Hubbard on Fed Cut Fallout, Open Source AI, Nuclear Bet, Department Store Revival

25:57We've seen sort of the advent of ChatGPT now turn into, you know, is there a AI bubble? and I say that we're just starting to see the real utility of AI. Yes, the investments are high, but why are we all so, so confident that there's a payoff at the end? The way AI has been improving over the last, let's call it, couple of years has been faster than any other technology that I've seen. The adoption rates have been faster than any other technology. The potential is faster than any other technology. But what I'm here to tell you is that it's nowhere near its peak capability. Up next, going nuclear.

26:41However we build the AI systems, can we run them without nuclear power? More nuclear power than we have ever seen before.

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27:53And I'm Tim Stanovic. Subscribe today wherever you get your podcasts.

28:03This is a story about betting on the come, when we have a lot on the line and really need it to work. But the outcome is far from certain. The United States and the world are facing an impending power shortage. What we know now is that the nation, the country, is short of electrons, and we need to build more generation. We do have an incredible demand, increasing demand for energy. We are seeing fundamental growth in the demand for electricity. Why do we suddenly need so much more electricity? Well, we've all heard about AI data centers hungry for energy that would satisfy medium-sized cities, but it turns out that's only part of the story.

28:46AI data centers appear to be the sort of fastest coming and largest new source, but over the long-term, reshoring of manufacturing will be incredibly important as well. Joseph Mikot is director of the Energy Security and Climate Change Program at CSIS and author of paper on energy strategy for the Aspen Economic Strategy Group. When we look at the onshoring of manufacturing, there's a couple different sources of new demand that are going to really come to bear in the next few years. One is semiconductor manufacturing. As the U.S. has tried to secure that supply chain, the government is making investments in public-private partnerships in building leading fabrication facilities here in the U.S.

29:30The U.S. for the previous decades had had very little growth in its use of electricity. We now foresee growth between 20 and 100 percent over the next 15 years. So where are all these electrons going to come from? If we're going to double our energy supply, or even just lift it by 20 percent over the next 15 years, one of the sources will have to be nuclear. Nuclear is going to be a contributing factor for sure. I think we need to continually apply the right technologies where the right resources exist. Scott Stracik is president and CEO of GE Vernova, whose business includes power solutions from nuclear, natural gas, and wind.

30:12In the U.S., as an example, we do have very inexpensive gas. Because of that, we do want to leverage that resource. At the same time, we have a lot of good land that has good fuel in the form of wind and solar. Where those resources exist, we should use them. Where nuclear plays a really important role is where those natural resources aren't readily available, and it's especially important in places where we need what we call power-dense solutions. And what I mean by that is places that need electrons that don't have a lot of space, because we can build nuclear in a fairly small amount of space, yet it creates a lot of electrons.

30:52If nuclear is going to be an important part of meeting our energy demands, it has a long way to go. The U.S. has had commercial nuclear power plants since the late 1950s, but only two have come online in the last 30 years. Today, only about 20 % of electricity comes from nuclear generation, a number that hasn't increased for decades. Historically, when we've been building nuclear plants, because they require a lot of infrastructure, they require a lot of security apparatus, we would build one plant that would be directionally a gigawatt in size. And that's a lot. That's a million homes that it's powering directionally.

31:31Today, what we're working on is a small modular reactor, which is a 300 megawatt. application. Historically, the U.S. has built very large light water nuclear reactors. And while that supply chain has atrophied, we have partners who can supply that technology. It is licensed and ready to be built when it can achieve financing. Those are large grid scale reactors. Reactors of another size, of other designs, still have to make it through the regulatory process, but they hold great promise both as grid serving entities, maybe running smaller microgrids, working for industrial facilities. I don't think the right question is to say which of these is going to win, but rather how do we build an ecosystem that can support both because both will provide solid services to U.S.

32:17consumers as well as export opportunities for the United States. One of the challenges in the nuclear industry is when we were building them at a gigawatt size each one was a little different and with each one being a little bit bespoke and unique the cost was always higher than desirable. by scaling to a smaller product that we can fit into many more applications we have a much higher degree of confidence that we can come down the cost curve because ultimately affordability matters and nuclear is very attractive because it's a zero carbon electron but early it's going to be more expensive and we need to give the industry and our end customers confidence that we can come down the cost curve as we as we gain more volume which I'm highly confident we can do.

33:01What about the fuel source? Is the fuel the same for the big gigawatt as it is for the 300 megawatt? It is and we'll create the fuel in the same location in Wilmington, North Carolina for our small modular reactors that continues to feed the 60 gigawatts of existing install base we have in the country. Is fuel supply a potential limiting factor as we build out nuclear? As nuclear grows for sure we're going to need more uranium supply. I think this is an area for growth in the U.S. We certainly are dependent on other countries today for more of our uranium than we are, as an example, with things like gas, where we can extract all of it out of the ground ourselves here.

33:41So that is going to be priority, and I think that's something that you're seeing a lot of companies lean into today. As promising as small modular reactors may be, the need for energy won't wait. Peak U.S. power demand is expected to outstrip peak supply by And the fact remains that, as of today, there are no small modular reactors actually up and working in the United States, or anywhere outside of China and Russia, though GE Vernova hopes to change that by 2030. Nicole Holmes is the company's chief commercial officer and a nuclear engineer. This is very important. If you don't remember anything else, it's that this is real and it's happening right now.

34:21A lot of people ask me, when will nuclear happen? When will there be new nuclear? And the answer is going on today in the Ontario province in Canada. We are building the BWX300 and with our partner OPG, the small modular reactor will be online by the end of this decade. So if you start today in the US, for example, we have a construction permit application with our partner, the Tennessee Valley Authority, the utility that would own and operate that reactor, in front of the Nuclear Regulatory Commission with the timeline to get that construction permit at the end of 2026 and potentially begin construction as early as 2027.

34:59In this kind of time frame, we could have small modular reactors operating in the early 2030s in the United States. The time is now. The reality is after Fukushima and most of the Western world, there has not been new build. Now, we also were living during a period of time in which electric demand growth was reasonably flat. We're past that. We're at an inflection point where we need a lot more incremental electrons for national security, for economic growth, to frankly keep the lights on as many parts of many industries are electrifying. So when you don't have ultimate demand, it's hard to innovate.

35:39We're now into a phase where we have a substantial amount of growth. So it's the right time for nuclear to reemerge. It's also a time where it can play an incrementally important role in the decarbonization of the existing system. In the U.S., a lot of the decarbonization that has happened in the U.S. to date was really coal to gas switching, because gas is two-thirds less carbon intense than coal, but there's still a carbon element. The beauty of nuclear is at zero carbon. And as customers want to lower the carbon intensity of their total solutions, think hyperscalers as an example, they'll pay to add nuclear into their power generation mix to meet their sustainability commitments.

36:23The increased demand for electricity is one reason the move to nuclear may accelerate. Another is government support. The U.S. government plays an incredibly important role. It starts with the Nuclear Regulatory Commission approving our ability to start construction on projects. We do expect that by the summer of 26. Beyond that, funding certainly is a relevant dynamic. We have a project with TVA, Tennessee Valley Authority, that just received$400 million of funding support from the Department of Energy. We also signed a$100 billion MOU with the U.S. government earlier this quarter in October to industrialize small modular actors in the U.S.

37:04when President Trump and a number of business leaders were in Japan earlier in the year. That could materially move the nuclear industry sooner if we gain access to a lot of that funding. Right now it's a MOU. We're working really hard right now on site selection, on terms and conditions, to translate that MOU into a definitive agreement. And if we can get something done with the U.S. government in that regard at scale, that could be a real catalyst. So Secretary Wright, Secretary Lutnik are both playing very visionary leadership roles, as I see it to try to move this nuclear industry and we're working with them every day and every week to make that a reality.

37:44Business has all sorts of uncertainties. International relations go to a degree beyond that. Yes. How confident are you in that money from Japan specifically that was talked about in the commitment for investment in the United States for nuclear and for Vernova specifically? Well in our case one of the benefits we have is we do have a Japanese partner in our nuclear business. So it's GE, Vernova, Hitachi together. I mean, Hitachi is a minority partner, but a very important partner for us. So if the Japanese government is going to fund projects in the U.S. associated with that trade deal, it certainly makes sense for it to be in arrangements where there's Japanese companies also involved.

38:24And that's one of the benefits we have. Ultimately, opining on whether the transaction happens or not with the Japanese government is probably beyond my pay grade. I'll tell you, though, that when I was in Japan with the U.S. government and many of my business peers, I found the interactions highly motivating. Nuclear energy has had a long and not always smooth path in the United States, but the coming together of much higher demand for electricity, not least because of AI data centers, with bipartisan support in Washington may mean that this time truly is different, that nuclear power will provide the card that completes that inside straight we need to pay off for us all.

39:06You know, on the topic of nuclear, I think the good news right now is that's generally a topic that's agreed to on both sides of the aisle. So there's some consensus there, maybe more so than some other power generation sources. So I'm not concerned about future administrations per se when it comes to nuclear. So we needed a kickstart. And with President Trump's vision, the country has it right now on nuclear. So we do, inside the company every day, talk to ourselves about meeting this moment and serving that vision. 2026 is an incredibly important year for nuclear in the U.S., but I think we're going to get a lot done.

39:45Coming up, shopping for the holidays. We look at the future of department stores and what they need to figure out to have a future.

40:00This 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 defence, 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.

40:34Search 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.

41:17Our colleague Romain Bostic reports on one iconic retailer with ambitious plans to make its department stores fit the new age of the American shopper.

41:30The holiday season, that time of year when the city that never sleeps takes a moment to reflect. Lights twinkle up and down the avenues of New York City. From the posh storefronts down in Soho, to the ornate window displays up along Fifth Avenue, to the epicenter in between, the miracle and magic of Macy's on 34th Street. Christmas isn't just a day, it's a frame of mind. American retailers seize on the season, hoping to capitalize on that frame of mind, creating something that lasts beyond just the holidays. A reflection of that effort can be found about an hour's drive away from Manhattan in the Long Island suburb of Garden City, New York, where Macy's is spearheading a broader corporate transformation.

42:12We're looking to be that neighborhood store, the place that you think of that is really convenient, but also has special things that you can buy for the people you love. Tony Spring took over as CEO of Macy's Inc. in 2024 after more than nine years of helping to refresh the company's luxury retail arm, Bloomingdale's. Now, the focus is on the Macy's brand itself, a middle market department store that has been plagued by slowing sales and waning cultural relevancy. In his first month on the job, Spring announced plans to close a third of U.S. Macy's locations, a move that would free up$750 million of assets, money to be reinvested in the best-performing stores, including here at the Roosevelt Field Mall.

42:52When it opened in the 1950s, the I.M. Pay-designed Roosevelt Field Mall was the largest in North America and today is situated in a county whose median income is significantly higher than the U.S. average. This is a storied retailer with incredible rich history that we're very proud of, but we never want our rich history to get in the way of our brighter future. The optionality that the customer has that they may want to shop on their phone, they want to shop in their car, they may want to shop in the store. And we have to be able to adjust the way we work to be able to provide that convenience for the customer.

43:27But that link between department stores and the customers they target, it's largely broken down. department stores account for less than 1 % of total U.S. retail sales, down from about 16 % in the early 1990s. Retail historian Michael Lissicki suggests the decline stems from losing sight of the core consumer. These stores really excelled when they were able to directly serve their immediate communities. They weren't just commercial destinations, they were social destinations. And that was so important in their general success. Department stores have long been a mirror of the American consumer, but their roots, they go back centuries.

44:04To the Tokyo fabric shops of the 1600s, to the more modern template established in the 1850s, when a French husband and wife duo transformed a small Parisian novelty shop into Le Bon Marché, offering at the time the widest variety of goods under one roof. They started out very modest, usually as dry goods stores, and then slowly graduated and became bigger. It really was the focal center of so many communities. What happened? America raced to the suburbs, and new families were not necessarily drawn to department stores. They wanted price. They wanted convenience. They wanted late hours. And though the department stores tried to chase their traditional shopper to the suburbs, the customer had changed.

44:49Who is the customer today? I think that's a question that these remaining department stores need to ask themselves. The middle is exactly where Macy still sees promise. Let's think of the middle as the center, the center of it all, which the center gives you the opportunity to serve up and to serve down. And I think from backstage to luxury, we have the opportunity across this retail portfolio to satisfy what customers are looking for. Today, the customer has choices. They're not handcuffed to any mall or any downtown. They can shop literally anywhere. literally anywhere, and they love the freedom that they've been given.

45:29Mark Cohen is a retail veteran who worked as an executive for some of the most iconic and now defunct department stores of the golden era, Bradley's, Lord & Taylor, and Sears. A store has to be neat, clean, and friendly. That's sort of step one. That's old-style store management, and it got lost at Macy's 25, 30 years ago. It seems like it would be a lot easier to do that if you were a single brand store or a more curated, smaller footprint. It's easy if you're Apple and you only have a handful of products to sell. And your devotion is to those products and your store presentation is deliberately, completely simple and straightforward.

46:08It's all about the merchandise. To make matters more complicated, the divide between the haves and have-nots is widening. Economic uncertainty forcing middle-income households to pull back. When you look at where we are in 2025, heading into 2026, is there a middle market retail business model? There's a market. It's not the market that there once was. It's a market that's under tremendous pressure and challenge. But it's viable if it represents things customers really want to buy. And it treats customers well enough for customers to remain loyal. One of the ways Macy's attempted to capture the shrinking middle was through deep discounts.

46:54Tony Spring is changing that precedent. I think closing a sale with value is compelling. People do it in many walks of life, whether it's the hotel I stay at or the restaurant that I visit. And we're in many different loyalty programs. But we shouldn't start with the value. The value should be what helps close the sale, not what helps open the sale. Let's talk about leather. Let's talk about cashmere. Let's talk about lab-grown diamonds. Let's talk about fragrance. Let's talk about the things that people actually are attracted to. And then if value is a way to close the sale, so be it. It's a testament to a power shift from the old days where department stores and their fashion buyers were the tastemakers to today where the customer is firmly in charge.

47:37So how does a department store meet shoppers on their terms? I mean, in America, it's not like we really need to purchase apparel or accessories. This is something you do if you have a kid and they outgrow it. But today's customer wants to be excited about buying something. And I think that's what's missing. Sean Grain Carter is a branding expert and associate professor at the Fashion Institute of Technology and was once the e-commerce director for Macy's, helping launch its online strategy in the late 1990s. It's the magic of wanting to shop, not having it as drudgery. It's something you have to do because of the holidays coming up and therefore you have to give a gift.

48:15It's the excitement of finding something new, finding something that you think is sexy or interesting or just plain, you know, what you want. These days, that excitement comes just as easily through a few clicks as e-commerce offers customers an online version of the everything store that department stores once were. You could go to Macy's, you could go to Marshall Fields, Garfinkel's, you know, Wanamaker's, iMagnet, and feel that what you bought was special because these stores made you feel special and that experience made you feel special. Today, it's almost as if there's no excitement in shopping and that's the magic that's missing.

48:54I mean, we know Macy's for their Thanksgiving Day parade and that's great, but customers don't want to feel that you don't want them. People love to be taken care of. And I think with our environment, you know, to have a beauty advisor tell you that that foundation doesn't really work on your skin, to be able to mix different brands in beauty, to create what is your makeup regimen, that only happens when you're working with people who will tell you the truth. That looks good on you, that doesn't look good on you. And I think we learned a long time ago in kind of retail sales 101 to tell somebody somebody looks good in something, just to make a sale only means you lose a customer for life.

49:33So you're better to give them the honest opinion and find something that works for them. I kind of come back to multi-brand, multi-category, multi-priced. It is really an effective advantage in this environment where people really aren't sure what brand is right for them. Online shopping in the U.S. topped $1.3 trillion last year. But in-store shopping is still the preferred method for most Americans, with almost$6 trillion in sales, according to a report from Capital One. Bloomingdale's CEO Olivier Braun interprets these trends as complementary. Of course, digital will keep growing. It's a fast-growing channel for us, and it's been the case for many years.

50:11I think we are seeing more and more transactions happening online. But for me, the best way to actually invest online is keep investing in the stores. The best branding investment we can make as a department store is investing in the store. Bloomingdale seems to have cracked the code. Under the Macy's Inc. umbrella, the department store has leaned into its high-income consumer base. Bloomingdale's emerged from the murk of a middle-ground, non-differentiated store on 3rd Avenue in the shadow of the 3rd Avenue L. I'm showing you my age. and became a real destination by virtue of the assortments that it presented, the ambience it created, the mojo that it delivered.

50:57Tony Spring is widely credited with restoring Bloomingdale's success. Serving as CEO from 2014 to 2023, he's now looking to bring that same feeling to Macy's. The wonder of Bloomingdale's is that you kind of come in and a lot of eye candy. You see great brands. And there's the real careful precision and the curation and the editing of what you see and how it all comes to life. He did a great job as the CEO of Bloomingdale's. He's now got this enormous task of recreating, creating some form of magic that exists for real at Macy's. It's a different customer, though, at Macy's. It's a different customer, but it's the same challenge.

51:37It's the same challenge. You've got to be special. So when the holiday lights come down, the Thanksgiving Day parade balloons go back into storage, and the New York rush resumes. Macy's is still faced with the reality of a shrinking middle class. Who is the Macy's customer today? So working, woman, family, people who enjoy, I think, the nicer things in life, but also like value. And I think the balance of us as retailers not determining this is on sale or this is not on sale or that everything you buy is on sale or that everything you buy is at regular price. We like to have a menu. And I think it allows you to indulge in the people that you love.

52:16We have the capacity to show retail, to show the consumer Macy's at its best, as opposed to just trying to survive. And I think there's a fine line that you move from surviving to getting into the game, to playing to win, to making sure you're showing the customer the very best that you're capable of.

52:48This is Scarlett Fu. And I'm Paul Sweeney, inviting you to join us for the Bloomberg Intelligence Podcast. Every day, we harness the power of Bloomberg Intelligence to bring you deep dives into the companies that are moving markets from publicly traded companies like Apple to those that are privately owned, but known by everyone on earth, like OpenAI. Now I helped to build Bloomberg intelligence to what it is today, Scarlett. And now our analysts are the best in the world, covering more than 2000 global companies. That is your legacy, Paul. And we speak to those in-house experts every day. They are Bloomberg's go-to authorities on sectors, companies, and legal processes.

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