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It's yet another day of data center deals.
I feel like this is a never ending story here, and it continues to propel the stock market higher.
And that's kind of what's happening here.
The nazak up one point three percent, the SMP five hundred up one point one percent. So we need to bring Caroline Hide, our BTech co anchor, in to our New York studios here to kind of walk us through some of the big stories. And I guess let's start on the one that became official, which is black Rocks GIP buying aligned data centers.
This is a forty billion dollar AI.
Bet, and to be fair, it's a lot more than Blackrock.
You've got Blackrock, but you've got MGX, which is Mamdala AI investment company, part of that sovereign wealth fund focus on AI. But you've got Microsoft in the mix, You've got in video in the mix, You've got XAI in
the mix. Basically, anyone who likes financing data centers, or needs access to data centers, or has some gpused to put inside data centers seemingly wanted in on what was the one hundred billion dollar get together pool of capital, and this is their first chunk of change, forty billion being committed to ALIGN data centers. It's over in Texas and this was actually owned by mcquarie, a big Australian infrastructure player, and they are now managing to sell off.
It's a huge campus you're thinking about operating in US and indeed in South America Aligned they've got fifty campuses, They've got seventy eight data centers.
But all of this is as we seem to have.
Insatiable demand for compute and therefore values go skyrocketing.
So your tech beek Caroline is always front center for this market. It's even more so, certainly the last two years with AI. It's even worse in the last two weeks with a lot of these.
Circular deals that have been referred to circular.
Where people are investing in each other's companies and things like that, and the dollar amounts are so huge. Are your sources are they saying this feels a little frothy?
What are your sources help?
I think a lot of people are starting to put the word bubble in the context of AI in infrastructure right now. Look, you even have the CFO of City Group yesterday talking about his anxiety when it comes to potential frothiness in the AI market. You've had the global certain manager's survey coming from Bank of America yesterday more the most we've ever seen in terms of majority thinking that these AI players are too highly valued. So certainly
the circularityuse people pause. We had a great fan manager on just yesterday really saying, look, even though they think in video is a bit even though today HSBC has raised the price target on video to maybe putting this at an eight trillion dollar company in the next twelve months, but people do have pause when they're putting one hundred billion dollars in equity investment into open Ai, basically so that open ai can keep buying its own GPUs. You
see that happening over in Europe. Another key player that we've got to keep an eye on is end Scale. Letters is currently a private AI data center builder Outer I might add they've never built one single AI data center. But they were a cryptomnor that's pivoted and now they're
committing to doing four data center projects with Microsoft. But n Scale of course got the tap the anointment from Jensen when he went over to London saying I want to back you in my equity because guess what, two thousand GPUs are going to be offered in those.
Four projects to Microsoft.
So it just keeps on being this idea that ultimately where are we getting the money from at the moment, build it and they will come. Is a mentality we need the infrastructure before you can really get the productivity games.
So in videos putting its cash to work.
Okay, So circular funding and yet another example of that. So what I'm confused about is how some companies that had indicated things would be kind of rough just a few months ago had now turned around and are seeing a completely different tune. ASML, which is a Dutch semiconductor equipment maker, had warned that the the trade war the terraf Sun China was going to be hurtful towards business. Now it's completely like turn around and said, you know what demands great.
Maybe they'll be able to eke out growth in twenty twenty six. I think it's also our expectations for ASML came down some. If you're looking at a quarter on quarter basis, the sales and the bookings fell, it's because China is so outsized in their revenue stream, and China's going to start dialing back in twenty twenty six because of the geopolitical issues and the fact that the US is asking its neighbors and allies to stop allowing such semiconductor equipment.
Into the nation.
And you just had the House China Committee saying once again, we're worried about ASML, but also KLA and some of the other US players. So I think that we are seeing, yes, ASML managing to calm anxiety, that they will still see growth from other pockets for these euv This is extreme ultra violet lithography.
They're the only people that make.
This particular sophisticated equipment that is making your leading edge chips that are going to be fueling our AI consumption. So if they're the only player, well they've got really it's sort of an built in demand pool. But China is going to be diving back, and the market wanted to hear that others were going to step in, and it seems as though they are going to.
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LBMA shares are higher right now after a surprise return to sales growth. So maybe that is leading to folks saying perhaps the downturn we saw in luxury is over.
Let's get some perspective from Debrah Aikn.
She has Bloomberg Intelligence Luxury Goods analyst deb Good to speak with you. What are you thinking when it comes to LVMH's results on what it signals about whether luxury is back.
Hike? Yeah, so really a very big sentiment indicator. The comments from the company late last night out of Paris were more positive than the market anticipated. When we look at the numbers in terms of the organic sales growth, the market expected around minus one. We came in a plus one. But it's about the sequential improvement from Q two to Q three and the fact that all five of the business units are improved versus Q two and
more than that. China is mid to high single digit growth versus a year ago.
The US is robust.
Europe is doing the same as it did across the board, doing okay but missing out on tourism and Asia. Extrapan is positive. We know four q US will face a bit more of a difficult comp after they spent in last year beyond the election and the Trump win. But into the first half of twenty twenty six, the market is looking more positive and it's certainly rallied the whole of the second This morning and this afternoon.
Hey, dev, what's the correlation between luxury spending and just kind of the broader stock market around the world. Because markets are really performing well, how does that correlate to just luxury spending?
You know?
The big thing, The big thing on luxury spend has been that the very high end has done well. So EMMS Brunella Cucinelli, where they work with a restricted volume operating model, they've done well in terms of their top line growth. But when I think about an LVMH, you know they're given how big they are, they need a big volume there. Even with some price in to manage growth in this category, and instead what we saw last year and the beginning of this year was maybe a
little bit of trading down. So brands like Tapestry's Coach Ralph Lauren, they became really so popular, not only in the US, but more on a globalized basis too. And so the view has been that the sentiment around the share prices has very much been opposed and opposite to what's been happening on the stock market. But with the exception of the mid range and the mid range have done better because the view in the investor mindset has
been that the luxury buyer will trade down. They've done that in some brands, but not all brands, in some categories, not all categories, and generally we expect the biggest and the best to come back first.
What about LVMH's wines and spirits division. We've been hearing from Constellation Brands and other spirits companies that you know, there's been this massive shift in consumer tastes away from alcohol, certainly the younger generation. Does that affect a company like LVMH.
So a different kind of thing with LVMH. I think at the very high end we had some US weakness, so they operate in wines, fine mine, high end champagnes, cognacs, and others. Champagne is doing well and is back to growth in the US. Rose wine is doing very very well, but some of the spirit side is still struggling a little bit, and I think that's because we've seen some trading down. So we had China very heavily stocked and the US not so solid through the first half the year.
But there are signs of that coming back. If I look at the numbers on the Q three for wines and spirits, they're at plus one and they were at minus four for Q two and minus nine for Q one, So it seems as though inventory is leveled out and we're starting to see some selling.
Deba I learned from you long ago, and looking at luxury, you have to also pay attention to what's happening in China and the Chinese consumer. Are the Chinese spending either in China or are they traveling to the London Parish, New York Milan type thing?
What are you seeing?
Yeah, still we're seeing a lot of the spend. We're getting mid thigh single digit growth in that Q three
from Alvia Maitia on your is on localized spending. We are seeing pockets of growth on the tourism side, so there is a more positive view and mixed linked into the commentary from these results, but overall we are still absolutely missing Asian tourist, Chinese tourists from Europe, and also in Europe, we're missing the strength of the dollar having swung over last year with US purchases here and you are seeing some but not as many in terms of
full recovery versus twenty nineteen. There's growth year on year, but not versus twenty nineteen into the USI. But when it comes to the Chinese tourists, we used to say a third of luxury goods just over we're on the work. We're from the Chinese cohort, and that would include on land and traveling right and we still think there's a way for that to go, but certainly on land and locally they're doing better than they were.
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Paul, it feels very two thousand and seven ish with the deal making taking place, with the banks reporting these incredible numbers, a lot of companies saying they may go private.
We're hearing a lot of speculation about that.
The latest is Grinder, and in this case, the dating app has confirmed that it received a letter from its largest shareholders interested in exploring a take private transaction. So let's bring in our Bloomberg Intelligence Internet analysts, software and Internet analysts with us, Nicole Desuza to give us a little bit more here. So, Nicole, Grind, this dating app that's focused on the LGBT community, does not actually have
a proposal to evaluate. It's just telling everyone, Hey, this is happening, and there's percolations of this happening.
Correct.
So, as of right now, what we know what's been reported is there are two investors, Raymond's Age and James lou who together control about sixty percent of Grinder. They are in talks with Fortress Investment Group to secure debt financing to take the company private. There has been no direct proposal at this time, but discussions seem to be around a fifteen dollars share price, which would value Grinder at around three billion dollars.
Talk to us about this company. How has it performed as a publicly traded company.
So you're to date this shares are down around twenty nine percent. That being said, Grinder is one of the few dating apps that is still growing paying users, so we've seen so.
They're growing, They're still growing users.
Yes, okay, and that at this point right now is a little bit rare for dating apps. Right We've seen Tender lose users, We've seen bumble looos lot of users. Grinder, because of their niche user base, has been able to hang on to a good amount of their users and grow users every year.
What is their strategy going forward?
Because they did read something about how they have this three year plan where they're targeting some pretty aggressive growth and the fact that they're growing users is a good sign. But the dating app business doesn't seem to be that great right now.
Yes, So they have.
A couple of different levers that they can pull. The first one is raising prices. They've talked for the first time about raising prices. They haven't raised prices since twenty eighteen, so they're looking now at potentially raising prices introducing a new premium tier. Right now, they get around twenty four dollars per paying user, so there is a little bit
of room for growth. They only have about eight percent of their total user base of fifteen million users who actually pay for the app, so there is room there. They're also growing advertising revenue. Grinder is one of the few dating apps that does have a pretty solid ad platform. They grew AD revenue around forty percent last quarter, which
was a big step up. Expect that to continue. They're looking at new ad units, they're looking at better targeting, so we do think there are there's a room for ad revenue to really grow from here.
I mean, so you step back for the digital ad story, it's still a very bullish story for digital advertising. I mean there's still that big macro call of digital advertising. Whether it's a big ones like Facebook or the smaller ones like grind. You're taking dollars away from traditional analog media. Is that story still in play and if so, how long do you think it goes for?
I think it is still in play. I mean, we do still see some ad dollars going to more traditional sources. So you know, obviously, digital advertising is much better targeting. You can do things like direct response advertising where users are taken directly to a website to make a purchase.
It's a good use of ad.
Dollars for companies. Grinder has a really unique user base. Their user base is more affluent, they have higher discression or income, they tend to be higher educated. So it could be a really great platform for a lot of advertisers who are looking to advertise to that base.
Also, gen Z pretty heavy as well, so talk a little bit about how that is very appealing to advertisers.
Yeah.
So, actually it's funny because Grinder is one of the only dating apps really who isn't necessarily seeing an issue attracting gen Z users. They've talked a lot about how the issues that other dating apps are facing they don't really face because it's such a unique user base and because people come to Grinder not just for romantic connection but also just to meet people, to make friends, to
have a community. So Grinder has done a great job of attracting these users of holding on to them, and again it could be a great place for advertisers to reach.
Gen Z thirty seconds stuff and why was this stock down or is down forty some unpercented, so they have they.
Have missed on a few revenue metrics. They were a little bit light on revenue last quarter, a little bit light on ebita.
But again we think, you know.
The long term growth perspective for this company is really strong. They have been growing users, which is unique for dating apps. So we're very comfortable with the twenty to twenty five percent revenue growth through twenty twenty seven.
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You know, for all the talk of all these companies involved in AI deals circular deals where they're teaming up with someone and they're buying something or investing in somebody and partnering with something to buy their own chips back, one company is noticeably absent from all these announcements, and that is a big one.
It's Apple. Yeah, where is it?
I don't know.
They have a lot of cash, they do, I don't know. I don't know their AI play. That's what I don't know.
Well, their AI doesn't work very well on their phone. Right now, I can tell you that An A. Grana is a tech analyst at Bloomberg Intelligence and he joins US now from Chicago, So An Rag. There are some headlines here that Apple is looking to beef up its smart home offerings lesson its dependence on China. This is something that the President of the United States has been pushing Apple to do, to bring some of it's manufacturing back to the US. But Apple's not doing that. It
is beefing up its manufacturing operations in Vietnam. What's going on with Apple?
See, when you look at it, whether it's accessories or you know, putting together the phones, you really cannot do that in the US. We don't have the size, factories or automation to do that. So you will have to
do that somewhere in Asia. And as they're diversifying away from China because of the obvious threat between US and in China trade wars, Vietnam is a proper location where they can assemble let's say, some accessories or smaller products where you know they may cost you one hundred dollars or fifty dollars, but they have the low cost area to produce them or I would say assemble them.
So an Uraga, We've spent the last two three four weeks speaking with you, speaking with man Deep, speaking with other tech experts about all these deals around the AI ecosystem that we've seen ten billion dollars here, one hundred billion dollars there companies ranging from Microsoft to AMD to Nvidio to open Ai. We have not talked about Apple what is and I'm not sure if that's a good or bad thing. I don't know if these deals are good or bad. I just know there a lot of them.
They're coming out of the woodwork. There's big numbers, and Apple's just conspicuous by its absence. It feels like, how do you think about it?
Yeah, you know, you could look at it both ways. One way is you criticize that they're not really at the forefront of the next generation model out there. But the other way you can say is, you know, let everybody else fight it out. In the end, it will go to the one that has the best model and include that in there. Its own distribution channel, which is basically iOS. We have heard from Olkham and has done some really good work on this particular aspect of it.
Is the next the next version of CD may have technology from some of the third body providers, you know, whether that's Open AI and Tropic or even Gemini. You know, our bet is that, you know, we hope that they go with Gemini because they already get a lot of
money from Google for the search business. Maybe there is some revenue stating on that part as well, So we think eventually, we don't know when they will get it right when it comes to AI infusing in their product, but it's going to come with some third party rather than in house AI.
So in other words, they're kind of waiting for the dust to settle, waiting for winners to emerge before picking their horse and riding it. Is that something other device makers, handset makers are doing as well. I mean, Alphabet doesn't have to do that because it has its own AI business and it makes handsets.
Yeah, and it's very well integrated because it's the Google Gemini, it's part of Android and then you know Samsung is going to license that. So they are all set on that particular aspect of it. But it's possible that Apple may choose to work with Gemini, Google itself again get their technology, infuse it in their products, and you and I get the same experience we would get, you know, on on on, like for example, using chat GPD or anthropic.
I think from what we have heard from Marc is the research right now is they are running parallel chat pots internally try to see which one has a better output. And eventually we know with Apple it's going to go with the one the highest quality of searches or queries or answers, and and you know, let's let's hope that they get it around in the March timeframe that it's rumored to come out.
Earnings for the tech companies are going to be in a couple of weeks. Here what should we be focusing on this quarter?
On a rug, so we we're bifurcating the entire tech space into two buckets. One is area where we are going to see some weakness. That's going to be more on the consulting side, more on your traditional software side. And on the second half of the equation is companies that will see an uplift in their revenue because of AI related investment. So Cove and Microsoft fall in that bucket.
But on the other side, you know you're going to see some struggle with let's say IBM consulting, although IBM software should do well, and that is the bifurcation that we have. What is going to be most important for Microsoft, for example, is all the headline news that we are hearing about lower capacity or some constraints in data center work. Whether that's going to have an impact on Azure guidance
or their cloud revenue guidance for next quarter. That is going to be the biggest question for going into the quarter for Microsoft.
Which of the names have the potential to surprise most to the upside given what you've seen so far in terms of estimates, I.
Think Core Weve has one potential. But at the same time, you know, this stock moves so much on a daily basis with any new announcement that comes out, so it's tough to say with a lot of that optimism is probably baked into the numbers at this point.
So what's the big thing that you guys are working on. I've referred so many people to the Bloomberg Intelligence Technology Teams AI report here, which really is definitive. I think and kind of laying out for people what AI is and you know, what are all the facets of it here, what's the next level of analysis for you guys in Bloomberg Intelligence Technology.
So the biggest thing we are trying to hone in and bifocate this investment cycle that you mentioned, you know, during the initial remarks. There are two aspects of it. One is everything that open ai is leading. It's signing contracts with Nvidia, Oracle, AMD and so forth. Now at this time open ai doesn't have the money to fund a lot of that stuff. They have enough financial backouds to take care of it, so, you know, let's so
that's one area to focus on. The second part is companies like Meta, Amazon, Microsoft, they are going out and building capacity or signing up deals for data centers and new chips. Now they have the cash to do it. So we are trying to figure out and these cases to see both of these scenartives, to see which ones of them will have a greater impact on the downstream ecosystem, you know, whether it's hardware providers or chip providers or for that matter, data center providers as well.
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