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The big earning story of the day is in Vidia put out a really, really solid number but being caught up in the downdraft. Continued downdraft selling of technology, in particular software kind of AI themed names more specifically Kunjan Sobani. He is the senior analyst covering the semiconductor companies for Bloomberg Intelligence. He's based out in our San Francisco office. I'm just reading your research note here. Give us a sense of how you think the quarter went for Nvidia.
Yeah, this was one of the more stronger quarter showings if you look at the last four quarters. The one Q guide is the next quarter guide blew off most of the high bar of the byside bogies that we think the buyside was at. There was really nothing negative to find, even if we go through a fine core in this quarter and print, there were a couple of positives that we really liked. One is the revenues from their customers outside of the top five CSP and hyper
scales grew actually faster than those five customers. When we look at the whole PHISS last fiscal year, that group grew almost close to the top five. So all the focus always goes to the top five, but this really speaks to the breadth and the quality and the diversification of demand for n media products, which is a good robust side. Second thing we really liked is networking. So if we look at the four Q numbers, majority of
the beat in data center was coming from networking. Their networking attached continues to get stronger and honestly surpassing expectations of what investors have or the networking division. And the final thing we really liked was the gross margins. We all are aware of the rising memory cost, the rising
way for the rising substrate cost. Despite all of these costs, which the company does not pass through to its customers, so sort of in a way eats that cost, they're able to maintain this ridiculously high software level gross margins for a hardware company.
What about growth and other segments like automotive or edge computing? How important are those when it comes to the company's long term earnings profile.
I don't think right now anyonus focus on those when you look at the scale, I mean, majority of the revenues coming from the data center, right, so they don't
really move a needle a lot. Automotive, however, will become very critical when you think about the next three to five years, because once we get to the stage where we have a massive deployment of L three plus L four plus automobiles on the road, not just in the US, but also in China, this is where you know, this could bring in tens of billions of dollars of revenue for for Nvidia.
So what are we How should we think about China here? Because I can't keep track. I don't know what chip's allowed in, not allowed in, how long it will be allowed in. Is the company just saying we're just going to step back until we get greater clarity.
Yeah, And that's not just with Nvidia, it's with all a chip makers. Right now, I mean for the last I guess twelve two to three quarters, nobody's been able to ship to China right, so on there's two factors, A US allowing them to chip to China and then also once that happens, will China accept these chips or not? So until that issue is completely resolved, the street has
taken out numbers. Companies have taken out those numbers. They're just not talking and you know, not thinking about that right now.
So it's been a blowout quarter. Any risk that investors should be watching that might effect grows and margins in the next quarters.
Nothing specific to the company. What has really been hampering the sentiment is this overall AI for TIG. I mean, look, on one hand, the top customers who are announcing these big capex raises are getting punished because they're spending too much, right, So you can't have it both ways. Where the same investors who don't like this spending too much from the customers and Vidia is getting rewarded because of high capex
spend will also keep on getting rewarded. So there is this AI fatigue that how long can you keep on increasing this spend and what happens next year? Every year when these numbers go up, a question comes about, well can you keep going making them go up again next year? No?
No, I'm looking at the chip stocks, Kunjohn, your list is looking really good here Advanced micro Devices and Intel both up ninety percent and Vidia forty percent all on trailing twelve month basis. Are tech investors software investors? Are they hining out in you? Chip names?
Well, chip names definitely are doing better from a sector perspective overall in the tech and for the obvious reasons. When you now look at the EPs growth prospects, the revenue growth prospects, right, A significant big portion of now that in the next two to three years is definitely coming to the chip name. So fundamentally a good spot to be in.
I would say, what's the uh, what's the the next play here for the chip space? Here? Is it simply iterating, iterating, iterating, iterating on new chips and that drives the longer term revenue Outlook.
Yeah, exactly what you said. Look, when we think about the markets where AI has already proliferated, which is really data centers, is just keeping up, you know, iterating to make the compute more efficient, so we can reach the stage where all this AI capex spending is no longer a concern because the customers are able to monetize from that. The second big wave will come from markets where AI has not yet prolifitted. So think of your edge device,
your smartphones, your PCs, think of your automotive vehicles. Right, So this will be the new vectors of secular growth for the chip names where if AI proliferates faster here they can start collecting a lot more revenue.
So just very quickly. How confident are you that this demand will remain strong so at twenty twenty six and beyond.
So from the visibility that the Nvidia and its peers have announced, it definitely looks like for the chip guys at least until first half twenty twenty seven, is sort of locked in and pretty safe unless something major macro or geopolitical event doesn't happen beyond you know, starting second half twenty seven. We don't have a lot of risk modeled in, but that is something we cannot say, but for sure that it's locked in already.
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We are fortunate here at Bloomberg to speak. Some of the really the smartest people out there in the marketplace are our next guest certainly qualify. It's been so kind to give us time over the years to help us get up. You know what's going on in the world of technology, and that's Genemunster, Managing partner for Deepwater Asset Management. Gene, let's just start with I guess the topic of the day, which is in Vidia. You know, I know you tech guys look for the beaten raised type of thing, and
I think that's what we got here. What do you make in Vidia's report, Gene.
Well, there's like three orbits here, Paul. There's the reaction the report, the reaction to the report, there's the fundamentals. Then there's kind of the AI trade. So there are three different orbits. And maybe specifically on the stock being down, we'll call it five percent today on what objectively was better than the whisper numbers, and some want to zero in on what the key whisper was. That was revenue growth for the April quarter. The street was in print
at sixty four percent. The whisper was that they were going to guide to around seventy percent, and they guided to seventy nine percent. It's the high end of their range. And so if you put the together, that's kind of why you got that first like up three percent kind of reaction when the when initially the numbers hit, the guidance hit, and so, like you said, it's about beating rays, beating the whispers specifically. So how do you make sense if that is in fact the case? How do you
make sense of what the stock is doing? And I think part of it comes down to there is this broader narrative just around this company is just getting too big. There is also the piece that some of this, like I mentioned, is that the whisper number was higher than the imprint numbers. Shares of Nvidia since we saw Google and Amazon ramp up their capex commentary three weeks ago, Shares Nvidia, even with the sell off today are up about eight percent now. That compares to the Nasdaq which
is up about two percent. So essentially some of this was priced in even though they beat the numbers. I
think that's really some important context. But if I may just kind of even zoom back even further and look at the broader narrative around in Nvidia is since October twenty eighth, that's when Meta shares got hit because of their big CAPPAX guide and kind of change the narrative in terms of how investors think about AI infrastructure since October twenty eighth, and the NASAQ is down about four percent and shares of Nvidia are down ten percent, even
though the numbers have gone up, call it thirty percent since then. And so what you're really seeing here is this continued skepticism that investors have specifically about the sustainability of the trade. And I don't think it's any commentary about the strength of the fundamentals, but I think that's what we're seeing with the share price reaction this morning.
I think it's also because Nvidia has a huge mote in training because if it's GPU, but when it comes to inference, not so much. And I feel like that's where AMD is a competitor and Broadcom with its custom chips, and maybe that's where the disappointment came from, at least when we're seeing this morning, well you.
Know this that all plays in to this longer narrative, which had less to do about what was said on the call last night and so what you're tapping into is as inference, and I just want to quickly frame in inference for those listeners who may not be as familiar with that. A lot of the AI infrastructure spend, of course, has been related to training. The inference piece is that's really the substance of what AI is. Think
of AI's inference inferences. Thinking that piece is there's debates about what are the most what are the optimal chips, the optimal GPUs you need for that. And my sense is that as part of the conversation, I think in video is going to be in a great place. I suspect that they're going to grow and count, So I
think inference is going to be huge opportunity. I want to just quickly frame in how big inference is that you can have multiple winners here if you look at the size of inference, Jensen talks about being potentially a thousand times bigger than what traditional compute is. What we're seeing in our own use of AI internally is we're seeing tens of thousands of times more use of tokens
when it comes to inference. And so inference is this scary topic because for some Nvidia investors because this competitive dynamic comes up. Do you need less power chips? But the reality is the amount of chips still, the amount of AI infrastructure that's going to be needed to power this over the next decade, I think is being grossly underestimated by investors.
Gene, you've been covering this technology industry for decades. You've seen everything. I want to ask you, based upon your experience, how do you think about what's happening in the software side of the business right now? Stock selling off, particularly the software is a service stocks like a software Salesforce dot Com Really under the guys that wait, AI is going to really disrupt this software business. How do you put that into context for people?
So I think that for those who are reading the headlines and looking at the stock reaction to these earnings, I think kind of the substance of what's going on underneath the hood is being missed. It's really hard for I think that audience to really grasp the improvement that
these models have had over the past three months. Of course, open claw and claud code claw work are kind of the signature products that have caused some of that breakthrough, But that change has had what I think is going to have a profound impact on software, and the way we've been investing around it is we've lowered our exposure to seat based software companies because ultimately, if this is right, that knowledge work is going to be impacted, there will
be less seats out there. AI agents don't purchase seats, and separately that the usage based models. So we're still holders of companies like data Dog and Snowflake, and so those models I think are going to do well. So, Paul, the answer is is that software is at a profound crossroad. And I don't think that all software has created equal I think the usage based models, but I would say that software needs to do something that we still haven't seen,
even with the Salesforce results last night. We need to see these software companies stand up and basically punch back at AI. They haven't done that. That's exactly what Google did in the June quarter last year when they showed that they can use generative AI to their advantage and search. They really short circuited that negative narrative. And until software companies can say, look at our seat growth moving higher, look at how our RPU is per user is improving,
until they really have that flex that stand up. I think that this narrative, this negative narrative around software is going to persist.
Gene, Thank you so much yet again. Gene Mounster, Managing partner, Deepwater Asset Management. He was one of the first folks that kind of got helped me understand what AI is, and now I kind of get a little bit of a better understanding of what the potential threat for software can be when you think about the seat licenses and that could be a weakness for some of that revenue model. There. Stay with us. More from Bloomberg Intelligence coming up after this.
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For months, we've been talking about the potential sale of Warner Brothers Discovery, either to Netflix or to Paramount Skydance, and we're going to get the latest on that because there has been some movement, but these two companies actually reported results and let's get the latest. There Etherrong Andath and she's the media analyst of Bloomberg Intelligence. Ether will get the deal update in a minute, but just give us a sense of how these two companies are performing on their own.
I mean, I think you've summed it up perfectly, Paul. You know, you said it's a good thing that Warner Brothers Discovery is being sold, and that's absolutely right. I mean, you look at the TV network's division. This has been the problematic division for all of these media companies. TV networks. Ibada slumped something like twenty seven percent in the fourth quarter. You look at the whole of twenty twenty five, you know, Ibada for that segment is down twenty one percent. Writing
is on the wall. I mean, this is why this company is up for sale. It's very clear. And you know, I think really what everybody is going to be worried about is what is the outlook should the spin happen, Should Discovery Global be spun out into a separate company, What really is the outlook for the TV network business? And again we saw kind of very similar results with
Paramount as well. Yes, they're making, you know, the best of what they can, but again the fundamentals themselves are pretty weak.
Across the board.
Management also flagged the multi billion dollar efficiency program. How should investors think about the trade offs between short term cost and long term profitability for these initiatives.
Yeah, this is what we've always been worried about. I mean, we've seen, you know, this story play out multiple times Isabelle in all of these media companies, and yes, there's always synergies and there's always efficiencies to be extracted, but it does come at the expense of long term growth.
We've seen that with Warner Brothers Discovery. You know, they came out with very aggressive synergy targets and yes, they were able to deliver on a lot of those, but then it did kind of hamper their growth prospects, especially you know in the TV networks business, where we've seen a significant deterioration in the fundamentals in the outlook. So that is always there's you know, it's a very very tricky balancing act. There's a very you know, they have
to walk this really this tie trope. Again. The whole deal with Warner Brothers Discovery for Paramount is predicated on something like about six to eight billion dollars in synergies. So you know, we'll we'll see how all of that plays out. But Yeah, it's going to be a tough road ahead regardless of whether they win or they don't.
What is the update on the deal mechanics, ETHA, Where are we right now?
Yeah, So it was really interesting policy. In Paramount's earnings release yesterday, they said that, you know, there's a good chance of the Paramount thirty one dollars per share offer for all of Warner Brothers Discovery being deemed a superior proposal. And we've seen of Paramount rally a little bit on that. We've also seen actually Netflix rally on that. I think investors are becoming more and more comfortable with Netflix kind
of walking away from this deal. So again, a lot to play out here, But there hasn't been any official word just yet from the Warner Brothers Discovery board about whether, you know, the Paramount proposal is in fact superior.
It seems like it's still a story that we're going to be following closely. Paramount also offered modest revenue growth targets for twenty twenty six. What key drivers do you think will determine whether the company meets that outlook or exceeds that outlook or even surprise investors perhaps.
I mean, so the organic growth outlook Isabelle. Yes, they're trying to do their best. Remember they did you know this is this is also a merged company paramount. You know, they just recently acquired sky Dance, so they're trying to do the best with you know, those new film assets. But again, you know, if you just kind of look at it across the board, you know, in the context of the entire media landscape, it's still a very very
subscale company. Whether we're looking at streaming numbers you know, about eighty million subscribers versus almost three hundred and twenty three hundred and thirty million for Netflix, or whether you're looking at the film business or even the TV business. Everything is fairly subscale. So they definitely need some kind of an m and a strategy. Obviously, Warner would be perfect if it happens. If it doesn't, we'll have to
wait and watch. But you know, they're doing their best that they can from an organic growth perspective, I just don't think it's going to be enough.
Do you think Netflix will walk away? That would be pretty bold.
They should, you know, collect they should collect the collected to almost three billion dollars in termination fear. I mean, this is really I mean, you know, you think about this PALL in the long term. Yes, it's a great asset to have, there's no doubt about it. But there's it also comes with a tremendous amount of risk, not to mention the biggest one being regulatory. So that's going to be a big, big overhang, you know, for the next twelve to eighteen months, and and of course after
that you have integration execution risks. So it's by no means is it going to be you know, a Rosie path ahead. I actually think Netflix will be better off on its own.
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We are here in York City at the Bloomberg Interactive Brokers Studio, streaming live on YouTube as well. Earning season well in gear here and that includes Magna International Chicker MGA. Magna is one of the world's largest automotive suppliers headquartered in Ontario, Canada. Joining us today is Swami Kota Geary, CEO of Magna International. Swami, thanks so much for joining
us here. I know you guys recently released earnings. What can you tell us about your earnings that you just released, maybe your outlook that you shared with your investors.
Good morning, Paul, Thanks for having me. You know, we finished really the fourth quarter was strong, helped us finish the year twenty twenty five in a strong way, setting us up really good for twenty twenty six. We delivered, you know, good cash flow. We hit the margin range of five point six percent in EBIT that we talked about, which set us up really good for twenty twenty six. We are forecasting an EBIT range of six to six point six. We are confident in the cash flow generation
and actually converting the earnings to cash. So we gave a clear indication that we're going to be returning value to the shareholders in the form of repurchase of twenty four million shares in twenty twenty six, and all this in a flat wallume as you see in our automotive industry, that is the result of operational excellence and capital allocation discipline.
We have been doing this for the last three years thirty five to forty BIPs annually, So if you take twenty twenty six into account, this is the fourth year running and our total margin expansion would adapt to about two hundred basis points. So all in all, we feel pretty good. It is a structural change in the operating methodology and how we set our cost basis to the reality of the industry today. So all in all, we feel pretty good about twenty six.
With global auto production expected to stay flat, how realistic is a midteen's profit growth this year?
Yeah, I think, Like I said, the key of the margin expansion has been operational excellence from our site. It is actually controlling the control of as we said. And on top of that, we are going through digitization process where eighty percent of the plants are online on a unified platform, which gives real good operational visibility for us, looking at every little detail, how the lines are running,
what are the stoppages, how is the material flowing? Every penny counts, So all of this is what has helped us add the margin expansion in the last three years, and we have good visibility, not just for this year. We believe it's still early innings. Going into next year. So time part really was you know, working through the inflation, right it started in twenty twenty two, and we have started coding jobs in twenty two, twenty three, twenty four
with new economic terms. The new programs are rolling in. So a combination of self help and new economic terms is what gives the you know, incremental margins that we're talking about.
Swami talked to us about terrors, how they have impacted your company, what changes you have made, or what to deal with the tariff situation.
So to samitap last year we had roughly ten basis points of impact. The actual tariff impact was somewhere in the range of one hundred and seventy million for the nine months because you know, it started in April. First. We have been able to mitigate, you know, with some of our own actions, working with our customers and then staying USMCA compliant, increasing the USMCA compliance going forward. So all in all, in twenty twenty six, we believe it
will be in the same range. The annual impact given everything as we know today stays it's about two hundred million or so. But we believe we can mitigate, continue to work with our customers and so on and so forth. So the net impact still would be in the range of twenty five to thirty million this year.
How much of the growth would come from higher content per vehicle, especially as Detroit, for example, shifts towards larger pickups and SUVs.
Yeah, I think part of the margin increments that you're seeing is the mix and the new programs coming in and the change in content per vehicle. But a good point to note might be we have been doing this for the last twenty years. The growth over market has been about We've been growing about four percent a year. If you look at a ten year period. For the last five years, we've been growing at twenty half percent. So all in all, we continue to grow in low
single digits. I would say if you take a longer period of time, one data point which will help you give context. Twenty years ago, Magna was a twenty billion dollar company and North America was producing fifteen million units in production today roughly the same production as you know, fifteen to fifteen and a half, and we are a forty billion dollar company, right, So all this came through diversifying our customer base and increasing our content per.
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