Micron’s Capital Spending Growth Overshadows Booming Sales

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2:32One of the stocks we've been talking about today, Micron Technology. Sales numbers are really impressive. I think some folks are concerned about some of the spending that Micron was talking about on their earnings conference call. So let's get right to it. The stock is down 3 % today. But it has been a really strong performer over the last period. Let's check in with somebody who does this stuff for a living, Jake Silverman, Bloomberg Intelligence Semiconductor Analyst. Jake, what was your takeaway from Micron's earnings? Yeah, thanks. I would say that I actually think it's not really the spending that is concerning investors.

3:07I think really what's going on with Micron is more so a focus on where the cycle is at. We've seen now a couple of quarters of very aggressive price increases for the May quarter, May ended quarter. We're going to see continued very strong double digit pricing growth. And so what I really think is on the top of investors' minds is when does this cycle end? How sustainable are these margins? Because if I think about CapEx, just because CapEx is increasing, they need to increase CapEx in order to meet the high levels of demand because there's still a very strong supply and demand imbalance that we're seeing.

3:42So AI is really the major driver for that. It's the major tailwind. And if they're unable to match spending, then they're not going to be able to meet the demand of their customers. Has the company shed any light on how high they think memory chip prices will go or at least stay? Because this has huge repercussions for manufacturers of laptops and everything else that needs memory chips because all the memory chip makers are too busy putting together high bandwidth memory chips. Yeah, they don't really give a lot of details in terms of what their view on pricing is. Ultimately, our take is more so that we're probably going to see the peak of the pricing increases on a quarter to quarter basis.

4:24That doesn't mean that pricing won't continue to increase at a somewhat more modest rate. But going back to actually what I was talking about earlier with capital spending, The ability to actually increase supply is going to be a really important factor here, both in terms of actually how pricing moves around, right, higher or lower. But because there's actually a constraint in the ability to put up additional cleanroom space, new fab space, there's not going to be a lot of additional supply in the next 12 to 15 months or until the next 12 to 15 months. So as a result, we think pricing still has a few more legs to go.

4:58So again, it's really just more so that we think pricing on a sequential basis and a monthly basis, quarterly basis will be a lot more modest in terms of the increases than what we've seen before. Jake, who does Micron really compete against day to day today and then in a couple of years going forward? Is it the NVIDIAs of the world? Who do they really compete against? NVIDIA is one of their biggest customers. But I think it was their biggest customer last quarter. And a lot of that is for, as you mentioned, high bandwidth memory. Really, their competition is Samsung, it's SK Hynix, and then to some extent SanDisk, although DRAM is becoming an increasingly large portion of their business.

5:37So SanDisk really only competes with about 20 % of their business. So in that regard, Micron has a lot of pricing power. What advantages does Micron offer over a Samsung or SK Hynix? Well, I'd say that advantages are tough because they build to spec. for the JEDEX standard. Micron, they do also build to NVIDIA specs for high bandwidth memory. One of the things, though, to keep in mind is that the memory market, as I was talking about the cycle before, it's very cyclical. So really the key here is how much cost can they... What's the better cost profile that they can drive relative to their competition while also maintaining that R &D spend to keep up with the increasing demand of their customers?

6:23NVIDIA being one of them, but also a lot of other hyperscalers who need high bandwidth memory, HBM3e, but now we're moving to HBM4s, those standards keep going up. So their ability to compete on cost, their ability to compete on things like pin speed that help with bandwidth, their ability to compete with lower power consumption for their products, those are really the keys. But again, it is somewhat commodity-like market for the products that aren't high bandwidth memory. So it really is competing on costs and the economics of their business. Hey, Jake, about 30 seconds left here. I'm just looking at your research.

6:56No, customer agreements are now extending out up to five years in some cases. That seems really long. Talk to us about that. Yeah, very unprecedented. The company hasn't given us a lot of details. There's not really a lot to say, unfortunately, right now. But it does seem like these agreements are different than the LTAs we saw just a few years ago during the last downturn or upcycle that ended up in the downturn as things tend to go with Micron. So really what I would say is that this may be something that can reduce some of the cyclicality going forward. We don't expect all agreements to go out five years.

7:27Some might go one year, two years, three years. It's going to vary a lot by the customers, the volume, what the products they're requiring are. Stay with us. More from Bloomberg Intelligence coming up after this. Hello, hello. I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna. And I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind.

8:15If anybody is not using AI to make their developers who write software 30 % more productive today, with the goal of being 70 % more productive. Yeah. Wow. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We're happy to bring out all our learnings, including what needs to change in the process. Because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

9:14It isn't just what you planned. It's who shows up. That's where Cincinnati Insurance comes in. For more than 75 years, they've helped individuals and businesses navigate life's toughest moments with care, expertise, and personal attention. Together with independent agents, Cincinnati Insurance focuses on relationships, not transactions. Their approach is grounded in experience, follow-through, and trust built over time. Bad days happen, and when they do, you deserve an insurance partner who understands risk, respects what you've built, and is ready to help you move forward. The Cincinnati Insurance Companies.

9:50Let them make your bad day better. Find an independent agent at CINFIN.com. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts? Yep. High-yield cash? Yes, again. They even have direct indexing.

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11:06Listen on demand wherever you get your podcasts or watch us live on YouTube. We've still got a lot of companies reporting here. Now we're starting to hear from a lot of the restaurant companies. Darden's coming up here, so we want to check in with Michael Halen. Michael Halen, he covers all the restaurant companies for Bloomberg Intelligence. He's based down there in Princeton. And one of the big ones, Darden, I think is about to report here. Mr. Halen, what's what are you looking for there, Mike? Yeah, Darden reported this morning. It was it was a strong quarter on the top line. So despite all of the cold weather and snow, they had mentioned, you know, 40 percent of their stores had been closed at some point during the quarter.

11:50Despite all that, they still were able to put up four percent same store sales comp. The problem with the report was that they missed on the bottom line. So despite all of the traffic they were able to drive into their stores, they didn't really see the operational leverage from it. Beef prices were a big headwind, obviously, in the quarter for Longhorn, which is their second largest chain. So how is the company planning to tackle that? because I'm not sure that B prices are going to come down anytime soon. This is going to be a persistent cost headwind for them. Well, you know, the entire commodity complex is starting to become a real concern for these restaurant chains.

12:36And that's why we've seen them kind of reverse their strong gains of the previous three months. But yeah, so what they're going to do is raise prices and they feel that they can because they have not raised prices much over the post pandemic period. Right. So they've underpriced competitors. They've underpriced, you know, food away from home inflation. Right. So they think they have some room. But, you know, if we continue to see, you know, elevated gasoline prices, if we see a prolonged conflict in the Middle East, you know, it's really going to weigh on restaurant spending. So, you know, we think they're going to have to be careful raising prices.

13:17But it's it's an interesting time right now. There's a lot of crosswinds. Right. Like, you know, they are seeing people spend more when they get their refund checks. Refund checks are 10 to 11 percent higher. Right. But unfortunately, the spike in gasoline prices up 30 percent plus now in just a few weeks is going to eat into some of that spending. You know, excuse the pun, you know, and then just overall inflation is going to cause prices to go higher, which is not a good situation for, you know, Now, stackflation is not a good situation for restaurant consumers. We saw that in the stocks performances last year.

13:54Right. When people's budgets get pinched, they spend less at restaurants. Margins get squeezed for the restaurants. It's just a tough climate to operate in. Mike, what are your companies telling you about labor, labor availability, sustainability? How's how's the labor side of the equation? Because that's a big part of their cost structure as well. Yeah, labor's been okay. The companies we cover are seeing a lot less turnover. Wage inflation's been, it looks like about 3 % for some of the companies that have reported recently versus this 4 % to 5 % range that we've seen since about 2020. So the labor piece of the equation has definitely improved a bit for the companies in our sector.

14:41What will you be listing for from the other restaurants that report? Are we going to see similar themes play out for them? Yeah, so Darden's is a little bit off cycle. So they're the first ones to report almost into this next cycle, right? Because their quarter ended late February, right? So they're giving us an early read. So when our other names report, right, we've gotten a feel for what the first quarter was. And what we think it will be is like stronger, pretty strong, considering all of the winter weather, considering the snow, still putting up pretty solid same-store sales, you know, over 4 % here for Darden.

15:32You know, a month ago, the question was, you know, really about the top line and how, you know, and how much better things were looking and how much people were going to be spending in their restaurants, how much of those tax refund checks were going to get spent at restaurants. But now I think the questions are going to shift more to the margin side. Right. Like this higher gasoline prices mean commodities are higher for longer. Right. Stay with us. More from Bloomberg Intelligence coming up after this.

16:30If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive. Yeah. Wow. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We're happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

17:23If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But in life, even the best strategies can't prevent every bad day. A fire, a loss, a disruption that demands immediate attention. When that happens, what matters isn't just what you planned, it's who shows up. That's where Cincinnati Insurance comes in. For more than 75 years, they've helped individuals and businesses navigate life's toughest moments with care, expertise, and personal attention. Together with independent agents, Cincinnati Insurance focuses on relationships, not transactions.

18:01Their approach is grounded in experience, follow-through, and trust built over time. Bad days happen, and when they do, you deserve an insurance partner who understands risk, respects what you've built, and is ready to help you move forward. The Cincinnati Insurance Companies. Let them make your bad day better. Find an independent agent at c-i-n-f-i-n dot com. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently.

18:37It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto, without all the bugs or the confetti. Retirement accounts, yep. High-yield cash, yes again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Add paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC Registered Advisor.

19:16Crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures at public.com slash disclosures. 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. All right, let's stay with this global theme because FedEx reported results. And clearly, it's not just a parameter for the U.S. economy, but really for the global economy at large. Lee Clasco is our senior transport logistics and shipping analyst, and he is joining us to give us a preview of what FedEx is likely to say.

19:57So, FedEx, Lee, when it comes to FedEx, they have their own issues, right? They've been trying to turn things around, overhaul the business. How much of the results reflect that effort versus what's happening globally? Yeah, I mean, we all have our own issues, but FedEx certainly does have a number of them. And, you know, they've been busy trying to restructure their European business. And, you know, they're kind of combining their ground and express networks. And they're kind of going through a transformation right now. And they're really hoping that they'll come out of this transformation a more nimble parcel provider that can really take advantage of some of the strong B2B markets that they're going after and higher margin B2C business also as well.

20:43You know, volume looks like it's probably going to grow during the earnings. We're not really expecting that much new news because they just had an investor day the other month. But we do expect to get a lot more color about what's going on in the Middle East and how that's going to impact FedEx and its business going forward. So that's what, you know, I'm most interested to hear about. You know, the company, like I said, does have a large European operation. You know, the Middle East has become a huge hub for freight between Europe and Asia, and that has been dislocated. And so they're obviously dealing with higher costs associated with some of that business.

21:21There's lost volumes that will be involved because the area is not safe to fly into. So we expect to get an update on how the conflict in the Middle East will unfold for carriers like FedEx. So what's FedEx saying today about just their business in general in terms of volumes and things like that? I mean, because it's such a bellwether for many parts of the economy, as you well know. What are they saying just about core fundamental business trends? Yeah, so, you know, FedEx has two main businesses. The business that we all probably know when you get something at your doorstep, you know, letters going to lawyers' offices.

22:01And they also have a less than truckload business. They're the largest LTL carrier in the United States. They're actually planning to spin that business off. I would spin that out if I were to. They are spinning that out. They're doing an analyst day next month. We're excited to attend that and find out more. But that business has been suffering significantly because of the weak industrial economy. I don't need to tell you, the ISM has been in contraction territory a lot more than an expansion territory over the last two and a half years. And that's really weighing on that business. But, you know, looking, pivoting towards, you know, their larger business, their parcel business, that business is OK.

22:38It's growing volumes are growing by low to mid single digits. They're getting pricing in low to mid single digits. The problem that they're facing right now is costs. And they're trying to, you know, kind of, if you will, reduce their overall cost curve to help drive better margins going forward. And some of the things that, you know, I kind of alluded to earlier, you know, whether it's restructuring their air network, whether it's combining their ground and air network, these things will benefit the company, A, in a better demand environment globally, and B, it's going to take time for those benefits to come down to the bottom line.

23:16So Lee, we have FedEx reporting and then UPS will report probably in about another five weeks or so. How much of what FedEx tells us, especially when it relates to global trends can be applied to UPS? I think a lot. You know, they're both very, very similar. They're both going after similar growth businesses. They both want to get more into health care logistics, which just tends to be more profitable. They obviously have their finger on the pulse of the consumer. UPS is tied to a little more to companies like Amazon. You know, they are trying to wind down that business, but, you know, they're more tied to it.

23:56there are some differences, but I think there's more similarities than there are differences about what it's going to tell us about the overall economy. Stay with us. More from Bloomberg Intelligence coming up after this. Hello, hello. I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind.

24:45If anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive. Yeah. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We're happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

25:25If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But in life, even the best strategies can't prevent every bad day. A fire, a loss, a disruption that demands immediate attention. When that happens, what matters isn't just what you planned, it's who shows up. That's where Cincinnati Insurance comes in. For more than 75 years, they've helped individuals and businesses navigate life's toughest moments with care, expertise, and personal attention. Together with independent agents, Cincinnati Insurance focuses on relationships, not transactions.

26:03Their approach is grounded in experience, follow-through, and trust built over time. Bad days happen, and when they do, you deserve an insurance partner who understands risk, respects what you've built, and is ready to help you move forward. The Cincinnati Insurance Companies. Let them make your bad day better. Find an independent agent at CINFIN.com.

26:47options, bonds, crypto, without all the bugs or the confetti. Retirement accounts, yep. High-yield cash, yes again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market.