Oracle to Raise Up to $50 Billion in Debt and Equity This Year

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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. It is earnings season. And, Paul, you gave a stat earlier. It was 170 companies have reported. Yes. In the S &P 500. The banks are all done. Most of the Mag7 is done, but we still have a couple of stray names reporting this week. And then, of course, NVIDIA is not till much later. But all the spending on AI continues.

1:41Yes, it does. And Oracle is the latest one. I mean, it's been in the headlines for a while now, but we're learning that it wants to raise up to$50 billion in debt and equity this year. That's a tremendous number here for Oracle. So we needed to bring in Mandeep Singh. He's our global tech research head here at Bloomberg Intelligence. And Oracle raising up to$50 billion, a big chunk of that, up to$25 billion of it will be through debt, is really eye-opening given that its credit has not traded as well, meaning the spreads have widened. And credit default swaps on Oracle have also blown out a little bit.

2:18They've come back in, certainly. But there are a lot of questions over the financial health of a company like Oracle versus, say, a company like Microsoft. Yeah, look, I mean, Oracle had given a revenue guide for the next four years. So what they said was we have an$18 billion cloud business that's going to go to$150 billion plus over the next four years. The problem that the street had was there wasn't really explanation of how they would, you know, raise the funding, build the infrastructure and how that revenue would come about. because it was all attached to open AI, the$300 billion backlog, which is essentially$60 billion per year just from one company.

3:03So now what they're saying is, okay, we have visibility to how we are going to build the initial tranche of that AI infrastructure and data centers we need for the 2027 target, which is essentially$44 billion in revenue that they want to have by 2027. So for that to happen, they need to invest, you know, up to$50 billion plus. So I compare them to the CapEx that Meta and Google and Amazon will be making this year, which is all in excess of$100 billion. Where does Oracle stack up? So far, the consensus was they would be below$50 billion in CapEx. Then how do you add$44 billion in revenue when Microsoft is not adding$44 billion in cloud revenue in 2027?

3:52And that's where I think they are making that upfront investments you need, which all these companies are making. Yes, you have to do it through debt. And you're already over levered to your point that their CDS spreads were had widened. And that's where, you know, they may they're using a combination of equity issuance and debt to raise their money, set up the AI data centers, which in turn will translate into forty four billion dollars in cloud revenue by 2027. So that's where, if you believe their plan is going to be successful, which cloud demand is the one thing you know with AI, whether or not they are big applications, nobody knows.

4:30But everyone will be consuming compute on the cloud. That's kind of the part of the business that's visible. All right. Tech investors that you've been dealing with for years, they've been used to funding big capex, big R &D out of internal cash. Now, that's changed. They need to go to the capital markets, whether it's the debt capital markets, equity capital markets. This is something new for your investors. How are they digesting it? That's why, you know, there was a panic around Oracle and you saw that 40 percent drawdown because you're right. In the case of Microsoft, Meta, you know, Google, they generate up to$100 billion in free cash flow in a year.

5:11So with an Oracle that generates about$20 billion in free cash flow, how do you make a$50 billion plus CapEx investment? And that's where the gap needs to be bridged. And I think they're just maybe thinking too big in terms of how they want to ramp up that cloud business. And right now they are 4 % of the overall cloud market share pie. based on the numbers that they have given in terms of the guidance, they would be 15, 20 % of overall cloud market, which is growing, by the way, 30, 40 % plus and expanding at that growth rate. So that's where I think there was some skepticism around what is it that Oracle can accomplish, given they don't have the free cash flow to fund this build out.

5:57And it'll be interesting to see how the bond trades when they, you know, issue this. And there are a lot of unknowns still when it comes to the Oracle story. Like I said, tremendous numbers here for Oracle. Another story we're following, Mandeep, is Elon Musk, said to be in advanced talks to combine SpaceX with XAI, his startup AI company. What does this mean for SpaceX's planned IPO later on this year? Well, so I tie it to the funding needs for building your AI large-anglehold model infrastructure and then rolling it out to millions of users. Same thing with XAI. When you compare XAI Grok to, let's say, Gemini or OpenAI Chachi PT, XAI, even though they are a frontier model, their user base is like 20, 30 million compared to OpenAI, which is 900 million.

6:52So one, they have a much smaller customer base when it comes to the traffic that they're serving. And these companies have to constantly invest in training their large-angle model because, you know, the three frontier models, OpenAI, Anthropic, Gemini, are going forward in terms of, you know, the capabilities that they're adding. So XAI doesn't have a choice but to keep investing. Problem is, because of their smaller user base, no one wants to keep, you know, funding XAI with another 10 billion round or 20 billion when they don't have free cash flow either. So it's the same problem that Oracle has.

7:27And they don't even have, you know, that user base. So that's where combining XAI with SpaceX does make sense because SpaceX is a much bigger entity. At least they have EBITDA margins of around 50%, even though it's a very high fixed cost business. So the ROIC is much lower for, you know, some like an entity like SpaceX. But combining it makes it more palatable for anybody who is putting money in that combined entity and saying, OK, at least you've got two entities where I am ready to put some money as opposed to just XAI. And SpaceX also has visibility. I mean, it's got these projects with the government, so it can project out.

8:07Do we have any sense when that IPO might happen? They're suggesting this year. They are. I mean, even OpenAI and Anthropic want to go public this year. So this year could be huge in terms of, you know, IPOs. And by the way, the underwriters can't write research on these companies, but who can? Yes. Bloomberg Intelligence can. We will be ahead. And so what happens is we write the definitive research report on these big IPO companies. You already have primers on OpenAI and Anthropic. Stay with us. More from Bloomberg Intelligence coming up after this. Hello, I'm Michelle Hussain. And for more than 20 years, I was at the BBC.

8:46Military withdrawal from Afghanistan. But all the time I was delivering the headlines, I wanted to go further than the news of the day. To spend more time with the people shaping our world. And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage. Russia needs to be taught a lesson. To tech journalist, Kara Swisher. And the tech industry is running wild. You know, they've gotten what they wanted and they've seen a huge run up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense of the world. So please join me, listen and subscribe to The Michelle Hussain Show from Bloomberg Weekend, wherever you get your podcasts.

9:33You certainly ask interesting questions.

9:39You'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 media companies because Disney has just reported results. And the company reported record revenue in the last quarter, which jumped 6 % to a record$10 billion. But its outlook for this quarter, not so great. Geetha Ranganathan is our U.S. media analyst here at Bloomberg Intelligence. And Geetha, how do you square this idea that the forecast it's given is kind of tepid, saying that it expects international tourists to perhaps not show up at its different parks when revenue did very well and the quarter ended?

10:29Is this a case of Disney lowering expectations for a new CEO that it plans to name pretty soon? Could very well be, Scarlett. I mean, this is your classic case of, you know, when good is, you know, not good enough, I guess. But yeah, they absolutely, I think, performed very well in the quarter that they just reported. They have been citing some headwinds when it comes to international visitation at domestic parks. But I think they are, as you just mentioned, setting the bar a little bit lower, not coming out, not raising guidance for the full year, even though they had a really strong fiscal first quarter.

11:03Remember, we do expect, I mean, we think that there will be a lot of international visitation this year just because of the World Cup. And, you know, who knows, maybe there could be some tailwinds there for Disney, too. But other than that, if you just look across the board, I mean, you look at the parks overall. Yes, there has been some slowdown in attendance here and there, but they are undertaking investments across the board. So even in this quarter alone, we're going to see this big opening of World of Frozen, which will almost double the size of Disneyland Paris. That's a huge investment.

11:35Again, yeah, we're going to see some pre-opening costs, which is why we're seeing that dept outlook in the fiscal second quarter. But I think if you look at the long term thesis, that is still very, very much intact, Scarlett. And Geetha, looks like we're going to get a new CEO for Disney. Tell us how that may take place and who this person may be. Yeah, so there have been, you know, two front runners for the job, Paul. It's been internal candidates, Josh DiMauro, who heads the Parks Division, and Dana Walden, who came to Disney from Fox and who heads up all of content. Now, as you know, Dana Walden, she's a huge, huge, she has a huge presence in Hollywood.

12:11I mean, stars absolutely love her. She's got a great presence within the creative community. But I think there has been obviously rumors that Josh DeMauro is in the leading position right now. And I think that just really reflects how the company's earnings position has completely changed. I mean, a few years ago, as you just pointed out a while ago, this was really a TV networks company. And that has completely changed now with this being really the biggest theme park operator in the world, attracting about 150 million global visitors each year and only poised to get stronger and stronger. So they're already making about 60 percent of company profits come from just the theme parks division alone.

12:50And as we kind of look forward, Paul, I mean, you look at all of the new cruise ships. They're planning to basically double, triple capacity in the next three to four years. You look at all of the park expansions. You know, park profit could very well be three quarters of, you know, total company profits in the next few years time. What is your confidence, Geetha, that they're going to get the succession right this time around? because not so long ago, they appointed Bob Chapek, who also headed up the parks division to succeed Bob Iger. And that lasted for no more than a year, was it? I don't know.

13:23Whatever it was, it didn't last very long. Bob Iger ended up coming back. Why is it different this time around? I think it's different this time around because the company isn't, you know, I think they finally got their priorities straight. I think at that point, Disney was really trying to still figure out what it was. Was it a TV network company? Was it a Disney Plus streaming company? Was it really a theme parks company? Was it a film studio? So I think there were just so many different, you know, they had so many different balls up in the air. But I think right now, and streaming, obviously, they were kind of in the early innings of streaming, chasing subscribers at all costs.

13:55And that's the game that kind of Bob Chapek played, but didn't play very well because he was not very, you know, obviously not very well versed with the content part of the business ended up really overpaying in terms of content costs. We saw Disney pay something like$32 billion in content costs, which led to about, I think,$4 billion in losses for the streaming unit alone. They've come down from$32 billion in content costs to$23 billion under Bob Iger. So that was a lot of, you know, the right sizing of costs, really riding the ship, you know, course correction, all of that happened. So I think definitely the company is in much, much better shape right now.

14:31And again, this is now I think people who were kind of underappreciating the theme park portion of the business now really look at this as mainly a parks company. And yes, they do have streaming. And yes, we can see some upside from streaming and films. But this is really a theme park operator. Oftentimes when the board picks a CEO, the person who did not get the role leaves the company. What's the risk here that Dana Walden, again, as you mentioned, so widely respected and important that she would leave the Walt Disney Company? Yeah, definitely, definitely possible. But they do have a deep bench.

15:02I mean, along with Dana Walden, Alan Bergman also heads, you know, the content. So he's been overseeing some of the film and TV businesses as well. So, you know, obviously there is the risk of her leaving. But at the same time, I think they do have a deep bench that could, you know, fill her shoes, hopefully. Stay with us. More from Bloomberg Intelligence coming up after this. One question. Here's why there isn't more fear in the fear index. One topic. Here's why debt is now a driving political force. One succinct explanation. Here's why NATO needs better drone defences. You've got questions about the business stories that affect your world.

15:40Let Bloomberg give you the answers. Here's why Europe is taking years to phase out Russian gas. Join Stephen Carroll for Here's Why, the podcast that drills into one news story each week. Here's why big tech's soaring valuations have some worried. And explains it in just a few minutes. With the help of one of our 3 ,000 journalists and analysts across the globe. This current transition with AI is happening very quickly. When people buy EVs, they generally are quite happy with them. Bitcoin is pretty firmly an institutional play. Look for new episodes of Here's Why every Friday on Apple Podcasts, Spotify, or anywhere else you listen.

16:17Here's why AI isn't taking your job yet. Subscribe to Here's Why today, wherever you get your podcasts. 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. The big global pharma companies reporting earnings. We got a couple down, a couple more to go. Sam Fazelli joins us. He's the director of research for global industries. I have no idea what that means. I know him as the senior pharmaceuticals analyst at Bloomberg Intelligence.

16:52He's over there in London, ostensibly, but he's always traveling around the world, you know, checking out all the latest drugs and that kind of stuff. That's how those folks get smart. Hey, Sam, Sanofi Roche, Roche, I know I'm pronouncing incorrectly. They reported some results here. What did you see from the big some of those big pharma companies? Yeah, thanks, Paul. Well, I think the most interesting of everything so far, there are three companies, so Sanofi, Roche, and Johnson & Johnson, who've reported so far, was the fact that nobody really seemed to be saying much about it. I mean, people ask about MFN and the impact of MFN, but numbers were in line and growth is as expected.

17:33So somehow these companies are managing it. I mean, we're going to have to wait and see what happens to the European countries. drug sales, et cetera, as they come on, but nothing in there. And the one thing that specifically stood out in the, we talked about Johnson & Johnson last time, was Sanofi, where they called out the vaccine sales in the U.S. Remember, they still traditional vaccines, not mRNA. So it's not like it could be something that people don't like. And they're still calling for a down year in 2026, which is interesting, in that we We have another company, Moderna, that does make mRNA vaccines, and they're saying that they're looking for an up year in 2026.

18:13So there's some differences there that I think we need to be ironed out between the companies, you know, and it's not a good thing that we're seeing less vaccine use in the U.S. We need to figure out if this is a company-specific issue or something that tells us about the take-up in the U.S. Can they make up these vaccine makers? Can they make up that potential loss of business in the U.S. in other parts of the world? Well, that's the thought potentially for Moderna. I mean, Sanofi, you know, I mean, the volume of vaccines that are sold the rest of the world, the prices are not anywhere near as strong as they are in the U.S.

18:54So they can maybe work on the margins. But I think there's vaccine hesitancy across the board. I mean, why do we have quite a few European countries who've lost their measles elimination status, too? Not just the U.S. problem. Sam, this most favored nations status that President Trump is talking about, what are the companies saying? Are they saying, hey, this is real, this is going to happen? And are they quantifying the potential costs? Where are we in that whole process? I mean, the cost is potentially coming from them repatriating or moving some more investments into the US. What exactly that number is, time will show.

19:32A lot of these companies give big numbers, 50 billion, 55 billion over the next five years. But that includes their standard R &D, a lot of which is actually already spent in the US. So what that incremental increase of manufacturing, et cetera, in the US is, I don't know. And I think you might have seen in numbers recently that came in manufacturing headcount isn't going up. In fact, it shrunk. So unless pharma is such a small part of the overall manufacturing numbers, but coming to the latest numbers that we saw that came out last week, it didn't go up. So something's not quite working out here.

20:07And maybe it's just going to take a year, two years before these sites are operational, before we see those numbers go up. Yeah, it feels like there's a lot of room to be vague in those big, big commitments, right? Right. And we know this administration likes big, big numbers. So if you can kind of include everything under the sun, all the better. So let's talk a little bit, Sam, about Eli Lilly, which will be reporting earnings in two days on Wednesday. The outlook right now is for a pretty broad guidance for the full year. Walk us through the different things that Eli Lilly needs to contend with as it offers up guidance.

20:41Yeah, it's not. By the way, it's not just really both Lily and Nova reporting on the same day. That makes it more fun for us. In fact, Wednesday is an awful day for large pharma reporting. Or fun, or fun. I'm not wrong. It's 6, 7. Well, hopefully in terms of you need everybody on the desk to be listening to these calls. So, I mean, there's a few things that we're looking for, for both of them, frankly. And remember, NOVA is the first one that's launched a oral drug that's out there, oral big OV. And the prescription volumes for that that you can check out on the terminal are going. one of the strongest obesity launches that we've had in, I think, maybe even ever.

21:16So that's looking pretty strong. What the, therefore, timing of Orpher Glyphron, that's coming from Lilly, I think that's expected in 2Q, maybe a little update on that. When exactly in 2Q, everyone wants to know. Early 2Q is the current date. We're also looking to see how these deals that they've done with slightly lower prices, you might have seen those with the Medicare prices, et cetera. Are they beginning to show an increased volume? Their theory is if price comes down, volume should go up, right? Because this is an insatiable market. And then lastly, one of the tough things to keep an eye on is ex-US.

21:51We have prescription data for US pharmacies, but ex-US is much harder to follow. So people are going to be looking to see how these obesity drugs are doing outside of the United States. That's the key thing. Stay with us. More from Bloomberg Intelligence coming up after this.

22:40you'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 well folks the experts continue to tell us uh we are in the early early innings of this ai story here and a lot of investors continue to look for ways to play it, as do we. Fortunately, here in Bloomberg Intelligence, we've got a lot of technology analysts who cover all parts of the tech stack, and that includes Woojin Ho, senior technology analyst for Bloomberg Intelligence.

23:14Talk about the global communications and networking equipment space, what to look for in 2026. Wooj, thanks so much for joining us here. When your conversations with investors, and they say, Wooj, in your space, in the communication space, the networking equipment space, what's the best way to play AI? How do you kind of shape that conversation. Yeah. Hey, thanks, Paul. So it's fairly straightforward, right? It's a fairly concentrated space. The AI networking space is expected to grow 91 % on the switching hardware alone to$21 billion, right? The way to play it is fairly straightforward. It's three Cs, an A, and an N, right?

23:54That's my new networking fang. Cisco, Celestica, Corning, and Sienna, so four Cs, Arista and NVIDIA, right? And those are going to be the leading beneficiaries for the networking space in AI. So give us a sense of kind of how investors should think about the investment cycle for AI. I mean, I'm going to say we're two, three years into it. I'm just not sure. How do you guys think about the duration here? Yeah, you know, it's quite odd, right? Because, you know, some of us say it's two, three years into it, Michael Dell had this interesting quote a couple of weeks ago saying, what inning are we?

24:35And his response was, we're just entering the stadium. So he still thinks it's early on in terms of the investment phase. You just had Mandeep on, and he was talking about the Oracle investment. And look,$50 billion is a massive amount of money, and it's all going into the infrastructure space. And networking is going to be one of the leading beneficiaries of it. So how are the networking equipment companies that you follow, how are they financing some of their CapEx? Because, again, I think most of us grew up when technology companies had so much cash flow that they could self-fund their R &D, their CapEx, that type of stuff.