Nvidia-Google AI Chip Rivalry Escalates on Report of Meta Talks

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0:41That's vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Every week, I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen.

1:20Bloomberg 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. Metapathlums in talks to spend billions on Google's AI chip, suggesting that the search giant Google has made the case that it can rival NVIDIA as a leader in artificial intelligence technology. Let's check in with an expert who's got an opinion there. Mandeep Singh, senior tech analyst for Bloomberg Intelligence.

2:01Mandeep, what do you make of this news with Meta investing and spending money on Google's AI chips? What does that mean for the space and, you know, NVIDIA in particular? Because we're seeing some big moves in the stock market today. Look, I mean, we know CapEx numbers are going up, not just next year, probably through 2028, because Meta has given some sort of a three-year forecast. In fact, Mark Zuckerberg has mentioned that they plan to spend up to$600 billion in CapEx through 2028. So when you are spending such big sums, you don't want to be dependent on one supplier. And in this case, NVIDIA still has the best chips.

2:42They probably have a virtual monopoly when it comes to the training. But on the inferencing side, I think everyone, especially among the hyperscalers who don't have their own chips are looking to diversify. And I think I'm very surprised that Meta is looking to buy something from Google, given they compete so fiercely on the digital ad side. But that's really a reflection of the changing tech stack and how these companies are evolving with AI. What is it about Alphabet and Google that we did not realize that they're making so much progress on their own chips, these TPUs, tensor processing units.

3:22It does feel like it's kind of come from out of nowhere. I know folks in the tech industry know that Google has been working on this for a while. But if you were just following along, it feels like NVIDIA had this locked up and then all of a sudden it's a little bit more open. Yeah, I mean, Google is in the seventh generation of their TPUs. So clearly they have been working at this for a while, which is the reason why the TPU has been able to catch up to invidious GPU in terms of performance. But to your point, look, the Gemini model was not comparable to OpenAI and Anthropics leading models up until the last six months.

4:01So that is what has changed that Gemini as a standalone model has been able to match up to, you know, open AI, whether it's in terms of chatbot functionality, image generation, video generation. They are a state of the art model. Maybe in terms of coding agents, they still trail Anthropics. Anthropics released a new version yesterday and they still claim that their models are better than Gemini. But if you are looking for a state-of-the-art model at the lowest cost in terms of tokens, Gemini is your best bet, which is what Meta is realizing, that, yes, they could use the low cost that Google has in terms of running their infrastructure and use it to their advantage in terms of how they are looking to deploy Gen.AI on their family of apps.

4:50So, Mandib, can you give us a sense of the competitive landscape today for NVIDIA? We know, I guess, now we have a better appreciation for Google as a competitor. Just lay it out for us and how you think it might play out. I mean, the one metric that NVIDIA shared on their latest earnings call was their content per gigawatt is going to grow over the next few years. And the reason they said is because they generate the most tokens per watt. Now, for one gigawatt, Jensen said they'll have up to$30 to$35 billion of NVIDIA chips being purchased. Think about it. If a one gigawatt costs$50 billion, any company spending$30 to$35 billion, and all these companies like OpenAI has talked about adding up to 26 gigawatts in capacity.

5:39That really translates into huge revenue for NVIDIA just from one hyperscaler. And that's what I think Meta, if they plan to add 10 gigawatts over the next five years, they don't want to be giving NVIDIA, you know,$300 billion just for the chips. They want to diversify and really make sure they're running their infrastructure at the lowest cost, which is what Google is doing. Google spent$90 billion in CapEx this year. And guess what? They have a cloud business. They have trained their new model. They're doing inferencing at scale. They're serving Search and all their family of apps with Gen.AI functionality.

6:16So they are really running it very efficiently. They're not spending$30 to$35 billion per gigawatt. And that's what everyone is seeing now in terms of efficiency. So you do a great job of explaining this from a technical point of view, from the technology's point of view. But for investors who really just understand NVIDIA as AI personified or embodied, is this just an opportunity to diversify and not rely so much on NVIDIA and maybe chase another company whose shares have not rallied as much? I think so. I mean, it's very hard to see multiple expansion in a company like NVIDIA, which was close to, you know,$4 trillion plus.

6:58And I think they're growing very nicely into earnings. They've given a forecast of up to $330 billion in revenue next year. So there is embedded growth in there. But everyone has that scars from, you know, the dot-com bubble in terms of paying too much in terms of multiple. And that's where you're seeing people really being conservative in terms of what sort of multiple they pay for a stock like NVIDIA. Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy.

7:37Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com slash audio. That's Vanguard.com slash audio.

8:13All investing is subject to risk Vanguard Marketing Corporation Distributor. Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bluebird Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy.

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9:29your podcasts or watch us live on YouTube. Let's talk some retailers. We got some retailers bringing up the rear of earnings season as they like to do. We had Dick's Sporting Goods and we had Best Buy. And let's break it all down with Lindsey Dutch, consumer hardline senior analyst from Bloomberg Intelligence joining us from Princeton via that Zoom thing. Let's start with Dick's Sporting Goods. They raised their outlook again, but I guess investors are focused on, I guess, some of the costs trying to turn around Foot Locker. Talk to us about Dick's sporting goods, Lindsay. Yes, that's right. The legacy business remained very strong in the third quarter, strong back to school, clear demand momentum heading into the fourth quarter.

10:10And that's where the raised outlook came. It was really for the legacy business. But when we look at Foot Locker, you know, the deal closed early September. The outlook for the fourth quarter is mid to high single digit. Same store sales decline. Dix is also looking to expedite the turnaround there, which means offloading old inventory, steep markdowns in that fourth quarter, which is going to really hurt the margin as well. So Foot Locker needs a lot of work. Fourth quarter is going to be weak and investors are really looking to see how quickly they can turn that business around. Yeah, and probably they'll need to put some money into it as well to reorganize stores and freshen up the display.

10:51How much of this deal, Dick's buying Foot Locker was predicated on Nike and what it was doing with this shift back to its wholesale channels and away from solely relying on its direct-to-consumer offerings and its own stores. So Foot Locker was, I would argue, overexposed to Nike several years ago. They had been working that exposure down. I think Dicks will remain focused on being diversified, just given that their own assortment, where they're leaning into lots of other brands, new upcoming brands like Hoka and on. They did discuss, though, that Foot Locker will sort of remain sort of a hub for basketball, and Nike does have a strong hold in the basketball market.

11:35So I expect Nike to be, you know, a strong vendor with Foot Locker. But Dix is looking to make sure that they have that right assortment, the newest stuff, the hottest lines coming from Nike and others. What is Dick saying about tariffs in their business? So, you know, Tara, they are going to feel higher costs in this back half of the year and even into next year. Dick's has since the pandemic, since they've been able to see sort of an increase in demand for their premium assortment, they're not really a huge discounter for the holiday. They like to sell their product fully through. So I don't expect them to sort of discount.

12:20And they have taken prices up selectively, but certainly not across the board. And their higher income consumer is sort of accepting those increases. I think Foot Locker is a little bit of a different story. And you might see that impact a little bit bigger on that business just because they don't have those premium products. and they're already going to need to offload older inventory with steep discounts. So you sort of have that turnaround compounded with these rising costs heading into the next year. Something for them to work on. Lindsay, I also want to ask you about Best Buy. The shares are up about 4.5 % right now.

12:59And of course, this consumer electronics retailer had a beat and raise quarter. It looks pretty good and it looks like it's on the usual strengths, sales of mobile phones and sales of computer equipment. Yeah, so Best Buy had a strong third quarter, better than expected, as you mentioned. I think, you know, the stock isn't getting a full bump because there is definitely some conservatism and a low guide for the fourth quarter. And investors are trying to figure out, you know, is it just conservatism? Are they just worried about the consumer? Or is there something really there that there's going to be a slowdown in that fourth quarter?

13:34But the business looks good. Demand looks strong. As you mentioned, computing, phones, gaming, all looking solid. And they're also seeing an improvement in home theater, which is really big because that has been a weaker category for the last couple of years. So if that comes to fruition, I definitely think there will be strength in the fourth quarter. So you think about a Best Buy, I mean, some of those are big ticket items here. And that would suggest that they go to a part of the K-shaped economy maybe that is doing better. Is that a typical Best Buy customer? So Best Buy, definitely promotions are going to be a big piece of the fourth quarter.

14:14They're sort of leaning into those promotional events. That's what worked last year. And I think they're trying to lean into the things that worked last year. for this year. And I do think the consumer backdrop is quite similar when we do that compare. They also recently launched a marketplace and they seem to have a stronger focus on marketing and advertising. And so they're really trying to meet the consumer where they are and make sure that Best Buy is top of mind when you're shopping for a wide array of things, not just those big ticket items like TVs or appliances. So they're trying to have a bigger wallet share with consumers across the board and they're leaning on that marketplace and advertising to do it and then hopefully get you into the store and that's where they can bring their customer service and experience as well.

15:04Did they say anything or give any indication on how they're preparing for Black Friday and for the holiday shopping season? It sounds like very similar to last year. So they They started their deals about a week ago. They roll out new deals each week. They are leaning into their paid membership program. So paid members get access to certain deals over the regular shopper. But the playbook looks very, very similar, but the demand picture looks better. So hopefully those promo events can really draw that shopper in, especially since everyone's already looking for those items. Stay with us. More from Bloomberg Intelligence coming up after this.

16:13Learn more at bloomberglive.com slash bloomberghousemiami. 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. Let's dig into some of the individual companies a little bit more here with Mary Ross Gilbert. She's a senior equity analyst covering the sector for Bloomberg Intelligence. And Mary, let me start off with Kohl's because we talk about companies that are gaining market share. Kohl's lost a lot of market share over the past five, six years.

16:50And it's coming back a bit here. What is its strategy? Is it just that it's kind of simplified its business model? Garland, what's happening here is that they've kind of gone back to the basics. What's something something that Kohl's has always been known for? So one is their private brands. So if you think about some of the brands like So and Juniors, Lauren Conrad for women, and they brought those brands back because they actually sacrificed some of those brands under the prior leadership and replaced them with some more name brands like Madden Girl, trying to really attract the junior shopper there.

17:32And now that they've brought the private brands back, they've brought back petite sizing, which was really important to their customer base. Now they're really starting to see, you know, a recovery. But they're not out of the woods yet, Scarlett, as you pointed out. I mean, they're really cycling three years of declines, but we are seeing encouraging results. And given that they actually turned positive in the latest month, it looks like they could actually reach break even in the fourth quarter, even though they're guiding to a 1.7 % comp sales decline. So it's very encouraging to see with Kohl's, again, not out of the woods.

18:12And when you look at what's going on with Sephora, it's now a$2 billion business. And as you were sort of highlighting, that means they really lost, you know, over the last four years, something like four to five billion in other categories. So they have lost market share. We think they're losing it to off price and some of the value players in the specialty space, such as Old Navy, you know, a Gap brand. Stock is up 33 percent today alone, which is a huge move, up 49 percent year to date. So it seems like the market likes what it heard here. So from a competitive landscape, where does Kohl's kind of fit in out there, Mary?

18:51So, Paul, Kohl's is really a value player in the department store space. So they're really a notch below Macy's. And they're also located off the mall, which can be an advantage. And because they brought in Sephora as a beauty authority, and beauty is a very big and important and higher margin category for department stores. So that's, sorry? You have to invest in your face, somebody once told me. Yes, you got to invest in your face. That's exactly right. Well, the idea there is that you're getting a repeat customer. They have to come back and they have to replenish product. But we did see a comp sales decline because as that business has matured, it's kind of tracking somewhere close to what the company is tracking in terms of comp sales.

19:38So we did see a decline in the latest quarter. So that's they do have a number of initiatives to try to bolster that because, of course, we're seeing gains with some of their competitors. And we think we'll see that when Macy's goes to report next week. Right. And of course, that's a big one, right, in terms of department store chains. We'll be looking for that one. And of course, you'll help us break it down when those cross. Mary, I also want to ask you about Abercrombie & Fitch. It was the darling two years ago because the new CEO found a way to make the brand relevant to a new audience. It was no longer targeting teenage boys, for instance, and really targeting young working women.

20:14But it's had a brutal 2025. The shares have fallen, I believe, more than 50 percent through Monday's close. A lot of concerns about tariffs, perhaps, and maybe even a lack of fresh ideas in terms of its offerings. When you look at the stock today, it is soaring up 30 percent on the latest earnings. What's the narrative with Abercrombie & Fitch right now? Yeah. So, Scarlett, with Agrocrombie and Fitch, their numbers came in better than expected. So, the namesake brand, as you pointed out, I mean, that had been double-digit increases over the last three years. So, they're cycling those increases, and that's why their sales are coming in less than expected, generally, for the whole year and why the stock is down.

20:59But this quarter, the comp sales decline there was about 3.3%. So, that was better than expected. and when you look at Hollister though, Hollister has been coming in ahead of expectations and they've been posting double digit increases. So as you were talking about sort of the millennial women who really love and also the men, but it does tend to favor more of the women on the Abercrombie side, on the Hollister side, which really caters to Gen Z, that has been on fire. And so that's what's helping to kind of overcome the weakness that they're seeing at Abercrombie. But also, it's looking like Abercrombie could turn positive in the fourth quarter with a number of the initiatives that they have in place going into the holiday quarter, even though they're cycling some pretty strong gains in the prior year and the year before that.

21:53So there's some encouragement there. And I think and then, of course, you have some short interest both in that stock and also in Kohl's. And that's part of the big bounce back that you're seeing this morning is some of that short covering. What we're not really talking about, Mary, is tariffs and the impact on these retailers. What's the what's the story these days? Yeah. So in the case of Paul, in the case of tariffs with Abercrombie, they expect to have a 60 million dollar hit in the in the fourth quarter. So they are being hit by tariffs, but they're discounting less, plus they have lower freight expenses.

22:30And this is something we've been hearing from most of the retailers is that lower freight costs are also helping to bolster margin. So they are going to be impacted, but probably not as badly as before, given that they've got an improvement in average price points, less discounting, and lower freight. That's helping to offset some of the tariffs. And remember that$60 million hit on tariffs for Abercrombie? That's after mitigation efforts. So there is still going to be an impact. Kohl's even brought it up, which they hadn't really brought up tariffs in their prior two Kohl's, but they did say that going into early 2026, there will be some impact there for them.

23:09And the reason why their margins have been holding up and coming in better than expected, and their margins are low. But it's because of the fact that their mix of business being more private label, which is higher margin, is helping to bolster those margins. 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.

23:59Whether 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. Sometimes 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.

24:37you'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 jm's micro company s jm is the ticker symbol um they're in orville ohio um stock is uh trading right in a hundred dollars a share it's down three percent today, down eight percent year to date. It's got a market cap of about eleven billion dollars. I didn't don't look at that company too often here, but they reported numbers. They lowered the top end of their four year guidance after the company opted to forego a planned price increase on coffee in the wake of tariff relief from the Trump administration.

25:20Let's get the latest on this name and on some of the other food companies. Diana Roseto-Pena, consumer staples analyst for Bloomberg Intelligence, It's joining us live here in our Bloomberg Interactive studio all the way from the 10th floor. From the 10th floor. Boy, that's a long walk now because you guys used to be just one floor away. We could just stop on the floor and you guys come running up to help us out. Okay. Talk to us about Jim Smuckers. This is Jelly. This is Coffee Maker. Smuckers. What's going on there? Pet food as well. You know, pet snacks and cat food. So basically, I mean, it was all right.

25:52There were some puts and takes for the quarter. There's some signs of stabilization. but it doesn't seem that it's there yet. It's similar to other packaged food companies that we're seeing in this space. It's always a second half or the next six-month story when it's going to get, you know, growth is going to happen, and it really doesn't happen. So, you know, people are starting to lose patience on that. So specifically as it relates to the tariffs, they, like a lot of your companies, they're just telling you what the number is. Yes. So what's their tariff cost, I guess, for the period? Yeah.

26:26So right now they're saying that for fiscal 2026 is going to be about 75 million dollars, even include, you know, excluding that tariff relief that they are experiencing, which is, you know, the reason why they're not going to increase prices for the third time this year. So they have been raising prices on coffee. They have been raising prices on coffee. This is a category that is very pass through category for smoker. The problem with that is that competitiveness is a little bit, you know, declining compared to private label. So they're trying to, you know, forego some of the margin, you know, recoup to be able to be more competitive.

27:10Is that what most of the companies are doing, the packaged goods companies? Are they trying to take as much as they can in their margin and then pass the rest along to consumers? Well, it depends on the category. for coffee this is definitely normal for them they tend to be also a category leader so it kind of you know they're they're you know they tend to to to say what you know what the prices are going to be but some of the other packaged food companies that we we have seen they take some margin hit they try to are not putting that on the consumer because they have been increasing prices for the past couple of years so they already think that elasticity is getting there Right.