BI Weekend: Oracle, Cracker Barrel Earnings, FDA Probe

0:28Bloomberg Audio Studios exuberant out there? You see some so-called low-quality stocks driving this short-term rally. Bloomberg Intelligence with Scarlett Foo 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 why the computer tech company Oracle reported disappointing cloud sales last quarter.

0:58Plus, we'll look at how the$1 trillion dollar conglomerate Berkshire Hathaway is preparing for the retirement of CEO Warren Buffett. But first, we begin with a survey from Bloomberg Intelligence entitled AI's Cross-Industry Disruption. It dives into how various industries are approaching AI implementation. It's also the largest study of C-suite executives that BI has conducted. For more on this, guest host Christine Aquino and I were joined by Matthew Bloxham, Bloomberg Intelligence tech analyst. We first asked Matt to break down this BI survey. So this was a big survey we did polling the views of 604 C-suite executives across a range of industries across the world.

1:35Really kind of trying to get a sense on how corporates are assessing the current AI situation and what they think it's going to do to their businesses over the next kind of two to three years. So we kind of looked at the motivations for AI investment, what it could do to headcount, what they're expecting in terms of revenue and profit uptick. and we had some kind of interesting results out the survey. Not surprisingly, perhaps, AI is very much at the top of the C-suite agenda. Something like 36 % of those polled said it was their top strategic priority and another 47 % said it was within the top three strategic objectives for them.

2:18When we looked and asked about the main objectives behind their AI strategies, is what came out top was improving operational efficiency, which was number one with 47 % of the respondents. And in second place was boosting revenue at 21%. Interestingly, head count cuts were quite low down the pecking order. Only 13 % of respondents put that as their top priority. And actually, it was the highest ranked in terms of the least priority. So I think it's interesting that companies are looking to boost productivity, but they're not afraid to make investments both in technology and headcount in the near term to kind of release those opportunities.

3:04And actually, on a three year view, 62 percent of respondents said they expect AI to lead to an increase in headcount over the next three years. An increase, not a decrease. And the average increase they're looking at is about 4 percent. So that kind of flies in the face a little bit of a lot of the kind of headlines we see about job cuts. I think overall, corporates see the need to invest more in staff to roll out their AI strategies in the coming years. Yeah, yeah. Well, Matt, you mentioned 36 percent of C-suites now rank AI as their top priority. That number actually strikes me as a little low.

3:44I would have thought it would be at least half of the people survey. But what do you think? Is that something that's just set to grow in future surveys as really kind of AI becomes central to a lot of companies' workflows these days? Yeah, I think so. I mean, you know, obviously, if you add the 47 percent that said it's in the top three, I mean, you know, an overall top three priority gives you the kind of vast majority of the respondents. And so obviously companies do have to wrestle with lots of other issues, too. There is going on in the world beyond AI. Obviously trade policy is another big thing that's probably on the radar for a lot of these companies, too.

4:23So, yeah, maybe it will kind of inch up. But I think given that aggregate, 80 % plus in the top three, probably what you'd expect to see. Matthew, how about return on investment here? That's kind of what the street's starting to ask for now. We know these companies can spend big money on AI, but what's the return for shareholders? Yeah, I think that's still very opaque. And actually, when we asked the respondents to flag the biggest roadblocks they could see to AI deployment, the investment needed in AI and the question marks around the return on investment were definitely up there amongst some of the most important concerns that respondents have alongside data security and clean data.

5:12We didn't ask much of those specific ROI expectations. We just kind of get the sense that it's a bit too early to get an accurate read on that. I think most companies are still kind of at a relatively early stage of their AI trials. Lots of them have moved out of the kind of testing LLMs, they're into pilot phases, some of them are even moving into scale deployment. I think it's fair to say a lot of them are not really quite sure yet what the return is going to be and how quick it's going to come. And obviously it's kind of a bigger issue for the wider tech sector. And you mentioned Oracle as a kind of a barometer for the kind of broader pulse on AI.

5:52And I think the 2026 is going to be a really crucial year for kind of what corporates make of the midterm ROI. And if they don't see a big ROI, then that's probably going to slow the pace of revenue growth. And that's going to have a knock-on effect to the levels of investment we're seeing made by the likes of Oracle and OpenAI and the revenues they're bringing in. Our thanks to Matthew Bloxham, Bloomberg Intelligence tech analyst. We move next to some news in the biotech space. This week, we heard that the Food and Drug Administration is investigating whether COVID-19 vaccines cause deaths in adults.

6:25It's part of a safety review that earlier appeared to just be focused on children. And the investigation comes at a time when U.S. Health and Human Services Secretary Robert F. Kennedy Jr. is upending longstanding guidance for a wide range of vaccines. For more on this, guest host Christina Quino and I were joined by Sam Fezzelli, Bloomberg Intelligence Director of Research for Global Industries and a senior pharmaceuticals analyst. We first asked Sam to break down what we know about the FDA's investigation. We don't know anything, right? Last week we heard that they've got data that shows that there were 10 children's deaths.

6:58Where's the data? Show us, right? They go and use this thing called VERS, the Vaccine Adverse Events Reporting System, which is totally voluntary. I can go on there and say, I had chicken nuggets just around the time as my COVID shot and I had an allergic reaction. And they go, oh, okay. So I can put that on there, right? in order to do an analysis of that database which we as analysts try and do which is very complicated because you need all the case background who was that patient what happened to them you need to do the work fine i believe that they've done the work show us where is the transparency they're here i'm pretty sure i don't know for a fact that they're using the same system do you see people i mean of course that's a ridiculous question to ask falling over and dying in the streets after getting COVID shots all the time.

7:48There are issues that happen. A lot of people who take COVID shots these days are the elderly, which by definition have a higher probability of complications, etc., in general. So we need to keep an eye on this. I want to see the data, and I want it properly scrutinized. Let us do that. Yes, Sam. Well, I mean, obviously, I guess this seems like it's in the early stages of investigation. But I mean, walk us through kind of the potential impact of this, right? Potentially, it could affect public health policy. And then potentially that will have some bearing on how companies move forward, especially the vaccine providers, presumably.

8:31Yeah. I mean, two or three things can happen. The FDA can say, well, actually, we didn't find the link. This just says that they're looking at it. Number two, they say, we found the link. We're going to put a black box warning into COVID vaccines. fine that reduces people that increases people's hesitancy potentially or they can go and say we want to take it off the market i don't think they'll do that but let's say let's get that there are two companies that are most exposed to this pfizer of course has is one of the companies that sell the vaccine but i mean you know pfizer has a lot more going on right the ones that are much more leveraged to the vaccines are moderna and biontech what i find interesting is that Moderna, who is much more leveraged with because they're selling it themselves.

9:12They have less of a cash cushion than BioNTech has. Let's say they end the year this year with$7 billion in the bank. BioNTech is at$18 billion in the bank. And yet it's the BioNTech share price that gets hit most. And I don't understand why. Moderna is more exposed because that cash cushion is lower. So if your revenue drops, then you're going to have an issue. Of course, they've been very good at cost management. So that's where I think this could end up. If it goes really to the wire and they go, right, we're not going to suggest this anymore, which would be, I think, a tragedy for the U.S.

9:46So, Sam, we've got we've been 10 months into this administration. We've got a U.S. Health and Human Services Secretary Robert F. Kennedy. We've been X number of months into his leadership. How is how are pharma companies and biotech companies trying to work with this new administration? because there's a lot of, one can argue there's a lot of head-butting there potentially. It doesn't look like people are that worried about it, but I promise you, if I went on our anonymous drug chat with clients, about 2 ,000 people on it, and I asked, how worried are you? I tell you, no one's going to say zero.

10:24There's always this background of worry, right? The thing is the sector's doing well. Only this week so far, we've had close to$2 billion of money raised from companies with good data that's driven the share prices up. This is between five and six companies. So the sector's thriving. We need to make sure the FDA is in a place that will have very clear guidelines so that people know what they're dealing with and not get advice today that in six months' time they go, well, whatever we said then, we have a different view now. So that is a problem. And there is something to worry about there. Let's hope that 2026 becomes a lot more stable for the FDA with logical, scientific-based decisions.

11:06Yeah, well, Sam, you know, speaking of the sector, it's doing well overall, but what do you think is going to be the key differentiator amongst the companies between the successes and, I guess, the less successful in 2026? It's always been the same. Clinical data. Get me a drug that's showing me clean data. Don't give me press releases with some cut of the data and the next press release is a different cut of the data, publish the data, take it to medical conferences. The reason these companies are up, most of them, and have been able to raise money is that they've been very transparent with their data.

11:38They present it, you can analyze it. Some more transparent are there. Some of them are presenting at medical conferences like the ones we just had, ASH, the American Society for Hematology. That is what drives this sector. Give me good clinical data. Of course, M &A is great because they come and you get a price and you decide, share price goes there. but it's clinical data that is that data that gets them to being taken out. Our thanks to Sam Fazelli, Bloomberg Intelligence, Director of Research for Global Industries and Senior Pharmaceuticals Analyst. Coming up, we'll look at why the restaurant and gift shop chain Cracker Barrel cut its sales outlook for the year.

12:12You'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. I'm Paul Sweeney, and this is Bloomberg.

12:27This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move next to some earnings in the tech sector. This week, the computer tech company Oracle posted quarterly cloud sales that missed analysts' expectations. This suggests that it will take longer than expected for the company's recent huge AI bookings to pay off. For more on all of this, guest host Isabel Lee and I were joined by Anurag Rana, Bloomberg Intelligence technology analyst. We first asked him to give us his take on Oracle's results. So there are a few things to keep in mind. You know, the number one thing is cloud infrastructure growth.

13:01Consensus was 69%. They came at 66. I know it's a very big number. However, in the cloud world, missing by even one percentage point is not good. So that's first thing. But, you know, there's a very logical reason about it. Everybody can see the backlog. So it's not as if they don't have a business there. But converting that backlog into sales is an issue. So everybody knows that there is a capacity constraints out there, whether it's data center, whether it's networking, et cetera. Power is a very big issue, for example. So that's one area of it. But although I would say the management did not harp on it as much as we would want them to be, that to explain why the growth can improve going forward.

13:38So that's one factor. But I think the biggest question is something that we had discussed earlier also, is everybody is questioning that out of their big backlog, which is over 500 billion right now, Now, 300 plus billion of that comes from OpenAI. Now, OpenAI currently, or the order book is from OpenAI. By the end of this year, OpenAI will have a revenue run rate of about 20 billion. So everybody is saying that, OK, well, tell me, if you have revenue of 20 billion, how are you going to spend 300 billion just with Oracle? So there's a big question, Mark. But then your question is, well, why didn't this happen when they first announced it?

14:11Well, their model was at the top at that point. And right now, Google's Gemini has caught up. So if people don't know, what will OpenAI's future look like two years from now, three years from now, and so forth? So there are multiple factors that are going into this equation. And not to mention that CapEx is going to go up by 15 billion. So 35 billion going to 50 billion. So it's a big, big, you know, change across four or five different vectors that are having an impact. So the cloud strategy of Oracle continues to evolve. What is the next major inflection point for you when you see these cloud companies really move towards more AI-driven efforts?

14:49So the big thing is that$500 billion of backlog needs to bleed into revenue. For that, they need to open a new data center. But even to open a new data center, they need more cash. So the big catalyst for them is they need to go out. Most likely, they need to create a special purpose vehicle where they can raise funds with the help of private equity investors, private credit, and basically keep that off Oracle's balance sheet. And that will help pacify these fears that they actually have a way to finance this big order book that they have. All right. You mentioned OpenAI. Can you refresh my memory?

15:25Because I have no idea. Where do they get their money? Where are they getting the money to do all this stuff? So the single biggest is the consumer app right now. That's where most of the money is coming in because, you know, if you want the best model, you're going to pay$20 a month. I mean, you can get the free version of it, but that's one area. They have over 900 million users right now, but only a small portion of them are paying customers. So that's one. Second is if you as a company, let's say you're, you know, let's call it a hypothetical bank and you're creating a chatbot which needs intelligence or a large language model.

16:00You're going to use APIs from OpenAI, and that gets embedded intelligence into whatever system that you're creating, your chatbot that becomes smarter. They get paid from that. So those are the two, I think, big elements or the big sources of revenue for them. And there is a huge, you could say, looking ahead, all the enterprises around the world will have some intelligence into their core applications, and they're going to use a model from somebody, whether it's Google, whether it's Anthropic, whether it's OpenAI. Our thanks to Anurag Rana, Bloomberg Intelligence technology analyst. We move next to some news at Berkshire Hathaway.

16:35This week, the firm announced a handful of leadership changes, including the retirement of its longtime chief financial officer, Mark Hamburg. This comes as the$1 trillion conglomerate prepares for the retirement of CEO and billionaire investor Warren Buffett. For more on this, co-host Scarlett-Phill and I were joined by Matthew Palazzola, Bloomberg Intelligence senior analyst covering the P &C insurance industry. You first asked Matthew to talk to us about some of the turnaround we're seeing at Berkshire. So the big news, I think the bigger news of the announcements was Todd Combs, one of the investment deputies and CEO of Geico, is moving to J.P.

17:12Morgan. So I don't know if that was a planned thing or what, but that seems like an unwelcome shakeup in light of Buffett leaving at the end of the year. I would say his investment track record at Berkshire, not very transparent. They don't really tell you what the investment managers are doing aside from Buffett. So I think many of the big moves are made by Buffett anyway. And I actually do think that Geico had some issues with lost costs going up. So the cost of car accidents was going up a lot. Combs' reaction was to cut a lot of costs and shed a lot of policies, which is actually the opposite of what I thought Berkshire would do.

17:54I thought they'd kind of ride it out and maybe gain some market share. And I do think Progressive handled that environment a little bit better. So I think it will be a manageable loss, but probably the biggest news. Yeah, Todd Combs, we should mention, was already a J.P. Morgan board member. So he had a relationship with the bank, and he's going to be advising Jamie Dimon and other senior J.P. Morgan leaders on strategic issues. Let's talk a little bit about the changes that involve a new general counsel position over at Berkshire as well. So this is a brand new position that they're creating versus, I guess, in the past they just relied on paid outside help.

18:31Outsourced it, I believe, to a firm that was associated with Charlie Munger. You know, not a huge deal, I don't think. I mean, I think it makes sense for them to have their own GC. Why not? I mean, Berkshire Hathaway. I think really the outsourcing was in part due to it being related to the company anyway. So I think it's important. Obviously, they're going to face tons of legal issues across all of their companies. And I think probably each one has their own individual. But it probably makes a lot of sense to have this all roll up to someone at the top. What's the call? What's the sentiment out there on the street?

19:07It's tough because you can look at it and say, out of their core competencies, are they going to do any of that any better now? right you've got Buffett going away you've got a G chain who is uh in charge of the insurance operations he's he's getting old he's been selling a lot of stocks and maybe he leaves um and he was kind of the magic sauce behind a lot of the insurance business um so you know you've kind of got these two titans of the company perhaps uh being gone and saying well how could they be good as good in investing or as good at the insurance business and it would be tough to say that they would be.

19:42But when you have Abel coming in, it was a positive sign of some shakeup. And maybe, you know, his strength is he's not Buffett. Well, his weakness is he's not Buffett also, right? But his strength is he doesn't have to do things the same way. And, you know, perhaps he takes a different look at capital allocation. So I think the street's hopeful that we see some more capital allocation come out of Berkshire. Our thanks to Matthew Palazzola, Bloomberg Intelligence Senior Insurance Analyst. We move next to some news at the American restaurant and gift shop chain Cracker Barrel. This week, the chain said it expects sales for the current fiscal year to fall faster than it previously forecast.

20:15This suggests Cracker Barrel brand is hurting from the firestorm that erupted following its attempt to use a new Streamline logo. The company also planned to update its dining rooms to give them a more modern feel. For more on all of this, guest host Christine Aquino and I were joined by Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service Analyst. We first asked Michael to break down Cracker Barrel's most recent earnings report. Guidance was cut, and this was their fiscal first quarter, so it's always tough to have a guidance revenue and EBITDA cut after your first report, but they hadn't seen a bounce yet in their traffic post-logo change controversy and everything that went along with it.

21:00On the positive side, they said traffic has now steadied at this down 10 % to 11%. level, which is translating into a down to mid single digit same store sales. So if you're a glass half full investor, you're saying that after the stabilization comes an improvement, their new guidance has a pretty wide range. So the low end of the range is assuming no improvement through year end, which we think could be, sounds pretty conservative to us. And then on the higher end, they would see a gradual, slow improvement in traffic going forward. So what are they going to do? You know, it's going to continue to be about improving the operations, right?

21:47That's been, you know, a key tenant under CEO Julie Messino. It's also going to be food innovation. It's going to be Southern favorites. It's going to be twists on old classics. It's going to be bringing back items that people loved and want to see returned to the menu but I think what really stood out is their willingness to listen more closely to their customers I think that's a big key point of focus for them moving forward after all the controversy that they suffered well Michael so in terms of what are they gonna do right it seems as a cutting capex is a part of the plan is that something that you think would signal discipline or does it actually risk slowing the turnaround even more?

22:35Well, they're going to still refresh the stores. What they're cutting back on is a more extensive remodel, which was in tandem with the logo change, which was something that was angering customers right so um i think the capex uh change is probably you know the lowered capex is probably smart um but they're going to continue to refresh their stores they're going to continue to give them a fresh coat of pain improve floors where they need to clean up the bathrooms things of that nature that nobody's going to get up in arms over i'm actually surprised in hindsight that maybe this management team kept their jobs there.

23:16I mean, this was a real self-inflicted wound there. What's the shareholders been saying? Has there been any pushback? Yeah, so listen, Julie Messino, you make a great point, Paul. And Julie Messino, the reason why I believe she's still there is that she was doing a great job until this controversy hit. This is a chain that had been bleeding traffic for years, right? They've been really struggling for a long time to bring in younger consumers. And she had shown pretty good success over the 12 months leading into the logo change. Same store sales at the restaurants were up 5 % in the August quarter.

23:59So I think that's why the proxy fight kind of failed. The attempt to remove her from the board failed. and why she still has her job right now is that this chain was a mess prior to her arrival, and she was showing some pretty good progress up until August. Our thanks to Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service Analyst. Coming up, we'll look at how earnings at the food and beverage company Campbell's were impacted by the holiday season. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries.

24:33You can access Bloomberg Intelligence via BI Go on the terminal. I'm Paul Sweeney, and this is Bloomberg.

24:46This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move next to the quarterly earnings for the food and beverage company, Campbell's, known for its iconic soups and snacks. This week, the company reported first quarter earnings that beat analysts' expectations. This was positive largely thanks to some holiday inventory billed by retailers. For more on this and her outlook on packaged foods, Scarlett and I were joined by Diana Rosado-Pena, Bloomberg Intelligence Consumer Staples Analyst. We first asked Diana about Campbell's two businesses, the snacks business and the meals and beverages portfolio.