BI Weekend: Nvidia, Retail Earnings, Anthropic Investment

0:28Bloomberg Audio Studios exuberant out there. You see some so-called low-quality stocks driving this short-term rally. Bloomberg Intelligence. With Scarlet Fu and Paul Sweeney. On Bloomberg Radio, YouTube, and Bloomberg Originals. On 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 earnings reports from some of the world's largest retailers. Plus, a look at why the Danish drugmaker Novo Nordisk will be further lowering the prices of its obesity drugs for cash-paying patients.

1:03But first, we'll begin with earnings from chip giant NVIDIA. This week, the company reported third-quarter earnings that topped analyst estimates. NVIDIA also delivered a surprisingly strong revenue forecast and pushed back on the idea that the AI industry is in a bubble. For more, we were joined by Kunjan Sabani, Bloomberg Intelligence Senior Semiconductor Analyst. We first asked Kunjan for his take on NVIDIA this week. This was one of the more bullish earnings we have seen from this name in a while. not just on the numbers of the 3Q, 4Q guide, which they blew past even the loftiest buy-side targets, but just beyond that, the long-term, the 26 sort of and going into 27 demand signals that they showed, namely the half a trillion of the pipeline, which we think now is a conservative number, given the number of deals they have announced.

1:50So if supply keeps on coming up as it has, and if their customers continue executing on these bills without any missteps, we think there's a significant upside to the current street numbers. Yeah, just looking through the numbers, clearly a beat and raise report, but the scale at which it can beat and raise is impressive. Although within the third quarter numbers, I did see that chips used in gaming PCs missed analyst estimates. And I know that that's a shrinking part of the business, or at least it's not as big a part of the business, given that the data center is where the growth is really at.

2:23Are there any flaws in this earnings report, Kunjan? Not really. I mean, look, the gaming is becoming so unimportant for analysts that the reliability of the predictability of those numbers against which we're comparing the beat and miss for gaming is no longer as reliable. So no real flaws to really point out in this. We did see their supply commitments go up quarter over quarter and inventories rising. I don't think that's a negative. while it might seem on the face, that's just them gearing up and getting ready for that next wave to supply the chips in the next year. So Kujan, what's the latest from Jensen Wang about how he views China going forward?

3:03Nothing has changed on the China side. They still don't assume any revenues when it comes to data center, AI, China, GPUs, or the H20 has been shipped into. They do have the clearance licenses, so they could. But it seems because of the geopolitical issues, China has basically been shut down for American GPU providers or ASIC providers to be able to ship in the country. There is, to be honest, no demand. So it seems, you know, because of geopolitical issues, the customers in China are not just readying and getting up to buy NVIDIA chips right now. Jensen Huang said that he, from his vantage point, does not see anything like an AI bubble.

3:39We see something very different. And he says competitive pressures remain fairly low because this is a company with more than 90 percent of the market for those high-end, super-fast AI chips. Who is the closest competitor, if there is one, to NVIDIA? Yeah, in terms of the size of the markets, the next closest competitor would be the AI ASIC chips. So Broadcom is one of the biggest providers of AI ASIC chips, namely the TPU that Google uses. Another example would be Amazon's Tranium chips, which are different AI ASIC designer supplies. So in terms of revenues or units, in terms of the market, Those are the next closest competitors within NVIDIA's realm, which it sells merchant GPUs.

4:23AMD would be the second closest competitor in that. Our thanks to Kunjan Subhani, Bloomberg Intelligence Senior Semiconductor Analyst. We continue in the tech space. This week, we heard that the tech giants Microsoft and NVIDIA are committing to invest up to a combined$15 billion in the AI research and development company Anthropic. We heard the investment will be part of Anthropic's next funding round. The company's also said Anthropic has committed to purchase$30 billion of computing capacity from Microsoft's Azure cloud service. So, of course, we had to enlist Mandeep Singh, Global Tech Research Head at Bloomberg Intelligence.

4:54We first asked Mandeep to tell us a little more about Anthropic and what it does. Well, Anthropic is one of the five frontier LLMs that are remaining. I mean, and they are leading the charge when it comes to generative AI. So it's one of the five. The other one are Google, OpenAI, Meta, and XAI. And so, look, when it comes to these commitments, it's pretty obvious that OpenAI has raised the bar by announcing they're going to spend$1.4 trillion. So the question is, what are the other LLM companies going to do? And Anthropic is also a pure play LLM. And in their case, they don't have the funding.

5:36I mean, they don't have the balance sheet like Google or Meta have. So they have to raise the money either in the private markets or from someone like NVIDIA or get into an agreement with Microsoft, which also has an agreement with OpenAI. So that's where, you know, LLMs need compute. That's how you serve billion-plus users. And that's where, you know, the numbers get bigger and bigger when it comes to the tie-ups with cloud providers. This is like the popular clique in high school where everyone knows each other and everyone's messing around with each other. Just give us a little bit of background here on Anthropic, because my understanding is that it was founded by folks who used to work at OpenAI.

6:19And some of the early investors, like big stakeholders, include Alphabet and include Amazon. And now you've got Microsoft in there. I mean, is there anyone who's not part of Anthropic and not committed to investing in this company? Well, you could say Meta. They're doing things. They're doing their own thing. They're doing their own thing in terms of, you know, using the compute internally. And they don't have a cloud business. Is that a problem for them, that Meta is out there on its own? I know it doesn't have its own cloud business, but it's not buying stakes or committed to invest up to$5 billion or$10 billion in any of these AI companies.

6:55I mean, so far, just to go to Meta, it feels like, you know, investors were okay with them using the GPU compute for their own family of apps. But the fact that they're talking about $100 billion plus in CapEx for next year without having a substantial ROI, and what I mean by ROI is in the case of Microsoft, yes, they are raising their CapEx to$120 billion, but they're winning deals like the one with Anthropic, $30 billion in commitment from Anthropic. So somebody is paying for that compute in the case of Microsoft. You don't have that with a meta. How are you generating ROI outside of your family of apps?

7:35And over there, you have to show a really substantial increase in engagement to convince investors it's worth$100 billion plus in CapEx. Any of these open AIs, Anthropics, are they going to ever come public, do you think? I mean, in the case of Anthropic, look, I know the numbers are getting big, but their gross margins at this point are probably better than open AI, which is doing too many things. I mean, the biggest risk I see for open AI is they feel they can get into any business, whether it's chip business, whether it's, you know, obviously LLM is their turf, any type of applications. And that's where there's a possibility of a misstep.

8:16You can end up wasting time because you just don't have the capability. Yeah, the focus. Whereas Enthropic is more focused. Our thanks to Mandeep Singh, Global Tech Research Head at Bloomberg Intelligence. We move next to some earnings from some of the world's largest retailers. This week, Target posted a drop in third quarter sales due to intense competition and a weakening economy with shoppers pulling back on apparel and home goods. Separately, Walmart reported third quarter earnings that beat analysts' expectations. The retailer also increased its outlook for sales in the full year. It's a sign Walmart is winning over price-sensitive shoppers while digesting costs it expects to rise in the coming months.

8:52For more, we are joined by Jennifer Bartaschus, Bloomberg Intelligence Senior Analyst covering retail staples and packaged foods. We first asked Jen for her take on the most recent results at Walmart. You know, Walmart had another good quarter, and I think that it's very easy to attribute a lot of their success to just the value-seeking behavior of consumers in this environment. But I think that would also be overlooking a lot of the investments they've made in things like convenience that is really spurring the e-commerce growth, and that was really a notable takeaway. Yeah, that e-commerce aspect helps draw in higher income shoppers.

9:25So it's a larger pool of customers that Walmart now has access to. And in our Bloomberg News reporting, we indicate that the digital offerings now include luxury items like pre-owned Chanel bags. I had no idea that that kind of stuff was available on Walmart.com. Well, you know, Walmart has done a lot to really expand its marketplace. And that includes bringing in items that will appeal to that higher income consumer. You know, and the tactic behind all of this is that the more people are integrated with e-commerce in going to stores, they become sticky and they become loyal customers. So that when the macroeconomic backdrop fades, it really increases Walmart's ability to hang on to these customers going forward.

10:05And that just drives future growth. So it's a really interesting play out of how they're applying that tactic. Jen, I also want to get your take on Walmart transferring its listing to the NASDAQ. That's going to happen on December 9th. And that, of course, is to reflect its focus on being a tech forward company. But I'm wondering, I mean, how much of this is really just about being included in the NASDAQ 100 and therefore the QQQ ETF? Oh, yeah, there's certainly part of that, Scarlett, where, you know, that's that's probably part of the motivation. I think that there is, you know, obviously there's a perception with regards to being perceived more as a tech company, which Walmart, in all truthfulness, has evolved into a tech company, especially amongst other retailers, by being listed at NASDAQ.

10:51Long term, maybe it helps the valuation, just in terms of having that perception of being more aligned with peers. Amazon is listed on NASDAQ, things like that. So I think that there's a lot of those components together combined are really behind the move. Jen, nobody arguably has a better finger on the pulse of the consumer than Walmart. What are they saying these days? Actually, they seem relatively optimistic. You know, they talk about, you know, spending holding steady for kind of that middle-income consumer. High-end consumers seem to be spending pretty freely. A little bit of concern about some of the lower-end consumer, but it does seem to be sort of evening out.

11:30And so when they were looking forward to the holiday season, which is, you know, the most important thing with regards to the retailers that I cover. They seem cautiously optimistic that there will be a pretty good holiday season this year. We do think that people will prioritize spending on kids. That's usually what happens first if they're holding back in other parts of their budget. But all indicators right now seem that we're headed towards a reasonably solid holiday season. Our thanks to Jennifer Bartaschus, Bloomberg Intelligence Senior Analyst covering retail staples and packaged food. Coming up, we'll take a look at why the global payments services provider Klarna reported record revenue in its first quarter since going public.

12:08You'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 Scarlett Foo. And I'm Paul Sweeney. And this is Bloomberg.

12:24This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move next to earnings from some of the world's largest home improvement retailers. This week, Lowe's reported third quarter profit that topped analyst estimates. This was a result of online sales and demand from professional contractors. Separately, we heard from Home Depot, who cut its four-year guidance. This comes as a company warned that some unsteady consumers are hitting the pause button on big ticket home purchases. So we spoke with Drew Redding, Bloomberg Intelligence U.S. home building analyst. We first asked Drew to break down this week's results from Lowe's and how they compare to Home Depot's.

12:58So I think Lowe's results can be best characterized as better than feared, particularly in light of what we heard from Home Depot. They did fall short of consensus estimates on same store sales, but I think the buy side was probably looking for something flat to lower. So a little bit better than than they were looking for. Now, that being said, they did trim their four year outlook. Now they're looking for four year comp sales to be flat from flat to up one percent. So that would imply that 4Q is relatively flat. But, you know, similar to what we heard from Home Depot, they had about 100 basis point impact from hurricane activity that was not replicated this year.

13:36So, again, if you were to back that out, it looks like the underlying trends in the business are pretty stable. You know, that being said, they're still grappling with the same consumer uncertainty and, you know, the same weak housing market that their competitor is. So, you know, still challenges out there in the market. Drew, I think I understand it correctly that Lowe's has a lower percentage of sales to professional contractors than does Home Depot. If so, are they trying to narrow the gap? Are they targeting that segment a little more? Yeah, great question. So Lowe's is about 30 % professional contractors, 70 % DIY.

14:11Home Depot is about 50-50, maybe even a little bit higher on the pro front. What's interesting, and to your point on investment, is the pro space, especially in building products distribution, has really become a battleground among home improvement retailers. You had Home Depot recently do acquisitions for SRS and GMS. And then you have Lowe's who recently acquired foundation building materials. So it's certainly an area where they're making a concerted effort to grow. Now, Lowe's has historically focused on the small and medium-sized pro. And what this acquisition does is it gives them exposure to larger pros who do more complex projects.

14:52So they're able to be the supplier of choice across more building product categories and at a larger scale. So basically directly competing with Home Depot in many ways. Is this going to become a duopoly or are there still a lot of other places that professional contractors can go to? Yeah, so the building products distribution space is still very highly fragmented. I wouldn't be surprised to see further consolidation within the industry across different categories. Home Depot and Lowe's are certainly two of the behemoths in the industry who have the scale and financial flexibility to further consolidate the industry.

15:31but there's some other players as well like like qxo so it is a fragmented industry but i would expect you know in the coming years it's something that continues to get consolidated i can't keep track of where all the tariffs are these days on all the different products but i'm just guessing if i'm a lowe's or home depot my plywood from canada that's probably being tariffed a power tool from somewhere in asia that's probably subject to tariffs how are these companies dealing with it what have they been telling you guys so lowe's gets about 60 of its products from the U.S. So their exposure internationally is maybe not as high as you would expect.

16:06China's probably around 15 to 20 percent. You know, there hasn't been a whole lot of talk. I think we have seen their average ticket increase this quarter was up about three percent. And part of that is in response to tariff related price increases. Lowe's told us that they were only modest increases. And, you know, they'll take a portfolio approach to how they increase prices. They'll look at their product lineup and see where they have more elasticity. But I think the impact of cost will start to come in a little greater as we look into Q4 in early 2026. And some of the areas that we're looking at, you mentioned plywood, so lumber tariffs from Canada.

16:41We also had the implementation of tariffs on cabinetry, both kitchen and bath, which could go up to 50 % in January. So I do think that the impact gets a little greater as we look at the next year. So I would expect further price increases from both retailers. Our thanks to Drew Redding, Bloomberg Intelligence U.S. home building analyst. We move next to third quarter earnings from the global payment services provider, Klarna. This week, Klarna reported record revenue that beat analysts' estimates on Wall Street. The firm also set aside more provisions for credit losses in its first set of earnings since going public.

17:12For more, I was joined by Anthony Hughes, Bloomberg equity capital markets reporter. I first asked Anthony to talk to us about Klarna's most recent results. Yeah, well, Klarna is a company that's actually been around for about two decades. It's just that since about 2019, they've really expanded quickly in the U.S. And Buy Now, Pay Later is a lending slash payments product, which basically allows people to buy products and obviously pay for them over time. And this is an alternative to the credit card option. So really, a lot of Klana's growth really reflects the fact that this product is becoming more popular relative to credit cards.

17:50And for a lot of consumers, it's a good way to manage your cash flow. And you obviously buy a product and not have to pay for it over time. And that suits a lot of people. And it is a fast-growing part of the fintech or, say, consumer lending space. So as a consumer, how does Klarna make money on my$100 purchase that I put on their system? Yeah, well... They charge me interest? No. Well, there's a number of different products. Some of the longer-term lending products do have interest associated with them. But that pay-in-for product they talk about, which is paying in four installments over a few months, that is an interest-free product.

18:25and really the source of revenue in that instance is from the merchant and merchants pay a merchant service fee. For them it's higher than they pay on a credit card transaction but basically they see the benefit of Klarna bringing in extra customers so they can sell more product. And people will ask themselves, well, who actually pays the merchant service fee? Well, the merchant does pay that to Klarna but the merchant does incorporate that as a cost of doing business into the products that he sells to you and I. So in a sense, we all pay for the fees that are hidden within the payment system.

18:59And really merchants pass on to the consumer, depending on how you pay for your product. Who's a typical Klarna consumer out there? Like what's kind of a typical transaction for a buy now? Yeah, well, these are mainly small transactions of, you know, can be a few hundred dollars or, you know, not large transactions. And, you know, this obviously suits a younger audience. And that's where a lot of their customer bases come from. But they've built a large business which globally has something like$110 billion of what they call gross merchandise volume. And that's, you know, it's a fast-growing business in the US.

19:37It's been growing pretty fast for them, 40%, 50 % in this recent quarter. And obviously, there's a couple of other companies that are in this area as well. So it's a competitive area as well with Affirm, which is another company that went public perhaps about five years ago. That was Anthony Hughes, Bloomberg Equity Capital Markets reporter. We move to some news in the biotech space. This week, we heard that the Danish drugmaker Novo Nordisk will be further lowering the prices of its obesity drugs for cash-paying patients. It's in an effort to claw back a larger share of the U.S. market from arch-rival Eli Lilly.

20:08Novo said introductory doses of its blockbuster drugs Wegovi and Ozempic will be available for$199 a month. That price applies to the first two months of treatment. After that, Novo will offer the drugs through its NovoCare direct-to-consumer portal for$349 a month. That is 30 % less than the current self-pay price. For more, we were joined by Michael Shaw, Bloomberg Intelligence Senior Pharma Biotech Analyst. We first asked Michael to break down what exactly Novo Nordisk is doing. This is obviously ahead of the White House deal. So you're seeing starting doses being reduced to$200 per month and then doses thereafter being charged an average of$350 per month compared to$500 previously.

20:48So, I mean, you know, those prices kind of align to, you know, the pricing in the White House statement coming from Trump RX. But compared to Lilly, I mean, they're undercutting them by about, you know,$100 at each dose. And this is basically a ploy to basically compete for new patient starts. As we know, Lily's got the more effective product in terms of weight loss profile. And they're also, you know, executing better on the launches. And I think that's clear from 3Q results where we saw contrasting fortunes between those two particular drug makers. Mikey, give us a sense of this marketplace here.

21:23What percentage of the addressable market is actually taking these obesity drugs versus because it seems like as the price comes down, more and more people will be able to get access to them? Yeah, absolutely. I mean, it's a highly price sensitive market. When we look at penetration rates in the U.S., you know, low single digits, that's obviously going to accelerate as these drugs become cheaper. Looking outside the U.S., penetration rates are even lower. So there's still significant kind of patient runway out there. In terms of U.S. penetration, I mean, the White House pricing deal on GLP-1 drugs, you know, supports kind of use of these GLP-1 drugs in Medicare.

22:05You know, there we think that it can unlock, you know, seven to eight million patients. According to a White House statement, I think they said 10 percent of Medicare beneficiaries would become eligible for GLP-1 drugs based on the pilot program. And that's going to be introduced in 26. And I think it's going to become mandatory in 27. And then they've also, you know, lowered the price in Medicaid, too. I think the uplift in terms of patients there is a bit harder to deduce or to kind of model, given that, you know, coverage is going to be on a state-by-state basis. And there's also kind of different qualifying criteria, which, again, is state dependent.

22:42What does this mean, Michael, for the companies like HIMSS and HERS, the companies that make compounded copycat versions of these anti-obesity drugs? They've done very well. And I know the stock for him and hers has been kind of all over the place, but it is modestly higher from where it was at the start of the year. Yeah, I mean, I think that whole, you know, the compounding situation, I believe that, you know, 1.2 million patients are on compounding GLP-1 at the moment. That's based on kind of comments that Novo made during their three-q results. But obviously, lowering down the price of the branded treatments would basically – well, I mean, it would lessen the delta between copycats and branded treatments.

23:23So I guess it's a negative for these compounded GLP-1 drug makers. Mikey, when I look at the big cap pharma names, is it as simple as I want to own the ones with exposure to obesity market and not own the ones that don't? Because I'm looking at your slate of stocks and you're either up 30 % or you're down. Yeah, I mean, I think, you know, there's a few large pharma names which have entered the space, you know, in the recent years. You've seen kind of deals with Roche and Zeeland for an amuline drug. Most recently, you've obviously got the Pfizer-Metzeria M &A deal. I mean, I think obesity is obviously appealing given, you know, the size of the target population, how underpenetrated it currently is.

24:08And if you're looking to offset patent expirations later in the decade, there's an abundance of GL.1 products out there, as well as other assets, too. So I think that's the appeal of the space. It's a large market. It's underpenetrated. And there's high demand for these treatments, too. I mentioned M &A. And of course, we know that J &J is making a purchase to increase its pipeline to get away from relying on these older drugs that have lost patent protection. Is every pharma company doing the same thing? Is that, you know, they're not only strategy, but is that the way they move forward? Is there anyone who's kind of like in a good position and doesn't need to make a deal?

24:48I mean, I think that's always been part of the large pharma model. They supplement kind of in-house innovation with external innovation, particularly if they want to get into areas perhaps outside of their core competency. But, I mean, I think that's just the model in general. biotech's always been the pipeline for large pharma companies, or at least help bulk up that pipeline. Our thanks to Michael Schaap, Bloomberg Intelligence Senior Pharma Biotech Analyst. Coming up, a look at why the global sports company Amerisports raised its full year guidance. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries.