Starbucks Says It’s Not Buying Chipotle, Dousing Deal Rumors

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0:24 We did have some reports last week that Starbucks was looking to buy Chipotle, but there's now a denial from the company. Starbucks saying it's not doing so. So tamping down the speculation about what could have been one of the restaurant sector's biggest ever deals. Red Brown is Bloomberg Consumer Reporter, and we start there because he covers the restaurant industry. I mean, everyone was all over this because Red, Brian Nickel, who runs Starbucks used to run Chipotle. So it kind of made sense that there'd be some kind of talk there or that there might be opportunity for more.

0:57 Yeah, I think that was like the extent of the connection maybe was that Brian worked at both of them. So the company's obviously coming out pretty strongly saying that they're not buying Chipotle at the moment. Because I think a lot of like, if you read the analyst reports, which I have the pleasure of doing often, Um, everyone was kind of scratching their heads about like, what does this actually, does this make any sense? And like, you know, people were kind of really having to stretch to get to that, to, to kind of justify this, this deal. So, um, not too surprised, uh, with the news today that they're saying, actually, there's not much to this.

1:30 It seems like the coffee burrito combo dreams are dead. Um, Starbucks does seem to be casting about a little bit. Maybe that's why the story took off. What kind of shape is Starbucks in right now?

1:42 Starbucks is obviously going through this huge turnaround that Brian Nicol came in to institute. It's called Back to Starbucks. I think earlier this year, before the economy and the consumer health really started to wobble, there was the first moments of green shoots. We saw traffic coming back to Starbucks, which has been a, it was kind of the thing that everyone was like watching and waiting for. So like, that's been very positive for them. That's coming from, you know, quicker, better customer service, more friendly staff, better food, all these things that they're just trying to do, making the stores a little bit more approachable. So that is bearing fruit.

2:14 But then obviously they've run into this wall of just the consumer health. So that's probably going to make this a little bit more difficult for them to navigate. It's not that clear yet that the plan is going to result in profitability. So that's kind of the next step for them. So maybe once we see that, once maybe the economy can be heading in the right direction, we might start to see that. Because it does sound like the foundation of what Brian Nickell and the team that he's assembled.

2:36 There has been.

2:37 Been, you know, bearing fruit. But, you know, some things are out of their control, obviously. So I guess it kind of remains to be seen whether or not it's the foundation is strong enough for them to sort of build on into the kind of mid-future here.

2:47 Well, speaking of bearing fruit, you also have a story about how California winemakers, who are definitely struggling with a structural shift in tastes, a lot of people are no longer drinking wine the way they used to, are now coming up with an alternative. They're now looking to make an American version of tequila.

3:06 Yeah.

3:06 Yeah.

3:07 So obviously like alcohol industry in general has been dealing with like a declining demand. But wine is actually probably being hit the hardest in that. It's kind of getting it from both ends of the generational spectrum. So younger people are not graduating into wine in the way that past generations have. Typically you go from like beer into wine would be your kind of next step as your palate develops. Um, and now we're also at the same time is that the older generation is actually cutting back, um, drinking as well. And that's sort of the bedrock of the wine industry. So I think that's something that's maybe a little bit less understood, but then throw on top of that, just what the wine industry did during pandemic.

3:42 Like they expanded like rapidly, right? Because people were drinking a lot of wine that everyone's stuck home. You take the edge off, what have you. And so they built up their, their grape supplies tremendously, right? Like, um, so there's just this ton of wine sitting around that no one wants to buy. So to start to kind of figure out some alternative ways to utilize your land, diversify your revenue, there is this sort of budding group of farmers, now increasingly winemakers, who are looking to agave, which is obviously we all associate with tequila and mezcal and all those drinks, to maybe be a potential avenue for them to create essentially a market for what they're calling California agave spirits.

4:24 You also make the.

4:24 Point in your story about kind of some of the other forces hitting the wine market, including water and droughts, but also and the declining taste for wine, I guess. It seems like there's a lot of pressure on that land. That's expensive land, that farmland. And you make the point that vineyards are being kind of taken out as well.

4:45 Is that part of the story?

4:46 Do you think is Agave going to step in for all of this land or other things?

4:51 I mean, that remains to be seen. So like we're just starting to see. So to address your first point about the sort of environmental impact. So like, yes, there is this sort of structural business side of things. It's like people don't want as much wine as they used to. But at the same time, growing wine is also as hard as it's ever been. So in California, obviously, it's well documented the sort of problems they have with water availability.

5:11 Agave uses, I think, if I'm remembering correctly, two inches of water per year. So this is a plant that can just basically sustain on just natural rainfall, whereas grapes, I think it's 60 inches per year, which requires you to irrigate and have water supplies. But California as a state has been cutting back on the amount of water that you can use. There's a real nuts and bolts solution.

5:32 I can just plant agave. It pretty much just sustains itself. It's native to the region and everything like that, too. It's a very robust plant as well. It doesn't take as much labor. Labor costs in California have, I think, tripled or something along those lines in recent times. It takes a lot of boxes for these people when it comes to actually just growing it. I'm forgetting the second part of your question.

5:54 Is there other pressure on the land? Are we seeing other... vineyards being turned into other things as well as agave farms.

6:01 Yeah.

6:01 I mean, so I think that people are doing a lot of different things. So like, I think, um, the, one of the main characters of the story is Stuart Wolf. So he told me, he was telling me about how he's, um, leasing some of his land for, for solar panels.

6:10 Right.

6:10 So like, he doesn't just grow, he doesn't really grow grapes or anything like that. He's doing like pistachios and, you know, typical like California agriculture that we think of like tomatoes, things like that. So he's shifted some of that to areas that have more water, but also solar panels is another option. But he was also facing the prospect of just like just like doing nothing on this land, right?

6:29 Just like leaving it dormant. So agave is a great option for people like that to kind of put in and make a cheap potential market.

6:36 Stay with us.

6:37 More from Bloomberg Intelligence coming up after this. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

6:58 All right.

6:58 Well, it may be a sleepy trading day, but certainly tech news is not stopping at all.

7:05 Absolutely.

7:06 I feel like it's a continuous flurry. And this year and really more recently past years, All the attention's been on tech in this market.

7:14 It's been driving the economy, it's been driving the markets, and we are all now focused on tech news. Here to help us break down what is happening right now is Mandeep Singh, Global Tech Research Head at Bloomberg Intelligence.

7:26 Welcome, Mandeep. And we should probably quickly say who we are.

7:29 Oh, yes.

7:30 I am Stacey Penick-Smith.

7:31 This is Bloomberg Intelligence. I'm Nora Melinda. And we're in for Paul. Are you Paul or am I Scarlett? Or am I Scarlett, you're Paul? You're in Scarlett's chair.

7:41 I am in Paul's chair, although I am sitting down, which is not what Paul would ever do.

7:45 This is true.

7:46 He's a standing desk only man.

7:47 He loves to stand. That's true.

7:49 Thank you, Nora, for your kindness and walking me through this day.

7:53 All right, Mandeep.

7:55 Welcome, and thank you for joining us.

7:58 Sure.

7:59 What are you watching right now in terms of tech news? Looking at the sector right now, we are on the cusp of yet another earnings season. What are you watching for?

8:07 I mean, we have so much news around data center financing, and even just today, Hawk Tan talked about how he thinks some investors are putting money in AI without realizing.

8:22 What the.

8:24 Long term is going to look like. So there is a lot going on in terms of Microsoft launching its own chips or, you know, Amazon looking to buy these companies. But overall, it sounds like everyone is still quite optimistic about, you know, the AI spend, what they're seeing in terms of use cases. So the numbers when it comes to the hyperscalers would be key around, you in cloud growth.

8:53 And I think that for me is a good validation that companies are seeing ROI when it comes to this huge CapEx. And a lot of this CapEx is coming from the hyperscalers. So you want to make sure that you're seeing that acceleration in their top line.

9:11 Do you feel like, I mean, I know there have been both at the same time worries about a glut of chips coming onto the market potentially, but also a constraint because of data centers. How do you see those issues playing out over 2027? Or do you think that they're going to be issues?

9:27 I mean, overall, token spend continues to be quite robust. So I think there are two things at play. One is the token pricing is coming down. But then when it comes to GPU rental prices and some of the other data points, they are quite healthy. So Net-net, we are still in that supply-demand mismatch where demand exceeds supply for data center capacity, and everyone talks about ramping up their CapEx for 2027. We would wait for that sort of guidance. when companies report their 3Q numbers. But I think from all the signs that we have seen so far, everyone is looking to lock as much capacity as they can.

10:11 So we're still in that supply-constrained environment.

10:15 I wanted to take a quick look at Microsoft.

10:17 There's a story out in the Bloomberg terminal that Microsoft is preparing to put gigawatts of its chips in data centers. And I'm just curious more broadly, the fact that it wants to deploy its own chips at a gigawatt scale next year and they're.

10:29 Called, is it Maya? Is that how you pronounce it?

10:31 Okay.

10:32 Maya chips.

10:33 How meaningful is this in terms of a potential threat to the likes of NVIDIA?

10:38 I mean, look, for all these hyperscalers, what Google has done in terms of vertical integration is the playbook to emulate. And, you know, Google is now in its eighth version of, you know, their TPUs, ninth version. And now they have split training versus inferencing chips. So for Microsoft or Meta, all these companies are still way behind when it comes to incorporating their own chips in the tech stack. But the risk of not doing anything is they become too dependent on Nvidia, you know, as years go by. And clearly the CapEx numbers seem to be growing at this point of time. So for me, this is more about staying in the game that they can make their own chips.

11:24 They're not going to meaningfully replace their Nvidia chips anytime soon. But it's like if they're not... do anything about it now, then basically they'll be reliant on NVIDIA for the foreseeable future. So they have to keep making their own chips just to make sure that they are making incremental progress, but they're nowhere close to where Google is at with its TPUs or where NVIDIA is at.

11:48 This is such an interesting time because I feel like, as you mentioned earlier, the technology is really still unfolding. We don't know all the areas that it's going to change, disrupt or alter forever. Given that, how do you see, do you think that some of these stocks are overvalued? I think that's the great fear in the markets right now, that the earnings will come in at some point and they won't match up or demand will fall. How concerned are you about that?

12:15 I mean, we are talking about publicly traded names here, right?

12:18 Yeah, yeah.

12:19 So in the private market, obviously, there was a scale around OpenAI's numbers, you know, whether it's 70 billion or 50 billion. But when it comes to, you know, the largest hyperscalers, These companies obviously are stepping up their capex. It's going beyond their operating cash flows. But they have very healthy underlying businesses that support that cash flow. So if they're able to show their top line growth accelerate because of AI workloads... I think that will calm down a lot of the fears around CapEx. Again, these are the, you know, trillion dollar companies that are doing the CapEx, so with very healthy businesses. And I think that's where, in terms of the current publicly traded names, the hyperscalers,

13:10 we're still good. But obviously, once OpenAnthropic are public, then we'll be having a different conversation here.

13:16 All right, Mandeep, thank you. Mandeep Singh is Global Tech Research Head at Bloomberg Intelligence. And thanks so much.

13:23 Stay with us. More from Bloomberg Intelligence coming up after this.

13:30 You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

13:45 Well, you know, we've been focusing so much on tech.

13:47 And earlier in the program, we were talking about software stocks.

13:51 Yes.

13:52 Adobe, Salesforce, keeping an eye on both of those. We did see Adobe being double downgraded at Wells Fargo. And essentially, they're talking about cracks to.

14:01 Its growth story.

14:02 And software is really a space that we've really been monitoring for quite some time as we continue to see how the trade goes. And we're joined by Neeraj Patel, and he is Bloomberg Intelligence Senior Software Analyst. So he knows everything that's going on in that space. But we also want to talk a little bit about AI agents because this has also been something that's super topical as of late. Neeraj, when we say AI agents, though, what exactly are we talking about? And how is that different from when, you know, thinking about ChatGPT that people use today?

14:32 Explain to us what this is and why we should care right now.

14:37 Yeah, Nora, this is an interesting point. And we're transitioning from the simple prompt approach. and answer co-pilots, chat GPT type of interaction to more of persistent agents. And they're going to take on responsibility in the enterprise, monitor your work, decide and act, and proceed on your next set of tasks.

14:58 And that's the movement that's occurring. And how you get there is really having broad implications on the architecture. Typically in the past, you had a user interact with an application and you got the work or process completed. Now you have a user interface that is being debated. And this is a big challenge for application software. which is why you had mentioned Adobe and Salesforce. They're trying to reinvent that audience capture. And once you move from the user interface, then we're looking at a harness, which is wrapped around the model, which is controlling a lot of the issues that are surfacing today in terms of security, guardrails, permissions, context management, before you get to the enterprise data, and

15:42 then you process a business action. So you're having the whole process being consumed by AI agents.

15:49 I feel like when the conversation around jobs and AI comes up, mostly the idea is that my company is going to replace me with an AI, and less so about whole companies that could potentially be replaced by AI. How big of a conversation is that in the software industry right now?

16:09 Yeah, Stacey, this is interesting in terms of Is your job going to be safe with AI in the background? And how much is AI going to take scope of employee workers? So right now, we're not in the, our company is going to exist, but you can see the disruption, the software apocalypse that occurred in the first half of the year. Now we've proceeded to more of a differentiation.

16:32 Who has some staying power? Who has a system of record that's going to be accessed by these agents? and whose utilization is going to increase versus who's going to be disrupted by not just data and access, by actually going through a workflow. If you can actually commit payroll through ChatGPT or at the developer day at OpenAI, they showed how plugins are natively surfacing applications as simply as looking at weekly average user trends across this campaign. And three applications that were permitted popped up and surfaced. So that does not permit the application coming in. That disruption to companies, that's still ahead of us, I think.

17:14 Neeraj, you bring up an interesting question in your research.

17:16 Does the AI agent live inside the application or does the application eventually live inside the agent?

17:22 What does this mean for the future? Existential questions. What does this mean for the future of software?

17:30 Yeah, that's a contention point right now. It depends who is controlling the harness today. If the LLM providers, Anthropic, OpenEye, Google's Gemini, if they're controlling this point of entry with their user interface, they're going to be the beneficiaries. Apps get pushed to the back end, just database access. Provide us the information that you're storing, and the agents will take care of the rest. If the SaaS-controlled players like Salesforce, AgentForce, or HubSpot Breeze or SAP Joule. These platforms are trying to incorporate that scope of the harness. They're trying to do the context management, security permissioning, as we mentioned, and they can move beyond being the backend, being more of

18:14 the user interface and interaction. As you trace an agent through this business process, they can give you some of that feedback and intelligence. Is the agent working properly, efficiently, using fewer tokens? All that type of workflow information. So, It's still up in play, I would say, so to be continued.

18:35 What are you watching for for the rest of this year?

18:38 Are there any sort of signs that you're looking to to tell us which direction we might be heading in?

18:44 Yeah, I think some of the initiatives out of OpenAI DevStay, the agent API, we're going to watch that and see how developer downloads accrue on a monthly basis. That is their harness introduction from Codex. So they made that publicly available. Dots, their kind of business agent, which is going to move you from just a prompt action to this persistent worker agent.

19:07 in the enterprise. So we want to see what that take-up is. And that's going to be like your personal assistant that's going to do your PowerPoint, your Excel, your scheduling, and a lot of tasks, maybe even expense report submission. So we're going to see some of these new initiatives that got released by OpenAI over the last month, see how that takes off.

19:26 This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.