Latest / Bloomberg Intelligence / Muse Powers Meta to Cusp of $2 Trillion in Best Month Since 2013

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Muse Powers Meta to Cusp of $2 Trillion in Best Month Since 2013 · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios. Podcasts.
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  Speaker 2: Radio.
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  Speaker 3: News.
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  Speaker 4: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 4: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
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  Speaker 4: you get your podcasts or watch us live on YouTube.
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  Speaker 1: Microsoft abandons personal AI chatbot race with co-pilot reboot. I
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  Speaker 1: kind of thought that would be a net negative for
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  Speaker 1: the stock. It shows you what I know, which is
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  Speaker 1: not much. Stock's up 3%. Let's check in with an
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  Speaker 1: expert here, Anurag Rana, Senior Tech Analyst for Bloomberg Intelligence. Anurag,
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  Speaker 1: it's been kind of a week here for consumer-facing AI apps,
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  Speaker 1: if you will. Meta comes out with Muse. That stock's
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  Speaker 1: up 10%, 11% on that news. What's going on at Microsoft?
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  Speaker 5: Yeah, I think it's a lot less to do with personal,
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  Speaker 5: but it's a more question of enterprise product becoming a
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  Speaker 5: little more stronger because of the features that they have. Now,
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  Speaker 5: it's one of the most important part of Microsoft's chatbot
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  Speaker 5: right now. The co-pilot feature is that at the bottom
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  Speaker 5: of it, they are not only using OpenAI models, but
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  Speaker 5: they're actually adding newer models to it. So for example,
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  Speaker 5: Anthropics Cloud and we think down the road it's going
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  Speaker 5: to be other models, you know, perhaps Mistral in Europe
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  Speaker 5: and maybe other open source models down the road. So
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  Speaker 5: I think what Microsoft is showing is it is an
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  Speaker 5: important layer in between and the model companies are not
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  Speaker 5: going to take all the economics here.
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  Speaker 2: Do we know what the, has Microsoft given us a
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  Speaker 2: lot to work with here in terms of numbers and,
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  Speaker 2: you know.
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  Speaker 1: Paid subscribers?
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  Speaker 5: Yeah, so if you, you know, the most amazing part
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  Speaker 5: of Microsoft Office is, and I can go back, you know,
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  Speaker 5: 15 years thinking, well, where are you going to get
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  Speaker 5: more users?
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  Speaker 1: It doesn't work that way.
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  Speaker 5: I mean, you already have, let's say, 300, 400 million
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  Speaker 5: people that are using this product. But what happens is
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  Speaker 5: they really like to upgrade their plans. It's called, you know,
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  Speaker 5: their latest plan called the E7 suite or the Microsoft E7.
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  Speaker 5: It has co-pilot in it. It has a lot of
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  Speaker 5: agentic capabilities in it. And it's priced almost 75% more
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  Speaker 5: than the last plan, which is called the E5. So
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  Speaker 5: we should see massive double-digit growth in Microsoft Office revenue
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  Speaker 5: over the next couple of years, even when user growth
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  Speaker 5: is not there, because people are embracing these paid seats
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  Speaker 5: of Copilot, which, if my memory goes right, is something
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  Speaker 5: around $ 30 million right now out of the big base of,
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  Speaker 5: as I said, about 300-plus million users.
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  Speaker 1: 30 seconds left, Anurag. On my AI window on my phone,
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  Speaker 1: I do not have a Microsoft product there. I don't
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  Speaker 1: have Copilot. Is that a problem for Microsoft? No, because
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  Speaker 1: it's not for the consumer.
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  Speaker 5: It's really going to make money from the enterprise side
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  Speaker 5: of things, and that is where the most important part is.
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  Speaker 5: For them, let Apple, Google, and Meta try to fight
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  Speaker 5: for the consumer side of things.
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  Speaker 1: Yeah, they've got you through work.
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  Speaker 3: Oh, okay.
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  Speaker 2: Yeah, so as long as you accidentally press the co-pilot button,
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  Speaker 2: which I do oftentimes, and something will trigger, I'm like, oh, okay,
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  Speaker 2: there's co-pilot.
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  Speaker 1: All right, that's AI. I'm doing my AI thing. Stay
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  Speaker 1: with us.
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  Speaker 2: More from Bloomberg Intelligence coming up after this.
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  Speaker 4: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 4: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
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  Speaker 4: Auto with the Bloomberg Business App. Listen on demand wherever
• 3:23
  Speaker 4: you get your podcasts or watch us live on YouTube.
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  Speaker 2: Let's take a look at what's, you know, who else
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  Speaker 2: has had a big week is Meta. They've had a
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  Speaker 2: massive week. Yes, yeah, re-rating there.
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  Speaker 1: Yeah, total re-rating.
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  Speaker 2: And there was this conference that they held, MetaConnect, which
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  Speaker 2: I hadn't heard about, but I guess folks in Silicon
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  Speaker 2: Valley do.
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  Speaker 1: It's the annual flagship conference. But it ended up.
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  Speaker 2: Being pretty momentous for the company because they launched their
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  Speaker 2: new Muse AI agent with this new charm thing that
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  Speaker 2: looks like a Tamagotchi.
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  Speaker 1: I didn't know what a Tamagotchi was until yesterday.
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  Speaker 5: Right.
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  Speaker 2: But now you know, and now you've downloaded the Muse
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  Speaker 2: AI app on your phone. So you and millions of others,
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  Speaker 2: which is why the stock has done very well and
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  Speaker 2: is now up for, I believe, a fifth straight week.
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  Speaker 2: Mandeep Singh is our global head of tech research here
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  Speaker 2: at Bloomberg Intelligence, and he joins us now. So Mandeep,
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  Speaker 2: when we look at Meta and what it's accomplished this week,
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  Speaker 2: it's got a bit of swagger here. And I wonder
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  Speaker 2: if this was all part of a grand plan with
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  Speaker 2: Meta settling that lawsuit with with California and the other
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  Speaker 2: states before it announced all these initiatives that have investors
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  Speaker 2: really excited?
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  Speaker 3: I mean, it could be. We have seen that before
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  Speaker 3: with Alphabet, you know, after they settled that lawsuit, the
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  Speaker 3: monopoly lawsuit, and then Gemini three was launched and.
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  Speaker 1: They did quite well after that.
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  Speaker 3: Look, I wouldn't make too much out of that in
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  Speaker 3: terms of timing. To me, what they have done here
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  Speaker 3: is carved out a niche in this space where two
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  Speaker 3: frontier lab companies, OpenAI and Anthropic were running away with
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  Speaker 3: the market, and now Meta has shown that they have
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  Speaker 3: a play when it comes to these long-running agents around
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  Speaker 3: e-commerce use cases. and that is why they have done
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  Speaker 3: so well. Today, Microsoft has launched a revamped co-pilot where
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  Speaker 3: they are running their agent for a longer duration in
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  Speaker 3: terms of doing something similar to what Muse has done
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  Speaker 3: with these e-commerce agents.
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  Speaker 1: It sounds like that is.
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  Speaker 3: The playbook going forward for all these companies that missed
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  Speaker 3: out because OpenAI and Anthropic did so well.
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  Speaker 1: Speaking of Anthropic, We were just Bloomberg News reporting that
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  Speaker 1: it signed an eleven point six billion dollar seven year
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  Speaker 1: contract with Akamai Technologies for computing power. Is this just
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  Speaker 1: another one of the headlines coming out about Anthropic? What
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  Speaker 1: are they doing here?
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  Speaker 3: I think everyone wants to lock in capacity right now,
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  Speaker 3: whether you are a chip maker like Nvidia, who is
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  Speaker 3: prepaying all their suppliers, or if you are a frontier
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  Speaker 3: model company like Entropic or OpenAI, you want to make
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  Speaker 3: sure you're not short of something that is needed to
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  Speaker 3: deploy your product at scale. Look, Microsoft has the distribution,
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  Speaker 3: they have the Cloud, same thing with Google and Amazon.
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  Speaker 3: These companies, OpenAI and Anthropic, have relied on the hyperscalers
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  Speaker 3: for distribution. Now, obviously, they're competing with them at a
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  Speaker 3: lot of levels. For them to be able to use Akamai,
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  Speaker 3: and I think Muse did the same with Fastly and Cloudflare.
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  Speaker 3: These are all the companies that help you distribute your
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  Speaker 3: software to the edge. If these agents are running for
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  Speaker 3: much longer duration than the chatbot experience, then you need
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  Speaker 3: a lot of edge capacity, which is what I think
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  Speaker 3: Anthropic is trying to make sure they have plenty of
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  Speaker 3: if they start to deploy their products for consumer use cases.
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  Speaker 2: So, Mandeep, it feels like September is going to come
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  Speaker 2: and go without an S-1 filing from Anthropic for an IPO.
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  Speaker 2: I mean, we do have Monday, Tuesday, and Wednesday where
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  Speaker 2: something could happen. But when we got the sense from
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  Speaker 2: reporting that an IPO is coming in November— If markets
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  Speaker 2: remain volatile, and I'm thinking here of the treasury market
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  Speaker 2: in particular, bonds continue to sell off and rising rates
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  Speaker 2: starts to hurt stocks. Is that something that might motivate
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  Speaker 2: Anthropic to hold off on an IPO? Or is Anthropic
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  Speaker 2: not sensitive to that in the same way that the
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  Speaker 2: hyperscalers are not sensitive to rates when they sell debt?
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  Speaker 3: Yeah, I mean, there are a lot of factors at play,
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  Speaker 3: but look at how far we have come this month,
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  Speaker 3: you know, from the talk about these companies slowing down
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  Speaker 3: their model development to Muse taking off in such a
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  Speaker 3: big way. At this point of time, it is about
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  Speaker 3: making sure that you file your S1 and you address
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  Speaker 3: all the risk factors. To my mind, that slowdown in
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  Speaker 3: frontier development and that OpenAI hugging face incident was a
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  Speaker 3: bigger factor in the delay that we have seen with
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  Speaker 3: the Anthropic S1 filing, but I doubt they're going to
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  Speaker 3: delay it for too long given MetaMuse has clearly seen
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  Speaker 3: a lot of traction and you don't want to wait
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  Speaker 3: for too long given how well anthropic has done you
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  Speaker 3: know for the first nine months of the year what.
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  Speaker 1: What is the what you guys call the annualized run
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  Speaker 1: rate for an anthropic what's the latest data point we had.
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  Speaker 3: Well, it's grown seven times from the end of December
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  Speaker 3: to September, which is the $ 65 billion run rate. And
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  Speaker 3: some people are saying they give that ARR on a
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  Speaker 3: gross basis. OpenAI's comparable number is around $ 40 billion. So
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  Speaker 3: when they file the S-1, you will try to figure
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  Speaker 3: out what is gross versus net. But Still, you know,
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  Speaker 3: seven times growth for a company at this kind of
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  Speaker 3: revenue run rate is staggering. And I don't think Metamuse
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  Speaker 3: has changed that in any way. So it's more about
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  Speaker 3: riding that momentum and this will be a perfect time
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  Speaker 3: for them to go public.
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  Speaker 2: Hey, Mandeep, did you pay attention to the China-U.S. summit
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  Speaker 2: and all the tech CEOs that attended the state.
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  Speaker 1: Dinner last night?
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  Speaker 2: I'm wondering what you think the conversations might have been like.
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  Speaker 2: We know that there were no Chinese CEOs really in
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  Speaker 2: attendance this time, partly because they don't have a market
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  Speaker 2: to sell to. But what do they want to get
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  Speaker 2: out of a relationship with China, these big tech CEOs?
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  Speaker 3: I mean, clearly, you know, the American companies, especially the
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  Speaker 3: likes of NVIDIA and the chip makers, want to sell
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  Speaker 3: their gear in the Chinese market. And from an administration perspective,
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  Speaker 3: they don't want to slow down the U.S. companies when
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  Speaker 3: it comes to frontier.
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  Speaker 1: Model development in any way.
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  Speaker 3: The other big, I think, focus item could have been
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  Speaker 3: around distillation by Chinese.
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  Speaker 1: Model providers of U.S.
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  Speaker 3: Models and Again, everyone is trying to figure out how
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  Speaker 3: to stop that, because clearly that has been a factor
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  Speaker 3: in terms of the Chinese open rate models catching up. So,
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  Speaker 3: to me, these are the big picket items when it
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  Speaker 3: comes to the U.S.-China kind of frontier models and the
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  Speaker 3: chip makers and how they're allowed to sell capacity or not.
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  Speaker 3: So those, for me, will be the key items.
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  Speaker 1: So, CapEx. Are we going to state these elevated AI
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  Speaker 1: CapEx levels for how long, do you think?
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  Speaker 3: Well, right now, I think all the signs are, you know,
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  Speaker 3: even Meta is going to raise their CapEx next year.
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  Speaker 3: For the longest time this year, everyone was questioning Meta's
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  Speaker 3: CapEx and how, you know, they may not be able
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  Speaker 3: to show ROI. So what will be their justification for 2027?
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  Speaker 1: Well, guess what?
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  Speaker 3: I think they have enough momentum to raise their CapEx
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  Speaker 3: and all the other hyperscalers already. We're seeing ROI on
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  Speaker 3: the cloud side. So I do expect that CapEx numbers
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  Speaker 3: to go up for next year.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 4: You're listening to Bloomberg Intelligence with Scarlett Fu and Paul
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  Speaker 4: Sweeney on Bloomberg Radio.
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  Speaker 1: All right, Scarlett Fulton, Paul Sweeney, live here in our
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  Speaker 1: Bloomberg Interactive Broker Studio in New York City. We're streaming
• 11:34
  Speaker 1: live on YouTube as well. We just were chatting with
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  Speaker 1: Alexis Crowe, chief economist at PwC, and I asked her,
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  Speaker 1: what's the number one question she's getting from her clients
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  Speaker 1: these days? And she said, the bond market. And that
• 11:46
  Speaker 1: is the subject of our big take story on the
• 11:48
  Speaker 1: Bloomberg terminal. Getting tons of readership here. The Great Bond
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  Speaker 1: Shakeout locks in a 5% world record. Quote, until something breaks.
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  Speaker 1: One of the co-editors, co-reporters on that story is Michael McKenzie,
• 12:01
  Speaker 1: rates reporter for Bloomberg News. Michael, I guess you're asking
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  Speaker 1: the big, big question or going to the big issue.
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  Speaker 1: Is this kind of the new normal where we've got
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  Speaker 1: a 10 year well north of 5 percent here? What
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  Speaker 1: did you reporting? What'd you guys find out?
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  Speaker 6: Yes, that is what the story is. I think we've
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  Speaker 6: got an economy, nominal growth running in excess of 6%.
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  Speaker 6: The economy is running hard. You've had a huge amount
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  Speaker 6: of stimulus come through with the one big beautiful bill.
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  Speaker 6: And it's an economy which, while it has low unemployment,
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  Speaker 6: it has a sticky inflation problem with a potential for
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  Speaker 6: inflation to keep going, potentially higher. And I think the
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  Speaker 6: real change, there's a lot of reasons for why bonds
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  Speaker 6: have been trending this way since the beginning of March.
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  Speaker 6: We had the war begins in the Middle East. Oil
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  Speaker 6: prices shoot up. They still stay elevated. We have concerns
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  Speaker 6: about the debt. The fiscal outlook is not a good
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  Speaker 6: thing for the U.S. It's also a global story with
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  Speaker 6: a lot of longer dated bonds selling off around the world.
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  Speaker 6: So it's been a very tough year for bonds today.
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  Speaker 6: But I think what's really changed in the past week
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  Speaker 6: is that as we since saw the Fed raise rates
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  Speaker 6: for the first time in three years last week, other
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  Speaker 6: Fed officials have come out and have sounded very, very hawkish.
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  Speaker 6: And so the bond market is now saying, OK, they
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  Speaker 6: want to get inflation back to 2%. Austin Goolsbee this
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  Speaker 6: week talked about a painful trade-off between employment and inflation
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  Speaker 6: to succeed in getting that 2% target. So the bond
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  Speaker 6: market does what it does, which is essentially we price
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  Speaker 6: in more we price in more rate hikes. And that's
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  Speaker 6: exactly what's played out this week.
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  Speaker 1: And Michael, I guess roughly a month ago, Secretary Besson,
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  Speaker 1: you know, came into the marketplace and said he wants
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  Speaker 1: to get long-term rates down and started a bond buying program.
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  Speaker 1: That does not appear to be working. Have we heard
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  Speaker 1: anything from the secretary since?
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  Speaker 6: No, but I think what's interesting about that program was
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  Speaker 6: that one thing that the Secretary did say recently after
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  Speaker 6: he announced the buybacks was that, oh, the U.S. doesn't
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  Speaker 6: have rising term premium because if you look at the U.S.
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  Speaker 6: Treasury curve between fives and 30 years, it's flatter than
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  Speaker 6: other countries. And when you talk to people in the market,
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  Speaker 6: they then scratch their heads and say, well, why is
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  Speaker 6: he doing buybacks then? What's the point of doing buybacks?
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  Speaker 6: The real problem Besson has is that he came in
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  Speaker 6: as Treasury Secretary saying that he wanted to see the
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  Speaker 6: budget deficit fall to 3%. It's still running at 5.5%.
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  Speaker 6: And at those kind of numbers, on top of all
• 14:25
  Speaker 6: the existing debt that's just been growing in the last
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  Speaker 6: 10 to 15 years, buybacks aren't going to do anything.
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  Speaker 6: Or to quote one of my bond sources, it's basically
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  Speaker 6: like bringing a water pistol.
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  Speaker 1: Gotcha. But I've had a lot of folks, Michael, suggest,
• 14:42
  Speaker 1: don't freak out too much about where yields are because
• 14:45
  Speaker 1: this is an economy. As you mentioned at the top here,
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  Speaker 1: this thing's running 6% plus on a nominal GDP basis.
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  Speaker 1: That kind of growth, these rates are okay. Is that
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  Speaker 1: what you're getting? Yes.
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  Speaker 6: Yeah, that's exactly what it is. And again, you're getting
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  Speaker 6: good income now. You're That wasn't the case back in
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  Speaker 6: 2022 and 2023. So, the pricing now seems more normal,
• 15:15
  Speaker 6: back to where we were pre-global financial crisis. So, we've
• 15:18
  Speaker 6: completely exited, I think, that whole period after the global
• 15:22
  Speaker 6: financial crisis where we had ultra-low yields, we had a
• 15:24
  Speaker 6: lot of QE from central banks, not just the Fed,
• 15:27
  Speaker 6: but globally. It suppressed interest rates around the world. And so,
• 15:31
  Speaker 6: what's interesting is that the US rates have adjusted because
• 15:34
  Speaker 6: the US economy is growing stronger. But if you look
• 15:37
  Speaker 6: at countries like the UK, France, and Japan, their growth
• 15:40
  Speaker 6: isn't as good, yet their yields have also been rising too. So,
• 15:43
  Speaker 6: there's a lot of concerns around fiscal. And I guess
• 15:47
  Speaker 6: the other key point in all of this, of course,
• 15:48
  Speaker 6: is if you have these hyperscalers who've been coming in
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  Speaker 6: and doing what people in the bond market call the
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  Speaker 6: $ 25 billion drive-by bond issuance, And they are somewhat agnostic
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  Speaker 6: about the cost of this because these are very long-term
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  Speaker 6: deals they're putting together. So you have competition for capital.
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  Speaker 6: It's coming from other G10 countries. It's also coming from
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  Speaker 6: big U.S. companies as well.
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  Speaker 1: Hey, Michael, lastly, just to the extent we get some
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  Speaker 1: kind of resolution into the war in Iran, presumably oil
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  Speaker 1: energy prices would come down to a certain degree. Maybe
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  Speaker 1: that would take out some expectation, inflation expectations, and maybe
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  Speaker 1: that might bring yields down. What are your sources telling
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  Speaker 1: you on that front?
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  Speaker 6: Well, I think if you look at inflation expectations, they've
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  Speaker 6: been remarkably stable. The story's really been real yields, which
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  Speaker 6: is the Treasury yield adjusted for inflation, that has been
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  Speaker 6: going up. And that's because that's a growth story. It's
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  Speaker 6: also a story that says the Fed is behind the curve.
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  Speaker 6: It's an indication that the long-term rate that the Fed
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  Speaker 6: needs to get to, or the neutral rate, which neither
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  Speaker 6: stimulates or slows down the economy, is higher.
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  Speaker 1: Now, obviously, this is a theoretical term.
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  Speaker 6: A lot of Fed officials talk about this as kind
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  Speaker 6: of dark matter or something difficult to position about. But
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  Speaker 6: at the end of the day, if you look at
• 17:06
  Speaker 6: market proxies for where the Fed's neutral rate is, it's
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  Speaker 6: around just under 5% now. And I think, yes, oil
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  Speaker 6: will help perhaps create a nice bit of a rally
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  Speaker 6: here in bonds or a relief rally. But I think
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  Speaker 6: ultimately there are other forces weighing, pushing inflation.
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  Speaker 1: It is sticky.
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  Speaker 6: And if it's broadening out more into the service sector,
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  Speaker 6: then you could be in a scenario where it's actually
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  Speaker 6: higher towards the end of this year. And don't forget,
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  Speaker 6: the Fed itself in its last dot plot doesn't expect
• 17:35
  Speaker 6: to see a 2% inflation target until 2029.
• 17:37
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• 17:43
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• 17:47
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