In short
Podcast Summary: Bloomberg Intelligence - OpenAI Valuation Soars to $500 Billion, Topping Musk’s SpaceX
Episode Overview In this episode of Bloomberg Intelligence, hosts Paul Sweeney and Scarlet Fu discuss significant developments in the investment landscape, particularly focusing on OpenAI's staggering valuation increase, Tesla's performance, Berkshire Hathaway's recent acquisition, and McDonald's expansion strategy. The insights are provided by expert analysts and reporters from Bloomberg.
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Key Topics Discussed
OpenAI's Valuation Surge
- Valuation Details: OpenAI completed a deal allowing employees to sell shares, leading to a $500 billion valuation, surpassing SpaceX's $400 billion valuation.
- Employee Stock Sales: Approximately $6.6 billion worth of stock was sold to investors, indicating strong demand despite the company being unprofitable and converting only 2% of free users to paid subscribers.
- Investor Interest: Investors wanted $10 billion worth of shares, but only $6.6 billion was sold, suggesting many employees are holding on to their shares, anticipating future corporate restructuring or an IPO.
- Corporate Structure: Discussion on OpenAI's unique structure where a non-profit board oversees a for-profit entity, hinting at potential changes ahead.
Tesla’s Market Performance
- Record Vehicle Deliveries: Tesla reported unexpected record vehicle sales driven by consumers rushing to capitalize on expiring federal tax credits for electric vehicles (EVs).
- Rivian's Challenges: Rivian Automotive adjusted its annual delivery forecast downward due to the loss of consumer incentives.
- Charging Infrastructure: Tesla maintains a competitive edge with its charging network, even as it opens its infrastructure to other manufacturers.
Berkshire Hathaway's Acquisition
- Occidental Petroleum Deal: Berkshire Hathaway, led by Warren Buffett, agreed to buy Occidental Petroleum’s petrochemical business for $9.7 billion.
- Strategic Implications: This move is seen as a low-stakes acquisition for Berkshire, which holds substantial cash reserves and aims to aid Occidental in reducing debt.
- Market Valuation Context: Analysts note Berkshire’s cautious approach to acquisitions amid high market valuations, indicating this was a unique opportunity rather than a shift in strategy toward aggressive buying.
McDonald's Expansion Strategy
- Global Growth Plans: McDonald's aims to increase its restaurant count to 50,000, primarily focusing on expanding in rapidly growing population areas like Texas.
- Demographic Strategy: The company is shifting from closing stores (as it did from 2015 to 2021) to opening new locations, seeking out areas with rising populations to maximize reach.
- Operational Challenges: New locations typically take 2-3 years to reach the same traffic levels as established stores; however, early indicators suggest positive growth.
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Key Takeaways
- OpenAI: Its valuation reflects high market interest despite the company’s lack of profitability and challenges in converting users.
- Tesla: Capitalizes on consumer urgency and showcases growth potential in its energy sector alongside vehicle sales.
- Berkshire Hathaway: Continues to strategically position itself in the market while navigating high valuations and focusing on unique opportunities.
- McDonald's: Adapting its strategy to leverage population growth, demonstrating a data-driven approach in site selection.
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Conclusion The podcast episode provides a comprehensive analysis of significant financial movements and corporate strategies that are shaping the current investment landscape. With insights from industry experts, listeners gain a better understanding of the implications of these developments on future economic trends.
For further insights and live discussions, follow Bloomberg Intelligence on YouTube and other podcast platforms.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:01Craig Trudell:The news doesn't stop on the weekends.
0:03Scarlet Fu:Context changes constantly. And now Bloomberg is the place to stay on top of it all.
0:09Craig Trudell:Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg This Weekend.
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1:10Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts. or watch us live on YouTube.
1:31Paul Sweeney:Another big trade happened today. I mean, the AI valuation story just gets bigger and bigger. Every single day, there's a new one. And it's because of this guy, Ed Ludlow, Bloomberg Tech co-host, joining us live here in our Bloomberg Interactive Broker Studio. He's based in San Francisco. We've got him on the East Coast here for a little while. So, Ed, what happened? What's the deal that just put a valuation of$500 billion on OpenAI?
1:54Ed Ludlow:So, actually, the mechanics of it are one of the most interesting parts. It's a secondary or an employee tender. In other words, if you are a existing employee or even a former employee, you can sell your shares in OpenAI. The eligibility requirements were that you held them or that you had a vesting period of two years. But the reason I say that's interesting is that this is a valuation dictated by a third party group of investors buying those shares from employees. So the company doesn't raise any new money. But there has to be a valuation set because a price has to be set. And so these investors wanted even more.
2:34Ed Ludlow:They wanted like$10 billion worth of employee shares. In the end, they got$6.6 billion. So what does that tell you? There's probably a load of OpenAI employees that were like, you know what? I'm not going to sell. I'm holding on. Because if I'm at$500 billion valuation, you know, and there's still a corporate restructure to go through, you know, a future IPO maybe, then hold. So I thought that was really fascinating. But I would just point out that Shireen Ghaffari, a really talented colleague of mine out in San Francisco, Bloomberg Newsroom, she did break this story on August 6th. Awesome. So this is just the close of the round.
3:08Scarlet Fu:OK, so now that OpenAI is valued at$500 billion, that puts it over SpaceX, which is valued at$400 billion. And I bring this up because there's a common thread between OpenAI and SpaceX, and that is Elon Musk. Elon Musk was once part of OpenAI before leaving under some clouds.
3:27Ed Ludlow:Yep. He has a fractious relationship specifically with Sam Altman, you know, the other founder and now CEO of OpenAI. You know, what I've written a lot about in Bloomberg Businessweek magazine and in some of the reporting is present day, Musk has a kind of a little bit of a chip on his shoulder.
3:46Scarlet Fu:You think?
3:46Ed Ludlow:Well, specifically about the idea that XAI, his AI company, should have a valuation that is near to open AIs. And, you know, there's been litigation. You know, there's a public forum slinging match on social media between the two. Sam Altman gets asked about it a lot. But, you know, I think the main thing is that remember also that XAI has, as we've reported, it sought to raise money at a$200 billion valuation this year. You know, it's tides and rising ships in that field, really.
4:22Paul Sweeney:So do we know who is selling here in this round?
4:25Ed Ludlow:No, I mean, all I know about the eligibility rules. You know, the one thing I've reflected on reading the story and speaking to sources that the company is remember in November of 2022, when Sam Altman was briefly ousted from OpenAI, there was just a few hundred people that worked there at that time. You know, so that was three years ago and almost three years ago. Now there are thousands of people that work there. So, yeah, some 10 year would probably be a factor here.
4:54Scarlet Fu:Okay, so now the world's biggest startup worth half a trillion dollars, but OpenAI is not making money. It's not profitable.
5:00Ed Ludlow:Yeah. So on Monday, OpenAI has its Dev Day, its Developers Day in San Francisco, and I'll be going. And it's a good opportunity to ask hard questions like these. There's a data point that's going around right now, which is that OpenAI is only converting 2 % of its free users to paid subscribers. Now, that, for me, is an interesting data point. Yeah.
5:24Scarlet Fu:So then on that is that there's a lot of room for growth.
5:26Ed Ludlow:Right. And so, you know, software, you know, this is core BI analysis, right? Software is traditionally a higher margin business. But the problem is that because of compute expenses and OPEX, now talent compensation, even the revenue they are making probably ain't that high margin, is it? You know, if at all. So the big question is, okay, if we know that you're not really doing a lot to convert the consumer from free to paid, what's your enterprise business look like? And that's probably the domain where we'll focus. Hey, when you even do a secondary or a tender with employees, you've got to put a deck together that justifies the valuation.
6:04Ed Ludlow:So those group of investors, they will have seen something in the data room that would say this is a$500 billion company. Like, of course they would. That's how it works.
6:12Paul Sweeney:Well, how come you haven't gotten your hands on that deck? You know,
6:16Ed Ludlow:I'll be honest about this. Like, Shireen has been smashing this story. She covers the cover so deeply. And I was on vacation for most of August. So, you know, I've not tracked it as closely. For me, you know, the big story to focus on with OpenAI is the corporate restructure, you know, where you have a not-for-profit board that owns the for-profit company. That's going to change. Okay. So that's where I'm focused.
6:41Paul Sweeney:Stay with us. More from Bloomberg Intelligence coming up after this.
7:12Ed Ludlow:the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube, or wherever you get your podcasts.
7:48Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk a little bit about Tesla right now because it reported global vehicle deliveries and it was a surprise to the upside. So that means we need to bring in Craig Trudell. He is our Global Autos editor for Bloomberg News, joining us from London right now. Craig, not a surprise insofar as there is this expiration of the federal tax credits for EVs coming up.
8:23Scarlet Fu:So people were kind of rushing to make good use of those tax credits before they went away.
8:29Ed Ludlow:Yeah, that's exactly right. I think there was a widespread expectation that, you know, given that the clock was ticking on those tax credits, that we were going to see a strong third quarter. but this was even better than was expected by analysts that follow the company. I think we did get indications as the month of September was coming to a close that more and more analysts were much higher than where the average was, the consensus, if you will. And also, I should add, just on the energy side of the business, it was another record quarter of energy storage product deployments. So, you know, that is still a much smaller portion of Tesla's, you know, top and bottom lines.
9:12Ed Ludlow:But it was a business that, you know, was growing pretty rapidly that, you know, along with the car business was struggling in the first half of this year. So to see it, to see that tick up as well is another positive for the company.
9:25Paul Sweeney:Craig, can you give us an update where we are in the U.S. in terms of charging capabilities? I mean, that's I know that's a gating issue for a lot of people. They just don't feel like there's enough charging capacity in this country. Where are we now and what are some of the goals, do you think?
9:38Ed Ludlow:Yeah, I mean, Tesla, you have to give them credit for still being, you know, really sort of ahead of the curve in that regard. And to the extent that other manufacturers have had, you know, some progress in charging, getting better, it's because Tesla made this decision, you know, not that long ago to open up its network to other manufacturers. I think that also is something that perhaps if you look at in hindsight, maybe sort of created something of an opening for other car makers that have made Tesla's life a little bit more difficult in the U.S. because they went from having a network that was really intuitive and easy to use that was all to themselves to opening that to others.
10:21Ed Ludlow:They, of course, you know, that that's become something of of a, you know, business for them to be able to, you know, charge non Tesla drivers for for those charging sessions. But that is, you know, sort of a drop in the bucket relative to the car business for them. Stay with us.
10:41Paul Sweeney:More from Bloomberg Intelligence coming up after this.
10:46Ed Ludlow:This is Special Agent Regal, Special Agent Bradley Hall. The time is approximately 11.15 a.m.
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12:06Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.
12:20Paul Sweeney:There was a deal today in the space, petrochemical space. Warren Buffett's Berkshire Hathaway reached a deal to buy Occidental Petroleum Corporation's petrochemical business for about$9.7 billion. Let's break that down with Matthew Palazola, senior analyst covering the insurance business. He's been covering Berkshire Hathaway and Warren Buffett for many, many years. He's over at Bloomberg Intelligence joining us via Zoom here. Matthew, talk to us about what a deal like this means for Berkshire Hathaway.
12:52Craig Trudell:Hey, Paul. Yeah, I think it's a good deal for Berkshire Hathaway. When you really break it down, the$9.7 billion is 3 % of the cash that Berkshire has on hand. So it's funny to say it, but kind of a low stakes deal for Berkshire. I think this deal helps Occidental. They really need to delever. So they're going to use$6.5 billion of that cash to delever, which could help their stock, which then could also help Berkshire's$11 billion stake in Occidental. So I think it's kind of a multi-layered win for Berkshire Hathaway.
13:27Scarlet Fu:What does it say about Warren Buffett's willingness to buy right now when the market is trading at much higher valuations than historically it has been? And I get that most of that is because of the tech industry. But even beyond that, overall valuation is not low. Yeah, Scarlett, I would say Buffett's inclination to be buying anything is probably low at the moment.
13:53Craig Trudell:Berkshire has not been buying back their own stock, which is up 10 % year to date. So their buybacks are essentially nil. In their equity portfolio, they've sold about$11 billion net year to date. So you're spot on to say valuations are high. And Berkshire is probably not buying a lot of stuff. I think this was probably just a unique opportunity. The deal valuation is pretty good. The terms are pretty good. So I think this was Berkshire taking advantage of their relationship with Occidental and doing something that could help both versus some sort of statement on wanting to buy more in the market.
14:31All right.
14:32Paul Sweeney:On the same day that Berkshire Hathaway spends$10 billion on a petrochemical business, OpenAI, some employees there, sold some stock to private equity at a$500 billion valuation. How does Berkshire Hathaway think about tech? Because if you want to put money to work, there's some big valuations out there in the world of tech technology, but how do they generally think about tech?
14:59Craig Trudell:Yeah, Paul, it's generally been tech adverse, right? I think Buffett has tended to invest in things that he has a deep understanding of. He has said it was a mistake to not invest in Amazon sooner, which, you know, call it tech or retail. But he lamented that, obviously, big investor in Apple, which though he kind of sees as a retail consumer company versus more than tech. So they have very, very little in the way of cutting edge tech plays or AI investments. The investment managers will probably be a little more inclined to do that and maybe Greg Abel. So Buffett has only got a couple of months left totally at the helm.
15:44Craig Trudell:I'm sure he'll be involved kind of tangentially, but you might see a shift in the upcoming years towards more tech investments.
15:53Scarlet Fu:I'm so glad you mentioned Greg Abel because this latest purchase of Oxi-Chem,$9.7 billion, you were saying that Berkshire is not making a lot of purchases right now. Is this being spearheaded by Warren Buffett or is this a Greg Abel call?
16:07Craig Trudell:We don't really know. I mean, the press release that came out had a quote from Greg Abel only in it. I would suspect that Greg probably did most of the work on this. Buffett has been saying for a while now that he's stepped back from the day-to-day operations of the company, and Greg is kind of doing a lot of that legwork. I would think on something of this size, even though I just said it was 3 % of Berkshire's cash, it's still almost$10 billion in a lot of money. I think Buffett was probably involved, but if I had to guess, I would think Abel probably did a lot of the legwork on this deal.
16:41Paul Sweeney:It was a beautiful afternoon yesterday at the Jersey Shore. I hopped on the Vespa, went to the beach, and I could not believe how rough the surf is. And apparently there's a couple of hurricanes and storms out at sea that's really churning things up, which got me thinking about you, Matt. Talk to us about the hurricane season from the insurance perspective. How's it been so far this season?
17:01Craig Trudell:Yeah. Thanks, Paul. Whenever you think of hurricanes, please think of me. Natural disasters. It was exactly. So it's been a very mild hurricane season in terms of landfalls. Right. You haven't you haven't talked to me much. Right. So we haven't seen a lot. What actually happened was there was a hurricane coming and it was headed right towards the Carolinas. And then another hurricane, which is a Category 5 completely over the ocean, sucked it away and kind of pulled it away from the U.S. coast, kind of saved the day for it. They are impacting Bermuda now. I don't expect major insured losses from that.
17:35Craig Trudell:But so pretty benign season. Good for reinsurance companies. Paul, your favorite stocks. And we do have something. the national hurricane center is uh identified another system that is um is brewing up and could develop into something next week so we'll stay tuned for that but mile season so far yeah i feel
17:56Scarlet Fu:like i i never want to talk about this because the minute you begin talking about how quiet it is is when things really gear up right and we get a massive storm like the next week yeah like uh
18:06Paul Sweeney:and that happens um so real quick uh matt just overall how your stocks performing this year the property and casualty insurers?
18:13Craig Trudell:Not great. They're underperforming year to date. We've got tariff pressure. Everything costs more to repair. Lower interest rates are not a good thing for the PNC name. So Berkshire is actually a standout, not being an actual pure play PNC company that that stocks up 10 % year to date, but the rest of the group is down year to date. So we're probably looking at peak ROEs and valuations got peaked before that. So I think that's what we're seeing with the P &C stocks.
18:41Paul Sweeney:Stay with us. More from Bloomberg Intelligence coming up after this.
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19:53Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. We were just talking about McDonald's and how we don't get a chance to go very often, even though there is a McDonald's, Paul, just across the street from us at worldwide headquarters.
20:15Paul Sweeney:Well, I used to go to McDonald's and fast food when I was traveling in airports. That would be my one time I'll go. Yeah. It's just all high end stuff.
20:23Scarlet Fu:Well, I think we need to move to northern Texas because that is where McDonald's is focused on in terms of expanding and building out restaurants. This is actually our big take story of the day. Christina Peterson is Bloomberg's food reporter, and she was the author of this story. And, Christina, this is about how McDonald's is looking to build out 50 ,000 restaurants overall. Where are we in terms of that goal to get to 50 ,000? Is it like a third of the way there, halfway there, three-quarters of the way there? They're more than that. They are in the 40 ,000 range. I think it was 41 ,000 about a year ago, so steadily getting closer.
20:58Scarlet Fu:That actually will not make them the biggest restaurant train in the world. That is Mixu. The Chinese bubble tea maker is at 53 ,000, but they will definitely be closer to that goal.
21:08Paul Sweeney:Hey, Subway, I bet you it's up there, too, because they're everywhere. Christina, so what's going on here with McDonald's? I would have, if you'd asked me, I would have said there's a McDonald's on every corner in every city USA. Why are they going on this expansion?
21:23Scarlet Fu:Right. Well, for years, they were actually shuttering more restaurants than they were opening. Between 2015 and 2021, they closed a net of 900-some stores. Some of them were inside Walmarts. But since 2022, they have been reversing that strategy and expanding, opening new locations. And they've really been trying to follow where the population is going. So, for example, North Texas is a place where people are just flooding. Texas in general has seen 2 million people move there since 2020. And so they are chasing those new diners, trying to get as close to where people are living now as they can.
22:00Scarlet Fu:And McDonald's says that its goal is to be within a five-minute drive from as many people as possible. So they're just trying to go where those people are now. Yeah, we were just talking earlier about how Dallas has really exploded in terms of population growth, in terms of being a place where folks want to move to because of the lower cost of living. Is McDonald's an early bird or a latecomer to the population boom in northern Dallas? northern Texas. Is it, you know, the master plan communities are building out, but are there stores or brands that are ahead of McDonald's in that effort to populate it?
22:34Scarlet Fu:It's such an interesting point because they are still earlier than many other brands, but they are not as early in these spots as they once would have otherwise been. Oftentimes, McDonald's is one of the first businesses to open, and in places like this, they aren't the earliest. We see 40-some McDonald's in the Dallas area in the past few years, but the population there has been absolutely exploding. So they're still ahead of the full wave, but they were not the very earliest pioneers in these places where many people would have expected them to be.
23:08Paul Sweeney:Christina, I know you traveled to North Texas for this story. My question is, where's Texas putting all these people? Are they just building houses in the middle of the desert somewhere?
23:17Scarlet Fu:The houses are just popping up. When I was there, I would talk to people who had moved to the area weeks or even days earlier. There are an enormous number of houses being built, and they're expanding the Dallas North Tollway, which goes north from Dallas. Salina, where I went, was about 50 minutes away, and that highway is going to reach there by 2027. So you see as transit gets easier, as it's faster to get to these places, more and more people are moving there. So a company like McDonald's is massive. And I imagine that a goal to get to 50 ,000 restaurants takes some time to play out. So the fact that it's doing all this, is this a move now to expand in response to conditions that it spotted, I don't know, a year ago or three years ago or five years ago?
24:04Scarlet Fu:I'm just wondering how quickly McDonald's can decide on something and then execute on it. Yeah, I mean, this is definitely years in the making. Being convenient is a cornerstone of their strategy, and I think they've just had to reconfigure where that convenience is, where the people are. They have a very extensive team that follows demographics. Other people in the industry watch to see where McDonald's open. We spoke to an executive who had previously been at Chipotle, and she said she knew when there were three McDonald's in an area, they were ready for other restaurants. So they're very sophisticated with these kinds of calculations.
24:40Paul Sweeney:Any early feedback on how some of these new stores are doing?
24:45Scarlet Fu:Yeah, we looked at third-party data that showed that these stores are not quite as busy as more established stores in denser areas. McDonald's told us it typically takes two or three years for a new location to catch up on traffic with older stores, and they see positive signs. So it could be that as these cities become more populous, these McDonald's will become more frequently visited. And it was interesting. Other businesses in these Texas towns said they weren't being cannibalized by McDonald's opening. There's just a lot of business for everyone where cities are growing as fast as these are.
25:21Scarlet Fu:Christina, final question to you. How is this expansion going to show up in the financials? And I wonder whether investors will give McDonald's credit for it, because, as you know, typically analysts track same store sales. sales at stores open for at least a year to gauge demand. And now McDonald's is building out new stores, which I guess don't quite filter into the revenue number in the same way. Well, one thing that's interesting is that McDonald's has raised the royalty fee for many new franchise owners. So there is more revenue that they are getting from these stores. Same store sales hit their lowest point in a decade last year, but have been more positive this year.
25:57Scarlet Fu:So there are signs that this is good for McDonald's corporate numbers. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern 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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Bloomberg Intelligence hosted by Paul Sweeney and Scarlet Fu
- Ed Ludlow, BTech Co-Anchor, discusses OpenAI completing a deal to help employees sell shares in the company at a $500 billion valuation, making it the world’s largest startup. Current and former OpenAI employees sold about $6.6 billion of stock to investors, boosting the US company’s price tag well past its previous $300 billion level.
- Craig Trudell, Bloomberg Global Autos Editor, discusses Tesla and Rivian deliveries. Tesla reported a surprise record quarter of vehicle sales as US consumers accelerated electric-car purchases before federal tax credits expired. Rivian Automotive narrowed its annual delivery guidance toward the lower end of its prior range, the latest pullback as the electric-vehicle maker grapples with the loss of consumer incentives in the US.
- Matthew Palazola, Bloomberg Intelligence, Senior Analyst, P&C Insurance, discusses Warren Buffett’s Berkshire Hathaway reaching a deal to buy Occidental Petroleum Corp.’s petrochemical business for about $9.7 billion in cash.
- Kristina Peterson, Bloomberg Food Reporter, discusses the Bloomberg Big Take story: “McDonald's Quest for 50,000 Restaurants Starts With Texas Growth.” McDonald's is embarking on a multibillion-dollar global expansion to increase its store count and revenue, after falling behind in population growth areas.
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