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Man Deep sing joints this year because we want to get some more details on this Broadcom deal, because again moving the stock big time, help you propel the Nasdaq to a nice move today. Man Deep sing is a senior techalyst for Bloomberg Intelligence. He's been telling us about AI for like a couple of years now. And folks, if you don't really know what AI is, and you have access to the Bloomberg terminal, just go type in BI go that'll get you to Bloomberg Intelligence homepage the
search bar. Just type in AI and it'll bring up send you to the Definitive report, really large report on AI. What is it, how to play it, and what's the future of AI. It is the definitive Research Report Lomall Street on AI, and Man Deep Singh is the blame for that. Mandy, talk to us about this Broadcom deal. Here lay it out for us. What does it mean for broadcommon for just kind of an open AI as well.
Yeah, I mean loc Open AI is going after heaving as much compute capacity as they can, and they did first ten gigawatts with Nvidia, six gigawatts with AMD, and now ten gigawats with Broadcom. And the difference here is with Broadcom they get to use their own chips, and Vidia and AMD are what we call merchant silicon. They exactly, I mean, that's basically generalized chips where you can deploy the workload you want, whether it's from open AI or
Microsoft or any other vendor. In the case of custom silicon, which is what Broadcom does, a company like open AI or Google. Google makes up almost you know, fifty plus of Broadcom's AI revenue. So Google has their chip called TPUs. They use it for everything run on Google's platform, whether it's YouTube, whether it's AI, whether it's cloud. Everything inside Google's run on their TPU. So opening eyes strategy here is to use an approach which is similar to Google
GPUs because it saves you a lot of money. I mean, imagine an Nvidia AI chip costs you thirty grand. A custom silicon that Broadcom is making for Google costs you six grand. That's the cost differential we are talking about. And it's not because Nvidia has to spend thirty grand to make that chip. They have a seventy five percent gross margin on the chip that they're selling to the customers. So Nvidia's cost is also low, but they mark up
the price of their silicon. Same thing with AMD. In the case of Google, they are going directly to Broadcom to make that chip a far lower price and it's for their own use, which is why they don't have to pay the markup to Invidio or AMD. And that's why having your custom silicon strategy is so good because it really saves you. So one gigaw with Nvidia silicon would cost you about forty to fifty billion. One gigawart with a Broadcom open AI silicon would cost you twenty
five to thirty billion. So if you're talking about, you know, thirty to forty percent cost differential, and it's huge. I mean in the context of what these guys are trying to do, you know, scaled the infrastructure.
In addition to that distinction, there's also no investment or stock component to this open Ai Broadcom deal, which makes it different from the deals that it struck with Nvidia and AMD. So I guess my question is how would open Ai finance the purchase or the chips in general?
That's a great question because right now they have to do a lot of financing. It's one thing that's a common thread in the Invidia transaction where even though in Vidia is putting ten billion dollars in open Ai, they
still have to find the remainder of the money. So if you imagine, you know, forty to fifty billion dollars per gigawatt ten gigawatts costume around five hundred billion, Nvidia is already investing up two hundred billions, so they still have to figure out the remainder of four hundred billion. In the case of AMD, I mean, yes, they are getting some stock, but you still have to figure out the financing for that, you know, three hundred billion or so.
Here it's the same thing. You need the money and Opening eyes bed is if we keep ramping up our revenue, that is obviously a big source of the funding. We'll do a lot of private deals because we already have the buy in from these big player whether it's Nvidia or Microsoft and other sovereign providers, and I think it's a lot of scale game right now, because once we keep hitting our milestones, we'll keep raising more money. And that's the hope.
When it comes to one name I hadn't heard during all this dance between all these tech companies is Apple. Yeah, what's going on there? Glaring absence exactly.
I think that's the right way to frame it. And look, at some point, I think they are going to go the Broadcom route. Out of the three partnerships that Openei has had, a company like Apple will never go for merchant silicon. I mean, look at what they have done in their own devices. It's all custom silicon. And that's where if I had to pick a strategy for Apple, it will likely be custom silicon using Broadcom or Marvel
or one of these asay providers. But the hard thing for them is because they have missed out all the action in the past three years, it's so hard to catch up. Even if you throw money and you know your CAPEX dollars, the time is off the essence, and the longer they delay this, I feel either is Broadcom or a partnership with Google. Now that antitrust is behind, so they may very adopt Google's LM across their the
huge That will be huge. But I think you know, with the regulatory overhand going away, that could be a very likely strategy.
Apple has a ton of cash. It can't buy its way to a solution here.
Who do you buy? I mean these are all scale players and Broadcom. Maybe you could say Marvel is a smaller player. But you need the best and chips. That's why everyone is buying Nvidia because they have the highest performance per what. So you can't really get a second or a third player because then you compromise on the performance per what when the biggest constraint out out there is power, So you know you need the leading player when it comes to the chip side of the equation.
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Let's get back to what's happening in the markets. One of the concerns, and Scarlett mentioned a couple of times here today is credit markets. Do we have some concerns out there. First Brands, for example, their challenges there have really spooked some parts of the credit market. We want to get the latest on what's going on there. Were checking with Steve Man Bloomberg Intelligence Global Autos and Industrials
research analysts. Steve from your perspective, just tell us for the people out there that don't know who First Brands is, who are they and what happened? Yeah.
First Brand is a big, huge aftermarket parts supplier. They you know, some of the brands are really well known in the markets. Parts include like break pads, engine oil filters, windshow wipers. So a lot of these are just very fast where parts that everyday consumers by.
Yes, okay, so it's something that's quantifiable, it's knowable to consumers. And it kind of shocked everyone when it ran into financial problems. And I know that everyone's still trying to uncover how much of this is perhaps corporate malfeasance or there might be some fraud going on. But it happened at the same time that another company named Tree Color was also falling apart, and both of these are tied
to the auto sector. They're not making cars and selling cars directly, but you know they are tied to the business of selling cars or the business of taking care of car consumers afterwards. What does that say about the car industry?
Steve, Yeah, I.
Think those two insidances really freaked out the market. Based on our research, I think those are really contained situation to those companies and don't feel there's a broader end pack. But you never know. You know, the markets based on investors sentiment. But we did some research on the impact on the after after market, the parts market. You know, companies like O'Reilly, AutoZone and Advanced Autoparts are unlikely to see impact on their supply chain. Like I said earlier,
these are high commodity parts. Uh, there's a lot of producer that actually produce wipers and brake pads, not just first brands. So it's not going to impact the consumer. It's not going to impact companies like O'Reilly AutoZone.
It actually may be.
Beneficial to the aftermarket retailers and in terms of higher prices.
How important are these after market retailers. I mean, it seems I keep hearing reading your research that people are holding onto their cars longer and longer and longer, and therefore this after parts it's a pretty good business, and it's a.
Very good business. It's a relatively high margin business, great for cash flow. So in this instance with First Brand, you know, companies like O'Reilly AutoZone doesn't really on a financial perspective, doesn't really deal with First Brands. You know, they buy parts from First Brands. Uh, these these they but they pay the financial institutions. And this financial institution actually pays First Brand through these what we call supplier
agreements finance agreements. So there, you know, these auto parts retailers are actually shielded from what's happening with First Brands.
The news, of course today is that First Brands is founder and CEO Patrick James, someone that a lot of people don't know and haven't heard of. He is resigning because of course the company is facing an investigation over its finances, and he will be replaced by Charles Moore as an interim CEO. This is very inside baseball, Steve, But what I wanted to get to is this idea that a lot of people are not overly concerned that
this spells broader problems. At what point might you get a little bit more concerned.
I think if there's a contagion in fact, which I think is a low real probability. The other issue is a supply chain. Is it gonna if first brand does stop operations and stop producing parts, Does it impact the supply chain of like o'rally and AutoZone. I think temporary it does. But what really could happen is that o'rally and AutoZone will probably raise prices and it actually will help juice up their margins.
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M and A media likely to be some type of media activity M and A activity in the media spaces. Some of these companies need to consolidate even more to get even more scale to compete against the Netflix of the world, not to mention the Amazons and the Apples and so on and so forth. So one of the deals that's out there potentially is sky Dance, Powermount maybe doing a deal with Warner Brothers Discovery. Let's see where we
are right now. There's been a lot of rumors and a lot of news reporting about a potential hookup in between these two companies. KEITHA, wrong and nothing. She looks at this stuff. She's the US media analyst for Bloomberg Intelligence located in our Princeton, New Jersey office. Githa. I mean, the scuttle butt is, you know, Paramount is interested in buying Warner Brothers Discovery, but I don't. We haven't seen Warner Brothers really open to a deal, at least not
at the prices that have been bandied about. What's the latest?
Yeah, the latest, Paul is?
I mean, as you just said, there have been rumors now ongoing about this, these possible sale dogs for over a month. Over the weekend, you know, Lucas Shaw and Bloomberg News basically broke the story that Warner Brothers did receive an offer for twenty dollars a share, but David Zaslav, the CEO of Warner has basically rejected that offer as being too low. Now we know from some prior reporting that he had been looking for something like about forty
dollars a share. So obviously that's a huge, huge gap right there.
And I'm just looking at the size of these companies. I mean, Warner Brothers has a Warner Brothers Discovery has an enterprise value of more than twice that of Paramount. How's that math going to work?
Yeah, So this is what we've been kind of, you know, scratching our heads about. So initially, when we had, you know, the news come in, one of the big pieces that was mentioned was that this was going to be a majority cash deal and a lot of the funding was going to come from the Ellison family. Now, things seem to have changed a little bit last week because we heard that private equity players were getting involved. So Apollo
was one of the names that was mentioned. It looks like Paramount had approached Blackstone, but maybe they were not really that interested. Legendary was also thrown into the mix. So we're not completely sure just yet whether you know, Paramount is going to proceed with a higher offer with some of these external sources of financing, or whether really the Ellison family is kind of going to you know, step in and you know, basically fund majority of the acquisition.
Well, it's not like you can't afford it. I just typed in Rich, go Rich. That's the list of the top most wealthy people in the world. According to Bloomberg, mister Ellison is number two, with a networth of three hundred and fifty billion dollars. So there's certainly some capital there to be deployed either. What's the sense of timing here? I know, Warner Brothers Discovery, they're actually pursuing kind of a parallel path, which is there separating their businesses a
little bit. Tell us about that.
Yeah, So, you know, I really think here the odds are in Warner Brothers Discoveries favor. And I say that because, as you just pointed out, they are on this path to separating the two companies. They're separating out the TV networks, which really doesn't have a great growth outlook, from their streaming and studio assets, which by the way, is just doing extremely well. The studio has had an absolutely fantastic run this year. They're making up almost thirty percent of
the box office. They've had hit after hit, so they really are on a winning streak. And this is what I think gives David Zaslav a lot of confidence that he can get top dollar for at least the streaming and studio part of the business. The real problem, Paul, and you know this very well, is what the outlook
is going to be for the TV networks. And that's where I think it's a little bit of a double ed sword, because the paramount offer right now is for the entire company, which means he gets to offload, you know, the TV networks doesn't really have to worry or think about it. The thing is, if he waits and you know, pursues the split, of course streaming and studios is going
to do really well. But then again we're we're stuck with the you know, the TV network business without you know, much of really a future, a proper future, good outlook for it. So so that's really where the dilemma is for the Warner Brothers Discovery management team.
Well, what's interesting here, I think, particularly if you're a banker or a lawyer trying to put a deal together, is we have a willing seller here. Mister Zazov has stated he's willing to sell and stated that it probably makes sense for this industry to consolidate. Even more so, it sounds like it's just going to come down the price.
It is going to come down absolutely to price. I mean, he's already kind of said on multiple occasions that you know, there are people who are interested, especially in the streaming and studio part of the business. He is going to push hard, very hard for you know, on the on the price front. We know he's a really tough negotiator, but I'm not really sure how much amount is going to be willing to pay up for this.
So broadly speaking, for these networks, the good to zero with code cutting, cord cutting, they.
Won't go to zero, Paul, but they're definitely I mean, the floor has been going lower and lower, so you very well know that. You know, at its peak, PayTV households were somewhere at about one hundred and four million in the country. Today they're at about sixty five million. The idea, or at least the thinking on the street, is that this is probably going to go to somewhere like about forty million, maybe in the next three to four years, but who knows. I mean, the rate of
decline has been pretty dramatic. I mean, even when Warner Brothers and Discovery came together a few years ago, remember they had projected fourteen billion dollars in ebitdah. That number. We never got anywhere close to that number. This year, we're looking at something like about eight and a half billion or nine billion in ibadah. So there's it's just such a big gap, and that's just because of the dramatic decline in the TV network business.
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