Oracle Shares Surge Most Since 1992 on Cloud Contract Wins

0:00I don't love the word retirement because I think it has negative baggage. I like the word financial independence. If you were to be financial independent, like how would you spend your time? I think that's a better way to think about the end of life stage versus quote unquote retirement.

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1:38That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA, and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

1:57Scarlet 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. Investors are partying like it's 1999. Investors in Oracle, that is. And that's because the last time the stock rallied this much was 1999. Stock is up, as John just said, nearly 40%. You weren't even alive back then, the two of you. Oh, go on. We remember the dot-com bubble days. Never mind. So I want to bring in Anirag Vrana now, Bloomberg Intelligence Technology Analyst.

2:40He was around in 1999, coming to us from our Chicago bureau. OK, so we know that, you know, it was a blowout quarter, AI just driving things there. But I want to talk a little bit about traditional software, which is what this company is all about. And the fact that that's not really working at Oracle, but it doesn't seem like investors care today, Anirag. Yeah, so Oracle's a very unique company because it has your traditional software. But also a few years ago, it started a cloud business called Oracle Cloud Infrastructure, something very similar to what AWS does or Microsoft Azure. And one of the advantages it has is it just rents out its servers for people to go out and train their AI models or run their applications on it.

3:23So this is really a new business for them. It just came up the last few years. And that's where the biggest growth is. and that's what's driving the stock.

3:31Scarlet Fu:That's what's driving the stock, and that's probably where Oracle is driving its spending as well. What's happening with the rest of the company, its operations, its software business? Is it still cutting costs, for instance, and reducing headcount? Yeah, I think you're absolutely right about it. So the advantage Oracle has compared to, let's say, a company like Core V for Nebius is that it has a very high-margin database business and very high-margin application business. These businesses have gross margins, you know, let's say north of 90 percent. Now, when you marry that with a massive AI infrastructure business where you need to spend a lot of money, that's problematic for somebody that doesn't have that.

4:12But Oracle has that luxury that it can spend billions of dollars. You know, before yesterday, we were thinking they're going to spend, you know, somewhere in the low 30 billion range, which was already higher than what they had guided and, you know, even the street was expecting. They came out and said they're going to spend over$35 billion in the next financial year. So that's a lot of money going into expanding data center, buying chips, creating a new infrastructure to fulfill this demand. Also, we should note that a number of analysts are raising the price target on Oracle. T.D. Cowan caught my eye, raising the target to$375 from$325 a share.

4:51But when you look at the competition here, Microsoft, Amazon, Alphabet, what does Oracle or how does Oracle differentiate itself, not only for the customer, the client, but for investors? Yeah, one of the things I would say is everybody is having a good time in this particular party. It's not just, you know, one company that's gaining it. It's just the size of their business is far smaller than it is for, let's say, AWS or Microsoft. You know, in the last financial year, their revenue was roughly about$10 billion or so. AWS's run rate is$125 billion. Microsoft's business is$75 billion. Google's business is$50 billion.

5:29So, you know, please, you know, you're going to take that with the context of how big Oracle's cloud infrastructure is compared to some of the bigger vendors out there.

5:37Scarlet Fu:You know, Anurag, it feels like Oracle kind of came from out of nowhere with its, you know, contributions to the AI space and being such a big player. Certainly the bookings of almost half a trillion dollars caught my eye, and it's more than four times what it was the same time last year. Are there any other kind of dark horses out there that you would be keeping your eye on that could be the next Oracle, which already feels like it's the next NVIDIA? Yeah, I think one of the things you have to think about it is it's not easy to come up with this structure or a business like this because you need billions of dollars to create a data center or to lease out a data center, then buy equipment like NVIDIA chips and computing equipment.

6:17There are a handful of companies like, you know, CoreBeave of Nebius, which are smaller Neo Cloud players that specialize in renting NVIDIA GPUs to customers. Now, the bigger vendors have the capital that they are also expanding it. But again, as I said, given the size of the increment that they are seeing, you know, you're not getting that same growth rate. Do you think there's a little over exuberance, though, in the market today with Oracle stock up nearly 40 percent, especially with so much talk about whether or not we are in an AI bubble and what happens if it starts to deflate? Yeah. See, one of the things you have to remember is for Oracle, at least, they have this backlog of orders coming in.

6:56And it's coming, for example, one of the biggest customers right now is OpenAI. If OpenAI continues to expand revenue at a good pace over the next several years, they are going to be spending a lot of money to train their models in order to stay ahead. So I think there is a lot of relationship over there. If, let's say, you and I don't use ChatGPT as much, that would have an impact on OpenAI's revenue. That would have impact downstream revenue on all the other players, whether that's NVIDIA or Oracle. But frankly speaking, we are not there yet.

7:26Scarlet Fu:You know, I'm looking at the Mag7 members and how they're performing today. NVIDIA is up almost 5%. Amazon down 1.9%. Alphabet, which is the parent of Google, marginally up 0.1%. And Microsoft getting six-tenths of 1%. It doesn't feel like this is a situation where it's a zero-sum game. Oracle wins and Microsoft, Google, and Amazon lose. Or is it? So there are a few companies that fall into this bucket, you know. And then those include Amazon Web Services, Microsoft, Google Cloud, CoreVeve, Oracle, and Nibius, for example. So these are the ones that are seeing extra spending right now. But when you look at on the application side, whether that's Salesforce or Workday, those guys are not seeing that benefit because they're not in that infrastructure game.

8:12So there's a huge difference between the two vendors or between the two category of vendors. Right now, we are more in the build phase of AI, not the implementation phase of AI. You know, it's hard to believe, Scarlett, but this stock is now worth more than has a larger market cap than Walmart, Eli Lilly, JPMorgan Chase.

8:35Scarlet Fu:Yeah, that is pretty remarkable. And again, it feels like it kind of came from out of nowhere. You're right on that. Very recently. Which is why I brought up, you know, Amazon, Microsoft, right, Anirag? I mean, the fact that those were the names we were really talking about when it came to AI and then sort of Oracle comes out of out of the blue. Yeah, but that's the whole point. This particular infrastructure, if you're going to run large models, it's very unlikely you're going to do it in-house. I mean, you can do it, but you require a lot of investment going in. You're better off renting out data center capacity or computing capacity from one of the cloud vendors.

9:08And Oracle has the money to spend it. And they have the relationship with NVIDIA to get those GPUs. And on top of that, they are offering this to customers and saying, here's my equipment. Come and test it out the way you like it. Amazon, on the other hand, for example, sells it as a package. And that's where you're seeing some distinction on also the size, as I mentioned before.

9:29Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Over$100 trillion estimated to be transferred to generations in the next 25 years. It's both a risk and an opportunity because we see that only about 18-19 % of high net worth investors plan on sticking with their advisor post-transfer. This has to be a tough statistic for some to hear. People who work so hard trying to grow their net assets, they want to protect that life work and they want to make sure that it is able to transfer in a seamless way. Whether you're planning a big tech event, launching a new campaign or just stocking up on team gear, finding the right promotional products makes all the difference.

10:124imprint offers thousands of options, from on-trend apparel and premium drinkware to tech, totes, and giveaways, so you can find the right fit for any audience, purpose, or budget. You can customize it all, your logo, your message, your look, and many items come with no setup charge to help you save. And if you're really watching the bottom line, you'll find standout choices at every price point so you can make a real impact while staying on budget. Plus, you'll get expert help, fast turnaround times, and their 360-degree guarantee. So you can be 4imprint certain your order will arrive on time and look exactly right.

10:47Whatever your goal, 4imprint makes it easy to find your perfect promo match. Explore the possibilities today at 4imprint.com. 4imprint. 4certain. Support for this show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index.

11:26You approve of the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

12:08Scarlet 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. We're keeping an eye on Novo Nordisk. The drug maker, remember, they are the company behind Ozempic and Wagovi, has decided to cut 9 ,000 jobs and also cut its profit forecast as well. So let's bring in Sam Fazelli. He is Bloomberg Intelligence Director of Research for Global Industries and Senior Pharmaceuticals, our go-to guy for all things on global drug makers.

12:45Scarlet Fu:And Sam, for Novo Nordisk, this is part of a broader restructuring that the new CEO is undertaking. Can you tell us a little bit more about the changes taking place? Yeah, sure. And very nice to see you again all. So the story here is that it's not the first time they've lowered guidance for the year. I mean, this time there's an impact on the EPS front from obviously the cost of restructuring, assuming they can get it all done this year. But it's a pretty chunky one, 9 ,000 people, about 11 % of the workforce, and a lot of that coming from Denmark. Mark, if you read the essence of the press release that they put out, there's a couple of things that they bring out.

13:22They want to invest more on R &D. Well, what I think this is telling you is that the growth that they had planned for the next five years, they may be thinking maybe that won't come as fast as we were expecting it because of competition from Lily, Compounders, and other products potentially coming to market to the pace that they were hoping. So if you want to keep investing in R &D, you need to liberate some cash. And also, it looks like that they're also thinking about changing the way that they're They're doing their marketing because of the different channels that they're getting involved with direct to consumer.

13:52That is not something that pharma has done very often before. In fact, only Lilly had done it prior to this, also for obesity drugs. So maybe the costs of that are different. And there's an element that they've referred to in there, which is a culture of performance-related reward. And you think to yourself, well, what was it before? So it seems like that they want to make it much harder focus on you've got to deliver because we need the growth. So that's interesting all to watch. You know, Sam, I think to a lot of casual investors who don't deep dive into, you know, Novo Nordisk the way you might say, would look at this and say, listen, they have the most popular weight loss drugs, right?

14:34Wagovi or Zempic. Why is this company having these problems? When you drill down, is it just a problem with having to scale too quickly? Is it that the company isn't nimble enough to sort of change with the times? Well, Novodordisk has been a poster child of how you grow from a small company selling to a relatively basic set of products 20, 30 years ago to one that's become essentially one of the innovators in the space. They brought the first GLP-1 to market. So we can't fault them for that. It's just that I think this growth that they have to go through where the planning was done, you know, a lot of, I mean, we have$100 billion market potential for obesity as a whole, right?

15:19So it's just difficult, I think, to judge into this space. And maybe the previous CEO had looked and said, I'm pretty sure we're going to be 50 % of that market. We need to plan for that growth. And then two things changed. Competition from Lili is super intense. They have what I would call a better drug in terms of the efficacy profile that's been shown in head-to-head trials. And then, of course, you've got on top of that compounders that don't seem to be going away. They keep taking cheaper generics, or not generics, manufactured, they'll try and make the drugs. So that's where I think the new area issue is in that we all expected the FDA to really clamp hard down on that.

15:59And they haven't. Right. They've made issues. statements, but they're allowing them. They even found areas outside the U.S. where these compounders can get their drugs from, which is counterintuitive. So those are the issues.

16:14Scarlet Fu:Yeah. So it feels like Novo Nordics gave up its first mover advantage, but has it lost its lead completely in the U.S. obesity market to Eli Lilly permanently, or is this still very much a wide open contest? No. I mean, we have, I can't remember what the latest number is in terms of what percentage of people who would benefit from these drugs, who should be able to get them around it, but it's not in the big percentages. I'm pretty sure it's in the single-digit percentages. So there's a lot of room to play for. I think our estimate, and I hope I'm not completely off on this, was about 189 million people could be on these drugs by 2030.

16:51That's enormous. There's lots of other people coming with orals, with other things. It's not a matter of having lost the lead. Yes, Lily surprised with a slightly different mechanism. It's still the same, but with a better drug. There's still room for innovation here, which is what the company is saying. We need to save to keep investing in that innovation. So that's the area I think that they're highly focused on now.

17:15Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Whether you're planning a big tech event, launching a new campaign, or just stocking up on team gear, finding the right promotional products makes all the difference. 4imprint offers thousands of options, from on-trend apparel and premium drinkware to tech, totes, and giveaways, so you can find the right fit for any audience, purpose, or budget. You can customize it all, your logo, your message, your look, and many items come with no setup charge to help you save. And if you're really watching the bottom line, you'll find standout choices at every price point so you can make a real impact while staying on budget.

17:53Plus, you'll get expert help, fast turnaround times, and their 360-degree guarantee. So you can be 4imprint certain your order will arrive on time and look exactly right. Whatever your goal, 4imprint makes it easy to find your perfect promo match. Explore the possibilities today at 4imprint.com. 4imprint. 4certain. Support for this show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf.

18:30Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market.

19:08Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

19:23Scarlet Fu:If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a gentic finance that eliminates that work before it starts. Learn more at brex.com slash AF. 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. It's a tough day for investors in Synopsys. The chip design software provider missed Wall Street's estimates hurt by weakness in its design IP business.

20:03I want to bring in Naraj Patel now, Bloomberg Intelligence Senior Software Analyst, for more on this. So give us the larger story behind this disappointment, I think, is an easy word to use for this. I mean, I don't know. I feel like investors... Yeah. Right. All right. Niraj, what's your take? Yeah, this is a major shock to the investor community. And I think you see it in the stock price, specifically the company's design IP business. That's about 30 % of sales. It has been growing 15 % annually, and they're a leader in a subcategory called Interface IP. This business now is going flat. It was tracking to about 15 % growth as of 2Q, and the remaining two quarters are a big shock.

20:51This quarter, it was down 9%. Next quarter, it's going to be down some more. And this catalyst came out of the blue, I would say, for a lot of the investor community because design IP has a lot of tailwinds related to AI, complex chip design, as well as all this advanced architecture that the semiconductor design companies like NVIDIA, Broadcom, Intel are pursuing.

21:17Scarlet Fu:So can we blame or can the company blame factors beyond its control? And here I'm referring, of course, to trade war tariffs for that, or is this something that Synopsys just wasn't prepared for. Yeah, there's a lot of interesting points there, Scarlett. And I think when we're looking at trade war, yes, a little bit of an issue. And the China EDA ban that initiated end of May, that lasted about six weeks. That was introduced by the Bureau of Industry and Security in the U.S. But their major peer, Cadence and competitor, which is second in market share, they reported several weeks ago, they had the same macro issues, and they actually tuned up their guidance.

22:02So this may be a little more company specific than macro factors. And I think what's hinting us that they made big investments to catch up Intel Foundry relative to some of the other competing foundries with their IP. And this hasn't returned any type of scale on the revenue side for them and this reality really hit them this quarter and for the next several quarters so did the ceo uh gazi say anything on that post earnings call to um give investors a little light at the end of the tunnel here an indication of how they're going to turn things around at synopsis yeah i think it was a little murky in terms of the numbers uh they closed a mega deal with ANSYS.