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Investors are partying like it's nineteen ninety nine. Investors an Oracle, that is. And that's because the last time the stock rally this much was nineteen ninety nine. Stocks up. As John just said, nearly. You weren't even a line back then, the two of you.
Oh go on, we remember the dot com bubble days.
So I want to bring in Annie Rograna, now Bloomberg Intelligence technology analyst. He was around in nineteen ninety nine, coming to us from our Chicago bureau. Okay, so we know that you know it was a blowout quarter AI just driving things there. But I want to talk a little bit about traditional software, which is what this company is all about, the fact that that's not really working at Oracle. But it doesn't seem like investors care today.
On rug Yeah, so your Oracle is a very unique company because it has your traditional software, but also a few years ago it started a cloud business called Oracle Cloud Infrastructure, something very similar to what Aws tees or Microsoft Azure. And one of the advantages it has is it just rents out it's you know, servers for people to go out and train their AI models or you know,
run their applications on it. So this is really a new business for them, you know, it just came up the last few years, and that's where the biggest growth is and that's what's driving the stock.
That's what's driving the stock, and that's probably where Oracle is driving its spending as well. What's happening with the rest of the company, it's operations, its software business. Is it still cutting costs for instance, and reducing headcount?
Yeah, I think you're absolutely right about it. So the advantage Oracle has compared to let's say a company like core v for Nebus, is that it has a very high margin database business and very high margin application business. These businesses have gross margins, you know, let's say, north of ninety percent. Now when you marry that with a massive AI infrastructure business where you need to spend a lot of money, that's problematic for somebody that doesn't have that.
But Oracle has that luxury that it can spend billions of dollars. You know, before yesterday we were thinking they're going to spend you know, somewhere in the low thirty billion range, which was already higher than what they had guided. And you know, even the street was expecting. They came out and said they're going to spend over thirty five
billion and you know the next financial year. So that's a lot of money going into expanding data center, buying chips by you know, creating a new infrastructure to fulfill this demand.
Now, also we should note that a number of analysts are raising the price target on Oracle. TD Cowan caught my eye, raising the target to three hundred and seventy five dollars from three hundred and twenty five dollars a share. But when you look at the competition here, Microsoft, Amazon, on Alphabet, what does Oracle or how does Oracle differentiate itself not only for the customer the client, but for investors.
Yeah, And one of the things I would say is everybody is having a good time in this particular party.
It's not just you know, one company that's gaining it.
It's just the size of their business is far smaller than it is for let's say AWS or Microsoft. You know, in the last financial year, the revenue was you know, roughly about ten billion or so. Aws's rund rate is one hundred and twenty five billion. Microsoft's business is seventy five billion. Google's business is fifty billion. So you know, please, you know, you've got to take that with the context of how big Oracle's cloud infrastructure is compared to some of the bigger vendors.
Out there, you know, honorog it feels like Oracle kind of came from out of nowhere with its you know, contributions to the AI space and being such a big player. Certainly, the bookings of almost half a trillion dollars caught my eye on It's more than four times what it was the same time last year. Are there any other kind of dark horses out there that you would be keeping your eye on that could be the next Oracle, which is already feels like it's the next in VideA.
Yeah, I think one of the things you have to think about it is it's not easy to come up with this structure or a business like this, because you need billions of dollars to create a data center or to lease out a data center then buy equipment like in Vidia chips and computing equipment. There are a handful of companies like you know, Core beav of Nebus, which are smaller neo cloud players that specialize in renting and VideA GPUs to customers. Now, the bigger vendors have the
capital that they are also expanding it. But again, as I said, given the size of the increment that they are seeing, you know, you're not getting that same growth rate.
Do you think there's a little over exuberance though in the market today with Oracle stock up nearly forty percent, especially with so much talk about whether or not we are in an AI bubble and what happens if it starts to deflate.
Yeah.
See, one of the things you have to remember is for Oracle, at least they have this backlock of autos coming in and it's coming you know. For example, one of the biggest customers right now is OPENINGI If Opening Eye continues to expand revenue at a good pace over the next several years, they are going to be spending a lot of money to train their models in order to stay ahead.
So I think there is a lot of relationship over there.
If let's say you and I don't use chat GPT as much, that would have an impact on opening Ay's revenue. That would have impact downstream revenue on all the other players, you know, whether that's in video oticle.
But frankly speaking, we are not there yet, you know.
I'm looking at the mag seven members and how they're performing today. In video is up almost five percent, Amazon down one point nine percent, Alphabet which is the parent of Google up marginally up one point zero point one percent, and Microsoft getting six tens of one percent.
It doesn't feel like this is a situation.
Where it's a zero sum game Oracle wins and Microsoft, Google and Amazon lose, or is it no?
So there are a few companies that fall into this pocket, you know, and those include Amazon Web Services, Microsoft.
Google Cloud Code, viv Oracle.
And Mhibius for example. So these are the ones that are seeing extra spending right now. But when you look at on the application side, you know, whether that salesforce or workday, those guys are not seeing that benefit because they're not in that infrastructure game. So there's a huge difference between the two vendors, or between the two category of vendors, right now we are more in the built phase of AI, not the implementation phase of AI.
You know, it's hard to believe, Scarlet, but this stock and is now worth more than has a larger market cap than Walmart, Eli, Lilly, JP, Morgan Chase.
Yeah, that is pretty remarkable. And again it feels like it kind of came from out of nowhere.
You're right on that very recently, which is why I brought up you know, Amazon, Microsoft, right on your rog I mean, the fact that those were the names we were really talking about when it came to AI, and then sort of Oracle comes out of out of the blue.
Yeah, but that's the whole point. This particular infrastructure. If you're going to run large models, it's very unlikely you can do it in house. I mean, you can do it, but you require a lot of investment going in. You're better off renting out data center capacity or computing capacity
from one of the cloud vendors. And Oracle has the money to spend it, and they have the relationship with Nvidia to get those GPUs, And on top of that, they're offering this to customers and saying here's my equipment, come and test it out the way you like it. Amazon, on the other hand, for example, sells it as a package and that's where you're not. You're seeing some distinction and also the size. As I mentioned before.
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We're keeping an eye on Novo Nordisk, the drug maker.
Remember they are the company behind Ozembic and Mogovi has decided to cut nine thousand jobs and also cut its profit forecasts as well.
So let's bring in Sam Fazzelli.
He is Bloomberg Intelligence, Director of Research for Global Industries and Senior Pharmaceuticals, our go to guy for all things on global drug makers, and Sam for Novo Nordisk. This is part of a broader restructuring that the new CEO is undertaking. Can you tell us a little bit more about the changes taking place?
Yeah? Sure, and very nice to see you again. All.
So, the story here is that this is not the first time they've lowered guidance for the year. I mean this time there's an impact on the EPs front from obviously the cost of restructuring, assuming they can get it all done this year, but it's a pretty chunky one nine thousand people, about eleven percent of the workforce, and a lot of that coming from Denmark. If you read the essence of the press release that they put at there's a couple of things that they bring out.
They want to invest more on R and D.
Well, what I think this is telling you is that the growth that they have planned for the next five years, they may be thinking maybe that won't come as test as we were expecting it because of competition from Lily, compounders and other products potentially coming to market to the pace that they were hoping. So if you want to keep investing in R and D, you need to liberate
some cash. And also it looks like that they're also thinking about changing the way that they're doing their marketing because of the different channels that they're getting involved with direct to consumer. That is not something that FORUMA has done very often before. In fact, only Lily had done
it prior to this, also for obesity drugs. So maybe the costs of that are different, and there's an element that that they've referred to in there, which is a culture of performance related reward, and you think to yourself, well, what was it before? So it seems like that they want to make it much harder. Focus on you've got to deliver because we need the growth. So that's the interesting wle to watch, you.
Know, Sam, I think to a lot of casual investors who don't deep dive into you know, Novo Nordisk the way you might say, would look at this and say, listen, they have the most popular weight loss drugs, right, will go vi o Zembek. Why is this company having these problems when you drill down or is it just a problem with having to scale too quickly? Is it that the company isn't nimble enough to sort of change with the times.
Well, Novodordis has been a poster child of how you grow from a small company selling to a relatively basic set of products twenty thirty years ago to one that's become essentially one of the innovators in the space. They brought the first jil we want to market, so we
can't hold them for that. It's just that I think this growth that they had to go through where the planning was done, you know a lot of I mean, we have one hundred billion dollar market potential for or obesity as a whole, right, so it's just difficult, I think, to judge into this space. And maybe the previous CEO had looked and said, I'm pretty sure we're going to be fifty percent of that market. We need to plan for that growth. And then two things changed. Competition from
really is superintense. They have what I would call it a better drug in terms of the efficacy profile that's been shown in head to A trials. And then of course you've got on top of that, compounders that don't seem to be don't seem to be going away. They keep taking cheaper generics or generics manufactured. They'll try and making the drugs. So that's where I think the new Area issue is in that we all expected the FDA to really clamp hard down on that and they haven't
made issues, you know, statements, but they're allowing them. They even found areas outside the US where these compound compounders can get their.
Drugs from, which is counterintuitive. So those are the issues.
Yeah, So it feels like NOVA Nordics gave up its first mover advantage, but has it lost its lead completely in the US obsity market to Elila Lee permanently or is this still very much a wide open contest.
No, I mean we have I can't remember what the latest number is in terms of what percentage of people who would benefit for these from these drugs who should be able to get them around it. But it's not in the big percentages. I'm pretty sure it's in the single digit percentages. So there's a lot of room to play for. I think our estimate, and I hope I'm not completely off on this, was about one hundred and eighty nine million people could be in these drugs by
twenty thirty. That's enormous. There's lots of other people coming with orals with other things. It's not a matter of having lost the lead. Yes, really surprised. Within slightly different mechanism, it's still the same but with a better drug. There's still room for innovation here, which is what the company's saying. We need to save to keep investing in that innovation. So that's the area I think that they're highly focused on.
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It's a tough day for investors and Synopsis or the chip design software provider missed Wall Street's estimates, hurt by weakness and its design IP business. I want to bring in naraje Ptel, now Bloomberg Intelligence senior software analyst, for more on this. So give us the larger story behind this disappointment. I think is an easy word to use for this. I mean, I don't know. I feel like contostors. Yeah right, all right, Narage, what's your take?
Yeah, this is a major shock to the investor community, and I think you see it in the stock price. Specifically the company's design IP business that's about thirty percent of sales. It has been growing fifteen percent annually and their leader in a subcategory called interface IP. This business now is going flat. It was tracking to fifteen percent growth as of two Q and the remaining two quarters are big shock. This quarter was down nine percent. Next
quarter it's going to be down some more. And this catalyst came out of the blue, I would say for a lot of the investor community because design IP has a lot of tailwinds related to AI complex chip design as well as all this advanced architecture that the semiconductor design companies like in video, Broadcom, Intel are pursuing.
So can we blame or can the company blame factors beyond its control and here and referring of course to trade war tariffs for that or is this something that Synopsis just wasn't prepared for.
Yeah, there's a lot of interesting points there, Scarlett, and I think when we're looking at trade war, yes, a little bit of an issue. And the China Eda band that initiated end of May that lasted about six weeks, that was introduced by the Bureau of Industry and Security in the US. But their major peer cadence and competitor, which is second in market share, they reported several weeks ago they had the same macro issues and they actually tuned up their guidance. So this may be a little
more company specific than macro factors. And I think what's hinting us that they made big investments to catch up Intel foundry relative to some of the other competing founderies with their IP and this hasn't returned any type of scale on the revenue side for them, and this reality really hit them this quarter and for the next several quarters.
So did the CEO Gazi say anything on that post earnings call to give investors a little light at the end of the tunnel here an indication of how they're going to turn things around at Synopsis.
Yeah, I think it was a little marky in terms of the numbers to make a deal with Ansis that was about thirty five million dollars in mid July. This should have added about six hundred million in total revenue, So the numbers didn't add up to their guidance of seven billion. So a little light in terms of adding this acquisition that closed. So that's going to be a little bit of a digestion period, we think, and it's going to take several quarters for the investor community to
settle in. And I think, you know, we're facing this issue where they have a lot of AI related tailwinds. You're building more complicated chips, you're using a lot more interface IP for these chips, and they're the market leader
in this market, so things aren't adding up. I guess when we look at, you know, the story and the narrative that they've communicated over the last several quarters, the AI story that we're hearing from Nvidia and Broadcom, and some of the investments that are occurring across the ecosystem.
So very quickly here is there any bright Is there any good news in this reported anything to hang your hat on if you are a long term investor and you don't want to give up yet.
Yeah, I think this space is an oligopoly Cadence and Synopsis. There's no new entrants, competitive pricesure pressure is very low, there's no substitute for technology. You have to use their tools to design chips, and the more advanced the chips get, the more features you introduce. You introduce a lot of verification and sign off steps to make sure all the electrical characteristics are working. You're not generating too much heat. You have mechanical structures, so you have to use their IP.
You have to use their EDA Electronic Design Automation tools. They're thirty five percent share. Cadence is at thirty two percent share, and you have Siemen said about sixteen percent. So you don't have a lot of alternatives here, and once you build on any of these platforms, it's very hard to switch because your engineers are used to the type of data and the type of tool sets and the type of bugs that they produce and go through their workflow.
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I am taking a look at Chewy right now, the online pets supply retailer, taking it on the chin today. Profit falling in its fiscal second quarter, and that's despite an uptick in sales. The company did add more customers last quarter. Let's break this down though, with Diana rosserro Penya Bloomberg Intelligence as consumer staples analyst. So, Diana tell me, I mean this looks like a mixed quarterly report from Chewy. What has gotten investors so hot and bothered here?
Yes, I think what investors were trying to see in this report was that there was an inflection point in the industry, and I don't necessarily think that they have founded in this report.
Sales was higher than.
The company the investors expected, but margin guidance ebidult guidance was kept and that was, you know, a little bit of any you know, bad news for the company and the industry as at a whole.
Talk to me about innovating in this industry, because I would think that if you just stop innovating, that's when you start to have the problems. Is that starting to happen with Chewi. I mean, it is a leader in this space, but does it need to still be one step ahead of the curve and innovate here?
Well, yes, and I think that is one of the things that they were trying to communicate during their earnings call. They are actually investing and that is going to probably offset some margin momentum going forward at least the second half of the year. They have led of offices now in four states.
I've seen that, Yes, exactly.
They actually launched Chewy Plus, which is a membership program and apparently has been very successful. And also they have launched private brands with get Real, which is a fresh frozen dog food brand.
So the company also added a pretty decent amount of active customers, right one hundred and fifty thousand on a sequential basis. So now it's total customer base is nearly twenty one million. How much more room is there do you think to grow because we know people will spend big on their pets.
Yes, and what we're seeing is probably gonna see a greater contribution on the pricing side compared to the customer base. And that again, that's another reason. While they did show positive momentum on customer base, it was still you know, in the mid single sit digits, which is not necessarily significant growth or growth that they had seen before. So you know, we still see an equal contribution for the customer base, but it's not necessarily as impressive as he was years before.
I'm curious if they talked at all on the post earnings call about tariffs and how that might be impacting. I would imagine a number of their products are coming from overseas, China in particular, when you're talking about some of these pet toys as well.
Yes, and they did not quantify the hit that it was going to be on because of Good Soul, but they have mentioned that private label. Their private brands are significantly affected by tariffs, and that is one of the reasons they probably help margin guidance for the year because they they said that they're going to invest in pricing and be more competitive.
Who does Chewi see as their biggest competitor, I would.
Say Amazon, and also and mortar retailers like pat Smart and Petco And.
So what about the horizon? I mean, I don't know how far they went out, but what are projected projections? What kind of guidance are they offering investors?
So they only have noted the annual guidance. They don't necessarily want to speculate on other things. But you know, they they still think that there's a lot of momentum in the industry, and I think investors are not necessarily that they do not agree on the long term potential, but they're more worried about what the six months are going to bring. The next six months.
Yeah, and in terms of profit, what what was the pressure on profit? They said it was tied to share based compensation. There were also some related tax issues. Can you just tell us a little bit more about that?
Yes, that was another thing, and you know what they mentioned there was, I mean, margins grew and you know it was it was gross margin was up ninety basis points year every year. But they mentioned that that was going to be the high point of the manage expectation exactly. And that is why what the you know, the investor community was was phoning in.
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