Welcome, everyone, to The Information's TITV. My name is Akash Pasricha. It is Thursday, April 23rd. First up today, Tesla reported first quarter earnings, and CEO Elon Musk struck a more cautious tone than usual. We'll get a reaction from Ross Gerber, president and CEO of Gerber Kawasaki. Our Google reporter is on the ground in Vegas at Google's cloud conference. She will join the show to discuss what she has learned and will wrap with a look at ServiceNow earnings. The stock is taking a big dip in the aftermath. One of our AI reporters will also dig into exclusive reporting that she published about how big insurers are reacting to AI related damages. It's going to be a fun show, so let's get right on into it. Tesla reported its first quarter results. Revenue jumped 16%. The company talked about many of its long-term ambitions on the call. To break down the results, I want to bring on Ross Gerber, president and CEO of Gerber Kawasaki Wealth and Investment Management. Ross, good morning. Welcome to you. What did you make of the results yesterday? Well, it's kind of a lot to unpack. You know, I think there was a lot beyond the numbers that I think investors have to parse out more than just the numbers, because there's still a lot of adjustments in the actual numbers that I want to see the SEC documents to see how they got what I considered better than expected numbers than what I expected. But it seems like there's some, you know, a little bit of funny business in the numbers that we'll get to. But either way, Tesla had a decent quarter selling EVs. But, you know, during the conference call, it was kind of like, you know, a calamity of different like issues being brought up and no real resolution being discussed. What funny business are you concerned about here? Well, you know, when you look at their margins, which continue to go down in the amount of inventory that they had at the end of the quarter, you know, we suspected their numbers should be actually worse. um but there was like FX things with you know and then like tariff related stuff so I just like as I said I have to see SEC documents not just some you know piece of paper but actual cash on the books only increased by about 700 million versus 1.4 billion of cash flow that they reported so we kind of look at like what's the real amount of money that hit the bottom line so these are not big numbers and then when you use gap numbers which we do with Tesla because of Elon's comp package, you can't really discount the cost of his comp package in earnings. You just have to count it. It's so massive. And so now you're down to about 13 cents of gap earnings. And Tesla basically is not profitable, you know, for the most part. Now, you talked about the SEC filings. We were looking at the queue this morning in the newsroom, and they kind of snuck in this note about this $2 billion deal with an AI hardware company. They didn't say anything about it in the uh well in any of the presentations last night do you have any sense you know what this might be related to at all they didn't say who it was you know once again this is what i'm saying i there's a lot of this kind of stuff in their numbers and and i just can't put it all together so it's like you know with the sec docs you can't really bs people so i mean again but it's you know illegal so you know i i like to go line by line and get through this thing but i don't think it matters that much i think the the trend is very clear where the business is going and elon has made it very clear that this will be an unprofitable cash flow negative business for a long time to come as they invest in what he perceives the future to be now so the numbers are what they are what about his tone on the call the color that he gave how did that contrast with the tone that he's taken previously in other calls well we used to have this problem in the old days with Tesla where Elon would do these conference calls like he did yesterday that are basically downers. It just kind of depends on the mood he's in when he's doing the calls. And back in 2018 and 19, when he used to do that, I used to send him emails saying, what the heck are you doing? This is like the most depressing call. Can you sound like things are going well and stop talking about executive departures and things like that? Did he respond? Did he respond? Yeah, he did. And he did change the tone of his conference calls. If you remember, It was about five years ago to the moment where Tesla stock made its final run up. And it was really just an amazing run through 2019, 2020, and 2021, where it peaked at about $400 a share, where it is today, five years ago. So if you go back to that period of time, it was a very optimistic period. It was probably the best period of time in Elon's life was 2021. And then he decided it was too good, and he decided to buy Twitter. okay so so why is he back now to the to the doom and gloom version yeah well i think a this guy puts so much pressure on himself you know you're talking about somebody who has so many irons in the fire so many massive projects that he's working on that no human can absorb that level of stress um healthily let's just say that um i'm sure running your company just like i run mine there's just a certain amount of stress you can deal with as a person and obviously elon has some you know sort of superhuman powers but he's still a human and and so i think you're seeing this all kind of pile up on him you know like now he's going to build a terra fab factory you know like on top of like an optimus factory and he's taking apart the model s line and he's and he's got robo taxis that don't work yet and he's putting he's scaling those and semi and this and that and And then, oh, by the way, we're taking SpaceX public. And we just bought Cursor for $20 billion. And we just got, you know, merged XA. And I'm like, granted, he's not like Mr. Family Man. He doesn't have a social life. But still, this is insane. And I mean, if he passed away, like, tomorrow, there would be so much unfinished business. It would take 50 years for other people to build these projects, you know? And so I just think that there's too many things going on and there's no focus. Okay, so I want to double click on a couple of those things you mentioned. So TerraFab is one part of the equation that he stressed on the call last night quite a bit. But how are you thinking about that as an investor in terms of how important it is to the success of SpaceX and Tesla and the long-term ambitions as a whole? Does he need to get this right for any of this to work? So because I've been doing the Elon thing for a long time, I get him, okay? So he's thinking about what his problem is going to be 10 years from now. His vision is always well far forward of what mine or normal people's would be. So he's thinking about the problem he's going to have in five or 10 years, which is if he scales all these products at the same time, we all know there's not enough compute. There's just not enough chips, and they already have this problem. So it's already a problem getting memory chips. It's already a problem getting compute chips or inference chips. So building this factory makes a ton of sense for Tesla and SpaceX. They are going to need these chips or the brain cells of the future. The problem is this is a very capital intensive, specialized skill set that involves tons of really expensive equipment from ASML. We're talking about that alone is a huge business to try to build and run. And so I wish him luck with it because we do need all this. And that is a core component of it where I question is, well, if that was all we were focused on, that'd be great. But it's just like a drop in the bucket with everything else. And the CapEx for these things in the margin doesn't make a ton of sense for Tesla. Now you talked about the SpaceX cursor deal which is another thing that I wanted to get your take on That another thing Right What did you make of that deal What do you think it says about XAI and how that business is operating Well, we've seen the massive departures at XAI at the top for various reasons. And I think a lot of it is that Grok is not a model that people use like Quad or something else. And then I think, you know, AI is good at computer coding. It's good at languages, it turns out. You know, it's like really good at language and learning patterns. And so like coding is something that is rapidly changing. We're seeing this in the software stocks like ServiceNow. We're seeing this massive change. So like we've built software on quad internally at our firm that we're testing right now. And, you know, every few days we get super frustrated and throw in the trash. And then a few days later, they upgrade stuff and it works better, you know. And we're kind of trying in real time to see what the capabilities of this is. And it's amazing what you can do. So I think what they're saying is if we're going to build data centers and we're going to have an AI base, we want the coding chops to build super fast, super good software in the future. So I think it's more about internal than a product to sell, but more about how do we use this coding software? How do we upgrade what we're doing and use the servers we have, which are tons of them? And actually make use of all this compute that they're investing in. We need applications to use all of them. So SpaceX writes tons of code. So this just makes a ton of sense from that perspective. Now, once again, paying $60 billion for this is a huge price to pay. But when you're throwing stock around at a $2 trillion valuation, it's almost like free to them. So he's got this candy machine and he's throwing the candy at everybody because he's trying to put all the pieces in place for what he perceives the future to be in about 10 years. And I'm not going to say he's wrong. I just think it's like what he did with Tesla where you leverage everything to try to get to that next level. But if he doesn't succeed, it's like the Titanic, you know. So my question is, I mean, a SpaceX and a Tesla merger, I mean, do you think that's a good idea? Well, I think it's an inevitability because when you actually look at what investors want is they want to own both stocks. But many of the Tesla investors want to own SpaceX and they're going to sell their Tesla stock or some of their Tesla stock to buy SpaceX. So it creates selling pressure on Tesla, along with the conflicts of interest of basically running two public companies. And it just exposes you to so many conflict of interest lawsuits. And so ultimately, because they're so intertwined, the businesses, and SpaceX owns the brains to the Optimus robot and all this, that it just makes the most sense for them to come together. And if they come together, you've got a very binary investment of like, I'm either investing with Elon and I like it or I don't. And you've got sort of all these businesses together that create like a Berkshire Hathaway of AI and something that if people really want to bet on the future, this is a very pure play on that. So you don't think maybe he'd want to hedge his bets a bit, you know, like if SpaceX doesn't doesn't do what he hopes it to do. Maybe he wants to keep Tesla sort of, you know, the optimist bet so much separate. Well, you know, that's just not the way that Elon thinks he's not a hedger. He's an all in guy. So it's exactly the opposite. I think it's more that he's about to leverage his entire multi-trillion dollar empire to try to do something to 10x it into something that looks like 10 trillion plus dollars that's just dominating every area of technology and space. So will that happen or not? I'm not somebody who bets against Elon. And that's why we do own the stock. But I do think that there's a tremendous amount of risk in the vision. And many of those risks are things that many investors might not consider, like just his health and his ability to see through this vision over the next decade. Now, just very quickly, Ross, you said at the very start, when you sent him emails, 2018, 2019, I asked you, did he respond? You said he came back. Are you emailing with him? Is he responding to your emails? I used to email with their team. It wasn't like, oh, Elon, this and that. They have a team. Back then, they kind of got rid of all these people. And so there were people that would handle the investor relations and the communications because they actually didn't have a PR communications team. And so what happened was I became the PR communications team just by being on TV so much talking about Tesla. And I used to get annoyed and say, why don't you guys have some spokesperson or whatever? And they were like, sorry, Ross, you do such a good job. We'll just like, we don't need it. You know, and so I did this for like years, you know, just doing Tesla spots on on major networks. And and but I would get super annoyed when he would give these like downbeat conference calls. And then, you know, when he would change his tone and be really optimistic, Elon is a very like engaging and likable guy when he wants to be. And, you know, the stock would rally when he would do a positive conference call. So, you know, he doesn't have that help anymore. He got rid of a lot of those people that I think were really beneficial to him from those days. And it's a whole different team today. And so he's kind of running things the way he wants to be running them now. And unfortunately, they've got a lot of pressure on them right now. Right. Well, Ross, I want to thank you for coming on. As always, that is Ross Gerber, president and CEO of Gerber Kawasaki here on TIT. Google is hosting its flagship cloud conference in Las Vegas this week. My colleague Erin Wu is on the ground and wrote about it in today's Applied AI newsletter. She was looking at the big announcements that the company has made. I want to bring her on to talk all about it. Erin, welcome to you from Las Vegas. Tell us, what did Google announce this week at its cloud conference? Google announced, in brief, a lot of different ways for companies to get set up and manage AI agents. And so that was really the big theme of this year's conference was AI agents. They also announced a new generation of their chips, tensor processing units. For the first time, there are two separate chips for training, the training of AI models and inference, which is the process of running processes on those models. So new agents, new chips. I mean, we will be writing about this in our coverage all week. People can check it out. The bigger question that I want to get an answer from you, Aaron, is, I mean, you went into this conference. You're talking to all these customers of Google Cloud on the ground. What were the big questions that you went into this event with? And then we'll talk about what you learned from all these conversations. I mean, really, like my biggest question was, how are companies using AI? Is it working? How much are they spending on it? Do they feel like they're getting a return on that investment? And so I really came into this conference wanting to talk to a ton of customers of Google Cloud. Okay, and what did they tell you? So one theme that I didn't quite expect, but that came up quite organically in all my conversations yesterday was it's really hard still to get started using AI. And so companies and Google Cloud resellers were telling me that there's difficulties like setting up your first agent, like making sure like your data and your processes are correct. And then for companies that have agents, one source that I talked to described this as agent sprawl. And so there's just all of these different agents set up by different employees doing different things. And so it's getting hard to manage all of this. I thought one line that you put very concisely and well put in your newsletter was you said the abilities of tools from Google and other frontier labs are outpacing the abilities of many companies to understand and implement them, particularly as agents and other AI offerings get more complex. So the idea here is that, I mean, the labs have all this innovation. The models are getting better and better and better. And meanwhile, while you have customers like you talk to somebody from the Home Depot, for example, who are basically saying, not slow down, but like, we need a little bit of help figuring out how to actually implement them Yeah So one of Google announcements yesterday was a billion fund for consulting firms to help their customers like get adopted and get started with AI And so this mirrors things that for example like OpenAI has also done similar deals with consulting firms And so even though AI companies are saying like, oh, like we're going to cut out a lot of these processes, they're also needing these exact same consulting firms to like teach people how to use it. And so I was chatting with Jordan Broggy, who's an executive vice president at the Home Depot. And he said this thing that was really interesting was that he was comparing it kind of to a factory floor. And so like the idea of like getting a product from like beginning to the end. And at this point where he said that the Home Depot and other companies are at is they are automating like some steps of the process. And so like they've given all of their corporate employees, for example, Gemini, they've given them Copilot, like the software development teams are using things from OpenAI and Anthropic and Gemini and like switching in between those. But what he's saying basically is that they have figured out how to automate certain steps on the factory floor. And so those steps are getting so much faster, but then it only really speeds up until you get to the next step where then you're just back to kind of the same bottlenecks and the same workflows. And so he was saying that the Home Depot and other companies have seen advances in individual steps, but no one's really been able to overhaul the whole workflow. And kind of that's what would need to happen for a really drastic step change. And just to be clear here, I mean, you're talking about this executive you talked to. They're in charge of the sort of software side of Home Depot's platform, website. Like walk us through their main data. Executive Vice President of Online. Yeah, so like we're online. Okay. And so they're saying that I have these product-focused people, for example, that maybe the software engineers can code up something better or get a feature better. But then, you know, plugging it into the website, figuring out how the business models will change, that is still a bottleneck that doesn't get any faster. Yeah. So what he was saying to me was basically like, okay, so I can take the amount of time that it takes to write a piece of code and I can cut that in half or whatever. But what about the process of having discussions with colleagues, of doing market research, of running tests, of deciding X and Y and Z? There's so many, it's so complicated to run a business is the thing I'm learning at the Steve's conference. And so there's all these other steps that, for example, these highly touted coding tools like Cloud Code or like Google's got like a million coding tools. And so like all of these things and speed up steps in the process, but there's still this whole big process. So did you walk, well, you haven't walked away yet, but did you walk away from the first day of the conference feeling a little bit more optimistic that humans still have a role in AI? I mean, like, yes, like humans definitely still have a role at AI. Absolutely. all of these very complex corporate processes cannot be automated. But at the same time, there's a customer panel with customers using Gemini Enterprise, and there's a couple use cases around like, oh, we're using this for customer service. We're using this to automate customer service agent bots or have more support for that. And so nobody will come out right and say that, oh, we're going to lay employees off because of this, because everyone kind of like understands the press situation that they're in. But like people are saying like, oh, like like an executive from City Wealth was saying that, well, to expand the wealth management business as much as we want, like we'd have to hire like thousands of people. But now we have this AI agent that lets us do it with fewer employees or like the Home Depot was also saying like, well, like we don't necessarily like when people leave call centers, we don't necessarily have to hire as many people as we like maybe would have used to. And so like there are certainly like jobs that are being automated. Like this is impacting like the amount that companies are planning to hire. Last question for you. I know this is the Google Cloud Conference, but did any of the other AI labs come up in conversations with customers, the Anthropics and OpenAIs of the world? What are people thinking about Google's place in the competitive landscape right now? I mean, one of the interesting things to me was like how often Copilot came up, because with apologies to Microsoft, like I feel like when I'm talking to like people in San Francisco, when I'm talking to like Frontier Lab employees, like nobody is really talking about Copilot. It's like, oh, this is like a major AI tool that everyone's using. But like Copilot came up a lot in conversations, which is a testament to the power of the Microsoft Office suite and just kind of like how ingrained this is and how it's like, well, like we're already using Microsoft Office, so now we can use Copilot. And of course, like Anthropic also came up a lot. a lot of the conversations around coding were talking about, well, we're really excited about Anthropix new model releases. Did you get the sense that people were happy with Copilot or just that it was the easiest thing to implement because they already have all of this software with Microsoft? Yeah, I mean, people were not singing Copilot's praises necessarily. People were not complaining about Copilot, but they were not like, wow, this is the best AI product we've ever had. And one person was telling me like, yeah, we also were just getting started on Gemini because we want to diversify. So I mean, if anything, the theme is that no one is just going to Google for stuff. Everyone is trying out products from different model developers and they are switching back and forth between them. And I think perhaps it's telling in some ways that you have co-pilot customers at the Google conference may be looking for an alternative. I mean, that's kind of the whole point of these conferences is to educate people. So a lot of interesting observations, Aaron. I want to thank you for coming on. That is Aaron Wu, our Google reporter on the ground in Las Vegas here on TITV. ServiceNow posted 22% revenue growth in the first quarter, but investors are focusing on what comes next. The company says its recently completed acquisition of cybersecurity firm Armis is weighing on profits. My colleague Laura Bratton is covering the story. She joins me now with more analysis. Laura, welcome back to the show. It's great to have you here. Let's talk about ServiceNow. What stood out to you from the results last night? Yeah, what stood out to me was what you talked about, the fact that ServiceNow said the Armist deal is going to dig into profits slightly, and they lower their guidance for profitability metrics for the full year, while also raising their guidance for revenue. I think another notable point that investors pointed out to me was that while subscription revenues grew more than ServiceNow had previously said, it grew less than the previous quarter. And that was partly because of some delayed deals in the Middle East because of geopolitical conflicts there. So investors said that those were the things that were on their mind. So I'm looking at shares right now. They're down more than 15% this morning. So the people you're talking to, is this an overreaction? I mean, here's a company that is still growing faster than 20%. I get the gross margin issue. I get the acquisitions. But I mean, again, we've said this on the show. This is a company that is still growing healthily. It's still generating free cash flow. What do you make of the stock drop? Yeah, I think it's really overblown. I mean, ServiceNow, as you mentioned, it's a top performer in its category. It provides IT services, IT service management for its customers and software for that. And it's really a leader in its category. It's also growing a lot faster than other software companies, you know, such as Adobe, Salesforce, HubSpot, Atlassian. And so investors really think that this reaction is overblown, as you said. And I also think about it a little bit in the way that who what company would be a candidate to be acquired and what company would be a candidate to be an acquirer Obviously ServiceNow has shown that it is willing to make acquisitions Obviously it will take a cost to make these acquisitions but I don know I still look at it from the AI story as like, it's on the forefront. But this happens every quarter, right? They do the beaten race thing and it's Sasspocalypse still. I don't know. I think it's overblown as well. Yeah. And I mean, as investors I talked to said, the market is so sensitive right now and anything that's not perfect is going to send the market into sell-off mode for these software stocks. And investors are confident in ServiceNow strategy. ServiceNow really wants to go from being a traditional software company to being kind of a dashboard for managing AI agents and helping companies monitor risks and safeguard those AI agents. And investors think that, you know, that strategy could pay off. But also, even if it doesn't, ServiceNow is still a high-performing IT service management software company that's a leader in its category that's growing faster than other software companies broadly. And so, you know, there's really not a lot of downside at the moment if you're not, you know, super, super worried about AI completely disrupting and eating the software industry overnight, as some investors clearly are. Let's pivot to a story that you published today. You wrote an exclusive story about the insurance sector and how those companies are looking at AI. Tell us a little bit about what you found in your reporting. Yeah, so I found that major insurers are making moves, at least initial first steps to get approval for AI exclusions and some of their corporate insurance policies. And states are approving those steps that they're taking. Okay, and so let's break this down a little more simply. I mean, AI exclusions, what would qualify as an AI-related damage? What exactly is the thing that could go wrong here? Totally. So I'll start from the beginning. These exclusions, which just means that states are asking for permission to explicitly say that AI will not be covered in certain traditional insurance policies. And what that mostly is applying to is general liability policies. And general liability policies cover things related to advertising, cover bodily injury and property damage. Sorry. So help me understand this. So what is a bodily injury of AI? Is this like a robot? Or like what is this? I got you. I'll walk you through that. So I think the primary thing is the advertising injury here. So we've already seen lawsuits related to copyright infringement with AI. So this would apply to when a company, say, uses an AI agent to help create an ad in their marketing teams that uses copyrighted material. They get sued. They have to pay a settlement. And then they go to their insurer to cover that loss. Bodily injury and property damage. This is less applicable necessarily, but I think a hypothetical example could be a company sells something that is AI-enabled that causes some sort of property damage or hurts somebody or hurts a consumer. I don't know, maybe AI being used in a microwave that explodes or a robot that – Okay, okay. It's hard. Okay, so I see the IP thing. So basically I use a model and I create an advertising campaign. I make video. The video is trained on data that we know some of it is copyrighted. Some of it is not. So, you know, we don't really know where it's pulling from, but they're saying, hey, we're not we're we're not going to protect you from the liability of that. That's what the insurance company is saying. Well, what they're saying and they're not actually saying this yet, because I mean, the insurance industry, what I've learned over my weeks of reporting is incredibly complicated. And the more I learn, sometimes the less I understand. But what I've learned here is that insurers have to take a lot of steps for these exclusions to go into place. And what it's done is it's, you know, filed for approval to adopt AI exclusions. But just because it's getting approval from states doesn't mean these insurers are actually using the AI exclusions yet. And that's what, you know, the ones that I spoke to said, major brokerages I talked to said that they're not actually seeing these AI exclusions in place yet. But this is a massive signal that, you know, these exclusions could be coming soon. Part of the reason they haven't been implemented yet is that the earliest date that insurers were approved to include these AI exclusions was like January 1st to March 1st in some cases. So that could be it. They also haven't necessarily renewed their contracts with or renewed policies with the policyholders, their customers. So we could see in the next wave of renewals that some of these exclusions come into play. What about hacks? Yeah, that's a really good question and a big question that I had. So as I mentioned, general liability policies only cover some things, but there are also standalone cyber policies that address things like if an AI agent breaches your system and exposes a bunch of secure data. um so that is something that would be covered by standalone cyber policy there's also some other issues um covered under what are called errors and emissions policies so that's when you know say you're using an AI agent to help with your tax returns or your securities filings and it makes a mistake that would be covered under that specific policy so so the idea here is that the insurance companies are saying that if you get hacked and the hack is a result of an AI agent, for example, or if an agent goes rogue, are they saying that they will cover it or not? That's a really good point. We haven't really seen claims at a high level related to those issues yet filed with insurers, but I think that remains to be seen. The Financial Times actually reported yesterday that some insurers are moving to cap losses related to AI that can be paid out by cyber policies. But again, these are traditional insurance policies that weren't intended to cover AI-related losses. And it remains to be seen whether companies will try to get coverage from these traditional policies for AI-related losses. And insurers typically only start implementing exclusions or rushing to cut out different risks from their policies when they or their peers have to pay out a claim that they never intended to pay out. Right. Well, and also, they're also in the business of forecasting what could go wrong. And so if this is any indication, it means that even they are concerned that, you know, there could be a tidal wave of clans coming. So it was a very interesting story. I encourage everyone to read it. That is Laura Bratton, our AI reporter and author of our Applied AI newsletter here on TITV. That does it for today's show. A reminder, we are on this stream Monday through Friday at 10 a.m. Pacific, 1 p.m. Eastern. If you can't make it then. Episodes are available on theinformation.com, on our YouTube channel, or wherever you get your podcasts. Make sure to follow us on social media on X, Instagram, and TikTok. I'm already excited for our next show tomorrow. Have a great rest of your Thursday. Bye-bye for now.
