BI Weekend: GM, Starbucks, UPS Earnings

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1:34On today's Bloomberg Intelligence show, we dig inside the big business stories impacting Wall Street and the global markets. Each and every week, we provide 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 the chip giant NVIDIA invested$2 billion more in the AI cloud computing startup CoreWeave. Plus, a look at why a turnaround plan at the coffee giant Starbucks is starting to take hold. But first, we begin in the auto sector. This week, General Motors released earnings that beat analysts' expectations. The company also said it expects profits to grow as much as$2 billion this year and plans to return more of that money to shareholders with a higher dividend and buybacks.

2:09For more, we're joined by Steve Mann, Bloomberg Intelligence Global Autos and Industrials Analyst. We began by asking Steve to break down GM's EV versus gas engine portfolio. Oh, it's actually, ICE engines are much greater. I know they have a full portfolio of EVs, but you're talking about like 85, 90 % ICE versus 10, 15 % EVs. So, you know, they do have a big portfolio, but it was just at the beginning of rolling them out. You know, they do have still, they do still have one more major rollout coming out, which is the Chevy Bolt, a smaller vehicle, which the industry and GM thinks that that's where the market is going, a cheaper, more convenient EV.

2:50Steve, it's almost to the point where the street rewards these companies if they not fully back away, but at least slow down the evolution to EVs and just focus on what's making money today. Is that kind of where the industry is today? Yeah, exactly. Trump actually did the auto industry a major favor by relaxing the miles per gallon mandate. So basically every vehicle in the big three's portfolio are currently meeting those mandates. And what it means is less penalties, right? And no need to buy EV credits going forward. Huge savings. And what that means is it could translate into a slower increase in car prices for consumers, especially for big trucks.

3:42It makes the big trucks a lot more attractive to sell for the big three. So they're going to sell as many as possible given this opportunity. I know we talked about hybrid for GM. It's going to be a huge sinkhole for them if they invest in that technology today. So let's not do that. Maintain whatever they can do with EVs and really push the ICE vehicles. Maintain what they can with EVs so that small 10 % to 15 % of their overall portfolio. forget about hybrids, and just focus on the mammoth gas-guzzling vehicles. What happens then if gas prices do turn up higher unexpectedly? And I know that the administration is doing all it can to prevent that from happening, but I'm looking at AAA gas prices, and they bottomed at around$279 and have now made their way back up towards$290.

4:36Yeah. I mean, historically, when gas prices go up, it does impact ice sales. And, you know, it may push some buyers into EVs, you know, depending on where the expansion of the EV charging network is at. But I think at the end of the day, if gas prices do go up, it actually benefits the Japanese companies like Toyota and Honda, where they have a full suite of hybrid vehicles that actually consumer love. Yeah, I just leased the Honda CR-V hybrid. My son who drives in California all the time where the gas is really expensive. Yes, that's right. He probably wanted it. And how often does he have to fill up?

5:14Not that often. I mean, just not that often. It's great. It's a great technology. Steve, while we got you here, what's the call these days on Tesla as we talk about this EV business? But really, for Tesla, we're talking about so, so much more. Yeah, looking at GM as a backdrop, you know, GM's earnings for 2026 is probably a little bit light. There's probably some more upside on the shift mix for more ICE. So what it means for Tesla, it's an uphill battle for them. I know the stock is trading at an astronomical valuation at the moment. Investors are very focused on their RoboTaxi autonomous vehicle build-out.

6:02People feel that they can actually out-compete the likes of Uber and Lyft. So, you know, sales will be weak in the fourth quarter for Tesla. But I believe the investors are actually looking over past that into, you know, what is the catalyst or what is Elon Musk going to talk about in their next earning calls on the robo-taxi? Yeah, it's always about the Elon Musk narrative, his vision going forward of what this company is going to be. I wonder, you know, Mary Barra talked about the charging infrastructure and the network and how we're not there in the United States. Tesla is offering the supercharger and that's part of its business model to be able to make that charger available to other automakers.

6:50How big a contributor is that to its revenue, to its profitability when it's profitable? Yeah, it's still a small amount. it is what they do is they want to expand that business so they are talking to you know gas stations like Wawa out in Pennsylvania are actually you know buying superchargers installing into next to the gas gas pumps and next to the stations so they are trying to expand it in terms of charging selling these supercharging business and the revenues from the charging it's still really, really small. I would say around 10%, maybe less. Hey, what do we know about how important are incentives here?

7:36I look at other countries around the world and they have got these huge EV percentages of sales. China. China, the Nordic countries. How important are government incentives to get there? It is very important. I think the Germans are actually putting back incentives and it has lifted EV sales in Europe and Germany. But at the end of the day you really want to build a sustainable growth environment for these cars and Mary Bar is right. You know we actually published a very extensive report on EV charging comparing charging network in the US versus China night and day. So you know it's about convenience, it's about costs for the U.S.

8:20consumer. It's great for consumers to have some subsidy, help pay for the cars that they're buying. But I think long term, it really needs the consumer to really buy into the product. Our thanks to Steve Mann, Bloomberg Intelligence Global Autos and Industrials Analyst. Return next to some news in the aerospace industry. This week, American Airlines projected revenue growth for 2026, but said that the winter storm that raged across the U.S. this week will clip revenue this quarter. We also heard from JetBlue Airways, who reported a wider loss than expected last quarter, highlighting challenges in a strategy to win over higher paying customers.

9:03For all of this, as well as other news in the aerospace industry, we were joined by Sid Phillip. He is Bloomberg's chief correspondent for global aviation. We began by asking Sid for his take on American and JetBlue's recent results. So the airline industry is actually in a sort of bit of a flux at the moment. I mean, you've obviously had the impact of all these storms, you've had the impact of the government shutdown, and you've got the uncertainty about the year ahead. And so American Airlines is taking a more bullish view of the year ahead. They're sort of following their peers, United and Delta, in targeting the most premium end of the spectrum.

9:37And they're sort of hoping that by aiming their product at the premium end of the market, they It can sort of offset the sort of downturn that's happened in the bottom end of the market. JetBlue also talking about how at the moment things look a bit shaky, but they're talking about how they see a road to profitability and a free cash flow by the end of 2027. So slightly more long term view of when the recovery might happen. And that sort of explains the dichotomy in the earnings forecast for both these companies. And of course, JetBlue is also doing what it can to premiumize, if that's a verb, its experience for customers too with the opening of that new lounge in JFK.

10:20So that is the story with airlines. And it's been fairly consistent too with what we heard from Delta and United. Where does that leave the smaller carriers that need to either team up or fade into oblivion? I'm thinking Spirit. I'm thinking Frontier. Is there still a market for these discount carriers? So the market at the moment is very tough for the discount carriers. So essentially what's happening is that the top end of the market is going to Delta and United for their premium products like first class and business class. And on the other end of the market, you have sort of everyone else competing to get the lowest cost tickets into the hands of the passengers.

10:57And that's sort of eroding margins, especially as costs for both pilots and cabin crew are hurting the ultra low cost carriers and the low cost carriers. and that's sort of been explained by this K-shaped recovery that airline executives are talking about. And so JetBlue and the others are sort of trying to get the premium end of it. I mean, we've seen even Spirit Airlines talking about how they're adding a so-called business class product. They've added Wi-Fi. They've added all sorts of things to keep people coming back to them. And so they're hoping that by slightly differentiating themselves from just very commoditized, ultra-low-cost carriers, they can be able to get in those customers.

11:34Well, then it kind of goes back to the point, is there a need for a real true low cost carrier out there? Some of these supposed ones are going kind of mid market, higher market. Is there a market demand for that or is everybody just willing to pay up for travel? At the moment, it looks the people who are willing to pay up for travel are the people willing to pay up for travel. And so at the bottom end of the market, I mean, everyone talks about how there will be a recovery of the ultra low cost carriers and that once people are more certain about the economy, And once people at the bottom end of that K start to see some stability in the economy, people will travel.

12:10Because, I mean, remember during the pandemic, there was after the as we exited the pandemic, there was this boom in travel for across the board. And that sort of has further split up. And so we will see that demand coming back. We just don't know when and what sort of shape that will be. So, Sid, you also cover Boeing and it came out with its results. And in terms of the numbers for the fourth quarter, free cash flow topping estimates, it generated cash for a second straight quarter. That sounds like it's good news. How far along this recovery, this long awaited recovery is Boeing actually? So Boeing is on the road to recovery.

12:46They're still not there yet, but they are recovering. I mean, their fourth quarter results and their full year results were boosted by the sale of their Jefferson digital aviation subsidiary. And that sort of gave them a$9.6 billion boost. And at the same time, Boeing is sort of ramping up production. They are ramping up sales. I mean, they've seen a surge in sales. I mean, ever since the Trump administration came in, we've seen a surge in Boeing sales. And so Kelly Ortberg, the new CEO, is sort of pushing Boeing to improve production, ramp up production at a steady pace. I mean, they've gone to about 42 737 max jets a month, and they are sort of further boosting those production numbers.

13:31And that will get them on at the sort of where they want to be. And Kelly Outberg talked about how$10 billion in free cash flow is his target, and the company's on its way there. Our thanks to Sid Phillip, Bloomberg Intelligence Senior Aerospace, Defense, and Airlines Analyst. Coming up, a look at why the wireless provider AT &T posted fourth quarter profit and revenue that beat Wall Street estimates. You'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 BI Go on the terminal.

14:00I'm Scarlett Foo. And I'm Paul Sweeney, and this is Bloomberg.

14:07This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move to some news in the tech space. This week, we heard that the chip giant NVIDIA invested an additional$2 billion in the AI cloud computing startup CoreWeave. As part of the collaboration, CoreWeave will be among the first to deploy forthcoming NVIDIA products. We brought in Anurag Rana, Bloomberg Intelligence tech analyst, to tell us more. We first asked Anurag for his reaction to this deal. If you go back in history and see when CoreWeave was going public, it was having a hard time getting a good pricing.

14:39And then NVIDIA kicked in and said, you know, we're going to be a part of this particular IPO. And I think what's happening here is this. NVIDIA is creating the chips and CoreWeave is helping them sell the computing using those chips to different public that's out there. Now, at this time, CoreWeave has a massive backlog of orders, but it needs to get funding done in order to convert that into data centers and then capacity. Now, NVIDIA isn't giving them money straight away, but it's basically saying, you know, we have confidence in this company. and it would help then CoreWeave go out and raise capital from outside.

15:15So I think it's a little bit more like spreading the NVIDIA ecosystem is what's happening right now. Looking at your research note, you note that CoreWeave has$50 billion in remaining performance obligations. What does that mean? Yeah, basically it says this is kind of the contracted revenue they have on hand, which means Microsoft has said, you know what, I'm good for 10 out of that, for example. Meta has a deal with them. So they have this backlog of all these orders. But, you know, unlike other companies, you just can't go out and fulfill the demand. You have to create a very large data centers using NVIDIA chips.

15:51It then starts to work out or runs. And then you realize that$50 billion into revenue over the next several years. So what's the gating issue here for CoreWeave? Is it more access to more data centers? What's kind of the gating issue for them to fulfill that revenue? There are multiple gating factors. One is actually the data center itself. For that, you need land, you need power. The chip side is okay at this point because Nvidia is there, but then also you need capital. I mean, CodeWeave is not a company like Microsoft or Amazon that has unlimited capital to create these data centers. It has to go in the market and raise capital.

16:28Before they went public, I mean, their cost of capital was north of 10%. Right now, after they went public, I mean, the cost of capital has gone down to about But the entire NeoClouds arena, whether it is CodeWeave or whether it is Nebius, really depends on private credit lending or lending by other banks to really come up with the funding to create these data centers. So I also see that Microsoft unveils latest AI chip to reduce reliance on NVIDIA. What's going on there? So this is something that's going on with all hyperscale cloud providers, whether that's Google with its TPUs, Amazon with its chip, and now Microsoft launching.

17:07I mean, they have one chip, but the first generation was not, you could say, did not do that well in terms of reception from customers. What Microsoft is hoping here right now is for training, they'll still use the more powerful NVIDIA chips. But for running, let's say, a co-pilot, they could get around and use less powerful chips And if they do that, they actually save a lot of money. You know, in our math, we think if Microsoft is going to spend, you know, somewhere north of$140 billion this year, more than 50 of that is going to go just buying chips. And so, you know, it's a very big ticket for them.

17:43And everybody needs to be doing this, frankly, in-house. Our thanks to Anurag Rana, Bloomberg Intelligence Technology Analyst. We move next to earnings from the coffee chain Starbucks. And this week, the company reported global sales at established locations rose 4 % in the most recent quarter. That topped analyst estimates. For more, I was joined by Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service Analyst. I first asked Michael to break down how CEO Brian Nichols' turnaround plan is going at Starbucks. The turnaround plans are starting to really take a hold right now. And results really improved, rising, you know, 4 % system-wide, same-store sales, U.S.

18:21as well. China was up 7%. You know, here in the U.S., it's, you know, mainly about better operations, right? They rolled out new operating standards late last year, and they seem to be really boosting the speed of service, which is creating happier customers that come back more frequently, right? Some food innovation, including protein cold foam, seems to be hitting the mark, right? And they're doing a better job on the marketing side. So all those are driving drove better same-star sales than expected. Yeah, I don't know. The one I go to, the Starbucks Route 35, Walt Township, New Jersey, they do a great job for me.

19:02And I've noticed the change. I mean, little things like writing your name back on the cup like they used to back in the early days, in addition to that sticker, which was a little antiseptic, I guess. Talk to us about costs there. Are they looking at their costs as well? Yeah, they've identified$2 billion in annual costs that they want to get after over the next one to two years. You know, right now, margins have been impacted. They've gotten those same-store sales and traffic numbers up by adding labor to the stores, right? And so they're seeing margin compression still. So now that they got people coming back to the stores, now that the operations are more dialed in, you know, CEO Brian Nichols said they're not quite where they need to be throughout the day.

19:43They're great at peak, but they have some improvements still to do. But, you know, now that people are coming back to the stores, they're going to, you know, focus a little bit more on where they can save some money because, you know, it was a smart move, reallocating labor into the stores, but costly. Talk to us about the competitive environment because you go to like, I don't know, small towns. It seems like there's a coffee joint on every corner these days. What's the competitive landscape for Starbucks these days? Well, it's as competitive as it's ever been. You have some of these younger chains that seem to do really well with Gen Z like Dutch Bros and 7 Brew.

20:23And they're opening up these drive-thru cans, you know, throughout the suburbs across America. You know, in the cities, you know, there's a lot of competition with these, you know, very high-end coffee shops that are, you know, using very, you know, very high-quality coffee and offering an elevated food experience. So competition is tough. And that's why, you know, Starbucks is making some changes. You know, they're focusing on health and wellness, right? They're looking to improve the food in the bake case. They're looking to improve the food throughout the day. They're looking into some new innovative drink offerings to boost that afternoon day part.

21:03And so, you know, this is just the beginning of what Starbucks, you know, thinks they need to do for long-term continued same-store sales growth. Our thanks to Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service Analyst. We move next to the telecommunications space. This week, AT &T reported fourth quarter profit and revenue that beat analysts' estimates. The results were fueled by customers who subscribed to more than one connectivity service. AT &T added more than a half a million fixed and mobile internet subscribers in the quarter. So we brought in John Butler, our senior telecom analyst, and began by asking John where AT &T stands relative to its rivals.

21:40Post the earnings call, they held a breakout session with the master relations with the sell side. And there were a lot of questions about how broadband or how competition is now shifting from wireless over to broadband. I actually think AT &T is in a great position relative to their competitors because they're the fiber leader. And they're about to buy Lumens Fiber Business and add another million fiber subscribers there. So in terms of their ability to sell what are called converged packages or wireless together with broadband, they're in a great position there because they have both fiber and they have a smaller fixed wireless access business, which is that wireless broadband product.

22:30John, this is a company, AT &T, that spends$20,$22 billion in CapEx every year. What is that CapEx for typically? A lot of it, Paul, is going towards wireless network upgrades as well as the deployment of fiber. So this year, for example, they're going to add 5 million new fiber homes, but it costs about$2 ,000, maybe twice that in some markets to build a new what's called a fiber homes pass. So a lot of capital is getting spent this year, next year, and maybe to a little bit of a lesser degree in 28. That's sort of laying the foundation to build out that fiber network and that 5G wireless network.

23:13Beyond that, AT &T has said, we're going to cut our cap backs. We're going to lower our capital intensity. And you're going to see a lot more free cash flow through. and they're going to be able to fund hopefully some dividend growth after that and increase the share buyback. Yeah, I'm looking at the dividend yield for AT &T, 4.6 percent. For Verizon, it's almost 7 percent. For T-Mobile, a little bit less at 2.19 percent. John, where do the telecoms stand when it comes to this rotation out of big tech, looking for some cyclicals, looking for parts of the market that haven't been overbought? So it's a good question, Scarlett.

23:55I always say telecoms, particularly the dividend payers like AT &T and Verizon are bond proxies to a degree. I think sentiment has been pushed around a little bit by the fact that we have new CEOs of both Verizon and T-Mobile, and these guys are going to be looking to make their mark. So there's been a little bit of concern or more than a little bit of concern that the competitive intensity in wireless is going to pick up as these new CEOs look to make their mark. And I think that has led to some of the pressure, particularly on AT &T, though, again, I think they put a lot of those concerns to rest by reiterating their fiber plans and laying out new free cash flow guidance.

24:41John, on the competitive land front, where are the cable companies these days? They're struggling, Paul. I mean, they're at a technology disadvantage in that they're offering broadband over those legacy coaxial cable networks. They're doing what they can to upgrade the technology and increase speeds on those networks. But at the end of the day, fiber really is a superior product to everything else on the market. and fixed wireless access, which has been offered by the telcos, has been a very popular choice given the fact that it's an easy setup. It's over the air, so there's very little problems with it.

25:22It's pretty much problem-free as broadband goes. Over time, it sort of has a headroom problem. It can't offer the same speeds as fiber, but through it all, cable is sort of flying underneath those two products sort of, you know, trying to compete with what is a legacy product in the market. John, did we learn anything from AT &T's results regarding iPhones and, you know, consumers signing on for the latest version of the iPhone? So, great question. It's very interesting. AT &T over-indexes to the iPhone. They have a lot more users than Verizon or T-Mobile because they had an early exclusivity deal when the iPhone first launched.

26:05They were asked about the foldable iPhone that's rumored to be coming out next year and whether that's really going to move the dial for them. Their answer to me was interesting. I didn't expect it, which is they've been tracking the performance and the sales of the foldables that they have available on the network on the Android side. And their expectation is that we won't see a huge bump in iPhone sales next year. I think time will tell. I actually think foldables are going to resonate well with people. And Android isn't always the best read through there. I think it's a different kind of user that's on the Android phone versus iPhone, but we'll have to see in the fall.