Wall Street Poised for Bonus Increases in ‘Year of the Bank’

Summary

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Bloomberg Intelligence Podcast Summary

Episode: Wall Street Poised for Bonus Increases in ‘Year of the Bank’

Date: May 7, 2026
Hosts: Paul Sweeney & Scarlett Fu

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Overview

This episode covers the anticipated rise in Wall Street bonuses during what is being dubbed the “Year of the Bank,” exploring the drivers behind financial sector optimism, including a rebound in deals, AI-driven efficiency, and strong trading performance. The episode also offers expert analysis on the future of fast-food giants amid inflation, media sector shakeups following large mergers and acquisitions, challenges facing at-home fitness, and the next phase for semiconductor companies in the AI era.

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Key Sections & Discussion Highlights

1. Wall Street Bonuses Set to Surge (01:51 – 08:08)

Market Momentum and M&A Comeback

• Scarlett Fu: “The most widely read stories on Bloomberg always about Wall street bonuses… Write a story on Wall street bonuses.” (01:53)
• Paul Sweeney: “It’s Wall street poised for bonus increases in Year of the bank. So you can bet a lot of people are clicking on that story.” (02:03)
• Catherine Doherty (Bloomberg News Finance Reporter):
  • Despite early projections, the first half of the year has seen a robust pipeline of deals, especially in M&A advisory and equity underwriting.
  • “If things continue as they have been going…the payout, especially for M and A advisory equity underwriting, [will be] quite strong.” (02:27)
  • Expected year-over-year bonus increases could be 10–20% (03:40), assuming major IPOs materialize.

Bonus Calculation and Uncertainties

• Scarlett Fu: Recalls industry practice of using projected year-end numbers for bonus pools, noting that a downturn even late in the year can reverse otherwise strong projections. (04:17–04:46)
• Paul Sweeney: Highlights $1.8 trillion in announced deals YTD, up 36% from last year—suggesting a strong payout for investment banking advisory roles. (04:46)
• Catherine Doherty: “If the rest of the year falls into place again as, as projected, the pipeline is healthy is what executives have been saying then, then yes, we might see that these numbers do follow.” (05:10)

AI, Efficiency, and Job Security

• Headcount remains flat, with AI increasing efficiency rather than prompting layoffs—yet hiring is not expected to expand (06:12).
• Doherty: “Executives…right now headcount is flat and AI is helping and making bankers more efficient. But…that hasn’t led to that next step…headcount reduction.” (06:12)

Impact of Market Volatility

• Volatility has been “good” for trading desks, boosting activity and pay potential, especially in equities and fixed income. (07:00–07:21)
• Doherty: “If you are on one of these bank trading desks…volatility is a good thing…The market making firms…have really been setting, topping their own records year after year.” (07:21)

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2. Fast-Food Industry Earnings: McDonald's & Shake Shack (10:46 – 16:09)

McDonald's—Aggressive Value Strategy and Competitive Position

• Michael Halen (Sr. Restaurant Analyst):
  • McDonald’s is aggressively offering value deals to maintain growth amid a consumer slowdown and fierce competition, particularly from Jack in the Box and Wendy’s.
  • “This is as aggressive as I’ve ever seen them. I think that’s much cheaper. They’re doing it…because…Jack in the Box and Wendy’s…are struggling mightily.” (11:21)
• Specialty drink strategy aims to boost high-margin beverage sales and drive afternoon traffic.
  • “McDonald’s is hoping to increase drink attachment rates to the orders…gonna do some Red Bull drinks in the second half.” (13:14)

Beef Inflation Pressures and Adaptation

• Both McDonald’s and Shake Shack expect beef inflation to moderate to high single digits for 2026, still above average. (14:24)
• Shake Shack’s margin pressure is acute due to company ownership of restaurants; mitigating with menu innovation (rib sandwich) and operational efficiency.
  • Halen: “Management has done a good job…being much more efficient with labor.” (15:16)

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3. Media Sector Shakeups: Warner Bros. Discovery, Paramount & HBO Max (19:40 – 25:32)

Warner Bros. Discovery: M&A and Streaming Strength

• Geetha Ranganathan (Media Analyst):
  • Warner reported weakness in linear TV (ad revenue down 11%, worse expected in Q2)—due to general advertising headwinds and lack of NBA broadcast (20:03).
  • Streaming is a bright spot: strong international HBO Max subscriber growth and profitability, with projections up to $2B for 2026.
  • Studios are also performing well.

Paramount Acquisition and Content Strategy

• Questions remain about how Paramount/Skydance will integrate HBO Max and Paramount+.
• Content spending is not being slashed, with ~$30–32B programming budget planned—the largest in the industry.
  • “David Ellison is not holding back. He’s made this commitment to have 30 film releases…doubling…the output at both the studios.” (23:23)

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4. Connected Fitness: Peloton Struggles to Find New Growth (24:18 – 25:49)

• Peloton is showing improvement in profitability and cash flow, but demand for new subscribers remains flat.
• Ranganathan: “The ultimate story…I think for Peloton is are they going to be able to turn around the demand story. And that is where we really have a tough time…” (24:30)
• The company’s narrative is shifting from hardware-centric to subscription, but without new subscriber growth, expansion remains elusive.

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5. Semiconductors & AI: ARM Holdings and Chip Industry Outlook (28:49 – 35:33)

ARM’s AI Opportunity and SoftBank Ties

• Kunjan Sobhani (Senior Semiconductor Analyst):
  • ARM moves from licensing to chip selling, forecasting $1B in new AI server chip revenues in FY28 (proxy for 2027)—recent guidance doubled short-term demand estimates, but management remains cautious on supply. (29:12)
  • Strong relationship and trust between SoftBank and ARM—SoftBank remains a major investor, and CEO Rene Haas leads both ARM and SoftBank’s international arm, signaling “this bodes really well for ARM shareholders.” (30:58)

Smartphone Headwinds Offset by Data Center Pivot

• Despite headwinds in smartphones (royalty business), ARM’s IP royalties per chip are increasing.
• Push into data center chips helps diversify revenue and exposure to high-growth AI infrastructure.

Memory Chip Shortage and Market Catalysts

• AI-driven boom puts pressure on memory supply; new capacity is being added, but shortages persist due to cyclical nature and investment caution by memory makers.
  • “We don’t see this [shortage] really going away anytime soon.” (33:47)
• The Philadelphia Semiconductor Index’s surge is fueled by expectations of strong fundamentals. Near-term catalysts could be surprises in company guidance (especially for 2028 forecasts). (34:30–35:33)

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Notable Quotes & Moments

• Scarlett Fu: “The most widely read stories on Bloomberg always about Wall street bonuses… I need readership this month or this quarter or this year. Write a story on Wall street bonuses.” (01:53)

• Catherine Doherty: “Right now, the projections are looking pretty rosy…that’s because the long awaited comeback of deals…if the second half of the year takes a turn for the worse, that could change…” (02:27)

• Michael Halen: "This is as aggressive as I’ve ever seen them…They’re doing it I think for two reasons. Number one, they see, they smell blood in the water, Jack in the Box and Wendy’s…are struggling mightily and also who’s got more and better data than [McDonald's]…” (11:21)

• Geetha Ranganathan: “Streaming…they already achieved fairly strong profitability last year…Looks like they’ll get maybe close to even $2 billion this year.” (20:03)

• Kunjan Sobhani: "In a matter of six weeks you go double your demand for one year out is amazing. As a brand new chip selling company…” (29:12)

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Timestamps for Key Segments

| Timestamp | Topic/Segment | |-----------|-----------------------------------------------------------| | 01:51 | Wall Street bonuses and deal pipeline | | 03:19 | Tech IPOs and future fee assumptions | | 04:17 | Bonus pool calculations and year-end uncertainties | | 06:02 | AI & Wall Street headcount trends | | 07:00 | Market volatility impact on trading desks | | 10:46 | Fast-food industry: McDonald’s & Shake Shack | | 13:13 | Beverage strategy and margins at McDonald’s | | 14:24 | Beef inflation impact on restaurants | | 19:40 | Warner Bros Discovery, Paramount merger, streaming | | 23:23 | Content spend and programming budgets post-merger | | 24:18 | Peloton’s stagnating subscriber growth | | 28:49 | ARM Holdings: AI opportunities, SoftBank relationship | | 33:47 | Memory chip shortage & semiconductor outlook | | 34:30 | Philly Semiconductor Index and industry catalysts |

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Tone & Style

The conversation is fast-moving and knowledgeable, balancing Wall Street insider perspectives with approachable, sometimes humorous, exchanges. For example, Scarlett Fu’s lighthearted take on McDonald’s menus and Paul Sweeney’s playful prompts keep the tone lively, while expert guests deliver depth and context.

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Final Thoughts

Listeners learn that Wall Street is on track for the first substantial bonus increases in years—driven by renewed deal activity, efficient AI-enabled operations, and vibrant trading. The episode then pivots briskly across the corporate landscape—from the changing competitive dynamics in fast food and ever-complicated media mergers, to the evolving business models of fitness companies and tech giants jockeying for position in the AI hardware boom.

For those who want a pulse on both the finance sector’s compensation outlook and broader market trends across industries, this episode of Bloomberg Intelligence delivers sharp insights in an energetic, accessible package.

Transcript

[Paul Sweeney]

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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.

[Paul Sweeney]

The most widely read stories on the

[Scarlett Fu]

Bloomberg always about Wall street bonuses absolutely need readership. Oh my God, I need readership this month or this quarter or this year. Write a story on Wall street bonuses.

[Paul Sweeney]

Yeah, well we have one today. It's Wall street poised for bonus increases in Year of the bank. So you can bet a lot of people are clicking on that story. Catherine Doherty is the author of that story. She's our Bloomberg News finance reporter. Catherine, it is only May, but the folks you talk to say that there's been some banner deals in the first part of the year that has led them to conclude already that it's going to be a big, big year for bonuses.

[Catherine Doherty]

That's right, and we should caveat by saying it's still early in the year so things could change. But right now the projections are looking pretty rosy and that's because the long awaited comeback of deals you've started to see that come through. We do have the big banks, they have just reported their first quarter. The second quarter looks to be pretty steady. So if the second half of the year takes a turn for the worse, that could change these projections. But right now it looks like the payout, especially for M and A advisory equity underwriting, quite strong. And as we've been talking about the volumes that you've been seeing across equities and fixed income as far as trading goes, those traders that are facilitating the buying and selling are also poised to see a pretty hefty payout if things continue as they, as they've been going.

[Scarlett Fu]

Yeah. And we've just seen so much underwriting of public debt for the, for the technology companies, IPO market kicking up and that we're I guess still on the docket for some time maybe towards the end of the second half of this year for some mega IPOs. Yes, SpaceX. And so I mean you can certainly, if you wanted to project out some pretty big fees for these guys.

[Catherine Doherty]

Yes. But that is also with the assumption that those IPOs come through. I think that that's if, if all things continue in these deals actually see the light of day, then yes, these bankers who are facilitating them will see their pay bump increase. But if they don't, then we could see a reversal. Don't expect any huge declines. But in terms of the 10 to 20% plus year over year increase that is projected right now, that is considering that all of these things kind of fall into place in the way that

[Scarlett Fu]

everyone would hope because the way we used to do it when I worked on the street was used around December. You'd have the really, really big discussion about how much bonus pool actually was going to be. And you used November actuals and December projected and that's what you used to set up your bonus pool. You're crewing for it all year. But to say who gets what.

[Catherine Doherty]

That's right. And there's a lot of months between now and December.

[Scarlett Fu]

Again, I've been sitting on the wrong side of the seat when my boss will come in and say, yeah, we had a great year, but we had a terrible month last month. So we're going to be cautious here.

[Paul Sweeney]

Like what? There's always a reason for the managers to say to come up with some angle. If you click on me, go on. The Bloomberg terminal gives you a snapshot of mergers and acquisitions and $1.8 trillion of announced deals so far this year. That's up almost 36% from the same time. A Year ago. So I'm guessing, Catherine, that in terms of bonuses, projected payouts, investment banking advisories, top of the list.

[Catherine Doherty]

Yes, I think that right now, and that's from a year ago, that is not the discussion that we, we would have been having. I think that again we, there were so many months and quarters that the narrative was the long awaited comeback of deals. Now we're actually starting to see that come through. But it hasn't been quarter after quarter. This has only been really the end of last year and the beginning of this year that we have actually seen the numbers. And if the rest of the year falls into place again as, as projected, the pipeline is healthy is what executives have been saying then, then yes, we, we might see that these numbers do follow. Actually the numbers that you're pointing out on the terminal, which is the actual deal flow that the bankers are working on and that's why and how they get paid.

[Scarlett Fu]

What's going on with, with headcount on global Wall street is this, you know, I'm thinking that there's a, I could be a negative impact for headcount on Wall Street. What are we seeing so far?

[Catherine Doherty]

So executives were asked about this during first quarter earnings and a lot of them echoed this same sentiment, which is that right now headcount is flat and AI is helping and making bankers more efficient. But right now it also, it hasn't led to that next step that everyone is expecting, which is headcount reduction. A lot of the executives are saying, yes, are, and it's not just their bankers, just across the entire company, their executives are getting more efficient, but that's allowing them to work on more deals. It's allowing them to, to increase revenue, but not hire as much as they might. So instead of cutting folks right now, I think the narrative is more talking about keeping things flat.

[Paul Sweeney]

We look at the markets and record highs for the S&P 500, the NASDAQ, and we come back to this theme over and over again of there are so many headwinds, yet stocks just continue to move north. So far, the volatility that we've seen has not been negative for trading desks. During those earnings calls, did anyone talk about, you know, the turn in volatility, how it can go from good to

[Catherine Doherty]

bad quickly, good to bad. Volatility is kind of what you need to narrow in on, right? Because at the end of the day, if you are on one of these bank trading desks and you're just facilitating and helping your clients reposition, volatility is a good thing. So as up until now it's been good volatility. If you if we are distinguishing between good and bad and it's the same for the market making firms outside of the banks they've really been setting topping their own records year after year. And so I don't believe and it really if you go into different asset classes, equities has been kind of the strongest across the board. But fixed income follows close behind.

[Paul Sweeney]

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[Scarlett Fu]

You got some earnings coming out of some of the restaurants here. McDonald's Shake Shack. I mean my McDonald's orders been the same since like 1978. It's a number two with a Coke, quarter pound of cheese and a Coke. I mean it's been the same way

[Paul Sweeney]

since you don't exercise it or anything.

[Scarlett Fu]

You know, if I have to do say anything other than number two with a Coke then I'm inconvenienced, you know. And I've been doing that way since 1978 I think. So let's go to Mike Kaelin. He knows what he's talking about here about these restaurants. Senior restaurant and food service analyst. Hey Mike, let's start with McDonald's. How are they doing with their business?

[Michael Halen]

Yeah, so with, you know, what we wrote today was that they're trying to walk a tightrope right now. They're copying some very strong results, you know, over the last, over a year ago starting in 2Q. But they're trying to do that with value which, which risks a trade down from some of their, your consumers that are doing a little bit better. So you know, sequentially same store sales and growth rates are going to, are going to decelerate starting in the second quarter. They become very aggressive on value. And I think that's a big part of the reason why all of the restaurant stocks, not all, but most restaurant stocks are down and down significantly today. They're being as aggressive as I've ever seen them on value. They have a $50 sausage McMuffin right now at 250 McDouble. They have three dollar breakfast meals, four dollar meals at other times of the day. This is as aggressive as I've ever seen them. I think that's much cheaper. And you know, they're doing it I think for two reasons. Number one, they see, they smell blood in the water, Jack in the Box and Wendy's, you know, same store sales were down mid single digits last year. So those two chains who they, you know, obviously compete directly with are struggling mightily and also who's got more and better data than they see that low income consumers are, which were really struggling last year.

[Paul Sweeney]

Yeah.

[Michael Halen]

You know, could really feel it this year as inflation accelerates again.

[Paul Sweeney]

So what I also notice, Michael, is that McDonald's has a new lineup of specialty drinks. What are the financials behind the beverage category versus the food category? I'm guessing higher margins, perhaps bringing in lower demographics as a benefit.

[Kunjan Sobhani]

Yeah.

[Michael Halen]

So a part of this, you know, beverages is big and, and a big reason why it's big is that it's high margin. So yeah, McDonald's is hoping to increase drink attachment rates to the orders. They're hoping to get some business in the afternoon. People looking for a pick me up. Right. They're going to do some Red Bull drinks in the second half. So that's also part of their, you know, strategy to try to lap very strong same store. You know, I don't think it's a bad idea but you know, trying to lap very strong comps with value and low priced items is just difficult to do. And you know, and I'm saying this about McDonald's and, and things are slowing there, but they're still best equipped to deal with, you know, a downturn in the consumer because you know, they have more scale than anyone they can offer price points to, you know, like I've been mentioning, whereas their competitors just can't.

[Scarlett Fu]

Nobody buys. I would think not too many entities out there buy more beef than McDonald's does. What do they say about the cost trends of beef and is there any relief in sight here?

[Michael Halen]

Yeah, Shake Shack and McDonald's both talked about it. Beef inflate inflation is expected to moderate. Right. It was I think mid teens in the first quarter. And it's more impactful to Shake Shack's bottom line because they own a majority of their restaurants. But yeah, it's it to moderate throughout the year, maybe averaging, you know, high single digit inflation for full year 2026. So still elevated. Not as bad as we saw in the fourth quarter which was, you know, high teens or mid teens in the first quarter. It's going to moderate through year end and we should, should settle out around high single digits.

[Paul Sweeney]

How does Shake Shack counter rising beef costs? I mean its entire business model is based on hamburgers. Does it just kind of lean more into chicken burgers and build out that, that offering?

[Michael Halen]

Well, they're leaning into ribs. They have the first baby back rib sandwich they've had on the menu. You know, it's two ways. First of all, you know, I think there was some low hanging fruit in this, in this company. You know, I, I don't think it was the, the most efficiently run business for, for quite some time. And so management has done a good job over recent quarters being much more efficient with labor. So that's offset some of the the costs. And then moving forward, it's going to be more about supply chain and productivity in the restaurants. Right. So you know those are going to be the two areas that they're looking at, you know, but you know they're expecting some same store sales growth and that's the best way to, to boost your margins. Right. It's just driving more foot traffic through your stores. So, so they're still confident that they can drive at least some restaurant margin expansion here in 2026.

[Scarlett Fu]

Stay with us. More from Bloomberg Intell after this.

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[Scarlett Fu]

All right, we got some earnings out there and including some media companies. Warner Brothers Discovery Peloton's out there. Geetha Ranganathan, she covers all the media stuff for Bloomberg Intelligence. She's not into this silly wellness stuff. She's a player. Warner Brothers Discovery, Geetha, they reported numbers. They're just about to get acquired by Paramount. Skydance. What do we learn about Warner Brothers Discoveries business?

[Geetha Ranganathan]

Yeah, things are going along pretty nicely, Paul. For Warner Brothers Discovery, as expected, we did see plenty of weakness in the Linear TV Network division. I mean, this was well telegraphed by the company. Part of this is of course, just the structural weakness in TV advertising. But more importantly and specifically for Warner, it was the lack of NBA. And so we saw TV advertising fall about 11%. But it's going to get far worse in the second quarter where they've guided to about a 20% decline. But the other parts of the business, the parts of the business that investors are most excited about, and especially Paramount Skydance is most excited about which is the studios. And the streaming business is actually doing really, really well. So the good thing that we saw with streaming was that they added a lot of subscribers for HBO Max as part of their international expansion efforts. So they've expanded into a lot of European markets. And more importantly, it's not just subscriber growth. It's that they're tracking really well ahead of expectations in terms of profitability. So they already achieved fairly strong profitability last year with 1.3 billion for their streaming unit. Looks like they'll get maybe close to even 2 billion this year. The estimates came up really nicely. And then studio again, doing pretty well as well.

[Paul Sweeney]

Has there ever been any discussion at Warner Brothers about maybe creating tiers within hbo, you know, where you might have advertising and the shows might be broken up with commercials?

[Geetha Ranganathan]

So that is already there. We do have an ad tier for, you know, the HBO Max product. I mean, this was part of this whole wave of all of these different streaming platforms introducing ads. Started out with, you know, Netflix and Disney plus and then Max. So it is slightly cheaper, but HBO

[Paul Sweeney]

shows like Broken up, the Sopranos will be interrupted by commercials.

[Geetha Ranganathan]

Yeah, yeah, okay. They do license it out that way. So I think, again, I'm not really sure what exactly the Warner Brothers team is going to do. I think at this point, Scarlett, it might be a little bit immaterial. I think the big focus right now is what Paramount is going to do with this asset because they are pretty much on the verge of closing the deals supposed to happen sometime in third quarter. And we're still unclear whether they're going to operate this as two separate platforms, Paramount plus and HBO Max, or whether whether they're kind of going to consolidated what they're going to name the new product. All of that is still kind of a little bit unclear. But the one thing that we are clear about is Paramount is acquiring a very strong asset and an asset that has really delivered a whole string of hits this year for HBO Max. And remember the big thing coming a little bit later this year for hbo, Max is the new Harry Potter series. So a lot of excitement, a lot of buzz around that.

[Paul Sweeney]

I never understood why they use the word Max in the app name. Like it just confused.

[Scarlett Fu]

HBO was deemed by some people on the right as being too woke and too Hollywood. Ish.

[Paul Sweeney]

So Max brought it back to earth.

[Scarlett Fu]

Yes, that was the reason.

[Geetha Ranganathan]

Okay.

[Paul Sweeney]

But then it just confused everyone.

[Scarlett Fu]

Exactly. It was a terrible decision, but.

[Paul Sweeney]

And hbo, the branding on its own is so powerful in terms of content spend. Geeta is that something that Paramount is going to stick to? I mean, HBO is known for being willing to spend on content. Is David Ellison willing to spend in

[Geetha Ranganathan]

the same way he is absolutely willing to spend. So they have outlined $6 billion in synergies Scarlet, but none of those cuts are going to come on the content spend side. So we're looking at a combined programming budget for both those companies at about 30, 32 billion dollars. That is the highest in the industry. And remember, Paramount, even before they went and acquired Warner Brothers, really did a whole host of different content deals. We had that really important deal with Duffer Brothers. We had the south park streaming rights deal where they're paying something like 1.5 billion do. We had the UFC deal which was close to almost $8 billion over a period of seven years. So David Ellison is not holding back. He's made this commitment to have 30 film releases that's basically doubling the output at both the studios starting next year. He's saying all the right things and doing all the right things as far as Hollywood is concerned right now from a content investment perspective.

[Scarlett Fu]

Geetha Karen from the Jersey Shore writes in asks about Peloton. I know they released some earnings. We got the peloton, we got the bike, we got the tread, we got it all. So what's going on there?

[Geetha Ranganathan]

So this is a story where we've seen consistent progress in terms of profitability metrics. So again, we had a quarter where they really reported strong numbers when it came to ebitda. When it came to free cash flow, they raised their free cash flow targets pretty significantly. I mean this was a company that just a few years ago was burning a lot of cash. So they've definitely right sized their cost base, lots of cost savings initiated. All of that is going well. But really the ultimate story I think for Peloton is are they going to be able to turn around the demand story. And that is where we really have a tough time kind of getting behind this name because the consumer demand for Connected Fitness just doesn't seem to be there. I mean, in terms of existing subscribers, yes, they're hanging on to them. But in terms of attracting new subscribers, we're really not seeing much traction there at all.

[Paul Sweeney]

Yeah, it's not a growth story. Is, is Peloton a content company or a hardware company very quickly?

[Geetha Ranganathan]

It is actually a mix of both. So they're trying to really kind of shift the narrative from being a hardware company to, to a subscription based company. And I think they've, they've done that, done a pretty successful job, but again, it's coming down to to to growth in subscribers and they really aren't getting much progress there.

[Paul Sweeney]

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

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[Podcast Host]

youm'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.

[Scarlett Fu]

Let's get back to the earnings land right now. Kunjan Sobhani joins us here. Bloomberg Intelligence Senior Semiconductor Analyst we had ARM Holdings. They reported I guess some weakness in their phone business but they do have some AI tailwinds as well. The stocks trading off here today on the news. Let's go to Kunjan Sobani. Khunjan, talk to us about AAM Holdings. What did you hear today?

[Kunjan Sobhani]

Yeah, this was a roller coaster of a stock riot. So if you look at the reaction post market the stock was up at 1.8 to 9% and is now dying down equally the same amount. What people initially really liked is just for context just six weeks ago this is an ivy company does not sell chips until recently. Just six weeks ago they had their coming out party that they are going to enter the chip selling business and they guided revenue for their new AI server CPU chip to 1 billion of revenue in their fiscal 28 which is really proxy for fiscal 27. So next year just within six weeks yesterday they came in and said the demand was now 2 billion. So investors really love that. I mean in a matter of six weeks you go double your demand for one year out is amazing. As a brand new chip selling company I think what they didn't like is towards the end of the call the management said we are still going to keep the same outlook of 1 billion because we don't know if we will have supply to meet that. So that was sort of a really getting excited and let down moment. Other than that in terms of the numbers they reported there was nothing really to scream about. You know everyone is aware handsets are having weakness. They are almost immune to that because of their content in a richer handset mix and they get the newer generation of IP gets them a lot more dollar per chip. So their business is still likely to grow through the year while other headset makers are going to see that headwinds.

[Paul Sweeney]

So ARM holdings is run by Rene Haas and what's interesting here Kun John is that he's got a side Hustle. I think he also has a role leading SoftBank Group International. How does that work? How does he do both jobs?

[Kunjan Sobhani]

Yeah, so he has been the CEO for ARM for many years. There's the new role that you're referring to is a sort of a new incident. And look, this is that SoftBank just tells you the amount of trust and the Reliance SoftBank has on ARM. Now they have been their initial investors, they have been all softbet I think is still the largest holder of arm. And this bodes really well for ARM shareholders that especially now that it's going into the chip making or the chip selling business, having that seat running sort of the AI semiconductor strategy for CEFTbank which again is a very important semiconductor company. Now when you think about outside the US that really bodes well for ARM shareholders.

[Scarlett Fu]

Kun John, what's the Street's consensus or belief here at this early, early stage of this entrance into the chip business? Because I think there's some established players there. It's kind of a competitive business as I understand is.

[Kunjan Sobhani]

But the good thing for them is you know they are here to coming from a zero share basis, right? So even a few percentage of share pickup on a very big and large growing market. Remember even the x86 guys who are the incumbents, the intel and AMD have doubled their TAM in less than 6 months. So the pie is like growing 2x in a very short amount of time. So even if ARM grabs a few single percentage points of share here, this is billions of dollars of new revenue for them which they didn't have. So we see it as quite positive for them. Despite the rising competition, memory chip makers

[Paul Sweeney]

have been super in demand. Their share prices reflect the shortage of memory chips. The, you know, the most basic memory chips because all of the, all of them are moving towards high bandwidth memory chips. What does that transition in the memory chip industry mean for a company like arm?

[Kunjan Sobhani]

Well, VRs, they are seeing that pinpoint, right? The first end market that is being squeezed because of this is the smartphones, right? And again today still smartphone is their biggest royalty business. So they are seeing that impact. Like I said, fortunately for them the stage they are in, the royalty they are getting per chip is sort of keeping that impact softened but they are definitely seeing that impact. The next market that could see a squeeze here could be PC markets, right? So the top market which is the data center market is of course going to get all the priority. ARM is pivoting to increase a lot more revenues coming from data center market whether it's on the IP side, whether it's on the chip side. So we don't see other than smartphone headwinds, we don't see a lot of impact to other markets for ARM and

[Scarlett Fu]

this chip, just broadly speaking. Kujan, talk to us about this memory chip shortage. What's the status? I mean and is this just a function of time chip makers make more chips?

[Kunjan Sobhani]

Yes and no. It's a combination of both. So if you think about memory, right, typically it's been the most one of the most cyclical in the semiconductor. It's similar to a lot more of a big manufacturing business where the memory makers don't usually go ahead and install more capacity because of the risk of losses when the cycle two turn. Where we have come to this inflection because of AI is just the memory demand has superseded any prior expectations. So we don't see this really going away anytime soon. Soon it's not very easy. Yes, the memory makers are installing new capacity and working every day to get more capacity up. But it takes time and we don't think this is just going to turn around anytime soon.

[Paul Sweeney]

I look at the Philadelphia Semiconductor index and the move has been incredible. I mean since March 30th it's been a straight line up and I know it's off about 1% today, but it's pretty much sitting at record highs. What's the next catalyst conjunct to keep this thing going?

[Kunjan Sobhani]

I mean look, the demand numbers have been continued to increase for the last four quarters and what we saw, especially after the war started in the Middle east that Sox was not doing much despite the numbers that kept on going up and up. So we now are seeing a little bit of a phenomenon where the risk on trade has come back and investors are now reacting to all of those numbers uplift. I think catalysts growing up from here are going to be much harder. I mean it could surprise us like the CPU makers did surprise us this earnings season. But again, most of the numbers continue to stay high. We do think they will continue to go up in terms of fundamentals and expectations. But right now I think the big catalysts are going to be clarity on the 2028 numbers.

[Podcast Host]

This is the Bloomberg Intelligence podcast available 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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