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On today's Bloomberg Intelligence Show, we dig inside the big business story is impacting Wall Street and the global markets.
Each and every week, we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts cover worldwide.
Today, we'll look at why Advanced micro Devices suffered its worst stock decline in nearly nine years.
Plus to look at why PayPal shares ex He's the biggest interdate drop in more than four years.
At first, we begin with some news at the media and entertainment giant Walt.
Disney, and that's because Disney announced Josh Tomorrow will succeed Bob Iger as CEO.
Tomorrow, a twenty eight year vetteran of Disney, was chosen from among several internal candidates to lead the company at a critical time as it transitions from traditional TV viewing to the streaming era.
Iiger will stay on the board and serve as a senior advisor until he retires on December thirty. First, we were joined by Geithrong and Aten Bloomberg, intelligence analyst on US Media.
Well first asked Githa about this succession plan and how it might differ from previous plans.
Yeah, I think it was a very different time. March twenty twenty, everything closes down, including you know, Disney parks because of the pandemic. So it was kind of unfortunate. The timing was all wrong, I would say for Bob Japek. And what happened then is, of course movies were shut down, a big part of Disney's business, movies as well as the parks again. But then what really kind of shot
into prominence at that point was the streaming business. A business that Bob Chapik was not really very familiar with, and while he did have some experience in content, obviously it was not enough, and we had a whole bunch of different missteps with the content part of the business, which kind of led to the whole you know mess that we saw, you know follow I think this time we're in a very very different position. I think at that point Disney was still kind of trying to figure
out what it really was. Was it a TV company, was it a studio, was it a theme park company? Or was it really a streaming player? And I think now the pieces have kind of fallen in place. We
are on much more steady ground. I would say, you know, they have their clear mandates, whether it isn't streaming, whether it's in studio, you know, the clear What has really emerged clearly right now, Scarlett, is that parks is the main core growth engine of the company, and I think that is reflected in this choice with Josh Tomorrow.
So Keithan.
Josh is a twenty eight year veteran of Disney running the parks, But of course the other big part of the company is it's you know, entertainment business. Dana Walden, who runs the big part of that business, great reputation in Hollywood. It's important to keep her at the Walt Disney Company. Are they going to be able to do that?
I absolutely think so. So, you know, they obviously this was a very clever move by the board to kind of create this new role for Dana Walden, make her the president and the chief creative officer. They've never had this post before, but they specifically created this one for Dana Walden, so that I think really kind of I think dispels a lot of fears about what would happen from a creative perspective. You know, last time, this was the same problem that you know, many investors raised when
Bob Chapek became CEO. So having her there in the creative role, I think definitely plays very well with Hollywood, with the creative community, and ensures that, you know, Disney will still have a top tier content coming to its streaming platforms for the foreseeable future.
So Josh Tomorrow takes the job on March eighteenth, that's when the succession is effective. And we talked about how yesterday Disney came out with a forecast that was fairly tepid, And one way of looking at that is it kind of you know, clears the deck. Lets him start off with the clean say and set expectations and kind of manage it for investors a way that he sees fit. At what point does he own everything that happens to Disney.
So actually a lot of the things that we're seeing right now with the parks has been under Josh Tomorrow's watch. Remember, once Bob Chapek was promoted to the CEO position, Josh Tomorrow assumed the role of chief of the Parks, and so all of the different initiatives that we've seen, you know, whether it's Lightning Lan and whether it's Genie, whether it's the sixty billion dollar expansion, a lot of that has
been you know, Josh Tomorrow's doing. So yeah, I mean, of course we're you know, I think the street is definitely going to give him a few quarters to kind of settle in. But he has pretty much been the architect, along with Bob Ayeger I'm sure, and the rest of you know, the management team in kind of instituting the strategy and making the parks a prominent part of the portfolio going forward. So very soon you know the shot
answer Scarlett is very soon. I think he owns pretty much all of this right away.
In fact, Keith, if I were Josh Tomorrow, day one of my tenures CEO, I would go and I would say, Hey, explain to me why we are not spinning out our broadcasting cable networks. They are businesses that are in a secular decline. They're dragging down our multiple Let's cut them loose. Do you think that's even an option for the Walt Disney Company.
I think it is. I think everybody is considering that right now. I mean we've just seen what you know, Warner Brothers Discovery has been able to achieve by kind of separating out its studio and streaming from the TV network's business. So I definitely would not rule that out. I'm sure Disney will consider and Josh Tomorrow will consider all options once he becomes CEO.
What happens to Jimmy Pataro over at ESPN, I mean, does that become part of the spinouts as Paul was talking about it, because there's different parts of Disney's media business that are slowing down, that are no longer the crown rules the way they once were. Whether you're talking about the network television, or whether you're talking about ESPN, or whether you're talking about the movie business.
Yeah, I think sports is still very core to Disney. I mean they are so if you just kind of look at the US sports landscape, ESPN actually owns majority of the marquee US sports right almost about forty percent of all sports viewing happens on ESPN platforms, So obviously it's still very core to the company. As far as
Jimmy Pittaro is concerned. Scarlett, I mean, yes, he was one of the you know, candidates that they were considering to take on this job, but I think he himself had many times indicated that he was not really interested in the top spot. I think he kind of carries on business as usual with ESPN. You know, it's a little bit of a wait and watch what exactly happens
with the strategy. It is really instrumental, I think, to their streaming business because you know, as they kind of mentioned on their earnings call, you know a lot of people taking the bundle the ESPN streaming plus the Disney plus the Hulu. So it is a critical portion of that. So I'm not really sure how exactly a spinout would work. But of course, again, you know, we are in a very very different time and age, and everybody is thinking about all possible options when it comes to a media.
Our thanks to KEITHA. Rong Andathan, she is our US media analyst.
We've moved to some news in the energy space.
And this week the German energy company Siemens Energy announced it will invest a billion dollars in manufacturing capacity in the US over the next two years as power demand surges.
The company said most of the funds will be spent on expanding existing sites in North Carolina, Florida, Texas, Alabama, and New York, as well as a new plant in Mississippi.
We are joined by Siemens Energy CEO Christian bra.
We first asked Christian what the goal of the Semens Energy investment is Trouthol.
It's a goal to keep up with a fantastic growth which we see currently in the electricity market. And you know, Guest, Turbine's great making sure that the AI transformation can really be fueled with electricity as one of the hottest markets you can see globally at the moment, and we are obviously trying to keep up with our customers and we're trying to bring all this equipment what is needed guest turbine, transformers and the likes. This means we are expending a
lot of our industrial footprint here. We are hiring people adding factories to keep up with that, and this is obviously one important step really to create also this energy dominance what the US is looking for.
You recently met with President Trump. What was the takeaway from your meeting there? How related is that meeting to your announcement in the investments in the US.
Well, there was a let's say reception and others right, which was a big group meeting. So what for me is important that the Trump administration is very approachable for us and I have to say I'm very grateful for that. At the moment, my key interactions is really with the secretaries in terms of really understanding, hey, what needs to be done, how do we need looking forward on the opportunities,
and this is taken up excellently at the moment. That is my main interaction also with the Trump administration.
Christian, how would you characterize the US energy grid here as you get set to increase your investment here?
Yeah, I mean, first of all, what you see the US market on the grid side is influenced by two things. The one thing is that you have a massive investment with ongoing just for replacement refurbishment of existing facilities. This is very much utility driven business, which is very active,
which sometimes gets overlooked seeing the data center discussion. And at the same time, you obviously have an unprecedented growth in electricity on the data center side, which does require heavy investments into the grid side as well, and we need to understand also how do we operate all the things. I mean, everybody easily talks about gigawards of additional electricity. There's not so many sites in the US which like
a one gigable type of consumption. This will require grid stabilization and this is what we all try to contribute. So what we're doing here is building factories for switch gear, transformers components which supply to that industry, and obviously also bringing up people who can help to do this overarching design on the grid side. We believe that is let's say, really a long run and we will see it for a long time because electricity grate is an important backbone
of the critical infrastructure, and this is why. I feel very comfortable with the investment we're doing, and I'm very happy with the market here.
So I want to pick up on where you just left off, bring in more people to design some of the grid work there. Talk to us about jobs. How many jobs will your initiatives create, What kinds of jobs are they going to be, what level, what kind of education is needed, how much training will there be in order for you to find the right people.
For those jobs.
Yeah, I mean, we had today an organization with around twelve thousand people in the US right and we're going to add another fifteen hundred on top of that. And this will be accompanied by a lot of education and training programs. So a lot of this will be blue color working jobs, also on the factories, making sure that we can produce and also that we have people going out in the fields and fixing things. So this will go through training academies which we build up in parallel
in this. You know, we have one big new facility coming up in Jackson, Mississippi, which will obviously also will be with one training center. We have a big site in Charlotte which we also will increase on that at the same time building up factories is also then coming with some engineering work on the white color side, so.
It will be both.
But the big thing, and this is why we went out is really hey, this is I would call it a blue color wave. Now in terms of really getting educated workers. That is my biggest constraint at the moment, also on the market, and it goes down to the
construction workers, people in the factories. And we should never ever underestimate the need to finally get something done and that will require more people, more skilled labor, and we will definitely contribute to that and to help to build up that workforce.
Our thanks to Semen's Energy CEO Christian Buruh, coming up a look at why obesity data from drug maker Pfizer underwhelmed investors.
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We move to some news in the biotech sector.
This week, shares a Pfizer fell after the drug maker revealed limited data from one of its new obesity treatments.
It showed people lost up to twelve point three percent of their body weight compared to those on a placebo at twenty eight weeks.
And of course this comes after Eyer battled to buy weight loss startup met Sarah late last year. With no new drug approvals expected this year, and the limited data released means the prospects for Metsara's farthest long drug do remain unclear.
For more on this and the latest in the biotech sector, we heard from Sam Fazeli, Bloomer Intelligence, director of Research for Global Industries and senior pharmaceuticals analysts.
We began by asking Sam about how investors were impacted by this limited obesity data.
Yeah, yeah, so look, they paid ten point one billion dollars for this, and if it all to do with that, there is it people being reminded again that the next three four years there's a major headwind from generated drugs coming for there some of the products on the market eye brands, ex standy, et cetera. So that's partly the issue. And you know in order to deal with that, you need assets and drugs that are going to try and hopefully fill the gap. And maybe this is the problem
with the data. The thing is, we've looked at the data. As you know, we have very deep obesity analysis. We've looked at the data and it's not terrible. But as I said the other day when Rash reported, there's some numbers, I think folks are getting over this percentage here, percentage there. You can only dis the point going for what you can't mean unless you give out somebody who are thirty
forty weights, which of course nobody wants. So this is getting to a point where now it comes to the nuance, and unfortunately we don't have a lot of the nuance that we need to know about this data set tolerability. And it is good because it's a once monthly injection after the first few weeks, so it's well set up. But the market obviously doesn't like it because they're not getting enough information about how good actually it is. Sam.
It seems like if you want to be an investor in big cap farmer, you really have to be a stock picker. I've got stocks like Pfizer and Bristol on a trailing twelve month basis that are down. But I've got stocks like Johnson and Johnson and Eli Lilly and abby V. They're are big. And is that just because they've got the right portfolio of drugs and the others don't.
Entirely entirely about that is what you don't want is looking into the abyss of generic drugs coming for your big earners with no obvious pipeline. Versus, let's take a Johnson and Johnson in this case, and they have a phenomenal set of drugs for the multiple my looma space or a whole you know, other oncology spaces. This is
a powerhouse. And of course they've also still got the other divisions medical devices growing quite nicely so and no massive I mean, there's one that's coming up, a big hole that's coming in terms of generics, but they've still got these things that are growing at phenomenal speed. And one of their drugs, Dartlects, is very close to twenty billion dollars and that's just one indication in multiple myloma. So they've done everything right in that case, and that's what the market likes.
So in other words, Sam, this is something that can be managed. The fact that Pfizer hasn't managed this well raises a lot of questions here because I mean, it's not like just one day they woke up and oh, you know, there's suddenly a lot of competition for some of their best selling drugs, or people are no longer paying up for COVID treatments COVID vaccines. In terms of management, do investigate a question whether adviser has a right management in place.
Yeah, I mean, look, this is a tough game, right not the game, of course, this is a very tough set of issues to deal with. Creating pipeline takes a lot of effort. Let's take Eli Lilly. For years, nobody was paying too much attention to their potential margin expansion that was coming, and they were arguing for it, et cetera. Maybe they were lucky they hit on these obesity drugs. Look at Ask for Zeneca. It took quite a lot of pain for Pascal Soio you should write that ship
when he took it. So management's part of it. Then you need to be lucky. You cannot have just one or the other. And pipeline. You know, we'll see what Fizer shows us over time, they have assets early development that we need to start seeing the fruit our.
Thanks to Sam Fizzelli, Bloomberg Intelligence, Director of Research for Global Industries and senior pharmaceuticals.
Analyst, we moved to some news in the tech space. This week. Advanced micro Devices suffered its worst stock declined in almost nine years after its sales forecast underwhelmed investors. It's a sign that AMD is not making the AI inroads that Wall Street had anticipated.
Separately, the semiconductor manufacturers Texas Instruments reach an agreement to buy the US chip firm Silicon Laboratories for about seven point five billion dollars.
This deepens TIS exposure to several long standing markets for chips, including the home appliance, power, industrial, and medical device sectors.
For more on all of this, guest host John Tucker and I were joined by Ku John Sobandi, Bloomberg Intelligence senior semiconductor analysts.
We began by asking Konjohn of investors overreacted or if there is actually something fundamentally wrong with AMD's latest report.
There was nothing fundamentally wrong in this report. There were a lot of good things to take away, but it comes down to you know when you become an ar darling. You set up really really high expectations, and when you take out the China revenue, which was not included in the guidance and the expectations, the beat came out pretty modest, which I guess people didn't like, and then was not at power against the really high expectations that you have now every quarter from these companies.
Like they used to ask in the old Westerns, you know, is there room enough for the two of us in this town? Is there room enough for them? And in Nvidia there is right now.
I mean, look, all the tide is lifting all boats. There's so much demand for accelerator chips that there's room for a MD as a GPU provider. There's even room for other folks like Broadcomming mar Well as an AS provider. So there's a plenty of demand right now.
Do we like management least as Sue? I think is just when I just see your interviews, it seems super on top of it.
Yeah, I mean, like I said, fundamentally, nothing changed their their CPU story continues to become stronger. Nobody's paying attention to do it right now because all the focus is on GPU and competing with n media. But people are forgetting inherently. I when you look at two years back, this was really a CPU company. Their GPU story line remains intact. We didn't expect any fireworks coming into this earnings. We don't expect it until really four q F twenty
twenty six, so the market is aware of this. We really have to wait until the four q twenty twenty six. This is when they will be really put to tests if they can really execute their first server level solution or not. So there's nothing changed that we saw should really concern us.
How important is China in all this? I thought the export restrictions were lifted. I mean, what's what's taking so long?
Well, so the expert restrictions are different for each chip, so that the Mi three to eight which they were able to ship, had already licenses approved prior, so that's a different chip. The newer chips that now is in the news when it comes to in media is that H two hundreds and equivalent. It will be the MI three twenty five for those have not been granted yet.
Even though the White House has said that yes, these companies can start shipping these products, yet the formal licenses have not been granted.
Ku John some m and A in your space. Texas Instruments has reached an agreement to buy Silicon Laboratories for about seven point five billion dollars. Here what's going on here with ti.
Yeah, so just to give some context, this is sort of this size of the deal they have not done in the past. The last time they did a deal like this was buying National for about six seven billion dollars in twenty eleven. So this is not their typical nature, so a bit of a surprise. Strategically, it fits well. Their industrial segment, which is their largest segment and that's where they want to be focused, has a missing piece when it comes to wireless connectivity in IoT, so Silicon
Lab gives them that portfolio. Financially, however, it's a lot more important. They have retreated that this has not change their pre cash foot trajectory, this has not changed their dividend path, and this does not increase The most important thing is the capech so all those things we really like. If they're able to execute to that yet the cost synergies,
then this will be a really good deal for them. Also, remember TIA has been on a spending spree for the last three to five years building up a lot of capacity. So this will help bring more loading to the internal factories, bring more manufacturing internal to own TI, and help with utilization.
Our thanks to Kunjan Sabani, Bloomberg Intelligence Senior Semiconductor analyst.
We moved out to some news from fintech company PayPal.
This week, PayPal reported quarterly profit and revenue that missed analyst expectations. The company also said HP CEO Enrique Lauris will take the top job from Alex Chris, whose turnaround plan failed to meet targets.
Jamie Miller, who is the payments firm's chief financial and operating officer, will serve as interim CEO until Lauris takes over on March. First. Shares a PayPal tumbled as much as nineteen percent after the news. It was the biggest drop in more than four years.
More on this I was joined by Dick sha gera Bloomberg Intelligence Global Fintech and payments analyst. I first answer her to break down the latest news at PayPal.
Like two big headlines hit at once missed four Q expectations and then announced a CEO change. So on the print side, adjusted EPs was about a four percent miss and the revenue came in one percent lower, and I should highlight this is like their first miss in two years. But I think the bigger issue is forward looking branded checkout, which is the main core high margin business for PayPal, that has slowed to one percent in the fourth quarter.
And PayPal is also flagging in earnings decline for twenty twenty six. So those were the key forward looking problem areas, and the CEO change definitely was a surprise. I mean, the guidance division was driven by their investments in some of the merchant business that they're doing, But I think the market reaction goes beyond that. I think it goes more around some of the serious gaps that appear to have been discovered, especially with Apple pay and all the
product advancements that the competition has come through. And I think, yeah, lots to unpack that today.
So just give us a sense of the competitive landscape of the businesses that paypals and the financial technology and kind of where do they fit in what are they maybe not doing right here?
So PayPal has two parts of the ecosystem. It works with the merchants where you see the PayPal button when you check out and it works with the consumers through its app, the PayPal app and the Venmo app. What is very interesting is that management kept highlighting execution, discipline and prioritization, but honestly, like that is the main game. PayPal's biggest value ad is the two sided network. They could not have afforded to either drop the merchant or
forget about the consumer. So it's been like it's a very competitive landscape. You have Stripe, Aden, Apple pay You would have noticed recently they revised their partnership from they moved from Goldmans to JP Morgan. So everyone is charging FIRS step and PayPal needs to show up on that. And I thought they were getting there, but I think this new CEO to change definitely puts a multi year transformation back in the play now.
So what do you think is the is the next step for this company here? I mean a can of kind of remain competitive in this business going forward. Does it need to think about a new structure or a new strategy. What do you think needs to happen here?
Yeah, that's the million dollar question, Paul. I think so there are two things. One is I think investors need really need clarity now on how PayPal reaccelerates its core checkout business. Is it conversion, is it pricing merchant value proposition,
because that's still the core engine. But I think secondly is whether the new leadership really signals a broader strategic shakeup, like do they streamline initiatives, are they going to step cost discipline or capital return or if it doesn't work out, maybe they'd consider like big assets like Venmo. You know, strategically, the performance doesn't inflect from that.
Our thanks to Dick Shagaratt Bloomberg Intelligence, Global Fintech and Payments analyst, coming up a look at why the food and beverage company PepsiCo is cutting prices by up to fifteen percent for some key brands.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries.
You can access Bloomberg Intelligence through Bigo on the terminal. I'm Scarlett Foe.
And I'm Paul Sweeney, and this is Bloomberg.
This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney on Bloomberg Radio.
We move next to some news in the food and beverage space.
This week, PepsiCo announced it is cutting prices by up to fifteen percent for key brands, including Lays anden Doritos. It's a bid to lift sales by offering more affordable products.
Pepsco has struggled to grow itales of North American in recent years. The company, like many of its peers in the food space, raised prices during the pandemic and its aftermath to offset high inflation.
So we brought in Ken Shape, Bloomberg Intelligence Senior consumer products analyst.
We first asked Ken for his take on Pepsi's earnings.
I think the broad takeaway for investors is that PepsiCo is committed to bringing better focus to this company. You know, I've covered this company a long time and it's it's primary competitors Coca Cola, here, doctor Pepper, you can say Primo, water Monster. How they different from PepsiCo is the much more focused particularly specific categories. But PepsiCo, with the urging of the activists urging them on, is bringing more focus
to this company. And what I mean is they're rationalizing a lot of the SKUs that really aren't contributing much. They're consolidating plans they are bringing more rationality to the trade spending. So when I hear things that, like, you know, cutting price, that's that's tactical. That's just a way to move the need a little bit with near term sales. But I think the bigger picture is to bringing more focus to this enterprise.
Right, I mean, investors are excited about it strategy as opposed to just kind of moving forward with the way it's always been. When it comes to those price cuts, though, I wonder if this is going to spark any kind of price war, will other snack makers feel the pressure to also reduce prices, even if they've gone up quite a bit since the pandemic.
That's possible, Scarlett. In the case of Free Too Lay though, they have such a dominant market share, and they have like sixty percent of the market in the measure channels, and when we have that much of a share, you
deserve a premium. Particularly with Pestico's direct store delivery system, what that means is that they help their retailers much more than a lot of their competitors, and that is they actually go to the store quickly, respond to out of stocks, They help you know, position the product, they create the end caps in the store, or they do a lot more for the retailer than their competitors, and so that's how they are helped to get premium pricing. So, yes,
they're rolling back some prices. You know, it's no secret that price increases have been up quite a bit since the pandemic. A lot of it's cost driven, and private label has encroached a little bit on PepsiCo's share. But to answer your question directly, they are the dominant player. I would not expect them to give back too much over time. And while their competitors may cut prices as well, I think retail would be alienating consumers if they push too hard on Petsico's price increases.
Down the road, Ken talk to us about Elliott management. They've been in this company, they've owned this stock here pushing for some change. How much of an impactor are they having.
I think on the margin there's an impact Paull maybe to the degree that Petsico is hastening. It's moved to more focus. You know a lot of the things that it's been doing all along, and that is upgrading their portfolio with more functionality. This is some of the things we talked about in the past, they're bringing more protein to their mix and bringing more protein by restaging muscle milk,
so bringing more value to the beverages. So they've always been doing that, but to your question, Elliott is pushing them to do things like, Okay, you can still do that, but also cut costs a little more aggressively. You know, maybe maybe you don't need all of these plants, Maybe you can consolidate some. Maybe there's some SKUs, you know, some products that aren't selling, well, you can roll those back.
Be a little more nimble when it comes to getting rid of some products that aren't winners, because at the end of the day, you have to grab as much shelf space as the retailer as possible, and when you have products on the shelf that aren't moving, you're not helping them, you know, with their business. So be more a little more aggressive with that. So it's helping and I think that's a positive thing for shareholders.
Is this a company that's going to have to separate its drinks business from its snack business.
Well, that's the age old question we've been talking about for a while. And as I mentioned, if it can prove to the market that this increased focus that they have with just doing their you know, daily business or running these operations, they can improve them. I think the heat will be off for them to go to the
draconian measure of breaking up food and beverages. That's always, you know, the wild card, I think down the road, and I think will be well received by the market quite frankly, but I don't think it's necessary at this point.
What are you consumer products companies telling you ken about just the consumer out there?
Well, all Trea just the other day. I mean, it's a different market with cigarettes, you know. They noted that consumers are still hesitant in paying up for a premium products and the cigarettes mention isn't the same category as salty snacks, but they do note that consumers are reaching for the private label, the low priced alternative, more than they've done in the past, and so the extent that
carries over to snacks and beverages. I can see some parallel lines here, and as more companies release their numbers, I think that could be a common theme here that private labels encroaching and maybe there needs to be some more deceleration in the reliance on price increases to stimulate sales growth.
That was ken Ja Bloomberg Intelligence senior consumer products analysts.
We moved next to Research. Bloomberg Intelligence recently put out on global communications and networking equipment.
According to BI, the global networking sector heads into twenty twenty six with multiple spending tailwinds led by cloud AI infrastructure buildouts, and the money spent on networking gear is expected to grow twenty percent according to the six to fifty Group.
For more, I was joined by Woujenho, Bloomberg Intelligence, Senior Hardware networking analyst. I first asked which to talk about how investors are now looking at AI.
It's fairly straightforward, right, It's a very fairly concentrated space. The AI networking space is expected to grow ninety one percent on the switching hardware alone to twenty one billion dollars. Right. The way to play it is fairly straightforward. It's a three c's, an A and an N.
Right.
That's my new networking fang Cisco, Celestica, Corning and CNSO. Four c's Arista and Nvidia, right, and those are going to be the leading beneficiaries for the networking space in AI.
So give us a sense of kind of how investors should think about the investment cycle for AI. I mean, I'm going to say we're two three years into it. I'm just not sure. How do you guys think about the duration here?
Yeah, you know, it's it's quite odd, right, because you know, some of us say it's two three years into it. Michael Dell had this interesting quote a couple of weeks ago, saying what inning are we and his response was, we're just entering the stadium.
Wow.
Right.
He still thinks it's early on in terms of the investment phase, and networking is going to be one of the leading beneficiars of it.
So how are the networking equipment companies that you follow, how are they financing some of their capex? Because again, I think most of us grew up when technology companies had so much cash flow that they could self fund their R and D, their capex, that type of stuff. Now they many of them need to come to the capital markets.
Yeah, fortunate for the networking guys. It's a low capex type of business, right, We're talking about seb ten percent of the cash flow to capex or ten percent to capex ratio to sales, So it is a fairly self funded business. And it's also high margin business as well. As long as the hyper scale cloud providers as well as the tier two cloud providers like the Neo clouds, are funded, they'll be able to buy the networking gear.
So how do.
You I mean, it's interesting here. You think about the tech space and it's hardware, it's software, it's the networking equipment.
Here.
Who's kind of driving this this AI thing?
Is?
Are your networking in communications companies? Are they kind of dependent upon I don't know what the hyperscalers are doing or what the chip makers are doing. Who's kind of leading this?
So at the end of the day, it's how quickly and how fast and how large of the investments that the hyperscalers are making on the AI side. I will tell you, as these language models grow and the scale of these compute investments grow, you actually need a lot more networking. And networking is if you think about it as the arteries and the veins of a human body. Networking is probably at the center of that right now, and that's why you're having a lot of investment on their networking front.
Who are I mean, how are they dealing with?
Again?
These networking companies, I think of these big global companies. Is that manufacturing dispersed around the globe? Is there a pressure to bring it.
To the US.
How are they dealing with some of the changes we've seen in global logistics, whether it's tariffs or just you know, most favorite nation status, those types of things.
Yeah, that's a fantastic question, Paul. I will tell you that there's a couple of things. Right when we had the tiraff situation number one, and also the COVID situation a few years back, the companies have actually done a good job rearranging the supply chain. A lot of manufacturings happening out of Mexico. There's some manufacturing that's happening in Taiwan as well as in Canada. So we're bypassing some
of the tiff situation. And quite frankly, tariffs have become a non story for the majority of my networking guys. And on top of that, the dram story is inconsequential for the networking games as well.
How are the stocks performing here? We've seen so many parts of the tech space just rip. How have your stocks been doing?
I will tell you, if you know, if you looked at the Celestica two years back, you're seeing a ten time performer to to where it is right now. You know it has slowed down because I think people are starting to catch up to the name Arista. It's a
double from from two to three years back. And Cisco, I mean we've finally got back to it's two thousand and one highs because of the business has actually stabilized, so the stocks in itself have done well, the multiples have actually gotten a little bit rich.
That was Ujinho, our senior hardware and networking analyst.
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