Chipmakers Sink as Nvidia Fails to Dispel AI Worry

13:05Paul Sweeney:Well, you know, that all plays into this longer narrative, which had less to do about what was said on the call last night. And so what you're tapping into is as inference, and I just want to quickly frame in inference for those listeners who may not be as familiar with it. A lot of the AI infrastructure spend, of course, has been related to training. The inference piece is that's really the substance of what AI is Think of AI as inference. Inference is thinking. That piece is, there's debates about what are the most, what are the optimal chips, the optimal GPUs you need for that. And my sense is that as part of the conversation, I think NVIDIA is going to be in a great place.

13:46Paul Sweeney:I suspect that they're going to grow and count. So I think inference is going to be a huge opportunity. I want to just quickly frame in how big inference is, that you can have multiple winners here. If you look at the size of inference, Jensen talks about being potentially a thousand times bigger than what traditional compute is. What we're seeing in our own use of AI internally is we're seeing tens of thousands of times more use of tokens when it comes to inference. And so inference is this scary topic because for some NVIDIA investors, because this competitive dynamic comes up, you need less power chips.

14:20Paul Sweeney:But the reality is the amount of chips, still the amount of AI infrastructure that's going to be needed to power this over the next decade, I think is being grossly underestimated by investors.

14:31Gene Munster:Gene, you've been covering this technology industry for decades. You've seen everything. I want to ask you, based upon your experience, how do you think about what's happening in the software side of the business right now? Stocks selling off, particularly the software as a service stocks like a software, Salesforce.com. really under the guise that, boy, AI is going to really disrupt this software business. How do you put that into context for people?

14:56Paul Sweeney:So I think that for those who are reading the headlines and looking at the stock reaction to these earnings, I think kind of the substance of what's going on underneath the hood is being missed. It's really hard for, I think, that audience to really grasp the improvement that these models have had over the past three months. Of course, OpenClaw and CodeClawWork are kind of the signature products that have caused some of that breakthrough. But that change has had what I think is going to have a profound impact on software. And the way we've been investing around it is we've lowered our exposure to seat-based software companies because ultimately, if this is right, that knowledge work is going to be impacted, there will be less seats out there.

15:40Paul Sweeney:AI agents don't purchase seats. and separately that the usage-based models. So we're still holders of companies like Datadog and Snowflake. And so those models, I think, are going to do well. So Paul, the answer is that software is at a profound crossroad. And I don't think that all software is created equal. I think the usage-based models. But I would say that software needs to do something that we still haven't seen, even with the Salesforce results last night. We need to see these software companies stand up and basically punch back at AI. They haven't done that. That's exactly what Google did in the June quarter of last year when they showed that they can use generative AI to their advantage in search.

16:19Paul Sweeney:They really short circuited that negative narrative. And until software companies can say, look at our seat growth moving higher, look at how our ARPU is per users improving until they really have that flex, that stand up. I think that this narrative, this negative narrative around software is going to persist.

16:38Gene Munster:Gene, thank you so much. Yet again, Gene Munster, managing partner, Deepwater Asset Management. He was one of the first folks that kind of helped me understand what AI is. And now I kind of get a little bit of a better understanding of what the potential threat for software can be when you think about the seat licenses. And that could be a weakness for some of that revenue model there. Stay with us. More from Bloomberg Intelligence coming up after this.

17:04Paul Sweeney:The pace of change today can be overwhelming. What's most important to pay attention to if you want to be creative, successful, innovative? I'm Bob Safian, host of Rapid Response.

17:16Gene Munster:Rapid Response is a podcast that cuts through the noise, featuring candid conversations twice a week with top business leaders navigating real-time challenges. From the team behind the award-winning Masters of Scale podcast comes Rapid Response. Search wherever you get your podcasts to listen and subscribe.

17:39Isabelle Lee:For decades, people traveled across the world to see John of God, desperate for cures no doctor could offer. And when they arrived, they saw things they couldn't explain. This is real. This guy's actually doing surgery, and it's a miracle. I never believed that miracles were real until that point. But behind those adoring crowds was something much darker. One of the reasons why I never went to the police is because I saw at least five or six men with guns everywhere he went. That was clear to me, like, close your mouth, don't open your mouth, don't say anything. I'm your host, Martina Castro. And in the podcast Two-Faced, John of God, we'll look back on a man who claimed he could perform miracles and got people from all around the world to believe him.

18:28Isabelle Lee:From Exactly Right and Adonde Miria, this is Two-Faced, John of God. Listen on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

18:41Kunjan Sobhani:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

18:55Gene Munster:For months, we've been talking about the potential sale of Warner Brothers Discovery, either to Netflix or to Paramount Skydance. And we're going to get the latest on that because there has been some movement. But these two companies actually reported results. And let's get the latest there. Geetha Ranganathan, she's the media analyst of Bloomberg Intelligence. Geetha, we'll get the deal update in a minute. But just give us a sense of how these two companies are performing on their own.

19:18Isabelle Lee:I mean, I think you've summed it up perfectly, Paul. You know, you said it's a good thing that Warner Brothers Discovery is being sold. And that's absolutely right. I mean, you look at the TV networks division. This has been the problematic division for all of these media companies. TV networks EBITDA slumped something like 27 percent in the fourth quarter. You look at the whole of 2025, you know, EBITDA for that segment is down 21 percent. And the writing is on the wall. I mean, this is why this company is up for sale. It's very clear. And, you know, I think really what everybody is going to be worried about is what is the outlook?

19:53Isabelle Lee:Should the spin happen? Should Discovery Global be spun out into a separate company? what really is the outlook for the TV network business? And again, we saw kind of very similar results with Paramount as well. Yes, they're making the best of what they can. But again, the fundamentals themselves are pretty weak across the board. Management also flagged a multi-billion dollar efficiency program. How should investors think about the trade-offs between short-term costs and long-term profitability for these initiatives? Yeah, this is what we've always been worried about. I mean, we've seen, you know, the story play out multiple times, Isabel, in all of these media companies.

20:29Isabelle Lee:And yes, there's always synergies and there's always efficiencies to be extracted. But it does come at the expense of long term growth. We've seen that with Warner Brothers Discovery. You know, they came out with very aggressive synergy targets. And yes, they were able to deliver on a lot of those. But then it did kind of hamper their growth prospects, especially, you know, in the TV networks business, where we've seen a significant deterioration in the fundamentals, in the outlook. So that is always there's, you know, it's a very, very tricky balancing act as a very, you know, they have to walk this really this tightrope.

21:04Isabelle Lee:Again, the whole deal with Warner Brothers Discovery for Paramount is predicated on something like about six to eight billion dollars in synergies. So, you know, we'll we'll see how all of that plays out. But, yeah, it's going to be a tough road ahead, regardless of whether they win or they don't.

21:22Gene Munster:What is the update on the deal mechanics? Geetha, where are we right now?

21:27Isabelle Lee:Yeah, so it was really interesting, Paul. In Paramount's earnings release yesterday, they said that there's a good chance of the Paramount$31 per share offer for all of Warner Brothers Discovery being deemed a superior proposal. And we've seen kind of Paramount rally a little bit on that. We've also seen actually Netflix rally on that. I think investors are becoming more and more comfortable with Netflix kind of walking away from this deal. So again, a lot to play out here, but there hasn't been any official word just yet from the Warner Brothers Discovery Board about whether the Paramount proposal is in fact superior.

22:04Isabelle Lee:It seems like it's still a story that we're going to be following closely. Paramount also offered modest revenue growth targets for 2026. What key drivers do you think will determine whether the company meets that outlook or exceeds that outlook or even surprise investors, perhaps? I mean, so the organic growth outlook, Isabel, yes, they're trying to do their best. Remember, they did, you know, this is also a merged company, Paramount. You know, they just recently acquired Skydance. So they're trying to do the best with, you know, those new film assets. But again, you know, if you just kind of look at it across the board, you know, in the context of the entire media landscape, it's still a very, very subscale company.

22:45Isabelle Lee:Whether we're looking at streaming numbers, you know, about 80 million subscribers versus almost 320, 330 million for Netflix, or whether you're looking at the film business or even the TV business, everything is fairly subscale. So they definitely need some kind of an M &A strategy. Obviously, Warner would be perfect if it happens. If it doesn't, we'll have to wait and watch. But, you know, they're doing their best that they can from an organic growth perspective. I just don't think it's going to be enough.

23:14Gene Munster:do you think Netflix will walk away? That would be pretty bold.

23:21Isabelle Lee:They should, you know, collect. They should collect it to almost$3 billion in termination fee. I mean, this is really, I mean, you know, you think about this, Paul, in the long term. Yes, it's a great asset to have. There's no doubt about it. But it also comes with a tremendous amount of risk, not to mention the biggest one being regulatory. So that's going to be a big, big overhang, you know, for the next 12 to 18 months. And then, of course, after that, you have integration execution risks. So it's by no means is it going to be, you know, a rosy path ahead. I actually think Netflix will be better off on its own.

23:55Gene Munster:Stay with us.

23:56Isabelle Lee:More from Bloomberg Intelligence coming up after this. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gura. Join us every Saturday and Sunday for the new Bloomberg This Weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Matteo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world.

24:34Isabelle Lee:Then on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television, listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast. That's Bloomberg This Weekend, Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts.

25:08Isabelle Lee:For decades, people traveled across the world to see John of God, desperate for cures no doctor could offer. And when they arrived, they saw things they couldn't explain. This is real. This guy's actually doing surgery, and it's a miracle. I never believed that miracles were real until that point. But behind those adoring crowds was something much darker. One of the reasons why I never went to the police is because I saw at least five or six men with guns everywhere he went. That was clear to me, like, close your mouth, don't open your mouth, don't say anything. I'm your host, Martina Castro. And in the podcast Two-Faced, John of God, we'll look back on a man who claimed he could perform miracles and got people from all around the world to believe him.

25:56Isabelle Lee:From Exactly Right and Adonde Media, this is Two-Faced, John of God. Listen on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

26:09Kunjan Sobhani:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

26:22Gene Munster:We are here in New York City at the Bloomberg Interactive Brokers Studio, streaming live on YouTube as well. Earnings season well in gear here. And that includes Magna International, ticker MGA. Magna is one of the world's largest automotive suppliers, headquartered in Ontario, Canada. Joining us today is Swami Kotagiri, CEO of Magna International. Swami, thanks so much for joining us here. I know you guys recently released earnings. What can you tell us about your earnings that you just released? Maybe your outlook that you shared with your investors. Good morning, Paul. Thanks for having me.

27:02Gene Munster:You know, we finished really, the fourth quarter was strong, helped us finish the year 2025 in a strong way, setting us up really good for 2026. We delivered, you know, good cash flow. We hit the margin range of 5.6 % in EBIT that we talked about, which set us up really good for 2026. We are forecasting an EBIT range of 6 to 6.6. We are confident in the cash flow generation and actually converting the earnings to cash. So we gave a clear indication that we're going to be returning value to the shareholders in the form of repurchase of 24 million shares in 2026. And all this in a flat volume, as you see in our automotive industry, that is the result of operational excellence and capital allocation discipline.

28:00Gene Munster:We have been doing this for the last three years, 35 to 40 bps annually. So if you take 2026 into account, this is the fourth year running and our total margin expansion would add up to about 200 basis points. So all in all, we feel pretty good. It is a structural change in the operating methodology and how we set our cost basis to the reality of the industry today. So all in all, we feel pretty good about 26.

28:31Isabelle Lee:With global auto production expected to stay flat, how realistic is the mid-teens profit growth this year?

28:40Gene Munster:Yeah, I think, like I said, the key of the margin expansion has been operational excellence from our side. It is actually controlling the controllable, as we said. And on top of that, we are going through digitization process where 80 percent of the plants are online on a unified platform, which gives real good operational visibility for us. looking at every little detail, how the lines are running, what are the stoppages, how is the material flowing, every penny counts. So all of this is what has helped us add the margin expansion in the last three years. And we have good visibility, not just for this year, we believe it's still early innings going into next year.

29:28Gene Munster:The second part really was, Because, you know, working through the inflation, right, we started in 2022 and we have started coding jobs in 22, 23, 24 with new economic terms. The new programs are rolling in. So a combination of self-help and new economic terms is what gives the, you know, incremental margins that we're talking about. Swami, talk to us about tariffs, how they have impacted your company, what changes you have made or what to deal with the tariff situation. So to sum it up, last year we had roughly 10 basis points of impact. The actual tariff impact was somewhere in the range of 170 million for the nine months because it started on April 1st.

30:16We have been able to mitigate with some of our own actions working with our customers

30:23Gene Munster:and then staying USMCA compliant, increasing the USMCA compliance going forward. So all in all, in 2026, we believe it'll be in the same range. The annual impact, given everything as we know today stays, it's about 200 million or so. But we believe we can mitigate, continue to work with our customers and so on and so forth. So the net impact still would be in the range of 25 to 30 million this year.

30:50Isabelle Lee:How much of the growth would come from higher content per vehicle, especially as Detroit, for example, shifts towards larger pickups and SUVs?

31:00Gene Munster:Yeah, I think part of the margin increments that you're seeing is the mix and the new programs coming in and the change in content per vehicle. But a good point to note might be we have been doing this for the last 20 years. The growth over market has been about, we have been growing about 4 % a year. If you look at a 10-year period, for the last five years we've been growing at 2.5%. So all in all, we continue to grow in low single digits, I would say, if you take a longer period of time. One data point which will help you give context, 20 years ago, Magna was a$20 billion company and North America was producing 15 million units in production.

31:44Gene Munster:Today, roughly the same production as you know, 15, 15 and a half, and we are a$40 billion company, right? So all this came through diversifying our customer base and increasing our content per way.

31:58Kunjan Sobhani:This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also So watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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