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Speaker 2: We got another data point last night in terms of
Speaker 2: how the market used this tech capex Amazon. They have
Speaker 2: to take the cake. Two hundred billion dollars in capex.
Speaker 2: That's well above what the consensus always guess. What the
Speaker 2: stock is trading down today. So let's get a sense
Speaker 2: of kind of where this tech spending theme is for
Speaker 2: this sector. Man Deep Singh he joins us here. He
Speaker 2: runs all the tech research for Bloomberg Intelligence. For those
Speaker 2: mandeep that we're looking for another data point to say,
Speaker 2: how does the market view tech spending? Did we get
Speaker 2: it last night with Amazon and now the stock trading
Speaker 2: off today.
Speaker 3: Yeah.
Speaker 4: I mean this was as big as they can get
Speaker 4: in terms of, you know, a capex number out of
Speaker 4: the hyperscalers, and probably because they went last in terms
Speaker 4: of you know, reporting earnings.
Speaker 3: But look, I think had they not gone that big,
Speaker 3: the stock would have been up because they've posted best
Speaker 3: AWS growth in the last three years and you know,
Speaker 3: sequentially things seem to be improving.
Speaker 2: Is just that two.
Speaker 3: Hundred billion dollar number and the fact that their margins
Speaker 3: are going down on the AWS side. That's why you
Speaker 3: see this kind of stock reaction and there wasn't enough
Speaker 3: justification to you know, ramp up capex by about fifty
Speaker 3: five percent to two hundred billion mandeep.
Speaker 5: How long are we going to see these massive increases
Speaker 5: in capex? I mean this was for twenty twenty six
Speaker 5: full year. I mean, are we going to see this
Speaker 5: for another two years, three years?
Speaker 6: Or have we?
Speaker 3: You know?
Speaker 5: Is there an end in sight? I guess is the question.
Speaker 3: So based on our work at least so far, we
Speaker 3: feel this is the peak capex growth. You will skill
Speaker 3: see growth, but it's not going to be of the
Speaker 3: same magnitude. I mean, twenty twenty six we are talking
Speaker 3: about a year where capex from the hyperscalers will grow
Speaker 3: almost sixty percent. So and last year we had twenty
Speaker 3: twenty four to twenty five was also seventy percent growth
Speaker 3: in capex. So we've gone from two hundred billion dollars
Speaker 3: or hyperscale capex to now six hundred and fifty billion dollars.
Speaker 3: I think that growth rate will certainly come down, but
Speaker 3: there's no doubt that you know, we are still in
Speaker 3: that part of the ES curve where you know, there
Speaker 3: is more demand and everyone has called out supply constraints
Speaker 3: and they would have grown faster had it not been
Speaker 3: for you know, the limited supply they had for AI infrastructure.
Speaker 2: So, Mandy, you talked to institutional investors all around the
Speaker 2: world here that focus exclusively on technology where they has
Speaker 2: there hasn't their narrative shifted about where and when into
Speaker 2: what degree this industry should invent AI has the fundamental
Speaker 2: view of AI and how this tech industry is going
Speaker 2: to get there? Has that changed among some of those big,
Speaker 2: big tech investors that are big shareholders in so many
Speaker 2: of these companies.
Speaker 3: Yeah, I mean, right now you see both you know,
Speaker 3: anxiety and some sort of panic as well in terms of,
Speaker 3: you know, the level of free cash flow that's going
Speaker 3: to get hurt because of this spend and how fast
Speaker 3: it's happening. I mean, the cloud market grew almost you know,
Speaker 3: twenty percent plus for a decade and everyone was fine.
Speaker 3: You could see you know, predictable free cash flows. This
Speaker 3: is a very big upfront spend, and look, it makes
Speaker 3: sense that you have to spend first to build the infrastructure.
Speaker 3: But I think you really have to take a leap
Speaker 3: of faith that all these companies that are putting, you know,
Speaker 3: two hundred billion dollars will see ROI s for their spend.
Speaker 3: And I think that's where there are question marks that
Speaker 3: some of them may not have that level of ROIC.
Speaker 3: So I think that's what's reflected in the panic so far.
Speaker 3: But there's no doubt that you know, workflows are changing
Speaker 3: and there are some real productivity benefits you're seeing out
Speaker 3: of this Vand you know.
Speaker 5: We talk about these numbers and we throw them around
Speaker 5: like their gospel. Six hundred and fifty billion from Big
Speaker 5: Tech this year, two hundred billion from Amazon. I mean,
Speaker 5: it's kind of squishy at the end of the day,
Speaker 5: mandeep because this is a lever that companies can toggle.
Speaker 5: So I wonder how reliable they are. Ryan Horn, who's
Speaker 5: one of our listeners, wants to know, is a risk
Speaker 5: to hire CAPEX from here or is it more that
Speaker 5: hyperscalers can pull back on what they say is their
Speaker 5: CAPEX plan.
Speaker 3: No, that's a very good point and Luk a company
Speaker 3: like Apple so far has resisted the urge to spend
Speaker 3: on Capex and now that they are leaning on Google.
Speaker 3: So that's where you know, Google raising Capex made a
Speaker 3: ton of sense this earning season because one they saw
Speaker 3: that steepest acceleration and crowd in fact, next year could
Speaker 3: be sixty percent growth in their cloud segment. And also
Speaker 3: Anthropic and Apple are new customers, you know, in terms
Speaker 3: of who will be using their compute. On the other hand,
Speaker 3: for an Amazon you have to ask you yourself, is
Speaker 3: open Ai the buyer for all of the compute that
Speaker 3: Microsoft is spending on. You know, Amazon is spending on,
Speaker 3: Oracle is spending on because it's going to come down
Speaker 3: to a handful of you know, foundational model players. Meta
Speaker 3: is on its own. It's spending, but it's not very
Speaker 3: clear open Ai needs all this compute.
Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: Under Armour one of the companies that reported earnings, and
Speaker 5: in line with the gains in the broader market, the
Speaker 5: stock is up eleven percent right now. This is a
Speaker 5: company that is still very much in restructuring mode. Put
Speaker 5: On Goel is our senior US e commerce and retail
Speaker 5: analysts here at Bloomberg Intelligence, and she's got more on this.
Speaker 5: So how low was the bar or did under Armour
Speaker 5: knock it out of the park with this latest report
Speaker 5: that has its stock soaring eleven percent.
Speaker 7: I'd say the bar was very low for under Armour.
Speaker 7: There's been a lot of conversation about will this turnaround
Speaker 7: take place, will it be a sustained turnaround in the
Speaker 7: past few months, especially with the loss of Steph Curry.
Speaker 7: So I think the bar was low. They did post
Speaker 7: respectable numbers. I'd still say that I'm still not completely
Speaker 7: sold on the story. Their biggest region, the US North America,
Speaker 7: sales right down ten percent. They're expected to be down
Speaker 7: eight percent in their fiscal year. So things aren't still
Speaker 7: you know, where we want them to be. And I've
Speaker 7: heard this narrative so many times where they kind of
Speaker 7: take out the low hanging fruit, get the inventory's right,
Speaker 7: get back into the right wholesale doors. We're repeating that.
Speaker 7: So for me, it's a way to watch situation.
Speaker 2: Still, when a brand like this loses a spokesperson like
Speaker 2: Steph Curry, how does that How material is that of
Speaker 2: a loss to financials?
Speaker 7: It's material for basketball? Right if under Armour is trying
Speaker 7: to make a steak into basketball and really compete with
Speaker 7: the Nike and even the Adidas are pumas of the
Speaker 7: world which have renowned basketball players supporting their brand, Nike notably,
Speaker 7: so the loss of Steph Curry is going to be
Speaker 7: a headwind. We estimate and what we've seen just by
Speaker 7: industry estimates is it's more than one hundred million dollar
Speaker 7: franchise that Steph Curry had with under Armour, So that's
Speaker 7: obviously now not going to be there.
Speaker 5: So we've also heard that the Warren Buffett of Canada
Speaker 5: Fairfax Financial has disclosed a roughly twenty two percent steak
Speaker 5: in under Armour. This came out about a month ago.
Speaker 5: How does that change how the company operates, how it
Speaker 5: moves forward? Is do we presume that Fairfax is going
Speaker 5: to be an activist investor or have some ideas on
Speaker 5: what under Armour does.
Speaker 7: I'm sure they'll have some ideas. Right now, what we're
Speaker 7: seeing under Armored do is follow the retail one on
Speaker 7: one playbook on a turnaround, which is, let's get out
Speaker 7: of off price, let's start selling more full price, let's
Speaker 7: pick our wholesale doors, and let's get product innovation front
Speaker 7: and center in front of the consumer. The question is
Speaker 7: right now that they can do that because they have
Speaker 7: very easy comparisons from prior years. As they begin to
Speaker 7: recoup and reset the bar, can they continue to grow
Speaker 7: and compete with the larger players, notably Nike and Adidas,
Speaker 7: And can they make a claim for their brand without
Speaker 7: leading sports personnels.
Speaker 2: Amazon also reported last night stock trading off people not
Speaker 2: real psyched about two hundred billion dollars a capex. I guess,
Speaker 2: but how did the retail business do?
Speaker 7: The retail business did very very well. I think they're
Speaker 7: continuing to gain share. We saw an increase in online
Speaker 7: retail sales low double digits that was impressive and show
Speaker 7: share gains. I think what's really neat about their retail
Speaker 7: business right now is all the investments that they're making
Speaker 7: in AI, especially Rufus. You know, it was interesting to me,
Speaker 7: and I guess I hadn't known. This is that Rufus
Speaker 7: can now execute an order for you. And that's pretty cool.
Speaker 7: If I say, I want, you know, this stereo for
Speaker 7: one hundred dollars, so watch the price when it gets
Speaker 7: to one hundred, it just buys it for me. That's
Speaker 7: a new way to shop. And they're definitely leaping forward
Speaker 7: into AI and making the bets with Rufus and Alexa Plus,
Speaker 7: which I thought were pretty interesting.
Speaker 5: I guess these would all be kind of value added
Speaker 5: services from Amazon. Does that mean that they're going to
Speaker 5: start raising fees for Amazon and Time for.
Speaker 7: Instance, You know they've raised fees periodically. They they're not
Speaker 7: ont to raise fees every year. So every several years,
Speaker 7: do we see a slight bump in price? We have,
Speaker 7: and the fees have gone up in the last ten
Speaker 7: years fifteen years quite substantially. But I'd say they're also
Speaker 7: giving you a lot more right with Prime Video, with
Speaker 7: just other things they make the Prime membership, if you
Speaker 7: were ever to unbundle it, it's it's quite a great
Speaker 7: value that you're still getting. And they talked a little
Speaker 7: bit about every day essentials now just being a bigger
Speaker 7: focus for them. It's surprising and it's it's mind boggling
Speaker 7: actually that it's one hundred and fifty billion dollar GMB
Speaker 7: business for them. That's pretty significant. That one out of
Speaker 7: three purchases are every day essential. That just means that
Speaker 7: you're going to Amazon for everything, going to.
Speaker 5: Little brand, Yeah, every day essentials. I don't know, it's
Speaker 5: just like their supermarket.
Speaker 2: Right, I think so. So thirty seconds left here Poonum
Speaker 2: based upon Amazon, maybe some other retailers you've heard from.
Speaker 2: How's the consumer doing?
Speaker 7: The consumer is doing just by you know, we have
Speaker 7: been waiting to see the consumerbile crack. We haven't seen
Speaker 7: that yet. The consumer is shopping, but they are being
Speaker 7: mindful and they're watching where they spend and how they
Speaker 7: spend it. So this is where brands like Amazon and
Speaker 7: the large retailers that have the power of scale to
Speaker 7: keep prices low do well.
Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: Philip Marsh they had some pretty good numbers, and the
Speaker 2: stock's done well, double digit return this year, plus I
Speaker 2: get a three percent dividend yield.
Speaker 5: It's a consumer staple, and consumer staple is in right now.
Speaker 2: Ken Shay joins us senior consumer products analysts at Bloomberg Intelligence.
Speaker 2: Tell us about Philip Mars's and their quarter and what's
Speaker 2: their business outlook?
Speaker 8: Ken, Yeah, Hi, pol If Philip Morris had some good
Speaker 8: numbers today. It's fourth quarter pretty much came in line.
Speaker 8: Sales up about seven percent, EPs about ten Those are
Speaker 8: pretty good numbers for a consumer stable company. They hit
Speaker 8: their numbers. Stock is performing well, probably as a result
Speaker 8: of that. But there's two other big takeaways I think
Speaker 8: beyond that today that's maybe helping investor enthusiasm here. The
Speaker 8: second is the financial guidance they provided for the next
Speaker 8: three years, or say twenty twenty eight. It's also pretty positive.
Speaker 8: They see mid to high single digit revenues, around ten
Speaker 8: percent operating income, low double digit EPs growth. Those are
Speaker 8: pretty good numbers for be consumer product companies, particularly companies
Speaker 8: that deliver like this one. And even though those numbers
Speaker 8: are pretty much on line where the street was already at, nevertheless,
Speaker 8: I think that should be viewed pretty positively. And the
Speaker 8: third is the company said today repeating what they said
Speaker 8: in December, they're going to start providing more financial transparency
Speaker 8: behind what they call their smoke free business from their
Speaker 8: traditional cigarette combustible business. And I think that's going to
Speaker 8: help more transparencies. Always welcome, you know, buy investors in
Speaker 8: the market. And so I think all three things are
Speaker 8: really what's behind today's action.
Speaker 5: So talk a little bit about that smoke free product line,
Speaker 5: where is the growth the fastest, and how much spending,
Speaker 5: how much investment is needed for us to see that
Speaker 5: return that investors want.
Speaker 8: Yeah, hi, Scarlette. Well, Phillimore's really took a big step
Speaker 8: before its peers when jumping into the smoke free opportunity
Speaker 8: years ago with what it's calling Icos iQOS that's its
Speaker 8: flagship family brand, I guess you can call it. It's
Speaker 8: pretty much sold around the world, pretty much in most
Speaker 8: of the markets that it sells cigarettes, and it's already
Speaker 8: comprised more than half its sales in some pretty big
Speaker 8: markets Japan, South Korea and some others. So it's really
Speaker 8: cool it on well, and basically what it is, it's
Speaker 8: a device. It's a device that you use to get
Speaker 8: the facsimile of a cigarette smoking experience, but you use
Speaker 8: the little plugs you put in it, so that the
Speaker 8: business is really selling the plugs once the device is
Speaker 8: in the hands of the consumer. That's doing really well.
Speaker 8: That's the biggest piece of that business. The second is
Speaker 8: it's what it calls it's nicotine pouch business. In the US,
Speaker 8: people probably know it by ZIN. It's not around plastic camp.
Speaker 8: People put in their pockets and they can are you
Speaker 8: discreetly get their nicotine hit that way. It's been really popular,
Speaker 8: doing really well. And the third kind of more of
Speaker 8: a distant business for them, but one they want to
Speaker 8: be in is their e cigarette business. They call it
Speaker 8: the closed pod system, sort of like the jewel. Their
Speaker 8: brand is called it EVE. It's kind of a low end,
Speaker 8: low low price point, a way for consumers to get
Speaker 8: into their to get their nicotine fixed. But it wants
Speaker 8: to be in that business because it wants that brain
Speaker 8: to be out here as an alternative to smoking.
Speaker 2: So just real quick, there is that where the growth
Speaker 2: is for this company going forward. In the broadly defined
Speaker 2: smokeless part of the business.
Speaker 8: That's really Paul. It's already around forty two percent of
Speaker 8: our sales. Yeah, believe it or not. Not a lot
Speaker 8: of people in the US know about it because icos
Speaker 8: really isn't sold in the US yet. They're waiting for
Speaker 8: FDA authorization to roll out its Aluma icosystem and then
Speaker 8: people will really know more about it in the US.
Speaker 8: But it's yeah, over forty percent of their business. It's
Speaker 8: over sixteen billion dollars in sales. So that's why they're
Speaker 8: bringing transparency to that business. It's a big business, you know.
Speaker 8: I think what they're implying, I think down the road
Speaker 8: is that maybe they can separate the businesses that is
Speaker 8: the combustible business from its smoke free because they have
Speaker 8: different investment characteristics.
Speaker 2: Stay with us more from Bloomberg Intelligence coming up there
Speaker 2: for this.
Speaker 1: You're let's say to the Bloomberg Intelligence podcast. Catch us
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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: Well it is here February time and on Wall Street.
Speaker 2: That is Bonus Time, folks, And.
Speaker 9: You want somebody's attention on roll streets like Bonus bonus exactly.
Speaker 2: To be honest with you, having worked on the street
Speaker 2: for thirty years, the bonus discussions at around the water
Speaker 2: pool will start right after labor Day and you start
Speaker 2: talking about what the bonus pool is, and then you
Speaker 2: start cornering your manager and you speak from September right
Speaker 2: up until the year end, because that's when the bonus
Speaker 2: pool kind of gets decided and you say, you put hey,
Speaker 2: good deals, good trade, you know, all that kind of stuff,
Speaker 2: and so it starts working right after labor day. That's
Speaker 2: how the season works. This year is going to be
Speaker 2: a good year. Goldman, JP Morgan Bankercy bonus pools rise
Speaker 2: at least ten percent. That's pretty good. Catherine Dherty joins
Speaker 2: us financial reporter for Bloomberg News. This is the big
Speaker 2: take story and not surprisingly it is like one of
Speaker 2: the most highly read, most read stories on the Bloomberg
Speaker 2: terminal today because who is our readership. It's the folks
Speaker 2: that get paid by Wall Street Global Wall Street. Katherine
Speaker 2: talked to us about kind of the bonus environment these
Speaker 2: days for Global Wall Street.
Speaker 6: Yeah, so, I mean, twenty twenty five ended on a
Speaker 6: strong note and the year head looks to be the
Speaker 6: momentum in terms of deals and trading. Both of those
Speaker 6: things is feeding into that bonus pool that you talk about.
Speaker 6: So in terms of the trading desks and M and
Speaker 6: A specifically M and A has been for investment bankers
Speaker 6: the tepid environment that payouts have not been terrible, but
Speaker 6: you haven't seen this double digit rise in that part
Speaker 6: of banking in a few years. Really, twenty twenty one
Speaker 6: twenty twenty two were like the banner years for investment banking.
Speaker 6: Now we're starting to see more momentum that bankers are
Speaker 6: getting paid for the deals that they're putting the time
Speaker 6: and energy into, and for trading. Volatility has really than
Speaker 6: up revenue across the big banks. They're fulfilling more client
Speaker 6: orders and because of that, the trading desks are getting
Speaker 6: paid for it.
Speaker 9: I need numbers like, give me an average and then
Speaker 9: for a rain maker like Paul would be.
Speaker 6: So average ten percent, and we've been reporting for specifically JP, Morgan,
Speaker 6: Goldman Bank of America. Now within those banks there's some variation.
Speaker 6: We were trying to find kind of the general average
Speaker 6: and for the rain makers to answer your question, some
Speaker 6: of those are going up to the twenty to I
Speaker 6: had heard some rumors of thirty percent for the like
Speaker 6: real give me like a dollar figure though, So I
Speaker 6: mean these bonuses, it really varies by bank. But if
Speaker 6: you think about the base salary, it's the bonus on
Speaker 6: top of your base salary that usually is Is this
Speaker 6: the sweeter part of payout. It's going to depend on
Speaker 6: what's age of career the banker is in. If they're
Speaker 6: further along, it can stretch into the millions of dollars,
Speaker 6: and it's the bonus that could be the millions part
Speaker 6: and not necessarily your base salary. So again that's the
Speaker 6: performance based how did your year end up? And then
Speaker 6: your salary is just the thing that's on the bottom
Speaker 6: of it.
Speaker 2: What what has changed since my day was my day,
Speaker 2: my bonus was ninety to ninety five percent of my
Speaker 2: year InCom my total com is my bonus. So your
Speaker 2: salary was like five ten percent of your exactly you
Speaker 2: take it. Now that's changed, it's a higher percentage.
Speaker 9: Now your salary was your beer money exactly exactly right.
Speaker 2: But you try to live on your salary and you
Speaker 2: save your bonus, that's the that's what or if you're
Speaker 2: other way, you just blow your bonus both four kids.
Speaker 2: I was in the save mode, but as that changes
Speaker 2: are higher base now these days, maybe a lower percent.
Speaker 6: Do you think that I mean that percentage that you
Speaker 6: just shared. I think the percentages yes, have have grown
Speaker 6: where bonuses are not nice of your pay. That being said,
Speaker 6: the shift is still towards bonus over salary for many
Speaker 6: of these firms. And again that is why there's the
Speaker 6: incentive to work hard. That phrase of eat what you kill.
Speaker 9: Yeah, is the bonus also a retention sort of thing
Speaker 9: that retain your talent. You know, you don't want to
Speaker 9: lose this guy to or woman to some other firm.
Speaker 6: So that's a huge That's like the fine line that
Speaker 6: the banks need to walk is you want to pay
Speaker 6: your best talent. But they're also under a lot of
Speaker 6: pressure to keep their expenses in check. When these are
Speaker 6: public companies, they're reporting to their analysts and the investor
Speaker 6: community and saying, hey, this is how much money that
Speaker 6: we're making. The profit that the banks made in twenty
Speaker 6: twenty five was the strongest that we have seen in
Speaker 6: a while, so presumably they should be able to pay
Speaker 6: out their people for it, but they don't want to
Speaker 6: pay out so much that then their expense line is
Speaker 6: going to be under scrutiny and they're going to be
Speaker 6: held to a higher standard in future quarters where they're
Speaker 6: going to start answering questions like, you know, why is
Speaker 6: the expenses much higher than you projected or you have
Speaker 6: talked about in previous quarters.
Speaker 9: Is going to develop an AI model to come up yes,
Speaker 9: with the calculation for.
Speaker 6: Most I'm sure that this is something that yes, they've
Speaker 6: already implemented, right the.
Speaker 2: Junior bankers listening out there and watching. Here's the strategy.
Speaker 2: You go in with your deal sheet. This is the
Speaker 2: fees that generated this year, you got to pay me
Speaker 2: as more important than that is going with the deal
Speaker 2: sheet for next year. These are my anticipated fees that
Speaker 2: I think I'm going to bring in. And you don't
Speaker 2: want to lose me, you don't want to make me
Speaker 2: unhappy because this I think I can bring in. It's
Speaker 2: all about the year ahead. And that's yeah, so real quick,
Speaker 2: thirty seconds. European banks don't pay as much as the
Speaker 2: US banks, right.
Speaker 6: Not typically, but that's just because when you think about
Speaker 6: the US, you have the New York market, so you're
Speaker 6: going to see higher salaries and the US banks I
Speaker 6: think are on a stronger foot right now in terms
Speaker 6: of the profit that they're pulling in. So those are
Speaker 6: the kind of the things you need to think about.
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