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Stay on the technology theme here, we're gonna check out the man Deep Singh, global tech research head at Bloomberg Intelligence, Mandy.
Lots of news to talk about.
I want to just start with CrowdStrike sales outlook kind of in line with expectations.
Stock off a little bit here, just refresh our memory.
What is crowd strike and how does it fit into the tech stack?
Yeah, I mean they are one of the pure play cybersecurity names and clearly they have done quite well in terms of their top line growth over the last two three years. And you know, like with everything in the SaaS complex, some of these names have come under pressure because of potential competition from LLLM companies like Anthropic, and I think that's where you see a muted reaction today.
But you know, they had their best new arr growth yesterday and the guidance was a little conservative, but that's what we are seeing from all the software companies that have reported results this quarter is they want to be then race for the next one. And I think for a company like CrowdStrike that's growing mid twenty percent and very high retention rate, I mean things are looking good because all these lms should potentially drive more demand for cybersecurity.
If there's one area that certainly is poised to benefit from LLLM usage, it should be cybersecurity.
Man Deep crowdstre has been, as you mentioned, one of the biggest beneficiaries of cybersecurity spending boom. After this earnings report, does it still look like there's still strong secular demand or are we starting to see signs that those budgets are becoming a little bit more selective?
Not in the cybersecurity complex. So if anything, you know, if you have more data now, which is the case with llms, now, you know you are generating a lot more data, you are using it for training and so all that needs to be secured and prompt injection attacks is a new type of attack that you have to secure. Again, So from my perspective, you know, and based on our conversations, like this is the last thing any enterprise would want to cut. Yes, they are shifting budgets, you know, allocating
to AI more compared to the traditional areas. But when it comes to cybersecurity, I mean, the risks continue to get bigger and bigger in terms of data loss or you know, getting hacked, and so from that perspective, you're unlikely to cut back on, you know, especially a primary cybersecurity product, which I mean you know a lot of cases there are point products, but CrowdStrike is more of a platform with multiple sort of threat vectors that they
protect against. So from that perspective also they are quite insulated.
All right, folks, this is how it works at Bloomberg.
Usually Man Deep he comes into our studio when we want to talk to him. He's not in our studio today, which got me thinking, where is Man Deep seeing today? And at Bloomberg we can tell where everybody is at all times. You have to put where you are and who you're meeting with. It's kind of the full disclosure thing they do a Bloomberg, so I know where he is. He's downtown at the Bloomberg invest conference. Anytime Bloomberg gets its clients together, they all just want to talk to
Man Deep. They want to hear man Deep, talk about what's going on in tech and most notably AI. So I'm going to go right there, Mandeep, what's the conversation today about AI?
It went from just build, build, build build, Now.
People are starting to think about what are some of the ripple effects, third and second and third quarter effects?
Here?
What's the investor view of AI these days? Yeah?
I mean at this conference, over the last couple of days, the focus has been on the private markets. And as you know, you know, private equity owns a lot of these software traditional software companies that generate very high free cash flow. But everyone is looking at, you know, what are these lms going to disrupt and what does that mean you know, to the free cash flow of some of these companies, And so the private markets have been a big focus. I would say over the last two days.
Man Deep, there's been this trade, the halo trade, focusing on tangible assets when it comes to deciphering you know, who the AI winners and loss are going to be. I spoke recently to ubs, a global wealth CIO, and she said that she's focusing on the builders and not the coders. How are you thinking about this dynamic between the companies with tangible assets versus intellectual property.
Yeah, I mean, look at all the hyperscalers, right, they used to have most of them used to have an asset light business model. Now we are talking about, you know, seven hundred billion dollars in aggregate capex for this year just from the hyperscalers, and this is likely a multi
year cycle. So from that perspective, I mean, we know AI is compute intensive and you need a lot more you know, infrastructure to do AI, and so from that perspective, things certainly are shifting, you know, from intellectual property to owning infrastructure, and that's the trend that is likely to continue.
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AI story just yet another angle is how AI is being deployed by the Department of Defense and other parts of the US government.
Particularly about the Defense Department.
We had anthropic clashing with the Pentagon about how their AI could be used. Then we had to open ai chief executive officer Sam Altman says, we'll come in and we'll.
Do some of the work for you. And there's a lot of.
Uncertainly about how AI is going to be used and who will actually provide it for various government entities, including most notably the Department of Defense.
Vlad Richter joins us here.
He's the CEO of the cybersecurity company Fencer vladd how do you think this is playing out AI the Department of Defense specifically, We've had some uncertainty here.
What do you make of it?
Yeah, Look, I think there's clearly some sort of misunderstanding internally between between the departments, the Pentagon, and Anthropic, seemingly because from what we're reading over the weekend, open ai is signed an agreement according to Sam Albyn, with the Pentagon. They kind of stated the lines that I think we as citizens would very much care about, which is we don't want to see MAS surveillance and we definitely don't can't even imagine a situation where there will be autonomous
weapons going through there. But I think this also speaks to part of the challenge within these AI companies and specific in the models, is that you know, a lot of the data that they're trained on is effectively the same, and so over time, you know, the work that they're doing becomes kind of commoditized and there's much of a mode, and so the government will inevitably, in my opinion, turn around and start to work with the vendors that will play ball with them and not try to strong arm
them in any single position.
Opportunistic and sloppy was the language that Sam Altman used. Pretty strong language there. What does that tell us about the rushed by AI labs to secure government contracts And how important of a customer is the Pentagon when a to the AI industry?
Yeah, great question. So I think from a perspective of how important the Pentagon is or the government specifically to these AI companies as a customer, it's actually not that much. I mean, if you look at it from the perspective of Anthropic. You know, was reported that the deal with the Pentagon was around two hundred million dollars a year, and I think, as reported by Bloomberg today, Anthropic went from fourteen billion in run rate a few weeks ago
to nearly nineteen billion dollars today. It's one percent of their revenue right, and I think for the same probably similar to open Ai and some of these other ones, that it's meaningful revenue, but as a percentage of the overall base, it's not significant. And instead what you end up what we need as citizens is that the government actually chooses and it's more important for them. I think in the case of open Ai, with the contract they just signed, it was a little bit too fast, like
Sam said, and the communication was was not great. I mean, there was a handful of departures, including some relatively senior people from open Ai after the weekend that decided to go to Anthropic. And I'm not sure how much people know about this historically, but the Anthropic founding team was actually all X for the most part, all X open Ai employees that disagreed back in twenty twenty one with some direction that Open Eye was heading to and decided
to leave and start Anthropopic themselves. And I think today there are roughly seventy to eighty employees at Anthropopic that are ex open Ai, but at open Ai, I think they are only about ten or twelve employees that are ex Anthropics. You can see kind of where the movement's been going between the sort of the intelligent folks there.
Do have any idea to what extent in the Pentagon and the Department of Defense that AI is being utilized. Are they cutting edge because they have the resources, or are they kind of an old government plotting institution.
How are they employing AI.
There's a great article and I think it was actually from you guys earlier this morning that popped out that kind of described a little bit of that was revealed by some source of how it was being used and in the understanding, what was reported was that the Pentagon had decided that there were going to be roughly a thousand places that they were going to hit initially a thousand sites that they were going to initially inside of Iran. Previous versions of this you can't hit all a thousand
of once, and so people would sit down. They were prioritize them based on a handful of different factors, and it would probably take a couple of weeks to get
this done, if not longer. Right, in this case, what was understood was that they were using Palenteer's Maven product, which underneath the hood was also being powered by Claude from Anthropic and they basically fed in a bunch of data that palunteers access from the government and said, okay, prioritize this for us based on what we need to do and the different sort of movements right, step one,
step two, step three, whatever it may be. I think at that point, just like if any of us were using AI to prioritize some other things for us, it pulled out a spreadsheet and said, listen, this is I'm paraphrasing here, assuming this is what you should be doing, and I imagine the powers that be sat down took a look at it and said, is this really what we want to be doing? Do we want to hit these first hunter or not? But at a minimum, you're getting that done in forty five minutes, right, This is
not a multi week endeavor. It just kind of gets you a little bit faster there. It might only be ninety percent correct, but humans will decide the rest of it from there.
Glad we've seen AI leaders call for stricter regulation while simultaneously pursuing a defense contracts. Is there a sense that these deals are happening faster than the industry can establish the right ethical guardrails?
Yeah? So, I you know, depends on the day. Sometimes can go back and forth. What I think, what I would tell you is that it's not even sometimes so much as the guardrails from the industry, but the guardrails from the government. Right, there are some significant points that I agree very much with Dario, the CEO at Dariamidad Anthropic on this, which is the government does need to provide some guardrails for us on what is appropriate, what is not appropriate, How do we protect you as citizens?
At what point in time does the Pentagon decide to overset step some of these boundaries and if they're allowed to. But I think these things are moving too quickly at this point, right. I mean, these models come out every you know, a new version of a model comes out every few months from one of these organizations, and it beats the previous one by ten, fifteen, twenty thirty percent, and all of a sudden, it unlocks things that we
didn't think was possible. And you hear these comments that I think Darius said this earlier earlier and earlier this week, where he said that he believes that there's going to be exponential growth later this year. And I you know, for a company like ours, you know, we went from five percent of our code being written by Ai year
ago to north of sixty percent. Today, you start to struggle to imagine what exponential looks like by the end of the year, and so I think it's just tough to keep up with these things.
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Paramount's guidance acquisition of Warner Brothers Discovery, we'll trigger a media reranking and strategic sector reset.
Our guests says, we expect.
The industry to consolidate around three dominant players Disney, Paramount, Netflix, leaving comcasts subscale and making further m and a likely Keitha Ranganath and she is the media als or Bloomberg Intelligence, Brian Robertson and the gang down there in Philadelphia probably not gonna be happy to read this, Keitha, what do you think comcasts will do in this.
New world of Paramount and Warner Brothers.
They absolutely need to do something, Paul, I mean that has been the whole thinking. We know that they are ready to do something because last year when we had this whole Warner Brothers Discovery auction kicked off, we know that Comcast would actually kicked the tires there. They had a proposed a merger of NBC Universal, which is their
media division, along with Warner Brothers Discovery. But of course, because it was a major restock deal as opposed to a cash deal, it was you know, obviously the Warner Brothers Discovery team didn't go ahead with it, So they know that something needs to be done. But at the same time, I think Brian Roberts and the team have been somewhat shy to you know, spin out NBC, But I think it's it's some kind of strategic action is absolutely imperative at this point.
Paul Keitha.
Paul and I were just talking about the language in your note, a media re ranking and a strategic sector reset. That's going to rattle a lot of folks at Comcast. Can you talk to us a little bit more about what exactly that means?
Yeah, Alex, absolutely so.
If in fact the Warner Brothers Netflix transaction had gone through, that would have left Paramount without a dance partner so to speak, right, and they were they were they were already considered a subscale player. They would have absolutely needed another, you know kind of deal, and and majority of the thinking was that, yes, they might then approach Comcast and look to kind of bolster up their whole media presence. Now, with the Paramount and Warner Brothers deal going through, you
have you know, obviously the media re ranking. You have the three, the big what we call the Big Three. So you have Disney there with almost one hundred billion in revenue, Paramount and Warner Brothers Discovery will bring in about seventy billion, and then you have Netflix with about fifty to fifty five billion. That really leaves now Comcast as somewhat of a subscale player. So they, you know, this is the whole thinking. They need to do something, they need to do it quickly.
You know. It's somewhat of a unique.
Play Comcast because they have both distribution and content assets. So they are the biggest broadband provider right now in the United States with over thirty million households. The problem for them is their broadband business has been under a lot of pressure, so that has kind of taken the spotlight.
Now to the media assets and media assets actually for them. Unfortunately, there's a lot of focus and it's it's a lot of positive focus because we know that Netflix was willing to pay a twenty five times multiple for the Warner Brothers studio, so you just kind of applied that multiple to the Universal studio and they have had so many hits, you know, whether you're thinking about the Minions or Oppenheimer
or Jurassic Park, Jurassic World. I mean, that's a studio that delawarees consistently, so you know, you just slap that multiple onto you know, the the NBC studio that should be worth at least thirty billion, and then they have the theme parks, and the theme parks are really growing at a nice space for them.
We did some analysis.
We said that the theme parks for NBC should be worth at least forty billion.
So you have an asset here which is.
Really kind of undervalued under the Comcast umbrella. So they need to do something and they need to do it quickly.
KEITHA.
I've always thought two of the key advantages for Comcasts are won their management team might have been a big fan of Brian Roberts and his management team for a long time.
And the second thing is their balance sheet. They've got a very strong balance.
Sheet, you know, but there's not a lot out there for them to buy.
Why what do you think they should do?
I think the first thing that they should do, Paul, is spin out NBC. So NBC under the whole Comcast, you know, family thing is is just not working out. I think the ultimate route will be for them to spin out NBC maybe, you know, kind of become.
This this roll up vehicle.
Maybe they combined with some other assets some of the smaller players out there, could be an AMC Networks, could be a lions Gate. Of course, nothing is necessarily going to be transformative, but you know, at least, you know, maybe once they're spun out, maybe they become an interesting target for Netflix.
I mean, who knows.
Netflix has already kind of gone this whole m and a route maybe Comcasts becomes interesting to them.
You know, I see Fox out there and there. I would call them a subscale player too. But boy, they're doing fine. It seems like they've got i mean, they're broadcast and their whole audience. They've got that editorial thing down. They know who their audience is. What do you think they do?
Yeah, so the the endgame for them is also a little bit unclear, Appaul. I mean, up until now, I think Fox has made all of the right decisions, you know, whether it has been to get rid of some of the you know, challenged cable TV networks, the studio with the whole Disney deal in twenty seventeen, and really kind
of doubled down on live sports and news. The thing is, the one big thing that we're all kind of looking at this year is going to be the NFL renegotiations, and that's going to have some serious implications for all of these companies, whether it's Comcast with you know, NBC
exposure and Fox. Fox is the most heavily exposed to NFL programming and they're going to have to pay up and so, you know, at that point, I think that there is going to be some kind of reckoning for all of these media companies.
Stay with us more from Bloomberg Intelligence coming up there for this.
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There's a time of the earning cycle, the end of the earning cycle, where we get to hear from a lot of these retailers.
Today's no different.
Bath and body Works reporting some numbers here, So let's break it down. Lindsay, Dutch Consumer Hardlines, senior analysts for Bloomberg Intelligence Joints is here.
So Bath and Bodyworks I know they're doing it.
They're in the midst of a turnaround here, lindsay, what did you learn on the earnings release?
Hi, Paul, thanks for having me. Yes, Bath and body Works is aggressively pursuing a turnaround strategy. The fourth quarter, we saw sales and earnings come in better than expected, but still down year over year, and then their outlook for twenty six wasn't super surprising, kind of in line with what they were expecting three months ago.
You know.
Growth is kind of off the table as they pursue a strategy that's going to attract younger customers, a broader customer base. They're moving a little bit into wholesale, They're pulling on lots of different levers to really become back to the brand that they have been historically.
Lindsay, promotions are a big part of Bath and body Works as strategy. Are they driving traffic successfully or are they assigned that demand is a little bit more shaky.
Yeah, great question.
So promotions are a huge part of Bath and Body's historical strategy. The new management team is really trying to ultimately move away from that. I don't think twenty six we will see a significant shift. They set on the call, they're expecting promos to be about flat this year. They
do still see success from those promotional strategies. At Black Friday Cyber Monday, they elevated the strategy versus historical and that deeper discount definitely drew traffic, and I think that was a key part of the little bit better than results in the fourth quarter than they were expecting.
Ben, what's the Amazon dot com play here for Bath and Bodyworks?
Yeah, so I think that they're really looking to broaden their brand awareness with consumers that don't shop them already. So they have, you know, forty million loyalty members. Some of those customers have been with Bath and Bodyworks for a very long time. They're extremely loyal to the product the sense that they have but this company is really
looking to reach that younger shopper. They're doing pushing into new lines they have like lip products now, and the move on Amazon is similarly broad in brand awareness, you know, reach other shoppers that they don't currently reach. So I don't see a huge push into wholesale as like a new business strategy, but it's really getting that brand in front of customers that aren't going to the mall and seeing their store.
This is a company, lindsay, that falls into the affordable luxury category. What are these results tell us about the broader consumer and trading down to companies like this.
Yes, so you know Bath and Bodyworks has historically drawn customers for their value proposition, and they have an everyday luxuries line that did very very well in twenty four and twenty five. You know, they still want to maintain their piece and in that you know, seeking for value behavior, and I think that's very important for them going forward. The new management team also wants to elevate the brand and push it maybe towards that prestige level a little bit.
And in beauty broadly, we've seen prestige holding up a little bit better than mass, so it's an interesting move to try to sort of elevate and move up a tier, you know, when a lot of consumers are seeking value, but I sort of understand the logic behind that. You know, just look taking a step back, where those prestige brands have held up better in this economy, probably driven by a higher end consumer.
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