Broadcom Slides After AI Chip Forecast Underwhelms Investors

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1:01On 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 get back to the news flow folks. I tell you the news flow does not know that it's you know the Thursday before Labor Day weekend. It just keeps coming and waiting for slowdown. Particularly in the tech space we've got earnings we've got M&A. We're sticking with Matthew Bloch some senior media and tech analysts for Bloomberg Intelligence. He's over there in that tech hub of London, England. Matt let's talk with Broadcom. Here's my take away from the Broadcom earnings. They predicted a boom in artificial intelligence chip sales. Like what have we been experiencing over the last several years. Predicted a boom in artificial intelligence chip sales over the next two years. Helping to renew optimism that it can challenge an individual's dominance there. So this spending cycle it shows no signs of slowing doesn't matter. It does not and I'll see what we heard from them was that they expect very anthropic and open AI to become the most important customers.

2:05You know, Eclipseing Google. And you know that's significant because it kind of shows you that there's kind of substance behind the plans and capturing that these companies are undertaking. But you know, obviously that that kind of midterm runway does is really contingent on the current momentum continuing. And you know, I think what we're seeing in the opportunity for Broadcom is very much that these big hyperscalers don't want to be purely reliant on and video for their technology. They're looking to data diversify and Broadcom is going to be incredibly important part of them in that technology diversification. Yeah, Hawk Tandacee saying we have six customers and four of them are just simply going to be huge. So these hyperscalers when they kind of spread out their needs across different suppliers. How broadly, how widely can they spread that out? I mean, they don't want eight suppliers for their chips today. They want to limit it to, you know, handful.

3:08Yeah, I think there's a balance. And we'll see that they're also some complete risk vehicles, you know, Google as well as being a hyperscaler competitor is also a technology competitor to so that there's a balance to be had. Yeah, you know, I think maybe kind of two or three key suppliers is probably going to be sufficient for most of them, but you want those two or three suppliers to be genuinely, you know, kind of independent and robust. You know, we've had a lot of supply constraints in the recent past and you know that they continue to kind of impact the growth of the industry. So I wouldn't be surprised in the short term. And there's even some kind of broader diversification beyond beyond the two or three. I think they'll be a core two or three, but they'll be looking at innovative technology around the edges just to kind of make sure that they've got as much supply coming through as they can get their hands on. Matthew, as this, I guess, AI theme continues to ripple through the technology space writ large.

4:11One of the potential losers was called out in like a year, year and a half ago, certain software companies that might be displaced by AI. I mean, one of them that doesn't appear to be at all is snowflake. They reported some really, really good earnings and they talked about using AI assisted coding tool. How that's been a big hit for that. I mean, so there's an example, I guess, of a software company adapting AI to making their products even better. What did you make of the snowflake earnings? Yeah, I mean, if I'm honest, I'm surprised quite in how much the shares have reacted to the results, because you obviously there's a beat on the earnings that they reported and I upgraded the guidance for the full year. It's not that big if I'm honest, but I guess it's kind of what you kind of mentioned here is that, you know, I think there's been a lot of scrutiny around software companies and their ability to adapt to the AI opportunity rather than. Being replaced by it and I think what we've seen today in the snowflake numbers is that their execution against AI and adopting it and integration it into their software is going incredibly well.

5:23And so I think probably what you're seeing in the share prices, they there is not just so much about the next two or three quarters or the next 12 or 18 months. It's the view that actually, you know, they they're asking this opportunity is going to create kind of mid to long term opportunity for them that's not fully appreciated in the numbers yet. Yeah, it feels like a little bit of a relief for all the trading today up 20% up 60% over the year today, but it's almost like even it's similar thing happened to Microsoft and they reported their last quarter. People said, oh, these guys can go and adapt and use AI and all like, you know, so I think that's case by case you put up the numbers and boom. Also, depends on the mood of the market at any given point, you know, there's been a lot to be worried about and that kind of casts a call over everything. You got to consider all the macro factors too. Before we let you go, Matthew, just a quick comment from you on Nvidia acquiring this AI platform hugging face. Nvidia getting into software. Is that a good idea?

6:23Yeah, I think I think it is you'll see Nvidia is playing this role of kind of. Keep cheerleader if you like for the whole AI industry and are looking to use their financial and technological cloud to kind of really make sure that the industry continues to develop in every direction. I think the kind of critical thing here has been a lot of talk about open source and that you're hugging faces kind of really the home for open source AI software. And I think Nvidia kind of looks to the kind of mid to long term and things while you know if we don't play a role in making sure that the open source community remains strong and vibrant and grows. And we're going to be left with an industry that's dominated by a very small number, a very large, very powerful closed source businesses, you know, the likes of open AI, likes of. And throttic and that's a not good for the industries at all and be probably wouldn't be good for Nvidia because it would create a lot of concentration of their customers.

7:28And as we were talking about earlier with broad call, you know, potentially they're diversifying away from Nvidia technology that potentially limits the Nvidia opportunity. So I think it makes a lot of sense for the industry as a whole and it definitely makes a lot of sense for Nvidia in terms of protecting the mid term opportunity for them. Stay with us more from Bloomberg intelligence coming up after this. Follow the money in the world of sports every week on the Bloomberg Business Sports Podcast. Hello, I'm Randall Williams, join Michael Barber, NASA Pradoemon Maglion and me as we take you inside the deals, decisions and innovations that power this multi billion dollar industry. Plus, we'll speak with executives, athletes and visionaries that are transforming sports across the globe. Subscribe to the Bloomberg Business Sports Podcast on Apple Spotify or anywhere you listen. 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.

8:33Listen on demand wherever you get your podcasts or watch us live on YouTube. Alright, I've been doing a stock market thing for 40 years. I have no idea what's going on or how this works. HP enterprises for example, but a fiscal third quarter sales, B estimates, fourth quarter outlook, B estimates. What's the stock doing? Down seven percent. No idea what's going on. But the next guest, he knows what's going on. Wu Jin Ho, senior technology analyst from Bloomberg Intelligence. Wu Jin Ho, what's going on with the HPE stock today? I thought it was a pretty solid quarter all around here, but I guess it stocks up 100 percent and you can't win every day. Well, hey, Paul. Look, quite frankly, as I had scratched myself in terms, you know, we can't talk about valuations and stock movements. But the quarter all on all to your point has been very, very good, right? And especially in the outlook. You know, not only did they raise 26, but they also raised a preliminary 20 fiscal 2027 growth outlook because the fundamentals are strong.

9:34And, you know, quite frankly, you know, investors should be a little bit happier than the way they're reacting today. Yeah, HPE's report followed blowout results from Dell who it competes against in those AI servers. And of course, AI chipmaker in video, kind of the poster child for the AI boom really raised the bar. How much of this is tied to, you know, Paul saying that the stock is done tremendously well. I look at total return, which includes dividends, 257 percent over the last five years. And then if you just look over the past one year, 114 percent total return. I mean, the stock is pricing a lot. Well, look, hey, Scarlett, so I will tell you that there's a couple of things going on, right? Dell's 25 billion dollar guidance increase was definitely a tough act to follow, right? So I guess the investors were expecting a similar follow through to that, but they're not. But if we look also look at it from evaluation standpoint, Scarlett, you know, relative valuation.

10:37I think Dell is trading at roughly 18 times forward earnings. HPE is roughly around 14 times. So there is a discount. I will tell you that there's a couple of things going on. HPE doesn't have as big of an AI server exposure as Dell does. Quite frankly, it's probably one fifth of that, if not smaller, of Dell's. And that could be somewhat of a valuation drag because at the end of the day, even though it is a low margin business, it throws off a lot of operating cash flow if they can get into the right deals. Hey, Wouge, when you look across the portfolio of products, services, HPE provides the marketplace, are you comfortable with that? Is it street comfortable with that or are there areas where they need to either invest or maybe buy? Yeah, look, I like the portfolio where it stands right now, right? They've had a state of goal of focusing more on profitability and they made the acquisition of Juniper last year.

11:37And that is going to be a margin boost. And the way Antonio and his earnings call was that, hey, they consider themselves more of a networking company more so than anything else. Where a most critical of HPE is that they own also own Craig computers. And that really should have opened the door for them to be a market leader in these multi-billion, hundreds of billions of dollars of AI server deals. And I really think that management has missed on that. And they continue to stand the course on going for a higher margin AI server deals. And quite frankly, that was an opportunity missed. Gotcha. You mentioned networking equipment, kind of being what it does. And the AI server is a smaller part of their business. HPE also announced this partnership with Oracle to provide networking equipment to Oracle's data centers. Is that a risk given that at least credit investors look at Oracle kind of skeptically?

12:39Yeah, and that's one of the knocks on the deal. But I think it should be okay for the next couple of quarters. There's a couple of things here at Scarlett that I think investors were focused on. There was some sort of circular financing. HPE issued some warrants as part of related to the partnership with Oracle. And I look to the 10Q filing today. And thank you Paul for having us read the 10Qs. But four million shares were tied to that deal. So from a delusious standpoint, it's really not a big deal. We have to trust Oracle to go on and continue on with some of these deals. And at the end of the day, HPE should be able to get its money. So which we've now had 24 hours to digest that news out of Dell that they're taking their guidance up a monster amount that we've never seen before. When you talk to institutional investor clients, how are they putting that into context these days?

13:41Because that was just a monster print from Dell yesterday. Yeah, and that's a thing. It's a monster print. And they're trying to, you know, the trade has been long Dell short HPE. So I don't view this as a binary type of outcome. I do think that Dell is going to do its thing and they're going to win. I think there may have been some shareships that have gone on based on Dell's results. But at the end of the day, HPE is going on this phenomenal growth run on the traditional server business. And given that they've been able to give out 20, 27 guidance, it's going to be durable. Now, you know, when you had me on before, you asked if, you know, asked about the cyclicality of the traditional server business. But what we're seeing from corporates is that they're looking to upgrade their IT infrastructure to help support AI workloads inside the corporates and lower the token costs. So that's going to help HPE in my mind. All right. So here's my dumb question to the day. But this was actually my job at one point when I was a young youngster on the equity capital markets desk.

14:44I would call our companies, our clients, that had a $500 stock price and say, hey, are you interested in a stock split? We think you should do a stock split here. Blah, blah, blah, blah. What does Dell say about that? Did they even talk about that? Or they don't mind a $500 handle on their stock? Look, if, you know, brush your half the way, you can get away with, you know, $1,000, $100, $1,000 stock, why can't Dell? Yeah, that's a good point. If I'm Michael Dell, I would say, hey, if Warren can do it, I can do it to do it. It's a high class problem to have. Would you know, thanks so much, appreciate it. A basic couple of days for you with some of these big tech companies reporting earnings, appreciate getting some of your time. Would you know, folks, you've seen your technology on us, the Bloomberg Intelligence, working at our Princeton office. Stay with us, more from Bloomberg Intelligence coming up after this. 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.

15:48All right, Scarlet, I just learned a new term today. Semmy Scratch Cooking. Do we do it? I don't know, but our next guest can help us out here. The annual Roced Up Paying Yet Consumer Staples Annals for Bloomberg Intelligence. What is Semmy Scratch Cooking? And if I want to play it in the stock market, how do I do that? Yes, so basically it is based off of what Campbell's has said. It's basically when you cook a meal in less than 30 minutes and with less than five ingredients. So their position in themselves. This is Campbell's soup. Campbell's soup in terms of like with their soups and condensed soups and all of that to make it easier for you to do that. And you know, save time and money, I guess. So you're kind of cooking but in a very truncated way. Yes. And you can feel some sense of accomplishment from that. Exactly. But how does that match up with this current demand for protein and healthy foods?

16:51I mean, condensed soup has a lot of sodium, for instance. Yes, but they are hoping that because of the fact that you add your own ingredients as well, then you kind of add a little bit of that. So I'll add a organic milk to my cream of mushroom and it'll make it better. And it's exactly like some protein in that. They're also coming up with like news, new lines with added proteins, especially for like drinkable soup and stuff like that. But you know, cooking is now it's like half of their meal, meal and beverages segment sales. So it seems that it's growing for them. But they just reported on some disappointing results. Yes. And they also cut their dividend, cut 13% of salaried workforce. What's going on here with Campbell's soup company? So basically the biggest issue is snacks. Snacks is a very challenged segment for them, particularly on chips, which is or salty snacks. Which is, you know, we have seen in the past year, salty snack sales as the category.

17:56So if you have slow down, people are more conscious about whether eating, you know, dieting, DLP one might play into that as well. And also it has become really aggressive in terms of pricing. I mean PepsiCo has 60% of the salty snacks market. So definitely that seems to be working against them, against Campbell's. So ball is a big fan of goldfish every day around 10, 18 p.m. He goes up serving gets a cup of goldfish. And Campbell's has done a pretty good job with reviving sales of goldfish. What did it do with the goldfish line? So they're actually starting to, it's been marketing. It's been a packet sizes. It's been they are going to introduce a goldfish gluten free. So all those, they're really trying to get into like what the trends for nutrition are about. And you know, they're following them in matcha flavored goldfish ball. Campbell soup company IPO November 16th, 1954.

19:02How about that? That is a moment in time. How cool is that? Based in Camden, New Jersey. I was waiting for the New Jersey reference. What does the company say they want to be when they grow up? I mean, there's been so much consolidation in this industry. They've been around forever. Is there still any kind of family connection or anything like that that says we're just going to say independent forever? What are they in a consolidating world? What do they want to be? Well, I think they want to at least we're hoping is to bring you know, shareholder returns. And they seem to be committed with that. But not necessarily this year. They like you said, they slashed dividend. This is the third company that has done that this year after Konagra and B&G. And you know, a consumer staples company cutting dividends is a significant red flag as I will see it. You know, you don't have a lot of growth. So share buybacks and dividends are you know, your your bread and butter and you know, necessarily doing that.

20:08Yeah, they're hoping they save $170 million annually that is going to go to that repayment. So it feels like Campbell's is at the center of a lot of trends that are overtaking it. And societal trends, whether it's GLP one, whether it's people being more healthy, people wanting to cook, but with limited ingredients and unlimited time margins. What about tariffs? How do tariffs affect a company like Campbell suit? Well, they affect them significantly. They did not say mention it this quarter, but you know, tariffs on steel has been a significant headwind for them. And that is obviously something that is is they're working through. They actually expect cogs for fiscal 2026 to be about five to six percent greater than two. Yes, exactly. And obviously they are going to increase prices in 60% of their portfolio around around the same four to five percent. So you know, price increases, you know, they are willing to sacrifice some volume on that is is the you know, the elasticity significant compared to others.

21:17All right, favorite Campbell soup when your child flavor chicken little soup is that name? Yeah, I like that like chicken with stars because I thought this was cool. I'm a Manhattan clam chowder guy. I like to cream of mushroom. You okay? Solid. Yeah, that stacked to the like like like the pop clips was coming. We had so much of that in our house. I mean, again, I was the last of four children. Cooking food wasn't really on the agenda for the rent. Your hungry house of Manhattan clam chowder. Go for it. Or get open. 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 new Eastern on Bloomberg calm the I heart radio app tune in and the Bloomberg business app. You can also watch us live every week day on YouTube and always on the Bloomberg terminal.