Chairman & Chief Executive Officer, Verizon Communications Inc
Verizon's Frontier Deal and Nvidia Pushes Back | Bloomberg Technology
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.
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About Hans Vestberg
Hans Vestberg, chairman and chief executive officer of Verizon, discussed the company's second-quarter 2025 results on a July 24 earnings call. He stated that Verizon was raising its full-year guidance for adjusted EBITDA, adjusted EPS, and free cash flow, citing momentum in the first half of the year. Vestberg noted that fixed wireless access had surpassed 5 million subscribers, keeping the company on track toward a goal of 8 to 9 million subscribers by 2028. He also said the regulatory approval process for Verizon's pending acquisition of Frontier was progressing as planned, with a close expected in the first quarter of 2026. Vestberg described the company's capital allocation priorities as unchanged: investing in the business, supporting the dividend, paying down debt, and conducting buybacks. He attributed strong cash flow from operations to the strength of the business and said the company would provide a comprehensive update on strategy, broadband expansion, and capital allocation as the Frontier acquisition nears completion.
Transcript (80 segments)
✨ AI-enhanced transcript with speaker attribution
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Caroline Hyde0:01
From the heart of where innovation, money, and power collide in Silicon Valley and beyond, this is Bloomberg Technology with Caroline Hyde and Ed Ludlow.
Live from New York and San Francisco, this is Bloomberg Technology. Coming up: Verizon agrees to buy Frontier Communications, nearly $10 billion 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 but has not received a subpoena. And HP Enterprise comes up short as disappointing margins offset AI-related tailwinds. Another tech CEO on the show.
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Ed Ludlow0:52
The NASDAQ outperforms, benchmarks are lower with anxiety around labor data coming tomorrow. But Nvidia and Tesla do the work. But there's M&A — we have some M&A, and that is Verizon to buy Frontier. Really interesting, both stocks lower. The offer is $38.50 a share, which is a 37% premium to the $28.40 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. $9.6 billion deal value, enterprise value greater than that if you take into account debt. The story, as you know full well, it's about being more competitive in the high-speed internet business. Verizon down half a percentage point. Frontier currently in the session at $35.10 a share, down 9%. And we want to be digging into some of the share price reaction that we have indeed been seeing. Why is Frontier trading below that current agreed price?
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Caroline Hyde1:54
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 for about $9.6 billion in cash, giving an enterprise value of $20 billion. This as the New York phone giant looks to expand its high-speed internet business. Let's bring in Verizon CEO Hans Vestberg. We welcome you, sir. And look, it wasn't long ago that you actually owned some of these assets. Why go back into wireline? Why are we seeing this convergence again?
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Hans Vestberg2:29
Thank you for having me, first of all. I think this is very straight into our core strategy. We are in mobility and broadband, serving basically all types of customers in this market — consumer, SMBs, large enterprise, 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 it, and economically right. And on top of that, as you mentioned, yes, we owned these assets before, but they were in total different type of assets. That was basically a copper-based business. Nowadays Frontier — more than 50% of the revenue is fiber, and more than, way more than 50% of the EBITDA is coming from fiber. So a large transformation has been done, and it fits straight into our strategy over at Verizon.
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Ed Ludlow3:20
Hans, good morning, it's Ed in San Francisco. Frontier's trading at $35 a share, ish, below the $38.50 per share offer. What does that tell you about the market's reaction to the offer, and what you think might happen next?
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Hans Vestberg3:34
It doesn't tell me so much, it's so early, and it's two hours of trading. I think, first of all, we feel really good about this deal, 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 18 months and all the regulatory bodies, of course, will do a thorough job. But this is improvements for customers because we're going to give more choice. And not only that, we're going to 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're going to bring a lot of new opportunities for the customer base of Frontier. So I'm really positive on this acquisition.
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Ed Ludlow4:23
Can you tell us a little bit about the future as well? The short term is a convergence trade — it's 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, Hans. Where does that come into play?
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Hans Vestberg4:38
It comes definitely into play in these assets. And I said we expect this to take 18 months. We already right now have a sort of an AI-prepared network with a lot of compute and storage at the edge of the network. We decided already some six years ago to fiberize all our transport, so we are really prepared for it. The Frontier asset is just coming in as an extension of that, and we can meet even more customers to have processing, storage at the edge of the network with the fiberized transport. So this is really also another advantage we're getting with 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 that we're doing.
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Caroline Hyde5:24
Hans, we have a question from an audience member on Bloomberg Technology who notes the 2015 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 on what's different, particularly for fiber in 2024.
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Hans Vestberg5:44
So if you look at the deal, right now at closing, we believe that's going to be accretive — revenue growth and EBITDA on day one. So that's really good economics. And then it's going to take some 12 months, and EPS and cash flow will be accretive as well. The reason it takes 12 months is there are some integration costs coming up in the beginning. So definitely a very economically sound business for us. But I said, the assets we sold 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 — churn, penetration, etc. — are fairly similar to FiOS. And FiOS is of course the best fiber network in the state. So there's a lot of similarities on that, and that we can offer to our customers.
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Caroline Hyde6:38
Hans, some analysts were 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 your debt. Why do this now? Are you worried about leverage?
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Hans Vestberg6:53
No. I think, first of all, we have a very strong balance sheet. And as we said this morning, at closing this will be maybe 0.2, 0.3 notch on our leverage, which is very, very low. We still are committed to our capital allocation: 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 18th consecutive year we increased our dividend. And then is to pay down our debt. We have been paying down our debt since we bought C-band. We still have some 18 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.
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Ed Ludlow7:37
Hans, what opportunity is there for you in data center interconnect, DCI, in the context of AI? Look at what Lumen's done with Microsoft, for example.
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Hans Vestberg7:47
I think 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 offices, of course, have compute, storage, power, etc. And many of the AI solutions, when there is a real product, they actually need to be way closer to the users, the corporations, etc. And that means that because of the transport cost and many other things, it will be hosted at the edge of the network. That's how we built the Verizon Intelligent Edge Network in 2018 when we started with the journey, which we now are just adding Frontier to it. So I see a great opportunity for us on the B2B side with this footprint to serve customers that want to host AI close to them — secure, lower transport cost, etc.
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Ed Ludlow8:38
You're just announcing one deal, and you know we always love to push forward. Hans, are you going to continue to be acquisitive when it comes to convergence?
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Hans Vestberg8:44
I think, first of all, we are really happy with the assets we have, and now we're adding Frontier. I don't think we need much more. We're going to be the biggest on wireless, we're going to be clearly the ones having the largest broadband offering with fixed wireless 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 the assets we're going to have and we have today when it comes to convergence. I think what is important with convergence: we will have the economies of scale for both of it. We will have the ownership for the wireless network and the fiber networks and fixed wireless 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 that you discount one product for customers taking both — that's not really it. It's two great products, and we all know mobility and broadband is essential for society. Everyone needs it — if it's a corporation, a private person, you need these services that are even more important today than they were five years ago. And Verizon is number one in 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. They're two great products that we're going to offer to our customers. If they want to join, we have improvements on churn, of course, if customers both have mobility and broadband with us. So we're going to see how this plays out in the market, but clearly we're going to be best positioned in the market when it comes to convergence.
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Caroline Hyde10:18
Verizon CEO Hans Vestberg, thank you very much.
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Ed Ludlow10:25
Nvidia said in a statement it has not received a subpoena from the U.S. Department of Justice, responding to a Bloomberg News report published Tuesday. The company said it inquired with the DOJ, has not been subpoenaed, but is happy to answer regulators' questions. Bloomberg reports, citing a source, that Nvidia 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 proceedings. According to the Bloomberg source, the request for information issued 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.
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Caroline Hyde11:12
Coming up, Ed will be joined by another chief executive — the CEO of C3 AI. Once again, we're talking about artificial intelligence and its latest earnings results. This is Bloomberg Technology.
Back to tech earnings now. C3 AI reporting subscription revenue for the first quarter that seems to be below many analyst expectations. Shares off by 13%. But let's dig into the numbers. The CEO is with us — Tom Siebel. You join us for more. It is a painful sell-off, and in fact you're now trading at the lowest since May 2023. 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 wasn't enough in the numbers for the investor today?
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Tom Siebel12:01
It was a great quarter, Caroline. I mean, year-over-year growth 21% — that makes us, I think, one of the fastest-growing companies in the public software universe. Cash up, transaction volume up I think 121%, pilot volume up 115%. I think it was a solid quarter. And sometimes markets react in funny ways. Here we have Nvidia growing — they announced growth, I think, well over 100% year-over-year growth rate. What's not to like? The market reacts by taking what, $270 billion off their stock price the next day. So you know, markets react in funny ways, and it'll all sort itself out in the long run.
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Ed Ludlow12:46
Tom, I'm still trying to understand the business model, right? You have the subscription part and software, and then services. Services seems to be strong. What is the story behind software with you?
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Tom Siebel12:59
It's a little bit confusing because 70% of that 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, 70% of the services number — like $10 million of $13.8 million I think. But due to new accounting regulations that came out called ASC 606, 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 gets recorded as professional services.
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Ed Ludlow13:50
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 to scale, I know, but are you just having to tell investors to be patient?
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Tom Siebel14:03
Well, let's look at profitability. Our profit margins on the professional services, I think, is 93% 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 growth rates. Our gross profit margins are substantially greater than our cost of sales. So non-GAAP profitability is simply a matter of scale. This just happens with time.
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Caroline Hyde14:35
Tom, I've been reading through the regulatory filings — it's the kind of guy I am — and the disclosures and the lawsuits against Anel. It seems to center around a trade secret issue. Can you help us understand more of what's going on there, please?
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Tom Siebel14:51
Yes, this is a very unfortunate situation. This is very sad. Anel was a really valued customer that licensed a lot of our technology, and it appears that they may have copied literally thousands of lines of our source code into a copy and basically copied our product. So that's what this complaint about appears to be — a very significant intellectual property theft. And we're pursuing that in civil courts in Italy. And it's sad. It's actually the first time I've seen this in my professional career, that a company would do such a thing. But we have to protect our intellectual property rights for the benefit of our shareholders, and we are doing that.
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Ed Ludlow15:50
You are seeking $2 billion from them in compensation.
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Caroline Hyde15:52
Tom, just going back to ultimately the winning of clients, how market share — how are you able to compete with the big companies out there trying to compete with you?
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Tom Siebel16:04
Well, I think the companies that are perceived as competing with us would be Microsoft with Azure, AWS, and Google. Because the real competition is building it yourself. But understand, Caroline, 71% of our transactions the last quarter we closed with one of Google Cloud, AWS, or Azure. So we joint-market with them, we joint-sell with 71%. So these are great marketing partners, and they're perceived of by some as being competitors, but they sure look to me like partners, and they look to our customers like partners. So we appreciate the partnership, and we go to market with them very actively all around the world.
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Caroline Hyde16:44
Well, for now we really appreciate you coming on after your earnings. Shares off on the day, we appreciate the time and the expertise. C3 AI CEO Tom Siebel.
HP now coming out with its earnings, and for some, we saw profitability perhaps coming weaker than expected for its third quarter, suggesting lower margins. Certainly that anticipated in its business for selling servers for AI seems to be holding for now. HP CEO Antonio Neri is joining us. Let's just dwell on the margins for a moment, Antonio, because some call it low-calorie nature of AI systems revenue. Is it low-calorie for the foreseeable future?
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Antonio Neri17:31
Well, good morning, Caroline. Thanks for having me. We did what we said we would do, and we had a very strong quarter where we had double-digit year-over-year revenue growth. And to your point, it 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 is also fair to say that we actually improved operative margins quarter over quarter by 50 basis points, despite that mix heavily weighted to AI. And I will say that the reason why the gross margin — not the operative 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 operative margins year-over-year by 70 basis points.
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Ed Ludlow18:31
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 base is 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?
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Antonio Neri18:49
Absolutely. And as you know, at HP Discover in Vegas, we introduced an HP Private Cloud AI offering, which I call it an 'AI in a Box' — which is actually a turnkey 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 quarter, we had $1.6 billion of new orders, and many of those orders are enterprise-related.
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Caroline Hyde19:36
Let's just talk about macro challenges to those enterprises you sell to. Are we seeing a pullback in confidence on spending?
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Antonio Neri19:44
Actually, I have not seen it. 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 double-digit year-over-year and sequential growth in orders, which also tells me there is no cannibalization from the AI servers into the traditional servers. And it makes sense, because when you think about these legacy workloads, some of them are not even cloud-native workloads. It makes no sense to put it on a more expensive infrastructure. It 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 side, which obviously has been a more negative story in the last few quarters in line with the peers — by the way, we saw sequential order growth across all geographies, and we were driven by the wireless landline SASE deployment, which obviously security is very important on the edge and data center networking.
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Ed Ludlow20:49
Antonio, you talked about your fiduciary duty in pursuing damages in the sad incidents around Mr. Lynch. Just because this is the first time our audience is hearing from you — explain that fiduciary duty and basically what your end goal is in that piece of litigation.
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Antonio Neri21:09
Well, listen, the Dr. Lynch death is a tragedy, as are the deaths of others on the ship. So clearly it was a sad moment. However, it does not change what happened. The UK judge ruled that the company is a victim of fraud. The ruling happened last year, and as a fiduciary duty, we need to see the finalization of those proceedings. And obviously our duty is also to record the damages on that fraud. So we have to see it through, and we hope to hear soon what are the next steps based on the proceedings of the judge.
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Caroline Hyde21:47
Antonio Neri, we appreciate you tackling what is a sensitive subject and indeed your earnings. Thank you.
Welcome back to Bloomberg Technology. I'm Caroline Hyde in New York.
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Ed Ludlow22:01
And I'm Ed Ludlow in San Francisco. Quick check on these markets, because we are being whipsawed 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 look ahead tomorrow to the all-important labor data. NASDAQ 100 under pressure, as you see, by half a percent, no longer outperforming the other benchmarks. Chip stocks down by more than a percentage point. And looking at crypto — this is a risk-off kind of a day once again. Bonds have been trading pretty flat, but I'm looking at crypto sinking some 3.6%. And look at some individual movers, because amid what has been a volatile time on the stock markets, companies still have the ability to splash some cash — and more than $9 billion of it coming from Verizon to be buying Frontier. We just spoke to the CEO and why he's doing that deal. Nvidia still managing just to be above water, but remember, this is a key stock as to what's driven some of the selloff. Mag 7 not doing enough today to stabilize the benchmarks. Nvidia up by just a tenth of a percent. It is still up more than 3.8% this week — it seems to be promising full self-driving in Europe and China, and of course all eyes on what will become of a robo-taxi conversation in October for that company.
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Caroline Hyde23:10
But we've got to stick with overall outlook for chips right now. TSMC supplier Scient says AI demand is here to stay. The CEO dismissing concerns over AI fatigue after chip stocks recorded the biggest one-day decline in a month. Bloomberg sat down with CEO Huiming Chi. This is what he had to say.
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Ed Ludlow23:30
From my personal perspective, this booming of AI industry has just begun. There's a lot of applications I do expect will be coming out pretty soon.
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Caroline Hyde23:52
For more on the markets and everything going on, Christina Hooper, Invesco Chief Global Market Strategist, joins us now. We're learning every week, every month, every year that one single session, one market does not make. But where do you go — the anxiety in semiconductors, AI demand, we have economic data in 24 hours' time that's very important, and we're always thinking about the Fed. When you wake up, Christina, with a technology investor's perspective, what do you first think of?
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Christina Hooper24:18
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's probably more a fear than a reality, because what we're seeing is that investment in productivity-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 calm 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.
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Ed Ludlow25:35
Nvidia back in the red once again and has erased a lot of its market capitalization. Christina, there has been an anxiety that we've just put too much into too few companies. When you say diversify — what, into other tech names, or just other types of companies?
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Christina Hooper25:50
Other types of companies. Let's face it, if all goes well, if the thesis for a soft landing holds 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.
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Caroline Hyde26:36
Christina, you talked about durations a moment ago — weeks, months, years. And in the context of Nvidia, for example, a lot of the investors we had on the show after earnings were long-term investors who say we accept the short-term volatility but we're holding because we understand the data center buildout that's happening. Is it important to be diversified, though, even if you take that mindset?
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Christina Hooper27:01
I think it's critical to recognize that there are many, many companies that will benefit from AI. So if 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. So I think it's perhaps taking that AI theme and looking to those other sectors and industries, especially service areas of the economy, to find opportunities. There can be significant diversification by just doing that.
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Ed Ludlow27:51
Christina, how important is tomorrow's jobs — I'm sorry, how important is Friday's jobs report?
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Christina Hooper28:00
So Friday's jobs report, I think what we're likely to see is job gains — non-farm payrolls around 150, 160, 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'd see that. And that's pretty much a pre-pandemic trend level — to get about 150, 160, 170. 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 25 basis point rate cut. I think if we get a weak jobs report, that will not change that. I don't think we're going to get a 50 basis point cut. That's because the Fed really does believe that it is doing the right thing, it's on course. A 50 basis point cut would be an admission of guilt, in my opinion. Even when it was behind the curve in March of 2022, it only hiked rates 25 basis points. So that's how I think this is going to play out, and that should be positive for markets. If we got a 50 basis point cut, we might actually see more volatility and some kind of selloff, because it suggests there's more weakness in the economy than many thought.
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Caroline Hyde29:15
Deja vu now versus beginning of August — are we going to get these bouts of volatility as aggressive as we're suddenly seeing?
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Christina Hooper29:24
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 outsized reactions to economic data releases as well.
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Caroline Hyde30:00
Christina, so great to get the macro perspective. Christina Hooper, Invesco Chief Global Market Strategist. Now, coming up — OpenAI crosses 1 million customer milestone from an enterprise perspective. More details on the company growth next. This is Bloomberg 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 Ressler, Chairman of Aries Management and of the Atlanta Hawks.
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Tony Ressler30:45
It never really held me up on that, and probably should. The truth of the matter is, many 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 and franchises to make money, to show the valuation that the market is now seeing. And yes, to your point earlier, this is an asset class. We at Aries would argue — I don't know — a two-and-a-half, three-trillion-dollar asset class. And people take a step back and say, 'What are you even saying?' If you think about the NFL, there's 32 franchises, average franchise is maybe five or six billion. So 150, 160 billion, 180 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.
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Jason Kelly32:04
Yeah, 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 — it's an asset class for investors, investors that hopefully do real work and understand the difference. Some leagues are really nascent 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.
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Tony Ressler32:44
Yeah, and there's so much to unpack in what you just said. But before we get too far from valuations, I want to put a poll up, because we want to ask the audience what they think about U.S. sports team 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've shown on the screen here — I mean, it's not quite, and to use the tired old term, hockey stick, but it's pretty close. When you look at NBA valuations — your friends in Los Angeles, Willow Bay and Bob Iger just bought the NWSL team, Angel City, for a $250 million valuation. That's real money for women's soccer.
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Jason Kelly33:43
All right, so here's what the audience says: just right takes it with 39% and growing, 40%. Too high, Sky High, Ridiculous, and they're not too low. So it seems like the audiences agree with you. How does this play out in the near and midterm, and how do you as an investor think about it?
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Tony Ressler34:06
Well, firstly, it's so hard 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 huge amounts of cachet and stars that can attract global media rights — these are things that distinguish, I think, the long-term winners. There may not be as many losers as people might argue, but there'll be some that aren't extraordinary and 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.
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Jason Kelly35:26
Right, right.
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Tony Ressler35:26
So to me, sports are not a single entity. And one of the things we would argue is understanding the benefits and detriment 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 30th largest metro in America versus the first, second, or third, or even the top 10 — dramatic difference. So again, that too is awfully relevant — not just the league and the sport.
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Caroline Hyde36:00
Well, and it's interesting — so let's talk about that in a little more depth. But we'll leave it there. Tony Ressler, Chairman of Aries Management and of the Atlanta Hawks, along with our own Bloomberg Originals' Jason Kelly.
OpenAI hit a new milestone, reaching 1 million paid users for the corporate version of ChatGPT. That's up from around 100,000 the company told us about here on the show in April. For more, let's bring in Bloomberg's Rachel Metz, who's leading the AI coverage. And the point, I think, is 1 million enterprise, or corporate, or business customers — that's where the money is potentially at for OpenAI.
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Rachel Metz36:43
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?' — they are still bringing in users. It's really quite a lot of growth — it's, what, like 67% growth over that period of time. And they only started selling the enterprise version of ChatGPT about a year ago exactly.
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Ed Ludlow37:12
Meanwhile, it's looking to raise funds, we understand, at a heady valuation. And talking of competitors, Anthropic has just rolled out its Claude Enterprise. How fierce is the fight for business users right now?
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Rachel Metz37:25
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 OpenAI has done some customer surveys, and Anthropic 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 could you use it for, and 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.
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Caroline Hyde38:14
Rachel Metz, we thank you. All things those chatbots. But now let's just go back to some of the infrastructure needed. We previewed Broadcom set to release earnings after the closing bell today. Bloomberg Intelligence saying that the company is poised for another strong third quarter following growth in AI sales and VMware's contribution. Kin Seifani is with us from Bloomberg Intelligence. You authored this note — so the tailwinds can outstrip some lagging soft areas in the chip market.
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Kin Seifani38:40
Exactly. I mean, the AI in the semis is likely to offset its cyclical heads in its legacy businesses. We think in its legacy businesses — the enterprise wireless and server storage — likely to have hit some bottom, albeit the recoveries would more be moderate. But the key growth driver in this quarter and the next quarter is going to come from the software, specifically the VMware revenues.
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Ed Ludlow39:04
Broadcom's just become a really big chip company — $700 billion market cap. It's important in data centers, right? I always think about it in these kind of two prongs: networking, data center infrastructure stuff, but also custom ASIC. Explain the custom ASIC bit — what they do and what we might hear.
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Kin Seifani39:23
Yeah, so whenever we've talked about Nvidia, the key threat to Nvidia is its customers designing their own chips. Well, Google TPU, for example — they do need a design partner, a semiconductor company which has experience and the IP set to build these chips. So that's where Broadcom comes in. It has the largest share when it comes to designing custom ASICs or accelerators in lieu of the GPUs, 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 is likely to be OpenAI — and if they upside their AI revenue guidance for the full year, which we think they will, in the range of $500 million to a billion dollars.
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Ed Ludlow40:05
The anxiety, Kin, is that right now the revenue growth is strong — we're expecting a 47% increase — but it dials down quite quickly into fiscal '25, '26. How committed is this AI spend?
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Kin Seifani40:20
I mean, so if you look at their two key sources of revenue — one being connectivity, which is really Ethernet in the AI clusters and the backend AI and the frontend AI, and the custom ASICs — both of these markets have just started their beginning ramp. Both of these have been 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, Broadcom is like a conglomerate. It has a lot of other legacy semiconductor businesses and software businesses, so those do weigh the strong AI ramp that we talked about.
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Caroline Hyde41:01
Well, you forget we used to talk about Broadcom in the context of smartphones, namely Apple. I will be going to Apple Park on Monday. Is that business still relevant? What are they doing?
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Kin Seifani41:13
It's still relevant. It's still a significant, sizable business. We don't expect any key high-growth catalysts there, because their business has been very sticky with Apple. They do increase their ASPs and grow margins slowly every year. There might be some options of some small content gains, but nothing very sexy. But still a very high free-cash-flow generating business.
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Ed Ludlow41:37
We think also of how chips perform after smashing earnings expectations. Kin, you were a fundamentals guy — but how are we positioned into this set of earnings?
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Kin Seifani41:49
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 customer ASIC customer announcement, B, upside to their AI revenues, and VMware faster integration update — I think that would be a significant positive for the stock reaction post-earnings.
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Caroline Hyde42:09
Seifani, so great to have you on the show, Bloomberg Intelligence. We thank you. Now, that does it for this edition of Bloomberg Technology. Tomorrow, an interesting interview — we're joined by the WEO co-CEO Tedra Maakana, an exclusive interview. And there's been a lot of news around WEO 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, so you know exactly where to find the Bloomberg Tech podcast. From SF and New York, this is Bloomberg Technology.