Bloomberg's Caroline Hyde and Ed Ludlow break down Verizon's deal to buy Frontier Communications for nearly $10 billion in cash to strengthen its fiber network. Plus, Nvidia pushes back saying it has been in contact with the Justice Department but hasn't actually been subpoenaed, and HP Enterprise comes up short in its earnings.
From Mahart where Innovation, money and power Collie in Silicon Valley, NBN. This is Bloomberg Technology with Caroline Hyde and Ed loved Love.
From New York and San Francisco. This is Bloomberg Technology coming up. Verizon agrees to buy Frontier Communications nearly ten million dollars in cash to strengthen its fiber network.
We speak with the CEO.
Nvidia pushes back, saying it's been in contact with the Justice Department that has not received a subpoena.
An HP enterprise comes up short as disappointing margins offset AI related tailwinds. Another chief exec on the show, but first, as check in on these markets, ED the Nasdaq outperforms.
Benchmarks are lower.
We're anxious around labor data coming tomorrow, but video and Tesla do the work.
But there's m and A.
We have some MNA, and that is Verizon to buy Frontier. Really interesting. Both stocks lower. The offer is thirty eight dollars and fifty cents a share, which is a fit thirty seven percent premium to the twenty eight dollars four cents closing price on Tuesday. Because you'll remember, the reports about this deal started surfacing during the day Tuesday. That's Tuesday's closing price. Nine point six billion dollar deal value, enterprise value greater than that if you take into account debt the story carriers. You know full well it's about being more competitive in the high speed internet business. And Verizon down top percentage point. Frontier currently in the session at thirty five dollars ten cent a share down nine percent, and.
We want to be digging into some of the share price reaction that we have indeed been seeing. Why is Frontier training below that current agreed price. And we're very pleased to say we can talk about it a little bit more now because we welcome to our global TV and radio audiences. Verizon agreeing to buy rival telecom operator Frontier Communications FRO about nine point six billion dollars in cash, giving an enterprise value.
Of twenty billion dollars. This is the New York phone.
John looks to expand its high speed internet business.
Let's bring en Verizon CEO hands Versteg. We welcome you.
Sir, and look, it wasn't long ago that you actually owned some of these assets. Why go back into wyline? Why are we seeing this convergence again?
Thank you for having me first of all, I think this is very straight into our core strategy.
We are sort of.
Inmobility and broadband serve basically all types of customers in this market, CONSUMERSMBS, large entervice, and governments. This is just extending the offerings and optionality for the customers we have. So this is a really good decision by us to do with an economical right. And on top of that, as you mentioned, yes we own these assets before, but they weren't totally different type of assets. There was basically a copper based business. Nowadays Frontier is more than fifty percent of the revenue is fiber and more than way more than fifty percent of the DTA is coming from fiber. So a large transformation have been done and it fits in straight to our strategy.
Over is on hands, Good morning, it's head in San Francisco. Frontier is trading at thirty five dollars a sherish below the thirty eight dollars fifty cents per share offer. What does that tell you about the market's reaction to the offer and what you think might happen next?
I don't tell me so much is so early in? Is it two hours of training? I think first of all, we feel really good about this deal from also from closing it and seeing that this is a possible transaction from many angles, because given that we believe it's going to take eighteen months and all the regulatory bodies of course will be a thorough job, but this is improvements for customers going in more choice, and not only that, we can only bring our mobility broadband to these customers. At the same time, we also have the offerings that we have on our broadband today, which is everything from streaming services, other services that we have on insurance, etc. So we going to bring a lot on new opportunities for the custom base or frontier. So I'm really positive on this acquisition.
Can you tell us a little bit about the future as well.
The short term is the convergence trade is wireless wireline content, but then there's AI. Then we're talking about the Internet of things as we've been talking about for years. Hands where does that come into play.
It come definitely to play in these assets, and as said, we expect this to take in a take eighteen months. We're already right now have a sort of AI prepared network with a lot of compute and storage at the edge of the network. We decided already some six years ago to fibriize all our transport, so we are really prepared of it. The frontier acid is just coming in as an extension of that, and we can meet even more customers to have a processing storage at the edge of the network with the fiberized transport, So this is really also another advantage we're getting with the even more assets in the ground, and of course serving consumers with home broadband together with our mobile and home offering is of course a strength in the overall acquisition where we're doing.
Hans.
We have a question from an audience member on Bloomberg Technology who notes the twenty fifteen sale of wireline assets. But I think the question that he and many others have is what's changed around the economics in this deal. You said the economics work, but give me specifics some what's different, particularly for fiber in twenty twenty four.
So if you look at the deal right now at closing, we believe that's going to be a creative of growth, revenue growth anibita on day one, so that's really good economics. And then it's going to take some twelve months and EPA and cashual will be a creative as well. And the reason it takes twelve months is there are some integration costs coming up in the beginning. So definitely a very economic sound business for us. But I said the assets we sold the previously was, of course in a totally different standard. The Frontier team has put in billions and billions of dollars to fiberize the network to be the next generation, and many of the metrics that they have, you know, Sharen, penetration, etc. Are fairly similar to FiOS, and FIUs is of course the best fiber network in the States, so there's a lot of similarities on that and that we can offer to our customers.
And some ANDAs we're a little bit surprised by the timing and the fact that you're going all in on convergence now a bold step. Some call it because of your leverage and your commitment to reducing reducing your debt.
Why do this now? Are you worried about leverage?
No?
I think, first of all, we have a very strong balance sheet and as we said this morning, at closing, these be maybe zero point two zero point three notch on our leverage, which is very very low. We still are committed to our capt A location. Number One, invest in the business and that's what we're doing today. Number two committed to the dividend, and you might have seen yesterday we came out with our dividend which was for the eighteenth consecutive year we increased our dividend. And then is to pay down our debt. We have been paying down our debts since we bought a c band. We still have some eighteen months here that we're going to continue to pay down the debt. So we're going to be in a really good position balance wise when this deal is coming to fruition.
Hans, what opportunity is there for you in data center interconnects DCI in the context of AI. Look at what like Lumen's done with Microsoft for example.
I think that the difference here is that we have so many assets in the ground. When it comes to fiber and central offices. Many of these central officers of course have compute storage power, it ex and many of the AI solutions. When there is a real product, they actually need to be way closer to the users, the corporations, et cetera. And that means that because the transport costs and many other things, it will be hosted at the edge of the network. That's how we build the Verizon Intelligence Edge Network in twenty eighteen when we started with the Journey, which we now is just adding Frontier to it. So I see a great opportunity for us on the B to B side with this footprint to serve customers that want to host AI at close to them, secure, lower transport costs, and et cetera.
You're just announcing one deal, and you know we always love to push forward hands are you going to continue to be acquisitive when it comes to convergence.
I think, first of all, we are really happy with assets we have and now we're adding Frontier. I don't think we need much more. We're going to be the biggest and wireless, We're going to be clearly the ones having the largest broad but offering with fixed wires, access and fiber in the market. We have the largest distribution and the customers, so we're going to be in a really good position to see that we execute for our customers but also for our shareholders. So I'm really happy with assets we're going to have and we have today. When it comes to convergence, I think what is important and convergence. We will have the scale of economy for both. We will have the ownerships for the wireless network and the fiber networks and fixed files access. If customers want to make the convergence, we will have the economics for doing it. I don't believe it's going to be sort of you you discount one product for customer taking both. That's not really there's two great products. And we all know mobility in broadband is a centure for day society. I mean everyone needs a division, corporation, a private person or a corporation. You need these services that are even more important today than we're five years ago. And Verison is number one and basically every segment of that and this is just fortifying it. So yeah, we're going to see convergence. But it's not like we're going to discount products. There are great two products that we're want to offer our customers if they want to join. We have an improvement on sheer and of course if customers both have wibilated in broadland with us, and so we want to see our best placehold in the market. Like clearly we're going to be best position in the market.
Run and Council conmergence.
Verizon CEO Hans Vestberg, thank you very much. In Nvidia said in a statement it has not received a subpoena from the US Department of Justice, responding to a Bloomberg News report published Tuesday that it had. The company said it inquired with the DOJ, has not been subpoened, but is happy to answer regulators questions. Bloomberg reports, citing a source, that in Vidia did receive a request for information in what's known as a civil investigative demand, or CID. A CID is also commonly referred to as a subpoena, but is often issued before any legal seedings are brought. According to the Bloomberg source, the request for information issue to Nvidia focuses on its acquisition of run Ai and aspects.
Of its chip business.
Bloomberg first reported the DOJ's probe of Nvidia in June.
Caroline coming up ed will be joined by another chief executive, the CEO of C three AI. Once again, we're talking about artificial intelligence and its latest earnings results.
This is Bloombog Technology back to tech earnings.
Now C three ai reporting subscription revenue for the first quarter. There seems to be below many analysts expectations, shares off by thirteen percent. Pt US dig into the numbers. The CEO is with us, Tom Siebolf, you'll join us for more. It is a painful sell off, and in fact you're now training at the lowest since May twenty twenty three.
I'm sure you'll tell me.
You don't look at the share price, but it's trying to tell you something. What is it that isn't enough? And the numbers for the investor today, Tom, it was a.
Great quarter, Caroline. I mean a year over your growth twenty one percent. That makes us I think one of the fast ten fastest growing companies in the public software universe. Cash op transaction volume up I think one hundred and twenty one percent, pilot volume up one hundred and fifteen percent.
I think it was a solid quarter.
And the sometimes markets react in funny ways. Here we have in video growing over the announced growth I think well over one hundred percent year over your growth rate.
What's not to like?
The market reacts by taking what two hundred and seventy billion dollars off the stock price the next day, So you know, markets reacting funny ways, and you'll all sort itself out of the long.
Run, Tom, I'm still trying to understand the business model, right, Yeah, the subscription part and software and then services services seems to be strong. What is the story behind software with you?
It's well, it's a little bit confusing a guy, because seventy percent of that services revenue services number is actually software delivered to the customer as part of our core product that they pay for.
Over a long period of time.
So it's the core product functionality, seventy percent of the services number, like order of ten million dollars of thirteen point eight I think. But due to new accounting regulations that came out called ASC six oh six, we have to we have to treat these functional enhancements as professional services.
But it looks like software. It smells like software, It is compiled, it's part of the core product. It is software.
But under the accounting regulations which we do comply with, I assure you it is it gets recorded as professional services.
Stripping away accounting.
What people are trying to peel back is profitability and how long they have to really wait for that profitability to kick in. You have to invest in the time to scale. I know, but are you just having to sell investors to be patient.
Tom, Well, let's look at profitability. Our profit margins on their professional services. I think it's ninety three percent gross margin. I mean, it's good work if you can get it now. Our revenue growth rates are substantially greater than our expense growth rates historically. I think going forward, our revenue growth rates will continue to generally be greater than our expense for growth rates. Our gross profit margins are substantily greater than our cost of sales. So non gap profitability is simply a matter of scale.
This just happens with.
Time, Tom, I've been reading through the regulatory filings. It's the kind of guy I am, and the disclosures and the lawsuit suits against NL it seems to center around a trade secret issue. But can you help us understand more of what's going on there?
Please?
Yeah, this is a very unfortunate situation. This is very sad.
And now was a really valued customer that license a lot of our technology, and it appears that they may have copied literally thousands of lines of our source code into our of our source code into a copy of and basically copied our product.
So that's what this's complained about.
It appears to be a very significant kind of intellectual property theft, and we're we're pursuing that in civil courts in Italy and it's sad, and you know, it's actually the first time I've seen this in my professional career that a company would do such a thing. But we are you know, we have to protect our intellectual property rights for the benefit of our shareholders, and we are doing that.
And we will see comment from n L you are seeking two billion dollars from them in compensation. Tom, just going back to ultimately the winning of clients.
How is market share?
How are you able to compete with the big companies out there trying to compete with you?
Well, I think the companies that are perceived of as accounting with competing with us would be Zoo, it would be microsoftware is, z or AWS and Google, because the real competition is building yourself. But understand, Caroline, seventy one percent of our transactions the last quarter we closed with one of Google Cloud aws ors or so we joint market with them.
We joined sell seventy one percent.
So these are great marketing partners and they're perceived of by some as being competitors, but they share looked at me like partners, and they looked to our customers like partners. So we appreciate the partnership and we go to market with them very actively all around the world.
Well, for now, we really appreciate you coming on after earnings shares off on the day. We appreciate the time and the expertise. Three AAI CEO Tom siebel.
Hpe.
Now it's coming out with its earnings and for some we saw profitability perhaps coming weak and then expected for its third quarter, suggesting look that lower margins certainly that anticipated in its business for selling service for AI seem to be holding for now. Hpco, Antonio and Nery is joining us, and that's just dwell on the margins for a moment, Antonio, because some call it low calorie nature of AI systems revenue, is it no calorie for the foreseeable.
Well, good morning, Kara, thanks for having me. We did what we said would do and we had a very strong quarter where we had double digits over year revenue growth and to your point, was all on the back of converting an amazing order book we have in AI and continue to add to that order book. However, it's also fair to say that we actually improve operating margins quarter over quarter by fifty basis points, despite makes heavily weighted to AI. And I will say that the reason why the gross margin, not the operating margins, the gross margin is year over year down is because we have less contribution from the networking business, which as you know, is going through a market transition through the cyclicality we normally see in each of the businesses. So the main driver for the gross margin decline was not AI. In fact, our AI business, our server business grew operating margins year over year by seventy basis points.
That's actually like an industry wide issue that you've brought up that others have talked to us about. I think the difference with you, Antonio is the customer bas is like much more enterprise centric, and I think on the call you talked about improvement in margins relating to that, could you just talk a bit more about how the enterprise customer is going to push you forward?
Absolutely, And as you know, at the HPD is covered in Vegas, we introduce an HPE Private Cloud AI offering, which I call it an AI in the box seat, which is actually a four toun key solution for enterprises of all sizes to train and deploy inference for their specific applications. And that offer is targeted specifically for enterprises, including very specific vertical solutions built on top. And we just made that offer available just two days ago. It's now available for global availability ordering and we are excited about that.
Now.
In the order book we announced this order, we had one point six billion dollars of new orders and meet teams of those orders are enterprise related.
Let's just talk about macro challenges to those enterprises you sell to. Are we seeing a pullback in confidence on spending?
Actually, I have not seen it, you know. In fact, we saw orders growth in all our businesses on a sequential basis, which tells me, Caroline, we are on a recovery. In fact, our traditional server business had doubled it the year over here and sequential growth in orders, which also tells me there's no cannibalization from the AI servers into the traditional servers. And it makes sense, Caroline, because when you think about these legacy worloads, some of them are not even cloud native worloads. It makes no sense to put it on a more expensive infrastructure which should be focused on really training these models with their data so they can get the time to value from the deployment through the business process. And then on the networking site, which obviously has been a more negative store in the last few quarters.
In line with the peers.
By the way, we saw sequential or the growth across all geographies and we're driven by the wireless line, the SASE deployment, which obvious security is very important at the edge and data center networking.
And so I know you talked about your fiduciary duty in pursuing damages in the sad incidents around mister Lynch. Just because it's the first time our audience is hearing from you, you explain that produciary duty and basically what your end goal is in that piece of litigation.
Well, Lison had the doctor Lynch death is a tragedy, as are the death of others in the on the ship. So clearly it was a sad moment. However, it does not change what happened. You know, the UK judge rule that the company is victim of fraud.
That really happened last year.
As a physical is duty. We need to see the finalization, does the proceedings and obviously our duties to also recover the damages on that fraud. So we have to see it through. That's what we are and we hope to hear soon what are the next steps based on the proceedings of the judge.
Antonia and Arry, we appreciate you tackling what is a sensitive subject and indeed your earnings.
Thank you.
Welcome back to Blue BEG Technology. I'm Karen Hide in New York and.
I met Ludlow in San Francisco.
Quick check on these market said, because we are being whipswored once again. Yesterday we saw an eke out of a recovery on the chip sector, but today we've gone back in the red and it's going to be a volatile session.
As we looked ahead tomorrow, of course to the all important labor data.
Now's that one hundred under pressure, as you see, by five ten percent, no longer outperforming the other benchmarks. We've see the chip stocks down by more than a percentage point. And also looking at crypto look, this is a risk averse kind of a day once again. Bonds have been training pretty flat, but I'm looking at cryptos thinking some three point six percent move on and look at some individual movers because amid what has been a volatile time on the stock markets, companies still have well the ability to splash some cash and more than nine billion dollars of it coming from Verizon to be buying Frontier. We just spoke to the CEO and why he's doing that deal. In Vidia still managing just to be above water. But remember this is a key stock. Is what's driven some of the selloff, and mag seven not doing enough today to stabilize the benchmarks. In Vidia up by just a tenth of a percent, Tesla still up more than three point eight percent.
This is it seems to be promising full self.
Driving Europe, China and of course all eyes and what will become of a robotaxing conversation in October for that company.
But we've got to stick with overall outlook for chips right now.
ED we do TSMC supplies Science Tech says AI demand is here to stay, the CEO dismissing concerns over AI fatigue.
After chip stocks.
Recorded the biggest one month one day decline in a month, Bloomberg sat down with CEO Hu ming Chi.
That's what he had to say from a personal perspective. Liz bom In of our AI industry just begin there's a lot of application. I do expect we're coming out pretty soon.
For more on the markets and everything going on.
Christina Hooper, Investigo chief Global market strategist joins us. Now, you know, we're learning every week, every month, every year that one single session a market does not make But where do you go the anxiety in semiconductor's AI demand. We have economic data in twenty four hours time. That's very important, and we're always thinking about the FED. When you wake up, Christina, with a technology investors perspective, what do you first think of?
First of all, I think it's important for investors to recognize that they have a longer time horizon than one day or one month or even several months, and so it's important not to be too reactive. To understand that valuations are relatively high. And so when stocks are priced near perfection, we're likely to see jitters, we're likely to see concerns, and I think one of the overarching concerns we're seeing right now is this fear that it can't continue, that we won't see companies continue to spend to invest on AI, and I think that that's probably more a fear than a reality, because what we're seeing is that investment in productivity and enhancing areas has actually improved productivity growth. And so this is something that companies recognize. And I truly believe the risk of not investing is greater than the risk of investing, but that might not come investors today. So diversification certainly helps, but I think just understanding, we're likely to see volatility, but that doesn't mean we won't see significant gains over the course of a year, two years, and even longer.
Nvidia back in the red once again and has raised a lot of it's market capitalization.
Christina.
That has been an anxiety that we've just put too much into too fewer companies. When you say diversify, what into other technaus or just other types of companies.
Other types of companies. Let's face it that it all goes well. If the thesis for a soft landing and we see the FED start to cut rates, that could create a very supportive environment for risk assets in general. That doesn't mean that tech will outperform, but it's probably going to keep up or follow closely behind cyclicals. Smaller caps, those areas that are more sensitive to the economy. So this could be a very positive environment and I think one that investors will appreciate, even if we see some spasms, some fits of fear and lack of confidence along the way.
Christina, you talked about sort of durations a moment, ago, weeks, months, years, and in the context of Nvidia, for example, a lot of the investors we had in the show after earnings were long term investors who say, we accept the short term volatility that we're holding because we understand the data center build out that's happening. Is it important to be diversified though, even if you take that much set.
So, you know, I think it's critical to recognize that there are many many companies that will benefit from AI. So if you're you're feeling very confident about the AI story, that's going to help companies in a variety of different sectors and industries. And in fact, we've heard on earnings calls in the last quarter that companies have been using AI already and seeing some really significant results in terms of their sales, and so I think it's it's perhaps taking that AI AI theme and looking to those other sectors and industries, especially service areas of the economy to find opportunities. There can be a significant diversification by just doing that.
Christina, how important is tomorrow's jobs report? I'm sorry, how important is Friday's jobs report?
So Friday's jobs report.
I think what we're really likely.
To see is job gains non farm payrolls around one fifty one sixty in line with expectations, and that's appropriate given where we are in the cycle. I think the FED will be satisfied with that. I mean, it certainly said it doesn't want to see any significant deterioration in jobs from here. I don't think we see that, and that's pretty much a pre pandemic trend level is to get about one fifty one sixty one seventy. I don't think there's anything that will come out of Friday's jobs report that changes the Fed's decision in September. I think we're going to get a twenty five basis point raycut. I think if we get a week jobs report that will not change that. I don't think we're going to get a fifty basis point cut. That's because the FED really does believe that it is doing the right thing. It's on course a fifty basis point cut would be an admission of guilt in my opinion, Even when it was behind the curve in March of twenty twenty two, it only hype grades twenty five basis points. So that's how I think this is going to play out, and that should be positive for markets. If we've got a fifty basis point cut, we might actually see more volatility and some kind of sell off because it suggests there's more weakness in the economy than many thought.
Deja vous now versus beginning of August.
Are we going to get these bouts of volatility as aggressive as we're suddenly seeing.
I suspect we will. There's a lot happening right now. We not just have the FED meeting, but we have a presidential election. We have a lot of other central banks cutting at the same time. I think that creates an environment where there's concern, where there's uncertainty. We also have this dueling concern among investors where they're looking to rate cuts and the opportunities presented by them, but they're also still worried. There's this nagging concern that we could still go into recession. And so I think that all comes together in terms of outsize reactions to economic data release as well.
Christina, so great to get the macro perspective. Christina Hooper, chief Global market strategist in Invesco.
Now coming up.
Open ai Across is one million customer milestone from an enterprise perspective.
More details on the company growth. Next, this is Blueberg Technology.
Bloomberg Power Players is underway in New York as Bloomberg Originals. Jason Kelly is sitting down today with prominent people in the sports industry. He's discussing the global sports boom right now with Tony Wrestler, chairman of Arias Management and of the Atlanta Hawks.
Listen to this. Never really helped me up on that, and probably should.
The truth of the matter is many of these as Green actually mentioned, a lot of these businesses and industries, and certainly leagues and teams have gone through this massive evolution, and at the end of the day, it takes a long time for leagues franchises to make money to show the valuation that the market is now seeing. And yes, your point earlier, this is an asset class we had.
Areas would argue.
I don't know two and a half three trillion dollar asset class people take a step back and say, well, what are you even saying? If you think about the NFL, there's thirty two franchises. Average franchises maybe five or six billion dollars, so one hundred and fifty hundred and sixtyllion, one hundred and eighty billion of value in just franchises, and each of those franchises has all sorts of ancillary businesses from stadiums to real estate developments, technology related businesses, retail and food and beverage related businesses. So when people say what is the size of this industry? I would argue at least most folks looking at it are woefully underestimating the value.
Of this sports world globally.
So when people take a step back and say, wow, this is a really meaningful asset class, and frankly, it's an asset class that's not just for rich people. Yeah, it's an asset class for investors trying to now investors that hopefully do real work and understand the difference. Some leagues are really nasse and really early in their journey, if you will, and some leagues are really comfortably seeing each of their franchises make meaningful cash flow. So there is analysis required, but the size and scope and excitement of this industry is a little bit greater than most folks might have anticipated.
Yeah, and there's so much to unpack in what you just said.
But before we get too far for evaluations, I want to put a poll up if we can, because we want to ask the audience what they think about I think US sport US sports teams valuations, So this is sort of a goldilocks question. Are they too low, just right, too high? Or sky high and ridiculous. I might wait to see what the audience says before I ask you if they agree.
But you know we we've shown up on the screen here.
I mean these are it's not quite you know, to use the tired old term hockey stick, but it's pretty close when you look at NBA valuations.
You know, your.
Your friends in Los Angeles, you know, Will Obey and Bob Biger just bought the NWSL team, as was mentioned out there, Angel City for two hundred fifty million dollars valuation. Mat That's that's real money for women's soccer, all right. So here's what the audience says. Just right takes it with thirty nine percent and growing forty percent too high skyhand ridiculous.
And they're not too low, So it seems like the audiences agree with you.
How how does this play out in the near and midterm and how do you as an investor think about.
Well, firstly, it's so hard, at least in my mind, to answer a question like that, because each of the leagues and each of the franchises have enormous differences in what they're doing.
Those teams that really have a global or the ability to have a global following, those leagues and those sports that actually incorporate or expect to incorporate sports betting and therefore.
Increasing the obsession of young people into their sport have advantages. Those that have really a huge amounts of cachet and stars that can attract global media rights. These are things that distinguish I think the long term winners versus There may not be as many losers as people might argue, but there'll be some. There'll be some that aren't extraordinary and that aren't global and phenomenally valuable sports and sports franchises. So I kind of go by sport, and yes, I do believe at the end of the day, global media rights is something that you have to aspire to, and yes, I'm being a little partial to the NBA, but there are so many additional ancillary values that come from a global following. So to me, sports are not a single entity. And one of the things we would argue is understanding the benefits and detriments of not just the sport, but of the market that they play in and of the league that they operate in. And I don't want to disparage a certain city versus another, but if you're the thirtieth largest metro in America versus the first, second, or third, or even the top ten, dramatic difference. So again, that too is awfully relevant, not just the league in the sport well, and it's interesting.
So let's talk about that in a little more depth because.
We believe it.
There.
Tony Wrestler, chairman of Areas Management and of the Atlanta Hawks, along with our own Bloomberg originals Jason Kelly.
Open Ai hit a new milestone, reaching one million paid users for the corporate version of Chat GPT. That's up from around six hundred thousand the company told us about here on the show in April. From all, let's bring in Bloomberg's Rachel Metz who's leading the AI coverage and the point I think is one million enterprise or corporate or business customers. That's where the money is potentially at for open Ai.
Absolutely, and this much growth in a short period of time really indicates that despite having plenty of competitors and businesses having to think more and more about, hey, are we really getting a return on our investments in AI, they are still bringing in users.
It's really quite a lot of growth.
It's what like sixty seven percent growth in over that period of time, and they only started selling their the enterprise version of chat GPT about a year ago exactly.
Meanwhile, it's looking to raise funds.
We understand at a head evaluation and talking of competitors, Anthropic is just rolled out its clawed enterprise How face is the fight for business users right now?
It's pretty fierce.
I mean, you certainly have a bunch of companies that are interested in spending on this stuff, but as I mentioned, there's more and more pressure to show what you're getting from this. And though the companies might have I think open ai has done some customer surveys and Entropic perhaps has done similarly that show that their customers are liking this stuff and getting productivity gains perhaps from it, using it for different kinds of tasks. It's still, I think for a lot of businesses, really hard for them to tell what can do you use it? Or will it actually be helpful. We know that these things may make things up, and if you have to check a lot of the results that you're getting from these systems, is that really all that helpful to you?
It remains to be seen.
I think for a lot of businesses if this will help them.
Rachel Mattz, we thank you all things, those chatbots, but now let's just go back to some of the infrastructure needed. We preview Broadcom set to release earnings after the closing bell today Bloomberg Intelligence, saying that the company is poised for another strong third quarter foroign growth in AI sales and VMware's contribution.
Contin Savani is with us from Bloombag Intelligence.
You authored this note so the tailwinds can outstrip some lagging soft areas in the chip market.
Exactly.
I mean the AI in the semis is likely to offset its cyclical headwills in its legacy businesses. We think in its legacy businesses, the enterprise wireless and server storage likely to have hit some bottom, albeit the recovery would more be moderate. But the key road driver in this quarter in the next quarter is going to come from the software, specifically the VMware.
Revenues pro comes to become a really big chip company seven hundred pillion dollar market cap. It's important in data censers, right, always think about it in these kind of two proms networking, data center infrastructure stuff, but also custom asex explain the customer a sex bay, what they do and what we might hear.
Yeah, So whenever we've talked about Nvidia and right, the key threat to in media is it's customers designing their own chips. Well, Google TPU for example, Yes, Google TPU for example. They do need a designed partner, a semi conductor company which has experience and the IP set to build these chips. So that's where broadcome comes in. It's one of the heat has the largest share when it comes to designing custom asex or accelerators in lieu of the GPU's namely Google Meta. And the key thing going into this earnings for investors will be do they announce a new customer, which news have been saying likely to be open AI and if they upside their AI revenue guidance for the full year, which we think they will in the range of five hundred million into a billion dollars.
The anxiety, Kunjin, is that right now the revenue growth is strong. We're expecting forty seven percent increase, but it dials down quite quickly into fiscal twenty five twenty six.
How committed is this AI spend.
So if you look at their two key sources of revenue, one being connectivity which is really Ethernet in the AI clusters and the back and AI in the front and AI and the custom A six, both of these markets have just started their beginning ramp. Both of these have forecasted to grow significantly for at least the next three to five years. And like I said, Broadcom being the dominant in both of these areas, we expect these sources of revenue for Broadcom to still continue significantly. However, at this point, Dotcom is like a conglomerate. It has a lot of other legacy semiconductor businesses and software businesses, so those do weigh the strong AIRAM that we talked about.
Well, you forget we used to talk about pro Com in the context of smartphones. Namingly Apple, I will be going to Apple Park on Monday.
That business. Is it still relevant? What are they doing?
It's still relevant, It's still a significant, sizable business. We don't expect any key high growth catalyst there because their business has been very sticky with Apple right. They do increase their asps and growth margins slowly every year. There might be some options of some small content gains, but nothing very sexy, but still a very high free castle generating business.
We think also of how chips perform after smashing expectations. Conjin, who are fundamentals guy? How we positioned into this set of earnings?
Yeah, Broadcom doesn't really is known for very massive beat and raises. However, like I said, if they do address a couple of the points, a new custom or is it customer announcement be upside to their AI revenues and VMware is faster integration update, I think that would be a significant positive for the sock reaction post learnings.
Hendre Savani, so great to have you on the show Boomberg Intelligence. We thank you now. That does it for this edition of Bloomberg Technology.
Tomorrow. Interesting interview.
We're joined by the Weimo co CEO Takdra Mawakana an exclusive interview, and there's been a lot of news around Waimo of late, a lot going on today's show as well. It was a short week with a lot in it. Don't forget to recap on the podcast. You know exactly where to find the Bloomberg Tech podcast from SF in New York. This is Bloomberg Technology