OpenAI’s For-Profit Path Cleared

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1:22This is Bloomberg Tech. Coming up, Microsoft and OpenAI finalize a new agreement with Microsoft now getting a 27 % ownership stake in the AI startup worth about$135 billion. Plus, today is NVIDIA's DC Super Bowl. We'll discuss what investors are looking for in CEO Jensen Wang's keynote address at the GTC conference. And we sit down with Tesla board chair Robin Denholm to discuss the push to convince shareholders to approve Elon Musk's$1 trillion pay package. At the index level, there is not a lot going on in the world of technology, but there are two big stories. NVIDIA is off its session highs, up a percentage point and trading at a record high.

2:03We await Jensen Huang later today and a big GTC keynote. Then there is the big breaking news story of the morning. Microsoft will get a 27 % stake in OpenAI at a value of$135 billion, there or thereabouts. It is some certainty for investors, for both companies, who have been waiting to understand the evolution of this relationship. And we got some details well into the future. Let's get to our senior tech editor, Mike Shepard, who's here in DC. There's the ownership and the financials. Let's go through those, please. But also, we now know that OpenAI will license its technology to Microsoft for a very long time.

2:44Yes, until 2032, Ed. And this is really, in a way, a bigger move for OpenAI because it removes some of the uncertainty that has been surrounding its evolution into a for-profit venture. We know the numbers there. Microsoft getting a 27 % stake worth about$135 billion. But another key element that we also heard was that it will have a hold on OpenAI technology until 2032. And that also includes when OpenAI achieves AGI, artificial. This is the state of generalized intelligence when AI can think like a human in essence. So that's a key development. And there is also some money going into the nonprofit OpenAI Foundation that also resolves another loose end.

3:31And for investors, this removes one of the hurdles that have been standing in the way of this all happening. And it had been standing in the way. Microsoft was one of the last holdouts among the backers of OpenAI for this evolution to a for-profit. OK, so the pathway is open for OpenAI to become a for-profit business and get the resources it needs. It was a hell of a day to pick to put news out between 9 and 9.30 for Eastern this morning. Four red headlines on the Bloomberg Terminal, which is a lot for our technology newsroom. We are here for NVIDIA GTC. And as we've written on the Bloomberg Terminal, this is the AI Super Bowl.

4:06The expectation is very high that Jensen Huang will say something that moves the needle and he'll say something political. Well, there sure is, Adam. We've been looking at this from two lenses. One, what are they going to be introducing in the way of products, features, partnerships to accelerate this push that Jensen Wong and NVIDIA have been making to try to spread and disseminate artificial intelligence through the economy in a lot of different sectors, ranging from health care to transportation. We'll hear him talk about things like robotics and other areas where they want to see what he calls the AI factory take hold.

4:41This is where AI is used to develop ideas. But one of the things that has been holding back the NVIDIA push, of course, has been U.S. export controls. That has kept NVIDIA out of the world's largest market for semiconductors, and that is China. And he would sure like to see that change. And not coincidentally, President Donald Trump is in Asia as we speak. He is about to meet with Chinese President Xi Jinping on Thursday and perhaps hash through some of those issues. For now, this preliminary core between the U.S. and China does not include any change to those export controls. But perhaps Jensen today will be sending a signal to his new friend, Donald Trump.

5:20And Jensen will be traveling to South Korea. And he will see Trump there as soon as the Super Bowl wraps up later today. The president told us he expects to see Jensen Wong tomorrow. So he's going to have to hot foot it away from Washington, D.C. this afternoon. Bloomberg's Mike Shepard. Thank you very much. Now, coming up, Robin Denholt, chair of Tesla's board, joins us to discuss the push to convince shareholders to approve Elon Musk's$1 trillion pay package. That conversation is next. This is Bloomberg Tech.

5:58This is Caroline Hyde. And I'm Ed Ludlow, inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation and the future of business. Every weekday, we bring you the top headlines from the world's biggest tech companies. From finance to defense, AI to entertainment and from startups to the magnificent seven. We highlight the latest stories of the people and companies pushing the tech sector to new frontiers and the politics that shape global tech markets. We do this all every weekday, then bring you the most important conversations and analysis in our podcast.

6:32Search for Bloomberg Tech on YouTube, Apple, Spotify or anywhere else you listen. Join us every afternoon on your commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech Podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today wherever you get your podcasts. We are pleased to welcome our TV and radio audiences worldwide. as we're joined here in New York by Robin Denholm, Chair of Tesla's Board of Directors in New York, meeting with shareholders, key institutional shareholders of Tesla. Of course, there's a pay package that many have been analysing that will keep, from your perspective, Elon Musk in the driving seat and CEO of Tesla.

7:13Who are you meeting with and what thus far has been the response been to this pay package that could see Elon paid as much as a trillion dollars, Robin? Well, thank you for having me today. Yes, as part of our annual shareholder meeting, I meet with the top investors in Tesla on the institutional side and obviously also talk to retail investors through forums like this this morning to encourage everybody to vote, but also to answer any questions that they have. From a board perspective, we really like to engage with our shareholders, understand their questions, their concerns, their optimism for the future.

7:55And so it's a really important part of the process we go through on a quarterly basis, but also with the proxy on an annual basis as well. So the initial feedback, is it one of optimism around the pay package? We've heard from Glass-Lewis, from ISS, which have said they're not in agreement with the way in which the pay package is thus formed. The key concern seems to be the sheer amount of money going to Elon Musk if indeed he achieves all of those key milestones. But for you, it's about, and for Elon, influence, it seems like. So how are you managing to discuss that with the investors, institutional and retail?

8:33Yeah, so firstly, it is a performance package. So he gets nothing if he doesn't perform against the pretty audacious milestones that are part of the performance criteria that's been outlined by the board in the performance package. So I think rather than compensation, it's actually about the performance and the goals that we have for the company as we move forward. And so for me, it really is about making sure that investors understand that, that they actually get paid if he hits the milestone before he will. But to your point, it is about voting influence. Elon's been very public, including on last week's earnings call, about the fact that it's around the voting influence that he could have in future shareholder meetings, as opposed to the economic interests of the shares that he would get as part of the performance plan.

9:36Robin, good morning from Washington, D.C. You've acknowledged that there is a very real risk that Elon leaves if the vote is a no. The question we get most often from shareholders to you is what's the plan B? Either is there a plan B as a different person stepping up, or have you discussed with Elon the idea that it will result in a no vote and that you can use some kind of bridging mechanism, another interim pay award, for example? Well, he's been quite public in terms of the implications of a no vote being on his leadership as well as, obviously, on the performance plan itself. And so from our perspective as a board, we obviously take our fiduciary responsibilities really seriously to all shareholders.

10:30And having, you know, a succession plan, you know, those types of things are things we've discussed on an ongoing basis, particularly, you know, if something untoward were to happen. So from our perspective, succession planning is an important part. And so much so that we've actually baked in an orderly succession plan, a plan for a plan, if you like, as part of this performance plan. So the last two tranches of the performance plan are unlocked by having a robust performance plan, sorry, succession plan that Elon would be part of. If Elon Musk walks away from Tesla on November 6th or 7th because of a no vote, is there a contingency where there is an individual already within Tesla or an individual outside of Tesla that is lined up as a near term option?

11:25Yeah, so from our perspective, the most important thing at this point in time is making sure that we're explaining all of the items on the shareholder agenda for the annual shareholder meeting, making sure that institutional investors, retail investors have their questions answered. That's our most important thing right at this point. And we are only a couple of weeks. Robin, that is their question. Who's the backup plan is the question that they're asking you. Well, there is no other person that is Elon. We think that he is the right leader for the company over this next decade and delivering the plan and the opportunities ahead of us.

12:05So it's about how do we create the most value for the company and for our shareholders over this next period of time? And he is the right leader for us over this next decade. Can you give me a sense of probability if the vote is no? What probability Elon walks? So right at this point in time, it's too early to actually make a call on the outcome. Most investors wait to the last minute to vote. So we're still early in that cycle, which is one of the reasons why I'm in New York to meet with our institutional investors. And we will get a better sense, you know, as the votes come in. And some institutions are more public than others in terms of how they're going to vote.

12:51So yesterday there was a public announcement by the pension fund in Florida. and so other investors will start to make their votes public as well. But if it's no, the probability that Elon goes 100 %? Well, time will tell but he's been very public in terms of, you know, it would be more of a say on his leadership over this period of time, not just about the performance plan itself in terms of a no vote. Yeah. Robin, you've been generous with your time. We've already spoken with you in September at length about the goals that you've set for Elon Musk. But one of the things that came out of that from, again, the shareholder base is why are the energy products not as strictly mandated to Elon?

13:41When you consider the earnings that just posted, that was a growth driver, right? It's such a key part of Elon Musk's master plan part four and this abundance that he's going after. So why didn't you include energy products as a stated goal? Yeah, so there are many different goals that we looked at. Energy is an important part of the Tesla product lineup today and in the future. And you can see the impact that energy is having not only on the results, but also on the transition to sustainable energy longer term. So it is embedded in the plan. The EBITDA goals that we have as a company, you can't get there without a robust energy outcome.

14:31And so again, if you look at the results of last week, energy contributed very significantly. And to get to $400 billion of adjusted EBITDA is a monumental task for anybody. No one out there, at least to my knowledge, is at that sort of level. And so even the first EBITDA goals at$50 billion is nearly three times our highest EBITDA goals that we've had. So from our perspective, it is absolutely embedded in the goals. To your point, it's not a specific line item in terms of the revenue or the units or the kilowatts of energy or megawatts of energy that are out there, but it is implicit in the plans.

15:16And the master plan for, you know, talks about that as well in terms of getting to sustainable abundance. Robin, has the special committee and the advisors that you took on discuss the use of interim awards in the event of the no votes and how you might replicate what you did already? Well, there's an important other measure on the board as well, proposal, in terms of increasing the share pool that we have. Firstly, for our employees, as you know, we're in a talent at the moment, particularly around AI talent and adding to the employee reserve as part A of that to actually increase the amount of equity that we have for our employee program.

16:07But secondarily, we've also asked shareholders to add to the pool in the event that we need to award an amount to Elon to compensate for the 2018 plan, because as you know, we put an interim award for roughly one third of what he earned under the 2018 plan, given the appeal that is ongoing in Delaware at the moment. So, we have not ruled that out. The special committee was charged with looking at all matters compensation-wise. As you're aware, in August, we did actually award an interim award, which does have a two-year vesting period and is forfeited if we win the appeal in Delaware for the 2018 compensation program.

17:00It does seem then to be about money. And I'm interested as to how you continue to, you've made very clear it's about influence as well. Some of the feedback has been just the gargantuan amount that could go to Elon in terms of monetary value. But then others are worried about the dilution to other shareholders. How was it in just no way possible to give him more voting rights without the$1 trillion mega money bonus, it feels like? Yeah, I mean, we looked at many different instruments to be able to award equity that had voting rights versus the economic value. And it's just not possible. once a company has gone public to introduce a special class of voting shares.

17:42Other companies have that. If you look at some of the tech companies, they have two classes and founder shares, if you like, or special voting rights exist. But for Tesla, that wasn't implemented at the time that we actually went public. And therefore, we weren't able to use that type of instrument. But what we were able to do was to bifurcate the voting rights versus the economic rights. And so under the plan, all the awards have voting rights that are earned first. And then the economic rights happen seven and a half years later in the first instance or 10 years later. So it really isn't about the economic or monetary value.

18:28It's more about the voting rights. And if there was a different mechanism that was available to us, we may have used that. But we had many experts look at it over an extensive period of time. And we were not able to come up with something that would enable us to do that. We are speaking with Robin Dunholm, Chairperson of the Tesla Board of Directors, of course. And Robin, what's so interesting is Elon's made very clear why he wants influence. And in the earnings call, he was saying he's worried about this army of robots that he is creating and then not having the influence if something went untoward.

19:03His concerns about AI have been well documented. But why is he the right person to have influence, to have more than 20, 25 percent voting control? I think there's not another person on the planet that has the skill set that Elon has, both in terms of the manufacturing prowess that we've developed and he has developed over many years, but also around AI. that confluence of those technology skills. I think there are very few people that have that. And therefore, obviously, looking at the risks associated with new technologies and risks that haven't even yet emerged around those technologies, I think he is the right person, not only to take advantage of the opportunities for the company ahead of us, but also to make sure that there are not the pitfalls of new technologies that could happen.

19:57Obviously, the board plays a role in that as well. And as from a governance perspective, looking at the types of evil that could be done with different types of technology is part of our purview as well. And it is why we have such a phenomenal board with the skill sets that we have, both from a technology perspective, but also from a governance perspective. And so we play a role, but obviously the CEO, the management team play an even bigger role on safeguarding companies. And safety is a huge priority of ours as a company. And so when you're developing new technologies, technologies that other people have not yet developed globally, it is important to make sure that you have the right framework in place.

20:47Robin, final question from the shareholder base is, Did the situation around the 2018 package, chancery, Delaware situation, mean that the board had to hold off on authorizing any other investments or big strategic shifts? No, I don't think so. I mean, obviously, we take into account a whole bunch of factors as we're working through strategy and different alternatives the company has ahead of us. but clearly the Delaware situation was disruptive but not disruptive from a strategic point of view. Making sure that we have an eye on the future and the evolution of the company over the long term I think is something the board is focused on but also something the management team is focused on.

21:40Robin Denholm, Chair of TESA's Board. Thank you very much. Thank you. Adobe is hosting its annual user conference this week, where the company will announce its continued integration of generative AI into flagship creativity and productivity tools. The announcements include an updated version of their Flyify image model and an AI assistant in Adobe Express and access to models from Google and OpenAI. We sat down with Adobe CEO Shantanu Narayan for an exclusive conversation about its AI ambitions. I think everybody is so focused right now on training and the creation of these models, and that's where the investment is.

22:21Until that moves to inference and you're starting to see, you know, the usage of that, all of this investment is not going to be monetized and you're not going to get a return. So, you know, I'm very confident that Adobe is already at the path where it's the inference, it's the usage, it's the workflows, it's the actual value that we provide to customers that's going to be the long-lasting value. You present a picture, a human-generated picture, of a business in rude health. Do the markets give you enough credit for that? Well, I think it's fair to say that, you know, the stock price right now I don't think represents because there's a question about software at large that I think is misunderstood.

23:05When you look at how profitable we are, the growth prospects that we have, models are going to be an on-ramp. And what we have to do at Adobe is just to continue to focus on driving the innovation, on demonstrating the metrics that are powering this underlying business, the early metrics and adoption of all of this technology. And that gives me great confidence that the innovation that we're doing, innovation is alive and well at Adobe, as well as it's being recognized by our customers. So, you know, we recognize that inference is where the action is. We're skating to where the puck is. And, you know, I think the stock will take care of itself.

23:45But it's certainly undervalued right now, which is why we're buying back a lot of our stock. Let me address this head on. Wall Street does not see Adobe as a place where AI innovation is happening. And you just said, you know, when inference comes, you will be there. What's the counter argument to the statement that I just made? I actually think Wall Street has recognized that AI and Adobe and the way we've innovated has actually been stellar. I think they're wondering where the monetization of training and inference. I think this incredible focus on chips and the infrastructure for training is where the action is right now.

24:29And, you know, my belief is that it will switch to inference. So I would actually dispute the fact that they are not recognizing the innovation that we're providing. But I think they're waiting to, you know, see how that accelerates on the inference side. that was adobe ceo shantanun orion okay some more news it's time for talking tech first up paypal shares surging today after the company raised its full year earnings guidance and announced a new partnership with open ai the deal will integrate paypal's digital wallet into chat gpt products enabling users to seamlessly turn searches into purchases plus meta is moving its top metaverse executive to a new role.

25:12Vishal Shah is set to oversee AI products and will be responsible for adding the company's AI tech to Metas app and wearable devices. This comes just a week after the company cuts 600 jobs from its AI unit. And Paramount Skydance is preparing for a major round of layoffs, cutting about 1 ,000 jobs starting Wednesday. That's according to sources. The move follows the company's merger in August as management looks to streamline operations and reduce costs. A second wave of job cuts is expected at a later date.

25:48Welcome back to Bloomberg Tech. Let's get a quick check on these markets because we're at record highs, folks. The Nasdaq 100 tracking up just about three tenths of a percent. We're coming off of the previous highs of the day, but nevertheless, we march ever higher as the moon music is positive. One around earnings, one about some of the seismic announcements we're going to get from NVIDIA. It's trading higher ahead of the big announcements from GTC. Microsoft trades higher with clarity on that 27 % stake they have in the public benefit corporation of OpenAI going forward. But let's dig beneath also what's rallying in Amazon is.

26:17Now, we understand with clarity now that 14 ,000 jobs in the corporate part of the business are to go. We're up about a quarter of a percent. But we want to dig into this particular story and what it means going forward with Matt Day. You cover Amazon, Matt. And in many ways, this has been signaled by Andy Jassy. generative AI is going to allow them to do more with less from a corporate personnel perspective. Yeah, that's right. Andy Jassy, the Amazon boss, came out with a memo earlier this spring, I guess, saying that over time they expected AI to reduce the headcount in corporate roles. Now, PR is telling us that's not the driving force today, but it's hard to escape that as a background.

26:54Did it just in the layoff memo from the HR chief this morning announcing those 14 ,000 cuts. You know, they mentioned AI is transformative and Amazon's got a reshape to be ready for it. We actually did find out a little bit more granularity from sources right now on which roles, which departments. And I think it's worth pointing out 14 ,000 is less than half the number that Reuters put out yesterday afternoon. That's right. And I think one of the one of the indications in Amazon's communication to employees is that these might not be over. They said, you know, looking to 2026, the company would continue to hire in some areas, but also look for efficiencies and look for ways to to cut the fat.