Microsoft Slips on Report of Lower Demand for Some AI Tools

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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. A lot of tech stories out there, including the one here, Microsoft here. The question is, I guess the information was out earlier that multiple Microsoft divisions lowered how much salespeople are supposed to grow their sales of certain AI products after many missed sales goals in the fiscal year ended June. That's what the information reported earlier today.

1:43Microsoft, though, has not lowered sales quotas and targets for its salespeople. That's according to CNBC. They reported that on air, citing an emailed statement from Microsoft. So I don't know what's going on out there. Microsoft stocks down a little bit here. Anurag Rana, technology analyst at Bloomberg Intelligence, joins us here. Anurag, just kind of put that information reporting, the CNBC kind of rebutting it. I mean, just give us a sense of kind of AI sales, how this thing is kind of progressing, because I can't imagine there's any material slowdown in AI from what I've heard. Yeah, Paul.

2:16So when you look at there are two different elements of it, one is the AI infrastructure piece of it. Well, there is no slowdown in Microsoft at that point. In fact, that Microsoft has capacity constraints right now. But to be honest, that's not the sales quota somebody is looking at it. That just comes in because you're hosting somebody's model or you're trying to get your hosting chat GPT. The sales quotas would be for products such as Microsoft Copilot, Office Copilot, GitHub Copilot, all those products. And that's not the same for everything. There are certain products that sell better than the others because of the use case of it.

2:50GitHub Copilot, for example, because it's a coding software platform. The Microsoft Office Copilot is a good piece of software or Copilot, but it's very expensive. It's, I think,$30 per user per month. So it's not an apples to apples comparison throughout the board. One of the things that we've been talking about is even when you look at the broader tech spending, there is a big slowdown when you exclude AI. So that could be one reason that enterprise are not comfortable spending that level of money right now on those individual software pieces. The second piece could be the implementation part of it, because you're buying these sometimes this data products that you have to include in your core software or your core applications.

3:32And that may take time. So there is a lot to be digested from a macro piece. I don't think there is any slowdown. Anurag, how is Microsoft tracking against its competitors in terms of AI software? It is doing much better than everybody else. But again, with the caveat, because they host ChatGPT. This is when they invested in ChatGPT, you know, I don't know, six, seven years ago. That is part of that thing was when you're running that application, it runs on their cloud. So when you see that, you know, within a three year period, you have what, 500, 600 million users out there. When we use ShadGPT, a large portion of that revenue flows into Microsoft Cloud.

4:12So when they are the ones that have seen the first phase of the big benefit of AI, but as we have said many times before, all the other vendors will see that down the road when adoption grows in other areas of the ecosystem. Salesforce reports after the close here. What should we expect from them? Yeah, it goes back to the first piece of what I said was enterprise spending is weak. When you're looking at Fortune 2000 companies, they're not hiring at that same pace that they used to. And we will exclude AI companies from it. And that weighs on the sales of somebody like a Salesforce, somebody like a Workday, because they bill on a per-head basis.

4:55So when these companies are not hiring at that same rate, Salesforce has a tough time to grow their subscription base. And, you know, we think it is going to be very much in line with what they had last time, somewhere around 9%, 10%, which is not bad, but it's not very exciting as well. I mean, is that enough for the stock to be down as much as it is here to date? I mean, it just seems like 30 % down. Exactly, down 30%. This is a company that just has been such a great growth story. Yeah. So, Paul, when you look at last year, there was a lot of excitement when they launched a product called Agent Force, which was their answer or the AI answer to the rest of the universe.

5:36But what happened was the adoption rate has not been as strong as the initial, you could say, the demo was. So, if you look at the stock price, it kind of went quite a bit up when they first launched that particular product. Now, this year, it's not showing up in the numbers, and this is one of the reasons you're not seeing the stock recovering from that. What about Oracle? It seems like there's some worries around artificial intelligence there as well. We're looking at a credit risk gauge reaching its highest since 2009. Yeah. And that is, I think, a very, very valid question is what happens to Oracle.

6:07When you look at this entire AI bubble narrative or the framework, you know, you have the big cloud providers that are spending the most amount of money. We say when you look at somebody like an Amazon, Microsoft, and Google, they are spending quite a bit, but they have real awesome cash flow that's coming in, plus they have businesses. So even if they overbuild, they will have capacity to use it. The bigger question is what happens to OpenAI-Oracle relationship? OpenAI has said that they have given Oracle, you could say, a contract of about$300 billion to bleed in terms of sales over the next several years.

6:42They're going to first build some massive data centers, and then they're going to use Oracle as a cloud provider. The big question is, where is OpenAI going to get money from? And that's really what's weighing on that particular part of the equation. And to be very honest, there is genuine reason to figure out how is OpenAI going to raise that money and how are they going to spend? So there is some reason to be concerned, but not so much on the credit default side of it, but so much more as the estimates that are out there for the out years. Stay with us. More from Bloomberg Intelligence coming up after this.

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8:40You'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 talk a little retail. Macy's at with some numbers. I thought the numbers were pretty good. Stock's off 1.7%. So what do I know? Mary Ross Gilbert, senior equity analyst. She covers the retailer. She's the expert for Bloomberg Intelligence. She's based out there in L.A. Mary, talk to us about Macy's. What do we hear from them today with the results?

9:14So, Paul, we saw actually, I think, great results coming out of Macy's this morning. See? And so when you think about it, the stock is off. But that's because the company put out conservative fourth quarter guidance. And that's really what they always do. They seek to beat their numbers. And so that guidance came in very close. You know, at the high end, it's right around where analysts are because they already saw strong results come in from other retailers. But when we think about it, we think there's upside here. So we really view the results as, look, Macy's nameplate because of all the changes that they're making.

9:53And what that means is they're bringing in more relevant brands that are resonating with their consumer. Not only that, but the stores look brighter. There's really kind of exciting music in the stores. The store associates are more engaged with the customer. We've noticed that on our channel text, particularly on Black Friday. We saw more traffic in the store than we've seen in years past. So we think that the changes that CEO Tony Spring is making, and he's really taking his cues from what he's done at Bloomingdale's, it's resonating. It's working. And so we think this momentum is building. And we certainly saw it in the third quarter numbers with comp sales, 2.7 % for the go forward stores.

10:38And so with that, I mean, that's a big improvement sequentially. And so we think that's building, you know, going into the fourth quarter and just with, you know, the constant improvement that we're seeing there. So when most people think about the retail space right now, a lot of people think about the transition to e-commerce. But it sounds as though from what you're explaining, a lot of people are going there in person. I mean, I'm looking at Kohl's. I'm looking at Dillard's. All of these stocks are up pretty substantially on the year alongside Macy's. What are they doing in particular that's really attracting customers to come through the doors?

11:10Is it also collaborations with celebrities by chance? Yes, you raised a valid point. And it is it does include collaborations. So, for example, they Aqua, you know, they're under their Bloomingdale's brand currently has a collab going out with a designer out of Milan. And so, yes, these collaborations also even, you know, they'll have some events. But all of that is certainly drawing in new customers. And I think Macy's nameplate could certainly do more on that end. They had their first collab with their On 34th brand this year. But we think we're going to see more next year. Because if you look at what Dillard's has been doing over the last few years, and they have a different business model than Macy's does, they're not really promotional.

11:59For example, for Black Friday, they just had clearance sales and it was pretty comparable to last year. So that didn't mean that the rest of the merchandise was on sale. Macy's, you know, is far more promotional. promotional, but by doing collaborations, you know, by getting celebrities involved. So for example, for the holiday, they have Jennifer Hudson, um, that's, you know, fronting their campaign for the holiday. And they're also engaging with social influencers. So yes, all of that is, is resonating. We're seeing it with other brands, like for example, with American Eagle, which just tapped Martha Stewart and that that's appealing to Gen Z.

12:41Oh, wow. So, yeah. So these bold campaigns that these brands are doing, Macy's is also getting involved there and they're dipping their toe. I would say they're dipping their toe in the water, but I think we're going to see that increase, you know, and build as we get into 2026. And when you talk about the digital business, because of course you're always hearing, let's say, stronger growth on digital. For example, when we looked at Black Friday, you know, over the weekend through Cyber Monday, the sales strength was really led by digital. Digital was up double digits versus, you know, low to mid-single digits for in-store.

13:21So I think that's really positive there. But so when we look at Macy's, a third of their sales come from digital. So still in-store is very big, but it's also omni-channel. The ability to buy online, take back in-store, or buy online, pick up in-store. Well, when I walk to Penn Station today, I'm going to walk past Macy's, as I always do, but today I'm going to go in. Okay. I'm going to do a store walk, is what the retail analysts call it, a store walk. And I'm going to check if John Tucker's wooden escalator is still there. We're counting on you. Okay, I'll report back. Mary, just real quick, 30 seconds.

13:58What's Macy's saying about the consumer out there? Yeah, so they're saying that the lower end consumer is really feeling pinched. And that's where they're seeing some challenges on some of the price increases on their lower price point items. But the higher middle income and the higher income consumer is resilient. And they haven't flashed or batted an eye with higher prices that they took to offset tariffs. And they're still buying. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast.

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15:37You'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 continue to get some earnings from the retailers today. Dollar Tree came out with some numbers. Pretty good numbers. The street likes it. The stock's up 3.4 % today. Dollar Tree is up 50 % year to date. So a great move for that company, that stock. Let's turn to Lily Meyer here, Bloomberg deals reporter for Bloomberg News. She covers all the retail companies out there.

16:15Talk to us about Dollar Tree. What did they say here in the latest earnings? Yeah, so Dollar Tree did well this quarter. it met expectations on revenue and same store sales, and it raised its profit outlook for the year. I think they really have hit a niche in being able to capture consumers, both lower end consumers who need cheaper goods and then high income consumers who are looking to trade down. So, I mean, what do we think about elasticity of the lower end consumer right now? Because, I mean, if you think about Walmart, I used to think of this as a company that, that was a cheaper place to shop, but it seems as though it's appealing to multiple consumer types.

16:52But it seems as though Dollar Tree really is a great place for the lower-end consumer. Yeah, and actually recently, Dollar Tree has been looking to kind of break into that higher-income shopper as well. So it has this pricing strategy, so it has some products that are still cheaper, but then it's getting more products that are more expensive. what what is dollar tree saying about its core consumer out there who who is that core consumer and how are they behaving yeah so i think its core consumer is still a lower income shopper 85 of their products are two dollars and under so they really still have a lot of value so they're seeing those shoppers continue to go in but this quarter they saw traffic down and they attributed that to tariff increases see i miss when things were actually a dollar at dollar tree and dollar general she said what did you say two dollars and yeah john i remember should we change the name well john and i remember john and i remember the five and dime oh yeah and penny candy yep we're dating ourselves ourselves all right so what's the takeaway in terms of the outlook i mean you talked about tariffs still being a drag here yeah so tariffs were really dragged this quarter they said that's gonna lessen so i think this was the quarter where we're really seeing the biggest tariff impact.

18:05It'll be really interesting to see what they predict for consumers next year. I'm interested to hear about that and also what they see for holiday if they continue to see higher income shoppers trading down for gifts. Do dollar stores, do they see a surge in sales, seasonal surge in sales from holiday sales? Do they see that like a department store would? Yeah, I don't know if it's the same surge, but they sell a lot of gift wrapping and gift bags and some of those smaller gifts, stocking stuffers. So I think they see a lot of that around the holidays. So what are we seeing in terms of just the broader read on the retail space?

18:40This kind of gives us a picture of the lower end consumer, but what are you seeing across the board? So broadly, we're really still seeing consumers spend. So there hasn't been that massive pullback that I think some of us were imagining might happen. We're still seeing consumers spend, but they're really value driven. So they're looking for the best deals they can get. They're trading down when they need to. They're stocking up on essentials. How promotional are retailers right now? Because I mean, I know talking to Poonam Goyal, the retail analyst at Bloomberg Intelligence, he says, you know, the more promotions you see out there, that's going to be goes right to the margins, the profit margins of some of these retailers.

19:16What are we seeing this season? That's a good question. So this season, we've actually seen some retailers pull back on deals to protect their margin. So some companies are doing that as part of a broader strategy, and then some are having to do that because of tariffs. So, you know, for Black Friday, typically they'd offer big discounts and some are pulling back or not offering discounts at all. So consumers have still been broadly spending in the retail space. What are they spending on? Is it, you know, are we spending money on essentials right now, skipping the splurging? Yeah, yeah, that's exactly it.

19:48So this Black Friday, we talked to a lot of folks who were saying they're going to just get essentials this Black Friday. So instead of buying, you know, a Lake Crescent Dutch oven, they were, we talked to someone who instead was going to buy like three bags of 40 pound dog food. Oh, that sounds exciting. They don't have a dog. It's for them, right? Yeah. Chewy.com. Chewy.com. So really using, you know, deals to get things that they need for themselves rather than getting that big ticket item they waited for. it what i learned from talking to retail folks is omni channel retail which is you use both the online and the bricks and mortar and maybe you look at something online but then you want to go touch and feel it or maybe you order it then you pick it up at the store omni channel is that still a thing yeah yeah so we we were out there on black friday in some of the stores and you know while a lot of people have switched their holiday shopping to be online we still saw a ton of people in stores, especially at stores with really good deals and stores that appeal to young shoppers.

20:50So brands like Addicted and Princess Polly that are in malls were really flooded with young people. 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.

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22:03You'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. Let's talk a little luxury here. That's right down John Tucker's alley here. Deb Aitken, she's the expert luxury goods analyst at Bloomberg Intelligence. She's based in London there. Deb, just give us kind of a postmortem. How is 2025 for the luxury companies and maybe what's the outlook for 26? Hi. Yeah. So we started out 2025 with an expectation that we'd move back to growth.

22:45And that certainly didn't materialize through the first half of the year. But we seem to be ending at around three to four percent growth as we exit 2025. Now, the U.S. has been robust. Middle East doing very well. But particularly in the first half of the year, it was China, which was the drag. And what we've noticed as we end the year, we've actually just heard on a fireside chat over the last few days from L 'Oreal, where they're mentioning high-end beauty doing very well out of the US, but also in China, too. So they're adding to what we've heard from the luxury companies, where we've seen two thirds of luxury companies And most of the top 10 switch into growth in China in Q3 from a low base, from negatives a year ago.

23:35But actually that we're calling green shoots into the end of year. How are these companies holding up as it relates to tariff overhangs? Yeah, so we did a lot of work around May time and again through July and August with the different tariff rates moving around. And what we've actually seen, it was less detrimental overall in our numbers. We probably think that EPS won't be pulled as much as was expected because there have been some cost savings. And the biggest companies and those that were where brands were really in favor have managed to pass on price. And then generally, because these companies operate on high gross margin, the cost into the U.S., they've moved around 2 to 4 percent on additional price into the U.S., as well as 2 to 3 percent from the beginning of the year.

24:28So some of those brands have absorbed passing through 6, 7 percent pricing to the U.S. consumer. And we think into 2026, that moves nearer to 2 to 3 percent overall. So it should be less intimidating for the consumer overall 2026. So it's one of our drivers for the year ahead. Deb, talk to us about the Chinese consumer. We don't see the Chinese consumer here. I'm going to walk the Penn Station today, walk down Fifth Avenue, Madison Avenue. I'll see a lot of Europeans. I'll see a lot of American tourists. I won't see many from Asia. Are they not traveling? So is that an impact for New York and London and Paris and things like that?

25:07we actually have a survey out of our asia office that we've just incorporated into a travel document which we'll be producing but this piece of work has already produced and actually on october versus may the china consumer is looking to travel more into europe to start with so that's the first big positive i think part of that is just on the way the tariff situation has gone maybe. So that will be the first time that we're looking for them to come back. So versus three months ago, they're looking at traveling outside of Asia. But overall, what we call the China cohort, that's actually really operating more avidly across the Asia region.