Speaker 1: Bloomberg Tech is alive from coast to coast with Caroline
Speaker 1: Hide in New York and Eva, though in San Francisco.
Speaker 2: This is Bloomberg Tech coming up.
Speaker 3: Alphabet hits a record high as Google dodges the sale
Speaker 3: of Chrome in a key antitrust ruling.
Speaker 1: Plus Apple benefits from Google's legal win but loses out
Speaker 1: on the AI talent wars Again. We discussed the latest
Speaker 1: key researcher jumping to rival Meta.
Speaker 2: And the rolls.
Speaker 3: Royce CFO joins US stateside as the British engineering giant
Speaker 3: goes off to AI fuel's data center demand for power tech.
Speaker 1: But first we check in on these markets.
Speaker 4: The power higher on the day.
Speaker 1: Ed reprieve from yesterday's sell off as we see boniols
Speaker 1: come back a little bit, and we focus on well,
Speaker 1: pretty woeful data when it comes to the jobs data.
Speaker 1: But does that mean the Fed Canandian cut. We're up
Speaker 1: more than a percentage point, But dig into the individual
Speaker 1: movers because they're big.
Speaker 2: Yeah, our top story is Google.
Speaker 3: The key headline that you need to know is that
Speaker 3: they will not have to divest or sell Chrome. They
Speaker 3: will be allowed to continue paying in particular Apple twenty
Speaker 3: billion dollars per year for placement of search, but there
Speaker 3: is a lot that they're still required to do in
Speaker 3: the remedy section of that key and trust ruling. The
Speaker 3: stock for Alphabet pairent of Google on track for its
Speaker 3: biggest jump since April record high Alphabet Apple.
Speaker 2: Is also pushing a lot high. Later in the program, going.
Speaker 3: Too detail, let's start with a Google piece and bring
Speaker 3: in our guest character.
Speaker 1: Yeah, let's bring in Sarah Forden because we want to
Speaker 1: blow by blow account about what the legal win is here.
Speaker 1: You're in DC, our legal team leader, Sarah, just walk
Speaker 1: us through why there seems to be such a win
Speaker 1: for Alphabet.
Speaker 3: Ah.
Speaker 5: Yeah, absolutely. I mean this was a huge win because primarily,
Speaker 5: I mean the judge in the end didn't give Google
Speaker 5: much more than a slap on the wrist, and there
Speaker 5: was a lot of fear and concern that this was
Speaker 5: going to completely reshape the tech market, the search market,
Speaker 5: and instead it's almost status quo. I mean, they don't
Speaker 5: have to break off Chrome. They can keep paying the
Speaker 5: money to Apple to be a deferred default search engine.
Speaker 5: But the only caveat there was that it can't be exclusive,
Speaker 5: so that opens up things for Apple a little bit
Speaker 5: more and they have to do some data sharing, but
Speaker 5: it's very limited. It's a one time shot at sharing
Speaker 5: the data, and it's just search data, not advertising data.
Speaker 5: So they're still looking at how that's going to work technically,
Speaker 5: and they'll have to report back to the judge. But
Speaker 5: at the end of the day, it's not a huge
Speaker 5: change or a huge blow for Google.
Speaker 2: Sarah.
Speaker 3: Google's response and it's statement with celebratory basically, and that
Speaker 3: largely focuses on Chrome.
Speaker 2: They do not in the data sharing part.
Speaker 3: Their concern is privacy because they don't want to share
Speaker 3: data with rivals like Perplexiopenai, dot Go, etc. There's still
Speaker 3: some mechanics here. September tenth is a key date the
Speaker 3: parties need to write down on paper something that appeases
Speaker 3: this judge. But in the ruling, the judge also talks
Speaker 3: about generative AI being key to the outcome of this case.
Speaker 2: Explain that.
Speaker 5: Yeah, So that was very interesting because the way the
Speaker 5: judge handled the initial trial and even the remedy portion
Speaker 5: of the trial made a lot of people think that
Speaker 5: he was going to be much tougher, But at the
Speaker 5: end of the day, his ruling was very conservative and
Speaker 5: he said the main reason was that that he said
Speaker 5: the generative AI was really changing the shape of the market,
Speaker 5: and he didn't want to get out ahead of that,
Speaker 5: and he didn't want to issue ruling that was going
Speaker 5: to really disrupt the market, change the money flows, inhibit
Speaker 5: innovation in any way.
Speaker 3: Bloomberg, Sarah Forden, who leads the ns trust team out
Speaker 3: of DC and all things legal, thank you very much.
Speaker 3: Let's talk through the market reaction. Jeffrey's analyst Brent Hill
Speaker 3: joins US. Now the stock's up eight point six percent
Speaker 3: record high, but that's only the biggest jump since the first.
Speaker 2: Week of April.
Speaker 3: Your colleagues on the street, many of them have raised
Speaker 3: price targets or calls on the stock.
Speaker 2: You have not in response to this ruling.
Speaker 3: Why and what is your main takeaway from it?
Speaker 6: So for the last ten years in tech, we maintained
Speaker 6: that any regulatory in insertion into these stocks are really
Speaker 6: not founded. So watching what happened to Meta was Zuckerberg
Speaker 6: watching what happened with Microsoft. There's been no breakup ever,
Speaker 6: and so we've always said that an illegal case like this,
Speaker 6: that there's always a remedy, and that the companies are
Speaker 6: too big and that the regulators want one thing and
Speaker 6: the tech companies want one thing, and they'll find a
Speaker 6: way to meet in the middle. They have found a
Speaker 6: way to meet in the middle. And so our view
Speaker 6: is that again, in any situation, you buy these stocks
Speaker 6: on the sphere, and that worked for Microsoft and at
Speaker 6: work now for Google, we are a one hundred percent hit rate.
Speaker 6: This isn't the game I'm creating. This is the game
Speaker 6: we're playing in and that's been the rule book. So
Speaker 6: our view is like it's there's been no change. This
Speaker 6: company's growing their EBITDA at a mid to high team
Speaker 6: multiple and the stock train at fourteen times and it
Speaker 6: traded it twelve times just a few months ago. So
Speaker 6: there's really no knee jerk reaction from us because the
Speaker 6: reaction for the last ten years has been the same
Speaker 6: reaction and any legal case that we've had when we
Speaker 6: talk to our clients, which is they'll figure out a
Speaker 6: way and the inherent value is higher for what they're
Speaker 6: doing than what the street is embedding.
Speaker 2: Well, brands now will change.
Speaker 1: Well, Google needs to find a way to continue to
Speaker 1: compete even with a little bit of data sharing. What
Speaker 1: do you make of that part of the agreement and
Speaker 1: what it means versus rivals, particularly in general to AI.
Speaker 6: Look, I mean we are starting our searches in perplexity
Speaker 6: and open AI, and then we're going to Google. We're
Speaker 6: not going away from Google. Google is still part of that.
Speaker 6: But the way we as consumers are looking for information
Speaker 6: I think is changing. And so I think this pressure
Speaker 6: on Google is good. It's going to bring their game out.
Speaker 6: You know, It's not like Scottie Shuffler likes to go
Speaker 6: out and play golf against himself. He wants justin Thomas.
Speaker 6: He wants the other players, whether it's Tommy Fleetwood competing
Speaker 6: against him, that makes him better. So I think many
Speaker 6: of these AI companies are making Google better. And we've
Speaker 6: said this for a long time. There's more horsepower underneath
Speaker 6: the hood. Google has done a terrible job of popping
Speaker 6: the hood and showing us what's behind the hood, and
Speaker 6: we think you're going to see that. So you know,
Speaker 6: Gemini is doing a good job. We think ultimately that
Speaker 6: many's AI.
Speaker 2: Competitors are a good thing.
Speaker 6: And I think this came into obviously the judge's ruling,
Speaker 6: which is there's a lot more competition now than there
Speaker 6: was a few years ago.
Speaker 3: We're going to go very deep on the Apple portion
Speaker 3: of this later in the hour, but the basics of
Speaker 3: it are is that Google's still allowed to play pay
Speaker 3: Apple twenty billion dollars a year and others to be
Speaker 3: the default search basement.
Speaker 2: How big is that for Google? That result?
Speaker 6: I think it's I mean it's huge, it's it's it's
Speaker 6: a big thing. And I think Apple has said that
Speaker 6: they are also looking at evaluating Gemini, they are evaluing
Speaker 6: other AI tools. But I think ultimately what happens is, look,
Speaker 6: even if they had to divest the browser, they didn't
Speaker 6: get this, Everyone's still going to go back to Google. Right,
Speaker 6: We're going to go to opening perplexity to do different searches,
Speaker 6: but we ultimately end back up in Google. You can't
Speaker 6: complete the loop without Google, whether it's map information or
Speaker 6: hours about a business you're trying to visit, or you're
Speaker 6: trying to figure out, you know what time does the
Speaker 6: vet close? You know, like, there's just things that you
Speaker 6: need Google for and it's the best way. And so
Speaker 6: it really didn't matter in our opinion if they had
Speaker 6: to divest the browser or what's gonna happen. It's the
Speaker 6: consumers are going to defect their behavior, and the behavior
Speaker 6: is you go to where you get the best information,
Speaker 6: and that's the best information today for a lot of
Speaker 6: the consumers is in Google. So again, I think the
Speaker 6: world is shifting. There's no question. I think this pressure
Speaker 6: is going to be good. But I think again, if
Speaker 6: you take a picture of a car in California, which
Speaker 6: I did for my son, and you want to figure
Speaker 6: out where a Toyota four Runner with different colors is at,
Speaker 6: and Gemini will tell you the dealerships where that car
Speaker 6: is available in perplexity or or check gvtal to tell
Speaker 6: you the dealerships, it won't tell you where the exact
Speaker 6: car can be found. So I think there's examples of
Speaker 6: where Gemini is actually better than the other systems. And again,
Speaker 6: we're gonna have multiple agents. We're gonna have multiple AI
Speaker 6: systems that we all embrace that work in concert with
Speaker 6: each other. And again I think that's what we're seeing
Speaker 6: in our survey work. When you talk to your own usage,
Speaker 6: when you look at you talk to your friends, we're
Speaker 6: using multiple tools. This isn't going to reduce the need
Speaker 6: for Google.
Speaker 1: We're at your price target for alvabet I believe. So
Speaker 1: do we see ongoing growth for alvabet.
Speaker 4: You seem to be talking a.
Speaker 1: Very bullish case for why it's going to win out
Speaker 1: in this competition.
Speaker 4: Yeah.
Speaker 6: I mean Stock's up twenty two percent now and it's
Speaker 6: outperforming Amazon and many of the other names. The sen
Speaker 6: and AI was too negative, and on this court ruling
Speaker 6: it was too It was too negative. So we've had
Speaker 6: a nice snap back. And again, as we've seen in
Speaker 6: many cases like Oracles up fifteen, Stock gave back fifteen
Speaker 6: points recently. I mean I would say that I think
Speaker 6: clearly Stock's reflecting a lot of the good news now
Speaker 6: and that's honestly kind of again where our price target
Speaker 6: was set. So we didn't predict this, but I certainly
Speaker 6: think there Again, just go back to the playbook for
Speaker 6: the last two decades in tech, the rule is every time,
Speaker 6: going forward, in every conversation we have going forward with
Speaker 6: you guys, the big tech investigations lead to basically nothing,
Speaker 6: and they are great buying opportunities. It's been that case
Speaker 6: for two decades.
Speaker 7: So that's the That's what I think we've got to
Speaker 7: continue to take away right big texts trying to help consumers, governments,
Speaker 7: trying and protect and they ultimately find a way to
Speaker 7: have peace and in this new AI world.
Speaker 6: And I think that's exactly what we got.
Speaker 1: Brenville Anst Jefferies. Great to have you on.
Speaker 4: Thank you.
Speaker 1: Coming up software companies, well, they're offering the government steep
Speaker 1: discounts to line up contracts.
Speaker 4: We'll discuss next. That's pretty bad tech.
Speaker 3: Service Now is aiming to boost its contracts with the
Speaker 3: US government by offering federal agencies discounts, but as much
Speaker 3: as seventy percent on its software. Bloombo's Brody Ford breaks
Speaker 3: the story and joins US now. Service now wants adoption
Speaker 3: of its AI tools, right, but just explain the mechanism.
Speaker 3: What does a federal government agency need to do to
Speaker 3: get that seventy percent discount?
Speaker 8: Yeah, so service now makes effectively it helped desk software.
Speaker 8: You say, oh, dang, I lost my laptop. I need
Speaker 8: a new one. Instead of going and finding somebody, you know,
Speaker 8: you just put in a ticket with service now over simplification.
Speaker 8: But it makes these kinds of things simple in the workplace. Essentially,
Speaker 8: the federal government has been saying, for these software tools
Speaker 8: we use, why don't we centralize our negotiations and try
Speaker 8: to get the best discount we can from these software vendors.
Speaker 8: And so Service Now is just the latest of these
Speaker 8: steep discounts. They say, if you upgrade, if you expand
Speaker 8: your business, we'll give you a discount. Government gets a
Speaker 8: discount and Service now gets effectively new business because in
Speaker 8: a couple of years that pricing might go back to normal.
Speaker 1: And is that the positive here because Service now is
Speaker 1: in what seventy five percent of government agencies, So they
Speaker 1: take this hit to margin in the short term for
Speaker 1: long term reward.
Speaker 8: Yeah, I'm sure that is the bet there. May right,
Speaker 8: they're saying that we can land some new business, get
Speaker 8: them to upgrade to our better systems, We'll take the
Speaker 8: margin hit for a little while. Then in two or
Speaker 8: three years, you know what are we going to charge them.
Speaker 8: Then it's unclear how these discounts will stick.
Speaker 2: Will they stick, But.
Speaker 8: For now, the government and these vendors are saying it's
Speaker 8: a bit of a win win situation. I mean, government
Speaker 8: buying of software is a famously fragmented and chaotic process,
Speaker 8: and they're trying to improve that a bit.
Speaker 1: Bloomberg's Brodie Ford, it's a great read. Thanks so much
Speaker 1: for explaining it. Look for more on software expertise here,
Speaker 1: let's bring in Hillary fresh Year is the senior research
Speaker 1: analysts for software and IT services at clear Bridge Investments,
Speaker 1: and Hillary, Look, it's not just Service Now. Microsoft has
Speaker 1: also been discounting. We've seen slacks have two pass a
Speaker 1: salesforce and indeed some of the providers of cloud. Is
Speaker 1: this something you build into the models at the moment
Speaker 1: that for the time being they're going to have to
Speaker 1: offer more for less.
Speaker 9: Sure, well, I think yes, it's part and parcel of
Speaker 9: actually doing business in the current era with the government.
Speaker 9: But the government has such antiquated systems, they have so
Speaker 9: much to do with respect to digitizing their environments that,
Speaker 9: as Brodie said, I think it's a big opportunity for
Speaker 9: the vendors. And recall that the margin on incremental software
Speaker 9: is incredibly high, so they can afford to give more
Speaker 9: for the same amount initially to get more in the end. So,
Speaker 9: in fact, I think it's been a source of upside
Speaker 9: for some of these models. We actually saw that in
Speaker 9: Service Now few quarters ago.
Speaker 3: Oh, Hillary, you said in this current environment in Carolina,
Speaker 3: and I was discussing this morning at.
Speaker 2: The desk about how that last.
Speaker 3: Earnings period, there were a number of names where government
Speaker 3: contracts were track so closely. How crucial is it that
Speaker 3: a software name is on good terms with this administration
Speaker 3: and able to get through that procurement process.
Speaker 9: I think it's very important and beneficial. Most of the
Speaker 9: vendors we track are doing a pretty good job of it,
Speaker 9: and I actually I think most investors haven't imputed much
Speaker 9: benefit from government near term in their models to so
Speaker 9: to the extent that comes through, I think that could
Speaker 9: be a source of upside for some of them.
Speaker 3: So then how should investors adjust maybe how they model
Speaker 3: some of these names. Is there a lot more upside
Speaker 3: in some of these shares that come directly from top
Speaker 3: line growth from government sales that you're not yet seeing
Speaker 3: baked in overtime?
Speaker 9: Yes, over time, potentially next quarter. I don't think that's
Speaker 9: an immediate term phenomenon for many, But we saw Salesforce
Speaker 9: had booked one hundred million dollar government contract recently to
Speaker 9: the end of the quarter. That's actually a very small
Speaker 9: relative to the total, but it's indicative of a thign.
Speaker 9: It's an indicative of the government starting to purchase following
Speaker 9: DOGE cuts, where the vendors saw some immediate term pain
Speaker 9: in the prayer a few quarters, and.
Speaker 1: That's important considering we've got Salesforce numbers coming out after
Speaker 1: the battle on September the third, and I'm interested well,
Speaker 1: so today I'm interested in the growth or the winners
Speaker 1: and losers here because in many ways, Salesforce has been
Speaker 1: beaten up this year, unlike many other tech names, because
Speaker 1: we're that it's losing out to Genai competitors.
Speaker 4: Is not something you're seeing.
Speaker 9: Yes, the entire SaaS complex has been really beaten up
Speaker 9: on investor concerns of our disintermediation.
Speaker 4: And it's funny.
Speaker 9: We've seen rolling recognition of GENI beneficiaries, starting with semis
Speaker 9: and hardware, data center, power, hyperscalers, etc. Most recently the
Speaker 9: data platform names, but SAS has been left behind, and
Speaker 9: I believe in that ving investors are assuming that SaaS
Speaker 9: is very much a zero sum game, meaning for any
Speaker 9: GENI winner, there are going to be multiple incumbent losers.
Speaker 9: But there are a few things I think about when
Speaker 9: thinking through that which I'd be happy to discuss. One
Speaker 9: of them is that over the next five years we're
Speaker 9: going to see so much more opportunity in software and
Speaker 9: even in SaaS than we've been seen, there's going to
Speaker 9: be far more workloads to address farmer software written, and
Speaker 9: the incumbents who are moving quickly and executing will be
Speaker 9: a big part of that. Second, these vendors are probably
Speaker 9: going to generate more revenue from GENNI before we see
Speaker 9: any actual real distancetermuniation from their businesses and their variances
Speaker 9: depending on the sub segment. But that's something to think about.
Speaker 9: And then finally, the valuations have been crushed, as you
Speaker 9: pointed out, so it's an interesting stetup. There's still a
Speaker 9: fair amount of mutum uncertainty, but as we moved through
Speaker 9: the year, that narrative could shift similar to but not
Speaker 9: exactly to the extent that we saw in a in
Speaker 9: a Snowflake a year ago or a Mango DV more recently,
Speaker 9: but to a less.
Speaker 2: Find that so fascinating.
Speaker 3: I was in Europe for the UK for much of
Speaker 3: the last thirty days and a lot of the software
Speaker 3: names had a rough period. There's a lot of empsystem
Speaker 3: like how the no Code Low Code player survives right,
Speaker 3: And I'm interested in salesforce earnings right because there's the hype.
Speaker 2: Of the AI headline.
Speaker 3: Do you see that materially like growing these businesses?
Speaker 10: Now?
Speaker 2: Are they good at AI or are they just good
Speaker 2: at marketing?
Speaker 9: They'll some of them will be good at both. I
Speaker 9: think salesforce will be good at both. Cogin is a
Speaker 9: very different discipline. Co gen doesn't have to be right
Speaker 9: out of the You have a world of developers who
Speaker 9: can spend all the time they save actually generating code
Speaker 9: or remediating the code after it's been written. When something
Speaker 9: is customer facing or even broadly employee facing, it has
Speaker 9: to be accurate, secure, compliant, trust it. It can't run
Speaker 9: off the rails. It can't expose proprietary data or expose
Speaker 9: the organization to liability or security vulnerabilities. So that just
Speaker 9: translates to slower adoption in the enterprise in particular and
Speaker 9: commercial organizations. But the incumbents have incomacy advantages, They delivering
Speaker 9: distribution advantages. They have a lot of hooks into every system.
Speaker 9: They can make things work together. They own the workflows,
Speaker 9: the data fabric, the business logic. There's a lot there
Speaker 9: that they can work with and IMPUTYI on top of it.
Speaker 9: So it just means they have a fighting chance and
Speaker 9: they're moving a whole lot faster this time around than
Speaker 9: they did in cloud. But it's going to take time.
Speaker 9: We're not going to see it immediately. It'll take time.
Speaker 4: Henry Fresh Deep Insight.
Speaker 1: We thank as senior research analysts for software and IT
Speaker 1: services at Clearbridge Investment.
Speaker 3: Cato Networks is announcing its first ever acquisition, buying Israeli
Speaker 3: startup aim Security, which specialized is in enterprise AI security tools,
Speaker 3: going to bring in Cato CEO Sho Kramer.
Speaker 2: And you know this is interesting.
Speaker 3: You've been on the show regularly throughout the year, We've
Speaker 3: talked about M and A and now you've done some
Speaker 3: what's the rationale here?
Speaker 10: Well, the nationalist that AI transformation is going to dominate
Speaker 10: enterprise investment in the next decade. It's going to be
Speaker 10: bigger and faster and more impactful from a business perspective
Speaker 10: than even digital transformation.
Speaker 11: And it creates a huge security challenge because it's a
Speaker 11: completely new security sect that needs to listen to all
Speaker 11: these tens of thousands of conversations in plain language and
Speaker 11: decide what is.
Speaker 10: Appopulate for the enterprise according to some policy. So this
Speaker 10: is a whole new category in security is going to
Speaker 10: be huge, and SASE is the best place to put it.
Speaker 10: SASE is the network. Security is a cloud service that
Speaker 10: sits and listen to all these conversations. So we've obviously
Speaker 10: jumped in early into this and bought a security that
Speaker 10: specializes for the last three years in building these security sets.
Speaker 1: Is it about the talent that you need to bring
Speaker 1: in when you've already got an annual recurring revenue run
Speaker 1: rate of three hundred million dollars. You're building fast too.
Speaker 1: Why can't you do it organically?
Speaker 10: Because the market is happening at late that is unprecedented.
Speaker 10: There's a huge pressure both from the board that's is
Speaker 10: AI as most important business initiative as well as from
Speaker 10: employees that the AI is the most important productivity initiative
Speaker 10: And the SISO that, as we talked last time, is
Speaker 10: in its predicament as it is from a budget and
Speaker 10: from a polational from a gunity perspective, now has to
Speaker 10: face AI and needs to deliver a secure journey and
Speaker 10: it needs to and they need to do it now.
Speaker 10: So developing three years now, what AIM has developed in
Speaker 10: the last three years is not going to cut it.
Speaker 10: Enterprises need it now and need a broad solution and
Speaker 10: a deep solution and that's what we bring them.
Speaker 2: Schlima.
Speaker 3: We only have a minute left, but a crew has
Speaker 3: come in and giving you an additional fifty million on
Speaker 3: top of the three point fifty you did in June.
Speaker 3: Did you need the money for this piece of M
Speaker 3: and A or why are you taking that extra capital.
Speaker 10: Because we can. Because I think that with this acquisition,
Speaker 10: Kato is becoming even more exciting to investors. And you know,
Speaker 10: we always have a second closing plan and and we
Speaker 10: have we have we have enough cash in the bank
Speaker 10: to get to profitability without compromising our aggressive golf targets,
Speaker 10: with or without this fifteen million, but showing a stronger balance.
Speaker 10: It is always a good thing.
Speaker 1: Saline's Shomo Kramer. So it's great to catch up with you.
Speaker 1: Co found the CEO Cato Networks as it makes its
Speaker 1: first ever M and a.
Speaker 4: Welcome back to Bloomberg Tech.
Speaker 1: The data center power demand is growing exponentially thanks to
Speaker 1: AI and the UK's biggest engineering company, Rolls Royce is
Speaker 1: seizing that opportunity. Best known for its jet engine business,
Speaker 1: We'll Royce is also one of the pioneers of small
Speaker 1: nuclear reactor technology. Was recently chosen to build three units
Speaker 1: in the United Kingdom. HIT to talk through the power
Speaker 1: systems growth along with civil, aerospace and defense is a
Speaker 1: company's CFO, Helen McKay.
Speaker 4: It is wonderful to have you here, Helen, while you're
Speaker 4: in the US talking to investors.
Speaker 1: But I'm interested in what you tell them at the moment,
Speaker 1: particularly about SMR technology. What is the opportunity here for
Speaker 1: you as a business.
Speaker 12: Huge opportunities you see in SMR, the size of that market.
Speaker 12: We think the addressable market is about four hundred equivalents
Speaker 12: of their SMRs. Huge opportunity coming forward. As you think
Speaker 12: about how we're going to support energy resilience going forward,
Speaker 12: it has to figure we have a leading position in
Speaker 12: that market. As you said, we won the contract with
Speaker 12: the UK government for the first three small modular reactors.
Speaker 12: We've actually won a contract with the Czech Republic for
Speaker 12: up to six. We're in final stages with Sweden for
Speaker 12: their small module reactors, and we're actually looking at entry
Speaker 12: positions in the US. I mean the US market. You
Speaker 12: have a nuclear ambition to go from I think it's
Speaker 12: one hundred gigawatts to four hundred gigawatts by twenty fifty
Speaker 12: massive opportunity. And we've been building nuclear reactors for submarines,
Speaker 12: for nuclear submarines for more than sixty years, and our
Speaker 12: small modular reactors are the largest on the market as well.
Speaker 1: You've really been selling into government and it's interesting at
Speaker 1: the moment that for us, it's all about the hyperscalar
Speaker 1: demand as well. And we have seen this nuclear renaissance
Speaker 1: bear fruit. When you've got Amazon with x Energy, when
Speaker 1: you've got Alphabet going with Chairostpower, do you talk to
Speaker 1: the hyperscalers or is it more about the US government
Speaker 1: giving your defense leaning No soo.
Speaker 12: Absolutely we're talking to the hyperscalers right now. Where the
Speaker 12: initial focus is on governments and utility companies, but the
Speaker 12: hyperscalers are absolutely talking to us and interested in this.
Speaker 12: If you think about, as you said earlier, the growth
Speaker 12: and AI the that's going to be required to provide
Speaker 12: that continuity and resilience, SMR will absolutely figure in that.
Speaker 12: So those conversations are underway across the globe, not just
Speaker 12: in the US.
Speaker 3: Helen we spent a lot of time in the last
Speaker 3: year speaking to Oklow and x Energy, the kind of
Speaker 3: the more small nimble startups in SMR on this program.
Speaker 2: What's the Rolls Royce advantage?
Speaker 3: What makes your technology better than the newcomers to the field.
Speaker 12: Fantastic, So thanks for the question. So we've been in
Speaker 12: this area for more than sixty years.
Speaker 4: Yeah, we have built.
Speaker 12: Nuclear submarines with nuclear reactors, which is consistent technology with
Speaker 12: SMRs for the U for the UK Navy, So we've
Speaker 12: got leading technology, proven technology. It's based on proven fuel
Speaker 12: supplies as well. In addition to that, SMR is the
Speaker 12: largest on the market at four hundred and seventeen megawatts.
Speaker 12: That means from a cost and efficiency perspective, it's one
Speaker 12: of the more efficient, actually more comparable with energy and wind,
Speaker 12: but importantly more consistent, so it doesn't have latency issues.
Speaker 12: And very importantly ere SMR construct eighty percent of it
Speaker 12: can be modular built, so you can construct it in
Speaker 12: the factory and if you think about almost like a
Speaker 12: Lego block and then you take it to build it
Speaker 12: on site. So it means the construction is much shorter
Speaker 12: and it means the risk factor faster, yeah, is much
Speaker 12: lower as well. So we do have that leading position
Speaker 12: with that distinctive technology.
Speaker 2: Helen.
Speaker 3: In the defense tech context, the political and strategic environments
Speaker 3: like really changed, not just the United States, but like
Speaker 3: Western allies overall. Could you just kind of give me
Speaker 3: your outlook for your next gen military turbo fans combined
Speaker 3: psyco engines and what's changing for you.
Speaker 12: So, as you say, lots of activity in relation to
Speaker 12: investment and defense at the minute, both in the US
Speaker 12: and in Europe. And we've got a very strong position
Speaker 12: in the defense business, not just in what we provide
Speaker 12: for military operations, but actually how that shows up in
Speaker 12: our energy business within power systems. We have a very
Speaker 12: strong governmental position there. We have got leading positions in
Speaker 12: Germany and Europe. We have got leading positions in land
Speaker 12: and naval, and with the spending particularly that's happening in
Speaker 12: Europe when people are talking about increasing natal commitments, where
Speaker 12: we expect to see that show up in the short
Speaker 12: term is actually in land and then naval. You know,
Speaker 12: in our power systems business that governmental business is twenty
Speaker 12: five percent of our revenues. So we're very well positioned
Speaker 12: YEP to support that growth and to capture those opportunities
Speaker 12: going forward. So short term that's where we see it
Speaker 12: will show up. In longer term, we expect to see
Speaker 12: it show up in our defense business, but very exciting.
Speaker 1: I mean, talk to us about the positioning for the
Speaker 1: long term opportunity here. Because you're the CFO, you're thinking
Speaker 1: about how to finance all of this that has been
Speaker 1: some reporting around the.
Speaker 4: SMR part of the business.
Speaker 1: Maybe you think for outside funding even talk of an
Speaker 1: IPO of that unit.
Speaker 4: What are you thinking about longer term to finance all
Speaker 4: of this?
Speaker 12: So SMR, we're not ipo ing that, just to be clear.
Speaker 12: So we're investing right now to support growth across all
Speaker 12: of our businesses. But if I maybe focus on the
Speaker 12: governmental business, just within the last six weeks, we've actually
Speaker 12: invested more than one hundred million pounds in the US
Speaker 12: alone to support the growth of expanded production, be that
Speaker 12: in defense or data centers.
Speaker 1: Do you have to because of the administration investment on
Speaker 1: the No, Yeah, the US is an important market for
Speaker 1: It is very important that we continue to grow our
Speaker 1: position here.
Speaker 12: It's one of our home markets. So it's the right
Speaker 12: thing for us to do. But across our business, since
Speaker 12: we put our transformation together, we've actually increased investment each year. Yeah,
Speaker 12: while we've delivered this results and we're investing now for
Speaker 12: the longer term, some of the investments that we're doing
Speaker 12: in our investment defense business, the platforms and the programs
Speaker 12: won't come into operation until the twenty thirties. So the
Speaker 12: long term growth is happening right now.
Speaker 2: Helen ros Royce is so aligned with Airbus.
Speaker 3: But the strategy of this president administration is to use
Speaker 3: Boeings like a negotiating tool, you know in international markets.
Speaker 2: How do you see that playing out?
Speaker 3: Do you participate in a US administration that's focused on
Speaker 3: Boeing if you're so close to Airbus? By the way,
Speaker 3: massive aviation like a care about the propulsion as well
Speaker 3: as the fuselage which aircraft cone on.
Speaker 4: I mean.
Speaker 12: So what I'd say is we have got a very
Speaker 12: good and strong relationship with the US administration and we've
Speaker 12: got a very good relationship with Boeing and Airbus. So
Speaker 12: that's how we lead into that. We've had a presence
Speaker 12: in America for more than one hundred years. We have
Speaker 12: got five thos people across twenty six states that work
Speaker 12: for rules Royce. It is one of your whole markets.
Speaker 2: So that is how we.
Speaker 12: Approach those relationships with the administration in the US, and
Speaker 12: it has worked incredibly well. And it will remain a
Speaker 12: very important market for us going forward.
Speaker 3: Helen McKay, CFO Rolls Royce, thank you so much for
Speaker 3: joining us on Bloomberg Tech. Let's get back to our
Speaker 3: top story, and that is Google it does not have
Speaker 3: to divest Chrome. The shares are up almost nine percent,
Speaker 3: biggest jumpson's April record high. There's the second part to
Speaker 3: the story, which is that Google's able to continue paying
Speaker 3: partners for placement of search. Apple is the main part
Speaker 3: of that story. Its shares are also higher and in
Speaker 3: the balance and remainder.
Speaker 2: Of the show.
Speaker 3: We're going to go out to bloombergs Mark German and
Speaker 3: understand the Apple piece of this story.
Speaker 2: What else is coming up?
Speaker 1: Karen plenty more, particularly when it comes to funding and
Speaker 1: in the world of general to AI. The CEO of
Speaker 1: you dot Com joining us to discuss the company's latest
Speaker 1: one hundred million dollar funding round.
Speaker 4: This is Bloomberg Tech.
Speaker 3: AI search company u dot Com has closed a one
Speaker 3: hundred million dollar Series C funding round that values it
Speaker 3: at one point five billion dollars, fueled by the AI boom,
Speaker 3: and it shift in focus to enterprise customers. Use dot
Speaker 3: Com co founder and CEO Richard Socials with us in
Speaker 3: San Francisco. The environment has changed, The landscape has changed.
Speaker 3: Every time you come on, it's changed. But did that
Speaker 3: sort of make this round necessary? What do you need
Speaker 3: the funds for?
Speaker 13: We're scaling, Our customers are scaling. The LM infrastructure that
Speaker 13: we need to keep these AI and agents up to
Speaker 13: date is increasing. The needs for it are increasing, so
Speaker 13: that's why we raise it to support our customers like Harvey,
Speaker 13: the Nih abduct, Dot Go, windsurf Telegraph, the German Press
Speaker 13: Agency DPA. There's so many customers now that want this
Speaker 13: technology and need to get the LMS to.
Speaker 11: Be up to date.
Speaker 3: Many founder CEOs from the show saying we're scaling, I
Speaker 3: think that there's like a lot of value in explaining
Speaker 3: what that reads in material real terms, like you're hiring
Speaker 3: better talent, you need more compute.
Speaker 2: What is it? Yeah?
Speaker 13: For us, it's definitely more compute, but also the talent.
Speaker 13: Those are basically the two biggest factors. The more mbdigpus
Speaker 13: but also more scraping infrastructure to really build out the
Speaker 13: best search index for lms. You know, Google build an
Speaker 13: amazing search index for people to decide, oh, which link
Speaker 13: should I click on.
Speaker 2: But LMS search differently.
Speaker 13: They can search through hundreds of different websites, right, they
Speaker 13: can read the whole text or certain lurbs of each
Speaker 13: website to then give you a summary of those answers.
Speaker 13: So all of that is different and needs investment.
Speaker 1: Richard, I mean you are one of the heroes in
Speaker 1: natural language processing. You're like the fourth most cited researcher
Speaker 1: in it. You've been studying it for years. I must
Speaker 1: envisage that you've had some calls for your talent IU
Speaker 1: and wanting to purchase your company. Have you been fending
Speaker 1: off Meta and the like so left, right and center.
Speaker 13: There's definitely been interest in you dot com and our
Speaker 13: team for the last like five years. But we're here
Speaker 13: to really build an enduring company where people can get answers,
Speaker 13: build their own agents, transform their companies, and so we're
Speaker 13: not that interested in that.
Speaker 1: It is such a fair space though. Everyone's in on
Speaker 1: the enterprise. The large language model developers that you use
Speaker 1: open AI, they're trying to get into enterprise, and just
Speaker 1: recently the judge Meta ruling on alphabet for example, and
Speaker 1: the fact that they're going to have to share data.
Speaker 1: How does that benefit you? Because you started your journey
Speaker 1: in AI search.
Speaker 13: Yeah. I think in consumer there will be a few
Speaker 13: usually monopoly or throw our polies, right, But an enterprise
Speaker 13: there's so much open space, right. There are so many
Speaker 13: different companies that need up to date information to make
Speaker 13: their lms more productive over both web data but also
Speaker 13: internal search, internal data, and you need to have all
Speaker 13: of that be composable as an API infrastructure. And so
Speaker 13: that's kind of what we're focused on and where we
Speaker 13: think that is. Indeed, the killer app for lms is
Speaker 13: their productivity in enterprise.
Speaker 3: Our executive producer Jackie Lopez was talking about how it's
Speaker 3: just beautiful timing having you on the show today. Let's
Speaker 3: be honest about it. You know, with the Google decision
Speaker 3: last night, it's coincidence. I was trying to think what
Speaker 3: is richards socialst thing and you've always been basically talking
Speaker 3: about Google in the context that people are building different
Speaker 3: and better stuff and both consumers and enterprises are more
Speaker 3: open to using a different technology. I think that's a
Speaker 3: fair summary of your position. But how has the ruling
Speaker 3: changed things? You know against your the ideology of recent years.
Speaker 13: Is so in many ways it's a good ruling now
Speaker 13: of course, as a startup, when this ruling will really
Speaker 13: come into effect is important. They might appeal the ruling.
Speaker 13: It'll take years probably for it to really materialize. That's
Speaker 13: infinity in AI and startup time. So we're still just
Speaker 13: focused on building the best APIs and also enter in
Speaker 13: solutions for our customers, and we don't really think this
Speaker 13: will materially affect us over next two or three years.
Speaker 2: Now.
Speaker 13: Of course it will affect other consumer companies, but again,
Speaker 13: in many ways, this is an index that was built
Speaker 13: for people to decide which flew a link to click
Speaker 13: on AIS, and people through their AIS and through their
Speaker 13: agents will search very differently into the three years.
Speaker 1: Well, what's interesting is one of your clients that we
Speaker 1: just showed is dut dot Go and it's all about search.
Speaker 1: So how does its end exposure affect you and how
Speaker 1: do you think about continuing to serve are the AI
Speaker 1: winners or broadening out to more of the blue chips.
Speaker 13: Well, yeah, I think the values of privacy are actually
Speaker 13: very useful for both consumers and for enterprise, and so
Speaker 13: we're really excited to keep partnering with companies like that
Speaker 13: that both want to get search results but also feed
Speaker 13: those search results into lms, and we're doing that over
Speaker 13: a billion times a month. There's actually no other AI
Speaker 13: startup I know of that is at that scale a
Speaker 13: billion times where our answers either are shown directly to
Speaker 13: a user or are given to an LM to then
Speaker 13: majorly effect what that LM says. In fact, it would
Speaker 13: say that many people underestimate that whole search infrastructure layer.
Speaker 13: Whereas the lms themselves are going to get commoditized more
Speaker 13: and morts open source pressure for them, but the search
Speaker 13: you can't open source search index.
Speaker 1: We want to thank you, Richard Shosha, wish we had
Speaker 1: more time, CEO and co founder Review dot Com. Fascinating fundraise,
Speaker 1: fascinating business model.
Speaker 4: Come back soon. We hope.
Speaker 1: You've got to get back to the key story of
Speaker 1: the day, and one of the move is on the
Speaker 1: back of it, Apple up almost three percent. That's as
Speaker 1: it rises alongside Alphabet the Court of Course ruling that
Speaker 1: Google can continue to pay partners for keeping Google's Search
Speaker 1: on their operating system. So more on Alphabet's impact on Apple.
Speaker 1: Let's get to Mark German. It is a big lift
Speaker 1: and it's a relief because it helps Apple's bottom line.
Speaker 14: It's a relief for Apple, it's a relief for Google,
Speaker 14: but it's also relief for the whole technology industry. Right
Speaker 14: the US government is scrutinizing all of them, meta.
Speaker 2: Google, Apple.
Speaker 14: Of course you have the European Union involved, obviously that's separate.
Speaker 14: But this ruling yesterday sets some pretty nice precedent. Don't
Speaker 14: forget Apple. They're going to try on a couple of
Speaker 14: years now for what they've done to consumers according to
Speaker 14: the US government. Right, So if Google's getting off scot
Speaker 14: free for things that probably are much worse than what
Speaker 14: Apple has done according I mean, in my viewpoint, I
Speaker 14: think Apple is going to be okay in a couple
Speaker 14: of years too. So that long term headwind that's been
Speaker 14: but also the short term headwind of losing potentially twenty
Speaker 14: billion a year from this Google deal that's also been mitigated.
Speaker 3: Well, Mark, just really quick, because I also want to
Speaker 3: get to a story you broke yesterday. It's the services
Speaker 3: part of Apple's business that the streets focused on this
Speaker 3: morning in the context of the Google ruling.
Speaker 14: Yeah, that's exactly right. I mean, like I said, the
Speaker 14: Google deal right now brings in over twenty billion dollars
Speaker 14: a year for Apple, and that's just one of two
Speaker 14: twenty billion dollar per year potential headwinds. The other is
Speaker 14: the app store. Obviously, the EU is trying to rip
Speaker 14: up the business model there. You have a judge in
Speaker 14: California who ruled that developers can spin users towards the
Speaker 14: web to complete transactions, which obviously means Apple loses it's
Speaker 14: fifteen to thirty percent. So the services business, nearly half
Speaker 14: of it was potentially under fire over the over the
Speaker 14: next twelve months. Now the Google one's resolved, we'll see
Speaker 14: what happens with the app store.
Speaker 1: What's interesting is Judge Meta basically said genera to AI
Speaker 1: has changed the game here.
Speaker 4: Jeneraiti AI is changing the game when.
Speaker 1: It comes to talent, and just talk to us about
Speaker 1: how we really are seeing Apple lose out in that respect.
Speaker 14: It feels like, well, there's a talent war right now
Speaker 14: and Meta is leading the pack. You have Open AI
Speaker 14: and Anthropic in there. They're all trying to hire each
Speaker 14: other's top academics and researchers in the AI space. A
Speaker 14: little edge can do a lot. The big question for
Speaker 14: me is how quickly does this stuff all become commoditized
Speaker 14: and Apple's bed is well pretty soon because they are
Speaker 14: working on some extensive AI partnerships right now, and they've
Speaker 14: been looking at a number of companies to acquire, so
Speaker 14: they believe they're going to play in here too. But
Speaker 14: for now, they're bleeding talent on an almost weekly basis.
Speaker 14: Every two weeks, I have a story coming out between
Speaker 14: two and five different major AI players at Apple leaving
Speaker 14: for Meta. Yesterday, I had a story about four departures
Speaker 14: over the last week or so, including the head of
Speaker 14: AI Robotics research going to Meta to their new robotics department.
Speaker 14: You also have two people going to Open Ai and
Speaker 14: another person going to Anthropic, and a lot of the
Speaker 14: people on Apple's LM team they're interviewing out. So you're
Speaker 14: going to see more departures in the near future, but
Speaker 14: for now, Apples looking at ways to replenish that talent
Speaker 14: pool by buying or partnering mes Monk.
Speaker 3: What is a notable move for Apple of almost three
Speaker 3: percent of Google ruling, But also check out his reporting
Speaker 3: on the talent departures. Another AI story, Open Ai is
Speaker 3: agreed to buy product testing startup Statsig for one point
Speaker 3: one billion dollars in an all stock deal want to
Speaker 3: bring in Bloomberg's AI reporter Rachel Metz. It's not the
Speaker 3: biggest deal that open AI's done.
Speaker 2: It's not small either.
Speaker 3: Why does open ai need statsig?
Speaker 15: Open ai is working to build out its products. It's
Speaker 15: consumer products also, it's B to B products, and this is,
Speaker 15: in the company's view, a really good way to do that.
Speaker 15: They bought this company that helps companies test products that
Speaker 15: could do things like ab testing, so you can have
Speaker 15: people trying out different things with features that you might
Speaker 15: want to launch, and this is something that they see
Speaker 15: as really valuable to the future of products like chat GPT.
Speaker 1: The CEO moves over become CTO of Applications reports into Fijisimo. Rachel,
Speaker 1: What did the deal look like from a talent perspective,
Speaker 1: because they've been getting more and more extraordinary as times
Speaker 1: gone on between AI companies.
Speaker 15: Yeah, so as far as talent, as you mentioned, the
Speaker 15: CEO of statsig is going to take on this new
Speaker 15: role underneath Fijisimo. Figisimo is in charge of opening Eyes
Speaker 15: Applications at this point, and they also it also led
Speaker 15: to a whole bunch of other changes that you see
Speaker 15: that were announced at the same time. Open the eyes
Speaker 15: sort of shuffling around a number of people in management.
Speaker 15: So now the company's going to have two chief technology officers.
Speaker 15: Previously it had one, mirror Marati. She's been gone for
Speaker 15: a while and started her own company. Now they will
Speaker 15: have two, one on the consumer side and one on
Speaker 15: the B to B side. So it's going to be
Speaker 15: interesting to see how those two people are in charge
Speaker 15: of different things, how they all work together, and what
Speaker 15: it means as far as growth in their business.
Speaker 3: Rachel and lots happened in the last month, Like GPT five,
Speaker 3: we have more m and a news.
Speaker 2: We have a lot of talent news.
Speaker 3: Could you just update the audience where open ai currently
Speaker 3: kind of stands in all the chaos of reorgs and newsflow.
Speaker 15: I mean a lot has been a lot has been
Speaker 15: going on, and I suspect we will we will see more.
Speaker 15: I mean we have to remember that this is a
Speaker 15: company that's undergoing a lot of change. It's not a
Speaker 15: young company at this point. I mean it's been around
Speaker 15: for about ten years. However, things have been chanting very
Speaker 15: rapidly over the past few years, and chagbt is continuing
Speaker 15: to grow and grow and grow. It's got over seven
Speaker 15: hundred million users weekly users at this point, so I
Speaker 15: would expect to keep seeing things move around as a
Speaker 15: company continues to try to figure out what's going on,
Speaker 15: and as the industry continues to shift with other companies
Speaker 15: such as Meta, I'm trying to poach people on paying
Speaker 15: extremely large amounts of money for employees. It's going to
Speaker 15: be an interesting ride.
Speaker 1: And we're here for it as a you Rachel Metz,
Speaker 1: so good to have you on on the latest bit
Speaker 1: of M and A and Open AI. I meanwhile, that
Speaker 1: does it for this edition Opening by Tech, But we've
Speaker 1: got to look in at what the market's been up to.
Speaker 4: It has been a bounce back since yesterday.
Speaker 3: Yeah, now's that one hundred bounce back. Whether it's short
Speaker 3: lived or not. Apple and Alphabet the main stories. Apple,
Speaker 3: I think is kind of big, like it's a strong
Speaker 3: reaction on a stop where a standard deviation Okay, forgive
Speaker 3: me that one one sigma move is two percent. We'll
Speaker 3: keep tracking the top story recap on the podcast. We've
Speaker 3: had some absolutely terrific conversations today on what has been
Speaker 3: a massive story from San Francisco and New York.
Speaker 2: This is Bloomberg Tech