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 through Dell.
Let's dig a little deeper into this guidance that the company offered. I'd say it's more than guidance, is it.
It's kind of a I don't know, kind of a long term vision, a little bit.
Of yes, where business is going exactly, and you know, in the tech industry, to be able to kind of project out that far as pretty notable. Let's bring in Ed Ludlow, who is our b Tech co anchor based in San Francisco, and Ed, one thing that I noticed about Dell is that this is another legacy tech company that's getting a big boost here from the whole AI play, and Dell is doing that through its AI servers, but it still has another part of its conventional business that is holding up at.
Least Yeah exactly.
I mean, you guys make really good points about is this guidance or more it's kind of like a reset on Dell's position in the AI market. It's another example of like, well, if we're all sort of very hyped up about data center builds out and in videos getting all of this love, and we're very focused on energy,
then why do we not talk more about Dell. If you build a data center, whether that is hyper scale or it's an on premises smaller facility that any given sort of software company operates themselves, Dell is likely to play a part. You know, they assemble servers that needs to happen. You don't just sort of put all the chips and a pile on the floor. And so it's taken a while for investors to kind of give Dell
credit for that. A part of the reason being that because this buildout of infrastructure is so fast, Dell's margins on the AI server business have really suffered because you have to spend money to move quickly. And a big part of the guidance they gave us through the fiscal thirties that that profit picture for the AI server business is really going to improve, and as you say, the core business, which is kind of PC as well, is supporting them do that.
In the interim, Dell stock is up two and a half percent today, it's today fifty two week high.
Today, it's up thirty percent year to dat.
It's not an all time high that was back in twenty twenty four, but it's certainly gone in the right direction here. So, ed, how does the company position itself as an AI player? Are they playing that up or are they saying, hey, we're in a good position. How are they kind of positioning their company as.
A yeah my story.
So right now in New York City, all of the executives are on a stage talking about bigging themselves up, and the main argument that they're making is that on premises part I us talking about. So in the future, Dell argues eighty five percent of all enterprises are going to have some form of on prem footprint themselves, and Dell, which has a rich history of selling to businesses of small and large and the public sector, is best position
to participate in that. And the idea, right is that this all started with the hyperscalers, the cloud computing companies and their capital expenditures. But the ripple effect is that we're now seeing smaller companies in software in particular, justified budgets to spend on their own technology because they see a return on the other side, literally revenues driven by AI.
So that's what Dell's argument is here. You know, you guys, the story is that through twenty thirty, they've basically almost doubled their forecast for the top and bottom line five to seven to nine percent top line growth and adjusted EPs growth of around fifteen percent. And a big part of that story is just more people doing business with them.
So one thing that stuck out to me Ed is the comments from the CEO, Jeff Clark, saying we were all wrong about how big we thought the AI market was two years ago, and it's nothing but bigger. Does do have a reputation as being conservative when kind of guiding along its its vision or is this some a company that usually nails it in terms of its forecasts?
You know, like, I don't know, conservative is fair? I mean, like you have to assess the business that they're doing in the here and now and the pipeline of business that they say has to come. And so like Dina Bassar College did a really good job of explaining that in the quarter, there is the sales that they've had committed to them. They booked five point six billion dollars
of new AI server business in the quarter. They shipped eight point two billion dollars worth of business in the quarter, so like actual sales, and then in the future they have a backlog of twelve billion. It's not that new an idea that there's a pipeline of business. It takes time to assemble servers, you know, ship them out onto location. The thing that they need to justify is like, what's the value add that they do. So I told you
earlier in this segment they say margins will improve. The thing is that all they're really doing is assembling something. They're not sort of contributing some amazing technology. That's what Nvidio is doing.
Stay with us. More from 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.
App Lovin stocks up.
That's despite the fact that the app love and this company's being probe by the SEC over its data collection practices.
I don't know how to play that.
I know the stock is the best performing NAZAC member in the second half of this year, up seventy nine percent.
Okay, I have to start with the pro We're going to go to Nathan A Do Bloomberg Intelligence tech anlogy research analysts.
Nathan, I don't know a lot about this company.
Tell our viewers and our listeners about app love and number one and number two?
What is this?
Let's the SEC interested in?
So essentially Applevin is in the business of helping advertisers or helping rather owners of apps primary apps on the iOS devices on Android, Helping publishers sell at space inside of their apps to potential advertisers, meaning that help app app owners advertise, you know, make money off of selling at space to advertisers, whether that be brands or another game potentially, and Applevin typically charges a fee in mediating
that transactions. So going on to the SEC prop or potential SEC proprather because nothing is confirmed as of now. SEC allegedly is looking into its data collection practices. And you know, there was a couple of links made to short salary reports that surfers back in February, and that was also around the company business practices, particularly in its
inflation of app installation numbers. And actually, you know, in addition to this SEC probe or potential SEC probe, rather, there was a class action lawsuit file in March and it's it's it could advance a trial, according to our litigation analyst, Matthew based in Washington, d C. And so that is another that's actually it could be the bigger fish fish to fry for able in addition to, you know, alongside this SEC probe. From from my point of view.
Okay, so there's negative catalysts for sure for this company. Yet as what points out, the stock is rising today. Is this because Apple love it is a meme stock.
Well, I don't know about Eplepin being a meme stock, but I mean, the certainly haven't made up all of the losses that we saw yesterday. The stock was down fourteen fifteen percent in one day, and then you've made up partially that in today's gains. And because the SEC probe is not confirmed, and typically the biggest risk from
this potential SEC probe is a penalty. And if we look at SEC's published report for its fiscal twenty twenty four, the heaviest fine was one hundred million Meanwhile, Aplevin at the moment is pumping pumping out two billion in pre cash flow every year. So I think the SEC risk alone is it wouldn't make much of a financial impact
to Aplevin per se, you know. But the bigger risk that we're watching here is definitely that potential class action lawsuit because our analyst Matthew estimate that that could be seven hundred and fifty million in fine if that, you know, if that goes to trials and Ablevin couldn't win a motion to dismiss in the next couple of months.
So yeah, Nathan, what does has a company responded at all or talked about this?
Is this issue?
So the only allegations that the company denied was the allegations from the shortsellers back in February. The company has not outwardly denied the allegations or the potential allegations rather from the late SEC probe. So that's where we stand right now.
Stay with us. More from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Coarclay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
All right, I'm thinking Constellation brands. You think in Corona Beer, Modella beer, Pacifico beer that got some wines stocks down thirty five percent here to date, and I'm thinking it has to do with the crackdown on.
The immigration tariffs as well and those brands.
So I'm thinking of all that kind of kind of just kind of weighing down on the stock.
Let's checking in with Ken Chay.
He's the senior consumer products analyst for Bloomberg Intelligence. Can talk to us about Constellation brands. What's weighing on the stock, what's the company doing about it?
Yeah, Hi, Paul and Scarlet. Well, you mentioned two of the factors right there. It's definitely a slow beer market. Tariffs are playing a role, and also some of the crackdown, you know, the ice has had in inner community is hurting the Hispanic community and their socialization trends. All these
things have been a factor for the last couple of quarters. Today, the company said that their beer volumes were not quite as poor as a lot of street anamals expected today, but the pressures are still on and they're very real for this company, and that's because they're they're suite of products as you mentioned Corona Medello, these off these command high price points about twice the level of a popular beer.
So in times where consumers are pulling back a little cautious about expenditures, I remember, you know, you've had high inflationary pricing in this category for the last few years. These brands aren't doing so well right now, and then compounding that with some of the factors that I mentioned and some longer term issues like cannabis substitution things we talked about GLP one user not drinking as much, moderation among gen Z. All these things are weighing of a company here right now.
Yeah, I'm super interested in what you said about the last part, Like the structural changes in consumer tastes, especially from gen Z younger people overall, beers just not where people want to be spending their money necessarily.
That seems to be the case. You know, it's been around a long time. It's one hundred and fifteen billion dollar market that is growing very slowly. It's essentially flat. In fact, volumes are expected to be down low single digit this year, So clearly it's a very mature category. And what we've seen in over the last few years
is consumers just want different tastes. You know, you have a proliferation of the ray to drink cocktails, you know, like truly and white clothes and more sophisticated you know, Margarita's in a can and so on faster a lot of the consumer who wants tastes experimentation are going And then you have other more mundane factors like just you know, calorie more conscious, conscientious, calorie counts and all these things are just weighing on this very very mature industry.
So somebody like Constellation Brands, did they go out and look to maybe buy some of these brands or verticals that within the spirit's business may be growing.
Well, they've had a kind of a mixed history of m and A over the last few years. I'll put it up me kind and say that way not really. You know, they're downsizing their wine and spirit segment and try to shift it to more of a high end mix, which I think they're having success with. But what that does is it may their beer business even that much more important. It's now about eighty five percent of their sales,
so as beer goes. I mean, the company has really good brands and a lot of brand loyalty there, but again there's not a lot of wiggle room there.
So, so with beer becoming less popular, and you mentioned other big trends like ozebic, weight loss, drugs, and greater cannabis use, what is Constellation doing about non alcoholic beverages.
So they've rolled out a non alcoholic corona brand. They've come out a couple of years ago. They came out with a low calorie brand called Medelo Oro, a corona no alcohol I think I mentioned. So those two brands, while they're relatively small, they see, you know, a lot of opportunity that's on trend with what you said, so you know they're doing that. They're also modifying some of
their portfolio for more taste. There's the consumers that want a lot of taste are coming out with you know, a fruity surveysa and so they're doing as much as they can to stay on trend with consumers.
I love myself a great fruit beer. Yeah there's a German great fruit beer that I really like.
Yeah, tastes good.
So this talk to U about this legal cannabis and obesity, drugs and the impact that's having on kind of the beer business, the spirits business overall. Can is that something that a lot of your companies are calling out.
Yes, As a matter of fact, Paul, yesterday we came out with our BI came out with our fourth annual consumer survey on beverage preferences, and again we see that consumers are substituting cannabis for alcohol. Of consumers that do partake in cannabis, now more than half have substituted for alcohol at least once a week, and that's up from forty six percent last year. So that's a trend that
just keeps moving. Now you're seeing a lot of these cannabis companies coming out with THC products beverages that are sold in mainstream liquor stores. You know, traditional cannabis, legal cannabis sold in dispensaries, It was not really a big hit. But now that some of these federally legal HEMP based THC products beverages are sold in liquor stores right next to the beer rile in about half the states of the country, that's really chipping away also at beer consumption.
A final question to you, Ken, what about return of cash to shareholders. I'm looking at the dividend yield about two point nine percent if you're being generous. Is consulation brands still able to make good on its dividends continue buying back its chairs.
Yeah, that's an important point, Scarlett. Yes, they can despite the pressure on sales. Believe it or not, the operating margins the Constellation generates are best in class. They're about twice that of other alcoholic beverage companies in general. So they have strong cash flows. As a matter of fact, they're winding down construction of a brewery right now. Over the over the next couple of years, you're going to
see free cash flow likely rising. So it's high in rising and that's enabling them to continue to meet their commitments to share share buybacks and dividends.
Stay with us. More from 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.
Let's switch gears and take a look at some of the hardware companies or I should say software companies. Once upon a time it was hardware, and I'm talking about IBM. It's a legacy tech company and it is the latest legacy tech company to partner up with an AI startup. Arog Rana is tech analysts here at Bloomberg Intelligence on an rog hear this fancy announcement about IBM inking a partnership with Anthropic to integrate this Claud family of large
language models into certain IBM software. What I noticed is that there's no Toller amount mentioned at all. So how do you evaluate this partnership versus other tie ups.
See, when you come to a company like IBM, I think they have done a very good job of being open and partnering with other vendors. I think the acquisition of red Hat was the first such example a few years ago. And frankly speaking, the company has turned around quite a bit. Now it's more of a software company
than it is a service order hardware company. So when you look at today's announcements, IBM still has a lot of footprint in legacy companies and their internal infrastructure, whether that's a regulated entity, whether that's an on premise software. What they're basically doing saying is for these companies who want to add more AI capabilities into their infrastructure, we're going to use one of the best models that's out there,
and that's Anthropic. They're not just so depending on IBM's own internal models, but you know, we see more and more of that happening that companies like IBM and other services companies will go out and partner with you know, anthropic, with open AI which M and I and give more enterprise capabilities to to vendors, to companies.
Basically, how does anthropic differ from a open AI if at all.
It's a very good question, Pauland right now what we're seeing is entropping is pushing more and more stuff on the corporate side or the enterprise side, on open AI side. You know, their code business is still chat GPT, which is the app, and that's more of a consumer app right now. And the question is you know which one of the models will somebody use, Whether if you are let's say a JP Morgan or a City Corp, you know you'll be going to be using one of their
models or an open source model. I think they're going to be using all of the models. What entthropic relationship with IBM, does it actually helps them to spread the word out across their entire customer base. So if you are trying to get more coding done, for example, in an IT department, and you have all the legacy products that they're now you can use you know, an AI model from Nthropic rather than using you know, whatterver tools you had before.
Okay, So it makes sense why Anthropic is a good fit for IBM or how it's going to incorporate Anthropic into IT software. But what does IBM specifically offer Anthropic? What access does IBM have that Anthropic wants and needs.
That's another excellent question. And in this case you're looking at IBM's entire customer base. IBM has a very large services business or IBM consulting. These consultants will go out and sell Anthropic software into the enterprises and say, hey, bank, let me help you to you know, automate this particular process and you can use it with this software. It drives their consulting business and it also helps out their software business, which is fairly popular right.
Now, IBM hitting all time high here today on a rug. This stock has found a new life, has it?
Absolutely? And this is something that we've been saying it for almost five years now that you know, the acquisition of red Hat completely changed it. You know, if you go back and look at some of the comments we've made on TV about IBM. Prior to red Hat, it was a very closed company. It only wanted to sell their own products to people and was not very keen on embracing you know, what I would say is open source.
With the acquisition of red Hat and the company saying, you know what, red Hat can work with any cloud provider, I think that was the biggest difference to me was it allowed red Hat to work with companies but based on Amazon Web Services or Microsoft, so they were not just pushing their own cloud products, and I think that
really made a difference. Their software business has been doing so well comparatively to the rest of the world, and I think that's where you see the market validation that this is the right strategy for them.
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