BI Weekend: Oracle's Money Making Moves, America's Hot Garbage Problem

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2:15Geetha Ranganathan:The semiconductor business is a really cyclical business. These are two big-time blue-chip companies. Are people just too exuberant out there? Bloomberg Intelligence with 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 Oracle signing a cloud deal with$30 billion a year. Plus, later on, a big take story on the Treasury Department's cybersecurity vulnerabilities.

2:53Geetha Ranganathan:But first, we begin with an outlook into travel and leisure for the second half of 2025. According to a BI US travel survey, tariffs, inflation, and geopolitics could deter consumers from spending money on hotels and flights. Jody Lurie, Bloomberg Intelligence analyst, breaks it down. For a large part, the companies have been doing pretty well. And from a credit perspective, we've seen pretty decent total returns for the indices. And that's compared to high yield and investment grade as a total. You know, we've seen that for discretionary, that these leisure-related companies have actually been doing better than most of discretionary.

3:31And it makes sense because other parts of discretionary, such as retail, are much more sensitive to, you know, these tariffs and trade talks that are really affecting a lot of our outlook. Jodi, I'm looking through your note where you talk about the fact that there's a lot of uncertainties right now that a lot of these consumers are grappling with as it pertains to leisure, traveling, with tariffs, inflation, China economy, and geopolitics. Can you just give us a little bit more of the backdrop right now? What is the consumer thinking as it relates to travel right now during the summer? So I think that consumers are still going along with their plans for the most part, but maybe slightly tweaking it.

4:10What we saw in our second half leisure survey that we ran, we run this every half a year, is that consumers are not pulling back on experiences. They're not pulling back on accommodations. What they might be pulling back on is destination to do a cheaper destination if they need to cut costs. But by and large, most consumers are looking at spending on travel, spending on experiences as a way to escape what's going on and sort of the, you know, last party before maybe the chair gets pulled out from under them.

4:40Geetha Ranganathan:How about my favorite sector, which is the casino business? How does that perform in a time of maybe some uncertainty out there? So I think it's a question of what region we're talking about. And so for Las Vegas, you're dealing with the fact that we had really strong comps because we had a couple of one-time events, such as the Super Bowl, such as the first F1, that really drove a lot of last year and the year before's performance. This year, we're not seeing that same momentum there. So it's a little less exciting. When you talk about regionals, I mean, that's really my question. So a lot of the companies like to talk about how regional casinos are counter-cyclical, meaning people will still go to regional casinos to gamble, even during a recession.

5:24But I think the question I have is the last sort of data points we have on that is before we had online gaming, right? Online gaming is definitely a game changer to the whole industry. And my colleague, Brian Egger, who covers on the equity side, can talk ad nauseum about online gaming, as you know. But I think really the question is from more of a macro standpoint, how that's going to affect these companies as it relates to their regional casinos. Now, when we talk about Macau, there's a lot of sort of questions about China and China's economy and how that might trickle into the effects of Macau.

6:02Never mind the fact that we're now going to have competition in the UAE with the Wynn casino that's opening up in a few years. You know, we're seeing Thailand has been not so not so quick to get on the casino game. But we've seen Japan is starting to open up with MGM. So there's a lot of competition globally that might change the dynamics of casinos at large. Judy, when you think of travel, I immediately think of airlines. You know, how am I going to get from where I need to go point A to point B? And when we look at airlines, I'm looking at an index that's down about 18 percent. But then hotels, you have to need somewhere to stay.

6:37We're seeing them popping up about 9 % so far this year. What's going on in the hotel space right now? So in the hotel space, they're still commanding these good prices for the rooms, right? And I think that's a function of the fact that you're seeing business and conference travel tick up. Now, the question is, how are people traveling? And are people doing more domestic travel? Are they driving to places? Are they taking the train? are they opting out of airlines because it's just so uncomfortable and are they not doing international travel as much and i think that's really what's sort of playing out is is that question of it is is how are people getting to their destination what destination are they going to you know there's definitely data points out there i was just reading a report this morning um that was talking about how july 4th is going to be the busiest in terms of travel but really i mean our for july 4th are we flying places are we driving to barbecues that's that's really the question.

7:30And I think, you know, with the sort of airline component is that rental car component, right? And so when you look at what, you know, the CPI, the consumer price index is for airlines, what it is for rental cars, you know, rental cars has shown a weakness of late. And I think that's a function of the fact that you're seeing consumers sort of not necessarily opting to rent a car, especially when so many rental cars are tied to airlines.

7:54Geetha Ranganathan:I know you cover Six Flags, as in Six Flags Great Adventure in New Jersey. I haven't been since my junior year in high school. I went three years ago. You did? Great time. Great time. That's awesome. How about the theme park business? Because a lot of listeners and viewers are Disney shareholders, and that's the biggest part of Disney's business. Are people still going to the high-priced theme parks? People are still going to theme parks, but I think there's sort of a question of destination versus regional. Now, we've been sort of, you know, less constructive, I guess, on regional theme parks of late than, say, cruise lines.

8:29And that's a function of the fact that I think people were looking outside their general area. You know, somebody in New Jersey isn't necessarily seeing Six Flags Great Adventure as their big vacation. They're seeing, you know, the cruise to the Hamas as their big vacation. But I think as, you know, consumers, if and when consumers start really feeling the strain on their wallet, we might see some of them come back to theme parks. And we're still trying to figure that out, what that's going to look like and what percentage. But for someone like United Parks, which is formerly SeaWorld, they're benefiting from the fact that Universal is opening up a theme park in Florida.

9:02The large portion of their properties are in Florida. Of course, they have the Busch Gardens. They have the Sesame Place. They have stuff in San Diego. But a large percentage of their parks and their revenue comes from Florida. And so when you think about someone like a SeaWorld or United Parks, as they go by now, they are much more sensitive to what's going on with Disney and Universal. And if they're building new parks, if they're getting people to come, they might then accidentally also go to SeaWorld.

9:31Geetha Ranganathan:Our thanks to Jody Lurie, Bloomberg Intelligence credit analyst. If you choose to stay close to home this summer, no worries. There are still plenty to do, like watching a movie starring Brad Pitt on a Formula One racing track. That's exactly what Apple wants you to do. Apple original film F1, the movie, is quickly becoming a summer blockbuster and could be the catalyst to supercharge bidding prospects for Formula One's U.S. TV rights. For more on that, Emily Grafeo and I turn to Geetha Ranganathan, Bloomberg Intelligence Senior U.S. Media Analyst. So this was obviously a big success story for Apple.

10:05They've been dabbling in these theatrical films for quite a bit now, but none of their movies have had this much of a success. So this is really good news, and I think it kind of really emboldens them with respect to their strategy. So definitely movie theaters are happy. And the other point that I'd like to make is, you know, more than 20 to 25 percent of the total box office actually came in from IMAX. So this is really good news for the exhibitors because the premium large format, that whole thing about going to the theater to experience the movie is really working. OK, so your latest note is about how this F1 movie here from Apple is going to jolt, you say, lackluster, lackluster bidding for the Formula One rights in the U.S.

10:49Just give us a little bit of context here, the landscape of rights for Formula One. Who who currently has the rights? When does that expire? And just put into context kind of kind of the current bidding right now. Sure, Emily. So right now, so Formula One, as you know, is a global sports, global media property. In the U.S., the rights to distribute Formula One content is owned by Disney's ESPN. So they have rights that go through the end of this year, through the end of 2025. They're currently paying about$85 million a year. That's up from their last negotiation cycle when they were paying only about$5 million.

11:28So it's up to$85 million. But what F1 is saying is that this is such an interesting property. This is a hot property. You should be paying up for it. And they are really looking for something upwards of about$150 to$160 million. And I'm not so sure ESPN wants to pay that much money. So price is really a sticking point here. And it looks like we've hit a little bit of a stalemate. By the way, F1 really kind of shot into the limelight in the U.S. with the Netflix Drive to Survive series. Now, Netflix has been hugely actually instrumental in kind of driving this surge in popularity. So everybody was kind of wondering whether Netflix or maybe another streamer like an Amazon would kind of come in and bid for the rights.

12:10But I think what we're seeing with a lot of these streaming platforms is that they want global rights. These are all global streaming platforms. They want rights to distribute this content in all markets. and they're not going to be able to get that right now.

12:22Geetha Ranganathan:Because Formula One, who's their European over? Is that Warner Brothers Discovery? Who distributes? Sky. Sky actually distributes them in most markets. So, you know, Ireland, UK, Germany, Italy, again, France, Spain, they all have a little bit different, you know, distributors. But Sky is a very big one across most of Europe. Wouldn't Apple be the obvious choice to partner up and, you know, get the rights to Formula One? because they just made this big blockbuster hit about Formula One? You would think so. You know, but it's been a little bit of a, you know, again, it's hard to actually figure out what Apple is thinking here.

13:04One thing that Apple doesn't have, which both Amazon and Netflix have, is scale. So Netflix has well over 300 million global subscribers. Amazon probably has close to about 300 million as well on their video streaming service. Apple, on the other hand, has probably less than 50 million. So they don't necessarily have the scale to support it. And remember, there are a few other things with the Formula One property. You don't have a lot of advertising inventory necessarily. So again, that's something that doesn't necessarily appeal to streamers, especially because all of these different streaming platforms are really trying to build out their ad business.

13:38Formula One doesn't necessarily lend itself to that. But you're absolutely right. Apple could be a very interested party down the road.

13:44Geetha Ranganathan:And for those who care, one can actually invest directly in Formula One. It is a publicly traded company. F-W-O-N-K, I like Formula One K. It's owned by John Malone and Liberty Media. So there's a million different share classes out there. But Formula One, Geetha, I mean, under John Malone's leadership, they've done a good job of increasing rights, sporting rights and sponsorships and all that kind of stuff, making it actually profitable. Very profitable, Paul. And they've done a fantastic job with the media rights. Again, they've really capitalized on this huge surge in popularity. Because remember, F1 was really more of a European, really not so big in America.

14:22But they've really kind of capitalized on this huge momentum in the United States. And you're absolutely right. They've added a whole lot of races, made it a year-round calendar, lots of sponsorship money. So they've done a very good job with this new Liberty Media Management team.

14:37Geetha Ranganathan:Our thanks to Geetha Ranganathan, Bloomberg Intelligence Senior U.S. Media Analyst. Coming up, a tech breakdown as we talk Tesla sales, Oracle, and Apple outsourcing some AI assistance. 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. I'm Paul Sweeney. This is Bloomberg. Some 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.

15:20It'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 ChachiPT.com by selecting Work Mode, available on Plus and Pro plans. Let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling.

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16:29And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how.

16:45Geetha Ranganathan:This coffee shop? Running smooth thanks to Genius. From global payments, instant transactions, effortless inventory, and synchronized operations. Big League reliability for any business. That's Genius. You're listening to Bloomberg Intelligence with Paul Sweeney on Bloomberg Radio. This is the Bloomberg Intelligence Show. I'm Paul Sweeney. Tesla this past week reported second quarter deliveries on its vehicles, and it was not good. Tesla now finds itself in a deep hole to dig out of to avoid consecutive annual declines. To help break down the numbers, Norma Linden-Ice spoke to Pierre Faragou, head of global technology infrastructure at New Street Research.

17:26There is a bit of a positive surprise, like people tracking very precisely deliveries in various markets. We're expecting slightly lower numbers. The surprise comes from the U.S. The U.S. is a place where it's the most difficult to track the number of Tesla being delivered. And the U.S. beat expectations. So that's a Model Y coming in, doing actually quite well. That's good. But then at the end of the day, you have to remember the big picture. We are down 13 percent year on year. so we are facing a situation where Tesla is struggling to sell cars gross margin is in the low teens to me Tesla facing good demand should be able to defend like mid-20s gross margin so we have like we are facing like a core business an auto business that is really at a very low point that is struggling and so what's the difficulty?

18:19you have like one structural difficulty that is relatively that we understand relatively well It's that with their current product, Tesla has kind of saturated its opportunity. Tesla needs lower price points to keep growing. And that's in the plan. They're working on it. And then you have a number of other issues. You know, electric cars are less fashionable than they were a couple of years ago. The Tesla brand has suffered, particularly in Europe, where numbers are down like almost 40 % year on year. um uh and so it is definitely it's difficult to quantify but it is a significant uh headwind as well um and overall you know the economy is not right the best you can imagine for auto auto demand yeah I mean when we look at the mag 7 stocks we see Tesla as the primary laggard this year down about 23 percent and of course we know that investors have really been vying for Musk's attention as he's been really politically involved.

19:17So as we're seeing these numbers come through, what do things like moving forward? Are these numbers a massive impact or are the Tesla loyalists still out there? And is there some further positivity to come? Yes, you the Tesla stock has been on the roller coaster. It's like a very low performance this year, but it was like a clear outperformer last last year. And as you say, you know, it's following it's following, the political career, if I may say, of the CEO, Elon Musk. And this has created this situation. Now, if you look at the stock since April 1st, what you see is that what tends to really move the stock is actually the news flow around how the company is now focused on deploying fleets of robotaxes.

20:09They've just started that a couple of weeks ago, like late last month. And I think that's going to be the primary driver of the stock going forward. Of course, there is a lot of uncertainty on how fast Tesla is going to be able to deploy Robotaxi or even make her profits, like generate the profits out of the Robotaxi fleet. But the size of the price is so gigantic and so much more than the auto business that this is probably what drives the stock going forward.

20:39Geetha Ranganathan:Our thanks to Pierre Faragou, head of global technology infrastructure at New Street Research. Sticking with tech, Oracle this past week said it had signed a single cloud deal worth$30 billion in annual revenue. That's more than the current size of its entire cloud infrastructure business. For more on this deal and what this means for the computer software company, we turn to Anurag Rana, Bloomberg Intelligence Technology Analyst. We think this is part of the Stargate contract. This is something that's going to flow from OpenAI, you know, the combination between SoftBank, Oracle and OpenAI. So if you remember, there was a big deal, you know, just I think a day or two after the president took office where Larry Ellison, you know, got on TV and talked about it.

21:23You know, we think this is a byproduct of that. How is Oracle matching up with its competitors? I mean, I know it's gained traction for renting out computing power over the Internet. And of course, it's been targeting a lot of its clients that are focused on AI there. But how does it look in comparison to peers? Yeah, I think, you know, it was really, I mean, go back a few years. It was, you know, to be honest, non-existent about three years ago. So the revenue was, you know, just a handful of billion dollars or so compared to, you know, Somebody like an AWS, which is now running at a run rate of over$100 billion.

21:58But this, if you look at it, in last year alone, Oracle's infrastructure as a service business, which is what we look at as the proxy for their cloud infrastructure business, had revenues of about$10 billion. So then here comes a contract that in three years, they will have$30 billion annually from just one customer. So you could see just the overall what's happening with AI, what is really need so much of computing power to run these models. And this is, you know, again, they are going everywhere. But Oracle is, you know, one of the bigger beneficiaries over here.

22:34Geetha Ranganathan:Rich Goh, R-I-C-H, the world's richest people. Larry Ellison of Oracle clocks in at number four,$229 billion, up$37 billion year to date. The stock is up 52-week high on Arak. It's at an all-time high. What's the bull case for Oracle here? Is this just another way to play cloud slash AI? Yeah, so that's the bull case. Definitely on that end, you could see their growth rates are going to pick up so much more than any of the other cloud providers. And partially because the numbers are too small, as I said. They're only at about$10 billion run rate or so in this case at this point. So that's one.

23:17But on the other side, they will have to spend a lot on CapEx right now. So that CapEx number is going to go up. Margins are going to most likely take a hit. But frankly speaking, in this market right now, it's all about market share gains and which of the companies can actually benefit from all these large language model training or inference. Basically, they're going everywhere. I mean, look at, for example, CoreWeave, their growth rate. The same is the case with Microsoft Azure or AWS. as, I mean, everybody in this particular ecosystem is going to make lots of money. We know expectations remain high for a lot of these tech firms, especially as we think about the AI push.

23:54What do investors want to see right now? What's the next step for Oracle? I think a lot of this would come to execution in this case, because, you know, this is, we are assuming flawless execution in terms of data center expansion. But what if they are not able to get enough power in there out there? I mean, what if we get into a shortage in that area? So there's going to be a lot to, you know, I would say ups and downs, not just for Oracle, but everybody in the equation where maybe the project gets delayed, some funding issues. Right now, everything is fine when it comes to funding for these particular projects.