Daybreak Holiday: Global Technology, Antitrust, Summer Travel

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2:01markets are closed for the Juneteenth holiday. I'm Nathan Hager. Coming up this hour, we look at the state of antitrust in America with a paramount Skydance takeover of Warner Brothers Discovery, getting final approval from the Justice Department. But is it final? We'll discuss with Jennifer Rhee of Bloomberg Intelligence. Plus, the official start of summer is just days away. We'll look at what's in store for summer travel season with Nikki Eckstein and Chris Rauser of Bloomberg Pursuits. But we begin with earnings, because one of the big flyers in the tech space, Micron Technology, is set to report next week.

2:36For a look at that and more of what the tech landscape's looking like, about halfway through the year, We are very pleased to welcome Mandeep Singh, Global Head of Technology Research at Bloomberg Intelligence, along with Bloomberg Intelligence Senior Tech Analyst Anurag Rana. It's great to have the both of you with us on this holiday. I mean, you just think about the run that not just Micron, but pretty much all of the memory chip stocks have had this year. It has been mind boggling. Mandeep, what are we expecting when we actually hear second quarter numbers from Micron in the coming week? When it comes to Micron, they have had a phenomenal upward revision this year, simply because memory demand has inflected.

3:21First, we saw that with HPM, the high bandwidth memory that was used with all the accelerator chips. Now we have seen the same with DRAM and NAND and other types of memory. And, you know, there is a lot of stockpiling going on, but for a good reason, because, you know, when you look at the large language models and the interesting side of LLMs, there is no doubt that, you know, these models are being used for use cases like coding agents. And that has just resulted in a lot more demand for all types of memories. And that's showing up in the device upgrades, that's showing up in the new server deployments.

4:11But this is a very big secular trend, and which is why you're seeing Micron probably going to post over 200 % growth this year in 2026. That demand has led to huge increases, as you know, in memory chip prices and huge increases in capital expenditure forecast by so many of these companies. I wonder when we start to see a top on both of those, Mandeep, do you see that on the horizon? The way these cycles work is, you know, as you know, memories and oligopoly with Micron, SK Hynix and Samsung. And these companies haven't really expanded their capacity in a big way. So when you look at the CapEx of the memory companies, they've been more around, you know, mid to high single digit type of capacity expansion.

5:11And the sort of demand trends that I alluded to earlier, we have seen demand grow 2x, 3x. So when there is such big supply-demand mismatch, I mean, the pricing obviously is off the charts, which is a big driver of the top-line growth of over 200%. But we don't see that supply demand coming into equilibrium anytime soon simply because that capacity expansion is so muted. And until these memory companies expand their supply in a big way or we find there is a new memory player out of China or somewhere else, it's hard to imagine what will resolve this mismatch anytime soon. I want to bring you into the conversation, Anurag, because I know you cover many of the hyperscalers that are behind so much of this memory demand, as well as the software stocks that could potentially be disrupted by what we're seeing in the AI build out.

6:13What's your view on where the demand picture is headed from here? So it looks like that the CapEx is going to be revised upward again, which is obviously good for all the semi names and memory, as Mandip was talking about. But that's really the big focus right now. We came into the year with a very common trade that was everybody's long semis and short software. And that continues to be the case, although we have seen some relief over the past few weeks for software names. But the easy trade for everybody is CapEx is going up. So the hardware and the semi names should benefit because of all that's going into that realm.

6:53And we are uncertain how the software world is going to shape up because these models are getting smarter day by day. And if that's the case, you don't need to pay so much for package software down the road. So that still remains the case. If you look at it, Microsoft is down over 15 % this year. And yet some of the other cloud vendors, such as Amazon, is up this year. So that's your dichotomy over there. Well, Anirag, how do you see the software name sort of navigating the potential for disruption at this point? We haven't just heard from the hyperscalers. You've heard from the likes of Adobe and Oracle as well.

7:31Yeah, I mean, each one of them has a different story that's going through it at this point. So when you look at, you know, we published a big report earlier in the year. When you look at bigger companies like SAP, we think they are a little bit better protected than maybe somebody like an Adobe where the product or the LLMs can do some of that model generation or the image generation as well as movie generation. And I think that's where a lot of the arguments is. We are not seeing a lot of fundamentals get eroded at this point, only because we are still early in the AI model race. But down the road, there is a high chance that some of them will lose business to the lower end of the market.

8:17The bigger question is whether enterprises will shift into their homegrown systems or They still depend on the likes of Workday and Salesforce and all the other companies. At this point, we are not seeing that mass shift over because, again, as I said, it's early in the game. But I think that's the big risk for them. We're speaking with Anurag Rana, Senior Tech Analyst for Bloomberg Intelligence, along with BI's Global Head of Tech Research, Mandeep Singh, for a broad look at the tech space as we're getting closer to the second half of the year. Mandeep, of course, one of the big elephants in the room in tech right now is the arrival of SpaceX in the public market, not just a rocket company, but positioning itself as a major player in AI as well with these dreams of data centers in orbit at some point.

9:10How do you see SpaceX affecting the overall AI race now that it's in the public market? That makes it even more exciting in terms of, you know, what we are witnessing with this big technology shift that we are talking about in terms of AI and with space. Really, you know, it's SpaceX with the IPO has shown that it is iconic in terms of what they have achieved. And even with the orbital data center vision, I know, you know, right now we don't have anything tangible in terms of actual compute being done in orbital data centers. But as a concept, you know, it is huge in terms of meeting some of the compute requirements that we are talking about with AI.

10:04And if that vision turns into a reality, which is what they laid out, you know, with the roadshow, it could be huge for, you know, just the technology dominance that these companies have had. And I think the AI piece of SpaceX is clearly a vertical strategy that they are pursuing. You know, not only do they have the compute with the terrestrial data centers, they also have this orbital data center capacity and they can deploy it within their own rock model, which is what they're hoping to improve with the acquisition of Cursor. So a lot of moving parts in that company, but, you know, they have a grand vision.

10:50And if there's anyone who can make that space vision a reality, I would bet on SpaceX. And so it is a big bet. And we still don't know how feasible it is to, you know, send these 100 ton loads to space because they've shown they can do that for up to 23, 50 tons. But sending it 100 tons of payload and then doing that in a reusable way, that is the part that I think technology challenge that still needs to be solved for. And I think SpaceX is best positioned to do that. Of course, it is early days in terms of how SpaceX is going to perform in the market. and to your point, Anurag, about it being early days in the AI race in general.

11:40In terms of the stocks that you cover, some of those software names, is there a SpaceX impact in your coverage area? Oh, no, there is no SpaceX direct impact other than the traders trying to, I would say, pivot more towards those kinds of names and perhaps selling some of the traditional technology names, whether it's in consulting or software. I mean, we have seen some pressure on that in the last few weeks. But, you know, by and large, there is no direct impact. There are so many dynamics around the tech story as well, not just this huge amount of competition, the valuations, but, you know, there's been some level of pushback as well, not just from many consumers who are concerned about AI's impact on their job prospects or society as a whole, but some government pushback as well when it comes to Anthropic in particular.

12:41Mandeep, how do you see that potentially affecting how things go in terms of the fundamentals for these companies? Yeah, look, Anthropic has had a phenomenal growth this year, year to date, their revenue has grown, you know, 5x from where they were back in December. And, you know, it's a$47 billion revenue run rate business. So if something like this happens, where a government bans, you know, the use of its models outside the country, it is a big deal. And it will have repercussions in terms of, you know, what kind of growth we can expect especially outside the U.S. for a frontier model like Entropic.

13:29But it's still early days. I think Entropic being labeled as supply chain risk was always a threat. And, you know, they talked about the capabilities of this Mythos model, which they commercially released under a new name called Fable. This has capabilities that could be used for all sorts of purposes, not just for useful work, but also, you know, for cyber attacks. And I think poses a lot of risks. So from that perspective, we are still learning about the capabilities of this model. And I think like all these frontier labs may have to take a pause and really highlight the risks involved in deploying these models at scale.

14:18And that's where I think the governments will step in and make sure that sovereign element is clear and they know exactly how to regulate this. So there will be a lot more emphasis on regulation and government involvement with the deployment of these models going forward. Really appreciate the perspective from both of you as we keep a closer eye on the tech space into the second half. That's Anurag Rana and Mandeep Singh covering tech for Bloomberg Intelligence. Up next, we're going to take a look at the current state of antitrust with Jennifer Rhee of Bloomberg Intelligence. It's 20 minutes past the hour.

14:56I'm Nathan Hager, and this is Bloomberg.

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16:28U.S. markets are closed for the Juneteenth holiday. I'm Nathan Hager. The Justice Department's closed its antitrust probe into Paramount Skydance and its$110 billion purchase of Warner Brothers Discovery. But it's far from a done deal. For more, let's bring in Bloomberg Intelligence Senior Litigation Analyst Jennifer Rhee. Set up the leading question, Jen. Why is it not a done deal? Right. You'd think that that would be a big hurdle for them to cross, but it wasn't really much of a surprise, to be honest. but this deal needs approval from regulators in the UK and also in Europe before it can close.

17:05That's a term within their agreement but also the laws of those jurisdictions say that they need to get clearance before they've closed. And so those are ongoing investigations with some important dates coming up in July and August whereby each one will decide whether or not they'll move into an in-depth investigation of the deal or clear the deal with or without concessions. So the UK and the EU, what are the main hurdles that they could potentially be putting up against Paramount Skydance in that Warner Brothers acquisition? So they're looking at a lot of what I think challengers or complainants in this country have looked at.

17:44The overlap in the movie theaters, it's really kind of big five going down to big four. There's some other fringe studios. But specifically, I think in Europe, the concern might be an overlap in children's television stations. Most children's television stations in both the UK and Europe are owned by American companies. And with this combination, Paramount and Warner Brothers, you bring together Cartoon Network, Nickelodeon, Nick Jr., Cartoonito, and they both have some international children's channels as well. So I suspect that there may be some concessions needed with respect to divesting some of those channels.

18:20Okay, I think there'd been some Bloomberg News reporting that Paramount Skydance might be willing to work with some of the regulators overseas on potentially divesting some of those children's channels. Would that be enough? You know, I think it will, maybe with a few behavioral concessions like promises to license their content to other distributors, streaming distributors in those jurisdictions on fair, reasonable and non-discriminatory terms rather than favoring their own streaming products. A few behavioral concessions, but I think that'll probably be enough to get those deals over the line.

18:54You know, when Disney acquired Fox, this is what they had to do in Europe. There was an issue there with an overlap in what they called factual channels. These were mostly channels operated by A &E. And in order to get that deal cleared, they did need to divest, I think it was something like five or six channels that were A &E stations. Now, if the deal does get over the line in the UK and EU, would that be the ultimate clearance for this? So not necessarily. You have the California Attorney General investigating the deal now with apparently a group of about 10 or 9 other states. The states have the right independently to enforce federal antitrust law, no matter what the Department of Justice does.

19:33So if the states determine that they think the deal could harm competition, they can still bring a lawsuit and they keep saying, hey, this isn't over yet. We're investigating and we're not done yet. So it's possible they could still go to court to challenge the deal, even though it's been cleared by the DOJ and will likely be cleared elsewhere, too. And to that point, the Justice Department has said they don't think that joining these two companies would be unfair to competition. So what are the potential arguments that the states could make? Well, the first thing I'll say about this is that the Department of Justice did say that, but gave very, very little detail.

20:09They basically just said, hey, it's a competitive market. And these companies have promised the world. They've promised to invest. They've promised to maintain employment. They've promised to increase their slate of movies they produce and to maintain theatrical distribution before going to streaming. But usually that's not those kinds of promises aren't good enough. And somebody, usually the authorities want those to be put down on paper. So it may be that the states, there are a couple options here. The states just simply want to do better than saying, here's what the company said they would do and we're OK with that.

20:43You know, they might want some kind of a settlement. So the states are legally bound to those. The companies are legally bound. And again, I think there's a lot of room here. You know, antitrust and harm to markets can really be very gray and can be subjective, you know, where one assessment could show unlikely harm. Another could show likely harm. Because remember, they're looking at what might happen in the future if two companies come together. What might their incentives be? What might happen in the market? So everybody's speculating. Obviously, it's not out of the realm of possibility that two different speculators could come out differently on that.

21:20And in the markets here, it's really very close. we tend to think of about a 30 % combined market share as kind of being that level by which below it, you're probably not too worried, but above it, maybe you have some concern about harm. And I do have to say, in most of the overlap markets for this deal, the shares get to about that level, but don't exceed that level. So it's hard to make out kind of an initial case that this could harm competition. But in particular, I think California is concerned about labor and the labor market in those cities in the state, where they're making movies and content.

21:55Yeah, to have California potentially leading the charge on a challenge to this merger, it makes you think that this is kind of the home state, right? I mean, this is where Hollywood is. So what's the track record, or is there a track record for California when it comes to mounting challenges to mergers in their sort of home state industry? I would say that that track record's pretty good, but it's very new. You know, it is unusual in the past for the states to go out independently. They're generally aligned with the federal antitrust enforcers. But what we have seen is a bit of a departure in the last couple years, whereby states are striking out independently in cases where they deem the Department of Justice having been too lax or not doing their job.

22:42And they've had some success. So, for instance, Nexstar and Tegna have merged. They were cleared by the Department of Justice and Federal Communications Commission. but the state said not so fast. We think this is a problematic deal. They went to court. They tried to get to court before the deal closed, but they didn't manage to do that. But they went to court and they successfully obtained a preliminary injunction, stopping the companies for now from integrating until the judge can decide on a permanent block on the deal. So that's in litigation. They also had great success in a lawsuit against Live Nation for monopolization.

23:16That was a jury trial, and the Department of Justice was a plaintiff with the states there, but settled during the first week of trial. But a large group of states said, no, this is a problematic deal. The settlement doesn't resolve the concerns. They went forward, they litigated the case, and they have won a liability decision. So again, a big success for them. And that's still litigating now. The remedy aspect of that is what we're looking at now. We're speaking with Bloomberg Intelligence Senior Litigation Analyst Jennifer Rhee on where the Paramount Skydance Warner Brothers merger could go now that the Justice Department has approved the deal.

23:52If we do get to a point, Jen, where the states bring a lawsuit and it does come to court, what are the potential arguments that Paramount Skydance could make in their defense that combining with Warner Brothers wouldn't be a harm to competition. Well, I think exactly what they've said to the Department of Justice. Now, we're promising something like 30 releases, and if we're going to release that many movies, we need to maintain both of these studios and maintain the employment, because otherwise we can't get to that volume. That we promise a certain theatrical release window in big theaters, and so it's not going to harm theaters, and it won't harm labor.

24:32And gee, in streaming, when we combine HBO Max and Discovery Plus and Paramount Plus, were still much smaller than all the other big streamers out there, Netflix in particular. And combined, we only get to about, I think, a 15 percent share in the United States. And these are just simply not historically problematic figures in antitrust jurisprudence. So I think those are the kind of arguments they'll make. And if it gets to that point that we do see those kinds of arguments, could we see the Justice Department looking for further commitments or even further concessions from Paramount? I think not at this point, because as of June 16th, the Department of Justice cleared the deal and issued a statement saying, you know, we're done.

25:10We don't think it would harm competition. But you could see a settlement with the companies in the states whereby they make certain promises. Now, time is of the essence, isn't it, for Paramount Skydance to really get this deal done to avoid ticking fees to Warner Brothers Discovery, right? So how does that affect things? Right. So they have this ticking fee that'll kick in at the end of September. I mean, interestingly, the end date in their purchase agreement, it isn't until June of 2027. So they technically have time in their agreement to litigate if they have to. But what they're going to need to do if they get these clearances from the UK and the EU, but the states go ahead and sue them, they're going to have to fight hard against a preliminary injunction.

25:54That would be a temporary or short-term block on closing the deal while a judge can decide on a more permanent solution because that would absolutely extend well beyond that September 30th date by which the ticking fee would kick in. And I'm thinking they're probably going to want to avoid paying that. So they'll be fighting hard at that stage of the litigation or, I think, trying hard to settle with the states. Could that affect further the terms of the deal to try to get out from under those ticking fees as fast as they can? You know, I don't think so. So I think they're just going to do everything they can to fight hard and put resources into this and to be aggressive to try to prevent anything that stops them from closing before that September 30 date.

26:35So how do you see this shaking out as we get closer to that? You mentioned the dispute in the UK and the EU, trying to get through that as well. What's the timetable? How do you see things playing out? You know, I think what the companies will do is offer up concessions in the UK and EU and get those jurisdictions to clear before going into in-depth investigations. Because if either one did open an in-depth investigation, it would absolutely extend well beyond September 30. Right now, they're in what they call a phase one, whereas an in-depth would be phase two. And Europe has to make a decision about that July 7th and the UK on August 7th.

27:15But the companies can offer concessions before those dates. And I think that they will do that because then they can get these clearances before September 30 for sure. And I think that's how that'll probably play out. Do you see any chance of any of these factors scrubbing the deal? I wonder if Netflix is sort of still waiting in the wings there. Is that just way out of left field? You know, no, I think Netflix might still be waiting in the wings. There's been so much vocal opposition to the deal that I think many observers might think there's some chance of getting it blocked. I would say that when you really dive into the nitty gritty, it just doesn't really raise clear cut or slam dunk antitrust issues that a judge can easily rule on against the companies.