Bloomberg Intelligence Podcast — Episode Summary

Episode Title: Cisco Tumbles After Profit-Margin Squeeze Overshadows AI Gains
Date: February 12, 2026
Hosts: Paul Sweeney, Scarlet Fu

Overview

This episode delves deep into the latest earnings season with a particular focus on Cisco's steep share decline following concerns over profit margins, driven by soaring memory chip costs. The hosts also break down notable developments in the hotel and restaurant industries, analyze company earnings, and discuss broader market and industry trends—including the far-reaching impact of AI and supply chain dynamics.

Cisco's Margin Squeeze: Hardware, Chips, and a New Normal

AI Growth Versus Mounting Costs

• Cisco, well known for its networking hardware, reported earnings reflecting both the benefits and drawbacks of the AI boom.
• The major concern: a significant increase in the cost of memory chips, especially DRAM, is severely hitting margins.
• This isn't unique to Cisco—all major hardware companies are feeling the pinch.

Key Insights from Analyst Woojin

• A Lasting Challenge:

  "Now when we think about it, it is going to create a new normal. Quite frankly the magnitude of the DRAM price increases was a bit higher than we had anticipated and it's going to be a drag on margins."
  (Woojin, 03:22)

  • Expected margin erosion: already visible in Cisco’s reported quarter, with a forecasted 200 basis points decline next quarter.
  • Broad impact: Price increases will affect not just Cisco, but other big tech hardware companies like Dell and HP.
• Industry-Wide Problem:

  “No, it's an everybody problem quite frankly...anything that's DRAM heavy in particular—servers—that's going to be bogged down on the gross margin side.”
  (Woojin, 04:09)

  • Even consumer goods (PCs, laptops) will soon reflect these cost hikes.

Share Price Reaction & Market Valuation

• Cisco’s valuation was stretched—“priced to perfection”—leading to a sharp 10.5% selloff after results.
• Historical context: Cisco’s PE had reached 21–22, above its long-term average of 17–18.
• Woojin believes investors are overly discounting its multi-year AI tailwinds.
• Quote:

  "The multiples coming back to 17 to 18 times and I do think that's kind of a bit wr[ong], Scarlet, primarily because this story is...multi-year for Cisco."
  (Woojin, 05:06)

Supply Crunch: Not A Quick Fix

• Memory chip (DRAM) production has a long lead time—about 2–3 years to ramp up capacity.
• Manufacturers were burnt by the post-COVID supply glut and have been slow to reinvest.
• DRAM prices have doubled, sometimes tripled, in recent quarters, tracked since November 2025 by the BI team.
• Quote:

  "All the read throughs from SK, Hynix, Samsung, Micron and SanDisk, they're all sold out through '26 and into '27. They're already taking orders for '27 and '28."
  (Woojin, 06:57)

Supply-Chain Reality Check

• "It’s just a global supply issue." (Host, 07:15)
• The issue is universal and not driven by trade wars or logistics snafus.
• Fast advice: buy your smart tech soon (TVs, fridges), as even consumer electronics will see price hikes and shortages.
• Smartphone supply is especially squeezed; some forecasts predict a drop in shipments due to chip scarcity.

Hotels & Hospitality: Riding the Luxury Wave

Hyatt’s Earnings: Strong in Luxury, Stress Beneath

• Hyatt hits a 52-week high after strong earnings, echoing Marriott and Hilton’s upbeat trend.
• The key to success: K-shaped economy. Affluent consumers keep spending on luxury travel while lower-end demand underperforms.
• Quote:

  “We anticipated...people who have the ability to spend on travel are going to continue, and those who aren't might pull back a little bit.”
  (Jodi Laurie, 12:37)

• Asset-light models shield companies like Hyatt and Marriott from direct property risks, enabling them to leverage management and franchise fees.
• Smaller, budget-focused chains (e.g., Choice) are more exposed to weakness in lower-end and extended-stay markets.

Debt Dynamics in Hospitality

• Even “asset-light” chains like Hyatt and Marriott still utilize debt for acquisitions, renovations, tech upgrades, and more.
• Access to capital is easier for higher-rated firms; debt is used flexibly for growth and shareholder returns.
• Patterns: Borrow for acquisitions, then deleverage—repeat as needed.

Restaurants: Value Menus, Beverage Innovation, and AI

McDonald's: Solid Results, Innovation Ahead

• Outperformed peers, largely thanks to successful value offerings and creative promotions (e.g., Grinch Happy Meal, which sold 55 million pairs of Grinch socks).

  “They have 14,000 stores in the US...they’re firing on all cylinders.”
  (Michael Halen, 21:52)

• Weathered tough comps from prior health scares and cold weather.

Looking Forward: New Beverage Push

• McDonald's plans to introduce a suite of new McCafe beverages, aiming to capture “snack period” demand and compete with specialty drink chains (Swig, Sonic).

  "Beverages are hot...this could be meaningful for them in the second half."
  (Michael Halen, 23:01)

Restaurant Brands: A Mixed Bag

• Mixed results led to a muted market response.

• Burger King performing well; Tim Hortons showed deceleration, weighing on results.

• Popeyes weak, but overall international growth remains strong.

  "Tim Hortons is a monster in Canada. I wouldn't be too concerned about it."
  (Michael Halen, 24:28)

Embracing AI and Automation

• Chains are deepening their use of AI for personalized marketing, labor planning, and inventory:
  • AI-powered loyalty/marketing = highly targeted offers.
  • AI-driven assistants (e.g., Taco Bell) help managers with day-to-day operations like staffing and prep.
  • Not one-size-fits-all: Each chain adapts AI based on its workflow.

  "For these quick service chains, the thing that's going to be probably most useful is like an AI assistant."
  (Michael Halen, 26:16)

Applovin: Ad Tech Faces AI Disruption & Investor Jitters

What Does Applovin Do?

• Controls a dominant auction marketplace for in-app advertising (“mediates” ~70–80% of ads shown in mobile games).
• Connects advertisers with mobile app publishers (most apps are free, so ads are crucial for revenue).
• Market nervousness surrounds potential disruption from new AI tools that could let anyone generate games and their embedded ads.

Earnings Fallout

• Applovin’s stock tumbled 19% (down 45% YTD) after issuing cautious earnings and guidance.
• Weakness tied to “AI disruption risk”—both from Google’s new AI-powered content creation tools (like Genie) and new competitors.
• However, Applovin’s “moat” is built on years of machine learning data—hard for new players to quickly replicate.

  "It has these AI or machine learning models that took more than five years to build...it would take some time before any sort of upstarts can catch up."
  (Nathan Naidu, 34:09)

Market Position Still Strong

• The company still powers the bulk of in-app ad auctions, and its models for ad targeting are well entrenched.
• While big, entrenched players are less at risk, smaller rivals could face more disruption as the industry evolves.

Notable Quotes & Timestamps

• Chip Cost Squeeze:
  “It's going to create a new normal...the magnitude of the DRAM price increases was a bit higher than we had anticipated.”
  (Woojin, 03:22)
• Supply Shortage Tightness:
  “My hard disk drive guys are sold out until 2026 and possibly into 2027...they're already taking orders for 27 and 28.”
  (Woojin, 06:57)
• Travel Spending Divide:
  “We anticipated...people who have the ability to spend on travel are going to continue, and those who aren't might pull back a little bit.”
  (Jodi Laurie, 12:37)
• McDonald's Promotion Power:
  “They sold 55 million pairs of Grinch socks. Right. The Grinch Happy Meal. There you go. One of their most successful promotions ever.”
  (Michael Halen, 21:58)
• AI Impact on Fast Food:
  “For these quick service chains, the thing that's going to be probably most useful is like an AI assistant.”
  (Michael Halen, 26:16)
• AppLovin’s Moat:
  “It has these AI or machine learning models that took more than five years to build…and I believe because AppLovin’s model...is mature...it would take some time before any sort of upstarts can catch up.”
  (Nathan Naidu, 34:09)

Key Timestamps

| Segment | Topic | Timestamp (MM:SS) | |---|---|---| | Cisco’s Memory Chip Margin Squeeze | 02:16–08:44 | | Supply Chain & Industry-Wide Chip Shortage | 06:04–08:44 | | Hotels & Hospitality (Hyatt, Marriott, K-shaped economy) | 12:13–17:53 | | Restaurant Earnings (McDonald's, Restaurant Brands, Popeyes) | 21:25–27:39 | | AI Adoption in Restaurants | 26:16–27:39 | | Ad Tech Disruption (Applovin) | 31:10–35:43 |

Concluding Takeaways

• Major trends—like AI proliferation and supply chain issues—are dramatically shaping company performance, across hardware, travel, and consumer industries.
• Even as companies innovate and expand (whether via AI or new products), structural issues (costs, supply shortages, consumer bifurcation) are set to play a defining role in sector outlooks through 2026 and beyond.
• Analysts underscore the importance of distinguishing between short-term volatility (Cisco's margin dip, Tim Horton's slowdown) and underlying multi-year growth stories fueled by technology and evolving consumer patterns.