Oracle Falls Most in Six Months on Mounting Data Center Costs

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1:54Scarlet Fu:Bloomberg 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. I thought the story for tech companies, if you spend CapEx, that's a good thing. Once upon a time, it was. Yeah, I don't know, but I guess things have changed a little bit. Oracle Corp. shares declined in pre-market trading after the company reported quarterly capital expenses that were higher than estimates.

2:33And it's, boom, it's trading down 10.9 % here today. I mean, this is a big company. It's got a half a trillion dollar market cap. So, I mean, we're talking some real money here. Anurag Rana, he can explain this to us. He's a technology analyst for Bloomberg Intelligence. Anurad, what's going on with Oracle today? What did the market not like? I think one of the things you have to think about it is there isn't unlimited capital in the world, frankly. I know everybody is funding data centers. But one of the things Oracle is also doing is when it's going to raise capital next year or even this year, it's going to do some equity offering and it's going to do some debt offering.

3:08So it looks like next year there's going to be more equity dilution by them raising at least$20 billion, it's going to be most likely more than that. And I think that is something that everybody needs to grapple with because we understand there is infinite demand, but we don't know if there's infinite demand for capital also at this point. That kind of goes to what I was thinking. When we hired Rob Schiffman years ago, who's one of the top tech credit analysts, I'm like, what are we hiring a tech credit analyst? They don't issue any debt. Boy, was I wrong, Because now they're in the market. Yeah.

3:43Scarlet Fu:And now in many ways, even credit investors are overexposed to tech debt. So when it comes to Oracle needing more capital, how are these I don't know, how are how is the fundamental performance going to affect how it and when it seeks that capital, whether it's equity, whether it's debt? So they have raised debt this year. They're saying they're not going to do any more debt raise in 2026. It's going to be most likely a next year affair. But remember one thing in this case. They have said that they will maintain good credit quality out there. So they have to be very cautious about that. So Oracle is a name.

4:21It has backing off, obviously, not just Larry Allison, but also a very strong, fundamentally cash-rich software business. And I think that helps out. But to be very frank, the numbers we are talking about is no longer$10,$15 billion in CapEx. We are talking about 70 billion and north of that. So this is, you know, the CapEx numbers just keep on getting bigger and bigger. And, you know, your industry technology, software in particular, Anurag, has historically been characterized by tremendous amounts of free cash flow. That's no longer the case here. How long is that going to be the case for your world?

4:59So the fun part is this has been bifurcated into two different groups within software. One is that's dedicated to AI infrastructure. So that's Oracle Cloud Infrastructure, CoreWeave, and Nebius, and those guys. The other companies, which are Salesforce and Adobe and those, they're still pure software. Their CapEx is not going at that same rate, but they have a different risk, which is getting disrupted by AI. On one hand, the other group is benefiting from AI buildup. The other one is under threat. So there are three or four dimensions that you have to play with right now. It's no longer an easy case that just buy the software names and it's going to go up.

5:41Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

6:05This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. deep in the work that moves the business. Let's create smarter business, IBM. Support for the show comes from Public.

6:41Public is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins, or the S &P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on public, you just type in a prompt and their AI screens thousands of stocks and builds a one-of-a-kind index.

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7:53Scarlet Fu: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. SpaceX IPO pricing after the close tonight, ready to trade tomorrow. Lots of headlines crossing the tape. SpaceX IPO said to draw more than$70 billion in retail orders. And remember, SpaceX said that it was going to allocate at least 20 % of its IPO to retail investors. And also seeing a headline, SpaceX said to allocate less than 10 % of IPO to international orders.

8:31That's a little bit unusual here. So we'll get the same price tonight and get it trading tomorrow. And that should be, will be the largest IPO of all time by far. George Ferguson, he's a CEO in Aerospace Defense and Airlines Analyst for Bloomberg Intelligence. He's been writing research on SpaceX on the Bloomberg Terminals. So if you want to get full research on this company, this transaction, go to BI and go on the terminal and that's where you'll find it. And George has been the analyst on that. George, what are you hearing here as we approach the end of this roadshow? What have you been hearing back from clients, how they're maybe just looking at this company, positioning this company?

9:05Because there's a lot going on here. There is a lot going on. And so I think what we're hearing from folks is that there's still, I think, a bit of a dearth of information. You know, people are looking for, I think, decent models on the near term to get their arms around it. I think, you know, the challenge here is really this is a long term play on AI and XAI specifically. and I think, you know, when you're all done, I think you, I don't know if you close your eyes and sign on the dotted line or whatever, you go on a trip with Elon Musk for AI and connectivity into space. Yeah, I'm just looking at the FA function and there's some analyst consensus numbers out there.

9:51So just calendar year 25, about 19 billion of revenue. Calendar year 26, The forecast is for close to$30 billion. Calendar 27,$48 billion. And calendar 28,$63 billion. So some serious revenue growth there. How are investors kind of valuing this thing? Is this a multiple of revenue? Because there's not a lot of earnings yet. So for all the businesses at Bloomberg Intelligence, we undertook our analysis based on some of the parts. and every single one of the businesses was valued based on revenue, right? So I based Launch on revenue and I used Rocket Lab as its nearest peer. Multiples there at Rocket Lab are 70 times revenue.

10:38I mean, that's no pun intended. That's astronomical to what I'm used to in the aerospace world. John Butler did it on the connectivity piece. he's again using revenue although that's one business where they're going to make some profit i think uh you know we're going to put out a model next week um i think john's looking at sort of four billion kind of profit out of that business but then the ai business is the is sort of the the big sucking sound in the middle of this and that's going to be i think a loss for the year a big loss i think it's something like eight billion mandeep singh uh leading the charge on that side of it again valued it on revenue look we don't think it's going to be profitable for at least the next couple years the question is how far out you you want to take your model i think again the ai business would be heavy in the investment phase and so you're just not going to see profitability in that business i think your connectivity business um you know you you will see profitability out of that business but that's a little bit of a you know your it's competition with terrestrial providers.

11:46The product is valuable, but it's got more latency, again, than the terrestrial providers. So it's a growth business, but not an exponentially growing kind of business. And the launch business is a bit flattish. So I think it's really all about how you think about AI, long-term investment in data centers and getting into space. The launch business is really about lifting it into space. as cheaply as possible, and that's Starship. Now, they're going to be raising$75 billion at the price in this IPO. I got a sense just thinking about these businesses, George, and looking at their capital needs, that they're going to need more money.

12:28How do they expect to finance their growth going forward? Is this more equity? Is it debt? What do we know? Yeah, my guess is that you're going to have to see more equity because, again, you're inside businesses that aren't really generating, well, not even really, aren't generating sufficient cash for investment. So I feel like they're going to have to come back to the equity markets. You could try to pile a bunch of debt in it. There's not much in there right now. Not sure how you'd support it, right? So I think, I feel like you're going to be back for that, right? So I think some of these AI businesses, this is a little bit out of my space, right?

13:01Mandeep does it more. I think it's all about, look, get what you need now to keep your investment going, to try to stay in the lead on AI. and then figure out your financing as you go, right? It's not, you can't look too far down the road. These are big numbers, I think. So before we let you go, George, I mean, it really comes down to Elon and AI. If you believe in both of them, you kind of close your eyes and jump in. I think that's exactly it, right? The valuation, again, is much larger than what I'm used to dealing with in aerospace defense. It's a very large valuation. Elon's going to have the majority of the B shares, which are a 10 vote compared to one vote for the A shares.

13:43Yep. I think you're going on a trip with Elon. You got to believe in his vision for the future. If you're going to step into this and you're not looking at valuations intensely.

13:53Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins, or the S &P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria.

14:32But on Public, you just type in a prompt and their AI screens thousands of stocks and build a one-of-a-kind index. You can even backtest it against the S &P 500. Then you can invest in a few clicks. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market.

15:02Sample prompts are for illustrative purposes only, not investment advice. All investing involves risk of loss. See complete disclosures at public.com slash disclosures. This dog salon, operational excellence. Thanks to genius from Global Payments. Scheduling, personalized. Checkouts, instant.

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15:59Scarlet Fu:Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. These may apply to Chase Business Complete Checking Accounts. The$500 offer is available for new business checking accounts with qualifying activities through June 18th, 2026. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A., member FDIC. 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 nike um tough times there i mean you think about nike as the trailblazer for athleisure type in this country and of course the shoes and the jordans and all that but the stock's having a problem the company's having a problem so let's break it down with Lily Meyer, Bloomberg retail reporter.

16:57Talk to us about Nike. I know a new CEO came in, but he's not been able to work magic yet. What's going on with Nike? Yeah. So when the new CEO, Elliot Hill, came in, everyone was ecstatic. You know, the stock shot up and then internally people were popping bottles of Prosecco. They made a mocked up meme of the Obama Hope poster with Hill's face on it. But while he's been in the role, the stock is down now 45 percent. And he's really focused on getting the company back to sport. And that's been a big struggle.

17:32Scarlet Fu:What is his bigger challenge, getting Nike back on track in North America or getting Nike back on track in China? Because both of these are huge. I mean, the U.S. is the home market, but China was where the growth was really happening. Yeah, so in North America, things are getting better. But I would say greater China still remains one of the bigger challenges. And I think, you know, more broadly, showing up at big sports moments has been a challenge for Hill, which is what the story gets into. Explain what you mean by that. Yeah. So, for example, the World Cup, you know, is about to kick off.

18:07And first, Nike's World Cup jerseys had this design flaw. So if you look at them, the shoulder puckers up, and that's for both players and fan jerseys. And people immediately saw that. And then the jerseys, there's also been struggles to get them to retailers on time as well. How important is having the player endorsement as a strategy, as a marketing strategy, as product launch strategy? I mean, nobody did it better. They pioneered it. They perfected it with Michael Jordan. but now we see other athletes they're going different places what did they say about that how important is that yeah i don't know if they've spoken to that explicitly recently but um i think you know it remains one of the ways that nike can get in front of shoppers i think with with basketball and signature shoes i'm not sure that market is exactly the same as it was years ago but i do think getting athlete endorsement and having people on the court or on the field wearing your shoes remains a big deal um the london marathon recently adidas won with their shoe their new running shoe that's five hundred dollars two of their athletes beat the sub two hour marathon record um and so that was a huge moment for them as a brand and and still kind of shows the way that shoes show up i saw steph curry he's now doing he left underarmors now for chinese brand.

19:36Leaning, yes, exactly.

19:37Scarlet Fu:Of course, the brand that was formed by the Chinese gold Olympic medal gymnast, who was a big, big star in the 1984 Olympics in LA. Yeah, I remember watching that with my parents and it being a really big deal. And I just gave away my age. Let's go back to Nike for a moment here, because what is Elliot Hill's strategy? I mean, is he thinking outside the box? Because he's someone who, if I remember correctly, he was an intern at Nike, and he's kind of a Nike lifer. He retired and he's come back. Is he capable of bringing in like a new idea, a new way of thinking? Yeah, that's a great question. So I think a lot of his strategy has been restoring Nike to what it was prior to its last CEO.

20:18So under John Donahoe, who was the CEO before Elliott, Nike went really into lifestyle shoes. It went really into its direct to consumer channels. That's when it cut ties with retailers like Macy's and Amazon. And so I would say Elliot Hill so far has been trying to get Nike to what it was in the past.

21:04When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience. Learn more at thehartford.com slash risk mitigation.

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