Meta Cable Expansion Stalled by Iran Conflict

16:42Shantanu Narayen:It's quite similar to a lot of the big SaaS names, whether it be Workday or Salesforce, that they're seeing steady growth, slight deceleration, some uptick of their AI products. But at the end of the day, it's just not enough to convince investors that AI will be an additive and not a competitive force against their business.

17:03Ed Ludlow:Bloomberg's Brody Ford all across the software space. Thank you very much. Another news item, a jury in Los Angeles will soon decide the outcome of the high stakes social social media trial. And the claims that sites like Instagram and YouTube are dangerously addictive to young people. Final arguments just concluded after roughly four weeks of testimony from medical experts, a whistleblower and Mark Zuckerberg himself. The jury of seven women and five men is set to begin deliberations today. Now, coming up, Ramp CEO Eric Gleiman joins us to discuss the company's latest acquisition and an expansion into Europe.

17:41Ed Ludlow:That conversation is coming up next. This is Bloomberg Tech.

17:51Shantanu Narayen:Effective marketing is smarter, not louder. Cutting-edge technology alone won't deliver better experiences or outcomes. Adobe helps marketers use data and AI to drive smarter engagement, reduce noise, and use AI effectively and responsibly. The brands winning in the AI era aren't the ones chasing every trend. They're the ones with the right systems and strategy. It's time to lead with insight, agility, and innovation. It starts with Adobe. Hello, hello.

18:23Ed Ludlow:I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna. And I asked him, how can companies use AI to its fullest potential to create smarter business?

18:38Shantanu Narayen:My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side.

18:45Ed Ludlow:For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind.

18:59Shantanu Narayen:If anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive. Yeah. So we are not asking our clients to be the first experiment on it. We say you can leverage what we did. We're happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

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20:59Ed Ludlow:Fintech startup Ramp is acquiring European payments platform, Billhop. The deal will help Ramp expand its footprint in large part because Bill Hopp is licensed in the UK and Sweden. Let's speak with Ramp CEO Eric Gleiman. And this is interesting, right? I think the best place to start is Europe, if you regard UK as Europe and Sweden in the Nordics. Why Europe and why now with this, Eric? Ed, thanks so much for having me on. And it's a region that we're incredibly excited about.

21:28Shantanu Narayen:We're already working with so many of the fastest growing companies based in Europe. We think about companies like Eleven Labs to great companies started by European founders like Stripe and Vercel. And I would say Europe is having a moment. And we want to be there for it and bring so much of what we brought to American companies to the companies operating in that region.

21:49Ed Ludlow:That's an interesting point. When you posted the news this morning on different social platforms, one of the interesting points of discussion is what is the competitive landscape like for you in Europe? and how is it different to in the US? So like in America, and correct me if I'm wrong, but you go up against kind of the big banks. Is that the same in Europe or is it a different industry there?

22:11Shantanu Narayen:In many ways, it's very consistent. I would say whether it's the US or even in Europe, classically, if you were a bank, you were able to move money. And if you weren't, you could sell weird aftermarket software to do your expenses or pay your bills or things like that. And the result was probably what most people still feel of one hour a month, you have the worst hour, slowly doing your expenses across different systems. And part of what we proved out in the U.S. is it doesn't have to be so hard. We've created cards where you tap them and your expense report is done for you, your books are closed for you.

22:44Shantanu Narayen:And the result is that companies spend less. The average business spends about 5 % less. And the average business on ramp grew last year by about 16%, which is multiple times the U.S. average. And so just as we've brought this to the U.S., we want to bring that same innovation and more to the great companies being built and operated out of Europe.

23:04Ed Ludlow:Operate out of Europe, but like it's a global world. It's a funny thing to say, but, you know, many of your customers or clients, right, they would have a footprint operationally in different jurisdictions like the U.S. and Europe. And, you know, is this kind of therefore about like the multinational client that you're trying to go after?

23:22Shantanu Narayen:It's a bit of both. I mean, so for today, let's say you're a multinational leader like a Shopify or like a CBRE. You can issue cards today locally and make payments all around the world, in Europe, in Asia, in Latin America. You name it, Ramp is able to do that. But part of what this acquisition brings is the capabilities to serve European headquartered or base companies without operations in the United States. And so they're able to benefit from that same global infrastructure. But it really allows us to reach a much larger market.

23:59Ed Ludlow:Talk a little bit about Ramp, the company, the startup and you running it. You have like the who's who list of investors. And what I find interesting is not common, not unique to you. You know, it's come up a lot recently. You sat on a lot of the money that you raised for quite a long time. You've gone out and done an acquisition. position, you know, what's that like, you know, deciding to spend the funds raised?

24:25Shantanu Narayen:It's, look, with everything we do, just as we're trying to help our customers get more from every dollar an hour, we want to, too. And I think you're exactly right. The business has raised more than$2 billion of equity capital. The vast, vast majority of it is still on balance sheet,

24:40Ed Ludlow:and Ramp is even generating cash, even as we're one of the fastest growing companies in the world now. Interesting. Would you give me a number on that? You know, any sort of financial metric on the health of how it's going? You know, I would say this.

24:53Shantanu Narayen:We've had four straight quarters of accelerating growth. The businesses call it doubling every year, which is really an outlier. And last year, I believe together, we shared that last summer we passed more than a billion dollars a year in revenue in U.S. dollars. And so we've seen that growth rate even accelerate. So it's

25:13Ed Ludlow:quite unique. You run a tight ship and you're trying to grow Ramp. And I really appreciate sharing the data on that point. The landscape is very interesting. Brex selling to Capital One, as an example, over many years on the show, the guys at Brex would never have said that that would be the case. How do you feel about Ramp's independence long term and where it fits in a big sea of large financial players? I think it's a really special thing.

25:47Shantanu Narayen:If you talk to, let's say, a finance leader of a company, let's say with 500 employees, their finance suite looks like a mess. We find there's something like 20 tools on average, something for cards, something for bill payments, something for AR, something for expenses, something for procurement, something for approvals. It's horrific. And part of what we've done is collapse that and really simplify it. And I think that has first made us unique in the market and allowed us to grow even faster than the largest financial institutions. And so we're excited. We're over 2 % of all the corporate and small business card transactions in the US.

26:22Shantanu Narayen:And while we're very excited about that, we look forward to taking on the next 98 % and delivering something better.

26:29Ed Ludlow:Eric, we just have 30 seconds, but looking at Block as an example, will you reduce headcount because of AI?

26:37Shantanu Narayen:Look, we have salespeople who are closing two, three times the dollar value of deals than we did last year. And from my vantage point, when you have people who can do that, you want to hire as many as you can as fast as possible.

26:51Ed Ludlow:Eric Lyman, CEO of Ram. It's really great to have you back on Bloomberg Tech. Thank you very much. Now, coming up on the show, changes to rules governing the S &P 500 could rocket SpaceX on to the index. We're going to have details on that Bloomberg story next. It is halftime. These are the markets. And this is Bloomberg Tech.

27:20Ed Ludlow:Welcome back to Bloomberg Tech. I'm Ed Ludlow. S &P Dow Jones indices is considering changes to how companies join the S &P 500. That's all according to sources. The move could potentially fast track Elon Musk's SpaceX onto the list after it's expected to be a blockbuster public market debut later this year. Bloomberg's Kyle Porter is here with the details. It's a big story that the team broke and tried to explain in detail the considerations that are happening. And they are considerations. So let's start with that. What have we learned in our reporting? Well, yeah, it's important to note that no final decisions have been taken on this.

27:57Shantanu Narayen:However, should S &P decide to change its rules, its committee, it would be absolutely momentous.

28:03Ed Ludlow:It would, excuse the pun, put rocket fuel on the trading of SpaceX as a new company. You and I did a story together yesterday. It was complicated, in part based on regulatory filing, in part the people we spoke to. But in short, SpaceX's acquisition of XAI has closed. And there is some ownership mechanics that took place. explain it to our audience. Well, I wish we had half an hour, but in short, it's effectively

28:33Shantanu Narayen:tidying up the balance sheet, putting different pieces of equity into different boxes. Tesla's investment in XAI has been rolled over into SpaceX. Some of the early investors who've been with Elon for a long time across different companies, those like Valor and DFJ, have also had their stakes in SpaceX slightly increased as part of these changes. It's all designed to make your equity term sheet look a little bit more normal as you approach the IPO process, which we still

29:02Ed Ludlow:expect to happen this summer or into the autumn. Okay, Bloomberg's Carl Porter, part of the team that's done a lot of reporting on, I guess, mechanics of what's happening with SpaceX ahead of an anticipated public market debut. Let's get an investor's perspective on all of it. Peter Singlehurst leads the private companies team, Bailey Gifford, an investor in SpaceX, but other names that I guess we've talked in the context of being potential blockbuster IPOs down the line. Anthropic is another example. Peter, welcome back to the show. I think it's the first time we've had the opportunity to speak since SpaceX acquired XAI.

29:40And I guess just what's your reaction to that?

29:43Ed Ludlow:How you guys felt about it, the interpretation of the rationale behind it?

29:50Shantanu Narayen:I think when you step back and you consider what has made SpaceX such an incredible business over the last 10 years, it's their ability to drive down the cost of launch. It's the deflationary nature of their business. And when you look at other hardware categories where we've seen that historically, such as Moore's law in transistors or Flatley's law in genomics. When you drive down cost by orders of magnitude, it opens up phenomenal, unforeseeable use cases. And we're seeing that in the domain of space. Now, Starlink has been the first application of that. And we think there's a statable case that data centers in space could well be the next application that opens up as you drive down that cost of launch.

30:40Shantanu Narayen:Now, it's early days for that. It remains unproven. But if that is to be something that is feasible, being vertically integrated into an LM model such as the Grok model will be an advantage for SpaceX.

30:54Ed Ludlow:At the time that the news came that SpaceX would acquire XAI, we did some reporting that essentially XAI operates as a subsidiary of SpaceX. There's also ITAR considerations, but there's also XAI's financial situation, which is the debt burden and its rate of cash burn. How did you feel about SpaceX taking on that balance sheet, essentially?

31:23Shantanu Narayen:I think if any business is going to take on a company that has those necessary CapEx requirements, it needs to be a company that's in a very robust financial position. And SpaceX is in a privileged position of having not only a very strong balance sheet, but having strong profitability and cash flow dynamics. And so the combination of a business that does require significant capex in the form of XAI alongside a business that has a history of high capex investment, but being able to show how that can translate into, you

32:00Ed Ludlow:know, help very strong levels of profitability, I think can be a strong combination. Kyle did, I think, a pretty good job a few moments ago explaining the sort of technicalities of a transaction close like this. But the big picture is the net result of Tesla now having literally a financial stake in SpaceX because of the investment it made of the Series E of XAI, that being rolled over in SpaceX. The Elon, Inc. story is kind of coming together. How do you feel about that, the proximity of those two giants?

32:36Shantanu Narayen:I think there's always been a complicated web of interconnections between Elon Musk's companies. And we saw this as Tesla owners when they acquired SolarCity. Ultimately, what will drive shareholder returns will be the strong execution and growth of these businesses. And at the time of the SolarCity acquisition by Tesla, it was controversial. But in the end, it turned out not to really matter because Tesla was such a phenomenally successful business. And we believe that that dynamic will exist here with SpaceX. It is probably one of the businesses in our portfolios with one of the most robust competitive advantages and growth opportunities.

33:18Shantanu Narayen:If you look at orbital launches done annually, SpaceX is leap and bounds ahead of anybody else. It has an incredibly strong market position, a very strong proposition to its customers.

33:33Ed Ludlow:And we think ultimately that will be the main driver of return to shareholders. We're showing kind of the rest of your portfolio of private company investments. And I get that's actually split across more than one trust. But what those companies all have in common is the staying private longer. Many of them have done tenders or secondaries. Explain what's happening in that private market that's supporting that theme.

34:08Shantanu Narayen:yeah so there are really sort of two kinds of transactions that we see happening in the later stages of the private markets we are continuing to see very large primary capital rounds where companies are raising capital to invest in their businesses and there it's businesses such as Anthropic such as Andrew Hill such as Wave that are raising billions of dollars to invest in the huge market opportunities that they have but that capital that they're raising is going into their businesses for investment. You then have a second category of large late-stage transaction which are secondary transactions where either early shareholders or employees are selling to other shareholders and I would categorize the transactions done by the likes of Databricks or Stripe or indeed some of the transactions that SpaceX have done in this camp.

34:58Shantanu Narayen:Now what's making that possible is the fact that you have businesses in very strong financial positions that are, in many cases, generating cash flow, where they actually don't need more external capital, but where there's clear demand for their shares. And so matching off some of that demand and supply is good for employees who want to be able to realize some of the gains from their options. It's good for the companies as they start to potentially reduce some of the overhang that might exist as they come to the public markets. And it's good for investors who want to buy

35:29Ed Ludlow:shares in those companies. Peter, we've been very focused on Anthropic and Anthropic's relationship with the US government, with the Department of Defense. My understanding is that there's like this group of investors that basically applaud Dario Amadei for having red lines. But also, there's this belief that there is a commercial advantage in holding that moral high ground. They would cite the data of Claude's placement on the different app stores and downloads activity after the Pentagon labeled it a potential supply chain risk. But it's that sort of commercial opportunity of taking the moral high ground that I wanted to ask you about and your thesis towards Anthropic in that respect.

36:21Shantanu Narayen:I personally wouldn't contextualize it within the realms of moral high ground. I think this actually comes down to business culture. So one of the things that we really focus on when we diligence business is the cultures of organizations. And then we're not looking for good business, good cultures or bad cultures. We're looking for effective cultures. And we're looking for cultures that will be instrumental in driving the performance of businesses. And one of the things that's striking about Anthropic is that they have a very strong culture around AI safety. And over the long run, you do need to make sacrifices to maintain cultures.

37:00Shantanu Narayen:And so where we see companies, and we're seeing this in the case of Anthropic, making sacrifices and taking difficult decisions to act in ways that are congruent with their cultures, we applaud that because we think it enables companies to survive and thrive in the long term

37:19Ed Ludlow:Peter Singlehurst head of private companies at Betty Gifford it's been great to have you back on Bloomberg Tech I really appreciate the depth that we went into across some of the companies in the portfolio now coming up in the show we're going to speak to Lucid's CFO Tafik Boussaid after a kind of difficult day for the shares yesterday. Simple story. Investor Day, they told us about the future and more about their plans for RoboTaxi. That conversation's next. This is Bloomberg Tech.

37:56Hello, hello.

37:57Ed Ludlow:I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna. and I asked him, how can companies use AI to its fullest potential to create smarter business?

38:12Shantanu Narayen:My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side.

38:19Ed Ludlow:For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind it.

38:33Shantanu Narayen:If anybody is not using AI to make their developers who write software 30 % more productive today, with the goal of being 70 % more productive. Yeah. Wow. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process. Because the biggest change is not technology. It's getting people to accept that there's a different way to do things.

39:02Ed Ludlow:To listen to the full conversation, visit ibm.com slash smarttalks.

39:32Shantanu Narayen:You can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts, yep. High yield cash, yes again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market.

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41:16Ed Ludlow:Lucid is trying to prove it can be more than a luxury EV maker. At its investor day, the company laid out a plan to scale into the high-volume, mid-size market. partner, more details on the partnership with Uber on RoboTaxi, and most importantly, shorten the path to positive free cash flow. The big question now is execution and how they pay for growth without burning through too much capital. Joining us now is Lucid's CFO, Tufik Boussaid. And welcome to the program, Tufik. It's good to see you. I want to start, actually, if I may, with the environment that we're in and just the supply chain impact, but also the financing impact that you're seeing from the war in Iran?

41:56Ed Ludlow:Because, of course, Saudi Arabia and different Saudi entities are your biggest backers. What are you seeing on your desk right now?

42:05Shantanu Narayen:Well, for the moment, I mean, the disruption that we have seen have been rather minimal. So we have not noticed major disruption as far as our supply chain and so forth. We did see some tactical adjustment of some of the logistic costs. The shipping companies have indeed increased some of the pricing. But as far as our operation is concerned, we didn't see any disruption for the time being. So we will need to see long term if the events and the tension are extending for too long, how it will impact the business. But for the moment, I have to say that the disruption is rather minimal.

42:45Ed Ludlow:The big headline for you in the finance org was a timeline or a plan to get to positive free cash flow. Yes. I'd kindly ask for a little bit more detail. What is the timeline on that? And mechanically, what are the levers you can use to achieve positive free cash flow?

43:05Shantanu Narayen:Yeah. So we have two important milestones. The first one is the gross margin positive. And this is expected to happen in the midterm. And you should read midterm. basically the next three years and the free cash flow positive expected by the late decade. So this is the plan that we have. This is the guidance that we have provided yesterday during our investor day. So several levers that we will be activating to get there. First of all, I mean, we are in industry where scale is important. So scale coming out of midsize is one of the key catalysts to allow us to go to break even margin and cash flow positive.

43:43Shantanu Narayen:So that's the first lever. The second one is the margin improvement and the additional revenue streams that we will be adding to our top line. So the margin is expected to improve on the back again of the scale, the various improvements that we're doing, not only in terms of constraining the bill of material or constraining some of the cost lines that we have in the company. It's also about simplifying what we will be bringing to the market going forward. So when you work on a platform with the 95 % part commonality over time, this is how you leverage the cost and this is how you constrain it and you accelerate the journey towards the gross margin positive.

44:26Shantanu Narayen:Then there's the additional revenue stream. And I guess that we will be talking about that. The fact of adding software revenue, revenue from business partnerships on robo-taxes, this is an additional catalyst which will accelerate the journey.

44:41Ed Ludlow:so uh we are we are so focused right now on the business model for robo taxi for all the different conduits of what are is a web of partnerships right you have announced project lunar purpose built robo taxi to cedar but what i want to understand is at volume there's there's a financing risk and an execution risk from taking the vehicles off the production line and then a fleet operator taking them. So who takes on that burden? Whose balance sheet gets that done?

45:16Shantanu Narayen:Well, there are different models and these models are not meant to be static. So, I mean, speaking about what exists and what we already know. So the first deal that we have done with our partners with Nuro and Uber was a deal which was based on the assumption that Lucid provides the technology and the platform and the car. Nuro provides the software and the AI autonomous driving capabilities and Uber takes on the asset. So this is how we have set up the first iteration of the deal. And we have always said that there will be other iterations. And yesterday, the first step has been announced. It's not completely finalized.

46:02Shantanu Narayen:It will be finalized in the coming weeks, but we have announced what the next step would be. And we can perfectly imagine that things will evolve over time. So the whole question is about the value chain in the ecosystem and how it is split between the different components or partners being involved in this business.

46:25Ed Ludlow:Taviq, we're having a finance conversation, which is, you know, it's appropriate. You are the CFO. I wonder, like, how interesting the mechanisms can get. like you know uh uber has a financial interest in this but they have a capital-like model so do you see maybe private equity or the banks coming in with some kind of special purpose vehicle right they finance that that block of volume production until some time where the fleet operator pays you and says here here's the money for all the cars that we're we're taking from you because you're not going to operate the the service right you're not going to operate the fleet and then you know to what extent do you need some revenue guarantees from those other partners?

47:07Shantanu Narayen:Yeah. So obviously, I mean, the gold standard in these kind of businesses is to secure recurring revenues. So this is how you spread the risk over time. And this is how you give confidence on the validity of the business case. Having said that, I mean, we are also staying away from whatever is associated with the capital intensive business. So I don't think that we will ever have a model where we own the assets and we generate revenue out of it. There are companies who do this kind of business very well. Companies, institutions, businesses who are experts in managing assets. So I think that over time, with the growing robot taxi market and the expectation in terms of growth, and you saw the various assumptions in terms of market size.

47:59Shantanu Narayen:It's really ranging from$300 billion to over a trillion, depending on the study you look at. I think that this will create new business models and new operators who will start joining the overall value chain over time.

48:16Ed Ludlow:And that's the bit that our audience really wanted to understand. Tufik Boussaid, Lucid CFO, it's great to have you on Bloomberg Tech. Thank you. Now, coming up, we're going to talk about the U.S. government's effort to enlist Silicon Valley in its AI warfare ambitions. Stick around. This is Bloomberg Tech.

48:38Ed Ludlow:The Trump administration's decision to blacklist Anthropic after its dispute with the Pentagon has sparked debate about how the government does business with the technology sector and buys AI. Here's what the CEO of Dell, whose biggest customer is the US government, told Bloomberg.

48:54Shantanu Narayen:We're kind of a foundational provider of the infrastructure. What I can say from our standpoint is obviously we have various controls and systems to make sure we're selling to the right, you know, to the authorized users. But we, you know, we I don't think a company can dictate to a sovereign government what it does with its tools.

49:21Ed Ludlow:It's also cast a spotlight on efforts to enlist Silicon Valley into the government's vision for AI warfare. That's the focus of the forthcoming book from Bloomberg's own Katrina Manson, Project Maven. Katrina joins us now. The timing of this book, the recent reporting that you've been doing, this is the story right now. The use of technology in the government's relationship with the technology sector. I guess take us inside what you've written and the conclusions that you've reached.

49:55Shantanu Narayen:Thanks so much. I think the thing that I've discovered is that this effort to bring AI to war that started in 2017 with Project Maven, and then we learned much less about it after Google workers protested and Google obviously didn't renew its contract. But the effort kept going in two key ways. We already publicly know about one of them, which is Maven's smart system, the system designed by Palantir, but including lots and lots of different data feeds to help narrow down target selection on a sort of digital, almost a Google Earth platform. That's one thing. But the thing that we really look at in the story that we've published today is the way that the military has tried to put AI onto drones.

50:42Shantanu Narayen:This is this big effort that, of course, is at the center of Dario Amadei's concern about the development of fully autonomous weapons and the way AI might be used in it. I've looked at one element, which is computer vision. That isn't the thing that he was worried about. He's worried about LLMs. But the effort to get computer vision onto drones is about allowing drones to recognize targets, select them, and then be able to execute fire on them.

51:10Ed Ludlow:Bloomberg's Katrina Manson, author of the new book, Project Maven. Thank you very much. And it's due out very soon, later in this month. That does it for this edition of Bloomberg Tech. Actually, since we've come on air, this is what financial markets look like. Now, it's like 100 is now down half a percent, a big move higher in the U.S. 10-year yield. And again, Brent crude, the global oil benchmark, we're above$100 a barrel. We focus on the war in Iran and the technology sector. Check out the podcast for the recap. You know where to find it. This is Bloomberg Tech.

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