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Meta platforms in talks to spend billions on Google's AI chip, suggesting that the search giant Google has made the case that it can rival in Vidia as a leader in artificial intelligence technology. Let's check in with an expert who's got an opinion there, Mandeep Singh, Senior tech analyst for Bloomberg Intelligence. Mandy, what are you making this news with
Meta investing and spending money on Google's AI chips? What does that mean for the space and you know, Nvidia in particular, because we're seeing some big moves in the stock market today.
Look, I mean, we know CAPEX numbers are going up, not just next year, probably through twenty twenty eight, because Meta has given some sort of a three year forecast. In fact, Mark Zuckerbert has mentioned that you know, they plan to spend up to six hundred billion dollars in capex through twenty twenty eight. So when you are spending such big sums, you don't want to be dependent on one supplier, and in this case, Nvidia still has the best chips. They probably have a virtual monopoly when it
comes to the training. But on the infrincing side, I think everyone, especially among the hyperscalers who don't have their own chips, are looking to diversify. And I think I'm very surprised that Meta is looking to buy something from Google, given they compete, you know, so furiously on the digital ad side. But that's really a reflection of the changing tech stack and how these companies are evolving with AI.
What is it about Alphabet and Google that we did not realize that they're making so much progress on their own chips, these TPUs tensor processing units. It does feel like it's kind of come from out of nowhere. I know, folks in the tech industry know that Google has been working on this for a while, but if you were just following along, it feels like Nvidia had this locked up and then all of a sudden it's a little bit more open.
Yeah.
I mean, Google is in the seventh generation of their TPUs, so clearly they have been working at this for a while, which is the reason why the TPU has been able to catch up to mvd's GPU in terms of performance. But to your point, look, the Gemini model was not comparable to open Ai and Entropics leadings models up until the last six months. So that is what has changed that Gemini as a standalone model has been able to match up to you know, open Ai, whether it's in
terms of chat, doot functionality, image generation, video generation. They are a state of the art model. Maybe in terms of holding agents they still trail. Entropics and Thropic release a new version yesterday and they still claim that their
models are better than Gemini. But if you are looking for a state of the art model and the lowest cost in terms of tokens, Gemini is your best better And which is what Meta is realizing that yes, they could use the low cost that Google has in terms of running their infrastructure and use it to their advantage in terms of how they are looking to deploy Jenni on their family of facts.
So, Mandy, you can you give us a sense of the competitive landscape today for Nvidia. We know, I guess now we have a better appreciation for Google as a competitors.
Laid out for us and how you think it might play out.
I mean, the one metric that Nvidia shared on their latest earnings call was their content per gigawatt is going to grow over the next few years. And the reason they said is because they generate the most tokens for what now, for one gigawad, Jensen said they'll have up to thirty to thirty five billion dollars of Nvidia chips being purchased. Think about it. You know, if a one gigawat costs fifty billion, any company is spending thirty to
thirty five billion. And all these companies like open Ai has talked about adding up to twenty six gigawatts in capacity. That really translates into huge revenue for Nvidia just from one hyper scaler. And that's what I think Meta if they plan to add ten gigawatts over the next five years, they don't want to be giving Nvidia, you know, three hundred billion dollars just for the chips. They want to diversify and really make sure they're running their infrastructure at
the lowest cost, which is what Google is doing. Google spend ninety billion dollars in CAPEX this year and guess what. They have a cloud business. They have trained their new model, they're doing infrincing at scale. They're serving search and all their family of appso Genii functionality, so they are really it very efficiently. They don't They're not spending to thirty to thirty five billion dollars per gigawatt, and that's what everyone is seeing now in terms of efficiency.
So you do a great job of explaining this from a technical point of view, from the technologies point of view, But for investors who really just understand in video as you know, AI personified or embodied, is this just an opportunity to diversify and not rely so much on Invidia and maybe chase another company whose stairs have not rallied as much.
I think so. I mean, it's very hard to see multiple expansion in a company like Nvidia, which was close to you know, four trillion plus, and I think they're growing very nicely into earnings. They've given a forecast of up to three hundred and thirty billion dollars and revenue
next year, so there is embedded growth in there. But everyone has that scarce from you know, the dot com bubble in terms of paying too much in terms of multiple, and that's where you're seeing people really beingservative in terms of what sort of multiple they pay for a stock. Like en video, Stay with us.
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Let's talk some retailers.
We got some retailers bringing up the rear of earning season as they liked to do. We had Dick spoarding goods, and we had Best Buy. And let's break it all down with Lindsay, Dutch Consumer, Hardline Senior, and also Bloomberg Intelligence joining us from Princeton via that Zoom thing. Let's start with Dick Sporting Goods. They raised their outlook again, but I guess investors are focused on I guess some of the costs trying to turn around foot Locker.
Talk to us about Dick spoorting goods at Lindsay.
Yes, that's right.
The legacy business remained very strong in the third quarter. Strong back to school, clear demand momentum heading into the fourth quarter. That's where the raised outlook came. It was really for the legacy business. But when we look at Footlocker, you know, the deal closed early September. The outlook for the fourth quarter is mid to high single digit same
source sales decline. Dix is also looking to expedite the turnaround there, which means offloading old inventory steep markdowns in that fourth quarter, which is going to really hurt the margin as well. So foot Locker, you know, needs a lot of work. Fourth quarter is going to be weak, and investors are really looking to see how quickly they can turn that business around.
Yeah, and probably they'll need to put some money into it as well to reorganize stores and freshen up the display. How much of this deal Dick's buying foot Locker was predicated on Nike and what it was doing with this shift back to its wholesale channels and away from solely relying on its direct to consumer offerings and its own stores.
The full looker was, I would argue, over exposed to Nike. You know, several years ago they had been working that exposure down. I think Dix will remain focused on being diversified, just given that their own assortment where they're leaning into lots of other brands, new up and coming brands like
Hoka and on. They did discuss though that foot Locker will sort of remain sort of a hub for basketball, and Nike does have a stronghold in the basketball market, so I expect Nike to be, you know, a strong vendor with foot Locker, but Dix is looking to make sure that they have that right assortment, the newest stuff, the hottest lines coming from Nike and others.
What is Dick saying about tariffs in their business, so.
You know, Tara, they are going to feel higher costs, you know, in this back half of the year and even into next year. Dix has since the pandemic, since they've been able to see sort of an increase in demand for their premium assortment. They're not really a huge discounter for the holiday. They like to sell their product fully through, so I don't expect them to sort of discount, and they have taken prices up selectively but certainly not across the board, and their higher income consumer is sort
of accepting those increases. I think Footlocker is a little bit of a different story, and you might see that impact a little bit bigger on that business, just because they don't have those premium products and they're already going to need to offload older inventory with steep discounts. So you sort of have that turnaround compounded with these rising costs heading into the next year. Something for them to work.
On, Lindsay, I also want to ask you about best Buy.
The shares are up about four and a half percent right now, and of course this consumer electronics retailer how to beat and raise quarter. It looks pretty good, and it looks like it's on the usual string sales of mobile phones and sales of computer equipment.
Yeah, so best Buy had a strong third quarter, better as better than expected, as you mentioned. I think, you know, the stock isn't getting a full bump because there is definitely some conservatism and a low guide for the fourth quarter, and investors are trying to figure out, you know, is it just conservatism, are they just worried about the consumer, or is there something really there that there's going to be a slowdown in that fourth quarter. But the business
looks good. Demand looks strong, as you mentioned, computing, phones, gaming all looking solid, and they're also seeing an improvement in home theater, which is really big because that has been a weaker category for the last couple of years. So if that comes to fruition, I definitely think there will be strength in the fourth quarter.
So you think about a best Buy, I mean some of those are big ticket items here, and that would suggest that they're confident. I think they go to a part of the K shaped economy, may me that that is doing better.
Is that a typical best Buy customer?
So best Buy definitely promotions are going to be a big piece of the fourth quarter. They're sort of leaning into those promotional events. That's what worked last year, and I think they're trying to lean into the things that worked last year for this year. And I do think the consumer backshop is quite similar when we do that compare.
I also they also recently launched a marketplace, and they seem to have a stronger focus on marketing and advertising, and so they're really trying to meet the consumer where they are and make sure that best Buy is top of mind when you're shopping for a wide array of things, not just those big ticket items like TVs or appliances.
So they're trying to have a bigger wallet share with consumers across the board, and they're leaning on that marketplace and advertising to do it and then hopefully get you into the store, and that's where they can bring their customer service and experience as well.
Did they say anything or give an a indication on how they're preparing for Black Friday and for the holiday shopping season.
It sounds like very similar to last year. So they started their deals about a week ago. They roll out new deals each week. They are leaning into their paid membership program, so paid members get access to certain deals over the regular shopper. But the playbook looks very very similar, but the demand picture looks better. So hopefully those promo events can really draw that shopper in, especially since everyone's already looking for those items.
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Let's dig into.
Some of the individual companies a little bit more here with Mary Ross Gilbert. She's a senior Equity and that's covering the sector for Bloomberg Intelligence. And Mary, let me start off with Coles because we talk about companies that are gaining market share. Coles lost a lot of market share over the past five six years and it's.
Coming back a bit here. What is its strategy?
Is it just that it's kind of simplified its business model, Garlic.
What's happening here is that they've kind of gone back to the basics. What's something something that Coles has always been known for, So one is their private brand. So if you think about some of the brands like so and Juniors, Lauren Conrad for women, and they brought those brands back because they actually sacrificed some of those brands under the prior leadership and replaced them with some more name brands like Madden Girl, trying to really attract the
junior shopper there. And now that they've brought the private brands back, they brought back petite sizing, which was really important to their customer base. Now they're really starting to see,
you know, a recovery. But they're not out of the woods yet, Scarlett, as you pointed out, I mean, they're really cycling three years of declines, but we are seeing encouraging results and given that they actually turned positive in the latest month, it looks like they could actually reach a break even in the fourth quarter, even though they're guiding to a one point seven percent comp sales decline. So it's very encouraging to see with Coohle's again not
out of the woods. And when you look at what's going on with so for it's now a two billion dollar business and as you were sort of highlighting, that means they really lost you know, over the last four years something like four to five billion in other categories, so they have lost market share. We think they're losing it to off price and some of the value players in the specialty space such as Old Navy, you know, a gap brand.
Stock is up thirty three percent today alone to a huge move up forty nine percent year to date.
So it seems like the market likes what it heard here.
So from a competitive landscape, where does Coles kind of fit in out there? Mary?
So, Paul Coles is really a value player in the department store space, so they're really a notch below Macy's. And they're also located off the mall, which can be an advantage and because they brought in so for as a beauty authority, and beauty is a very big and important and higher margin category for department stores. So that's sorry.
You have to invest in your face.
Somebody once told me, yes, you got to invest in your face. That's exactly right. Well, the idea there is that you're getting a repeat customer, they have to come back and they have to replenish product. But we did see a comp sales decline because that business is matured, it's kind of tracking somewhat close to what the the company is tracking in terms of comp sales. So we
did see a decline in the latest quarterer. So that's they do have a number of initiatives to try to bolster that because of course we're seeing gains with some of their competitors, and we think we'll see that when Macy's goes to report next week.
Right, and of course that's a big one, right in terms of department store chains. We'll be looking for that one, and of course you'll help us break it down when those cross.
Mary.
I also want to ask you about Abercommie Fitch. It was the Darling two years ago because the new CEO found a way to make the brand relevant to a new audience. It was no longer targeting teenage boys, for instance, and really targeting young working women.
But it's had a brutal twenty twenty five.
The shares have fallen, I believe more than fifty percent through Monday's Clothes. A lot of concerns about tariffs perhaps and maybe even a lack of fresh ideas in terms of its offerings. When you look at the stock today, it is soaring up thirty percent on the latest earnings. What's the narrative with Abercommune Fitch right now?
Yeah?
Yeah, so Scarlett with Abercrombie and Fitch, their numbers came in better than expected. So the namesake brand, as you pointed out, I mean that had been double digit increases over the last three years. So they're cycling those increases and that's why their sales are coming in less than expected generally for the whole year and why the stock is down. But this quarter the comp sales declined. There was about three point three percent, so that was better
than expected. And when you look at Hollister, though, Hollister has been coming in ahead of expectations and they've been posting double digit increases. So as you were talking about sort of the millennial women who really love and also the men, but it does tend to favor more of the women on the Abercrombie side on the Hollister side, which really caters to jazz that has been on fire. And so that's what's helping to kind of over come
the weakness that they're seeing at Abercrombie. But also it's looking like Abercrombie could turn positive in the fourth quarter with a number of the initiatives that they have in place going into the holiday quarter, even though they're cycling some pretty strong gains in the prior year and the
year before that. So there's some encouragement there. And I think and then of course you have some short interests, both in that stock and massle in Cohal's, and that's part of the big bounce back that you're seeing this morning, is some of that short covering.
What we're not really talking about, Mary, is tariffs and the impact on these retailers.
What's the story these days.
Yeah, So in the case of Paul, in the case of tariffs with Abercrombie, they expect to have a sixty million dollars hit in the fourth quarter, So they are being hit by tariffs, but they're discounting less. Plus they have lower freight expenses, and this is something we've been hearing from most of the retailers, is that lower freight
costs are also helping to bolster margin. So they are going to be impacted, but probably not as badly as before, given that they've got an improvement in average price points, less discounting and lower freight that's helping to offset some of the tariffs. And remember that sixty million dollars hit on tariffs for Avercrombie. That's after mitigation efforts, so there
is still going to be an impact. Cole's even brought it up, which they hadn't really brought up tariffs in their prior to calls, but they did say that going into early twenty twenty six, there will be some impact there for them. And the reason why their margins have been holding up and coming in better than expected, and their margins are low, but it's because of the fact that their mix of business being more private label, which is higher margin, is helping to bolster those margins.
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JM Smucker Company s JM is the ticker symbol. They're in Orville, Ohio. Stock is trading radion one hundred dollars to share. It's down three percent today, down eight percent year to date. It's got a market cap about eleven billion dollars. Don't look at that company too often here, but they reported numbers. They lowered the top end of their four year guidance after the company opted to forego a planned price increase on coffee in the wake of tarafreleef from the Trump administration.
Let's get the latest on this name and on some of the other food companies. Diana Roe set up.
Heying Yeah, consumer staples analysts for Bloomberg Intelligence journings live here in our Bloomberg Interactive studio, all the way from.
The tenth floor.
From the tenth floor, boy, that's a long walk now, because you guys used to be just one floor away. We could just stop on the floor and you guys come running up to help us out. Okay, talk to us about Jim Smuckers. This is jelly, this is coffee maker Smuckers. What's going on the.
Food as well?
You know, pet snacks and cat food. So basically, I mean it was it was all right. There were some pull some puts and takes for the quarter. There's some signs of stabilization, but it doesn't seem that it's there yet. It's it's similar to other package food companies that we are seeing in the space. It's always a second half or the next six month story when it's gonna get you know, growth is gonna happen, and it really doesn't happen. So you know, people are starting to lose patients on that.
So specifically as it relates to the tariffs, they, like a lot of your companies, they're just telling you what the number is.
So what's their their tariff cost? I guess for the period.
Yeah, so right now they're saying that for fiscal twenty twenty six, it's gonna be about seventy five million dollars even include you know, excluding that tariff relief that they are experienced experience in which is you know the reason why they're not going to increase prices for the third time this year.
So they have been raising prices on coffee.
They have been raising prices on coffee. This is a category that is very passed through category for Smucker. The problem with that is that competitiveness is a little bit you know, declining compared to private label, so they're trying to you know, forego some of the margin you know, recouped to be able to be more competitive.
Is that what most of the companies are doing, the package goods companies are they trying to take as much as they can in their margin and then pass the rest along the consumers.
Well, it depends on the category. For coffee, this is definitely normal for them. They tend to be also a category leader, so it kind of you know, they're they're you know, they tend to to to say what, you know,
what the prices are going to be. But some of the other package food companies that we have seen, they take some margin head they try to are not putting that on the consumer because they have been increasing prices for the past couple of years, so they already think that lasticity is getting there.
Right, So what.
Are these companies like smockers. What are they saying about the consumer out there? How is the consumer? Are they switching down? Are they more price sensitive than usual and maybe switching to store product store brands.
Yes, So we're seeing a private label to get some market share in the past six to eight months, and that obviously has been a headwind for packaged food companies. They're becoming more competitive, not necessarily Smucker, but you know, we're seeing others such as Campbell's and The Light saying that they're going to be more price competitive in twenty twenty six. So we should probably experience a little bit more of you know, mut at sales growth and margin contraction.
So you also follow the post company, right, tell me, just remind me about their products.
I mean, that's that's primarily Cereal.
That's Premier Cereal. They also bought their pet you know category from Smucker that has not done so well.
And they also have.
Some of the you know, like eggs, eggs product side dishes and the like, and that has been a little bit on the on the upswing, because again that's another commodity that they can pass through price increases and they have experienced that and they have been able to upset some of the declines from cereal and even pet food.
So if you're a if you're doing coffee or even cocoa, that's just the commodity and those in commodity, those prices have been going up because there's been droughts in some of the coffee growing places and cocoa growing places around the world. So if you're smuckers, you just pass it along, right, I mean, it's just if your commodity costs are going you just got to pass out along.
Yes, and that is obviously the exact.
When coffee comes down. Did they cut the prices?
Yes, they actually do, which is you know, they anticipate or they hope that, you know, price increases stop so they can actually become more competitive. But we'll see. It's again, it's a second quarter, second half of the year story.
Now.
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