Zuckerberg Directs Pivot Away From Open Source AI At Meta

0:01Bloomberg Audio Studios Podcast 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 i'm going to start with the meta news um because it looks like mr zuckerberg really is putting himself personally uh in on the line here for some of their AI businesses. Ed Ludo joins us, Bloomberg B-Tech co-host. He's out there in San Francisco where I think they have some technology people. Ed, what's the news coming out of meta today?

0:43Can you tell us what that is and kind of if it's important or not? Yeah, our reporting is very detailed, which cites sources that Mark Zuckerberg is getting much more hands-on on the minutiae of generation-to-generation model releases, AI model releases. But the bigger picture is that Meta, which has kind of been the stalwart of open source AI models, is realizing that it may not be the viable path. So there is a specific model that they're due to release called Avocado. And at one time that had been due to be an open source model. What we're reporting citing sources, it's now likely to be a closed source model.

1:25Alexander Wang, who leads this kind of AI lab team that Mark Zuckerberg's put together is a great advocate for closed source. And what you need to know is that in the earlier days when models were much smaller and Meta kind of wanted workshopping among industry and academics worldwide, it worked. But the problem now is that these models are so big, the resources required to utilize them are so severe that it's just not realistic to have an open source policy universally because you need money and private industry has money. You have to make it a kind of for-profit exercise in order for the economics of training and then running the models to work.

2:02And that's what our story details. It really is a must-read. What I would say is that Meta in its earnings call in July did kind of tell us this was coming. They're committed to open source, but they're going to have to start looking at the reality of what it takes to build and train a model and then put it out into the real world in terms of who can use it. All right, Ed, you've been very busy. I know you've been writing about SpaceX as Well, so I want to ask you about that. Tell us about this IPO. I mean, it seems like it's going to be trying to rival the Aramco IPO that we saw a few years ago.

2:321.5 trillion valuation. What's the single biggest justification for that? Yeah, I mean, we're reporting that it's happening. You know, my understanding from sources is the work is well underway. They're speaking to the bankers. They've told the investors they're hiring for the internal roles that you need when you do a big IPO and the target's the middle of next year. You know, the valuation is what everyone's talking about,$1.5 trillion. We confirmed that the company's latest valuation in the private markets through a tender settled at more than$800 billion. So that is kind of like a stepping stone to an IPO.

3:06But what I understand is they need some cash for a specific project. We can get into it if you want. That cash is probably well north of$30 billion, maybe$40 billion. And that would exceed what Aramco raised in 2019. So from a dollar raised perspective, it would make it the biggest IPO of all time, which is exciting. It surely is. I mean, particularly for the bankers on that. What's the total valuation? Do we know the total valuation of SpaceX these days? Because I've heard some monster numbers. So Elon Musk has been pushing back on X recently about reports of SpaceX's valuation. What we have reported, and this is we stand by that reporting, is SpaceX has gone through a tender, a secondary offering.

3:49That is a mechanism where the company allows existing employees and some insiders, early investors, to sell the shares they already have. As part of that, SpaceX actually buys back some stock, but they don't raise any new equity. They don't raise any funds for the company's treasury. But you still need a price for those shares, and that determines the valuation. That price was settled at$421 a share, and that gives a valuation north of$800 billion. And that's settled. But again, SpaceX does this twice a year typically, you know, tenders, buybacks, etc. But in this case, this would be the big one to kind of get fair market value ahead of an IPO.

4:34Stay with us. More from Bloomberg Intelligence coming up after this.

4:40you'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 had a client earlier christine was referencing he has some fiduciary trust he's referencing oh i'm waiting for the bi survey on ai and i'm like what bi survey on ai matt bloxham joins us he's a tech analyst for bloomberg intelligence Hey, Matt, talk to us about this BI survey on AI. What is it and what's it telling you? Yeah, sure. So this was a big survey we did polling the views of 604 C-suite executives across a range of industries across the world.

5:24Really kind of trying to get a sense on how corporates are assessing the current AI situation and what they think it's going to do to their businesses over the next kind of two to three years. So we kind of looked at the motivations for AI investment, what it could do to headcount, what they're expecting in terms of revenue and profit uptick. And we had some kind of interesting results out of the survey. You know, not surprisingly, perhaps, AI is very much at the top of the C-suite agenda. something like 36 % of those polled said it was their top strategic priority and another 47 % said it was within the top three strategic objectives for them.

6:08When we looked and asked about the main objectives behind their AI strategies, what came out top was improving operational efficiency, which was number one with 47 % of the respondents. And in second place was boosting revenue at 21%. Interestingly, headcount cuts were quite low down the pecking order. Only 13 % of respondents put that as their top priority. And actually, it was the highest ranked in terms of the least priority. So I think it's interesting that companies are looking to boost productivity, but they're not afraid to make investments both in technology and headcount in the near term to kind of release those opportunities.

6:53And actually, on a three-year view, 62 % of respondents said they expect AI to lead to an increase in headcount over the next three years, an increase, not a decrease. And the average increase they're looking at is about 4%. percent. So that kind of flies in the face a little bit of a lot of the kind of headlines we see about job cuts. I think overall, corporates see the need to invest more in staff to roll out their AI strategies in the coming years. Yeah, yeah. Well, Matt, you mentioned 36 % of C-suites now rank AI as their top priority. That number actually strikes me as a little low. I would have thought it would be at least half of the people survey.

7:37But what do you think? Is that something that's just set to grow in future surveys as really kind of AI becomes central to a lot of companies' workflows these days? Yeah, I think so. I mean, obviously, if you add the 47%, let's say it's in the top three. I mean, an overall top three priority gives you the kind of vast majority of the respondents. Obviously, companies do have to wrestle with lots of other issues too. There is going on in the world beyond AI. Obviously, trade policy is another big thing that's probably on the radar for a lot of these companies, too. So, yeah, you know, maybe it will kind of inch up.

8:17But I think given that aggregate, you know, 80 percent plus in the top three, probably what you'd expect to see. Matthew, how about return on investment here? That's kind of what the street's starting to ask for now. We know these companies can spend big money on AI, but what's the return for shareholders? Yeah, I think that's still very opaque. And actually, when we asked the respondents to flag the biggest roadblocks they could see to AI deployment, the investment needed in AI and the question marks around the return on investment were definitely up there amongst some of the most important concerns that respondents have alongside data security and clean data.

9:03we didn't ask much of the specific ROI expectations. We just kind of get the sense that it's a bit too early to get an accurate read on that. I think most companies are still kind of at a relatively early stage of their AI trials. Lots of them have moved out of the kind of testing LLMs. They're into pilot phases. Some of them are even moving into scale deployment. I think it's fair to say a lot of them are not really quite sure yet what the return is going to be and how quick it's going to come. And obviously, it's kind of a bigger issue for the wider tech sector. And you mentioned Oracle as a kind of barometer for the kind of broader pulse on AI.

9:43And I think the 2026 is going to be a really crucial year for kind of what corporates make of the midterm ROI. And if they don't see a big ROI, then that's probably going to slow the pace of revenue growth. And that's going to have a knock on effect to the levels of investment we're seeing made by the likes of Oracle and OpenAI. on the revenues they're bringing in. Stay with us. More from Bloomberg Intelligence coming up after this.

10:11You'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 switch gears going back to earnings here. Earnings continue to kind of trickle out a little bit, particularly from the retail-oriented companies, the packaged foods companies. One of them is Chewy. So let's break that down with Diana Roseto-Pena. She is an analyst covering the retail space, consumer product space for Bloomberg Intelligence. What are good friends at Chewy.com doing?

10:44They're doing fairly well. You know, they actually reported sales and profitability that beat analysts' expectations. for their outlook. It seems that they're a little bit conservative that actually level up some of the gains earlier this morning for the stock. But again, it seems that there's a lot of tailwinds going forward. Yeah, what's driving that more conservative outlook that you mentioned, Diane? Is it something related to concerns about consumer demand moving forward? That is absolutely the case. They're seeing household formation, which is adoption versus surrendering, a little bit subdued compared to historical averages.

11:30And they think that that's going to overflow into 2026. We're not necessarily agreeing with that. We think we're a little bit more optimistic in terms of the pace of adoptions going forward. So this is going to make the industry a little bit more interesting. This is, if people recall, definitely one of the pandemic stocks that just surged to a high of about$118,$119 a share back in early 2021 and then came down to a more normalized level here. So going forward, what's the growth drivers for Chewy? Is it taking share from the mom and pop pet stores? Is it or just macro stuff, household formation, things like that?

12:12Well, there's going to be a couple of things. They're focusing on verticals besides merchandise, which is, you know, they're doing a lot of vet care. They're expanding into that. They are currently have 14 buildings on that. They're expanding into 18 by the end of the year. So, you know, you have health care. You have sponsored ads in the in the website. You have, you know, the membership program. You have Chewy Plus. So all of those things were probably going to be tailwinds for the company going forward. They're focusing on gaining mid to high single digit sales growth over the next few years, which is, I think it's a normal forecast.

12:59But right now they're growing two times the size of the industry. So, yeah, it's interesting. Is this a trend that you're seeing moving forward for a lot of these kind of consumer based companies shifting back a little bit to that in store sort of experience? Because that seems to be a strategy that's worked for other retailers outside of its space as well. Yes. So, you know, the pet industry, it's it's very sticky in terms of demand. So once these companies get the pet parent at the start of the pet ownership, they are going to have them for the rest of the life of the pet. So that is obviously a very interesting dynamic compared to other retailers.

13:44But in terms of the in-store experience, this is something that Petco is also doing. They're leveraging their 1 ,400 stores to also increase that traffic and penetration. So definitely interesting times. So Walmart, Amazon, how does Chewy compete against those players that have big, big e-commerce platforms? So based off of them, they compete on price. A couple of years ago, we did a pricing study with Amazon, but Walmart and Chewy and other retailers. And Chewy and Amazon were pretty close in terms of pricing. where Chewy beats Walmart and Amazon is that they're customer service. If you call them and you have any questions about the food that you're going to feed your dog, they are very knowledgeable compared to Amazon customer service.

14:38So that is like the edge that they have. Oh, very interesting. Now, another bright spot, of course, is auto ship, right? Which is basically, if you're a pet owner, this is the thing that you sign up for, like my cat's food each month. and then it just keeps charging me every month. And then I get a surprise delivery of cat food that I was not maybe expecting. But so obviously that's a bright spot for Chewy. What's the outlook for that part of the business? Is that something that could be sustainable? Yes, absolutely. So right now, 84 % of their revenue comes from Autoship, which allows them to have a lot of scale and allows them to be very profitable.

15:18So that is obviously, they have been growing since I started covering this company. It was like in the 70s and now it's 84. So it's probably going to get to the 90s soon. It's very convenient because you sign up for it and then you forget about it. Stay with us. More from Bloomberg Intelligence coming up after this.

15:37You'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. Cracker Bar reported some numbers today, some disappointing guidance. Stock's kind of flat on the day, but the stock has been down pretty significantly this year. They had that whole logo change. That was a real problem for them, and they're starting to see it in their traffic pretty big time. Stock's down about 50 % year to date. Michael Halen joins us, senior restaurant and food service analyst for Bloomberg Intelligence.

16:10Michael, what did the company report today, and what's management saying about the future plans here? Yeah. So, you know, guidance was cut and this was their fiscal first quarter. So it's always tough to have a guidance revenue and EBITDA cut after your first report. But they hadn't seen a bounce yet in their traffic post logo change controversy and everything that that went along with it. You know, on the positive side, they said, you know, traffic has now steadied at this down 10 to 11 percent level, which is translating into a down a mid single digit same store sales. You know, so if you're if you're a glass half full investor, you're saying that, you know, after the stabilization comes an improvement, you know, their new guidance has a pretty wide range.

17:09So the low end of the range is assuming no improvement through year end, which we think could be sounds pretty conservative to us. You know, and then on the higher end, they would see a gradual, slow improvement in traffic going forward. So what are they going to do? You know, it's it's going to be a continue to be about improving the operations. Right. That's been, you know, a key tenant under under CEO Julie Messino. it's also going to be food innovation it's going to be southern favorites it's going to be twists on old classics it's going to bring be bringing back items that people love they want to see return to the menu but I think what really stood out is their willingness to listen more closely to their customers I think that's a big key point of focus for them moving forward after the controversy that they suffered.

18:04Well, Michael, so in terms of what are they going to do, right? It seems that cutting CapEx is a part of the plan. Is that something that you think would signal discipline or does it actually risk slowing the turnaround even more? Well, they're going to still refresh the stores. What they're cutting back on is a more extensive remodel, which was in tandem with the logo change, which was something that was angering customers, right? So I think the capex change is probably, you know, the lowered capex is probably smart, but they're going to continue to refresh their stores. They're going to continue to give them a fresh coat of pain, improve floors where they need to clean up the bathrooms, things of that nature that nobody's going to get up in arms over.

18:56I'm actually surprised in hindsight that maybe this management team kept their jobs there. I mean, this was a real self-inflicted wound there. What's the shareholders been saying? Has there been any pushback other than selling the shares? Yeah, so listen, Julie Messino, you make a great point, Paul. And Julie Messino, the reason why I believe she's still there is that she was doing a great job until this controversy hit. This is a chain that had been bleeding traffic for years. Right. They've been really struggling for a long time to bring in younger consumers. Right. And she had shown pretty good success over the 12 months leading into the logo change.

19:41Same store sales at the restaurants were up five percent in the August quarter. So I think that's why, you know, the proxy fight kind of failed. the attempt to remove her from the board failed and why she still has her job right now is that this chain was a mess prior to her arrival and she was showing some pretty good progress up until August. 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.