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HPE Boosts Networking Gear for AI Clients, Adds Siemens Energy · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg
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  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
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  Speaker 1: or watch us live on YouTube.
• 0:24
  Speaker 2: Antonio and your joints us here, CEO of HPE Antnio,
• 0:27
  Speaker 2: thanks so much for joining us here talk to us
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  Speaker 2: about what are the key issues for you guys going
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  Speaker 2: forward to This AI story is a story that's playing
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  Speaker 2: out across the tech stack.
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  Speaker 3: Welcome morning, Paul, thanks for having me.
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  Speaker 4: Yes.
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  Speaker 3: Of course, today the narrative is all around the AI
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  Speaker 3: and the ability to use AI to change the world.
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  Speaker 4: And so for us.
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  Speaker 3: As a technology company is how we accelerate.
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  Speaker 4: The deployment of AI in the enterprise.
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  Speaker 3: And today we talked about the you know, the evolution
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  Speaker 3: of just large language models introurgentic models, which allows you know,
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  Speaker 3: to increase productivity across the entire enterprise cross processes and functions.
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  Speaker 3: And so we have made that a series of announcements
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  Speaker 3: here which brings together the infrastructure, the software and the
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  Speaker 3: cloud experience into one integrated, unified operated model, including governance
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  Speaker 3: and compliance.
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  Speaker 4: So that build the trust within the enterprise to go forward.
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  Speaker 5: And how does this change your growth trajectory going forward?
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  Speaker 5: I know that you know one year out might look
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  Speaker 5: very different from five years out versus ten years out.
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  Speaker 5: Just walk us through how you see this changing what
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  Speaker 5: you had anticipated to what you now think you can achieve.
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  Speaker 4: Yeah, ask Caarlie.
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  Speaker 3: So if you go back and read our earnings and
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  Speaker 3: Q two, we grow the company as a whole forty
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  Speaker 3: percent here of your own revenues, and we expanded margins
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  Speaker 3: because of the content that we bring into Our revenue
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  Speaker 3: now has a bigger mix.
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  Speaker 4: Of networking, software and cloud service.
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  Speaker 3: And in that context, we believe networking is going to
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  Speaker 3: be the thesis of our company. If you think about
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  Speaker 3: developing these frontier models, whether proprietary or open source models,
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  Speaker 3: you need a lot of GPU power, but that GPU
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  Speaker 3: needs to be very productive. You don't want to keep
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  Speaker 3: it idle. And the bottleneck of that is networking. And
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  Speaker 3: so we have now with the acquisition of Juniper, an
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  Speaker 3: amazing portfolio in the three key.
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  Speaker 4: Elements, scale up, scale out, and scale.
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  Speaker 3: Across, which position us to be a core element of
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  Speaker 3: that infrastructure build out. So this is why we believe
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  Speaker 3: the company is going to grow double digits going forward
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  Speaker 3: and will continue to expand operating margins and that will
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  Speaker 3: translate in free cash law. So we already guide it
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  Speaker 3: which is unlikely and you know in many.
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  Speaker 4: Cases for six quarters ahead.
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  Speaker 3: So think about it because of the confidence we have
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  Speaker 3: in a prowth trajectory.
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  Speaker 2: Antonio, where do you think this technology, this AI technology
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  Speaker 2: story is. I mean, a lot of folks saying it.
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  Speaker 2: We're still in a very very early innings, but you
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  Speaker 2: just think about the amount of CAPEX that is being
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  Speaker 2: spent by a variety of players within the sub stec
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  Speaker 2: It's just extraordinary. Where do you think we are in
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  Speaker 2: that companion there of AI investment?
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  Speaker 4: I concord with that, we're still early.
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  Speaker 3: And what you have to understand that is three customer
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  Speaker 3: segments you have to look into it. Number one is
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  Speaker 3: the model builders and the hyper scale is the neo clouds.
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  Speaker 3: We're building large amount of compute capacity. We believe by
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  Speaker 3: the end of the decade, we're going to build two
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  Speaker 3: hundred and fifty gigawad of power that will host dis
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  Speaker 3: gbus and that's the cap is you're talking about it.
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  Speaker 3: But then ultimately what is the mix of that capacity.
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  Speaker 3: It's going to be shifted from training models to influencing models,
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  Speaker 3: and that's where we're going to see the large adoption
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  Speaker 3: of AI into the enterprise.
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  Speaker 4: To drive that productivity.
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  Speaker 3: But if you put a context of industrial revolutions in
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  Speaker 3: the past, this actually is very small compared to that
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  Speaker 3: spend that was done, you know, in every inflection point,
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  Speaker 3: including internal in.
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  Speaker 4: The past century.
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  Speaker 3: So yes, I understand the concern about a mountal capex,
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  Speaker 3: but when you're put in a context of change in
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  Speaker 3: the way we work, the change in our society was
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  Speaker 3: still small relative to that.
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  Speaker 5: You know, just looking at how you might be deploying cash.
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  Speaker 5: I know that you tap the debt market in March
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  Speaker 5: to refinance some upcoming maturities. You've got strong liquidity with
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  Speaker 5: cash and equivalents of more than five billion dollars at
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  Speaker 5: the end of the second quarter. What might prompt you
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  Speaker 5: to go to the debt market again to raise more money.
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  Speaker 3: Well, we do that very regularly because remember inside HPE,
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  Speaker 3: we have an operating company. Obviously we are we are
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  Speaker 3: paying down the debt and refinancing where we need to
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  Speaker 3: uh and that's the operating balance. It you're referring to
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  Speaker 3: So our balance sheet is super super strong, and then
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  Speaker 3: we have the financing company, which has thirteen billion dollars
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  Speaker 3: under asset management.
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  Speaker 4: Think about the finance we do for customers, and we do.
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  Speaker 3: It also SURPAS of the asset life cycle management services
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  Speaker 3: and basically we have debt securities against those asset but
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  Speaker 3: the return on equity on that is.
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  Speaker 4: Super high, super super high. So we use those vehicles
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  Speaker 4: when it's necessary.
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  Speaker 3: But what we announced just at the beginning of this
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  Speaker 3: month in our earning is is that we're going to
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  Speaker 3: pay down that debt much faster.
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  Speaker 4: In fact, we.
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  Speaker 3: Expect a return to two times leveraged by the end
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  Speaker 3: of this fiscal year, which is.
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  Speaker 4: One year ahead of plan.
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  Speaker 3: And we're going to start returning seventy five percent approximately
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  Speaker 3: over free cash flow in twenty twenty seven to shareholders,
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  Speaker 3: which we expect to generate at least four point five
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  Speaker 3: billion dollars in individends and share buybacks.
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  Speaker 4: That's how we're going to return it.
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  Speaker 3: So we are very strong, and that comes back to
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  Speaker 3: the question you asked me before where it comes.
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  Speaker 4: From the growth and the operating conduct.
• 6:06
  Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
• 6:13
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 6:27
  Speaker 5: Man Deep Seeing is our global tech research head here
• 6:29
  Speaker 5: at Bloomberg Intelligence and Man Deep. There's a bunch of
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  Speaker 5: areas we can go to. But I want to pick
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  Speaker 5: up on what Alexis said. With SpaceX being down for
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  Speaker 5: the first time since it went public, the stock lower
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  Speaker 5: by about three to third percent today, talk a little
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  Speaker 5: bit about this Cursor deal which they just announced, and
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  Speaker 5: we knew this was coming because they bought the right
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  Speaker 5: to buy the company before the IPO. Does this really
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  Speaker 5: change your trajectory in a way that makes people rethink
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  Speaker 5: what SpaceX is.
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  Speaker 7: Yeah, I mean the whole AI segment, I think has
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  Speaker 7: really got a shot in terms of becoming a hyper
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  Speaker 7: scale like Clayer because of this Cursor acquisition. And right
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  Speaker 7: now they're just renting the compute they have in their
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  Speaker 7: data centers to Enthropic and Google. But to my mind,
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  Speaker 7: Cursor gives them the potential to have a frontier LLM
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  Speaker 7: that can actually generate revenues like Entropic and open AI
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  Speaker 7: are generating, you know, by companies using their LLLM. So
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  Speaker 7: Cursor was one of the biggest priced assets in the
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  Speaker 7: world of llms, and it's really focused on coding agent
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  Speaker 7: and I think there was this notion that Cursor is
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  Speaker 7: a wrapper on frontier lms that clearly is not the case.
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  Speaker 7: Cursor has frontier training capabilities and with the capex that
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  Speaker 7: I think SpaceX is going to do, they will be
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  Speaker 7: very well spending like the other hyperscalers one hundred billion
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  Speaker 7: dollars in capex in twenty twenty seven, so that will
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  Speaker 7: be huge to ramp up Cursor.
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  Speaker 2: SpaceX three lines of business for their IPO perspectives, Connectivity.
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  Speaker 2: We spoke to John talk John Butler about that. Space
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  Speaker 2: We talked to George ferguson Bloomer Intelligence about that. Are
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  Speaker 2: you the AI guy?
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  Speaker 7: Well, you're the AI guy.
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  Speaker 2: Guy, I know. So what is there am I paying
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  Speaker 2: for AI now when I buy SpaceX? Is that when
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  Speaker 2: I'm paying this a jillion times sales multiple?
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  Speaker 7: I think so, especially the near term growth will be
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  Speaker 7: all driven by AI. And right now it's AI compute
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  Speaker 7: rental like the Neo clauds. But with the Cursor acquisition,
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  Speaker 7: they have the potential to actually play in that AI
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  Speaker 7: application domain, which is higher margins, and that's where the
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  Speaker 7: you know, evaluation could be justified if they are able
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  Speaker 7: to ramp up the cursor side of the revenue.
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  Speaker 5: Okay, so I suspect that this will be a moving
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  Speaker 5: target for a while to come, since SpaceX's you know,
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  Speaker 5: is Elon's vision of a vertically integrated everything in his
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  Speaker 5: brain company. Let's talk a little bit about open Ai.
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  Speaker 5: We know that open Ai perhaps operationally not doing as
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  Speaker 5: well as it had intended. It didn't meet some internal targets.
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  Speaker 5: You recently published a note on open Ai, and the
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  Speaker 5: losses of about thirty four billion dollars coupled with the
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  Speaker 5: lowering of its token pricing for its latest model, show
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  Speaker 5: that perhaps there are some growing pains here.
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  Speaker 6: Talk us through what you see.
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  Speaker 7: Yeah, I mean, look, the competition has increased. Just six
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  Speaker 7: months back, you know, open Ai was way ahead of
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  Speaker 7: everyone else. Now we are talking about how Anthropic is
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  Speaker 7: on the leaderboard. And that's what gives me hope that
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  Speaker 7: you know, even SpaceX with their Cursor deal couldn't leavefrog
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  Speaker 7: any of these models. So nothing is said in terms
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  Speaker 7: of the model race. This is not a one player,
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  Speaker 7: take all type of mark and things could change fairly
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  Speaker 7: quickly what we have seen, you know, with Entropic, and
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  Speaker 7: that's where open ai has sort of squandered their lead
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  Speaker 7: that they had over everyone else, and now they are
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  Speaker 7: lowering their token pricing to make sure they, you know,
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  Speaker 7: have continued adoption of their models. And that's never a
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  Speaker 7: good position to be in if you're lowering prices. So
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  Speaker 7: from that perspective, I do find them to be on
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  Speaker 7: the back foot. But look, things could change with the
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  Speaker 7: next model release. Open Ai can come up with a
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  Speaker 7: great model and suddenly, because they have more compute than
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  Speaker 7: Entropic and everyone else, we would be talking that open
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  Speaker 7: Ai is back in that leaderboard, but right now it
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  Speaker 7: clearly is Entropic and everyone else is playing catch up.
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  Speaker 2: I mean, I'm just trying to catch up here all right,
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  Speaker 2: on my little window here, my AI window on my phone.
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  Speaker 2: I've got the app chat GPT, Yeah, I got Gemini,
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  Speaker 2: I got Read because the kids tell me I have
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  Speaker 2: to use Reddit. What else do I need in there?
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  Speaker 7: Claude, I mean, we're talking about and tropics, so that's all.
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  Speaker 2: Right, nthropic is Claude Claude issanthropic?
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  Speaker 6: What about deep Seek? Should Paul have deep Seek on there?
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  Speaker 7: I mean, their usage seems to be growing at the
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  Speaker 7: enterprise level. In fact, there was some news that Microsoft
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  Speaker 7: may be supporting deep Seek in their Azure cloud despite
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  Speaker 7: all the pushback we hear about using Chinese lms. Yes,
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  Speaker 7: so you could see and already in Europe you can
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  Speaker 7: see deep Seek usage is growing up. So from that perspective,
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  Speaker 7: don't count the Chinese models out, even though I wouldn't
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  Speaker 7: have thought, you know, they would do well here. But
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  Speaker 7: surprisingly you're seeing enterprise interests, partly because of the token
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  Speaker 7: pricing and how expensive it is to deploy AI and
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  Speaker 7: deep Seak being an open weight model, a lot of
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  Speaker 7: enterprises are looking at using deep Seak.
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  Speaker 2: All right, I'm downloading Claude as we speak. What do
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  Speaker 2: you use?
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  Speaker 7: You're like, I use everything, I use Cursor, I use Claud,
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  Speaker 7: I use Cursor is more coding specific. So if you
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  Speaker 7: have ideas related to a coding agent, it's a fabulous tool. Really,
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  Speaker 7: I mean the thing that I find, you know with
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  Speaker 7: these tools is uh. Claude, for example, deprecated one of
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  Speaker 7: their older models, so they are making decisions on the fly,
• 12:26
  Speaker 7: you know, in terms of what models to deprecate.
• 12:29
  Speaker 2: What's depate mean?
• 12:30
  Speaker 7: Like that model is not available anymore? What if I
• 12:33
  Speaker 7: if I have a preference for that model, it's not
• 12:35
  Speaker 7: even available anymore. With Cursor, actually, they solve for that
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  Speaker 7: problem that you can go across models, you can use
• 12:43
  Speaker 7: an older model. So I feel that's a problem that
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  Speaker 7: Cursor solved really well.
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  Speaker 5: I bet Man Deep's prompts are a lot different than
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  Speaker 5: what you or I would put in the prompt. Yes,
• 12:51
  Speaker 5: you know, Mandy, you're probably putting in like paragraphs in
• 12:56
  Speaker 5: your prompts.
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  Speaker 7: I built a lot on my show prompts and that's
• 13:01
  Speaker 7: why these tools are so engaging that you know, once
• 13:03
  Speaker 7: you start playing with them, it's like it brings more
• 13:08
  Speaker 7: ideas in terms of what all you can do with
• 13:10
  Speaker 7: these tools, and it's very iterative.
• 13:12
  Speaker 2: At least for me.
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  Speaker 7: I'm not a single shot prompter where I have a
• 13:16
  Speaker 7: three prade page prompt. No, I really build on stuff.
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  Speaker 2: Do we use it in BI We do?
• 13:21
  Speaker 7: Yes, we do have access to a lot of these tools,
• 13:25
  Speaker 7: and that's partly how we are looking to become more
• 13:29
  Speaker 7: efficient in our workflows. And it's already helping.
• 13:33
  Speaker 2: There's a I think I'm taking credit for just having
• 13:35
  Speaker 2: downloaded some of these apps on my phone. I'm going
• 13:37
  Speaker 2: to take that as a little victory.
• 13:38
  Speaker 5: Now, you got to create a log in, all right,
• 13:41
  Speaker 5: you got it. You got to have an account.
• 13:42
  Speaker 2: Okay, so it remembers.
• 13:44
  Speaker 5: You could tell them, you know, explain your preferences. Don't
• 13:49
  Speaker 5: flatter me, don't praise me when it gets oh yeah
• 13:52
  Speaker 5: personalized JPT like will compliment you when you ask a
• 13:55
  Speaker 5: question like no, dud, it's a great question.
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  Speaker 2: Okay, all right, all right, I'm on it. I got
• 14:00
  Speaker 2: a tow hour train ride home today. I'll learn AI
• 14:02
  Speaker 2: in two hours. Man Deep Saying, global head of tech
• 14:04
  Speaker 2: research for Bloomberg Intelligence.
• 14:06
  Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
• 14:13
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 14:16
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 14:20
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 14:23
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 14:27
  Speaker 2: BMW said its profit MARGIC could dwindle to as low
• 14:30
  Speaker 2: as one percent this year due to weakening Chinese demand
• 14:33
  Speaker 2: and fall out from the Middle East conflict. I want
• 14:35
  Speaker 2: to get some more on that. Michael Dean, head of
• 14:37
  Speaker 2: Global Auto Research for Bloomberg Intelligence Joints, is here. Michael,
• 14:40
  Speaker 2: what's going on with BMW?
• 14:42
  Speaker 8: Yes, it was a big downgrade yesterday. So you know,
• 14:45
  Speaker 8: China is about twenty five percent of their salves annually
• 14:49
  Speaker 8: and we've been seeing in previous months that that cells
• 14:52
  Speaker 8: have been weak. But I think they go to the
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  Speaker 8: point where they don't see it recovering the second half
• 14:57
  Speaker 8: of this year, and hence they've taken, you know, a
• 15:00
  Speaker 8: massive cut to their margin expectations.
• 15:03
  Speaker 5: Does that mean that they're going to have trouble selling
• 15:06
  Speaker 5: cars at full price? Then they might need to discount
• 15:09
  Speaker 5: or look to you know, package it a little bit differently.
• 15:12
  Speaker 8: Well, China's been a really difficult market for the German
• 15:14
  Speaker 8: brands over the past few years. Just take the example
• 15:17
  Speaker 8: of Porsche. Porscha's cells have dropped by seventy percent since
• 15:20
  Speaker 8: twenty twenty one. BMW Mercedes have had similar issues. Their
• 15:24
  Speaker 8: sales are down by about twenty twenty five percent over
• 15:27
  Speaker 8: the past couple of years. They're facing heavy discounting from competitors,
• 15:32
  Speaker 8: so that was weighing them anyway, and now the market
• 15:34
  Speaker 8: itself is falling quite significantly. So it was down in
• 15:38
  Speaker 8: twenty percent in the first five months of this year,
• 15:40
  Speaker 8: and given we don't see you're covering in the second half.
• 15:43
  Speaker 8: And that's also impacting the German automakers and BMW specifically.
• 15:47
  Speaker 2: So if I'm a global automaker in Germany, in the US, Japan,
• 15:52
  Speaker 2: how do I view the Chinese market here today? I
• 15:54
  Speaker 2: mean it seems like I'm hearing a lot of bad
• 15:57
  Speaker 2: news from a competitive standpoint in that market just generally.
• 16:01
  Speaker 8: Yeah, I mean, domestic players are making some really good
• 16:03
  Speaker 8: cars at Shell me is a key competitor now to
• 16:06
  Speaker 8: BMW and Mercedes. And because the local cars are so
• 16:11
  Speaker 8: good and because their price so competitively, it's pushing the
• 16:14
  Speaker 8: foreign automakers out. As I mentioned Porsche, Porsche has already
• 16:18
  Speaker 8: taken a big hit on their volumes in China, but
• 16:22
  Speaker 8: that could also happen to the other German automakers and
• 16:24
  Speaker 8: other foreign automakers.
• 16:26
  Speaker 5: What does this mean for BMW's approach to electrification.
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  Speaker 8: I don't think it changes their approach. So the Chinese
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  Speaker 8: market is now forty percent fully electric, it's probably about
• 16:36
  Speaker 8: sixty percent if you include evs. They've got a wave
• 16:40
  Speaker 8: of new models coming out using their newer, classer platform.
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  Speaker 8: So they were hoping to make inroads into that the
• 16:48
  Speaker 8: electrification in China, but they're going to find it very difficult.
• 16:51
  Speaker 8: That market is weakening and prices continue to go down.
• 16:54
  Speaker 2: All right, let's let's get to it. Michael, I need
• 16:56
  Speaker 2: your your review of the bm W seventy that I
• 17:01
  Speaker 2: think mister Matt Miller just acquired good car.
• 17:04
  Speaker 8: Very good car. So Matt was talking to me about it.
• 17:07
  Speaker 8: I think it has a double crank, so he was
• 17:10
  Speaker 8: very impressed with that. But yeah, the new mgesus are
• 17:13
  Speaker 8: coming out, awesome cars. Just hopefully they'll be able to
• 17:17
  Speaker 8: sell a few in China as well.
• 17:19
  Speaker 6: Okay, double crank, I don't know what that means.
• 17:21
  Speaker 2: No, I don't know. But it's a naturally aspirated five
• 17:24
  Speaker 2: point zero leader SHC and have no idea what that means.
• 17:28
  Speaker 2: V twelve engines, so it's a big one. I think
• 17:30
  Speaker 2: it's a guest goes.
• 17:31
  Speaker 6: Does Matt drive automatic or.
• 17:34
  Speaker 2: They don't make They don't make sticks anymore. I used
• 17:36
  Speaker 2: to have the BMW manual TRANSMISSI until they stop making
• 17:38
  Speaker 2: in twenty sixteen or twenty seventeen. And Michael Dean could
• 17:41
  Speaker 2: not fix that problem for me. I sent him on
• 17:43
  Speaker 2: a mission to Germany.
• 17:44
  Speaker 9: I did try.
• 17:45
  Speaker 8: So very automakers now have stick shifts. You can get
• 17:48
  Speaker 8: a few portion nine elevens as a stick shift, but
• 17:51
  Speaker 8: it's very very rare to see that across the car
• 17:54
  Speaker 8: makers now, unfortunately, even in Europe.
• 17:57
  Speaker 2: Yeah, sure, really, it's a terrible thing, Michael Dean.
• 18:01
  Speaker 8: And with the with hybrids, because they need an automatic
• 18:04
  Speaker 8: transmission that's cool, so takes away the need for a
• 18:08
  Speaker 8: stick shift.
• 18:09
  Speaker 5: So there's no standard hybrid vehicle or you're not gonna
• 18:12
  Speaker 5: have a stick shift to hybrid. That's that's not technologically possible.
• 18:16
  Speaker 4: Exactly.
• 18:16
  Speaker 9: Yes, that's correct.
• 18:17
  Speaker 2: It's a sad day in the world of automobiles.
• 18:20
  Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
• 18:27
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 18:31
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 18:34
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• 18:37
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 18:41
  Speaker 2: Well, the retail analysts out there, they're not afraid. They're
• 18:44
  Speaker 2: throwing their hat in the ring. Here's this from Bloomberg
• 18:46
  Speaker 2: Intelligence AI agents marketplaces to push digital retail to two
• 18:51
  Speaker 2: point six trillion dollars by twenty thirty. That gets your attention.
• 18:56
  Speaker 2: Putnam Goyle, she's a senior US e commerce and retail
• 18:59
  Speaker 2: anasts for Bloomberg and Colligence. Put them you're to blame
• 19:02
  Speaker 2: for this. Talk to us about two point six billion.
• 19:04
  Speaker 2: That seems like a big number.
• 19:07
  Speaker 9: Two point six trillion is a big number, but you
• 19:11
  Speaker 9: know that's coming off of two trillion expected next year.
• 19:14
  Speaker 9: So what you're looking at is a high single digit,
• 19:17
  Speaker 9: double digit gain across e commerce for the next two years.
• 19:21
  Speaker 9: And that's not really that big right when you think
• 19:23
  Speaker 9: about it. These companies within this ecosystem have been posting
• 19:27
  Speaker 9: double digit, high single digit gains for quite some time,
• 19:30
  Speaker 9: and we're just thinking that that trend continues, largely led
• 19:34
  Speaker 9: by AI. We think AI will be a key driver
• 19:37
  Speaker 9: to not only driving more eyeball thanto the e commerce platform,
• 19:40
  Speaker 9: but also to drive higher conversion.
• 19:43
  Speaker 5: Higher conversion and higher sales overall. But one thing that
• 19:46
  Speaker 5: AI people are looking for AI to do is solve
• 19:49
  Speaker 5: some existing problems, and that includes a lot of product returns.
• 19:53
  Speaker 5: People are returning products for different reasons. You know, when
• 19:56
  Speaker 5: you buy online you buy five different sizes and see
• 19:58
  Speaker 5: which one fits and return the rest. And also, people
• 20:00
  Speaker 5: are losing weight from GLP one drugs and so they
• 20:04
  Speaker 5: don't actually have a good sense of where they are.
• 20:06
  Speaker 6: How will AI fix that problem.
• 20:09
  Speaker 9: So there's a lot of things that are happening in
• 20:11
  Speaker 9: the industry when it comes to how to solve the
• 20:13
  Speaker 9: return problem. We don't think it's ever going to be
• 20:16
  Speaker 9: entirely solved, but definitely you know, you would want to
• 20:18
  Speaker 9: see lower return rates for online the return rates are
• 20:21
  Speaker 9: doubled out of stores. And what we see right now
• 20:24
  Speaker 9: happening is, you know, when you go onto a retailer's website,
• 20:28
  Speaker 9: they have recommended sizes, so they can tell you based
• 20:31
  Speaker 9: on your purchasing patterns. Here's what we recommend. There's also
• 20:35
  Speaker 9: AI design sort of images where you can upload a
• 20:40
  Speaker 9: photo of yourself and it could tell you what fits
• 20:43
  Speaker 9: you best. Not all companies have this, not everyone can
• 20:46
  Speaker 9: do this, but it is in progress and we expect
• 20:49
  Speaker 9: to see more on the fit side to help avoid
• 20:52
  Speaker 9: what you just said. You know, I need five sizes
• 20:54
  Speaker 9: because I don't know what will fit me. That's one
• 20:57
  Speaker 9: of the biggest areas where we do see some for
• 21:00
  Speaker 9: when it comes to returns online, especially in the apparel category.
• 21:04
  Speaker 2: So do we have an idea who's doing this stuff?
• 21:06
  Speaker 4: Well?
• 21:06
  Speaker 2: Because AI seems like any technology, you know, some companies
• 21:10
  Speaker 2: are going to embrace it and figure out how to
• 21:12
  Speaker 2: use it better than others. I'm guessing it's kind of
• 21:14
  Speaker 2: expensive too. Some I could see the bigger companies maybe
• 21:18
  Speaker 2: being a little bit ahead. How are you kind of
• 21:20
  Speaker 2: measuring how the companies are doing themselves.
• 21:22
  Speaker 9: So the thing is it's not a perfect solution, right,
• 21:24
  Speaker 9: So companies are testing it and trying it, including even Amazon.
• 21:28
  Speaker 9: But it all depends on how good your images that
• 21:31
  Speaker 9: you uploaded. It depends on the data that you feed
• 21:34
  Speaker 9: into the system to get the right output. So there
• 21:37
  Speaker 9: is one area where we sell where you basically say
• 21:40
  Speaker 9: I know that I fit into a size X at
• 21:43
  Speaker 9: this brand, and different brands have different sizing parameters. You
• 21:46
  Speaker 9: could be a four somewhere, but you could be a
• 21:48
  Speaker 9: six somewhere else, or two depending on how they cut
• 21:51
  Speaker 9: their fabric and what it does. It says, okay, if
• 21:54
  Speaker 9: you know for sure that you're a size X in
• 21:56
  Speaker 9: this brand, here's what size you would be in other brands.
• 22:00
  Speaker 5: Yeah, that's one of the long time frustrations as a
• 22:03
  Speaker 5: woman to have different brands, have different sizing, and you
• 22:05
  Speaker 5: just have to try everything on constantly. To Paul's point
• 22:09
  Speaker 5: about how you know this can be expensive to incorporate,
• 22:12
  Speaker 5: are privately backed companies more likely to incorporate AI than say,
• 22:17
  Speaker 5: publicly traded companies because if you are backed by a
• 22:20
  Speaker 5: sponsor and they're going to spend this kind of money
• 22:22
  Speaker 5: on AI, they can kind of distribute it across all
• 22:24
  Speaker 5: their partner companies.
• 22:25
  Speaker 9: Yeah. So what's nice about the investments in AI is
• 22:28
  Speaker 9: you don't have to build it, right, So, I think
• 22:30
  Speaker 9: what you're going to see is startups and private companies
• 22:33
  Speaker 9: actually launch these tools that can be shared across the domain.
• 22:37
  Speaker 9: And that's what we're going to see more of. It's
• 22:39
  Speaker 9: just how do you share technology?
• 22:41
  Speaker 4: Now?
• 22:41
  Speaker 9: The bigger retailers like an Amazon and Walmart can of
• 22:43
  Speaker 9: course afford to build them, but we do see technologies
• 22:46
  Speaker 9: being shared as we move into the next era of AI.
• 22:49
  Speaker 2: So is this going to increase the top line for
• 22:53
  Speaker 2: some of these retailers? Do you think polnumers is just
• 22:56
  Speaker 2: going to change the way people shop and maybe you'll
• 22:59
  Speaker 2: have an impact on the margins. How do you think
• 23:00
  Speaker 2: about it from a P and L perspective.
• 23:03
  Speaker 9: Yeah, so I think you know, when you think about
• 23:04
  Speaker 9: the online space, online is structurally gaining share from the
• 23:07
  Speaker 9: brick and mortars. Today it's about twenty six percent of
• 23:10
  Speaker 9: retail sales. It will go to thirty one percent based
• 23:12
  Speaker 9: on our estimate, and even higher as you move forward.
• 23:15
  Speaker 9: Some categories lean more aggressively into e commerce, like electronics
• 23:19
  Speaker 9: because it has commoditized to some extent, and others don't
• 23:23
  Speaker 9: like autos. What I would say is we think that
• 23:27
  Speaker 9: not only will the consumer get smarter, but the retailer
• 23:30
  Speaker 9: will get smarter and how to target the consumer. So
• 23:33
  Speaker 9: what will increase is the conversion online because you won't
• 23:36
  Speaker 9: have as many friction points that you've had in the past,
• 23:39
  Speaker 9: whether that's agent led shopping. You know, if you look
• 23:41
  Speaker 9: at the Amazon for shopping that they just launched, which
• 23:44
  Speaker 9: used to be called rufus, and we talked about this yesterday,
• 23:47
  Speaker 9: where you can go to a search for and now
• 23:49
  Speaker 9: you can engage in a conversation to help find the
• 23:51
  Speaker 9: right answer for your choice, and that's going to boost
• 23:53
  Speaker 9: conversion too.
• 23:55
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spot,
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