Alphabet Falls, Caterpillar Slumps, Eli Lilly Rises After Raising Sales Forecast

0:02 Bloomberg Audio Studios. Podcasts. Radio.

0:06 News.

0:08 The Stock Movers Report. Your roundup of companies making moves in the stock market. Harnessing the power of Bloomberg data.

0:16 Stocks are moving here today. We can do that with Bloomberg's Chloe Milley. She is the earnings reporter for Bloomberg News. Chloe, what are you looking at today?

0:25 Good morning. Yes.

0:26 So we are looking at Alphabet. Let's start with that big story, of course, after that huge drop in the shares, after reporting quite disappointing results. So the main source of disappointment really was the search and advertising business with the sales in that division growing at the slowest pace in five quarters. And the problem here is that this part of the business is about half of the overall revenue.

0:50 And it's also really important to financing those huge AI investments that Alphabet is making currently. So what's interesting is that the AI mode tab on Google search is actually very popular, but it has much lower potential for monetization through ads. So it's kind of a situation of Google shooting itself in the foot a little bit, at least until it really figures out a way to bring ads onto the AI search engine. And if we look at the tech giants more broadly, the stories have really diverged.

1:21 We had Microsoft beating estimates And keeping that spending in check, that led to a big rally. And then today, Alphabet seeing that huge drop in the shares. But one thing that's been common across all those stories is that the big key question for investors is AI spending and the return on investment on that.

1:38 And Scarlett, I think we may look back, may look back on this earnings report as a fundamental change in how the street values- The inflection point. Yeah, it may be. I don't know. Dan Ives says it's not structural, but boy, this was the fear that everybody had From day one, chat GPT, from day one, NVIDIA put out that revenue growth.

1:56 What does it mean for search?

1:57 Yeah, absolutely. And that still is Google's biggest moneymaker when it comes down to it.

2:02 All right, the next company on your list? is also another sort of AI story with Caterpillar, which is a company making equipment like generators and gas turbines for data centers. And shares are also down a lot this morning because the earnings beat was seen as too modest. And so increasingly this earnings season, we have seen those companies that build AI infrastructure are running against very, very high expectations.

2:29 and investors being really quite unforgiving despite guidance raises, despite really good numbers for some of them. Comfort System, which is an HVAC company providing cooling systems for data centers. Bloom Energy as well, which makes power equipment for data centers. There's been a huge drop for those companies as well earlier in the season after very solid earnings because of concerns around margin and cash flow. And so, as I said, the key question this season has really been around this massive spending on AI, whether it's sustainable and whether it's actually paying off. And so we're seeing that drop this morning.

3:05 Caterpillar made dump trucks. What do I know? AI play.

3:09 Yeah, well, you know, data centers, someone needs to clear the ground for the data centers.

3:13 I need the power, I guess. Eli Lilly, LLY.

3:16 Yeah, so let's end on a bit more of a positive note. Eli Lilly is up very strongly this morning after raising its sales guidance, of course, benefiting from very strong, sustained demand for its obesity and diabetes drugs. And so that means that Lilly is now widening the lead that it already has in that weight loss market. And there's probably even further to go for that company given that it is expanding into weight loss pills and developing even more powerful drugs in that space as well. And then also getting into new areas like women's health and psychedelics as well. There's one slight area of weakness, which is the weight loss pill, which actually missed expectations for this quarter.

3:56 For now, it's fine because the other obesity drugs are doing very well. But If that begins to slow, that could potentially create an issue. It's also worth noting that Novo Nordisk is trying to hold on to its market share. So Eli Lilly really needs to be at the forefront of innovation to avoid falling behind and to really maintain that lead that it's managed to get.

4:18 The Stock Movers Report from Bloomberg Radio. Check back with us throughout the day for the latest roundup of companies making news on Wall Street. And for the latest market-moving headlines, listen to Bloomberg Radio Live. Catch us on YouTube, Bloomberg.com, and on Apple CarPlay and Android Auto with the Bloomberg Business app.