Ed Ludlow (2:28)

Yeah, our reporting is very detailed which cites sources that Mark Zuckerberg is getting much more hands on on the minutia of generations generation model releases, AI model releases. But the bigger picture is that matter, which has kind of been the stalwart of open source AI models is realizing that that it may not be the viable path. So there is a specific model that they're due to release called Avocado and at one time that had been due to be an open source model. What we're reporting citing sources it's now likely to be a closed source model. Alexander Wang, who leads this kind of AI lab team that Mark Zuckerberg's put together, is a great advocate for closed source. And what you need to know is that in the earlier days when models were much smaller, matter kind of wanted workshopping among industry and academics worldwide. It worked. But the problem now is that these models are so big, the resources required to utilize them are so severe that it's just not real realistic to have an open source policy universally. Because you need money and private industry has money. You have to make it a kind of for profit exercise in order for the economics of training and then running the models to work. And that's what our story details. It's a, it really is a must read. What I would say is that Matter, in its earnings call in July did kind of tell us this was coming. They're committed to open source, but they're going to have to start looking at the reality of what it takes to build and train a model and then put it out into the real world in terms of who can use it.

Podcast Narrator (4:02)

All right, Ed, you've been very busy. I know you've been writing about Space X as well. So I want to ask you about that. Tell us about this ipo. I mean, it seems like it's going to be trying to rival the Aramco IPO that we saw a few years ago. 1.5 trillion valuation. What's the single biggest justification clarification for that?

Ed Ludlow (4:19)

Yeah, I mean, we're reporting that it's happening. You know, my understanding from sources is the work is well underway. They're speaking to the bankers, they've told the investors they're hiring for the internal roles that you need when you do a big ipo and the targets the middle of next year, you know, the valuation is what everyone's talking about. $1.5 trillion. We confirmed that the company's latest valuation in the private markets through a tender settled at more than 800 billion. So that is kind of like a stepping stone to an ipo. But what I understand is they need some cash for a specific project. We can get into it if you want. That cash is probably well north of $30 billion, maybe $40 billion. And that would exceed what Aramco raised in 2019. So from a dollar raised perspective, it would make it the biggest IPO of all time, which is exciting.

Host (5:07)

It surely is. I mean, particularly for the bankers on that. What's the total valuation? Do we know the total valuation of Space X these days? Because I've heard some monster numbers.

Ed Ludlow (5:17)

So Elon Musk has been pushing back on X recently about reports of Space X's valuation. What we have reported, and this is we stand by that reporting, of course, is Space X has gone through a tender, a secondary offering that is a mechanism where the company allows existing employees to and some insiders, early investors, to sell the shares they already have. As part of that, Space X actually buys back some stock, but they don't raise any new equity. They don't raise any funds for the company's treasury. But you still need a price for those shares and that determines the valuation. That price was settled at $421 a share and that gives a valuation north of $800 billion and that's settled. But again, SpaceX does this twice a year, typically, you know, tenders, buybacks, etc. But in this case, this would be the big one to kind of get fair market value ahead of an ipo.

Host (6:16)

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Podcast Narrator (8:44)

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Host (8:58)

We had a client earlier Christine was referencing some fiduciary trustees referencing oh, I'm waiting for the BI survey on AI. I'm like what BI survey on AI? Matt Bloxham joins us. He's a tech analyst for Bloomberg Intelligence. Hey Matt, talk to us about this BI survey on AI. What is it and what's what's it telling you?

Matt Bloxham (9:17)

Yeah, sure. So this was a big survey we did polling the views of 604cc C Suite executives across a range of industries across the world. Really kind of get trying to get a sense on how corporates are assessing the current situation and what they think it's going to do to their businesses over the next kind of two to three years. So we kind of looked at the motivations for AI investment, what it could do to headcount what they're expecting in terms of revenue and profit uptick. And you know, we had some kind of interesting.

Matt Bloxham (9:51)

Results out the survey. You know, not surprisingly perhaps AI is very much at the top of the C suite agenda. Something like 36% of those polled said it was their top strategic priority and another 47% said it was within the top three.

Matt Bloxham (10:10)

Strategic objectives for them. When we looked and asked about the main objectives behind that strategies, what came out top was improving operational efficiency, which was number one with 47% of the respondents. And in second place was boosting revenue at 21%. Interestingly, headcount cuts were quite low down the pecking order. Only 13% of respondents put that as their top priority and actually it was the highest ranked in terms of that the least priorities. So I think it's interesting that companies are looking to boost productivity, but they're not afraid to make investments both in technology and headcount in the near term to kind of release those opportunities naturally on a three year view. 62% of respondents said they expect AI to lead to an increase in headcount over the next three years. An increase, not a decrease. And the average increase they're looking at is about 4%. So that kind of flies in the face a little bit of a lot of the kind of headlines we see about job cuts. I think overall corporates see the need to invest more in staff to roll out their AI strategies in the coming years.

Podcast Narrator (11:30)

Yeah, yeah. Well Matt, you mentioned 36% of C suites now rank AI as their top priority. That number actually strikes me as a little low. I would have thought it would be at least half of the people surveyed. But what do you think? Is that something that's just set to grow in future surveys as really kind of I become central to a lot of companies workflows these days?

Matt Bloxham (11:51)

Yeah, I think so. I mean, you know, obviously if you, if you add the 47% that said it's in the top three, I mean, you know an overall top three priority gives you the kind of vast majority of the respondents obviously in a company do have to wrestle with lots of other issues too. You know that there is going on in the world beyond AI. And obviously trade policy is another big thing that's probably on the radar for a lot of these companies too. So yeah, you know, maybe it will kind of inch up but I think given that aggregate, you know, 80% plus in the top three, probably what you'd expect to see.

Host (12:28)

Matthew, how about return on investment here? That's kind of what the street starting to ask for now. We know these companies can spend big money on AI, but what's the return for shareholders?

Matt Bloxham (12:39)

Yeah, I think that's still very opaque and actually when we asked the respondents to flag that the biggest roadblocks they could see to AI deployment, the investment needed in AI and the question marks around the return on investment were definitely up there amongst some of the most important concerns that respondents have alongside data security and clean data. We didn't ask much the most specific ROI expectations. We just kind of get the sense that it's a bit too early to get an accurate read on that. I think most companies are still kind of at a relatively early stage of that AI trials. Lots of them have moved out of the kind of testing LLMs, they're into pilot phases, some of them are even moving into scale deployment. I think it's fair to say a lot of them are not really quite sure yet what the return is going to be and how quick it's going to come. And obviously it's kind of a bigger issue for the wider tech sector. And you mentioned Oracle as a kind of barometer for the kind of broader pulse on on AI. And I think the 2026 is going to be a really crucial year for companies of what corporates make of the midterm roi. And if they don't see a big roi, then that's probably going to slow the pace of revenue growth and that's going to have a knock on effect to the levels of investment we're seeing made by the likes of Oracle and OpenAI and the revenues they're bringing in.

Host (14:08)

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

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Podcast Narrator (16:31)

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.

Host (16:45)

Let's switch gears going back to earnings here. Earnings continue to kind of trickle out a little bit, particularly from the retail oriented companies, the packaged foods companies. One of them is Chewy. Let's break that down with Diana Rosetopena. She is an analyst covering the retail space, consumer product space for Bloomberg Intelligence. What are good friends@chewy.com doing?

Diana Rosetopena (17:05)

They're doing fairly well. You know, they, they actually reported sales and profitability that beat analysts expectations. You know, for their outlook. It seems that they're a little bit conservative that actually, you know, level up some of the gains earlier this morning for the stock. But again, it seems that there's a lot of tailwinds going forward.

Podcast Narrator (17:29)

Yeah. What's driving that more conservative outlook that you mentioned, Diane? Is it something related to concerns about consumer demand moving forward?

Diana Rosetopena (17:38)

That is absolutely the case. They're seeing household formation, which is adoption versus surrendering a little bit subdued compared to historical averages. And they think that that's going to overflow into 2026. We're not necessarily agreeing with that. We think a little, we're a little bit more optimistic in terms of, you know, the pace of adoptions going forward. So this is going to make the industry a little bit more interesting.

Host (18:08)

This is, if people recall, definitely one of the pandemic stocks. It just surged to a high of about $1,819 a share back in early 2021 and then came down to a more normalized level here. So going forward, what's the growth drivers for Chewy? Is it taking share from the mom and pop pet stores or just macro stuff, household formation, things like that?

Diana Rosetopena (18:32)

Well, there's going to be a couple of things. They're focusing on verticals besides merchandise. You know, they're doing a lot of vet care. They're expanding into that. They are currently have 14 buildings on that. They're expanding into 18 by the end of the year. So you know, you have health care, you have sponsored ads in the, in the website, you have, you know, the membership program, you have Chewy Plus. So all of those things were probably going to be tailwinds for the, for the company going forward. They're focusing on gaining mid to high single digit sales growth over the next few years which is, I think it's, it's a normal forecast but right now they're you know, growing two times the size of the industry. So yeah, it's interesting.

Podcast Narrator (19:26)

Is this a trend that you're seeing moving forward for a lot of these kind of consumer based companies shifting back a little bit to that in store sort of experience? Because that seems to be a strategy that's worked for other retailers outside of its space as well.

Diana Rosetopena (19:40)

Yes. So you know the pet industry, it's, it's very sticky in terms of demand. So one, once these companies get the, the pet parent at the start of the, you know, pet ownership, they are going to have them for the rest of the life of the pet. So you know that is obviously a very interesting dynamic compared to other retailers. But in terms of the insecurity store experience, this is something that Petco is also doing. They're leveraging their 1400 stores to also increase that traffic and penetration. So definitely interesting times.

Host (20:18)

So Walmart, Amazon, how, how does Chewy compete against those players that have big, big e commerce platforms?

Diana Rosetopena (20:26)

So based off of them they compete on price. We, a couple of years ago we did a pricing study with Amazon but Walmart and Chewy and other retailers and Chewy and am on, we're pretty close in terms of pricing. Where, where Chewy beats Walmart and Amazon. Is that their customer service? They, you know, if you call them and you have any questions about the food that you're going to feed your dog, they are very knowledgeable compared to you know, Amazon customer service. So that is like the edge that they have.

Podcast Narrator (21:01)

Very interesting. Now another bright spot of course is auto ship, right. Which is basically if you're a pet owner, this is the thing that you sign up for like my cat's food each month and then it just keeps charging me every month and then I get a surprise delivery of cat food that I was not maybe expecting. But so obviously that's a bright spot for Chewy. What's the outlook for that part of the business? Is that something that could be sustainable?

Diana Rosetopena (21:26)

Yes, absolutely. So right now 84% of their revenue comes from auto ship which allows them to have a lot of sales scale and allows them to be very profitable. So that is obviously they have been growing since I started covering this company. It was like in the 70s and now it's 84. So it's probably going to get to the 90s soon.

Podcast Narrator (21:46)

It's very convenient because you sign up for it and then you forget about it.

Host (21:50)

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

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Support for the show comes from Public On Public you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are completely customizable and based on your thesis, not someone else's. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors llc. SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com disclosures with.

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Podcast Narrator (24:13)

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

Host (24:27)

Cracker Bar reported some numbers today, some disappointing guidance. Stocks kind of flat on the day, but the stock has been down pretty significantly this year. They had that whole logo change that was a real problem for them and they're starting to see it in Their traffic pretty big time stocks down about 50% year to date. Michael Haylen joins us, senior restaurant and food service analyst for Bloomberg Intelligence. Michael, what did the company report today and what's management saying about kind of the future plans here?

Commercial Announcer 1 (24:54)

Yeah, so you know, guidance was cut and this was their fiscal first quarter. So it's always tough to have a guidance revenue and EBITDA cut after your first report. But they hadn't seen a bounce yet in their traffic post logo change controversy and everything that that went along with it. You know, on the positive side, they said, you know, traffic has now steadied at this down 10 to 11% level which is translating into, you know, a down a mid single digit same store sales. You know, so if you're, if you're a glass half full investor, you're saying that, you know, after the stabilization comes an improvement. You know, their new guidance has a pretty wide range. So the low end of the range is assuming no improvement through year end, which we think could be sounds pretty conservative to us. You know, and then on the higher end they would see a gradual slow improvement in traffic going forward. So what are they going to do? You know, it's, it's going to be a, continue to be about a improving the operations. Right. That's been.

Commercial Announcer 1 (26:08)

You know, a key tenant under, under CEO Julie Macino. It's also going to be food innovation, it's going to be Southern favorites. It's going to be twists on old classics. It's going to bring, be bringing back items that people loved and want to see returned to the menu. But I think what really stood out is their willingness to listen to more closely to their customers. I think that's a big key point of focus for them moving forward after the controversy that they suffered.

Podcast Narrator (26:41)

Well, Michael, so in terms of what are they going to do? Right. It seems that cutting Capex is a part of the plan. Is that something that you think would signal discipline or does it actually risk slowing the turnaround even more?

Commercial Announcer 1 (26:55)

Well, they're going to still refresh the stores. What they're cutting back on is, is a more extensive remodel which was.

Commercial Announcer 1 (27:05)

In tandem with the logo change, which was something that was angering customers. Right. So I think the Capex change is probably, you know, the lowered capex is probably smart, but they're going to continue to refresh their stores. They're going to continue to give them a fresh coat of paint, improve floors where they need to clean up the bathrooms, things of that nature that nobody's going to get up in arms over.

Host (27:32)

I'm actually surprised in hindsight that maybe this management team kept their jobs there. I mean this was a real self inflicted wound there. What's, what's the shareholders been saying? Has there been any pushback other than selling the shares?

Ed Ludlow (27:45)

Yeah.

Commercial Announcer 1 (27:45)

So listen, Julie Messino, the, you know that you make a great point.

Host (27:49)

Point, Paul.

Commercial Announcer 1 (27:49)

And Julie Masino, the reason why I believe she's still there is that she was doing a great job until this, until this controversy hit. You know, this is a chain that had been bleeding traffic for years. Right. They've been really struggling for a long time to bring in younger consumers. Right. And she had shown pretty good success over the 12 months leading into the, the logo change. Same store sales at the restaurants were up 5% in the August quarter. So I think that's why, you know, the, the proxy fight kind of failed. The, the attempt to remove her from the board failed. And, and why she still has her job right now is that they, this, this chain was a mess prior to her arrival and she was showing some pretty good progress up until August.

Podcast Narrator (28:41)

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 terminal.

Ed Ludlow (29:07)

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Matt Bloxham (30:45)

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