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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 2: Wash FED chair nomination clears senateanal vote. So after much delay,

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Speaker 2: moving very quickly here. So we want to bring in

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Speaker 2: the current Bloomberg Fed and Economics reporter. And it looks

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Speaker 2: like we're making some progress here or the Congress is

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Speaker 2: making some progress on getting more mister Walsh on board.

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Speaker 3: Yeah, so after many months of protracted negotiations, we finally

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Speaker 3: have had that committee vote now, so this moves mister

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Speaker 3: Warsh's nomination out of the Banking Committee and I should

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Speaker 3: go on to the Center floor for a full vote,

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Speaker 3: probably at some point soon. I'm mister poll, current FED

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Speaker 3: Chairman of Parle's term ends on May fifteenth. Whether or

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Speaker 3: not mister Walsh gets his vote full vote by then

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Speaker 3: or whether he's a few days over, it doesn't really

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Speaker 3: matter very much because the next policy meeting after today

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Speaker 3: isn't until the middle of June. So today just release

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Speaker 3: cements that after that extraordinary succession drama we've had since

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Speaker 3: January over the DOJ investigation and all of the rest

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Speaker 3: of around, all the rest of questions are in the FED,

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Speaker 3: mister Walsh has out cleared that critical vote and is

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Speaker 3: on the way to be the next chair.

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Speaker 4: Right The question now is what happens with j Powell

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Speaker 4: seat His term as chair ends on May fifteenth. Do

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Speaker 4: you think this is something he's going to address at

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Speaker 4: the news conference at two thirty, Enda.

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Speaker 3: I think it'll be hard to avoid at Scarlett. As

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Speaker 3: you say, his term as chair will end in the

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Speaker 3: middle of next month, but he's entitled remain on as

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Speaker 3: a governor at the FED until January twenty twenty eight.

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Speaker 3: Typically speaking, FED chair's head off and enjoyed their retirement

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Speaker 3: head ended at sunset. But mister Powell made it clear

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Speaker 3: was maybe last month, I think it was in its

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Speaker 3: press conference that he can't leave his governor role until

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Speaker 3: the specter of that DOJ investigation into him and the

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Speaker 3: FED is cleared in all finality. Now there's a debate

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Speaker 3: over whether or not what the DJ did last week

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Speaker 3: in terms of dropping their investigation, does meet that threshold

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Speaker 3: of finality. Because two things. A they continue to appeal

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Speaker 3: against the fed's court wind that quashed the DOJ's pen

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Speaker 3: in the first place. That's one threat on this, And

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Speaker 3: the second part of it is the Inspector General investigation

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Speaker 3: into the FED into the cost of the building renovation

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Speaker 3: there is expected to report at some point over the summer,

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Speaker 3: and the DJ made it clear they have a threat

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Speaker 3: that they could renew their investigation depending on what that

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Speaker 3: particular finding from the IG throws up. So from mister

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Speaker 3: Pal's point of view, he may want to hang on

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Speaker 3: to all of that's clear. Critics would say should just

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Speaker 3: move on because it risks sort of stoking political resentment

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Speaker 3: and political criticism of the FED. But he's sure to

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Speaker 3: comment on and I would imagine that its press conference

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Speaker 3: later today.

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Speaker 2: Independence of the Fed? Where is that discussion these days?

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Speaker 3: Ender? It's become very fraud very divisive, of course, you know,

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Speaker 3: mister President Trump continues to hammer the FED over interest

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Speaker 3: rates he wants then brought down quickly. He's even said

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Speaker 3: that he would be disappointed if mister Wharsh, if he

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Speaker 3: gets finally converned of the share, doesn't get to move

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Speaker 3: on pretty quickly as well. So that political pressure continue

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Speaker 3: to be there.

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Speaker 5: We wait.

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Speaker 3: Of course, the outcome of the Supreme got really on

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Speaker 3: the governor Cook case, that's going to be very important.

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Speaker 3: We wait and see what mister Powell signals about his future.

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Speaker 3: That's going to be very important. But I think putting

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Speaker 3: now on the end of the year, there will be

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Speaker 3: a lot of focus on how will mister Whash respond

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Speaker 3: to political criticism. Will he kind of stand up as

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Speaker 3: a heat shield for the FED or will he be

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Speaker 3: seen as buckling under mister Trump's pressure on the one

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Speaker 3: hand and on the other hand, headed the rest of

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Speaker 3: the policy makers react, including mister Powell, legs, Miss Cook,

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Speaker 3: et cetera. So lots of question mark still in terms

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Speaker 3: of the mood music hanging around the FED.

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Speaker 1: Stay with us.

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Speaker 4: More from Bloomberg Intelligence coming up after this.

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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, Coarplay and Android

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Speaker 1: Auto with the Bloomberg Business app, Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Through One of the issues is the growth of AI,

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Speaker 2: and we've seen the market really discern winners and potential

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Speaker 2: losers from AI. One of the sectors that's come under

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Speaker 2: pressure has been software, particularly software as a service sector.

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Speaker 2: So I'm going to break that down a little bit.

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Speaker 2: We can do that with Niraj Patel, senior Software analysts

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Speaker 2: of Bloomberg Intelligence. Neiraje, I know you put out of

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Speaker 2: research note recently on this, but we saw earlier or

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Speaker 2: late last year, earlier this year some software stocks, and

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Speaker 2: particularly the software is the service stocks like service Now

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Speaker 2: and Salesforce really get sold off here.

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Speaker 5: What's your view? Yeah, I think when we look at

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Speaker 5: the AI disruption to application software, huge market, seven hundred

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Speaker 5: billion market, but definitely there's winners and losers, and from

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Speaker 5: our system of record, companies like Salesforce, like Workday, like

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Speaker 5: SAP are in the at least not going to be

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Speaker 5: structurally replaced by AI. Other companies that are in marketing

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Speaker 5: application HubSpot, Clavo, even some of Salesforce marketing, Adobe marketing,

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Speaker 5: they have more pressure there because it's a very heavy,

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Speaker 5: language based, repetitive type of solution that they offer to

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Speaker 5: the clients, which AI is very good at. So we

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Speaker 5: think they're they're more suspect to being displaced.

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Speaker 4: The software or market is massive, we kind of forget

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Speaker 4: that sometimes because we talk about only the big players,

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Speaker 4: but there's a lot of startups and they're borrowing from

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Speaker 4: the private credit market as well. And I go back

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Speaker 4: to some news from the previous week about a Blackstone

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Speaker 4: fund cutting the value of its loan to a dental

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Speaker 4: implant company. That's you know, kind of private credit woes continued.

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Speaker 4: But Blackstone also refused to extend a lifeline to a

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Speaker 4: software company, Medalia. And I know that's kind of out

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Speaker 4: of the purview of, you know, the big software companies

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Speaker 4: that we cover that are listed, but I'm wondering whether

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Speaker 4: there's any spillover to the bigger software companies from something

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Speaker 4: like that.

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Speaker 5: Yeah, I think it's a ripple effect. And I think

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Speaker 5: you've seen this with evaluation coming down. And when we

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Speaker 5: look at a couple of valuation metrics, even for the

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Speaker 5: big large cap companies, they're trading on par with the

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Speaker 5: S and P five hundred, that's never happened historically. They're

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Speaker 5: trading at twenty times forward earnings, and they have about

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Speaker 5: an eight to nine percent sales growth rate and an

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Speaker 5: operating margin that's on par. And there is definitely spillover

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Speaker 5: from these smaller companies because what that is signaling to

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Speaker 5: us is the additional growth which was an additional analytic

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Speaker 5: or AI layer like Medalia was selling, like these other

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Speaker 5: companies were providing, was sitting on top of a base

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Speaker 5: core package. So the additional growth rate is being pulled

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Speaker 5: down because AI is attacking the workflow layer, the analytic layer,

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Speaker 5: the insight layer, which was an upseller, additional cross seal

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Speaker 5: for these companies.

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Speaker 2: What can some of these software companies do, I don't know,

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Speaker 2: to protect their business to defend against AI. What can

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Speaker 2: they do?

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Speaker 5: Yeah, I think they're taking the steps. We're just not

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Speaker 5: seeing it in the financials and we're not going to

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Speaker 5: see it for the next couple of quarters. You're going

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Speaker 5: to see this steady low teens growth rate. The gross

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Speaker 5: margin is going to be preserved. But under the hood,

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Speaker 5: they are developing a lot of agents for their portfolios,

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Speaker 5: and that's exactly what they should be doing. They're introducing agents,

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Speaker 5: and they're introducing them quite aggressively. They're not going to

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Speaker 5: charge customers for this additional usage. They want to land

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Speaker 5: that account and maybe after mid twenty twenty seven we

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Speaker 5: expect some repricing of the subscription and the outcome. Task

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Speaker 5: based solution so they're definitely taking the steps that they

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Speaker 5: should be in introducing agent and AI native solutions, but

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Speaker 5: it's just going to be you know, we're going to

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Speaker 5: have to wait for some type of AI montization to

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Speaker 5: surface from these companies, which is going to take until

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Speaker 5: mid twenty twenty seven from our view, Mereja.

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Speaker 4: We were talking earlier about how four of this mag

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Speaker 4: seven names are reporting earnings after the close. What will

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Speaker 4: you be listening for as it affects your software industry.

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Speaker 5: Yeah, I think we've been trying to get a handle of,

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Speaker 5: you know, when is the financial impact to the application

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Speaker 5: software and as well as infrastructure software going to take place.

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Speaker 5: It's not there today, as we've stated, and I think,

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Speaker 5: as you're pointing out, Scarlett, what do we look at

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Speaker 5: is kind of a little gray. But what I've been

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Speaker 5: focusing in on is what are the building blocks for

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Speaker 5: these agents? And when I look at the building blocks,

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Speaker 5: I see the coding agents claud code, Cursor, OpenAI codex.

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Speaker 5: Are the monthly downloads increasing? There also some of the

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Speaker 5: other ecosystem symmetrics like MCP, which is a standard protocol

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Speaker 5: of communication. Are the downloads increasing? There are the use

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Speaker 5: for orchestrating these agents. There's some other AI native solutions

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Speaker 5: like lang chain and crew ai. Is that usage being increase,

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Speaker 5: So as long as that increase is continuing, which is

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Speaker 5: being utilized by these big four cap companies, then we

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Speaker 5: think agents are going to come to the enterprise and

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Speaker 5: it's just a matter of time, and it's giving us

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Speaker 5: a signal that trends underway.

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