David Welch (2:38)

Look, it was a disappointing quarter no matter how you look at it, even though it was up over last year. But there's some, there's some complexities there. So they were, they Greatly disappointed. What analysts and investors expected them to sell, it was up over last year. So how does that happen? Last year this time there was a backlash against Elon Musk over Doge and everything he was doing with the Trump administration. So sales had really pulled back from that. If you look at this first quarter versus previous years, not 2025, but 2024, 2023, it's down significantly from there. So Tesla's over sales globally have just been sliding here for quite a while. EV sales are down all over the globe. I mean, not in every market. But the Chinese have pulled back on some of the incentives there. Even BYD has seen a couple of tough months in terms of sales with some of those government based incentives going away. Trump administration got rid of them here. That's hurting EV sales here and that's all they sell. They're getting rid of the Model S and the Model X. And the company is trying to pivot toward robotics and automated driving, both of which are very big challenges to beat in the next few years. It's just very difficult to get cars to drive themselves. The methodology Tesla is using is different from everybody's. They're relying on their data. So it's going to be a tough road ahead, I think, for Tesla to really turn investor sentiment around because they're not selling vehicles like they used to. And there's, there are a lot of big question marks on the new strategy and the big pivot that Elon Musk is making with this company.

Bloomberg Intelligence Host (4:20)

All right, and that's kind of been the story with Tesla for a while now that, you know, even though it does still sell cars, that that trajectory has gone down. And with EV sales slowing overall, what's interesting is with oil prices now elevated, there is more interest among consumers at least into looking at, into examining the prospect of buying an EV to save on gas costs. There's another story out today, David, about Stellantis in talks to make Chinese EVs in Canada. I thought that the US carmakers were staying far, far away from the Chinese EV makers.

David Welch (4:55)

They are. But then again, Stellantis is really a European company with a big US Arm, isn't it? But look, Canada relies on the US companies and Toyota largely for its auto industry. That's, you know, it's Ford, gm, Stellantis and Toyota, to a degree, Honda that are making a lot of vehicles up there. That's where they get, you know, they're a domestic supply of cars that aren't imported and facing tariffs now and also for employment. And if you're going to have this trade tension between the US And Canada, which we have had for a while now, and we're unsure of what's going to happen with the usmca. There's a lot of talk that, you know, maybe Trump will cut separate deals with Canada and Mexico, and he's been very annoyed with Canada these days. Then Canada has to look elsewhere for companies that are going to invest in their industrial base and make vehicles there that aren't going to be subject to different trade issues. And they're increasingly looking to the Chinese, and I think they would welcome that. Stellantis partner Leap Motor I'm sure they'd love to get into the Western Hemisphere with the hopes that one day, if trade tensions between the U.S. and Canada subside, they could actually send some of those vehicles into the US Market. And it's not a bad place. These would be small plants, but it's not a bad place for the Chinese companies to get in, even if they need a partner to do it.

Bloomberg Intelligence Host (6:21)

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

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Bloomberg Intelligence Host (8:48)

When it comes to the drivers in the market, in particular the tech part of the market, it's all about the hyperscalers and how much money they plan to spend this year going forward on AI infrastructure and hyperscalers. We're talking about Alphabet, we're talking about Microsoft, we're talking about Metta. Microsoft was one of the originals, the OGs, when it comes to building out its infrastructure. Brody Ford is one of our reporters here at Bloomberg. He covers the technology sector. He covers software, among other sectors, parts of tech, and he has a Bloomberg Big Take story on how Microsoft's CFO has some ambitions that are running up against the tech bubble fears. And Brody, you kind of write and let's take you inside what's going on at Microsoft and understand how the cfo Amy Hood, has made these decisions on when to spend, when not to spend, when to pull back. You didn't get a chance to speak with her because she doesn't talk a lot to the public. But you talk. You did a lot of reporting around Microsoft with her team. What did you learn?

Brody Ford (9:52)

So why this story is so interesting is Microsoft, as you said, is kind of one of the original hyperscalers and they're sitting on really a nation state size investment pool. And the big question in the economy right now is are all these data centers going to pay off? Are all these tens and hundreds of billions of dollars actually going to result in businesses that make margins that are worthwhile? And at Microsoft, Amy Hood has effectively become all powerful, right? You have a CFO who is making decisions about allocation of resources and data centers and who gets GPUs and where. And what we largely found is that she took a bit of a skeptical tone over the years. She took a bit of an anxious tone even that there were moments where she said, man, we really might be overspending here.

Bloomberg Intelligence Co-Host (10:44)

So she decided to Dial back some of that spending. Was that a mistake?

Brody Ford (10:48)

In hindsight, a lot of people would say it was. It was maybe about a year, year and a half ago she looked at the numbers that folks were giving her and she said, I don't believe this demand. I question this demand. And you know, it's time to hit pause on a lot of these data center projects. And I don't know if you remember, but when this played out in public, it rattled the markets. Everybody saw, you know, a sign that Microsoft was getting cold feet. And, you know, we're able today to say that, that that is what that indicated at that time. Of course, today Microsoft is in the position of finding that, golly, we can't find enough data center capacity and our business is being held back by it. And so it seems clear that they undershot their demand projections. And you know, we're in a moment right now where industry consensus is spend as much as you can as quick as you can on data. Sure. In six to 12 months we'll talk again and the consensus will flip once again.

Bloomberg Intelligence Host (11:47)

And because Microsoft is one of the OG hyperscalers, when Amy Hood decided to pull back a bit on spending, that not only caused questions in the market, but it caused other hyperscalers to kind of rethink their spending as well, didn't it?

Brody Ford (12:01)

Well, I think it actually created an opening in many cases. A lot of the sites that Microsoft walked away from, some of the younger rivals that think the core weave, the nebbyist, the N scale, they kind of swooped in and said, man, we're ready to buy some data center capacity here. And I think all this kind of shows just how difficult it is right now for the big hyperscalers. I mean, you know, they for a long time had a business model based around no assets around software that, hey, if you want to change your plans, you really just kind of have to reallocate some coding teams and you know, you don't have these long term fixed assets that depreciate over 10, 15 years. And now they're in the position of trying to act almost more like a Boeing or a ge, these kind of old industrial giants and you know, forecast out demand for a technology that's still emerging. It's a really tough balancing act. And I'd argue that there's nobody out there who has more directly on their plate in this than Amy Hood does.

Bloomberg Intelligence Host (13:05)

I like the way you put that. They kind of went from it feels like asset light to very asset heavy because they now own and oversee these big These big data centers. Does that mean that investors eventually will kind of re rate these companies as well given what they have on their, on their balance sheet?

Brody Ford (13:26)

I sort of think we're seeing it happen already. I mean, Microsoft is down, you know, about a lost about a quarter of its value over the last year. And I think a big part of that is the margin story that, you know, their margins have been pretty steady but that's only because they've really been cutting in a lot of the other parts of the business. Right. We write in the story that, you know, their cash cow businesses, let's call it like a Windows, have had a lot of cuts in them because this new AI business, the margins are so much lower. Right. And so you had a company that was printing some of the craziest margins in the world now renting out servers at a much lower margin and having all this, you know, tens of billions of dollars of chips on their balance sheet. It does paint a different picture of a company. Right. And the question is, are they going to keep spending this way in perpetuity? Are we in a phase? I think that leaders like Amy Hood are really charting and new territory and answering all this in real time.

Bloomberg Intelligence Co-Host (14:27)

The stock is down 25% year to date. Is Amy Hood feeling any pressure for some of her maybe decisions as it relates to AI spending?

Brody Ford (14:37)

Our understanding is a lot of folks in the company were not happy with her around the pause last year. That said, it wasn't our indicator that you know, hey, she's going to get the boot over this or something. All that said, she's been in the seat for 13 years. That's a long time for anything CFO. And it's our understanding that there are starting to be succession conversations. We heard some names that were interesting. Chris, the CFO over at Visa, well regarded figure over there, you know, he's a name that comes up a lot because he used to be at Microsoft. He knows the business he left and kind of gained skills and could be primed for a return. There's somebody named Matt McBride who's kind of her internal heir apparent. Right. I mean his name will certainly be in the ring here. And so I wouldn't be surprised if in the next year or two we're talking about the great Microsoft CFO search. But at the same time, I don't think it's that she screwed up a decision and now she's getting the can. That's not what's happening.

Bloomberg Intelligence Co-Host (15:36)

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

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Bloomberg Intelligence Co-Host (16:43)

Support for the show comes from Public Lately it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth on public. You can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts? Yep. High yield cash? Yes again. They even have direct indexing. Public has modern design, powerful tools and customer support that actually helps go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market ad paid for by Public Holdings Brokerage services by Public Investing member Finra SIPC Advisory services by public advisors SEC registered advisor crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures@public.com disclosures.

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Bloomberg Intelligence Co-Host (17:58)

Let's stay with the tech theme a little bit, but we'll go to the credit side of the equation. Why? Because these companies are issuing debt hand over fist, which is something we haven't really been used to. But that is something that is a big theme I think across the tech space is how they're funding some of this AI. And the best name for us to chat with on that story is Robert Schiffman. He is Tech Credit analyst for Bloomberg Intelligence. Let's start with Intel, Rob. I mean, I'm just looking at the stock and the stocks really turned around. Really working from a credit perspective, what's the view of Intel? Because there were some concerns.

Robert Schiffman (18:30)

Sure. First, happy holidays to all. Unlike Ira, I will not be working tomorrow. I will be eating through one of our hundreds of boxes of matzah.

Brody Ford (18:38)

Okay.

Bloomberg Intelligence Co-Host (18:38)

Which we have on the sixth floor.

Robert Schiffman (18:40)

God bless our rates. Chief of Staff. Yeah, yeah, listen, it's nice to be talking about a name that actually people like in the technology space. Stock is up some 30 odd percent this year. The S&P 500 tech index is down almost 10%. Spreads are 50 basis points tighter over the past six months. I actually think they're the original poster child for AI Yep. They announced that they're going to be spending tens of billions of dollars building foundries, not data centers. And free cash went negative. They borrowed a lot, stocks sold off, bonds sold off, and lo and behold, you know, they're in the midst of a pretty major turnaround. I think it's a plan others can, can potentially follow over the next couple of years.

Bloomberg Intelligence Host (19:24)

But what makes intel different? Why was it able to pull it off? And how will other companies who might want to follow in its footsteps be able to, you know, follow this blueprint and also succeed?

Robert Schiffman (19:34)

Yeah, well, there's a lot of benefits of having big powerful friends. So first the government converted some of their grants into a 10% equity stake that was over $8 billion. Nvidia wrote them a $5 billion check and SoftBank wrote a couple billion dollar check. On top of that, they sold assets. So they gained almost another $10 billion in asset sales for non core businesses. So unlike others that have been doing nothing but been borrowing and adding leverage, this company has been on a deleveraging push. And on top of that, fundamentally their core business is starting to improve. So a better balance sheet, a top line that we're looking to see grow this year after falling five straight years in a row. So they are doing things that are different and they're getting paid for it.

Bloomberg Intelligence Co-Host (20:20)

All right, so on the Bloomberg terminal, if you want to see who the shareholders are of any particular company, you just type in HTTP d s for holders. Number one for Intel, BlackRock. Okay. Number two, Vanguard. Got it. Number three, United States of America. You don't see that every day. And number four, Nvidia. So those are the partners for intel here. How about the free cash flow story? Because I was just looking back at the FA function and as you said negative free cash flow because they're spending so much on Capex. You're a bond guy, you like free cash flow. How's that story developing?

Robert Schiffman (20:56)

Yeah, we haven't had a lot of free cash flow over the last few months to talk about and we haven't been worried about it. Listen, Intel's been bleeding cash. It looks like they're probably going to be around flattish this year. That being said though, with all these transactions that they've done, they've built a pretty big base of $37.5 billion of cash on the books. They're using some of it to buy back Apollo stake in one of their JVs.

Bloomberg Intelligence Host (21:21)

Is that a good move?

Robert Schiffman (21:21)

It's a phenomenal move. We wrote yesterday that it was a sign of strength. What this company had to do is some creative financing. We've seen with AI, we've seen some of these off balance sheet SPVs to raise money so it doesn't lever the companies. Intel was sort of the first to do this, but they did it with a variety of foundries. They did a deal with Apollo and they did a deal with Brookfield. What they're doing now is they're unwinding one of those and it's showing that they now have the financial firepower to go into this build on their own. They don't need partners anymore. They're using some of that cash that they've got from their equity friends and they're using it now to take a bigger stake in what will be upside in terms of cash flow and EPS from this foundry business. It's a real sign of strength. It's not just from us. S and P came out right away yesterday and said they thought it was credit neutral. Moody's came out and said they thought it was credit positive because it was going to enable quicker deleveraging over a shorter period of time. So it's a real sign of strength and it's one of the few names that both the equity and the bond markets really love.

Bloomberg Intelligence Host (22:25)

And very quickly, Robert, do we give all the credit to Boom Tam, Let

Robert Schiffman (22:29)

me tell you something. You bring in a new CEO and you make the type of changes that he's made. I think every, you know, every technology firm would love to have a CEO like that. So yeah, I'll credit and kudos to him.

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