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We got another data point last night in terms of how the market used this tech capex Amazon. They have to take the cake. Two hundred billion dollars in capex. That's well above what the consensus always guess. What the stock is trading down today. So let's get a sense of kind of where this tech spending theme is for this sector. Man Deep Singh he joins us here. He runs all the tech research for Bloomberg Intelligence. For those mandeep that we're looking for another data point to say,
how does the market view tech spending? Did we get it last night with Amazon and now the stock trading off today.
Yeah.
I mean this was as big as they can get in terms of, you know, a capex number out of the hyperscalers, and probably because they went last in terms of you know, reporting earnings.
But look, I think had they not gone that big, the stock would have been up because they've posted best AWS growth in the last three years and you know, sequentially things seem to be improving.
Is just that two.
Hundred billion dollar number and the fact that their margins are going down on the AWS side. That's why you see this kind of stock reaction and there wasn't enough justification to you know, ramp up capex by about fifty five percent to two hundred billion mandeep.
How long are we going to see these massive increases in capex? I mean this was for twenty twenty six full year. I mean, are we going to see this for another two years, three years?
Or have we?
You know?
Is there an end in sight? I guess is the question.
So based on our work at least so far, we feel this is the peak capex growth. You will skill see growth, but it's not going to be of the same magnitude. I mean, twenty twenty six we are talking about a year where capex from the hyperscalers will grow almost sixty percent. So and last year we had twenty twenty four to twenty five was also seventy percent growth in capex. So we've gone from two hundred billion dollars or hyperscale capex to now six hundred and fifty billion dollars.
I think that growth rate will certainly come down, but there's no doubt that you know, we are still in that part of the ES curve where you know, there is more demand and everyone has called out supply constraints and they would have grown faster had it not been for you know, the limited supply they had for AI infrastructure.
So, Mandy, you talked to institutional investors all around the world here that focus exclusively on technology where they has there hasn't their narrative shifted about where and when into what degree this industry should invent AI has the fundamental view of AI and how this tech industry is going to get there? Has that changed among some of those big, big tech investors that are big shareholders in so many of these companies.
Yeah, I mean, right now you see both you know, anxiety and some sort of panic as well in terms of, you know, the level of free cash flow that's going to get hurt because of this spend and how fast it's happening. I mean, the cloud market grew almost you know, twenty percent plus for a decade and everyone was fine. You could see you know, predictable free cash flows. This is a very big upfront spend, and look, it makes sense that you have to spend first to build the infrastructure.
But I think you really have to take a leap of faith that all these companies that are putting, you know, two hundred billion dollars will see ROI s for their spend. And I think that's where there are question marks that some of them may not have that level of ROIC. So I think that's what's reflected in the panic so far. But there's no doubt that you know, workflows are changing and there are some real productivity benefits you're seeing out of this Vand you know.
We talk about these numbers and we throw them around like their gospel. Six hundred and fifty billion from Big Tech this year, two hundred billion from Amazon. I mean, it's kind of squishy at the end of the day, mandeep because this is a lever that companies can toggle. So I wonder how reliable they are. Ryan Horn, who's one of our listeners, wants to know, is a risk to hire CAPEX from here or is it more that hyperscalers can pull back on what they say is their CAPEX plan.
No, that's a very good point and Luk a company like Apple so far has resisted the urge to spend on Capex and now that they are leaning on Google. So that's where you know, Google raising Capex made a ton of sense this earning season because one they saw that steepest acceleration and crowd in fact, next year could be sixty percent growth in their cloud segment. And also Anthropic and Apple are new customers, you know, in terms
of who will be using their compute. On the other hand, for an Amazon you have to ask you yourself, is open Ai the buyer for all of the compute that Microsoft is spending on. You know, Amazon is spending on, Oracle is spending on because it's going to come down to a handful of you know, foundational model players. Meta is on its own. It's spending, but it's not very clear open Ai needs all this compute.
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Under Armour one of the companies that reported earnings, and in line with the gains in the broader market, the stock is up eleven percent right now. This is a company that is still very much in restructuring mode. Put On Goel is our senior US e commerce and retail analysts here at Bloomberg Intelligence, and she's got more on this. So how low was the bar or did under Armour knock it out of the park with this latest report that has its stock soaring eleven percent.
I'd say the bar was very low for under Armour. There's been a lot of conversation about will this turnaround take place, will it be a sustained turnaround in the past few months, especially with the loss of Steph Curry. So I think the bar was low. They did post respectable numbers. I'd still say that I'm still not completely sold on the story. Their biggest region, the US North America, sales right down ten percent. They're expected to be down
eight percent in their fiscal year. So things aren't still you know, where we want them to be. And I've heard this narrative so many times where they kind of take out the low hanging fruit, get the inventory's right, get back into the right wholesale doors. We're repeating that. So for me, it's a way to watch situation.
Still, when a brand like this loses a spokesperson like Steph Curry, how does that How material is that of a loss to financials?
It's material for basketball? Right if under Armour is trying to make a steak into basketball and really compete with the Nike and even the Adidas are pumas of the world which have renowned basketball players supporting their brand, Nike notably, so the loss of Steph Curry is going to be
a headwind. We estimate and what we've seen just by industry estimates is it's more than one hundred million dollar franchise that Steph Curry had with under Armour, So that's obviously now not going to be there.
So we've also heard that the Warren Buffett of Canada Fairfax Financial has disclosed a roughly twenty two percent steak in under Armour. This came out about a month ago. How does that change how the company operates, how it moves forward? Is do we presume that Fairfax is going to be an activist investor or have some ideas on what under Armour does.
I'm sure they'll have some ideas. Right now, what we're seeing under Armored do is follow the retail one on one playbook on a turnaround, which is, let's get out of off price, let's start selling more full price, let's pick our wholesale doors, and let's get product innovation front and center in front of the consumer. The question is right now that they can do that because they have
very easy comparisons from prior years. As they begin to recoup and reset the bar, can they continue to grow and compete with the larger players, notably Nike and Adidas, And can they make a claim for their brand without leading sports personnels.
Amazon also reported last night stock trading off people not real psyched about two hundred billion dollars a capex. I guess, but how did the retail business do?
The retail business did very very well. I think they're continuing to gain share. We saw an increase in online retail sales low double digits that was impressive and show share gains. I think what's really neat about their retail business right now is all the investments that they're making in AI, especially Rufus. You know, it was interesting to me, and I guess I hadn't known. This is that Rufus can now execute an order for you. And that's pretty cool.
If I say, I want, you know, this stereo for one hundred dollars, so watch the price when it gets to one hundred, it just buys it for me. That's a new way to shop. And they're definitely leaping forward into AI and making the bets with Rufus and Alexa Plus, which I thought were pretty interesting.
I guess these would all be kind of value added services from Amazon. Does that mean that they're going to start raising fees for Amazon and Time for.
Instance, You know they've raised fees periodically. They they're not ont to raise fees every year. So every several years, do we see a slight bump in price? We have, and the fees have gone up in the last ten years fifteen years quite substantially. But I'd say they're also giving you a lot more right with Prime Video, with just other things they make the Prime membership, if you were ever to unbundle it, it's it's quite a great
value that you're still getting. And they talked a little bit about every day essentials now just being a bigger focus for them. It's surprising and it's it's mind boggling actually that it's one hundred and fifty billion dollar GMB business for them. That's pretty significant. That one out of three purchases are every day essential. That just means that you're going to Amazon for everything, going to.
Little brand, Yeah, every day essentials. I don't know, it's just like their supermarket.
Right, I think so. So thirty seconds left here Poonum based upon Amazon, maybe some other retailers you've heard from. How's the consumer doing?
The consumer is doing just by you know, we have been waiting to see the consumerbile crack. We haven't seen that yet. The consumer is shopping, but they are being mindful and they're watching where they spend and how they spend it. So this is where brands like Amazon and the large retailers that have the power of scale to keep prices low do well.
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Philip Marsh they had some pretty good numbers, and the stock's done well, double digit return this year, plus I get a three percent dividend yield.
It's a consumer staple, and consumer staple is in right now.
Ken Shay joins us senior consumer products analysts at Bloomberg Intelligence. Tell us about Philip Mars's and their quarter and what's their business outlook?
Ken, Yeah, Hi, pol If Philip Morris had some good numbers today. It's fourth quarter pretty much came in line. Sales up about seven percent, EPs about ten Those are pretty good numbers for a consumer stable company. They hit their numbers. Stock is performing well, probably as a result of that. But there's two other big takeaways I think beyond that today that's maybe helping investor enthusiasm here. The second is the financial guidance they provided for the next
three years, or say twenty twenty eight. It's also pretty positive. They see mid to high single digit revenues, around ten percent operating income, low double digit EPs growth. Those are pretty good numbers for be consumer product companies, particularly companies that deliver like this one. And even though those numbers are pretty much on line where the street was already at, nevertheless,
I think that should be viewed pretty positively. And the third is the company said today repeating what they said in December, they're going to start providing more financial transparency behind what they call their smoke free business from their traditional cigarette combustible business. And I think that's going to help more transparencies. Always welcome, you know, buy investors in the market. And so I think all three things are really what's behind today's action.
So talk a little bit about that smoke free product line, where is the growth the fastest, and how much spending, how much investment is needed for us to see that return that investors want.
Yeah, hi, Scarlette. Well, Phillimore's really took a big step before its peers when jumping into the smoke free opportunity years ago with what it's calling Icos iQOS that's its flagship family brand, I guess you can call it. It's pretty much sold around the world, pretty much in most of the markets that it sells cigarettes, and it's already comprised more than half its sales in some pretty big
markets Japan, South Korea and some others. So it's really cool it on well, and basically what it is, it's a device. It's a device that you use to get the facsimile of a cigarette smoking experience, but you use the little plugs you put in it, so that the business is really selling the plugs once the device is in the hands of the consumer. That's doing really well. That's the biggest piece of that business. The second is it's what it calls it's nicotine pouch business. In the US,
people probably know it by ZIN. It's not around plastic camp. People put in their pockets and they can are you discreetly get their nicotine hit that way. It's been really popular, doing really well. And the third kind of more of a distant business for them, but one they want to be in is their e cigarette business. They call it the closed pod system, sort of like the jewel. Their brand is called it EVE. It's kind of a low end, low low price point, a way for consumers to get
into their to get their nicotine fixed. But it wants to be in that business because it wants that brain to be out here as an alternative to smoking.
So just real quick, there is that where the growth is for this company going forward. In the broadly defined smokeless part of the business.
That's really Paul. It's already around forty two percent of our sales. Yeah, believe it or not. Not a lot of people in the US know about it because icos really isn't sold in the US yet. They're waiting for FDA authorization to roll out its Aluma icosystem and then people will really know more about it in the US. But it's yeah, over forty percent of their business. It's over sixteen billion dollars in sales. So that's why they're
bringing transparency to that business. It's a big business, you know. I think what they're implying, I think down the road is that maybe they can separate the businesses that is the combustible business from its smoke free because they have different investment characteristics.
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Well it is here February time and on Wall Street. That is Bonus Time, folks, And.
You want somebody's attention on roll streets like Bonus bonus exactly.
To be honest with you, having worked on the street for thirty years, the bonus discussions at around the water pool will start right after labor Day and you start talking about what the bonus pool is, and then you start cornering your manager and you speak from September right up until the year end, because that's when the bonus pool kind of gets decided and you say, you put hey, good deals, good trade, you know, all that kind of stuff, and so it starts working right after labor day. That's
how the season works. This year is going to be a good year. Goldman, JP Morgan Bankercy bonus pools rise at least ten percent. That's pretty good. Catherine Dherty joins us financial reporter for Bloomberg News. This is the big take story and not surprisingly it is like one of the most highly read, most read stories on the Bloomberg terminal today because who is our readership. It's the folks
that get paid by Wall Street Global Wall Street. Katherine talked to us about kind of the bonus environment these days for Global Wall Street.
Yeah, so, I mean, twenty twenty five ended on a strong note and the year head looks to be the momentum in terms of deals and trading. Both of those things is feeding into that bonus pool that you talk about. So in terms of the trading desks and M and A specifically M and A has been for investment bankers the tepid environment that payouts have not been terrible, but you haven't seen this double digit rise in that part
of banking in a few years. Really, twenty twenty one twenty twenty two were like the banner years for investment banking. Now we're starting to see more momentum that bankers are getting paid for the deals that they're putting the time and energy into, and for trading. Volatility has really than up revenue across the big banks. They're fulfilling more client orders and because of that, the trading desks are getting paid for it.
I need numbers like, give me an average and then for a rain maker like Paul would be.
So average ten percent, and we've been reporting for specifically JP, Morgan, Goldman Bank of America. Now within those banks there's some variation. We were trying to find kind of the general average and for the rain makers to answer your question, some of those are going up to the twenty to I had heard some rumors of thirty percent for the like real give me like a dollar figure though, So I
mean these bonuses, it really varies by bank. But if you think about the base salary, it's the bonus on top of your base salary that usually is Is this the sweeter part of payout. It's going to depend on what's age of career the banker is in. If they're further along, it can stretch into the millions of dollars, and it's the bonus that could be the millions part and not necessarily your base salary. So again that's the
performance based how did your year end up? And then your salary is just the thing that's on the bottom of it.
What what has changed since my day was my day, my bonus was ninety to ninety five percent of my year InCom my total com is my bonus. So your salary was like five ten percent of your exactly you take it. Now that's changed, it's a higher percentage.
Now your salary was your beer money exactly exactly right.
But you try to live on your salary and you save your bonus, that's the that's what or if you're other way, you just blow your bonus both four kids. I was in the save mode, but as that changes are higher base now these days, maybe a lower percent.
Do you think that I mean that percentage that you just shared. I think the percentages yes, have have grown where bonuses are not nice of your pay. That being said, the shift is still towards bonus over salary for many of these firms. And again that is why there's the incentive to work hard. That phrase of eat what you kill.
Yeah, is the bonus also a retention sort of thing that retain your talent. You know, you don't want to lose this guy to or woman to some other firm.
So that's a huge That's like the fine line that the banks need to walk is you want to pay your best talent. But they're also under a lot of pressure to keep their expenses in check. When these are public companies, they're reporting to their analysts and the investor community and saying, hey, this is how much money that
we're making. The profit that the banks made in twenty twenty five was the strongest that we have seen in a while, so presumably they should be able to pay out their people for it, but they don't want to pay out so much that then their expense line is going to be under scrutiny and they're going to be held to a higher standard in future quarters where they're going to start answering questions like, you know, why is the expenses much higher than you projected or you have
talked about in previous quarters.
Is going to develop an AI model to come up yes, with the calculation for.
Most I'm sure that this is something that yes, they've already implemented, right the.
Junior bankers listening out there and watching. Here's the strategy. You go in with your deal sheet. This is the fees that generated this year, you got to pay me as more important than that is going with the deal sheet for next year. These are my anticipated fees that I think I'm going to bring in. And you don't want to lose me, you don't want to make me unhappy because this I think I can bring in. It's all about the year ahead. And that's yeah, so real quick,
thirty seconds. European banks don't pay as much as the US banks, right.
Not typically, but that's just because when you think about the US, you have the New York market, so you're going to see higher salaries and the US banks I think are on a stronger foot right now in terms of the profit that they're pulling in. So those are the kind of the things you need to think about.
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