Oracle Slides by Most Since January on Mounting AI Spending

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 oracle taking it on the chin today um you know they put us a big revenue numbers i thought i mean 30 here 60 here but not enough for the street and And at the same time, you jack up your CapEx. And I think the street gets a little bit nervous about that. So the stock is trading down pretty big. Let's check in with Anurag Rana.

0:40He covers all the technology space, senior tech analysts for Bloomberg Intelligence. So Anurag, why do you think Oracle is selling off so much today? So there are a few things to keep in mind. You know, the number one thing is cloud infrastructure growth. Consensus was 69%. They came at 66%. I know it's a very big number. However, in the cloud world, missing by even one percentage point is not good. So that's first thing. But, you know, there's a very logical reason about it. Everybody can see the backlog. So it's not as if they don't have a business there. But converting that backlog into sales is an issue.

1:14Everybody knows that there is a capacity constraints out there, whether it's data center, whether it's networking, et cetera. Power is a very big issue, for example. So that's one area of it. Although I would say the management did not harp on it as much as we would want them to be, that to explain why the growth can improve going forward. So that's one factor. But I think the biggest question is something that we had discussed earlier also, is everybody is questioning that out of their big backlog, which is over$500 billion right now,$300 plus billion of that comes from OpenAI. Now, OpenAI currently, or the order book is from OpenAI.

1:48By the end of this year, OpenAI will have a revenue run rate of about$20 billion. So everybody is saying that, OK, well, tell me, if you have revenue of$20 billion, how are you going to spend$300 billion just with Oracle? So there's a big question, Mark. But then your question is, well, why didn't this happen when they first announced it? Well, their model was at the top at that point. And right now, Google's Gemini has caught up. So people don't know what will OpenAI's future look like two years from now, three years from now, and so forth. So there are multiple factors that are going into this equation.

2:19And not to mention something you just remarked, that CapEx is going to go up by$15 billion, so$35 billion going to$50 billion. So it's a big, big change across four or five different vectors that are having an impact on the stock. So the cloud strategy of Oracle continues to evolve. What is the next major inflection point for you when you see these cloud companies really move towards more AI-driven efforts? So the big thing is that$500 billion a backlog needs to bleed into revenue. For that, they need to open a new data center. But even to open a new data center, they need more cash. So the big catalyst for them is they need to go out, most likely they need to create a special purpose vehicle where they can raise funds with the help of private equity investors, private credit, and basically keep that off Oracle's balance sheet.

3:12and that will help pacify these fears that they actually have a way to finance this big order book that they have. All right, you mentioned OpenAI. Can you refresh my memory? Because I have no idea. Where do they get their money? Did they, like, where are they getting the money to, I don't know, to do all this stuff? So the single biggest is the consumer app right now. That's where most of the money is coming in because, you know, if you want the best model, you're going to pay$20 a month. I mean, you can get the free version of it. but that's one area. They have over 900 million users right now, but only a small portion of them are paying customers.

3:47So that's one. Second is if you as a company, let's say you're, you know, let's call it a hypothetical bank and you're creating a chatbot which needs intelligence or a large language model, you're going to use APIs from OpenAI and that gets embedded intelligence into whatever system that you're creating, your chatbot that becomes smarter, they get paid from that. So those are the two, I think, big elements or the big sources of revenue for them. And there is a huge, you could say, looking ahead, all the enterprises around the world will have some intelligence into their core applications, and they're going to use a model from somebody, whether it's Google, whether it's Anthropic, whether it's OpenAI.

4:28How are you thinking of the leadership in this company? How will the company's direction be affected down the line? I think they really need to talk a little bit about their expansion plans. I think this concept of, you know, he went out and talked about, I'm going to spend a trillion dollars in data centers. Then he went to the government and say, well, is there a backstop to this? He needs to be a little bit more clear on his expansion strategy. Because if he goes out and say, you know what, I'm not spending a trillion dollars, maybe 100, 200 billion or so. I think he needs to tone down that rhetoric a little bit.

5:00But I mean, otherwise, or he has to show a lot of revenue growth over the next one year to pacify this particular uncertainty that has cropped up right now. Anurag, 30 seconds left. Does this Oracle news kind of highlight the risk of some of these circular deals? See, I think it's not so much the circular deal when it comes to the entire space, but there is a question mark between what OpenAI is doing along with Oracle and NVIDIA. So it's this three people for this particular aspect of it that people are questioning whether this is going to lead any issues. Whether it's Microsoft and AWS and Google, I'm not concerned about those three.

5:40Stay with us. More from Bloomberg Intelligence coming up after this.

5:46You'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. Isabelle Lee sitting in for Scarlet Fu. I'm Paul Sweeney live here in our Bloomberg Interactive Brokers studio, streaming live on YouTube. We're still waiting to see what's going to happen with Warner Brothers Discovery. We're talking about a$90 billion enterprise value M &A trade going to hit the tape. But we've got two suitors out there, and I'm not sure what the seller wants to do here.

6:19Geetha Ranganathan joins us. She's a U.S. media analyst for Bloomberg Intelligence. Geetha, I guess the only new thing I saw was President Donald Trump kind of weighing in here, and he says, hey, whoever buys this thing, you got to sell CNN or something like that. What do you make of that? I mean, CNN is like not even really relevant to the entire company, is it? Not really. But but I think obviously Donald Trump has a huge history with with CNN, has despised the network always. So, you know, naturally, he's kind of laying down this condition. But what we think is it obviously complicates the deal a little bit for Netflix.

6:56Remember, Netflix is only buying the streaming and studio portion of Warner Brothers Discovery. So obviously, if they are going to go with Netflix, you know, the WBD team will have to find some way of offloading CNN, which I'm not so sure how it's going to do that. It obviously complicates the process. With Paramount, that's not going to be a problem because Paramount is buying the whole company. That includes the studio, the streaming platform, as well as the TV networks business. Talk to us why this deal is so polarizing. To Paul's point, the president made a comment. Actress Jane Fonda spoke out against a Netflix deal.

7:33She's still lying. Yes. Both policymakers from both aisles are also making comments. That was kind of rude. So we will discuss that comment later. I'm also interested. But Geetha, why is it so divisive? It is divisive because this really will change or reshape the whole media landscape, Isabel. So I think majority of the content community, you know, writers, actors, talent, they're really worried that if Netflix gets a hold of Warner Brothers Discovery Studio, it kind of totally changes things, right? It could potentially disrupt the theatrical model as we know it. You know, all of the legacy media revenue streams are at risk.

8:16It could potentially reduce output licensing from one of the studios could be completely folded into Netflix's operation. So there are obviously a lot of very many different risks, very tangible risks that, you know, could materialize in case Netflix goes after or they're already after in case they win the Warner Brothers studio asset. Now, with Paramount, I think people generally see that more of a status quo, just a continuation there. You know, they've obviously committed to keeping the studio. We know David Ellison loves movies. He's made a huge commitment to increase theatrical output. So I don't think people necessarily view that deal as that much more disruptive than the Netflix deal.

8:58The other political issue there is obviously with CNN. Again, that's definitely very polarizing, considering, you know, it's always kind of been a little bit of an anti-Trump kind of platform. Again, everybody has a view on this deal from many different angles, I would say, Isabel. Hey, Keita, I've been reading some of the research from your colleague, Stephen Flynn, is a credit analyst for Bloomberg Intelligence. Looking at the media companies from the credit perspective, man, if Paramount wins this thing, they're going to have a lot of debt on their balance sheet, like a lot. Is that the equity folks?

9:33Are they concerned about that? So the way that Paramount has really framed this whole argument, Paul, is they're talking about a lot of synergies. OK, so they're talking about$16 billion in EBITDA. So remember, next year, Paramount Skydance standalone is going to generate about three to three and a half billion dollars in EBITDA. If they do succeed in getting Warner Brothers Discovery, they are promising about$16 billion in EBITDA. So we're talking almost, you know, taking this fivefold, which is why this deal is so transformative. So, yes, they might have about 80 to 90 billion dollars in debt.

10:07But their whole argument is that we can support it just kind of given the amount of EBITDA that we're going to be generating. Free cash flow conversion from EBITDA is going to also be robust. So that's their whole argument. Of course, I'm not so sure the street is necessarily convinced because those synergy targets could be pretty aggressive. Stay with us. More from Bloomberg Intelligence coming up after this.

10:32You'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. One of the stock stories we've been following today is Eli Lilly. Some more good news on some of their obesity work there. The stock's up 3.4 % today, up 33 % year to date. I forgot, this thing's got a monster market cap. Eli Lilly,$970 billion market cap, so just extraordinary there, a big winner. Madison Muller, she is Bloomberg News reporter. She's been following this space.

11:10Madison joins us here in our studio. Madison, what's going on with Lilly here? They've got some more good news today. More good news for Lilly. That's sort of been the theme of the last year. I mean, Lilly has really surpassed its rival Novo Nordisk in terms of developing these next generation weight loss drugs that can be potentially easier to take, easier to manufacture, elicit more weight loss than Wegovia and ZepBound, which are the shots that are currently on the market. And so Lily has a shot or a pill potentially coming next year. And then this shot redditrutide, which is a triple agonist.

11:39It relies on three different hormones rather than just two or one like GLP ones that we all know so well. And so great results this morning for them up to 23 percent weight loss in a study, which is the most of really any of the shots that we've seen yet. I'm doing the math here. Twenty three. Wow. You could make John skinny again. Yes, exactly right. I know, it's like, it's a quarter of someone's body weight almost. It's pretty incredible. Just give me unintended consequences there. I just feel like it. I don't know. It does. In Madison's story, it said that participants on the highest dose experience a more than 62 % reduction in knee pain.

12:17And I feel like when people think of weight, most of them associate it with vanity or just looks. But for others, it could really mean health changes and lifestyle improvements. Totally. That's a really important part of this. And the market in your story also. So you say that it's expected to hit$100 billion by 2030. Right. And a lot of that is exactly what you were saying, that this is more than just, I mean, for some people, they are going out there and looking to lose a couple of pounds. But in terms of reasons for why insurers should cover these drugs and reasons why these drugs are expected to be such a big market is because they are helping people with other important health issues like heart disease, knee pain.

12:55Lily's studying this drug in liver disease or kidney disease and heart disease and all of these other things. that are linked to weight loss, but there's also potentially some weight loss independent, reduction of inflammation and things like that. So these drugs are working in pretty incredible ways. They're also studying them now in addiction and things like alcohol use disorder. So there's just so much here, and that is a really important piece of this. So I guess the end all be all for these pharmaceutical companies as it relates to this particular area is, I guess to get it into a form that more people can use, i.e.

13:29a pill, maybe reduce side effects, but most importantly, at an affordable cost. Is there an expectation that those three things can happen at some point over the next several years? Yeah. And I mean, they are starting to happen. That's one of the things the Trump administration actually struck a deal with Novo and Lilly to lower the cost of some of these medications beginning next year. There's also efforts from the pharmaceutical companies themselves to lower the direct-to-consumer cash pay prices so that people who don't have insurance coverage for these drugs, which is still a lot of people, can get them at a more affordable price.

14:03So that's brought down the cost from over$1 ,000 a month to more like$200,$300 a month. And so there are some of those efforts. Part of the Trump administration deal was also that the lowest dose of the pills, which are expected to start rolling out within the next couple of months, next year, they'll start at $150 a month. So that's also a pretty steep reduction from where the prices are at currently. We see investors really cheer this move today, but how high are the stakes if they fail? Because it's experimental, and I'm not the expert on this, but it's still experimental. Exactly. And the stakes are high.

14:37And we've seen, because the drugs that are currently on the market, Wigovia and Zepound, are so good and they work so well, that the stakes for developing next generation drugs are higher. I mean, you have to get more weight loss than the drugs that are currently on the market. And at the same time, the safety risks are really real. We don't want drugs that are going to give someone even more health problems. I mean, of course, always, but the sort of risk benefit analysis with weight loss drugs are different. And that's one of the things that we begin to see too, with some of these next generation compounds.

15:08Amgen, for example, has a drug that had really high rates and side effects. It's supposed to be a once monthly drug, but But investors haven't loved that one because of the high rates of side effects. In Lilly's trial today, there were pretty high rates of side effects as well. People were having some weird like nerve pain, tingling sensations, and then the classic nausea, vomiting, constipation that are seen with these drugs. And so that's a really important piece to watch as well. 30 seconds and asking for a friend, hair loss drugs. When's that? That's gotta be the next one. I mean, they're kind of starting to be out there already.

15:41A lot of these companies too, like Hims and Hers and a lot of these telehealth companies are really going hard on the hair loss drugs. Wow. I mean, I went to like had a dinner with some of my high school buddies recently. It was grim. It was grim. I mean, I'm just laying it out there. They can go to Turkey. Are the hair loss drugs, are they gender neutral? Is that the right phrase to use? Yeah, yeah, yeah. And there are some, I mean, Hims and Hers has some products that they've developed specifically for women. And they have different formulations like shampoo, whatever. So people are, you know, more comfortable with with products.

16:15Stay with us. More from Bloomberg Intelligence coming up after this.

16:22You'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 take a look. One of the questions that I think the Fed has, I think investors have, is how's the U.S. consumer doing out there? And there's a lot of ways we try to get to that. We talked to Michael Halen. He covers all the restaurants for Bloomberg Intelligence. We talked to analysts who cover different parts of the economy and see how their companies are kind of talking about the consumer.

16:56One of the folks we like to talk to is Lindsey Dutch, consumer hardlines senior analyst for Bloomberg Intelligence. Just think, you know, think companies like Best Buy, Dick's Sporting Goods, that kind of thing. The hard lines. Lindsay, talk to us about how your stocks performed in 2025. And what's the expectation for 2026 for some of those hard line retailers? Hi, Paul. Thanks for having me. I think if you look at, you know, the guidance for the rest of the year, I think a lot of these big hard line companies are baking in a lot of uncertainty with the consumer. But the reality is that if we look back to performance to date and results to date, results have largely been better than expected.

17:38And a lot of these retailers are sort of tracking to the upper half of their guidance range for the year because that consumer has stayed pretty resilient. We see strength continuing to come from that higher income consumer while the lower income might be continuing to pull back a little bit. And if you think about companies like Best Buy, Ulta Beauty, Williams-Sonoma, Dick's Sporting Goods, you know, they are bringing, you know, premium products, new products, exclusive products to that consumer. And the consumers are willing to pay up for that. What was the one trend that shocked you this year now that you look back?

18:16I think a lot of the trends have been a continuation of what we've been seeing. I think, you know, if we go back to late 2022, that is when the first pullback in that discretionary spend has been. But this is the first year that we've seen more newness. And newness is really a key driver to getting consumers in the store and to fueling transactions. So the best retailers are getting both transaction and ticket growth. But I think those innovation pipelines that maybe were, you know, settled down a bit during COVID, they've picked up again and bringing more newness is driving those transactions.

18:56How promotional do you think retailers will be in 2026 to kind of drive the consumer to the store or to the mouse to click? So promotions are very important to bring shoppers to the store, especially for someone like a Best Buy. Promotions are very key, especially around holiday. We've seen that promotions are about flat in 25 versus 24. And I would sort of expect a continuation of that in 26, unless we see a huge spike in demand, in which case the retailers might be able to pull back on that promotional lever a little bit. But this year so far, it's been about flat. You do see companies like a Williams-Sonoma, very select promotions.

19:42This has been a strategy coming out of COVID. They sort of have stuck with it. They're even sticking with it, you know, through this season going into next year. Pottery Barn was a big focus for them. You know, they need a rebound in that brand and growth is slowly coming back. But they are staying steadfast in keeping those promotions very limited. I was going through your notes and then I read that many retailers are resuming or accelerating brick and mortar expansion plans because this leads to in-store and online sales. And that's just kind of the reverse trend that I was expecting. But you made a point that Gen Z shows a strong preference for in-person shopping.

20:19Can you talk to us more about that and how each generation is different? Sure. Yeah. In-store shopping is definitely back and just meeting the consumer where they are. So retailers, I think, are more focused on all channels, whether they have an app, their online site, their brick-and-mortar stores. But brick-and-mortar as a whole, you know, we are seeing more openings than closings. And that has been a trend for the past couple of years. But when we think about sort of the retail real estate market, the demand has been solid coming out of COVID. And so vacancy is starting to get low, and there's really no new properties being built.

20:58So these retailers looking to expand, which is great for their businesses, you know, they really have to work hard to do so and find good space to open stores because there's just not that much of it. But Best Buy has talked about Gen Z's preference for in-store shopping. So has Ulta Beauty. And so we're definitely seeing that across the board, but especially that younger generation. There's plenty of retail space on Lexington Avenue and 58th Street in Manhattan. Lindsay, John from the Highlands writes in and he wants to ask about the beauty segment. Atlantic Highlands, please. Atlantic Highlands.

21:32Don't confuse the two. The Atlantic Highlands. Ulta Beauty, Elf Beauty, Sephora. How's that category look for 2026? So demand has showed a strengthening sort of in the back half of 25. I think that momentum can continue into 26. I think for Ulta in particular, they have done a great job, you know, elevating their assortment and bringing on exclusives. And that has really helped them. Comps are going to get tougher next year and they need to continue to drive growth. And I think for them, you know, leaning into their salon services could be a key way to do that. Leaning into wellness is a key way to do that.

22:12There's multiple levers that they can pull. pull. The categories that are showing the most strength is really fragrance and skincare, and we would expect that demand to continue into next year. 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. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.