Capacity to serve more than a billion people over the next few years. A big cut to its spending plan raises new questions about Elon Musk's AI ambitions. We speak with the OpenAI president and the Cloudflare CEO.
Meta shares are down 7%, the biggest drop since July. Going into earnings there was a lot of buoyancy. It is dragging down technology more broadly. Meta is creating a new class of nonvoting shares. Mark Zuckerberg is considering leaving California over a proposed wealth tax. The new shares give Zuckerberg stock he can sell for cash without immediately reducing voting control. In return, he agreed to stay in California, or wherever Meta is headquartered, for eight years, as long as he remains in a full-time leadership role.
That's one story. Let's dive into what else we learned from the Meta earnings report yesterday. Let's be frank: Class C shares. This story was communicated in a difficult-to-understand way, and there were lots of numbers from earnings. We will start there. What have we learned about how it is actually going for Meta now?
Meta delivered strong third-quarter results and fourth-quarter guidance and beat analyst estimates on that. The Zuckerberg decision to stay in Silicon Valley and see everything through is an important statement as Meta enters the next chapter. This goes to signal that it is confident its AI investments are paying off. Some of the decisions to do this with the shares were, as the company has said, to help cover some of this enormous AI spending down the line.
Meta's CEO was asked about the Class C shares and said it was a way of diversifying... $145 billion at the top end, which we knew. They seem to be signaling the direction of travel for Meta. AI seems to be boosting the core ad business. What numbers do they point to as evidence of that?
In the last month, Meta launched two new products: the personal AI agent, Muse, and then Wonder. What Meta reported was strong early adoption and early traction in all of this. Even though investors seem skeptical — shares fell this morning, even as Zuckerberg and the company projected confidence. They are pointing to early traction of these products and a huge number of businesses using their platforms across their family of apps: Instagram, WhatsApp, Facebook. More than 500 million businesses. They are pointing to these numbers as evidence that new adoption will continue to scale and Meta can be monetized. That is the outstanding question: how will they make money off all this?
Shares are down 6.5%. When the news came out last night, the stock went up. Alexandra Levine, thank you for being with us. Mark Zuckerberg touted the progress of its AI agent called Muse.
We are building out the... for years. Near term, Muse is very compute-intensive to run. We expect to improve cost efficiency by more than 10 times in the next year, which will enable it to be profitable once the revenue lines are at scale.
Let's get more on the Meta results. I want to start with Muse. They said more than 10 million people signed up in the U.S. and Canada in its first six weeks. How do you interpret the data?
That is a good number in terms of early adoption. You think about the fact that a lot of the downloads and usage come from the fact that Meta has been able to promote views through its own channels heavily and has invested in marketing. This waters down that number in a way. It points to the fact that a lot of interest is not necessarily organic or genuine. It is coming from the fact that people might see something about Muse on Instagram, click on it, download it, mess around with it, and a week later delete it from their phone.
I have been using Muse as much as I can, but not really beyond helping put social posts together, more deep search. Maybe it is helping me with my calendar. I find it interesting that Mark Zuckerberg said they expect most... elsewhere.
They talk about how they hope to collect fees from usage. They pointed out that about a quarter of users, the main use case at this point, is shopping.
Which, as a company that has invested a lot of money into social, does it make sense that they would want Muse to also be a commerce tool?
When it comes to monetization, there are a lot of opportunities there. You think about the fees and subscriptions, even extending Muse to small businesses. A lot of that still remains quite theoretical. There is no guarantee this will take off. It has to gain traction with consumers and businesses before monetization lines can go into effect.
It was still the core ad business that drove the beat. Ad revenue more than $63 billion. The street expected below 62. Price per ad growing 14%. The AI story is able to drive higher pricing rather than look at volumes.
There is focus on where they are going with ambitions. We want to see where they are going with all of this. AI is the bulk of their business model and doing things quite effectively. That is why we see double-digit growth quarter after quarter, and they keep refining it and building it, and it is helping with advertising and usage and engagement as well.
I won't ask you to come in on the mechanics of them issuing a new class of stock. It is structured so Mark Zuckerberg can sell 20% straight away. 80% is staggered over eight years. Mark Zuckerberg agreed to stay for eight years, wherever the company is headquartered, California or otherwise. How important is that? The founder and CEO leading efforts like AI?
It is important, and it is a question I have been getting recently. What does this say about Zuckerberg and his commitment to the company? When will he step down? It shows he is committed to the vision. To what extent it will play out is a different story. We saw what happened with the metaverse, and he is going heavily into smart glasses. It goes to show he does not plan on going anywhere anytime soon.
Coming up, the other earnings story was Tesla beating on profits. It cut billions from its spending plan. What that means for Elon Musk's AI, robotaxi, and robotics ambitions. We look at Tesla next.
Shares of Tesla down more than 3% earlier. The company beat on profit. The spending outlook is getting investor attention. It is cutting its capex plan by more than $5 billion, raising questions about the pace of AI, robotaxi, and Optimus ambitions. We will get to the merger idea in a bit. It's interesting — capex is being trimmed. Maybe that is the reality of how quickly they deploy. Does it signal something bigger to you?
With capex, I see a timing issue, and I expect them to ramp up capex coming into 2027 and 2028. Positive. We saw FSD adoption reach an all-time high, 75% of the vehicles in the U.S. being sold with FSD, ensuring the new technology you have with FSD is driving one, and Robotaxi is the fastest scaling.
I use FSD every day for my 60-mile round-trip commute. But a new Tesla... and I do know a lot of numbers in that quarter were Tesla owners upgrading... but if you give somebody FSD for free they might use it for a while. But do they stick with it? What is the take rate on the long-term usage?
Good question. Every Tesla owner in the U.S. gets a month for free. The CFO clarified on the call yesterday that 75% of people are buying the technology, even when they get it for free — they will take it in the first month. It's very clear that there is a lot of demand for the product. Word is getting out. Up 20 points sequentially. That will be up 40 points year on year. Performance of FSD has improved over the past 12 months, and it is really spreading the word and trying to equal demand in the U.S. Only a U.S. phenomenon now. Hopefully in the next year the technology will be moved to Europe and we will see similar numbers coming out of Europe and strong growth in vehicle demand there.
Did you change your call on the stock after last night?
We are sitting at 600, a healthy upside from where we are today. Everything we saw on the quarter was based on Tesla becoming an autonomy leader, and that was exactly what was announced yesterday.
Let's talk about special committees at both Tesla and SpaceX. Last night Tesla said they won't be taking questions on the subject, but 44 hours after that Bloomberg disclosed the SpaceX call. You cover both. You cover the area. What are you modeling for? The transaction, what it looks like, and the prices involved?
We think the acquisition will go ahead and be announced by the end of next year. So both companies and Elon Musk right now. The Roadster revealed last week shows a lot of collaboration between businesses. I think you will have SpaceX acquire Tesla, given the fact Musk has higher voting control in SpaceX versus Tesla. Tesla shareholders will want a premium for the acquisition. There are clear synergies. The Roadster, as I said, is one of them. Tesla is a power company. What does SpaceX want? To roll up data centers. It will be powerful for that and leverage Tesla for that.
The reach goal for SpaceX next year is 20 gigawatts. These are different scales of commitment, but he talked about shared goals. It seems like one is supporting the other.
It's almost two ways. Tesla can leverage compute with SpaceX. SpaceX will give Tesla compute and enable Tesla to ramp up the Robotaxi fleet and performance faster. Tesla will give Megapack expertise, solar expertise, to SpaceX to roll out its data centers. Even behind the scenes on the rocket front, Tesla provides powerful components to ensure that they can solve problems on the rocket side of things. A big objective is for Elon Musk to control... We see synergy playing out between the two businesses.
Great to have you on. Bloomberg learned there is a push to announce a deal by the first half of next year, with Elon Musk and his advisors looking to get it done while President Trump is in office, according to sources. That's the focus of today's Big Take. The idea... it is the environment outlined that companies find themselves in. There's a deadline to get something done.
If we take a step back here, these are two boards stacked with a lot of directors that are close with Elon. The Tesla board managed to pull off lining up an incredible pay package for its CEO a year ago. If and when Elon says jump, there has been a track record there of them asking how high. Is that an issue? Probably not. The question, I think, here is: will there be an administration to review the prospect of a merger involving such big companies? I think Musk, understandably, wants to make the push while Trump is still in office.
From congressional oversight, the makeup of Congress could change. We talk about that in the Big Take.
It's not necessarily the case that Congress has that much of a say here. It is the case that if you are Elon Musk, you are bracing for the possibility that this could take quite some time. The U.S. will have a say, but it's not the only country. The fact that China looms so large for Tesla, with such a presence there, there is potential conflict. The fact that SpaceX is a U.S. contractor, a U.S. defense contractor. Starlink does not align with how the CCP wants their internet to work. Will they have a view as to whether the merger should go through? That is one of the big questions too.
In a regulatory filing they confirmed this morning — and it was discussed in a call — that this is not a certainty. The whole thing is subject to differences. We will get to that in the coming weeks. Coming up, IBM, another earnings story. Delivered better third-quarter results overall, but there is still some concern. The stock is down 0.7%.
This is Bloomberg Tech. Revenues missed estimates. Ultimately the numbers failed to impress investors. There is concern about the shift in corporate technology spending. Joining us to talk more is the managing director at Citigroup, with a buy rating on the stock with a target price of $280. A decline of 0.7% is not a lot to write home about. A lot of what IBM presented was good. There seems to be worry in the market that IBM is not... in the world of technology spending.
Let me unpack that. IBM is a polarizing stock. The forensic analysis on the key print last night: the headline beats coming from the infrastructure and software segments of the overall revenue mix. These are important points to highlight. We saw a re-acceleration in those segments. They indicate to us one important thing: the mainframe business is at the very least stable. In a lot of ways, we thought this was a surprising redemption quarter on the back of what was a pretty monumental mess for the business back in 2Q. The fact that the company was able to recapture and recoup two-thirds of the transactions within a matter of 90 days is impressive. In the same breath, this is not a decisive victory for the bulls.
What is IBM in the AI age? Romain Bostic presents that... IBM is primed for the AI age. Is that a part of your model?
