BI Weekend: US Banks, Domino’s, LVMH Earnings

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1:42On 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 that our analysts cover worldwide. Today, we'll look at why Wall Street's biggest banks reported quarterly earnings that surpassed almost all analyst expectations. Plus, a look at how the tech company Oracle will commit to the widespread use of AMD chips. But first, we begin with some big news in the tech sector. Because this week, the AI research and development company OpenAI signed a multi-year agreement with Broadcom.

2:12It is to collaborate on custom chips and networking equipment. The plan is to add 10 gigawatts worth of AI data center capacity, with the companies beginning to deploy racks of service containing the gear in 2026. OpenAI will design the hardware and work with Broadcom to develop it. For more, we were joined by Mandeep Singh, Bloomberg Intelligence Senior Tech Industry Analyst. We first asked Mandeep first take on the latest deal. Look, OpenAI is going after having as much compute capacity as they can. And they did first 10 gigawatts with NVIDIA, 6 gigawatts with AMD, and now 10 gigawatts with Broadcom.

2:48And the difference here is with Broadcom, they get to use their own chips. NVIDIA and AMD are what we call merchant silicon. I mean, that's basically generalized chips where you can deploy the workload you want, whether it's from OpenAI or Microsoft or any other vendor. In the case of custom silicon, which is what Broadcom does, a company like OpenAI or Google, Google makes up almost 50 % plus of Broadcom's AI revenue. So Google has their chip called TPUs. they use it for everything run on Google's platform, whether it's YouTube, whether it's AI, whether it's cloud, everything inside Google's run on their TPU.

3:35So OpenAI's strategy here is to use an approach which is similar to Google TPUs because it saves you a lot of money. I mean, imagine an NVIDIA AI chip costs you 30 grand. A custom silicon that Broadcom is making for Google costs you six grand. That's the cost differential we are talking about. And it's not because NVIDIA has to spend 30 grand to make that chip. They have a 75 % gross margin on the chip that they're selling to the customer. So NVIDIA's cost is also low, but they mark up the price of their silicon. Same thing with AMD. In the case of Google, they are going directly to Broadcom to make that chip at a far lower price, and it's for their own use, which is why they don't have to pay the markup to NVIDIA or AMD.

4:24And that's why having your custom silicon strategy is so good because it really saves you. So one gigawatt with NVIDIA silicon would cost you about$40 to$50 billion. One gigawatt with a Broadcom open AI silicon would cost you$25 to$30 billion. So we are talking about a 30 % to 40 % cost differential, and it's huge. I mean, in the context of what these guys are trying to do, you know, scale the infrastructure. In addition to that distinction, there's also no investment or stock component to this OpenAI Broadcom deal, which makes it different from the deals that it struck with NVIDIA and AMD. So I guess my question is, how would OpenAI finance the purchase or the chips in general?

5:08And that's a great question, because right now they have to do a lot of financing. It's one thing that's a common thread in the NVIDIA transaction, where even though NVIDIA is putting$10 billion in open AI, they still have to find the remainder of the money. So if you imagine, you know,$40 to$50 billion per gigawatt, 10 gigawatts costs you around$500 billion. NVIDIA is only investing up to$100 billion, so they still have to figure out the remainder of$400 billion. And in the case of AMD, I mean, yes, they are getting some stock, but you still have to figure out the financing for that, you know,$300 billion or so.

5:48Here, it's the same thing. You need the money. And OpenAI's bet is if we keep ramping up our revenue, that is obviously a big source of the funding. We'll do a lot of private deals because we already have the buy-in from these big players, whether it's NVIDIA or Microsoft and other sovereign providers. and I think it's a lot of scale game right now because once we keep hitting our milestones, we'll keep raising more money and that's the hope when it comes to OpenAI. One name I haven't heard during all this dance between all these tech companies is Apple. Yeah. What's going on there? Glaring absence.

6:26Exactly. I think that's the right way to frame it and look, at some point, I think they are going to go the Broadcom route. Out of the three partnerships that OpenAI has had, a company like Apple will never go for merchant silicon. I mean, look at what they have done in their own devices. It's all custom silicon. And that's where if I had to pick a strategy for Apple, it will likely be custom silicon using Broadcom or Marvel or one of these ASIC providers. But the hard thing for them is because they have missed out all the action in the past three years, it's so hard to catch up. Even if you throw money and your CapEx dollars time is of the essence.

7:09And the longer they delay this, I feel either it's Broadcom or a partnership with Google now that antitrust is behind. So they may very well adopt Google's LLM across their device. That would be huge. That will be huge. But I think, you know, with the regulatory overhang going away, that could be a very likely strategy. Apple has a ton of cash. It can't buy its way to a solution here. Who do you buy? I mean, these are all scale players. AMD, Broadcom, maybe you could say Marvel is a smaller player, but you need the best end chips. That's why everyone is buying Nvidia, because they have the highest performance per watt.

7:49So you can't really get a second or a third player because then you compromise on the performance per watt when the biggest constraint out there is power. So, you know, you need the leading player when it comes to the chip side of the equation. Our thanks to Mandeep Singh, Bloomberg Intelligence Senior Tech Industry Analyst. We move next to corporate earnings from the pizza chain Domino's. Domino's reported better than expected third quarter earnings this week. They were fueled by demand for promotions and the stuffed crust pizza. For more, we were joined by Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service Analyst.

8:20We began by asking Michael to break down the latest results. It was a great quarter. I mean, 5.2 % same-star sales in the U.S. and everyone knows quick service restaurants, you know, have been struggling due to low income consumer weakness. They did it with stuffed crust pizza. They were the only major national pizza chain that did not have stuffed crust pizza. So they added that to the repertoire and this year and that that's boosted sales value. This quarter was the best deal ever. $9.99 for any pizza, no matter how many toppings you want on it, right? So giving people a discount that they really want on an item they really want.

9:02And then, you know, DoorDash. DoorDash is the first quarter. They were fully rolled out on DoorDash, and that has really helped them take a chunk of that third-party delivery aggregator business, boosting same-store sales. Okay, that all makes sense, but is that sustainable, especially the promotions like$9.99, which definitely sound appealing in this day and age, I mean, these campaigns might drive volume, but at some point, don't they erode profitability? Well, I think, you know, what we saw was margins were flat, you know, so to your point, you know, but what management said and what they're right about is that, you know, you don't take margin to the bank, you take dollars to the bank, right?

9:45And so they did this 999 deal, and they actually ran it longer than expected because franchisees were making so much money off of it. Right. And so, um, yeah, they're willing to sacrifice a little bit of margin expansion here, um, for that traffic because it's making franchisees happy. And that, and that's the key when running, when being a franchisor. So, you know, I think this is sustainable, right? They are, they have only a fraction of the third party delivery business, right? But they have a third of the pizza market in the U S. So that's a huge slug of business, um, that we think is a great opportunity that's going to continue to build over time.

10:22You know, Uber Eats, it took them quite some time to build some momentum there. This was just the first quarter of being fully rolled out on DoorDash. So we think it's going to have a big impact over the next three quarters. But it sounds like it can continue to build. Stuffed crust pizza, right? This is something that's a permanent menu item. This is not something that is, you know, just a limited time offer that's going to be run for a few weeks, right? And then value. They have a bunch of different value things they do these boost weeks and they have a tip promotion and so they run different value at different times but what they've done is been able to like you know create a name for themselves and are owning certain type of discounts that they run throughout the year and so i think it that is important for national pizza players it's it's a business that's heavily weighted toward low-income consumers and you know to my point earlier they're struggling right now So, Mike, explain the economics or explain the strategy of using these third-party delivery folks like Uber Eats or DoorDash.

11:26What changed for Domino's, for example? Why would they not use them but then make the decision to use them? Yeah, great question. So, you know, at first it was really about the cost, right? And, you know, years ago, third-party delivery companies were charging 30 % plus. dominoes um number one they waited till the prices came down also their business is really just using the marketplace they're still using their own delivery drivers right and so they're able to to use doordash only for their marketplace and pay a much much lower vig to the company for the listing right and so uh they were the last of all the major pizza players and qsr names they They were the final holdout.

12:14A big part of it was they were just so big in delivery, and they didn't want to cannibalize the margin on that business. But what we're seeing is it really drive transactions. This quarter, we saw a positive same-store sales growth with carryout as well as delivery. They saw same-store sales growth with every income cohort. It was a very strong quarter across the board. You can count on people to not want to get off their couch and always order in, and that's a guaranteed moneymaker. The only offspring that's still on my dole is my last guy. He's in college. And he knows he has to call me or text me.

12:46Does he? To get pre-approval to use any third-party deliveries because I hate that cost. Yeah. I mean, well, as Gen Xers and older, you know, the thought of paying out extra for someone to deliver food to you is just. So I haven't heard from him in like six months on this issue. That's good. Progress. So, Michael, is Domino's attracting higher income consumers who are perhaps trading down and looking for those deals like the$9.99 pizza? And I wonder how much more market share they can pick up that way. Well, same store sales, to your point, did grow with higher income consumers. They didn't talk about whether that's a trade down.

13:22Naturally, though, you will see that from increasing your third party delivery sales, right? because those customers tend to skew younger and skew more affluent. So we do know that's going to... Using dad's credit card. Yeah, exactly. Our thanks to Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service Analyst. Coming up, a look at how the luxury goods maker LVMH unexpectedly returned to sales growth last quarter. 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.

13:56I'm Scarlett Foom. And I'm Paul Sweeney. This is Bloomberg.

14:03This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. Return next to U.S. bank earnings. This week, Wall Street's biggest banks reported third quarter earnings that surpassed almost all analysts estimates. They included Goldman Sachs, Bank of America, Morgan Stanley, JPMorgan Chase and Wells Fargo. The results were driven by deals, investment banking and market volatility. For a closer look at Bank of America and Morgan Stanley, we were joined by Allison Williams, Bloomberg Intelligence Senior Analyst for Global Banks and Asset Managers. We first asked Allison what she made of Morgan Stanley's quarterly results.

14:36Obviously, it's a strong environment for equities, especially the third quarter was a very strong environment. We hit records multiple times, including in the end of September. We had new records earlier this quarter. But, you know, as we know, when you manage a team, when you have that strong environment, you want people that are going to take advantage of it. And I mean, equities trading, really jumping. We saw strong growth actually at J.P. Morgan and Morgan Stanley, Goldman trailing a bit. So raising maybe some questions about what happened there, but also equity fees, Morgan Stanley doing well.

15:11And then the wealth business. I mean, that's really the focus for investors. Those flows really strong. Yeah. Wealth management net revenue of$8.23 billion. It was estimated to increase 7 % to$7.78 billion. So that was a big, big beat. And this is the part of the business that Morgan Stanley has really been focused on to kind of separate it from Goldman Sachs, because this is the steady Eddie business where it's fee generated, it's recurring. You're not dictated by the whims of the market and volatility and anything that could happen in any quarter, right? So yeah, so to your point, the wealth and asset management tends to be more favored by investors because it does tend to be more of a recurring revenue model.

15:52You know, obviously, if the market goes down 20 percent or up 20 percent, that has an impact on fees. But it's not comparable to something like the underwriting or the pure transactional business. Recall the pandemic when things completely shut down. I mean, granted, they recovered. But the fact of the matter is, like, it's less volatility, more recurring revenue. Investors like that fee income and they like sort of the relative stability of that business. So one thing that really jumped out at me, Alison, when I was looking at the earnings is the fact that all the banks provisioned for credit losses.

16:32JP Morgan set aside more than what analysts thought it would set aside. Goldman Sachs set aside less. Morgan Stanley was estimated to have set aside$97 million. It ended up setting aside zero, zero for bad losses, bad loan losses, What does that say? They did. And I mean, for Morgan Stanley, lending is such a small part of their business. It's the least out of all the banks. So if you're going to see zero, you would see it there. But the one question we do have, which I think will become clear as we see many of the other banks report, is, you know, we're seeing a very strong consumer at these big banks.

17:04But is there differentiation in terms of the high-end consumer or lower-income consumer? A lot of these banks, you know, the focus really is on the higher-end consumer. JP Morgan, despite a lot of the headlines that came out from Jamie's comments, we look at the credit card business and the credit trends in that business super strong. Their charge-off rate, they actually guided it down because they had to because the delinquencies are coming in so much lower. We know that JP Morgan really focuses on that Sapphire card, that high-end card. So they are seeing a strong consumer. But will we see something different when we see some of the other card companies report?

17:47You know, when you think about it, the drivers of the investment banking business are pretty darn simple. Listen to Chief Executive, Chief Financial Officer Alistair Borthwick. Here's what he told analysts on Wednesday. Quote, we've seen more certainty now around trade and tariffs and around taxes as well. It's allowed our client base to make longer term decisions. That's reflected in our investment banking activity. It's as simple as that. But again, it's hard to predict kind of what those macro trends are going to be. Switching gears to the Bank of America, their bankers did really well. Not that that's a surprise, but they put us in a big growth rate.

18:21They did. And to your point, Paul, I mean, you've been in this business, right? So having clarity is generally helpful for the investment banking business. That's why we did see sort of a fall off mid-year. But what we've heard from the banks and their bankers is that, look, clients are beginning to accept that there is some level of uncertainty they'll have to deal with. It's not going away necessarily anytime soon. So if you need to come to market, now is probably a good time. And by the way, record equity prices, Fed cutting rates, you know, those are also helpful in bringing some of those deals to market.

18:57Bank of America, by the way, talking about their backlog up very strongly for the fourth quarter. So this momentum into this next quarter is likely to show up again in the fourth quarter results. So for Bank of America, it feels like investors were singularly focused on the net interest income number because it had not done so well just a year ago. And Bank of America was really focused on improving that. This was a big beat on the NII number here, and they actually guided higher for the fourth quarter. The bank is going to hold its first investor day, I think, since 2011 next month. How does this set up Bank of America for this investor day?

19:36So I think they are set up well for the investor day. And keep in mind, investor day will be focused, I think, on the long-term trends. We have gotten some management changes, some announcements related to succession planning. And I think Brian Moynihan has done a great job with the bank. I think the investor day is really going to be focused on, you know, what is the look forward? And AI is something that we've heard a little bit about Bank of America talking about that this quarter. Goldman Sachs bringing out their 3.0 program. Morgan Stanley actually had been talking about that with their cuts last year.

20:10How is AI going to contribute to the structural profitability of Bank of America? You know, so cyclical, some very strong trends this quarter. structural, they've done a good job, but what is next for the bank? I mean, I just forgot how big Bank of America is. And they made, they grew through so many acquisitions, 213 ,000 employees. It's got a market cap of almost$400 billion. They seem like they've got the right mix of assets at this point. Yeah. So to your point, they did grow a lot through acquisitions under prior management. And I think, you know, what Brian Moynihan has come in and said was they're really going to focus on organic growth.

20:53They focus on the strategy, responsible lending. There's some noise around that when times are good, right? Because everyone said, well, are you being too conservative? But then when times are bad, that is really helpful to managing the downside. And that's one of the things that I think can give investors comfort as we worry about recession risks in the coming quarters. Our thanks to Alison Williams, Bloomberg Intelligence Senior Analyst for Global Banks and Asset Managers. We move next to earnings from the luxury goods maker LVMH. This week, LVMH reported third quarter earnings that beat analyst estimates in all five business units after two quarters of declines.

21:29The rise in revenue and China sales also suggest that the slump in luxury demand might be easing. For more on this, we were joined by Deb Aiken, Bloomberg Intelligence luxury goods analyst. We began by asking Deb for her take on LVMH's results and whether it signals that luxury is back. Really a very big sentiment indicator. the comments from the company were more positive than the market anticipated. When we look at the numbers in terms of the organic sales growth, the market expected around minus one. We came in at plus one. But it's about the sequential improvement from Q2 to Q3. And the fact that all five of the business units improved versus Q2.

22:11And more than that, China is mid to high single digit growth versus a year ago. The US is robust. Europe is doing the same as it did across the board, doing OK, but missing out on tourism. And Asia x Japan is positive. We know 4Q US will face a bit more of a difficult comp after the spending last year beyond the election and the Trump win. but into the first half of 2026, the market is looking more positive and it's certainly rallied the whole of the sector this morning and this afternoon. Hey, Deb, what's the correlation between luxury spending and just kind of the broader stock market around the world because markets are really performing well?

22:55How does that correlate to just luxury spending? The big thing on luxury spend has been that the very high end has done well so Hermes, Brunella, Cushinelli where they work with a restricted volume operating model they've done well in terms of their top line growth but when I think about an LVMH you know they given how big they are they need a big volume there even with some pricing to manage growth in this category and instead what we saw last year and the beginning of this year was maybe a little bit of trading down so brands like tapestries coach uh ralph loren they became really so popular not only in the us but more on a globalized basis too um and so the view has been that the sentiment around the share prices has very much been opposed and opposite to to what's been happening on the stock market but with the exception of the mid-range and the mid-range have done better because the view in the investor mindset as being that the luxury buyer will trade down.

24:03They've done that in some brands, but not all brands, in some categories, not all categories. And generally, we expect the biggest and the best to come back first. What about LVMH's wines and spirits division? We've been hearing from Constellation Brands and other spirits companies that there's been this massive shift in consumer tastes away from alcohol, certainly the younger generation. Does that affect a company like LVMH? So a different kind of thing with LVMH, I think at the very high end, we had some US weakness. So they operate in wines, fine wines, high end champagnes, cognacs, and others.

24:42Champagne is doing well and is back to growth in the US. Rosé wine is doing very, very well. But some of the spirit side is still struggling a little bit. And I think that's because we've seen some trading down. So we had China very heavily stocked and the U.S. not so solid through the first half of the year. But there are signs of that coming back. If I look at the numbers on the Q3 for wines and spirits, they're at plus one and they were at minus four for Q2 and minus nine for Q1. So it seems as though inventory is leveled out and we're starting to see some selling. Deb, I learned from you long ago when looking at luxury, you have to also pay attention to what's happening in China and the Chinese consumer.

25:28Are the Chinese spending either in China or are they traveling to the London, Paris, New York, Milan type thing? What are you seeing? Yeah, we're still seeing a lot of the spend. We're getting mid-high single digit growth in that Q3 from LVMH. year on year is on localized spending. We are seeing pockets of growth on the tourism side. So there is a more positive view and mix linked into the commentary from these results. But overall, we are still absolutely missing Asian tourists, Chinese tourists from Europe. And also in Europe, we're missing the strength of the dollar having swung over last year with U.S.

26:11purchases here and you are seeing some but not as many in terms of full recovery versus 2019 there's growth year on year but not versus 2019 into the U.S. either when it comes to the Chinese tourists we used to say a third of luxury goods just over were from the Chinese cohort and that would include on land and traveling right and we still think there's a way for that to go but certainly on land and locally they're doing better than they were. Our thanks to Deb Aitken, Bloomberg Intelligence luxury goods analyst. Coming up, a look at why the global snacking company Kela Nova is adding a jolt of protein to its biggest snack.