WEBVTT - Google Shares Soar After Dodging Chrome Sale 0:00:04.080 --> 0:00:08.440 Bloomberg Tech is alive from coast to coast with Caroline 0:00:08.520 --> 0:00:13.919 Hide in New York and Eva, though in San Francisco. 0:00:14.920 --> 0:00:16.720 This is Bloomberg Tech coming up. 0:00:16.760 --> 0:00:20.080 Alphabet hits a record high as Google dodges the sale 0:00:20.120 --> 0:00:22.119 of Chrome in a key antitrust ruling. 0:00:22.320 --> 0:00:25.320 Plus Apple benefits from Google's legal win but loses out 0:00:25.360 --> 0:00:28.160 on the AI talent wars Again. We discussed the latest 0:00:28.200 --> 0:00:30.360 key researcher jumping to rival Meta. 0:00:30.960 --> 0:00:31.600 And the rolls. 0:00:31.680 --> 0:00:35.280 Royce CFO joins US stateside as the British engineering giant 0:00:35.520 --> 0:00:39.320 goes off to AI fuel's data center demand for power tech. 0:00:39.760 --> 0:00:41.800 But first we check in on these markets. 0:00:42.120 --> 0:00:43.760 The power higher on the day. 0:00:43.840 --> 0:00:47.400 Ed reprieve from yesterday's sell off as we see boniols 0:00:47.440 --> 0:00:49.599 come back a little bit, and we focus on well, 0:00:49.640 --> 0:00:51.760 pretty woeful data when it comes to the jobs data. 0:00:51.800 --> 0:00:54.000 But does that mean the Fed Canandian cut. We're up 0:00:54.040 --> 0:00:56.560 more than a percentage point, But dig into the individual 0:00:56.600 --> 0:00:57.480 movers because they're big. 0:00:58.240 --> 0:00:59.960 Yeah, our top story is Google. 0:01:00.560 --> 0:01:02.400 The key headline that you need to know is that 0:01:02.440 --> 0:01:06.240 they will not have to divest or sell Chrome. They 0:01:06.319 --> 0:01:10.520 will be allowed to continue paying in particular Apple twenty 0:01:10.640 --> 0:01:14.640 billion dollars per year for placement of search, but there 0:01:14.720 --> 0:01:17.360 is a lot that they're still required to do in 0:01:17.400 --> 0:01:19.600 the remedy section of that key and trust ruling. The 0:01:19.680 --> 0:01:22.480 stock for Alphabet pairent of Google on track for its 0:01:22.480 --> 0:01:26.679 biggest jump since April record high Alphabet Apple. 0:01:26.720 --> 0:01:29.039 Is also pushing a lot high. Later in the program, going. 0:01:28.920 --> 0:01:31.280 Too detail, let's start with a Google piece and bring 0:01:31.319 --> 0:01:32.959 in our guest character. 0:01:33.080 --> 0:01:34.960 Yeah, let's bring in Sarah Forden because we want to 0:01:35.000 --> 0:01:38.119 blow by blow account about what the legal win is here. 0:01:38.200 --> 0:01:41.720 You're in DC, our legal team leader, Sarah, just walk 0:01:41.800 --> 0:01:44.120 us through why there seems to be such a win 0:01:44.200 --> 0:01:45.199 for Alphabet. 0:01:46.040 --> 0:01:46.240 Ah. 0:01:46.319 --> 0:01:50.560 Yeah, absolutely. I mean this was a huge win because primarily, 0:01:50.680 --> 0:01:53.639 I mean the judge in the end didn't give Google 0:01:53.760 --> 0:01:56.240 much more than a slap on the wrist, and there 0:01:56.320 --> 0:01:58.400 was a lot of fear and concern that this was 0:01:58.440 --> 0:02:02.360 going to completely reshape the tech market, the search market, 0:02:02.560 --> 0:02:06.200 and instead it's almost status quo. I mean, they don't 0:02:06.200 --> 0:02:09.280 have to break off Chrome. They can keep paying the 0:02:09.360 --> 0:02:14.080 money to Apple to be a deferred default search engine. 0:02:14.440 --> 0:02:17.400 But the only caveat there was that it can't be exclusive, 0:02:17.520 --> 0:02:20.400 so that opens up things for Apple a little bit 0:02:20.440 --> 0:02:23.720 more and they have to do some data sharing, but 0:02:23.840 --> 0:02:27.760 it's very limited. It's a one time shot at sharing 0:02:27.800 --> 0:02:31.360 the data, and it's just search data, not advertising data. 0:02:31.440 --> 0:02:34.720 So they're still looking at how that's going to work technically, 0:02:34.760 --> 0:02:37.160 and they'll have to report back to the judge. But 0:02:37.600 --> 0:02:39.920 at the end of the day, it's not a huge 0:02:40.840 --> 0:02:42.720 change or a huge blow for Google. 0:02:43.960 --> 0:02:44.200 Sarah. 0:02:44.280 --> 0:02:48.000 Google's response and it's statement with celebratory basically, and that 0:02:48.160 --> 0:02:49.560 largely focuses on Chrome. 0:02:49.600 --> 0:02:51.600 They do not in the data sharing part. 0:02:52.000 --> 0:02:54.560 Their concern is privacy because they don't want to share 0:02:54.680 --> 0:03:00.640 data with rivals like Perplexiopenai, dot Go, etc. There's still 0:03:00.639 --> 0:03:04.720 some mechanics here. September tenth is a key date the 0:03:04.760 --> 0:03:08.600 parties need to write down on paper something that appeases 0:03:08.680 --> 0:03:11.520 this judge. But in the ruling, the judge also talks 0:03:11.520 --> 0:03:15.959 about generative AI being key to the outcome of this case. 0:03:16.360 --> 0:03:16.959 Explain that. 0:03:18.200 --> 0:03:21.200 Yeah, So that was very interesting because the way the 0:03:21.280 --> 0:03:24.840 judge handled the initial trial and even the remedy portion 0:03:24.919 --> 0:03:27.760 of the trial made a lot of people think that 0:03:27.840 --> 0:03:29.560 he was going to be much tougher, But at the 0:03:29.680 --> 0:03:33.440 end of the day, his ruling was very conservative and 0:03:33.480 --> 0:03:35.520 he said the main reason was that that he said 0:03:35.520 --> 0:03:38.640 the generative AI was really changing the shape of the market, 0:03:38.680 --> 0:03:40.360 and he didn't want to get out ahead of that, 0:03:41.320 --> 0:03:43.640 and he didn't want to issue ruling that was going 0:03:43.680 --> 0:03:48.840 to really disrupt the market, change the money flows, inhibit 0:03:48.880 --> 0:03:50.560 innovation in any way. 0:03:51.960 --> 0:03:54.960 Bloomberg, Sarah Forden, who leads the ns trust team out 0:03:55.000 --> 0:03:58.160 of DC and all things legal, thank you very much. 0:03:58.240 --> 0:04:01.480 Let's talk through the market reaction. Jeffrey's analyst Brent Hill 0:04:01.640 --> 0:04:04.440 joins US. Now the stock's up eight point six percent 0:04:04.560 --> 0:04:07.080 record high, but that's only the biggest jump since the first. 0:04:06.920 --> 0:04:07.960 Week of April. 0:04:08.240 --> 0:04:11.280 Your colleagues on the street, many of them have raised 0:04:11.320 --> 0:04:13.880 price targets or calls on the stock. 0:04:14.440 --> 0:04:17.480 You have not in response to this ruling. 0:04:17.920 --> 0:04:21.600 Why and what is your main takeaway from it? 0:04:21.640 --> 0:04:24.800 So for the last ten years in tech, we maintained 0:04:24.839 --> 0:04:31.200 that any regulatory in insertion into these stocks are really 0:04:31.240 --> 0:04:35.680 not founded. So watching what happened to Meta was Zuckerberg 0:04:35.800 --> 0:04:39.480 watching what happened with Microsoft. There's been no breakup ever, 0:04:39.960 --> 0:04:42.680 and so we've always said that an illegal case like this, 0:04:43.279 --> 0:04:45.960 that there's always a remedy, and that the companies are 0:04:46.040 --> 0:04:50.040 too big and that the regulators want one thing and 0:04:50.080 --> 0:04:52.000 the tech companies want one thing, and they'll find a 0:04:52.000 --> 0:04:54.080 way to meet in the middle. They have found a 0:04:54.120 --> 0:04:56.640 way to meet in the middle. And so our view 0:04:56.800 --> 0:05:00.880 is that again, in any situation, you buy these stocks 0:05:00.920 --> 0:05:04.000 on the sphere, and that worked for Microsoft and at 0:05:04.000 --> 0:05:06.360 work now for Google, we are a one hundred percent hit rate. 0:05:06.480 --> 0:05:09.400 This isn't the game I'm creating. This is the game 0:05:09.720 --> 0:05:12.279 we're playing in and that's been the rule book. So 0:05:13.080 --> 0:05:16.680 our view is like it's there's been no change. This 0:05:16.760 --> 0:05:20.960 company's growing their EBITDA at a mid to high team 0:05:21.680 --> 0:05:25.360 multiple and the stock train at fourteen times and it 0:05:25.440 --> 0:05:28.400 traded it twelve times just a few months ago. So 0:05:28.440 --> 0:05:31.320 there's really no knee jerk reaction from us because the 0:05:31.400 --> 0:05:33.719 reaction for the last ten years has been the same 0:05:33.800 --> 0:05:37.440 reaction and any legal case that we've had when we 0:05:37.480 --> 0:05:40.039 talk to our clients, which is they'll figure out a 0:05:40.080 --> 0:05:43.480 way and the inherent value is higher for what they're 0:05:43.520 --> 0:05:45.840 doing than what the street is embedding. 0:05:46.000 --> 0:05:48.040 Well, brands now will change. 0:05:48.279 --> 0:05:50.479 Well, Google needs to find a way to continue to 0:05:50.520 --> 0:05:53.120 compete even with a little bit of data sharing. What 0:05:53.160 --> 0:05:54.760 do you make of that part of the agreement and 0:05:54.800 --> 0:05:57.200 what it means versus rivals, particularly in general to AI. 0:05:59.040 --> 0:06:02.720 Look, I mean we are starting our searches in perplexity 0:06:02.880 --> 0:06:06.000 and open AI, and then we're going to Google. We're 0:06:06.040 --> 0:06:09.000 not going away from Google. Google is still part of that. 0:06:09.600 --> 0:06:12.680 But the way we as consumers are looking for information 0:06:12.760 --> 0:06:15.960 I think is changing. And so I think this pressure 0:06:16.000 --> 0:06:18.440 on Google is good. It's going to bring their game out. 0:06:18.560 --> 0:06:20.839 You know, It's not like Scottie Shuffler likes to go 0:06:20.880 --> 0:06:23.960 out and play golf against himself. He wants justin Thomas. 0:06:23.960 --> 0:06:27.640 He wants the other players, whether it's Tommy Fleetwood competing 0:06:27.680 --> 0:06:30.479 against him, that makes him better. So I think many 0:06:30.480 --> 0:06:33.279 of these AI companies are making Google better. And we've 0:06:33.279 --> 0:06:36.440 said this for a long time. There's more horsepower underneath 0:06:36.480 --> 0:06:39.839 the hood. Google has done a terrible job of popping 0:06:39.880 --> 0:06:43.920 the hood and showing us what's behind the hood, and 0:06:43.960 --> 0:06:45.880 we think you're going to see that. So you know, 0:06:46.000 --> 0:06:49.880 Gemini is doing a good job. We think ultimately that 0:06:50.360 --> 0:06:51.240 many's AI. 0:06:51.080 --> 0:06:52.280 Competitors are a good thing. 0:06:52.320 --> 0:06:54.520 And I think this came into obviously the judge's ruling, 0:06:54.560 --> 0:06:57.040 which is there's a lot more competition now than there 0:06:57.160 --> 0:06:57.960 was a few years ago. 0:06:58.600 --> 0:07:00.320 We're going to go very deep on the Apple portion 0:07:00.360 --> 0:07:02.120 of this later in the hour, but the basics of 0:07:02.120 --> 0:07:04.320 it are is that Google's still allowed to play pay 0:07:04.400 --> 0:07:08.440 Apple twenty billion dollars a year and others to be 0:07:08.480 --> 0:07:09.760 the default search basement. 0:07:09.800 --> 0:07:12.800 How big is that for Google? That result? 0:07:14.280 --> 0:07:16.440 I think it's I mean it's huge, it's it's it's 0:07:16.440 --> 0:07:19.040 a big thing. And I think Apple has said that 0:07:19.080 --> 0:07:22.880 they are also looking at evaluating Gemini, they are evaluing 0:07:23.040 --> 0:07:27.720 other AI tools. But I think ultimately what happens is, look, 0:07:27.760 --> 0:07:29.880 even if they had to divest the browser, they didn't 0:07:29.880 --> 0:07:32.880 get this, Everyone's still going to go back to Google. Right, 0:07:32.960 --> 0:07:36.920 We're going to go to opening perplexity to do different searches, 0:07:36.960 --> 0:07:39.920 but we ultimately end back up in Google. You can't 0:07:40.000 --> 0:07:44.640 complete the loop without Google, whether it's map information or 0:07:44.760 --> 0:07:48.720 hours about a business you're trying to visit, or you're 0:07:48.720 --> 0:07:51.080 trying to figure out, you know what time does the 0:07:51.160 --> 0:07:53.720 vet close? You know, like, there's just things that you 0:07:53.840 --> 0:07:56.120 need Google for and it's the best way. And so 0:07:56.680 --> 0:07:58.840 it really didn't matter in our opinion if they had 0:07:58.840 --> 0:08:01.720 to divest the browser or what's gonna happen. It's the 0:08:01.720 --> 0:08:04.680 consumers are going to defect their behavior, and the behavior 0:08:04.800 --> 0:08:06.960 is you go to where you get the best information, 0:08:07.080 --> 0:08:09.480 and that's the best information today for a lot of 0:08:09.480 --> 0:08:14.920 the consumers is in Google. So again, I think the 0:08:14.960 --> 0:08:17.680 world is shifting. There's no question. I think this pressure 0:08:17.720 --> 0:08:20.600 is going to be good. But I think again, if 0:08:20.640 --> 0:08:22.560 you take a picture of a car in California, which 0:08:22.600 --> 0:08:24.760 I did for my son, and you want to figure 0:08:24.760 --> 0:08:27.320 out where a Toyota four Runner with different colors is at, 0:08:27.440 --> 0:08:30.040 and Gemini will tell you the dealerships where that car 0:08:30.080 --> 0:08:34.400 is available in perplexity or or check gvtal to tell 0:08:34.400 --> 0:08:36.640 you the dealerships, it won't tell you where the exact 0:08:36.640 --> 0:08:39.200 car can be found. So I think there's examples of 0:08:39.240 --> 0:08:44.920 where Gemini is actually better than the other systems. And again, 0:08:45.520 --> 0:08:48.199 we're gonna have multiple agents. We're gonna have multiple AI 0:08:48.360 --> 0:08:52.320 systems that we all embrace that work in concert with 0:08:52.440 --> 0:08:55.480 each other. And again I think that's what we're seeing 0:08:55.480 --> 0:08:58.320 in our survey work. When you talk to your own usage, 0:08:58.320 --> 0:09:00.640 when you look at you talk to your friends, we're 0:09:00.720 --> 0:09:03.600 using multiple tools. This isn't going to reduce the need 0:09:03.640 --> 0:09:04.120 for Google. 0:09:04.760 --> 0:09:08.600 We're at your price target for alvabet I believe. So 0:09:09.320 --> 0:09:12.160 do we see ongoing growth for alvabet. 0:09:12.200 --> 0:09:13.360 You seem to be talking a. 0:09:13.360 --> 0:09:15.240 Very bullish case for why it's going to win out 0:09:15.280 --> 0:09:16.000 in this competition. 0:09:17.280 --> 0:09:17.439 Yeah. 0:09:17.480 --> 0:09:19.520 I mean Stock's up twenty two percent now and it's 0:09:19.559 --> 0:09:22.760 outperforming Amazon and many of the other names. The sen 0:09:22.920 --> 0:09:25.680 and AI was too negative, and on this court ruling 0:09:25.720 --> 0:09:27.880 it was too It was too negative. So we've had 0:09:27.920 --> 0:09:30.920 a nice snap back. And again, as we've seen in 0:09:30.920 --> 0:09:34.000 many cases like Oracles up fifteen, Stock gave back fifteen 0:09:34.040 --> 0:09:37.000 points recently. I mean I would say that I think 0:09:37.200 --> 0:09:40.480 clearly Stock's reflecting a lot of the good news now 0:09:40.559 --> 0:09:43.640 and that's honestly kind of again where our price target 0:09:43.679 --> 0:09:46.920 was set. So we didn't predict this, but I certainly 0:09:46.920 --> 0:09:49.360 think there Again, just go back to the playbook for 0:09:49.400 --> 0:09:52.400 the last two decades in tech, the rule is every time, 0:09:52.440 --> 0:09:55.000 going forward, in every conversation we have going forward with 0:09:55.040 --> 0:10:01.000 you guys, the big tech investigations lead to basically nothing, 0:10:01.760 --> 0:10:04.840 and they are great buying opportunities. It's been that case 0:10:04.880 --> 0:10:05.640 for two decades. 0:10:05.840 --> 0:10:08.760 So that's the That's what I think we've got to 0:10:08.760 --> 0:10:12.920 continue to take away right big texts trying to help consumers, governments, 0:10:12.920 --> 0:10:15.520 trying and protect and they ultimately find a way to 0:10:15.720 --> 0:10:18.840 have peace and in this new AI world. 0:10:18.880 --> 0:10:20.560 And I think that's exactly what we got. 0:10:20.720 --> 0:10:23.720 Brenville Anst Jefferies. Great to have you on. 0:10:23.880 --> 0:10:24.280 Thank you. 0:10:24.520 --> 0:10:28.400 Coming up software companies, well, they're offering the government steep 0:10:28.480 --> 0:10:30.280 discounts to line up contracts. 0:10:30.360 --> 0:10:32.160 We'll discuss next. That's pretty bad tech. 0:10:42.080 --> 0:10:44.640 Service Now is aiming to boost its contracts with the 0:10:44.720 --> 0:10:48.600 US government by offering federal agencies discounts, but as much 0:10:48.600 --> 0:10:52.240 as seventy percent on its software. Bloombo's Brody Ford breaks 0:10:52.240 --> 0:10:55.520 the story and joins US now. Service now wants adoption 0:10:55.559 --> 0:10:58.720 of its AI tools, right, but just explain the mechanism. 0:10:58.760 --> 0:11:02.080 What does a federal government agency need to do to 0:11:02.160 --> 0:11:04.200 get that seventy percent discount? 0:11:04.520 --> 0:11:08.400 Yeah, so service now makes effectively it helped desk software. 0:11:08.480 --> 0:11:10.760 You say, oh, dang, I lost my laptop. I need 0:11:10.800 --> 0:11:13.839 a new one. Instead of going and finding somebody, you know, 0:11:13.920 --> 0:11:17.280 you just put in a ticket with service now over simplification. 0:11:17.440 --> 0:11:20.920 But it makes these kinds of things simple in the workplace. Essentially, 0:11:20.920 --> 0:11:23.920 the federal government has been saying, for these software tools 0:11:23.960 --> 0:11:27.920 we use, why don't we centralize our negotiations and try 0:11:27.960 --> 0:11:31.000 to get the best discount we can from these software vendors. 0:11:31.040 --> 0:11:33.360 And so Service Now is just the latest of these 0:11:33.400 --> 0:11:37.240 steep discounts. They say, if you upgrade, if you expand 0:11:37.280 --> 0:11:40.160 your business, we'll give you a discount. Government gets a 0:11:40.160 --> 0:11:44.240 discount and Service now gets effectively new business because in 0:11:44.280 --> 0:11:47.040 a couple of years that pricing might go back to normal. 0:11:47.520 --> 0:11:50.760 And is that the positive here because Service now is 0:11:50.760 --> 0:11:54.480 in what seventy five percent of government agencies, So they 0:11:54.480 --> 0:11:56.480 take this hit to margin in the short term for 0:11:56.559 --> 0:11:57.440 long term reward. 0:11:58.120 --> 0:12:00.560 Yeah, I'm sure that is the bet there. May right, 0:12:00.600 --> 0:12:03.440 they're saying that we can land some new business, get 0:12:03.440 --> 0:12:06.880 them to upgrade to our better systems, We'll take the 0:12:07.000 --> 0:12:09.200 margin hit for a little while. Then in two or 0:12:09.200 --> 0:12:11.280 three years, you know what are we going to charge them. 0:12:11.320 --> 0:12:16.520 Then it's unclear how these discounts will stick. 0:12:16.760 --> 0:12:18.880 Will they stick, But. 0:12:18.800 --> 0:12:21.240 For now, the government and these vendors are saying it's 0:12:21.240 --> 0:12:23.800 a bit of a win win situation. I mean, government 0:12:23.840 --> 0:12:27.880 buying of software is a famously fragmented and chaotic process, 0:12:27.920 --> 0:12:29.520 and they're trying to improve that a bit. 0:12:30.240 --> 0:12:32.920 Bloomberg's Brodie Ford, it's a great read. Thanks so much 0:12:32.920 --> 0:12:36.319 for explaining it. Look for more on software expertise here, 0:12:36.400 --> 0:12:38.400 let's bring in Hillary fresh Year is the senior research 0:12:38.400 --> 0:12:41.000 analysts for software and IT services at clear Bridge Investments, 0:12:41.040 --> 0:12:44.760 and Hillary, Look, it's not just Service Now. Microsoft has 0:12:44.800 --> 0:12:48.199 also been discounting. We've seen slacks have two pass a 0:12:48.280 --> 0:12:52.040 salesforce and indeed some of the providers of cloud. Is 0:12:52.080 --> 0:12:54.040 this something you build into the models at the moment 0:12:54.080 --> 0:12:55.840 that for the time being they're going to have to 0:12:55.880 --> 0:12:56.880 offer more for less. 0:12:57.160 --> 0:13:00.200 Sure, well, I think yes, it's part and parcel of 0:13:00.240 --> 0:13:03.360 actually doing business in the current era with the government. 0:13:03.720 --> 0:13:06.680 But the government has such antiquated systems, they have so 0:13:06.760 --> 0:13:10.280 much to do with respect to digitizing their environments that, 0:13:10.360 --> 0:13:12.560 as Brodie said, I think it's a big opportunity for 0:13:12.600 --> 0:13:16.320 the vendors. And recall that the margin on incremental software 0:13:16.360 --> 0:13:19.800 is incredibly high, so they can afford to give more 0:13:19.880 --> 0:13:23.880 for the same amount initially to get more in the end. So, 0:13:24.120 --> 0:13:26.200 in fact, I think it's been a source of upside 0:13:26.240 --> 0:13:28.000 for some of these models. We actually saw that in 0:13:28.040 --> 0:13:29.640 Service Now few quarters ago. 0:13:30.640 --> 0:13:33.160 Oh, Hillary, you said in this current environment in Carolina, 0:13:33.160 --> 0:13:34.439 and I was discussing this morning at. 0:13:34.400 --> 0:13:36.719 The desk about how that last. 0:13:36.520 --> 0:13:40.000 Earnings period, there were a number of names where government 0:13:40.040 --> 0:13:44.160 contracts were track so closely. How crucial is it that 0:13:44.320 --> 0:13:46.880 a software name is on good terms with this administration 0:13:47.160 --> 0:13:49.440 and able to get through that procurement process. 0:13:50.080 --> 0:13:54.280 I think it's very important and beneficial. Most of the 0:13:54.360 --> 0:13:56.839 vendors we track are doing a pretty good job of it, 0:13:57.280 --> 0:14:01.000 and I actually I think most investors haven't imputed much 0:14:01.040 --> 0:14:03.720 benefit from government near term in their models to so 0:14:03.800 --> 0:14:05.960 to the extent that comes through, I think that could 0:14:05.960 --> 0:14:07.520 be a source of upside for some of them. 0:14:08.280 --> 0:14:11.560 So then how should investors adjust maybe how they model 0:14:11.640 --> 0:14:13.560 some of these names. Is there a lot more upside 0:14:13.600 --> 0:14:17.040 in some of these shares that come directly from top 0:14:17.080 --> 0:14:19.520 line growth from government sales that you're not yet seeing 0:14:19.560 --> 0:14:21.680 baked in overtime? 0:14:21.760 --> 0:14:24.840 Yes, over time, potentially next quarter. I don't think that's 0:14:24.880 --> 0:14:28.160 an immediate term phenomenon for many, But we saw Salesforce 0:14:28.200 --> 0:14:31.400 had booked one hundred million dollar government contract recently to 0:14:31.520 --> 0:14:33.200 the end of the quarter. That's actually a very small 0:14:33.240 --> 0:14:36.120 relative to the total, but it's indicative of a thign. 0:14:36.200 --> 0:14:39.560 It's an indicative of the government starting to purchase following 0:14:39.600 --> 0:14:43.680 DOGE cuts, where the vendors saw some immediate term pain 0:14:43.800 --> 0:14:45.240 in the prayer a few quarters, and. 0:14:45.200 --> 0:14:47.760 That's important considering we've got Salesforce numbers coming out after 0:14:47.800 --> 0:14:50.440 the battle on September the third, and I'm interested well, 0:14:50.520 --> 0:14:54.200 so today I'm interested in the growth or the winners 0:14:54.240 --> 0:14:57.040 and losers here because in many ways, Salesforce has been 0:14:57.040 --> 0:14:59.680 beaten up this year, unlike many other tech names, because 0:14:59.680 --> 0:15:03.120 we're that it's losing out to Genai competitors. 0:15:03.240 --> 0:15:04.240 Is not something you're seeing. 0:15:04.760 --> 0:15:07.960 Yes, the entire SaaS complex has been really beaten up 0:15:07.960 --> 0:15:10.200 on investor concerns of our disintermediation. 0:15:10.280 --> 0:15:11.080 And it's funny. 0:15:11.120 --> 0:15:14.960 We've seen rolling recognition of GENI beneficiaries, starting with semis 0:15:15.000 --> 0:15:19.040 and hardware, data center, power, hyperscalers, etc. Most recently the 0:15:19.120 --> 0:15:23.040 data platform names, but SAS has been left behind, and 0:15:23.080 --> 0:15:26.760 I believe in that ving investors are assuming that SaaS 0:15:27.200 --> 0:15:29.800 is very much a zero sum game, meaning for any 0:15:30.080 --> 0:15:33.520 GENI winner, there are going to be multiple incumbent losers. 0:15:34.160 --> 0:15:35.920 But there are a few things I think about when 0:15:36.160 --> 0:15:39.320 thinking through that which I'd be happy to discuss. One 0:15:39.320 --> 0:15:41.040 of them is that over the next five years we're 0:15:41.040 --> 0:15:44.440 going to see so much more opportunity in software and 0:15:44.480 --> 0:15:47.160 even in SaaS than we've been seen, there's going to 0:15:47.160 --> 0:15:50.080 be far more workloads to address farmer software written, and 0:15:50.160 --> 0:15:53.400 the incumbents who are moving quickly and executing will be 0:15:53.440 --> 0:15:56.600 a big part of that. Second, these vendors are probably 0:15:56.640 --> 0:16:01.000 going to generate more revenue from GENNI before we see 0:16:01.000 --> 0:16:04.920 any actual real distancetermuniation from their businesses and their variances 0:16:05.040 --> 0:16:08.160 depending on the sub segment. But that's something to think about. 0:16:08.200 --> 0:16:10.240 And then finally, the valuations have been crushed, as you 0:16:10.280 --> 0:16:13.880 pointed out, so it's an interesting stetup. There's still a 0:16:13.920 --> 0:16:16.120 fair amount of mutum uncertainty, but as we moved through 0:16:16.160 --> 0:16:19.840 the year, that narrative could shift similar to but not 0:16:19.960 --> 0:16:22.200 exactly to the extent that we saw in a in 0:16:22.240 --> 0:16:24.760 a Snowflake a year ago or a Mango DV more recently, 0:16:24.840 --> 0:16:25.560 but to a less. 0:16:25.680 --> 0:16:27.400 Find that so fascinating. 0:16:27.480 --> 0:16:29.520 I was in Europe for the UK for much of 0:16:29.560 --> 0:16:31.320 the last thirty days and a lot of the software 0:16:31.400 --> 0:16:34.080 names had a rough period. There's a lot of empsystem 0:16:34.120 --> 0:16:38.800 like how the no Code Low Code player survives right, 0:16:38.880 --> 0:16:42.880 And I'm interested in salesforce earnings right because there's the hype. 0:16:42.680 --> 0:16:43.960 Of the AI headline. 0:16:44.640 --> 0:16:47.560 Do you see that materially like growing these businesses? 0:16:47.600 --> 0:16:47.720 Now? 0:16:47.840 --> 0:16:49.880 Are they good at AI or are they just good 0:16:49.920 --> 0:16:50.600 at marketing? 0:16:51.920 --> 0:16:53.840 They'll some of them will be good at both. I 0:16:53.880 --> 0:16:56.040 think salesforce will be good at both. Cogin is a 0:16:56.160 --> 0:16:59.480 very different discipline. Co gen doesn't have to be right 0:16:59.560 --> 0:17:02.200 out of the You have a world of developers who 0:17:02.240 --> 0:17:04.640 can spend all the time they save actually generating code 0:17:04.720 --> 0:17:07.520 or remediating the code after it's been written. When something 0:17:07.560 --> 0:17:10.960 is customer facing or even broadly employee facing, it has 0:17:11.000 --> 0:17:14.240 to be accurate, secure, compliant, trust it. It can't run 0:17:14.240 --> 0:17:17.600 off the rails. It can't expose proprietary data or expose 0:17:17.640 --> 0:17:21.439 the organization to liability or security vulnerabilities. So that just 0:17:21.480 --> 0:17:25.080 translates to slower adoption in the enterprise in particular and 0:17:25.080 --> 0:17:32.200 commercial organizations. But the incumbents have incomacy advantages, They delivering 0:17:32.200 --> 0:17:36.000 distribution advantages. They have a lot of hooks into every system. 0:17:36.040 --> 0:17:38.879 They can make things work together. They own the workflows, 0:17:39.119 --> 0:17:42.600 the data fabric, the business logic. There's a lot there 0:17:42.640 --> 0:17:45.439 that they can work with and IMPUTYI on top of it. 0:17:45.520 --> 0:17:47.600 So it just means they have a fighting chance and 0:17:47.640 --> 0:17:50.159 they're moving a whole lot faster this time around than 0:17:50.200 --> 0:17:52.040 they did in cloud. But it's going to take time. 0:17:52.080 --> 0:17:54.040 We're not going to see it immediately. It'll take time. 0:17:54.200 --> 0:17:55.959 Henry Fresh Deep Insight. 0:17:56.040 --> 0:17:58.560 We thank as senior research analysts for software and IT 0:17:58.800 --> 0:18:00.000 services at Clearbridge Investment. 0:18:06.920 --> 0:18:10.800 Cato Networks is announcing its first ever acquisition, buying Israeli 0:18:10.880 --> 0:18:14.879 startup aim Security, which specialized is in enterprise AI security tools, 0:18:15.119 --> 0:18:17.199 going to bring in Cato CEO Sho Kramer. 0:18:17.240 --> 0:18:18.439 And you know this is interesting. 0:18:18.440 --> 0:18:20.680 You've been on the show regularly throughout the year, We've 0:18:20.680 --> 0:18:22.399 talked about M and A and now you've done some 0:18:22.960 --> 0:18:24.200 what's the rationale here? 0:18:26.119 --> 0:18:31.320 Well, the nationalist that AI transformation is going to dominate 0:18:32.760 --> 0:18:36.119 enterprise investment in the next decade. It's going to be 0:18:36.240 --> 0:18:42.159 bigger and faster and more impactful from a business perspective 0:18:42.240 --> 0:18:44.440 than even digital transformation. 0:18:45.440 --> 0:18:51.960 And it creates a huge security challenge because it's a 0:18:52.040 --> 0:18:57.160 completely new security sect that needs to listen to all 0:18:57.240 --> 0:19:01.239 these tens of thousands of conversations in plain language and 0:19:01.320 --> 0:19:04.000 decide what is. 0:19:03.920 --> 0:19:08.159 Appopulate for the enterprise according to some policy. So this 0:19:08.480 --> 0:19:11.520 is a whole new category in security is going to 0:19:11.520 --> 0:19:15.600 be huge, and SASE is the best place to put it. 0:19:16.200 --> 0:19:21.000 SASE is the network. Security is a cloud service that 0:19:21.080 --> 0:19:25.160 sits and listen to all these conversations. So we've obviously 0:19:25.920 --> 0:19:31.840 jumped in early into this and bought a security that 0:19:32.000 --> 0:19:37.960 specializes for the last three years in building these security sets. 0:19:38.520 --> 0:19:41.240 Is it about the talent that you need to bring 0:19:41.280 --> 0:19:44.560 in when you've already got an annual recurring revenue run 0:19:44.640 --> 0:19:47.400 rate of three hundred million dollars. You're building fast too. 0:19:47.400 --> 0:19:48.840 Why can't you do it organically? 0:19:50.480 --> 0:19:56.160 Because the market is happening at late that is unprecedented. 0:19:56.480 --> 0:20:00.240 There's a huge pressure both from the board that's is 0:20:00.280 --> 0:20:06.160 AI as most important business initiative as well as from 0:20:06.240 --> 0:20:11.359 employees that the AI is the most important productivity initiative 0:20:11.400 --> 0:20:15.359 And the SISO that, as we talked last time, is 0:20:15.440 --> 0:20:18.560 in its predicament as it is from a budget and 0:20:18.840 --> 0:20:23.320 from a polational from a gunity perspective, now has to 0:20:23.359 --> 0:20:27.880 face AI and needs to deliver a secure journey and 0:20:27.920 --> 0:20:30.560 it needs to and they need to do it now. 0:20:30.760 --> 0:20:34.879 So developing three years now, what AIM has developed in 0:20:34.880 --> 0:20:37.080 the last three years is not going to cut it. 0:20:37.680 --> 0:20:42.520 Enterprises need it now and need a broad solution and 0:20:42.600 --> 0:20:45.040 a deep solution and that's what we bring them. 0:20:45.280 --> 0:20:45.760