Meta Seizes Its Moment to Spend Aggressively in the AI Race

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2:02Learn more at thehartford.com slash risk mitigation. 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. Norma Linda, Paul Sweeney. We're live here on our Bloomberg Interactive Brokers Studio. We're streaming live on YouTube as well, so check us out there. As John was just reporting, Meta, big, big earnings numbers last night after the close. Stock up 11.5 % here today.

2:44All-time high, 52-week high, whatever you want to look at it. We're on a$2 trillion market cap watch here,$1.95 trillion as we speak. Let's check in with Kurt Wagner, tech reporter for Bloomberg News. He's in Denver, Colorado. He's worked out this scam. I have no idea how he did it, but it's a good gig for Kurt. Kurt, talk to us about Meta here. Some people feel like Meta might be a little late to the AI party. I don't think that. And I don't know. Zuckerberg was talking pretty aggressively about the spending there. What did you take away? I don't think they're late at all. I don't think that they have offered some of the same products that some of their rivals like OpenAI and Anthropik have, Google.

3:26So they have been building AI models for basically a decade. They mostly kept them in-house. They use them, in this case, they've been talking a lot about how they're using them to improve their own ad targeting and their own content recommendations. And so while they're not out selling access to their models in the way that rivals are, they're still building them. And, you know, clearly the street's very happy with what's happening here, which is that their ads business, which is powered by Instagram and Facebook, is just a cash printing machine. And they are taking all the profits from that and they're, you know, funneling them into AI.

4:03And yesterday we saw that the ads business is doing better than expected and they're spending even more on AI. And that is a combination that people seem very happy with right now. Well, Kurt, even if there are people saying that Meta is late to the AI party, if you look at shares year to date and you compare it against the others in the Mag7, we are seeing it as the best performing stock, the second best performing stock right behind NVIDIA. What do you think has really propelled it forward to that magnitude here? Well, I think there's a couple of things. One, there's the Mark Zuckerberg factor of this.

4:34You can love him, you can hate him. But Mark Zuckerberg has a pretty strong history of, quite frankly, reaching the largest audience with his products. That is something he's done repeatedly throughout Meta's history. And he has sole control of this company. So if you are a believer in him, you are a believer in Meta right now. And I think that's one factor. And then I think the other is that reach matters a lot when you're talking about AI. because when you build, in this case, Meta AI is the name of their chatbot, they have put it into Facebook, Instagram, WhatsApp. It already has a billion monthly users simply because they have that existing audience.

5:12So where a lot of companies are building these AI products and then trying to find the audience for them, Meta already has the audience. So when they figure this out, if their Ray-Ban glasses, for example, take off in the way that they hope they will, they have the built-in online audience already for these tools. And I think that that's something that a lot of people are optimistic about. Kurt, you mentioned WhatsApp. Boy, I think I was covering the stock when they bought WhatsApp seven, eight years ago. Are they finally starting to monetize WhatsApp? And if so, how are they doing it? They are starting to monetize WhatsApp.

5:46They announced in June that they're going to start running ads in WhatsApp for the first time. If you're a history buff in terms of following Facebook history, you'll know that that's been a long time coming and there's been a lot of bumps and bruises along the way in getting there. But I will say the CFO, Susan Lee, she did warn yesterday in the earnings call that even though they are putting ads into WhatsApp, this is a long road. It is not going to be a material impact for the business in terms of revenue or ad impressions for the next few years. They're going to start slow. I think that makes sense for a couple of reasons.

6:19The first being that WhatsApp is popular in a lot of regions that aren't necessarily lucrative in terms of advertising, you know, India, Brazil, places like that. And then second, you're kind of trying to convince advertisers to shift budget perhaps from more lucrative things like Instagram or Facebook. And so I think it's going to be slow for people to maybe move over their money towards WhatsApp. But again, fast forward a few years from now, I think there is obviously potential here that app has multiple billions of users globally. Kurt, it's hard to be a bear here on this stock. I'm looking at Wall Street ratings right now.

6:55Seventy-four people have a buy. We have five holds on the stock and then one sell, and that's coming from B &P Paribas. But if you really had to dig in and see what the overhangs could potentially be here for this company, what would you say are some areas that investors are looking to see a bit more of a push forward? Well, I do think the spending is a lot. And so while the ads business continues to chug along, people are going to say, OK, that's fine. If there is a stumble in this ads business, you know, heading into the holiday quarter or something like that, suddenly people might start wondering why are they spending so much if the ads business isn't delivering.

7:30So that's one. The other is their Reality Labs division. That's the Quest VR headsets, things like that. That is a loss leader. I believe$4.5 billion in losses just last quarter alone. They also mentioned on the call that Quest sales were down year over year. So that's a concern I would imagine for some people. Kurt, thank you for your reporting. Appreciate it. Kurt Wagner, tech reporter, Bloomberg News in Denver, Colorado. I'm never driving I-70 again up to the mountains again. I made that vow a year or so ago. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m.

8:07Eastern 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. All right, let's talk a little bit healthcare here. Eli Lilly, I mean, it's all about like the obesity drugs. Who's the winner? Who's the loser? How big is the market? But there's a lot more to talk about. I don't know. Damien Garda, he joins us here. He's a healthcare reporter. Eli Lilly, the blockbuster diabetes drug Monjaro fell short of expectations that it would do a better job of preventing heart attacks and strokes than its older medicine, Trulicity.

8:41Is that a problem, Damien? It depends on how you look at it, but it does underline, I think, what you mentioned, that the bar is so high for these medicines, both commercially and clinically. So what we learned today, Lilly ran a study comparing Monjaro, the newer GLP-1 combination medicine against its older GLP-1 called Trulicity to determine whether it worked as well in preventing heart attacks and strokes. And the good news is the study met its goal. It proved non-inferiority is a scientific term, which is to say it did just about as well as the older drug. The bad news through the lens, I think, of a lot of investors is it didn't prove to be superior, which was kind of the, if not expectation, then kind of hoped for outcome.

9:19So what's the biggest business here for Eli Lilly? I mean, is Monjaro one of their front running drugs that we're talking about here? It is. So Monjaro is, it's a little tricky because it's the same basic medicine, but when it's used for diabetes, they call the drug Monjaro. And when it's used for obesity, they call it Zep bound, but it's the same scientific molecule underneath it all. And that combined is by far Lilly's biggest growth driver. And it's a medicine that is in demand. It was until relatively recently in shortage officially, and it is definitely paving the path to Lilly becoming the most valuable drug company in the world.

9:54And it's also outpacing Novo Nordisk, the Danish company that really invented this market that's also had a lot of unfortunate news in recent years. Lilly is lapping the competition there and is on pace, it's assumed, to kind of dominate this market, at least in the near term. So I'm looking at the PGEO function on the Bloomberg Terminal. it kind of breaks out kind of where the revenue comes from, either by business line or by geography. Cardio metabolic health. That's their biggest revenue line. Is that the obesity stuff? Yeah, that's inclusive of obesity and diabetes. I mean, look at this. Let's go 2021.

10:24That had 13 billion in revenue. Okay, good business. 2024, it had about 30 billion of business. Speck it to be 43 billion this year, 52 billion next year. Holy cow. wow, that is out of control growth. No wonder they're so valuable. Well, exactly. And it's, I mean, that's what we've demonstrated, what Lilly has demonstrated in sales just with the products that it has on the market. But I think when you look at the company's valuation, what's being priced in is a soon to come oral GLP-1. So they would have a pill. That's what we're talking about. That could win approval next year at the earliest.

11:00And that is likely to both be a massive commercial product for obvious reasons, but really like democratize this therapeutic category because these are all injectable medicines that we're talking about. I am, as the injector of this medicine on another person, which I enjoy, I get a cocktail out, we make a little party out of it. But the oral thing, that's going to open up the market like crazy, I would think. Because there's probably a lot of people that don't want to inject them. That don't enjoy doing the shots. I mean, because a lot of people don't like needles. Yeah. And it's also going to probably diversify it.

11:28So a lot of the focus on these medicines is what percentage of weight loss do they drive? It could get up to 25%, for example. But for a lot of people, they don't need to lose 25 % of their body weight. The pill seems to have a lower percentage body weight change. But the assumption is that there's a huge demand for that. And that when there's a multitude of these medicines, the heavy duty ones versus the lighter ones, then you could really meet a lot of the demand that people need. How about all the other stuff in the world? Like, I don't know, cancer, dementia. Where's where are they in that?

12:01Yeah, where's Lily in that type of thing? Well, Lilly particularly does have an approved medicine for Alzheimer's disease and a lot of drugs for cancer, mostly in the pipeline, that's been a major investment of theirs. But one thing that's notable about the GLP-1s, not to pull it back there, is that we've seen that in the long term, as this study demonstrates, it reduces the risk of heart attack and stroke. But likewise, there are observational studies tying it to reduce risk of Alzheimer's and of cancer, which follows reason in that these drugs basically make you eat less. and in many cases, drink less, smoke fewer cigarettes.

12:34These are things that we know are behavioral changes that prevent cancer, heart attack, and stroke. I think it's funny that these things came out at the same time as gummies came out, just saying. Well, I mean, I think that there's, well, maybe there's a correlation there. Just need to find it. But I mean, when we think about this company, how are they in comparison to competitors right now? I mean, this is a massive company here. Yeah, Lilly, I think, has, this is a long-term, dating back about a century, investment in diabetes research that Lilly has, and the GLP-1 medicines grew out of. They began as diabetes treatments before they were discovered to have such profound effects on obesity.

13:11So I think Lilly would say this is them carrying on the tradition, and their market cap and all of these kind of superlatives we can affix to them are just the markers of a success that they set in motion in years past. I would say other major American drug makers look at them with some envy and perhaps occasionally resentment because they and Novo Nordisk are the leaders in GLP-1. Pfizer, Johnson & Johnson, Bristol-Myers, Squibb, Merck, all of the heavyweights of this sector missed out on that first wave of obesity drugs that have really driven the success of the industry in recent years. And I'll tell you, this is how you see it, Nori.

13:45You ask that question, kind of where do you see the difference here? How about valuation? On 2025 estimates, this is on the BQ function, folks. And this comp sheet is curated by Bloomberg Intelligence. So you know it's right. It's the right comps and the right numbers. That's what the BI folks do. On 2025 numbers, Eli Lilly stock is trading at 34 times earnings. The rest of the peer group, 15 times. So more than twice the valuation Wall Street is giving to Eli Lilly versus the other big cap names like, you know, Johnson & Johnson, Abby v. Merck. So just extraordinary there. Damien, thanks so much for joining us.

14:19Really appreciate the reporting there. Damien Gardet, healthcare reporter, Bloomberg News, joining us live here in our Bloomberg Interactive Broker Studio.

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15:28Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster. With revenue agents and automations working around the clock, you'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. 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. Qualcomm, the company reported earnings a little bit disappointing.

16:06The stock is down 5.8 percent today, down 2.5 percent for the year. Let's break down what happened in that quarter with an expert. Kunjan Sobhani joins us. He's a senior analyst to cover semiconductors for Bloomberg Intelligence. He joins us via Zoom from San Francisco. Kunjan, you do this stuff for a living. You see all these companies break down the Qualcomm earnings. What did you see? Yeah, there was nothing hugely wrong with these results. In fact, there were a few positives, namely the beat on the IoT due to better smart glass chip sales to Meta and others. auto still continuing to be on track despite the automotive end market seeing weakness.

16:45The handset guide for next quarter, which is to come in in line to typical seasonality, which is actually surprisingly positive, given that they are going to have significant Apple share loss starting next quarter. That means that the gains they're gaining in Android, and Android continues to get better for them, for their chip sales. But all of this goodness is still sort of near term or one time. The big questions in investors' mind don't disappear from this goodness. Unfortunately, you know, there is going to be that big Apple loss this year, this calendar year, the next calendar year that is going to weigh on their top line revenue.

17:24And there is no offset to completely offset that loss. So that's going to stay. The diversification efforts in IoT and auto and the PC and the XR, et cetera, is moving on track. But it's not sexy enough or new enough in the near term to get investors excited about this thing. And that's what I'm seeing the rest of the street saying as well. I mean, the CEO just said in the interview with Ed Ledlow that they see content in the automotive space accelerating here. But then we see the print that we just are analyzing right now. industry is saying that weakness in the handset and automotive chip sales sector that all coming in weaker has really kind of put in a damper here for investors.

18:05How much runway do you think that the company has here? I mean, you know, they've been pitching this diversification story for a while now. They have, to give them credit, they have made meaningful progress in a lot of these avenues. If the automotive and IOT still looks to be on track to get to that$22 billion target that they've promised. Once you get there, it will be enough to offset all the Apple losses. It's just moving very slowly, which is good. It is still moving consistently, but slowly. And in the times that we are in right now, when an investor in Semi has the optionality to look at all the fast growing AI names where most of the spending is coming, it's just very hard to get people excited very quickly about still investing in a company, which is still primarily today driven by handset revenues.

18:53Kujan, what is Qualcomm and maybe some of your other chip names, what are they saying about tariffs at 30 seconds? Well, most of the companies in our coverage are not calling out tariff impact directly. You know, some companies have, you know, decided to take a step forward and call some kind of pull-ins. We heard from Christiana where Qualcomm is saying they haven't seen no pull-ins. It's very hard to delineate because initially from our channel checks, we believe there were some pull-ins because of tariff fears. But as the discussions and the news has sort of died down, the risk for that has reduced.

19:30So the consumers which were initiating pull-ins might have normalized. So we're not seeing a lot of impact on the semispace for the most part from tariffs, except for this movement between 2Q and 3Q demand. Kujan, thanks so much for joining us. Kunjan Subhani. He's a senior analyst covering the semiconductors for Bloomberg Intelligence based out there in San Francisco. 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.

20:03Comcast reported results here. I guess they lost fewer subscribers And that's kind of a net win. The stock's up 1.6 % for the day, down 12 % for the year. It just feels like there's a lot of headwinds for this industry, the cable TV slash broadband industry. Geetha Ranganathan, she covers all the media stuff for Bloomberg Intelligence. Geetha, what do you see from Comcast numbers today? Yeah, thanks so much, Paul. So what happened really was last week we had Charter, which is the second largest cable or the second largest broadband operator reporting. they reported broadband subscriber numbers that were extremely weak.

20:40Losses were much higher than what the investment community was expecting. That triggered a 30 % plunge in charter stock price and generally spooked Comcast investors as well. So there was a lot of kind of panic and nervousness coming into today's report. And Comcast did lose subscribers. They, in fact, lost the most number of subscribers that they ever have lost in their broadband business. But it was still better than what the street was fearing. And that's why we're seeing a little bit of what you can call a relief rally here for Comcast. Absolutely. I mean, what is the broader market looking like right now?

21:14I mean, you've compared it against charter, but how are we thinking about broadband right now? Yeah, so broadband really has been, you know, at least over the past few years, Nora, has been completely dominated by the cable industry. So just, you know, even up to two or three years ago, cable had almost a 67 % share of the, you know, home broadband, what we call the fixed broadband market. But with the telecoms, so with AT &T, Verizon and T-Mobile coming in and becoming extremely aggressive in terms of two of their product offerings. So one which they call fixed wireless, which is basically, you know, also called 5G home internet.

21:51And the other being fiber. and with both of those on the fixed wireless really from a pricing perspective because they're only charging about$50 or so a month so they're really competing with cable on the low end and then if you want a superior product to cable in terms of both upload and download speeds you go for fiber so they're really attacking cable from both ends and that's where we're seeing kind of this intense competition for the cable operators like a charter and comcast that have been losing subscribers and losing subscribers really at a pretty you know alarming pace The problem is that they're going to continue to lose subscribers.

22:25And that's kind of how we're framing it for the cable investors right now. All right, Geetha. Comcast is a big company. It's a diversified company. It also owns NBCUniversal. But that's also a challenging part of the business. Where are we in terms of that company maybe selling or splitting off some of their cable network businesses? What's the status? Yeah, so they are splitting off their cable networks business. that is their most challenged portion of the whole NBC portfolio. They are spinning it off into a company called Versant. That should happen a little bit later this year. So once that happens, then you're left, you know, as far as the NBC asset mix is concerned, you have the broadcast network, which is, you know, the NBC broadcast network.

23:08You have Peacock, which is their streaming platform. And then you have the slightly higher growth assets. So remember, they are investing very big in their theme park business. They just opened Epic Universe, reported some really stellar results today in terms of revenue growth thanks to Epic. And then, of course, their studio business. I don't know if you saw the news, but they already have one of their movies, Odyssey, which is a Chris Nolan movie for which they're pre-selling tickets a year in advance. So their studio business is in really good shape as well. So executives have acknowledged that competition in broadband still remains, quote unquote, intense, especially when we think about other wireless companies like AT &T, for instance.

23:47And we're seeing shares down for Comcast, down about 11 percent year to date here. How are we thinking about competition as it relates to Comcast? Yeah, competition is going to be a huge factor for Comcast down the road. So, you know, Paul talked about Comcast being a diversified company. Yes, they have exposure to the cable systems, but they also can diversify a little bit with NBC. But still, cable brings in 80 to 85 percent of the company's EBITDA. So it's really important for them to have some kind of visibility into their broadband business. So again, competition is intense. Both Comcast and Charter refer to this.