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Let's go back to big tech, because we can't stay away from them for too long. We have one more mags have a name reporting today. Amazon will be reporting. Alphabet reported yesterday. And I want to go back to that CAPEX number which just blew people's minds. One hundred and eighty five billion dollars all full of your capex, much much higher than what was anticipated. Man Deep Singh
is our go to guy for all things tech. He's our global tech research head here at Bloomberg Intelligence and joins us now.
One trader called it alphabets mic drop.
Capex highlights the have versus havenots and AI capabilities, commitments and balance sheet. Once upon a time, spending on you know, your future growth was a good thing. But now any kind of CAPEX commitment bigger than what people anticipated as seen as negative.
Well, I think in this case the market is thinking what comes next. So for twenty twenty six. Yeah, they've guided two hundred and eighty five billion dollars. I mean, chances are the growth rates are going to decelerate from this point on. So twenty twenty six will be the peak capex for a lot of these companies, Especially in terms of growth rates. You're not going to see you know, fifty sixty percent growth in capex going forward.
From these numbers.
So that's a given, and that's why you know the market will be anticipatory in that sense in terms of how that capex growth is going to pan out from this point on, because you know, for some of the chip makers, their growth is directly correlated to capex growth of the hyperscaler So yes, this year is going to look phenomenal, but as you look past this year, you will see deceleration. The point about I think Alphabet is
really how is it reflected in their numbers? And to my mind, they've already seen a two hundred basis point growth in their overall top line. So they were growing, you know, fourteen to sixteen percent. Now they are growing eighteen percent. And so for a business with four hundred billion dollars in run rate, two hundred basis points is like almost that's Romney eight billion, you know, So that's
the ROI on all this capex. Is that eight to ten billion dollar left in top line that they're seeing across search and cloud and cloud numbers were just monster when it comes to what they had did last nine Yeah.
So is this AI spending?
Is it one time in nature or does this suggest a higher level of ongoing capex question?
Yeah, I mean, look, we know the public cloud businesses were a data center of heavy in the sense you had to replace your server gear every five years. So there is a depreciation aspect to AI as well. And the fact that Alphabet has built this enterprise business which is almost a seventy billion dollar rund rate out of there four hundred billion. Now it's phenomenal because that cloud business is going to accelerate. So what we saw last
night forty eight percent. I won't be surprised if they grow cloud over fifty percent for the next four quarters, simply because a lot of that data center capacity that they've been building will come online. They'll be renting a lot of that, and they're very well taking share at this point. Given the numbers we have seen so far between Azure and Google Cloud. Google Cloud grew ten percent more than Azure, and it probably grew more than twenty percent.
I mean, even if Amazon has a great quarter tonight, they probably won't print more more than twenty five percent. So there you go. You probably are seeing Shure shift and it sounds like a.
Behind a weakness called I mean, clearly, Alphabet is the big winner among the mag seven names when it comes to AI, up sixty five percent over the past twelve months, much better than Microsoft.
Which is down in that period.
So did this set of results justify that kind of price action?
Yes, the market did anticipate that. And look, there was a lot of bearishness around what chat ChiPT could do to Alphabet's core search business. I mean, search grew seventeen percent talking about ROI on spend. It's reflected not only in cloud but also in core search, where the number of clicks grew six percent. Who would have thought, you know, Alphabet clicks going up when chatchipt has nine hundred million monthly actives. I would have imagined pricing would hold steady
for Alphabet, but not clicks growth. How are the impressions and clicks growing? It's unfathomable, you know, in Alphabet's case, and partly it has to do with the success of Gemini. That's seven hundred and fifty million standalone app users. Those are people who are going directly to Gemini beyond.
Just using how I use it, which is when I go to Google. Yeah, first thing that comes up is often Gemini. That's my answer.
I'm done. Yeah, But there's people separately go to a Gemini app.
And they are engaging for a lot longer that So it's under which is people monetizing that they're I mean, they're monetizing using subscriptions, and what they're saying is we will not roll out ads anytime soon. Let Opening Eye do it because that's going to interfere with the experience that people have. So we'll monetize with subscriptions, and they're bundling subscription Stay with us.
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I've been looking at the Philadelphia Semiconductor Index, which tracks chip companies, and it's had a brutal couple of days. It's rebounded today off a one month low. But you look inside the index and Qualcomm is the biggest loser in that group, down more than seven percent at the moment. Kunjohn Sabani is our senior analyst on semiconductors, and Kunjohn, when you look at Qualcom's results, Qualcomm is primarily making chips for smartphones and this forecast that it gave is
not so great. What does that tell us? Is that more a case of, you know, supply chain issues or is there just not so much demand for new smartphones?
No, it's nothing to do with demand. There's two factors here. One for Qualcomm, this year was a unique year where most of their Android handset makers, so think of Samsung, think of Jaumi, Opo, Vivo, launched their phones earlier than they used to. So remember the handsut businesses are very seasonal business, so you have up quarters when the phone chart launched and really down quarters. So in the nutshell, a lot of that revenue was sort of pulled ahead
of time. That's why what you saw is they beat so strongly in the current quarter. So the flip part of that is the next quarter, which is a tropt quarter, is going to be even a word straff on top of that. What's happening is as we are all aware of the memory crunch happening because of HBM memory and data centers and the rising memory costs, that's freaking out the Chinese OEMs, which Qualcomm is now really disproposately exposed to compared to all other hands at SEMIS. So the
guys like Apple and Samsung are probably doing fine. They have their ability to get access to memory and procure memory ahead of time, but the smaller players are not as sophisticated. So those players are freaking out and they basically have decided, we're going to stop ordering a lot more chips and we're going to clear out what we have in our inventory. And that's why what we're seeing is basically the memory impacting Qualcom's guidance.
All right, So we step back from some of the chip makers and they're earning something at am D and that's soft again today Qualcom here, what are some of the takeaways from an interships perspective are you chatting about with clients?
Yeah, so you mean you know, the sort of the software meltdown is trying to the fever is spreading in a little bit into semis. I would not say as broad strokes this earning season. What we're seeing is if companies didn't come out and blow the quarter out of the quarter, of the results and for their outlook, they're
basically getting punished. A lot of that has to also remember, taking to context, a lot of these companies in the last six to seven months have seen significant rallies because a lot of good expectations, especially for the AI names like AMD being priced in. So the market is now in the mood where if you're not showing me real excitement, you're sort of being ready for a little bit of a pullback, right.
They call it a show me kind of market environment. So our colleagues will be speaking with the CEO of Qualcom, Christiano Aman, how would you grate his performance so far?
Con John, Well, look, he's doing everything right. It's just the company is in a tough spot. Investors have been wanting them to diversify away from handsets for many years now, and since he's been the CEO, that's what his primary objective has been. They're making good stries on the auto and IoT. In fact, both of those segments had much better than expected results and outlook.
But when you still think.
About the company now, even three four years down the road, it's still majority significantly a handset revenue company. So until the revenue exposure of hand sets doesn't get to at least fifty percent or lower, I think that sort of had been on the company. Impact from handsets is going to continue, and I think Ristiana just has to keep doing what he's doing and write this out.
So John, I know most of or much of the selling in the tech spaces, in the software space, not in your chip sector. But when you talk to investors, we talk to clients, what's their mood over the last week or so, Like they're just kind of selling in a panic, selling because hey, I've got it such a big gain, I've taken something off the table. My fundamental view of AI is change. What's the tone.
I don't think the fundamental view has changed. I think a couple of things. Once you said, if whatever is happening in the other sectors will impact this sector as well, right, because there is some definitely that risk of profit taking. Also, remember getting into this year a lot of investors in my sector are trying to reposition their books, right, they're revaluating.
Last year in.
Semis was like, look, everything was doing great. AI is helping everyone. I think now it's becoming a more of a stock pickers market in the sector, where people are really focusing deep and thinking which guys are going to be the real winners and let's focus on them, but let's get off or at least take some profit off the other folks which don't seem to be the top number and one and two in the areas that they're playing.
You mentioned earlier how Christian among the CEO, is trying to diversify Qualcom to not rely so much on smart makers as its main line of business as it tries to get into the AI data center business. And you make chips that would compete with Nvidia, what kind of capex do you anticipate Quacom will have to commit to.
Yeah, so Quacam predominantly is a fabulous semi company, so they don't have or would not have a significant capex like you hear from other AI hyperscalers. They would have to commit to significant opex, which is R and D dollars. If They are going into a new line of business
where they need to develop newer chips, newer programs. They have acquired a company recently to do this, so they have spent some capital there and I think they will have to really boost of their R and D, which is their opecs spending to compete with the likes of in media.
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Lots of earnings coming out across the tape this week. One of the busier weeks out there. One of the names is Peloton or they can just not seem to get any positive momentum going in that business. It kind of for me at least, I'm like, does this company need to be public? You know, it seems like they should maybe be a private company.
But what did everyone call it the most expensive code rack.
Cot rap That's right exactly, Keith, it wrong enough, and she covers Peloton as well as all of the media and entertainment names for Bloomberg Intelligence.
What's the story this time, Keitha. With Peloton, they just reported some results.
Yeah, Paul, So they had their biggest product refresh ever in their history last fall. They had this huge price increase that they implemented across all of their subscription offerings. And even with all that and the benefit of a holiday quarter, they basically disappointed on the sales number. And you know, you have them kind of making all of these making all of these cost efficiencies, You have a
lot of cost cuts. They are definitely making good progress when it comes to profit, but boy, the top line is just not moving and that's really causing a lot of fear among investors.
And we always introduce U Gita as our media and entertainment analysts here Bloomberg Intelligence.
Peloton makes exercise.
Bikes, but for a while it was trying to frame itself as a media company. Much how reliant is it on that software on the media side of its business?
Oh, it absolutely depends on the content, Scarlett. It is the content that gave it it's cult following that you know, gives it all of those sticky, affluent customers. The problem for Peloton, right now is they're just not able to move the needle. And yeah, you have all of these new features that they're adding. I mean, you know you have all of these AI powered features they're calling they've
added it to their entire product lineup. You know, they're allowing you to kind of integrate all of your health data from like garment and you know, basically making it really really comfortable for the user. But those are all really just incremental, they are not transformational. And basically the company just coming out and saying that, you know, the the upgrade cycle that they were expecting from the existing
customers just hasn't happened. So you know, it's You're absolutely right that this is a content company in many ways because you know, it relies on the content, but it also needs the sales of its hardware to happen in order for people to get access to that content, and that just is not taking off.
Have you ever used a peloton before? We have in our house, and do you follow any of the Karen from.
The Jersey Shore rides that every single day bides the bike and the treadmill thing in our home.
You can't hide them. We don't have a basement. If you can now take a forty five dollars pill from him and hers? Why would you need a bit more?
So you need to keep tone up when you're losing weight, and so they do the weight program.
So we use it. We haven't we use it, but we're they're just not monetizing.
Uh.
Sokeitha real quickly, this is almost a time now at one point nine billion market cap are people calling for this company to go private to be sold? I mean it doesn't seem to work as a publicly traded company.
Yeah, it doesn't fall. And you know, there's been so much of chatter about whether an Apple or an Amazon should buy this company. Nothing of course, has materialized. There's also been you know, constant rumors about private equity maybe kind of coming in milking it for whatever free cash flow they can get. But again it's nobody really knows what's going to happen here, all.
Right, So I guess I just don't know.
You know, what's interesting because some of the trainers they have huge followings on social media and they're and they're selling stuff all like crazy. So Keitha, does does Peloton get any of the you know, the their employees, you know, social media side hustle revenue at all.
No, not really. I mean it's it's just I guess it's good for the brand.
But that's about it.
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Another area of movement is in the world of luxury Stually, a lotter put out some results.
Market doesn't like it. The stocks down twenty two percent.
Here.
Let's check in with deb Ak and she covers all the luxury good companies for Bloomberg Intelligence. She's based in our London office. Boy, what did Esday Lauder have to say here that so spooked the market?
Deb I think that, you know, we're if we think about two years where they've been turning around the US and all of a sudden for the Americas, they came in flat with the US doing a little bit better, but the Latin side pulling somewhatern results and the expectation for Q three and Q four is quite subdued. A four Q to come.
So this is their two key report where.
Actually they beat on the top line, they beat a little bit on margin, then they raise their EPs, but it all kinds of sits EPs. It's mid or four cents below mid consensus ranger on EPs. So although it was a beat, it wasn't transformational. And so we have yet we have the Americas. We have also the fact that Europe is a little bit kind of stabilized, subdued. And then when you think about the China market, which was one of their big transition markets, they are expecting
for the second half mid single digit growth. I've had some good mid growth in the first half, but you still have a big issue with travel retail. So when you consider North America and what's happening with department stores and then transitioning there to about thirty percent of the portfolio overall ninto more multi and then you have some retailers in travel retail out of China actually changeovers in retailers, which is conflicting and causing issues with their supply chains.
It isn't an easy story for the next few months ahead. And the stock rallied massively ahead of results or thirty percent over the three months.
Yeah, and if you expand that to over the past twelve months, the stock had served eighty percent more than eighty percent. So there is a lot, a lot built into optimism here with this new CEO is the worst then behind the company dev I mean, given what we heard, sure the results were not good enough to keep the stock moving higher. But have you know, have the restructuring costs really been priced in and it's done your skies ahead?
I think so, yes, but I don't think it's going to be as quick as some expected. If we think about the market overall, the beauty market and what the CEOs said and he reiterated it, they're looking for about three percent growth in the beauty market this year, and others such as Laurel will say that the market should grow around four plus. And that's because they Laurel and some others have a higher exposure into high end fragrances, which are faster growth versus steal order. But aside from that,
you probably get that. You know, the idea from Steludo for the full year is not to three percent on constant currency, and they're hoping to get to the top end of that. But that would mean that they're kind of running a little bit behind the market still, but that's because they have high travel retail and not so
much exposure as appeers on the fragrance side. So where valuation sits right now, it's built in expectation that this one point two to one point six billion restructuring costs which is on track, does come through and that everything
cleans up through fiscal twenty seven. The company is shifting to annual estimates only, which I think the US market in particular won't like guidance only, you know, to try and prevent volatility, but when it isn't a clear road ahead, that's often needed to be able to really understand quarter by quarter what's happening. So I think there are pros and cons to this company overall, and I can understand why it's down today.
What is este later saying about the market in China and what are they saying about Chinese consumers in general? Are where are they shopping? Are they coming to Europe? Are they coming to the US? Are they staying in Japan and China?
Japan, no, China. South Korea has taking some share and some kind of domestic move out of China there's a little bit of transition into Europe, but overall the way that esther Lord used to account for their travel retail in Europe and they shifted it, so it's separated with China separate and then Asia, and within Asia you have the travel retail business, so it's very clear what's happening over there. So China is picking up, it's mid single digit growth, but it's still down where it was versus
two years ago. There's still a lot of repaired to do, and that's you know, the story from so many of these companies. But certainly for still Auder and I think we'll feel a bit of this pain. Also for Laurel, they have high exposure to travel retail in China and that isn't coming back. He Nan is solid, Macau not so much. The Chinese aren't shopping in Japan, partly because they're asked to shop at home and because there were
big comps from one or two years ago. And particularly for ESDA Lauder two in Americas, they've already done so much with third parties, which I should mention on digital with Amazon and others, and they're going to be comping against that as well, So it makes it hard there.
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