BI Weekend: Delta Earnings, Musk Party, 10 Companies to Watch in 3Q

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1:55I'm Paul Sweeney. And I'm John Tucker, filling in on Bloomberg Intelligence. On today's show, we dig inside the big business stories impacting Wall Street and the global markets. Each and every week, we provide the in-depth research and data on some of the 2 ,000 companies and 130 industries our analysts cover worldwide. Today, we'll look at why Tesla investors may be concerned about CEO Elon Musk's new political party. And plus, we're going to look at Bloomberg Intelligence's 10 companies to watch in the third quarter of 2025. But first, we begin with the airline industry. And this week, Delta Airlines reported quarterly earnings and also reinstated a profit outlook for the year.

2:30The company also said travelers are coming back. For more, John Tucker and I were joined by George Ferguson, Bloomberg Intelligence's senior aerospace defense and airlines analyst. And first, we asked George for his take on Delta's recent earnings. They reinstated guidance, but at a lower EPS than they had initiated at the end of the year. I think the market still looks a little bit soft to us. For sure, fuel prices are giving airlines a bit of a bolster on the bottom line. But I think what we heard on the demand side was more of the continuing story, and that is that premium is holding up really well, and Delta's going to do very well there because of their loyalty programs and such.

3:15Basic economy isn't. And if you look at Delta's price paid per mile flown for customer, it was down in every single market that they served or maybe flattish in Latin America, but all the rest of the market's down during the quarter. So to us, it looks like a market that still needs to have capacity come out. And some of it will in the second half. The CEO pointed to progress in trade talks between the U.S. and other countries and the potential for some geopolitical conflicts to abate. I mean, the flying public really, I don't know, are they really thinking about this when they book a flight on Delta or any other airline?

3:54Yeah, I mean, so when I think of that, I think that's going to largely benefit his international business. I don't know, you know, I was Paul likes to pick me because I get to Paris for Paris air show, you know, every other summer. And when I was in Paris, it was teeming with Americans. So it didn't seem like even with protests going on around, it didn't seem like demand was off for international travel, at least, you know, anecdotally in some of the places I've been to. So I don't know. I mean, I think it takes a little bit of demand off, maybe a very little bit. But right now, I think the international traveler seems to be rolling right over top of that and going anyways.

4:35George, how does an airline take capacity out of the system? Is that just going from like 10 flights between Newark and Miami a day to, I don't know, seven or eight? I mean, I think ultimately you got to park airplanes. I mean, you know, it's a capital intensive business. You don't want to buy those airplanes and not utilize them. You take your old stuff, you park it, you maybe retire it, sell it off. But what we're seeing as 3Q develops, and so we'll watch this closely to see what it does to demand, is we're seeing that the low-cost carriers, Spirit, Frontier, look like they're taking large portions out of their plan for 3Q.

5:19Now, it may not hold. They may add some of those routes back, some of those seats back. But we're seeing numbers down 20 % in some of their capacity. On the full service side, United and Delta are still adding. United adding the most, I think, I want to say 5-ish, 6-ish percent. Delta adding 2%, 3-ish percent, an economy that's not growing that fast. American look kind of flat, meaning the economy's growing at rates, you know, sub 2%. So it feels like the big full service is going to push through here and try to push through and continue to subsidize the back of the cabin, and that basic economy with the front of the cabin strength, I feel like at some point they'll break that front of the cabin.

6:00I think that's sort of how the industry always works, but we'll see. In none of these reports do I see anything mentioned about jet fuel prices. Should we be concerned about that? Well, I mean, right now it's a tailwind, and if that reverses, it could be a problem, right? I mean, jet fuel prices are down because of slower global growth, right? I mean, I think the geopolitical backdrop doesn't help it, but it doesn't seem to have pushed prices up firmer. I think I saw Saudis are talking potentially about reducing some of the capacity ads that are coming on. I don't know if that sounds strong enough yet, but if jet fuel turns, that would work against them.

6:41Because, again, we've got an airline business. If you look at Delta, they added 3-ish percent capacity or around there for this quarter, and revenues were flat. right? So they're adding capacity and revenues are flat. I generally don't like that kind of backdrop. Business travel, Delta actually kind of called that out as perhaps corporate travel is quote unquote strengthening. Are you seeing that across the industry? And where, I guess, where's corporate travel versus pre-pandemic? Yeah, so they're not telling us anymore, right? And usually you tell us when you're really excited about where it is.

7:17Look, I think the summer flying seasons are all about leisure. What I heard was that they were having weaker pricing power in sort of the off-peak demand times. And my read-through on that is that summer leisure traveler, where they know they got you, right? All my friends call me. They go, hey, George, I hear airfares are down, but I'm trying to travel over July 4th week on vacation with the family, and I'm paying a crazy price. And I'm like, yeah, because you're going when everyone else in the world wants to go somewhere, right? So when I read off peak, I also think that's probably a little bit of business travel.

7:55And so I don't know that it's going swimmingly and they're not, they're not giving us numbers. What I heard was kind of stabilized, but I didn't hear, to me, I didn't hear something that sounded like it was getting much better. And again, summer's about leisure. Our thanks to George Ferguson, Bloomberg Intelligence, senior aerospace, defense and airlines analyst. And we move next to the antitrust space. As the antitrust enforcement policies on President Donald Trump's administration take shape, dealmakers and large businesses hoping for relief could see a glimmer of hope in some areas, but not all.

8:27That's according to Bloomberg Intelligence, which recently took a deep dive into what the antitrust space could look like during the second half of the year. For more, guest host Norma Linden. I were joined by Jennifer Rhee, Bloomberg Intelligence senior litigation analyst. We first asked Jen what the antitrust environment is looking like under the Trump administration. You know, there was a lot of uncertainty going into the election during the fourth quarter of last year, but I think there's some really good signs for those companies that want to engage in big deals going forward. And the main reason is because Trump's antitrust enforcers are willing to accept settlements with a remedy to allow a bigger deal to close, essentially meaning that if there's an overlapping product and there'd be too much concentration in the market for that product, that product line can be sold and the larger deal can get closed.

9:13And the Biden administration essentially refused to do that. They thought if a deal was problematic, we're just going to sue it and try to block it. And it led to a lot of lawsuits, a lot of abandonments, and a lot of deals that just didn't get signed to begin with. So because we're seeing this sign that deals can get settled, I do think we're going to start to see more bigger deals getting signed up in the second half and probably next year, too. So, you know, for all these agencies within Washington, they obviously feel the presence of President Trump very keenly. The folks that are in charge of the Federal Trade Commission, the Department of Justice, how much independence do you think they have at this point?

9:55You know, Paul, probably not very much. You know, in the past in particular, the Federal Trade Commission was supposed to be quite independent. And really it was because it had five commissioners, only three of which could be from one political party, and they needed a majority vote to take any action with the deal. But President Trump has fired the two Democrats. So we now have three Republicans. And we have three Republicans that very much are behind him and his political visions. So I think that they will essentially do what they think he wants done. And we have seen an example of that because they did clear a deal between two huge ad agencies, Omnicom and Interpublic, with what we call a behavioral agreement, which they have said that they don't tend to want to take, agreeing that they wouldn't prevent advertisers from advertising next to content that was right-leaning or expressed conservative viewpoints that they might not agree with.

10:49So that was very much kind of in line with this administration and what this administration wants. So I do think we're going to see alignment in terms of what these remedies are and the deals that get cleared with what Trump is saying and with what Trump wants. So Trump terminated two Democratic FTC commissioners back in the first quarter of this year. And of course, we know this did raise some significant constitutional concerns in terms of the commission's historical independence and, of course, enforcement efforts. What has this really signaled in terms of potential policy changes? Well, you know, the thing is that, first of all, we do all of these challenges are going up to the Supreme Court.

11:31And we do think that this is going to stick. We do think that because of some of the other decisions about other agencies, that even though the two Democrats do have an ongoing lawsuit about their termination, we think that probably the Supreme Court is going to side with Trump and they are going to remain terminated. For practical purposes, as I said, I don't think that there's very much impact here because you do need a majority vote to settle or to sue to block a deal. So you need three out of the five. In the past, we have seen that the FTCs operated on a very sort of bipartisan or nonpartisan basis.

12:04We usually have a unanimous or maybe a four to one decision, but it hasn't been that way. You know, starting with Biden, we were seeing a lot of three to two decisions where along party lines, right? So I think that we probably would have continued to see that even if the two Democrats were still there, you'd have the three Republicans, you'd probably get your three to two vote to do whatever it was that the Republican contingent wanted. So from a practical standpoint, it's not going to have that much impact on the decision making for deals of this FTC. Are there any deals that are currently being held up or being scrutinized that maybe the participants are saying, oh boy, now we're going to really sail through.

12:40We thought maybe under Biden, it could be a tough slide or anything we should keep an eye on. You know, Paul, the one I'm really interested in is the Google Whiz deal. And I say that because we know this administration is no friend to big tech, and we know that they're staying really aggressive on the monopolistic conduct side, where Google and Apple and Amazon and Facebook have all been sued for monopolistic conduct. And to me, that deal is very interesting because just from an antitrust perspective, I don't really think it poses antitrust concerns. You know, the concern would be that you have a cloud company that's marrying with a cloud security company, and they could foreclose rivals.

13:16But I think that there's ample competition on both sides, both on the cloud side and the cloud security side, that you probably don't have a very strong theory of harm, but we know that this administration doesn't necessarily love Google. I'm going to be interested to see what happens there, but I suspect we're not going to learn in the second half. It's probably going to push into the beginning of next year. All right. Thanks to Jen Rhee, Bloomberg Intelligence Senior Litigation Analyst. And just ahead, we're going to look at what President Donald Trump's new tax bill means for the pharmaceutical industry.

13:45You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries. You can access Bloomberg Intelligence via B.I. Go on the terminal. I'm Paul Sweeney. And I'm John Tucker. This is Bloomberg.

14:02Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans.

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15:22Eastern 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'm Paul Sweeney. And I'm John Tucker filling in on Bloomberg Intelligence. We move to some news in the tech space. And this week, we heard that the AI cloud computing startup CoreWeave is acquiring the data center operator CoreScientific. It's an all-stock transaction, and it's valued at$9 billion. For more, guest host Lisa Mateo and I were joined by Anurag Rana, Bloomberg Intelligence Senior Technology Analyst. We first asked Anurag how this deal benefits CoreWeave.

15:59When you think about it, that they have capacity to process X number of transactions or the backlog that they have. with this particular deal, they are expanding their infrastructure. I mean, it's a very simple deal as if, you know, they're just buying more factories to produce what they do. So this is, you know, it's as simple as that. All right. So this, I'm not a tech person, so, but I know, tell us what CoreWeave is, what do they do? And why are they shouting out$9 billion to get bigger, I guess? So in the purest of pure forms, they are just renting computing resources to anybody that wants to run an AI infrastructure.

16:36They are a very big NVIDIA shop. They basically buy GPUs from NVIDIA. They create a network or an infrastructure, and they give it to people to go out and experiment or do whatever they need to do on that infrastructure. It's no different than what AWS does, but very heavy focus on GPUs rather than the CPUs. So that's really the big difference between a pure play provider like CoreWeave versus Amazon Web Services. Now, if you can dig into some of the background, what kind of challenges has CoreWeave had in the past? I mean, didn't they have a pretty dismal IPO? Yeah, I think that's really the most important thing is, you know, everybody thought when they're going to come out as the first pure play, you know, AI infrastructure IPO, it's going to be extremely popular.

17:18But it didn't happen. And the reason for that is because they need a large amount of upfront capital to build these data centers. And then the workload comes in over the next several years. So there's a lot of questions about whether there's going to be sustainability of this GPU demand going forward several years out. So that's why you are right. The IPO came at 40. In a few days, it was down to 35. But now we are seeing, you know, the stock closer to 160 before this deal was announced. So, you know, we have talked about it before that, you know, why aren't they doing a secondary when it's like 160 bucks stock?

17:51So what they did instead is they use their stock to go out and buy another competitor. I shouldn't say competitor, but, you know, another company in that space so that it expands their capacity. And, you know, I think they're doing the right thing by using stock at this point. Are there more core weaves out there on Arag, kind of more pure play, AI stories, maybe the kind of the sausage of AI, if you will, the guts that somebody could take public? There are multiples of them, but they are much smaller size in Corby. I would say there would be hundreds of them at this point because, you know, you go out, you buy the GPU, you go out and start renting it out.

18:31In a long time ago, this high-powered computing was used for Bitcoin mining. And then, you know, when that's not in favor, these guys are renting out their infrastructure for other reasons. So there are other players out there, but almost all of them are much smaller than CoreV from a, you know, pure play point of view. Now we dig into CoreV. What about Core Scientific? What's the attraction to them? I mean, it's just they are expanding the number of, you know, the capacity that they have to process the transactions in a sense that CoreWeave has a massive backlog right now. They have people wanting to use their services, and then these guys have to go out and lease it from, you know, other companies like Core Scientific.

19:10In this case, they said, you know, they have an agreement with them to lease their facilities. They just said, you know, we'll buy it out and expand their size. And I think that's as simple as that. All right, thanks to Ana Raghana, Bloomberg Intelligence Technology Analyst. We move next to the news in the auto sector. This week, shares of Tesla fell after recent news that CEO Elon Musk was forming a new political party. Musk said he's going to take on Republicans and Democrats with the America Party, focusing on House and Senate seats for the next 12 months. For more, guest host Lisa Mateo and I were joined by Craig Trudell, Bloomberg Global Auto's editor.

19:46We first asked Craig why investors are concerned about Elon Musk. I think they see all sorts of risks here. This is a matter of now not just alienating Democrats, but also now going after Republicans and really sort of ticking off Donald Trump. And we've seen that with Trump going from kind of biting his tongue when Musk was first attacking the big, beautiful bill to really going after Musk in a more sort of pitched way. And so this is a risk for him to sort of make himself an enemy of both sides of the aisle in Washington potentially, but also just a great big distraction after he's assured everybody on multiple occasions, look, I'm going to sort of get back to business and tend to Tesla more than I have been since last year.

20:44So I have to ask this question. Is there a board here at this company that can rein in Elon Musk here? There is. You wouldn't necessarily know it from the actions of the board, right? To the extent that we've heard from the board recently, it's been to say Elon's our guy. They batted down a report in the Wall Street Journal just in the last few months about potential succession planning at the company. I think the sort of read of that, a close read of that story, it wasn't necessarily the case that what the journal was saying was that they were actively looking to replace Musk. It was potentially more of a matter of sort of doing the job that you would expect a board to do.

21:31I should sort of give them credit in that regard that at least they're preparing for the potential of needing to look for a next CEO. But, you know, Musk is very much in control of this company. And that was something that, you know, the Delaware Chancery Court judge who threw out his pay package, you know, really emphasized in her ruling last year when she said, you know, he's very much in control of this company and its board. and on those grounds throughout his compensation package, which has created another mess. And I think this political endeavors only complicates the board's attempt to try and get him compensated in a way that he's going to be happy with.

22:20Now, Craig, not too long ago we heard Elon Musk saying, you know what, I'm going to get back to it. I'm going to focus on Tesla. This was after the last earnings. And now we're seeing the shift, right? He's talking about this America party. I mean, is this something that investors should be concerned about? He's kind of going back on his word there? Yeah, I mean, I think, you know, some of the it's not the only way in which he's sort of undermined himself and, you know, potentially you've made investors question the things that he's been telling them, because he also said to Bloomberg back in May that our sales are turning around.

22:56Right. And that was not borne out in the deliveries numbers that the company reported last week. They had a 13 percent year over year decline in worldwide vehicle sales. That was almost bang on what they posted for the first quarter. So, you know, for him to say, you know, that he thinks in terms of political spending, he's done enough that he's going to do a lot less of it in the future. You know, that was what he said in May. And this is pretty much 180 degrees different from what he was saying then. Our thanks to Craig Trudell, Bloomberg Global Autos editor. We move next to the biotech space.

23:33President Donald Trump recently signed a$3.4 trillion budget bill into law, which includes an extension of tax cuts. The package represents a major political party victory for Trump. But what does this mean for the pharmaceutical industry? For more on this, guest host Lisa Matteo and I turn to Sam Fizzelli, Bloomberg Intelligence Director of Research for Global Industries and Senior Pharmaceuticals Analyst. We first ask Sam what this bill means for the pharma companies. So the one big beautiful bill had in it a couple of things. Many things, obviously. I can't remember how many pages it was supposed to be.

24:07But for the pharma industry, I'm going to focus on two things right now. One is a good thing. So there is an orphan drug change that impacts the IRA and actually impacts some really big drugs here. What's an orphan drug? When you develop a drug for a patient population that less than 200 ,000 in the U.S., you're called an orphan drug. You get a special exemption. It really helps you in terms of your duration of time that it can be on the market, et cetera, irrespective of your patent expiry. It was all set up to help companies develop drugs for these underserved markets. 200 ,000, okay, it's not small.

24:44It's not big, but it's not that small. So it helped. One of the big drugs that had this was Keytruda, which is the biggest selling drug at the minute, and that's for cancer from Merck. So when IRA came along, it said, what we're going to do is say your drug 2014 approval for Keytruda, under orphan drug, great. if you're an orphan drug you don't fall into ira the renegotiation of price and all that but as soon as you get another indication then that clock starts from the original date of approval so if you had a drug orphan drug in 2014 and you get some other indication in 2022 they date back the count the clock counting to 2014 that was terrible it really means that nobody would want to do multi-indication tests etc so that's been changed once an orphan drug is you can keep that date.

25:37And so what does that mean for Keytruda, for Merck? One extra year before price negotiations by Medicare. And that's a$20,$30 billion drug selling something like 50 % of his revenues in the U.S. That's a huge win for the industry. Sam, another big, I guess, component of this administration's policy has been cutting funding or maybe threatening to cut funding for research universities. And I have long experience with Duke University, which is a huge medical center and research area here. What's your industry saying about those potential cuts? Yeah, the industry itself is relatively quiet, Paul, because what they don't want to do is, I don't know whether the right phrase is here, shake the tiger's cage or whatever, you know, rattle the whole set here.