HPE Boosts Networking Gear for AI Clients, Adds Siemens Energy

Summary

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Bloomberg Intelligence Podcast Summary

Episode Title: HPE Boosts Networking Gear for AI Clients, Adds Siemens Energy
Date: June 17, 2026
Hosts: Paul Sweeney, Scarlet Fu
Key Guests: Antonio Nero (CEO, HPE), Mandeep Singh (Head of Tech Research), John Butler (Bloomberg Intelligence), Michael Dean (Head of Global Auto Research), Putam Goyal (Sr. U.S. E-Commerce & Retail Analyst)

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Episode Overview

This episode of Bloomberg Intelligence delves into major market shifts driven by artificial intelligence (AI), with a focus on enterprise infrastructure (featuring HPE’s CEO), hyperscaler and LLM competition, innovative investment platforms, automotive industry challenges, and the transformation of retail through AI-driven agents. The conversation is marked by expert interviews and real-world examples of how AI is dramatically changing business trajectories across sectors.

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Section 1: HPE’s AI-Driven Strategy and Networking Infrastructure

Guest: Antonio Nero, CEO, HPE
Timestamps: [01:53 - 07:36]

Key Discussion Points

• AI’s Transformational Impact

  • Antonio underscores AI's sweeping changes, especially for enterprises. HPE is focused on accelerating AI deployment by offering integrated infrastructure and compliance tools.
  • "For us, as a technology company, it’s how we accelerate the deployment of AI in the enterprise." – Antonio Nero [02:07]

• Growth and Networking at the Core

  • HPE’s shift: now generating a larger share of revenue from networking, software, and cloud.
  • Networking cited as the bottleneck in large language model (LLM) development, particularly around GPU utilization.
  • Juniper Networks acquisition brings new capabilities: “scale up, scale out, and scale across,” positioning HPE as critical AI infrastructure.
  • "We grew the company as whole 40% year over year on revenues, and... now has a bigger mix of networking, software and cloud services." – Antonio Nero [03:11]
  • Double-digit growth and expanding free cash flow anticipated for the foreseeable future.

Notable Quotes

• "We believe networking is going to be the thesis of our company... with Juniper, an amazing portfolio in three key elements, scale up, scale out, and scale across..." – Antonio Nero [03:11]
• "We're still early... But if you put it in the context of industrial revolutions, in the past, this actually is very small compared to that spend..." – Antonio Nero on AI investment [04:45]

Capital Allocation

• HPE regularly taps debt markets for refinancing and asset lifecycle management.
• Confident guidance: HPE targets leverage reduction and strong shareholder returns by 2027.

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Section 2: SpaceX’s AI Move, LLM Competition & Cloud Market

Guests: Mandeep Singh, John Butler
Timestamps: [10:04 - 16:24]

Key Discussion Points

• SpaceX & Cursor Acquisition

  • SpaceX’s acquisition of “Cursor,” a coding agent-focused Frontier LLM, signifies its transition from GPU rental to developing proprietary AI models—potentially a new revenue driver.
  • "Cursor gives them the potential to have a Frontier LLM that can actually generate revenues like Anthropic and OpenAI are generating." – John Butler [10:33]
  • SpaceX is expected to spend as much as other hyperscalers ($100 billion capex in 2027).

• AI Hype and Market Dynamics

  • Valuation discussion: SpaceX’s AI growth potential justifies high revenue multiples.
  • Cursor’s multi-model capabilities make it attractive to developers.
  • Explosive cloud and AI demand; continued high investment needed.

• LLM Landscape

  • OpenAI has lost some lead, with Anthropic’s Claude now highly competitive.
  • Lower token pricing at OpenAI reflects mounting competition.
  • "This is not a one player take all type of market and things could change fairly quickly." – John Butler [13:11]
  • DeepSeek, a Chinese LLM, is seeing enterprise adoption due to lower deployment costs.

• Tool Adoption & Usability

  • Panelists discuss using AI assistants (ChatGPT, Claude, Cursor, Gemini, DeepSeek) for work and personal productivity.
  • "With Cursor, actually they solve for that problem that you can go across models. You can use an older model." – John Butler [16:08]

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Section 3: Auto Industry—BMW, Electrification & The China Shake-Up

Guest: Michael Dean, Head of Global Auto Research
Timestamps: [20:52 - 24:41]

Key Discussion Points

• BMW’s Margin Challenges

  • Profit margin could drop to 1% due to weak Chinese demand and geopolitical pressures.
  • "China is about 25% of their sales annually... they've taken a massive cut to their margin expect." – Michael Dean [21:07]

• Chinese Market Pressures

  • German automakers (BMW, Mercedes, Porsche) are struggling as Chinese rivals like Xiaomi rise; discounts are rampant.
  • Porsche sales down ~70% since 2021; BMW & Mercedes also declining.

• EV & Electrification Strategy

  • China leads in EV adoption (40% fully electric, higher with hybrids).
  • BMW rushing new models but faces a shrinking market and fiercer local competition.

• Car Culture: End of Manual Transmission

  • The demise of the stick shift—virtually extinct, even in Europe and with hybrids.
  • "With hybrids because they need an automatic transmission, that also takes away the need for a stick shift." – Michael Dean [24:25]

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Section 4: AI’s Transformative Impact on E-Commerce & Retail

Guest: Putam Goyal, Sr. U.S. E-Commerce & Retail Analyst
Timestamps: [27:40 - 32:54]

Key Discussion Points

• Scale of AI-Driven E-Commerce

  • Digital retail poised to reach $2.6 trillion annual sales by 2030, driven largely by AI agent integration.
  • "AI will be a key driver to not only driving more eyeballs into the e-commerce platform, but also to drive higher conversion and higher sales overall." – Putam Goyal [28:05]

• Solving Apparel Returns & Friction with AI

  • AI is helping reduce high return rates (especially in apparel) by offering personalized size recommendations and virtual try-on tools.
  • "The return rates [online] are double that of stores." – Putam Goyal [29:08]

• Adoption, Accessibility & Democratization

  • Large retailers (Amazon, Walmart) are early adopters—yet, most AI retail tools will be shared services accessible to smaller companies and startups.
  • "You don't have to build it... what you're going to see is startups and private companies actually launch these tools that can be shared across the domain." – Putam Goyal [31:25]

• AI Impact on Retailer P&L

  • AI boosts conversion rates; expected to lift online retail’s market share (from 26% to 31% of total sales soon).
  • AI-powered conversational shopping (e.g., Amazon’s “First Shopping” formerly Rufus).

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Notable & Memorable Moments

• HPE's bold growth guidance: "We expect to return to two times leverage by the end of this fiscal year, which is one year ahead of plan." – Antonio Nero [06:12]
• Cursor’s competitive edge: “Cursor has Frontier training capabilities... they solve for [multi-model use].” – John Butler [16:08]
• On manual transmissions: "Very few automakers now have stick shifts. You can get a few Porsche 911s as a stick shift, but it's very, very rare..." – Michael Dean [24:09]
• On the democratization of AI in retail: "The bigger retailers like Amazon and Walmart can of course afford to build them, but we do see technologies being shared as we move into the next era of AI." – Putam Goyal [31:25]

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Timestamps for Important Segments

• HPE CEO Antonio Nero on AI Networking – [01:53–07:36]
• SpaceX, LLM competition (Singh, Butler) – [10:04–16:24]
• BMW’s China Challenge (Michael Dean) – [20:52–24:41]
• AI in E-Commerce & Returns (Putam Goyal) – [27:40–32:54]

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Takeaways

• Infrastructure: HPE positions networking as the linchpin of next-gen AI compute, with strong growth and cash flow anticipated.
• Cloud & AI Wars: SpaceX, via Cursor, aims to compete directly with Anthropic and OpenAI in LLMs; the market is fluid and increasingly competitive.
• Automotive: Foreign carmakers—especially German—are losing ground in China; EV adoption doesn’t guarantee sales as local competitors surge.
• Retail Revolution: AI agents are driving personalized shopping, reducing friction, and are projected to reshape e-commerce conversion and reach by 2030; shared tools accelerate industry-wide adoption.

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For further detail, visit the full episode wherever you get your podcasts, or watch Bloomberg Intelligence LIVE on YouTube.

Transcript

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[Paul]

Antonio Nero joins us here, CEO of HP. Antonio, thanks much for joining us here. Talk to us about what are the key issues for you guys going forward here? This AI story is a story that's playing out across the tech stack.

[Antonio Nero]

Well, good morning Paul. Thanks for having me. Yes, of course today the narrative is all around the AI and the ability to use AI to change the world. And so for us is as a technology companies how we accelerate the deployment of AI in the enterprise. And today we talked about the, you know, the evolution of just large language models, intro agentic models which allows, you know, to increase productivity across the entire enterprise, across processes and functions. And so we have made a series of announcements here which brings together the infrastructure, the software and the cloud experience into One integrated unified operating model, including governance and compliance, so that build the trust within the enterprise to go forward.

[Bloomberg Intelligence Interviewer]

And how does this change your growth trajectory going forward? I know that, you know, one year out might look very different from five years out versus 10 years out. Just walk us through how you see this changing what you had anticipated to what you now think you can achieve.

[Antonio Nero]

Yes, Carlos. So if you go back and read our earnings in Q2, we grew the company as a whole 40% year over year on revenues and we expanded margins because of the content that we bring into our revenue. Now has a bigger mix of networking software and cloud services. And in that context, we believe networking is going to be the thesis of our company. If you think about developing these frontier models, whether proprietary or open source models, you need a lot of GPU power, but that GPU needs to be very productive. You don't want to keep it idle. And the bottleneck of that is networking. And so we have now with the acquisition of Juniper, an amazing portfolio in the three key elements, scale up, scale out and scale across, which position us to be core element of that infrastructure build out. So this is why we believe the company is going to grow double digits going forward and will continue to expand operating margins and that will translate in free cash flow. So we already guided, which is unlikely and you know, in many cases for six quarters ahead. So think about it. Because of the confidence we have in our growth trajectory.

[Paul]

Antonio, where do you think this technology, this AI technology story is? I mean, a lot of folks are saying we're still in a very, very early innings. But you just think about the amount of capex that is being spent by a variety of players within the substack.

[Putam Goyal]

It's just extraordinary.

[Paul]

Where do you think we are in that compendium there of AI investment?

[Antonio Nero]

I concur with that. We still early and Paul, what you have to understand that is three customer segments, you have to look into it. Number one is the model builders and the hyperscale is the NEO cloud. We're building large amount of compute capacity. We believe by the end of the decade we're going to build 260 gigawatt of power that will host these GPUs. And that's the capacity you're talking about it. But then ultimately what is the mix of that capacity? It's going to be shifted from training models to inferencing models. And that's where we're going to see the large adoption of AI enterprise to drive that productivity. But if you put it in context of industrial revolutions in the past. This actually is very small compared to that spend that was done, you know, in every inflection point, including the turn of the past century. So yes, I understand the concern about the amount of capex. But when you put in the context of changing the way we work, the change in our society was still small relative to that.

[Bloomberg Intelligence Interviewer]

You know, just looking at how you might be deploying cash, I know that you tapped the debt market in March to refinance some upcoming maturities. You've got strong liquidity with cash, cash and equivalents of more than $5 billion at the end of the second quarter. What might prompt you to go to the debt market again to raise more money?

[Antonio Nero]

Well, we, we do that very regularly because remember, inside HP we have an operating company. Obviously we are, we are paying down the debt and refinancing where we need to. And that's the operating balance sheet here. Referring to, referring to. So our balance sheet is super, super strong. And then we have the financing company which has $13 billion under asset management. Think about the finance we do for customers and we do it also as a part of the asset life cycle management services. And basically we have debt securitized against those assets. But the return on equity on that is super high. So super, super high. So we use those vehicles when it's necessary. But what we announced just at the beginning of this month in our earnings is that we're going to pay down that debt much faster. In fact, we expect to return to two times leverage by the end of this fiscal year, which is one year ahead of plan. And we're going to start returning 75% approximately of our free cash flow in 2027 to shareholders, which we expect to generate at least $4.5 billion in, you know, in dividends and share buybacks. That's how we're going to return it. So we are very strong. And that goes back to the question you asked me before, where it comes from the growth and the operating margins.

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[Bloomberg Intelligence Interviewer]

Mandeep Singh is our global tech research head here at Bloomberg, Bloomberg Intelligence and Mandeep, there's a bunch of areas we can go to, but I want to pick up on what Alexis said. With Space X being down for the first time since it went public, the stock lower by about three and a third percent today.

[Chase Announcer]

Talk a little bit about this cursor

[Bloomberg Intelligence Interviewer]

deal which they just announced and we knew this was coming because they bought the right to buy the company before the ipo. Does this really change the trajectory in a way that makes people rethink what Space X is?

[John Butler]

Yeah, I mean the whole AI segment I think has really got a shot in terms of becoming a hyperscale like player because of this cursor acquisition and right now they're just renting the compute they have in their data centers to anthropic and Google. But to my mind Cursor gives them the potential to have a Frontier LLM that can actually generate revenues like Anthropic and OpenAI are generating by companies using their LLM. So Cursor was one of the biggest priced assets in the world of LLMs and it's really focused on coding agent and I think there was this notion that Cursor is a wrapper on Frontier LLMs. That clearly is not the case. Cursor has Frontier training capabilities and with the CapEx that I think SpaceX is going to do, they will be very well spending like the other hyperscalers. $100 billion in capex in 2027. So that will be huge to ramp

[Paul]

up cursor SpaceX three lines of business per their IPO prospectus connectivity. We spoke to John talk, John Butler about that space. We talked to George Ferguson, Bloomberg Intelligence about that. Are you the AI guy? Well, I'm the guy, so everything guy I know. So what is there am I paying for AI now when I buy Space X? Is that what I'm paying this gajillion times sales multiple?

[John Butler]

I think so. Especially the near term growth will be all driven by AI and right now it's a compute rental like the Neo Clouds.

[Paul]

Okay.

[John Butler]

But with the Cursor acquisition they have the potential to actually play in that AI application domain which is higher margins and that's where the, you know, valuation could be justified if they are able to ramp up the Cursor side of the revenue.

[Chase Announcer]

Okay. So I suspect that this will be

[Bloomberg Intelligence Interviewer]

a moving target for a while to come since Space X is, you know, is Elon's vision of a vertically integrated everything in his brain company. Let's talk a little bit about OpenAI. We know that OpenAI perhaps operationally not doing as well as it had intended. It didn't meet some internal targets. You recently published a note on OpenAI and the losses of about $34 billion coupled with the lowering of its token pricing for its latest model show that perhaps there are some growing pains here. Talk us through what you see.

[John Butler]

Yeah, I mean look, the competition has increased just six months back. You know, OpenAI was way ahead of everyone else. Now we are talking about how anthropic is on the leaderboard and that's what gives me hope that you know, even Space X with their Cursor deal could leapfrog any of these models. So nothing is said in terms of the model race. This is not a one player take all type of market and things could change fairly quickly. What we have seen, you know, with Anthropic, and that's where OpenAI has sort of squandered their lead that they had over everyone else. And now they are lowering their token pricing to make sure they, you know, have continued adoption of their models. And that's never a good position to be in if you are lowering prices. So from that perspective, I do find them to be on the back foot. But look, things could change with the next model release. OpenAI can come up with a great model and suddenly because they have more compute than Anthropic and everyone else, we would be talking that OpenAI is back in that leaderboard. But right now it clearly is Anthropic and everyone else is playing catch up.

[Paul]

I mean, I'm just trying to catch up here. All right, on my little window here in my AI window on my phone, I've got the app ChatGPT. Yeah, I got Gemini, I got Reddit in there because the kids are telling me I have to use Reddit. What else do I need in there?

[John Butler]

Claude. I mean, we are talking about Anthropic,

[Paul]

so that's all right. Anthropic is Claude. Claude is Anthropic.

[Putam Goyal]

Yeah.

[Chase Announcer]

What about Deep Seek?

[Bloomberg Intelligence Interviewer]

Should Paul have deepseek on there?

[John Butler]

I mean, their usage seems to be growing at the enterprise level. In fact, there was some news that Microsoft may be supporting Deep SEQ in their Azure cloud, despite all the pushback we hear about using Chinese LLMs. Yes. So you could see already in Europe, you can see deepseek usage is growing up. So from that perspective, don't count the Chinese models out. Even though I wouldn't have thought they, they would do well here. But surprisingly, you're seeing enterprise interests partly because of the token pricing and how expensive it is to deploy AI. And Deep SEQ being an open weight model, a lot of enterprises are looking at using Deep seq.

[Paul]

All right, I'm downloading Claude as we speak.

[Putam Goyal]

What do you use?

[John Butler]

You're like, I use everything. I use cursor, I use Claude, I use cursor. Now, cursor is more coding specific. So if you have ideas related to a coding agent, it's a fabulous tool, really. I mean, the thing that I find, you know, with these tools is Claude, for example, deprecated one of their older models. So they are making decisions on the fly, you know, in terms of what models to deprecate.

[Putam Goyal]

What's deprecate mean?

[John Butler]

Like, that model is not available anymore. What if I, if I have a preference for the model? It's not even available anymore. With Cursor, actually they solve for that problem that you can go across models. You can use an older model. So I feel that's a problem that Cursor has solved really well.

[Bloomberg Intelligence Interviewer]

I bet Mandeep's prompts are a lot different than what you or I put in the prompt.

[Genius Announcer]

Yes.

[Bloomberg Intelligence Interviewer]

You know, Mandeep, you're probably putting in like paragraphs into your prompts.

[John Butler]

I build a lot on my initial prompts and that's why these tools are so engaging that, you know, once you start playing with them, it's like it brings more ideas in terms of what all you can do with these tools. And it's very iterative, at least for me. I'm not a single shot prompter where I'll have a three page prompt. No, I really build on stuff.

[Putam Goyal]

Do we use it in bi?

[John Butler]

We do, yes. We do have access to a lot of these tools and that's partly how we are looking to become more efficient in our workflows. And it's already helping.

[Paul]

There's a. I think I'm taking credit for just having downloaded some of these apps on my phone. I'm gonna take that as a little victory.

[Bloomberg Intelligence Interviewer]

Now you gotta create a login.

[Paul]

Oh, all right.

[Bloomberg Intelligence Interviewer]

You gotta, you gotta have an account.

[Putam Goyal]

Okay.

[Bloomberg Intelligence Interviewer]

So it remembers who you are. You could tell them who you are and like, you know, explain your preferences. Don't flatter me. Don't praise me when it gets wrong. Oh yeah.

[John Butler]

Personalized.

[Michael Dean]

Yeah.

[Bloomberg Intelligence Interviewer]

ChatGPT like will compliment you when you ask a question like, no duh. It's a great question.

[Paul]

Okay. All right, all right, I'm on it.

[Michael Dean]

I'm on it.

[Paul]

I got a two hour train ride home today. I'll learn. I'll learn AI in two hours. Mandeep Singh, global head of tech research for Bloomberg Intelligence.

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[Paul]

BMW said its profit margin could dwindle to as low as 1% this year due to weakening Chinese demand and fallout from the Middle east conflict. I want to get some more on that. Michael Dean, head of Global Auto Research for Bloomberg Intelligence, joins us here. Michael, what's going on with BMW?

[Michael Dean]

Yes, it was a big downgrade Yesterday. So, you know, China is about 25% of their sales annually, and we've been seeing in previous months that that sales have been weak. But I think they got to the point where they don't see it recover in the second half of this year, and hence they've taken, you know, a massive cut to their margin. Expect.

[Bloomberg Intelligence Interviewer]

Does that mean that they're going to have trouble selling cars at full price? They might need to discount or look to, you know, package it a little bit differently.

[Michael Dean]

Well, China's been a really difficult market for the German brands over the past few years. Just take the example of Porsche. Porsche sales have dropped by 70% since 2021. BMW, Mercedes have had similar issues. Their sales are down by about 20, 25% over the past couple of years. They're facing heavy discounting from competitors, so that was weighing them anyway. And now the market itself is falling quite significantly. So it was down in 20% in the first five months of this year. And given we don't see recovery in the second half, that's also impacting the German automakers and BMW specifically.

[Paul]

So if I'm a global automaker in Germany, in the us, Japan, how do I view the Chinese market here today? I mean, it seems like I'm hearing a lot of bad news from a competitive standpoint in that market. Just generally.

[Michael Dean]

Yeah, I mean, domestic players are making some really good cars. Xiaomi is a key competitor now to BMW and Mercedes. And because the local cars are so good and because they're priced so competitively, it's pushing the foreign automakers out. As I mentioned, Porsche. Porsche has already taken a big hit on their volumes in China. That could also happen to the other German automakers and other foreign automakers.

[Bloomberg Intelligence Interviewer]

What does this mean for BMW's approach to electrification?

[Michael Dean]

I don't think it changes their approach. So the Chinese market is now 40% fully electric. It's probably about 60% if you include EVs. They've got a wave of new models coming out using their newer class of platform. So they were hoping to make inroads into the electrification in China, but they're going to find it very difficult if that market is weakening and prices continue to go down.

[Paul]

All right, let's get to it. Michael, I need your review of the BMW M70 that I think Mr. Matt Miller just acquired.

[Michael Dean]

Good car, Very good car. So Matt was talking to me about it. I think it has a double crank, so he was very impressed with that. But, yeah, the new AMGs that are coming out, awesome cars. Just hopefully they'll be able to sell a few in China as well.

[Bloomberg Intelligence Interviewer]

Okay. Double crank. I don't know what that means.

[Paul]

No, I don't know. But it's A naturally aspirated 5.0 liter SOHC and have no idea what that means. V12 engine. So it's a big one. I think it's a gas. Gas.

[Bloomberg Intelligence Podcast Host]

Yeah.

[Bloomberg Intelligence Interviewer]

Does, does Matt drive automatic or standard?

[Paul]

They don't make, they don't make sticks anymore. I used to have the BMW manual transmission until they stopped making in 2016 or 2017 and Michael Dean could not fix that problem for me. I sent him on a mission to Germany.

[Michael Dean]

I did try so very automakers now have stick shifts. You can get a few Porsche 911s as a stick shift, but it's very, very rare to see that across the carmakers now, unfortunately, even in Europe. Yeah, sure.

[Chase Announcer]

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[Paul]

Yeah, it's terrible. It's a terrible thing.

[Michael Dean]

Michael D. And with the, and with hybrids because they need an automatic transmission. That also takes away the need for a stick shift.

[Bloomberg Intelligence Interviewer]

So there's no standard hybrid vehicle ever. You're not going to have a stick shift to hybrid.

[Chase Announcer]

That's.

[Bloomberg Intelligence Interviewer]

That's not technologically possible.

[Michael Dean]

Exactly. Yes, that's correct.

[Paul]

It's a sad day in the world of automobiles.

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Stay with us.

[Bloomberg Intelligence Interviewer]

More from Bloomberg Intelligence coming up after this.

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[Putam Goyal]

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[Bloomberg Intelligence Podcast Host]

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Paul]

Well, the retail analysts out there, they're not afraid. They're throwing their hat in the ring. Here's this From Bloomberg Intelligence AI agents marketplaces to push digital retail to $2.6 trillion by 2030. That gets your attention.

[Putam Goyal]

Putam Goyal.

[Paul]

She's a senior U.S. e Commerce and Retail analyst for Bloomberg Intelligence. Putam, you're to blame for this.

[Putam Goyal]

Talk to us about 2.6 billion.

[Paul]

That seems like a big number.

[Putam Goyal]

2.6 trillion is a trillion. Thank you number. But that's coming off of 2 trillion expected next year. So what you're looking at is a high single digit double digit gain across E commerce for the next few years. And that's not really that big. Right? When you think about it, these companies within this ecosystem have been posting double digit high single digit gains for quite some time. And we're just thinking that that tre continues largely led by AI. We think AI will be a key driver to not only driving more eyeballs into the E commerce platform, but also

[Bloomberg Intelligence Interviewer]

to drive higher conversion, higher conversion and higher sales overall. But one thing that AI people are looking for AI to do is solve some existing problems and that includes a lot of product returns. People are returning products for different reasons. You know, when you buy online, you buy five different sizes and see which one fits and return the rest. And also, people are losing weight from GLP1 drugs and so they don't actually have a good sense of where they are. How will I fix that problem?

[Putam Goyal]

So there's a lot of things that are happening in the industry when it comes to how to solve the return problem. We don't think it's ever going to be entirely solved, but definitely, you know, you would want to see lower return rates for online. The return rates are double that of stores. And what we see right now happening is, you know, when you go onto a retailer's website, they have recommended sizes so they can tell you based on your purchasing patterns. Here's what we recommend. There's also AI design sort of images where you can upload a photo of yourself and it could tell you what fits you best. Not all companies have this. Not everyone can do this, but it is in progress and we expect to see more on the fit side to help avoid what you just said. You know, I need five sizes because I don't know what will fit me. That's one of the biggest areas where we do see some friction when it comes to returns online, especially in the apparel category.

[Paul]

So do we have an idea who's doing this stuff? Well, because AI seems like any technology, you know, some companies are going to embrace it and figure out how to use it better than others. I'm guessing it's kind of expensive too. Some. I could see the bigger companies maybe being a little bit ahead. How are you kind of measuring how the companies are doing themselves?

[Putam Goyal]

So. So the thing is, it's not a perfect solution. Right. So companies are testing it and trying it, including even Amazon. But it all depends on how good your image is that you uploaded. It depends on the data that you feed into the system to get the right output. So there is one area where we saw where you basically say, I know that I fit into a size X at this brand. And different brands have different sizing parameters. You could be a 4 somewhere, but you could be a 6 somewhere else or a 2 depending on how they cut their fabric and what it does. It says, okay, if you know for sure that you're a size X in this brand, here's what size you would be in other brands.

[Bloomberg Intelligence Interviewer]

Yeah, that's a long time frustrations as a woman to have different brands have different sizing and you just have to try everything on constantly. Punam to Paul's point about how, you know, this can be expensive to incorporate Are privately backed companies more likely to incorporate AI than say, publicly traded companies? Because if you are backed by a sponsor and they're going to spend this kind of money on AI, they can kind of distribute it across all their partner companies.

[Putam Goyal]

What's nice about the investments in AI is you don't have to build it. Right. So I think what you're going to see is startups and private companies actually launch these tools that can be shared across the domain and that's what we're going to see more of. It's just how do you share technology now? The bigger retailers like in Amazon and Walmart can of course afford to build them, but we do see technologies being shared as we move into the next era of AI.

[Paul]

So is this going to increase the top line for some of these retailers, do you think, Pluto? Or is it just going to change the way people shop and maybe it'll have an impact on their margins? How do you think about it from a P and L perspective?

[Putam Goyal]

Yeah. So I think when you think about the online space, online is structurally gaining share from the brick and mortars. Today it's about 26% of retail sales. It will go to 31% based on our estimate, and even higher as you move forward. Some categories lean more aggressively into E commerce, like electronics, because it is commoditized to some extent and others don't like autos. What I would say is we think that not only will the consumer get smarter, but the retailer will get smarter in how to target the consumer. So what will increase is the conversion online because you won't have as many friction points that you've had in the past, whether that's agent led shopping. You know, if you look at the Amazon first shopping that they just launched, which used to be called Rufus, and we talked about this yesterday, where you can go to a search bar and now you can engage in a conversation to help find the right answer for your choice. And that's going to boost conversion too.

[Bloomberg Intelligence Podcast Host]

This is the Bloomberg Intelligence podcast, available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 10am to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Bloomberg terminal.

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