: What I care more about is this chip battle. 91 00:04:53,360 --> 00:04:53,520 Speaker 8: Right. 92 00:04:53,600 --> 00:04:59,520 Speaker 3: We knew Nvidia completely and totally dominated, still does I'm guessing. 93 00:05:00,720 --> 00:05:03,400 Speaker 2: Google has a chip that's like a contender. 94 00:05:04,000 --> 00:05:08,160 Speaker 3: Amazon has Trainium, and I thought that Meta had just 95 00:05:08,320 --> 00:05:11,440 Speaker 3: like you know, not joined the party. But now they 96 00:05:11,520 --> 00:05:14,320 Speaker 3: just showed up, Right, that's breaking news this morning at 97 00:05:14,320 --> 00:05:15,800 Speaker 3: ten o'clock. What's Meta deploying? 98 00:05:16,200 --> 00:05:19,080 Speaker 5: And look, that's the big risk for an Nvidia is 99 00:05:19,160 --> 00:05:23,080 Speaker 5: all these hyperscalers don't want to spend you know, thirty 100 00:05:23,120 --> 00:05:26,200 Speaker 5: forty billion dollars a year on buying Nvidia chips, so 101 00:05:26,320 --> 00:05:30,919 Speaker 5: that's where they will continuously try and develop their own chips. Now, 102 00:05:31,160 --> 00:05:34,760 Speaker 5: Meta is way behind at Google TPU. Google TPU is 103 00:05:34,800 --> 00:05:38,320 Speaker 5: still you know, deployed. They have seven versions of their chips. 104 00:05:38,560 --> 00:05:41,039 Speaker 5: Meta is still in the initial stages of building. But 105 00:05:41,160 --> 00:05:44,520 Speaker 5: with the scale that Meta has, that means down the 106 00:05:44,560 --> 00:05:48,040 Speaker 5: line it will be less off a purchase for Invidia, 107 00:05:48,120 --> 00:05:50,480 Speaker 5: and that's the risk that Nvidia wants to avoid. 108 00:05:50,520 --> 00:05:53,760 Speaker 6: Here, Stay with us. More from Bloomberg Intelligence coming up 109 00:05:53,839 --> 00:05:54,280 Speaker 6: after this. 110 00:05:57,960 --> 00:06:01,679 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 111 00:06:01,760 --> 00:06:04,839 Speaker 1: weekdays at ten am easterne on apple Cockplay and Android 112 00:06:04,839 --> 00:06:08,159 Speaker 1: Auto with the Blueberg Business app. Listen on demand wherever 113 00:06:08,200 --> 00:06:11,320 Speaker 1: you get your podcasts, or watch us live on YouTube. 114 00:06:11,400 --> 00:06:14,599 Speaker 6: Through the big gainer and the stock that everyone's paying 115 00:06:14,600 --> 00:06:18,000 Speaker 6: attention to right now is Oracle biggest performer, biggest gainer, 116 00:06:18,000 --> 00:06:19,479 Speaker 6: I should say in the S and P five hundred 117 00:06:19,520 --> 00:06:22,200 Speaker 6: best performer up more than ten percent. And in fact, 118 00:06:22,279 --> 00:06:24,560 Speaker 6: this looks like the best day for Oracle if it 119 00:06:24,600 --> 00:06:28,240 Speaker 6: closes at these levels, biggest rally since it announced that 120 00:06:28,240 --> 00:06:31,360 Speaker 6: three hundred billion dollar open aideal. Let's bring in on 121 00:06:31,520 --> 00:06:33,560 Speaker 6: rag Rana. He is our go to guy in all 122 00:06:33,560 --> 00:06:35,440 Speaker 6: things tech because he is our tech analyst here a 123 00:06:35,440 --> 00:06:39,640 Speaker 6: Bloomberg Intelligence and Oracle did report earnings. Were the earnings 124 00:06:39,680 --> 00:06:43,039 Speaker 6: that solid to justify this massive ten percent in advance? 125 00:06:43,400 --> 00:06:45,000 Speaker 9: You know, I think when you go back and see 126 00:06:45,080 --> 00:06:49,160 Speaker 9: when when Microsoft and Amazon and Google reported, they all 127 00:06:49,200 --> 00:06:53,160 Speaker 9: talked about increasing capics and that spooked investors out. And 128 00:06:53,320 --> 00:06:56,960 Speaker 9: I mean, I guess Oracle had the foresight to say that, Listen, 129 00:06:57,040 --> 00:07:00,440 Speaker 9: we added a lot more backlock to our you know, 130 00:07:01,000 --> 00:07:03,880 Speaker 9: balance sheet, but we're not raising capex. I think that's 131 00:07:03,920 --> 00:07:07,599 Speaker 9: the big difference right now. That's what the market is less. 132 00:07:08,040 --> 00:07:10,680 Speaker 9: I think concerned about that maybe they're going to be 133 00:07:10,840 --> 00:07:14,040 Speaker 9: not as aggressive as the others in terms of capital expender. 134 00:07:14,160 --> 00:07:16,440 Speaker 6: So it's relief that it did not say it's full 135 00:07:16,480 --> 00:07:17,080 Speaker 6: your outlook. 136 00:07:17,320 --> 00:07:17,920 Speaker 2: Yeah. Yeah. 137 00:07:18,000 --> 00:07:20,120 Speaker 9: And the other thing you have to say is when 138 00:07:20,160 --> 00:07:23,080 Speaker 9: you look at their press release, they talked about two things. 139 00:07:23,360 --> 00:07:27,120 Speaker 9: One was for the customers coming in, they're going to 140 00:07:27,120 --> 00:07:29,400 Speaker 9: ask them to prepay some of that stuff or they're 141 00:07:29,400 --> 00:07:31,920 Speaker 9: going to ask them to bring their own GPUs because 142 00:07:32,040 --> 00:07:34,240 Speaker 9: it just shows them being a little bit more disciplined 143 00:07:34,240 --> 00:07:35,000 Speaker 9: on the fin out side. 144 00:07:35,040 --> 00:07:37,400 Speaker 8: Do you bundle them into the other big guys or are 145 00:07:37,360 --> 00:07:40,080 Speaker 8: they a separate bolt and almost to meg seven. 146 00:07:40,000 --> 00:07:42,560 Speaker 9: It was a bolt on for the cloud providers a 147 00:07:42,640 --> 00:07:45,720 Speaker 9: few years ago, but in the last two years, the 148 00:07:45,840 --> 00:07:48,800 Speaker 9: orders that they're getting from open Ai has really catapulting 149 00:07:48,840 --> 00:07:50,400 Speaker 9: them into the biggest category. 150 00:07:50,440 --> 00:07:53,240 Speaker 8: People go to Oracle, what's their distinction versus going to 151 00:07:53,280 --> 00:07:54,400 Speaker 8: the forty seven others. 152 00:07:54,600 --> 00:07:56,800 Speaker 9: Well, the thing is there are only three big ones, 153 00:07:56,840 --> 00:08:01,920 Speaker 9: the Amazon, Microsoft and Google. Frankly, the Oracle only is 154 00:08:01,920 --> 00:08:03,680 Speaker 9: another one that has the capital to come up with 155 00:08:03,680 --> 00:08:06,520 Speaker 9: a cloud infrastructure at par with some of the others. 156 00:08:07,160 --> 00:08:09,960 Speaker 6: However, you look at what Oracle's results also showed, which 157 00:08:10,000 --> 00:08:12,000 Speaker 6: is that cash flow is going to remain negative for 158 00:08:12,000 --> 00:08:13,920 Speaker 6: the next few years. And this is a company that's 159 00:08:13,920 --> 00:08:17,800 Speaker 6: definitely looking at its expense line. You mentioned how some 160 00:08:17,800 --> 00:08:19,560 Speaker 6: cloud customers will pay for their own ships, so they're 161 00:08:19,600 --> 00:08:23,400 Speaker 6: being more discerning in that regard. But they've also are 162 00:08:23,480 --> 00:08:26,440 Speaker 6: making plans, according to our reporting, to cut thousands of 163 00:08:26,520 --> 00:08:29,880 Speaker 6: jobs too. How much fat can they cut right now? 164 00:08:30,080 --> 00:08:32,199 Speaker 9: That's a very good question because when you look at 165 00:08:32,200 --> 00:08:35,080 Speaker 9: their gross margin declined quite a bit, but their operating 166 00:08:35,120 --> 00:08:38,520 Speaker 9: margin or they adjusted operating margin, was only down one percent, 167 00:08:38,600 --> 00:08:41,240 Speaker 9: which is basically that they cut so much in sales 168 00:08:41,240 --> 00:08:44,920 Speaker 9: and marketing and general and administrative expenses to offset some 169 00:08:44,960 --> 00:08:45,480 Speaker 9: of that pressure. 170 00:08:45,520 --> 00:08:47,120 Speaker 4: But you're right, they cannot do that forever. 171 00:08:47,679 --> 00:08:49,800 Speaker 9: They really need to get scale in and see the 172 00:08:49,800 --> 00:08:52,839 Speaker 9: benefits of these cloud contracts in order to offset that. 173 00:08:52,920 --> 00:08:54,680 Speaker 8: I mean, I know you don't talk to Robert Schiffman, 174 00:08:54,760 --> 00:08:56,640 Speaker 8: you're not in speaking terms, but it just put out 175 00:08:56,640 --> 00:09:00,160 Speaker 8: a blistering note on Salesforce and their bond deal and 176 00:09:00,440 --> 00:09:04,439 Speaker 8: rag Rana. On a given thirty forty billion dollar cash call, 177 00:09:04,559 --> 00:09:07,680 Speaker 8: they make four phone calls, maybe five, They bring it 178 00:09:07,720 --> 00:09:10,760 Speaker 8: in three four times over subscribe. Does this party just 179 00:09:10,840 --> 00:09:12,920 Speaker 8: keep on going for the man seven. 180 00:09:13,200 --> 00:09:14,880 Speaker 9: The question is for how long? I mean, I think 181 00:09:14,880 --> 00:09:17,240 Speaker 9: that's the big concern. But when we talk about Oracle, 182 00:09:17,280 --> 00:09:20,840 Speaker 9: for example, their bounty was oversubscribed, but now they have 183 00:09:20,920 --> 00:09:23,240 Speaker 9: to go in the market and raise equity also because 184 00:09:23,280 --> 00:09:25,240 Speaker 9: one of the things they have said is they don't 185 00:09:25,240 --> 00:09:27,320 Speaker 9: want to get rid of their investment grade ratings. So 186 00:09:27,559 --> 00:09:29,320 Speaker 9: I think this is where a lot of the relief 187 00:09:29,360 --> 00:09:31,640 Speaker 9: is coming for for some of the investors, that they're 188 00:09:31,640 --> 00:09:34,600 Speaker 9: going to have a much more balanced approach on raising to. 189 00:09:34,600 --> 00:09:37,840 Speaker 8: Finally be adults instead of being pri Madonna's. You were 190 00:09:37,920 --> 00:09:41,080 Speaker 8: up at Buffalo years ago, read about these pri Ma 191 00:09:41,160 --> 00:09:43,840 Speaker 8: Donnas out on the West coast, and now they're finally 192 00:09:43,880 --> 00:09:45,119 Speaker 8: growing up right. 193 00:09:44,920 --> 00:09:47,760 Speaker 9: Well, that's because the investors aren't behaving differently than they 194 00:09:47,760 --> 00:09:50,520 Speaker 9: were before. I mean, when last year we saw Microsoft 195 00:09:50,600 --> 00:09:53,520 Speaker 9: raising capecks, everybody was liking it. But just a month 196 00:09:53,600 --> 00:09:55,560 Speaker 9: a month and a half ago, when they talked about 197 00:09:55,640 --> 00:09:58,679 Speaker 9: raising capecks, all the cloud providers fell down. So that's 198 00:09:58,679 --> 00:10:00,640 Speaker 9: a lesson for the next one. Come in and say, 199 00:10:00,679 --> 00:10:01,920 Speaker 9: I don't want to get that message. 200 00:10:01,960 --> 00:10:03,679 Speaker 5: Can I do an audible always? 201 00:10:03,760 --> 00:10:05,440 Speaker 8: What in God's name do you read? 202 00:10:05,760 --> 00:10:07,280 Speaker 4: I mean how do you keep up on this? 203 00:10:07,440 --> 00:10:09,719 Speaker 8: When I was a kid, the old man would say 204 00:10:09,760 --> 00:10:13,360 Speaker 8: in a stupid read this article in MIT Technology Review 205 00:10:13,559 --> 00:10:14,880 Speaker 8: because he really covered a cover. 206 00:10:15,200 --> 00:10:16,559 Speaker 2: What do you read to keep up? 207 00:10:16,720 --> 00:10:16,960 Speaker 6: Tom? 208 00:10:17,000 --> 00:10:18,240 Speaker 4: It's very hard nowadays. 209 00:10:18,280 --> 00:10:21,800 Speaker 9: I think the podcast recently where Satya is speaking, or 210 00:10:22,080 --> 00:10:24,319 Speaker 9: you know, when when the Google CEO is speaking, those 211 00:10:24,320 --> 00:10:26,520 Speaker 9: are the ones you really have to follow because the 212 00:10:26,640 --> 00:10:29,400 Speaker 9: text speed of the innovation is just so fast that 213 00:10:29,640 --> 00:10:30,920 Speaker 9: you know anything. 214 00:10:30,600 --> 00:10:33,000 Speaker 4: From six months ago. I mean it's just antique. 215 00:10:33,320 --> 00:10:35,920 Speaker 6: And of course you're listening to these podcasts at double 216 00:10:36,000 --> 00:10:39,480 Speaker 6: or triple times the speed. I'm sure when Satya talks, 217 00:10:40,120 --> 00:10:46,480 Speaker 6: when the CEO Satya in Adella of Microsoft, when Satya talks. 218 00:10:45,880 --> 00:10:48,080 Speaker 2: How do I just love Mark busting her check? 219 00:10:49,920 --> 00:10:52,240 Speaker 6: How much does he really reveal or is it in 220 00:10:52,280 --> 00:10:55,240 Speaker 6: what he does not say that you get your your 221 00:10:55,480 --> 00:10:58,080 Speaker 6: most insightful thoughts on what's next? 222 00:10:58,320 --> 00:11:00,880 Speaker 9: I think I really look for him to figured out 223 00:11:00,920 --> 00:11:02,800 Speaker 9: how much is he going to spend more? Because at 224 00:11:02,800 --> 00:11:05,040 Speaker 9: the end of the day, he is not somebody who 225 00:11:05,080 --> 00:11:07,200 Speaker 9: benefits from buying in video chips. I mean, he's the 226 00:11:07,200 --> 00:11:10,240 Speaker 9: one who's funding a lot of this expansion with you know, 227 00:11:10,320 --> 00:11:13,080 Speaker 9: let's say, according to our calculations, he's spending in a 228 00:11:13,160 --> 00:11:16,800 Speaker 9: year fifty to sixty billion dollars just on in video GPUs. 229 00:11:17,040 --> 00:11:18,319 Speaker 4: That's a very big amount. 230 00:11:18,600 --> 00:11:21,160 Speaker 9: So if he's doing it for the reason, I have 231 00:11:21,240 --> 00:11:23,120 Speaker 9: to see that there is some AUTOAI to that. 232 00:11:23,400 --> 00:11:26,439 Speaker 8: So I'm at Palladino's down at Grand Central Station at 233 00:11:26,440 --> 00:11:29,920 Speaker 8: the Bourbon Bar with Joseph. He's just like old school bartender. 234 00:11:29,960 --> 00:11:32,120 Speaker 8: He's like, he's not a mad manner something like. Somebody 235 00:11:32,120 --> 00:11:34,400 Speaker 8: comes up to me and they go, do they really 236 00:11:34,440 --> 00:11:36,600 Speaker 8: not let man deep sing an Anna rug run in 237 00:11:36,640 --> 00:11:39,880 Speaker 8: the same room? Do you guys when you're at seven 238 00:11:39,960 --> 00:11:42,040 Speaker 8: thirty when lexing dinner? Are you too allowed to speak 239 00:11:42,120 --> 00:11:43,920 Speaker 8: now that we sit next to each other? Absolutely? 240 00:11:44,040 --> 00:11:44,319 Speaker 5: Really? 241 00:11:44,400 --> 00:11:46,640 Speaker 8: Yeah, Okay, I just the guy came up to me 242 00:11:46,679 --> 00:11:48,440 Speaker 8: and I said, I really don't know. I mean, there's 243 00:11:48,440 --> 00:11:50,920 Speaker 8: just so much you know, Scarlet, there's just so much 244 00:11:51,000 --> 00:11:51,720 Speaker 8: voltage there. 245 00:11:51,880 --> 00:11:53,640 Speaker 6: There's a lot of voltage there. And we tend to 246 00:11:53,679 --> 00:11:56,240 Speaker 6: have them both on but at separate times because we've 247 00:11:56,240 --> 00:11:59,120 Speaker 6: got to make sure that we sprinkle their expertise throughout 248 00:11:59,160 --> 00:11:59,560 Speaker 6: the hours. 249 00:11:59,720 --> 00:12:03,079 Speaker 8: Yeah. Well, also there's the security issues as well. How 250 00:12:03,120 --> 00:12:05,400 Speaker 8: many players are there going to be in five years? 251 00:12:05,880 --> 00:12:08,320 Speaker 9: See on the hyperskate cloud providers. We know of the 252 00:12:08,360 --> 00:12:12,200 Speaker 9: top three for sure, it's Amazon, Microsoft neck to neck, 253 00:12:12,400 --> 00:12:15,280 Speaker 9: then Google, then Oracle. Then you have the new cloud 254 00:12:15,320 --> 00:12:17,319 Speaker 9: providers that's Core, Weave and Nevius. 255 00:12:17,559 --> 00:12:18,280 Speaker 2: So these are the. 256 00:12:18,240 --> 00:12:22,120 Speaker 9: Five I watched most closely right now because they have 257 00:12:22,240 --> 00:12:25,160 Speaker 9: the capital, They are the ones with the leading chips 258 00:12:25,240 --> 00:12:27,400 Speaker 9: right now, and they are the ones everybody is going 259 00:12:27,400 --> 00:12:30,600 Speaker 9: through to build their applications or run their infrints or 260 00:12:30,640 --> 00:12:31,479 Speaker 9: training workloads. 261 00:12:31,800 --> 00:12:34,600 Speaker 6: Anright, you were saying that Oracle has made clear that 262 00:12:34,640 --> 00:12:37,599 Speaker 6: it wants and maintain its investment grade credit rating, and 263 00:12:37,640 --> 00:12:39,319 Speaker 6: of course there were some concerns about that, and that's 264 00:12:39,320 --> 00:12:41,840 Speaker 6: why we saw the CDs the credit to fault swaps 265 00:12:42,200 --> 00:12:44,640 Speaker 6: climb in recent weeks, although it's come back down a 266 00:12:44,640 --> 00:12:44,960 Speaker 6: little bit. 267 00:12:45,040 --> 00:12:45,280 Speaker 9: Here. 268 00:12:45,679 --> 00:12:47,360 Speaker 6: How convinced are you that they can do that? 269 00:12:47,800 --> 00:12:49,800 Speaker 9: Yeah, And I talk to Rob Schifman all the time 270 00:12:49,840 --> 00:12:52,800 Speaker 9: as well, so here I are on the same page 271 00:12:52,800 --> 00:12:55,640 Speaker 9: that they're very careful about that investment gate rating and 272 00:12:55,800 --> 00:12:57,720 Speaker 9: whenever they come up with the bond deal it gets 273 00:12:57,880 --> 00:12:59,000 Speaker 9: covered up very quickly. 274 00:12:59,280 --> 00:13:01,760 Speaker 6: How much does that to equity investors? 275 00:13:01,920 --> 00:13:03,840 Speaker 9: I mean it does matter because you know you don't 276 00:13:03,840 --> 00:13:06,480 Speaker 9: want to be financially irresponsible for a company like this 277 00:13:06,600 --> 00:13:09,320 Speaker 9: that houses one of the most important software products, their 278 00:13:09,400 --> 00:13:12,120 Speaker 9: database business, that is really the cash cow for them 279 00:13:12,160 --> 00:13:15,280 Speaker 9: that can allow them to expand. What we saw last 280 00:13:15,360 --> 00:13:17,920 Speaker 9: night was the expansion is going to be there, but 281 00:13:18,040 --> 00:13:21,280 Speaker 9: maybe with a little bit more more measured means rather 282 00:13:21,320 --> 00:13:22,600 Speaker 9: than going you know, all in. 283 00:13:23,480 --> 00:13:26,320 Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this. 284 00:13:29,679 --> 00:13:33,400 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 285 00:13:33,480 --> 00:13:36,520 Speaker 1: weekdays at ten am Eastern on Apple, Coarplay and Android 286 00:13:36,559 --> 00:13:39,880 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 287 00:13:39,920 --> 00:13:43,080 Speaker 1: you get your podcasts, or watch us live on YouTube. 288 00:13:43,640 --> 00:13:46,240 Speaker 6: All right, let's go to another one of our talented analysts, 289 00:13:46,280 --> 00:13:48,959 Speaker 6: Herman Chan. He is our senior analyst covering US banks 290 00:13:49,000 --> 00:13:52,120 Speaker 6: and Herman, there's a big headline today that got everyone's attention, 291 00:13:53,200 --> 00:13:56,760 Speaker 6: JP Morgan marking down the value of some private credit loans, 292 00:13:57,040 --> 00:14:00,400 Speaker 6: mainly to software companies, in the latest sign of stress 293 00:14:00,520 --> 00:14:03,199 Speaker 6: in private credit. I guess it's not a surprise if 294 00:14:03,200 --> 00:14:05,680 Speaker 6: you recall that Jamie Diamond, the CEO, had talked about 295 00:14:05,720 --> 00:14:07,640 Speaker 6: the possibility of more cockroaches. 296 00:14:07,720 --> 00:14:10,599 Speaker 10: That's right, So we view this as a prude and 297 00:14:10,760 --> 00:14:15,240 Speaker 10: risk management measure by JP Morgan. Basically, by reducing the 298 00:14:15,360 --> 00:14:18,000 Speaker 10: value of these loans, it means like the private credit 299 00:14:18,000 --> 00:14:21,360 Speaker 10: companies can borrow less from JP Morgan, so it reduces 300 00:14:21,400 --> 00:14:25,440 Speaker 10: their exposure in the case that there's some more volatility 301 00:14:25,480 --> 00:14:27,480 Speaker 10: ahead for the private credit folks. 302 00:14:29,280 --> 00:14:33,160 Speaker 3: So to me, what was the most interesting about this 303 00:14:33,280 --> 00:14:37,120 Speaker 3: news was not that JP Morgan marked some of these 304 00:14:37,520 --> 00:14:40,760 Speaker 3: credits down or some of these assets down, rather but 305 00:14:40,920 --> 00:14:44,760 Speaker 3: that its competitors aren't allowed to do that. I hadn't 306 00:14:44,800 --> 00:14:47,040 Speaker 3: realized before I read the FT piece and then the 307 00:14:47,040 --> 00:14:55,160 Speaker 3: Bloomberg cover that that JP More that JP Morgan's competitors 308 00:14:55,200 --> 00:14:58,600 Speaker 3: and probably a lot of other lenders that lend to 309 00:14:58,680 --> 00:15:01,680 Speaker 3: smaller direct lenders have it in their covenants that they're 310 00:15:01,720 --> 00:15:06,600 Speaker 3: only allowed to mark their assets during like change credit 311 00:15:06,640 --> 00:15:07,120 Speaker 3: event or. 312 00:15:07,200 --> 00:15:10,800 Speaker 2: Exactly like open enrollment. Right, that's insane. 313 00:15:11,440 --> 00:15:13,040 Speaker 3: Is that a reason that we see so many of 314 00:15:13,080 --> 00:15:17,000 Speaker 3: these private credit assets going from like ninety seven to zero. 315 00:15:18,760 --> 00:15:21,480 Speaker 10: It just goes to show that JP Morgan is the 316 00:15:21,520 --> 00:15:24,800 Speaker 10: big kahoona and they can dictate credit terms, whereas others 317 00:15:24,880 --> 00:15:29,240 Speaker 10: may not have the same capacity. So having those advantageous 318 00:15:29,280 --> 00:15:32,880 Speaker 10: credit terms helps them protect themselves in the event that 319 00:15:32,960 --> 00:15:38,440 Speaker 10: we have potential loss We've seen headlines of and expectations 320 00:15:38,480 --> 00:15:42,280 Speaker 10: and predictions of fifteen percent potential losses in the credit 321 00:15:42,640 --> 00:15:48,800 Speaker 10: software books for these private credit companies. So I think 322 00:15:48,800 --> 00:15:50,640 Speaker 10: banks will continue to try to get ahead of it. 323 00:15:51,600 --> 00:15:53,840 Speaker 10: And then you speak to some of the credit terms 324 00:15:53,840 --> 00:15:56,560 Speaker 10: and conservative underwriting at JP Morgan. I think that's one 325 00:15:56,560 --> 00:15:59,520 Speaker 10: of the reasons why Western Alliance was dinged a little 326 00:15:59,560 --> 00:16:02,240 Speaker 10: bit with the Jeffries news because they thought they had 327 00:16:02,360 --> 00:16:05,680 Speaker 10: pristine credit terms, but then Jeffries eventually just backed out 328 00:16:05,680 --> 00:16:06,520 Speaker 10: of paying back the loan. 329 00:16:07,080 --> 00:16:09,240 Speaker 6: So the backstory here, if we take a step back, 330 00:16:09,280 --> 00:16:11,280 Speaker 6: is that these Wall Street banks like a JP Morgan 331 00:16:11,400 --> 00:16:14,000 Speaker 6: are not making a lot of private loans directly because 332 00:16:14,000 --> 00:16:17,520 Speaker 6: they de risked following the Great Financial Crisis. Regulators were 333 00:16:17,560 --> 00:16:21,240 Speaker 6: breathing down their necks. But they are exposed indirectly because 334 00:16:21,320 --> 00:16:24,720 Speaker 6: they lend to private credit funds. Do we have a sense, 335 00:16:24,760 --> 00:16:27,960 Speaker 6: herman or is this still kind of something vague of 336 00:16:28,000 --> 00:16:30,600 Speaker 6: just how exposed Wall Street banks are to private credit funds. 337 00:16:30,720 --> 00:16:34,680 Speaker 10: Yeah, we have some data that the Federal Reserve puts 338 00:16:34,680 --> 00:16:38,720 Speaker 10: out every quarter and we calculate it. So it's about 339 00:16:39,080 --> 00:16:41,200 Speaker 10: for the banks that I cover, it's about fifteen to 340 00:16:41,240 --> 00:16:44,360 Speaker 10: twenty percent of their total loan portfolio is to non 341 00:16:44,440 --> 00:16:48,200 Speaker 10: bank financial institutions, which private credit is a subset of. 342 00:16:48,360 --> 00:16:54,280 Speaker 10: So it's a growing piece of the banking industries pie 343 00:16:54,800 --> 00:16:59,280 Speaker 10: and it's really last year was the sole growth driver 344 00:16:59,520 --> 00:17:02,320 Speaker 10: for banks. For JP Morgan as an example, they grew 345 00:17:02,360 --> 00:17:05,640 Speaker 10: their non bank financials books seventy eight percent year every year. 346 00:17:05,720 --> 00:17:11,240 Speaker 10: So it's it's a hefty position for for banks across 347 00:17:12,440 --> 00:17:16,080 Speaker 10: large and regional banks. And really that's because that's where 348 00:17:16,119 --> 00:17:19,080 Speaker 10: the growth was because of this financial arbitrage where banks 349 00:17:19,119 --> 00:17:24,560 Speaker 10: are have lower risk weighted assets on these loans, so 350 00:17:24,880 --> 00:17:27,720 Speaker 10: it helps from a capital treatment standpoint to lend to 351 00:17:27,800 --> 00:17:29,280 Speaker 10: these non bank financials. 352 00:17:29,560 --> 00:17:34,960 Speaker 3: So you say that JP Morgan's book there grew what 353 00:17:35,160 --> 00:17:38,360 Speaker 3: seven or eight per seventy eight seventy eight percent, that's 354 00:17:38,359 --> 00:17:41,600 Speaker 3: a massive growth. Are there other banks that also grew 355 00:17:41,640 --> 00:17:45,719 Speaker 3: those loan portfolios massively and maybe are more reluctant to 356 00:17:45,720 --> 00:17:46,359 Speaker 3: mark them down. 357 00:17:46,520 --> 00:17:50,880 Speaker 10: It's across the board, right, so Wells Fargo was particularly 358 00:17:50,920 --> 00:17:54,520 Speaker 10: aggressive in the fourth quarter. The banks that have larger 359 00:17:54,800 --> 00:17:58,680 Speaker 10: markets businesses like a JP, like a b of A, 360 00:17:58,960 --> 00:18:01,520 Speaker 10: like a city have grown much faster than some of 361 00:18:01,520 --> 00:18:04,560 Speaker 10: the regionals, but the regionals have also participated as well. 362 00:18:04,600 --> 00:18:07,280 Speaker 6: Yeah, I think about the headline just last month about 363 00:18:07,320 --> 00:18:09,840 Speaker 6: Bank of America committing twenty five billion dollars of its 364 00:18:09,880 --> 00:18:12,600 Speaker 6: own cash to private credit deals. In that instance, it's 365 00:18:12,600 --> 00:18:15,440 Speaker 6: making those loans directly as opposed to indirectly through private 366 00:18:15,440 --> 00:18:16,040 Speaker 6: credit funds. 367 00:18:16,160 --> 00:18:16,920 Speaker 2: Right, That's right. 368 00:18:17,000 --> 00:18:21,560 Speaker 10: So that's there is a bit of a regulatory arbitrage, 369 00:18:21,560 --> 00:18:24,960 Speaker 10: as I mentioned before, where you have to hold less 370 00:18:25,000 --> 00:18:27,719 Speaker 10: capital when you lend to private equity or at private 371 00:18:27,720 --> 00:18:29,160 Speaker 10: capital versus doing the loan. 372 00:18:29,680 --> 00:18:32,280 Speaker 6: Does you feel like, I don't know, two thousand and seven, 373 00:18:32,359 --> 00:18:34,760 Speaker 6: when different firms were trying to get in on subprime 374 00:18:34,800 --> 00:18:38,040 Speaker 6: mortgage after the boom of the growth had already been seen, 375 00:18:38,080 --> 00:18:40,000 Speaker 6: and there's a little bit of FOMO driving. 376 00:18:39,800 --> 00:18:44,280 Speaker 2: Activity leading the witness, it does feel like, not in. 377 00:18:44,240 --> 00:18:47,040 Speaker 10: A quarterable we are feeling a bit of froth in 378 00:18:47,080 --> 00:18:51,600 Speaker 10: the markets. We're we're seeing some stress, but. 379 00:18:51,560 --> 00:18:52,040 Speaker 2: We have it. 380 00:18:52,280 --> 00:18:55,320 Speaker 10: We're not at that level where we think things are 381 00:18:55,359 --> 00:18:59,160 Speaker 10: seizing up at this point, and private credit as a whole, 382 00:18:59,520 --> 00:19:03,760 Speaker 10: the the industry is about one point seven trillion dollars, 383 00:19:03,840 --> 00:19:08,200 Speaker 10: so it's it could be fairly absorbed within the industry. 384 00:19:08,680 --> 00:19:11,040 Speaker 10: You know, you have a bank's like JP Morgan, BFA, 385 00:19:11,080 --> 00:19:14,639 Speaker 10: Wells Fargo City themselves, their entire balance sheets over a 386 00:19:14,640 --> 00:19:15,359 Speaker 10: trillion dollars, So. 387 00:19:15,600 --> 00:19:17,399 Speaker 6: Not two thousand and seven, but maybe, like I don't know, 388 00:19:17,440 --> 00:19:18,960 Speaker 6: two thousand and six. 389 00:19:19,000 --> 00:19:20,720 Speaker 2: Well, I mean, the question is what's the fallout? 390 00:19:20,800 --> 00:19:23,640 Speaker 3: Right, I know it's only one point seven trillion, and 391 00:19:23,880 --> 00:19:28,640 Speaker 3: frankly software is probably less than thirty percent of that, 392 00:19:28,760 --> 00:19:33,159 Speaker 3: so you're talking about five hundred billion, max. But the 393 00:19:33,240 --> 00:19:36,080 Speaker 3: question is what kind of fallout do you have because 394 00:19:36,760 --> 00:19:38,720 Speaker 3: a lot of these banks don't have the kind of 395 00:19:38,760 --> 00:19:42,560 Speaker 3: direct lending approach that Scarlet's talking about BFA. Rather, they'd 396 00:19:42,640 --> 00:19:47,280 Speaker 3: lend money to the BDC and then the BDC rented out. 397 00:19:47,320 --> 00:19:49,520 Speaker 2: And then those BDCs, when they're looking. 398 00:19:49,240 --> 00:19:53,040 Speaker 3: At everybody headed for the gates, sell off their best 399 00:19:53,080 --> 00:19:55,080 Speaker 3: assets first so that they can say we got ninety 400 00:19:55,080 --> 00:19:57,280 Speaker 3: seven cents on the dollar, and then they're left with 401 00:19:57,359 --> 00:19:58,400 Speaker 3: bad bank holdings. 402 00:19:58,520 --> 00:19:58,720 Speaker 11: Right. 403 00:19:58,920 --> 00:20:02,920 Speaker 10: Yeah, So you do have that phenomenon where where companies, 404 00:20:03,040 --> 00:20:05,639 Speaker 10: like you've seen it from from some BDCs and the 405 00:20:05,640 --> 00:20:08,080 Speaker 10: direct lenders, where they're selling the assets that they can 406 00:20:08,119 --> 00:20:11,440 Speaker 10: sell now. So it remains to be seeing what's still 407 00:20:11,480 --> 00:20:13,879 Speaker 10: remaining on the one of the books, how the credit 408 00:20:13,920 --> 00:20:18,320 Speaker 10: performances and you know, you have to put on your 409 00:20:18,640 --> 00:20:22,440 Speaker 10: credit lens of probability of default and loss given default, 410 00:20:22,480 --> 00:20:23,680 Speaker 10: and how that shakes out. 411 00:20:23,720 --> 00:20:25,240 Speaker 2: So we're still waiting. 412 00:20:26,040 --> 00:20:31,119 Speaker 10: This is more At this point, A and client and 413 00:20:31,200 --> 00:20:37,280 Speaker 10: investor are a bit more skittish on the performance going forward, 414 00:20:37,320 --> 00:20:40,520 Speaker 10: but we haven't really yet seen that performance sour. So 415 00:20:41,119 --> 00:20:43,800 Speaker 10: this is like early endings of the credit private credit 416 00:20:43,920 --> 00:20:44,600 Speaker 10: story in our view. 417 00:20:45,200 --> 00:20:48,040 Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this. 418 00:20:51,680 --> 00:20:55,359 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 419 00:20:55,440 --> 00:20:58,560 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 420 00:20:58,560 --> 00:21:02,040 Speaker 1: Auto with the bloombergs Up. Listen on demand wherever you 421 00:21:02,040 --> 00:21:05,040 Speaker 1: get your podcasts, or watch us live on YouTube. 422 00:21:05,720 --> 00:21:08,280 Speaker 3: Matt Miller here at seven thirty one Lex filling in 423 00:21:08,359 --> 00:21:11,520 Speaker 3: for Paul Sweeney and Scarlet's rushed off to do our 424 00:21:11,920 --> 00:21:14,879 Speaker 3: weekly deal show Every Wednesday at noon on Bloomberg Television. 425 00:21:14,920 --> 00:21:17,280 Speaker 3: We have a show focused completely on M and A 426 00:21:17,920 --> 00:21:20,920 Speaker 3: Scarlett and Danny Berger, my co host on on Bloomberg 427 00:21:20,960 --> 00:21:22,840 Speaker 3: TV anchor. That show definitely one you want to tune 428 00:21:22,880 --> 00:21:25,919 Speaker 3: into if you care about deals, right now though, we're 429 00:21:25,920 --> 00:21:32,399 Speaker 3: going to drill into consumer staples and specifically the Campbell's 430 00:21:32,640 --> 00:21:36,720 Speaker 3: company because it cut its profit outlook to the lowest 431 00:21:36,760 --> 00:21:41,040 Speaker 3: level in a decade as consumers are avoiding the kind 432 00:21:41,080 --> 00:21:44,719 Speaker 3: of snacks that Campbell's makes. It's not just a soup's company, 433 00:21:44,760 --> 00:21:46,840 Speaker 3: which is why they change the name. They also make 434 00:21:47,160 --> 00:21:51,040 Speaker 3: Snyder's pretzels and Kettle Brown brand chips, as well as 435 00:21:51,080 --> 00:21:52,879 Speaker 3: Peppridge Farm cookies and goldfish. 436 00:21:52,960 --> 00:21:54,359 Speaker 2: So let's get over to it. 437 00:21:54,400 --> 00:21:57,840 Speaker 3: Bloomberg Intelligence analyst Diana Roseero painas she. 438 00:21:59,320 --> 00:22:01,320 Speaker 2: Covers this sector for. 439 00:22:01,200 --> 00:22:06,560 Speaker 3: US and Diana, what's the story at Campbell's. I guess 440 00:22:06,720 --> 00:22:08,840 Speaker 3: it makes sense that they're focused not as much on 441 00:22:08,920 --> 00:22:10,760 Speaker 3: chicken soup but more on potato chips. 442 00:22:11,119 --> 00:22:17,320 Speaker 11: Yes, and basically this company is suffering from what the 443 00:22:17,400 --> 00:22:21,000 Speaker 11: industry as a whole it has been suffering in terms of, 444 00:22:21,520 --> 00:22:25,639 Speaker 11: you know, volumes do not seem to be growing, pricing, 445 00:22:25,840 --> 00:22:31,400 Speaker 11: it's still elevated. Consumers are being very strategic with their spending. 446 00:22:31,520 --> 00:22:35,600 Speaker 11: They're moving to private label, they're you know, curving their 447 00:22:35,600 --> 00:22:39,119 Speaker 11: expenditure on things, for example, snacks and chips, which was 448 00:22:39,520 --> 00:22:42,960 Speaker 11: one of the biggest you know, disappointments in the quarter 449 00:22:43,080 --> 00:22:43,840 Speaker 11: for Campbell's. 450 00:22:44,520 --> 00:22:46,119 Speaker 2: By the way, private label products. 451 00:22:46,160 --> 00:22:48,160 Speaker 3: Not to take us on too much of a tangent here, 452 00:22:48,200 --> 00:22:51,520 Speaker 3: but when I was a kid, we said generic products 453 00:22:51,960 --> 00:22:53,479 Speaker 3: right the store brand. 454 00:22:53,840 --> 00:22:56,040 Speaker 2: But they've really picked up in popularity. 455 00:22:56,080 --> 00:23:00,200 Speaker 3: It seems like consumers feel almost more sophisticated when they, 456 00:23:00,400 --> 00:23:04,639 Speaker 3: you know, save twenty five thirty cents buying the private 457 00:23:04,680 --> 00:23:05,440 Speaker 3: label product. 458 00:23:05,800 --> 00:23:11,720 Speaker 11: Yes, for sure, And not only that, retailers have invested 459 00:23:11,840 --> 00:23:16,760 Speaker 11: in their private label portfolio. They've entered different tiers in 460 00:23:16,880 --> 00:23:20,000 Speaker 11: terms of private label. So you have the cheaper versions, 461 00:23:20,359 --> 00:23:23,720 Speaker 11: you have the medium you know price, and then the 462 00:23:23,840 --> 00:23:27,280 Speaker 11: high end and that actually brings people into the store 463 00:23:27,800 --> 00:23:30,840 Speaker 11: and definitely builds loyalty for the retail. 464 00:23:30,840 --> 00:23:32,080 Speaker 2: All inside private label. Right. 465 00:23:32,160 --> 00:23:35,199 Speaker 3: Kirkland is the one at Costco. I go to shop right, 466 00:23:35,280 --> 00:23:37,359 Speaker 3: they have bowl and basket and you can buy just 467 00:23:37,480 --> 00:23:40,159 Speaker 3: the ground level bowl and basket product, or you can 468 00:23:40,200 --> 00:23:43,600 Speaker 3: buy their super fancy organic bowl and basket exactly product. 469 00:23:43,600 --> 00:23:46,440 Speaker 3: All right, all right, back to Campbell's, the Campbell's company, 470 00:23:46,480 --> 00:23:49,600 Speaker 3: because I want to zero in on the pricing issue. 471 00:23:49,680 --> 00:23:53,360 Speaker 3: A real concern about the impact of this war has 472 00:23:53,400 --> 00:23:55,879 Speaker 3: been that it drives prices higher. We were already worried 473 00:23:55,880 --> 00:23:59,160 Speaker 3: about tariffs driving prices higher, as well as immigration policy 474 00:23:59,240 --> 00:24:03,320 Speaker 3: driving prices higher. And as you point out, or as 475 00:24:03,760 --> 00:24:08,520 Speaker 3: our reporting points out, they have, uh had elevated pricing 476 00:24:08,560 --> 00:24:10,840 Speaker 3: on some of their products, but that hits volume. 477 00:24:10,920 --> 00:24:12,040 Speaker 2: So what do they do here? 478 00:24:12,480 --> 00:24:17,040 Speaker 11: Yeah, that is the question that it keeps avoiding this 479 00:24:17,320 --> 00:24:20,600 Speaker 11: these types of companies equally with the you know, not 480 00:24:20,640 --> 00:24:24,880 Speaker 11: only oil prices being so high at the point spiking 481 00:24:25,000 --> 00:24:28,720 Speaker 11: in such a rapid pace, you also have the conflict itself, 482 00:24:29,800 --> 00:24:33,440 Speaker 11: you know, in the strait of harm I believe it's called, 483 00:24:34,280 --> 00:24:37,760 Speaker 11: and that obviously is going to affect supply chains, uh 484 00:24:37,840 --> 00:24:41,480 Speaker 11: for for these companies. So uh, they seem they want 485 00:24:41,520 --> 00:24:45,240 Speaker 11: to be a little bit more strategic in in lowering prices. 486 00:24:45,280 --> 00:24:47,960 Speaker 11: They don't necessarily want to do that. They want to 487 00:24:48,000 --> 00:24:50,200 Speaker 11: compete on the marketing side. 488 00:24:50,280 --> 00:24:52,720 Speaker 6: So you will probably see. 489 00:24:52,400 --> 00:24:54,679 Speaker 11: For the remainder of the year more hit on gross 490 00:24:54,760 --> 00:24:59,240 Speaker 11: margin or a bit margin, you know, for Campbell's, because 491 00:24:59,280 --> 00:25:03,439 Speaker 11: they're investing more on marketing rather than you know, just 492 00:25:03,560 --> 00:25:05,040 Speaker 11: a race to the bottom on pricing. 493 00:25:05,280 --> 00:25:08,639 Speaker 3: Yeah, more fertilizer, by the way, travels through the Strait 494 00:25:08,680 --> 00:25:13,160 Speaker 3: of horror moves on the way to international markets than hydrocarbons. 495 00:25:13,240 --> 00:25:16,600 Speaker 3: So it's more about moving fertilizer than oil. Obviously, oil 496 00:25:16,680 --> 00:25:22,000 Speaker 3: is the product we pay more closely attention to as consumers, 497 00:25:22,080 --> 00:25:25,040 Speaker 3: most of us by gas, fewer of us by fertilizer. 498 00:25:25,080 --> 00:25:28,520 Speaker 3: But one third of the global fertilizer trade passes through 499 00:25:28,520 --> 00:25:33,479 Speaker 3: the strait of horror moves. It's massive, and of course 500 00:25:34,400 --> 00:25:38,920 Speaker 3: we're coming up back again to planning season. You could 501 00:25:38,960 --> 00:25:44,159 Speaker 3: see real price reverberations in food stuffs from this war, right, 502 00:25:44,200 --> 00:25:46,200 Speaker 3: It's not just about the price of the pomp. 503 00:25:46,160 --> 00:25:46,960 Speaker 2: Yes exactly. 504 00:25:47,280 --> 00:25:51,840 Speaker 11: I mean, even if the disruption delays, you know, let's 505 00:25:51,840 --> 00:25:54,359 Speaker 11: say ninety days, that is probably going to have a 506 00:25:54,400 --> 00:25:59,080 Speaker 11: significant headwind to cogs for these companies. The problem is 507 00:25:59,080 --> 00:26:02,760 Speaker 11: is that usually when disruptions like this happen, you will 508 00:26:02,840 --> 00:26:06,639 Speaker 11: have the ability to increase prices to match that disruption, 509 00:26:07,040 --> 00:26:09,480 Speaker 11: and that usually will take about twelve months. 510 00:26:09,800 --> 00:26:11,359 Speaker 2: Now they're probably. 511 00:26:11,359 --> 00:26:14,720 Speaker 11: Talking about a large and longer time to get those 512 00:26:14,760 --> 00:26:19,680 Speaker 11: prices back because you know, already the consumer is stopped. 513 00:26:19,240 --> 00:26:23,320 Speaker 3: Out what Campbell's soup stock, by the way, or the 514 00:26:23,320 --> 00:26:25,720 Speaker 3: Campbell's Company, sorry I keep forgetting they change their name. 515 00:26:25,760 --> 00:26:27,760 Speaker 2: The Campbell's Company. And they're serious about that. 516 00:26:29,320 --> 00:26:33,120 Speaker 3: I got a note actually to the principle when I 517 00:26:33,200 --> 00:26:38,159 Speaker 3: said it wrong. Once Campbell's company stock down over the 518 00:26:38,240 --> 00:26:42,600 Speaker 3: last five years fifty two percent, They've lost half of 519 00:26:42,640 --> 00:26:45,080 Speaker 3: the value of their company. At what point is it 520 00:26:45,160 --> 00:26:47,199 Speaker 3: cheap enough for investors to go in and pick it up? 521 00:26:47,560 --> 00:26:48,600 Speaker 2: Well, I will say. 522 00:26:48,480 --> 00:26:53,520 Speaker 11: When volumes start to at least normalize, which we could 523 00:26:53,520 --> 00:26:55,480 Speaker 11: probably see more on the like. 524 00:26:55,560 --> 00:26:56,960 Speaker 2: That would be a more of a four. 525 00:26:56,800 --> 00:27:01,160 Speaker 11: Q story, fiscal four Q story in the beginning of 526 00:27:01,200 --> 00:27:04,080 Speaker 11: fiscal twenty twenty seven. So those are I think that 527 00:27:04,160 --> 00:27:07,119 Speaker 11: will be the main point, in the main driver of 528 00:27:07,359 --> 00:27:08,679 Speaker 11: any any appreciation. 529 00:27:09,560 --> 00:27:14,240 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify, 530 00:27:14,440 --> 00:27:17,920 Speaker 1: and anywhere else you get your podcasts. 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