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- [00:02]
Carol Massar
When patients have a disease and the cause is known, it usually ends up needing a specific solution. On the podcast targeting the toughest diseases, we explore the innovative tools, methods and unique philosophy Vertex Pharmaceuticals is using to search for treatments for some of humanity's most challenging diseases. Subscribe today wherever you listen to podcasts.
- [00:35]
Malcolm Gladwell
So you're telling me that the AI that's meant to make everyone's job easier to manage just adds more to manage? On top of the thousands of apps the IT department already manages? Funny how that works. Any business can add AI. IBM helps you scale and manage AI to change how you do business. Let's create Smile to Business IBM.
- [01:02]
Carol Massar
If a Lenovo gaming computer is on your holiday list, don't shop around. Just go directly to the source Lenovo.com it's your last chance to score exclusive deals on the gaming PCs you want, like the Lenovo Legion Tower 5 Gen 10 gaming desktop and Lenovo Lock Gaming Laptop. So avoid all that shopping chaos and price comparing and just go directly to the source lenovo.com where PCs are up to 35% off.
- [01:26]
Odoo Advertiser
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- [02:05]
Tim Stenovec
Bloomberg Audio Studios podcasts radio news this is Bloomberg Businessweek daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Massar and Tim Stanweck on Bloomberg Radio. Hey, we have a few stocks on our radar. Really in the media and related space if you will. One is on the Magic Kingdom's move into AI. And then of course it's the ongoing not yet ending pursuit of Warner Brothers discovery. Yes, it goes on covering it all. Bloomberg News Media reporter Hannah Miller. She's right here in studio. Hey, let's talk. Hannah, we've been talking to you a lot. There's a lot going on. Disney shares a little bit higher this on news at the company. Agree. Invest $1 billion in open air and license iconic characters. What do we know about this deal?
- [03:08]
Hannah Miller
Yeah, so we know that it's a big deal.
- [03:10]
Tim Stenovec
It does feel like a big deal.
- [03:11]
Hannah Miller
Exciting. You know, there's been a lot of tension in Hollywood over the use of AI for film, for animation, things like that. And Disney has made a huge statement here with this investment. And yeah, it's concerning, you know, there are a whole suite of characters. You know, got Marvel, Pixar, Star wars. You can use that with OpenAI so app and kind of create, you know, these short, you know, social media friendly videos using these characters without feeling.
- [03:41]
Tim Stenovec
What if they have like Mickey as like a slasher dude or something? Like, are they okay with that?
- [03:47]
Carol Massar
People could write that, people could draw that anyway. I mean, that stuff happens anyway.
- [03:50]
Tim Stenovec
But there's somebody who. So protective of their IP like you. And I've been trying to figure this out.
- [03:56]
Carol Massar
I think what. And I think you make a really good point because if you remember back to the early days of like image generation.
- [04:01]
Hannah Miller
Yeah.
- [04:02]
Carol Massar
With in the last three years when people were really experimenting with these LLMs and getting them to do stuff, they were actually creating characters that were, you know, Disney would never actually create or other IP owners would never actually create. And everyone was like, wait a second, this is going to be a huge headache for these companies.
- [04:19]
Hannah Miller
Yeah. So we know from the beginning, like you said, you know, people have been drawn to this. They've been doing, you know, their own creative stuff with these characters. Some of it is fun, some of it is not. So, you know, I'd have to imagine that there's, you know, maybe restrictions here with how people use this app. You know, like you can put parameters in with these models.
- [04:38]
Carol Massar
So maybe. Okay, okay. You know, the other thing that I think of is just Hollywood's relationship with AI. And when we were at Screen Time earlier this year, a big conversation that we had back in October was about, okay, what is. And this was the whole writers strike too, and the actors strike in the last couple of years. This is what was the core tension. Right. To what extent are these studios going to use AI from a scripts perspective, from an actual visual effects perspective to replace us, to supplement us. Does this send a signal about how Disney views this technology to the creative class?
- [05:10]
Hannah Miller
Yeah, I mean, I think Bob Iger here, he's gonna have to convey a sense of reassurance, you know, to the people working under him. Even though this is a first step forward. You know, I just wanna point out you can't use voice with any of these characters. You know, you can't use like Tom Hanks's voice for Woody from Toy Story, for example. But it is still a huge development and I know a lot of creatives in Hollywood are worried that, you know, they could be replaced.
- [05:35]
Tim Stenovec
Why? Why?
- [05:36]
Carol Massar
Go ahead.
- [05:37]
Tim Stenovec
Why is Disney doing this? Is it just, I mean, have they done anything in internally when it comes to AI on their own or like, why are they doing this?
- [05:44]
Hannah Miller
I mean, they've filed a lawsuit against Mid Journey.
- [05:47]
Carol Massar
That's.
- [05:48]
Hannah Miller
Yeah. So, you know, that was sort of the earlier sentiment that they had.
- [05:53]
Tim Stenovec
Yeah.
- [05:54]
Hannah Miller
But, you know, I think what we can see here is they want a piece of the pie, you know, that they don't want to be left out or left behind. And this is a way to build.
- [06:03]
Tim Stenovec
A partnership with the prom queen. Right. Basically Open Air. Everybody is just making sure they have some kind of relationship with OpenAI.
- [06:10]
Carol Massar
Yes, but apart, from, and I think to Carol's point, also apart from the equity investment in OpenAI and getting a piece of that financial upside, if there is financial upside, I mean, look, it's still a privately held company. There's a lot of questions about, and even Sam Altman concerned about Open Air right now and there's a lot of competitors. So apart from the financial upside, what else does Disney get by doing this?
- [06:31]
Hannah Miller
You know, they get the lead and they're ahead of other entertainment companies. They're embracing AI. They also, you know, they get some pluses too. Like their employees now have access to chatbots, other enterprise tools. So I think they're looking at this from a, you know, but from a.
- [06:48]
Carol Massar
Branding perspective, is it like, okay, let's say my kid loves Toy Story and I can use then chat GPT to create some sort of cool, I don't know, birthday party invitations for, for, for him and his friends for, for their birthday. Does that, does Disney see that as okay? Well, this is, this is a good use of our brand. An extension that then gets this kid more interested in Toy Story and then going to, to Disney and California or Florida. Is that the idea?
- [07:15]
Hannah Miller
I think you hit on a great point here that, you know, they're already establishing brand recognition in a new way. You know, I mean, everybody knows Disney, but this is just yet another avenue to get people on board and show that they're a tech forward company, that they're willing to embrace the future and they're not going to be left behind.
- [07:30]
Tim Stenovec
I love what Sam Altman apparently said, right. In an interview with cnbc, that demand for Disney characters is off the charts. Like, so he understands that this is an important part. Love Disney, who doesn't love Mickey and Minnie or Donald?
- [07:42]
Carol Massar
Well, or you think of it as a thing for kids, any of them. But it turns out a lot of adults love Disney.
- [07:49]
Tim Stenovec
Yeah, I knew it. I used to know someone kind of growing up who used to love to draw the Disney characters. It was an adult. It wasn't a kid. An investor Are, you know, rewarding the company today. So it's interesting.
- [08:00]
Carol Massar
All right, well, Disney's focusing on other companies are focused on, wait, how much is this company going to cost me?
- [08:07]
Tim Stenovec
Can we get the deal done? Can I stop paying bankers and just sign on the dotted line? We're talking Warner Brothers discovery. Where are we?
- [08:15]
Hannah Miller
Yeah. So we're waiting right now. You know, Warner Brothers has 10 days to respond to that, you know, hostile takeover bid from Paramount to 10 days from Monday. From Monday. And it's 10 business days. They could come back sooner. You know, we could see something as early, you know, as next week. And, you know, they are waiting to see what Warner Brothers says whether there's going to be a rejection or, you know, maybe they want more information. And, you know, if they still decide to go with Netflix, Paramount has some options here. You know, I mean, there's been a lot of industry talk about whether or not they'll sue. You know, David Ellison has already talked about some frustrations with the bidding process and there's a shareholder vote on January 8th. Tracking until then.
- [09:08]
Tim Stenovec
Our understanding, too is Bob Iger also said this morning comments that he wasn't. Hasn't determined yet if he'll take a position on Warner Brothers. So wait, is this still a. Comcast has kind of said we're out. Right, We've heard that. But is it possible that Disney somewhere comes in?
- [09:25]
Hannah Miller
You know, I mean, I think the race is really tight here already. I mean, I'm.
- [09:30]
Tim Stenovec
Why would you say that?
- [09:32]
Hannah Miller
You know, I think a lot of.
- [09:34]
Carol Massar
Get his competitors to pay more.
- [09:36]
Hannah Miller
Yeah.
- [09:37]
Tim Stenovec
Kind of playing around with him.
- [09:38]
Carol Massar
Yeah. I don't know. I'm not saying that's why he would do it, but if I were in his position, I would want my competitors to pay as much for other things as possible.
- [09:45]
Tim Stenovec
Like make it tough.
- [09:46]
Carol Massar
Yeah. Say, hey, maybe we're sniffing around a little bit, maybe increase that price.
- [09:50]
Hannah Miller
And we know Paramount, you know, they've left it open to an increase. So we could see that down the line.
- [09:56]
Carol Massar
So what about CNN's fate? Because late yesterday, Carol and I were here in the studio and a headline crossed the Bloomberg terminal. The president essentially saying it should be guaranteed that CNN is Part of it or sold separately. This is. The president said any deal for Warner Brothers should include the sale of its CNN cable network. So does that mean that if Paramount Skydance were to win the bid, they would have to shed cnn?
- [10:21]
Hannah Miller
So the thing that President Trump emphasized is he wants to see CNN under new leadership than it currently has. Okay, so that doesn't look as good for the Netflix deal because Netflix only wants the streaming and studios business.
- [10:35]
Tim Stenovec
Yeah.
- [10:36]
Hannah Miller
Warner Brothers will then continue with the spin off of its cable networks, including cnn, and it'll be a separate company called Discovery Global. But it'll still have, you know, the same people at cnn.
- [10:46]
Tim Stenovec
Existing leadership will stay.
- [10:47]
Hannah Miller
So that's why that, that doesn't look as good.
- [10:50]
Tim Stenovec
So this is about him wanting new people in charge.
- [10:53]
Hannah Miller
Exactly. So it's like, I think a lot of people in the industry interpreted that as better for Paramount.
- [10:57]
Tim Stenovec
Can I ask you something in terms of what we've been talking about, certainly on our planning calls and as a show unit, just what's happening in media and with these deals and ownership and the President's say in this. And now we're talking a lot more traditional, whether it's the old fashioned TV networks, forgive me, or some of the cable guys that have been around for a while, the all newsers. Is it, Are we seeing kind of a shift to more conservative leadership and perhaps conservative programming?
- [11:29]
Hannah Miller
Yeah, you know, we've already seen changes at cbs, which is owned by Paramount. And David Ellison has come in, made significant leadership changes there by appointing Barry Weiss, who the founder of the Free Press, as the head of CBS News. And there's been a lot of talk about how that will affect programming. You know, we're still kind of seeing those changes shake out.
- [11:51]
Tim Stenovec
Yeah.
- [11:52]
Hannah Miller
But yeah, there has been a lot of talk of, you know, whether Paramount will do similar things with cnn, you know, whether certain anchors will be out. And you know, there's already just been multiple attacks on CNN from the right.
- [12:07]
Carol Massar
Yeah, look, I think a lot is still unknown because we don't know who's going to actually ultimately win this deal. Carol mentioned Disney potentially coming in because of the comments that Bob Iger made earlier today. But I'm wondering if you think there's any other, there are any other parties that we should be watching or if this is all coming down to just these two companies, Netflix and Paramount. Skydance.
- [12:29]
Hannah Miller
We're keeping our attention right now on Paramount and Netflix. That's where we're, you know, seeing the action and how that's going to play out. But you know, I can't see the future.
- [12:39]
Tim Stenovec
Well, Bernstein weighing in an analyst there, Laurent Yoon, saying Netflix needs to make sure it has an exit strategy in case the bidding war for Warner Brothers, quote, unquote, turns irrational. So, I mean, right, like if you, there's a point where maybe then the price doesn't make so much sense. But you do wonder about strategy, how important this is for Netflix.
- [12:59]
Carol Massar
Shareholders don't love Netflix. Shareholders don't love this. I mean, I remember the stat yesterday, I think it was 16% in six days that Netflix was down. This is its first up session. In six days, it's down. Look, if you look at June 30, it's high of $133 a share. Now it's trading at $94 a share. Does that make Netflix think twice that shareholders are not loving this?
- [13:19]
Hannah Miller
Yeah. I mean, we know both parties are going to be tracking the market closely. Warner Brothers is looking at market reaction as well, I'm sure.
- [13:25]
Tim Stenovec
Yeah.
- [13:26]
Hannah Miller
With Netflix, I mean, this is a big reversal for them. They've talked about how they're more of a builder than a buyer. And this is a huge, huge change. There's also a lot of anxiety in Hollywood about this deal and, you know, concerns that with Netflix emphasizing streaming and considering the theater experience may be outdated, that this would hurt film production and theater attendance.
- [13:48]
Tim Stenovec
Yeah, it's kind of fascinating. Our story here, though, about this Bernstein analyst stock has already lost more than 100 billion in value since it reported earnings in October. So Netflix, I mean, investors certainly weighing in and voting pretty clearly on what they think, what they feel about this move by Netflix. I am sure we will be talking to you again, Hannah, thank you so much. Really appreciate all this reporting as we continue to watch this play out. Hannah Miller, media reporter at Bloomberg News, right here in our New York studio.
- [14:17]
Carol Massar
Stay with us. More from Bloomberg businessweek Daily. Coming up after this, When patients have a disease and the cause is known, it usually ends up needing a specific solution. On the podcast targeting the toughest diseases, we explore the innovative tools, methods and unique philosophy Vertex Pharmaceuticals is using to search for treatments for some of humanity's most challenging diseases. Subscribe today wherever you listen to podcasts. If a Lenovo gaming computer is on your holiday list, don't shop around, just go directly to the source. Lenovo.com it's your last chance to score exclusive deals on the gaming PCs you want, like the Lenovo Legion Tower 5 Gen 10 gaming desktop and Lenovo Lock Gaming Laptop. So avoid all that shopping chaos and price comparing and Just go directly to the source. Lenovo.com where PCs are up to 30, 35% off. That's Lenovo.com.
- [15:27]
Malcolm Gladwell
Hello.
- [15:27]
Carol Massar
Hello.
- [15:27]
Malcolm Gladwell
I'm Malcolm Gladwell, host of the podcast smart talks with IBM. I recently sat down with IBM's chairman and CEO Arvind Krishna and I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example, if anybody has more than 10% of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30% more productive today with the goal of being 70% more productive.
- [16:14]
Hannah Miller
Yeah.
- [16:15]
Malcolm Gladwell
So we are not asking our clients to be the first experiment on it. We say you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process. Because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit IBM.com smarttalks.
- [16:40]
Kathy Seiffert
Foreign.
- [16:45]
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- [17:46]
Tim Stenovec
Listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Can I just say, our next guest walks into the studio and we just get happy, don't we?
- [18:05]
Carol Massar
You say the same thing about me, right?
- [18:06]
Tim Stenovec
Yeah, I do.
- [18:07]
Carol Massar
Just making sure. Come on we have favorites, but, you know, I don't want to make a.
- [18:13]
Tim Stenovec
Favorite too much of your favorite. But speaking of guests that we love to have walk in, we do love when Lauren Goodwin walks in. She's economist, chief market strategist at New York Life Investments. What I love is that she can look at the economic metrics, she can look at the market metrics. It just, she ties it all together. And she's here in studio. So good to have you here. How are you?
- [18:35]
Lauren Goodwin
I'm great. I'm. And it makes me happy to be here too. Thank you for having me.
- [18:40]
Tim Stenovec
Happy.
- [18:40]
Kathy Seiffert
It's so good.
- [18:41]
Tim Stenovec
I think we're all happy that we're getting to the end of this year, which has been a wild one. And we just had our last Fed meeting of the year. Did it play out as you expected?
- [18:51]
Lauren Goodwin
Yes, with a important exception, which is I just really was not expecting Chair Powell to say we've reached a range of neutral estimates. So your guess is as good as mine. And I think that's super reasonable.
- [19:04]
Tim Stenovec
Yeah. I mean, Jay Powell gets real, right?
- [19:07]
Kat Chikalinsky
Yeah.
- [19:08]
Lauren Goodwin
And it's, in many ways it isn't that what he said is unreasonable or super surprising or weird or there's nothing like that. But the willingness to just open that conversation around, okay, we are in this range of estimates for the neutral rate is so important because the quibbles that myself and my team have had with the market pricing of the Fed funds rate recently, looking ahead to 2026 has been really, it's on the margin. It's like, look, if, if we expect pretty good growth and sticky ish, but nothing problematic on the inflation front, then like, if I say one or two more cuts and you say two or three, like, is that really the difference maker? Probably not. But opening this conversation about like, okay, we're in the range of neut raise. What I think is a really important question, which is as we get, as rates move lower, if we get to that 3ish percent range where it's more or less the lower bound of what most people think could be neutral for the Fed funds rate, then that's when I think we start to see the markets say no more and actually that Fed cuts become a problem for the long end.
- [20:19]
Carol Massar
How do the markets say no more.
- [20:21]
Lauren Goodwin
By the 10 year moving higher, essentially a curve steepening. Okay, you know, that is such a good question. I, you know, in the sort of 4 10, 420 range that we've been, I think we, I think if as we move below 3, we get 10 or 20 basis points pretty quickly. And if the Fed is not sort of signaling, let's say, any cuts beyond that being on the hawkish side, then we could actually go higher.
- [20:44]
Tim Stenovec
So like, well, this is something we talked about with Katie Kaminsky of Alpha Simplex, like trying to get an idea of what's the upper rate like. We have quite a range in terms of movements that we've seen, I feel like over the last year or so. So 5%, I think. Or is that extreme?
- [21:00]
Lauren Goodwin
I think that's, that, that's, that would be pretty bad news. I think it's not, it's not extreme in the sense that if I look at the economic backdrop of strong growth, a strong, a pretty heavy deficit and still pretty supportive fiscal backdrop next year and geopolitical backdrop, that's very uncertain. Like, I can come up with 10 or 15 ways that we could get for five, get to 5%, but that's not really the scenario I'm talking about. And the reason is I think that regardless of who sits in the Fed chair seat next year or second half of next year, they don't want that, the President doesn't want that. And so I'm actually not as worried about Fed independence as maybe I would otherwise be as a macro person, because I just think the market's going to matter, so.
- [21:46]
Hannah Miller
Agree.
- [21:46]
Carol Massar
Something that I've been thinking about is if you weren't paying attention to any of the data or alternative data that we've gotten over the last three months. You had been taking a long nap, for example.
- [21:58]
Hannah Miller
Great.
- [21:59]
Carol Massar
He woke up just to see the press conference yesterday. What was the impression and what is the impression of the economy that you got from Jay Powell?
- [22:08]
Lauren Goodwin
Everything's fine, nothing to see here. And I gotta be honest with you.
- [22:12]
Carol Massar
He sounded more optimistic.
- [22:14]
Lauren Goodwin
Yeah.
- [22:14]
Carol Massar
Than I thought.
- [22:15]
Tim Stenovec
Well, you said, you know, we keep seeing people letting workers die.
- [22:20]
Carol Massar
I just hear, I hear anecdotes about this low hire, low fire environment and people being not getting headhunted at all. And like that's slowing down so much.
- [22:28]
Tim Stenovec
College graduates not getting jobs. Like, so we're trying to kind of square that.
- [22:31]
Carol Massar
And it seemed like he was like, everything's kind of fine.
- [22:34]
Lauren Goodwin
So here's the thing. I want to come back to the college graduates in the lo. Fire, no hire. Because I think it's really, really important. And we have been in a soft patch. I believe that we have been in a soft patch this quarter. Not helped by the government shutdown, but we've been in a soft patch.
- [22:48]
Hannah Miller
Right.
- [22:49]
Lauren Goodwin
When you have earnings growth like we have seen. You cannot have a massive wave of layoffs. You could with sort of the technological developments and AI, et cetera, but that's not what's happening right now. And I don't think that's what's going to happen in 2026 either. It is just look, coming back then to the no hire, no fire if the market has recovered beautifully this year. But if you're a business of any kind, you are either saying, looking at the Supreme Court decision on tariffs and sort of the business backdrop ahead and you're saying like things actually look pretty good, but I don't know, I'm maybe not leaning into higher add 10 people to my team team or you're saying things look pretty good, but maybe I'll wait to see what happens in the first half of the year before hiring because this, I think maybe we get some synergies. So I don't think it's a, what I'm not seeing from the labor market is like a big bearish concern. I'm seeing a wait and see. And that's again, that's a backdrop where if we see, and I do expect that we will, the benefits of the one big beautiful Bill act for both businesses and consumers pulling us out of this soft patch in the first half. That's probably not a super negative labor market backdrop.
- [24:02]
Tim Stenovec
But is it inflationary?
- [24:03]
Lauren Goodwin
I think so.
- [24:04]
Hannah Miller
Yeah.
- [24:04]
Lauren Goodwin
I think so.
- [24:05]
Tim Stenovec
How badly or is it manageable, does it mess up the Fed and its strategy here?
- [24:09]
Lauren Goodwin
So my, based on what I heard yesterday, I think our base case is actually pretty aligned with the Fed's, which is so boring. You love to have, you have real fights.
- [24:17]
Tim Stenovec
Very good company though.
- [24:18]
Lauren Goodwin
But I think, you know, look, inflation's gone nowhere this year where we've been sitting around 3% for 12 months.
- [24:24]
Tim Stenovec
Yeah.
- [24:25]
Lauren Goodwin
And the answer to your question is I don't actually expect the inflationary backdrop up to be incredibly problematic, but we saw these sort of shadow dissents yesterday that are suggesting, look, if things go pretty well next year, that is a potential staying where we are or maybe even seeing a hike by the end of next year for the Fed. That's a good economy. That's a, that's, that's that's a reasonable backdrop.
- [24:49]
Tim Stenovec
Right. It's responsible like in terms of what the Fed or certain members of the Fed being concerned. Right.
- [24:55]
Lauren Goodwin
Exactly. Now if you look at, and, and we did a deep dive on this, gosh, I guess a year ago. But if you look at the instances of real double peaks Inflation in US history, we have a couple ones after World War II, ones in the 70s, 80s. There are some ingredients that they have and all of them are possible in 2026. So one of the ingredients you have is you have sort of just got.
- [25:16]
Tim Stenovec
About 30, 35 seconds double dip in.
- [25:19]
Lauren Goodwin
Goods and labor supply, demand imbalance tariffs could be providing that for inflation, we don't know. No, you have a super accommodative fiscal policy and artificially low fed funds rate. Those are not worrisome conditions right now, but they that that's an outside risk. But the conditions are there.
- [25:38]
Tim Stenovec
This is fun.
- [25:39]
Lauren Goodwin
Great to see you.
- [25:40]
Tim Stenovec
Good to see you. If we don't see you before the end of the year, happy New Year and we will certainly see you in the new year. Lauren Goodwin, economist and chief market strategist at New York Life Investments, joining us right here in studio.
- [25:52]
Carol Massar
Stay with us. More from Bloomberg businessweek Daily coming up after this.
- [25:59]
Tim Stenovec
You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [26:14]
Carol Massar
More than four years ago, you might remember, I didn't know this happened.
- [26:17]
Tim Stenovec
I love the way this story.
- [26:18]
Odoo Advertiser
Yeah, yeah.
- [26:19]
Carol Massar
So more than four years after Warren Buffett let slip, I didn't know this was a slip, that Greg Abel would be succeeding him. The accountant turned energy executive is finally taking the reins of Berkshire Hathaway. It's the one trillion dollar conglomerate with businesses that span insurance, freight and retail and employs close to 400,000 people.
- [26:37]
Tim Stenovec
And I think it was Charlie Munger who actually let it slip. And I think you know their annual meeting, well, they're together usually at this annual meeting. They're a tag team, if you will.
- [26:48]
Carol Massar
Great catch.
- [26:49]
Tim Stenovec
Yeah. And just saying what Greg will keep. The culture, it was like so it kind of like set things in motion.
- [26:55]
Carol Massar
So that culture also includes $382 billion. It's a war chest. That's enough to come to the rescue of some of America's largest companies with a single check. We've got a great roundtable on really the future of Berkshire Hathaway.
- [27:09]
Tim Stenovec
Let's get to it. Kathy Seiffert's with us, senior vice president, equity analyst at CFR Research and Bloomberg News finance team leader here at Bloomberg. Let me say that again, Kat Chikalinsky. She's here in studio staying with us. And we continue our conversation. So good to have both you, both of you with us. Kat, I want to start with you. You know, here at Bloomberg. You've covered Berkshire for a long time, as has Kathy, but it's, it's the end of an era. It's a real change and they've been very smart in terms of grooming folks to take over. But nonetheless, yes, it's a massive change for companies so identified with Warren Buffett.
- [27:48]
Kathy Seiffert
And I think it's going to be.
- [27:49]
Tim Stenovec
And Charlie Munger.
- [27:50]
Kathy Seiffert
Yeah. And it's, it's tough. It's big shoes for Greg Abel to feel fill. And I think, you know, obviously shareholders know him pretty well. He's been speaking at the annual meeting. He's led the energy business for years. But it's different. And, and I think it's really going to be the. Yeah. And of an era. And we're going to. We've already started to see a little bit of signs of what's taking shape there. What do you mean? Well, this week, actually, so we saw Todd Combs left Berkshire. He's one of the top stock pickers. He's going to J.P. morgan. We also saw they installed a new general counsel, which rare for a modern company these days, not to have a big sort of general.
- [28:27]
Tim Stenovec
But they didn't have one.
- [28:28]
Kathy Seiffert
They didn't have one. They relied on actually Munger, Tolles and Olson for so many years, that law firm. So, you know, we've already seen these, the, these changes that, like, I think Greg in some ways is going to start to run it like a little bit more like a sort of normal modern company. And you're seeing it take shape already.
- [28:45]
Tim Stenovec
Kathy, how long have you covered Berkshire?
- [28:48]
Lauren Goodwin
Oh, gosh, do you really want me to.
- [28:49]
Tim Stenovec
Yes.
- [28:50]
Lauren Goodwin
Do that math.
- [28:51]
Kat Chikalinsky
And actually, Kat and I used to talk pretty regularly. I've covered Berkshire for more than 30 years. So I. Yeah. And the interesting thing, now that you've put my tenure on the table, is that up until now, very little changed. You know, it was truly. It was business as usual. And I think now we're on the cusp of potentially some significant changes. I think some are good. I mean, you know, Kat, you mentioned that they're bringing in a general counsel, which is, you know, kind of striking that they didn't have one before. I think the other thing, and this is a little selfish on my part, they don't have an investor relations function. So as an analyst, it's very difficult to get a really good sense of what management is thinking. The only time you hear from management and it's not even the full team is at the annual meeting. And so when this announcement of Warren's retirement was made and they were talking about business as usual. I think there were some of us who follow Berkshire who were kind of hoping it wasn't 100% business as usual.
- [30:06]
Carol Massar
You know, Kathy, it's funny that you say that we only hear from management at the annual meeting because Carol and I have actually spoken to some of the portfolio companies of Berkshire Hathaway and they kind of say the same thing. It's really, really hands off. At least that's how their experience has been. That seems to work though.
- [30:25]
Kat Chikalinsky
You know, I think one of the management changes that may give us a little bit of a glimmer that Greg may have a more, a little bit more of a buttoned up approach is that, you know, prior to this you had Warren and then you had the two vice chairmen, you had Greg who was in charge of all the non insurance operations, which is a pretty far flung portfolio, and then a Jeet Jain in charge of insurance. And now Greg has elevated the former NetJets head to cover sort of the retail and consumer side of the non insurance business. He's going, Greg is going to retain kind of the energy and industrial portfolio. And then of course you have insurance. It's still a very far flung enterprise. And I think an argument can be made to perhaps not have as decentralized a management style, take a look at all of the holdings and see if maybe there are some economies of scale to be had from maybe consolidating some of these names. I mean, I wouldn't be surprised if some of that takes place. But I think we also need to discuss kind of the, the disappointing part of this transition and that is Todd Combs departure. That for me was kind of the biggest deal in all of this.
- [31:56]
Tim Stenovec
We want to confuse you. We want to come back to you. I agree with you. When that hit, I was like, wait, what's going on? And I was also srin here at Bloomberg News and I'm like, wait, is this Jamie maybe thinking about somebody else for his as a successor? And he looked at me like I was kind of cuckoo. But I, I just thought that was such a big move. Cat, remind everybody. We'll go back to Kathy in a moment. Who Todd Combs was at this company?
- [32:18]
Kathy Seiffert
Yeah, so obviously they have a massive stock portfolio, more than 200, I think 80 billion at this point. And they were beyond Warren Buffett, who controlled a lot of the stocks. There was actually two stock pickers, Ted Weschler and Todd Koch. So by having Todd Combs exit and go to JP Morgan, they lost a huge amount of their sort of equity picking prowess. And I think it's a big move. I mean, I think it means, you know, there's a lot now on Ted to be able to sort of allocate that money. And it's hard these days. You know, it's a lot of money to allocate a lot of money. It's so much easier when you're controlling millions, not billions and you're actually trying to enter stocks. You know, they can't even enter stocks that easily without like affecting the shares price. And so they have to be very careful there. So I think this is a huge change at the company. I'll be very curious to see, like, do they try and get someone else to.
- [33:07]
Carol Massar
Yeah, I was going to say do they bring somebody else in?
- [33:09]
Kathy Seiffert
We'll see.
- [33:10]
Carol Massar
Take Todd's place.
- [33:11]
Kathy Seiffert
Yeah, I think there's no clarity there yet.
- [33:13]
Tim Stenovec
But Kathy, what do you think? Do they bring somebody else in?
- [33:16]
Kat Chikalinsky
Well, so this is the other, you know, there's a couple of other little pieces on the, on the chessboard that we should probably talk about. The other role that Todd played and in the near term was even more critical was he was the head of Geico. And the insurance business is not a very sexy business, but it's a real integral part of Berkshire's operations. The industry itself is at a little bit of an inflection point. Ajit Jain is in his mid-70s. So Todd leaving not only impacts the investment portfolio, but also some of the operating managerial talent at geico. And that, that's a big deal. But it also brings up the point of I think there are two other sort of drop a pin in these two topics and see what happens. And that is, does Ted Wexler stick around? He is the remaining of the Ted and Todd that Kat referenced when they brought in some investment help. Ted is still there. Does he stick around, number one? And number two, does a Jeep Jane, who's in his mid-70s, does he stick around and then what happens? So, you know, I think there are, obviously there's what we know right now, but there's a few other, I think, areas of potential uncertainty and weakness that I think the investment community certainly has on their mind at this point.
- [34:46]
Carol Massar
So Kat, the big question that everybody has is how the investments change. And you know, there was a lot of questions about, okay, well, what is Warren Buffett's interest in technology? And that question, I think was answered with an Apple investment many, at this point, many years ago. But it was seen as this sort of turning point and the Company still performed incredibly well despite the fact that it hasn't made a lot of investments in high flying tech companies that have performed so well over the last decade. Does that change?
- [35:15]
Kathy Seiffert
It's possible to see.
- [35:16]
Lauren Goodwin
I mean they were.
- [35:17]
Carol Massar
Sorry, Apple came in. I'm sorry, I just want to jump in and then Kathy will come to you.
- [35:22]
Kat Chikalinsky
Oh, sorry.
- [35:22]
Lauren Goodwin
Too many similar names.
- [35:25]
Kathy Seiffert
But I was going to say, yeah, I mean I think it's, you know, I think the technology, they were a little bit late on it, but they made a lot of money on Apple. And like I do think, you know, there's a chance you could see it change. You know, I think based on what we've learned from Ted and Todd and now just Ted, you know, like, I think some of his investments echo Buffett's, at least in the philosophy of like, they want to see strong, you know, economic moats. They want to see like, they want to see that the company really has some, is undervalued in ways like that. They really think it could increase over the years to come. So like and buy and hold stuff. You know, I think a lot of their main strategies will, will remain. But whether that means they'll still venture a little more into tech or not I think remains to be seen.
- [36:07]
Tim Stenovec
Kathy just got about 30, 40 seconds. One thing I think about is, you know, Warren Buffett, they're so identified with the company there for a long time there through crises. He, like Jamie Dimon, there's a couple of voices out there that we all turn to in moments, in tough times. And we, even when, you know, performance is off a little bit, we trust because the record is long, wide, deep and really successful. Do we give Greg Abel the same kind of luxury or does he have to prove himself pretty quickly?
- [36:37]
Kat Chikalinsky
Well, I think, I think your answer is in the year to date performance of the stock because I think the shares have been under pressure because the Buffett premium is sort of coming out of Berkshire Hathaway shares. And I think the investment community has a lot of respect for Greg Abel, but I think he also has enormous shoes to fill. So, you know, I think right now it's very much, much wait and see. And yeah, people are, people are being cautious.
- [37:09]
Tim Stenovec
Well, we'll be all over it. This was really fun, so appreciate it.
- [37:12]
Carol Massar
The question is, do they get a new website? I hope not.
- [37:15]
Tim Stenovec
Just go there and you'll understand why we said that. Kathy Seyford, Senior vp, Equity Analyst at CFR Research and our own Catch A. Glinsky finance team leader at Bloomberg News this is Bloomberg.
- [37:26]
Carol Massar
Stay with us. More from Bloomberg businessweek Daily Coming up after this. If a Lenovo gaming computer is on your holiday list, don't shop around. Just go directly to the source Lenovo.com it's your last chance to score exclusive deals on the gaming PCs you want, like the Lenovo Legion Tower 5 Gen 10 gaming desktop and Lenovo Lock Gaming Laptop. So avoid all that shopping chaos and price comparing and just go directly to the source lenovo.com where PC fees are.
- [37:56]
Malcolm Gladwell
Up to 35% off.
- [37:58]
Carol Massar
That's lenovo.com.
- [38:04]
Malcolm Gladwell
Hello. Hello, I'm Malcolm Gladwell, host of the podcast smart talks with IBM. I recently sat down with IBM's chairman and CEO Arvind Krishna and I asked him how can companies use AI to its fullest potential to create smarter business? My one advice to them Pick areas you can scale. Don't pick the shiny little toys on the side. For example, if anybody has more than 10% of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30% more productive today with the goal of being 70% more productive. So we are not asking our clients to be the first experiment on it. We say you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process. Because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit IBM.com smart talks.
- [39:22]
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- [40:25]
Malcolm Gladwell
Hey, audiobook lovers. This week on the podcast I'm sitting down with musician, producer and walking encyclopedia Questlove. We're talking about Mark Ronson's memoir, Night how to Be a DJ in 90s New York City. All right, like we talked about before, Mark Ronson found sanctuary in the DJ booth. What's a tool or piece of equipment in the studio or on stage that gives you the most control? So I have two microphones on stage.
- [40:50]
Carol Massar
We have the microphone that you hear as the audience. Then we have a second microphone in which we communicate with each other. I feel like that sounds Decker microphone kind of saved all of our friendships. No, no band likes each other after 20 years or 25 years. Like the Beatles broke up in seven and a half years. And we're going on 35.
- [41:13]
Malcolm Gladwell
Listen to Earsay, the Audible and iheart audiobook club on the iheartradio app or wherever you get your podcasts.
- [41:26]
Tim Stenovec
You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [41:41]
Carol Massar
Broadcom's out. So I want to pull these numbers up. Carol, you have them in front of you, right?
- [41:45]
Tim Stenovec
Yeah. Real quickly, let's go to the outlook. Sees first quarter revenue about 19.1 billion. The estimate on the street is 18.48 billion.
- [41:52]
Carol Massar
That's big.
- [41:53]
Tim Stenovec
Yeah. Let's go to the past quarter. Fourth quarter adjusted net revenue. That was a beat 18.02 billion versus a street estimate of 17.47 billion. Let me go a little bit more to the Outlook. Sees first quarter revenue. We already mentioned that one. And that one is a beat. We're seeing that stock up almost 7% in the aftermarket. Fourth quarter semiconductor solutions revenue 11.07 billion. The estimate on the Street 10.74 billion. And fourth quarter adjusted EPS, TIM, a $95 a share. And that is compared to a street estimate of A$87. So that one's about $0.08 better than what the street was expecting.
- [42:34]
Carol Massar
Yeah, shares of about 3.8% up 4% in the after hours as we speak. Fourth quarter adjusted earnings per share for Broadcom beating estimates, adjusted EPS coming in at A$95. This for the fourth quarter, just a net revenue coming in above estimates at $18.02 billion. And Carol, you were also talking about the Outlook, which beat estimates that came in significantly above estimates. First quarter revenue about 19.1 billion, beating estimates of 18.48 billion.
- [43:03]
Tim Stenovec
Yeah, and my apologies, I was looking at Lulu, which was up like 6,7% in the aftermarket as Tim mentioned. It's now up, up Broadcom about 3 or 4% here in the aftermarket. And it also looks like Broadcom is increasing its quarterly dividend, regular, quarterly cash dividend to $0.65 a share from the previous dividend of $0.59 per share. So that's what we were projecting here at Bloomberg.
- [43:25]
Carol Massar
So let's bring back Jay Goldberg. He's had 30 seconds to look at these numbers. He's senior analyst for Semiconductors and Electronics with Seaport Research Partners. A beat across the board. Jay, anything in here not to like.
- [43:37]
Malcolm Gladwell
So far so good, right? It was, it's a good number. It's not a crazy big blowout, but it's, it's good. You know, on, on first blush, everything looks, looks fine. You know, I'm, I'm content so far. We'll see what they say on the call.
- [43:51]
Tim Stenovec
Looking at commentary here off of the press release quote, we see the momentum continuing in the first quarter and expect AI semiconductor revenue to double year over year to 8 point billion, driven by custom AI accelerators and Ethernet AI switches.
- [44:08]
Carol Massar
So the question, Jay, I was going to ask you before those numbers came out, and it's probably even a more pertinent question now, is the connection between Broadcom's earnings and what we see in terms of capex from companies like, like, excuse me, Oracle yesterday. Can you make the connection for us?
- [44:26]
Malcolm Gladwell
Yeah, so I think there's a, a big distinction here in that a lot of what is going on within video is sales to Neo Clouds sort of cloud service providers other than the Big three.
- [44:36]
Carol Massar
Yeah, like you're talking about like Core Weave, for example.
- [44:39]
Malcolm Gladwell
Like Core Weave and Nebias.
- [44:41]
Odoo Advertiser
Right.
- [44:41]
Malcolm Gladwell
And, and to some degree OpenAI. And we're. So there's a little bit of, there's a growing amount of concern about the ability of those companies to finance their build out. By comparison, most of Broadcom's customers are very well capitalized. They're big companies who you can afford to design your own chip, you can afford to pay the bill to actually see the project through to completion. The one, the one big exception to all this of course is OpenAI and like they have deals with Nvidia and deals with Broadcom to do their own chip. So that's a little bit of a question, but certainly there's less of a financing concern tied to Broadcom's numbers than there is to some of the things that are going on with Nvidia, hey.
- [45:19]
Tim Stenovec
That number that they expect AI semiconductor revenue to double year over year to 8.2 billion. And that's impressive.
- [45:27]
Malcolm Gladwell
It's a big number. They've talked about that before. Okay, so that's, that's not a surprise. But it's, you know, they're reiterating that guidance and, you know, I'll tell you one thing that's been interesting this quarter in particular is press releases only tell part of the story. There's been a lot of sort of big after hours swings in some of my names this quarter based on commentary during the call. So I'm kind of curious. Hock Tan, the CEO of Broadcom, is known for having all kinds of interesting color and saying really interesting colorful things. And so I wouldn't be surprised if he has a few more surprises on the call itself.
- [46:01]
Carol Massar
What do you mean?
- [46:05]
Malcolm Gladwell
When he's bullish, he can be very bullish. We saw that last quarter with them and the quarter before. Back a year ago, nobody thought Broadcom had an AI story. And he started talking about it on the call and suddenly people realized not only do they have an AI story, but it's a massive story. And the Stock was up 20% that day. And so they're continuing to build on that. And he can, you know, he'll, he's, he's very talkative. Yeah, something interesting.
- [46:30]
Carol Massar
I mean, what's remarkable about that is if we look at the one year chart I mentioned, you know, up 75% so far this year, Carol, it's up 127% from a year ago.
- [46:39]
Tim Stenovec
Yeah, that's why, like, it's unbelievable. Let's just in case you're just joining us, shares of Broadcom are up about 2.7% here in the aftermarket, off their highs because they've been a little bit higher coming off of earnings. The big reason that investors are excited here in the aftermarket has to do with the outlook for top line growth. We're talking about Broadcom saying it sees first quarter revenue about 19.1 billion versus an estimate on the street of 18.48 billion. They also expect semiconductor revenue to double year over year to 8.2 billion. We've been talking with Jay Goldberg over at Seaport Research who said that number has been out there before, but you know, they're reiterating them, so doubling down, if you will. And the fourth quarter, looking backwards, net revenue, that was a beat. Fourth quarter adjusted eps, that was a beat. The company also saying it sees momentum continuing in the first quarter, and then it raised its dividend by about 10% from the prior quarter to 65 cents a share. Top of mind then, Jay, what's your top question here? Or do you just want to let Hock 10 go and see where he goes?
- [47:46]
Malcolm Gladwell
Yeah, one on one, I would just let him go and see where he takes us. I think the main things I'm looking out for are what's he going to say about other customers beyond the ones that they've announced, what's the timing of some of these ramps for these new products and what he sees in the future if they're going to gain some more customers. I think that's all sort of, of. He said they have a certain number of customers lined up for this, but there's also been a lot of chatter this quarter that they may have won somebody else, like, like a Microsoft. And so I want to see if he, if he takes the bait and talks about that topic.
- [48:16]
Carol Massar
You know, I'm looking at that Hawk tan and he's in his mid-70s right now. Early-70s, yeah. Do we have questions about succession?
- [48:29]
Malcolm Gladwell
So last quarter he actually said the board had extended his contract through 2030 and he'd accepted.
- [48:35]
Carol Massar
Okay.
- [48:36]
Malcolm Gladwell
He has been instrumental in making this company what it is. He's taken it from almost nothing to what it is. Massive company today. And so there was a little bit of an overhang. Like, I think people thought he was going to retire next year, but he's clearly. I don't think he's doing it for the money. I think he's just having too much fun and he's going to. He's going to stay with it until 2030.
- [48:55]
Tim Stenovec
Hey, Jay. Ardina Bass out with a short right through off of Broadcom and their results.
- [49:00]
Kathy Seiffert
Results.
- [49:01]
Tim Stenovec
And, you know, she notes that much of the recent buzz around Broadcom stem from its ties to some of the biggest AI model providers. And we've been talking about this with you, Chachi. Maker OpenAI signed a pact with Broadcom for its own AI chip designs, while Anthropic agreed to use tens of billions of dollars worth of computing services based on Alphabet's Google Cloud GPUs. The latter components also rely on Broadcom designs, helping fuel investor enthusiasm about the chip maker's prospects. We've been talking all about this. Do you want to see Broadcom broaden out or. Man, they're playing with, you know, the bells of the ball, if you will. And so they're in a good position.
- [49:40]
Malcolm Gladwell
I think there's a little bit more broadening they can do, there's a few more customers they could pick up. But the Broadcom model for his entire tenure has been focus on the sort of the biggest customers and just service them extensively. Right. So you know, when they're a big player in wireless chips and so you know, their main customer is Apple and they've been there for Apple for the entire run of the iPhone and Apple's like, if you're not Apple, it's hard to get much attention from Broadcom. I think they're going to replicate that model here and it's worked so far. And I think, I think again at a couple, at a Microsoft, maybe, maybe at an Apple if they ever get into this. But you know, they don't, they don't have to add 100 more customers. They don't have to add 10, two or three already is driving the numbers pretty significantly.
- [50:24]
Carol Massar
All right, Jay, we always love it when you hang out with us. Thanks for taking the time, especially on such a busy day. Jay Goldberg, Senior Analyst, Semiconductors and Electronics with Seaport Research Partners this is the.
- [50:35]
Tim Stenovec
Bloomberg businessweek daily podcast, available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm eastern on bloomberg.com the iHeartrade radio app tune in and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.
- [51:05]
Carol Massar
If a Lenovo gaming computer is on your holiday list, don't shop around. Just go directly to the source Lenovo.com it's your last chance to score exclusive deals on the gaming PCs you want to like the Lenovo Legion Tower 5 Gen 10 gaming desktop and Lenovo Lock gaming laptop. So avoid all that shopping chaos and price comparing and just go directly to the source lenovo.com where PCs are up to 35% off. That's lenovo.com lenovo Lenovo Amazon Five Star Theater presents real customer reviews performed by Ed Helms. Tonight's review Tactical Jacket I was living a simple life. Didn't get out much. Then I bought this jacket and everything changed. Women came flocking to me from lands domestic and foreign. On the 245 day sailboat voyage home, I was attacked by a shark. I knew it was the jacket he was after giving up the jacket in exchange for my life. 5 stars Amazon Customer 69 Shop the perfect gift this holiday on Amazon. Janice Torres here and I'm Austin Hankwitz. We host the podcast Mind the Small Business Success Stories produced by Ruby Studio in partnership with Intuit QuickBooks.
- [52:28]
Tim Stenovec
We're back for season four to talk to some incredible small business owners.
- [52:31]
Carol Massar
The big thing about working at tech is that it's ever evolving, ever changing.
- [52:35]
Malcolm Gladwell
Everyone a rookie.
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Carol Massar
That's how fast the industry is changing. So what I'm really excited about is to be part of that change. So listen on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. This podcast is brought to you by FedEx the new power Move hey, you know those people in your office who are always pulling old school corporate power moves? Like the guy who weaponizes eye contact. He's confident, he's engaged, he's often creepy. It's an old school power move. But this alpha dog laser gaze won't keep your supply chain moving across borders. The real power move? Having a smart platform that keeps up with the changing trade landscape. That's why smart businesses partner with FedEx and use the power of digital intelligence to navigate around supply chain issues before they happen. Set your sights on something that will actually improve your business. FedEx the new power Move.