Oracle Delays Some Data Center Projects for OpenAI to 2028

0:01Bloomberg Audio Studios Podcast 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. Big story in the tech space today. Oracle with some news out there talking about maybe pushing back some of their rollout. It's been a little bit of a headwind for just the last several trading sessions for some of these AI names. Oracle stock off 5.8 % today. Joining us is Anurag Rana, Senior Tech Analyst for Bloomberg Intelligence.

0:43Anurag, what's the latest from our friends at Oracle? Yeah, from what I just heard is that they are having some delay in getting the data centers online. And as we know, if the data centers don't come online, the servers are not lit up. You really cannot transform that big backlog into sales. And I think that has been a big concern for everybody. This just shows that it's not going to be a linear line to go from funding to get the data centers lined up and then recognition. So I think that's a hiccup for them. In our calculations, it does impact that F528 sales, but not the ones that in the next, let's say, 12 months.

1:20Now, Anurag, Paul and I were noting earlier that the delay seems to be being cited to labor and material shortages, right? And so could you just break it down a little bit for our listeners? What actually is involved in this data center build-out? And why is it so subject to the potential for delays such as this? See, it's no different than building any manufacturing factory or anything else. I mean, you'd have labor. The biggest bottleneck right now for everybody is power. So let's assume that these big vendors have figured out they found like somewhere in Wisconsin or somewhere in Atlanta, they found a place where they have enough power.

1:58Then you got to go out and build a data center. Cooling equipment, labor, all of that stuff that has nothing to do with technology is the one that is needed for the next, let's say, two years to get the data centers up and running. Then you got to put the chips in there and then finally realize that revenue. Is there a backlog that they quote? Give us a sense. Is that a good number, do you think? Is that representative? Oh, it is absolutely spectacular. That number is$500 billion. And out of that$500 billion,$300 billion, over$300 billion is from OpenAI. So if you go back a few years, this backlog was, to be honest, immaterial or not much.

2:36But what has happened is OpenAI has this absolute need to go out and build capacity so that they can do both inferencing for a lot of the workloads that are coming in. But more importantly, they can train their models so that their next generation models are better than, let's say, what Google has produced. So it's an important, you could say, strategy for them in order to get that data center up and running. And for now, they have been partnering more with Oracle than anybody else at this point. Stay with us. More from Bloomberg Intelligence coming up after this.

3:13You'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. The tech story, there's a couple of tech stories here. Oracle pushing out some of their plans. Broadcom putting out some numbers that the street, a little bit disappointed in. So it's kind of contributed to some solve and some of these broader tech names. Let's break it down with Kujan Subhani. He is Bloomberg Intelligence Senior Semiconductor, and let's start with Broadcom.

3:46Can you break down what's going on over there, Subhan, Kunjan? Yeah, I mean, look, fundamentally, it was one of the great and very strong AI semis report this quarter. I could not find a lot wrong in the numbers. I mean, they upsided their AI revenue numbers by 20 % above the street for next quarter. They even guided their backlog or provided their backlog, which as of today would imply an upside from street numbers for the next year, even the next 18 months. So I don't know what better they could have done. This, by the way, backlog is like the baseline that they could continue and building to that backlog and hence moving the numbers up.

4:29As of this morning on the street, if we look at it, all the numbers up for the next year and the next two years have gone up, especially for the key area, which is their AI revenue. So nothing wrong fundamentally here. It just seems it's just that state in the market when it comes to AI valuations and AI sentiment that sort of no good news is good enough right now. Yeah, well, Kunjan, a lot of attention being paid to that$73 billion backlog that you're mentioning. It seems like the market isn't really rewarding Broadcom for that. But what does that actually tell us about the demand for these products across the semiconductor supply chain?

5:07Yeah, a couple of things. Look, one thing we are all aware of, which every AI accelerator company, whether it's and media, AMD, Broadcom, or Marvel is enjoying is the rising capex from all the hyperscalers and the cloud guys, which is a very well-covered story. But specifically for someone like a Broadcom who does the ASIC custom accelerators for the likes of Google, Meta, Amazon also has their own chip, but that's not what they work with Marvel on that. The demand for these chips is rising much faster. So even if there were some concerns that how long can the hyperscalers keep rising their capex spending, that doesn't directly impact ASICs, which Broadcom supplies, because the hyperscalers are continuing to move their workload on ASICs.

5:53And this is a very small scale when you look at the entire like 500, 600 billion dollars they are going to spend here. I mean, 70 billion over next 18 months where they're going to close to spend trillion bucks is nothing. It's change. Kunjan, you talk to institutional investors all over the world. has the conversation changed at all in the last two to three weeks, perhaps a little less bullish? Are people concerned about some of these short-term sell-offs here we've seen recently? I think the aura, there has been sort of a saturation or, you know, there's like how much can these numbers and guidances keep going up?

6:32I don't think the sentiment has changed towards bearish. I think there's much more cautious optimism now coming in. So like people are trying to be very careful. Also, remember, it's that time of the year where you've sort of captured the numbers for the year mostly, right? So you're not going to get a significant upside in the remaining time. So people are just getting ready for the next year and sort of going back, looking at where they can trim exposures and where they can sort of book profits. Yeah, well, a lot of other news out there today related to AI Kunjan. Let's talk about this Oracle news delays to some data center projects for OpenAI to 2028.

7:09And we're seeing the market roll over on this. What can you kind of tell us about, you know, the state of this industry? On the one hand, a lot of promise there in the data center space, but also seems like a lot of kind of volatile sentiment related to it as well. Yeah, I mean, look, there has been a lot of impact with the open air deals also for NVIDIA, also for Broadcom. Similar thing maybe investors didn't like if you were trying to really find flaws last night from Broadcoms Learning was they mentioned the OpenAI revenues for them will now start in 27 and some folks were expecting those revenues to start coming in late 26.

7:47So a lot was driven by initial hype which these programs take many years so it's very difficult to pinpoint two years ahead in time like this is the quarter when all the build outs will start and everyone is starting to get material revenues. As we are getting closer to that time, we are getting more clarity on whether will it be a 27, whether there will be 28. We don't see fundamental flags in this new time milestone movements. It's just we are getting more clarity. And initially, it was just a lot of goodness being priced in, which is now being adjusted. This is, in my mind, a classic over-promise and now under-deliver.

8:25You're supposed to do the exact opposite. Yeah, maybe we'll have these things around 2030. Then you look like a hero if you come in at 2028. Because Oracle's saying that the delays are due largely to labor and material shortages, not like some technological, you know, headwind that they can't get around. So Kujan, is this just maybe a little bit of the market in general, your technology market, investor base, just kind of taking a little maybe money off the table, just stepping back a little bit and maybe waiting for the next catalyst? There's definitely that. And like I said, is that time of the year where taking some money off the table makes sense, right?

9:01Like, I mean, look, if you're a portfolio manager right now, there's no, again, you've already covered significant amount of good rewards and performance through the year. You don't want to lose that, right? Even if your underlying key fundamental convictions have not changed. Stay with us. More from Bloomberg Intelligence coming up after this.

9:22You'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 about the retail space here. We heard from Lululemon, the stock surges. We had the CEO changing and maybe suggesting some new strategy there. Poonam Goyle, she's a senior U.S. e-commerce and retail analyst for Bloomberg Intelligence. She's based down there in Princeton. Poonam, what do you make of Lululemon? What did you learn in the earnings and what do you expect to see from this change in the C-suite?

9:57Yeah, so there's a few things. So earnings for the quarter showed strength, but the guidance was weaker and the strength really came from outside of the US. So we're not surprised that China is strong. China has been a strong point for them for quite some time. The issue is still the US domestic. The domestic business is weak and continues to be weak. And we think it's a function of just lack of differentiation, product innovation over the last few years. And the biggest news yesterday, quite frankly, was the announcement of Calvin McDonald stepping down as CEO and the search for a new CEO for next year.

10:34So I think investors are excited to see new strategy, new vision, to see who can run this ship back to sail because Lululemon has lost ground in recent years. You know, Poonam, yeah, it's interesting that you mentioned a lot of gains being ascribed to that leadership change at Lulu, right? But given all the other challenges of the company that you've just described, is this really going to be a material? How much does this leadership change? How much will it do to right the ship, as you say? It's going to matter, but it's going to depend on who takes the top role here, right? we would like it to be a product-led executive because we think product is key in retail.

11:20And the reason Lululemon has lagged behind and has lacked competition, especially the emerging upstart brands take some of its share, is because it hasn't stayed ahead as it once was in its product offerings. There's less differentiation and the price points are comparable. that's where i wanted to go uh punum because when i talk to people like in this studio about lululemon i hear the same thing good product but boy it's expensive is that an issue for them in terms of product placement i don't think it's an issue for them based on where they sit because if you think about the lululemon product portfolio and you compare it to a viore or an aloe they're they're quite similar now if you compare it to an airy which is um you know a brand by american eagle yes the price points are higher but i don't think the price point is the issue here i think the consumer wants to see more right we've the align leggings have been around for so long and and i love them i truly do but i also like aloe and it's just like what are you giving me to make me like Lululemon so much more?

12:36And are you giving me innovation constantly to make me try the next new thing? I think that's the big gap here. They need to put innovation back on track and they're trying, but it's just, we won't really see much of that until next year. And then when we do get a new CEO, it'll be interesting to see the vision that they set forward. Stay with us. More from Bloomberg Intelligence coming up after this.

13:04you'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 switch gears and go to the media space we can do that with keitha ranganathan she is the senior media analyst for bloomberg intelligence We've been talking a lot to Geetha about this Warner Brothers Discovery deal. It's going to be close to a$90 billion trade when it happens. Netflix is involved. Paramount is involved. And we'll get some talk there. But I'm going to start, Geetha, with Disney.

13:39Yesterday, they made a big, I don't know, it seems like a pretty big announcement, you know, making a$1 billion investment in open AI. What's the strategy here for the Walt Disney Company? It seems to be, Paul, if you can't beat them, you join them, right? Disney really is realizing that AI is here to stay. User-generated content is obviously getting a lot of traction. And so they want to be able to, I think, create this blueprint where you have, you know, they can license their characters in a safe way. It's a brand safe way. It respects copyrights. And they also get to monetize their character.

14:16So rather than being, you know, constantly reactive and defensive and fighting in court, they are this is much more proactive way for them to participate in eventual monetization of all those licensing of all those characters. Yeah, well, Gita, very interesting that you mentioned. I mean, that seems to be the key point here, right? That Disney is allowing Sora access to its IP, 200 plus iconic characters. That's a big step. I mean, there's a lot of kind of potential for the brand to be maybe a little diluted because of that. But what's your take on that? Is it able to protect the integrity of its franchises here?

14:56I think it's going to try its best to do that. I mean, what was interesting about yesterday's deal was obviously they inked the deal with Sora and at the very same time sent a season-desist letter to Google. So they're really kind of trying to draw the line around, you know, brand safety, around copyrights, you know, no violation of copyrights. So that's pretty clear. But you're absolutely right. I mean, this is kind of a little bit of, you know, letting the fox into the hen house, if you will, because once you kind of allow OpenAI and Sora to get access to all of your characters, who knows how it's going to be used.

15:29Disney, of course, is going to have a little bit of say. They are going to get a lot of those Sora content or those videos to come back to their Disney Plus platform. And I think what it really helps Disney do is, of course, get in on the moment, really kind of deepen their engagement with their younger fans, kind of build a big pipeline of new franchises, hopefully. And more importantly, really collect data in what kind of, you know, what are fans actually looking for? Do they enjoy spending time with, you know, all of these characters, creating videos? So it's really, you know, so many different things that I think Disney is hoping to kind of learn from this whole exercise.

16:09All right, Geetha, enough with that. Let's get back to the issue at hand here. any news coming out of either the Warner camp, the Netflix camp, the Paramount camp? So it seems now, Paul, that the ball is really in Paramount's court slash in Warner Brothers Discovery's court. So Paramount, as you know, has already sent that all cash bid. They are waiting to hear back from the Warner Brothers Discovery board. The deadline for that is December 22nd. But there was some reporting yesterday that suggested that Paramount is looking into potentially raising its bid by about 10 percent. So we know right now it's$30 per share for all of Warner Brothers Discovery, potentially looking to raise that to as much as$33 per share.

16:55And remember, they do have to pay Warner Brothers Discovery or they do have to compensate Warner Brothers Discovery for the$3 billion termination fee that Warner Brothers would have to pay Netflix in case it walks away from a deal. Geeta, what do you think is going on in the Netflix C-suite right now? Do you think they're sitting a little bit nervously or do you think they're still comfortable with their$27 a share offer at this point? I think they are also looking to potentially raise it, but they're not going to do anything before. You know, we see the first move has to be from Paramount. And I think I think Netflix is definitely comfortable in raising its offer.

17:32The thing that they really need to contend with is that the market is not happy with this deal. We definitely don't want to see Netflix get into this bidding war at all. There are just too many concerns from a regulatory perspective, from an integration perspective. And it really kind of, I think, muddies what was a very, very nice pure play streaming story with exposure now to legacy media. So obviously the market doesn't like it. Netflix, of course, thinks that they are playing the long game. They're kind of, you know, positioning themselves here for the future. But getting involved in a very expensive bidding war, I don't think anybody really wants that.

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