HPE Boosts Networking Gear for AI Clients, Adds Siemens Energy

0:00At Brookfield, you can own wealth that's measured in generations. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future, providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at brookfield.com. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. wise is the smart way to manage the currencies you need around the globe when you send money abroad using your bank you could get hit with hidden fees and exchange rate markups there's a better way try wise wise uses the exchange rate you'd usually find on google with no unwelcome surprises plus most transfers happen in under 20 seconds which means your money arrives in less time than you've been listening to me it's simple and free to sign up when you download the wise app be smart get wise t's and c's apply Never bet against American grit or American energy.

0:59Through innovation, Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost and a fraction of the time. So while others are busy talking, we're busy building. That's Venture Global. That's unstoppable energy.

1:26Scarlet Fu:Bloomberg Audio Studios. Podcasts, radio, news. 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. Antonio Neera joins us here, CEO of HPE. Antonio, thanks so much for joining us here. Talk to us about what are the key issues for you guys going forward here. This AI story is a story that's playing out across the tech stack. Well, good morning, Paul. Thanks for having me. Yes, of course, today the narrative is all around the AI and the ability to use AI to change the world.

2:12And so for us, as a technology company, it's how we accelerate the deployment of AI in the enterprise. And today we talked about the evolution of just large language models, intro-agentic models, which allows to increase productivity across the entire enterprise, across processes and functions. And so we have made a series of announcements here, which brings together the infrastructure, the software, and the cloud experience into one integrated, unified, operating model, including governance and compliance, so that build the trust within the enterprise to go forward.

2:49Scarlet Fu:And how does this change your growth trajectory going forward? I know that, you know, one year out might look very different from five years out versus 10 years out. Just walk us through how you see this changing, what you had anticipated to what you now think you can achieve. Yeah, Scarlett, so if you go back and read our earnings in Q2, we grew the company as a whole 40 % year of our own revenues and we expanded margins because of the content that we bring into the revenue now has a bigger mix of networking software and cloud services and in that context we believe networking is going to be the thesis of our company if you think about developing these frontier models whether proprietary or open source models you need a lot of GPU power but that GPU needs to be very productive you don't want to keep it idle and the bottleneck of that is networking and so we have now with the acquisition of Juniper an amazing portfolio in the three key elements scale up scale out and scale across which position us to be core element of that infrastructure build out so this is why we believe the company is gonna grow double digits going forward and will continue to expand operating margins and that will translate in free cash flow so we already guide it which which is unlikely, and, you know, in many cases, for six quarters ahead.

4:13So think about it because of the confidence we have in a growth trajectory. Antonio, where do you think this technology, this AI technology story is? I mean, a lot of folks are saying we're still in a very, very early innings, but you just think about the amount of capex that is being spent by a variety of players within the sub stack. It's just extraordinary. Mary, where do you think we are in that compendium there of AI investment? I concur with that. We're still early. And, Paul, what you have to understand, there are three customer segments you have to look into. Number one is the model builders and the hyperscale is the neocloud.

4:53We're building a large amount of compute capacity. We believe by the end of the decade, we're going to build 250 gigawatts of power that will host these GPUs. And that's the capacity you're talking about. But then ultimately, what is the mix of that capacity? It's going to be shifting from training models to inferencing models. And that's where we're going to see the large adoption of AI into the enterprise to drive that productivity. But if you put it in context of industrial revolutions in the past, this actually is very small compared to that spend that was done, you know, in every inflection point, including the turn of the past century.

5:35So, yes, I understand the concern about the amount of capex. But when you put it in context of changing the way we work, the change in our society was still small relative to that.

5:45Scarlet Fu:You know, just looking at how you might be deploying cash, I know that you tapped the debt market in March to refinance some upcoming maturities. You've got strong liquidity with cash and equivalents of more than five billion dollars at the end of the second quarter. What might prompt you to go to the debt market again to raise more money? Well, we do that very regularly because remember, inside HPE, we have an operating company. Obviously, we are paying down the debt and refinancing where we need to. And that's the operating balance sheet you're referring to. So our balance sheet is super, super strong.

6:26And then we have the financing company, which has$13 billion under asset management. Think about the financing we do for customers. And we do it also as a part of the asset lifecycle management services. and basically we have debt securitized against those assets, but the return on equity on that is super high, super, super high. So we use those vehicles when it's necessary, but what we announced just at the beginning of this month in our earnings is that we're going to pay down that debt much faster. In fact, we expect to return to two times leverage by the end of this fiscal year, which is one year ahead of plan, And we're going to start returning 75 % approximately of our free cash flow in 2027 to shareholders, which we expect to generate at least$4.5 billion in dividends and share buybacks.

7:20That's how we're going to return it. So we are very strong. And that goes back to the question you asked me before, where it comes from the growth and the operating margins.

7:30Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. at Brookfield we invest in the thing behind the thing behind the next big thing our focus across infrastructure energy real estate private equity and credit is helping build the backbone of the global economy we combine deep operational expertise with disciplined long-term investing uncovering value and partnering alongside clients to shape tomorrow's economy today Brookfield. Own what's next. Learn more at brookfield.com. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. So there's a lot of noise about AI, but time's too tight for more promises.

8:12So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business. IBM. Support for the show comes from Publix. Publix is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios.

8:51One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins, or the S &P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on public, you just type in a prompt and their AI screens thousands of stocks and build a one-of-a-kind index. You can even backtest it against the S &P 500. Then you can invest in a few clicks. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio.

9:29That's public.com slash market.

9:52Scarlet Fu: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. Mandeep Singh is our global tech research head here at Bloomberg Intelligence. And Mandeep, there's a bunch of areas we can go to, but I want to pick up on what Alexis said with SpaceX being down for the first time since it went public. The stock lower by about three and a third percent today. Talk a little bit about this cursor deal, which they just announced.

10:25Scarlet Fu:And we knew this was coming because they bought the right to buy the company before the IPO. Does this really change the trajectory in a way that makes people rethink what SpaceX is? Yeah, I mean, the whole AI segment, I think, has really got a shot in terms of becoming a hyperscale-like player because of this Cursor acquisition. And right now they're just renting the compute they have in their data centers to Anthropic and Google. But to my mind, Cursor gives them the potential to have a frontier LLM that can actually generate revenues like Anthropic and OpenAI are generating by companies using their LLM.

11:07So Cursor was one of the biggest priced assets in the world of LLMs, and it's really focused on coding agent. And I think there was this notion that Cursor is a wrapper on frontier LLMs. That clearly is not the case. Cursor has frontier training capabilities. And with the CapEx that I think SpaceX is going to do, they will be very well spending, like the other hyperscalers,$100 billion in CapEx in 2027. So that will be huge to ramp up Cursor. SpaceX, three lines of business per their IPO prospectus. Connectivity. We spoke to John Butler about that. Space. We talked to George Ferguson at Bloomerc Intelligence about that.

11:53Are you the AI guy? Well, I'm trying to. You're the AI guy. He's an AI everything guy. I know. So what is there? Am I paying for AI now when I buy SpaceX? Is that what I'm paying this gajillion times sales multiple? I think so. Especially the near term growth will be all driven by AI. And right now it's AI compute rental like the NeoCloud. Okay. But with the cursor acquisition, they have the potential to actually play in that AI application domain, which is higher margins. And that's where the, you know, valuation could be justified if they are able to ramp up the cursor side of the revenue. Okay.

12:38Scarlet Fu:So I suspect that this will be a moving target for a while to come since SpaceX is, you know, is Elon's vision of a vertically integrated everything in his brain company. Let's talk a little bit about OpenAI. We know that OpenAI, perhaps operationally not doing as well as it had intended. It didn't meet some internal targets. You recently published a note on OpenAI and the losses of about$34 billion, coupled with the lowering of its token pricing for its latest model show, that perhaps there are some growing pains here. Talk us through what you see. Yeah, I mean, look, the competition has increased just six months back.

13:17You know, OpenAI was way ahead of everyone else. Now we are talking about how Anthropic is on the leaderboard. And that's what gives me hope that, you know, even SpaceX with their cursor deal could leapfrog any of these models. So nothing is said in terms of the model race. This is not a one player take all type of market. And things could change fairly quickly what we have seen, you know, with Anthropic. And that's where OpenAI has sort of squandered their lead that they had over everyone else. And now they are lowering their token pricing to make sure they, you know, have continued adoption of their models.

13:58And that's never a good position to be in if you are lowering prices. So from that perspective, I do find them to be on the back foot. But look, things could change with the next model release. OpenAI can come up with a great model. and suddenly because they have more compute than entropic and everyone else, we would be talking that open AI is back in that leaderboard. But right now it clearly is entropic and everyone else is playing catch up. I mean, I'm just trying to catch up here. All right. On my little window here, my AI window on my phone, I've got the app ChatGPT. I got Gemini. I got Reddit in there because the kids are telling me I have to use Reddit.

14:41What else do I need in there? Claude. I mean, we're talking about Anthropic. So that's... All right, Anthropic is Claude. Claude is Anthropic.

14:49Scarlet Fu:What about DeepSeek? Should Paul have DeepSeek on there? I mean, their usage seems to be growing at the enterprise level. In fact, there was some news that Microsoft may be supporting DeepSeek in their Azure cloud, despite all the pushback we hear about using Chinese LLMs. Yes, so you could see. And already in Europe, you can see DeepSeq usage is growing up. So from that perspective, don't count the Chinese models out, even though I wouldn't have thought, you know, they would do well here. But surprisingly, you're seeing enterprise interests, partly because of the token pricing and how expensive it is to deploy AI.

15:29And DeepSeq being an open weight model, a lot of enterprises are looking at using DeepSeq. All right, I'm downloading Claude as we speak. What do you use? You're like the techie. I use everything. I use Cursor. I use Claude. I use... Do I have to download Cursor now? Cursor is more coding specific. So if you have ideas related to a coding agent, it's a fabulous tool, really. I mean, the thing that I find with these tools is Claude, for example, deprecated one of their older models. So they are making decisions on the fly, you know, in terms of what models to deprecate. What's deprecate mean? Like that model is not available anymore.

16:12What if I have a preference for the model? It's not even available anymore. With Cursor, actually, they solve for that problem that you can go across models. You can use an older model. So I feel that's a problem that Cursor has solved really well.

16:26Scarlet Fu:I bet Mandeep's prompts are a lot different than what you or I would put in the prompt. Yes. You know, Mandeep, you're probably putting in like paragraphs into your prompts. I build a lot on my initial prompts. And that's why these tools are so engaging that, you know, once you start playing with them, it's like it brings more ideas in terms of what all you can do with these tools. And it's very iterative, at least for me. I'm not a single shot prompter where I will have a three page prompt. No, I really build on stuff. Do we use it in BI? We do, yes. We do have access to a lot of these tools, and that's partly how we are looking to become more efficient in our workflows, and it's already helping.

17:12I think I'm taking credit for just having downloaded some of these apps on my phone. I'm going to take that as a little victory.

17:18Scarlet Fu:Now you've got to create a login. Oh, all right. You've got to have an account. Okay. So it remembers who you are. You could tell them who you are and explain your preferences. Don't flatter me. Don't praise me when it gets me wrong. Oh, yeah. It's personalized. Wow. ChatGPT will compliment you when you ask a question. No, duh. It's a great question. Okay. All right. All right. I'm on it. I'm on it. I got a two-hour train ride home today. I'll learn AI in two hours. Mandeep Singh, Global Head of Tech Research for Bloomberg Intelligence. Stay with us. More from Bloomberg Intelligence coming up after this.

17:50Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins, or the S &P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on public, you just type in a prompt and their AI screens thousands of stocks and build a one-of-a-kind index.

18:30You can even backtest it against the S &P 500. Then you can invest in a few clicks. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market.

18:51SEC Registered Advisor. Crypto services by zero hash. Sample prompts are for illustrative purposes only, not investment advice. All investing involves risk of loss. See complete disclosures at public.com slash disclosures. Whether you're planning a big tech event, launching a new campaign, or just stocking up on team gear, finding the right promotional products makes all the difference. 4imprint offers thousands of options, from on-trend apparel and premium drinkware to tech, totes, and giveaways, so you can find the right fit for any audience, purpose, or budget. You can customize it all. Your logo, your message, your look.

19:25And many items come with no setup charge to help you save. And if you're really watching the bottom line, you'll find standout choices at every price point so you can make a real impact while staying on budget. Plus, you'll get expert help, fast turnaround times, and their 360-degree guarantee. So you can be 4-in-print certain your order will arrive on time and look exactly right. Whatever your goal, 4imprint makes it easy to find your perfect promo match. Explore the possibilities today at 4imprint.com. 4imprint. For certain. These days, it seems like AI agents are just about everywhere you turn, every field and every function.

20:01But without identity, you can't trust they'll serve your business instead of jeopardizing it. Fortunately, Okta helps you get identity right by securing your AI agent's identities, giving you a single layer of control, a single standard of trust. So whether an AI agent supports a single user or your entire enterprise, with Okta, you'll turn risk into opportunity. Secure every agent. Secure any agent. Okta secures AI.

20:28Scarlet Fu: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. BMW said its profit margin could dwindle to as low as 1 % this year due to weakening Chinese demand and fallout from the Middle East conflict. I'm going to get some more on that. Michael Dean, head of global auto research for Bloomberg Intelligence, joins us here. Michael, what's going on with BMW? Yes, it was a big downgrade yesterday. So, you know, China is about 25 % of their sales annually.

21:05And we've been seeing in previous months that that sales have been weak. But I think they got to the point where they don't see it recovering the second half of this year. And hence, they've taken a massive cut to their margin expectations.

21:19Scarlet Fu:Does that mean that they're going to have trouble selling cars at full price? They might need to discount or look to package it a little bit differently? Well, China's been a really difficult market for the German brands over the past few years. Just take the example of Porsche. Porsche's sales have dropped by 70 % since 2021. BMW and Mercedes have had similar issues. Their sales are down by about 20%, 25 % over the past couple of years. They're facing heavy discounting from competitors. So that was weighing them anyway. And now the market itself is falling quite significantly. So it was down in 20 % in the first five months of this year.

21:56And given we don't see a recovery in the second half, that's also impacting the German automakers and BMW specifically. So if I'm a global automaker in Germany, in the US, Russ, Japan, how do I view the Chinese market here today? I mean, it seems like I'm hearing a lot of bad news from a competitive standpoint in that market just generally. Yeah, I mean, domestic players are making some really good cars. Xiaomi is a key competitor now to BMW and Mercedes. And because the local cars are so good and because they're priced so competitively, it's pushing the foreign automakers out. As I mentioned, Porsche, Porsche has already taken a big hit on their volumes in China.

22:37But that could also happen to the other German automakers and other foreign automakers.

22:42Scarlet Fu:What does this mean for BMW's approach to electrification? I don't think it changes their approach. So the Chinese market is now 40 percent fully electric. It's probably about 60 percent if you include EVs. They've got a wave of new models coming out using their newer class of platform. So they were hoping to make inroads into the electrification in China. But they're going to find it very difficult if that market is weakening and prices continue to go down. All right, let's get to it, Michael. I need your review of the BMW M70 that I think Mr. Matt Miller just acquired. Good car? Very good car.