Franklin CEO Says AI Payoff Remains Unclear

Author: Bloomberg Television · Watch on YouTube

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Original language: English

Original video: Franklin CEO Says AI Payoff Remains Unclear · Channel: Bloomberg Television · 07:03 · Watch on YouTube

Topics: AI agents, Enterprise AI applications, Markets and economy

Summary

Franklin Templeton CEO Kevin Walsh says companies are only beginning to use existing AI models, while balancing potential risks, governance needs, and competition with China. He describes practical benefits at Franklin Templeton, including higher sales-team productivity, but says other AI initiatives have not yet paid off. The profitability of AI remains uncertain, particularly as major providers take on the costs of data centers and users may route work to free or cheaper models. Walsh also discusses software companies, Federal Reserve independence, and his view that markets and the broader economy have shown resilience.

Key points

Companies have years of work ahead to make full use of the AI models that already exist.
Walsh says slowing AI development could risk U.S. leadership if China continues moving forward.
AI governance is important to control agents, monitor their activity, and manage token costs.
Routing simple queries to free models and reserving paid models for harder tasks can help manage costs.
Franklin Templeton’s intelligence hub has helped salespeople visit 23% more clients and contributed to an 11% uplift in sales.
Some AI initiatives have not paid off yet, though Walsh expects benefits to take time.
AI may let smaller businesses build their own software, but large installed systems can be difficult to replace.
The profitability of AI remains uncertain as major AI companies invest heavily in data centers and cheaper alternatives may compete.
Walsh says markets have been reassured by the Federal Reserve chair’s demonstrated independence.
He describes 2026 as resilient, citing strong earnings, consumers, and jobs despite wars and high oil prices.

Chapters

Start	Chapter	Summary
00:00	AI risks and the pressure to keep moving	Walsh discusses AI’s potential dangers, the need to use current models, and the risks of slowing down while China advances.
02:10	AI governance and business results	He explains why companies need oversight and cost-conscious model routing, then describes productivity and sales gains from Franklin Templeton’s intelligence hub.
03:50	AI’s impact on software companies	Walsh considers whether AI-generated software threatens established providers, while noting that large installed systems can be hard to replace.
04:58	AI profitability and the Federal Reserve	The conversation turns to AI’s uncertain economics and data-center costs, before Walsh comments on Federal Reserve independence.
06:33	Investor outlook	Walsh says the economy and markets have shown resilience despite geopolitical uncertainty, high oil prices, and other challenges.

Quotes

there is so much opportunity that we as a company need to do to leverage AI — 00:32

what is gonna become very important is the governance layer. — 02:10

they’re seeing 23% more clients — 03:17

I think that remains to be seen. — 05:30

the best word to describe it is resilience. — 07:03

Concepts and entities

AI, Agent, governance layer, Franklin Templeton, Salesforce, China, Kevin Warsh, Federal Reserve, Howard Marks, Oaktree

Full transcript (original language)

00:00 Let’s start with AI and the anxiety that we’ve had over the last week. Dario, I’m gonna take a sip of my coffee every time we say AI. Wheel. We could spin it, and and this is what I’ve landed on. How are you thinking about, yes, the the potential existential threat here, the the way that that has shaped your outlook from a market’s perspective on on AI, the fact that there is this encouragement by these CEOs to pace themselves to slow down. So I thought a lot about you know, obviously, it’s it’s scary. Right? You you you have these models that are going out, and not only are they breaching other people’s

00:32 environments, they’re racing the logs behind them. I mean, that’s so, you know, as a CEO, have to figure it and say, okay. I gotta put this in two buckets. So the bucket as a CEO is you have to think in terms of there is so much opportunity that we as a company need to do to leverage AI with the models that exist today. Yeah. So the argument about what happens and whether we should slow down is not really You can’t pace yourself. Right. Yeah. We because it is gonna take us years before we maximize the existing kind of front end models. And then I think, you know, on the I ran technology for

01:04 a while. When you programmed, you programmed to tell it what to do. What’s happening is you almost need to program to think about all the things you you tell it it can’t do. That’s very different in how because you have to think of all the possibilities. Yeah. It’s like dating. Sorry. There you go. And and, you know, I think the challenge, though, and the reality is we are, you know, The US versus China. If we slow down and China doesn’t slow down, we sort of see that leadership position. We can’t afford to do that either.

01:35 And then, you know, finally, the reality is in life, there’s always another Putin, Hitler, some megalomaniac who’s gonna act badly. You can’t give them the tools and not have any offsetting side. So, I mean, it’s a it’s a really difficult kind of, dilemma. But, again, I think for most CEOs who are sitting here today, we have to we’re only scratching the surface of leveraging these models within our own environment. The other question I have is as you start to implement it, at this time, do the margins make sense? Are you getting what you need out of it, especially AgenTek AI

02:10 for what you’re paying for it? Yeah. So first of all, the the interesting thing is what is gonna become very important is the governance layer. So two things. On the one hand, we first wanted to put these models in everybody’s hands so they’d start to get comfortable with the tools. But eventually, the risk you have is that people start generating these agents. And, oh, by the way, it’s just running every day, and nobody’s looking at it. It’s using up tokens and Right. There’s a joke. This guy does for his his away message, and it’ll cost him $10,000. Exactly. So one is the government’s there. And then the second piece is a lot of

02:43 what you do should go into the free model. So you need the routing to say, oh, this is not a difficult query. This is an easy agent. Let me send it over to the free one, or this is a really challenging one. Now, of course, the, big AI companies aren’t encouraging you to think about that governance, but I think that discipline is gonna be really important. Interesting. You know, we we built a we call it the intelligence hub. It’s essentially making our salespeople’s times more effective, visiting the right clients, having the right conversations. And, honestly, they’re seeing 23% more clients because it’s taking away a lot of

03:17 the administrative work, and we have 11% uplift in sales. Really valuable. Some of the other stuff we’re doing, we’re still kinda looking at it and saying, okay. It hasn’t paid off yet, but I think it’ll take time, and there’s no question in my mind that it will pay off. It seems like one sector really liking this existential conversation is the software sector. They had been worried about their very existence during the SaaS apocalypse, which I still remember from just a few years a few months back, not a few years back. Of course, they’ve had great earnings as as well. And so if you look at over the course of last week, they performed pretty well and kind of lifting up the technology sector more broadly. What

03:50 do you what do you make of that, the role of those companies? Pretty much they’re they’re thinking about AI and kind of comporting their businesses in that direction. Look. For sure, you are putting in the hands of the average person the ability to programming, and that potentially has a threat. My, son-in-law has a little cleaning company. They’ve written their own CRM system. Right? So they’re no longer going to Salesforce to go write it. They’re doing their own. However, again, having run the technology department, once you have an application that’s a big installed base, it is feeding this downstream all your other systems. It is so

04:25 hard to pull it out. You know what? Probably half of financial services firms are still running a mainframe in their back office. Right? It’s a They might not admit it. That’s true. Exactly. Or person with an excessive Excel grid. But yeah. Yeah. So, you know, I think for the big software companies who are building the tools for agents to be built within their software, they’ve got a they’ve got a plenty of long run. The question is, does their multiple ultimately start to come down as perhaps some of the people who would have signed up try to write it themselves? Those will be the smaller companies that weren’t probably generating a lot of their revenue anyway.

04:58 We were talking to Howard Marks, of Oaktree just a minute ago about he was saying, you know, it’s not quite this irrational exuberance. And I was saying, but but isn’t it? Because you really you’re betting on something you you don’t know. You’re betting on the promise of profitability in the future. And I was wondering, do you think AI in its current form is going to be a profitable technology? Because that’s not a certainty at this point. Oh, why? So I think that’s the real question. Right? I I actually think for companies like Franklin Templeton, honestly, we haven’t been suddenly rerated in our margin, because we’re now leveraging

05:30 AI. So so that hasn’t kind of filtered down, filtered through. I think the question is these big AI companies who were capital light businesses are suddenly capital intensive businesses as they build these data centers and other things, and a lot of that expense hasn’t gone through the p and l. So the question is, what does that look like ultimately? And I think that remains to be seen. I think that’s still pretty new. And, again, as people get smarter about that governance layer on where to direct their queries and start to send more to the free AI models, that could impact.

06:00 Or even competing cheaper models, from places like China. Exactly. Yeah. Kevin Walsh, a few months on the job here, finding his way, talking more about his objectives and sort of the the reaction function as he as he sees it. Are you satisfied with what you’ve heard from him? How important was this last meeting that we had last week and the comments that he made after? Do you have a better sense holistically of the way that he’s approaching the job and monetary policy? Yes. I I I mean, he was always kinda hawkish. I think people wondered how much the, you know, the president might put pressure on him. You know, I think he needed

06:33 with the with the jobs numbers that came out and the poor inflation numbers that came out. To be credible, the the Fed needed to raise rates. He’s one voice there. And so I think, you know, the the market’s been happy with, his independence, his demonstration of the independence. Before we let you go, how about a vibe check very quickly? How how are you feeling? Amidst all the uncertainty, we’ve touched upon some of it here. Of course, that’s gonna be on the program here today. Geopolitical uncertainty, uncertainty over AI. How are you feeling as an investor? Well, I mean, the crazy thing, if you look at 2026, probably the best word to

07:03 describe it is resilience. Yes. I mean, if you think about it, right, corporate earnings are very strong. The consumer continues to be very strong. The job market is strong. Here you have two wars. You know, the oil price is really, really high. We’ve been able to absorb all those things. Productivity is at an all time high and, again, kinda just starting. So, I I feel pretty good.