Nvidia is First to $5 Trillion

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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. Once again, you know, leading kind of the winners out there in the world is NVIDIA. Just extraordinary accomplishment today, reaching$5 trillion in market cap. There's always, always news around this story. Michael Shepard joins us. Bloomberg Senior Editor for Technology and Strategic Industries. Michael, first of all, just, I don't know, I guess it's just a number, but boy,$5 trillion suggests that this market continues to see extraordinary value in this thing we call AI.

1:54What do you make of it? Well, you can see not only in the share price, which is up well above 40 percent this year, but you really can sense the enthusiasm for artificial intelligence and all the capex that has gone into it. We're going to be hearing later today from some of the hyperscalers, Microsoft, Meta and Amazon reporting results. And they are some of the biggest buyers of NVIDIA's technology. So there is a real symbiosis and we haven't seen any slowdown from them. We'll get some signaling after the results come out in their various conference calls about what their plans are for investment in this area going forward.

2:35But at least based on yesterday's GTC event here in Washington, the big industry confab sponsored by NVIDIA, we're really getting a sense of no sign of an end to the momentum. him. And Jensen Huang was emphatic in saying that he sees no sign of a bubble coming and that he expects another$500 billion in revenue over the next five quarters tied to all of that. I'm so glad you bring that up because we wanted to play some sound from that conversation Jensen Huang, the CEO of NVIDIA, had with our Ed Ludlow, Bloomberg Tech co-host. Ed spoke with both Jensen Huang and Nokia's CEO, Justin Hotard. Let's take a listen.

3:14I don't believe we're in an AI bubble. And the reason for that is we're going through a natural transition from an old computing model based on general purpose computing to accelerated computing. We also know that AI has now become good enough because of reasoning capability, research capabilities, its ability to think. It's now generating tokens and now generating intelligence that's worth paying for. Mike, what gets my attention is Jensen Huang coming out and saying definitively that he does not think there's an AI bubble. Do you think any of the CEOs of the three companies that are reporting today, the two that are reporting tomorrow, are likely to go out on a limb and say that?

3:52You know, they have put so much into artificial intelligence themselves that they would be loath to issue any kind of a bubble warning. That'll come much more from the outsiders. The interesting thing, though, is when NVIDIA talks about AI, it is not thinking just ChatGPT and the other chatbots that we are familiar with. They're talking about so many more things and uses. And one priority for Jensen Wang is really to accelerate the adoption of artificial intelligence across the economy in a variety of platforms. It ranges from robotics to cybersecurity to business automation, all sorts of things that they were talking about and really infused all the partnerships and deals that the company was announcing yesterday.

4:40We could do a quick review, Scarlett. It's Uber. It's Lucid when it comes to transportation. It's CrowdStrike when it comes to cybersecurity. It's Palantir when it comes to business automation. So the company really is not only trying to push this narrative, but it's trying to show it as well. And they even began to talk about some of the edge case uses for quantum computing, which is another area of keen interest for investors. And it's been an area that NVIDIA has been edging toward in the past few years. Michael, there are some investors out there that are obviously a little reticent about this whole AI story and the momentum behind it.

5:16Maybe they want to tap the brakes every once in a while. And I think their argument is basically, okay, I get the big spending by the hyperscalers, but what's the return on investment again? Every once in a while, we hear from those people. Where do you think that narrative is today? Well, it remains one of the big questions. When does revenue actually become something measurable and tied to artificial intelligence use? And Jensen Wang was trying to point yesterday to, look, AI has not only the use case, but it is actually starting to pay off. The models are starting to pay off. And this is why he sees the world not being in a bubble right now.

5:54But it is something that companies will have to try to demonstrate more visibly as they release results to justify all the expenditures that they have been making on data centers and on all the technology that goes into them to power these models that they intend to use. All right. Michael Shepard, really appreciate your joining us and giving us a wrap up of what we're seeing right now. NVIDIA, once again,$5 trillion in market cap. Five trillion. Paul, that is a lot of zeros. That is. And when you see the movements in these stocks, I'm just thinking some of these big tech stocks that have been announcing these big investments with each other and CHAP, GPT, and the amount of dollars, the absolute dollars of gains and losses in the stock market every day on some of these names is staggering because you are, you know, a 5 % move in a$4 trillion market cap stock.

6:45That's real money. Right. And the spending that they're all doing on products or services and things like chips from each other, that is responsible for a big chunk of the GDP as well. So if anyone slows down their spending just a little bit or pulls back a little bit, that could have a ripple effect. Stay with us. More from Bloomberg Intelligence coming up after this.

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7:46Listen on demand wherever you get your podcasts or watch us live on YouTube. One of the earnings is out there is Caterpillar. Our good friends at Cat. Stock's up 13 % today, 52-week high. I think the market likes what they heard from Caterpillar. Let's bring in Chris Cialino. He covers all those big industrial companies for Bloomberg Intelligence. Chris, talk to us about Cat. What did we hear from them today? It was a great quarter. Despite pretty elevated expectations coming into the print, a bigger tariff headwind, Cat really delivered very solid 3Q results. It was really driven by higher volumes across all three of their core businesses with particular strength in energy and transportation again.

8:30But I think, you know, one of the more encouraging signs that we took away from the results this morning were that orders accelerated here in the quarter. And we also saw backlog improved sequentially to a record$40 billion. So we think we see, you know, above average production and earnings visibility as we begin to think about next year. Did the company say a lot about the power producing equipment, including turbines and generators that have investors excited about it being kind of a derivative play to the AI story? Absolutely. So, you know, we continue to hear more and more about AI and data centers and CAT's exposure there.

9:09Today, you know, PowerGen is probably, you know, roughly 30 percent of the energy and transportation business, roughly, you know, 15 percent of the overall enterprise. but it continues to be the fastest growing part of the portfolio. They're bringing on a lot of capacity here over these next three years. I think you'll really begin to see a step change as we move into 2027, particularly on the large engine side. So there is more of a focus and investment on the energy and transportation business, and it has become the biggest part of their portfolio. Wow. Are there other companies, or let me put it this way, Who does CAT compete with in that segment of the business?

9:49Yeah, so there's a number of different competitors, and it really breaks down relative by size on some of the gen sets. Cummins is a big one. Siemens Energy. And you also have a few other European and Asian players. But, you know, this is certainly a market that's growing, you know, pretty exponentially here. Backlogs extend several years. So we think we have pretty good visibility. least through, you know, the next three years. Does this part of the business mean that Caterpillar will need to rely more on domestic market opportunities as opposed to global market opportunities? So their footprint is the largest.

10:29The energy and transportation footprint is the largest in North America. But, you know, I think the opportunity is global. They are a large global producer that they serve, you know, essentially almost all markets around the world. I think even particularly within energy and transportation. It's like something like 100 different countries. So while I think the immediate near-term excitement is more focused here in North America, I do think longer term there's an opportunity international as well. What's the company saying about the impact, if any, on tariffs on their business now and going forward?

11:03Yeah, so tariffs were actually a much bigger headwind than we anticipated in the quarter, And even CAT, I think it kind of shook out somewhere around a$600 million headwind in 3Q. But margins were better than expected, really pretty remarkably resilient despite these price-cost headwinds. 4Q will actually see a step up in the tariff costs. And then as we think about next year, CAT's really been kind of hesitant to pull the pricing lever on a lot of tariffs thus far. We think that's more of an opportunity for them here in the near term to gain some market share. So as we think about 2026, it'll be interesting to see, you know, do they continue to offset through more cost and productivity efficiencies or do they lean into pricing a little bit more?

11:50But tariffs will step up here in the near term. And then, you know, 2026, it still remains to be seen, but I'd expect the demand backdrop to improve. So they certainly should have the opportunity to push pricing a little bit more aggressively next year. Wow,$600 million is no small change when it comes to tariff impact. And these companies are finding margin improvement in other areas, I guess. It's really amazing. All right. Thank you so much for speaking with us. Christopher Ciolino is Bloomberg Intelligence Senior U.S. Machinery Analyst on Caterpillar's earnings. And the stock right now up about 13 % trading at$593.50.

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14:01230 point gain. And part of that is because of its latest earnings report. Let's bring in George Ferguson, who, of course, covers Boeing among other aerospace defense and airlines companies for Bloomberg Intelligence. And George, I thought Boeing was in turnaround mode. Did the report, did the latest earnings back that idea up? Yeah, I think it did. So, you know, what I saw from earnings today is that the commercial airplane business had about a$430 million loss when you back out that about$5 billion charge for 777. I think that number was a bit better than consensus, a little bit better than what we were looking for.

14:39I think it's another sign that commercial airplane is getting closer to break even. And then in the cash flow statement, Boeing was cash flow positive at an operating level and free cash flow. It was about a billion dollars in the operating level and free cash flow of a couple hundred million. I think that's above where consensus expected it. We saw$5 billion in inventory get unlocked during the quarter, meaning Boeing has been sitting on something like$90 billion in inventory. I think it's like 87, I think was the exact number. And that came down to$82 billion because they've been buying from suppliers, putting things on shelves as they try to keep the supply base healthy while they've been going through some of their challenges here.

15:28And now they're starting to take that, you know, that inventory off the shelves, put it into airplanes. That's going to that's going to hyper drive some of the cash generation of Boeing as they bring that inventory, I think, down to probably a 60 or 50 billion dollar level. So I think those are both big positives. And the charge was largely non-cash for an airplane that I think is still very competitive, just gets delayed a bit. All right. How about the deliveries of the 737? What's the guidance there, George? Because we know that's the big cash driver. Yeah, so Boeing's kind of out of the game of giving guidance right now.

16:05But they said the FAA has allowed them to go to 42 a month build rate, which would be above what they've done in the last quarter. I think we've got them modeled at about 44 or 45 per month for the next three months. That's because there's still some inventory airplanes they'll deliver as well as what they're building. Just heard Kelly Ortberg say on the call that he would anticipate sort of cranking up those build rates from 42 in increments of five every six months, no sooner. But obviously won't break unless they feel like they've got things stabilized. So I think we've got a path here to higher build rates over to the end of the decade.

16:50So, you know, I would expect that as they get a year down the road here, we'll be probably break even in this business. Or, you know, maybe a little bit longer, but I think we'll be break even in that business. And again, that's, I think, all part of the turnaround is getting 737 to perform. That's going to be the financial driver. So Kelly Orberg has now been CEO for just over a year. He started in August of 2024. I can't believe it's been that long already. I know. And a lot has happened, clearly. And what I didn't realize is that Boeing is still facing some labor issues. St. Louis area machinists still strike.

17:27They've been striking for more than three months. What does this say about Kelly Orberg's leadership and what kind of grade would you give him, George, for his leadership so far? Yeah, I mean, I'd give him a very high grade. Again, I think that the biggest thing he needed to do was improve morale, improve quality, and it appears to be the case. I think the proof is, again, build rates, the FAA returning some, giving Boeing the ability to go to 42 and returning some of their ability to certify some of the airplanes. So I think I'd give it all high. In St. Louis right now, you know, St. Louis is where the defense business is centered out of.

18:12Right now, the defense business not performing great, but getting better. You know, I think there's definitely more to come in the defense business as they start building the F-47, which is the sixth generation fighter that they won. But that's still some preliminary work. My guess is that the sides are still a little bit apart on, you know, where they want to be for an agreement. And it's not as critical to get those folks back to the production lines as it was to get commercial 737 machinists back to production lines. So he's probably doing the right thing for the business here and making sure he can get an agreement he can live with, especially in defense where it's harder to bear increased costs.

18:55And again, I'd give him high grades. I think the company's at a turnaround right now and doing well. George, about 30 seconds left. We don't talk about the 777 much. How does that kind of figure into their portfolio and into the economics of Boeing? When it finally gets certified, it'll be the biggest airplane in production. So it kind of replaces 747 and A380 as the queen of the skies. A350-1000 is the closest competitor. It can't be as densified. It can't have as many seats inside it. So I think you'll find a seat cost advantage in the 777. It's got core customers in those Middle East carriers, those Asian carriers that are the big sort of east-west connectors.

19:42And I think it'll be fine. I think the delay won't hurt its ability to be sold. And it's already got 500 in the backlog. All right. I'll put my order in for the surveillance. Triple 7 for Tom Keen. My favorite. You know, he'll need one of those. George, thanks so much for joining us. George Ferguson, senior aerospace, defense, and airlines analyst. If it flies, George covers it for Bloomberg Intelligence. That's kind of how I think about it. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

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