Google Shares Soar After Dodging Chrome Sale

23:33There's huge pressure both from the board that sees AI as a most important business initiative as well as from employees that sees AI as the most important productivity initiative. And the CISO that, as we talked last time, is a predicament as it is from a budget and from an agility perspective, now has to face AI and needs to deliver a secure journey. And they need to do it now. So developing three years now, what AIM has developed in the last three years, is not going to cut it. Enterprises need it now and need a broad solution and a deep solution. And that's what we bring them.

24:22Caroline Hyde:Shlomo, we only have a minute left, but a crew's come in and given you an additional 50 million on top of the 350 you did in June. Did you need the money for this piece of M &A or why are you taking that extra capital? Because we can. because I think that with this acquisition, Cato is becoming even more exciting to investors. And, you know, we always have a second closing plan. And we have enough cash in the bank to get to profitability without compromising our aggressive growth targets with or without this$50 million. million, but showing a stronger balance is always a good thing. Salinas, Shlomo Kramer.

25:13It's always great to catch up with you, co-founder, CEO of Cato Networks, as it makes its first ever M &A.

25:24Welcome back to Bloomberg Tech. Look, data center power demand is growing exponentially thanks to AI and the UK's biggest engineering company, Rolls-Royce, is seizing that opportunity, Best known for its jet engine business, Rolls-Royce is also one of the pioneers of small nuclear reactor technology. It was recently chosen to build three units in the United Kingdom. Here to talk through the power systems growth, along with civil aerospace and defense, is the company's CFO, Helen McCabe. It is wonderful to have you here, Helen, while you're in the U.S. talking to investors. But I'm interested in what you tell them at the moment, particularly about SMR technology.

25:57What is the opportunity here for you as a business? Huge opportunities, you see, in SMR. the size of that market. We think the addressable market is about 400 equivalents of their SMRs. Huge opportunity coming forward. As you think about how we're going to support energy resilience going forward, it has to figure. We have a leading position in that market. As you said, we won the contract with the UK government for the first three small modular reactors. We've actually won a contract with the Czech Republic for up to six. We're in final stages with Sweden for their small modular reactors. And we're actually looking at entry positions in the US.

26:41I mean, the US market, you have a nuclear ambition to go from, I think it's 100 gigawatts to 400 gigawatts by 2050. Massive opportunity. And we've been building nuclear reactors for submarines, for nuclear submarines, for more than 60 years. and our small modular reactors are the largest on the market as well. You've really been selling into government and it's interesting at the moment that for us it's all about the hyperscaler demand as well. And we have seen this nuclear renaissance bear fruit when you've got Amazon with X Energy, when you've got Alphabet going with Kairos Power. Do you talk to the hyperscalers or is it more about the US government given your defence leaning?

27:20No, so absolutely we're talking to the hyperscalers. Right now where the initial focus is on governments and utility companies. but the hyperscalers are absolutely talking to us and interested in this. If you think about, as you said earlier, the growth in AI, the energy that's going to be required to provide that continuity and resilience, SMR will absolutely figure in that. So those conversations are underway across the globe, not just in the US.

27:49Caroline Hyde:Helen, we spent a lot of time in the last year speaking to Oklo and Xenergy, the kind of more small, nimble startups in SMR on this program. What's the Rolls-Royce advantage? What makes your technology better than the newcomers to the field? Fantastic. So thanks for the question. So we've been in this area for more than 60 years. We have built nuclear submarines with nuclear reactors, which is consistent technology with SMRs for the UK Navy. So we've got leading technology, proven technology, It's based on proven fuel supplies as well. In addition to that, our SMR is the largest on the market at 470 megawatts.

28:33That means from a cost and efficiency perspective, it's one of the most efficient. Actually, more comparable with energy and wind, but importantly, more consistent so it doesn't have latency issues. and very importantly our SMR construct 80 % of it can be modular built so you can construct it in the factory and if you think about almost like a lego block and then you take it to build it on site so it means the construction is much shorter and it means the risk factor faster yeah is much lower as well so we do have that leading position with that distinctive technology.

29:12Caroline Hyde:Helen in the defense tech context, the political and strategic environments really changed, not just the United States, but like Western allies overall. Could you just kind of give me your outlook for your next gen military turbo fans, combined cycle engines, and what's changing for you? So as you say, lots of activity in relation to investment in defense at the minute, both in the US and in Europe. And we've got a very strong position in the defence business, not just in what we provide for military operations, but actually how that shows up in our energy business within power systems. We have a very strong governmental position there.

29:56We've got leading positions in Germany and Europe. We have got leading positions in land and naval. And with the Spending particularly that's happening in Europe when people are talking about increasing NATO commitments, where we expect to see that show up in the short term is actually in land and then naval. You know, in our power systems business, that governmental business is 25 % of our revenues. So we are very well positioned to support that growth and to capture those opportunities going forward. So short term, that's where we see it will show up. And longer term, we expect to see it show up in our defence business.

30:38But very exciting. I mean, talk to us about the positioning for the long term opportunity here. Because you're the CFO, you're thinking about how to finance all of this. There has been some reporting around the SMR part of the business. Maybe you think of outside funding, even talk of an IPO of that unit. What are you thinking about longer term to finance all of this? So SMR, we're not IPO-ing that, just to be clear. So we're investing right now to support growth across all of our businesses. But if I maybe focus on the governmental business, just within the last six weeks, we've actually invested more than£100 million in the US alone to support the growth of expanded production, be that in defence or data centres.

31:22Do you have to? Because the administration invests more in the US? No, yeah, the US is an important market for it. It is very important that we continue to grow our position here. It's one of our home markets, so it's the right thing for us to do. But across our business, since we put our transformation together, we've actually increased investment each year while we've delivered these results. And we're investing now for the longer term. Some of the investments that we're doing in our defence business, The platforms and the programs won't come into operation until the 2030s. So the long-term growth is happening right now.

32:01Caroline Hyde:Helen, Rolls-Royce is so aligned with Airbus, but the strategy of this present administration is to use Boeing as a negotiating tool in international markets. How do you see that playing out? Do you participate in a US administration that's focused on Boeing if you're so close to Airbus? By the way, massive aviation nerd, like I care about the propulsion as well as the fuselage, which aircraft I'm on. I mean, so what I'd say is we have got a very good and strong relationship with the US administration. And we've got a very good relationship with Boeing and Airbus. So that's how we lead into that.

32:41We've had a presence in America for more than 100 years. We have got 5 ,000 people across 26 states that work for Rolls Royce. It is one of our home markets. So that is how we approach those relationships with the administration in the US. And it has worked incredibly well and it will remain a very important market for us going forward.

33:04Caroline Hyde:Helen McCabe, CFO Rolls-Royce. Thank you so much for joining us on Bloomberg Tech. Let's get back to our top story, and that is Google. It does not have to divest Chrome. The shares are up almost 9 percent, biggest jump since April, record high. There's a second part to the story, which is that Google is able to continue paying partners for placement of search. Apple is the main part of that story. Its shares are also higher. And in the balance and remainder of the show, we're going to go out to Bloomberg's Mark Gurman and understand the Apple piece of this story. What else is coming up, Cara?

33:36Oh, plenty more, particularly when it comes to funding. And in the world of generative AI, the CEO of U.com joining us to discuss the company's latest$100 million funding round. This is Bloomberg Tech. Aging is real. And so are the benefits of adding Vital Proteins Collagen Peptides to your daily routine. Because around the age of 30, your body needs backup to keep your collagen up. To help support healthy hair, skin, nails, bones, and joints. Available in the classic collagen peptides. Collagen and protein shakes. And new Vital Proteins Collagen Sparkling Waters. So you can stay vital, stay you.

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35:57Caroline Hyde:AI search company U.com has closed a$100 million Series C funding round that values it at$1.5 billion dollars fueled by the AI boom and its shift in focus to enterprise customers. Use.com co-founder and CEO Richard Soch is with us in San Francisco. The environment has changed. The landscape has changed. Every time you come on, it's changed. But did that sort of make this round necessary? What do you need the funds for? We're scaling. Our customers are scaling the LLM infrastructure that we need to keep these AI and agents up to date is increasing. The needs for it are increasing. So that's why we raised it to support our customers like Harvey, the NIH, DuckDuckGo, Windsurf, Telegraph, the German press agency, DPA.

36:48There's so many customers now that want this technology and need to get the LLMs to be up to date.

36:53Caroline Hyde:Many founders, CEOs come to the show saying, oh, we're scaling. I think that there's like a lot of value in explaining what that means in material real terms. Like you're hiring better talent, you need more compute. What is it? Yeah, for us, it's definitely more compute, but also the talent. Those are basically the two biggest factors. So more NVIDIA GPUs, but also more scraping infrastructure to really build out the best search index for LMs. You know, Google built an amazing search index for people to decide, oh, which link should I click on? But LMs search differently. They can search through hundreds of different websites, right?

37:29They can read the whole text or certain blurbs of each website to then give you a summary of those answers. So all of that is different and needs investment. Richard, I mean, you are one of the heroes in natural language processing. You're like the fourth most cited researcher in it. You've been studying it for years. I must envisage that you've had some calls for your talent, i.e. you, and wanting to purchase your company. Have you been fending off meta and the likes left, right, and center? There's definitely been interest in U.com and our team for the last five years. But we're here to really build an enduring company where people can get answers, build their own agents, transform their companies.

38:12And so we're not that interested in that. It is such a fierce space, though. Everyone's in on the enterprise. The large language model developers that you use, OpenAI, they're trying to get into enterprise. And just recently, the Judge Meta ruling on Alphabet, for example, and the fact that they're going to have to share data. How does that benefit you? Because you started your journey in AI search. Yeah, I think in consumer, there will be a few usually monopolies or duopolies, right? But in enterprise, there's so much open space, right? There's so many different companies that need up-to-date information to make their LMs more productive over both web data, but also internal search, internal data.

38:53And you need to have all of that be composable as an API infrastructure. And so that's kind of what we're focused on and where we think that is indeed the killer app for LLMs, is that productivity in enterprise.

39:07Caroline Hyde:Our executive producer, Jackie Lopez, was talking about how it's just beautiful timing having you on the show today. Let's be honest about it, you know, with the Google decision last night. It's coincidence. I was trying to think, what is Richard Socha's thing? And you've always been basically talking about Google in the context that people are building different and better stuff. And both consumers and enterprises are more open to using a different technology. I think that's a fair summary of your position. But how has the ruling changed things against your ideology of recent years? So in many ways, it's a good ruling.

39:42Now, of course, as a startup, when this ruling will really come into effect is important. They might appeal the ruling. It'll take years probably for it to really materialize. That's infinity in AI and startup time. So we're still just focused on building the best APIs and also end-to-end solutions for our customers. And we don't really think this will materially affect us over the next two or three years. Now, of course, it will affect other consumer companies. But again, in many ways, this is an index that was built for people to decide which blue link to click on, AIs and people through their AIs and through their agents will search very differently in two to three years.

40:25What's interesting is one of your clients that we just showed is DuckDuckGo, and it's all about search. So how does its end exposure affect you, and how do you think about continuing to serve other AI winners or broadening out to more of the blue chips as well? Yeah, I think the values of privacy are actually very useful for both consumers. and for enterprise. And so we're really excited to keep partnering with companies like that that both want to get search results, but also feed those search results into LMs. And we're doing that over a billion times a month. There's actually no other AI startup I know of that is at that scale.

41:02A billion times where our answers either are shown directly to a user or are given to an LM to then majorly affect what that LM says. In fact, I would say that many people underestimate that whole search infrastructure layer, whereas the LLMs themselves are going to get commoditized more and more. There's open source pressure for them. But the search, you can't open source the search index. We want to thank you, Richard Shosha. Wish we had more time. CEO and co-founder of you.com. Fascinating fundraise, fascinating business model. Come back soon, we hope.

41:40we've got to get back to the key story of the day and one of the movers on the back of it apple up almost three percent that's as it rises alongside alphabet the court of course ruling that google can continue to pay partners for keeping google's search on their operating system so more on alphabet's impact on apple let's get to mark german it is a big lift and it's a relief because it helps Apple's bottom line. It's a relief for Apple. It's a relief for Google, but it's also a relief for the whole technology industry, right? The U.S. government is scrutinizing all of them. Meta, Google, Apple, of course, you have the European Union involved.

42:16Obviously, that's separate, but this ruling yesterday set some pretty nice precedent. Don't forget, Apple, they're going to trial in a couple of years now for what they've done to consumers according to the U.S. government, right? So if Google's getting off scot-free for things that probably are much worse than what Apple has done, according, I mean, in my viewpoint. I think Apple is going to be okay in a couple of years too. So that long-term headwind, that's been reduced, but also the short-term headwind of losing potentially 20 billion a year from this Google deal, that's also been mitigated.

42:45Caroline Hyde:Well, Mark, just really quick, because I also want to get to a story you broke yesterday. It's the services part of Apple's business that the streets focused on this morning in the context of the Google ruling. Yeah, that's exactly right. I mean, like I said, the Google deal right now brings in over 20 billion a year for Apple. And that's just one of two$20 billion per year potential headwinds. The other is the App Store. Obviously, the EU is trying to rip up the business model there. You have a judge in California who ruled that developers can spin users towards the web to complete transactions, which obviously means Apple loses.

43:16It's 15 % to 30%. So the services business, nearly half of it was potentially under fire over the next 12 months. Now the Google one's resolved. We'll see what happens with the App Store. What's interesting is Judge Meta basically said generative AI has changed the game here. Generative AI is changing the game when it comes to talent. And just talk to us about how we really are seeing Apple lose out in that respect, it feels like. Well, there's a talent war right now and Meta is leading the pack. You have OpenAI and Anthropic in there. They're all trying to hire each other's top academics and researchers in the AI space.

43:48A little edge can do a lot. The big question for me is how quickly does this stuff all become commoditized? And Apple's bet is, well, pretty soon because they are working on some extensive AI partnerships right now, and they've been looking at a number of companies to acquire, so they believe they're going to play in here too. But for now, they're bleeding talent on an almost weekly basis or every two weeks. I have a story coming out between two and five different major AI players at Apple leaving for Meta. Yesterday, I had a story about four departures over the last week or so, including the head of AI robotics research going to Meta to their new robotics department.

44:20You also have two people going to OpenAI and another person going to philanthropic. And a lot of the people on Apple's LLM team, they're interviewing out. So you're going to see more departures in the near future. But for now, Apple's looking at ways to replenish that talent pool by buying or partnering.

44:37Caroline Hyde:Bloomberg's Mark Gurman on what is a notable move for Apple, up almost 3 % on Google ruling, but also check out his reporting on the talent departures. Another AI story, OpenAI has agreed to buy product testing startup Statsig for$1.1 billion in an all stock deal. I want to bring in Bloomberg's AI reporter, Rachel Metz. It's not the biggest deal that OpenAI has done. It's not small either. Why does OpenAI need Statsig? OpenAI is working to build out its products, its consumer products, also its B2B products. And this is, in the company's view, a really good way to do that. They bought this company that helps companies test products.

45:19It could do things like A-B testing. So you can have people trying out different things with features that you might want to launch. And this is something that they see as really valuable to the future of products like ChatGPT. The CEO moves over, becomes CTO of applications, reports into Fujisimo. Rachel, what did the deal look like from a talent perspective? Because they've been getting more and more extraordinary as time's gone on between AI companies. Yeah. So as far as talent, as you mentioned, And the CEO of Statsig is going to take on this new role underneath Fiji Simo. Fiji Simo is in charge of OpenAI's applications at this point.

45:57And it also led to a whole bunch of other changes that you see that were announced at the same time. OpenAI is sort of shuffling around a number of people in management. So now the company is going to have two chief technology officers. Previously, it had one, Mira Morati. She's been gone for a while and started her own company. Now they will have two, one on the consumer side and one on the B2B side. So it's going to be interesting to see how those two people are in charge of different things, how they all work together and what it means as far as growth in their business.

46:31Caroline Hyde:Rachel, a lot's happened in the last month, like GPT-5. We have more M &A news. We have a lot of talent news. Could you just update the audience where OpenAI currently kind of stands in all the chaos of reorgs and news flow? I mean, a lot has been going on, and I suspect we will see more. I mean, we have to remember that this is a company that's undergoing a lot of change. It's not a young company at this point. I mean, it's been around for about 10 years. However, things have been changing very rapidly over the past few years, and JAPI GPT is continuing to grow and grow and grow. It's got over 700 million users, weekly users at this point.

47:12So I would expect to keep seeing things move around as the company continues to try to figure out what's going on. And as the industry continues to shift with other companies such as Meta, trying to poach people, paying extremely large amounts of money for employees, it's going to be an interesting ride. And we're here for it. As are you, Rachel Metz. So good to have you on the latest bit of M &A and OpenAI. Meanwhile, that does it for this edition of Bloomberg Tech. But Ed, we've got to look into what the market's been up to. It has been a bounce back since yesterday.

47:43Caroline Hyde:Yeah, Nasdaq 100, bounce back whether it's short-lived or not. Apple and Alphabet, the main stories. Apple, I think, is kind of big. Like it's a strong reaction on a stock where a standard deviation, OK, forgive me for that one, one sigma move is 2%. We'll keep tracking the top story. Recap on the podcast. We've had some absolutely terrific conversations today on what has been a massive story. From San Francisco and New York, this is Bloomberg Tech.

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