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There's been a ton of earnings out. It's hard to keep up with all of it. But one that has been the talk of everywhere is Palied here right, And one person who has been running around Bloomberg like crazy is Man Deep saying he's Bloomberg Intelligence senior tech industry analysts. Thanks for coming out, Man Deep, right in the studio. The Stack price sarch more than five hundred percent over
the past year. I mean, this company is incredible. Is it what the company CEO calls a dominant software company of the future? Would would you say?
I mean, clearly there is a lot baked into the valuation, but I want to focus on, you know, the net new R, which is a metric that software companies are measured on.
And when you compare Palenteers.
Commercial segment revenue, which everyone is excited about, their total deal value that's remaining is around two point eight billion. The new ar are increased by five hundred million. Contrast that with a Microsoft or a Google Cloud. Microsoft added almost nine billion in net new ARR this quarter, and they talked about you know, AI being used across one hundred million Microsoft Copilot users twenty million GitHub Copilot users.
So from that perspective, you know, balenteers increase in remaining deal value of five hundred million looks pretty small.
I mean, Palenteers overall revenue rund rate is four billion.
Microsoft clearly is you know, a company that's almost one hundred times or eighty times more bigger than Palenteer.
But it just goes to show that even on a net new AIRR.
Basis, Microsoft is adding more revenue per quarter than a Palenteer is. And still people are very excited about Palenteer's product, you know, prospects, and to my mind, clearly, you know they have a product that is appealing to a certain section of enterprise users. But at this valuation, I mean, they can't sustain that for the next thirty forty quarters, which is what they need to show to grow into
the valuation. And I just don't see from a product perspective they'll have the same kind of appeal as a Microsoft Copilot or a Google Cloud or you know, any of these large companies.
Some question today, how do you guys value this thing? I mean I got it at like two three hundred times earning. So that's not the way to go.
So we've seen that with you know, new IPOs. When they come to the market, they get a premium multiple. They get traded at you know, thirty forty time sales. Snowflake which is a competitor to Palenteer, when it went public, it traded at sixty seventy time sales. Look at where the stock is now. It's flat since the IPO. Even though the company has grown top line at thirty thirty
five percent Kegger, the stock is flat. So that's what I mean by growing into the valuation, because there is so much embedded in that upfront multiple that even growing at thirty percent is not enough. Palenteer really needs to grow at fifty percent to be able to show any sort of stock return from.
This point on. Can it do that?
No?
I mean that's why I said I compare the product.
My initial comments were around comparing Palenteer's product versus other large enterprise software makers, and even you know, you go down the list, Salesforce service, now Adobe like, these are much bigger companies and they have come I hounded at twenty percent Keger over the years because they had a seat base or a consumption based model. We don't even know what kind of a business model Talenteer has. Yes, it's winning government deals, Yes it's winning some enterprise deals.
But we don't know how they account for that revenue every quarter. Is it a seat based model, is a consumption base? We don't have that kind of visibility to their business model.
All right, make it this red headline out of the way. White House fires.
Most of Puerto Rico's oversight board members not really sure what that is, but we're going to have more reporting on that coming up. I want to get that headline out there. So in a conter party, I can tell you the Google story, I can tell you that Microsoft story. I have no idea what the Palenteer story is. Can you explain it to me like I'm a five year old?
Yeah, So their software out of the box will help you make sense of your big data strategy. They really curved out a name for themselves. Big data became the thing when a company had a large amount of data, whether it's log data or some other type of reporting data. They would help you make sense of it because they have something proprietary that no one else has in terms of organizing that data and making it usable.
So that's their value proposition.
But with the AI wave and llms, they were able to integrate LLM calls within their offering to develop a customer service or a supply chain use case that you can apply AI on top of their ontology, which is their core product, and a lot of other companies are doing the same. To my mind, Microsoft is doing the same for their customers. They're trying to embed open AI with their core offerings, with their CRM system and help
them deploy a customer service use case. So the differentiation of Balanteer versus Microsoft, to my mind is not that big as the valuation reflects. And that's where I'm They're not going to grow fifty percent for the next twelve to twenty quarters, which is what the valuation is implying.
Now, how would you compare what they do as far as a government contractor versus the commercial side, like which is doing better for them?
Yeah, so they have a much higher exposure to government side. I mean government side is still more than fifty percent of their revenue. And all these large enterprise software companies they have ten to fifteen percent government exposure. So Paleteer's government exposure is way too large compared to other software makers. And on top of that, their international sales seem to be declining at least, you know, on the commercial side, because of the polarizing views of the management.
So if they.
Were more balanced, probably they would win more international business. But right now this is a US centric story, and that's where I think it sort of puts a dent to the growth rate down the line once they run out of the deals that they currently you have signed.
What's the next thing we need to pay attention to. Is there anything earnings wise coming up this week?
You guys AMD tonight?
Clearly a lot of that Capex if it is flowing to AMD, should show up tonight. And our view is clearly the market is shifting from training to infrincing when it comes to Capex, and AMD could be one of the beneficiaries of that infrincing Capex.
AMD is the ticker. It's got a market cap of two hundred and eighty billion dollars. The stock is up forty two percent year to date. So another one of men deep stocks is up like huge. I mean, this kid was born on third base. Thought he had a triple Dude. Everything you touched just be goes, just rips to the sky. It's unbelievable. Man Deep Sing, He's one of the good ones, folks. Senior tech industranals for Bloomberg Intelligence. In fact, that ian on Agran and they manage our
whole tech coverage area. And it is a global business and we we have analysts in Europe, Asia and North America.
And that's how we do that.
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We're nearing kind of like the Friday mark where the tgif right, Molsen Core's happy hour, let's go for it. They had their earnings come out, so we want to do is break it all down for you. Kennon say, Bloomberg Intelligence senior consumer product analysts, thanks for coming right here in the studio. Rising costs tied to aluminum tariffs. This was a big point for them. How much of an impact is that having on the company?
Yeah, Hi, Lisa, it's material. You know, they describe it as an indirect cost, but it really spiked up there in the quarter, you know, encroaching on their margin.
I think though.
The bigger picture though here is the continued week sales, the lackluster sales are seeing in the US beer market and alcoholic beverages in general. You know, this is their peak summer selling season. This is and you know, these companies should be thriving, and it looks like the summer selling season in the US for alcoholic beverages is going to be a dud. It's a cautious consumer, it's a
particular pressures on the Hispanic demographic. It's it was a lousy June in terms of the weather and key markets, and basically all the big brewers are setting up for a tough second half. As you know, if these trends continue, you know, I expect continued sluggish performance in the second half as well.
So is this beer thing? Is it the kind of a global thing? I mean, I know, you guys at Bloomberg Intelligence, you get the data that choose consumption of everything out there.
In the case of most in course, Paul, Yeah, they have a big operation in Europe, Eastern Europe, many parts of Western Europe, and that that had they had lower volumes as well. It was saved by higher prices to a degree. But you know, again, the big picture is that consumers are just not going out to the bars
as much. On premise sales, we're particularly weak. That could be weather related, I mean, it's just another example, but also I think it could be, you know, the culmination of a lot of price increases over the last few years. Maybe we've hit a point where there's some sticker shot going on here.
And what about people drinking You said not going to the bar, but what about just drinking less alcohol in general.
Well, that's a great point least, I think. Longer term, you have some secular headwinds as well. Things you've talked about in the past. You know, the spread of legal cannabis, particularly here in the US. In the US, you also have these intoxicating hemp drinks which are all the rage now in many markets. You have the GLP one users are cutting back. Gen Z doesn't seem to embrace alcohol
as much as their parents did. All those things are weighing on it longer term, but that combined with some near term pressures, is really weighing on these you know, these companies.
It's a disappointing discussion here. I mean, not that we're gonna have fun here. I'll tell you here's the problem with all this White.
Claw and sea Breeze and I don't know what.
You know, the iced tea in vodka, what's that all about?
Is that a fad?
It seems to have some legs there, you know, the pre mixed cocktails. Let me put it this way. Some of the things that did well in the quarter are things like bush light apple. You know, some flavor, some flavor out there is coming back apple. You know. Some of the hard teas are doing well. The pre mixes continue to do well. So I think the way you could take away is maybe the consumer, while you know, economizing, is also looking for a flavor and different variety and so.
And also the non alcoholic and low alcoholic segment continues to do well from a low base. So I think in the second half I would expect a higher level of promotion and innovation along those themes low alcohol and no alcohol flavor innovation that's going to be really popular, I think in the second half the spur volume.
Hey, before you go, can you break down some of those macro economic headwinds that the company's facing.
Sure, well, the primary one is just you know, consumer confidence. Consumers just feel you know, they're reading the papers all these you know, tier fund certainties, and you know the pressure on the Hispanics in particular, what's going on there. Those are the big things, you know, And I don't think it's anything major, but it's it's just enough on the margin that these are these are purchases that can be deferred. H and consumers buy and large are.
All right, It's not It wasn't very Funkenshey, senior consumer products analyst, Bloomberg Intelligence, joining us from a print in.
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Tariffs having a bigger impact on Caterpillar margins shares all over, they're down about two tens of percent. So here to break down. It's earnings ward Christopher Jillino, Bloomberg Intelligence Senior US machinery analyst, Christopher, thanks for joining us this morning. All that said, the CEO, Joe Creed, the new CEOs, said the company is going to be able to offset the impact of tariffs. Did he get into how they're going to do that.
Yeah, The focus initially now was really going to be on the cost side of the equation and really some you know, internal initiatives and productivity to help mitigate the tariffs. They are going to have to raise prices eventually, but you know, I think that's probably more of a twenty sixth story right now. They're doing their best to kind of, you know, mitigate this internally.
So talk to us about underlying demand out there for Caterpillar tractors. What's the company saying?
Yeah, So I think this is really the big takeaway from the quarter. You know, the print was a little weak, it came in a little below expectations, But I think the big takeaway here is that underlying demand is still pretty darn reszils. You had backlog ubsequentially again this quarter, which set another record. You had improving order trends across all three of their main businesses. Dealer inventories still remain quite low, and the company actually raised their sales guidance
for the year. So you know, that seems to suggest us that underlying demand is still intact despite all these these tariff headwinds.
And now, how did their results kind of match up to some of their their peers if they believe there's Terrex Lindsay who already opened their books, how did the how does Caterpillar match up?
Yeah, I characterized the overall earning season for for US machinery is kind of mixed. If you think about really construction peers, which which is kind of more Caterpillars sweet spot. That's a market that's you know, kind of bouncing along the bottom. Here. We do have you know, infrastructure projects and these large megat projects which are helping to offset some of the weakness that you're seeing on the private, non residential side, things that are more interest rates inive.
But you know, you're starting to see some positive indicators that would you know, lead us to believe that you're going to start to see a cyclicl of recovery emerge in twenty twenty six. There's a number of you know, leading indicators out there that would support that, And I think really Caterpillars results here with orders being up in the construction business, with the backlog being up, really kind of reinforced that view.
Where does Caterpillar make their big trucks and stuff like that everywhere?
Right?
They're they're a global company. They've got a large footprint that spans you know, every continent in you know, most countries.
But if you think.
About it, at the end of the day, it's North America, right, It's more than half of their revenues. Europe is called it, you know, twenty percent, ish Asia Pacific a little bit below that, and then you know Latin America is kind of closer to ten percent. They are a net exporter out of the US. But as we saw today, you know, Tariff's probably going to be a little bit more of
ahead wind they than they had an initially anticipated. They're looking for, you know, somewhere between a one point three to a one point five billion dollar hit for this year.
So, Chris, you kind of touched upon this. Sales slipped in construction resource industries, but energy and transportation unit that had some higher sales. What is that that driving force behind the growth in engines and transportation.
So this continues to be one of really the big highlights for Caterpillar, you know, despite some of the cyclical softness that they're seeing, is the energy and transportation business, particularly in power generation. So think you know, data centers that are becoming an increasingly big larger part of the portfolio. Power gen continues to drive outsize growth within the energy and transportation business. There's you know, a multi year backlog there,
so we have, you know, veryly tremendous visibility. And what Caterpillar is doing now is really expanding capacity to help, you know, meet this growing demand for data centers and power generation. So there's a long secular tailwind at play here and really, you know, we think we have a pretty good visibility here over the back half of the decade.
So is Caterpillar and companies like Caterpillar, are they benefiting or do you expect them to benefit from maybe on shoring even more manufacturing in this country if to the extend that President Trump you know, wants to do that and he's been talking about that a lot. Is that something where kat would will see it?
Yeah, I mean I would say we haven't really heard of you know, I would say concrete or tangible evidence of that happening yet, and it's really difficult to you know, get a lens on that on a quarter to quarter I think, you know, if we look back, maybe over a five year window, maybe we'll have a better picture of that. But yet, no doubt, Caterpillar is a big
beneficiary of any kind of construction activity here domestically. And then not only on top of you know, not only just moving the dirt and building the the facilities, they are also, like I mentioned, having a have a bigger piece of the data center and power generation needs within
our within our country as well. So it's really kind of twofold, not only you know, with the moving the dirt and the facilities, but also you know, longer term, we think the secular tailwinds around power generation are you know, pretty favorable.
Hey, Chris, before you go, we have like about a minute or so left. People usually say this is like the Bell Weather for a look at the economy. Is this company can going to continue to be that spot and to hold that title.
I don't see anything changing in the near term here. They are the largest global manufacturer of heavy machinery. They have the scale, the dealer network, and really there's not too many competitors that are are that close to them. So they are the leading indicator for the heavy machinery markets and construction activity. And I don't foresee that changing anytime soon.
All right, Chris Chilian, I thank you so much. We appreciated that. Chris Chilian covers all the big equipment manufacturing companies for Bloomberg Intelligence. Just leaving a Caterpillar here based in Irving, Texas, one hundred and thirteen thousand employees. It's got a market cap of two hundred billion dollars, stocks up like twenty percent this year. It's Chris was saying, one of the plays on this data data center construction plays.
I mean, there's so many peripheral derivative plays off of AI. It even gets to Caterpillar, who's going to be you know, their equipment's can be used to build all these data centers that are going to be used for AI. It's just, you know, it's everywhere.
Have you ever been on one of these machineries. They are massive. Some of the I know, like the bulldozers.
And that you know Karen Ubelheart who's covered these names for decades. She's got some amazing pictures of her up on these most big farms, on these huge tractors, and.
What it takes behind it to make these is is It's incredible.
I'd love to see a manufacturing facility to see how you make one of those huge tractors.
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