WEBVTT - Big Tech to Spend $650 Billion This Year as AI Race Intensifies 0:00:02.720 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.880 Easterned on Apple Coarclay, and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:23.560 or watch us live on YouTube. 0:00:24.079 --> 0:00:26.120 We got another data point last night in terms of 0:00:26.120 --> 0:00:30.560 how the market used this tech capex Amazon. They have 0:00:30.680 --> 0:00:33.720 to take the cake. Two hundred billion dollars in capex. 0:00:33.800 --> 0:00:36.240 That's well above what the consensus always guess. What the 0:00:36.280 --> 0:00:38.240 stock is trading down today. So let's get a sense 0:00:38.240 --> 0:00:41.480 of kind of where this tech spending theme is for 0:00:41.560 --> 0:00:44.360 this sector. Man Deep Singh he joins us here. He 0:00:44.440 --> 0:00:47.960 runs all the tech research for Bloomberg Intelligence. For those 0:00:48.159 --> 0:00:50.560 mandeep that we're looking for another data point to say, 0:00:50.800 --> 0:00:54.000 how does the market view tech spending? Did we get 0:00:54.000 --> 0:00:56.080 it last night with Amazon and now the stock trading 0:00:56.080 --> 0:00:56.520 off today. 0:00:57.640 --> 0:00:57.880 Yeah. 0:00:57.920 --> 0:01:00.640 I mean this was as big as they can get 0:01:00.680 --> 0:01:03.640 in terms of, you know, a capex number out of 0:01:03.680 --> 0:01:06.759 the hyperscalers, and probably because they went last in terms 0:01:06.840 --> 0:01:08.759 of you know, reporting earnings. 0:01:08.800 --> 0:01:12.319 But look, I think had they not gone that big, 0:01:12.880 --> 0:01:16.200 the stock would have been up because they've posted best 0:01:16.319 --> 0:01:20.440 AWS growth in the last three years and you know, 0:01:21.080 --> 0:01:23.880 sequentially things seem to be improving. 0:01:24.120 --> 0:01:25.600 Is just that two. 0:01:25.520 --> 0:01:28.480 Hundred billion dollar number and the fact that their margins 0:01:28.480 --> 0:01:31.120 are going down on the AWS side. That's why you 0:01:31.200 --> 0:01:34.600 see this kind of stock reaction and there wasn't enough 0:01:34.800 --> 0:01:38.720 justification to you know, ramp up capex by about fifty 0:01:38.720 --> 0:01:42.080 five percent to two hundred billion mandeep. 0:01:42.160 --> 0:01:44.520 How long are we going to see these massive increases 0:01:44.560 --> 0:01:46.959 in capex? I mean this was for twenty twenty six 0:01:47.000 --> 0:01:48.400 full year. I mean, are we going to see this 0:01:48.400 --> 0:01:50.080 for another two years, three years? 0:01:50.200 --> 0:01:50.920 Or have we? 0:01:51.600 --> 0:01:51.800 You know? 0:01:51.920 --> 0:01:54.160 Is there an end in sight? I guess is the question. 0:01:55.440 --> 0:01:59.320 So based on our work at least so far, we 0:01:59.400 --> 0:02:02.680 feel this is the peak capex growth. You will skill 0:02:03.360 --> 0:02:05.520 see growth, but it's not going to be of the 0:02:05.600 --> 0:02:08.520 same magnitude. I mean, twenty twenty six we are talking 0:02:08.560 --> 0:02:12.120 about a year where capex from the hyperscalers will grow 0:02:12.160 --> 0:02:16.600 almost sixty percent. So and last year we had twenty 0:02:16.639 --> 0:02:20.040 twenty four to twenty five was also seventy percent growth 0:02:20.120 --> 0:02:23.359 in capex. So we've gone from two hundred billion dollars 0:02:23.400 --> 0:02:26.840 or hyperscale capex to now six hundred and fifty billion dollars. 0:02:27.200 --> 0:02:30.480 I think that growth rate will certainly come down, but 0:02:31.400 --> 0:02:34.000 there's no doubt that you know, we are still in 0:02:34.040 --> 0:02:36.679 that part of the ES curve where you know, there 0:02:36.760 --> 0:02:40.200 is more demand and everyone has called out supply constraints 0:02:40.200 --> 0:02:43.079 and they would have grown faster had it not been 0:02:43.240 --> 0:02:46.680 for you know, the limited supply they had for AI infrastructure. 0:02:47.240 --> 0:02:49.640 So, Mandy, you talked to institutional investors all around the 0:02:49.639 --> 0:02:53.760 world here that focus exclusively on technology where they has 0:02:53.800 --> 0:02:58.240 there hasn't their narrative shifted about where and when into 0:02:58.320 --> 0:03:01.680 what degree this industry should invent AI has the fundamental 0:03:02.480 --> 0:03:04.760 view of AI and how this tech industry is going 0:03:04.800 --> 0:03:07.280 to get there? Has that changed among some of those big, 0:03:07.280 --> 0:03:09.760 big tech investors that are big shareholders in so many 0:03:09.760 --> 0:03:10.440 of these companies. 0:03:11.560 --> 0:03:14.640 Yeah, I mean, right now you see both you know, 0:03:14.760 --> 0:03:18.799 anxiety and some sort of panic as well in terms of, 0:03:18.840 --> 0:03:21.280 you know, the level of free cash flow that's going 0:03:21.360 --> 0:03:24.320 to get hurt because of this spend and how fast 0:03:24.360 --> 0:03:27.560 it's happening. I mean, the cloud market grew almost you know, 0:03:27.680 --> 0:03:31.960 twenty percent plus for a decade and everyone was fine. 0:03:32.040 --> 0:03:35.720 You could see you know, predictable free cash flows. This 0:03:35.960 --> 0:03:39.520 is a very big upfront spend, and look, it makes 0:03:39.560 --> 0:03:43.840 sense that you have to spend first to build the infrastructure. 0:03:44.360 --> 0:03:46.680 But I think you really have to take a leap 0:03:46.720 --> 0:03:49.280 of faith that all these companies that are putting, you know, 0:03:49.280 --> 0:03:54.120 two hundred billion dollars will see ROI s for their spend. 0:03:54.160 --> 0:03:57.040 And I think that's where there are question marks that 0:03:57.960 --> 0:04:01.400 some of them may not have that level of ROIC. 0:04:01.600 --> 0:04:05.160 So I think that's what's reflected in the panic so far. 0:04:05.280 --> 0:04:08.280 But there's no doubt that you know, workflows are changing 0:04:08.360 --> 0:04:11.560 and there are some real productivity benefits you're seeing out 0:04:11.560 --> 0:04:12.960 of this Vand you know. 0:04:12.920 --> 0:04:14.960 We talk about these numbers and we throw them around 0:04:15.040 --> 0:04:17.480 like their gospel. Six hundred and fifty billion from Big 0:04:17.560 --> 0:04:20.920 Tech this year, two hundred billion from Amazon. I mean, 0:04:21.200 --> 0:04:23.799 it's kind of squishy at the end of the day, 0:04:24.400 --> 0:04:27.279 mandeep because this is a lever that companies can toggle. 0:04:27.320 --> 0:04:30.200 So I wonder how reliable they are. Ryan Horn, who's 0:04:30.360 --> 0:04:32.960 one of our listeners, wants to know, is a risk 0:04:33.000 --> 0:04:35.440 to hire CAPEX from here or is it more that 0:04:35.520 --> 0:04:38.600 hyperscalers can pull back on what they say is their 0:04:38.760 --> 0:04:39.440 CAPEX plan. 0:04:40.400 --> 0:04:42.640 No, that's a very good point and Luk a company 0:04:42.720 --> 0:04:46.640 like Apple so far has resisted the urge to spend 0:04:46.680 --> 0:04:49.480 on Capex and now that they are leaning on Google. 0:04:49.520 --> 0:04:53.120 So that's where you know, Google raising Capex made a 0:04:53.200 --> 0:04:56.280 ton of sense this earning season because one they saw 0:04:56.320 --> 0:04:59.880 that steepest acceleration and crowd in fact, next year could 0:04:59.880 --> 0:05:03.200 be sixty percent growth in their cloud segment. And also 0:05:03.440 --> 0:05:07.919 Anthropic and Apple are new customers, you know, in terms 0:05:07.960 --> 0:05:11.840 of who will be using their compute. On the other hand, 0:05:11.880 --> 0:05:14.480 for an Amazon you have to ask you yourself, is 0:05:14.600 --> 0:05:18.040 open Ai the buyer for all of the compute that 0:05:18.120 --> 0:05:21.839 Microsoft is spending on. You know, Amazon is spending on, 0:05:22.040 --> 0:05:25.000 Oracle is spending on because it's going to come down 0:05:25.040 --> 0:05:28.200 to a handful of you know, foundational model players. Meta 0:05:28.320 --> 0:05:31.560 is on its own. It's spending, but it's not very 0:05:31.600 --> 0:05:34.640 clear open Ai needs all this compute. 0:05:34.960 --> 0:05:38.120 Stay with us. More from Bloomberg Intelligence coming up after this. 0:05:42.000 --> 0:05:45.679 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:05:45.760 --> 0:05:48.839 weekdays at ten am Eastern on Apple, Cocklay and Android 0:05:48.880 --> 0:05:52.160 Auto with the Bloomberg Business app. Listen on demand wherever 0:05:52.240 --> 0:05:55.839 you get your podcasts, or watch us live on YouTube. 0:05:56.440 --> 0:05:59.400 Under Armour one of the companies that reported earnings, and 0:06:00.200 --> 0:06:02.200 in line with the gains in the broader market, the 0:06:02.240 --> 0:06:04.719 stock is up eleven percent right now. This is a 0:06:04.720 --> 0:06:08.279 company that is still very much in restructuring mode. Put 0:06:08.320 --> 0:06:10.960 On Goel is our senior US e commerce and retail 0:06:10.960 --> 0:06:13.960 analysts here at Bloomberg Intelligence, and she's got more on this. 0:06:14.400 --> 0:06:17.520 So how low was the bar or did under Armour 0:06:17.600 --> 0:06:19.760 knock it out of the park with this latest report 0:06:19.800 --> 0:06:21.800 that has its stock soaring eleven percent. 0:06:22.839 --> 0:06:24.800 I'd say the bar was very low for under Armour. 0:06:24.960 --> 0:06:28.280 There's been a lot of conversation about will this turnaround 0:06:28.320 --> 0:06:31.400 take place, will it be a sustained turnaround in the 0:06:31.440 --> 0:06:34.320 past few months, especially with the loss of Steph Curry. 0:06:34.760 --> 0:06:37.200 So I think the bar was low. They did post 0:06:37.240 --> 0:06:41.880 respectable numbers. I'd still say that I'm still not completely 0:06:41.880 --> 0:06:46.279 sold on the story. Their biggest region, the US North America, 0:06:46.440 --> 0:06:49.800 sales right down ten percent. They're expected to be down 0:06:49.800 --> 0:06:53.840 eight percent in their fiscal year. So things aren't still 0:06:53.960 --> 0:06:57.400 you know, where we want them to be. And I've 0:06:57.440 --> 0:07:00.160 heard this narrative so many times where they kind of 0:07:00.320 --> 0:07:02.680 take out the low hanging fruit, get the inventory's right, 0:07:02.760 --> 0:07:06.040 get back into the right wholesale doors. We're repeating that. 0:07:06.720 --> 0:07:09.080 So for me, it's a way to watch situation. 0:07:09.200 --> 0:07:12.800 Still, when a brand like this loses a spokesperson like 0:07:12.840 --> 0:07:15.760 Steph Curry, how does that How material is that of 0:07:15.800 --> 0:07:17.120 a loss to financials? 0:07:17.240 --> 0:07:20.119 It's material for basketball? Right if under Armour is trying 0:07:20.160 --> 0:07:22.760 to make a steak into basketball and really compete with 0:07:22.840 --> 0:07:25.400 the Nike and even the Adidas are pumas of the 0:07:25.440 --> 0:07:29.880 world which have renowned basketball players supporting their brand, Nike notably, 0:07:29.960 --> 0:07:33.200 so the loss of Steph Curry is going to be 0:07:33.200 --> 0:07:36.400 a headwind. We estimate and what we've seen just by 0:07:36.440 --> 0:07:39.480 industry estimates is it's more than one hundred million dollar 0:07:39.560 --> 0:07:43.119 franchise that Steph Curry had with under Armour, So that's 0:07:43.200 --> 0:07:45.240 obviously now not going to be there. 0:07:46.560 --> 0:07:49.760 So we've also heard that the Warren Buffett of Canada 0:07:50.080 --> 0:07:53.560 Fairfax Financial has disclosed a roughly twenty two percent steak 0:07:53.680 --> 0:07:56.960 in under Armour. This came out about a month ago. 0:07:57.400 --> 0:08:01.280 How does that change how the company operates, how it 0:08:01.320 --> 0:08:04.480 moves forward? Is do we presume that Fairfax is going 0:08:04.520 --> 0:08:07.480 to be an activist investor or have some ideas on 0:08:07.880 --> 0:08:09.000 what under Armour does. 0:08:10.160 --> 0:08:13.480 I'm sure they'll have some ideas. Right now, what we're 0:08:13.520 --> 0:08:16.000 seeing under Armored do is follow the retail one on 0:08:16.000 --> 0:08:18.880 one playbook on a turnaround, which is, let's get out 0:08:18.880 --> 0:08:22.480 of off price, let's start selling more full price, let's 0:08:22.520 --> 0:08:25.960 pick our wholesale doors, and let's get product innovation front 0:08:26.000 --> 0:08:28.760 and center in front of the consumer. The question is 0:08:28.920 --> 0:08:31.240 right now that they can do that because they have 0:08:31.400 --> 0:08:35.280 very easy comparisons from prior years. As they begin to 0:08:35.400 --> 0:08:39.319 recoup and reset the bar, can they continue to grow 0:08:39.360 --> 0:08:43.560 and compete with the larger players, notably Nike and Adidas, 0:08:43.720 --> 0:08:47.760 And can they make a claim for their brand without 0:08:48.120 --> 0:08:49.840 leading sports personnels. 0:08:51.520 --> 0:08:54.720 Amazon also reported last night stock trading off people not 0:08:55.160 --> 0:08:58.240 real psyched about two hundred billion dollars a capex. I guess, 0:08:58.320 --> 0:08:59.680 but how did the retail business do? 0:09:00.520 --> 0:09:03.000 The retail business did very very well. I think they're 0:09:03.000 --> 0:09:06.160 continuing to gain share. We saw an increase in online 0:09:06.160 --> 0:09:09.760 retail sales low double digits that was impressive and show 0:09:09.800 --> 0:09:12.600 share gains. I think what's really neat about their retail 0:09:12.600 --> 0:09:14.760 business right now is all the investments that they're making 0:09:14.760 --> 0:09:18.360 in AI, especially Rufus. You know, it was interesting to me, 0:09:18.400 --> 0:09:21.360 and I guess I hadn't known. This is that Rufus 0:09:21.400 --> 0:09:25.040 can now execute an order for you. And that's pretty cool. 0:09:25.080 --> 0:09:29.840 If I say, I want, you know, this stereo for 0:09:29.960 --> 0:09:32.680 one hundred dollars, so watch the price when it gets 0:09:32.720 --> 0:09:35.360 to one hundred, it just buys it for me. That's 0:09:35.400 --> 0:09:39.400 a new way to shop. And they're definitely leaping forward 0:09:39.679 --> 0:09:43.120 into AI and making the bets with Rufus and Alexa Plus, 0:09:43.520 --> 0:09:45.040 which I thought were pretty interesting. 0:09:45.480 --> 0:09:47.320 I guess these would all be kind of value added 0:09:47.360 --> 0:09:50.080 services from Amazon. Does that mean that they're going to 0:09:50.120 --> 0:09:52.920 start raising fees for Amazon and Time for. 0:09:52.880 --> 0:09:58.160 Instance, You know they've raised fees periodically. They they're not 0:09:58.360 --> 0:10:02.440 ont to raise fees every year. So every several years, 0:10:02.440 --> 0:10:05.200 do we see a slight bump in price? We have, 0:10:05.840 --> 0:10:08.240 and the fees have gone up in the last ten 0:10:08.320 --> 0:10:11.440 years fifteen years quite substantially. But I'd say they're also 0:10:11.480 --> 0:10:13.959 giving you a lot more right with Prime Video, with 0:10:14.160 --> 0:10:17.600 just other things they make the Prime membership, if you 0:10:17.600 --> 0:10:20.560 were ever to unbundle it, it's it's quite a great 0:10:20.640 --> 0:10:24.000 value that you're still getting. And they talked a little 0:10:24.000 --> 0:10:26.800 bit about every day essentials now just being a bigger 0:10:26.840 --> 0:10:30.920 focus for them. It's surprising and it's it's mind boggling 0:10:30.960 --> 0:10:33.440 actually that it's one hundred and fifty billion dollar GMB 0:10:33.559 --> 0:10:36.960 business for them. That's pretty significant. That one out of 0:10:37.000 --> 0:10:39.640 three purchases are every day essential. That just means that 0:10:39.640 --> 0:10:41.560 you're going to Amazon for everything, going to. 0:10:42.080 --> 0:10:46.520 Little brand, Yeah, every day essentials. I don't know, it's 0:10:46.600 --> 0:10:47.959 just like their supermarket. 0:10:47.520 --> 0:10:49.840 Right, I think so. So thirty seconds left here Poonum 0:10:50.200 --> 0:10:54.160 based upon Amazon, maybe some other retailers you've heard from. 0:10:54.760 --> 0:10:55.679 How's the consumer doing? 0:10:56.559 --> 0:10:58.880 The consumer is doing just by you know, we have 0:10:59.000 --> 0:11:01.880 been waiting to see the consumerbile crack. We haven't seen 0:11:01.920 --> 0:11:05.320 that yet. The consumer is shopping, but they are being 0:11:05.400 --> 0:11:07.959 mindful and they're watching where they spend and how they 0:11:07.960 --> 0:11:10.480 spend it. So this is where brands like Amazon and 0:11:10.520 --> 0:11:13.400 the large retailers that have the power of scale to 0:11:13.520 --> 0:11:15.400 keep prices low do well. 0:11:16.080 --> 0:11:19.200 Stay with us. More from Bloomberg Intelligence coming up after this. 0:11:23.120 --> 0:11:26.839 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:11:26.920 --> 0:11:30.000 weekdays at ten am Eastern on Apple, Cocklay and Android 0:11:30.000 --> 0:11:33.319 Auto with the Bloomberg Business App. Listen on demand wherever 0:11:33.400 --> 0:11:36.880 you get your podcasts, or watch us live on YouTube. 0:11:37.559 --> 0:11:41.640 Philip Marsh they had some pretty good numbers, and the 0:11:41.679 --> 0:11:44.040 stock's done well, double digit return this year, plus I 0:11:44.040 --> 0:11:45.400 get a three percent dividend yield. 0:11:45.960 --> 0:11:48.680 It's a consumer staple, and consumer staple is in right now. 0:11:48.840 --> 0:11:53.280 Ken Shay joins us senior consumer products analysts at Bloomberg Intelligence. 0:11:53.760 --> 0:11:56.360 Tell us about Philip Mars's and their quarter and what's 0:11:56.400 --> 0:11:57.160 their business outlook? 0:11:57.320 --> 0:12:00.400 Ken, Yeah, Hi, pol If Philip Morris had some good 0:12:00.440 --> 0:12:03.160 numbers today. It's fourth quarter pretty much came in line. 0:12:04.040 --> 0:12:06.920 Sales up about seven percent, EPs about ten Those are 0:12:06.920 --> 0:12:09.880 pretty good numbers for a consumer stable company. They hit 0:12:09.920 --> 0:12:13.840 their numbers. Stock is performing well, probably as a result 0:12:13.880 --> 0:12:16.760 of that. But there's two other big takeaways I think 0:12:16.840 --> 0:12:22.240 beyond that today that's maybe helping investor enthusiasm here. The 0:12:22.280 --> 0:12:25.079 second is the financial guidance they provided for the next 0:12:25.640 --> 0:12:30.680 three years, or say twenty twenty eight. It's also pretty positive. 0:12:31.280 --> 0:12:35.560 They see mid to high single digit revenues, around ten 0:12:35.600 --> 0:12:39.400 percent operating income, low double digit EPs growth. Those are 0:12:39.400 --> 0:12:44.080 pretty good numbers for be consumer product companies, particularly companies 0:12:44.080 --> 0:12:47.600 that deliver like this one. And even though those numbers 0:12:47.600 --> 0:12:51.160 are pretty much on line where the street was already at, nevertheless, 0:12:51.440 --> 0:12:54.480 I think that should be viewed pretty positively. And the 0:12:54.520 --> 0:12:57.640 third is the company said today repeating what they said 0:12:57.640 --> 0:13:01.520 in December, they're going to start providing more financial transparency 0:13:01.640 --> 0:13:04.880 behind what they call their smoke free business from their 0:13:04.920 --> 0:13:08.280 traditional cigarette combustible business. And I think that's going to 0:13:08.360 --> 0:13:11.360 help more transparencies. Always welcome, you know, buy investors in 0:13:11.400 --> 0:13:13.560 the market. And so I think all three things are 0:13:13.559 --> 0:13:15.360 really what's behind today's action. 0:13:16.080 --> 0:13:19.719 So talk a little bit about that smoke free product line, 0:13:19.760 --> 0:13:24.000 where is the growth the fastest, and how much spending, 0:13:24.040 --> 0:13:26.440 how much investment is needed for us to see that 0:13:26.520 --> 0:13:28.160 return that investors want. 0:13:29.280 --> 0:13:33.920 Yeah, hi, Scarlette. Well, Phillimore's really took a big step 0:13:34.000 --> 0:13:37.960 before its peers when jumping into the smoke free opportunity 0:13:38.040 --> 0:13:42.240 years ago with what it's calling Icos iQOS that's its 0:13:42.760 --> 0:13:46.959 flagship family brand, I guess you can call it. It's 0:13:47.000 --> 0:13:49.640 pretty much sold around the world, pretty much in most 0:13:49.640 --> 0:13:53.559 of the markets that it sells cigarettes, and it's already 0:13:53.760 --> 0:13:56.440 comprised more than half its sales in some pretty big 0:13:56.480 --> 0:13:59.800 markets Japan, South Korea and some others. So it's really 0:13:59.800 --> 0:14:02.199 cool it on well, and basically what it is, it's 0:14:02.320 --> 0:14:07.079 a device. It's a device that you use to get 0:14:07.120 --> 0:14:12.120 the facsimile of a cigarette smoking experience, but you use 0:14:12.120 --> 0:14:13.960 the little plugs you put in it, so that the 0:14:14.000 --> 0:14:16.840 business is really selling the plugs once the device is 0:14:16.880 --> 0:14:19.960 in the hands of the consumer. That's doing really well. 0:14:20.000 --> 0:14:22.920 That's the biggest piece of that business. The second is 0:14:23.000 --> 0:14:26.760 it's what it calls it's nicotine pouch business. In the US, 0:14:26.800 --> 0:14:30.560 people probably know it by ZIN. It's not around plastic camp. 0:14:30.600 --> 0:14:32.680 People put in their pockets and they can are you 0:14:32.720 --> 0:14:35.840 discreetly get their nicotine hit that way. It's been really popular, 0:14:36.000 --> 0:14:38.800 doing really well. And the third kind of more of 0:14:38.840 --> 0:14:40.960 a distant business for them, but one they want to 0:14:40.960 --> 0:14:43.600 be in is their e cigarette business. They call it 0:14:43.640 --> 0:14:46.840 the closed pod system, sort of like the jewel. Their 0:14:46.960 --> 0:14:49.400 brand is called it EVE. It's kind of a low end, 0:14:50.240 --> 0:14:53.760 low low price point, a way for consumers to get 0:14:53.800 --> 0:14:56.520 into their to get their nicotine fixed. But it wants 0:14:56.560 --> 0:14:59.480 to be in that business because it wants that brain 0:14:59.560 --> 0:15:02.840 to be out here as an alternative to smoking. 0:15:04.200 --> 0:15:06.520 So just real quick, there is that where the growth 0:15:06.560 --> 0:15:09.320 is for this company going forward. In the broadly defined 0:15:09.360 --> 0:15:11.000 smokeless part of the business. 0:15:11.840 --> 0:15:14.400 That's really Paul. It's already around forty two percent of 0:15:14.400 --> 0:15:16.520 our sales. Yeah, believe it or not. Not a lot 0:15:16.560 --> 0:15:18.640 of people in the US know about it because icos 0:15:18.960 --> 0:15:21.200 really isn't sold in the US yet. They're waiting for 0:15:21.320 --> 0:15:26.360 FDA authorization to roll out its Aluma icosystem and then 0:15:26.400 --> 0:15:29.040 people will really know more about it in the US. 0:15:29.480 --> 0:15:31.800 But it's yeah, over forty percent of their business. It's 0:15:31.840 --> 0:15:35.320 over sixteen billion dollars in sales. So that's why they're 0:15:35.360 --> 0:15:39.080 bringing transparency to that business. It's a big business, you know. 0:15:39.160 --> 0:15:42.280 I think what they're implying, I think down the road 0:15:42.400 --> 0:15:46.000 is that maybe they can separate the businesses that is 0:15:46.080 --> 0:15:49.280 the combustible business from its smoke free because they have 0:15:49.360 --> 0:15:51.000 different investment characteristics. 0:15:53.360 --> 0:15:56.160 Stay with us more from Bloomberg Intelligence coming up there 0:15:56.200 --> 0:15:56.440 for this. 0:15:59.440 --> 0:16:02.880 You're let's say to the Bloomberg Intelligence podcast. Catch us 0:16:02.960 --> 0:16:06.360 live weekdays at ten am Eastern on Applecarplay and Android 0:16:06.400 --> 0:16:09.680 Auto with the Bloomberg Business app. Listen on demand wherever 0:16:09.760 --> 0:16:12.880 you get your podcasts, or watch us live on YouTube. 0:16:13.840 --> 0:16:16.960 Well it is here February time and on Wall Street. 0:16:17.840 --> 0:16:19.360 That is Bonus Time, folks, And. 0:16:19.360 --> 0:16:22.840 You want somebody's attention on roll streets like Bonus bonus exactly. 0:16:22.960 --> 0:16:24.680 To be honest with you, having worked on the street 0:16:24.680 --> 0:16:27.640 for thirty years, the bonus discussions at around the water 0:16:27.680 --> 0:16:31.080 pool will start right after labor Day and you start 0:16:31.080 --> 0:16:33.720 talking about what the bonus pool is, and then you 0:16:33.840 --> 0:16:37.640 start cornering your manager and you speak from September right 0:16:37.720 --> 0:16:39.400 up until the year end, because that's when the bonus 0:16:39.400 --> 0:16:42.200 pool kind of gets decided and you say, you put hey, 0:16:42.240 --> 0:16:44.280 good deals, good trade, you know, all that kind of stuff, 0:16:44.280 --> 0:16:46.040 and so it starts working right after labor day. That's 0:16:46.080 --> 0:16:48.160 how the season works. This year is going to be 0:16:48.160 --> 0:16:51.800 a good year. Goldman, JP Morgan Bankercy bonus pools rise 0:16:51.800 --> 0:16:54.200 at least ten percent. That's pretty good. Catherine Dherty joins 0:16:54.280 --> 0:16:57.280 us financial reporter for Bloomberg News. This is the big 0:16:57.320 --> 0:16:59.720 take story and not surprisingly it is like one of 0:16:59.760 --> 0:17:02.080 the most highly read, most read stories on the Bloomberg 0:17:02.120 --> 0:17:04.880 terminal today because who is our readership. It's the folks 0:17:04.920 --> 0:17:07.520 that get paid by Wall Street Global Wall Street. Katherine 0:17:07.520 --> 0:17:09.520 talked to us about kind of the bonus environment these 0:17:09.560 --> 0:17:10.879 days for Global Wall Street. 0:17:11.000 --> 0:17:13.919 Yeah, so, I mean, twenty twenty five ended on a 0:17:13.960 --> 0:17:16.959 strong note and the year head looks to be the 0:17:17.000 --> 0:17:20.560 momentum in terms of deals and trading. Both of those 0:17:20.560 --> 0:17:24.200 things is feeding into that bonus pool that you talk about. 0:17:24.560 --> 0:17:28.840 So in terms of the trading desks and M and 0:17:28.920 --> 0:17:32.320 A specifically M and A has been for investment bankers 0:17:32.880 --> 0:17:37.040 the tepid environment that payouts have not been terrible, but 0:17:37.640 --> 0:17:41.639 you haven't seen this double digit rise in that part 0:17:41.680 --> 0:17:45.119 of banking in a few years. Really, twenty twenty one 0:17:45.200 --> 0:17:48.480 twenty twenty two were like the banner years for investment banking. 0:17:48.840 --> 0:17:52.159 Now we're starting to see more momentum that bankers are 0:17:52.160 --> 0:17:55.240 getting paid for the deals that they're putting the time 0:17:55.280 --> 0:18:00.239 and energy into, and for trading. Volatility has really than 0:18:00.320 --> 0:18:05.479 up revenue across the big banks. They're fulfilling more client 0:18:05.800 --> 0:18:09.040 orders and because of that, the trading desks are getting 0:18:09.040 --> 0:18:09.560 paid for it. 0:18:10.080 --> 0:18:13.040 I need numbers like, give me an average and then 0:18:13.160 --> 0:18:15.679 for a rain maker like Paul would be. 0:18:16.200 --> 0:18:21.639 So average ten percent, and we've been reporting for specifically JP, Morgan, 0:18:21.920 --> 0:18:26.440 Goldman Bank of America. Now within those banks there's some variation. 0:18:26.560 --> 0:18:29.280 We were trying to find kind of the general average 0:18:30.440 --> 0:18:33.200 and for the rain makers to answer your question, some 0:18:33.240 --> 0:18:35.520 of those are going up to the twenty to I 0:18:35.560 --> 0:18:40.679 had heard some rumors of thirty percent for the like 0:18:40.880 --> 0:18:44.879 real give me like a dollar figure though, So I 0:18:44.920 --> 0:18:48.880 mean these bonuses, it really varies by bank. But if 0:18:48.920 --> 0:18:52.720 you think about the base salary, it's the bonus on 0:18:52.800 --> 0:18:56.320 top of your base salary that usually is Is this 0:18:56.680 --> 0:18:59.080 the sweeter part of payout. It's going to depend on 0:18:59.640 --> 0:19:03.040 what's age of career the banker is in. If they're 0:19:03.080 --> 0:19:05.520 further along, it can stretch into the millions of dollars, 0:19:06.400 --> 0:19:10.440 and it's the bonus that could be the millions part 0:19:10.560 --> 0:19:14.199 and not necessarily your base salary. So again that's the 0:19:14.320 --> 0:19:17.560 performance based how did your year end up? And then 0:19:17.800 --> 0:19:20.439 your salary is just the thing that's on the bottom 0:19:20.440 --> 0:19:20.679 of it. 0:19:20.760 --> 0:19:23.680 What what has changed since my day was my day, 0:19:23.760 --> 0:19:27.000 my bonus was ninety to ninety five percent of my 0:19:27.040 --> 0:19:30.080 year InCom my total com is my bonus. So your 0:19:30.080 --> 0:19:32.119 salary was like five ten percent of your exactly you 0:19:32.200 --> 0:19:34.120 take it. Now that's changed, it's a higher percentage. 0:19:34.160 --> 0:19:38.400 Now your salary was your beer money exactly exactly right. 0:19:39.080 --> 0:19:40.800 But you try to live on your salary and you 0:19:40.840 --> 0:19:42.879 save your bonus, that's the that's what or if you're 0:19:43.000 --> 0:19:45.680 other way, you just blow your bonus both four kids. 0:19:45.720 --> 0:19:48.040 I was in the save mode, but as that changes 0:19:48.119 --> 0:19:50.720 are higher base now these days, maybe a lower percent. 0:19:50.920 --> 0:19:53.240 Do you think that I mean that percentage that you 0:19:53.359 --> 0:19:57.959 just shared. I think the percentages yes, have have grown 0:19:58.320 --> 0:20:03.560 where bonuses are not nice of your pay. That being said, 0:20:03.320 --> 0:20:08.639 the shift is still towards bonus over salary for many 0:20:08.760 --> 0:20:12.840 of these firms. And again that is why there's the 0:20:12.920 --> 0:20:17.200 incentive to work hard. That phrase of eat what you kill. 0:20:17.359 --> 0:20:21.160 Yeah, is the bonus also a retention sort of thing 0:20:21.160 --> 0:20:22.960 that retain your talent. You know, you don't want to 0:20:23.000 --> 0:20:25.760 lose this guy to or woman to some other firm. 0:20:25.960 --> 0:20:29.560 So that's a huge That's like the fine line that 0:20:29.600 --> 0:20:32.920 the banks need to walk is you want to pay 0:20:32.960 --> 0:20:36.000 your best talent. But they're also under a lot of 0:20:36.080 --> 0:20:38.920 pressure to keep their expenses in check. When these are 0:20:38.960 --> 0:20:42.280 public companies, they're reporting to their analysts and the investor 0:20:42.320 --> 0:20:44.520 community and saying, hey, this is how much money that 0:20:44.520 --> 0:20:47.240 we're making. The profit that the banks made in twenty 0:20:47.280 --> 0:20:50.080 twenty five was the strongest that we have seen in 0:20:50.119 --> 0:20:53.440 a while, so presumably they should be able to pay 0:20:53.480 --> 0:20:56.639 out their people for it, but they don't want to 0:20:56.680 --> 0:20:59.960 pay out so much that then their expense line is 0:21:00.160 --> 0:21:01.760 going to be under scrutiny and they're going to be 0:21:01.800 --> 0:21:05.320 held to a higher standard in future quarters where they're 0:21:05.320 --> 0:21:09.040 going to start answering questions like, you know, why is 0:21:09.119 --> 0:21:11.760 the expenses much higher than you projected or you have 0:21:12.359 --> 0:21:13.919 talked about in previous quarters. 0:21:14.000 --> 0:21:16.480 Is going to develop an AI model to come up yes, 0:21:16.520 --> 0:21:17.680 with the calculation for. 0:21:17.680 --> 0:21:20.040 Most I'm sure that this is something that yes, they've 0:21:20.080 --> 0:21:21.680 already implemented, right the. 0:21:21.640 --> 0:21:25.280 Junior bankers listening out there and watching. Here's the strategy. 0:21:25.400 --> 0:21:26.919 You go in with your deal sheet. This is the 0:21:26.920 --> 0:21:28.600