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Boy, the tech news continues to come fast and hear us. Let's get the latest with Ed Ludlow, be tech co host.
He's out there somewhere in California getting into trouble in Silicon Valley. And I want to start with the meta platforms paying twenty as much as twenty seven billion dollars for cutting edge artificial intelligence infrastructure from Nebuas Group. Nebbus Group stocks up thirteen percent today, all right, not bad?
Up fifty two percent. You're to date, okay, better up.
Three hundred and forty five percent on a trailing twelve month basis.
Ed, let's just start with the basics. What is Nebbius Group.
What's going on over there?
Yeah, it's what we call a neo cloud. It's a fancy way of saying it's a data set that just runs AI workloads. Because prior to this point, lots of data centers have done all kinds of software and storage, and you know, Meta is pursuing this kind of everything strategy. Meta is not a cloud computing company, but it has a lot of compute demand, and so it's buying loads of chips from in Video and AMD for its own
data centers. It's working on its own chips in house that go into its own data centers, and then it's basically leasing or renting capacity from a number of other players. The difference with this Nebyis deal is like it's really big. You know, it's twenty seven billion dollars over five years, but upfront twelve billion dollars next year for dedicated capacity. And that tells you that they've moved very quickly, and it's a very serious arrangement.
And it adds to it's three billion dollar deal with Nebus last year as well. You talk about Meta really diversifying and not betting on just any one company, right, I mean, it's kind of spread its chips everywhere.
Yeah.
The idea is that in an environment where you are supply constrained, in other words, the demand that a company has for compute power is greater than what exists in the real world. They have found that diversifying is the best way to get the compute needed for different workloads. Meta is a very big and serious buyer of video chips.
You know, it's in the top five easily. But there is benefit to designing at scale, Like the economics of designing your own chips makes sense, particularly when it's for running internal workloads. Right when I visited Meta's chip lab last week, one of the chips they've come up with, for example, trains the algorithm that does ranking and recommendations. In other words, how ads show up in your timeline. That's like very specific to them, and so it's paid off the investment so far.
I'm just looking at the graph of this chart from DEBS.
I mean, when public in twenty eleven, kind of bouncing around not doing anything, and then around the February of twenty twenty two, at the price of twenty dollars a share, people said, oh, this is an AI play, so we go from twenty to one hundred and twenty eight dollars.
Where was that call ed Ludlow.
Well, there's also a history part of it, which is that it was previously associated with the or, a property of Yandex, which is a Russian cloud computing company. And so you know, just simply due to what's the word and I'm looking for, I guess sanctions. You know, it changed itself. It is now an Amsterdam based company, so that's a part of it, but it's completely I'm visualizing
the chart for our audio audience. But you know that it completely coincides with the birth of the neo cloud and demand specifically the data since that just run ai.
All right, here's another story that just recently crossed the Bloomberg trouble again. Big numbers open ai and talks for ten billion dollars joint venture with Pe firms. What's up at that?
Yeah, so we've just moved our own version of this story. And what I'm told by sources is that basically it helps a lot for open ai to have some money that's off the back sheet to go out there and
find a vehicle a mechanism to sell its software. And so what these guys are doing is they've set up an entity where those private equity companies in the first instance, can go to all of the different kinds of companies that they own and are trying to make better in the classic pees style and say, you know what, why don't you guys use open ai stuff. It's pretty good.
And so that gives like open ai a way of going to market, and it gives these private equity firms some exposure to open ai and a mechanism to do business with them that also benefits all of their existing portfolio of investment.
Do we think that this is going to be the template that it starts to use more of these off balance sheet adventures.
Yeah.
I think this is very interesting because like what I hear from time to time across Silicon Valley for all sorts of things is that there is benefit in having multiple entities, be that a geographic split or be it a business line split. And in part because you at scale with enterprises, the open ai Private X story is about selling open AI's platform to different enterprise companies. It's just a sort of old archaic world where it seems like going back to that model is what is in favor.
But this news that broke this morning is the first real example I've seen of it. The idea has been spoken about in the corridors for a little while. Stay with us.
More from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
One of the big movers was Dollar Tree, and the outlook here from Dollar Tree was kind of mixed because even though adjusted earnings per share is going to meet the average channelist estimate, the outlook for revenue came in a little bit light. So let's bring in Jen Bartashis. She is our senior analyst covering retail staples and packaged foods, and Jen, we've seen these value retailers do pretty well in this current environment with a lot of higher income
consumers trading down. Yet this sales view did miss the average analyssessment. Is that because analysts investors have gotten a little bit ahead of themselves when it comes to the outlook.
Here, Well, it's a it's a good question, Scarlett, you know, with regards to the overall revenue growth for Dollar Tree, you know, last year was a real transition year for them. They shed the family dollar unit, they're refocusing, they've been you know, investing in the business, but that trade down
customer doesn't come all that often into stores. And so while they bring a much higher basket and they're taking their big, their big adopters of that higher price point of three to five dollars, they're just not coming in as frequently as kind of the core low income consumer. And so I think the conservative view on the top line is that there are a lot of things going
on right now. You've got, you know, fuel prices are on the rise, You've got consumers who are her stretched, and you've got a mixed behavior with regards to the types of households that are coming into Dollar Tree.
So what's what's Dollar Tree and the other dollar stores?
How are they adjusting their strategies at all?
So with regards to strategy, they're you know, one of the things that they really ran into trouble with and this is why they went beyond that one dollar price point back in twenty twenty two, was being able to
have a compelling variety of merchandise in the stores. So the multi purchase, the multi price point strategy that Dollar Tree is rolling out has been really effective for them because it gives people, you know, slightly more choice of what's in the store, and they can offer more compelling value,
So that's been a tactic that's really paying off. It's just a question of you know, they're still in the process of rolling that out to all of their stores, so it's not everywhere yet, and so they're getting that bump as stores are adopting these these these higher price points. But once they're in all the stores, the question is how sustainable will it be, So that's one of the things that everyone is looking for.
And jen one thing we know about Dollar Tree is that it has done better in terms of operations and of performance because of this decision to divest its family dollar chain, which was begun last year. How far long that process is dollar Tree is it? You know, halfway done, two thirds done, one hundred percent done.
So the divestitures is done. The question is the refocusing on their own internal operations. So you know, with regards to last year, they started to pay a little bit more attention. They're really working at improving their supply chain efficiency. They're working at improving store level productivity. They've invested in wages in the stores to help have more employees there at the right times and to provide the right amount
of customer service. But it's still early days. For their overall transformation of the company now that it's back to being just a single bit, and so it will probably extend through this year that we see more of those tactics start to take hold and to have a real material impact on the business overall.
Let just Target, What is Walmart? What are they doing in response here?
What's really interesting it, Paul, is that Dollar General as a direct competitor in the dollar store space. They talk about having over five hundred items that are at the one dollar price point or below, so they're actually undercutting Dollar Tree on some of that value play. If you go into a Walmart or a Target, when you first walk in, they have kind of those value alleys where they have low priced items right at the front where
you can see them. So everybody has a strategy to try to show value through some variety that's at very low price points. But then when you get to the big box guys there a competitive advantage really is in the breadth of assortment that they carry, and if they can be compelling on value across the store, that puts them in a good position.
Stay with us. More from Bloomberg Intelligence coming up after this.
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We have a great guest here, Michelle coursmo Joins, the CEO of the National Restaurant Association.
Michelle, thanks so much for joining us here.
You know, one of the industries that was thought to be impacted or could be impacted severely by some of the change in immigration policy from this administration was the restaurant business.
Has that in fact happened.
Well, it's interesting, Paul, when you look at last year, we had some growth, but not really strong growth. It was four point six percent nominal growth in less than one percent full time growth. And we know that that has a lot to do with the fact that consumers were a lit little bit more weary. The immigration policies and the immigration disruption definitely made a difference in restaurant business,
particularly people coming to sit down in family dining. You know, it's interesting when you think about immigration, because one out of every five people that work in restaurants was born outside the US. Many of those are citizens, many of those obviously are fully documented and able to work. But in terms of an immigrant population, the restaurant industry very much represents that.
So what are your operators telling you about, Maybe just their access to the ability to attract and retain labors have been a challenge for them.
Yeah, it's always tough to find and retain the best labor. We're thinking about the value of working in restaurants as people are considering do they go and work in healthcare? Do they go and work in education? And people need to know that you can find a great career in restaurants. In fact, there's a lot of opportunity that this eight out of every ten restaurant managers started an entry level and so we know, I'm sorry, nine out of ten started an entry level and eight out of ten owners
started in entry levels. So we know that there's a lot of upward mobility. So finding people to come in and then building that upward mobility is always a priority for restaurant operators.
Michelle, talk to us about tariffs.
We're going into year two of this uncertain tariff regime or situation. How is that impacting the restaurant industry. As the industry figured out a way to kind of just deal with it.
Yeah, it's interesting you talk about figuring out a way. It has a little bit normalized that we have some disrupted prices. Food and beverage tariffs have been pretty stable for at least the last six months, and so that's provided some more continuity in terms of pricing. But food price is tough, right. Food prices have been steadily increasing since before the pandemic, and that's something we're watching. So
it's often more now about availability. We know we don't have enough cattle herd that exists today to meet the beef demand in the United States, so that has an impact on pricing. So we're seeing those types of activities impact food prices almost more than terriff activity.
Today, I noticed going to restaurants more and more and more signed saying we're going to charge you three percent more if you use a credit card versus cash.
And that's a big, big issue.
Not for me because I walk around with a lot of cash, but for most people, the younger folks, they would know a fifty dollars both.
They tripped over it.
So I mean, talk to us about these swipe fees and all that type of stuff.
Well, you are one of a quarter of restaurant patrons who uses cash, but the vast majority three quarters are using credit cards. And the US is the last country nation really to have any kind of competition that exists between our credit card carriers, and so without that competition, it allows those carriers to charge what we see is really high swipe fees, costing the average American at least twelve hundred dollars a year because of the swipe fees being higher in the US than say they are in
Europe or in Asia. And so that's something that restaurant operators need to figure out how to account for, is how do you manage three, sometimes four or five percent depending on a credit card swipe fees. And so those extra charges are helping people understand what a difference it makes when you're using a credit card as supposed to paying cash.
So what's the longer term trend, Michelle, just in terms of people eating home versus eating out? I know that pandemic upended a lot of people's kind of how.
They do things. What's the longer term outlook?
Well, long term outlook for restaurants is always great. In fact, even today we talk about the numbers in our State of the Industry survey that shows that seven out of ten Americans are saying they'd spend more money in restaurants if they had more disposable income. So you know that the demand is there. There's always a pent up demand, and people really like the taste and the flavor profile for restaurants. The convenience, the speed, with lives getting faster
and busier, restaurants are definitely a win. The other thing that's great about restaurants is that it's a pretty competitive industry, and that competition causes each restaurant to figure out how they can do better to get those customers in the door, So the quality of the food is going up. Pricing a stain competitive restaurant industry is a great business.
To be in.
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