This is an audio transcript of the FT News Briefing podcast episode: ‘Big Tech investors question AI pay-off’
Kasia Broussalian
Good morning from the Financial Times. Today is Monday, April 29th and this is your FT News Briefing.
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European banks still in Russia are helping keep the Kremlin afloat. And after a wild week in tech earnings, investors are wondering when AI will make money. Plus, the new US ban on non-compete agreements has sent Wall Street scrambling.
Brooke Masters
Going forward from August, if the rule goes into effect as planned, it affects everybody.
Kasia Broussalian
I’m Kasia Broussalian and here’s the news you need to start your day.
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The biggest western banks still in Russia paid the Kremlin over €800mn in taxes last year. That’s four times the amount of money they paid before the country’s full-scale invasion of Ukraine. The lenders include Raiffeisen Bank International, UniCredit and ING among others. And the windfall for the Kremlin came despite promises to limit their Russian exposure. Now, it’s not easy for these banks to leave the country. For one, they need approval from President Vladimir Putin. But they’ve also benefited from staying. The taxes they’ve paid is an example of how foreign companies still inside Russia are helping the country maintain financial stability, even in the face of western sanctions.
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All the hype around artificial intelligence this year has been a huge boon for US tech stocks. But there’s a big question lingering over companies like Microsoft, Meta and Alphabet. When will their multibillion-dollar investment into AI actually translate into a meaningful boost to profits? Here to talk to me about that is the FT’s Richard Waters. Hey, Richard.
Richard Waters
Hi. Hello. Good to talk to you.
Kasia Broussalian
Likewise. So, Richard, when it came to tech earnings last week, we had a little bit of a split screen. You know, on the one hand, investors were really happy with Microsoft and Alphabet. But then not so much from Meta. Why was there this difference for Facebook’s parent company.
Richard Waters
So Wall Street is finally starting to look more closely at trying to distinguish which of these tech companies are really gonna see the benefits in the short term from AI, and which ones are more on a promise. And I think we saw that very starkly indeed last week. Meta is promising something from AI, but not promising when they’re gonna make money. I think it was quite striking to hear Mark Zuckerberg say, we’re no longer just a social network. We’re an AI company. We’re gonna create all kinds of services around AI that you don’t even imagine yet. And it’s going to create a huge new wave of growth for Facebook and Instagram and all the other networks and (inaudible). But he didn’t say when the money was gonna come through. He just said, trust us. And Wall Street wasn’t really in a mood to hear that message.
Kasia Broussalian
OK, so that’s the message from Meta. But what about Microsoft and then Google’s parent company, Alphabet? Do we know whether AI is helping them make any money?
Richard Waters
So there’s very little hard evidence. The one fact that I think a lot of the market is clinging to at the moment is that Microsoft is getting a number. Microsoft’s number is that its cloud services division, Azure, created about 7 per cent of growth just from AI. And this is really because Microsoft deal with OpenAI put it out in front of the rest of the market. It’s had a technology that a lot of its customers are starting to use as they’re testing them inside Microsoft Cloud. And so Microsoft has turned around and said, look, you know, the seven points of growth just from that, that’s a real hard number. But elsewhere we haven’t seen real numbers. I think, you know, the enthusiasm around Google wasn’t so much around AI because we’re not seeing that generate money yet. It’s really the rest of Google is just doing so tremendously well.
Kasia Broussalian
Yeah. And just to take a step back for a moment, why hasn’t AI turned a significant profit yet for these companies?
Richard Waters
When we talk about AI, everybody’s generally meaning generative AI. I mean, one distinction is that they use a lot of AI already, and Google is already an AI company in many ways. But the generative AI stuff is still at a very early stage. So it’s less than 18 months since ChatGPT hit the scene and completely turned everybody’s heads. And this isn’t an easy technology to use. People haven’t experienced a computer technology before that makes mistakes, that hallucinates, as they say in the AI industry. It’s probabilistic. And that is a powerful technology. But it’s a hard thing to build into your working practices.
Kasia Broussalian
OK, so you’re saying maybe we’re just being a little bit impatient, but investors, you know, I’m assuming they’re not really known for their patience. So did we get a sense of a timeline last week about when AI could potentially start making real money for these companies?
Richard Waters
That’s the really big question. Nobody wants to put a hard date on any of this. What we’re seeing is a lot of pilot services that are coming through, with companies starting to test and trying to work out what they can do with this new generative AI. But the gap between pilots and when this will become a widely used technology might be a big one. I mean, we can see from what happened to Meta last week that patience is gonna start to run thin. You know, I think come later this year, going into next year, they’re not seeing some real results from AI think, you know, we’re gonna start to see a difference.
Kasia Broussalian
Richard Waters is the FT’s tech writer at large. Thanks, Richard.
Richard Waters
Yeah. Good to talk to you.
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Kasia Broussalian
Turkey is talking with the US energy super major ExxonMobil about a multibillion-dollar deal to buy liquefied natural gas or LNG. Ankara imports nearly all of its natural gas, and a lot of it comes from Russia. But with long-term contracts expiring next year, Turkey now wants to diversify its energy portfolio. If the deal goes through, the LNG from Exxon would cover about 7 per cent of the country’s natural gas consumption. That’s according to calculations based on data from last year. From Exxon’s perspective, it has big plans to expand its LNG portfolio. The company wants to double output from 2020 levels by the year 2030.
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The new US ban on non-competes is sending shockwaves through Wall Street. The financial sector loves these agreements because they stop someone from working for a competitor for a set amount of time and eliminating them could really shake up hiring in the industry. The FT’s Brooke Masters is here to talk to me about it. Hey, Brooke.
Brooke Masters
Hi.
Kasia Broussalian
So tell me, who exactly is covered under this ban?
Brooke Masters
Pretty much everybody on Wall Street. Even though there’s an exemption for people who make more than about $160,000, they have to be in a policymaking position, which is something like a senior executive. And everybody assumes that most banks, hedge funds, private equity firms are not gonna want to declare that their everyday traders and portfolio managers are senior executives. But that carve-out is only valid for existing contracts going forward from August. If the rule goes into effect as planned, it affects everybody.
Kasia Broussalian
And tell me, what was the Federal Trade Commission’s argument for putting forward this rule in the first place?
Brooke Masters
The idea is that non-competes prevents employees from negotiating fair labour contracts, that it artificially forces people to stay with their old employer and depresses wages, and means that nasty employers and poorly paying employers can sort of basically keep people in servitude.
Kasia Broussalian
Wow. So this ban then could really end up helping a lot of workers. But what about employers? What are some of the reactions you’ve gotten from people on Wall Street about this?
Brooke Masters
This is a big deal because basically anybody who’s got access to proprietary information — so say trading strategies or client lists or even knows what, you know, a client is gonna be trying to buy if they’re an M&A banker — has a non-compete written into their employment contract. Gardening leave — which is the idea that for some period of time after you leave your old employer, you have to like sit on the sidelines and garden — is a standard part of Wall Street life. And this would, at least on the surface, completely eliminate that unless contracts are rewritten.
Kasia Broussalian
OK, so financial companies clearly are not super keen on these new rules. How are they trying to work around them?
Brooke Masters
Well, I think the first thing to note is that the US Chamber of Commerce, which represents all businesses but including Wall Street, is suing to stop it. So if they do that, the rule goes away and then that solves problems. Otherwise, they are renegotiating contracts, that instead of having a non-compete where you have to sit on the sidelines for six months, you could instead say have an incredibly long notice period. And then what they could do is sit you on the sidelines and pay you. The other thing that the big impact this is gonna have is the FTC says you can’t take back people’s deferred bonuses because they go to a competitor. So right now, if you work for a big bank and you get paid $1mn bonus, you’ll get some the first year and then it gets spread out over four years. And what the banks do is say if you go to a competitor, you lose, you know, years two, three and four. The FTC says that’s not OK anymore. That’s gonna change the way people view jumping to a new competitor.
Kasia Broussalian
Yeah. And that kind of gets at something that I’ve been wondering about, which is what are the wider implications of this rule on how the financial sector will end up operating and hiring people?
Brooke Masters
Headhunters say they think it will free up employees to move more easily, and it will probably lead to more consolidation of the good and best people at places that can pay better and offer better working conditions. And that places that have historically treated people badly or underpaid will find it harder to hang on to their really good employees.
Kasia Broussalian
Brooke Masters is the FT’s US financial editor. Thanks, Brooke.
Brooke Masters
Thanks for having me.
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Kasia Broussalian
You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.
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