OpenAI Valuation Soars to $500 Billion, Topping Musk’s Space X

Summary

Bloomberg Intelligence Podcast Episode Summary

Episode: OpenAI Valuation Soars to $500 Billion, Topping Musk’s Space X
Date: October 2, 2025
Hosts: Scarlet Fu, Paul Sweeney
Notable Guest: Ed Ludlow (Bloomberg Tech Co-Host)

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Overview

This episode dives deep into the blockbuster secondary share deal that pushed OpenAI’s valuation to $500 billion, overtaking SpaceX in the league of private company valuations. Scarlet Fu and Paul Sweeney are joined by Bloomberg’s Ed Ludlow to dissect the mechanics of the deal, what it signals about both OpenAI and the market for artificial intelligence, the Musk-Altman rivalry, and implications for monetization and future growth. Additional segments cover Tesla’s strong vehicle deliveries, a major Berkshire Hathaway acquisition, insurance sector challenges, and McDonald's bold U.S. expansion.

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Key Discussion Points & Insights

1. OpenAI's $500 Billion Valuation: Mechanics and Market Implications

[01:39–06:50]

• Deal Structure:
  • The valuation comes from a secondary employee tender rather than a new fundraising round, allowing current and former employees (with at least two years' vesting) to sell shares to outside investors.
  • Investors reportedly wanted to buy $10 billion of employee shares but only secured $6.6 billion, suggesting many employees are “holding on” for potential future gains and possibly an IPO.
• Quote [02:23] – Ed Ludlow:
  • “There’s probably a load of OpenAI employees that were like, you know what, I’m not going to sell. I’m holding on because if I’m at $500 billion valuation, you know, and there’s still a corporate restructure to go through, you know, a future IPO maybe then, then hold. So I thought that was really fascinating.”
• Key Insight:
  • The valuation is “dictated by a third party group of investors buying those shares from employees.” No new capital is raised.

2. OpenAI vs. SpaceX—The Musk Factor

[03:16–04:29]

• Comparison:
  • OpenAI’s new valuation now surpasses SpaceX ($500B vs. $400B).
  • Both companies have Elon Musk in common; Musk cofounded OpenAI, left after a rift, and now runs X.ai (another AI company), seeking to play catch-up in valuation.
• Quote [03:39] – Ed Ludlow:
  • “He [Musk] has a fractious relationship specifically with Sam Altman... Present-day Musk has a kind of, a little bit of a chip on his shoulder, you think about... the idea that X AI, his AI company should have a valuation that is near to OpenAI’s.”
• Musk’s X.ai has reportedly sought funding at a $200 billion valuation, highlighting the competitive heat in advanced AI.

3. What's Next for OpenAI—Profitability, Monetization, and Growth

[05:02–06:50]

• Profit Status:
  • OpenAI is not profitable. Its transformation of free users to paid subscriptions is minimal (“only converting 2% of its free users to paid subscribers” [05:09]), suggesting vast potential for expansion, but also a risk if margins stay low.
• Cost Structure:
  • Despite software typically being high-margin, OpenAI faces huge compute costs, rising operating expenses, and talent competition—possibly dampening margins.
• Growth Focus:
  • The crucial question for investors: how OpenAI plans to monetize and grow its enterprise business and whether internal investor presentations reveal a clear path to justifying the $500B valuation.
• Quote [05:35] – Ed Ludlow:
  • “The problem is that because of compute expenses and OPEX now, talent compensation, even the revenue they are making probably ain’t that high margin, is it? You know, if at all.”
• Ed’s Preview:
  • At OpenAI’s upcoming Dev Day, hard questions around enterprise strategy and monetization are expected.

4. OpenAI’s Corporate Restructuring

[06:25–06:50]

• Key Development:
  • A shift from the convoluted “not-for-profit board owning the for-profit company,” which has drawn scrutiny and is expected to change—potentially smoothing the path to an eventual IPO.

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Other Market Highlights

Tesla’s Q3 Deliveries & Charging Networks

[09:38–12:15]

• Strong Q3 vehicle deliveries “surprised to the upside,” partly due to the looming expiration of U.S. federal EV tax credits.
• Tesla’s energy storage business hit a record quarter, indicating diversification.
• Key infrastructure insight: Tesla’s openness in its charging network helps the broader EV ecosystem, but presents new competition.

Berkshire Hathaway’s Occidental Petrochemical Deal

[15:37–19:57]

• Berkshire’s $9.7B deal for Occidental’s petrochemical unit represents just 3% of Berkshire’s cash reserves—a relatively low-stakes deal for Buffett’s giant fund.
• The purchase helps Occidental de-leverage (they’ll use $6.5B to pay down debt), which also indirectly supports Berkshire’s large existing stake in Occidental.
• Notable Analysis [17:00] – Matthew Palazzola:
  • “Buffett’s inclination to be buying anything is probably low at the moment... So you’re spot on to say valuations are high and Berkshire is probably not buying a lot of stuff. I think this was probably just a unique opportunity.”
• Buffett’s approach to tech remains very conservative, with little direct AI exposure; future leadership under Greg Abel may bring change.

Insurance Sector & Hurricane Season

[19:57–21:57]

• 2025’s hurricane season has been mild so far, which is “good for reinsurance companies.”
• Property and casualty insurers are underperforming due to tariff pressure, high repair costs, and low rates, with Berkshire as an outlier “up 10% year to date.”

McDonald’s Plans for 50,000 Stores

[25:18–30:52]

• McDonald’s is aggressively expanding, mainly into North Texas, aiming for 50,000 locations worldwide (currently in the “low 40,000s”).
• The company is strategically following demographic shifts and building ahead of population booms—though new stores typically need a few years to mature.
• Quote [29:21] – Christina Peterson:
  • “Being convenient is a cornerstone of their strategy. And I think they’ve just had to reconfigure where that convenience is, where the people are.”
• Raising royalty fees on new franchises and improving same-store sales are early signs the expansion is paying off.

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Notable Quotes & Memorable Moments

• Ed Ludlow on Employee Sentiment:
  • “There’s probably a load of OpenAI employees that were like, you know what, I’m not going to sell. I’m holding on because if I’m at $500 billion valuation, you know... then hold.” [02:23]
• On Musk-Altman Rivalry:
  • “He (Musk) has a fractious relationship specifically with Sam Altman... there’s been litigation, you know, there’s a public forum slinging match on social media between the two.” [03:35]
• Ludlow on OpenAI’s Core Challenge:
  • “Even the revenue they are making probably ain’t that high margin, is it?” [05:35]
• Matthew Palazzola on Berkshire’s Deal:
  • “The $9.7 billion is 3% of the cash that Berkshire has on hand. So it’s funny to say it, but kind of a low stakes deal for Berkshire.” [16:08]
• On McDonald’s Expansion:
  • “McDonald’s says that its goal is to be within a five minute drive from as many people as possible.” [26:34]

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Key Timestamps for Reference

• OpenAI Deal Mechanics: 01:39–03:16
• OpenAI vs SpaceX, Musk Connections: 03:16–04:29
• OpenAI Monetization/Profitability: 05:02–06:50
• Tesla Deliveries & Charging Infrastructure: 09:38–12:15
• Berkshire/Occidental Deal Breakdown: 15:37–19:57
• Property & Casualty Insurance/Storms: 19:57–21:57
• McDonald’s Store Expansion: 25:18–30:52

---

Tone and Takeaways

The hosts, with the help of expert guests, maintain a sharp, analytical, and occasionally playful tone. The episode captures the breathless pace and shifting center of gravity in tech and business:

• The valuation of OpenAI leaps forward but raises big questions—especially with scant profits and huge upfront costs.
• Legacy giants (Berkshire, McDonald’s) adapt their strategies, sometimes cautiously (Berkshire), sometimes with ambitious demographic targeting (McDonald’s).
• The interplay between technology, leadership clashes (Musk vs. Altman), and real-world execution is always in focus.

This episode is a must-listen for anyone wanting to grasp the scale and momentum shaping today’s corporate landscape and the unresolved questions about the future of AI monetization and tech investing.

Transcript

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[Paul]

Another big trade happened today. I mean the evaluation story just gets bigger.

[Host/Anchor]

Every single day there's a new impressive.

[Paul]

And it's because of this guy. Ed Ludlow, Bloomberg Tech Co Host, joining us live here in our Bloomberg Interactive Broker studio. He's based in San Francisco. We've got him on the east coast here for a little while. So Ed, what happened? What's the deal that just put a valuation of $500 billion on open air?

[Ed Ludlow]

So so actually the mechanics of it are one of the most interesting parts. It's a secondary or an employee tender. In other words, if you are a existing employee or even a former employee, you can sell your shares in OpenAI. The eligibility requirements were that you held them or that you had a vesting period of two years. But the reason I say that's interesting is that this is a valuation dictated by a third party group of investors buying those shares from employees. So the company doesn't raise any new money. But there has to be evaluation set because a price has to be set. And so this these investors wanted even more. They wanted like $10 billion worth of employee shares. In the end they got $6.6 billion. So what does that tell you? There's probably a load of OpenAI employees that were like, you know what, I'm not going to sell. I'm holding on because If I'm at $500 billion valuation, you know, and there's still a corporate restructures go through, you know, a future IPO maybe then, then hold. So I thought that was really fascinating. But I would just point out that Shereen Ghaffari, really talented colleague of mine out in San Francisco Bloomberg newsroom, she did break this story on August 6th. So this is just the close of the round.

[Host/Anchor]

Okay. So now that OpenAI is valued at $500 billion, that puts it over Space X which is valued at 400 billion. And I bring this up because there's a common thread between Open Air and Space X and that is Elon Musk.

[Ed Ludlow]

Elon Musk and his once part of.

[Host/Anchor]

OpenAI before leaving under some clouds.

[Ed Ludlow]

Yep. He has a fractious relationship specifically with Sam Altman, you know, the, the other founder and now CEO of OpenAI. You know what I've written a lot about in, in Bloomberg Businessweek magazine and in some of the reporting is present day Musk has a kind of, a little bit of a chip on his shoulder, you think about, well, well specifically about the idea that X AI, his AI company should have a valuation that is near to open eyes. So. And you know there's been litigation, you know, there's a public forum slinging match on, on social media between the two. Sam Altman gets asked about it a lot. But you know, I think the main thing is that remember also that Xai has, as we've reported, sought to raise money at $200 billion valuation this year. You know, it's tides and rising ships in that field.

[Public Investing Advertiser]

Really.

[Paul]

So do we know who is selling here in this round?

[Ed Ludlow]

No, I mean all I know about the eligibility rules. You know the one thing I've reflected on reading the story and speaking to sources that the company is. Remember In November of 2022 when Sam Altman was briefly ousted from OpenAI, there was just a few hundred people that worked there at that time, you know.

[Paul]

Yep.

[Ed Ludlow]

So that was three years ago and almost three years ago now. There are thousands of people that work there. Um, so yeah, some 10 year would probably be a factor here.

[Host/Anchor]

Okay. So now the world's biggest startup worth half a trillion dollars, but OpenAI is not making money, it's not profitable.

[Podcast Announcer]

Yeah.

[Ed Ludlow]

So on Monday, OpenAI has its dev day, its developers day in San Francisco and I'll be going and it's a good opportunity to ask hard questions like these. There's a data point that's going around right now which is that OpenAI is only converting 2% of its free users to paid subscribers. Now that for me is an interesting.

[Host/Anchor]

Data point on that is that there's a lot of room for growth, right?

[Ed Ludlow]

And so you know, software, you know, this is core BI analysis, right? Software is traditionally a higher margin business. But the problem is that because of compute expenses and OPEX now talent compensation, even the revenue they are making probably ain't that high margin, is it? You know, if at all. So the big question is, okay, if we know that you're not really doing a lot to convert the consumer from free to paid, what's your enterprise business look like? And that's probably the domain where we'll focus. Hey, when you even do a secondary or a tender with employees, you got to put a deck together that that justifies the valuation. So those group of investors, they will have seen something in the data room that would say this is a $500 billion company like of course they would. That's how it works.

[Paul]

Well, how come you don't, you haven't gotten your hands on that deck, you know, some intrepid reporter, you know.

[Ed Ludlow]

No, I'll be honest about this. Like, Shereen has been smashing this story. She covers the COVID so deeply and I was on vacation for most of August so you know, I've not tracked it as closely. For me, you know, the big story to focus on with OpenAI is the corporate restructure, you know, from where you have a not for profit board that owns the for profit company. That's going to change. Okay, so that's where I'm focused.

[Paul]

Stay with us. More from Bloomberg Intelligence coming up after this.

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Let's talk a little bit about Tesla right now because it reported global vehicle deliveries and it was a surprise to the upside. So that means we need to bring in Craig Trudell. He is our Global Autos Editor for Bloomberg News, joining us from London right now. Craig, not a surprise insofar as there is this expiration of the federal tax credits for EVs coming up. So people were kind of rushing to to make good use of those tax credits before they went away.

[Craig Trudell]

Yeah, that's exactly right. I think there was a widespread expectation that, you know, given that the clock was ticking on those tax credits that we were going to see a strong third quarter. But this, this was even better than than was, you know, expected by by analysts that follow the company I think, you know, we did get indications as the month of September was coming to a close that more and more analysts were much higher than where, you know, where the average was the consensus, if you will. And also I just on the energy side of the business, it was another record quarter of energy storage product deployments. So you know that that is still a much smaller portion of Tesla's top and bottom lines. But it was a business that was growing pretty rapidly that, you know, along with the car business was struggling in the first half of this year. So to see it, see that tick up as well is another positive for the company.

[Paul]

Craig, can you give us an update where we are in the US in terms of charging capabilities? I mean that's, I know that's a gating issue for a lot of people. They just don't feel like there's enough charging capacity in this country. Where are we now and what are some of the goals, do you think?

[Craig Trudell]

Yeah, I mean Tesla, you have to give them credit for still being, you know, really sort of ahead of the curve in that regard. And to the extent that other manufacturers have had, you know, some progress in charging, getting, getting better, it's because Tesla made this decision, you know, not that long ago to open up its network to other manufacturers. I think that that also is, you know, something that, you know, perhaps, you know, if you look at, in hindsight, you know, maybe sort of created something of an opening for, for other carmakers that, you know, have made Tesla's life a little bit more difficult in the US because they went from having a network that was, you know, really intuitive and easy to use, that, that was all to themselves to opening that to others. They of course, you know, that that's become something of, of a, you know, business for them to be able to, you know, charge non Tesla drivers for, for those charging sessions. But that is, you know, sort of a drop in the bucket relative to the car business for them.

[Paul]

Stay with us. More from Bloomberg Intelligence coming up after this.

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Small Business Minute brought to you by Amazon Ads. I'm Lisa Mateo. Credit card perks offered to small business customers include cash back and travel rewards, but the feature many business owners find the most attractive is a high credit limit. Nearly half of all the small and medium sized businesses surveyed by payments.com and payments processor i2b said so, but the smaller and younger the business, the more likely higher credit limits were at the top of the priority list. The survey also found small business owners using business and personal credit cards to finance their operations, and nearly half of the smaller and younger businesses were carrying card balances over each month. Payments.com and i2b say the survey speaks to the need for alternative credit solutions tailored to the needs of small businesses. That was the Small Business Minute brought to you by Amazon Ads Helping you reach relevant audiences through streaming TV ad Solutions.

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[Paul]

There was a deal today in this space petrochemical space, Warren Buffett's Berkshire Hathaway reached a deal to buy Occidental Petroleum Corporation's petrochemical business for about $9.7 billion. Let's break that down with Matthew Palazzola, senior analyst covering the insurance business, has been covering Berkshire Hathaway and Warren Buffett for many, many years. He's with Bloomberg Intelligence, joining us via Zoom here. Matthew, talk to us about what a deal like this means for Berkshire Hathaway.

[Matthew Palazzola]

Hey, Paul. Yeah, I think it's a good deal for Berkshire Hathaway when you, when you really break it down. The $9.7 billion is 3% of the cash that Berkshire has on hand. So it's funny to say it, but kind of a low stakes deal for Berkshire. I think this deal helps Occidental. They really need to delever. So they're going to use $6.5 billion of that cash to delever, which could help their stock, which then could also help Berkshire's $11 billion stake in Occidental. So I think it's kind of a multilayered win for Berkshire Hathaway.

[Host/Anchor]

What does it say about Warren Buffett's willingness to buy right now when the market is trading at much higher valuations than historically it has been? And I get that most of that is because of the tech industry, but even beyond that, overall valuation is, is not low.

[Matthew Palazzola]

Yeah, Scarlett, I would say Buffett's inclination to be buying anything is probably low at the moment. Berkshire has not been buying back their own stock, which is up 10% year to date. So their buybacks are essentially nil. They, in their equity portfolio, they've sold about $11 billion net year to date. So you're spot on to say valuations are high and Berkshire is probably not buying a lot of stuff. I think this was probably just a unique opportunity. The, the deal valuation is pretty good. The terms are pretty good. So I think this was Berkshire taking advantage of their relationship with Occidental and doing something that could help both, versus some sort of statement on wanting to buy more in the market.

[Paul]

All right. On the same day that Berkshire Hathaway spends $10 billion on the petrochemical business OpenAI, some employees there sold some stock to private equity at a $500 billion valuation. How does Berkshire Hathaway think about tech? Because if you want to put money to work, there's some big valuations out there in the world of tech technology. But how do they generally think about tech?

[Matthew Palazzola]

Yeah, generally been tech adverse. Right. I think Buffett has tended to invest in things that he has a Deep understanding of. He has said it was a mistake to not invest in Amazon sooner, which, you know, call it tech or retail. But he lamented that obviously big investor in Apple, which though he kind of sees as a retail consumer company versus more than tech. So they have very, very little in the way of cutting edge tech plays or AI investments. The investment managers will probably be a little more inclined to do that and maybe Greg Abel. So Buffett has only got a couple of months left, totally at the helm. I'm sure he'll, he'll be involved kind of tangentially, but you might see a shift, you know, in the upcoming years towards more tech investments.

[Host/Anchor]

I'm so glad you mentioned Greg Gable because this latest purchase of oxy chem, $9.7 billion. You were saying that Berkshire is not making a lot of purchases right now. Is this being spearheaded by Warren Buffett or is this a Greg Abel call?

[Matthew Palazzola]

So we don't, we don't really know. I mean, the press release that came out had a quote from Greg Gable only in it. I would suspect that Greg probably did most of the work on this. Buffett has been saying for a while now that he stepped back from the day to day operations of the company. And Greg is kind of doing a lot of that legwork, I would think, on something of this size. Even though I just said it was 3% of Berkshire's cash, it's still almost $10 billion, a lot of money. I think Buffett was probably involved, but if I had to guess, I would think Abel probably did a lot of the legwork on this deal.

[Paul]

It was a beautiful afternoon yesterday at the Jersey shore. I hopped on the Vespa, went to the beach and I could not believe how rough the surf is. And apparently there's a couple of hurricanes and storms out at sea that's really churning things up, which got me thinking about you. Matt, talk to us about the hurricane season from the insurance perspective. How's it been so far this season?

[Matthew Palazzola]

Yeah, thanks, Paul. Whenever you think of hurricanes, please think of me.

[Paul]

Natural disasters.

[Matthew Palazzola]

Exactly. So it's been a very mild hurricane season in terms of landfalls. Right. You haven't talked to me much. Right. So we haven't seen a lot. What actually happened was there was a hurricane coming and it was headed right towards the Carolinas. And then another hurricane, which is a Category 5, completely over the ocean, sucked it away and kind of pulled it away from the US Coast. Kind of save the day for it. They are impacting Bermuda now. I don't expect major insured losses from that but so pretty benign season good for reinsurance companies. Paul, your favorite stocks and we do have something the National Hurricane center is identified another system that is is brewing up and could develop into something next week so we'll stay tuned for that. But mild season so far.

[Host/Anchor]

Yeah, I feel like I never want to talk about this because the minute you begin talking about how quiet it is is when things really gear up right and you get a massive storm like the next week.

[Paul]

Yeah like and that happens so real quick Matt, just overall how are your stocks performing this year? The property and casualty insurers?

[Matthew Palazzola]

Not great. They're underperforming year to date. We've got tariff pressure. Everything costs more to to repair. Lower interest rates are not a good thing for the PNC name. So Berkshire's actually standout. You know not being an actual pure play PNC company that that stock's up 10% year to date but the rest of the group is down year to date so we're probably looking at peak roes and valuations got peak before that. So I think that's what we're seeing with the PNC stocks.

[Paul]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Public Investing Advertiser]

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[Lisa Mateo]

Is the Small Business Minute brought to you by Amazon Ads. I'm Lisa Mateo. Credit card perks offered to small business business customers include cash back and travel rewards. But the feature many business owners find the most attractive is a high credit limit. Nearly half of all the small and medium sized businesses surveyed by payments.com and payments processor i2b said so, but the smaller and younger the business, the more likely higher credit limits were at the top of the priority list. The survey also found small business owners using business and personal credit credit cards to finance their operations, and nearly half of the smaller and younger businesses were carrying card balances over each month. Payments.com and i2b say this survey speaks to the need for alternative credit solutions tailored to the needs of small businesses. That was the Small Business Minute brought to you by Amazon Ads helping you reach relevant audiences through streaming TV ad solutions.

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[Host/Anchor]

Forimprint for certain.

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[Host/Anchor]

We were just talking about McDonald's and how we don't get a chance to go very often even though There is a McDonald's. Paul just across the street from us at Worldwide headquarters.

[Paul]

Where I should go to McDonald's and fast food when I was traveling in airports that would mean by I'll go, that'll be my one time I'll go. Yeah, it's just all high end stuff.

[Host/Anchor]

Well I think we need to move to Northern Texas because that is where McDonald's is focused on in terms of expanding and building out restaurants. This is actually our big Take story of the Day. Christina Peterson is Bloomberg's food reporter and she was the author of this story. And Christina, this is about how McDonald's is looking to build out 50,000 restaurants overall. Where are we in terms of that goal to get to 50,000. Is it like a third of the way there? Halfway there, three quarters of the way there?

[Christina Peterson]

They're, they're more than that. They are in the 40,000 range. I think it was 41,000 about a year ago. So steadily getting closer, that actually will not make them the biggest restaurant train in the world. That is mixed. You, the Chinese bubble tea maker is at 53,000. But they will definitely be closer to that goal.

[Paul]

Subway, I bet you is up there too, because they're everywhere. Christine, so what's going on here, McDonald's? I would have, if you'd asked me, I would have said there's a McDonald's on every corner in every city, USA. Why are they going on this expansion?

[Christina Peterson]

Right. Well, for years they were actually shuttering more restaurants than they were opening. Between 2015 and 2021, they closed a net of 900 some stores, some of them were inside Walmarts. But since 2022, they have been reversing that strategy and expanding, opening new locations. And they've really been trying to follow where the population is going. So, for example, North Texas is a place where people are just flooding. Texas in General has seen 2 million people move there since 2020. So they are chasing those new diners, trying to get as close to where people are living now as they can. And McDonald's says that its goal is to be within a five minute drive from as many people as possible. So they're just trying to go where those people are now.

[Host/Anchor]

Yeah, we were just talking earlier about how Dallas has really exploded in terms of population growth, in terms of being a place where folks want to move to because of the lower cost of living. Is McDonald's an early bird or a late comer to the population boom in northern Dallas? Northern Texas, is it, you know, the master planned communities are building out, but are there stores or brands that are ahead of McDonald's in that effort to populate it?

[Christina Peterson]

It's such an interesting point because they are still earlier than many other brands, but they are not as early in these spots as they once would have otherwise been. Oftentimes, McDonald's is one of the first businesses to open, and in places like this, they aren't the earliest. We see 40 some McDonald's in the Dallas area in the past few years, but the population there has been absolutely exploding. So they're still ahead of the full wave, but they were not the very earliest pioneers in these places where many people would have expected them to be.

[Paul]

Christina, I know you traveled to North Texas for this story. My question is Where's Texas putting all these people? They just building houses in the middle of the desert somewhere.

[Christina Peterson]

The houses are just popping up. When I was there, I would talk to people who had moved to the area weeks or even days earlier. There are an enormous number of houses being built and they're expanding. The Dallas North Tollway, which goes north from Dallas. Salina, where I went, was about 50 minutes away. And that highway is going to reach there by 2027. So you see, as transit gets easier, as it's faster to get to these places, more and more people are moving there.

[Host/Anchor]

So a company like McDonald's is massive. And I imagine that a goal to get to 50,000 restaurants takes some time to play out. So the fact that it's doing all of this, is this a move now to expand in response to conditions that it spotted, I don't know, a year ago or three years ago or five years ago. I'm just wondering how quickly McDonald's can decide on something and then execute on it.

[Christina Peterson]

Yeah, I mean, this is definitely years in the making. Being convenient is a cornerstone of their strategy. And I think they've just had to reconfigure where that convenience is, where the people are. They have a very extensive team that follows demographics. Other people in the industry watch to see where McDonald's open. We spoke to an executive who had previously been at Chipotle, and she said she knew when there were three McDonald's in an area, they were ready for other restaurants. So they're very sophisticated with these kinds of calculations.

[Paul]

Any early feedback on how some of these new stores are doing?

[Christina Peterson]

Yeah, we looked at third party data that show that these stores are not quite as busy as more established stores in denser areas. McDonald's told us it typically takes two or three years for a new location to catch up on traffic with older stores, and they see positive signs. So it could be that as these cities become more populous, they. These McDonald's will become more frequently visited. And it was interesting other businesses in these Texas towns said they weren't being cannibalized by McDonald's opening. There's just a lot of business for everyone where cities are growing as fast as these are. Hmm.

[Host/Anchor]

Christine, a final question to you. How is this expansion going to show up in the financials? And I wonder whether investors will give McDonald's credit for it. Because as you know, typically analysts track same store sales, sales at stores open for at least a year to gauge demand. And now McDonald's is building out new stores, which I guess don't quite filter into the revenue number in the same way.

[Christina Peterson]

Well, one thing that's interesting is that McDonald's has raised the royalty fee for many new franchise owners so there is more revenue that they are getting from these stores. Same store sales hit their lowest point in a decade last year but have been more positive this year, so there are signs that this is good for a McDonald's store.

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