Stocks Fall as US Services Flash Warning Signals

26:30Trying$3 billion. I mean, these deals are huge. And there's been many stories recently that have reported that people like Mark Zuckerberg are more than willing to pay a billion dollars. And maybe that is on the far end of things. But to get some of these AI researchers in-house, because these companies feel they are behind OpenAI, behind Anthropic. And these are big tech, massive companies that can't afford to be behind startups. Help me understand, because I'm thinking about early on in my career, and I worked for a media company that was bought by our competitor who was actually not doing so well.

27:05We were, and it basically took some of the kind of key talent and some of our technology at that point. So it sounds like a very similar thing. So we've seen this kind of before. Is there something distinct or different about it this time around? Yeah, I mean, I think I'm sure there have been cases of this before, but in Silicon Valley, there have never been such high profile, large deals like this before for companies that were otherwise seemed to be in a good place. There is a range. Some of these startups were not doing so well, but a company like Scale AI, I mean, that was a company that was generating significant revenue, was potentially plotting a massive IPO in the next couple of years, like there was a lot like that wasn't a company that people necessarily expected would do a deal like this.

27:49So I think that's what's different is the types of companies that are doing. I can imagine this happening on Wall Street with a hedge fund or in media. I would buy any company just to get you as an anchor on my show. And then I don't need the rest of the company. But in I feel like especially in Silicon Valley, this guts the social contract of startups, right? You go to a startup because you're one of the best and brightest. You could go work for Google or Meta too, but you're hoping to build something amazing. And then all of a sudden, your CEO is like, the C-suite's out and you kids are done with your jobs.

28:26Yeah. I mean, people are not happy about that. There are people at these companies who do feel betrayed. Some of them have gone public with those complaints. We've seen many, many tweets from these people. And yes, it does betray the startup social contract. And I think what I'm hearing from the venture capitalists, the employees of these companies, that's, what's also interesting. The venture capitalists are like, listen, I'm with you from the beginning, right? And I'm going to pony up more and there's different rounds and so on and so forth. And then all of a sudden you're like, wait, you're out.

28:52And what's left for me. Right. And like in some of these cases, you know, they get paid back first. So in many of many cases, they're getting their money back, but they're not making a profit or, or maybe they are all of these have been structure differently. But by and large, this is not a great thing for venture capitalists who are hoping for a home run return with an IPO. This isn't really, they don't want to see their star founder jump to big tech. Right. They need to know their founders, right? Maybe a little bit better if some of them are jumping ship to go to big companies. Yep. You talk about Microsoft back in 2024 and kind of point the finger at what they did.

29:28Do we blame them in some way? No, I mean, It's interesting because we don't really know who architected the deal that we feel started this trend, which was Microsoft's reverse AccuHire of Inflection. We don't really know who was that person or who were those people. You know, Reid Hoffman was a co-founder of Inflection AI. He's also a board member at Microsoft. So, you know, I imagine he played a role. I would love for him to talk about, like, how that came together. But it was, it is quite an original method. And I think for a while, people were like, oh, so tricky. This is going to totally work.

30:00get past, you know, antitrust scrutiny, no one will notice. I do think at this point, there have been enough that you wonder, how is the FTC going to respond? They do have investigations into several of these deals already. They do. They do. Yeah, because this is meant to, or is a way to get around regulation, but still has a lot of the same negative consequences of the things that the regulation is meant to block in the first place. So what happens to these companies that are left behind? Do they survive? Some don't. Do they shift their focus? You write about this. All of the above. Some of them have not survived and have basically become what we call zombie companies, where maybe a couple people work there to kind of keep filing a few different paperwork, and then eventually it shuts down.

30:49A couple of them have really worked hard to stay afloat and are planning to raise some more money to help. That's inflection and character AI, which is a pretty well-known chatbot company. But yeah, a lot of them have pivoted because they've had really had no choice because they've lost the original people who had the vision and maybe the skills for what they were originally building. They've had to pivot to kind of figure out who are we without those original geniuses or whatever it was that started this company. There's part of me that says all's fair in love and war and capitalism. And so I do wonder like how that plays out.

31:21I love that part of you, Thank you very much. But I mean, I also wonder about, you know, are venture capitalists then going to be thinking, all right, I don't know, is there something that they write into future investments? Has it become a little bit stickier for those startup entrepreneurs? I think, yeah, that's a really good question that I've asked. And, you know, it's funny. I think right now the answer is no, because venture capitalists right now have no leverage with AI founders because everybody wants to give all these AI founders a hundred million, right, a billion dollars. They're competing with every venture capital firm.

31:50They can't be like, well, you also promise me that you won't make a deal, you know, with Microsoft, they can't do that. So for now, no, I think, you know, let's see how the market changes. Let's see where the AI boom, you know, does it, does the bubble pop, you know, then things will change. For right now, I would say like the venture capitalists don't have a lot of control over these situations. It does feel like an AI power grab right now. Yeah. In so many different ways. In your reporting for this story, did you talk to anyone who did say like this is a ridiculous amount of money being spent and it's just reminding people of 1999 or you know another period when valuations were so frothy that people were just I mean 2021 is what comes up the most often the bubble that occurred you know during the end of the pandemic era the zero interest rate era that is mostly what people compare it to?

32:46I mean, absolutely. Yes. You could compare it to the dot-com boom or even like the crypto boom or there have been many of them in the last 20 years. And I think people right now have a lot of concerns about some of those similarities. What I love about these stories and business week does it so well. Yeah. It's like a big trend that's happening. And we talk about the execs and the companies and where things go, but you know, at the end of the day, there are people that are left in offices and I'm assuming you've talked to a bunch of them. tell us about like just some of what you heard from those folks who are kind of left behind i mean we heard like after one of these companies cognition or sorry um windsurf after they completed a reverse accu hire we heard that there were many employees who were like sobbing in the offices that weekend and um you know we're we're devastated by it and i think it really just damages like we said the trust in this system and if you're just an average person working at one of these startups um which you know there are startups all over the country all over the world Not everybody has the same understanding of what this is.

33:45And I think it's just confusing. And it just created a lot of confusion and distrust in this Silicon Valley world. I would say it's a risk, right? When you go to a startup, risk-reward. But there's also, you know, maybe things are intensifying because of this, especially when it comes to AI and the grab that we're seeing. Really great story, great reporting. It's a new risk, right? It's a risk that you wouldn't have thought of a couple years ago. Yet another risk. Right. Another thing that you kind of layer into this. Kate, thank you so much. So glad we did some time with you. Bloomberg News Tech and Venture Capital reporter Kate Clark.

34:17Check out her story. You can find it on the Bloomberg and at Bloomberg.com slash businessweek. Are you based out of New York? You wrote the story with Sharon Gaffrey. I am based out of New York, yes. Really, really well reported story and a great read on the terminal or in Businessweek. Like a snapshot of where we are right now on so many different things. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work.

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36:10The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a health care company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together. Technology designed to help doctors spend less time on busy work and more time with their patients.

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37:26company says it has been conducting pilot programs with various restaurants, some of which have seen their order volume grow during the test period. The effort marks an expansion of DoorDash's in-house robotics efforts to reduce reliance on human couriers for some orders, as their wages constitute a key expense to the business. Drones are also a way for DoorDash to cut delivery times on orders from more remote locations that some dashers may not want. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com today by selecting Work Mode.

38:03Available on Plus and Pro Plans. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. So we're keeping a watch on shares of Axon, gaining as much as, well, just shy of 19 % today intraday, the most since February, enough to reach a record intraday high. Right now, the stock is up just under 15%. This is after the maker of Tasers and other public safety equipment reported second quarter earnings per share of that topped expectations.

38:43Analysts also noted strong bookings for the company's AI plan. What? Look at the five-year chart. I know. I mean, who cares about today? It's up 825 % over the past five years. It's had quite a run and a big move today. I should point out that coming off of earnings, several analysts, including Barclays and TD Cowan, raising their price targets on the stock, it is up more than 40 % year to date. Let's get to it. Delighted to have with us Rick Smith, founder and CEO of Axon, to talk about the business, the outlook. Welcome, welcome, Rick. How are you? I'm having a good day. All right. It's been great.

39:22You are having a good day. Talk to us about the business. Who's buying? You know, what's going on? We talk about tasers, but you go to your website. You guys have videos to remind us that you guys are not just about that. You're about a lot more. Yeah, that's why we changed the name of the company to Axon a few years ago, because Taser is it is a sledgehammer brand associated with our less lethal weapons. That's where we started. That got us into body cameras to basically help protect the public and police by preserving a factual record of what they did. And then from there, we got into cloud software to manage all the data.

39:56And then the business just exploded. So today we're the market leader in in-car video, you know, obviously body cameras, record management systems, and drones and robotics through their partnerships or first party things that we do. We're, I think, the largest virtual reality training business and public safety. And now we're also expanding into adjacent markets. Any enterprise that has a security function has to be able to communicate with their local police. And you can either do that through an old school 911 call, or we have a number of tools on our platform that allow you, for example, if you're a school or a business, to share your security cameras in an emergency with police.

40:33So if you have something like an active shooter, you're not trying to describe it over the phone. You can immediately give video access to law enforcement at your control. You can shut it off when it's not necessary. And then, of course, we're layering artificial intelligence across this entire enormous network of sensors so that we can, you know, try to make everybody a little bit safer. But also doing it in a way that, is very cautious about privacy to make sure we're doing this in a way that doesn't create out-of-control surveillance. Rick, your investors will know, analysts will know, but not everyone is familiar with your founding story, which is intensely personal.

41:11Give us a quick recap of that and tell me if you still see the company's mission, which is cutting police gun deaths as realistically achievable in, say, this decade? Yeah. So I started this, I was in business school in Europe, and I was having dinner with some people there who were, you know, we were all talking about our hometown. And they said, I would never go to America because of all the gun violence. And I said, well, hold on. It's not like you see on television. And then one of them asked me, do you know anybody who's been shot and killed? And as I thought about it, well, yeah, there's two guys from my high school football team.

41:46And look, we weren't super close friends, but that's not the point. The point of it was that all of us, I mean, I bet each of you know people in your immediate circle who've been shot and killed. This is a problem that touches everybody. And by the time I added it up, I think I know five or six people who've been shot and killed. And that just struck me as a bizarre state of the universe, that the way we protect ourselves in the 1990s, much less 2025, is shooting bullets at people. We were doing that with like pirates in the 1600s. And so we're on a mission to make the bullet obsolete by creating better technology, basically something similar to Captain Kirk's phaser from Star Trek fame.

42:28That's what we're out to build because if we have that weapon, it would no longer make sense to shoot anybody. And yeah, we're getting pretty close. It's not wireless like Captain Kirk's, but we're approaching a level of reliability where we now have countries outside of the U.S. talking about using the taser instead of a gun. In the U.S., you know, we wouldn't suggest that, but we can suggest that the tasers came to the point where you would use it first. It would become your primary weapon and the gun would be more of a backup only for the most extreme cases. And if we achieve that, then, yeah, we think we can cut gun deaths in American policing by 50 percent by 2033 is our goal.

43:04So as you can understand, we're all feeling a little sensitive this week here in New York City following the active shooter at an office building on Park Avenue last week where individuals lost their lives as well as a policeman lost his life. So tell me about the numbers where you are seeing that as a result of your devices, that things are getting better, at least for, you know, police folks and security folks? Well, we have not yet bent the curve, meaning we're not seeing the numbers coming down because the overall trend is still slowly inching upward, although this year it's lower than last year.

43:46But I think it's premature for us to claim that that is our effect yet. We do know that over the past 30 years I've been doing this, there's around 300 ,000 uses where police could have been legally justified to use lethal force. but they were able to resolve it with a taser instead. This next two years is going to really be critical because up until now, taser weapons have been largely used, not really in the most critical situations. They would use it to capture somebody who is potentially violent, but not an immediate risk. We've introduced a couple of key technologies that we're testing now in the field.

44:21And I can go into detail if you're interested, that we think move our effective reliability up into the 99 % area. At which point then we think it becomes reasonable that the police would begin using taser as their primary first weapon, always keeping the taser. The gun is a fallback. Rick, you you mentioned business school in Europe. I guess you went to school in Belgium before Chicago, but you studied first neuroscience at Harvard. How does that kind of background influence your decisions today at a company that touches so many nerves? Yeah. Well, I mean, the whole name of the company Axon is a little bit of neuro bio geek speak because the Axon is the name of the long nerve fibers that connect your brain to your muscles.

45:13And indeed, it touches a number of ways. When I first wrote my college application and actually actually showing my son, I had a copy of it. They asked, what do you want to do with your life? And I said, I wanted to build robotic limbs. And it was like Luke Skywalker's, you know, robotic hand. I love this idea of a machine that can interface to the human body and almost become a part of you. Then after this incident and my interest rising in gun violence, I took a different turn. Instead of building a machine that your brain could control, I build machines that control your body through your nervous system.

45:46And that's what a taser does. We plug in. We tune this electricity so that it overwhelms communication. And you have something that looks like a seizure because we're flooding your nervous system with electrical energy. Your muscles lock up. I just saw five people volunteer here in my office this morning. It is a temporary effect, but it's extremely debilitating. And then if we think about the other parts of our business, when we got into the camera business, we realized the cameras themselves are kind of interesting, but it's not nearly the business that if we can connect all these sensors together and begin to think of this like a giant neural network, like for a police department like an NYPD with, I don't know, 35 ,000 officers, what if we could begin to have live data feeds that would enable command and control in more real time?

46:36So we can identify, hey, this situation is escalating. Let's send reinforcements before the officer even calls over the radio. Or we might even identify things like, hey, this situation over here is spinning out of control. If you think about all the horrible policing situations like George Floyd over the past 10 years, I believe now that any one of those could be detected with AI running on the audio video feed of a camera. And that is a capability that we're building now. We do have live feeds now, but to have live feeds being AI monitored in real time, that'll happen in the next 12 months. And I think that's going to be a huge boon to make policing more effective, safer, and to help agencies identify if a situation's spinning out of control so they can intervene now instead of prosecuting somebody tomorrow if something wrong is happening.

47:28How much of your business is governments? And I'm just curious. It does feel like there's going to be some municipalities under pressure in terms of funding. And I'm just curious how that could play into impact or impact demand at your company. Yeah, so we're still majority government business, but the fastest growing segment is enterprise. And so the enterprise security is two to three times larger than public policing in the United States in terms of manpower. And so there's a huge opportunity there. But if I come back to your question about municipal policing, you know, we've I remember the 2008 financial crisis and others.

48:06And what we have found is if you look at a police agency, the majority of their spend is on cops, cars and gas. It's that's like 90 some percent of their spend. So their tech spend is a relatively small portion of their overall budget. And when budgets get compressed, what we see is they really look to technology where they're saying, look, we need to get more efficient. We can't just throw bodies at things. And I'll give you one example. Our first major AI product using generative AI is a service called DraftOne. And what we do very simply, we take your body camera footage, we feed it through an AI model, and we actually just use the audio.

48:43We don't even need the video. We use the audio track, and we do the first draft of your police report. Because it turns out, you know, police interactions are pretty standard. You know, hello, ma 'am, what's your name, date of birth, do you know why I stopped you? And you can, from that, extract the information that we need to put the structured report narrative together to about the 80 % completion. And that basically means we're cutting the amount of time police spend on bureaucracy by up to 60 or 70 percent, which is huge because only 14 percent of police departments across the nation are actually fully staffed.

49:20And in the most recent survey, 75 percent of police who responded said they do want A.I. to help them out. It seems like and this is not a pun on your neuroscience degree, but it seems like a no brainer. It's a little bit of a pun. I'm a little biased, but I think so. Hey, just 30 seconds. I'm curious because we talked about, I think robotics kind of came up and you talked about your interest. Empire Strikes Back. The last scene, you know, Luke Skywalker with his hand. Yes. Is robotics something that you guys are thinking in terms of security going forward? Is that an area that you guys might pursue at some point?

49:54Oh, stay tuned. Stay tuned. The solution to the American gun violence problem, in my personal belief, is we've got to change the game. And what I mean by that is today, when an active shooter shows up, they have no illusions they're going to come out of it alive. They want to go down in some sick, twisted vision of a glorious gun battle with the police. In a couple of years, we are going to deny them that if you show up with a gun somewhere, we will zip in very quickly with a robot using less lethal force. You'll be arrested and under control very quickly. And we're going to deny them the entire sort of motivation to get in gunfights.

50:35And I think we can do things with drones and robotics that you can never do with people. And we can do it without having to resort to lethal force. So stay tuned. We're making a big play in that space. Sounds like you've got to come back real soon. So appreciate it. So appreciate it. Rick Smith, be well, founder and CEO of Axon joining us on this Tuesday. And as we mentioned, we're seeing that stock move in a big way following its latest results. Let me just pull it up for you. Can I add that guy to the list of guests? Don't take him. I steal from your show and use on my show. Do not have Matt co-host anymore.

51:08Done. All right. What a story. I mean, what an incredible... The stock chart is amazing. I know. But the story behind it... Right. I mean, he started that company in 1993. Well, he's thinking... He's been at this for 32 years. I love these people who come, have different backgrounds. It's like doctors who are engineers who are looking at the body in a different way. But here he is in terms of his background and understanding how the brain works and the impact on things. This is the Bloomberg Business Week Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m.

51:45Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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