WEBVTT - AON CFO Edmund Reese Talks Workforce Challenges

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. It's good to have

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<v Speaker 1>back with us, Edmund Reese, executive vice president and CFO

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<v Speaker 1>of the nearly seventy eight billion dollar marketcap professional services,

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<v Speaker 1>advisory and insurance brokerage company. Stock up a little over

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<v Speaker 1>two and a half percent year to date, down about

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<v Speaker 1>five percent since reporting those earnings yesterday, and good to

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<v Speaker 1>be back on the program. The company and the team

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<v Speaker 1>always a good read on how the business world is

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<v Speaker 1>feeling about the current environment when it comes to things

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<v Speaker 1>like risks, climate, governance issues, M and A and more.

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<v Speaker 1>Where do you think the biggest opportunity for growth is

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<v Speaker 1>for a.

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<v Speaker 2>On Well, First, well, Tim Carroll, thanks for having me

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<v Speaker 2>back here. The biggest opportunity for growth is actually what

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<v Speaker 2>we just saw over the past two years in our

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<v Speaker 2>three year strategy and what we just saw in this

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<v Speaker 2>most recent quarter with strong results. Complexity across the risk

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<v Speaker 2>that our clients are facing is the biggest biggest issue

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<v Speaker 2>we're discussing with them. That's the political violence and war

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<v Speaker 2>exposures in the Middle East. That's the hyperscaler's access to

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<v Speaker 2>additional capacity for the AI infrastructure builds, that's working with

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<v Speaker 2>our clients on large scale defense projects. All of these

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<v Speaker 2>things are coming together and intermingled on the minds of

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<v Speaker 2>our clients, and we are providing solutions to help them

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<v Speaker 2>with that as we give them access to our data,

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<v Speaker 2>help them understand their risk and then match it with capitals.

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<v Speaker 2>And that's where we actually saw when you look at

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<v Speaker 2>those lines in our P and L and on our

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<v Speaker 2>income statement, that's where you saw the growth.

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<v Speaker 1>I don't want to be crass here, but in other words,

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<v Speaker 1>is geopolitical uncertainty?

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<v Speaker 2>Is war?

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<v Speaker 1>Is instability good for your business?

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<v Speaker 2>Well, it creates complexity for our clients and helping our

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<v Speaker 2>and that drives demand for us, and that is good

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<v Speaker 2>for our clients and good for our shareholders as well.

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<v Speaker 2>If you think about that geopolitical violence, you have not

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<v Speaker 2>just the assets themselves, the ships, the cargo, but you

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<v Speaker 2>also have supply chain risk. You have the political violence

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<v Speaker 2>and terrorism. Those things create demand because clients want to

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<v Speaker 2>protect their assets and they still want to be able

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<v Speaker 2>to invest and grow and know how to do that.

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<v Speaker 2>We give insight and of course that drives drives more

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<v Speaker 2>demand for our products and helps us with the growth.

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<v Speaker 3>All right, I want to cut to the chase with you,

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<v Speaker 3>how freaked out is the corporate community because there's a

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<v Speaker 3>lot and you know coming at them. You know, this

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<v Speaker 3>war that just you know, peace talks, not peace talks,

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<v Speaker 3>more attacks. There's that, there's the higher costs of maybe

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<v Speaker 3>doing things in your back yard in terms of production,

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<v Speaker 3>energy cost, there's just a lot. So how freaked out

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<v Speaker 3>is kind of the corporate community? In your view?

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<v Speaker 2>Risk has been rising, Risk has been rising, and the

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<v Speaker 2>intermingledness of that risk, all of them connected, is creating

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<v Speaker 2>more angst, more volatility in the p and ls and

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<v Speaker 2>in the balance sheets of our clients. And when these

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<v Speaker 2>things come together, there is anks. But they still want

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<v Speaker 2>to invest, they still want to grow, and so we

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<v Speaker 2>have been investing. We've been investing in capabilities to do

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<v Speaker 2>what I was saying, helping them understand their exposure, helping

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<v Speaker 2>them connect that data to their assets and understand how

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<v Speaker 2>it impacts their balance sheets. And then of course bringing

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<v Speaker 2>in not just the traditional capital in our industry from

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<v Speaker 2>insurance carriers, but from other players as well, so that

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<v Speaker 2>our clients can still continue to grow, and of course

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<v Speaker 2>that help helps our growth as well.

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<v Speaker 1>Is there enough, you know, if we're talking about the

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<v Speaker 1>data center, part of this conversation and the opportunity there

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<v Speaker 1>is there actually enough insurance capacity for all the demand

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<v Speaker 1>that we're seeing with AI data centers.

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<v Speaker 2>Tim If you think about it, these data center sites,

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<v Speaker 2>some of the clients that you'll be talking to later

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<v Speaker 2>today and actually talked about at the beginning of your program,

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<v Speaker 2>they're coming on a twenty billion, forty billion, fifty billion

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<v Speaker 2>per site. The insurance industry traditionally is about a five

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<v Speaker 2>trillion dollar industry across all property, across all casualty, across

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<v Speaker 2>health and wealth as well, and so when you bring

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<v Speaker 2>on data centers that are of this size, it's not

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<v Speaker 2>sufficient capital from traditional insurance. So we've been talking for

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<v Speaker 2>quite some time. For the industry to stay relevant, we

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<v Speaker 2>are going to need to have access to what we've

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<v Speaker 2>sized as a two hundred and fifty trillion opportunity. We

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<v Speaker 2>just need a small slice of that expand the addressable

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<v Speaker 2>market that's going to come from institutional investors, that's going

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<v Speaker 2>to come from private equity, sovereign wealth funds, and the

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<v Speaker 2>only way that they will enter is if we can

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<v Speaker 2>provide the data. Just like we began this cat catastrophe

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<v Speaker 2>bond market, which is growing at a team rate and

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<v Speaker 2>we're over half of it. We're seeing it with our

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<v Speaker 2>treaty products aggregating risk from insurance, and we're going to

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<v Speaker 2>have to do the same thing for data centers here,

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<v Speaker 2>or you're going to see companies have it on their

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<v Speaker 2>own balance sheets or go out and look the fun

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<v Speaker 2>debt for it. But we think we certainly have interests

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<v Speaker 2>as asset managers want assets with uncorrelated return. We are

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<v Speaker 2>giving them the data to help them see that they

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<v Speaker 2>can get attractive yields off of that, and we do

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<v Speaker 2>think that we'll continue to be relevant. Is this extensive

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<v Speaker 2>build increasing investment in data centers continues over the next

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<v Speaker 2>few years.

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<v Speaker 3>So, as you guys know IA, you have all described

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<v Speaker 3>in the past the data centers as a ten billion

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<v Speaker 3>dollar premium opportunity. Is this still a reasonable amount? Has

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<v Speaker 3>the company's view changed on it? Is it less? Is

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<v Speaker 3>it small? Numbers matter?

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<v Speaker 2>When we gave that estimate, the spend in twenty twenty

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<v Speaker 2>six was less than the eight hundred billion that is

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<v Speaker 2>estimated to be today. The infrastructure spend over the next

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<v Speaker 2>three years will be at least two trillion, And when

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<v Speaker 2>you think about the ongoing operations of that some estimates

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<v Speaker 2>have it the tighest five to seven trillion, so it's

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<v Speaker 2>only increased since then. The question is are we going

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<v Speaker 2>to be able back to Tim's question of getting the

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<v Speaker 2>sufficient capital in to be able to ensure and manage

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<v Speaker 2>the risk associated with it. So we're very bullish that

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<v Speaker 2>that's going to be an opportunity, a tailwind for our

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<v Speaker 2>growth as we move forward. And we have been making

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<v Speaker 2>the investments on the capabilities using our data because we are,

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<v Speaker 2>you know, one of the largest players in the industry

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<v Speaker 2>to give the insights to these asset managers.

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<v Speaker 3>All Right, maybe a silly question, but I'm thinking somebody

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<v Speaker 3>at home might be listening or watching and wondering when

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<v Speaker 3>we talk about enough insurance capacity for AI data centered demand,

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<v Speaker 3>what exactly are we talking about? What is that insurance capacity?

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<v Speaker 2>Well, if you have a I mean think about your home,

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<v Speaker 2>you know, a million, just.

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<v Speaker 3>Protecting the data center, is that what it is?

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<v Speaker 2>Well, it's protecting the data center, the build of it,

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<v Speaker 2>is protecting the operations of it, if weather comes in,

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<v Speaker 2>cyber has an impact on it, the general liability. So

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<v Speaker 2>it's we actually have something that we call the data

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<v Speaker 2>center life cycle program, not just to build the physical

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<v Speaker 2>facilities itself, but the ongoing operations and all the risk

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<v Speaker 2>that it would face. You measure risk here with data centers.

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<v Speaker 2>Our CEO likes to say, you measure it in millions

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<v Speaker 2>per minute in terms of operations. So imagine the risk

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<v Speaker 2>associated with that, and you can ensure that and will

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<v Speaker 2>help match that risk with the right capital.

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<v Speaker 1>You know, we're actually seeing a headline that's related to

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<v Speaker 1>this crossing the Bloomberg Terminal right now. Deep Seek is

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<v Speaker 1>developing a massive artificial intelligence data center and Inner Mongolia.

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<v Speaker 1>According to people familiar with the matter, tad one gigawatt

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<v Speaker 1>worth of compute, the company aims to build its own

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<v Speaker 1>facility while leasing additional capacity from other companies. It's pushing

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<v Speaker 1>to bring at least part of its data center's capacity

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<v Speaker 1>online by the end of next year or early twenty

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<v Speaker 1>twenty eight. Edmund, we're speaking with Edmund recfo of aon

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<v Speaker 1>We're talking data centers. We're talking insurance and the insurance

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<v Speaker 1>market for data centers. What do you think when you

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<v Speaker 1>see a headline like this, Deep Zinc developed Deep Seek

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<v Speaker 1>developing this massive AI data center in Inner Mongolia.

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<v Speaker 2>As you were reading it, there were three things that

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<v Speaker 2>were going across my mind. One is the construction, Two

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<v Speaker 2>is the energy associated with it, another area that is

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<v Speaker 2>high growth for us that you'll need to support this

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<v Speaker 2>data center. And the third thing is the engineering and

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<v Speaker 2>expertise that we have and understanding not building that in

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<v Speaker 2>a concentrated location, but dispersing the risk and giving insight

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<v Speaker 2>on that. So that is a company that could definitely

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<v Speaker 2>benefit from the insights that we provide from the data.

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<v Speaker 2>Here is they pursue what is going to be a

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<v Speaker 2>massive investment and ensure that they get the returns that

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<v Speaker 2>they want on it.

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<v Speaker 3>Well, let me just go there. Then are you working

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<v Speaker 3>with deep Seek? Are you working with Amazon, Meta? Microsoft?

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<v Speaker 3>You smile for those who are listening, are you.

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<v Speaker 2>All smile and say that we are You know, we

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<v Speaker 2>given what we have, we have strong relationshipships across the hyperscalers.

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<v Speaker 2>I of course can't talk about any specific company here,

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<v Speaker 2>but increasingly the expertise and the engineering advice. I think

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<v Speaker 2>I mentioned on this program before that even before the

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<v Speaker 2>large data center boom here, we had advised on number

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<v Speaker 2>thirty percent of the data center builds in the US,

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<v Speaker 2>which is much larger than any other country. You have

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<v Speaker 2>to go to China and Germany before you start to

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<v Speaker 2>see the next one. We have high market share there

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<v Speaker 2>as well. So imagine all the engineering expertise that we

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<v Speaker 2>have understanding where to put the sites, how to build them,

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<v Speaker 2>how to ensure them themselves. And so with that expertise,

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<v Speaker 2>I think it drives more demand for us, and we

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<v Speaker 2>are in fact working with many of the large hyperscalers

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<v Speaker 2>that you talk about on the show.

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<v Speaker 3>Just real quickly. Any signs that this stuff is slowing down,

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<v Speaker 3>because this is the big question or one of the

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<v Speaker 3>big questions. Any signs that you're like, oh this, you know,

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<v Speaker 3>insurance capacity for a data centered dement it's going to

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<v Speaker 3>slow down. Any signs of that, Carol.

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<v Speaker 2>The last five quarters, I got on our earnings call

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<v Speaker 2>and said that we had double digit growth and construction,

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<v Speaker 2>which is where this shows up, including this quarter here.

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<v Speaker 2>Now that is you know, it's not where we drive

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<v Speaker 2>growth broad based through many different product lines, so we're

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<v Speaker 2>not overweighted to this, but it has been a strong

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<v Speaker 2>contributor for us, and we see it to be a

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<v Speaker 2>tailwind as we move forward.

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<v Speaker 3>Here. We just want more time. I'll come back come

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<v Speaker 3>back soon. Thank you so much. Always, always appreciated for

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<v Speaker 3>having me again. Yeah, be well Edmund Reee, Executive Vice

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<v Speaker 3>president cfo of A on joining us right here in

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<v Speaker 3>New York City.