Daybreak Holiday: Walmart, Nvidia, OpenAI

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1:49Hello, everybody, and thank you so much for joining us for this special edition of Bloomberg Daybreak. U.S. markets are closed for the President's Day holiday. I'm Nathan Hager. Coming up this hour, we'll look ahead to a couple of major lawsuits on the docket. Elon Musk's battle against OpenAI and the Justice Department's case against Live Nation and Ticketmaster. We'll break them down with two of our litigation analysts from Bloomberg Intelligence, Matthew Shettenhelm on Big Tech, and Jennifer Rhee on Big Ticket. Plus, we have a big earnings report coming up from AI Behemoth NVIDIA. BI analyst Mandeep Singh and Kunjan Sabhani will be along to preview those results.

2:25Before that, though, we hear from the world's biggest big box retailer this week. Walmart reports earnings on Thursday. Here to get us set for that report are Bloomberg Intelligence senior analyst Jennifer Bartasius, who covers retail staples, and Poonam Goyal, who's got things covered on the e-commerce side. Thanks to both of you for being with us. And, you know, coming off the flat retail sales report for December that we saw recently, Jennifer, I'll start with you. How does that affect what we could see from Walmart when it comes to the earnings this week? You know, what's interesting is that for Walmart, it doesn't matter so much what the retail sales do, just because the trends that are in place have really been conducive to their growth in their business.

3:07People are seeking value. People are seeking ways to streamline their time and find convenience. And Walmart just seems to be gaining share based on their ability to offer that to their customers. So regardless of the macro environment, Walmart really seems to be thriving at the moment. And Poonam, to bring you into the conversation, we're seeing a lot of consumers seeking out Walmart's business on the e-commerce side as well. How could that play out into these earnings? We think Walmart will continue to do well on the e-commerce side. If Amazon is any reflection on how the consumer is shopping online, they had great numbers on the retail side, high single-digit sales growth in their online business.

3:51We expect Walmart to be no different. They've put a lot of investment behind their e-commerce unit, and they have been very quickly gaining shares over$100 billion in GMB today. That's pretty impressive given how little time they've gotten there. So we think the e-commerce handle for them will play out well, just like it did for Amazon. You know, it's interesting, Jen. Walmart is seeing competition from Amazon on multiple fronts, not just on the e-commerce side, but Amazon is kind of altering its footprint in the grocery business as well. How do you see Walmart weathering that? Well, I think what's interesting is that, you know, when Amazon announced that they were closing their Amazon Fresh stores and their Amazon Go stores, which was more of a convenience store format, you know, people kind of sat up and took notice.

4:40But it's important to remember that there were way under 100 of those stores altogether. So it's never been the majority of Amazon's grocery footprint. Instead, they have a lot of sales that are what you would consider grocery category sales that happen through Amazon.com and through their Amazon Fresh. And so those are your fresh items, those are your paper towels, things like that. Walmart is the biggest grocer in the United States. They own almost 30 % of market share. So they're very well entrenched. And because they've been investing in their capabilities, I think there's room for Amazon to grow.

5:22But we're not expecting any kind of major change in who's the leader in grocery over the next couple of years. You've got to think, Poonam, that Walmart's got room to grow overall on e-commerce as well. Although Amazon being the behemoth it is, what's the challenge for Walmart to compete online? line? I don't think it's really a challenge anymore because they're making the right investments. They're investing in logistics. They're investing in product and expanding their marketplace. You know, a lot of times people tend to think that if Walmart wins, Amazon loses. That's not the case. I think both of them can grow together.

6:00There's a lot of share shifts that are taking place in retail where shopping is just gradually moving online. We have estimated that 25 % of total retail sales in the U.S. are online today, and they're going to be growing to 33 % in the next few years. So there's plenty of opportunity for retailers to capture that growing opportunity. And among them, Walmart and Amazon are still probably best positioned to do so. And when it comes to the overall business, Jen, is it all about grocery for Walmart? Is that where the basis for Walmart's business is right now? Or is it seeing the potential for growth across its categories of items that it sells?

6:41No, there's definitely growth across all of the categories. You know, grocery categories do comprise, you know, about half of Walmart's total revenue. So it is important. But, you know, the company does a great job of having that broad assortment be tailored to be appealing to customers. And that's in the U.S. and that's worldwide. And so, you know, what we see is that, you know, grocery is great because it's a frequency category. You buy groceries frequently. It takes you to stores. But once you're in the store or once you're online placing that order between either the in-store experience, the merchandise selection, or the technology that's used from an interface perspective, it's really helping guide people to buy more than just their groceries at Walmart.

7:29And so they've had much stronger general merchandise sales than some of their peers over the last few quarters. And Putum, how do you see Walmart continuing to grow its business on the tech side in terms of developing its interfaces, integrating artificial intelligence into what it does? I think just like everyone else today, the integration of artificial intelligence, agentic shopping is key. Walmart's integrated itself into ChatGPT. So it's clearly opening up avenues to broaden its customer base and to get a piece of that agentic AI shopping driven conversion. We think they're making advancements to broaden their customer base beyond, you know, when you think about the Walmart customers, it is broad and it is a customer predominantly that's seeking value.

8:19But they're trying to expand that. And they have to some extent, and Jen could talk about this, have really expanded that through the Walmart Plus membership. But in using AI and agentic shopping and just technology, robotics, automation, we think they are making progress and they will continue to invest in that front to move forward in retail. Because if they don't, quite honestly, they won't be able to continue to gain share. Speaking with Poonam Goyal and Jen Bartasius of Bloomberg Intelligence, Jen, pick up on that point that Poonam raised there in terms of the Walmart Plus business. There has been this push into more subscriber-fed business.

8:57How is that paying off for Walmart? Yeah, it's a great program for Walmart. When you think about what Walmart has been talking about over the past several quarters, they've been bringing in more higher-income households into their ecosystem. Now, part of that is people seeking value, but the Walmart Plus program, when they get people engaged with that, that makes people sticky. And so historically, when the economy's been weak, Walmart gains people, they gain shoppers. But then as the economy gets better, some of those customers bleed away. What Walmart Plus does is it helps keep all of those customers sticky and in the Walmart universe.

9:35And through the offering of convenience, of being able to have things delivered to your house or even into your house and into your refrigerator directly, or being able to pick things up at the curbside and all the other perks and benefits that they offer via that membership program, it really helps keep those customers engaged. And it provides a recurring revenue source in terms of membership fee. So there's lots of levels to the win of having a robust program like Walmart Plus. And in terms of the value-seeking customer getting into that engagement as well, Poonam. Do you see that trend continuing, having some of these more higher middle-income consumers getting driven more into Walmart to seek that value?

10:21Yeah, I don't think that changes much for the lower-end customer. I mean, at the end of the day, Walmart stands for value. So everyone wants to find things cheaper. I don't think a higher income consumer would go out and say, I'm willing to pay more, unless there's a service element to it or there's an aesthetic involved or a better brand involved. But I think having a broad array of customers, which Walmart is now targeting to expand that upper end of the funnel, it doesn't hurt them. And e-commerce is an easy way to do that because when you're on an online platform, the experience is similar to all versus, you know, people would argue in the past when you walk into a Walmart store, the experience is very different than when you were to walk into a Whole Foods store, right?

11:04But if you're shopping online for paper towels, it's wherever you're used to going. And that's what Jen talked about, the stickiness of it, right? When you're a Prime member, you're a Walmart Plus member, because you're paying for this membership, you want to utilize it. And once you begin to utilize it and see the value in it, that's just a natural place that you're going to go to next. You know, Jen, this is an interesting time in the big retail business with a lot of these sort of businesses that we think of as catering to the lower end consumer like Dollar Tree, Dollar General, moving into some of these bigger markets and Target continuing to try to find a direction.

11:41How do you see Walmart sort of navigating some of that perhaps increased competition from the lower end retailers? It's a very good question. You know, when you look at the customer, the organizations that target the lower end consumers, like your dollar stores, you know, in terms of store base, those companies tend to be located in greater proximity to some of those customers. So, you know, it's about trip frequency. So dollar stores are really favored when people are doing kind of quick fill-in trips in between larger shops. Where Walmart comes into play is for that larger shop when people are planning multiple meals in advance, they're planning for a larger event or something like that.

12:30And so as we've seen some consolidation happening in the dollar store industry, we saw 99 cent stores go out of business. We saw Party City collapse. That offers opportunity for everybody and Walmart is included in that mix. And Jen, just to close this out, I think this is going to be the first earnings report under Walmart's new CEO, John Ferner, right? What's the pressure on him to keep up the momentum that we've seen under Doug McMillan over the years? I think that certainly there's going to be expectations that he continues with the things that have really benefited Walmart in recent years, which is that willingness to experiment and fail.

13:15So experiment, adapt what works, roll it out quickly. If something doesn't work, walk away. I think that he's been with Walmart for a while. So he certainly has the perspective of what the company has been doing. but I think all eyes will be on whether he finds new opportunities to kind of supplement the ecosystem that Walmart has been building. That said, we're not expecting any major pivots in strategy in the short term because the system is working quite well for Walmart at the moment, and they continue to gain share, and they continue to pull in new customers. Really appreciate this as we look ahead to these earnings from Walmart on Thursday.

13:58That's Jen Bartashis and Poonam Goyal, retail analysts for Bloomberg Intelligence. And up next, we're going to stick with the earnings theme and look at what to expect from chip giant NVIDIA. It's 20 minutes past the hour. I'm Nathan Hager, and this is Bloomberg.

14:21Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking going to give your clients consistent results year in and year out?

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16:07Welcome back to this special edition of Bloomberg Daybreak. U.S. markets are closed for the president's holiday. I'm Nathan Hager, and we continue our focus on earnings. NVIDIA reports its latest quarterly numbers next week. For more on what we can expect from the chip behemoth, Let's bring in Mandeep Singh, Global Head of Tech Research for Bloomberg Intelligence and BI Senior Semiconductors Analyst Kunjan Sabani. Thanks so much to both of you for being with us. And Mandeep, I'll start with you because it seems like the bar keeps getting set higher and higher for NVIDIA, quarter in and quarter out.

16:39Do you agree with that? And how high is the bar this time? Well, so in the last couple of years, what we have seen is NVIDIA's top line growth actually tracks the hyperscale CapEx changes. And what we have seen year to date is all these hyperscalers raising their CapEx expectations for 2026. And we're talking about another year of a 60 % increase in total CapEx. And so if that's tracking, you know, NVIDIA's top line growth and it's a good proxy for that, then we can expect something similar. And that's where the estimates keep getting revised upward. And now, you know, consensus is forecasting almost a 60 percent increase in NVIDIA's top line for 2026.

17:29My eyebrows are already hurting just thinking about that. But Kunjan, to that point,$650 billion over the next year is the number we keep hearing from the four hyperscalers in terms of their AI plans. How do you think that plays out for NVIDIA's results? Well, that should be a definite tailwind. Remember, sometime in 3Q calendar, 3Q last year, Jensen gave out a$500 billion. dollar this is nvidia's revenue not the hyperscale capex but 500 billion dollar of a pipeline of a backlog for both its blackwell and upcoming ruben which will be in second half 26 uh through 2026 uh since then as mandeep mentioned the estimates for these hyperscalers have gone up in some cases like google and amazon has gone up close to 40 50 percent so those a significant portion of that increase should definitely go NVIDIA's way.

18:31So that should now raise the estimates even more since off of that 3Q 500 billion pipeline number. Mandeep, do you see NVIDIA keeping up with the demand that that kind of spending entails? Yeah, in fact, I was at CES this year and then at Davos as well. And Jensen said demand is really strong at least 10 times during those big events. So clearly, he anticipated this and NVIDIA has been preparing for this kind of step up in demand. The one caveat here is what we are hearing from companies about memory prices. And every company that has reported so far on the hardware side has called out memory pricing being a challenge.

19:19I think NVIDIA, given their scale, has probably managed it far better than some of the smaller companies. But there's no doubt that memory is having an impact on the supply chain this quarter and most likely for the next couple of quarters at least. Now, give us your view on that, Khunjan, because to Mandeep's point, that is something that we've been hearing a lot from many companies, even outside the hyperscalers, that these memory prices are a potential crimp to their margins. Yeah, I mean, that is true. And as an industry, they just have to deal with it. But given, you know, in terms of stack of priority, look, NVIDIA is, of course, going to get the first priority.

20:02We have seen, including NVIDIA, but we have seen from the memory players that they are reprioritizing key markets, which is the data center, which is the latest and greatest servers, because that's where they get the most profit and the most dollar. Nvidia also has prioritized and has actually announced that they're going to not ship enough gaming GPUs because they want to prioritize the memory that goes to the server GPU so we think Nvidia should be okay the smaller much more not sophisticated players and players outside of the data center will see some impact of taking allocation away from them or not getting the key allegation.

20:44But NVIDIA and Hyperscaler should mostly be okay. Now, Vandeep, we know that NVIDIA is an industry leader in the GPUs, but we hear all this talk as well about TPUs. How could that be playing out in the earnings when they report? Yeah, I think what we saw from Google is one, they expect, you know, again, 50 % of their deployments to go towards their cloud business. and the cloud business seems to be accelerating. We saw a quarter with 48 % cloud growth, which is far better than the other hyperscalers and with better margins. So I think where the TPU story is really solid for someone like Google is the fact that, one, it's vertical stack integration that gives them a much better token per watt sort of a metric compared to other hyperscalers.

21:43And also, I think in terms of CapEx efficiency, Google probably is the best position when it comes to the hyperscaler. So it'll be interesting to see, you know, what Microsoft and Meta end up doing, given Amazon has also talked about ramping up their Tranium chips, their own ASICs. So both Amazon and Google are a tailwind for someone like Broadcom, which Kunjan can talk more about. But clearly, I think Microsoft and Meta are probably more reliant on NVIDIA at this point than the other hyperscalers. We're speaking with Mandeep Singh, Global Head of Tech Research at Bloomberg Intelligence and BI Senior Semiconductors Analyst Kunjan Sabhani.

22:27Kunjan, let's pick up off of Mandeep's point about how NVIDIA is weathering the competition from some of these other chip players, not just the TPUs, but the likes of Broadcom, AMD, Micron. yeah i mean look the there is no doubt and we we have a forecast in our latest ai chip deep dive that we have published but there is no doubt that a6r which is the likes of a tpu and a tranium are going to grow fast and to some degree definitely take share away from nvidia its GPU competitor, which is from AMD, is also getting ready to ship its first server level solution in second half 26. So the competition is coming from all angles.

23:12Having said that, though, you know, NVIDIA is also not sitting on its heels. They have been trying to explore different areas and markets. One example is they have announced they are going to start selling their best in class ARM-based CPU as a standalone chip. So entering into a brand new TAM that they didn't have access to in the past. And we think, you know, beyond just server GPUs, they will be making forays into a lot more other areas of AI, whether it's automotive, whether it's physical AI. So right now, the demand is so high that despite such high competition that I talked about, NVIDIA can still continue growing really handsomely, at least for the next two to three years.

23:55Manthi, how do you see NVIDIA's growth trajectory at this point, not just on the chips, but growing into other markets? Does NVIDIA even need to grow into other markets when the hyperscalers are talking about the kind of spending that they are? Well, you have to think, you know, one or two years ahead because the kind of levels we are seeing with CapEx and, you know, as I said, we'll see another year of 60 % growth. We already had two years of 60 to 70 % CapEx growth. These kind of growth levels are not sustainable. I mean, there is no doubt that growth in CapEx will taper off. And, you know, we are already talking about trillion dollars plus in CapEx.

24:37So from this point on, you know,$650 billion, you will see a deceleration in CapEx growth. So the question for NVIDIA is, if there is competition coming, do they want to move up the stack, which they have already done with the release of a foundational model on the autonomous driving side, the Elp Mayo model that they have released. And that's where, you know, they'll have to pick their spots in terms of what are the areas where they feel like they've got a lot in terms of the adjacent capabilities. They've already have a very sizable networking business then that Kunjan can talk about. But to me, the key is what kind of advantage these foundational models that are trained on the latest Blackwell architecture can show versus the ASICs and how big that gap is because at the end of the day, companies that are using the NVIDIA clusters want to see whether it's performance in terms of tokens per watt or the intelligence layer being better versus some of the other foundational models that are not trained on NVIDIA chips.

25:44And that sort of distinction is very important to keep the gross margins that NVIDIA has versus the competition. Now pick up on that, Kunjan. How do you see NVIDIA sort of growing into some of that story? Yeah, I mean, look, Mandeep mentioned about networking. Just to give a point of reference, this is not an area NVIDIA was playing up until even just two years back. Today, the revenues from networking are going to run close to 30 billion figure for the full year. Nvidia was not even doing 30 billion as a whole company back until 2023. So that's just to set an example of that they have been venturing into new areas, moving up the stack, whether it is hardware, whether going beyond GPUs into networking and CPUs, or whether going into software ecosystem, whether it's through NIMS, through models, through their Omniverse software stack.

26:42So they have shown a lot of success in terms of expanding these businesses from nothing to billions of dollars today. Mandib, Kunjan mentioned earlier that Jensen Wang talked about the Rubin chip getting introduced in the second half of this year. Do you expect to hear more clarity from Jensen Wang when it comes to that next generation chip and the earnings next week? Yeah, earnings as well as they have their GTC event coming up in March. So clearly, you know, there was a reason why Jensen pulled forward that announcement of the new chip to CES, just to set expectations that they're really aggressive about pushing out the new architecture and introduce that in the second half.

27:24And I do expect, you know, the performance gains to be a big part of how they continue to show that they are ahead of competition, including AMD and the ASICS provider. So, as I said, in the end, it comes down to, you know, how NVIDIA's chips are helping address the power. Lead times for everything that we are dealing with right now. Power has the longest lead time. And if NVIDIA can address that power constraint and maximize, you know, the throughput per unit of power, then they will continue to command premium pricing, which has been their pitch all along. And Kunjan, what's the most important question that Jensen Wong needs to answer in the earnings call next week?

28:08I think it'll be two questions. One is everyone's going to try and figure out the shape or the increase of that 500 billion pipeline that he had mentioned. So that's going to be most of the analyst goal. Really appreciate this. Thanks to both of you for being with us. That's Kunjan Sabani and Mandeep Singh of Bloomberg Intelligence. And up next, the world's richest man goes after OpenAI. We'll get an update on Elon Musk's lawsuit against the maker of ChatGPT. It's 37 minutes past the hour. I'm Nathan Hager, and this is Bloomberg.