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Paul (2:38)

The big earnings story of the day is Nvidia put out a really really solid number but being caught up in the downdraft continued downdraft selling of technology, in particular software kind of AI themed names. More specifically Kun John Sobani. He is a senior analyst covering the semiconductor companies for Bloomberg Intelligence. He's based out in our San Francisco office. Kujan, I'm just reading your research note here. Give us a sense of how you think the quarter went for Nvidia.

Kujan John Sobani (3:07)

Yeah, this was one of the more stronger quarter showings if you look at the last four quarters. The 1Q guide, which is the next quarter guide, blew off most of the high bar of the buy side bogeys that we think the buy side was at. There was really nothing negative to find. Even if we go through a fine in this quarter and print, there were a couple of positives that we really liked. One is the revenues from from their customers outside of the top five. CSP and hyperscales grew actually faster than those five customers. When we look at the whole last fiscal year, that group grew almost close to the top five. So all the focus always goes to the top five. But this really speaks to the breadth and the quality and the diversification of demand for Nvidia products, which is a good robust side. Second thing we really liked is networking. So if we look at the 4Q numbers, majority of the beat in data center was coming from networking. Their networking attached continues to get stronger and honestly surpassing expectations of what investors have for their networking division. And the final thing we really liked was the gross margins. We all are aware of the rising memory cost, the rising wafer, the rising substrate cost. Despite all of these costs which the company does not pass through to its customers so sort of in a way eats that cost, they're able to maintain this ridiculously high software level gross margins for a hardware company.

Podcast Host / Moderator (4:35)

What about growth in other segments like automotive or edge computing? How important are those when it comes to the company's long term earnings profile?

Kujan John Sobani (4:45)

I don't think right now anyone's focus on those when you look at the scale, I mean majority of the revenue is coming from the data center, right? So they don't really move a needle a lot. Automotive however will become very critical when you think about the next three to five years because once we get to the stage where we Have a massive deployment of L3 Plus, L4 plus automobiles on the road, not just in the US but also in China. This is where this could bring in tens of billions of dollars of revenue for Nvidia.

Paul (5:16)

So how should we think about China here? Because I can't keep track, I don't know what chips allowed in, not allowed in, how long it will be allowed in. Is the company just saying we're just going to step back until we get greater clarity?

Kujan John Sobani (5:30)

Yeah. And that's not just within media, it's with all chip makers right now. I mean for the last, I guess 12, 2 to 3 quarters, nobody's been able to ship to China. Right. So there's two factors. A US allowing them to ship to China and then also once that happens, will China accept these chips or not? So until that issue is completely resolved, the street has taken out numbers, companies have taken out those numbers. They're just not talking and you know, not thinking about that right now.

Podcast Host / Moderator (5:57)

So it's been a blowout quarter. Any risk that investors should be watching that might affect growth and margins in the next quarters?

Kujan John Sobani (6:05)

Nothing specific to the company. What has really been hampering the sentiment is this overall fatigue. I mean look on one hand the top customers who are announcing these big capex raises are getting punished because they're spending too much. You can't have it both ways where the same investors who don't like this spending too much from the customers Nvidia was getting rewarded because of high capex spend will also keep on getting rewarded. So there is this AI fatigue that how long can you keep on increasing this spend and what happens next year? Every year when these numbers go up the question comes about well can you keep going, making them go up again next year or not?

Paul (6:42)

I'm looking at the chip stocks. Kun John, your list is looking really good here. Advanced Micro Devices and intel both up 90% Nvidia up 40% over the on a trailing 12 month basis. Are tech investors, software investors? Are they hiding out your chip names?

Kujan John Sobani (6:59)

Chip names definitely are doing better from a sector perspective overall in the tech and for the obvious reasons when you now look at the EPS growth prospects, the revenue growth prospects. Right. A significant big portion of now that in the next two to three years is definitely coming to the chip name. So fundamentally a good spot to be in I would say

Paul (7:23)

what's the, what's the, the next play here for the chip space here is it simply iterating? Iterating, iterating, iterating on, on new chips and that drives the longer term revenue outlook.

Kujan John Sobani (7:37)

Yeah, exactly what you said. Like when we think about the markets where AI has already proliferated, which is really data centers is just keeping up, you know, iterating to make the compute more efficient so we can reach the stage where all this AI capex spending is no longer a concern because the customers are able to monetize from that. The second big wave will come from markets where AI has not yet proliferated. So think of your edge device, your smartphones, your PCs, think of your automotive vehicles. This will be the new vectors of secular growth for the chip names where if AI proliferates faster here, they can start collecting a lot more revenue.

Podcast Host / Moderator (8:14)

So just very quickly, how confident are you that this demand will remain strong throughout 2026 and beyond?

Kujan John Sobani (8:20)

So from the visibility that the Nvidia and its peers have announced, it definitely looks like for the chip guys, at least until first half 2027 is sort of locked in and pretty safe. Unless something major macro or geopolitical event doesn't happen. Beyond starting second half 27, we don't have a lot of risk modeled in. But that is something we cannot say for sure that it's locked in already.

Paul (8:45)

Stay with us. More from Bloomberg Intelligence coming up after this.

Matt Rogers (8:51)

This is Matt Rogers from Las Culturistas with Matt Rogers and Bowen Yang. This is Bowen Yang from Las Culturistas with Matt Rogers and Bowen Yang. What if your WI fi was more than just WI fi? What if your WI fi made everything in your whole house just work together better? Well, Xfinity WI fi pretty much does exactly that. It's powered by their best, most elite. Allow us to paint a very realistic example. Everyone in your house, everyone is on their devices at the exact same time, gaming, working, swiping.

Paul (9:20)

Right.

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Kujan John Sobani (9:41)

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Podcast Host / Moderator (11:00)

You've never been one to settle, stand down or stand still. You're a lifelong learner, energized by excellence. There's a fire inside you you can't ignore. You've got competition to outrun, momentum to build on, and your own high standards to meet. Stop now. Not a chance. At Capella University we help you catch what you're chasing because you've always had the drive. Now go earn the degree. Capella University. What can't you do? Visit Capella. Edu to learn more. 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 Apple Listen on demand wherever you get your podcasts or watch us live on YouTube.

Paul (11:46)

We are fortunate here at Bloomberg to speak some of the really the smartest people out there in the marketplace. Our next guest certainly qualifies. Been so kind to give us time over the years to help us get up to speed on what's going on in the world of technology. And that's Gene Munster, managing partner for Deepwater Asset Management. Gene, let's just start with I guess the topic of the day, which is Nvidia. You know, I know that you tech guys look for the the beat and race type of thing and I think that's what we got here. What do you make Nvidia's report? Gene?

Gene Munster (12:14)

Well, there's like three orbits here, Paul. There's the reaction, the report, the reaction to the report. There's the fundamentals. Then there's kind of the AI trade So there are three different orbits and maybe specifically on the stock being down, we'll call it 5% today, on what objectively was better than the whisper numbers. And so I want to zero in on what the key whisper was. That was revenue growth for the April quarter. The street was in print at 64%. The whisper was that they were going to guide to around 70% and they guided to 79%. That's the high end of their range. And so if you put those together, that's kind of why you got that first, like up 3% kind of reaction when the, when initially the numbers hit, the guidance hit. And so like you said, it's about beating race, beating the whispers specifically. So how do you make sense if that is in fact the case, how do you make sense of what the stock is doing? And I think part of it comes down to there is this broader narrative just around this company is just getting too big. There is also the piece that some of this, like I mentioned, is that the whisper number was higher than the imprint numbers. Shares of Nvidia, since we saw Google and Amazon ramp up their capex commentary three weeks ago, shares Nvidia, even with the sell off today, are up about 8% now. That compares to the Nasdaq Nasdaq which is up about 2%. So essentially some of this was priced in even though they beat the numbers. I think that's really some important context. But if I may just kind of even zoom back even further and look at the broader narrative around Nvidia is since October 28th. That's when Meta shares got hit because of their big capex guide and kind of changed the narrative in terms of how investors think about AI infrastructure. Since October 28, the NASDAQ is down about 4% and shares of Nvidia are down 10% even though the numbers have gone up, call it 30% since then. And so what you're really seeing here is this continued skepticism that investors have specifically about the sustainability of the trade. And I don't think it's any commentary about the strength of the fundamentals, but I think that's what we're seeing with the share price reaction this morning.

Podcast Host / Moderator (14:36)

I think it's also because Nvidia has a huge moat in training because if it's gpu, but when it comes to inference, not so much. And I feel like that's where AMD is a competitor and Broadcom with its custom chips. And maybe that's where the disappointment came from, at least when we're seeing this morning.

Gene Munster (14:51)

Well, you Know this. That all plays into this longer narrative which had less to do about what was said on the call last night. And so what you're, you're tapping into is as inference. And I just want to quickly frame an inference for those listeners who may not be as familiar with it. A lot of the AI infrastructure spend of course has been related to training the inference piece is that's really the substance of what AI is. Think of AI as inference. Inference is thinking that piece is. There's debates about what are the most, what are the optimal chips, the optimal GPUs you need for that. And my sense is that as part of the conversation, I think Nvidia is going to be in a great place. I suspect that they're going to grow and count. So I think inference is going to be a huge opportunity. I want to just quickly frame in how big inference is that you can have multiple winners here. If you look at the size of inference, Jensen talks about being potentially 1,000 times bigger than what traditional compute is. What we're seeing in our own use of AI internally is we're seeing tens of thousands of times more use of tokens when it comes to inference. And so inference is this scary topic because for some Nvidia investors, because this competitive dynamic comes up, do you need less powered chips? But the reality is the amount of chips still, the amount of AI infrastructure that's going to be needed to power this over the next decade I think is being grossly underestimated by investors.

Paul (16:16)

Gene, you've been covering this technology industry for decades. You've seen everything. I want to ask you, based upon your experience, how do you think about what's happening in the software side of the business right now? Stocks selling off, particularly the software as a service, stocks like a software salesforce.com really under the guise that we AI is going to really disrupt this software business. How do you put that into context for people?

Gene Munster (16:41)

So I think that for those who are reading the headlines and looking at the stock reaction to these earnings, I think kind of the substance of what's going on underneath the hood is being missed. It's really hard for I think that audience to really grasp the improvement that these models have had over the past three months. Of course openclaw and Claude Code Claw work are kind of the signature products that have caused some of that breakthrough. But that change has had what I think is going to have a profound impact on software. And the way we've been investing around it is we've lowered our exposure to six seat based software companies because ultimately if this is right, that knowledge work is going to be impacted, there will be less seats out there. AI agents don't purchase seats. And separately that the usage based models. So we're still holders of companies like Datadog and Snowflake. And so those models I think are going to do well. So Paul, the answer is that software is at a profound crossroad and I don't think that all software is created equal, I think the usage base models. But I would say that software needs to do something that we still haven't seen even with the Salesforce results last night. We need to see these software companies stand up and basically punch back at AI. They haven't done that. That's exactly what Google did in the June quarter of last year when they showed that they can use generative AI to their advantage in search. They really short circuited that negative narrative. And until software companies can say look at our seat growth moving higher, look at how our ARPU is per user is improving until they really have that flex that stand up, I think that this narrative, this negative narrative around software is going to persist.

Paul (18:23)

Gene, thank you so much yet again. Gene Munster, Managing Partner, Deepwater Asset Management. He was one of the first folks that kind of got helped me understand what AI is and now I kind of get a little bit of a better understanding of what the potential threat for software can be when you think about the seat licenses. And that could be a weakness for some of that revenue model there. Stay with us. More from Bloomberg Intelligence coming up after this.

Matt Rogers (18:49)

This is Matt Rogers from Los Culturistas with Matt Rogers and Bowen Yang. This is Bowen Yang from Los Culturistas with Matt Rogers and Bowen Yang. What if your WI fi was more than just WI fi? What if your WI fi made everything in your whole house just work together better? Well, Xfinity WI Fi pretty much does exactly that. It's powered by their best, most elite high performing tech. Allow us to paint a very realistic example. Everyone in your house, everyone is on their devices at the exact same time. Gaming, working, swiping.

Paul (19:19)

Right?

Matt Rogers (19:19)

Because of course they are. And the finale of your favorite show of all time of the week is on at the exact same moment. Well, you can boost the WI fi to your device with Xfinity. And have you ever asked yourself, what if my WI fi could keep watch over my kids for me? Well, probably not because that's a weird thing to ask yourself. But Xfinity WI Fi has parenting skills even if you sometimes forget yours. Xfinity's like don't worry, I'll monitor the WI fi. It's completely proactive, fixing issues before they even happen. Bottom line, Xfinity is smart and reliable. You deserve the peace of mind of having WI fi that's got your back.

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Podcast Host / Moderator (20:58)

You've never been one to settle, stand down or stand still. You're a lifelong learner, energized by excellence. There's a fire inside you you can't ignore. You've got competition to outrun, momentum to build on, and your own high standards to meet. Stop now. Not a chance. At Capella University, we help you catch what you're chasing because you've always had the drive. Now go earn the degree. Capella University what can't you do? Visit Capella. Edu to learn more. 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.

Paul (21:44)

For months we've been talking about the potential sale of Warner Brothers Discovery either to Netflix or to Paramount Skydance. And we're going to get the latest on that because there has been some movement, but these two companies actually reported results. And let's get the latest there. Geetha Ranganathan. She's the media analyst of Bloomberg Intelligence. Geetha, we'll get the deal update in a minute, but just give us a sense of how these two companies are performing on their own.

Geetha Ranganathan (22:07)

I mean I think you've summed it up perfectly, Paul. You know, you said it's a good thing that Warner Brothers Discovery is being sold. And that's absolutely right. I mean, you look at the TV networks division, this has been the problematic division for all of these media companies, TV networks. EBITDA slumped something like 27% in the fourth quarter. You look at the whole of 2025, you know, EBITDA for that segment is down 21%. And the writing is on the wall. I mean, this is why this company is up for sale. It's very, and I think really what, what everybody is going to be worried about is what is the outlook should the spin happen? Should Discovery Global be spun out into a separate company? What really is the outlook for the TV network business? And again, we saw kind of very similar results with Paramount as well. Yes, they're making the best of what they can, but again, the fundamentals themselves are pretty weak across the board.

Podcast Host / Moderator (23:01)

Management also flagged a multibillion dollar efficiency program. How should investors think about the trade offs between short term cost and long term profitability for these initiatives?

Geetha Ranganathan (23:11)

Yeah, this is what we've always been worried about. I mean, we've seen, you know, this story play out multiple times, Isabel, in all of these media companies. And yes, there's always synergies and there's always efficiencies to be extracted, but it does come at the expense of long term growth. We've seen that with Warner Brothers Discovery. You know, they, they came out with very aggressive synergy targets and yes, they were able to deliver on a lot of those. But then it did kind of hamper their growth prospects, especially you know, in TV networks business where we've seen a significant deterioration in the fundamentals, in the outlook. So that is always, there's, you know, it's a very, very tricky balancing act as a very, you know, they have to walk this really, this tightrope again. The whole deal with Warner Brothers Discovery for Paramount is predicated on something like about 6 to 8 billion dollars in synergies. So, you know, we'll, we'll see how all of that plays out. But yeah, it's going to be a tough road ahead regardless of whether they win or they don't.

Paul (24:11)

What is the update on the deal mechanics? Geetha, where are we right now?

Geetha Ranganathan (24:16)

Yeah, so it was really interesting policy in Paramount's earnings release yesterday. They said that, you know, there's a good chance of the Paramount $31 per share offer for all of Warner Brothers Discovery being deemed a superior proposal. And we've seen kind of Paramount rally a little bit on that. We've also seen actually Netflix rally on that. I think investors are becoming more and more comfort with Netflix kind of walking away from this deal. So, again, a lot to play out here, but there hasn't been any official word just yet from the Warner Brothers discovery board about whether, you know, the Paramount proposal is, in fact, superior.

Podcast Host / Moderator (24:53)

It seems like it's still a story that we're going to be following closely. Paramount also offered modest revenue growth targets for 2026. What key drivers do you think will determine whether the company meets that outlook or exceeds that outlook or even. And surprise investors, perhaps?

Geetha Ranganathan (25:10)

I mean, so the organic growth outlook, Isabel? Yes, they're trying to do their best. Remember, they, they did, you know, this is, this is also a merged company. Paramount, you know, they just recently acquired Skydance. So they're trying to do the best with, you know, those new film assets. But again, you know, if you just kind of look at it across the board, you know, in the context of the entire media landscape, it's still a very, very subscale company. Whether we're looking at streaming numbers, you know, about 80 million subscribers versus almost 320, 330 million for, for Netflix, or whether you're looking at the film business or even the TV business, everything is fairly subscale. So they definitely need some kind of an M and a strategy. Obviously, Warner would be perfect if it happens. If it doesn't, we'll have to wait and watch. But, you know, they're doing their best that they can from an organic growth perspective. I just don't think it's going to be enough.

Paul (26:03)

Do you think Netflix will walk away? That would be pretty bold.

Geetha Ranganathan (26:10)

They should, they should collect it to almost $3 billion in termination fee. I mean, this is really, I mean, you think about this, Paul, in the long term, yes, it's a great asset to have, there's no doubt about it. But it also comes with tremendous amount of risk, not to mention the biggest one being regulatory. So that's going to be a big, big overhang for the next 12 to 18 months. And then, of course, after that, you have integration, execution risks. So it's by no means is it going to be a rosy path ahead. I actually think Netflix will be better off on its own.

Paul (26:44)

Stay with us. More from Bloomberg Intelligence coming up after this.

Matt Rogers (26:48)

This is Matt Rogers from Las Culturistas with Matt Rogers and Bowen Yang. This is Bowen Yang from Los Culturistas with Matt Rogers and Bowen Yang. What if Your WI fi was more than just WI Fi. What if your WI fi made everything in your whole house just work together better? Well, Xfinity WI Fi pretty much does exactly that. It's powered by their best, most elite, high performing us. To paint a very realistic example, everyone in your house, everyone is on their devices at the exact same time. Gaming, working, swiping.

Paul (27:18)

Right?

Matt Rogers (27:18)

Because of course they are. And the finale of your favorite show of all time of the week is on at the exact same moment. Well, you can boost the WI fi to your device with Xfinity. And have you ever asked yourself, what if my Wi fi could keep watch over my kids for me? Well, probably not, because that's a weird thing to ask yourself. But Xfinity WI fi has parenting skills, even if you sometimes forget yours. Xfinity's like, don't worry, I'll monitor the WI fi. It's completely proactive, fixing issues before they even happen. Bottom line, Xfinity is smart and reliable. You deserve the peace of mind of having WI fi that's got your back.

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Podcast Host / Moderator (28:58)

never been one to settle, stand down or stand still. You're a lifelong learner, energized by excellence. There's a fire inside you you can't ignore. You've got competition to outrun, momentum to build on, and your own high standards to meet. Stop now. Not a chance. At Capella University, we help you catch what you're chasing because you've always had the drive. Now go Earn the degree Capella University. What can't you do? Visit Capella. Edu to learn more. 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.

Paul (29:43)

We are here in New York City at the Bloomberg Interactive Broker Studio, streaming live on YouTube as well. Earnings season well in gear here and that includes Magna International Ticker MGA Magna is one of the world's largest automotive suppliers headquartered in Ontario, Canada. Joining us today is Swami Kotagiri, CEO of Magna International. Swami, thanks so much for joining us here. I know you guys recently released earnings. What can you tell us about your earnings that you just released? Maybe your outlook that you shared with your investors?

Swami Kotagiri (30:19)

Good morning Paul. Thanks for having me. You know we finished really the fourth quarter was strong, helped us finish the year 2025 in a strong way, setting us up really good for 2026. We delivered good cash flow. We hit the margin range of 5.6% in EBIT that we talked about which set us up really good for 2026. We are forecasting EBIT range of 6 to 6.6. We are confident in the cash flow generation and actually converting the earnings to cash. So we gave a clear indication that we're going to be returning value to the shareholders in the form of repurchase of 24 million shares in 2026. And all this in a flat volume as you see in our automotive industry that is the result of operational excellence and capital allocation discipline. We have been doing this for the last three years, 35 to 40bps annually. So if you take 2026 into account, this is the fourth year running and our total margin expansion would add up to about 200 basis points. So all in all we feel pretty good. It is a structural change in the operating methodology and how we set our cost basis to the reality of the industry today. So all in all we feel pretty good about 26

Podcast Host / Moderator (31:51)

with global auto production expected to stay flat. How realistic is the mid teens profit growth this year?

Swami Kotagiri (32:00)

Yeah, I think like I said, the key of the margin expansion has been operational excellence from our side. It is actually controlling the controllable as we said. And on top of that we are going through digitization process where 80% of the plants are online on a unified platform which gives real good operational visibility for us. Looking at every little detail, how the lines are running, what are the stoppages, how is the material flowing, Every penny counts. So all of this is what has helped us add the margin expansion in the last three years. And we have good visibility not just for this year, we believe it's still early innings going into next year. The second part really was working through the inflation, right. Which started in 2022 and we have started quoting jobs in 22, 23, 24. With new economic terms, the new programs are rolling in. So a combination of self help and new economic terms is what gives the incremental margins that we're talking about.

Paul (33:11)

Swami, talk to us about tariffs, how they have impacted your company, what changes you have made, or what to deal with the tariff situation.

Swami Kotagiri (33:21)

So to sum it up, last year we had roughly 10 basis points of impact. The actual tariff impact was somewhere in the range of hundred and seventy million for the nine months because, you know, it started in April 1st. We have been able to mitigate, you know, with some of our own actions, working with our customers. Customers and then staying USMCA compliant, increasing the USMCA compliance going forward. So all in all, in 2026 we believe it'll be in the same range. The annual impact, given everything as we know today, stays, it's about 200 million or so. But we believe we can mitigate, continue to work with our customers and so on and so forth. So the net impact still would be in the range of 25 to 30 million this year.

Geetha Ranganathan (34:08)

Year.

Podcast Host / Moderator (34:10)

How much of the growth would come from higher content per vehicle, especially as Detroit, for example, shifts towards larger pickups and SUVs?

Swami Kotagiri (34:19)

Yeah, I think part of the margin increments that you're seeing is the mix and the new programs coming in and the change in content per vehicle. But a good point to note might be we have been doing this for the last 20 years. The, the growth over market has been about, we have been growing about 4% a year. If you look at a 10 year period, for the last five years we've been growing at 2.5%. So all in all we continue to grow in low single digits. I would say if you take a longer period of time, one data point which will help you give context. 20 years ago, Magna was a $20 billion company and North America was producing 15 million units in production today, roughly the same production as, you know, 15, 15 and a half. And we are a $40 billion company. Right. So all this came through diversifying our customer base and increasing our content per vehicle.

Podcast Host / Moderator (35:18)

This is the Bloomberg Intelligence podcast available on Apple, Spotify and anywhere else you get your podcasts 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.

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