← Bloomberg Intelligence
Loading summary
Transcript65 lines
- [00:03]
A
Bloomberg Audio Studios Podcasts Radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [00:24]
B
We got another data point last night in terms of how the market views this tech capex, Amazon, they have to take the cake. $200 billion in capex. That's well above what the consensus was. Guess what, the stock is trading down today. So let's get a sense of kind of where this tech spending theme is for this sector. Mandeep Singh, he joins us here. He runs all the tech research for Bloomberg Intelligence. For those Mandeep, that we're looking for another data point to say how does the market view tech spending? Did we, did we get it last night with Amazon and now the stock trading off today?
- [00:58]
C
Yeah, I mean this was as big as it can get in terms of, you know, a capex number out of the hyperscalers and probably because they went last in terms of, you know, reporting earnings. But look, I think had they not gone that big, the stock would have been up because they posted best AWS growth in the last three years. And you know, sequentially things seem to be improving. It's just that $200 billion number and the fact that their margins are going down on the side. That's why you see this kind of stock reaction. And there wasn't enough justification to, you know, ramp up capex by about 55% to 200 billion.
- [01:42]
D
Mandeep, how long are we going to see these massive increases in CapEx? I mean this was for 2026, full year. I mean, are we going to see this for another two years, three years? Or have we, you know, is there an end in sight, I guess is the question.
- [01:56]
C
So based on our work, at least so far, we feel this is the peak capex growth. You will still see growth, but it's not going to be of the same magnitude. I mean, 2026, we are talking about a year where CapEx from the hyperscalers will grow almost 60%. So and last year we had 2024-25 was also 70% growth in CapEx. So we, we have gone from $200 billion of hyperscale CapEx to now $650 billion. I think that growth rate will certainly come down, but there's no doubt that we are still in that part of the S curve where there is more demand and everyone has called out supply constraints and they would have grown Faster had it not been for the limited supply they had for AI infrastructure.
- [02:47]
B
So, Mandeep, you talk to institutional investors all around the world here that focus exclusively on technology. Where are they? Has their narrative shifted about where and when and to what degree this industry should invest in AI? Has the fundamental view of AI and how this tech industry is going to get there? Has that changed among some of those big, big tech investors that are big shareholders in so many of these companies?
- [03:11]
C
Yeah, I mean, right now you see both, you know, anxiety and some sort of panic as well, in terms of, you know, the level of free cash flow that's going to get hurt because of this spend and how fast it's happening. I mean, the cloud market grew almost, you know, 20% plus for a decade, and everyone was fine. You could see, you know, predictable free cash flows. This is a very big upfront spend. And look, it makes sense that you have to spend first to build the infrastructure. But I think you really have to take a leap of faith that all these companies that are putting, you know, $200 billion will see ROIC for their spend. And I think that's where there are question marks that some of them may not have that level of roic. So I think that's what's reflected in the panic so far. But there's no doubt that, you know, workflows are changing and there are some real productivity benefits you're seeing out of this band.
- [04:13]
D
You know, we talk about these numbers and we throw them around like their gospel. 650 billion from Big Tech this year, 200 billion from Amazon. I mean, it's kind of squishy at the end of the day, Mandeep, because this is a lever that companies can toggle. So I wonder how reliable they are. Ryan Horan, who is one of our listeners, wants to know, is the risk to higher capex from here, or is it more that hyperscalers can pull back on what they say is their cap Capex plan?
- [04:40]
C
No, that's a very good point. And look, a company like Apple so far has resisted the urge to spend on capex, and now that they are leaning on Google. So that's where, you know, Google raising capex made a ton of sense this earnings season because one, they saw that steepest acceleration in cloud. In fact, next year could be 60% growth in their cloud segment and also anthropic and Apple or our new customers, you know, in terms of who will be using their compute. On the other hand, for an Amazon, you have to ask yourself, is OpenAI the buyer for all of the compute that Microsoft is spending on, you know, Amazon is spending on, Oracle is spending on, because it's going to come down to a handful of, you know, foundational model players. Matter is on its own, it's spending, but it's not very clear. OpenAI needs all this compute.
- [05:35]
B
Stay with us. More from Bloomberg Intelligence coming up after this.
- [05:42]
A
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [05:56]
D
Under Armour, one of the companies that reported earnings and in line with the gains in the broader market, the Stock is up 11% right now. This is a company that is still very much in restructuring mode. Poonam Goyal is our senior U.S. e Commerce and Retail Analyst here at Bloomberg Intelligence and she's got more on this. So how low was the bar? Or did Under Armour knock it out of the park with this latest report that has its stock soaring 11%?
- [06:23]
E
I'd say the bar was very low for Under Armour. There's been a lot of conversation about will this turnaround take place, will it be a sustained turnaround in the past few months, especially with the loss of Steph Curry? So I think the bar was low. They did post respectable numbers. I still say that. I'm still not completely sold on the story. Their biggest region, the U.S. north America, sales were down 10%. They're expected to be down 8% in their fiscal year. So things aren't still, you know, where we want them to be. And I've heard this narrative so many times where they kind of take out the low hanging fruit, get the inventories right, get back into the right wholesale doors. We're repeating that. So for me it's a wait and watch situation.
- [07:09]
B
Still when a brand like this loses a spokesperson like Steph Curry, how does that, how material is that of a loss to the financials?
- [07:17]
E
It's material for basketball, right? If Under Armour is trying to make a stake into basketball and really compete with the Nike and even the Adidas or Pumas of the world, which have renowned basketball players supporting their brand, Nike notably. So the loss of Steph Curry is going to be a headwind, we estimate. And what we've seen just by industry estimates is it's more than $100 million franchise that Steph Curry had with Under Armour. So that's obviously now not going to be there.
- [07:47]
D
So we've also heard that the Warren Buffett of Canada, Fairfax Financial has disclosed a roughly 22% stake in under Armour. This came out about a month ago. How does that change how the company operates? How it moves forward is do we presume that Fairfax is going to be an activist investor or have some ideas on what Under Armour does?
- [08:10]
E
I'm sure they'll have some ideas. Right now what we're seeing Under Armour do is follow the retail one on one playbook on a turnaround which is let's get out of off price, let's start selling more full price, let's pick our wholesale doors and let's get product innovation front and center in front of the consumer. The question is right now that they can do that because they have very easy comparisons from prior years as they begin to recoup and reset the bar. Can they continue to grow and compete with the larger players, notably Nike and Adidas? And can they make a claim for their brand without leading sports personnel?
- [08:51]
B
Amazon also reported last night stock trading off. People not real psyched about $200 billion of capex, I guess. But how did the retail business do?
- [09:00]
E
The retail business did very, very well. I think they're continuing to gain share. We saw an increase in online retail sales, low double digits. That was impressive and show. I think what's really neat about their retail business right now is all the investments that they're making in AI, especially Rufus. You know, it was interesting to me and I guess I hadn't known this is that Rufus can now execute an order for you and that's pretty cool. If I say I want, you know, this stereo for $100, so watch the price. When it gets to 100, it just buys it for me. That's, that's a new way to shop. And they're definitely leaping forward into AI and making the bets with RUF and Alexa plus which I thought were pretty interesting.
- [09:45]
D
I guess these would all be kind of value added services from Amazon. Does that mean that they're going to start raising fees for Amazon prime, for instance?
- [09:55]
E
You know, they've raised fees periodically. They, they're not ones to raise fees every year. So every several years do we see a slight bump in price we have and the fees have gone up in the last 10 years, 15 years, quite substantially. But I'd say they're also giving you a lot more. Right. With Prime Video. Just other things they make the prime membership, if you were ever to unbundle it, it's quite a great value that you're still getting. And they talked a little bit about everyday essentials. Now just being a bigger focus for them. It's surprising and it's mind boggling actually that it's $150 billion GMV business for them. That's pretty significant. That one out of three purchases are everyday essentials. That just means that you're going to Amazon for everything. You're going to white label brand, right?
- [10:44]
D
Everyday essentials.
- [10:46]
B
I don't know.
- [10:46]
D
Just like their supermarket brand.
- [10:48]
B
I think so. So 30 seconds left here. Put them based upon Amazon. Maybe some other retailers you've heard from. How's the consumer doing?
- [10:56]
E
The consumer is doing just fine. You know, we have been waiting to see if the consumer will crack. We haven't seen that yet. The consumer is shopping but they are being mindful and they are watching where they spend and how they spend it. So this is where brands like Amazon and the large retailers that have the power of scale to keep prices do well.
- [11:16]
B
Stay with us. More from Bloomberg Intelligence coming up after this.
- [11:23]
A
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [11:38]
B
Philip Mars, they had some pretty good numbers. The stock's done well. Double digit return this year plus I got a 3% dividend yield.
- [11:46]
D
It's a consumer staple and consumer staple is in right now.
- [11:49]
B
Ken Shea joins us, senior consumer products analyst at Bloomberg Intelligence. Tell us about Philip Morris, their quarter and what's their business outlook. Ken?
- [11:58]
F
Yeah, hi Paul. Philip Morris had some good numbers today. Its fourth quarter pretty much came in line sales about 7%, EPS about 10. Those are pretty good numbers for a consumer staple company. They hit their numbers. Stock is performing well probably as a result of that. But there's two other big takeaways I think beyond that today that's maybe helping investor enthusiasm here. The second is the financial guidance they provided for the next three years or I should say through 2028 is also pretty positive. They see mid to high single digit revenues, around 10% operating income, low double digit EPS growth. Those are pretty good numbers for big consumer product companies, particularly companies that deliver like this one. And even though those numbers are pretty much in line where the street was already at, nevertheless I think that should be viewed pretty positively. And the third is the company said today, repeating what they said in December, they're going to start providing more financial transparency behind what they call their smoke free business from their traditional cigarettes combustible business. And I think that's going to help. More transparency is always welcome you know, by investors in the market. And so I think all three things are really what's behind today's action.
- [13:16]
D
So talk a little bit about that smoke free product line. Where is the growth the fastest and how much spending, how much investment is needed for us to see that return that investors want.
- [13:29]
F
Hi, Scarlett. Well, Philip Morris has really took a big step before its peers when jumping into the smoke free opportunity years ago with what it's calling iqos. Iqos, that's its flagship family brand I guess you can call it. It's pretty much sold around the world, pretty much in most of the markets that it sells cigarettes and it's already comprised more than half its sales in some pretty big markets, Japan, South Korea and some others. So it's really caught on. Well and basically what it is, it's a, it's a device. It's a device that you to get the facsimile of a cigarette smoking experience, but you use little plugs you put in it. So the business is really selling the plugs. Once the device is in the hands of the consumer, that's doing really well. That's the biggest piece of that business. The second is it's what, what it calls its nicotine pouch business in the US People probably know it by Zimbabwe. It's around plastic can people put their pockets and they can very discreetly get their nicotine hit that way. It's been really popular, doing really well. And the third kind of more, more of a distant business for them, but one they want to be in is their E cigarette business they call the closed pod system, sort of like the Juul. Their brand is called Vive. It's kind of a low end, lower, low price point, a way for consumers to get into their get to get their nicotine fix. But it wants to be in that business because it wants that brain to be out there as an alternative to smoking.
- [15:04]
B
So just real quick there, is that where the growth is for this company going forward in the broadly defined smokeless part of the business?
- [15:12]
F
That's right, Paul. It's already around 42% of their sales. Yeah, believe it or not, not a lot of people in the US know about it because iqos really isn't sold in the US yet. They're waiting for FDA authorization to roll out its Aluma ecosystem. Then, then people really know more about it in the U.S. but it's yeah, over 40% of their business, it's over $16 billion in sales. So that's why they're bringing transparency to that business. It's a big business. You know, I think what they're implying, I think down the road is that maybe they can separate the businesses that is the combustible business from its smoke free because they have different investment characteristics.
- [15:53]
B
Stay with us. More from Bloomberg Intelligence coming up after this.
- [15:59]
A
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg business app Listen on demand, wherever you get your podcasts or watch us live on YouTube.
- [16:14]
B
Well, it is here February time and on Wall street that is bonus time, folks.
- [16:19]
F
You want somebody's attention on Wall street, say bonus bonus.
- [16:22]
B
Exactly. To be honest with you, having worked on the street for 30 years, the bonus discussions at around the water cooler start right after Labor Day and you start talking about what the bonus pool is and then you start cornering your manager and you from September right up until year end because that's when the bonus pool kind of gets decided. And you say you put hey, good deals, good trade, you know, all that kind of stuff. And so it starts working right after Labor Day. That's how the season works. This year is going to be a good year. Goldman, J.P. morgan bankers see bonus pools rise at least 10%. That's pretty good. Catherine Daugherty joins us, finance reporter for Bloomberg News. This is the Big Take story and not surprisingly, it is like one of the most highly read, most read stories on the Bloomberg Terminal today. Because who is our readership? It's the folks that get paid by Wall street, global Wall Street. Catherine, talk to us about kind of the bonus environment these days for global Wall Street.
- [17:11]
C
Yeah.
- [17:11]
G
So I mean, 2025 ended on a strong note and the year ahead looks to be the momentum in terms of deals and trading. Both of those things is feeding into that bonus pool that you talk about. So in terms of the trading desks and M and A, specifically M and A has been for investment bankers the tepid environment that payouts have not been terrible, but you haven't seen this double digit rise in, in that part of banking in a few years. Really 2021, 2022 were like the banner years for investment banking. Now we're starting to see more momentum that bankers are getting paid for the deals that they're putting the time and energy into. And for trading, volatility has really driven up revenue across the big banks. They're fulfilling more client orders and because of that, the trading desks are getting paid for it.
- [18:10]
F
I need numbers like give me an average. And then for a rainmaker like Paul.
- [18:15]
G
What Would it be so average 10%. And we've been reporting for specifically JP Morgan, Goldman, bank of America. Now within those banks there's some variation. We were trying to find kind of the general average. And for the rainmakers, to answer your question, some of those are going up to the 20 to. I had heard some rumors of 30% for the like real estate.
- [18:42]
F
Well that's give me like a dollar figure though.
- [18:45]
G
So I mean these bonuses, it really varies by bank.
- [18:48]
F
Sure.
- [18:49]
G
If you think about the base salary, it's the bonus on top of your base salary that usually is. Is this the sweeter part of payout? It's gonna depend on what stage a career the banker is in. If they're further along, it can stretch into the millions of dollars. And it's the bonus that could be the millions part and not necessarily your base salary. So again that's the performance based. How did your year end up and then your salary is just the thing that's on the bottom of it.
- [19:21]
B
What has changed since My day was my day, my bonus was 90 to 95% of my year end comp. My total comp is my bonus. So your salary was like 5, 10% of your total ticket. Now that's changed. It's a higher percentage now your salary.
- [19:35]
F
Was your beer money.
- [19:37]
E
Exactly.
- [19:38]
B
It's active. Right. But you try to live on your salary and you save your bonus. That's the. That's what. Or if you're other way, you just blow your bonus. Both four kids. I was in the save mode. But has that changed? Is there a higher base now these days? Maybe a lower percentage?
- [19:51]
G
I do think that, I mean that percentage that you just shared, I think the percentage is yes, have, have grown where bonuses are not 95% of your pay. That being said, the shift is still towards bonus over salary for many of these firms. And again that is why there's the incentive to work hard. That phrase of eat what you kill.
- [20:17]
B
Yeah.
- [20:18]
F
Is the bonus also retention sort of thing that retain your talent. You know, you don't want to lose.
- [20:23]
B
This guy to or woman to some other firm.
- [20:26]
G
So that's a huge. That's like the fine line that the banks need to walk is you want to pay your best talent. But they're also under a lot of pressure to keep their expenses in check. When these are public companies that are reporting to their analysts into the investor community and saying hey, this is how much money that we're making. The profit that the banks made in 2025 was the strongest that we have seen. In a while. So presumably they should be able to pay out their people for it, but they don't want to pay out so much that then their expense line is going to be under scrutiny and they're going to be held to a higher standard in future quarters where they're going to start answering questions like, you know, why is the expenses much higher than you projected or you have talked about in previous quarters.
- [21:14]
F
I'm going to develop an AI model to come up with the calculation for boats.
- [21:18]
G
I'm sure that this is something that, yes, they've already implemented for that for the junior bankers.
- [21:22]
B
Listen, listening out there and watching. Here's the strategy. You go in with your deal sheet. This is the fees I generated this year. You got to pay me as more important than that is go in with the deal sheet for next year. These are my anticipated fees that I think I'm going to bring in. And you don't want to lose me. You don't want to make me unhappy because this I think I can bring in.
- [21:41]
G
It's all about the year ahead.
- [21:43]
B
And that's how you do it. So real quick, 30 seconds. The European banks don't pay as much as the US Banks, right?
- [21:49]
G
Not typically, but that's just because when you think about the U.S. you have the New York market, so you're going to see higher salaries. And the US Banks, I think, are on a stronger foot right now in terms of the profit that they're pulling in. So those are the kind of the things you need to think about.
- [22:08]
A
This is the Bloomberg Intelligence podcast, available on Apple, Spotify and anywhere else. You get your podcast listen live each weekday 10am to noon eastern on bloomberg. Com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.