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Speaker 2: Another big trade happened today. I mean, the AI valuation
Speaker 2: story just gets bigger. Every single day.
Speaker 3: There's a new impressive and it's because of this guy,
Speaker 3: Ed Ludlow, Bloomberg Tech co host, joining us a live.
Speaker 2: Here in our Bloomberg Interactive Brokers studio. He's based in
Speaker 2: San Francisco. We've got him on East coast here for
Speaker 2: a little while. So, Ed, what happened?
Speaker 3: What's the deal that just put evaluation of five hundred
Speaker 3: million dollars on open ASP.
Speaker 4: So, actually, the mechanics of it are the one of
Speaker 4: the most interesting parts. It's a secondary or an employee tender.
Speaker 4: In other words, if you are a existing employee or
Speaker 4: even a former employee, you can sell your shares in
Speaker 4: open AI. The eligibility requirements were that you held them
Speaker 4: or you had a vesting period of two years. But
Speaker 4: the reason I say that's interesting is that this is
Speaker 4: a valuation dictated by a third party group of investors
Speaker 4: buying those shares from employees. So the company doesn't raise
Speaker 4: any new money, but there has to be a valuation
Speaker 4: set because a price has to be set. And so
Speaker 4: these investors wanted even more. They wanted like ten billion
Speaker 4: dollars worth of employee shares. In the end they got
Speaker 4: six point six billion dollars. So what does that tell you.
Speaker 4: There's probably a load of open a employees that were like,
Speaker 4: you know what, I'm not going to sell. I'm holding
Speaker 4: on because if I'm at the five hundred billion dollar valuation,
Speaker 4: you know, and there's still a corporate restructures go through,
Speaker 4: you know, a future IPO, maybe, then then hold. So
Speaker 4: I thought that was really fascinating. But I would just
Speaker 4: point out that Sharin Gafari, really talented colleague of mine
Speaker 4: out in San Francisco Bloomberg Newsroom. She did break this
Speaker 4: story in August six, just the close of the round.
Speaker 5: Okay, So now that open ai is valued at five
Speaker 5: hundred billion dollars, that puts it over SpaceX, which is
Speaker 5: valued at four hundred billion. And I bring this up
Speaker 5: because there's a common thread between open ai and SpaceX
Speaker 5: and that is Elon Musk is part of open Ai
Speaker 5: before leaving under some clouds.
Speaker 4: Yep, he has a fractious relationship specifically with some Altman,
Speaker 4: you know, the the other founder and now CEO of
Speaker 4: open Ai. You know what I've written a lot about
Speaker 4: in Bloombot BusinessWeek magazine and in some of the reporting
Speaker 4: is present day. Musk has kind of a little bit
Speaker 4: of a chip on his shoulder. I think, well, specifically
Speaker 4: about the idea that Xai, his ai company, should have
Speaker 4: a valuation that is near to open ayes so, and
Speaker 4: you know there's been litigation. You know, there's a public forum,
Speaker 4: slinging match on social media between the two. Sam Altman
Speaker 4: gets asked about it a lot. But you know, I
Speaker 4: think the main thing is that remember also that Xai has,
Speaker 4: as we've reported it sought to raise money at two
Speaker 4: hundred million dollar valuation this year. You know, it's tides
Speaker 4: and rising ships in that field.
Speaker 2: Really, so do we know who was selling here in
Speaker 2: this round?
Speaker 6: No?
Speaker 4: I mean all I know about the eligibility rules. You know.
Speaker 4: The one thing I've reflected on reading the story and
Speaker 4: speaking to sources that the company is Remember in November
Speaker 4: of twenty twenty two when Sam Outman was briefly ousted
Speaker 4: from open ai. There was just a few hundred people
Speaker 4: that worked there at that time. You know, so that
Speaker 4: was three years ago and almost three years ago, and
Speaker 4: now there are thousands of people that work there. So yeah,
Speaker 4: some tenure would probably be a factor here.
Speaker 5: Okay, So now the world's biggest startup worth half a
Speaker 5: trillion dollars, but open ai is not making money.
Speaker 2: It's not part ofable. Yeah.
Speaker 4: So on Monday, open ai has its dev day, its
Speaker 4: developers day in San Francisco, and are we going? And
Speaker 4: it's a good opportunity to ask hard questions like these.
Speaker 4: There's a data point that's going around right now, which
Speaker 4: is that open ai is only converting two percent of
Speaker 4: its free users to paid subscribers. Now, that for me
Speaker 4: is an interesting data point. So it's been on that
Speaker 4: is that there's a lot of room for growth, right,
Speaker 4: and so you know software, you know, this is core
Speaker 4: bi analysis, right, Software is traditionally a higher margin business.
Speaker 4: But the problem is that because of compute expenses and
Speaker 4: op X now talent compensation, even the revenue they are
Speaker 4: making probably ain't that high margin, is it. You know,
Speaker 4: if it's all. So the big question is, Okay, if
Speaker 4: we know that you're not really doing a lot to
Speaker 4: convert the consumers from free to paid, what do your
Speaker 4: enterprise business look like? And that's probably the domain where
Speaker 4: we'll focus. Hey, when you even do a secondary or
Speaker 4: attender with employees, you've got to put a deck together
Speaker 4: that justifies evaluation. So those group of investors, they will
Speaker 4: have seen something in the data room that would say
Speaker 4: this is a five hundred billion dollar company. Like, of
Speaker 4: course they would, that's how it works.
Speaker 2: Well, how come you don't. You haven't gotten your hands
Speaker 2: on that deck?
Speaker 4: You know, a trepid reporter, you know, No, I'll be
Speaker 4: honest about this, Like Sharena has been smashing this story.
Speaker 4: She covers a covery so deeply. And I was on
Speaker 4: vacation for most of August, so you know, I've not
Speaker 4: tracked it as closely for me. You know, the big
Speaker 4: story to focus on with open ai is the corporate restructure,
Speaker 4: you know, from where you have a not for profit
Speaker 4: board that owns the for profit company. That's going to change.
Speaker 2: Okay, So that's where I'm focused. Stay with us. More
Speaker 2: from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Otto with the Bloomberg Business App. Listen on demand wherever
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Speaker 5: Let's talk a little bit about Tessa right now, because
Speaker 5: it reported global vehicle delivery and it was a surprise
Speaker 5: to the upside, so that means we need to bring
Speaker 5: in Craig Trudell. He is our Global autos editor for
Speaker 5: Bloomberg News, joining us from London right now. Craig, not
Speaker 5: a surprise insofar as there was this expiration of the
Speaker 5: federal tax credits for evs coming up, so people were
Speaker 5: kind of rushing to make good use of those tax
Speaker 5: credits before they went away.
Speaker 7: Yeah, that's exactly right. I think there was a widespread
Speaker 7: expectation that, you know, given that the clock was ticking
Speaker 7: on those tax credits, that we were going to see
Speaker 7: a strong third quarter. But this this was even better
Speaker 7: than was you know, expected by by analysts that follow
Speaker 7: the company. I think, you know, we did get indications
Speaker 7: as the month of September was coming to a close
Speaker 7: that more and more analysts were much higher than where,
Speaker 7: you know, where the average was the consensus, if you will,
Speaker 7: And also I should add two just on the energy
Speaker 7: side of the business. It was another record quarter of
Speaker 7: energy storage product deployments. So you know that that is
Speaker 7: still a much smaller portion of of Tesla's you know,
Speaker 7: top and bottom lines, but it was a business that
Speaker 7: you know, was growing pretty rapidly that you know, along
Speaker 7: with the car business was struggling in the first half
Speaker 7: of this year. So to see see that tick up
Speaker 7: as well is another positive for the company.
Speaker 3: Craig, can you give us an update where we are
Speaker 3: in the US in terms of charging capabilities? I mean,
Speaker 3: that's I know, that's a gating issue for a lot
Speaker 3: of people that just don't feel like there's enough charging
Speaker 3: capacity in this country.
Speaker 2: Where are we now and what are some of the
Speaker 2: goals do you think?
Speaker 7: Yeah, I mean, Tesla, you have to give them credit
Speaker 7: for still being you know, really sort of ahead of
Speaker 7: the curve in that regard and to the extent that
Speaker 7: other manufacturers have had, you know, some progress in charging
Speaker 7: getting getting better, it's because Tesla made this decision, you know,
Speaker 7: not that long ago to open up its network to
Speaker 7: other manufacturers. I think that that also is you know
Speaker 7: something that you know, perhaps you know, if you look
Speaker 7: at in hindsight, you know, maybe sort of created something
Speaker 7: of an opening for for other carmakers that you know,
Speaker 7: have made Tesla's life a little bit more difficult in
Speaker 7: the US because they went from having a network that
Speaker 7: was you know, really intuitive and easy to use, that
Speaker 7: that was all to themselves, to opening that to others.
Speaker 7: They of course, you know, that that's become something of
Speaker 7: of a you know business for them to be able
Speaker 7: to you know, charge non Tesla drivers for those charging sessions.
Speaker 7: But that is you know, sort of a drop in
Speaker 7: the bucket relative to to the car business for them.
Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten a m. Eastern on Apple, Cocklay and
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Speaker 3: There was a deal today in this space petrochemical space.
Speaker 3: Warren Buffet's Berkshire Hathway reached a deal to buy Occidental
Speaker 3: Petroleum Corporation's petro chemical business for about nine point seven
Speaker 3: billion dollars. Let's break that down with Matthew Pathlosola, senior
Speaker 3: analys covering the insurance business, has been covering Berkshire Hathaway
Speaker 3: and Warren Buffett for many, many years. He's so Bloomberg
Speaker 3: Intelligence joining us via zoom. Here Matthew talk to us
Speaker 3: about what a deal like this means for Berkshire Hathaway.
Speaker 6: Hey, Paul, Yeah, I think it's a good deal for
Speaker 6: Berkshire Hathaway. When you really break it down, the nine
Speaker 6: point seven billion dollars is three percent of the cash
Speaker 6: that Berkshire has on hand, So it's funny to say it,
Speaker 6: but kind of a low stakes deal for Berkshire. I
Speaker 6: think this deal helps Occidental. They really need to de lever,
Speaker 6: so they're going to use six point five billion dollars
Speaker 6: with that cash to de lever, which could help their stock,
Speaker 6: which then could also have hel help Berkshire's eleven billion
Speaker 6: dollar steak in Occidental. So I think it's kind of
Speaker 6: a multi layered win for Berkshire Hathaway.
Speaker 5: What does it say about Warren Buffett's willingness to buy
Speaker 5: right now when the market is trading at much higher
Speaker 5: valuations than historically it has been, And I get that
Speaker 5: most of that is because of the tech industry. But
Speaker 5: even beyond that, overall valuation is not low.
Speaker 6: Yeah, Scarlett, I would say Buffett's inclination to be buying
Speaker 6: anything is probably low. At the moment. Berkshire has not
Speaker 6: been buying back their own stock, which is up ten
Speaker 6: percent year to date, so their buybacks are essentially nil.
Speaker 6: They and their equity portfolio they've sold about eleven billion
Speaker 6: dollars net year to date. So you're a spot on
Speaker 6: to say valuations are high and Berkshi is probably not
Speaker 6: buying a lot of stuff. I think this was probably
Speaker 6: just a unique opportunity. The deal valuation is pretty good,
Speaker 6: the terms are pretty good, so I think this was
Speaker 6: Berkshire taking advantage of their relationship with Occidental and doing
Speaker 6: something that could help both. This is some sort of
Speaker 6: statement on wanting to buy more in the market, all right.
Speaker 3: Well, on the same day that Bircher Hathaway spends ten
Speaker 3: billion dollars on a petrochemical business, Open Ai, some employees
Speaker 3: there sold some stock to private equity at a five
Speaker 3: hundred billion dollar valuation, how does Bircher Hathaway think about tech?
Speaker 3: Because if you want to put money to work, there's
Speaker 3: some big evaluations out there in the world of tech technology,
Speaker 3: But how did they generally think about tech?
Speaker 6: Yeah, Paul generally been tech adverse, right. I think Buffett
Speaker 6: has tended to invest in things that he has a
Speaker 6: deep understanding of. He has said it was a mistake
Speaker 6: to not invest in Amazon sooner, which you call it
Speaker 6: tech or retail, but he lamented that obviously big investor
Speaker 6: in Apple, which though he kind of sees as a
Speaker 6: retail consumer company versus more than tech. So they have
Speaker 6: very little in the way of cutting edge tech plays
Speaker 6: or AI investments. The investment managers will probably be a
Speaker 6: little more inclined to do that, and maybe Greg Abel.
Speaker 6: So Buffett has only got a couple of months left
Speaker 6: totally at the HELM, I'm sure he'll be involved kind
Speaker 6: of tangentially, but you might see a shift in the
Speaker 6: upcoming years towards more tech investments.
Speaker 5: I'm so glad you mentioned Greg Gable because this latest
Speaker 5: purchase of oxy can nine point seven billion dollars. You
Speaker 5: were saying that Berksher is not making a lot of
Speaker 5: purchases right now. Is this being spearheaded by Warren Buffett
Speaker 5: or is this a Greg Abel call?
Speaker 6: So we don't really know. I mean the press release
Speaker 6: that came out had a quote from Greg Gable only
Speaker 6: in it. I would suspect that Greg probably did most
Speaker 6: of the work on this. Buffett has been saying for
Speaker 6: a while now that he's stepped back from the day
Speaker 6: to day operations of the company, and Greg is kind
Speaker 6: of doing a lot of that leg I would think
Speaker 6: on something of this size, even though I just said
Speaker 6: it was three percent of Burcher's cash, it's still almost
Speaker 6: ten million dollars in a lot of money. I think
Speaker 6: Buffett was probably involved, but if I had to guess,
Speaker 6: I would think Abel probably did a lot of the
Speaker 6: legwork on this deal.
Speaker 3: It was a beautiful afternoon yesterday at the Jersey shore.
Speaker 3: I hopped on the Vestpa went to the beach and
Speaker 3: I could not believe how rough.
Speaker 2: The surf is.
Speaker 3: And apparently there's a couple of hurricanes and storms out
Speaker 3: at sea that's really churning things up, which got me
Speaker 3: thinking about you, Matt, talk to us about the hurricane
Speaker 3: season from the insurance perspective. Has it been so far
Speaker 3: this season?
Speaker 6: Yeah, thanks Paul. Whenever you think of hurricanes, please think
Speaker 6: of this natural disasters. It was exactly so. It's been
Speaker 6: a very mild hurricane season in terms of land falls, right,
Speaker 6: you haven't. You haven't talked to me much, right, so
Speaker 6: we haven't seen a lot. What actually happened was there
Speaker 6: was a hurricane coming and it was headed right towards
Speaker 6: the Carolinas, and then another hurricane, which is a category
Speaker 6: five completely over the ocean, sucked it away and kind
Speaker 6: of pulled it away way from the US coast, kind
Speaker 6: of saved the day for it. They are impacting Bermuda.
Speaker 6: Now I don't expect major insured losses from that, but
Speaker 6: so pretty benign season, good for reinsurance companies, Paul, your
Speaker 6: favorite stocks, and we do have something. The National Hurricane
Speaker 6: Center is identified another system that is brewing up and
Speaker 6: could develop into something next week, so we'll stay tuned
Speaker 6: for that. But mile season so far.
Speaker 5: Yeah, I feel like I never want to talk about
Speaker 5: this because the minute you'd be talking about how quiet
Speaker 5: it is is when things really gear up and you
Speaker 5: get a massive storm like the next week.
Speaker 3: Yeah, like, and that happens so real quick, Matt. Just overall,
Speaker 3: how your stock's performing this year? The property and casually insures.
Speaker 6: Not great, the underperforming year to date. We've got tower
Speaker 6: of pressure. Everything can costs more to repair. Lower interest
Speaker 6: rates are not a good thing for the P and
Speaker 6: C names. So Bircher's actually stand out, you know, not
Speaker 6: being an actual peer play P and C company that
Speaker 6: that stocked up ten percent year to date, but the
Speaker 6: rest of the group is down here to date, So
Speaker 6: we're probably looking at peak ros and evaluations got peaked
Speaker 6: before that, So I think that's what we're seeing with
Speaker 6: the P and C stocks.
Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
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Speaker 2: We were just.
Speaker 5: Talking about McDonald's and how we don't get a chance
Speaker 5: to go very often, even though there is a McDonald's
Speaker 5: Paul just across the street from US at Worldwide Headquarters.
Speaker 3: Well, I should go to McDonald's fast food when I
Speaker 3: was traveling in airports that would meet by.
Speaker 2: Oh that'd be my one time, I'll goo. Yeah, it's
Speaker 2: just all high end stuff.
Speaker 5: Well, I think we need to move to northern Texas
Speaker 5: because that is where McDonald's is focused on in terms
Speaker 5: of expanding and building out restaurants. This is actually our
Speaker 5: big Take story of the day. Christina Peterson is Bloomberg's
Speaker 5: food reporter and she was the author of the story.
Speaker 5: And Christina, this is about how McDonald's is looking to
Speaker 5: build out fifty thousand restaurants overall. Where are we in
Speaker 5: terms of that goal to get to fifty thousand or
Speaker 5: is it like a third of the way there, halfway there,
Speaker 5: three quarters of the way there.
Speaker 8: They're more than that. They are in the forty thousand range.
Speaker 8: I think it was forty one thousand about a year ago,
Speaker 8: so steadily getting closer. That actually will not make them
Speaker 8: the biggest restaurant train in the world. That has mixed
Speaker 8: you the Chinese bubble team makers at fifty three thousand,
Speaker 8: but they will definitely be closer.
Speaker 4: To that goal.
Speaker 3: Hey, Subway, I bet you's up there too, because they're everywhere. Christina,
Speaker 3: So what's going on here with Donald's. I would have
Speaker 3: if you had to ask me how, I would have said,
Speaker 3: there's some McDonald's on every corner in every city USA.
Speaker 3: Why are they going on this expansion?
Speaker 6: Right?
Speaker 8: Well, for years they were actually shuddering more restaurants than
Speaker 8: they were opening. Between twenty fifteen and twenty twenty one,
Speaker 8: they closed a net of nine hundred sum stores, some
Speaker 8: of them were inside walmarts. But since twenty twenty two,
Speaker 8: they have been reversing that strategy and expanding, opening new locations,
Speaker 8: and they've really been trying to follow where the population
Speaker 8: is going. So, for example, North Texas is a place
Speaker 8: where people are just flooding. Texas in general has seen
Speaker 8: two million people move there since twenty twenty, So they
Speaker 8: are chasing those new diners, trying to get as close
Speaker 8: to where people are living now as they can. And
Speaker 8: McDonald says that its goal is to be within a
Speaker 8: five minute drive from as many people as possible, So
Speaker 8: they're just trying to go where those people are now.
Speaker 5: Yeah, we were just talking earlier about how Dallas has
Speaker 5: really exploded in terms of population growth, in terms of
Speaker 5: being a place where folks want to move to because
Speaker 5: of the lower cost of living. Is McDonald's an early
Speaker 5: bird or a latecomer to the population boom in Northern
Speaker 5: Dallas Northern Texas?
Speaker 4: Is it?
Speaker 5: You know, the master planned communities are building out, but
Speaker 5: are there stores or brands that are ahead of McDonald
Speaker 5: in that effort to populate it.
Speaker 8: It's such an interesting point because they are still earlier
Speaker 8: than many other brands, but they are not as early
Speaker 8: in these spots as they once would have otherwise been.
Speaker 8: Oftentimes McDonald's is one of the first businesses to open
Speaker 8: in places like this. They aren't the earliest. We see
Speaker 8: forty some McDonald's in the Dallas area in the past
Speaker 8: few years, but the population there has been absolutely exploding,
Speaker 8: so they're still ahead of the full wave. But they
Speaker 8: were not the very earliest pioneers in these places where
Speaker 8: many people would have expected them to be.
Speaker 2: Christina.
Speaker 3: I know you traveled to North Texas for this story.
Speaker 3: My question is, where's Texas putting all these people? Are
Speaker 3: they just building houses in the middle of the desert somewhere.
Speaker 8: The houses are just popping up. When I was there,
Speaker 8: I would talk to people who had moved to the
Speaker 8: area weeks or even days earlier. They're an enormous number
Speaker 8: of houses being built, and they're expanding. The Dallas North Tollway,
Speaker 8: which goes north from Dallas. Slina, where I went, was
Speaker 8: about fifty minutes away, and that highway is going to
Speaker 8: reach there by twenty twenty seven. So you see, as
Speaker 8: transit gets easier, as it's faster to get to these places,
Speaker 8: more and more people are moving there.
Speaker 5: So a company like McDonald's is massive, and I imagine
Speaker 5: that a goal to get to fifty thousand restaurants takes
Speaker 5: some time to play out. So the fact that it's
Speaker 5: doing all this, is this a move now to expand
Speaker 5: in response to conditions that it spotted. I don't know,
Speaker 5: a year ago, or three years ago or five years ago.
Speaker 5: I'm just wondering how quickly McDonald's can decide on something
Speaker 5: and then execute on it.
Speaker 8: Yeah, I mean this is definitely years in the making.
Speaker 8: Being convenient as a cornerstone of their strategy, and I
Speaker 8: think they've just had to reconfigure where that convenience is,
Speaker 8: where the people are. They have a very extensive team
Speaker 8: that follows demographics other people in the industry watch to
Speaker 8: see where McDonald's open. We spoke to an executive who
Speaker 8: had previously been at Chipotle, and she said she knew
Speaker 8: when there were three McDonald's in an area, they were
Speaker 8: ready for other restaurants. So they're very sophisticated with these
Speaker 8: kinds of calculations.
Speaker 3: Any early feedback on how some of these new stores
Speaker 3: are doing.
Speaker 8: Yeah, we looked at third party data that showed that
Speaker 8: these stores are not quite as busy as more established
Speaker 8: stores and denser areas. McDonald's told us it typically takes
Speaker 8: two or three years for a new location to catch
Speaker 8: up on traffic with older stores, and they see positive signs.
Speaker 8: So it could be that as these cities become more populous,
Speaker 8: these McDonald's will become more frequently visited. And it was
Speaker 8: interesting other businesses in these Texas towns said they weren't
Speaker 8: being cannibalized by McDonald's opening. There's just a lot of
Speaker 8: business for everyone where cities are growing as fast as
Speaker 8: these are.
Speaker 5: Christian. Final question to you, how is this expansion going
Speaker 5: to show up in the financials? And I wonder whether
Speaker 5: investors will give McDonald's credit for it, because, as you know,
Speaker 5: typically analyst tracks seam stores sales sales at stores open
Speaker 5: for at least a year to gauge demand, and now
Speaker 5: McDonald's is building out new stores, which I guess don't
Speaker 5: quite filter into the revenue number in the same way.
Speaker 8: Well, one thing that's interesting is that McDonald's has raised
Speaker 8: the royalty fee for many new franchise owners, so there
Speaker 8: is more revenue that they are getting from these stores.
Speaker 8: Same store stales hit their lowest point in a decade
Speaker 8: last year, but have been more positive this year, so
Speaker 8: there are signs that this is good for McDonald's corporate numbers.
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