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Getting back to Earth here, but we're still talking to elon Musk. Tesla had some numbers come out that were, in terms of deliveries a little bit disappointing. But I guess I'm like a lot of people like, are.
They really a car company or is there something else.
That's exactly right? So let's go to a car person. That would be David Welchi's a Detroit Burrough chief for Bloomberg News. He's based in Detroit. Hey, David, talk to us about Tesla's delivery numbers here. What did you see and what's the company saying.
Look, it was a disappointing quarter no matter how you located. Even though it was up over last year. There's some complete there's some complexities there. So they were they greatly disappointed. What analysts and investors expected them to sell. It was up over last year, So how does that happen? Last year? This time there was a backlash against Elon Musk over Doge and everything he was doing with the Trump administration,
so sales had really pulled back from that. If you look at this first quarter versus previous years, not twenty twenty five, but twenty twenty four, twenty three, it's down significantly from there. So Tesla's overall sales globally have just been sliding here for quite a while. EV sales are down all over the globe. I mean not in every market, but the Chinese have pulled back on some of the
incentives there. Even Bid has seen a couple of tough months in terms of sales with some of those government based incentives going away. Trump administration got rid of them here. That's hurting EV sales here, and that's all they sell. They getting rid of the Model S and the Model X. And you know, they're the companies trying to pivot toward robotics and automated driving, both of which are very big challenges to beat in the next few years. It's just
very difficult to get cars to drive themselves. And the methodology Tesla is using is different from everybody's. They're relying on their data, So look it's it's going to be a tough road ahead, I think for Tesla to really turn investor sentiment around, because they're not selling vehicles like they used to, and there's there a lot of big question marks on the new strategy and the big pivot that Elon Musk is making with this company, all right, and.
That's kind of been the story with Tessa for a while now that you know, even though it does still sell cars, that that trajectory has gone down, and with ev sales slowing overall, what's interesting is with the oil prices now elevated, there is more interest among consumers at least into looking into examining the prospect of buying an evy to save on gas costs. There's another story out today, David about Stillantis in talks.
To make Chinese evs in Canada.
I thought that the US car makers were staying far far away from the Chinese ev makers.
They are, But then against Dealants is really a European company with a big US harm, isn't it? But look at Canada relies on the US companies and Toyota largely for its auto industry. That's that's you know, it's for GMS de Lantis and Toyota UH to a degree, Honda that are making a lot of vehicles up there. That's where they get you know, they're there their domestic supply of cars that aren't imported and facing tariffs now and
also for employment. And if you're going to have this trade tension between the US and Canada UH, which which we have had for a while now, and and we're unsure of what's going to happen with US mc A. There's a lot of talk that you know, maybe Trump will cut separate deals with Canada and Mexico, and he's been very annoyed with Canada these days. Then Canada has to look elsewhere for companies that are going to invest in their industrial base and make vehicles there that aren't
going to be subject to different trade issues. And they're increasingly looking to the Chinese, and I think they would welcome that. Stoantis's partner, Wheat Motor, I'm sure they'd love to get into the Western hemisphere with the hopes that one day, if trade tensions between the US and Canada subside, they could actually send some of those vehicles into the
US market And it's not a bad place. These would be small plants, but it's not a bad place for the Chinese companies to get in, even if they need a partner to do it.
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When it comes to the drivers in the market, in particular the tech part of the market, it's all about the hyperscalers and how much.
Money they plan to spend this year going.
Forward on AI infrastructure and hyperscalers. We're talking about Alphabet, We're talking about Microsoft, We're talking about Meta. Microsoft was one of the originals the ogs when it comes to building out its AI infrastructure. Brody Ford is one of our reporters here at Bloomberg. He covers the technology sector.
He covers software among other parts of tech, and he has a Bloomberg Big Take story on how Microsoft's CFO has some AI ambitions that are running up against the tech bubble fears and Brody, you kind of write and let's take you inside what's going on at Microsoft and understand how the CFO amy Hood has made these decisions on when to spend, when not to spend, when to
pull back. You didn't get a chance to speak with her because she doesn't talk a lot to the public, but you talked, You did a lot of reporting around Microsoft with her team.
What did you learn.
So why this story is so interesting is Microsoft, as you said, is kind of one of the original hyperscalers and they're sitting on really a nation state size investment pool. And the big question the economy right now is are all these data centers going to pay off? Are all these tens and hundreds of billions of dollars actually going to result in businesses that make margins that are worthwhile?
And at Microsoft, amy Hood has effectively become all powerful. Right, you have a CFO who is making decisions about allocation of resources and data centers and who.
Gets GPUs and where.
And what we largely found is that she took a bit of a skeptical tone over the years. She took a bit of an anxious tone, even that there were moments where she said, man, we really might be overspending here.
So she decided to dial back some of that spending. Was that a mistake in hindsight, A lot.
Of peop people would say it was. It was maybe about a year year and a half ago.
She looked at the numbers that folks were giving her and she said, Man, I don't believe this demand. I questioned this demand, and you know, it's time to hit pause on a lot of these data center projects. And I don't know if you remember, but when this played out in public, it rattled the markets. Everybody saw this as, you know, a sign that Microsoft was getting cold feet. And you know, we're able today to say that that
that is what that indicated at that time. Of course, today Microsoft is in the position of finding that, golly, we can't find enough data center capacity and our business is being held back by it. And so it seems clear that they undershot their demand projections. And you know, we're in a moment right now where industry consensuses spend as much as you can, as quick as you can on data centers, and I'm sure in six to twelve months we'll talk again and the consensus will flip once again.
And because Microsoft is one of the og hyperscalers. When Amy Hood decided to pull back a bit on spending. That not only caused questions in the market, but it caused other hyperscalers to kind of rethink they're spending as well, didn't it.
Well, I think it actually created an opening in many cases a lot of the sites that Microsoft walked away from, some of the younger rivals, think the core Weave, the Nebius, the n scale.
They kind of.
Swooped in and said, Man, we're ready to buy some data center capacity here. And I think all this kind of shows just how difficult it is right now for the big hyperscalers. I mean, you know, they for a long time had a business model based around no assets around software that hey, if you want to change your plans, you really just kind of have to reallocate some coding teams, and you know, you don't have these long term fixed
assets that depreciate over ten fifteen years. And now they're in the position of trying to act almost more like a Boeing or a ge these kind of old in dust real giants, and you know, forecast out demand for a technology that's still emerging. It's it's a really tough balancing act. And I'd argue that there's nobody out there who has more directly on their plate in this than Amy Hood.
Does I like the way you put that.
They kind of went from it feels like asset light to very asset heavy because they now own and oversee these big, these big data centers. Does that mean that investors eventually will kind of re rate these companies as well given what they have on their on their balance sheet.
I sort of think we're seeing it happen already. I mean Microsoft is down, you know, about a loss about a quarter of its value over the last year, and I think a big part of that is the margin story that you know, their margins have been pretty steady, but that's only because they've really been cutting in a
lot of the other parts of the business. Right, we write in the story that you know, their cash cow businesses, let's call it like a windows, have had had a lot of cuts in them because this new AI business the margins are so much lower, right, And so you had a company that was printing some of the craziest margins in the world now renting out servers at a much lower margin and having all this, you know, tens of billions of dollars of chips on their balance seat.
It does paint a different picture of a company right and the question is are they going to keep spending this way in perpetuity?
Are we in a phase?
I think that leaders like Amy Hood are really charting in new territory and answering all this in real time.
The stock is down twenty five percent year to date. Is Amy Hood feeling any pressure for some of her maybe decisions as it released to AI spending.
Our understanding is a lot of folks in the company were not happy with her around the pause last year. That said, it wasn't our indicator that you know, hey, she's going to get the boot over this or something.
All that said, she's been in the seat for thirteen years.
That's a long time for any CFO, and it's our understanding that there are starting to be succession conversations. We heard some names that were interesting. Chris the CFO over at VISA, well regarded figure over there. You know, he's a name that comes up a lot because he used to be at Microsoft. He knows the business he left and kind of gained skills and could be primed for a return. There's somebody named Matt McBride, who's kind of
her internal air apparent, right. I mean, his name will certainly be in the ring here, and so I wouldn't be surprised if in the next year or two we're talking about, you know, the great Microsoft CFO search. But at the same time, I don't think it's that, you know, she screwed up a decision and now she's getting the.
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Let's stay with the tech theme a little bit, but we'll go to the credit side of the equation. Why because these companies are issuing debt handover fist, which is something we haven't really been used to, but that is something that is a big theme I think across the tech space is kind of how they're funding some of this AI. And the best name for us to chat with on that story is Robert Schiffman. He is tech credit analysts for Bloomberg Intelligence. Let's start with Intel, Rob.
I mean, I'm just looking at the stock and the stock's really turned around, really working from a credit perspective. What's the view of Intel, because there we're some concerns.
Sure, first, happy holidays to all. Unlike Ira, I will not be working tomorrow. I will be eating through one of our hundreds of boxes of matza.
Okay, so we have on the six floor.
God bless our our rates chief of staff. Yeah, listen, it's nice to be talking about a name that actually people like in the technology space. Now, stock is up thirty odd percent this year. The S and P five hundred Tech index is down almost ten percent. Spreads or fifty basis points tighter over the past six months. I actually think they they're the original poster child for AI.
They announced that they're going to be spending tens of billions of dollars building foundries, not data centers, and free cash went negative. They barred a lot, stock sold off, bond sold off, and lo and behold. You know, they're in the midst of a pretty major turnaround. I think it's a plan others can can potentially follow over the next couple of years.
But what makes Intel different, Why was it able to pull it off? And how will other companies who might want to follow in its footsteps be able to you know, follow this blueprint and also succeed.
Yeah, well, there's a lot of benefits of having big, powerful friends. So first, you know, the government converted some of their grants into a ten percent equity state that was over eight billion dollars, and Video wrote them a five billion dollar check, and SoftBank wrote a couple of billion dollar check. On top of that, they sold assets, so they gained almost another ten billion dollars in assets
sales for non core businesses. So unlike others that have been doing nothing but been borrowing and adding leverage, this company has been on a de leveraging push. On top of that, they're fundamentally their core business is starting to improve, so a better balance sheet, a top line that we're looking to see grow this year after falling five straight years in a row. So they are doing things that are different and they're getting paid for it all right.
So on the Bloomberg terminal, if you want to see who the shareholders are of any particular company, you just type in HDS for holders number one for Intel, black Rock, okay, Number two Vanguard got it. Number three United States of America, you don't see that every day, and number four Nvidia. So those are the partners for Intel here. How about the free cash flow story, because I was just looking back at the FA function and as you said, negative
free cash because they're spending so much on capex. You're a bond guy, you like free cash flow. How's that story developing.
Yeah, we haven't had a lot of free cash flow the last few months to talk about, and we haven't been worried about it. Listen, Intel has been bleeding cash. It looks like they're probably going to be around flatish this year. That being said, though, with all these transactions that they've done, they've built a pretty big base of thirty seven and a half billion dollars of cash on the books. They're using some of it to buy back Apollo stake in one of their jps. It's a phenomenal move.
You know, we wrote yesterday that it was a sign of strength. What this company had to do is some creative financing, like you know we've seen with AI. We've seen some of these off balance sheet SPVs to raise money so it doesn't lever the companies. Intel was sort of the first to do this, but they did it with a variety of foundriies. They did a deal with Apollo,
and they did a deal with Brookfield. What they're doing now is they're unwinding one of those and it's showing that they now have the financial firepower to go into this build on their own. They don't need partners anymore. So they're using some of that cash that they've got from their equity friends and they're using it now to take a bigger stake in what will be upside in terms of cash flow and EPs from this foundry business. So it's a real sign of strength. It's not just
from US. SMP came out right away yesterday and said thought it was credit neutral. Moodies came out and said they thought it was credit positive because it was going to enable quicker deleveraging over a shorter period of time. So it's a real sign of strength, and it's one of the few names that put the equity and the bomb Mark's really love.
And very quickly, Robert, do we give all the credit to Boomtown.
Let me tell you something. You bring in a new CEO and you make the type of changes that he's made. I think every technology firm would love to have a CEO like that, so yeah, I'll credit kudos to him.
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