Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am. He's done on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Man Deep Sing is here with us.
He's the Global Tech research head and mandeep this idea of big tech being called upon to pay for their own rising energy costs. As Bailey pointed out, this is authorugh a non binding statement of principles. He pointed out the winners and losers on the utility side. What does this mean for big tech? I mean, can any of them come out of this ahead with something like this kind of pressure?
Well, right now, I think everyone is looking at gigawat data centers right and when you think about what is existing in terms of AI data centers, these are fifty to one hundred megawont data centers. We're already talking about power requirements going ten x to one gigawat. And so how will a seventy to eighty year old grid supply electricity which is ten times more than what these data centers already consume? And so from that perspective, it is
a very topical question that needs to be asked. Where are you getting the ten times power that you need to run your one gigawot data center? And I think that's the realization that's coming in now. It's being reflected in the prices that consumers have to pay because prices have gone up for electricity. But I mean the computing that AI does requires ten times more power. That's getting starts a realization and I think everything will follow through.
Now, Man deep, is there a sense that big tech leaders might be open to working with the White House on this to kind of be in Trump's favor here and what might be impact be on their profit growth?
I mean, there's no doubt that AI data centers are a much lower gross margin business for hyperscalers. And these hyperscalers, I mean, Amazon, Microsoft, and Google, the three big ones have huge footprint. When it comes to the traditional CPU data centers. They were able to get to, you know, sixty five to seventy percent gross margins on the public cloud businesses they had. Now with AI workloads, we're talking
about a sub fifty percent gross margin business. No matter what kind of scale you have just because of the economics involved. These are sub fifty percent ross margin businesses. So on premise software used to be eighty to ninety percent gross margin. With public cloud we got to sixty five to seventy. With AI we are sub fifty gross margin. So from that perspective, I mean, even if you're Microsoft, you don't have a choice, but your margins will have to come down.
We're also looking at semiconductor saw as the best performers in the S and P five hundred by two dozen industry groups, and it feels like that TSMC bullish forecast was very much a tailwind for the industry. Obviously this is good news in terms of demand, But does anyone lose out here when TSMC is can't even meet the demand that is being required of it, Well.
Lose out, I think. I mean, what we've seen really is Intel really benefiting, So I wouldn't say anybody is losing out, But clearly everyone is so focused right now on the AI side that I feel suddenly everyone realized, oh, storage isn't short supply. We didn't talk about storage up until you know, the beginning of this year, so there will be you know, instances like this where one of the components gets neglected and suddenly everyone finds that to be in short supply and you need it, So it
could happen. I think CPUs. Nobody talked about CPUs in the past twelve months. Suddenly CPUs are in short supply. So that's where the IT infrastructure needs to be upgraded every four or five years. And when the time comes to upgrade the infrastructure, certain components, even if they're not tied to AI, could be short supply because we have reallocated their resources towards meeting the AI demands.
Stay with us. More from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am easterne on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Some earnings that we want to bring you your attention to JB Hunt, the truck carrier reporting quarterly revenue that missed analyssessments. Although some people might say that the bar was kind of high for this company, even as we've seen this continued weakness in freight demand. Lee Colascow is Bloomberg Intelligence's senior transport logistics shipping analysts and he joins us now to give us his stake on what we're seeing.
So what is the story with JB.
Hunt and how it's positioned for the current market environment.
Yeah, if you take a look at the stock, it's been up a lot over the last couple months, and some of that has been in anticipation of the trucking spot market to kind of turn more positive more positively, and that would be through more supply coming out of the market. So the stock is off a little bit off today, It was off a lot in the after markets last night, but it's come back a little bit and that's really being driven I think because of that,
you know, kind of high expectations. But at the end of the day, the company did report a pretty good print. Their earnings came in above consensus. It was driven by their intermodal, their truckload and their final mile businesses.
JB.
Hunt is a kind of an integrated transportation company. They provide a lot of different types of transportation services. UH, some of the ones that fell maybe short of expectations where they're freight brokerage business UH and dedicated business uh, and that you know, the dedicated business is being driven
by Uh. It takes you know, their winning business, but it takes a while for some of those businesses to ramp up and to kind of drive the margins uh that they're expected to because those you know, those ramp up costs.
UH.
You know, what I would say is that I think a lot of people were somewhat surprised by management's tone on the earnings call last night.
Uh.
You know, they noted that the market was fragile, uh, and that the supply that we've been seeing coming out of the truckload market, while it's been good, they don't want to get ahead of themselves and call this, you know, we're in full recovery mode because you know, we've had some false positives in the past. So they're pretty I guess, I guess cautiously optimistic about the outlook when it comes to the truck spot market, and that's so important because
it wants the trucks the spot market. Titans rates will go up in that market and that will kind of ripple across its contractual business. It's dedicated business, it's brokerage business, it's intermodal business. So it's kind of like the Canary and the coal Mine for freight transportation logistics providers lead JB.
Hunt is of course a big macroeconomic bell weather. What is it telling us about the broader economy and the year ahead.
Yeah, you know, companies like this will really do well when demand grows. Obviously, you know, they have seen, you know, a somewhat resilient consumer.
They did note that, you know, while.
There wasn't a lot of imports coming into the country for peak season, they benefited from a lot of freight that was already in the country moving across the country. So it does seem like, you know, they did see some peak demand during the fourth quarter, which is obviously positive.
But you know, I don't need to tell you guys, it does seem like this economy is a Casehape economy and it's really not kind of a widespread economic growth that we're seeing, where there's pockets of strength and pockness of pockets of weakness.
So cost cuts helped limit The downside for JB. Hunt is that the catalyst to get people excited again about JB.
Hunt.
You know what kind of cost savings that can realize this year. Maybe it can go further than what it had projected. When it comes to reducing expenses.
Yeah, I think there's two things here that people can get excited about. I think there is the prospect of a better pricing environment for JB. Hunt and the broader transports. That's one. Secondly, you know, they're not just sitting and resting on their laurels. They are actively trying to take out costs. They took out around twenty five million dollars in a fourth quarter. Their run rate was somewhat over
one hundred million. Management didn't really want to guide too much and what they expect that they can take out in twenty twenty six. But I suspect that they're going to continue, you know, that trend next year and they could bring some of their you know, margin targets. You know, most of their margins right now are trending below their kind of long term targets. And you know, through these cost cutting initiatives, productivity gains. And it's not just you know,
you know, cutting to the bone. We're not talking about that. They're trying to get more productive. So whether it's better utilization rates or their trailers, maybe it's better quicker turns for their draage fleet. All these things you know, will lower lower the overall costs, and if you put on top of that higher rates, it really could drive margins significantly higher and closer to those longer term targets.
Stay with us more from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Colocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube through.
Sax Global Files four Chapter eleven bankruptcy protection a humbling turn for the lux or retailer following a stretch of losses, flagging turnaround efforts, and a substantial merger related debt. There are also hidden costs to luxury consumers and brands. To discuss this with us is Rania set Home, managing partner at set Home Law Group Rania. What does this bankruptcy mean? Also for sax As shoppers and the brands that work with it.
A lot of the brands that worked with it are no longer working with it, which also you know, precipitated it's decline. It is sad. As you were saying, and I'm sure it's humbling. So it started I would say at least a year and a half ago. I started hearing from smaller brands, some of whose only footprint in the United States is with saxoth Avenue and Meme and Marcus Group, which is owned by the same company. They were not paying for consigned goods, although the goods were selling.
So this was the start of the end, really, And if you've tried to go shopping recently Sax with Avenue, you will notice a shift in the products that are available to you. And this is one of the reasons for consumers. You know, it's it's tough to say. When there's a bankruptcy estate they do not have to honor any kind of credit or rewards program, but I understand in this instance they will be honoring it. The issue becomes for you, is there something there that you want
to purchase? And how are you feeling about the brand in general? Something that I think Sacks did poorly was communicate. I received my first email from them about the bankruptcy yesterday, nothing prior to yesterday, So I think there's some room for growth there on the communication end. And you know, going back to the brands. What's going to happen to them? It's you know, it's too late, you know for them
to do anything. But on a going forward basis, if you are a brand and you're consigning your goods, there are a few things that you need to look out for. The first thing is is your contractual provision. It should state in this agreement that you own your merchandise until it is sold. That's the very first thing. And then once that provision is there, there's something called a UCC filing.
You should file a lean because this will give you an interest in the merchandise and you're no longer an unsecured creditor for purposes of bankruptcy, so you may actually get something.
So there's legal recourse for the vendors of sacks, many of which we're not getting paid regularly in the last couple of months. How does SAX go about repairing its relationship not just with customers, but with these brands, the brands that relies on in order to bring customers through the doors.
Yeah, I think, you know, people really discount the efficacy of good communication. But you know, as an attorney, I can tell you that as of paramount importance In fact, usually when there's a breakdown in relationship, it's because of communication. So the first thing that SAX needs to do, in my mind is tell everyone why this happened and what steps they're taking to remedy it, because we don't want
them to be repeat offenders five years from now. We don't want to be sitting in the studio talking about the other bankruptcy that they're undergoing. So it's important to figure out the why when it's such a drastic step that you have to take, and tell everyone, tell your vendors what you're doing to and help build trust again.
Rania. When you get this type of bankruptcy filing, what does Sex owe its investors and creditors?
Well, I don't know what the numbers are.
However, the Bankruptcy Code ranks people by importance secured versus unsecured, and you know, the landlord is certainly a secured creditor to the extent that they owe them money, they will be paid first. Any kind of loan they'll be paid, you know, amongst one of the first as well. So it's too early. I don't have the list yet.
You were talking about some of the MNA debt and this BA and gripscy, of course, comes a year after investors handed Sacks billions of dollars for its acquisition of Nieman Marcus, which was also struggling. What kind of risk was it putting investors through by acquiring Neman Marcus.
I'm not sure that that marriage was off to a good start from the beginning. You know, we as shoppers, I can speak for women, or at least for myself, we shop at a whole host of different places, and you could have one customer shop in multiple stores for different types of items. But in general, it's safe to say that the Marcus Group shopper is not the same as the Sasith Aveny shopper, who's not the same as
Bloomingdale's or Macy's shopper. So I think that marriage was rocky to begin with, and it was a.
Hefty price that was paid.
I'm hoping, as a consumer and for everyone's sake, that someone else buys name and Marcus Group, or perhaps they can buy themselves back. We do see that sometimes where you purchase yourself back from your acquirer.
Yeah.
I just went across the street to sas off Fifth thinking that I could get a nice deal on something and they just, yeah, I got rid of everything. What is next for SAX here? Do you think it makes it out of this?
I think SAX does make it out of this. But I'm an optimist by nature, just so everyone listening knows that. But I do think they're going to have to contract in order to grow. So this is the time to be extremely self aware, extremely scrutinous, and determine which stores are going to provide you with the most relevance to your customers, and which ones can you stock well and have pre eminent customer service, and then close the others.
You can always reopen stores. It's not a good idea to just have a huge footprint that's lackluster.
Stay with us. More from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay, and Android Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
John, when was the last time you ate at McDonald's or Taco Bell?
Ah, it's been a while Taco Bell, never McDonald's, maybe like years. Look at me, I can't that's stuff anyway. Well, apparently it is approaching noontime, so lunch is here.
Yeah, maybe you'll have to go there for lunch. We'll have to check out Taco Bell.
Apparently those restaurants are going to get a boost from December economic data that is poised to lift US restaurant same store sales. That's along with cheaper gas prices and relief from new tax rules. We'll get more into this with Michael Halen, Bloomberg Intelligence Senior restaurant and food services analyst. Michael, what is your outlook for restaurants sales going into twenty twenty six.
Yeah, we think sales are set to improve here in twenty twenty six, especially in the first half. You know, oil guessling prices are down, you know, thirteen ish percent versus one queue of last year. We're lapping you know, bad weather, cold weather, snow, and a really bad flu season from a year ago. And then we have tax relief, which which historically really helps restaurants spending, and you know, and then we have a couple of things on the upside.
I mean, this administration is looking into, you know, potentially credit card reform, and I don't know, if they're done with the tax reform, and we could see more interest rate cuts. So all of those things we think are going to feed into better consumer sentiment. And we saw that in some of the economic data last month, and we think it spells, you know, a much better a year for restaurants spending.
Were were talking about Daniel Blues Restaurants or Mickey D's.
Well, you know, we think McDonald's, you know, a lot of these chains we cover are going to benefit, but we think you know, McDonald's in Taco Bell in our most recent note, we're two that we pointed to because low income consumer are going to benefit from the tax reform. They're they're the segment of the consumer that I have kind of pulled back from restaurants in the last couple of years and so giving them a boost with tax reform.
They're the ones that you know, are most sensitive to gasoline prices, so the cheaper gas is going to help them the most. And like I said, we've seen it in the consumer sentiment data that the improvement in University of Michigan consumer sentiment was due to low income consumers. So these things are all pointing to, you know, better results at fast food chains like McDonald's and Taco Bell.
Are there any specific chains that you think will be bigger beneficiaries than others?
Well, outside of those two, you know, cav and Wingstop are a couple of the names that we think can have big bounce back years. You know, Cava, you know, in a vacuum. It had a very good year, right, but they didn't hit lofty targets that they had set, and earning slowed off of a very strong twenty twenty four, and so we think they're set up really nicely to see an acceleration here in same store sales and kind
of same thing in Wingstop. Both of them were victims in twenty twenty five of incredible twenty twenty four success, and now that they have much more reasonable same store sales comps to LAP, you know, we think we could see a big boost there.
You know.
Wingstop, one of the big things that they have going on is a new smart kitchens that are gonna massively, massively help the operations improve sea service and get people their wings hotter and faster.
Oh okay, what are you talking about the intersection of AI and chicken wings?
Yeah, I mean, you know, restaurant business. Listen, the restaurant businessman has been historically underinvested in technology, you know, and they've been quickly.
And a deep fryer. What technology?
Yeah, Well, listen, when you go and sit down in a restaurant and you have five people ordering five different things, right, you don't start them all at the same time, right, Like your sushi is going to be done a lot, maybe faster or slower than my chicken karaaki, right. And so technology is being used in the kitchen to let the cooks know when to fire each meal so that everything comes out at the exact same time hot. Right.
So there's definitely a lot of uses for artificial intelligence and small kitchens in this industry.
So, Michael, what does that mean. Are we going to go into a McDonald's and see robots making our fries? What does this mean for jobs at restaurant chains?
Well, you know, restaurant chains have been able to reduce labor hours by increasing the amount of automation. Me personally, you know, I don't and I don't think we're going to go into restaurants that don't have humans working in them anytime soon or maybe ever. But you'll continue to see kiosks right, because that takes away labor at the at the counter. You'll continue to see upgrades to kitchens and more kitchen automation to help decrease the labor needs
in the kitchen. It will it will continue to be a point of focus as minimum wage continues to increase and labor continues to become hard to find. So yeah, it's it's going to continue to move this direction. Like I said, we've this business is underinvested in technology for a very long time, and so they have a long way to catch up to you know, competitors say in packaged food, where they're our plants are very automated.
This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal