AMD Suffers Worst Rout Since 2018 on Disappointing Forecast

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

0:37So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. I want to start, John, with AMD. That stock, that story really got my attention. It's down 16 and a half percent today. I mean, this was one of the darling tech stocks, the chip names that were really riding the AI wave here. And it's had its worst day since 2017. Stock's up 70 % over the trailing 12 months, but taking a big hit today.

1:41So let's figure out what's going on in that part of the world. Kunjan Sabani joins us, senior analyst covering the semiconductor companies, Bloomberg Intelligence. He's based on our Los Angeles office. Kunjan, is this an overreaction for AMD? Is there something fundamentally problematic there? there was nothing fundamentally wrong in in this report there were a lot of good things to take away but it comes down to you know when you become an ai darling you set up really really high expectations and uh when you take out the china revenue which was not included in the guidance and the expectations the beat came out pretty modest which i guess people didn't like and then was not at par against the really high expectations that you have now every quarter from these companies like they used to ask in the old westerns uh you know is there room enough for the two of us in this town is there room enough for for them and nvidia uh there is right now i mean look the all the tide is lifting all boats there is so much demand uh for accelerator chips that there's room for amd as a gpu provider there's even room for other folks like broadcom and marvel as an asic provider so there's a plenty of demand right now you know i used to work for a portfolio manager and you know one of our names i was recommending amd and it had a day like today he would just pop his head in and said do we like management do we still like management and if the answer was yes oftentimes he'd go out and buy more on days like today do we like management lisa sue i i think is just when i just see your interview she seems super on top of it yeah i mean like like i said fundamentally uh nothing changed from yesterday right their their CPU story continues to become stronger.

3:21Nobody's paying attention to it right now because all the focus is on GPU and competing with NVIDIA. But people are forgetting inherently, if you look at two years back, this was really a CPU company. The GPU storyline remains intact. We didn't expect any fireworks coming into this earnings. We don't expect it until really 4Q of 2026. So the market is aware of this. We really have to wait until the 4Q 2026. This is when they will be really put to test if they can really execute their first server level solution or not. So there's nothing changed overnight yesterday that we saw should really concern us.

3:58And how important is China in all this? I thought the export restrictions were lifted. I mean, what's taking so long? Well, so the export restrictions are different for each chip. So the MI308, which they were able to ship, had already licenses approved prior. So that's a different chip. The newer chips that now is in the news when it comes to NVIDIA is the H200s, and equivalent, it will be the MI325. Licenses for those have not been granted yet. Even though the White House has said that, yes, these companies can start shipping these products yet, the formal licenses have not been granted. Kujan, some M &A in your space today.

4:41Texas Instruments has reached an agreement to buy Silicon Laboratories for about$7.5 billion dollars here. What's going on here with TI? Yeah, so just to give some context, this is sort of this size of the deal they have not done in the past. The last time they did a deal like this was buying National for about six, seven billion dollars in 2011. So this is not their typical nature. So a bit of a surprise. Strategically, it fits well. Their industrial segment, which is their largest segment, and that's where they want to be focused, has a missing piece when it comes to wireless connectivity in IoT.

5:17So Silicon Lab gives them that portfolio. Financially, however, it's a lot more important. They have reiterated that this does not change their pre-cash flow trajectory. This does not change their dividend path. And this does not increase. The most important thing is the CapEx. So all those things we really like, if they're able to execute to that, get the cost synergies, then this will be a really good deal for them. Also remember, TI has been on a spending spree for the last three to five years, building up a lot of capacity. So this will help bring more loading to their internal factories and bring more manufacturing internal to own TI and help with utilization.

5:53You know, one of the themes we saw in the sell-off today and yesterday was this CapEx spending when it's all going to be paying off. Investors getting a little impatient with everything. Is it all paying off immediately or in the near future for all these firms? Well, so there's two pieces of CapEx spending, right? The one I think you're referring to is the high AI capex spending. Yeah, the jury is not out yet, right? We still need to see monetization. The capex spending is not done yet. So we still need to see a lot more proof points of monetization from all of this AI hyperscale infrastructure spending that's been going on.

6:34Stay with us. More from Bloomberg Intelligence coming up after this.

6:41you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube let's bring in sam fazelli bring back sam fazelli really he's our bloomberg intelligence drug boss that's the jacket he wore yesterday um actually he's the director of research for global industries and our senior pharmaceuticals analyst. But Sam, you're a drug boss, let's face it. Let's talk a little bit about Eli Lilly and its upbeat guidance in contrast to Novo Nordisk.

7:16Why is there such a stark difference between what Lilly is seeing and what Novo Nordisk is seeing? Right. So, Scarlett, I've always maintained, based on data and based on actual comparisons of the drugs that they have, that Eli Lilly's drug does better in terms of weight loss over a period of time than we go to. They did a head-to-head trial. So that, I think, is helping them. They are both in the same camp in terms of price pressure. As Lily has said, they have several areas where there's price pressure on them, right? Nevertheless, they seem to be, at this forecasting, a meaningful volume gain in 2026.

8:01which you would want to see if you've got a price drop. That's the whole idea. And we've talked about this right from the beginning of this obesity run. That is, if prices come down, volume should go up. Novo seems to be not doing that. And there's two ways to explain that. One is Novo's thinking and is worried about losing market share, so not gaining as much volume. Two is that Novo's being over-pessimistic to deliver. I have a tough time choosing between those two. Those two decisions tells you whether you buy the stock or not, right? Sam, you know, Lilly, Novo, they're kind of in strong positions in this weight loss area here.

8:44Talk to us about the competitive threat from some of these telehealth companies selling cheaper copycat versions. Where is that right now? Yeah, but that shouldn't be. It should be nowhere in the right now because that's illegal, right? At the end of the day, this is a patented product, and there should be no compounding going on, i.e. them buying the active ingredient, mashing it up, and putting it in a capsule or whatever in the injector and do it themselves. That should be not allowed, although there's clearly some of that still going on. And I don't know where the FDA's teeth is on this because they were allowed to do it when there was a volume, a shortage of supply.

9:23But there's no more shortage of supply. So what is still happening? That is not, I think, what people are particularly worried about or exercising people's mind is what will happen in the longer run between the oral drugs that then soon in Q2 Lily is going to bring versus the well -launched, nice start to the launch of the Wigovi oral pill. And then the next question is, what about other people who are coming with other GLP ones and slightly different here, ones monthly from Pfizer, et cetera, et cetera? And I think that we will see how those guys are going to be able to compete. It's going to be tough.

9:59This is a machine that's run by both Lilly particularly and Novo2. Yeah, you're talking about this weight loss pill that Lilly wants to launch. It could happen, or the approval, I should say, could happen as early as April. Lilly did just get approval from the FDA, Sam, to sell ZipBound in a multi-dose pen. Why is this format important? Is it because it's more lucrative? Does it make it more accessible? What does that multi-dose pen allow Lilly to do? Yeah. Well, although I know we don't talk about sustainable stuff anymore, this is more sustainable rather than throwing out the pen every time, right?

10:34So that's nice. And number two is, therefore, that should mean, depending on how complicated it is to have a multi-dose pen. The margin is a bit better because you're not throwing out the pen every time and they don't have to keep making a pen. So all of these are elements. And, you know, it's not rocket science that they've done it. It's just that you have to also be careful. This is an active drug. You need to make sure that it's well stored so that it's not sitting in the sunshine or frozen outside. That's the sort of thing you have to think about when you have a multi-dose device. But I think this would be helpful to both people, users and the pharma companies.

11:11Sam, we all know that President Trump has made cutting drug costs a key priority. And a lot of drug makers have cut deals with this administration. Has it resulted in profits reductions out there for a lot of these companies? Are analysts taking their numbers down? Well, if you go with Novo Nordisk's announcement today that specifically calls this out, price pressure, then yes. The only thing is that they need that price pressure to exist for Lillie. So how come they're not suffering? So I think the novel story is more than just the price pressure. It's also that they're potentially, as we talked about earlier, losing volume going forward.

11:49Or that they're being over-pessimistic. There's a couple of other companies like today. Novartis mentioned MFN pricing for some of their drugs. That will be it. I don't think it's as big a hit as Norvo was talking about. If you look at the share price, too, for 2026, it sounds like they're going to pretty much manage it. But they have pulled it out. Until now, these companies have not pulled it out at all. Stay with us. More from Bloomberg Intelligence coming up after this.

12:20You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, let's talk about some technology earnings here. We got Supermicro delivers, I guess, better than expected sales forecast in the quarter. We had HP. They maintained their guidance here. Their CEO left. I don't know what's going on there. Let's talk to Woo Jin-ho. He does know what's going on there. Senior technology analyst for Bloomberg Intelligence.

12:52Hey, Wooj, let's talk about Hewlett Packard here, HP. I guess they kept their guidance, but the CEO departure, was that unexpected? Yeah. Hey, Paul. Yeah, that was highly unexpected. You know, Enrique, the CEO, was a lifer, started there as an intern. And jumping over to PayPal was a surprise to us. And he's leaving at a precarious time because he was tasked to navigate the PC business when DRAM prices are spiking. which, and quite frankly, I did find it positive that they did maintain their guidance for the year. Yeah, let's talk a little bit more about those DRAM prices spiking because this is something that people really zeroed in on when it came to Apple's results as well.

13:37How big a cost is these rising prices of memory chips for a PC company like HP? Yeah, so if we think about the total build of materials, DRAM as well as the storage that goes in there, It went from about 10 % to 15 % of the cost, and now it's spiking up to about 20 % to 30 % of the cost. What's going to happen? They're not going to give it away in gross margin, that's for sure, because we're talking about very thin margins for the PC business. We're already hearing about PC pricing going up around 20 % to 30 % going into later in 2026. So, Scarlett, if we think about it as a very elastic demand for PCs, it is going to hit possibly on the demand side and keep PCs, people keeping PCs longer.

14:30How about the print supply business? Just as a consumer, that's where I feel like I pay a lot of money when I get the print supply stuff for the HP printer. Talk to us about that business. Yeah, you know, I will tell you, though, I think what's being overlooked by investors here is that the print supply business is going to be the cushion. You know, the inks that you and I pay for, that's a 19 percent EBIT margin business. Well, it's a lot more than that. Trust me, my wallet's a light as well. I'm glad my kids are out of school, so they don't print as much. But it is going to provide a cushion.

15:05even though the hardware is in secular decline. They are making some moves either by subscription to provide some of that downside risk and earnings. What is the long-term trend line for that print supply business? Because, I mean, every office is trying to go digital and not have printers available to everyone. And I know there are some parts of government that can't do without actual physical printouts of documents. But I would imagine that this shift to, you know, Everything being virtual and digital means that this overall is in a long-term structural decline. Easy answer or the simple answer, minus 2 % on a year-on-year basis on a long-term basis.

15:47There's always that one guy who's going to print the 10Ks and 10Qs. Kyle Maser. Right? And in color. We're a dying breed. That's the thing, right? I mean, the young people aren't going to do that. Yeah, I don't do that. Really? You don't print out anything? Oh, that's true. Got it on my phone now. I think the kids are going back to the old school ways of us older folk of printing more and having more photo keepsakes. So, you know, I don't think we're talking about a structural decline of 10 percent on a year on year basis. But there's enough print from a documentation standpoint that is going to hold the business.

16:30How about Supermicro here? I see the stock up 14 % here today. Talk to us about their earnings. I will tell you, look, I've talked about this ad nauseum about Supermicro. The AI server business is a double-edged sword, right? Where they won out in the last quarter print was that the AI server's demand came out a lot better than expected. roughly 1.5 billion beat in sales. And that's primarily because the Blackwell ramp up is starting to ramp up. Now, I will tell you, I think one customer really helped them out. 62 % of their sales was from, I think, from XAI. But look, the offset has always been the margin side, 4.5 % in operating margin.

17:16And I think their guidance implies it's going to be roughly around the same next quarter. Stay with us. More from Bloomberg Intelligence coming up after this. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's stay with some earnings news here. right smack in the middle of a busy, busy week for earnings. Yum Brands, I think restaurants, fourth quarter just at EPS, misses estimates here. So hit or miss in the restaurant business is kind of what we've been seeing more recently.

17:59Jody Laurie joins us here. She is a Bloomberg Intelligence credit analyst. She covers all things kind of the consumer, things cruise lines, theme parks, casinos, parts of the restaurant industry. So anywhere you see the consumer spending money, that's where you'll find her. So let's check in with Jody. Jody, let's start with Yum! Brands there. What are they saying about their business and the consumer? So it's very clear that they're focused on Taco Bell as well as the international component of KFC because those are what is driving revenue at the moment. They're also looking into strategic alternatives for Pizza Hut, which they announced last quarter.

18:38And they got a little bit more clarity around that in terms of closing some stores, really sort of reassessing the Pizza Hut business because it's not necessarily where they're seeing growth. I think what was most interesting for me is they highlighted the strength of the high-income consumer as well as the young consumer and the family consumer, particularly as it went to Taco Bell. And I mean, for me personally, I like to consider myself young, but I do fit the family category and I fit the higher income category, I would say. And that definitely checks out. You know, I think there is an appeal to a company like that, particularly as you're looking at alternatives.

19:18Yeah. During the snowstorm, when I was kind of socked in here, I found the Taco Bell on Third Avenue. I'm sorry, Lexington Avenue. Very good find. I did not did not know it was there. So I'm in I'm in good shape there from the credit perspective, Jody. Do credit investors, like when they look at these restaurant companies, do they want to see, I guess, a diversification of brands, you know, through the income level? How do they how do they look at it? So you do want to see some diversification. You want to see some geographic diversification. Something that Yum benefits from is because they have the franchise model so heavily in their business.

19:49It's almost all of their their restaurants. It helps them from a cash flow and from a margin perspective, particularly as compared to companies that have more owned brands such as Darden. right? Darden is going into franchise, but they're primarily owned brands. And so it's a little bit different structure and it does help Yum. Now, I think what's so interesting about Yum is if you look back 10 years ago, they were investment grade rated. Then they spun off Yum China, and then they decided to give themselves hefty dividends and share buybacks and stayed high yield since. Management is very clear that they're happy with the four times net leverage.

20:25they're keeping within that range. And I don't really see them moving beyond that. But if they wanted to be investment grade, I think they could. They just don't care to because they'd rather spend their money on shareholders and on CapEx. Hey, Judy, I thought of you earlier this week when we saw the news that Josh DeMauro has been appointed chief executive officer of the Walt Disney Company. And of course, he runs the experiences businesses for Disney. I think the theme parks, the cruise ships, kind of the businesses that you tend to follow here. But boy, they seem to be all in on theme parks, on cruise ships.

20:58I kind of took that as a vote of confidence for that part of the industry. Absolutely. I mean, you know, we're seeing in our data that experience spending is still very, very strong. I've joked many times with Steve Flynn, who covers Disney from a credit perspective, that really it should be under my coverage because they're much more of an experienced company. And I think this lands, right? But all that aside, you know, Steve is a fantastic analyst and you all should read his stuff. But all that aside, I would say that what's so interesting and something that I've said many times, when people talk to me about the cruise lines, for example, they say, okay, you know, I see that occupancy levels are, you know, 108 or 109.

21:39What does that mean? 109%, right? And that means that the average room occupies two people per room. And if you have more than that, then that is obviously above 100%. That's how you get that weird 109, 108 number. But when you look at Disney, obviously, they don't give that detail. And I've made comments to the effect that I am curious what their occupancy level is. Because if you've ever been on a Disney cruise, I don't think there's any room that has fewer than three people in it. I'd be very shocked to see. So their occupancy rates are so much higher. it makes sense why they're expanding their ship presence in the water, you know, increasing the number of ships in the water.

22:18It also makes sense why they're expanding in terms of travel beyond the U.S. because I think that the trend we're seeing is that international travel demand is there and it also helps to sort of diversify them away from any sort of pressures in Florida or California where we've seen quite a lot of weird patterns that SeaWorld has commented on, SixFlight has commented on. So that geographic diversification could be helpful. Well, I booked my first cruise ever for next, I guess, October, Viking Cruise, going River Cruise. That's the one with no kids, right? That's the one with no kids. Ideal. No kids and big print on the shampoo.

22:59This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.