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Once again, you know, leading kind of the winners out there in the world. Is Nvidia just extraordinary accomplishment today reaching five trillion dollars in market captains always always news around this story. Michael Sheppard joins US Bloomberg Senior editor for Technology and Strategic Industries. Michael, first of all, just I don't know. I guess it's just a number, but boy, five trillion dollars suggests that this market continues to see
extraordinary value in this thing we call AI. What do you make of it?
Well, you can see not only in the share price which is more well above forty percent this year, but you really can sense the enthusiasm for artificial intelligence and all the capex that has gone into it. We're going to be hearing later today from some of the Hyperscaler's Microsoft Meta and Amazon reporting results, and they are some of the biggest buyers of Nvidia's technology, so there is a real symbiosis and we haven't seen any slowdown from them.
We'll get some signaling after the results come out in their various conference calls about what their plans are for investment in this area going forward. But at least based on yesterday's GtC event here in Washington, the big industry comfab sponsored by Nvidia, we're really getting a sense of
no sign of an end to the momentum. And Jensen Wang was emphatic and saying that he sees no sign of a bubble coming and that he expects another five hundred billion in revenue over the next five quarters tied to all of that.
I'm so glad you bring that up because we wanted to play some sound from that conversation Jensen Wog, the CEO of Vidia, had with our Ed Ludlow, Bloomberg Tech co host ed spoke with both Jensen Wang and Nokia's CEO Justin Hothard.
Let's take a listen.
I don't believe we're inn AI bubble, and the reason for that is we're going through a natural transition from an old computing model based on general purpose computing to accelerated computing. We also know that AI has now become good enough because of reasoning capability, research capabilities, its ability to think. It's now generating tokens and now generating intelligence that's worth paying for.
Mike, What gets my attention is Jensen Hang coming out and saying definitively that he does not think there's an AI bubble. Do you think any of the CEOs of the three companies that are reporting today the two that are reporting tomorrow are likely to go out on a lim and.
Say that, you know, they have put so much into artificial intelligence themselves that they would be loath to issue any kind of a bubble warning. That'll come much more from the outsiders. The interesting thing, though, is when Nvidio talks about AI, it is not thinking just chet, GPT and the other chatbots that we are familiar with. They're
talking about so many more things and uses. And one priority for Jensen Wong is really to accelerate the adoption of artificial intelligence across the economy in a variety of platforms. It ranges from robotics to cybersecurity to business automation, all sorts of things that they were talking about and really infused all the partnerships in deals that the company was announcing yesterday. Let's we could do a quick review, Scarlett.
It's Uber, it's.
Lucid when it comes to transportation, it's CrowdStrike when it comes to cybersecurity, it's Palenteer when it comes to business automation. So the company really is not only trying to push this narrative, but it's trying to show it as well. And they even began to talk about some of the EDUCASEU. This is for quantum computing, which is another area of keen interest for investors, and it's been an area that Nvidia has been edging toward in the past few years.
Michael, there are some investors out there that are obviously a little reticent about this whole AI story and the momentum behind it, and maybe they want to tap the brakes every once in a while. And I think their argument is basically, Okay, I get to be expending by the hyperscalers, but what's their return on investment? Again, every once in a while we hear from those people. Where do you think that narrative is today?
Well, it remains one of the big questions. When does revenue actually become something measurable and tied to artificial intelligence use and Jensawong was trying to point yesterday to look, AI has not only the use case, but it is actually starting to pay off. The models are starting to pay off, and this is why he sees the world
not being in a bubble right now. But it is something that companies will have to try to demonstrate more visibly as they release results to justify all the expenditures that they had been making on data centers and on all the technology that goes into them to power these models that they intend to use.
All right, Michael Shepherd, really appreciate your joining us and giving us a wrap up of what we're seeing right now in video. Once again, five trillion dollars in market cap five trillion, Paul.
That is a lot of zeros.
That is and when you see the movements in these stocks, I'm just thinking some of these big tech stocks that have been announcing these big investments with each other and CHAP, GPT, and the amount of dollars, the absolute dollars of gains and losses in the stock market every day on some of these names is staggering because you are, you know, a five percent movement a four billion dollar for trillion dollar market cap stock.
That's real money, right, And the spending that they're all doing on products or services and things like chips from each other that is responsible for a big chunk of the GDP as well. So if anyone slows down their spending just a little bit or pulls back a little bit, that could have a ripple effect.
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One of the earnings is that there's Caterpillar. Are good friends at Cat? Statchup thirteen percent today, fifty two week high. I think the market likes what they heard from Caterpillar. Let's bring in Chris Chiolino. He covers all those big industrial companies for Bloomberg Intelligence. Chris, talk to us about Cat. What do we hear from them today?
It was a great quarter, you know, despite pretty elevated expectations coming into the print, a bigger tariff headwind, Cat really delivered very solid three key results. It is really driven by higher volumes across all three of their core businesses, with particular strength and energy and transportation. Again, but I think, you know, one of the more encouraging signs that we took away from the results this morning were that orders accelerated here in the quarter, and we also saw a
backlog improved sequentially to a record forty billion dollars. So we think we see you know, above average production and earnings visibility as we begin to think about next year.
Did the company say a lot about the power producing equipment including turbines and generators that have investors excited about it being kind of a derivative play to the AI story.
Absolutely, so, you know, we continue to hear more and more about AI and data centers and Cat's exposure there. Today, you know, power gens probably you know, roughly thirty percent of the energy and transportation business, roughly you know, fifteen percent of the overall enterprise, but it continues to be the fastest growing part of the portfolio. They're bringing on a lot of capacity here over these next three years. I think you really begin to see a step change
as we move into twenty twenty seven. And particularly on the on the large engine side. So there is more of a focus and investment on the energy and transportation business and it has become, you know, the biggest part of their portfolio.
Wow, are there other companies or let me put it this way, who does cat compete with in that segment of the business.
Yeah, So there's a number of different competitors, and it really breaks down on relative by size on some of the gen sets. Cummins is a is a big one, Siemens Energy, and then you also have a few other European and Asian players. But you know, this is certainly a market that's growing, you know, pretty exponentially. Here. Backlogs extend several years, so we think we have pretty good visibility at least through you know, the next three years.
Does this part of the business mean that Caterpillar will need to rely more on domestic market opportunities as opposed to global market opportunities.
So their footprint is the largest, the energy transportation footprint is the largest in North America, but you know, I think the opportunity is global. They are a large global producer that they serve you know, essentially almost all markets around the world. I think even particularly with an energy and transportation It's like something like one hundred different countries.
So while I think the immediate near term excitement is more focused here in North America, I do think longer term there's an opportunity international as well.
What's what's the company saying about the impact, if any, on tariffs on their business now going forward?
Yeah, so tariffs were actually a much bigger headwind than we anticipated in the quarter, and even KAT I think it kind of shook out somewhere around a six hundred million dollar headwind in three Q. But margins, margins were better than expected, really pretty remarkably resilient despite these price costs headwinds. Four Q will actually see a step up in the tariff costs. And then as we think about next year, you know, Kat's really been kind of kind of hesitant to pull the pricing lever on a lot
of tariffs thus far. We think that's you know, more of an opportunity for them here in the near term
to gain some market share. So as we think about twenty twenty six, it'll be interesting to see, you know, do they continue to offset through more costs and productivity efficiencies, or do they lean into pricing a little bit more, but tariffs will step up here in the near term, and then you know, twenty twenty six, it still remains to be seen, but I'd expect a demand backdrop to improve, so they certainly should have the opportunity to push pricing a little bit more aggressively next year.
Wow, six hundred million dollars is no small change when it comes to tariff impact.
And they these companies are finding margin improvement in other areas. I guess it's really amazing.
All right, Thank you so much for speaking with us.
Chris Fergiolino is Bloomberg Intelligence senior US machinery analysts on Caterpillars earnings and the stock right now of about thirteen percent training at five hundred and ninety three dollars off fifty side all time high.
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One of the laggards in the Downdustrials is Boeing, it's taking twenty six points off of the off of the Downdustrials is two hundred and thirty point gain, and part of that is because of its latest earnings report. Let's bring in George Ferguson, who of course covers Boeing among other aerospace, defense and airlines companies for Bloomberg Intelligence, and George, I thought Boeing was in turnaround mode.
Do the report? Do the latest earnings back that idea up?
Yeah?
I think it did.
So.
You know what I saw from earnings today is that the commercial airplane business had about a four hundred thirty million dollar loss from your back out that about five billion dollar charge for triple seven. That number was a bit better than consensus, a little bit better than what we were looking for. I think it's another sign that
commercial airplane is getting closer to break even. And then in the cash flow statement, Boeing was cash flow positive and at an operating level and free cash flow it was about a billion dollars in the operating level and free cash flow a couple hundred million. I think that
you know, that's above where consensus expected it. We saw five billion dollars an inventory get unlocked during the quarter, meaning you know, Boeing has been sitting on something like ninety billion dollars inventory because like eighty seven I think was exact number, and that came down to eighty two billion because they've been buying from suppliers, putting things on shelves as they try to keep the supply base healthy while they've been going through some of their challenges here,
and now they're starting to take that, you know, that inventory off the shelves put it into airplanes. That's that's going to hyper drive some of the cash generation of Boeing as they bring that inventory I think down to probably a sixty or fifty billion dollar level. So I think those are both big positives in the charge was largely non cash for an airplane that I think is still very competitive, just gets delayed a bit.
All right, how about the deliveries of the seven thirty seven. What's the guidance there, George, because we know that's the big cash driver.
I think, yeah, so they're you know, Boeing's kind of out of the game of giving guidance right now. But they've they said, you know, the FAAS allowed them to go to forty two a month build rate, which would be above what they've done in the last quarter. I think we've got a modeled at about forty four or forty five per month for the next three months. It's because there's still some inventory airplanes they'll deliver as as
well as what they're building. Just heard Kelly Orpburg say on the call that he would anticipate sort of cranking up those build rates from forty two in income it's of five every six months. No sooner obviously won't break unless they feel like they've got things stabilized. So I think we've got a path here to hire build rates over,
you know, to the end of the decade. So you know, I would expect that as they get a year down the road here will be probably break even in this business, you know, maybe a little bit longer, but I think we'll be break even in that business. And again that's I think all part of the turnaround is getting seven three seven to perform. That's that's going to be the financial driver.
So Kelly Orpbrook has now been CEO for just over a year. He started in August of twenty twenty four. I can't believe it's been that long already, I know I know, and a lot has happened clearly, And what I didn't realize is that Boeing is still facing some labor issues. Saint Louis Aria machinists still strike.
They've been striking for more than three months.
What does this say about Kelly Orberg's leadership and what kind of grade would you give him, George for his leadership so far?
Yeah, I mean I'd give him a very high grade. Right again, I think that, you know, the biggest thing he needed to do was like improve morale, improve quality, and it appears to you know, to be the case. I think, you know, the proof is again build rates the FA, returning some uh you know, giving Boeing the ability to go to forty two, and returning some of
their ability to certify some of the airplanes. So I think i'd give it all high in Saint Louis right now, you know, Saint Louis is where the defense business is centered. Out of right now, the defense business not performing great, but getting better.
You know.
I think there's there's definitely more to come in the defense business as they start building the F forty seven, which is the sixth generation fighter that they won, but that's still some preliminary work. My guess is that the sides are still a little bit a part on, you know, where they want to be for an a green and it's not as critical to get those folks back to the production lines as it was to get a commercial
seven thirty seven machinists back to production lines. So he's probably doing the right thing for the business here, and you know, making sure he can get an agreement he can live with, especially in defense where it's harder to bear increased costs. And again i'd give him, I'd give him high grades. I think the company's at a turnaround right now and doing well.
George about the thirty seconds left.
Just we don't talk about the triple seven much. How does that kind of figure into their portfolio, into the economics of Boeing.
Yeah, when it finally gets certified, it'll be the biggest airplane in production, so it kind of replaces seven four seven and eight three eighty as the Queen of the skies, A three fifty tosh one thousands, the closest competitor. It can't it can't be as densified, it can't have as many seats inside it, So I think you'll find a
seat cost advantage in the Triple seven. It's got core customers in those you know, in those Lee's carriers, those Asian carriers that are the big sort of East West connectors. And I think it'll be fine. I think that delay we won't hurt its ability to be sold. And it's already got five hundred in the backlog.
And I'll put my order in for the surveillance Triple seven for tom My favorite.
You know, I'll need one of those.
George, thanks so much for joining us. George ferguson Senior Aerospace, Defense and Airlines anists. And if it flies, George covers it for Bloomberg Intelligence. That's kind of how I think about it.
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