Micron Soars After AI-Fueled Forecast Shatters Projections

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1:33Scarlet 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. Earnings season. Let's talk about it. Micron Technologies came out with some numbers last night. Stocks up 12 % year today, but that's not the good number. The good number is year to date up 300%. Over the trailing 12 months, up 800%. And this is a$1.3 trillion market cap company, people. So there's some real money being made by investors here.

2:19This is not a pink sheet, which my next guest doesn't know what a pink sheet is, but it's not a pink sheet stock. Jake Silverman, semiconductor analyst for Bloomberg Intelligence here. What did you hear from Micron last night, Jake, that's got the market pretty positive here? Yeah, I mean, it's continued upward pricing momentum. All of that is, for the most part, AI-driven. You know, I mean, look, we've seen healthy PC smartphone demand, but that's not the real story, right? We're seeing hyperscale CapEx continue to grow at an incredibly high rate. And memory is becoming an increasingly large portion of that, but it's really on pricing.

2:53Demand is strong because of AI buildouts, right? We're shifting from an AI training environment to AI inferencing, and that's just increasing the amount of memory you need in these data centers. The memory intensity is going higher. But then we're also seeing longer-term contracts being signed by customers. They talked to Micron talk about 16 last night, 100 billion dollars of revenue contracted going all the way out in some cases to 2030. Wow. So, of course, now the bar continually gets raised for a company like Micron. Was there anything sort of the minutiae of this report that I don't know, is maybe a mini red flag for Micron or for the greater industry?

3:31Yeah, so the interesting thing is, yeah, it's truly minutiae because I think Mark, the CFO, mentioned ASC 606 last night. Not something you typically hear on memory calls. But the interesting thing about this is they talk about floor pricing in some of these agreements. I think they have 25 % of their revenue or bits contracted out. But they're talking about getting up to 50 % or so of that demand getting contracted. Now, that leaves another 50 percent that isn't potentially going to get contracted. So when we start to see a downturn, you know, the floor pricing on those contract agreements, you know, they're talking about healthier margins than even the last cyclical peak, which would put it at, you know, north of 60 percent probably, which is pretty.

4:17So still an enviable position. It's still enviable, but it's also a question mark is when does the downturn occur and what happens to the rest of the business that isn't contracted out? And, you know, what are the margins on the floor pricing for some of those contracts anyway? It's all just there's a lot of question marks and a lot of unknowns. And unfortunately, we're just not going to really know near term what's going to happen. It's too far out because capacity in the industry just can't keep pace with demand. All right. Micron, trailing 12-month stocks up 825%. SK Hynix up 925%. Western Digital up 980%.

4:55Seagate Technology up 640%. Is there any way to differentiate between these companies, or do you just shut up and buy them all? Well, so the thing is, SK Hynix, they have the capacity. They have a stronger HBM demand base because of the capacity and because of their history with NVIDIA than Micron. Micron has about 20 % to 25 % DRAM market share, a little bit lower on NAND. SK Hynix has that capacity base. Samsung has that capacity base. But also, if you look at Samsung, they have tons of other businesses. It's just that no one seems to care as much about them right now because memory is doing so well.

5:33But they have foundry business. They have smartphone, all sorts of. They make TVs. I mean, they're all they're all. And then you look at Western Digital and Seagate and they're they're not even memory, they're storage. And, you know, it's hard to differentiate, but they have their own duopoly scenario going where they're the main players in that industry and they're not increasing capacity either. And so you have several different dynamics all going around. But how do you really differentiate between Hynex and Micron and Sandisk? It's really difficult. Did this report from Micron appease investors' worries about the AI trade?

6:04Or is this just is this going to be like a short lived situation? I think it it what it really did is the reason I mentioned the floor pricing is because I think that was what investors wanted to know is, will these contracts get renegotiated and take step down pricing when the cycle starts to turn, assuming you still think these stocks are cyclical, which in my point of view, I still think that memory is cyclical. It's just that we might see some structural changes in the way that the pricing volatility changes. It might just be less volatile and maybe even actually elongated. But it also might mean that instead of having tens of billions of dollars of cash burn, you might not see any cash burn at all in the industry.

6:44It could be razor thin in terms of free cash flow. But yeah, investors, I think, are looking at this and they're trying to figure out, is this short lived? Is this long term? Are we going to actually see a real cycle play out? What's the length of that cycle? And I think the floor pricing and the more talk about contracts, how many customers, I think that starts to impede some of the anxiety.

7:08Scarlet 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.

7:49So 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 public.com if you're actively involved in your portfolio you probably catch yourself repeating the same actions buying the dip manually sweeping idle cash putting on a hedge on public you can now create ai agents that handle all these tasks on your behalf just describe what you want to do in plain English.

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9:26Scarlet 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. We got some earnings out from Darden Restaurants here today. Weak outlook, apparently the Olive Garden sales outlook disappoints. Let's break it down with Michael Halen, senior restaurant and food services analyst for Bloomberg Intelligence. mike what what'd you see from uh darden with their earnings report yeah you know it was a pretty solid uh report you know cut um they were able to drive pretty strong same store sales especially at longhorn uh you know they had a social media post go viral about the return of uh their parmesan crusted uh lamb chops um so all in all it was a pretty good quarter the issue would really be you know, twofold.

10:24Number one is their fiscal 27 guidance came in light on the EPS line, right? This company is known to guide pretty conservatively. So that could be what's going on there. And the other thing is, you know, sales are going to slow sequentially. So sales are going to slow sequentially for everyone because the restaurant industry had a very good summer last year. So now we have to lap those tough comps. We have tough base effects and especially so for Darden's brand. So Darden's brands had a nice boost last year from rolling out third-party delivery with Uber Eats. And now that they're going to lap it, especially Olive Garden, sales are going to slow.

11:05So Michael, they also own Ruth's Chris Steakhouse. You mentioned Longhorn, but what is happening at Olive Garden? We know that they've been trying to get things back on track and they even were doing smaller portions. I think they're still doing that. That doesn't seem to be taking what what's going on why can't they seem to gain traction with the consumer yeah you know i i don't i don't necessarily feel that that's the case i mean they they had same store sales that were pretty strong you know um last year right like uh it's basically part of the issue is is their own success so last year olive garden had a pretty good year and now they have to lap those strong results you know we we still think that darden is gonna uh outpace most to their casual dining peers, Olive Garden included.

11:52But we see this industry as a whole slowing this summer. Low-income consumers are still strapped, right? They spent their higher tax refunds at the pump. And we expect restaurant sales here to start to decelerate here over the next quarter. And, you know, Olive Garden and Darden is not immune. So what do you see, Michael, just cross the board? You cover all these restaurants you see from the quick service restaurants all the way up to some of the higher end stuff. Is the K-shaped economy apparent in the restaurant business as well? For sure. That's probably we've been writing about it for several years now.

12:40We were probably the first industry to feel it. And I'd say back going back two plus years, we saw it. I think I forget. Maybe it was Chipotle who was one of the first to admit it because they didn't have that many low income consumers. So it wasn't going to impact them as much as some of their peers. But, you know, yes, this is inflation really impacts the restaurant industry. Number one, it impacts low income and middle income consumer spending. right people have been spending way more at the pump over the last couple months than they had been that takes money you know out of the uh out of their wallet that could be used for restaurant visits restaurants are very very sensitive it really is a canary for canary in the coal mine for the economy in the united states and low-income consumers remain strapped low middle income got a boost with these refund check checks you know we expect that to be short-lived um and now we just have to face some tough comps.

13:41I think it's a tough time for restaurants. Low-income consumers not getting better, and it's not going to until we see inflation get back down to that 2 % or below. Yeah, the margins are just so razor thin for so many of these restaurants. But did they say on the earnings call anything about beef prices, these high beef prices, and the fact that consumers are still going to steakhouses, it seems like in droves? including tonight. Steakhouses do pretty well in times of beef inflation. And part of that is, you know, the gap between what they pay at the grocery store and at the restaurants tends to close.

14:20Restaurants can sell different cuts of meat, right? So they can be more particular and take advantage of movements of different cuts of meat. And so the gap actually shrinks when we see beef inflation. And so people will opt to get their steaks out at a restaurant. This year, we're looking for more inflation. It's not going to be what we saw last year. So Darden was talking about some low single digit beef inflation. It's going to be higher in the first quarter, but then it's going to start to lap some really strong inflation in the back half of last year. And so for that reason, the chain is going to see less beef inflation.

14:58The entire industry is going to see less beef inflation as the year goes on. I'm getting my New York strip tonight at Keene's Steakhouse. I passed Keene's the other day and I thought of you. That's your favorite steakhouse in the city, right? Some boys are coming in from out of town. Nice. That's where they want to go. So we'll do that. Hey, Mike, one of the industries singled out is potentially at risk from tighter immigration was the restaurant industry. Have you seen that? Has that come to fruition? Yeah, we have seen it. And, you know, we were just, you know, we've been writing our mid-year outlook.

15:32And what we've been talking about is that casual dining in the first half of the year outperformed quick service restaurants in terms of their sales, in terms of valuation. They really have for the last year and a half. And so a big part of that is a better supply and demand balance. So since the pandemic, like right after the pandemic and for a while, casual dining chains, full service sit down chains have been shutting stores. In fact, they've been shutting them for 15 plus years since the Great Recession. And so but at the same time, quick service and fast casual names, you know, for some reason, this narrative came out that quick service was recession proof, as ridiculous as that is.

16:13And, you know, people were building quick service and fast casual chains as fast as they could for the last five or six years. And now that part of the business is overbuilt, whereas casual dining has a better supply and demand imbalance. And so now that, you know, immigration has declined, you know, these full service chains are just in a much better spot.

16:38Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the rest.

17:16Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

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19:29Scarlet 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. Ford Motor Company took an unusually human approach to fixing its stubborn quality problems. It brought back what it calls gray beard engineers to help train younger staff and to reprogram the artificial intelligence tools that weren't getting the job done. earlier Bloomberg television anchor Matt Miller spoke with Ford CEO Jim Farley on bringing back human inspectors.

20:05That human motivation to pay attention to everyone, everything is amazing. Look, we make 85 percent of our vehicles in the U.S., Matt. That means these are U.S. factory workers versus even our domestic competitors. They're some of the biggest importers in the U.S. We're not building these vehicles in South Korea or Japan. These are American workers beating Toyota and Hyundai and our domestics who import their vehicles. We beat them all. All right, that was Ford CEO Jim Farley. Looking at Ford stocks up 2.8 % today, up about 8.4 % year to date. Matt Miller joins us here. Matt, you had that interview with Mr.

20:44Farley. I was not expecting that story. What, that they were going to - Bring back - The gray beard engineers. I like it. Yeah, no, I think - I mean, that's the most interesting part of this story. Actually, the comeback. I told him, you're like Tiger Woods winning the Masters in 2019. You're like Jordan winning a championship in 2026 because they were so far down. They were 15th, ranked 15th in J.D. Power's survey in 2023, and they're number one today among the major automakers. And this isn't somebody said, hey, don't you just buy those rankings? No, it's based on how many problems customers report per hundred vehicles.

21:25So you can't influence them other than doing a better job building cars or a worse job, obviously, if you want to go down. So it's not only an amazing comeback, but it's going to be a huge contribution also to the bottom line, because what happens when you build crappy quality cars, they keep coming back for warranty work. You keep getting safety recalls and you have to spend a lot of money. And that was really a significant hit to Ford's bottom line over the last couple of years. They were losing a lot of money. Farley now says they're going to save hundreds of millions of dollars. And they're forecasting between eight and a half and ten and a half billion dollars in pre-tax earnings this year.

22:03I could imagine that forecast getting upgraded at their next earnings because of this improvement in quality. Are they doing it with more AI or less AI? Because when I hear about the human touch, I'm thinking, oh, maybe they're doing this with like actual humans and not so much the technology. Yeah, I think I mean, I asked him, is it technology, factory processes? Are you more closely monitoring your suppliers? Are you using AI? And he said, we're using AI, but this is really a human labor solution to the problem. We've we've brought back people who have real experience. They're teaching our younger workers.

22:40They're also better able to train the AI because, you know, you've got to tell the AI what to do. And if you don't know to start with, that's a real problem. So I think at this point, when we're worried about AI taking human jobs, it's a really refreshing thing to hear. And it's really interesting as well that they need some of those skilled workers back on the factory floor at the Rouge and other plants around the country. What's the company saying these days? What's Mr. Farley saying about electric vehicles? Because this is an industry here in the U.S. that kind of went aggressively at some point in time when it seemed like that's really where the world was going.

23:20They cost a lot of money. They lost a lot of money. Now they've kind of pulled back a little bit. Where's Ford right now? I mean, they lost almost$5 billion last year on EVs. And they're fixing to lose another$4 billion this year. They've really pulled back from EVs. And as an example, they built a battery factory in Marshall, Michigan with CATL, with a Chinese battery manufacturer. And they're they're going to produce about 20 gigawatts of power a year there, but not aiming it as much at car batteries anymore as they are at giant data storage batteries. So these are going to be like the size of a shipping container.

24:01and if you're putting up like a gigawatt data center, you're gonna need to buy like 40 or 50 of these things to hold power in case your original power source has a glitch or needs to get changed over or whatever. They've already got a big deal with EDF of the US and I asked him, you know, are you making deals with hyperscalers like Meta, like Google, like Amazon? And he said, that's, you know, the direction that they're headed and they're really excited about it. That's an unexpected tailwind for this company. And one of the reasons that their stock has outperformed every single competitor in terms of the major income manufacturers.

24:36All the way around, an incredible comeback story. Is the F-150 still the best-selling truck in the U.S.? Well, the F-Series. It's important to say the F-Series because that encompasses the F-150, 250, 350, 450, 650, 750, all of those. They have an EV as well, don't they? The Lightning. The Lightning. Paul and I both have driven it. Paul, what do you think? Which is crazy. Can't that thing also be a backup generator for your home? It can do anything. It can do anything. It can. In fact, you can switch it over your home over. The average home, I think, can run fully for like three days on that. But that's another project from which they've really pulled back substantially.