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Another big trade happened today. I mean, the AI valuation story just gets bigger. Every single day.
There's a new impressive and it's because of this guy, Ed Ludlow, Bloomberg Tech co host, joining us a live.
Here in our Bloomberg Interactive Brokers studio. He's based in San Francisco. We've got him on East coast here for a little while. So, Ed, what happened?
What's the deal that just put evaluation of five hundred million dollars on open ASP.
So, actually, the mechanics of it are the 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 open AI. The eligibility requirements were that you held them or 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 a valuation set because a price has to be set. And so these investors wanted even more. They wanted like ten billion dollars worth of employee shares. In the end they got six point six billion dollars. So what does that tell you. There's probably a load of open a employees that were like,
you know what, I'm not going to sell. I'm holding on because if I'm at the five hundred billion dollar 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 Sharin Gafari, really talented colleague of mine out in San Francisco Bloomberg Newsroom. She did break this story in August six, just the close of the round.
Okay, So now that open ai is valued at five hundred billion dollars, that puts it over SpaceX, which is valued at four hundred billion. And I bring this up because there's a common thread between open ai and SpaceX and that is Elon Musk is part of open Ai before leaving under some clouds.
Yep, he has a fractious relationship specifically with some Altman, you know, the the other founder and now CEO of open Ai. You know what I've written a lot about in Bloombot BusinessWeek magazine and in some of the reporting is present day. Musk has kind of a little bit of a chip on his shoulder. I think, well, specifically about the idea that Xai, his ai company, should have a valuation that is near to open ayes so, and you know there's been litigation. You know, there's a public forum,
slinging match 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 it sought to raise money at two hundred million dollar valuation this year. You know, it's tides and rising ships in that field.
Really, so do we know who was selling here in this round?
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 twenty twenty two when Sam Outman was briefly ousted from open ai. There was just a few hundred people that worked there at that time. You know, so that was three years ago and almost three years ago, and now there are thousands of people that work there. So yeah, some tenure would probably be a factor here.
Okay, So now the world's biggest startup worth half a trillion dollars, but open ai is not making money.
It's not part ofable. Yeah.
So on Monday, open ai has its dev day, its developers day in San Francisco, and are we 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 open ai is only converting two percent of its free users to paid subscribers. Now, that for me
is an interesting data point. So it's been on that is that there's a lot of room for growth, right, 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 op X now talent compensation, even the revenue they are making probably ain't that high margin, is it. You know,
if it's all. So the big question is, Okay, if we know that you're not really doing a lot to convert the consumers from free to paid, what do your enterprise business look like? And that's probably the domain where we'll focus. Hey, when you even do a secondary or attender with employees, you've got to put a deck together that justifies evaluation. So those group of investors, they will have seen something in the data room that would say
this is a five hundred billion dollar company. Like, of course they would, that's how it works.
Well, how come you don't. You haven't gotten your hands on that deck?
You know, a trepid reporter, you know, No, I'll be honest about this, Like Sharena has been smashing this story. She covers a covery 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 open ai 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. Stay with us. More from Bloomberg Intelligence coming up after this.
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Let's talk a little bit about Tessa right now, because it reported global vehicle delivery 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 was this expiration of the federal tax credits for evs coming up, so people were kind of rushing to make good use of those tax credits before they went away.
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 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 should add two 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 of Tesla's you know, top and bottom lines, but it was a business that you know, was growing pretty rapidly that you know, along with the car business was struggling in the first half of this year. So to see see that tick up as well is another positive for the company.
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 that 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?
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 those charging sessions. But that is you know, sort of a drop in the bucket relative to to the car business for them.
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There was a deal today in this space petrochemical space. Warren Buffet's Berkshire Hathway reached a deal to buy Occidental Petroleum Corporation's petro chemical business for about nine point seven billion dollars. Let's break that down with Matthew Pathlosola, senior analys covering the insurance business, has been covering Berkshire Hathaway and Warren Buffett for many, many years. He's so Bloomberg
Intelligence joining us via zoom. Here Matthew talk to us about what a deal like this means for Berkshire Hathaway.
Hey, Paul, Yeah, I think it's a good deal for Berkshire Hathaway. When you really break it down, the nine point seven billion dollars is three percent 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 de lever, so they're going to use six point five billion dollars with that cash to de lever, which could help their stock, which then could also have hel help Berkshire's eleven billion dollar steak in Occidental. So I think it's kind of a multi layered win for Berkshire Hathaway.
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 not low.
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 ten percent year to date, so their buybacks are essentially nil. They and their equity portfolio they've sold about eleven billion dollars net year to date. So you're a spot on to say valuations are high and Berkshi is probably not buying a lot of stuff. I think this was probably
just a unique opportunity. 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. This is some sort of statement on wanting to buy more in the market, all right.
Well, on the same day that Bircher Hathaway spends ten billion dollars on a petrochemical business, Open Ai, some employees there sold some stock to private equity at a five hundred billion dollar valuation, how does Bircher Hathaway think about tech? Because if you want to put money to work, there's some big evaluations out there in the world of tech technology, But how did they generally think about tech?
Yeah, Paul 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 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 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 be involved kind of tangentially, but you might see a shift in the upcoming years towards more tech investments.
I'm so glad you mentioned Greg Gable because this latest purchase of oxy can nine point seven billion dollars. You were saying that Berksher is not making a lot of purchases right now. Is this being spearheaded by Warren Buffett or is this a Greg Abel call?
So 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's stepped back from the day to day operations of the company, and Greg is kind of doing a lot of that leg I would think on something of this size, even though I just said it was three percent of Burcher's cash, it's still almost
ten million dollars in 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.
It was a beautiful afternoon yesterday at the Jersey shore. I hopped on the Vestpa 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. Has it been so far this season?
Yeah, thanks Paul. Whenever you think of hurricanes, please think of this natural disasters. It was exactly so. It's been a very mild hurricane season in terms of land falls, right, you haven't. 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 five completely over the ocean, sucked it away and kind of pulled it away way from the US coast, kind of saved 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 brewing up and could develop into something next week, so we'll stay tuned for that. But mile season so far.
Yeah, I feel like I never want to talk about this because the minute you'd be talking about how quiet it is is when things really gear up and you get a massive storm like the next week.
Yeah, like, and that happens so real quick, Matt. Just overall, how your stock's performing this year? The property and casually insures.
Not great, the underperforming year to date. We've got tower of pressure. Everything can costs more to repair. Lower interest rates are not a good thing for the P and C names. So Bircher's actually stand out, you know, not being an actual peer play P and C company that that stocked up ten percent year to date, but the rest of the group is down here to date, So we're probably looking at peak ros and evaluations got peaked before that, So I think that's what we're seeing with the P and C stocks.
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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.
Well, I should go to McDonald's fast food when I was traveling in airports that would meet by.
Oh that'd be my one time, I'll goo. Yeah, it's just all high end stuff.
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 the story. And Christina, this is about how McDonald's is looking to
build out fifty thousand restaurants overall. Where are we in terms of that goal to get to fifty thousand or is it like a third of the way there, halfway there, three quarters of the way there.
They're more than that. They are in the forty thousand range. I think it was forty one thousand about a year ago, so steadily getting closer. That actually will not make them the biggest restaurant train in the world. That has mixed you the Chinese bubble team makers at fifty three thousand, but they will definitely be closer.
To that goal.
Hey, Subway, I bet you's up there too, because they're everywhere. Christina, So what's going on here with Donald's. I would have if you had to ask me how, I would have said, there's some McDonald's on every corner in every city USA. Why are they going on this expansion?
Right?
Well, for years they were actually shuddering more restaurants than they were opening. Between twenty fifteen and twenty twenty one, they closed a net of nine hundred sum stores, some of them were inside walmarts. But since twenty twenty two, 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 two million people move there since twenty twenty, So they are chasing those new diners, trying to get as close to where people are living now as they can. And McDonald 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.
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 latecomer 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 in that effort to populate it.
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 in places like this. They aren't the earliest. We see forty 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.
Christina.
I know you traveled to North Texas for this story. My question is, where's Texas putting all these people? Are they just building houses in the middle of the desert somewhere.
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. They're an enormous number of houses being built, and they're expanding. The Dallas North Tollway, which goes north from Dallas. Slina, where I went, was about fifty minutes away, and that highway is going to reach there by twenty twenty seven. So you see, as transit gets easier, as it's faster to get to these places, more and more people are moving there.
So a company like McDonald's is massive, and I imagine that a goal to get to fifty thousand restaurants takes some time to play out. So the fact that it's doing all 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.
Yeah, I mean this is definitely years in the making. Being convenient as 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.
Any early feedback on how some of these new stores are doing.
Yeah, we looked at third party data that showed that these stores are not quite as busy as more established stores and 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, 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.
Christian. 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 analyst tracks seam stores 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.
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 stales 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 McDonald's corporate numbers.
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