Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Dell reported fewer sales of AI servers, lower profit margins and expected that's really taking a toll on shares. They're down about nine percent. So you want someone who could break it all down for us. Let's bring in Woojin Ho, Bloomberg Intelligence senior technology analysts joining us from Princeton. Woojin, welcome back to the show. I want to start broader. So taking these results into consideration, I mean, is it showing that the AI rally has has more room to
run or not? I mean, what are you hearing?
And in terms of the AI rally in general, I mean we saw in videos numbers and video is actually doing quiet well. I mean if you ex out to China outlook right, the demand is still robust and this
actually flows through to Dell. If anything, the AI numbers for a server numbers were better than expected in the quarter, and they also raised their guidance by another full year guidance by another five billion, So instead of fifteen billion for the year, they're expecting twenty billion for the year, and add more of these sovereign and neocloud deployment start ramping up. You know, twenty twenty six AI server revenue should be better for Dell given how they're positioned.
So then can you try to explain why this stock is down nine percent? I mean, Dell just said it now plans to ship twenty billion dollars of artificial intelligence servers in fiscal twenty twenty six, double what it sold last year. What is upsetting investors?
Yeah, So, so there's a couple of things. Let's start on the AI server piece first. I've always said and Dell is we'll contend to it. Having Aisells is double edged sword. What you're getting in sales, you kind of lose out on gross margin. So let me give you an example. From a gross margin standpoint, traditional servers as well as storage combined are roughly in the you know,
the twenties to thirties range, right. AI servers they're they're closer to the mid teens range, right, So from an operating margin standpoint, it actually is somewhat earnings deluded to some degree if you sell way too much AI servers. So you know, the one point two billion AI server beat that only equated to two cents in an EPs. So what Della has been saying for quite some time now, don't focus on operating margin because that's that's what they missed.
Focus on the operating margin dollars. That's fantastic, But you know, the you know, the the incremental five billion for the year isn't going to be the big boost the EPs that people are hoping for.
A big concern for investors is at the profitability of AI servers. I mean they run on processors from companies like Nvideo, A m D right, which are which are pretty pricey. I mean, should they be worried about that?
Well, you know, the hope is is that once we start moving away from these hyper scale and neocloud type of deals, right because they're selling you know, fifty fifty thousand servers plus to each of these each of these companies, you know, they're not going to get as much they're they're heavily discounted. But if they start selling to the enterprise over time, the gross margin profile should get better and be more in line with traditional service. Now, that's
going to take a couple of years to materialize. But the more important thing is if we think about it from a longer term perspective, as long as Dell is ahead of from from a competitive standpoint, they should continue to win this AI game, not only on the neocloud side, but also on the enterprise side, which should help profitability longer term. But you're gonna have to wait.
And you know, when I did a little more digging into this earnings report, I found that Dell spent one point three billion dollars on share repurchases and dividends during the quarter. That's an enviable position to be in. But do you think it's the best use of Dell's money?
Well, so, I think they've They've they've always been since they came back to public and then spun off the VMware business. They've been very focused on shareholder returns. Right now, if you think about from a valuation standpoint, you know, M and A is probably going to be something that's going to be tough for them to do. They've already learned a lesson from big m and A with a VMware deal, and which is one of the reasons why
they spunted out. So if from a shareholder standpoint, if there's nothing that Dell can buy, I'd rather have it back in dividends and and buybacks. How is it changing, sure, like a day like today?
Well yeah, oh yeah.
How is how is Dell shaping up against its competitors, Let's say, like an HP or super micro computer.
Yeah, so so let's let me take it from a two standpoints. Right from super Micro, we're thinking about it more along the lines from AI servers. Super Micro still leads the way in the AI server market. Now, one of the things that we can glean from the numbers is that Dell has been heavily discounting to win to win its market share, and they actually have the financial
have to do so with a strong balance sheet. Now, from an HP standpoint, this is more personal computing side, and this is one of the This is another reason why the shares may be pulling back a little bit their PC growth. That segment only grew one percent, and on contrast, HP grew five percent. So there's a lot of questions in terms of the competitive nature for Dell versus HP on the PC market. Now that being said, what we can glean from the guide and it is
the second half of this calendar year. HP should get back on track from back to school spending as well as Windows eleven upgrade, So I think they should do about five percent growth in the second half of the year.
In the seconds we have left, can you tell us how Dell is stacking up against the competition, namely HP.
Yeah, so from a PC stamp from HP, you know, HP is actually winning the game over the last couple of quarters, but it's going to be neck and neck over the next couple of years. But from an AI and a server standpoint, Dell should be fine.
And in the last minute we have where does Dell go from here? I mean, what should their focus be?
Oh, I really do think it should be on the traditional server side as well as source side with AI, because they're all going to be melded into one type of business going forward, and the Dell's well positioned their longer term.
Stay with us for more Bloomberg Intelligence coming.
Up after this, you're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am. He's Dene on Apple, Cocklay and Android Auto with the Bloomberg Business app, listen on demand wherever you get your podcasts, or watch us live on YouTube.
One of the big movers today is Caterpillar. Mover to the downside, that is off nearly four percent right now. It's warning investors that tariffs are expected to have an even greater impact, take an even bigger bite out of its bottom line, expected to cost CAT as much as one point eight billion dollars this year. Let's dig into it a little more with Christopher Ciolino. He is Bloomberg Intelligence Senior US Machinery analyst. So what is it about this report that's got investors in a tizzy?
Well, you're right, I mean, tariff's will be a bigger cost headwind this year, more than KAT previously expected. And the revision really seems to be driven by additional clarifications around the Section two thirty two steal in aluminum tariffs and some of the reciprocal rates on India as you alluded to. You know, KAT thinks these TIFFs could be you know, up to a one point eight billion dollar
impact in twenty twenty five. That's up you know, two to three hundred million versus their prior view, so a little bit higher. So you know, even though that we're looking at these incremental costs this year, we think it's pretty easily digestible for CAT and probably represents, you know, the peak headwind that we'll likely see. They really haven't
implemented significant cost mitigation or pricing actions yet. I suspect you'll see more of those measured than twenty twenty six, which could ultimately offset these impacts.
So is it steal an aluminum? Is that the main focus?
Yeah, we think so. So we did get an update on the section two thirty two taraffs for steel and aluminum that expanded the coverage to you know, I think an additional four hundred different products. So you know, we had CAT report earlier this month and we had that subsequent update, So I think that's probably the big driver behind it. Obviously, heavy machinery companies use a lot of steel and aluminum. It's their largest input costs, so that certainly does move the needle.
We're talking about headwinds, but what about tailwinds any of those for Caterpillar.
Yeah, you know, despite some of these near term costs headwinds, I don't think it really ultimately changes the narrative here. You know, we're still quite optimistic that earnings are going to bottom this year. There's a number of cyclical and secular tailwinds that we think are going to drive higher earnings in twenty six and twenty seven. The backlocks is
sitting at a record high. We've seen very solid order trends these past you know, four quarters, and dealer inventories remain at you know, pretty healthy levels considering softness in the broader economy. So all of these are really positive leading indicators for Caterpillar.
And Chris, you follow this company very closely. So when we have an economics flowdown, what segments of Caterpillar's business tend to hold up the best.
So right now, the segment holding up the best would be their E and T or energy and transportation business, and really I think the big driver behind that is power generation, particularly on the data center side. Those are much longer cycle products have you know, very extended backlogs for many years. Caterpillars adding capacity there, so we've seen
that business hold up very well. On the flip side, the more cyclical construction industry's business is probably the one more harder hit, and also their resource industry's business, which is a lot of mining equipment that's been a little softer as well. But you know, I think, you know, if we're looking at a lower rate environment moving forward, we're certainly a little bit more optimistic on some of the growth prospects and those two businesses moving forward.
Stay with us for more Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on apple Cock and Android Auto with the Blue Work Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
In Video and AI, it was out with earnings this week and it impressed with more proof that that AI spending continues to be strong. I want to talk more about AI in the real world with Binran. He is founder and CEO at the software company sig Tech. He joins us from London. Ben, thanks so much for being with us. Before we get into Sigtech and what you do with AI agents, we'll get into what all of that is. I just want your take your thoughts on In Video's earnings report this week.
I think we are seeing unprecedented demand for AI services, AI inference. If you look at the you know, not only the hyperscaters, purchasing GPUs and building data centers.
It's keep going up.
And if you look at the consumptions of tokens by large language model providers such as Opening Ai and Google and the Anthropic, it's growing at one hundred percent every six months. So the adoption, the usage, the consumption is all going up the trend. There's no no reason why it's going to slow down or certainly all stopping.
We've heard a lot about different types of AI. Jen AI is a huge one. I mean, I know everyone's on the CHADGBT or whatever whatever else you have, but do generic AI tools They can help out in a lot of fields. But what about financial institutions, I mean you focus more on on custom AI?
Is that correct?
Yeah?
We focused on building entirely bespoke and custom AI agents for customers in capital markets. I think people now one hundreds of millions of people have used CHGBT, so we all have a good idea of you know, what a chat
bolt can do for us, which is extremely useful. But when it comes to business is there's an increasing gap between what the large language models are capable of and what actually value users in businesses are getting out of the getting out of the applications using using the same models. You know, the large nugree model capability has been improving dramatically and frankly the probably the most improved applications unfortunately have been restricted to only a few areas, mainly about
writing code. That that has been the killer app outside chatboard. In finance, the difficulty is there actually there are many different reasons why the application is not delivering the kind of potential we are expecting. One of the reasons is in finance we use a lot of private data that the large language models are mainly trained on public data.
And then the question of how to converting the vast corpus of financial documents in PDFs, in world documents in excels into the right formats that actually can be effectively used by large language models. Any error English data conversion document processing pipeline will immediately result in very pro qualities
downstream and in other areas. In finance, we prontion numbers, and the large language models are very bad at cremching numbers right and it's probably the most expensive calculator we can think of.
So to make large.
Nuguerte models working in finance we have to provide a very wide range of financial tools. These tools can be software, can be APIs, can be desktop applications. Then we have to train models to use them, and there are other challenges to Yeah, that's why everything has to be bespoke.
Then we keep hearing that AI is going to be a job killer, and we're already seeing it. Frankly, a lot of you know, entry level positions being taken over by AI. That means a lot of recent graduates from college or finding it even harder to find a job in unemployment during and amidst that demographics about six percent right now versus you know, a little more than four percent for the rest of us. So what what how do you see the future of work looking and how does AI play a part?
I think whatever, there's you know, unprecedented new technology coming along, so transformative and.
So disruptive like AI.
But previously there was internet, there was industrial revolution, there was the invention of airplanes and cars. I mean, inevitably some jobs will be killed, I guess you can say that, but there will be new jobs created. I think the key here is to understand from them mentally what AI can do and what AI cannot do and what makes us by us, I mean humans special. AI is very good at doing repetitive, non non creative work, non creative knowledge work. Humans we are uniquely equipped to be creative
and imaginative. And also, by the way you you probably know that AI is really bad at telling a.
Joke, a good joke, and there's a reason for.
It, because AI is trained to predict the next the next most likely word, the word by word, and to deliver a good joke, and the punchline has to be surprising and the witty.
So it's large number.
Models are literally not trained to be able to tell a good joke. So all the comedians and they have right own stuff, and they have to have inspiration, they have to have new experiences, imagination and creativity. I think that's probably a good room model for the future work. Look like we can spend more time on being imaginative and creative and frankly more intellectually satisfying, and less time on things frankly we don't wake up and be excited about.
Stay with us for more Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us Live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Want to switch gears for a minute and talk about the sleepy summer for the housing market would be home buyers. We know they've been staying on the sideline, so they're waiting for mortgage rates to come down. They're waiting for housing prices to come down. So will they And when Best Friedman, she's been looking into her crystal ball, we called her in for some help. EO at Brown, Harris Stevens, that's always good to see you. Thanks so much for
joining us. So let's just start with a reality check. Are things improving? I mean I heard that inventory was starting to beef up a little bit, So are you seeing some pockets of improvement?
You know, it's interesting. Good morning, so nice to see you as well. Thanks for having me. I think we see a step forward and then a step back. And I would describe our housing market at least through the summer, it's very frustrating people buyers and sellers couldn't get on the same page. You know, for buyers things have become unaffordable. Rates are too high. Sellers aren't budging on their prices. They're taking their homes off the market. So there's been
a little bit of that, and it's gradual. You know, we definitely performed better this year than we did last year. It's a better housing market. But having said that, it's it's going to take a little bit of time. And I know that everybody's expecting or thinking that the FED is going to cut the FED fund rate in September. Maybe we'll have to see how the jobs report comes out. But you know, even that, you know, I don't know that's going to have a dramatic impact.
It's going to take time for us to come.
To a better place where we see supply and demand intersecting. That's a healthy market, and we don't really have that best.
I have to tell you, I've been kind of caught in the middle of all this. I mean, I was trying to find a home. I've been out bid by like one hundred and seventy thousand dollars in New Jersey.
I mean, it was rough.
So can you break it down as far as areas of the US right, what areas are are home selling at a faster pace or or maybe what areas have more inventory.
I mean, every real estate market is so local. I'm sorry that you have that experience. I'm still there are areas.
I'll give you an example and market that is completely on fire. There's no inventory and there's bidding wars. Is Upstate New York, Rinebeck. You can't find anything. Whatever comes on, there's a bidding war, similar to what happened to you in New Jersey. Places like Montclair, New Jersey, very popular, a really strong market, and you know, people get discouraged when they walk in they see twenty people there waiting, and then they know there's going to be multiple bids
and rates are higher. Price is now going to be higher, and so you know, that's very tough. But that's more the exception to the rule. Palm Beach is similar, but other places like New York is a pretty steady market. In New York City right now, the market has been decent, not great. The rental market really strong. That's all I hear about is people cannot afford to rent in New York. There's no vacancies. So it really depends on what's going
on with supply and demand in the market. Like in Connecticut, for example, also really strong demand and lack of supply, and so that's starting.
We're starting to see more inventory come on and so that's a good thing.
And so hopefully if we get a little bit of if rates come down a little bit they have come down a little bit, that might inspire more buyers to get into the market. But it's gonna it's tough. I'm sorry that you had that experience. You know, in due time, something will come on that you love and you will find it and you will bid on it.
Bess.
I want your thoughts on a trend we're continuing to see grow, and that is corporations backed by private equity groups now buying up single family homes. So folks are not only competing against other would be home buyers, they're competing against the big guns, these institutional investors. I saw this one report from MetLife Investment Management. Get this, They say investors, institutional investors may control forty percent of the
single family rental home market by twenty thirty. How's the little guys supposed to compete with that?
That's really hard. I don't know.
And we are and we have housing shortage in the United States.
You know, we're we need to build.
We need four million homes here, So I don't know, that's not a good sign. Because people find that they can't afford rent, they can't afford to buy, and so we need to figure out ways to work together with our state and local officials to make rules and legislation that makes sense so that people can afford to buy and can afford to rent.
And so yeah, the little guy matters.
We have to make sure that everyday people can afford to pursue their dream, which is to buy a home or to rent the home, whatever it is. It's really important and we've lost a little bit of that in the last five years, and I would love to see that switch direction. I'm happy to be part of those discussions.
And best in the last minute we have here. How are the builders doing? I mean, how is the sentiment among the builders or building these homes?
You know, it's a great question and it depends, you know. I'll give you a real example. A few months ago, as working friend of mine, builder developer New York City, was looking at a site, very excited. He wanted to buy the site to develop it. And then the primary came out and it looks like and whether your politics are I don't care, but it looks so potentially Mom Donnie might win in New York.
It's a possibility.
And so he got squee mission backed away from it, and so but another developer came in and ended up buying the site.
It just really depends.
People are very emotional when it comes to these things, and it depends how they feel. If they think the market's going to be good or strong, they'll invest.
And builders are the same. It's pencils down. If they think.
Legislation is sloppy and not helpful and not giving them incentives, they're not going to continue to build.
So it's such a nuanced story.
So we're seeing some builders do things, some stay on the sidelines right now.
This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Yeah