Cisco Shares Nears Dot-Com Highs

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech. Coming up, Cisco shares gain after boosting its 2026 forecast showing progress in its effort to capture more AI spending. we're going to discuss with the CEO. Plus, shares of Disney, they're falling today as the company invests in its content slate and stream bundling. Our conversation with the Disney CFO, Hugh Johnston. And Tencent strikes a deal with Apple, under which the iPhone maker takes a 15 % cut for purchases in WeChat, minigames and apps. But first, we check in on these markets and maybe a little bit of chop as we try to discern when we get the government data and what that will show the Federal Reserve can indeed do or do not when it comes to cutting in the future.

2:01The market is a little bit uncertain at the moment. It seems as though that lifting of a government shutdown had been priced in. We're currently off by 1.4%. We're dragged down by the key names in Magnificent Seven. But Ed, you're looking at the company that's adding the most in points upside. Yeah, one of the big movers to the upside is Cisco. Shares currently up around 4%. They'd open much higher than that. The key bit is they're trading at their highest level since the year 2000 after the company raised its outlook and showed progress on capturing more of the global AI spend. Let's get the details with Cisco's CEO, Chuck Robbins.

2:36Chuck, in the year 2000, Cisco was one of the original four horsemen of technology. Based on the numbers you gave and what you said on the call, do you feel like customers, the new ones, and investors now understand Cisco's place in this new AI era? But first of all, thanks for having me. And, you know, I'm super proud of what the teams have accomplished. We had a record quarter and set ourselves up for what's likely going to be the best year we've ever had. So it was it was just a great performance. And as I've been asked a lot over the last 24 hours to reflect back on 2000. And it's it's kind of an interesting comparison.

3:16But I think that, look, the hyperscalers are some of the most advanced customers in the world. They do the deepest analysis of the technology before they make decisions. And I think that their decisions to continue spending more with us speaks volumes about the innovation and the technology that our teams are building right now. So I'm really proud of them. And I think it will just extend into the enterprise over time. Chuck, who are some of those new customers that you've been able to sign in the AIR context? Well, we're just talking about the major hyperscalers, primarily in the United States.

3:52But we've also announced these sovereign deals in the Middle East with G42 and the Emirates, as well as Humane and Saudi. There's a lot of work going on in the neocloud space. We're seeing sovereign players start popping up now in parts of Europe, as well as Southeast Asia and India. So it's a broad swath of customers. But the$1.3 billion that we talked about is strictly the top hyperscalers that we're doing business with. So you're talking about five companies. And they're good for the money, as you can tell from the cash flow that they have, Chuck. That$200 million that you are expanding into sovereign, you are expanding into enterprise and neoclouds.

4:29How do you bake in some of the risks that the market just cannot get enough of talking about this circular economy? Well, so we did talk about the fact that we have over$2 billion now in our pipeline through the end of the fiscal year. So over the next three quarters in neocloud, sovereign cloud and enterprise. And we just we see that continue to accelerate. We took$200 million in orders in Q1. And it's just it's a natural way the technology technologies have been evolving over the last decade or more. They start in the hyperscalers. They move through the telco space. In this case, the neoclouds and the sovereign players and then into the enterprise.

5:08And it's happening exactly that way. And our bread and butter over the years has been in the enterprise. And we have lots of technology. We have a partner ecosystem. We have full stack solutions. We have security. We have all the things that they're looking for to actually build out AI workloads and deal with AI with confidence. Let's just go to that security. A little bit of a fly in the ointment, let's say. I know you've talked clearly about perhaps how the booking of revenue can be misinterpreted, but how are you going to sell that more holistically? How do you think the security part of the offering can really start firing on all cylinders?

5:41Well, I started by saying clearly we're not pleased with where we are yet, but I will say over the last two to three years, we've made a lot of progress. It's a major decision for customers to make big platform decisions in security. We've had a lot of great wins. I'm proud of what the teams have built. and we saw our next generation firewalls. We saw mid-teens growth in orders there. We saw double-digit ARR growth in Splunk. We saw our new and refreshed products on the security side continue to show growth. And the issue we had in the quarter was really, it's an accounting issue around how cloud delivered Splunk versus on-prem delivered Splunk.

6:18The cloud stuff is ratable and revenues realized over the life of the term. And the on-prem stuff gets recognized immediately And we just had a major shift in how our customers consume it, which is great for us in the long term that they're buying more cloud based solutions. But it creates a little bit of a challenge on revenue during the quarter. The good news is the networking business is doing incredibly well and can cover that for us. Chuck, it is fair to say at a minimum that the Cisco of today isn't the same as the Cisco of 2000. what you've done is kind of been open about the product lineup and you've used M &A to change the footprint of the company what's your latest thinking on that the products that you offer and what you need to do either organically or inorganically to offer what the world of AI wants I think the big things that we did we obviously introduced a lot more software into our portfolio in areas that are strategic like security and the Splunk acquisition has been a great one I think the other thing that's worth calling out is this investment that we started in 2016, to be clear, on our silicon strategy that is absolutely the reason that we're having success today in the hyperscaler space.

7:30If we did not have our silicon and develop and design our own silicon, we wouldn't be participating at all. It's just black and white. And so as we look at both internal innovation as well as inorganic opportunities, we're very focused on security. We're very focused on AI. We've made some tech and talent deals. Anything that can help us accelerate our solutions in those areas, we're open to look at. Chuck, I do not apologize for this next question. Are we or are we not in an AI bubble? Oh, it's just, it's so funny. Look, the customers that are buying the predominant amount of this technology have incredible balance sheets, have incredible cash flow, have incredible profitability.

8:22I think Caroline said it, they actually pay their bills. And so, and they view it as an existential issue for them. That's a really key element. They don't view this as something that's nice to have. They don't view it as something that is okay if we're successful, great. If we're not, great. They view it as existential, which you see with the level of spending that they're putting into it. So it's a lot, and it's moving fast. But the difference between now and 2000 is that these are massive companies with strong financial performance, and they believe in this 100%. So I don't think it's going to change.

9:01We haven't gotten into physical AI. We're just getting into synthetic training. We haven't gotten into robotics. We haven't gotten into the enterprise in a big way yet. And so there's a huge opportunity ahead for all of us, I believe. Chuck, Bloomberg Intelligence Analysis says your projections are conservative. Briefly, are they conservative? well i think you said that last quarter so you proved to be correct uh 90 days ago but um look i think based on what we know today we're 90 days into the year uh we we're taking what we what we have in our backlog what we see in the forecast but again we got we have three more quarters to play out lots of things can change the world's very dynamic but we're we're very confident in the numbers that we put up yesterday cisco ceo chuck robbins always a joy to catch up with you.

9:48Thanks for spending time. Meanwhile, let's have a look at some other shares on the move. JD.com, Tencent. I want to shine a light on these ADRs. They're under water a little bit like the rest of the market, but JD.com actually relieved many an investor with a 15 % increase in revenue, managing to show that maybe the investment in the food area is really building more broadly into the overall merchandise sales. We're looking at Tencent, the social media app, more cautious in AI spending, but it's making it work in terms of selling its overall products and the gaming strength really coming to bear.

10:16We're seeing, again, a 15 % increase in revenue there as well. But 15 % is an interesting number, Ed, because it's a theme in the next story. Tencent's U.S. shares trading choppy because at one point we're higher in the session. Tencent has struck a deal with Apple that will see the iPhone maker handle payments and take a 15 % cut of purchases in WeChat minigames and apps. Bloomberg's global tech editor, Peter Elstrom, joins us for more. There's one of several stories actually about Tencent today, but let's start with the Apple one. What do we need to know? Yeah, so Tencent and Apple have been in this standoff for a number of different years.

10:51Tencent offers a bunch of different services, including games, but they also offer WeChat, which is really the original super app. It's a messaging app, but you can do many other things within it too. Now, Tencent has wanted to offer different services and games through this super app, and they've allowed developers to circumvent the Apple store to avoid some of the fees that you would typically pay by using the Apple store. Apple hasn't liked that. They want everybody to go through their Apple store where they take a 30 % cut of most things that are going on. So we understand from our sources, this is a Bloomberg scoop, that they've reached an agreement now where customers within the Tencent WeChat ecosystem are going to pay a fee of 15 % to Apple, so about half of their usual fee.

11:34But they'll begin to reach some sort of truce between Tencent and Apple as they collaborate on games and other kinds of services. So, Peter, push us forward. Is this good for Apple because they can start to reap more rewards from these companies that are super apps? Or is this a concern because everyone else is going to be looking at a 15 % number? Yeah, it's a very good question. Certainly, Apple faces this kind of pressure in many different markets. It's not just China. In China, it's a little bit different, though, because they don't have the kind of market power that they do in places like the United States or Europe, for that matter, or they can just take their 30 % cut.

12:09Regulators are looking at those fees. They'd like to bring them down. But in China, they haven't been able to make that much progress because there are these alternatives like Tencent's ecosystem and other kinds of areas too. So this is at least an entree for them into a China market that they really haven't been able to tap that effectively in the past. Peter Elstrom, all across the world of Tencent, we so appreciate it. Meanwhile, coming up, we're all across Disney, falling today after what some investors are calling an underwhelming forecast. More on that next. Meanwhile, check out shares of Verizon.

12:40We have breaking news coming from The Wall Street Journal talking about how there could be some 15 ,000 job cuts to come. Remember, we've had a relatively new CEO in place. Bloomberg reporting earlier that layoffs could be announced as soon as next week, according to people familiar, as we have a major step in the transformation led by the new CEO, Dan Schulman. From New York, this is Bloomberg Tech.

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14:13Shares of Disney really falling today after posting fourth quarter earnings that missed estimates and projecting forecasts that underwhelmed Wall Street were down almost 10 percent. We spoke with Hugh Johnson, Disney CFO, earlier today to walk through those results. I thought it was a good quarter overall. And frankly, versus Wall Street, we beat expectations by six cents. So as you noted, the experiences business did very, very well. Six percent revenue growth, 13 percent OI growth was terrific. Sports did very strongly while we were launching the new DTC product, which is off to a great start.

14:52And then in terms of the entertainment business, it was largely just the overlap of the film slate that drove the numbers. I know the linear business looked a little bit soft, but that's primarily due to the fact that we had India in the numbers last year where we made$84 million and wasn't in the numbers this year. Take that out. Apples to apples basis. Overall, I thought the quarter was good. and it actually allows us to end the year with a lot of momentum. As we think about where we are right now, we grew EPS 19 % for the year and 19 % CAGR for the last three years. And that's why we both guided to double-digit EPS growth in 26.

15:33And on top of that, doubled the share repurchase and increased the dividend by 50%. Hugh, good morning. On that momentum, the focus for a lot is streaming, right? and you have the confidence to say streaming is going to continue to be profitable through 2026. What are the factors behind that? What allows you to have the confidence to have such visibility into how that streaming business is going? Well, of course, streaming always begins with the quality of the content that we have and the quality of the slate that we have going forward. So if you think about the film slate we have right now, number one, we obviously have Zootopia 2, followed by Avatar, followed by The Devil Wears Prada 2, followed by Toy Story 5, Moana, and then we've got an Avengers movie as well.

16:24So if I look at all of that playing its way into the streaming service, certainly feel good about those tentpole events. In addition to that, our TV side continues to perform very strongly. The ratings are great. The number of hit shows Those are great. And then on top of that, we're investing in the product in a significant way, creating a unified app. And in addition to that, improving our recommendation engines and improving the navigation within the DTC app. Put all of that together. And what we really see is just a huge opportunity for growth. We aspire to grow that business double digits along with the double digit margins we expect to achieve this coming year.

17:05And as a result, I think we're going to continue to see that business do really well and be a real growth driver for Disney. But the profitability, Hugh, streaming operating income for the first quarter of 2026, you got to be$375 million. That's a lot less than the street was anticipating. Why is that? I think it's primarily due to the fact that we're investing in product in the business and we're investing in bundling. So we all know that bundling ultimately is a very profitable thing to invest in. It increases retention, reduces churn, increases engagement. And that's not a theory. We have proof on that.

17:42Hugh, is this the last earnings report and quarter before Disney's board names a successor to Bob Iger as CEO? That's a great question. So what the board has previously indicated, and I will say the board has been about as transparent as any CEO succession I have ever seen in my long career. What the board has indicated is that will take place sometime during the first calendar quarter of 26. We report in next February whether that will be before or after will be up to the board. But we should have it done by the end of March. Part of our conversation with Disney's CFO, Hugh Johnson. Let's stay on Disney.

18:26Let's dig a little deeper into the numbers. Ethan Ranganatham is with us. Bloomberg Intelligence Senior Media Analyst. You've been writing the overall view for fiscal 2026 is strong. We think guidance may be conservative given multiple levers, including the launch of two new cruises, multiple blockbuster theatrical releases and greater operating leverage at streaming driven by price increases. But Geetha, the market's not giving any sort of optimism here. Why are they beating up so hard on Disney? Yeah, I think after, you know, Caroline, you come off of fiscal 2025 delivering 19 % EPS growth. You know, you obviously have some very solid momentum in the business.

19:03Yes, granted, fiscal, you know, first quarter of 2026 looks a little light. They're dealing with a lot of different cost issues, whether it's on the studio side in terms of launch costs for, you know, cruises. So there's a little bit of all of that that they have to contend with. But I think, you know, the street was really expecting, I think, something much more specific and much more concrete, something better than just double digit EPS growth for 2026, especially when they have the benefit of a lot of different catalysts that come in fiscal 2026. I mean, the stock's down 10 percent, right? That puts it on track for its biggest drop since November of 2022.

19:38You heard the final question asked and answered to Hugh of what happens next with succession. Is that an overhang on the stock here? I think a little bit, Ed. I mean, you know, we know that, you know, the Disney succession issue has really been bungled so many times right now. This has been an ongoing question for them for almost a decade, I would say. You know, it seems like things are moving in the right direction. It's kind of turning into, I think, a two-horse race between Dana Walden, who heads the creative division at Disney, as well as Josh DeMauro, who heads the parks. And this has kind of been the eternal question for Disney.

20:15Do you have somebody who is at the head of creative, who can talk to talent, who can talk to all of those Hollywood executives? Or do you need somebody who heads the parks, which is basically 60 % of the company's profit? I really don't know how it's going to shake out. Maybe they have a co-CEO structure like Netflix, like Spotify is doing. but again we have to wait and watch till the end of March. Geetha Ranganathan of Bloomberg Intelligence great to have you back on Bloomberg Tech. Thank you so much.

20:48Breaking news from Bloomberg. Tesla is developing support for Apple's CarPlay system in its vehicles. That's according to sources. Working to add one of the most highly requested features by Tesla customers. and in CarPlay would mark a pretty stunning reversal for Tesla and its CEO, Elon Musk, who have long ignored pleas to implement the popular feature. We're going to have much more detail later this hour with Bloomberg's Mark Gurman. Cara, you've got another one of our top stories. Yeah, everyone reading about the SEC filings revealed that Michael Burry's Scion Asset Management has terminated its registration status, raising the possibility that Burry could be shuttering his hedge fund or closing it to outside investors at least.

21:28Now, the move comes just one month after Barry warned about market exuberance, particularly in AI. For more, Bloomberg's Tom Metcalf joins us. He'd cover financials, banking. And what really do you think this is signaling, that he just couldn't bet against this so-called AI bubble? Yeah, look, I think your speculation is probably on the nose in terms of this fund might well be closing. And that's what you read his message, and he's always been saying he just cannot read this market. It's extremely exuberant. And, you know, it was hard to interpret these messages, which often have pictures of his character from the big short, for example.

22:04You do get a sense of the frustration. And obviously he put out some shorts on Palantir and NVIDIA. Quite recently they were disclosed in the 13Fs. So it's very interesting that, you know, relatively small fund, but very closely followed. And, you know, the fact he is potentially taking the step does suggest perhaps Stephen and Michael Burry is starting to lose faith in trying to time this bubble. I know. That's what's so interesting, really, about the timing of it. He hinted that there's better things to come November the 25th, so I'm sure we've not seen the end of this ride. But what clarification did we get in terms of the bets he's made against the likes of Palantir that has just defied fundamentals for so long?

22:47Yeah, and that was one of the things he points out in his post, which basically one image in the post said, I sort of deregistered the firm without clarifying any further what that precisely means. But the other kind of lays out the precise nature of that bet he had against Palantir. So in the post, he says he spent about$9.2 million, effectively betting on Palantir's shares would fall. And as part of that, he's got, I think, until 2027, the option to sell those Palantir shares at, I think it was$50. dollars. So, you know, for a fund which is about, you know, 150 million AUM, at least it was in March, that's a pretty sort of striking bet.

23:27But yeah, of course, as you look at Palantir shares, it's sort of, he's on the wrong side of it at the moment. Tom, I think it's so great that you remind us that it is a relatively small fund. And the reason it has outside interest is because many have read the Michael Lewis book, many have watched the movie. But why do we listen to what Michael Burry does? Well, I think the way he presents his theories and stuff is always entertaining, for one. But most principally, it's that incredible win he had back in the financial crisis, right? He really was out front and center on that huge effort to quintuple his investors' money.

24:03So, I think whatever he says, people do sit up and listen. And he has built this social media following, I think also with the honesty, right? He's made bets and when they've gone wrong. He's been happy to kind of hold his hands up. So it's always been interesting to follow him. Bloomberg's Tom Metcalf following him for us. We so appreciate it.

24:26Welcome back to Bloomberg Tech. Let's take a quick check on these markets, shall we? Because, in fact, we're on sell-off mode on the Nasdaq more broadly, off by one and a half percent. We've got anxiety around actually the government reopening. That's already priced in. But what does that mean in terms of data? What does that mean in terms of the Federal Reserve, its ability to cut into this market. We're up by 1.5%. Some of the biggest tech names are on the downside. Let's go to where the earnings have led us because one of the key names in the red is indeed Disney. We're off by almost 10%. We're having a significantly poor day, worst in several years for Disney.

24:56This is as they actually pointed to still double-digit earnings per share growth into the fiscal 2026. But revenue was flat for their fourth quarter and actually earnings per share dropped a little bit. Maybe people wanted to see more of a narrative around the growth as they inject more investment into streaming as they invest into their slate, as they invest into marketing and the like. We're looking at Cisco up by 4.5%. Boy, Chuck Robbins on a tear as we see this company now trade at the highest since the previous bubble, 2000. Of course, Cisco currently up 4.6 % as they manage to beat and raise in terms of their earnings.