AI Backstop Debate, Musk’s $1 Trillion Pay Package

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping 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

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech coming up. Open AI execs U-turn and David Sachs says no on a federal backstop to fund AI infrastructure. markets react. Plus, Musk's$1 trillion compensation package gets approved by Tesla investors. With over 75 % of votes cast in favor, we dig into the bold new promises. And we break down more tech earnings with the CEOs of Affirm and DraftKings later this hour. We go to these markets, though, in sell-off mode, Ed, on the day and on the week. Over the past five days, we've shed more than 4 % in market capitalization.

1:56It is the worst week since April for the Nasdaq 100. And anxiety is really building when it comes to AI infrastructure and whether people have got the money you're digging into it. Yeah, here's a story that's played out driving markets. We begin with OpenAI and Wall Street's anxiety that followed fresh comments about potential government financing in the AI race. Speaking at the Wall Street Journal's tech conference this Wednesday, OpenAI CFO Sarah Fryer called investors' attention after hinting at a potential government backstop for AI chip investments. A remark interpreted by some as Friar signaling OpenAI had federal guarantees for the costly infrastructure behind large AI models.

2:36David Sachs, the White House AI and crypto czar, seemed to be paying attention and posted on X Thursday, there will be no federal bailout for AI. The U.S. has at least five major frontier model companies. If one fails, others will take its place. That, in turn, prompted OpenAI CEO Sam Altman to step in and clarify on X, writing, we do not have or want government guarantees for OpenAI data centers, emphasizing that the company is not seeking a federal safety net. Let's get the latest. Bloomberg's AI editor, Seth Figgerman, joins us now. Where do we stand? This is a multi-day story. Markets paid attention to it.

3:16What's the net result, at least from OpenAI's perspective? What's funny here, Ed, is that really the intention behind Sarah Fryer's overall remarks of that event was to kind of calm people's nerves about what has felt like growing anxiety this week on the markets about AI spending. And instead, the takeaway was what felt like an off-the-cuff and vague remark that just heightened those concerns. I think where things currently stand is the company has repeated up and down that there's no discussions or plans for any kind of federal backstop. Instead, they're hinting at, well, maybe there's a role for government to invest in its own AI infrastructure that might somehow reduce some of the capital burdens here or other indirect ways in which government could help the wider market.

3:59But suffice it to say, the message that she intended to deliver seems to have been completely lost. Sam Altman went to great lengths to try and reverse, autocorrect in whatever way, make clear, and talked about maybe chip manufacturing. If they went into fabrication of chips, that might be an area that they lean on for government input. But what's interesting is we then look at that piece from Sam Altman saying that basically they've got$1.4 trillion of commitments. This is where the market's trying to wrap its head around. How can they afford that? He's saying they feel good about their prospects for revenue growth.

4:31They've been on the defense about this a little bit in recent days, including on a recent podcast where Altman seemed taken off guard to even be asked that question. And what he's trying to stress here is that our revenue is growing much faster than anyone has expected, you know, on pace for 20 billion and have an annualized run rate. And that we expect that these commitments over a seven or eight year time period are more than achievable based on that revenue growth. That said, I think the overall market is looking at AI spending. Generally, Meta's shares had their worst four day route since ChatGPT launched three years ago.

5:00You know, chip stocks are seeing a slump right now on valuation concerns. Michael Burry is getting out there. The one who predicted the housing bubble and basically pointing out to our graphic on circular investments that center around OpenAI. Across the industry and the markets, there's just really heightened concern about how achievable and sustainable the spending is. We make Seth Fibongan, breaking it all down. We thank you so much. Happy weekend. Now, we're also watching shares of NVIDIA. That's after its CEO, Jensen Huang, said that the company isn't in active discussions to sell its Blackwell AI chips to Chinese firms.

5:32waving off that speculation that it's trying to engineer a return to the world's largest chipmaker. Market indeed. Huang explained that he merely intended to point out China's prowess in AI when he said, quote, China will win the US-China AI race. Ed. Let's look at shares of Tesla, down almost 4%. More than 75 % of votes from shareholders were in favor approving the$1 trillion compensation package for Elon Musk that is over 10 years and has a very strong set of mandatory milestones he needs to achieve to unlock the comp, but also the voting power that comes with it. Let's talk about that with Alexandra Mertz.

6:15She's the CEO of LNF Investor Services, but also a Tesla shareholder who discusses her views about Tesla on social media under the handle Tesla Boomer Mama. Mertz was present at the shareholder meeting last night, was also acknowledged by other shareholders who We're reading out a proposal for Tesla to invest in XAI, which we'll get to. Alexandra, this paves a way for Elon Musk to take his stake in Tesla to 25 percent over the course of the 10 years. Could you just explain what the sentiment was like last night into this morning about how comfortable investors feel handing over that control to Elon Musk and the belief that you do or do not have that he can hit the milestones that have been set for him by the boss?

7:01board? Oh, I'm very confident that he will hit the milestones. He's shown us before what is possible. Nothing's never easy. But if you set goals to Elon, he's very competitive. He's obviously, in my views, the best executor there is on this planet, and he will execute. So that's not the question. The question is whether we would get sufficient retail and institutional shareholder support and we sure did 75 is astoundingly high it is higher than the previous compensation packages votes and re-votes in 2018 and 2024 so um this was a clear victory i am so grateful for everybody who voted i would like to see the 25 that voted against it because how can you be against this if you are a shareholder but that's another topic for example we had uh the investment director of CalPERS on the show yesterday.

7:57CalPERS voted no. And the rationale was that in aggregate, they saw Elon Musk and board members already having 16 % of the company and the issue of key man risk. So if Musk does get there, right, and achieves 25 % stake, what if something happens to him? Or what if something distracts him? XAI, SpaceX, for example, that was the concern they had. Why don't you share the concern? Well, first of all, that's the same concern at 16 % or 25%, right? So that Culper's argument is just non-existent, even though it's a nice word salad. There's no doubt in my mind that that's what they try to do. It's not an issue about whether he, as a key man, is a risk to Tesla.

8:47He is. The same way he is the key person, he's also the key man risk. That is just a fact. And actually part of the structure of this compensation plan addresses that as the last two tranches are linked to a succession plan, to a more formal succession plan than what is currently in place. So 16 or 25%, that's not a question. But at 25%, Elon is sufficiently strong to prevent activist shareholders trying to take over, bringing board members in that are not aligned with Tesla's mission. And I think that is the key point. Retail has always stood with Elon and has always been very active, knows what this company is about.

9:28So that is not the concern, but it is institutional funds that are in Tesla, despite the fact that they don't really like the company, don't understand the company, vote against interest of the company. And that can become stronger just by the pure mechanism of index funds, of political activism. And he wants to make sure that that can be prevented. And he's right. And the fact of being in Texas helps a lot. But him getting to 25 percent obviously is a good shield. But that's exactly the worry, is that he does get the 25 percent control and can fend off activism that might be in some way trying to course correct as others feel outside of Tesla.

10:10Why is that? You're saying it's a word salad, but for many, that's exactly the fear that he has control over what he calls a robot army. I understand that. I understand that there is a fear, but ask those activists, what is their idea about Tesla? What is their idea about a better world? They never talk about that. They talk about the fact that they fear Elon is too powerful. They never talk about what Tesla is all about. I never hear a CalPERS or, God forbid, a Klaus Lewis ISS or the New York comptroller talk about the mission of Tesla, talk about where Tesla is going. And, you know, I rather as a shareholder have Elons have the keys to an army of bots than anybody else, including the four companies I just mentioned.

11:00we'll put that to cowboys i feel that he in many ways was trying to articulate that they are about the long-term vision whether it's about electric vehicles whether it's about supporting the climate whether it's about humanoid robots they just don't think that perhaps another ceo couldn't achieve really significant phenomenal growth for this business even if it wasn't elon musk why is he alone the only person who could meet these milestones and drive optimists to be on the moon on mars i mean that seemed to be the next area of growth was that what you wanted to hear that we're going to have optimists doing surgery but also eventually going to mars yes we should do we should want to hear that we also were absolutely excited thinking about chip manufacturing i don't think that has really gotten through yet to the press and i hope bloomberg is going to talk about But if Tesla goes into chip manufacturing, can you imagine?

11:53So I would like to ask CalPERS, show me one other CEO who did even half of what Elon has accomplished. If you show me one where you have the feeling that that person could do something even comparable, I'm ready to sit down and discuss it with him. But we've got to wait for a long time. Right. Alexandra, I would push back a little bit because I wrote the story about Elon's comments from the earnings call about clarifying the Samsung TSMC relationship. And I sent the headline last night about his comments on chip manufacturing. So I'm going to look into it. I need to ask you about XAI. You were in the room and were waiting on the 8K.

12:32What appeared to happen was Brendan Earhart, the corporate secretary, say there were more for votes than against, but a very large number of abstentions. And so they're basically reserving the right to wait. look at the non-binding proposal and go back to it? Is that your understanding of where things stand? And also just your reaction to it, because you were involved in the process of getting that proposal on the docket. Yes, well, thank you very much. Yes, very good question. And as you point out, we haven't seen the 8K yet, so I don't have the underlying numbers, but I know exactly what happened.

13:05The board's recommendation was neutral. They did not give a recommendation. Lots of retail shareholders just follow blindly the board's recommendation. So by going after the board's recommendation, instead of voting none, they abstain. That is the logical way and that's actually how it is automated. We had this issue with a Norwegian bank who gave their shareholders only a certain limited number of options to vote. And then the shareholders from Norway, which are very numerous in Tesla, could not vote for question six. They were abstaining. So abstaining was also just a consequence of the way the proxy was laid out and there was no better choice It was a bad choice to not be able to give a guidance But there was no other choice because what the board is trying to do here and we have to understand why that is Is to stay out of it until they get a clear mission from the shareholders And why are they doing that?

14:01Well, because it is a conflicted situation Elon is the key man in both XAI and Tesla and as SolarCity has shown us, it is always difficult to invest from one company A into a company B that are both led by the same key person. So the board tries to stay out of it until there is a clear mission. Now, we have to see the 8K numbers to understand whether this is now a clear call from shareholders to do it. If there were so many estains, it may not be. But you also have to know that this shareholder proposal number seven was always only advisory. It was never that this vote would have been an automatic investment.

14:39If the board now convenes that they want to invest, we will certainly have another shareholder vote on the exact proposal of investment, not just on the general idea. Pushing us forward and with great energy after what was a pretty extraordinary day at the annual general meeting yesterday. You were there and we saw all the dancing. Alexandra Mez, we love catching up with you. Thank you. Tesla shareholder known on social as Tesla Boomer Mama. Now coming up, Grand Theft Auto 6. It hits another bump in the road. We'll discuss why the latest title in the popular video game franchise is being delayed again.

15:13This is Bloomberg Tech.

15:21Shares of Take-Two. Having their worst day since February 2024. Down almost 8%. Yesterday, the video game publisher pushed back the release of Grand Theft Auto 6 again. until November 2026. Let's talk through this. Bloomberg's games reporter, Jason Schreier. Basically, it's going to be a year late now. Why this second pushback? What's going on with Rockstar? Yeah, I mean, video games are complicated to make. This is going to be one of the biggest video games of all time. Will probably be the best-selling entertainment product of all time. And so the pressure is very high. Rockstar and Take-Two, they want this game to be as perfect as possible.

16:00They wanted to hit 95 plus in Metacritic. That's the review score aggregator. And yeah, these games need time. I get that, you know, wanting to hit 95 plus on Metacritic. What you just said about it probably being the biggest entertainment title to sell of all time. Go back to GTA V and explain the data that tells us this might be worth waiting for from Take Two's perspective. They want to get this right from a sales point of view. Yeah, there's a simple number here, which is that GTA V, the last game in the series, which was released in 2013, has sold 220 million units. Which, I mean, that's more, this one game alone has sold more than most franchises.

16:47Final Fantasy, Assassin's Creed. This makes it the second best-selling game of all time. Only second to Minecraft, which was released on phone. So that's kind of a different playing field. So yeah, I mean, the stakes are very high. And again, I think that people tend to underestimate how difficult it is to make games, especially a game as big and ambitious and technologically impressive as this one. I mean, we've seen the trailers. We've seen what it looks like. It looks more realistic than any game we've ever seen. It's going to have a huge open world. The people at Rockstar are just still working on it, still making new stuff for it, It's still building this world and fixing bugs.

17:26And Ed, you know well that games like Cyberpunk have come out in recent years and needed more time in the oven and came out too early. And that is just disastrous for the companies involved. And they needed they needed patch after patch. But I still went back and played it from the start after the patch. Bloomberg's Jason Schreier. Thank you very much. OK, sticking with gaming, a quick update in the Google versus Epic game case. A federal judge is withholding approval of Google's antitrust settlement with Epic Games. The company says it will improve the distribution and monetization of apps on Android phones.

18:00But U.S. District Judge James Donato says he wants to look closer at the terms of a deal first to make sure it benefits consumers and boosts competition. Cara? Meanwhile, we've got a lot still to digest. We speak with Affirm Holding CEO Max Levchin on the latest earnings results. This is Bloomberg Tech.

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19:30Shares of Affirm off-session highs up about 5%, at one point in the session up almost 12%. The company posting a first quarter earnings beat, but really the focus is on it raising its 2026 forecast for gross merchandise volume, but it sets us up for an incredible fiscal 26. Joining us on set is Max Levchin, a firm CEO. There's a lot of emphasis, at least from Bloomberg Intelligence in-house, on card and that driving volumes. But what we've learned across this earnings period in your domain is it's worth spending a minute on the underlying behaviors of your consumers that drove this growth in the quarter.

20:07What are you seeing? So despite the vibe session we're seeing in the market today in the last few days, a firm's consumer is really healthy. They're shopping, they're buying, they're paying their bills. They're, you know, they're energized by the upcoming holidays. I think, frankly, the rumors of the American consumer's death are greatly exaggerated. It's interesting because like different segments of the technology sector tell different stories right now. Is there a specific product category or method of spending that is demonstrating that more than others? I think we are quite unique in a sense.

20:41A firm's brand, our promise really is use us when it matters to you because you'll have total control and great degree of transparency. And as the outside pressures, even the stories you read, weigh people down, it's easy to say, you know what, a firm is at least the one thing that's going to keep me clear and in good control. And so we think people are coming to us a little bit more. Certainly we saw great demand for our recent zero-day promotion. But, you know, I think so far so good, at least in the Affirm consumer world. The funny thing is, Max, sometimes the market likes to see use of Affirm or maybe more standard buy-now-pay-later offerings as the vibe session.

21:22Is that not the case? You know, we had 24, more than 24 million active consumers last quarter. At this point, it's really dangerous to just say, oh, the affirmed consumer is doing X or Y. We have quite a number of segments. Folks that are using our 0 % promotions are typically leaning into just, frankly, saving money and getting a great deal. Folks that favor longer terms to repay care a lot less about total cost, very much care about individual cash flow. And so depending on sort of which segment you look at, you'll see a slightly different behavior. I think the unifying factor is they're all getting a really clear deal.

21:58There are no late fees. There's no gimmicks. There's no gotchas. And that's the way they keep coming back to us. And while you keep seeing growth merchandise volumes going up and to the right, what's interesting is your partnership model. And it really works. Well, Amazon, Shopify, Apple, Costco. Where else do the partnerships make sense, Max? You know, to be honest, everywhere, we just announced the really strong push into services. So for a long time, you would think of buy now, pay later as a thing you buy and pay over time. people buy more than things. They remodel their kitchens, they refurbish various parts of their house, and just announced a great partnership with Service Titan, Vagara, a variety of other platforms.

22:35So we partner very widely because this model really works for any purchase, you know, anything from a couple hundred dollars all the way out to thousands. What about you leaning into the moment? There is a lot of competition and smaller scale, and many times you stand out because they're more dependent on late fees and other such charges. Would you do any M &A? Is this the environment in which you'd look to do that? You know, I think our current growth tracks so well. I'm not sure I have a lot of time to consider M &A. But, you know, never say never. Obviously, we're doing really well. The company is performing.

23:12I always found that building is my strong suit. But, you know, who knows? Max, this earnings season, we've had the opportunity to speak to the CEOs of Chime, Robinhood, SoFi, and now you. I appreciate there are differences in those companies. But in how people transact with money, what you all have in common is looking at varied products that you offer. What is your new product strategy going into 26? And do you have any sort of ideas about this generational wealth transfer that all the others are going on about at the moment? You know, I think we are a payments company. First and foremost, our job is to be there, be available.

23:56You know, we talk a lot about there are many doors, digital and real world, where there are lots of logos of payment systems. Our job is to be on every door, to be available, to make sure we are there to serve when people are buying goods or services. And so we're very, very focused on executing what we have. You know, 42 percent doesn't come easy and we'll keep trying to hit really good growth. you know um i've learned the hard way not to pronounce new products we have all sorts of really exciting thing we're cooking you know have me uh back and i'll announce it when it's ready to go fair enough beaten race trajectory that's how blue meg intelligence sees it max levchin we appreciate it a firm ceo sixth and finally on the 2025 ceo performance award to our founder and CEO Elon Musk with over 75 % voting in favor.

24:53Approved. That was Brandon Earhart reading the results of Tesla's shareholder vote yesterday, the company's corporate secretary and general counsel. And as we've been discussing, Musk's pay package worth potentially up to a trillion dollars was approved. Today, the shares, however, are lower by 4%. Is that sell the news? Is there something in reaction to the vote itself? Not sure, Cara. Let's get an investor take then. We bring in Gene Munster, managing partner at Deepwater Asset Management. Thrilled to have you on, so much to talk about. But look, 75 % is a lot, but there also comes some significant milestones.

25:29And also then talk of 50 % growth in car production by the end of 2026. Can he make that, Gene? No, the simple answer is that probably not. but that's what elon did a master class is is ultimately is throwing a ball out there that is difficult to achieve but uh he has the wherewith to do that and so that ball you talked about the production piece uh this 50 he puts that target out there but then he adds these kind of qualifiers that say that yes we can do it but we can only move as fast as the slowest part of the production chain, that pipeline to get them to build the whole capacity, to get them to build capacity.