Microsoft, Nvidia to Invest Up to $15 Billion in Anthropic

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1:02Bloomberg 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. There's a lot of commitments going on out there in the technology world, Scarlett. But NVIDIA is committed to investing up to$10 billion in Anthropic. Microsoft is also committed to invest up to$5 billion in Anthropic. And Anthropic, for its side, it's committed to buy$30 billion of Azure compute capacity. And we're just throwing out these tens of billions of dollars like it's nothing.

1:45Right. I don't get it. It's just the circular stuff we see. But people tell me not to worry. Coming up right here, the best dressed man on Wall Street. His turban matches his tie every day. No accident. I mean, nice job. Mandeep Singh, he's a senior tech dude at Bloomberg Intelligence. Mandeep, a lot of big companies making some big commitments in Anthropic. What is Anthropic again? Well, Anthropic is one of the five frontier LLMs that are remaining. I mean, and they are leading the charge when it comes to generative AI. So it's one of the five. The other one are Google, OpenAI, Meta, and XAI.

2:25And so, look, when it comes to these commitments, it's pretty obvious that OpenAI has raised the bar by announcing they're going to spend$1.4 trillion. So the question is, what are the other LLM companies going to do? And Anthropic is also a pure play LLM. And in their case, they don't have the funding. I mean, they don't have the balance sheet like Google or Meta have. So they have to raise the money either in the private markets or from someone like NVIDIA or get into an agreement with Microsoft, which also has an agreement with OpenAI. So that's where, you know, LLMs need compute. That's how you serve billion plus users.

3:10And that's where, you know, the numbers get bigger and bigger when it comes to the tie ups with cloud providers. This is like the popular clique in high school where everyone knows each other and everyone's messing around with each other. Just give us a little bit of background here on Anthropic, because my understanding is that it was founded by folks who used to work at OpenAI. And some of the early investors, like big stakeholders, include Alphabet and include Amazon. And now you've got Microsoft in there. I mean, is there anyone who's not part of Anthropic and not committed to investing in this company?

3:43Well, you could say Meta. They're doing things. They're doing their own thing. They're doing their own thing in terms of, you know, using the compute internally. And they don't have a cloud business. Is that a problem for them, that Meta is out there on its own? I know it doesn't have its own cloud business, but it's not buying stakes or committed to invest up to$5 billion or$10 billion in any of these AI companies. I mean, so far, just to go to meta, it feels like, you know, investors were OK with them using the GPU compute for their own family of apps. But the fact that they're talking about 100 billion plus in CapEx for next year without having a substantial ROI.

4:24And what I mean by ROI is in the case of Microsoft. Yes, they are raising their CapEx to 120 billion, but they're winning deals like the one with Anthropic, 30 billion dollar in commitment from Anthropic. So somebody is paying for that compute in the case of Microsoft. You don't have that with a meta. How are you generating ROI outside of your family of apps? And over there, you have to show a really substantial increase in engagement to convince investors it's worth$100 billion plus in CapEx. Any of these open AIs, Anthropics, are they going to ever come public, do you think? I mean, in the case of Anthropic, look, I know the numbers are getting big, but their gross margins at this point are probably better than OpenAI, which is doing too many things.

5:12I mean, the biggest risk I see for OpenAI is they feel they can get into any business, whether it's chip business, whether it's, you know, obviously LLM is their turf, any type of applications. And that's where there's a possibility of a misstep. You can end up wasting time because you just don't have the capability. They're not focused. Yeah, the focus. Whereas Anthropic is more focused. Dumb question of the day. Are these U.S. companies, Anthropic, OpenAI, are they based? Where are they? Oh, good question. Silicon Valley. They're in? Okay, so I'm going to go out there, visit my son at Santa Clara.

5:47Yeah. They're in the backyard right there. I can go knock on the door of Chachi. They're not incorporated in Dublin or, you know, some island. I mean, look, it's a nonprofit looking to have a profitable PBC. And so all that could happen. But look, at the end of the day, these LLMs are showing constant improvement, which is what's driving, you know, companies like Microsoft to partner with Anthropic. They have that exclusive partnership with OpenAI, but now they are diversified. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Carol Masser. And I'm Tim Stenevek. inviting you to join us for the Bloomberg Business Week Daily Podcast.

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7:29you'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 home depot they cut their forecast on weak remodeling demands i'll have to check in with john tucker to see if that is in fact the case because he is like the do-it-yourself kind of guy. Really? What has he done in his house? He does everything and like big jobs that take a long time. Like he does the rebound in the bathroom and he does plumbing. He does all this stuff.

8:03He complains about lumber, that he can't get good quality lumber. He's got a guy that he goes to. It's like their model customer. Yes, exactly right. He's the guy. So let's check in with that. Drew Redding, he covers all the home builders. He covers all the stores that cater to the home builders like Home Depot. Drew, Drew, thanks so much for joining us here. What did Home Depot say about their customers? So they came in with the same store sales growth of about 0.2 percent, which missed consensus. This quarter, that was largely due to weather. Last year, they had pretty significant gains from storms.

8:36This year, that wasn't replicated. So that had about an 80 basis point impact on the comp. And that's important because if you back that out, the underlying business has been relatively stable with about a 1 % comp. So underlying trends, still pretty stable. I think the bigger problem is that last quarter, they said that they had expected to see an acceleration in demand in the second half, and that hasn't materialized. We have gotten the pullback in rates, but that hasn't translated into better housing activity. Yeah. And the problem there is that customers are deferring their large purchases.

9:12Demand has remained steady, but it's definitely not picking up at the same time. So when people are undertaking some kind of home renovation projects, they're just doing it at a smaller scale. Does Home Depot still benefit from those customers? Sure. And that's what's driving a lot of the demand for the home improvement retailers. It's smaller ticket projects, you know, maintenance oriented type stuff, which is a huge part of their business. But to your point, to really see, I guess, the turning growth, what you want to see is a resurgence in those big ticket categories. Now, big ticket spending was up 2.3 % in the quarter, but that's more reflective of single item purchases.

9:52So think about things like appliances, power tools, gypsum. They also are taking share in the larger pro market, which is aiding the mix a little bit, but it really doesn't reflect an increase, as you mentioned, in big ticket projects such as kitchen and bathroom models or flooring projects. And that's really what we want to see turn and will likely drive the next leg of growth next year. So I ask about that big ticket items versus smaller projects because I wonder what this means for competitor Lowe's. Lowe's shares are down today, but only by about 1.3 percent versus Home Depot's 4 percent. And I wonder how much you can extrapolate from Home Depot to Lowe's, which will be reporting on the 19th before the market opens.

10:33So that is tomorrow morning. Yes, so for Lowe's, we're expecting to hear pretty similar commentary that we heard from Home Depot today. They're operating in the same environment with a weak housing backdrop, more cautious consumers. The main difference between the two businesses would be Home Depot's greater exposure to the professional contractor, which is 50 % or more of sales compared to Lowe's at about 30%. So we have seen on a relative basis more weakness among the DIY category with particular strength and pro. So really, that would be the only difference. But I think by and large, the sentiment is going to be that consumers are taking on more caution because they're increasingly worried about the outlook for the economy, the outlook for their job.

11:18And that's causing them to defer spending on discretionary categories. How about tariffs? What are the companies saying about tariffs at Lowe's and Home Depot? like tariffs on wood, hammers, I guess? I don't know. Sure. So not a whole lot of discussion this quarter. I think, you know, given Home Depot and low scale, I think they're relatively well positioned to kind of navigate this environment with their suppliers. That being said, they're certainly not entirely immune. They kind of shifted their stance on their pricing strategy earlier in the year. They said that they wouldn't be raising prices, but as the situation in the landscape continued to evolve, they said they would be raising prices selectively.

11:56We did see that, I think, a little bit in the average ticket this quarter, the growth in that. But we don't really know at this point what the demand impact has been. There was a lot of noise in the quarter, as I mentioned, with the weather. So tariffs will certainly be something to watch, particularly since we just heard some new tariffs being introduced on lumber imports and as well as kitchen and bath cabinets, which increased significantly as we get into next year. So not a huge impact at this point, but certainly something to keep an eye on. OK, definitely. I'm curious, how much does Home Depot and Lowe's mirror what's happening in the housing market?

12:32Because when it comes to housing, of course, the affordability crisis is, you know, the big thing that's keeping it frozen. Mortgage rates are have come down, but they're still really elevated compared to where they were during the pandemic. Inflation is capping spending on big projects and overall home prices remain really, really high. so people just can't move and they're stuck in place and they don't necessarily want to spend more than they can afford. No, it's a great point. Housing is extremely important to Home Depot and Lowe's, as you would expect. The housing market has been stagnant.

13:07We're running about a$4 million annualized sales pace. That's about 25 % below normalized levels. We know that when people list a home for sale or when they purchase a new home, there tends to be increased spending. Movers tend to spend a lot more than people who are already in their house. So they're certainly losing that piece of the business. I think one of the interesting things to keep an eye on looking forward is home prices. Home Depot and Lowe's have historically told us that that's probably the most important aspect of the housing market to them. And, you know, as we well know, since 2020, home prices are up 50 percent or more depending on the market.

13:43So owners have picked up a lot of equity. But what we're starting to see now is prices rise at a much slower pace. And in a lot of key housing markets across the country, we're actually seeing year over year declines in home prices. So when you start to get declining home prices, that hits at that confidence aspect. If you think the value of your property is falling, you're less inclined to invest. So it's something they called out. You know, it's not necessarily something we've seen at the national level. But if you look at particular markets around the country, it's something that's starting to happen.

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15:32Way, way back in the day, Chase Manhattan Bank, credit training program, exhaustive program. At the end of it, you had to do like a big project, pick a company and do like a detailed credit report on it. My company was Medtronic. The device maker, the medical device maker. Exactly right. So I knocked him dead, by the way. It was killer. Anywho, the stock's up 4 % today, some good numbs, 52-week high. It's good to be in the medical device business, I guess. I don't know um so we'll check it out uh matt hendrickson hendrickson joins us here senior medtech analyst uh he's based in jersey but you're in the big town today yeah commute in every day you come in every day yeah nice good for you that's what i'm driving too what oh yeah you drive to where uh parking lot right out there dude and you do the congestion pricing i have to yeah where do you drive from well ridgewood so we have trains dude i know but the secaucus junction it's always a mess Oh, my God.

16:31What a knucklehead. All right. Matt, thanks for joining us here. I have some serious problems with your commuting strategy. Talk to us about Medtronic. What's going on there? Well, you know, let's take a step back 12 months ago. They had a lot of promising products in the pipeline. The question was execution. And what we're seeing the last few quarters is you're starting to see some of that execution. So when they raised their organic revenue growth guidance by 50 basis points today to 5.5%, that was driven a lot by what they call their cardiac ablation segment. This is new technology that's being used to treat atrial fibrillation.

17:08That segment alone grew 71 % year over year. So having that off a billion-dollar revenue run rate is what's driving that kind of growth and is what is expecting to accelerate that growth going into fiscal 2027. 71 % is going to get bigger? Yes, they actually said that. And we actually, in our follow-up questions with them, we asked, just to confirm, are you going to accelerate that 71 % growth in their fiscal third quarter, which is the one coming up? And they said yes. And it's basically the adoption of, without getting too technical, it's called pulse field ablation. And it's a new way of ablating the heart to treat atrial fibrillation.

17:48Does it have a main competitor in this space? Yeah, so it's kind of turned into a duopoly right now between Medtronic and Boston Scientific, the ticker is BSX. And what you saw this quarter is Boston Scientific was in first, and their growth in the quarter was 60%. So Medtronic is highlighting that it was actually growing faster in the quarter than Boston, its main competitor, was. how's in these medical device companies like medtronic and how are they dealing with with this administration and i don't know tariffs regulations what's the backdrop for this for the sector of the healthcare space yeah so if you look at broadly it should be more insulated than some of the other kind of import export type of businesses um procedure volumes um remain steady devices that are used in the U.S.

18:39are mostly built in the U.S. There's some caveats here and there. So it's overall relative to the broader market minimal. Medtronic highlighted that, you know, the worst quarter is going to be coming up this, their fiscal third quarter, which ends in January, a little bit worse in the fourth quarter that ends in April. And then, you know, they haven't gotten too much into fiscal 2027, but they said it should be incremental. Overall, it should be about$180 million to the overall net income. But that's talking about a company that's making$30 billion plus in revenue per year. What I noticed as well is that Medtronic has, as one of its biggest investors, Elliott Investment Management, the activist investors.

19:21And yeah, they've become one of the biggest shareholders earlier this year. And they've made some changes, adding some folks to its board as independent directors, presumably ones that Elliott finds favorable. What does this mean for that relationship? Is this an antagonistic relationship or is it something that's a little bit friendlier? I would just say more it's a friendlier type of relationship. And I think it goes back to what I was talking about 12 months ago when we were looking at a company that had all these promising developments in the pipeline and they just couldn't get that revenue growth from the 4 % to 5 % up to that 5 % to 6 % where we're seeing now.

19:59Now, the question is how much of that is behind the scenes Elliot's making a push or just the fact that the management team just needed that extra time to get that initial acceleration of the growth just internally. But, yeah, they came in, I mean, honestly, at the right time with kind of at the when it was down, you know, more than 20 percent. I'm not used to seeing a potentially friendly relationship between Elliot and the target companies it targets. Yeah, exactly. Good point. But maybe it's working in this particular case. Matt, thanks so much for joining us. Appreciate it. Matt Hendrickson.

20:30He's a senior med tech analyst, Bloomberg Intelligence. He of the questionable commuting strategy. We'll discuss that a little later. What would you do if you were him? I'll train, dude. I mean, I live in New Jersey for that reason only. Is that New Jersey Transit or is that another one? Yeah, but he lives in Ridgeville, which is beat for no rail service. You got to go to Secaucus. You're kind of almost supporting my thesis there. Yeah, but you don't come into the city. I mean, there's a river there. The problem is with the driving into Midtown. Yes. You go to Secaucus, you hop on a train, you're in.

21:00And then you're done. Drive to Secaucus. No. Or I do my 530 commute, too. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you fascinating conversations with the people who shape markets, investing, and business. CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, everybody that affects what's going on in the market, whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations. Sometimes it's behaviorists like Dick Thaler or Bob Schiller.

21:46Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short and Moneyball. Regardless of the conversation, these are the folks that move markets each week. That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify or wherever you get your podcasts.

22:13you'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 amher sports that's solomon they got the solomon best buy company right best bindings in the world i think i've had i've been skied on solomon bindings for like 40 years uh but they have lots of other stuff wilson sports and all that kind of stuff they had some pretty good numbers today i mean you know raising their guidance for the third time this year so i don't know the consumer seems i think in the k-shaped economy they serve the upper leg upper part of the k all right that's the place to be abigail gilmartin joins us here she is the footwear and athleisure analyst i don't know what athleisure is uh for bloomberg intelligence she's a proud spider university of richmond spider oh that's how i didn't know that that was the yes it is it's very unique isn't it i can't wait to see what that t-shirt looks like Oh, it's a big spider.

23:08Yeah, we'll get you. We'll get one for you. I got my 40th anniversary at the University of Richmond coming up this year. Are you going to go? Damn right. I am going. I might actually join the committee to force me to kind of go. So I'm on the committee. I'm in charge. I'll be dialing for dollars, getting people to come. And Abigail, she's a spider. So talk to us about AMER Sports here. I don't think a lot of people know them too well. Yeah, no, because the brands underneath it is Arcteryx, which is their outdoor performance brand, as well as solomon and wilson are their three biggest so i think today was a big day for them they did really well um you know sales up 30 broad-based strength across regions across channels and across brands i think the key thing people are looking for was china um arcteryx recently had some controversy in china with a fireworks display in the himalayas that a what uh fireworks display displayed fireworks in the Himalayas um Arcterics for set off fireworks exactly it was definitely a misstep for an outdoor brand that's really focused on sustainability and there was definitely some concern that there would be a little backlash in China there's definitely a lot of people upset about it and they were fined by the Chinese government and working to restore the ecology there but greater China was up 47 percent momentum is continuing into 4q so i think that was really a big takeaway um just quelling investors concerns about potential backlash in china especially because they're the number one outdoor sports brand in china or tarix so i had no idea that they have such strong brands i mean amer sports on its own is is kind of it doesn't it's not memorable the name the parent company name right but the brands of course are solomon arcteric so wilson as you mentioned what does the tariff picture look like for this company?

24:55Yeah, I think it's very similar to most of the other companies. I think for them, what benefits them is their premium positioning. They're able to raise prices and they're not seeing any backlash from consumers or pullback. They're still seeing very strong full price sell through. So they're able to offset some of those tariff costs with that, which I think is really helping. And we're seeing that with a lot of more of the premium brands are able to kind of navigate through the tariffs since our consumers are willing to pay a little more. Upper K of the K-shaped economy. I guess. I know. That's, I guess, where you want to be there.

25:29Talk to us about the footwear market here. I think, you know, Nike, Adidas, all that kind of stuff. What's going on there? Yeah, I think, you know, we're in store for a very interesting holiday season. I think that we're going to continue to see the premium brands continue to do well. On Holdings recently just reported and did phenomenal. And they also said they're not seeing any backlash on raised prices. And they'll continue to do, you know, limited discounting through the holidays. So we may see some differences between the two companies. But we just had our recent BI survey and Nike continues to lead.

26:05I think there's been concerns over Nike, but they still are the major shareholder and still the favorite brand of millennials, Gen Z's, everyone for the holidays. So they should continue to do well, too. What is Amerisports distribution strategy? Do they have a DTC offering or are they going through third-party retailers? Yeah, that's a great question. So it's a little different for each brand. For Arcteryx, they're leaning a lot more into DTC. They've changed their distribution strategy from basically 80 % wholesale to 80 % DTC over the last three years. And they're really focusing on growing their store base because I think not a lot of people know about Arcteryx.