Latest / Bloomberg Intelligence / OpenAI Finalizes $110 Billion Funding at $730 Billion Value

Transcript

OpenAI Finalizes $110 Billion Funding at $730 Billion Value · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
• 0:14
  Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg
• 0:17
  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
• 0:21
  Speaker 1: or watch us live on YouTube.
• 0:24
  Speaker 2: All right, more just monster numbers being thrown about in
• 0:27
  Speaker 2: this AI game. Open AI heid erase one hundred and
• 0:30
  Speaker 2: ten billion dollars in new investment at a seven hundred
• 0:35
  Speaker 2: and thirty million dollar pre money valuation. Extraordinary, straordinary amounts
• 0:41
  Speaker 2: of money being raised. All the big names are involved here.
• 0:44
  Speaker 3: I need a little help.
• 0:45
  Speaker 4: We all need a little.
• 0:46
  Speaker 2: Help here, Caroline Hyde be tech co anker joints us
• 0:48
  Speaker 2: Here in our Bloomberg Interactive Broker studio. The hits keep coming, Caroline,
• 0:52
  Speaker 2: I mean the investments keep coming, and from big names.
• 0:54
  Speaker 3: We all know.
• 0:56
  Speaker 2: What do you make of it?
• 0:57
  Speaker 5: It makes for an interesting relationship of Open Air Microsoft
• 1:00
  Speaker 5: going forward, because this is Amazon coming in, which already
• 1:04
  Speaker 5: has a very strong relationship with anthropic Remember, and we've
• 1:07
  Speaker 5: seen a lot of crossover of big strategic investors and
• 1:10
  Speaker 5: venture capitalism putting money into both key frontier labs. What's
• 1:15
  Speaker 5: interesting in this agreement is not only the whopping scale
• 1:17
  Speaker 5: of money. Fifty billion is going to be coming from Amazon,
• 1:19
  Speaker 5: and we don't quite know if that is Thure cash
• 1:21
  Speaker 5: or actually whether it's more in cloud costs that just
• 1:23
  Speaker 5: get sucked up by Amazon instead, or indeed whether it's
• 1:26
  Speaker 5: GPUs and chips.
• 1:27
  Speaker 6: But we also think that thirty billions coming.
• 1:30
  Speaker 5: From in video, so the deepening tie continues there and
• 1:32
  Speaker 5: clearly therefore some gpusm in video are going to be
• 1:34
  Speaker 5: intertwined in open AI's compute needs as well as Amazon
• 1:38
  Speaker 5: Zone Tranium chips and the likes. But we're also seeing
• 1:41
  Speaker 5: well as well as Massiyoshi Son being a big player
• 1:44
  Speaker 5: in all of this, Microsoft being less of a player.
• 1:46
  Speaker 5: And remember open ai first got its big chunk of
• 1:49
  Speaker 5: change from Microsoft.
• 1:50
  Speaker 6: Microsoft was the key backer of.
• 1:52
  Speaker 5: The company, had exclusive rights to a lot of open
• 1:54
  Speaker 5: AI's technology within the Azure platform. Well, now the frontier
• 1:59
  Speaker 5: offering coming from open an that's basically the new offering
• 2:01
  Speaker 5: to help build agents, which is all anyone can talk
• 2:03
  Speaker 5: about at the moment, that's going to be exclusive on AWS.
• 2:06
  Speaker 3: Oh wow.
• 2:06
  Speaker 6: So all of this is just.
• 2:07
  Speaker 5: An interesting rearrangement of technology partners and just how people
• 2:12
  Speaker 5: are deepening their ties.
• 2:13
  Speaker 7: I like your word rearrangement because we have open aico.
• 2:16
  Speaker 7: Sam Altmann saying that he doesn't think his company's fundraising
• 2:19
  Speaker 7: is looking called circular as long as revenue keeps going.
• 2:23
  Speaker 7: And I feel like this is a conversation we've been having.
• 2:25
  Speaker 7: It's like the self funding loop and is it risky?
• 2:29
  Speaker 7: But he's saying it's not circular.
• 2:30
  Speaker 6: Well, and Video has had to try and prove this
• 2:32
  Speaker 6: point time and time again.
• 2:33
  Speaker 5: And Video has been putting money into neo clouds like
• 2:36
  Speaker 5: core Weave, which had its numbers today, putting money into
• 2:39
  Speaker 5: the likes of an Anthropic and an open AI, which
• 2:41
  Speaker 5: ultimately all want.
• 2:42
  Speaker 6: Chips from in video.
• 2:44
  Speaker 5: But many would say, look, it's not just circular financing,
• 2:47
  Speaker 5: is actually strategic financing, because how better to understand how
• 2:51
  Speaker 5: your technology works best is if you partner this closely
• 2:53
  Speaker 5: and you can understand the way in which.
• 2:55
  Speaker 6: Your GPUs, your CPUs be used in the future.
• 2:57
  Speaker 5: So for the cynics among us, yes, it looks like
• 3:00
  Speaker 5: the same big players are all moving money from one
• 3:02
  Speaker 5: place to the other within each other.
• 3:04
  Speaker 6: But for perhaps the more practical it's.
• 3:06
  Speaker 5: That well who heals has the cash pile to be
• 3:09
  Speaker 5: able to continue to build the flywheel effect to a
• 3:13
  Speaker 5: generative AI here at the moment, and open ai has
• 3:16
  Speaker 5: an enormous amount of compute needs. That's what they keep
• 3:18
  Speaker 5: saying time and time against Sarah Friar as a CFO.
• 3:20
  Speaker 5: Sam Altman is the CEO saying the thing that's holding
• 3:22
  Speaker 5: back our revenue. And remember they guided us to a
• 3:24
  Speaker 5: new kind of revenue stratosphere of to URN eighty billion
• 3:27
  Speaker 5: by next year.
• 3:29
  Speaker 6: The way they get there is by computer increasing, not
• 3:31
  Speaker 6: anything else.
• 3:32
  Speaker 5: They've got all the parts they need to build revenue
• 3:35
  Speaker 5: from the twelve billion that they raise that they made
• 3:38
  Speaker 5: in twenty twenty five. But what they really need is
• 3:40
  Speaker 5: the galvanization of infrastructure, and that comes from power and
• 3:43
  Speaker 5: that comes from compute.
• 3:44
  Speaker 2: I mean, open AI says, chat GPT has more than
• 3:48
  Speaker 2: nine hundred million weekly active users, more than fifty million
• 3:52
  Speaker 2: consumer subscribers and more than nine million paying business users
• 3:57
  Speaker 2: that rely upon chet GPT.
• 4:00
  Speaker 3: That's deployment.
• 4:01
  Speaker 2: That Are they the biggest yet, I'm not even sure
• 4:03
  Speaker 2: how we define the market better. Are they the biggest
• 4:05
  Speaker 2: in consumer?
• 4:06
  Speaker 8: For sure?
• 4:07
  Speaker 5: Like in terms of like this is the size and
• 4:08
  Speaker 5: scale of people using the problem is is of course
• 4:12
  Speaker 5: Google how are you measuring Google? Many would say, like,
• 4:16
  Speaker 5: is it the person who my mum who goes onto
• 4:18
  Speaker 5: Google Search and gets an AI overview? Or is it
• 4:20
  Speaker 5: someone who downloads the Gemini app and uses it in
• 4:23
  Speaker 5: a distinct kind of model.
• 4:24
  Speaker 6: So there's two ways in which you can compare and contrast.
• 4:27
  Speaker 5: But certainly open Ai has beaten out Anthropic from a
• 4:30
  Speaker 5: how many people are using their standalone application, nine hundred
• 4:33
  Speaker 5: million is a huge amount.
• 4:35
  Speaker 6: But from an enterprise.
• 4:36
  Speaker 5: Perspective, many would say Anthropic has led the charge there,
• 4:39
  Speaker 5: and that's why open ai has really been doubling down
• 4:41
  Speaker 5: on this agentic focus and AWS is going to be
• 4:44
  Speaker 5: call to that, putting it in within Bedrock.
• 4:46
  Speaker 7: There's also a headline from Anthropic they're refusing to Pentagon's
• 4:49
  Speaker 7: lead as contract terms. They want to limit surveillance and
• 4:52
  Speaker 7: autonomous weapons. Are those reasonable asks for a company supplying
• 4:56
  Speaker 7: AI to the military.
• 4:57
  Speaker 6: The military would say no.
• 4:58
  Speaker 5: The military would say locking mar and has no power
• 5:00
  Speaker 5: over us to dictate how we use the weapons. We
• 5:03
  Speaker 5: just purchased them and us and there are laws that
• 5:05
  Speaker 5: we have to abide by, and there's humanitarian things that
• 5:08
  Speaker 5: we sign up for, and the way in which we
• 5:11
  Speaker 5: police war worldwide. However, from anthropics perspective, and if you'd
• 5:14
  Speaker 5: been keeping up with out Dario Amide, the CEO has
• 5:17
  Speaker 5: been writing of late. He put out a big piece
• 5:19
  Speaker 5: thought leadership piece in January talking about the adolescence of
• 5:22
  Speaker 5: technology and his worries and concerns about geopolitics, the use
• 5:26
  Speaker 5: of generator of AI for surveillance, the use of generative
• 5:29
  Speaker 5: A biotech and warfare. So no wonder he's still thinking
• 5:33
  Speaker 5: along these worklines. He's given us all the breadcrumbs to
• 5:36
  Speaker 5: know that this is how it feels. They just earlier
• 5:38
  Speaker 5: in the week, remember sort of put out this odd
• 5:40
  Speaker 5: statement saying they're stepping back to from some of their
• 5:43
  Speaker 5: safety as a core mission purpose. But within that statement
• 5:48
  Speaker 5: they really made clear it's because the government doesn't care.
• 5:50
  Speaker 5: The government has not been increasing their focus on AI
• 5:53
  Speaker 5: ethics in the way that they thought they would.
• 5:55
  Speaker 3: Stay with US war from Bloomberg Intelligence coming up, care
• 5:58
  Speaker 3: for this.
• 6:02
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 6:06
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 6:09
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 6:12
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 6:16
  Speaker 3: Dell technology shares.
• 6:18
  Speaker 2: They jumped pretty big here after the company gave an
• 6:20
  Speaker 2: outlook for sales of its artificial intelligence service that exceeded estimates.
• 6:25
  Speaker 2: As John said, stocks up nineteen point four percent today.
• 6:27
  Speaker 2: Not bad for a big, big company. Ninety seven billion
• 6:30
  Speaker 2: dollars in market cap. Would you know Joins is here
• 6:32
  Speaker 2: senior technolog channels for Bloomberg Intelligence. That's a serious print
• 6:36
  Speaker 2: for Dell. What's what's going on there?
• 6:38
  Speaker 9: I mean John just said, look, you're having these massive
• 6:41
  Speaker 9: investments by from OAI right open OAI. So essentially all
• 6:47
  Speaker 9: of these data center deployments are really starting to materialize,
• 6:50
  Speaker 9: un tell us starting to benefit from it, and.
• 6:53
  Speaker 7: They're entering a year with a forty three billion dollar backlog.
• 6:56
  Speaker 7: Does that give investors real visitibility? Or is the backlog
• 7:00
  Speaker 7: vulnerable to supply chain constraints and maybe pricing resets.
• 7:05
  Speaker 9: Well, that's a fantastic question. Right on the pricing reset,
• 7:09
  Speaker 9: I don't think so. I think there's a little bit
• 7:11
  Speaker 9: of a leverage on Dells side because and videos holding
• 7:14
  Speaker 9: the cars with the GPU chips, right, But in terms
• 7:18
  Speaker 9: of the supply environment, Dell does the supply chain very
• 7:22
  Speaker 9: very well, and the revenue guidance not only for the
• 7:26
  Speaker 9: AI server side but also traditional servers NPCs. They're managing
• 7:32
  Speaker 9: it a lot better than we thought, so they should
• 7:34
  Speaker 9: be fine on the supply side for the rest of
• 7:36
  Speaker 9: the year.
• 7:37
  Speaker 2: How big is the AI related product revenue for Dell
• 7:41
  Speaker 2: and how's that grown and what do you expect it
• 7:44
  Speaker 2: to go to?
• 7:44
  Speaker 9: Well, if we think about just the AI server piece
• 7:48
  Speaker 9: by itself, it is twenty five billion for this year,
• 7:52
  Speaker 9: doubling to fifty billion. I mean, we're talking about incredible
• 7:55
  Speaker 9: numbers doubling to fifty billion next year. We've also seen
• 7:58
  Speaker 9: that sort of momentum from super Micro as well that
• 8:02
  Speaker 9: they reported a couple of several weeks ago. But on
• 8:05
  Speaker 9: the AI PC front, they just started to pick up steam.
• 8:10
  Speaker 9: Still small portion of the business, but you know, quite frankly,
• 8:14
  Speaker 9: every PC is eventually going to be an AI So
• 8:16
  Speaker 9: what's an AI PC?
• 8:18
  Speaker 3: What is that practicality?
• 8:19
  Speaker 9: Yeah, you know, I'll tell you. In practicality, very little
• 8:24
  Speaker 9: for you and I right, it's a chip that can
• 8:29
  Speaker 9: handle a lot more processes, uh, and do it a
• 8:32
  Speaker 9: lot faster.
• 8:33
  Speaker 10: Right.
• 8:34
  Speaker 9: I've been actually been playing around with cloud code as
• 8:37
  Speaker 9: part of my work, and essentially what I'm doing is
• 8:41
  Speaker 9: trying to use some of the processing that's on the
• 8:44
  Speaker 9: on the PC. What I suspect is is that as
• 8:47
  Speaker 9: corporates try to bring in AI into their workflow, they
• 8:52
  Speaker 9: are going to look specifically for aipcs going forward.
• 8:56
  Speaker 7: The company says memory chips memoryship prices are right thing rapidly.
• 9:00
  Speaker 7: Do you think that the margins and those segments will
• 9:04
  Speaker 7: be sustainable if the component prices also keep climbing.
• 9:09
  Speaker 9: Yeah, So I think this is one of the reasons
• 9:11
  Speaker 9: why the stock is up so much. Right, the sentiment
• 9:16
  Speaker 9: going into the print was really really negative, primarily because
• 9:20
  Speaker 9: of the component and memory pricing HPQ. HP said on
• 9:26
  Speaker 9: just the other day that the memory pricing doubled over
• 9:29
  Speaker 9: the past month, the round pricing alone, right, so that
• 9:33
  Speaker 9: eight away margins. We actually did the math memory pricing
• 9:38
  Speaker 9: plus a higher mix of AI servers. That's eating away
• 9:41
  Speaker 9: one hundred, one hundred basis points of gross margin. And
• 9:45
  Speaker 9: the thing is is that just a relative scale of
• 9:48
  Speaker 9: the AI server revenues is helping to lift EPs altogether.
• 9:52
  Speaker 11: So talk to us about the shortage of chips out there.
• 9:55
  Speaker 2: So we hear from a lot of your companies and
• 9:57
  Speaker 2: other companies in the tech stack, What is it?
• 10:00
  Speaker 10: Why is it?
• 10:01
  Speaker 3: How does it get fixed?
• 10:02
  Speaker 9: We can blame AI on everything, yes, Right, So essentially
• 10:07
  Speaker 9: AI servers take they use HBM high bandwidth memory that
• 10:12
  Speaker 9: that's stacked, and it's sucking up a lot of the
• 10:14
  Speaker 9: memory capacity that's out there. If we come off of
• 10:17
  Speaker 9: the COVID period. Essentially, the memory makers, whether it's Microns,
• 10:22
  Speaker 9: skhih Nicks or Samsung, they were hesitant to building out
• 10:25
  Speaker 9: more capacity because they just didn't know if this AI
• 10:27
  Speaker 9: thing was going to be real. And now it's starting
• 10:29
  Speaker 9: to catch up to them. It's causing this domino effect
• 10:32
  Speaker 9: of everything else, servers, smartphones, PCs, They're just scrambling for
• 10:38
  Speaker 9: supply right now.
• 10:40
  Speaker 7: How do you read the buybacks around ten billion dollars?
• 10:43
  Speaker 7: Is that confidence in future cash flow or more like,
• 10:46
  Speaker 7: oh no, the stock is still undervalued.
• 10:48
  Speaker 9: Well, you know when the stock was at one twenty,
• 10:52
  Speaker 9: I'm sure, Michael Delta the stock was undervalued and I
• 10:55
  Speaker 9: wanted to read a lot more confidence not only in
• 10:57
  Speaker 9: the business outlook, but also in cash generation. Right, we
• 11:01
  Speaker 9: are hearing mixed things on the cash generation front from
• 11:05
  Speaker 9: from my hardware companies.
• 11:06
  Speaker 2: At least, did I d C takedown I d C
• 11:10
  Speaker 2: is the the third party independent data provider for pretty
• 11:13
  Speaker 2: much the whole technology industry. Did they take down their
• 11:15
  Speaker 2: forecast for PCs?
• 11:16
  Speaker 9: Was it took them long enough?
• 11:18
  Speaker 11: Yeah?
• 11:19
  Speaker 9: No, No, we had minus seven percent unit declines.
• 11:25
  Speaker 2: Is that because there's enough chips to make the PCs?
• 11:27
  Speaker 9: It's it's twofold, right, not enough chips? And number two,
• 11:33
  Speaker 9: PCs are very very elastic, right from a demand supply
• 11:37
  Speaker 9: demand perspective. And essentially what they did was they cut
• 11:41
  Speaker 9: their forecast from minus three percent to minus eleven percent
• 11:44
  Speaker 9: on the PC side, and they also cut their forecast
• 11:46
  Speaker 9: the smartphones to minus thirteen percent. Right, there's a couple
• 11:49
  Speaker 9: of things going on. The PC makers are going to
• 11:52
  Speaker 9: focus more on the high margin businesses, right, so it
• 11:56
  Speaker 9: leaves the lower end PCs at alert, so they're not
• 12:01
  Speaker 9: going to start supplying those. And also the low end
• 12:05
  Speaker 9: market tends to be a lot more price sensitive, so
• 12:08
  Speaker 9: they're probably not going to upgrade.
• 12:10
  Speaker 7: And then we have server and networking margins. I think
• 12:12
  Speaker 7: those came above expectations. Is THELL gaining pricing power in
• 12:17
  Speaker 7: AI hardware or is it just because maybe they're executing
• 12:20
  Speaker 7: better than their peers? How do you read that?
• 12:22
  Speaker 9: Yeah, so there's a couple of things going on as well.
• 12:26
  Speaker 9: The first thing is is that they're raising prices right,
• 12:30
  Speaker 9: and the term sheets are getting shorter. Instead of like,
• 12:33
  Speaker 9: you know, three months, it's two weeks, so that that's
• 12:38
  Speaker 9: happening as well, it's less price elastic. And then on
• 12:43
  Speaker 9: top of that, from a margin perspective, as you we
• 12:45
  Speaker 9: were talking about earlier, storage has a higher margin overall,
• 12:49
  Speaker 9: and the storage business actually is doing very very well.
• 12:53
  Speaker 11: Quite frankly, stay with us.
• 12:55
  Speaker 3: More from Bloomberg Intelligence coming up after this.
• 13:01
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 13:05
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 13:08
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
• 13:11
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 13:15
  Speaker 7: Got big earning Saturday, Core Weave, and it wasn't good
• 13:19
  Speaker 7: because a stock fell by the most and more than
• 13:21
  Speaker 7: six months. That's after the company reported a better than
• 13:24
  Speaker 7: expected loss and boosted capital expenditure. So this s burred
• 13:27
  Speaker 7: some concerns that the company is overspending on infrastructure. And
• 13:31
  Speaker 7: who else can talk to us about this better than
• 13:35
  Speaker 7: ANAA Grana. He's Bloomberg Intelligence technology analyst. All the way
• 13:38
  Speaker 7: from Chicago. So ANAURAG revenue exploded to one point nine
• 13:42
  Speaker 7: billion last year, but losses widen. Is this a classic
• 13:46
  Speaker 7: gross at any cost when it comes to the AI
• 13:48
  Speaker 7: story or is it something a little more concerning.
• 13:52
  Speaker 8: Yeah, I mean that's what the CEO is saying that Listen,
• 13:54
  Speaker 8: we have so much back orders of you know, sixty
• 13:57
  Speaker 8: plus billion dollars in orders, and we really need to
• 13:59
  Speaker 8: fill it and we're going to go spend as much
• 14:01
  Speaker 8: as we can. And today it seems investors are not
• 14:04
  Speaker 8: liking it. But you know, I think what happened was
• 14:07
  Speaker 8: they gave a bit of a outlook of what the
• 14:10
  Speaker 8: expenses are going to be and they missed on that.
• 14:12
  Speaker 8: And I think people are extremely no, I wouldn't say extremely,
• 14:15
  Speaker 8: but somewhat concerned that, you know, whether they have the
• 14:19
  Speaker 8: capital down the road to keep on continuing this particular flow.
• 14:22
  Speaker 8: I think that's really what it comes down to, is
• 14:25
  Speaker 8: where is the profitability going to come and at what point?
• 14:29
  Speaker 8: Because as we know, some of these businesses, you have
• 14:31
  Speaker 8: to invest upfront and then realize the profit later.
• 14:34
  Speaker 4: Yeah, you got to back up for me and explain
• 14:37
  Speaker 4: the basis, what in gun's name is a neo cloud.
• 14:41
  Speaker 8: Yeah, well that's just the nomenclature. But at the end
• 14:43
  Speaker 8: of the day, this is just a cloud. At the end,
• 14:45
  Speaker 8: you know, you are. What you do is you open
• 14:47
  Speaker 8: a data center, you buy GPUs from Nvidia, and then
• 14:50
  Speaker 8: you rent it out to people. It's a very simple
• 14:52
  Speaker 8: business model, nothing so complicated about it. But what happens
• 14:56
  Speaker 8: is you need to put that upfront capital to create
• 14:58
  Speaker 8: that data center. Then you need to buy the chips
• 15:01
  Speaker 8: and put it in there, and then after that is
• 15:03
  Speaker 8: what you start realizing the revenue when people use it.
• 15:07
  Speaker 8: We have enough evidence that the backlog of that is
• 15:09
  Speaker 8: absolutely stellar. Right now, there is so much demand. These
• 15:13
  Speaker 8: guys are running around and trying to you know, put
• 15:16
  Speaker 8: the data centers together and then go out and service that.
• 15:19
  Speaker 8: So there is a mismatch between how much you're putting
• 15:22
  Speaker 8: in terms of cost versus what's coming in as revenue.
• 15:25
  Speaker 4: Well, can you explain a little for what's how interwoven
• 15:28
  Speaker 4: are they with Nvidia at this point and what's the
• 15:30
  Speaker 4: significance of that.
• 15:33
  Speaker 8: Well, think of this as Nvidia is selling the chips,
• 15:35
  Speaker 8: they are really the distribution arm for the services around it,
• 15:38
  Speaker 8: and Video is a shareholder in cod viave and this
• 15:41
  Speaker 8: is a pure play you could say, in Vidia Shop
• 15:43
  Speaker 8: where it's basically going out and renting their chips out there.
• 15:47
  Speaker 8: Now it is and again this is not so much
• 15:50
  Speaker 8: in Vidia trying to just you know, give them capital
• 15:52
  Speaker 8: to stay in business.
• 15:53
  Speaker 11: They actually have orders from.
• 15:54
  Speaker 8: Everybody we know, whether it's Microsoft or Meta or a
• 15:57
  Speaker 8: bunch of a lot of enterprises as well well. So
• 16:00
  Speaker 8: I mean, core Weve has real orders that it needs
• 16:03
  Speaker 8: to fulfill. The question again, as I said, is how
• 16:05
  Speaker 8: much you have to put up front for those chips
• 16:08
  Speaker 8: and services versus how much you're going to realize as revenue.
• 16:12
  Speaker 7: And seventy seven percent of revenue came from just two customers,
• 16:15
  Speaker 7: with Microsoft accounting for nearly two thirds. How big of
• 16:19
  Speaker 7: a red flag is that, or if it's even a
• 16:22
  Speaker 7: red flag for IPO investments.
• 16:25
  Speaker 8: Yeah, to me, it's not a red flag. It is
• 16:26
  Speaker 8: a concentration issue. I get that. But at the end
• 16:29
  Speaker 8: of the day, I think Microsoft is good enough in
• 16:31
  Speaker 8: terms of you know, they will pay the bill to
• 16:33
  Speaker 8: code if they have promised some revenue, so I'm not
• 16:35
  Speaker 8: concerned about that part. But Codevieve is now seeing a
• 16:39
  Speaker 8: lot more demand from other vendors. That's also not an issue.
• 16:42
  Speaker 8: As I said, this is not a demand issue. The
• 16:44
  Speaker 8: question at hand is because one of the things code
• 16:47
  Speaker 8: Weave has to do is it has to go out
• 16:49
  Speaker 8: borrow money, issue some bonds, and then go out and
• 16:52
  Speaker 8: create new data centers.
• 16:53
  Speaker 11: So it's a financing question.
• 16:55
  Speaker 8: How much the rate of that is going to be,
• 16:57
  Speaker 8: how much they're going to charge for these services. So
• 17:00
  Speaker 8: I mean it's it's pretty much a most of a
• 17:02
  Speaker 8: cost overrun story at this point.
• 17:04
  Speaker 4: Do they give much clarity on when this is all
• 17:07
  Speaker 4: going to pay off?
• 17:09
  Speaker 8: They basically said, listen, long term margins are very good.
• 17:12
  Speaker 8: They are expecting margins to improve in the second half
• 17:14
  Speaker 8: of twenty twenty six. But you know, they gave some
• 17:18
  Speaker 8: guidance for operating income or adjusted operating income for four
• 17:22
  Speaker 8: Q and they came below that. So the big question
• 17:25
  Speaker 8: for the analyst is, you know, you're telling me that
• 17:27
  Speaker 8: it's going to improve in the second half of twenty
• 17:29
  Speaker 8: twenty six. You know, whatever, it doesn't happen. So I
• 17:31
  Speaker 8: think there are some doubts around that capabilities as this point.
• 17:34
  Speaker 11: And.
• 17:37
  Speaker 7: So the company could ask for a valuation north of
• 17:39
  Speaker 7: thirty five billion dollars in this market. Do you think
• 17:42
  Speaker 7: that's justified by the fundamentals or do you think it's
• 17:45
  Speaker 7: kind of driven by AI momentum.
• 17:49
  Speaker 8: And I think the question always happens is, you know,
• 17:51
  Speaker 8: one week, the entire AI infrastructure world is very happy
• 17:55
  Speaker 8: and you know, bubbly, and then the next week people
• 17:57
  Speaker 8: start getting concerns. The question what the code weave has
• 17:59
  Speaker 8: to show right now is they have to go out
• 18:01
  Speaker 8: and raise some debt.
• 18:03
  Speaker 11: I mean, you know that's tied to their.
• 18:05
  Speaker 8: Contracts, and we'll see what's the cost of that debt,
• 18:08
  Speaker 8: because that's going to dictate how the next funding is
• 18:11
  Speaker 8: going to be on the you know, I call it
• 18:13
  Speaker 8: not so much funding ground but more so a debt
• 18:16
  Speaker 8: raised round and how that's going to go about.
• 18:20
  Speaker 3: Stay with us more from Bloomberg Intelligence coming.
• 18:22
  Speaker 2: Up here for this.
• 18:26
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 18:30
  Speaker 1: weekdays at ten am Eastern on Apple, Coarclay and Android
• 18:33
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 18:36
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 18:40
  Speaker 2: Let's get dig into deeper this little deal there in
• 18:43
  Speaker 2: the media space, Warner Brothers, Discovery again, the news being
• 18:46
  Speaker 2: Netflix walking away.
• 18:47
  Speaker 3: So now paramounts guidance.
• 18:49
  Speaker 2: It's their deal.
• 18:50
  Speaker 3: Good for them.
• 18:51
  Speaker 2: And let's check in with Keitha Ranganath and she covers
• 18:54
  Speaker 2: all the media stocks for Bloomberg Intelligence. Keith, we got
• 18:57
  Speaker 2: Netflix stock trading higher. I guess the the shareholders like
• 19:01
  Speaker 2: them kind of passing on this deal.
• 19:04
  Speaker 10: Yeah, big relief rally, Paul, you know, I mean this
• 19:08
  Speaker 10: was always kind of muddying the narrative. I mean we've
• 19:11
  Speaker 10: spoken about this multiple times. Netflix is such a clean,
• 19:14
  Speaker 10: organic growth story and them just pursuing Warner Brothers Discovery,
• 19:19
  Speaker 10: I mean just kind of added so much of uncertainty.
• 19:21
  Speaker 10: You know, you have the regulatory risks of course, integration
• 19:24
  Speaker 10: execution risks. Plus we were talking about something like, you know,
• 19:27
  Speaker 10: their dead levels going up to beyond hundred billion dollars,
• 19:31
  Speaker 10: and yes, they do have the financial firepower, but at
• 19:34
  Speaker 10: the end of the day, they have always been builders
• 19:37
  Speaker 10: versus buyers. And once again they showed, you know that
• 19:40
  Speaker 10: they deserved. You know, they've always gained this reputation of
• 19:43
  Speaker 10: being very, very disciplined spenders when it comes to M
• 19:46
  Speaker 10: and A, and I think they once again exercised that
• 19:50
  Speaker 10: discipline and investors are cheering.
• 19:52
  Speaker 7: So it seems that this is a smart move according
• 19:55
  Speaker 7: to analysts, including you, This signal that the company is
• 19:57
  Speaker 7: confident in its organic growth versus and a especially in
• 20:01
  Speaker 7: a very crowded streaming market.
• 20:04
  Speaker 10: Yeah, Isabelle, I mean that had you know, been the question.
• 20:07
  Speaker 10: I think that's what spooked investors so much when they
• 20:09
  Speaker 10: actually went ahead with this eighty three billion dollar deal
• 20:13
  Speaker 10: for Warner, about whether they were actually seeing a slowdown internally,
• 20:17
  Speaker 10: and them not just abandoning the deal but also going
• 20:19
  Speaker 10: ahead and resuming buybacks once again just kind of signals
• 20:23
  Speaker 10: confidence in their underlying growth model. So I think, you know,
• 20:27
  Speaker 10: we know very well that they're operating metrics are really strong.
• 20:30
  Speaker 10: I mean, this is a company that has guided to
• 20:33
  Speaker 10: double digit revenue growth. We're we're going to see about
• 20:35
  Speaker 10: twelve to fourteen percent revenue gains this year. We're looking
• 20:39
  Speaker 10: at operating margin expansion of almost you know, a thousand
• 20:43
  Speaker 10: basis points. It's gone up ten percent over the past
• 20:46
  Speaker 10: two years. So and of course we also have fabulous
• 20:49
  Speaker 10: you know, free cash flow generation. So all of their
• 20:52
  Speaker 10: you know, financial lever levers and all of their growth
• 20:54
  Speaker 10: drivers very much in play place, and you know, not
• 20:59
  Speaker 10: having this disc action anymore just helps them kind of
• 21:01
  Speaker 10: really double down on their organic growth story.
• 21:05
  Speaker 2: On the other side of the equation, KEITHA, Uh, be
• 21:08
  Speaker 2: careful what you wish for. So paramount They've got this
• 21:11
  Speaker 2: great asset in Warner Brothers Discovery. What do we what's
• 21:16
  Speaker 2: the street think about this management team at Paramounts pretty
• 21:19
  Speaker 2: much unknown, untested this mister Ellison from the media community.
• 21:23
  Speaker 2: Is there any report card to date? Do we think
• 21:27
  Speaker 2: there's a market think that this is a man team
• 21:29
  Speaker 2: that can make this acquisition work?
• 21:31
  Speaker 10: They probably can, Paul, I mean they do have you know,
• 21:34
  Speaker 10: financial Uh, they do have some financial firepower here, although
• 21:40
  Speaker 10: I would point out that leverage at this company is
• 21:42
  Speaker 10: going to be extraordinarily high. We're looking at pro former
• 21:45
  Speaker 10: leverage of around almost seven times, so those are you know,
• 21:48
  Speaker 10: dangerously high levels. Yeah, and it's something that they're going
• 21:50
  Speaker 10: to have to contend with. But at the same time,
• 21:52
  Speaker 10: you know, they've spoken to synergies. We're looking at about
• 21:55
  Speaker 10: six billion dollars in synergies that they've committed to. And
• 21:58
  Speaker 10: remember this is a team where the fairly tech heavy bent,
• 22:02
  Speaker 10: so that might be something that kind of really serves
• 22:04
  Speaker 10: them well as they poise themselves for this new streaming future.
• 22:08
  Speaker 10: You know, you do have now they kind of are
• 22:10
  Speaker 10: to turbo charging their content offering, their turbo charging their
• 22:13
  Speaker 10: streaming business, and they have all of the you know
• 22:17
  Speaker 10: pieces in place to make this a really good business.
• 22:20
  Speaker 10: We'll have to wait and see how they execute, but
• 22:22
  Speaker 10: you're right, I mean, the management team is a little
• 22:24
  Speaker 10: bit of an unknown, although you know, we do have
• 22:25
  Speaker 10: Jeff Shell who has experienced from NBC. But again, it's
• 22:29
  Speaker 10: going to be a little bit of a weight and watch.
• 22:31
  Speaker 7: And Netflix also said they plan to invest twenty billion
• 22:33
  Speaker 7: this year in films and shows. Is that enough to
• 22:36
  Speaker 7: keep them ahead again in this really competitive to streaming wars.
• 22:41
  Speaker 10: Yeah, the twenty billion that they committed was actually a
• 22:44
  Speaker 10: pretty significant step up, Isabelle, from prior years. I mean,
• 22:47
  Speaker 10: we've seen them increasing content costs by roughly about six
• 22:50
  Speaker 10: to seven percent. This year was going to be a
• 22:52
  Speaker 10: much more significant jump to about ten percent. And this
• 22:55
  Speaker 10: is just basically Netflix saying that they are willing to
• 22:57
  Speaker 10: diversify into different forms of content. I mean, the big
• 23:00
  Speaker 10: investments that they're making are in live in sports and
• 23:04
  Speaker 10: international content just to kind of keep up that engagement
• 23:08
  Speaker 10: metric and make sure that you know, they keep building
• 23:11
  Speaker 10: on that competitive mode that they already have. And now
• 23:14
  Speaker 10: you know the icing on the cake for them with
• 23:16
  Speaker 10: this Warner Dealers that they're getting two point eight billion
• 23:19
  Speaker 10: dollars in termination fees. So hey, much more K dramas,
• 23:22
  Speaker 10: I guess.
• 23:23
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
• 23:28
  Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
• 23:33
  Speaker 1: ten am to noon Eastern on Bloomberg dot com, the
• 23:36
  Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You
• 23:40
  Speaker 1: can also watch us live every weekday on YouTube and
• 23:43
  Speaker 1: always on the Bloomberg terminal