Deep Dive: Meta Pays Up For Scale AI

Meta Platforms has made at $14.3 billion investment in Scale AI and recruited the startup’s chief executive officer to join its artificial intelligence efforts. That investment represents at 49% stake in Scale AI and a 3x premium to recent industry deals.  

For more on the deal, Paul Sweeney and Alix Steel speak with Bloomberg Intelligence Senior Analyst Mandeep Singh.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news, The Stock Movers podcast,
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Speaker 2 (00:17):
Alex Steele, Paul Sweeney. I think we're all used to
the crazy numbers being thrown around a big tech in AI.
But how about this one. Meta pays fourteen point three
billion dollars for a forty nine percent stake in a
company called Scale AI. That seems like a big number
to me. Then I read man Deep Singh's research note
and it's fifteen times enterprise value to sales. Fifteen times

(00:40):
sales even for like AI tech. That seems crazy to me.
So we hauled in Mandeep Sing here to defend this
thing or explain it to us. Mandeep Sing's senior technology
analys for Bloomberg Intelligence, Mandep, I'm looking at your research.
That's a big valuation for a big company like Meta
to I guess scale up in AI. Is that what
they're doing?

Speaker 3 (00:58):
Yeah, and they have a president. If you remember, they
bought Instagram and WhatsApp back in the day, and if
you look at the multiples, that seem rich at that time.
But look, I think in this case, Clearly they have
made all the right moves when it comes to Capex,
it's comparable to the Microsoft and the Googles of the world.

(01:21):
But they've open source their model. It's just that when
it comes to the usability, that's where they've been lacking,
the likes of open AI and Tropic and Google. And
I think Mark Zuckerberg is trying to fix that by
acquiring this data company. I mean, there's a lot of
skepticism whether the data alone is the answer to catching

(01:45):
up to the opening eyes of the world, but clearly
that's now.

Speaker 2 (01:49):
I noticed being a former banker that they didn't buy
the whole thing, and they didn't buy a controlling stake.
Is this to get around government regulatory oversight, which kind
of they can't buy anything control of anything.

Speaker 3 (02:02):
Yes, and the president here is what happened a year
back with the other three hyperscalers. So Microsoft bought this
company Inflection AI, brought over the founder Moustafa Solomon. Google
had an investment in this company, Character Ai. They brought
over the founder Noam Shazir, and Amazon did something similar.

(02:24):
So in all three cases it wasn't an outright acquisition,
but an investment with a forty nine percent stake and
getting over the co founder, so that playbook is pretty
well established at this point. Is this a defense or
offensive play I mean it's defense because Meta has invested,
you know, seventy billion dollars in Capex just this year

(02:48):
on Open ai on their AI investment the data centers,
so it's comparable to your Open ai and in Tropic
and Google. But it's just that their models are not
as heavily used as some of the other names, and
that's where you know they are just trailing and engagement.
I mean, they have the surface area. Think about it.

(03:09):
They get almost three billion users to come on their
family of apps, you know, Instagram, WhatsApp, and the Core
Blue app. They can deploy their AI, which they have
done on WhatsApp, but it's just not used. So open
aiy is right now used by their daily active users
for twenty nine minutes every day. Think of how much

(03:31):
Meta EI is used, not even a minute, right, So
that just goes to show the usage here.

Speaker 2 (03:36):
All right, you mentioned WhatsApp. I got to ask you
this because this was back in my days covering the
stock when they bought WhatsApp. He said, ah, they can
monetize it at some point in the future. That was
like ten years ago. Dude, It's they're just now putting
advertising and thinking about subscription type situation. Is this Meta
actually finally trying to monetize WhatsApp?

Speaker 3 (03:57):
Yes, And look, messaging is I mean think about Apple.
I message can't really show an AD if you're saying
your messages are encrypted, you can't really show a targeted
ad there. So it's very different from your social media feed.
At the same time, Meta does have a ten billion
dollar existing business even before this launch on the update

(04:20):
page or the update tab where click to messaging ads,
so they would show you an ad on their messenger
or even your Facebook feed with a click to WhatsApp,
and they charge you for that. So a lot of
small businesses do use that click to messaging ad, which
is outside of WhatsApp, to bring people to WhatsApp and

(04:43):
solve for their customer service use.

Speaker 1 (04:44):
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