Bloomberg Tech Event Special

24:36It's one of the scaling laws. The scaling laws are if you provide more compute, more resources, more data, more algorithms, intelligence goes higher. If you're a business that is hurt by this empirical observation that intelligence is going to go up, that's a tough place to be because we believe intelligence is going to go up a lot. Apoor, if we could speak to you for hours. It's so great to have you here at Bloomberg Tech. Apoor, Agarwal, forces of Altimeter Capital. Fascinating conversation.

25:07Welcome back to a special edition of Bloomberg Tech. We're live from the Bloomberg Tech event in San Francisco. I'm Ed Ludlow. That's Caroline Hyde. I'm here. It's beautiful. But look, what's not beautiful is the market a little bit today. Let's take a look at today's big number,$300 billion. Ed, that is roughly how much market value we've just lost at Broadcom. Ouch. After the shares plunged today following the company's earnings release last night. Look, you were covering it live for us last night, and it was a sharp drop. and it comes as the company's AI chip sales, the forecast just missed Wall Street's really lofty expectations.

25:39So while not raising long-term AI revenue targets either, the stock fell by as much as, as you can see, well, off by 14%. We were down as much as 15%. The worst case is January 2025. But Hot Tan, he's speaking at this event later. Yeah, and he is going to try and give something longer term. But this was about incredibly high expectations of what's happening in the AI infrastructure build-out cycle. Let's get to the software space. Okta delivered a very strong start to the year by beating first quarter expectations last week, but then raised its full year guidance basically across the board. Joining us to discuss basically a platform shift that's happening, but also emerging threats from AI is Okta CEO and co-founder Todd McKinnon.

26:22You know, it was so interesting because, you know, at the end of the day, numbers are numbers, and you had the confidence to raise on the outlook. there must be a reason why. Earlier in the show, we were talking with Databricks and Ali Godzi about how real is the deployment of agents. You must know the answer to that. Okta was founded in the shift to cloud computing. And this new shift we're in, the shift to AI and AI agents is bigger than anything since the internet, possibly bigger. And so what Okta is benefiting from is all this change and all this technological evolution makes identity even more important than ever.

26:59All these applications, all these services, And then you layer on top of that a new product cycle for Okta. The new product cycle is Okta for AI agents. So we have a product that is the identity layer, the connectivity for all these AI agents in the enterprise. It's a powerful combination that's driving the business on all fronts. What makes your offering unique? Different from other peers that are out there. Many want to be the governance rules, the protection layer for this. I think it may surprise you, but it's the focus. We're focusing on the connections. the connections between AI agents and all the databases and data sources and applications they need to be most effective.

27:34And that connectivity, that is very important to the functionality of the agents, but it's also something that's very risky from a security perspective. The more you connect to your agents, the more risk of information leaking, the agent going rogue, and you having to shut it down quickly. So that connectivity, and we have a blueprint for the industry to how to connect those agents securely, and that's really resonating with customers. earlier this week somebody called jensen wang went on stage and in front of the camera and said that the narrative around software is complete nonsense and he made the argument that for legacy software agents will become the end users and there are more agents than people in the world and your stock like everyone else's in your space went absolutely bananas be honest with me, Todd.

28:23Is that helpful to have Jensen Wang weigh in like that? Or would you just wish you didn't? Well, if you zoom out and look what's happening, I mentioned earlier the transition to the cloud 15 years ago. The transition to AI is similar in that every layer of the stack is being reimagined and reinvented from the hardware layer to the infrastructure layer, to the platform layer, to the development tool layer, to the application layer. And so every vendor has an important priority to make sure they reinvent themselves with these agenda capabilities and these capabilities of automation. But this one is actually different.

28:57There's a new layer on top of all this. And this new layer, which is not, hasn't happened in previous generations of technology change. There's a new layer and that's the layer of digital work. It's a whole new category, a whole new opportunity that everyone's going after in addition to reinventing themselves in their own business. And that's, I talked about this two pronged drivers of our business. We have the reinvention and the reprioritization of identity and this new layer for automated digital work, which our Octafer AI agents is powering and playing right into. What does it mean for your own workforce, for your own human capital?

29:32Are you needing as much of it in this moment? I think they have to be more effective and more productive. And the tools are there to do that, whether it's cloud code or whether it's the latest marketing tool or support tool, they have to be more effective and they have to deliver value. You'd keep the same amount of people working with it? Well, this is where I disagree with a lot of people. I think in five years, Okta's going to have far more software engineers than we have now. And you want them to be spending. You want them to be generating tokens. And that's because it's a little bit of a trick answer because the reason we'll have more is not because they won't be more efficient.

30:02It's because there's just so much more capability to build. There's so much demand for software and there's so much power of the automation. We're very excited about this. Todd, the Bloomberg Tech audience is in industry. It is sophisticated, but lots of people, this is so abstract still. The thing that I always get frustrated with, with an agent is that I just want it to act. So if you take this as a random case study, but like my flight gets canceled, I have to phone a human still, even within Bloomberg, try and get that resolved. But there is a world that you're pitching where they have access to my credit card, the flight information, it just happens.

30:35These are the connections I'm talking about, the connections to data that has to be secured. What is the barrier in the world right now? you know corporate america companies around the planet that just is preventing this just happening the the barrier is people think about models and we herald model advancements the reality is is that the models are at a capability now far surpassing our ability to simply connect the systems together and get practical agentic applications built but that's great because there's a lot of smart people in the world working on connecting them and we're focused on making sure they're connected securely and that's why the future is very that's what i meant though like Are we worried about how secure that potential transaction is or not?

31:13We have to be always worried about security. You're connecting sensitive data and automating it in new ways, and there's always risk in that. And that's why I think our solutions are resonating so much. It's this practical focus on we want things to be more automated. We want these agents to have more capability. They need more data. How do we pragmatically do that in a secure and manageable way? And that's what Okta for AI agents does. And so this talk of SaaSpocalypse? I think it's completely overblown. it's completely overblown. I think there will be SaaS companies that don't embed these capabilities in their offerings.

31:43Just like in the revolution and the move to the cloud, there were companies that were left behind and became legacy vendors and were just all bought up by Oracle. That'll happen too. But there'll also be many vendors that make the transition and thrive in the future. And that's why you're proving it. Octa CEO, co-founder, Tom McKinnon. It's great to have you here at Bloomberg Tech. The live event in San Francisco. And coming up, we have the personification of the San Francisco economy. We've got the San Francisco Fed President, Mary Daly, joining us live. We're going to discuss AI's economic impact on the people, on the productivity, the risks that are getting perhaps overlooked.

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33:41we are live from the bloomberg tech event in the heart of san francisco and ed look the debate is rich around ai's economic disruption is it growing more intense some see the technology that can unlock enormous gains productivity and growth but others that they want of disruption of unintended consequences and we want to try and understand the sort of messy middle of all of this with Mary Daly, president of Federal Reserve Bank of San Francisco. Mary Daly, extraordinary the data that you now have to lean upon, trying to understand what's fact, what's fiction, what's utopia, what's sensationalism.

34:15Who do you go to for your data on whether productivity is working? I go to the businesses who are using the technology, because you can always encounter enthusiasts or doomsayers, but it's really the people in the middle, as you said, who are using that technology, thinking about it, and I've seen tremendous interest in it. it last year. And now I'm seeing tremendous investment in it, thinking about how do they train their workforces to be AI ready? How do they think about what AI can do, not just in the back office, but in the front of house of operations? And we're seeing this in small businesses, medium and large, in global companies and more regional ones.

34:51And importantly, in everything from agriculture to machining and building things to services. And I think that's really the place. We haven't seen widespread productivity gains yet. The ROI is still to be developed, but I'm definitely seeing the enthusiasm and it's picked up tremendously in the last year. We haven't seen the productivity gains yet. You know, you're being very clear on that. As you remember, I asked you over and over again for an hour, please show me the productivity gains. But in the economic data, whichever set of data you want to look at, do you see an impact from AI, negative or positive?

35:29It's really hard to take. We have had productivity growth that's been outside of the historical norm, and I think that's a positive for the U.S. economy. Everyone wants to say that's AI. What I think of it is as, sure, it's possible that businesses are looking for cost savings and they hire fewer workers than they do just as much because they're using an LLM assistant to help. But we just haven't heard from businesses that they're seeing transformative, ongoing productivity gains yet. and they want to always underscore yet. And so then I said, well, what's the time frame? And they said, next year, year after.

36:05Because what we know is it isn't just about getting a model and using it for things or an agent. It's about transforming your business processes so that you really take advantage of things we don't even think about today. What can be done differently that will transform the economy? So you can definitely find a single business or sectors who are using it and seeing the gains, But we haven't seen that across the economy going forward. But I'm pretty bullish. I see the possibilities. And I'm hearing more and more that people are seeing early rewards and really recognizing that next year is the litmus test.

36:40Bullish is an interesting turn of phrase. Today, putting aside the slight dip in the market, the exuberance that we have seen in financial markets to want to back these companies. and we're about to get more public companies coming, more liquidity, more money. Is that in and of itself a financial stability issue? Are you worried about the markets riding so high? You remember, you know, who's doing most of this investment, the MAG-7, who's really there. This is actually something they can do and fund and their enthusiasm is real. They see what's possible. But I don't think that we should think, oh, there's financial stability concerns just because the market's gone up.

37:21It could go up or down as it has in the past, but a financial stability issue would mean it's spread to the banks, it's spread to consumers or businesses. Right now, I'm not seeing evidence of that. We keep our eye on it for absolute sure. But what I am seeing is that companies, other than the technology enthusiasts, companies outside of technology are using AI to think about how to do their business better in real ways. I mean, I was just meeting with some machine, make machines for a living. That's what they do. And they're thinking about how do I scan in 50 years of plans of these machines I've built for companies and then use those plans and a model to generate innovative new ideas of things I can sell that will be faster, better, cheaper than things I've sold before.

38:07We toured a robotics company that builds things that help manufacturers do better in terms of shipping and distribution. These are real things that do have a capacity to change the economy. So I'm not that's why that's the underlying part of my bullish. It has less to do about the investments that tech companies are making and more about the investments that everyday regular companies that make things and provide services, the things they're doing. President Daley, inflation is still the biggest risk. And, you know, those are not my words. We heard it, you know, all week long at the Bloomberg Credit Forum, for example.

38:44One of the things that you and I have discussed in the past is, is the massive CapEx commitment build out of data center in conjunction with a bottleneck in some core areas like memory inflationary? Or is it disinflationary? You know, that's the thesis that like a utility of PG &E would argue, disinflationary, because the big guys are buying in aggregate. I still don't understand where we are with that. It's a timing issue, in my judgment, that, you know, in the beginning, of course, when companies want to invest in big construction projects, a lot of electricity demand, then the companies that are providing those things or areas that are providing those things are going to see competition for the limited amount of services they have.

39:28But what they're building creates the infrastructure. The data centers create the infrastructure. Or if the big guys come in, as you just said, and help with electrical plants that help with electricity generation, that eventually can help with the prices of those things. But not here and now. But you just have to think about the timing. And one of the things that's really important in policymaking is that we not assume we know. We actually look for the evidence of what are we seeing in prices today? What are we seeing in what is the forecast of prices tomorrow? And then how do we think about policy?

40:00So right now I'm focused on other energy prices, oil prices, and food prices are driving up inflation. But we do know that down the road these things could maybe compete for services and costs and raise costs. But we haven't seen real evidence that that's the limiting factor. The limiting factor seems it's hard to get generators. It's hard to get the infrastructure equipment you need. And so you see the big tech companies thinking about solutions they can provide for themselves. The inflationary data must be fascinating here in San Francisco. When I think about all these companies potentially going public, what that means for the employee base, what that means for your house price and the ability to be able to buy yet more real estate here, what it means for the cost of labor as well.

40:39Is there an inflationary pressure that you're seeing here in San Francisco? I've lived through, so I moved to San Francisco in 1996, and then we had the dot-com. And I know what it feels like to not be able to rent a place that's affordable because the people who are making many more orders of magnitude, And I was, you know, in a position where that's manageable, but that's what's happening is people feel like they're getting crowded out because other things are happening. But that's more about the supply of housing than it is about the demand for housing. We want people to come and invest in this community.

41:11We want the city to thrive. We want regional activity to thrive and employment to grow. But as you said, you know, the more interest people have in living in a place, if you have limited supply of housing, then you're going to have a run up. So those are the things that not the Fed, but other policymakers, other federal policymakers and local policymakers like the mayor are working on. But it looks very, you know, you can see the elements of 1996 already here where there's productivity growth, there's enthusiasm, et cetera. But the data is still out. Is it a bubble? Is there a risk that we're in that same?

41:42You know, the dot-com was very different than the AI boom. And so I just want to, you know, there's a lot there that's already being put into businesses. And it's very pervasive. It's not just the dot com. So I don't jump to the conclusion that if it has similarities to the 90s, it's going to be the 90s. Well, if I may, President, you went out and did some of the most important work in that era of how the advent of the Internet would change the economy. Look, so you've kind of established where we sit right now. Inflation continues to rise. How likely or unlikely would that make a rate cut in 2026?

42:19How do you tie the two together from this juncture onward? You know, I think one of the questions I get asked regularly is what's the path for the rates going forward? Yeah. And the answer I give, because this is how I really think we have to think about it, is we don't know how the economy is going to play out. We have, as we've been talking about, this tremendous possibility with AI. But we have the same time the war in Iran that is with an uncertain end, which has pushed oil prices up and fertilizer prices, which have filtered into food prices. And right now, those are fairly contained. And if you look at the futures market for oil, it's$80 a barrel by the end of the year.

42:59But we have to think about that. And so right now, policy is in a good place. We are prepared to respond either way, whatever the economy brings. But I think giving more forward guidance about what's possible could be misguiding in the end because we just have to wait for the economy to evolve. Everybody wants to resolve the uncertainty today, but I think that's a mistake because it will close off our mind about what we really have to look at. The inflation risk possibility, but also the possibility that the war ends. Oil prices come back down and we're back to the underlying dynamics with some of the positives of AI we've been talking about.

43:34Can I ask you about the labor market as well? Because you've tried to bring this transparency of how you're thinking about things with your blog, for example. And one of the really interesting ones that I was reading and captured my attention was the idea that we've got zero labor growth now. Immigration has changed, the way in which demographics change. Are you feeling like we've seen some improvement, some resilience in the labor market? We have seen resilience. And will that hold? Has it firmed? Yeah. You know, I think it's too early to say firmed. I think we're, you know, there's always statistical errors.

44:04You can bounce around from month to month. But if you, you know, I was one of the people who policymakers who were a little worried about the labor market at the end of last year, was very supportive of the cuts that we took to stabilize conditions there. So relative to that point, I think this is, we've really stabilized. and I'm starting to see businesses feel a little more cautiously optimistic, which will feed through to hiring. But they're not just running out to hire people. They are being cautious. They can get an agent. They're interrogating how much AI can do for them before they hire.

44:39Regularly we talk to our businesses and they say, we don't want to hire a bunch of people. Find out AI can do certain things. We need a different set of skills. So we want to wait. We want to be patient on our hiring and make sure we're not over hiring. Because if you ever go through a period of time where a business has to lay workers off, it's a painful experience for the workers and for them. And so they just don't want to get overly confident only to find out they have to make adjustments. So that caution will be with us for a bit. We are live on Bloomberg Television and Bloomberg Radio. We're in San Francisco and we're at the Bloomberg Tech event and we're speaking with San Francisco Fed President Mary Daly.

45:17Reset a little bit, but if I may, it's the first opportunity we've had to ask you. Have you spoken to Chairman Walsh about how he sees the Fed evolving, about changes to the institution? And if you may, fold in the context of your district, San Francisco Fed, yes, much more than that, and your role going forward. Sure, absolutely. So, you know, I think what we really want when any new chair comes in and what we want from all of our leaders of Federal Reserve banks and all of our governors is that you're thinking constantly about how can the Fed be better? How can it better serve the American people?

45:52How can we do our work more efficiently, more effectively and more resiliently? You know, ultimately, everything we talk about is is put between two bookends. We are fiduciary stewards of public trust, which means we better have services that people can depend on and we better work hard to achieve our goals. And we're fiduciary stewards of public funds, which is we are very careful about how we spend taxpayer dollars. So with those two things in mind, you know, I mentioned I joined the Fed back in the 90s. So I joined the Fed in the 90s and we had check processing. Remember checks? We had check processing.

46:27I still have to write notes. Everywhere we had a location, we had people who processed checks. But then check demand started to fall, and so we consolidated those activities into a few locations. And that level of modernizing, constantly thinking about how can you do better, is what I see now. So what is the chair's equivalent of that present day? Well, we just joined. So I'm going to give him the right time he has to announce that. He's talked about making sure he's holding on to that tradition. and he comes in with a lot of ideas. But what I've heard him say again and again, which I really appreciate because he's the fifth chair I've worked with, all of the chairs I've worked with have the same basic compass.

47:11It is to do our best work for the American people and work with all the individuals who are earnestly doing their work in the Fed to do it well. And I see that in Chair Walsh. That earnest work within the Fed, how much of that is being modernized to use Adopt AI? How hard or easy is it at this moment when you're such a regulated institution in and of yourself? Well, we're careful like all regulated institutions and importantly like all businesses. Businesses, you know, when I talk to businesses, the last thing they want to do is take huge risks that destroy their shareholders, the value of their company.

47:44The same is true for us. Good fiduciary stewards of public trust and good fiduciary stewards of public funds, which means we're always driving to adopt new technology to do our work more efficiently. but we recognize we have to do that safely. People want to know they can get their money when they need it. They want to know that the banks are well supervised. They want to know that monetary policy is not made by machines, it's made by people. Making judgments not only about models and rules, but also about the lived experiences of people across our country. Very quickly before the show ends, what are you seeing in credit?

48:17That's a big story for us in how data centers are financed. For some, it's very worrying. Well, you know, we're watching that carefully. I watch that carefully. What we do see is that there's a lot of, there's those companies investing a lot of their own resources in those. So it's something to keep our eye on. But at this point, you know, again, if you stack rank the things that are worrying today, I'd say getting inflation back to target, getting Americans the relief they deserve that we've been working on for quite a while, that's my number one priority. So I'm Francisco President Mary Daly.

48:53You've been very generous with your time. And we always cover such a broad spectrum of topics. Really grateful to have you here with us in San Francisco at the Bloomberg Tech event. Yeah, what an event it has been. What an event it continues to be. We're just getting started. I mean, that does it for this edition of Bloomberg Tech, the show. The TV show, yeah. But you've got to stay tuned. The rest of Bloomberg Tech event today has some phenomenal conversations coming up. I'm lucky enough to be speaking again with the San Francisco Fed Chair, of course, Mary Daly. But look at the lineup. Look what we've got coming up.

49:23Yeah, and I'm going to be speaking to Trey Stevens, partner at Founders Fund, chairman of Unreal. But Founders Fund is a high single-digit stakeholder of SpaceX. And don't forget, SpaceX's IPO pricing June 11th. Yeah, that's a big deal. Recap the show. A lot of really great conversations on the podcast. You guys know where it's at. Online, Spotify, iHeart, and Apple, and all the Bloomberg platforms as well. Stay tuned. This is Bloomberg Tech. If your best finance people are doing expense reports, chasing receipts, or spending time on month-end clothes, it's time to get Brex AF, a gentic finance that eliminates that work before it starts.

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