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Wendy’s Jumps on Report Trian Offers to Buy for $1.4 Billion · 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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• 0:19
  Speaker 4: you get your podcasts or watch us live on YouTube.
• 0:24
  Speaker 5: Of course, we're keeping an eye on corporate news. And Wendy's,
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  Speaker 5: as John told us earlier, soaring today in trading this morning,
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  Speaker 5: up 14%. Nelson Peltz's try-in fund management offered to buy
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  Speaker 5: out the hamburger chain for about $ 1. 4 billion. Michael Halen,
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  Speaker 5: our senior restaurant and food service analyst, joins us now.
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  Speaker 5: And Michael, is Nelson Peltz right in his argument that
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  Speaker 5: this multi-year turnaround bid will be better completed as a
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  Speaker 5: private company under Tryon Wealth Fund Management's ownership?
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  Speaker 1: Yeah, I think so.
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  Speaker 6: You know, we wrote back, you know, it's been rumored
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  Speaker 6: a couple of times that Nelson Peltz was trying to
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  Speaker 6: get a group together to make a bid for Wendy's
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  Speaker 6: in May. And then most recently in August, you know,
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  Speaker 6: in August, we wrote that we thought the odds were, were, uh,
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  Speaker 6: higher that a deal could get done because, uh, what
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  Speaker 6: the board put in, in place a great management team, CEO,
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  Speaker 6: Bob Wright, um, and CFO Steve Cerullos did a phenomenal
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  Speaker 6: job turning around pop belly, which, uh, eventually, uh, led
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  Speaker 6: to an acquisition, uh, of that sandwich chain. Um, uh,
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  Speaker 6: Bob and Steve now are freed up to make decisions
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  Speaker 6: on a long-term basis, which sometimes is really hard to
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  Speaker 6: do being a public company when you have guys like
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  Speaker 6: me analyzing your results quarterly. So Tryon was patient. The
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  Speaker 6: stock has sold off significantly. The entire sector has sold
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  Speaker 6: off significantly since August. And Tryon's patience seemed to have
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  Speaker 6: paid off here.
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  Speaker 1: I mean, Tryon has been.
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  Speaker 5: Looking into taking over Wendy's several times, because it's been
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  Speaker 5: a longtime shareholder of Wendy's, do we have a sense
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  Speaker 5: of what the playbook is going to be? I mean,
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  Speaker 5: I would imagine that Nelson Peltz and Tryon has kind
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  Speaker 5: of laid it out a couple of times here, and
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  Speaker 5: it's just going to follow through on what it's proposed.
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  Speaker 6: I think this is more a vote of support for
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  Speaker 6: the management team that's in place and not anything new
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  Speaker 6: that Nelson Peltz and Tryon and this investment group is
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  Speaker 6: going to come up with. They have the CEO and
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  Speaker 6: CFO in place. They have the track record. You know,
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  Speaker 6: what they're looking to do is improve the operations first.
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  Speaker 3: Right.
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  Speaker 6: Then improve the quality of the product, improve the everyday value,
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  Speaker 6: improve the marketing, which it's been sad to see. But
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  Speaker 6: the marketing, you know, this is a brand that's historically
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  Speaker 6: had a phenomenal marketing team and has done some amazing,
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  Speaker 6: iconic work.
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  Speaker 1: Ads like, where's the beef? I knew you were going there.
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  Speaker 6: Yeah, and it's really fallen off. It's been kind of
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  Speaker 6: sad to see. So, no, I don't think Nelson Peltier
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  Speaker 6: is going to be in the office daily in Bob
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  Speaker 6: Wright's year.
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  Speaker 1: Mike, I've got to jump in.
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  Speaker 7: This is really about confidence for them. I was in
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  Speaker 7: line for like 15 minutes for a fast food restaurant
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  Speaker 7: the other day. I don't care what the management is.
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  Speaker 7: At the end of the day, it depends on the
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  Speaker 7: pimply-faced kid who's flipping the burger, like whether he's like,
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  Speaker 7: you know, on the ball or not.
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  Speaker 5: And that's if they're flipping the burger versus heating up
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  Speaker 5: in the microwave, which is often what's happening here.
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  Speaker 7: Really?
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  Speaker 3: Yeah.
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  Speaker 7: I did not know that.
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  Speaker 1: Mike, we— Well, I would disagree.
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  Speaker 6: You know, I would completely disagree because you're going to
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  Speaker 6: attract better employees, better GMs, which is the, you know—
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  Speaker 6: Biggest correlation between having a successful restaurant or not is
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  Speaker 6: having an experienced, strong GM. If you have people at
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  Speaker 6: the top where your frontline employees trust, who they trust
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  Speaker 6: and their franchisees trust, right? It's going to make for
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  Speaker 6: happier franchisees who more easily attract good employees that run
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  Speaker 6: a better business. And then from there, once you get
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  Speaker 6: the operations nailed, then you start to improve the food,
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  Speaker 6: you improve the marketing so that when you bring more
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  Speaker 6: people back into the brand, they have a good experience.
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  Speaker 1: He's arguing for the trickle down effect.
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  Speaker 7: No, I want a special phone line where you can
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  Speaker 7: call up, in this case, I guess, Nelson Peltz, and
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  Speaker 7: he actually picks up and you can register your complaint.
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  Speaker 1: You want something like Burger King, right? Because Bloomberg has a.
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  Speaker 5: Story out, Michael Halen, about how the Burger King president
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  Speaker 5: is calling some 40 customers a week in order to
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  Speaker 5: get its comeback bid, make it more successful, this turnaround plan.
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  Speaker 5: Burger King is definitely having a moment, isn't it?
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  Speaker 6: Yeah, and listen, this has been a few years in
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  Speaker 6: the making. Tom Curtis, who you mentioned, the head of
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  Speaker 6: Burger King US, has done a really good job, him
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  Speaker 6: and his team, of picking up where McDonald's is struggling,
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  Speaker 6: picking up some customers from McDonald's. Because earlier this year,
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  Speaker 6: McDonald's CEO took a pretty wimpy bite of a Big Mac,
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  Speaker 6: and Tom Curtis and team really immediately.
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  Speaker 1: Capitalized on that.
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  Speaker 6: Um, you know, but for years they've been, um, you know, the,
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  Speaker 6: the core, the corporate entity restaurant brands has invested hundreds
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  Speaker 6: of millions of dollars into the assets, right? So renovating
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  Speaker 6: the stores. into improving the quality of the product, improving
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  Speaker 6: the marketing, right? Some of these things that Wendy's is
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  Speaker 6: looking to do right now. But Wendy, you know, Burger
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  Speaker 6: King has been doing this for years, and now it's
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  Speaker 6: culminating in very strong, high single-digit same-store sales this year, right?
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  Speaker 6: Like I said, being bolstered by McDonald's slip-ups.
• 6:02
  Speaker 8: Stay with us. 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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• 6:23
  Speaker 9: Let's turn our attention to some company-specific news here.
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  Speaker 8: GE Vernova. This is a company. It's an electric power company.
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  Speaker 9: They design, manufacture, and deliver electric power systems and services worldwide.
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  Speaker 9: that generate power and all that kind of good stuff.
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  Speaker 9: It's a global company. They announced some earnings today, number one.
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  Speaker 9: Number two, they announced that they agreed to pay $ 9
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  Speaker 9: billion to an acquired trench group to bolster its portfolio
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  Speaker 9: of high-voltage power grid equipment.
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  Speaker 7: There you go.
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  Speaker 9: That sounds right up John Tucker's alley when talking about
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  Speaker 9: the grid here. Mustafa Okur joins us here, Senior Industrials Analyst.
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  Speaker 8: For Bloomberg Intelligence.
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  Speaker 9: Mustafa, first talk to us about what did we hear
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  Speaker 9: from GE, Vinova with their earnings first.
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  Speaker 7: Sure.
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  Speaker 10: Thank you for having me. So the earnings were actually
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  Speaker 10: pretty robust, Paul. And both sales and the margins came
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  Speaker 10: above expectations. We attribute that really to really higher priced
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  Speaker 10: gas turbines being shipped out. Those were booked about two
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  Speaker 10: years ago. And now that they've been built and being
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  Speaker 10: shipped out, of course, that brings some operating leverage and
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  Speaker 10: productivity gains as well. And really, that was the big
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  Speaker 10: surprise in 3Q because 3Q usually for that business is
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  Speaker 10: a seasonally weak quarter.
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  Speaker 5: Okay.
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  Speaker 3: Okay.
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  Speaker 5: I'm curious, as with any company these days, how much
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  Speaker 5: of GE Verno's growth is tied to data centers, to
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  Speaker 5: the AI power build-out?
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  Speaker 3: Sure.
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  Speaker 10: So the direct exposure in the gas business is about 20%,
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  Speaker 10: so that leaves 80% to more traditional customers in that
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  Speaker 10: side of the business. But we have to remember that
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  Speaker 10: the big chunk of the power increase or the demand
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  Speaker 10: increase for power in the States, it does go back
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  Speaker 10: to the build-out of data centers. You have some semiconductor
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  Speaker 10: fabs and other factories being built, but really the bulk
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  Speaker 10: of the demand is from data centers. But the direct
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  Speaker 10: exposure is about 20% in the gas business. And then
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  Speaker 10: on the electrification side, this is the grid business where
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  Speaker 10: they put the trench group in, a little over 10%
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  Speaker 10: of the year-to-date bookings appear to be directly tied to
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  Speaker 10: hyperscaler demand.
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  Speaker 9: Mustafa, talk to us about this acquisition they announced. What
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  Speaker 9: is the Trench Group and why is GE Vrnova paying
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  Speaker 9: $ 9 billion to acquire it?
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  Speaker 7: Sure.
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  Speaker 10: So Trench Group, a couple of years ago, was actually
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  Speaker 10: owned by the big rival of GE, Siemens Energy. And
• 8:44
  Speaker 10: they make components like bushings and coils that go into
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  Speaker 10: a substation or high voltage transmission lines. transformers, these are
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  Speaker 10: basically key equipment that enable the grid, enable stability and
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  Speaker 10: the transmission of power in the grid. The company is
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  Speaker 10: paying nine billion dollars for trench, buying it from a
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  Speaker 10: private equity. They're basically adding about 10% to their electrification
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  Speaker 10: business and to be honest with you it doesn't move
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  Speaker 10: the needle that much initially but we really like the
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  Speaker 10: deal because of its strategic impact. As I said, some
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  Speaker 10: of the components here are really in short supply. So
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  Speaker 10: they're adding both scale and also vertical integration to the company,
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  Speaker 10: securing these critical components.
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  Speaker 5: Do you like the price, the valuation that GE Vernova
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  Speaker 5: is paying for this business?
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  Speaker 10: On the surface, it looks a little bit expensive. Management
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  Speaker 10: has cited the 2028 EBITDA-based multiples 13 times. If you
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  Speaker 10: sort of bring it back to the end of this
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  Speaker 10: year instead, pro forma, it's more like 19 to 20 times.
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  Speaker 10: For an industrial deal, that looks high, but the asset
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  Speaker 10: is very high quality. Trenches growing at mid to high teens.
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  Speaker 10: EBITDA margins are at 35, 36% as opposed to the
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  Speaker 10: current electrification segment EBITDA margin of 20%. So it will
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  Speaker 10: be immediately accretive. And as I said, it does unlock
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  Speaker 10: a lot of things on the strategic side, securing the supplies.
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  Speaker 10: It helps with winning contracts as well.
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  Speaker 9: What is management saying about synergies here? Is this something
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  Speaker 9: that can drive returns here?
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  Speaker 10: On the cost synergies, they appear to be quite small,
• 10:27
  Speaker 10: so $ 50 to $ 100 million by the end of 2030.
• 10:31
  Speaker 10: We really think the upside here will be revenue synergies,
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  Speaker 10: which management typically doesn't quantify. But there was an interesting
• 10:40
  Speaker 10: anecdote from the call. Management said, we have customers who
• 10:44
  Speaker 10: are specifying specifically trench bushings and the transformers we sell,
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  Speaker 10: as an example. It sounds like this is a premium
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  Speaker 10: asset with sort of very reliable components, and the margins
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  Speaker 10: are definitely there to back up that claim.
• 11:00
  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
• 11:07
  Speaker 4: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 11:11
  Speaker 4: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 11:14
  Speaker 4: Auto with the Bloomberg Business App. Listen on demand wherever
• 11:17
  Speaker 4: you get your podcasts or watch us live on YouTube.
• 11:21
  Speaker 5: People are still spending, whether you're on the higher end
• 11:24
  Speaker 5: of the K, of this K-shaped economy, or on the
• 11:26
  Speaker 5: lower end.
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  Speaker 1: And we see that with Visa's numbers.
• 11:30
  Speaker 5: Earnings exceeded estimates as consumers both domestically and internationally turn
• 11:34
  Speaker 5: to these branded cards to make their transactions.
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  Speaker 1: Diksha Ghera joins us now.
• 11:39
  Speaker 5: Diksha is our global fintech and payments analyst, and she
• 11:42
  Speaker 5: joins us now from Palo Alto. Diksha, what can you
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  Speaker 5: tell us about what we learned from Visa's latest earnings?
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  Speaker 3: So I think Visa's modest EPS beat and 13% top-line
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  Speaker 3: growth for this quarter, which is, by the way, the
• 11:57
  Speaker 3: last fiscal quarter for the year, it supports their 2027
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  Speaker 3: guidance as well. And exactly what you pointed out, like
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  Speaker 3: both U.S. discretionary and non-discretionary spending remains strong. Part of
• 12:09
  Speaker 3: it is driven by higher fuel costs, but retail was strong.
• 12:14
  Speaker 3: Visa Direct growth was very solid. The FIFA-related spend helped.
• 12:18
  Speaker 3: Credit was up 11%. Debit is growing 9%. So yeah,
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  Speaker 3: I mean, the general consumer spends were pretty much on track.
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  Speaker 3: But the one thing that really stood out for me
• 12:28
  Speaker 3: was the value-added services and new flows growths. Value-added services
• 12:33
  Speaker 3: revenue was up 31% in the fourth quarter, and Visa
• 12:37
  Speaker 3: direct transaction volume was up 23%. That just tells me
• 12:41
  Speaker 3: that this is no longer just a tool collection business
• 12:44
  Speaker 3: on the card swipes, but Visa is really building up
• 12:47
  Speaker 3: new levers for earnings.
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  Speaker 9: So talk to us about branded cards for Visa. How
• 12:53
  Speaker 9: does that work in their business? What's their strategy there?
• 12:57
  Speaker 3: Yeah, so Visa is actually trying to put an overlay
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  Speaker 3: of a card network over all, any and every type
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  Speaker 3: of transaction. So, I mean, of course, you mentioned the
• 13:06
  Speaker 3: branded business, but I think the new lever around there
• 13:09
  Speaker 3: is the whole agentic, AI agentic commerce. And I think...
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  Speaker 3: CEO Ryan McInerney specifically addressed that topic during the call,
• 13:17
  Speaker 3: and they framed it as not like a distant speculative trend,
• 13:21
  Speaker 3: but actually it's the next moat for Visa, and we
• 13:24
  Speaker 3: agree with that view. So basically, Visa's creating rules and
• 13:27
  Speaker 3: protocols around how agentic transactions will happen. And that could
• 13:32
  Speaker 3: become a significant mode. So they will identify if the
• 13:35
  Speaker 3: AI pinging a merchant is a bot or is it
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  Speaker 3: an authorized agent? Is it your agent or is it
• 13:41
  Speaker 3: some rogue agent? And what is it permission to do?
• 13:44
  Speaker 3: Like how much money can it spend? And if there's
• 13:46
  Speaker 3: a conflict, how does that happen? So that's an area
• 13:49
  Speaker 3: where Visa has been focusing a fair bit. And on
• 13:52
  Speaker 3: the same front, like we think B2B would be the
• 13:55
  Speaker 3: area where we'll see faster growth in agentic commerce. Consumer
• 13:59
  Speaker 3: shopping obviously generates a lot of headlines. But in case
• 14:02
  Speaker 3: of B2B spending, where commercial flows is something that Visa
• 14:05
  Speaker 3: has targeted for a while now, that's a more controlled environment.
• 14:09
  Speaker 3: That's a more controlled context. So that's where we see
• 14:13
  Speaker 3: that evolving much faster.
• 14:16
  Speaker 5: Diksha, do the midterm elections pose any kind of threat
• 14:19
  Speaker 5: to Visa, to MasterCard, to any companies tied up in
• 14:23
  Speaker 5: the credit card industry?
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  Speaker 3: Yeah, see, Scarlett, we've seen some bit of impact from
• 14:30
  Speaker 3: the Europe de minimis. So there is a political angle,
• 14:33
  Speaker 3: like our political impact there. But I think the broader
• 14:37
  Speaker 3: question will again boil down to how long and how
• 14:40
  Speaker 3: resilient does consumer spending remain? And that was also a
• 14:44
  Speaker 3: theme that we were particularly interested in, like, what is
• 14:47
  Speaker 3: the level of confidence that we have that these pending
• 14:50
  Speaker 3: patterns will remain in the fiscal 2027 for Visa or
• 14:54
  Speaker 3: in the calendar 2027 coming for here? That's something that
• 14:58
  Speaker 3: time will tell.
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  Speaker 9: Diksha, what's the key thing here, Visa versus Amex? How
• 15:05
  Speaker 9: do investors kind of differentiate between those two?
• 15:09
  Speaker 3: So Amex is more of a credit play, given the
• 15:14
  Speaker 3: fact that they underwrite their own credit. Visa traditionally has
• 15:18
  Speaker 3: always been a play on toll collection, on volumes, on scale,
• 15:23
  Speaker 3: given that they're an open network and all the banks
• 15:27
  Speaker 3: and issuers kind of can use that network. So that's
• 15:31
  Speaker 3: how we would position Visa differently versus Annex. There is
• 15:35
  Speaker 3: no credit risk in this. And also, I think Visa,
• 15:39
  Speaker 3: as I mentioned, they've built a very strong competitive moat
• 15:43
  Speaker 3: on agentic commerce. So that's like a wild card that
• 15:46
  Speaker 3: could actually position Visa in a very strong position if
• 15:50
  Speaker 3: agentic commerce scales, given all the big AI companies are
• 15:53
  Speaker 3: kind of pushing out and Muse showed that commerce was
• 15:57
  Speaker 3: the biggest use case that Meta's customers were using it for.
• 16:02
  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
• 16:09
  Speaker 4: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 16:13
  Speaker 4: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 16:16
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• 16:19
  Speaker 4: you get your podcasts or watch us live on YouTube.
• 16:24
  Speaker 5: This is Bloomberg Intelligence with Paul Sweeney, Scarlett Fu and
• 16:26
  Speaker 5: John Tucker.
• 16:27
  Speaker 1: We are streaming live on YouTube.
• 16:29
  Speaker 5: We are reporting from the Bloomberg Interactive Broker Studio in
• 16:33
  Speaker 5: Midtown Manhattan. We got the Anthropic S1 filing that sets
• 16:37
  Speaker 5: us up for the IPO later on this month. It
• 16:40
  Speaker 5: was long awaited and people have had a field day
• 16:42
  Speaker 5: going through. the filing, looking at all the potential risks.
• 16:46
  Speaker 5: I want to bring in Gautam Mukunda. He is a
• 16:48
  Speaker 5: lecturer at the Yale School of Management. He is also
• 16:50
  Speaker 5: a contributor to Bloomberg Opinion for his thoughts on what
• 16:53
  Speaker 5: he saw. Because, Gautam, there's one thing in that S-1
• 16:56
  Speaker 5: filing where Anthropic is warning investors that it's advocacy, outspoken
• 17:01
  Speaker 5: advocacy for AI safety could make it a target of
• 17:05
  Speaker 5: government retaliation. And this really shows just the degree of
• 17:10
  Speaker 5: government-related risk to its business, its future business as well.
• 17:14
  Speaker 5: How do you think through something like this, given that
• 17:16
  Speaker 5: this is such a big, big player now in the
• 17:19
  Speaker 5: AI economy?
• 17:21
  Speaker 1: Yeah, it's really striking.
• 17:22
  Speaker 2: And I'll say, and it's not just that it's a
• 17:24
  Speaker 2: target for government retaliation. It's that big chunks of the industry,
• 17:28
  Speaker 2: which are far more leaning forward and far less more
• 17:32
  Speaker 2: willing to accept AI risk and judging by the S1
• 17:37
  Speaker 2: and are not actually competing with Anthropic all that well
• 17:40
  Speaker 2: on even terms, it also generates hostility from the industry
• 17:43
  Speaker 2: towards Anthropic from those people as well. So they get
• 17:46
  Speaker 2: sort of doubled up as a target. I think it's
• 17:49
  Speaker 2: very real, and their behavior only makes sense if you
• 17:52
  Speaker 2: think back to the founding history of Anthropic, which is
• 17:56
  Speaker 2: people who left OpenAI because they just thought that this
• 17:58
  Speaker 2: was not being managed responsibly, and the risks were so
• 18:02
  Speaker 2: high that they had to found their own company to
• 18:04
  Speaker 2: do it. You know, you can disagree with their approach
• 18:07
  Speaker 2: and their strategy and whether this race to the top
• 18:09
  Speaker 2: thing is working for them. I have some mixed feelings
• 18:12
  Speaker 2: about that. But the sincerity of that is real. And
• 18:14
  Speaker 2: I think that they really are sort of coming out
• 18:16
  Speaker 2: and saying, like, we don't have a choice. We have
• 18:18
  Speaker 2: to say this, even though we're accepting those risks. And
• 18:20
  Speaker 2: if you're not comfortable with that, you should invest with
• 18:22
  Speaker 2: someone else.
• 18:23
  Speaker 9: Staying on the AI theme, Gautam, in a recent note,
• 18:25
  Speaker 9: you say companies need to put effort into protecting innovation
• 18:29
  Speaker 9: from AI.
• 18:30
  Speaker 7: What do you mean by that?
• 18:32
  Speaker 2: Yeah, so I think this is one of these, the
• 18:34
  Speaker 2: more I see the way people are thinking about using
• 18:37
  Speaker 2: these tools in their business processes, and it's quite fascinating, right?
• 18:41
  Speaker 2: One of the things that you're seeing a lot of
• 18:43
  Speaker 2: is this idea that we can take humans who are
• 18:45
  Speaker 2: quirky and variant and expensive and replace them with AI
• 18:49
  Speaker 2: systems that can do the same things, but do them
• 18:52
  Speaker 2: less expensively, and even more importantly, do them uniformly, right?
• 18:56
  Speaker 2: Like just do them the same, the right way over
• 18:58
  Speaker 2: and over and over again. I think back to a
• 19:00
  Speaker 2: previous sort of business wave of transformation, Six Sigma, and
• 19:04
  Speaker 2: one of the things management, which had sort of made
• 19:07
  Speaker 2: the same promise, right? And one of the things management
• 19:09
  Speaker 2: researchers discovered about companies that adopted these sorts of approaches
• 19:13
  Speaker 2: was that they got more productive and more efficient, but
• 19:16
  Speaker 2: in many ways they got less innovative. And they got
• 19:20
  Speaker 2: less innovative because what these processes do is they squeeze
• 19:23
  Speaker 2: variants out of the system. If you are manufacturing widgets,
• 19:27
  Speaker 2: that's a really good thing because it means that you
• 19:29
  Speaker 2: stop discarding badly manufactured widgets. But there are lots of
• 19:32
  Speaker 2: other places where variance is what lets you innovate, right?
• 19:36
  Speaker 2: It lets you sort of wander around and try new things,
• 19:38
  Speaker 2: sometimes even by accident. And so the less variance you have,
• 19:41
  Speaker 2: the less innovative you get. And this was sort of
• 19:43
  Speaker 2: the counterintuitive but actually often worse, you know, where the
• 19:48
  Speaker 2: disease became– the cure became worse. than the disease, where
• 19:51
  Speaker 2: the lack of innovation cost more than the Six Sigma
• 19:53
  Speaker 2: approach saved.
• 19:55
  Speaker 5: What does it mean for a company that's very much
• 19:57
  Speaker 5: in the build-out of AI infrastructure, like a Microsoft, for instance?
• 20:02
  Speaker 5: We keep talking about the news, how Microsoft is offering
• 20:05
  Speaker 5: buyouts or reportedly will offer buyouts to about 60,000 workers.
• 20:09
  Speaker 5: That's a quarter of its total staff. And of course,
• 20:11
  Speaker 5: this is as part of its efforts to trim costs
• 20:13
  Speaker 5: and retool its workforce for the AI era. We're talking
• 20:16
  Speaker 5: about a much leaner and meaner, potentially, Microsoft down the road.
• 20:22
  Speaker 5: What does that mean for its ability to provide solutions
• 20:25
  Speaker 5: to enterprises if it's going to put all its eggs
• 20:27
  Speaker 5: in the AI basket and reduce the number of people
• 20:30
  Speaker 5: who can come up with those innovative solutions, think creatively,
• 20:34
  Speaker 5: think outside the box, all of that.
• 20:36
  Speaker 2: Yeah, so think about that as it's a two-sided problem, right?
• 20:39
  Speaker 2: So on the terms of like, oh, they're doing the build-out,
• 20:42
  Speaker 2: what this is a caution for is kind of like
• 20:44
  Speaker 2: their customers, right? Not that you shouldn't use these tools,
• 20:46
  Speaker 2: but that you need to think really carefully about how
• 20:49
  Speaker 2: you use these tools and you protect the innovation part
• 20:52
  Speaker 2: of your business from that.
• 20:53
  Speaker 1: But for Microsoft that's.
• 20:54
  Speaker 2: Doing what you're describing, the internal sort of re-engineering, I'm
• 20:59
  Speaker 2: going to be really curious to see how this works
• 21:00
  Speaker 2: out because previous companies that have tried this experiment, they
• 21:03
  Speaker 2: have generally walked back from the cliff, right, or found
• 21:06
  Speaker 2: that it was not useful. We had that wave of
• 21:08
  Speaker 2: stories that came out of Facebook where they did something
• 21:10
  Speaker 2: similar and they were planning this huge, you know, huge
• 21:13
  Speaker 2: cutbacks of the company, things like that. And they just
• 21:16
  Speaker 2: found that it wasn't working. And they had to back off,
• 21:18
  Speaker 2: you know, they started the cutbacks and then backed off.
• 21:21
  Speaker 2: There's no doubt in my mind that people enabled with
• 21:26
  Speaker 2: these tools are going to be able to do things
• 21:28
  Speaker 2: that you couldn't do without them and vastly more productivity.
• 21:31
  Speaker 2: That is true in my own personal workflow every day.
• 21:34
  Speaker 2: But at scale, I'm quite confident we don't know how
• 21:36
  Speaker 2: to do that yet. And when I look at what
• 21:39
  Speaker 2: Microsoft is doing, I'm like, either you have figured it
• 21:41
  Speaker 2: out and not told the rest of us, or you
• 21:43
  Speaker 2: are making an extraordinarily high leverage bet that you will
• 21:47
  Speaker 2: figure it out on the fly and you won't regret
• 21:49
  Speaker 2: losing these people who, after all, have built this astonishingly
• 21:52
  Speaker 2: profitable business for you.
• 21:54
  Speaker 9: And Gotham, the next person that comes in this studio
• 21:57
  Speaker 9: and tells me AI is not going to take jobs away,
• 21:59
  Speaker 9: I'm just going to punch him in the nose because,
• 22:01
  Speaker 9: I mean, if Microsoft, Microsoft, you would think that they
• 22:05
  Speaker 9: have their business buttoned down more than anybody. If they're
• 22:09
  Speaker 9: saying 25% of their workforce may not be needed, that
• 22:12
  Speaker 9: is just, we've never seen that.
• 22:14
  Speaker 2: No, we aren't. And so, like I said, Paul, it's
• 22:17
  Speaker 2: just a really complicated question, right? I mean, we keep
• 22:20
  Speaker 2: seeing these announcement of layoffs. It's obvious, like, even if
• 22:22
  Speaker 2: I talk to my friends who are computer engineers, they'll
• 22:24
  Speaker 2: say it's a lot harder to get jobs. But if
• 22:26
  Speaker 2: we look at the macro numbers, unemployment for software engineers
• 22:29
  Speaker 2: is just, you know, it's not high, right? Like, these
• 22:32
  Speaker 2: people are mostly still have employment. So, right now, I
• 22:35
  Speaker 2: think what you're seeing is a lot of fear and
• 22:37
  Speaker 2: seeing a lot of potential and a lot of transferal.
• 22:40
  Speaker 2: But The argument that AI is not going to take jobs, sure,
• 22:45
  Speaker 2: over a 20-year time horizon, I'm comfortable with that. I'm
• 22:50
  Speaker 2: not sure that's right, but it sounds totally plausible to me.
• 22:53
  Speaker 2: But there's a lot of transition that happens in that
• 22:55
  Speaker 2: 20-year time horizon, and that can really suck for you.
• 22:58
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• 23:03
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