The CEO of Yum Brands talks Taco Bell and KFC. A Barclays strategist looks at the coming humanoid economy. And Jack …
Transcript
We estimate about 15,000 humanoid robots were deployed in realworld jobs compared back to 2024 when we just saw a couple of hundred. >> The four things that Taco Bell does, they have a an incredibly buzzy and culturally relevant brand. Second, they have the most cravable menu in the industry. >> Hello and welcome to the Baron Street Wise podcast. I'm Jack How and the voice you just heard, well, voice says, the first was Zornita Todorova. She leads thematic research at Barclays and she has a fascinating report out on what she calls the trillion dollar robot economy. And Chris Turner is the fairly new CEO of Yum Brands. That includes Taco Bell and KFC and for the moment, Pizza Hut. Taco Bell had 7% same store sales growth last quarter. It's growing like a young chain. In a moment, we'll hear about why. What do robots and tacos have to do with each other? Nothing that I can think of. I enjoy awkward topic transitions. If you didn't know that about me before, now you know. I'll also say just a few words about Nvidia's biggest event of the year coming up in the week ahead. Listening in is our audio producer Jackson Cantrell. Hi Jackson. >> Hey Jack. >> We spoke last week in this podcast about the war in Iran and the price of oil and the potential effect in the stock market. If you're wondering why we're talking about AI and not Iran, you can go back and listen to that episode. If you were wondering then why we were talking about Iran and not AI, well, I'll touch on it in a moment. And if you've been crying out for taco coverage, you're in for a treat. [laughter] >> Everyone gets what they want. >> Jackson, do you watch uh you know how people used to tune in like it was a TV show to watch Steve Jobs and the and the yearly presentation of Apple's new gadgets? There was a while there, right? There was a big show. >> Oh, yeah. >> Do you watch Nvidia's Jensen Wong that way? >> Uh I I can't say I do. I just I know he wears a leather jacket. >> He does. Yeah. It's like a It's a biker jacket. It's a good look. I wrote in Baron's uh this past week, if he goes full trench coat like Neo from the Matrix, it's probably a sign to take profits, but we'll [laughter] see. >> Yeah, I I think the problem with Apple is now they do like four or five of them every year and I can't figure out like what's the real one and and it seems like every iPhone kind of like the same as last year. >> I haven't watched the Apple ones in years. I mean, I I don't watch them like I used to. It doesn't seem that exciting. the Nvidia ones, it's not quite like a gadget you can hold in your hand and see. You just have, it's kind of like chip architecture. So, you got to be, I think, that kind of person or have that kind of interest to really get into it. Let me touch on just a few things to expect or look out for in the Nvidia presentation. First of all, it's called GTC. It's a weird name, I think, because GTC is an acronym that stands for GPU technology conference. But that has an acronym in it. It's like a It's like one of those Russian dolls of acronyms inside acronyms. And GPU stands for graphics processing unit. And that's a weird name for a conference that's really all about artificial intelligence, but it does make sense. I'll explain why. The View on Wall Street, and it's a nearly unanimous view. Of the 70 analysts who cover Nvidia stock, 93% say to buy it. And the average price target implies 45% upside for the stock. So just about everyone is aligned on this. They say that Nvidia's stock price is depressed. But also, if you look at it, it's up 22,000% in a decade. And it's weird to talk about something that's up 22,000% as being depressed. We've talked about some weakness for AI stocks, but let's not overstate the case for Nvidia. There was one point in early February where it was down 8% for this year. More recently, it was down only 1%. It's not so much that the stock has sold off. It's really that these rip roaring price gains have just paused for a little while. But meanwhile, the free cash flow for the company's current fiscal year, which runs through next January, that's expected to increase by 85% to $178 billion. I have to tell you a few things, several things really about those numbers. I know sometimes numbers that big just kind of wash over us. $178 billion sounds good. Let me tell you how good it is. First of all, that growth rate would represent an acceleration from last year's growth. Nvidia is growing faster, not slower. Second, the $178 billion. If you look at the low estimate and the high estimate, the difference is $98 billion. That suggests an enormous amount of uncertainty. But also, the overall consensus has been rising for months. So, forecasters are sweetening their math as new evidence comes in. new evidence like Nvidia's late February quarterly report. Okay, let's talk about just how much money that is. Back in 2022 when Russia invaded Ukraine, the oil price spiked kind of like it has recently. That year, Saudi Aramco, that's the oil monopoly of Saudi Arabia. It generated close to $150 billion in free cash. That's still a record. This year, Aramco won't likely come close to that figure, partly because the Iran war has complicated its path to market. So, if Nvidia meets the consensus, it will become the most prosperous company ever. And yes, that does include the monopolies of antiquity like Standard Oil or Dutch East India if we adjust for inflation. In fact, those are nowhere close. And if you believe the estimates, that record, $178 billion, won't last for long because next year, Nvidia is expected to smash through it, hitting $233 billion. Where is all this money coming from? I'll give you an example. Amazon this year is expected to burn $10 billion in cash. That's totally by choice. Up until 2023, for the few years leading up to that, Amazon was investing somewhere between 50 and 60 billion a year. It was building out its logistics network and spending on cloud computing. But this year's spending is pegged not at 50 to 60 billion, but at 190 billion and the increase has everything to do with AI infrastructure, including Nvidia chips. So, a big part of the debate around Nvidia stock involves how long Amazon and others will continue to spend so much. Barkclays this past week predicted that industrywide capex will peak in 2028 at about a trillion dollars and as it puts it come down modestly thereafter. It says that consensus 2028 estimates for hyperscalers like Amazon are too low by a combined $300 billion. So, you can start to see why these Wall Street banks argue that Nvidia is too cheap. If we're looking at profits rather than free cash flow, the story is very similar, but investors like to look at price earnings ratios. Okay, Nvidia trades at 17 times its next fiscal year's projected earnings. And that's a discount to the S&P 500. So, why is Nvidia trading at a discount if the growth is so fierce? That's the bull case. The bare case, I suppose, or maybe it's cautious case on the part of investors. They've just never seen numbers like this. They wonder if Nvidia can really hit these targets. They wonder if this level of spending is sustainable. So, that's what they'll be looking to gather clues about at GTC in the coming week. They'll want to know about the supply outlook for critical components, things like wafers and memory and optics. They'll want to hear about the effect of the Iran war on power costs and on demand from sovereign customers, but mostly they'll want details on future products. I should do some light stretching here, Jackson, because I'm about to get into the subject of AI computing, which is a little heavy. I think I got this. >> Just say Jevon's paradox a couple of times and you'll sound smart. >> Are you pronouncing that right? >> Javon. Is that a brand of acid wash jeans from the 80s? I think I owned a pair back during my sinbad look. [laughter and gasps] >> We should have AI spin that up and that'll be the new cover of this podcast. [laughter] >> So AI chip spending in recent years has focused on building and optimizing models and that's called training. In coming years, it's going to shift more towards putting those models to work and making money from them. And that's called inference. Training favors highly parallel processing. It's a lot like the processing used to render video game graphics, which explain why Nvidia, a company whose chips [music] powered 3D shoot them ups like Unreal Tournament back in 1999, came to dominate AI profits. It's why the name of that conference has an acronym that stands for another acronym that stands for graphics in part. So as recently as 2019, CPUs, central processing units, those are the chips that like Intel is best known for. Those made up the overwhelming majority of data center compute spending, 87%. GPUs, the graphics chips used now for AI along with other AI accelerators, those made up just 13%. That was 2019. Now that has totally flipped. Last year, the AI chips accounted for 88% of compute spending at data centers. When you're doing AI training and building your models, cost is kind of an afterthought. But when it comes to inference, you want to get your business model working, and cost there is key. And the computing needs for inference are more mixed than they are for training. Basically, when you type a question into your favorite AI chatbot, it turns it into tokens representing words or parts of words or punctuation and it processes all of those tokens at once. That's a step called preill and it favors the highly parallel computing of GPUs. But the answers come a token at a time. It's a little like speaking where each word builds on the last. That step is called decode. And CPUs can excel at that kind of sequential computing. That's one reason they're becoming more important in AI. But what you'd really like to have are purpose-built chips that can handle decode cheaply and efficiently without, for example, the need for pricey offchip memory. There's a privately held company called Gro that specializes in just such chips called LPUs or language processing units. And last year, Nvidia paid about $20 billion to license Grock's technology and acquire its talent. So, in the week ahead, look for Nvidia to discuss how Grock LPUs will help Nvidia broaden and customize its future chip portfolio to address training and prefill and decode. That could help the company hold market share with hyperscalers that can produce their own chips. UBS is bullish on Nvidia stock. It calls a breakout of the stock based on some thesis altering commentary at GTC hard to see. But it also calls the contrast between its rapturous Nvidia earnings estimates and the stock's discount valuation quote seemingly unsustainable. GTC will kick off on Monday with a keynote address by Nvidia co-founder Jensen Wong. He of course has been on the podcast. Is there a statute of limitations that runs out uh in the amount of time I can mention that Jackson or I could just keep saying it forever? [gasps] >> I think you could say it forever. >> Maybe Jensen's address will shed some light on whether Wall Street has it right that investors are too cautious or investors have it right that it's time for a pause. And it's not time for a pause here because we're going to talk about which is it Jackson tacos or robots? Robots first, right? >> It's robots first. I'm looking at this Nvidia uh lineup for Yeah. Is it Wednesday, Thursday? >> March 16th. >> It's agenda. The agenda. Yes. I'm looking at the >> What's catching your eye? >> I'm just realizing how out of my depth I am here. I don't understand any of this. There's >> the release of the Neotron 3 Super Hyma Transformer agents. >> Yes. Wear your safety goggles for that one. Uh, this one's about Nvidia GeForce RTX, which powers the world's fastest GPUs and enjoys beautiful ray tracing AI powered DLSS in your own living room. >> That's actually, you're going to think I'm making this up. It's a foot massager. It's a really high-end foot massager. >> Let's get to my recent conversations. And you know what? Let's go tacos first. Let's get crazy. All right, we can do that. >> Yum Brands, they have a new CEO since last year, Chris Turner. This is not a turnaround CEO. This is a company that's doing well. >> You You don't hire Chris Turner if you want to do a a turnaround. [laughter] >> It's too on the nose. Yeah, it's a good point. It's probably in his contract. >> I wanted to know a few things about Yum. Why is Taco Bell suddenly doing so well in the US? I remember this chain from when I was a young man. This is a place you could get stuffed for like two or three bucks. It's popular today with young people and I'm not sure that's the reason. I wanted to hear about that. I wanted to hear about KFC's growth overseas and Yum is exploring its options for Pizza Hut. This is at a time when a couple of Wall Street banks have recently sounded some very bullish notes on Domino's. So, I just wonder what's happening with Pizza Hut. Let's get to our conversation. Let's talk tacos to start. Taco Bell. This was I'm a 53 year old man. When I was in college, this is a place where you could get stuff for 59 cents on their value menu. So you could walk in the door with $2 in your pocket and get full if you had $3 you could get stuffed. But I the other day my teenage daughter asked me, she wants to go to Taco Bell. She's a Chipotle regular and and and lately I hear she's interested in Taco Bell. How do you make this brand relevant to young people today? How is she hearing about you? I think Taco Bell does four things incredibly well and that's why they're winning. Last year they had 7% same store sales growth in the US on the fullear basis. That's many points ahead of the category. They took a lot of share. >> That's like a young chain. That's not like a however many decades old chain. >> It is. But the four things that Taco Bell does, they have a an incredibly buzzy and culturally relevant brand through our marketing. Second, they have the most cravable menu in the industry. You and I crave those classic favorites. We have an incredible catalog of favorites we can bring back, but we are also always bringing new innovation to market. Third, we have the most convenient experience in QSR. Taco Bell, it's an easy experience through the drive-thru or to get delivered or to pick up in the restaurant. And then fourth, always Taco Bell stands for value. And you can get incredible value whether it's in one of our Lux cravings meals or on the Lux value menu. She's definitely not going for the value cuz I'm paying. You run a franchise model and you have people out there who who run your Taco Bell locations for you and you collect royalties. What's the the pitch for someone who comes to you comes to talk to you interested in that? What do the economics look like for them? What does that job look like? Why is someone eager to become a uh a Taco Bell entrepreneur? >> The Taco Bell um economics are tremendous. If you look at the company restaurants that we operate, the operating profit on those company-owned Taco Bells, uh is in the 24% range. So, just tremendous profitability while delivering that value to consumers. For our franchise partners, they do an excellent job. Of course, they're they deploy their capital to build these restaurants. They've gotten strong returns over the years, and of course, they're aligned with us on continuing to drive growth in the system. It's a very logical plan where we're adding more and more use occasions for consumers uh to connect with us. So, a consumer who's looking for a little more elevated product, for example, could buy the cantina chicken product, which is a tremendous set of items that we have that have an elevated slow roasted chicken product, more vegetables. If consumers want to buy more beverages from us, that's a big growth area in the restaurant space right now. We have expanded our beverage lineup in restaurants to include things like refrescas. We've also launched Live Moss Cafe. We now have more than 30 LM moss cafes open and that's where we renovate the front of house to provide a bar where we can do customized crafted beverages for our consumers. So lots of growth plans ahead for us and our franchise partners to continue to build this business. Tell me now about chicken about about KFC. I understand this is a this is a fast grower overseas. Tell me what the trajectory is there, how you're growing there, and also touch on as an American when I hear about companies that are expanding in China, I always think to myself, sometimes we have trade tensions, political tensions, so forth. How does a a company that's expanding in China stay safe from those kind of things? Yeah. If you think about the KFC uh business, it's our largest brand. Almost 90% of the business is outside the US. And so it is an incredibly global business, operates in more than 150 markets, and KFC is known for unit development. So opening new restaurants. I always say that if you're a consumer on the planet, you're not a vegetarian, you've probably had fried chicken and you probably loved it. And of course, KFC has the best fried chicken in the business. And the brand is so extensible in in any market around the globe. In fact, we open a new KFC somewhere in the world every 3 hours. The China business is a big uh part of KFC. We have a tremendous business there. It's been growing for many years. Back in 2016, Yum had a change to its business model. We call it the Yum transformation. A big part of that was spinning the China business out. Yum used to own many of those restaurants in China. We spun that out to be its own standalone company called Yamchina, listed on the New York Stock Exchange. They are our largest partner. We collect a royalty. It's one of the lowest royalty rates in the world there. So, we still have exposure to that market and exposure to the tremendous growth there, but there's now an amazing leadership team at Yum China that drives that business. They have tremendous focus on it and they of course are focused on continuing to drive growth in that vibrant market. You're exploring your options for Pizza Hut. What are your thoughts about Pizza Hut and why are you looking at these different choices for what to do with it? The Pizza Hut brand is a wonderful brand. I love the Pizza Hut brand. My I'm married to my high school sweetheart. We had our first date in a Pizza Hut restaurant back in the early '9s. So, I have a long connection to the Pizza Hut brand. The reason we're exploring Strategic Options is because it has been growing more slowly than the rest of the portfolio. We think it needs to be put on a different trajectory. Part of that will be exploring, hey, would it be better for some of that work to be done outside of YAM with another capital partner. There may be elements of the transformation plan that are better done outside of the the public spotlight, but it's all in the interest of what's right for the brand, what's right for our franchise partners, and what's right for Yum shareholders. Whenever I talk with a food CEO, I'm always on the lookout for these weight loss meds, the shots that people are taking and they and they and they don't feel as hungry and they don't eat as much. Do you folks talk about that? Is that relevant for you or or it's just not a factor at this point? >> You know, anything that is affecting consumers is relevant for us. In fact, about a decade ago, Yum acquired a company called Collider. We still keep it separate rated a bit inside of Yum, but it is a consumer insights engine. A team of experts there who are constantly staying in touch with the consumer. Anytime we see something on the horizon that might affect consumer behavior, they go and research it. We've been researching the weight loss drugs that you mentioned for multiple years now. And you know, our view is we want to provide consumers the choices and options that they seek. If you think about a business like the Taco Bell business, you have the veggie cravings menu. If you want to get vegetarian versions of the Taco Bell items, you just hit a button on the app and you've got them. Taco Bell has lots of snackable items, so someone who wants to build a meal with smaller items can do that with great value on the Taco Bell menu. Uh chicken, of course, is a preferred protein uh today for consumers around the globe. So, all of that helps to provide a broad range of options, and that's just one piece of what helps us continue to grow and continue to be incredibly resilient. >> Thank you, Chris. Let's take a quick break. We'll come back and hear from Zornita at Barclays about robots. Welcome back. I'm fascinated by this topic of humanoid robots. The fact that like Tesla, for example, is so allin that it it doesn't even talk about selling cars anymore. or it's all robo-cars and humanoid robots like like the the private ownership of you know two arms two legs C3PO type robots. I can't I have a hard time imagining it but that's what uh that's what people say. >> Do you ever watch the videos that the Chinese government puts out on their like robot demos? >> Yeah, they're way they're way ahead, right? I mean >> they have kids doing kung fu against robots. I don't know if you saw the the recent one. I would start with the robots doing kung fu against each other. Leave the children out of it. But okay, I'm not trying to tell China how to do robots. [laughter] I just think like I'm a little over half a century old. So, I wonder when I'm in my golden years if I'm going to have a robot helper around the house like like we used to see in science fiction movies. There was a guy who came to the house, what was it, 5 years ago? He wanted to automate my lights and my blinds. And he said it was like, I think it was $50,000 or $70,000, something like that, so that I could push a button and that would make the lights go on and off and the bl and I thought to myself, what do I have kids for? But [laughter] sooner than I spent $50,000, I'll ask my boy to go turn off the lights, right? But now maybe one day I'll have a robot who can do that for me. That is, I'm sure, not the best and highest use case for these things. I'm I'm not a futurist, but let me introduce you to someone who can talk about our robot future. Zorna Todorova is the head of thematic research at Barkclays. She's done a lot of research recently on robots, not just humanoid robots, but self-driving cars and factory robots and so on. And I wanted to hear more about what's coming and how quickly and how it might change society and how far ahead China is and what are our chances of catching up. Let's get to that conversation. I asked Zornitza how she got into robots. >> I actually trained to become a logistics engineer and to arrange containers in a container ship. Sounds horribly boring but it's actually very very tricky to do that. So they're like the weight is balanced and then I moved into finance and people were very disappointed with me and then I went into academia and then people said oh you should stay in academia don't go to the private sector and I did and um yeah I I'm I'm happy with my choice. We're happy you're here to explain to us uh the robot revolution that's coming. I saw a forecast for a trillion dollar robot economy by 2035. That's not that far from now. I mean, I'll still be wearing the same clothes by 2035. We'll have a trillion dollar robot economy. What's um what shape is that going to take? What kind of robots are we talking about? And and what will that look like? >> So, that trillion dollar estimate spans actually four key robotics categories. So, it's autonomous vehicles, humanoid robots, autonomous drones, and advanced industrial automation. So, I could see how autonomous vehicles are going to lead the trend and lead the shift. And in fact, nearly half of the growth that we project for 2035 comes from autonomous vehicles. So, that's about $500 billion. I think that intuitively it makes a lot of sense because autonomous vehicles have been around for nearly a decade now. the technology is more mature but more importantly there is a lot of data that these systems can use for their AI models and that's a very different story when I compare where this technology is to where humanoid robots are at the moment. So I think for humanoid robots, the growth potential is enormous, but I think it's just going to take us a bit longer until the technology is mature enough to be really useful. And the challenge at the moment is somewhat paradoxically lack of data for humanoid robots in particular are all over the map. I see they're going to be standing next to us tomorrow in our homes versus no, it's not going to happen. It's decades away. And so that that's has to be. And by the way, when we say humanoid robot, we mean something that has the form of a human being. Like for people my age in Star Wars, you have C3PO and R2-D2. We're talking about a C-3PO. We're talking about arms and legs, not the little guy on the wheels. Is it a sure thing that we're going to reach a time, let's say, in the next couple of decades, where we have these humanoid assistants in our homes? I mean, is that are we on an inevitable path toward that? I think so. We estimate about 15,000 humanoid robots were deployed in real world jobs. So now that might not sound very impressive and doesn't move the needle too much, but compared that with 2024 when we just saw a couple of hundred. So the rate of change is really exponential. And out of these 15,000 humanoid robots, most of them like 80 to 90% of them have been deployed in manufacturing, in logistics, and warehousing. And at the moment what they're doing is what I call simple, repetitive and very tedious tasks. So these are very well organized, very well structured tasks like lifting boxes off of the assembly line or sorting packages in the distribution center. And I think as the technology matures, as it get better, as the humanoid robots are able to read context better, I think we'll see them engaged in more complex tasks. And ultimately, maybe that's for the 2040s is when we see them in our homes assisting us with the laundry, helping us clean the house, do the dishes. >> Is that what you said? That's when they'll be helping us in our homes. >> 2040. >> I know that this is the smallest part for now of the robot economy, but it has to be the one that people are most fascinated with. I mean, tell me about just one or two kind of g- whiz things that you've seen where you looked at a robot that someone's made or maybe it's a test unit and you said, "Wow, I didn't know that we were this far along yet." This is really fascinating. What have you been impressed with that you've seen out there that robots can do? Now, >> when I think about this technology, I think the most complicated part of the robot is how do you design robotic hands that resemble the dexterity that we have in humans? because we are extremely efficient. We are very dextrous. We know exactly what we have to do. We have this inborn intelligence. But for a humanoid robot, it's a very different story because you need to teach that machine every single thing. So from where I stand, I'm not as impressed with robots doing back flips. I mean, look, I think this is very impressive for sure, but I I don't think it helps us that much in our daily life and it doesn't make them useful in commercial uh settings. But if the hands are very dextrous, then this is a gamecher. And I think some of the new models that come out of out of China, that come out of the US, I think these are really really impressive because they have almost human level dexterity. And this means that you can you can put them to work on assembly lines and they can do really very complicated tasks for which until now you've just needed humans. And if we are able to tackle that part of the challenge, I think a humanoid robot is actually a very effective proposition to solve many of our troubles. >> My son just asked me why why are the robots going to be shaped like humans? Why wouldn't they have eight arms instead of two? I said I don't know. I think you got to save something for an upsell. Like after they buy the two arm unit, you can add more arms for an extra charge probably. I I don't know. I want to ask you about these four pillars. You had this fascinating report that you put out on the future robot economy and the pillars that you mention you call them brains brawn batteries and enablers. What are is there one of these right now that's the constraint? I gather that they all have to work together for this future robot economy to come to fruition. Where are the bottlenecks right now? So I would say that the bottleneck right now is maybe in the brawn category because I hear a lot of people speak about brains and that's important right we need the semis we need the right kind of compute the software stack it needs to be designed appropriately the sensors matter but I think it's really the brawn where I see the biggest challenges right now and the challenge is how do we scale production because brawn is basically all these physical tiny components like screws and bolts and actuators that make the connection between the software and the physical world because when a robot is deployed on a in on a factory floor, it's much more about the laws of physics and mechanics than it is about software. And so figuring that out is very important. We estimate actually that about 50% of the unit build cost for humanoid robots is associated with the broad component. And I think the interesting part is that we don't need to reinvent that from scratch. There are many companies that are producing components right now and they actually sit very tightly embedded in the automotive supply chain. So at a high level you can think about a humanoid robot as a car in a miniature. You need the same type of physical components. You need the same level of comp complexity and the the the large number of suppliers that need to work together. But it's just everything is tinier. They're slightly more complex. But kind of the building blocks are there. >> Let's talk about China. You can buy an entire exchange traded funds or mutual funds that are filled with robot humanoid robot specific manufacturers. There's a whole big economy there focused on developing these humanoid robots. You write here that of the 15,000 new humanoid robot installations in 2025. China accounted for more than 85% compared with just 13% in the US. That's from your report. And then one other uh figure here about industrial robot adoption. This is from I think 2024. Basically, China was 10 times almost 10 times the number of installations in is in the US. It seems like they're very far ahead of us in the development of these robots and in particular the humanoid robot. Tell me more about how the competitive landscape there looks and the the chances or possibility that the US could catch up in the years or decades ahead. >> Right. So I think that there are two things here. So the first aspect is they are nearly vertically integrated supply chain which allows them to produce robots at a much lower price tag compared to their competitors. They own the raw materials starting from critical rare earths to the some of the physical components to the batteries and that allows them to produce these robots at a at a very low at a very low price. The other part is that there is substantial government support for the robotics industry in China. This has been declared a national priority and they're heavily investing for the future which on the face of it might seems might seem very surprising because labor costs in China are not as high compared to let's say the US or the EU but their population is aging very rapidly. So in 20 years time it could be that they might not have enough workers to work in manufacturing. I think that there's no denying that China leads by a wide margin, but this doesn't mean that there's no space for um other companies outside of China to lead. And I think I I I somewhat surprisingly an opportunity for the EU here because of the industrial heritage. So if I go back to my example before with the brawn, 50% of the unit production cost of humanoid robots is associated with the brawn component. Europe is really the manufacturing hub when it comes to these high precision actuators. So these are the components that enable the robot to move. So nearly 15% of the global supply comes out of Germany. >> I was going to say it's always Germany. That sounds like something Germany's real good at. >> They are really good at it because there's just a lot of overlap between the automotive sector and the robotics because you need the same kind of suppliers and same kind of components. I think there is an opportunity for Europe to lean on that industrial past, industrial heritage rooted in the the automotive DNA and to repurpose that for robotics going forward. So, it's still early days. We should we'll have to give it a couple of years to see how this how this plays out, but I think it will be very very hard to catch up with China. >> Help me think through the societal changes and impacts that are coming. You probably heard in the past week or two about this report that went around Wall Street from this outfit called Catrini Research and somebody had done a sort of a fictional look back from two years from now, 2028. And they were writing at a time where there was massive layoffs and unemployment and the stock market had crashed and house prices were falling and it had all been caused by artificial intelligence replacing white collar work. And I I think that there's a lot of people think, okay, AI might be coming for that knowledge work, but uh you know, I I work with my hands and so, you know, I've got to be safe. But then when we enter a world where we have physical AI with robots that are doing these things, boy, it seems like there's an awful lot of jobs that can be done by machines and computers that are now done by people. Is that concerning to you that we might have, you know, something like this paper was talking about massive unemployment and big disruption in investment markets or you think it'll be a more benign path than that? >> I think it will be much more benign than what this report claims and I I would actually phrase the question somewhat differently. Yes, it's true that you know AI is disruptive and there will be winners and there will be losers for sure. But there are also other jobs at the moment for which many companies and many sectors are struggling to hire just because workers preferences are also changing and that's not always necessarily due to pay. My favorite example here is looking at where the young the new workers that are entering the labor force right now want to work. And I read a very interesting survey a couple of weeks ago which said that about 60% of Gen Z workers want to be social media influencers. Now take this with a grain of salt, right? But it >> somebody's somebody has to be left to be influenced by all the influence influencers, right? I mean, we can't all be influencing each other, but All right. Go ahead. >> Yeah. What I wanted to say is that I think it shows in the direction of travel that the young workers want to be in flexible jobs that are value creating, that are interesting, that are flexible. So 60% want to be social media influencers. Yeah, 14% of them see themselves ever working in manufacturing. And I think this is a big problem because the world around us is manufactured. So we would need these jobs going forward more than ever. But the new workers, they don't want to do them. And I think that this creates a bit of a structural mismatch between the supply of labor and demand of labor. And I think that humanoid robots and physical AI in general could be a solution to to this problem. I'm not saying it's not going to be disruptive, but I think that the discussion is much much much broader than that. >> Thank you, Zornita from Barclays and thank you Chris from Yum. And thank you all for listening. Jackson, did we miss anything? Anything we need to add? >> Yeah, I'm looking at a list by People magazine titled the most outrageous Taco Bell menu items of all time. >> Give me numbers 3, two, and one. Let's go in order of ascending craziness. >> Well, there's the French toast chalupa, which is a little strange. That's number three. It's a It looks like a taco where the taco is French toast and it's filled with bacon and eggs. >> I feel like that's not crazy if you do it in your own kitchen. Go [laughter] ahead. Number two. >> It's It's also This is a combo one. It's the naked chicken chalupa and naked chicken chips. And it's just a It's just a crazy name, right? >> The tortilla is just chicken and the tortilla chips are just chicken like thin. >> It's chicken in chicken >> in a in chips. Yeah. Yeah. You're putting chicken in a chicken fried chicken shell. >> Okay. I don't know why Naked has had to get involved there, but Okay. Well, number one, >> uh, the KitKat Chocolilla. >> But you took it way too far. >> [laughter and gasps] >> It's the It's the innovation team. They're not afraid to take some swings and I respect them for that. >> If you have a question you'd like played and answered on the podcast, send it in. It could be in a future episode. Just use the voice memo app on your phone. Send it to jack.how. That's h o gbearren.com. And you can subscribe to the podcast on Apple Podcast, Spotify, or wherever you listen to podcasts. If you listen on Apple, write us a review. If you have a taco idea, you're probably better off sending that to Chris at Yum. Don't do Kit Kats. They've tried it. See you next week.
Tacos and Robots | Barron's Streetwise
Summary
The CEO of Yum Brands talks Taco Bell and KFC. A Barclays strategist looks at the coming humanoid economy. And Jack …Transcript
We estimate about 15,000 humanoid robots were deployed in realworld jobs compared back to 2024 when we just saw a couple of hundred. >> The four things that Taco Bell does, they have a an incredibly buzzy and culturally relevant brand. Second, they have the most cravable menu in the industry. >> Hello and welcome to the Baron Street Wise podcast. I'm Jack How and the voice you just heard, well, voice says, the first was Zornita Todorova. She leads thematic research at Barclays and she has a fascinating report out on what she calls the trillion dollar robot economy. And Chris Turner is the fairly new CEO of Yum Brands. That includes Taco Bell and KFC and for the moment, Pizza Hut. Taco Bell had 7% same store sales growth last quarter. It's growing like a young chain. In a moment, we'll hear about why. What do robots and tacos have to do with each other? Nothing that I can think of. I enjoy awkward topic transitions. If you didn't know that about me before, now you know. I'll also say just a few words about Nvidia's biggest event of the year coming up in the week ahead. Listening in is our audio producer Jackson Cantrell. Hi Jackson. >> Hey Jack. >> We spoke last week in this podcast about the war in Iran and the price of oil and the potential effect in the stock market. If you're wondering why we're talking about AI and not Iran, you can go back and listen to that episode. If you were wondering then why we were talking about Iran and not AI, well, I'll touch on it in a moment. And if you've been crying out for taco coverage, you're in for a treat. [laughter] >> Everyone gets what they want. >> Jackson, do you watch uh you know how people used to tune in like it was a TV show to watch Steve Jobs and the and the yearly presentation of Apple's new gadgets? There was a while there, right? There was a big show. >> Oh, yeah. >> Do you watch Nvidia's Jensen Wong that way? >> Uh I I can't say I do. I just I know he wears a leather jacket. >> He does. Yeah. It's like a It's a biker jacket. It's a good look. I wrote in Baron's uh this past week, if he goes full trench coat like Neo from the Matrix, it's probably a sign to take profits, but we'll [laughter] see. >> Yeah, I I think the problem with Apple is now they do like four or five of them every year and I can't figure out like what's the real one and and it seems like every iPhone kind of like the same as last year. >> I haven't watched the Apple ones in years. I mean, I I don't watch them like I used to. It doesn't seem that exciting. the Nvidia ones, it's not quite like a gadget you can hold in your hand and see. You just have, it's kind of like chip architecture. So, you got to be, I think, that kind of person or have that kind of interest to really get into it. Let me touch on just a few things to expect or look out for in the Nvidia presentation. First of all, it's called GTC. It's a weird name, I think, because GTC is an acronym that stands for GPU technology conference. But that has an acronym in it. It's like a It's like one of those Russian dolls of acronyms inside acronyms. And GPU stands for graphics processing unit. And that's a weird name for a conference that's really all about artificial intelligence, but it does make sense. I'll explain why. The View on Wall Street, and it's a nearly unanimous view. Of the 70 analysts who cover Nvidia stock, 93% say to buy it. And the average price target implies 45% upside for the stock. So just about everyone is aligned on this. They say that Nvidia's stock price is depressed. But also, if you look at it, it's up 22,000% in a decade. And it's weird to talk about something that's up 22,000% as being depressed. We've talked about some weakness for AI stocks, but let's not overstate the case for Nvidia. There was one point in early February where it was down 8% for this year. More recently, it was down only 1%. It's not so much that the stock has sold off. It's really that these rip roaring price gains have just paused for a little while. But meanwhile, the free cash flow for the company's current fiscal year, which runs through next January, that's expected to increase by 85% to $178 billion. I have to tell you a few things, several things really about those numbers. I know sometimes numbers that big just kind of wash over us. $178 billion sounds good. Let me tell you how good it is. First of all, that growth rate would represent an acceleration from last year's growth. Nvidia is growing faster, not slower. Second, the $178 billion. If you look at the low estimate and the high estimate, the difference is $98 billion. That suggests an enormous amount of uncertainty. But also, the overall consensus has been rising for months. So, forecasters are sweetening their math as new evidence comes in. new evidence like Nvidia's late February quarterly report. Okay, let's talk about just how much money that is. Back in 2022 when Russia invaded Ukraine, the oil price spiked kind of like it has recently. That year, Saudi Aramco, that's the oil monopoly of Saudi Arabia. It generated close to $150 billion in free cash. That's still a record. This year, Aramco won't likely come close to that figure, partly because the Iran war has complicated its path to market. So, if Nvidia meets the consensus, it will become the most prosperous company ever. And yes, that does include the monopolies of antiquity like Standard Oil or Dutch East India if we adjust for inflation. In fact, those are nowhere close. And if you believe the estimates, that record, $178 billion, won't last for long because next year, Nvidia is expected to smash through it, hitting $233 billion. Where is all this money coming from? I'll give you an example. Amazon this year is expected to burn $10 billion in cash. That's totally by choice. Up until 2023, for the few years leading up to that, Amazon was investing somewhere between 50 and 60 billion a year. It was building out its logistics network and spending on cloud computing. But this year's spending is pegged not at 50 to 60 billion, but at 190 billion and the increase has everything to do with AI infrastructure, including Nvidia chips. So, a big part of the debate around Nvidia stock involves how long Amazon and others will continue to spend so much. Barkclays this past week predicted that industrywide capex will peak in 2028 at about a trillion dollars and as it puts it come down modestly thereafter. It says that consensus 2028 estimates for hyperscalers like Amazon are too low by a combined $300 billion. So, you can start to see why these Wall Street banks argue that Nvidia is too cheap. If we're looking at profits rather than free cash flow, the story is very similar, but investors like to look at price earnings ratios. Okay, Nvidia trades at 17 times its next fiscal year's projected earnings. And that's a discount to the S&P 500. So, why is Nvidia trading at a discount if the growth is so fierce? That's the bull case. The bare case, I suppose, or maybe it's cautious case on the part of investors. They've just never seen numbers like this. They wonder if Nvidia can really hit these targets. They wonder if this level of spending is sustainable. So, that's what they'll be looking to gather clues about at GTC in the coming week. They'll want to know about the supply outlook for critical components, things like wafers and memory and optics. They'll want to hear about the effect of the Iran war on power costs and on demand from sovereign customers, but mostly they'll want details on future products. I should do some light stretching here, Jackson, because I'm about to get into the subject of AI computing, which is a little heavy. I think I got this. >> Just say Jevon's paradox a couple of times and you'll sound smart. >> Are you pronouncing that right? >> Javon. Is that a brand of acid wash jeans from the 80s? I think I owned a pair back during my sinbad look. [laughter and gasps] >> We should have AI spin that up and that'll be the new cover of this podcast. [laughter] >> So AI chip spending in recent years has focused on building and optimizing models and that's called training. In coming years, it's going to shift more towards putting those models to work and making money from them. And that's called inference. Training favors highly parallel processing. It's a lot like the processing used to render video game graphics, which explain why Nvidia, a company whose chips [music] powered 3D shoot them ups like Unreal Tournament back in 1999, came to dominate AI profits. It's why the name of that conference has an acronym that stands for another acronym that stands for graphics in part. So as recently as 2019, CPUs, central processing units, those are the chips that like Intel is best known for. Those made up the overwhelming majority of data center compute spending, 87%. GPUs, the graphics chips used now for AI along with other AI accelerators, those made up just 13%. That was 2019. Now that has totally flipped. Last year, the AI chips accounted for 88% of compute spending at data centers. When you're doing AI training and building your models, cost is kind of an afterthought. But when it comes to inference, you want to get your business model working, and cost there is key. And the computing needs for inference are more mixed than they are for training. Basically, when you type a question into your favorite AI chatbot, it turns it into tokens representing words or parts of words or punctuation and it processes all of those tokens at once. That's a step called preill and it favors the highly parallel computing of GPUs. But the answers come a token at a time. It's a little like speaking where each word builds on the last. That step is called decode. And CPUs can excel at that kind of sequential computing. That's one reason they're becoming more important in AI. But what you'd really like to have are purpose-built chips that can handle decode cheaply and efficiently without, for example, the need for pricey offchip memory. There's a privately held company called Gro that specializes in just such chips called LPUs or language processing units. And last year, Nvidia paid about $20 billion to license Grock's technology and acquire its talent. So, in the week ahead, look for Nvidia to discuss how Grock LPUs will help Nvidia broaden and customize its future chip portfolio to address training and prefill and decode. That could help the company hold market share with hyperscalers that can produce their own chips. UBS is bullish on Nvidia stock. It calls a breakout of the stock based on some thesis altering commentary at GTC hard to see. But it also calls the contrast between its rapturous Nvidia earnings estimates and the stock's discount valuation quote seemingly unsustainable. GTC will kick off on Monday with a keynote address by Nvidia co-founder Jensen Wong. He of course has been on the podcast. Is there a statute of limitations that runs out uh in the amount of time I can mention that Jackson or I could just keep saying it forever? [gasps] >> I think you could say it forever. >> Maybe Jensen's address will shed some light on whether Wall Street has it right that investors are too cautious or investors have it right that it's time for a pause. And it's not time for a pause here because we're going to talk about which is it Jackson tacos or robots? Robots first, right? >> It's robots first. I'm looking at this Nvidia uh lineup for Yeah. Is it Wednesday, Thursday? >> March 16th. >> It's agenda. The agenda. Yes. I'm looking at the >> What's catching your eye? >> I'm just realizing how out of my depth I am here. I don't understand any of this. There's >> the release of the Neotron 3 Super Hyma Transformer agents. >> Yes. Wear your safety goggles for that one. Uh, this one's about Nvidia GeForce RTX, which powers the world's fastest GPUs and enjoys beautiful ray tracing AI powered DLSS in your own living room. >> That's actually, you're going to think I'm making this up. It's a foot massager. It's a really high-end foot massager. >> Let's get to my recent conversations. And you know what? Let's go tacos first. Let's get crazy. All right, we can do that. >> Yum Brands, they have a new CEO since last year, Chris Turner. This is not a turnaround CEO. This is a company that's doing well. >> You You don't hire Chris Turner if you want to do a a turnaround. [laughter] >> It's too on the nose. Yeah, it's a good point. It's probably in his contract. >> I wanted to know a few things about Yum. Why is Taco Bell suddenly doing so well in the US? I remember this chain from when I was a young man. This is a place you could get stuffed for like two or three bucks. It's popular today with young people and I'm not sure that's the reason. I wanted to hear about that. I wanted to hear about KFC's growth overseas and Yum is exploring its options for Pizza Hut. This is at a time when a couple of Wall Street banks have recently sounded some very bullish notes on Domino's. So, I just wonder what's happening with Pizza Hut. Let's get to our conversation. Let's talk tacos to start. Taco Bell. This was I'm a 53 year old man. When I was in college, this is a place where you could get stuff for 59 cents on their value menu. So you could walk in the door with $2 in your pocket and get full if you had $3 you could get stuffed. But I the other day my teenage daughter asked me, she wants to go to Taco Bell. She's a Chipotle regular and and and lately I hear she's interested in Taco Bell. How do you make this brand relevant to young people today? How is she hearing about you? I think Taco Bell does four things incredibly well and that's why they're winning. Last year they had 7% same store sales growth in the US on the fullear basis. That's many points ahead of the category. They took a lot of share. >> That's like a young chain. That's not like a however many decades old chain. >> It is. But the four things that Taco Bell does, they have a an incredibly buzzy and culturally relevant brand through our marketing. Second, they have the most cravable menu in the industry. You and I crave those classic favorites. We have an incredible catalog of favorites we can bring back, but we are also always bringing new innovation to market. Third, we have the most convenient experience in QSR. Taco Bell, it's an easy experience through the drive-thru or to get delivered or to pick up in the restaurant. And then fourth, always Taco Bell stands for value. And you can get incredible value whether it's in one of our Lux cravings meals or on the Lux value menu. She's definitely not going for the value cuz I'm paying. You run a franchise model and you have people out there who who run your Taco Bell locations for you and you collect royalties. What's the the pitch for someone who comes to you comes to talk to you interested in that? What do the economics look like for them? What does that job look like? Why is someone eager to become a uh a Taco Bell entrepreneur? >> The Taco Bell um economics are tremendous. If you look at the company restaurants that we operate, the operating profit on those company-owned Taco Bells, uh is in the 24% range. So, just tremendous profitability while delivering that value to consumers. For our franchise partners, they do an excellent job. Of course, they're they deploy their capital to build these restaurants. They've gotten strong returns over the years, and of course, they're aligned with us on continuing to drive growth in the system. It's a very logical plan where we're adding more and more use occasions for consumers uh to connect with us. So, a consumer who's looking for a little more elevated product, for example, could buy the cantina chicken product, which is a tremendous set of items that we have that have an elevated slow roasted chicken product, more vegetables. If consumers want to buy more beverages from us, that's a big growth area in the restaurant space right now. We have expanded our beverage lineup in restaurants to include things like refrescas. We've also launched Live Moss Cafe. We now have more than 30 LM moss cafes open and that's where we renovate the front of house to provide a bar where we can do customized crafted beverages for our consumers. So lots of growth plans ahead for us and our franchise partners to continue to build this business. Tell me now about chicken about about KFC. I understand this is a this is a fast grower overseas. Tell me what the trajectory is there, how you're growing there, and also touch on as an American when I hear about companies that are expanding in China, I always think to myself, sometimes we have trade tensions, political tensions, so forth. How does a a company that's expanding in China stay safe from those kind of things? Yeah. If you think about the KFC uh business, it's our largest brand. Almost 90% of the business is outside the US. And so it is an incredibly global business, operates in more than 150 markets, and KFC is known for unit development. So opening new restaurants. I always say that if you're a consumer on the planet, you're not a vegetarian, you've probably had fried chicken and you probably loved it. And of course, KFC has the best fried chicken in the business. And the brand is so extensible in in any market around the globe. In fact, we open a new KFC somewhere in the world every 3 hours. The China business is a big uh part of KFC. We have a tremendous business there. It's been growing for many years. Back in 2016, Yum had a change to its business model. We call it the Yum transformation. A big part of that was spinning the China business out. Yum used to own many of those restaurants in China. We spun that out to be its own standalone company called Yamchina, listed on the New York Stock Exchange. They are our largest partner. We collect a royalty. It's one of the lowest royalty rates in the world there. So, we still have exposure to that market and exposure to the tremendous growth there, but there's now an amazing leadership team at Yum China that drives that business. They have tremendous focus on it and they of course are focused on continuing to drive growth in that vibrant market. You're exploring your options for Pizza Hut. What are your thoughts about Pizza Hut and why are you looking at these different choices for what to do with it? The Pizza Hut brand is a wonderful brand. I love the Pizza Hut brand. My I'm married to my high school sweetheart. We had our first date in a Pizza Hut restaurant back in the early '9s. So, I have a long connection to the Pizza Hut brand. The reason we're exploring Strategic Options is because it has been growing more slowly than the rest of the portfolio. We think it needs to be put on a different trajectory. Part of that will be exploring, hey, would it be better for some of that work to be done outside of YAM with another capital partner. There may be elements of the transformation plan that are better done outside of the the public spotlight, but it's all in the interest of what's right for the brand, what's right for our franchise partners, and what's right for Yum shareholders. Whenever I talk with a food CEO, I'm always on the lookout for these weight loss meds, the shots that people are taking and they and they and they don't feel as hungry and they don't eat as much. Do you folks talk about that? Is that relevant for you or or it's just not a factor at this point? >> You know, anything that is affecting consumers is relevant for us. In fact, about a decade ago, Yum acquired a company called Collider. We still keep it separate rated a bit inside of Yum, but it is a consumer insights engine. A team of experts there who are constantly staying in touch with the consumer. Anytime we see something on the horizon that might affect consumer behavior, they go and research it. We've been researching the weight loss drugs that you mentioned for multiple years now. And you know, our view is we want to provide consumers the choices and options that they seek. If you think about a business like the Taco Bell business, you have the veggie cravings menu. If you want to get vegetarian versions of the Taco Bell items, you just hit a button on the app and you've got them. Taco Bell has lots of snackable items, so someone who wants to build a meal with smaller items can do that with great value on the Taco Bell menu. Uh chicken, of course, is a preferred protein uh today for consumers around the globe. So, all of that helps to provide a broad range of options, and that's just one piece of what helps us continue to grow and continue to be incredibly resilient. >> Thank you, Chris. Let's take a quick break. We'll come back and hear from Zornita at Barclays about robots. Welcome back. I'm fascinated by this topic of humanoid robots. The fact that like Tesla, for example, is so allin that it it doesn't even talk about selling cars anymore. or it's all robo-cars and humanoid robots like like the the private ownership of you know two arms two legs C3PO type robots. I can't I have a hard time imagining it but that's what uh that's what people say. >> Do you ever watch the videos that the Chinese government puts out on their like robot demos? >> Yeah, they're way they're way ahead, right? I mean >> they have kids doing kung fu against robots. I don't know if you saw the the recent one. I would start with the robots doing kung fu against each other. Leave the children out of it. But okay, I'm not trying to tell China how to do robots. [laughter] I just think like I'm a little over half a century old. So, I wonder when I'm in my golden years if I'm going to have a robot helper around the house like like we used to see in science fiction movies. There was a guy who came to the house, what was it, 5 years ago? He wanted to automate my lights and my blinds. And he said it was like, I think it was $50,000 or $70,000, something like that, so that I could push a button and that would make the lights go on and off and the bl and I thought to myself, what do I have kids for? But [laughter] sooner than I spent $50,000, I'll ask my boy to go turn off the lights, right? But now maybe one day I'll have a robot who can do that for me. That is, I'm sure, not the best and highest use case for these things. I'm I'm not a futurist, but let me introduce you to someone who can talk about our robot future. Zorna Todorova is the head of thematic research at Barkclays. She's done a lot of research recently on robots, not just humanoid robots, but self-driving cars and factory robots and so on. And I wanted to hear more about what's coming and how quickly and how it might change society and how far ahead China is and what are our chances of catching up. Let's get to that conversation. I asked Zornitza how she got into robots. >> I actually trained to become a logistics engineer and to arrange containers in a container ship. Sounds horribly boring but it's actually very very tricky to do that. So they're like the weight is balanced and then I moved into finance and people were very disappointed with me and then I went into academia and then people said oh you should stay in academia don't go to the private sector and I did and um yeah I I'm I'm happy with my choice. We're happy you're here to explain to us uh the robot revolution that's coming. I saw a forecast for a trillion dollar robot economy by 2035. That's not that far from now. I mean, I'll still be wearing the same clothes by 2035. We'll have a trillion dollar robot economy. What's um what shape is that going to take? What kind of robots are we talking about? And and what will that look like? >> So, that trillion dollar estimate spans actually four key robotics categories. So, it's autonomous vehicles, humanoid robots, autonomous drones, and advanced industrial automation. So, I could see how autonomous vehicles are going to lead the trend and lead the shift. And in fact, nearly half of the growth that we project for 2035 comes from autonomous vehicles. So, that's about $500 billion. I think that intuitively it makes a lot of sense because autonomous vehicles have been around for nearly a decade now. the technology is more mature but more importantly there is a lot of data that these systems can use for their AI models and that's a very different story when I compare where this technology is to where humanoid robots are at the moment. So I think for humanoid robots, the growth potential is enormous, but I think it's just going to take us a bit longer until the technology is mature enough to be really useful. And the challenge at the moment is somewhat paradoxically lack of data for humanoid robots in particular are all over the map. I see they're going to be standing next to us tomorrow in our homes versus no, it's not going to happen. It's decades away. And so that that's has to be. And by the way, when we say humanoid robot, we mean something that has the form of a human being. Like for people my age in Star Wars, you have C3PO and R2-D2. We're talking about a C-3PO. We're talking about arms and legs, not the little guy on the wheels. Is it a sure thing that we're going to reach a time, let's say, in the next couple of decades, where we have these humanoid assistants in our homes? I mean, is that are we on an inevitable path toward that? I think so. We estimate about 15,000 humanoid robots were deployed in real world jobs. So now that might not sound very impressive and doesn't move the needle too much, but compared that with 2024 when we just saw a couple of hundred. So the rate of change is really exponential. And out of these 15,000 humanoid robots, most of them like 80 to 90% of them have been deployed in manufacturing, in logistics, and warehousing. And at the moment what they're doing is what I call simple, repetitive and very tedious tasks. So these are very well organized, very well structured tasks like lifting boxes off of the assembly line or sorting packages in the distribution center. And I think as the technology matures, as it get better, as the humanoid robots are able to read context better, I think we'll see them engaged in more complex tasks. And ultimately, maybe that's for the 2040s is when we see them in our homes assisting us with the laundry, helping us clean the house, do the dishes. >> Is that what you said? That's when they'll be helping us in our homes. >> 2040. >> I know that this is the smallest part for now of the robot economy, but it has to be the one that people are most fascinated with. I mean, tell me about just one or two kind of g- whiz things that you've seen where you looked at a robot that someone's made or maybe it's a test unit and you said, "Wow, I didn't know that we were this far along yet." This is really fascinating. What have you been impressed with that you've seen out there that robots can do? Now, >> when I think about this technology, I think the most complicated part of the robot is how do you design robotic hands that resemble the dexterity that we have in humans? because we are extremely efficient. We are very dextrous. We know exactly what we have to do. We have this inborn intelligence. But for a humanoid robot, it's a very different story because you need to teach that machine every single thing. So from where I stand, I'm not as impressed with robots doing back flips. I mean, look, I think this is very impressive for sure, but I I don't think it helps us that much in our daily life and it doesn't make them useful in commercial uh settings. But if the hands are very dextrous, then this is a gamecher. And I think some of the new models that come out of out of China, that come out of the US, I think these are really really impressive because they have almost human level dexterity. And this means that you can you can put them to work on assembly lines and they can do really very complicated tasks for which until now you've just needed humans. And if we are able to tackle that part of the challenge, I think a humanoid robot is actually a very effective proposition to solve many of our troubles. >> My son just asked me why why are the robots going to be shaped like humans? Why wouldn't they have eight arms instead of two? I said I don't know. I think you got to save something for an upsell. Like after they buy the two arm unit, you can add more arms for an extra charge probably. I I don't know. I want to ask you about these four pillars. You had this fascinating report that you put out on the future robot economy and the pillars that you mention you call them brains brawn batteries and enablers. What are is there one of these right now that's the constraint? I gather that they all have to work together for this future robot economy to come to fruition. Where are the bottlenecks right now? So I would say that the bottleneck right now is maybe in the brawn category because I hear a lot of people speak about brains and that's important right we need the semis we need the right kind of compute the software stack it needs to be designed appropriately the sensors matter but I think it's really the brawn where I see the biggest challenges right now and the challenge is how do we scale production because brawn is basically all these physical tiny components like screws and bolts and actuators that make the connection between the software and the physical world because when a robot is deployed on a in on a factory floor, it's much more about the laws of physics and mechanics than it is about software. And so figuring that out is very important. We estimate actually that about 50% of the unit build cost for humanoid robots is associated with the broad component. And I think the interesting part is that we don't need to reinvent that from scratch. There are many companies that are producing components right now and they actually sit very tightly embedded in the automotive supply chain. So at a high level you can think about a humanoid robot as a car in a miniature. You need the same type of physical components. You need the same level of comp complexity and the the the large number of suppliers that need to work together. But it's just everything is tinier. They're slightly more complex. But kind of the building blocks are there. >> Let's talk about China. You can buy an entire exchange traded funds or mutual funds that are filled with robot humanoid robot specific manufacturers. There's a whole big economy there focused on developing these humanoid robots. You write here that of the 15,000 new humanoid robot installations in 2025. China accounted for more than 85% compared with just 13% in the US. That's from your report. And then one other uh figure here about industrial robot adoption. This is from I think 2024. Basically, China was 10 times almost 10 times the number of installations in is in the US. It seems like they're very far ahead of us in the development of these robots and in particular the humanoid robot. Tell me more about how the competitive landscape there looks and the the chances or possibility that the US could catch up in the years or decades ahead. >> Right. So I think that there are two things here. So the first aspect is they are nearly vertically integrated supply chain which allows them to produce robots at a much lower price tag compared to their competitors. They own the raw materials starting from critical rare earths to the some of the physical components to the batteries and that allows them to produce these robots at a at a very low at a very low price. The other part is that there is substantial government support for the robotics industry in China. This has been declared a national priority and they're heavily investing for the future which on the face of it might seems might seem very surprising because labor costs in China are not as high compared to let's say the US or the EU but their population is aging very rapidly. So in 20 years time it could be that they might not have enough workers to work in manufacturing. I think that there's no denying that China leads by a wide margin, but this doesn't mean that there's no space for um other companies outside of China to lead. And I think I I I somewhat surprisingly an opportunity for the EU here because of the industrial heritage. So if I go back to my example before with the brawn, 50% of the unit production cost of humanoid robots is associated with the brawn component. Europe is really the manufacturing hub when it comes to these high precision actuators. So these are the components that enable the robot to move. So nearly 15% of the global supply comes out of Germany. >> I was going to say it's always Germany. That sounds like something Germany's real good at. >> They are really good at it because there's just a lot of overlap between the automotive sector and the robotics because you need the same kind of suppliers and same kind of components. I think there is an opportunity for Europe to lean on that industrial past, industrial heritage rooted in the the automotive DNA and to repurpose that for robotics going forward. So, it's still early days. We should we'll have to give it a couple of years to see how this how this plays out, but I think it will be very very hard to catch up with China. >> Help me think through the societal changes and impacts that are coming. You probably heard in the past week or two about this report that went around Wall Street from this outfit called Catrini Research and somebody had done a sort of a fictional look back from two years from now, 2028. And they were writing at a time where there was massive layoffs and unemployment and the stock market had crashed and house prices were falling and it had all been caused by artificial intelligence replacing white collar work. And I I think that there's a lot of people think, okay, AI might be coming for that knowledge work, but uh you know, I I work with my hands and so, you know, I've got to be safe. But then when we enter a world where we have physical AI with robots that are doing these things, boy, it seems like there's an awful lot of jobs that can be done by machines and computers that are now done by people. Is that concerning to you that we might have, you know, something like this paper was talking about massive unemployment and big disruption in investment markets or you think it'll be a more benign path than that? >> I think it will be much more benign than what this report claims and I I would actually phrase the question somewhat differently. Yes, it's true that you know AI is disruptive and there will be winners and there will be losers for sure. But there are also other jobs at the moment for which many companies and many sectors are struggling to hire just because workers preferences are also changing and that's not always necessarily due to pay. My favorite example here is looking at where the young the new workers that are entering the labor force right now want to work. And I read a very interesting survey a couple of weeks ago which said that about 60% of Gen Z workers want to be social media influencers. Now take this with a grain of salt, right? But it >> somebody's somebody has to be left to be influenced by all the influence influencers, right? I mean, we can't all be influencing each other, but All right. Go ahead. >> Yeah. What I wanted to say is that I think it shows in the direction of travel that the young workers want to be in flexible jobs that are value creating, that are interesting, that are flexible. So 60% want to be social media influencers. Yeah, 14% of them see themselves ever working in manufacturing. And I think this is a big problem because the world around us is manufactured. So we would need these jobs going forward more than ever. But the new workers, they don't want to do them. And I think that this creates a bit of a structural mismatch between the supply of labor and demand of labor. And I think that humanoid robots and physical AI in general could be a solution to to this problem. I'm not saying it's not going to be disruptive, but I think that the discussion is much much much broader than that. >> Thank you, Zornita from Barclays and thank you Chris from Yum. And thank you all for listening. Jackson, did we miss anything? Anything we need to add? >> Yeah, I'm looking at a list by People magazine titled the most outrageous Taco Bell menu items of all time. >> Give me numbers 3, two, and one. Let's go in order of ascending craziness. >> Well, there's the French toast chalupa, which is a little strange. That's number three. It's a It looks like a taco where the taco is French toast and it's filled with bacon and eggs. >> I feel like that's not crazy if you do it in your own kitchen. Go [laughter] ahead. Number two. >> It's It's also This is a combo one. It's the naked chicken chalupa and naked chicken chips. And it's just a It's just a crazy name, right? >> The tortilla is just chicken and the tortilla chips are just chicken like thin. >> It's chicken in chicken >> in a in chips. Yeah. Yeah. You're putting chicken in a chicken fried chicken shell. >> Okay. I don't know why Naked has had to get involved there, but Okay. Well, number one, >> uh, the KitKat Chocolilla. >> But you took it way too far. >> [laughter and gasps] >> It's the It's the innovation team. They're not afraid to take some swings and I respect them for that. >> If you have a question you'd like played and answered on the podcast, send it in. It could be in a future episode. Just use the voice memo app on your phone. Send it to jack.how. That's h o gbearren.com. And you can subscribe to the podcast on Apple Podcast, Spotify, or wherever you listen to podcasts. If you listen on Apple, write us a review. If you have a taco idea, you're probably better off sending that to Chris at Yum. Don't do Kit Kats. They've tried it. See you next week.