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- [00:00]
Announcer
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- [00:27]
John
Kraft, Heinz and Disney, two legacy companies, partner up in hopes of regaining some brand magic. We have the latest from them both H Vac, the once boring business, has found itself at the center of the buildout, but can accept a growth Keep up with advancements in chip technology and Space X Elon Musk says it could be, quote, worth more than Earth we dig into new numbers showing that some investors don't share his long term vision for Tuesday, July 21, it's blue markets Daily and Diamondbury. More market details to come. But first, Space X. While many investors are betting on Elon Musk's rockets plus communications plus AI giant, evidenced in its $1.7 trillion market cap, there's also a growing group betting against it. And that short sellers who've amassed about $4 billion in paper profits since SpaceX stock has dropped below its IPO price. Well, that number is pretty striking. And so is the sheer scale scale of the shorting activity. Roughly 17% of SpaceX's freely tradable shares are currently sold short. That's according to market analytics cited by Barrons. And earlier this month, data from Reuters and Ortex showed that nearly half of the free float, down to about 30%, had been lent out, a sign that short selling activity is exceptionally heavy, especially when you consider this is such a new publicly traded stock stock. While the thumbs down that these short sellers are giving Space X clearly needles Musk, who took to X this weekend to post quote, the survival probability of firms who maintain a significant short position in SpaceX over time is very low. Nevertheless, there are near term pressures on the share price, most likely to come from about 900 million additional shares that could be eligible for sale as early as August, when lockup restrictions affecting pre IPO investors begin to expire. One catalyst for this is the release of SpaceX's first public earnings report, due out after the market closes on August 4th. That date was confirmed just yesterday. And it's not just the equity market that's showing signs of investor concern about the fundamental valuation of SpaceX and possible near term operational execution challenges because the credit market is showing concerns too. SpaceX raised $25 billion through a bond offering shortly after receiving investment grade ratings. But yields have since passed climbed, a sign of concern of greater risk. So all eyes on that earnings report Again, that's August 4th after the market closes. And of course, eyes on that Elon Musk X feed. We're going to keep on watching. Coming up in a moment, we answer a listener question and dig into the legacy H Vac companies that have gotten an AI boost. We explore if that momentum is sustainable. But first, a few headlines from the day's trading session, starting with two struggling iconic brands looking to razz up a little bit of magic. Today, Kraft Heinz Disney announced a multi year partnership that extends from grocery shelves to theme parks and even dives into original content.
- [03:37]
Kat
That's right. As part of the deal, Disney characters will appear on Kraft Heinz products. For example, we may see Olaf featured on a package of jet puffed marshmallows. While Kraft Heinz brands like its signature Kraft Mac and Cheese will be available across Disney's parks, resorts and cruise ships.
- [03:51]
John
Well, both these companies need a lift, so they need this to work. Shares in Kraft Heinz are down 6% year over year. Disney stock down a whopping 20%. Well, we recently talked about Wells Fargo's suggestion that Disney lean into revenue from monetizing its ip. So here they are trying to do it.
- [04:10]
Kat
And that makes sense. But I'm more struck by a line in the press release that the companies may partner on digital content across Disney's platforms. Of course, that can mean marketing, but I wonder if we might see a new show on Disney called the Philadelphia Cream Cheese Caper, like how Hasbro turned its Transformers and Battleship properties into movies. Either way, investors aren't enthused. Shares in both companies are trading flat today.
- [04:31]
John
Speaking of hasbro, that's ticker ha's. That company stock is up 7% today. After reporting earnings that beat expectations, Hasbro returned to profit and raised its full year guidance. And once again, the success due to its Dungeons and Dragons and Magic, the gathering properties fueling growth yet again. In the digital gaming segment, it seems
- [04:51]
Kat
to be quarter after quarter. The kiddult and collectibles market remains strong. That strength helped offset weaker results in the company's entertainment segment where revenue fell 20% for the quarter. Shares in Hasbro are up five and half percent this year.
- [05:04]
John
Well, moving on over to food and an upcoming ipo. And that's of a popular consumer brand, Jersey Mike. That's right. You've all been waiting for it. Heading to the public markets in a listing that could raise as much as $1 billion, which would make it one of the largest restaurant offerings in years. The sandwich chain is already a mature business, operating roughly 3,300 locations and generating more than $4 billion in annual sales. That's after years of expansion under the private equity ownership of the giant.
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Kat
Blackstone, now the second largest sub chain behind Subway, will look to keep growing as a publicly traded company. Jersey Mike's will list under Ticker Jmke and could hit public markets as soon as next week. We'll definitely keep watching. And finally wrapping up with one more earnings result. Shares of General Motors ticker GM climbed more than 5% today after the automaker beat estimates and raised its full year profit forecast for the second time this year.
- [05:57]
John
Well, North America profits jumped 43% year over year. That was despite a 4.2% drop in U.S. vehicle sales. And the the reason for that is that GM continues to prioritize higher margin trucks and SUVs over sales volume alone. But the company also said that it's quite substantially completed the charges tied to its EV pullback.
- [06:18]
Kat
You know, and I saw GM share price up over nearly 50% year over year. But CFO Paul Jacobson was making the rounds today and he called the stock a bargain.
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Announcer
That's bold.
- [06:27]
John
That's bold stuff running around saying that your own stocks a bargain for courage of his conviction. Well, coming up, the previously boring to some business of heating, air conditioning and ventilation has been caught up in the AI boom. So we dig into one listener's question along with chip news coming out of Nvidia.
- [06:45]
Kat
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Announcer
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- [07:07]
Kat
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- [07:12]
Announcer
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- [07:21]
Kat
Get started@aflac.com BrewMarkets that's aflac.com BrewMarkets what should our listeners know about Bitcoin?
- [07:30]
Announcer
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- [07:34]
Kat
with cash app you can send Bitcoin
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Announcer
instantly pay it local businesses using square or move it to your own wallet whenever you want.
- [07:41]
Kat
It works more like real money and less like something locked in an account
- [07:44]
Announcer
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- [07:57]
Kat
Banking services provided by Cash App's bank partners. Bitcoin services provided by Block Inc. Brand for additional information, see the Bitcoin disclosures at Cash App legalpodcast.
- [08:06]
John
John, we have a letter from a listener.
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Kat
That's right, Kat wrote in. Hey John and Ann, big fan of the show. Could you cover the H Vac industry dive into Somehow the big h vac OEMs are perceived in the market and as an industry, it's been an unexpected winner in the AI boom.
- [08:23]
John
Well, thank you for the question, Kat. I've got to tell you that I've been traveling around. I was in London during an unprecedented heat wave. London's not known for its air conditioning. Europe the same. And here in New York, we've definitely been feeling the heat along with the humidity. So this comes at a moment where demand for H Vac is increasing not just because of AI, but also because of some of these climate issues. We're going to start with a quick de jargonization of some of the acronyms in Kat's question. So we'll start with H Vac. That stands for heating, ventilation and air conditioning systems. And then OEM stands for original equipment manufacturer, which means the actual company responsible for manufacturing the complete H Vac equipment. So the underlying stuff as well as the H Vac system, well, the winning related to the AI boom piece of it has to do with data center build out and the cooling that's needed for those data centers. Now so far, each new generation of chips has needed more power and therefore runs hotter. And so some H Vac companies have been employed to put together cooling systems. But in a moment we'll discuss how those cooling systems needs are evolving along with the evolution of chips and if the H Vac tech will still be relevant in the future. So first, John, give us an overview of some of the players.
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Kat
All right, I'm going to start with some of The H vac OGs, many of them household names because their systems are also heating and cooling houses for generations. There's Trane market cap of 104 billion. That's the big dog carrier market cap of 55 billion. And Johnson controls $87 billion market. So let's start with Trane's recent earnings. Applied bookings were up 160%, the third straight quarter above 100%. And they reported a record backlog of $10.7 billion, up 70% year over year. So it was a strong quarter. Their CEO said data centers are very strong. However, we had growth in the majority of the verticals that we track. So he wanted to point out that data centers are strong, but they're also looking that smarter. Build out controls that they're developing for data centers are being adopted across commercial real estate over so that investment can grow. And checking in on those other two names from the most recent quarter, carrier data center bookings were up 500% year over year. Johnson Control CEO said orders grew 30% and backlog reached a record 20 billion, reflecting strength in data centers. So this build out is happening and shares in all three companies are up over 20% so far this year.
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John
So it's extraordinary. This reminds me a little bit of Corning, you know, the glass company. When you think of these sort of ancient companies have been doing other things for so long and now the AI build out, the data center build out is bringing new life to these businesses. So I'm getting a little bit of deja vu.
- [11:07]
Kat
Absolutely.
- [11:07]
John
The question here though for these companies is that the technology and the technology and cooling needs are evolving and they're evolving actually pretty quickly. So here we are talking about H Vac, but modern data systems are actually no longer cooled by just circulating chilled air. They found that these traditional units have actually hit physical limitations. And there's a quote on Train's websites, if you go to that company's Internet site, they actually acknowledge the reality. And it says there, I'm going to read this, standard commercial cooling equipment is not sufficient for hyperscale or colocation data centers. Which explains, John, the point that you just made quoting the CEO, that the company from an investor perspective is emphasizing growth across the board, really trying to lean into this idea that they've got diversification. Well, the next step in data centers is direct to chip cooling. So in this case you've got coolants actually flowing through cold planes mounted on high density chips to absorb heat much more efficiently and closer to the source than you see with traditional air cooling. And just for reference, which brings me to another point here, water can carry three and a half thousand times more heat than air and has 25, 4 times, 24 times higher thermal conductivity. So water, chilled water or chilling water is becoming Critical here. So when we hear commentary about data centers being built in communities who may not want them there, there's a twofold concern of these communities. Concern number one is are they going to see their electricity bills go up because of the electricity demand of the data centers? And the concern number two that gets flagged in these sort of community sessions is what does this mean for our water supply?
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Kat
Absolutely. And we're going to get back to that because Jensen Huang had something to say about that.
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John
Absolutely.
- [12:53]
Kat
And so exactly. If we're picturing the ducts that go through our attic, that's not what we're talking about. We're not moving air in the same way. So these leg H VAC companies have gone on a buying spree to update their tech beyond providing chilled air. So far this year, Trane completed acquisitions of two liquid cooling companies. That's the process you described. Stellar energy for 1 billion. And liquid stack Johnson Controls bought Allo Enterprises and invested in as Celsius.
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John
What an apt name. As Celsius.
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Kat
Isn't that perfect?
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John
Perfect.
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Kat
And then Ecolab, which we haven't talked about, bought Cool IT Systems for $4.8 billion. Cool IT sales in the previous year had doubled and so made it an ATT cooling company to acquire Ecolab.
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John
I always think of as the sort of cleaning business and the chemical cleaning. Me too. So it's a pretty interesting here. So let's talk about Jensen Huang. Since you mentioned him, these companies, all of those you just listed that have been H Vac in a more traditional sense again, in our homes and in other commercial real estate, are clearly investing in the next generation of cooling technology. The question is, what does next generation mean and when will that meaning change again? And then again and then again? So let's take a look at the potential advancements in chips that take these third party cooling companies. And what is the chance that these chips evolve to a point that this kind of cooling is just not needed at all right now? Jensen Huang started to go in this direction because back in January at the CES conference in Vegas, the Nvidia CEO said that the company's new Vera Rubin chip platform already runs cool enough that, quote, no water chillers are necessary for data centers, which if accurate, is a massive, massive leap. And that one sentence alone, again, Jensen Huang, sort of a unique market mover. But there as he uttered it, it did send stocks in all of these cooling companies down and by as much as 10% through the trading session to the end of the day. Now, one city analyst told clients that the flight was quote overdone and that cooling system makers have relationships with chip makers and data center operators that keep them at the core of how this is all evolving. And but the core point was enough to send real jitters running through the market.
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Kat
And that was back in January. We got an update just today. Nvidia put out a lot of press releases and some new information around those Vera chips. And from their website. Nvidia's three generations of RackScale Co design produced a Vera Rubin NVL72 system with no cables, fans or hoses in the tray. A 45°C liquid cooling inlet temperature design enables chiller free dry cooler operation. And so there you have it. They're boasting that maybe they can go chiller free. Of course those verichips are just being rolled out this year and it could be a glimpse of what's to come. But Trane's CEO was quoted as saying it's going back and forth here. Anne quote, I have not seen a reference design or data center of the future that does not include chillers, just to be very clear. So we shall see. And also as you talked about the diversification, even with the growth and data center business that still only represents about 10% of trains revenue, about 5% of carriers, and even less of Johnson Controls. So they're getting into this business, they're evolving with it. But they still want you to know that there's plenty of commercial and home business.
- [16:10]
John
So those are some of the most prominent H Vac companies have hit on some of the largest. But there are two other sort of investment nuggets we thought to unpack. There's the company vertiv, that's ticker VRT market cap of $117 billion, which is more in the power and infrastructure space than the traditional H Vac sector. But it did recently acquire two liquid cooling companies, one reportedly for more than for about $1 billion. And that share price again, that's Vertive VRT up 1000% over the past five years. 1000% just rolls off the tongue then this Comfort Systems USA ticker fix doesn't make the cooling equipment but does install and service it. And Comfort System USA CEO recently flagged actually a different kind of challenge. Not about the availability of electricity or water. This is about finding skilled labor that's available and capable of doubling down in its primary growth vertical. And so really finding that labor could be the constraint here, bottlenecking how much of the servicing it can actually provide. Nevertheless, Comfort Systems USA market cap $62 billion, has seen its share price up 225% year over year. Are you ready for this? Up 2,200% in the past five years.
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Kat
You got 1,000% rolled off the tongue, 22%.
- [17:28]
John
A whole different kettle of fish. So much to keep an eye on here. And I love it because when you find these diversified companies really paying attention to newer sort of verticals, again focused on high growth areas. Definitely worth digging in and a ton of research here, John, in particular nerding out over the course of today to cut through it all. Thank you, Kat, for your question. And don't forget, if you want us to unpack the sector or a st or even just learn a bit more about an interesting public company executive, ping us. You can send snail mail, you can send carrier pigeons, you can send us emails, comments on YouTube, comments on Apple, comments on Spotify, wherever it is you get your podcasts. Well, it's 4:00pm on the east Coast. There it is, the closing bell. The market's wrapping up for the day. We don't have a ticker tape, but we'll throw it over as always to our human ticker, our producer, John. That's right.
- [18:15]
Kat
The major indices finishing the day up across the board led by those chip stocks. The S&P 500 finished up 9, 10 of a percent, the Dow was up 3/4 of a percent and the NASDAQ finished up 111 3/3 of a percent for the day.
- [18:28]
John
They're up, they're down there sideways. The chip trade in particular, the tech trade is all just going to get harder to cut through the noise. Probably a little more volatile as we continue to move at pace into earnings season. So we're here to help you get through it. That's it for today's Brew Markets Daily.
- [18:43]
Kat
Brew Markets Daily, assisted by Amber and produced by John Gratto, Talk of Della Teef Avenue, Laura and Emily Miller. Jim Orzo is our audio engineer and the president of Morning Brew Inc. Is Devin Emery.
- [18:51]
John
Wake up tomorrow with the Morning Brew newsletter and tune in to Neal and Tato. Be on Morning Brew daily. See you back here tomorrow, same time, same place.