- 14 hours ago
Category
đź—ž
NewsTranscript
00:00Whether it's the stock market or the bond market or capital investing, it seems that there's only one answer to
00:06just about every question these days, artificial intelligence.
00:10Blair Efron of Centerview Partners spends his time advising corporate CEOs on deals and investing, going well beyond AI.
00:17We asked him just how is the rush to AI distorting the rest of corporate finance?
00:24Blair, you spend a lot of time with big corporations and their CEOs.
00:28All the talk right now seems to be about artificial intelligence.
00:31How much is that distorting what's going on in the C-suite?
00:34First of all, thanks for having me.
00:37David, I think it's distorting the markets much more than it is the C-suite.
00:41Obviously, the markets are all about AI, $700 billion worth of investment.
00:47At some point, investors will demand a return.
00:51And if you're worth a trillion dollars and you trade it 30 times, that's $35 billion in net income you
00:56need.
00:56And you pick the company that has that profile.
00:59Every time this has happened before, the markets will get to the right place.
01:04There will be dislocation.
01:07Whether dislocation is upheaval or not, I don't know.
01:09What I do know is that CEOs are absolutely tuned to this.
01:13They are better at managing through these kinds of issues more than ever.
01:19And they look at AI from a business perspective as important.
01:23You would argue that AI investment is adding 30 basis points to 50 basis points of GDP growth.
01:33And it's helping companies.
01:35Now, it's not helping companies quite as deeply or broadly as people think.
01:39It takes a long time for a company to figure out how to use it.
01:42How to use it as an appropriate tool.
01:44So I'm not one who thinks from a business perspective there's going to be a big cliff on employment.
01:49But it is on everybody's mind.
01:51The bigger question is the economy.
01:53And that's what CEOs always think about.
01:55And I think for the past five years or so since COVID, most CEOs, if you talk to them in
02:01January about the year ahead,
02:02were always more optimistic than CBO would have been, IMF, Bloomberg.
02:07And they'd be right.
02:09I think that has shifted a bit most recently.
02:12And I think there's a level of caution that I haven't seen so much before.
02:19And I think most CEOs today think the economy is a 1.5% economy.
02:23They would have thought it was a 2% to 2.5% economy early in the year.
02:26What has shifted?
02:27I mean, is that what they're seeing in their own numbers internally or more broadly?
02:31Seeing their own numbers.
02:32And you're seeing some of the earnings that have been coming out.
02:34What shifted is the consumer.
02:36It is finally, I think, catching up with the Consumer Confidence Index, that Michigan index that comes out every month,
02:44which is at all-time lows.
02:46The consumer is still spending.
02:47Now you have consumers really having gone through their savings, savings built up when they weren't spending money during COVID,
02:55and becoming much more cautious.
02:57So I think how that settles out, I think, will be incredibly telling.
03:02And you combine that with energy price.
03:06And from my perspective, it's energy price as inputs for most of the products that a lot of our most
03:11important companies are using.
03:12And you can see where there's a bit of turbulence.
03:16All that said, turbulence that will be managed.
03:21And I do believe the economy remains incredibly resilient for all the reasons everybody's thought over the past couple of
03:28years.
03:28And I think that, when all is said and done, will win the day.
03:31Perhaps the most important job of a CEO is allocation of capital.
03:35And as the CEO looks at allocation of capital, put aside from the hyperscalers, they're in a different category.
03:41There is some hydraulic pressure to invest in AI for just about every company I can identify.
03:48How do they do enough so they don't get left behind without going too far and having something that, as
03:53you suggest, doesn't have the return that they need?
03:56So, first of all, it's a big difference if you have five companies spending $700 billion, five companies whose market
04:03cap together equals the GDP of China,
04:05second biggest country in the world, second biggest country in the world, right?
04:07Most companies in the S&P 100 are making, actually, even more broadly, are making appropriate investments in AI.
04:15They're spending more than they thought they would.
04:19But it's being implemented on a much slower basis.
04:21I think if you are not tech native, you're not yet using AI anywhere close to its full potential, that
04:29moderates how they make capital investment decisions.
04:33They know this, okay?
04:34So, I think that if you look at the typical consumer company, they use AI exquisitely.
04:45But they're spending $1 billion, $3 billion, and $5 billion in capital.
04:49I'm talking about the biggest companies in the S&P 100, which is manageable.
04:53The bigger question is going to be, when can they actually become effective enough to realize the promise of AI
05:01from where we are today?
05:03I don't see that.
05:04In order to be able to make the capital investments, these companies have to come up with the cash, these
05:09hyperscalers.
05:11That has resulted in a lot of issuance, debt issuance and equity issuance.
05:14It's really record.
05:15We see it in the bank results right now, all the issuance going on.
05:18Is that crowding out at all what the corporations, other than the hyperscalers, can do?
05:24Not yet.
05:25It is, there's a ton of liquidity.
05:29I am surprised that investors, particularly on the debt side, have been overscribing by multiples and willing to put money
05:39to work.
05:39In fact, the question of capital generally, I'd say one, very liquid, two, at cost, which is the key thing,
05:50that is still relative to where the debt funds are, I'd say reasonable.
05:57As soon as there is a turn in the hyperscalers, I think we'll have a very different conversation.
06:03Centerview is global.
06:04It's not just U.S.
06:06One of the themes that we've seen with respect to tech, more generally, and certainly AI, is Europe versus the
06:11United States.
06:11Europe, perception has been left behind.
06:13We had the Draghi report.
06:15There are various initiatives going on.
06:17Are you seeing from your work evidence that Europe is in the move to catch up or at least get
06:23closer?
06:23I do, but you use the word perception.
06:26It's a reality.
06:27The fact of the matter is 43 of the largest 50 companies in AI are U.S.-based.
06:32Europe has one.
06:33Let's just talk about the market cap.
06:34They have one company, ASML, worth $800 billion.
06:38The next company is $350 billion.
06:39That is less than 10% the size of NVIDIA.
06:43They are, I don't believe, in a position to catch up.
06:49You look at the economies of Germany, of France, flat.
06:52You look at the interest cost of a U.K., too high.
06:57And the lack of coordination, I think, is a big issue.
07:01The fact is, the regulatory environment there, they're trying to do just what you said, the merger and acquisition environment,
07:08the rules are changing.
07:09They want to have more broad discussion as the regulator as to what's an issue, what's not, give them, obviously,
07:17some leeway there.
07:18And they look at the question of what is an acceptable merger or not with a much different lens, okay?
07:27It hasn't changed the numbers at all.
07:29M&A is 50% of the M&A market in the past six months has been U.S.-driven, same
07:34level it was last year.
07:35So I think it's a long time before Europe realizes the promise of what they want to achieve.
07:42Is it an even bigger problem for Europe not having a unified capital market?
07:47I mean, that's one advantage the United States has.
07:48It's one capital market.
07:50Over there, they have not been able to pull it together.
07:52Not only do they not have one capital market, they don't have one view as to what kind of GDP
07:58growth and what kind of debt-to-GDP you have to subscribe to.
08:02There's exceptions every year.
08:04Italy makes the exception.
08:06Spain makes the exception.
08:07So they spend more time, I think, with, call it intra-family, back and forth, than they do focus on
08:14the right thing.
08:15And I do think, as a place for intellectual capital, incredible.
08:20They don't let that intellectual capital be unharnessed in a way that the U.S. markets do.
08:28One area of dealmaking where Efron and his Centerview partners have been particularly active over the years is media, including
08:35as an advisor to both Paramount and Disney.
08:39One area, particularly in the United States, we've seen a lot of deals announced, at least, is something you know
08:44terribly well.
08:45Which is media.
08:46I do know a little bit about it.
08:48With a combination of Fox and Roku going one way, I would say, toward integration.
08:53And on the other hand, you have Comcast spinning off NBCU going, it appears, the other way, separating distribution from
08:59content.
09:00Where are we headed here?
09:01Why is this all happening right now?
09:03So, first of all, it's happening because people are realizing that scale really matters in that sector.
09:09Why does it matter in that industry?
09:11Because they're fundamentally becoming technology companies.
09:13The technology companies are coming in.
09:15They've been in, whether it's an Apple, whether it's a Google, whether it's an Amazon.
09:19And they're highly effective.
09:22So, there has been, there are too many small companies.
09:26There are too many companies doing streaming, keeping down the margin.
09:30In fact, there was only two companies that showed double-digit margin.
09:34Netflix, 30%.
09:35Disney, 12%.
09:36And then everybody falls off a cliff.
09:37So, what Comcast did is actually in line with that trend because by separating a very mature distribution business from
09:47a vibrant content business, they will have more choice.
09:50I think in the case of News Corp, Fox, they recognize without some sort of way to reach consumers through
09:59streaming, they'd have a lot of problem.
10:01So, I think they're making the right moves, but that's what's driving some of this consolidation.
10:05I will tell you, I think there is a highlighted concern, which has not been justified yet, that tech, that
10:15AI is going to have a dramatic impact on employment levels.
10:19I see quite the opposite.
10:20And when you look at what happened with CGI, it opened the way for more employment.
10:25If I look at the question of AI and you're doing an animated film and you're spending $200 million to
10:34put it out, $500 million total, and you have 500 people working on it and it takes two years,
10:38and now you bring AI, and it's $50 million to produce, it's six months to make, and it's with 50
10:46people, you've just freed up a whole host of really smart, really creative people to increase content availability.
10:56And if you talk to the CEO of any of these companies, that's what you're hearing.
11:02Does tech win?
11:03And by that, I mean, if you look at the landscape right now, just in terms of amount of time
11:10spent viewing on screens, YouTube is just running away with it.
11:14It's an absolutely phenomenal company.
11:16It's a better mousetrap.
11:17In the end, do the tech companies win?
11:20And that doesn't necessarily mean buying the studios.
11:23You might not want to buy the studios, but they basically get to dictate the terms.
11:27So, I wouldn't say they win.
11:28I would say that if a content company doesn't become really tech native, they'd have a problem.
11:35I will also tell you, if you're a tech company, you don't actually understand quality content yet.
11:39Okay?
11:39You don't understand quality creativity.
11:41They know it.
11:42So, the key for who is going to win is the company that can combine content with technology.
11:49If you look at what Disney is doing, making progress in that direction.
11:52If you look at what David Ellison is trying to do with Paramount, I say trying because we're not closed
11:56yet,
11:56it's all about the marriage of technology and content.
12:01So, I think those companies actually are better positioned to get the two together
12:06than some of the bigger companies that don't have that creative DNA in their system,
12:13but they certainly know how to get out product and distribution.
12:16We'll see you.
12:16We'll see you again soon.
12:16Yeah.
Comments