Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive
Speaker 1: from coast to coast with Caroline Hyde in New York
Speaker 1: and Va Low in San Francisco.
Speaker 2: This is Bloomberg Tech coming up.
Speaker 3: Microsoft and open Ai have agreed to drop exclusivity rights
Speaker 3: on AI models, opening the doors for rivals to make
Speaker 3: new deals. Plus China blocks metas two billion dollar deal
Speaker 3: for AI startup Manners and a surprise move that unwinds
Speaker 3: a controversial deal. And Elon Musk and Sam Altman head
Speaker 3: to court with the Tesla CEO alleging that the open
Speaker 3: Ai founder abandoned its founding mission. Let's get to our
Speaker 3: top story of the day, and this is an interesting one.
Speaker 3: Microsoft shares are now basically flat, but when youws hit
Speaker 3: that they had ended their exclusivity packs with open Ai
Speaker 3: to stop was down four percent in pre market. Amazon
Speaker 3: shares shot off on the logic it would benefit all
Speaker 3: of that has been undone. It is a complicated story.
Speaker 3: Bloombergs Brody Ford joins us on set in San Francisco.
Speaker 3: The bits that are new are there are changes in
Speaker 3: the structure of the agreement between Microsoft and open Ai.
Speaker 2: Let's start there.
Speaker 3: What do we need to know what can open Ai
Speaker 3: now do that it couldn't do twenty four hours ago.
Speaker 4: So the big headline of what has changed is that
Speaker 4: the OAI models for a long time were exclusive on
Speaker 4: Microsoft Azure, and that was really kind of the last
Speaker 4: bit of exclusivity in this storied partnership that helped us
Speaker 4: share in the AI era that now is kind of
Speaker 4: going away. And so this is meaningful for open ai
Speaker 4: because they're in a world where compute is constrained. They
Speaker 4: need as much as they can get, and they want
Speaker 4: to be able to distribute their products onto all the
Speaker 4: major platforms.
Speaker 3: Microsoft still gets access to the models through twenty thirty two,
Speaker 3: it's just open Ai can sell them and make them
Speaker 3: available in other places. So you and I were talking
Speaker 3: before the show, who benefits or Amazon in the first
Speaker 3: instance where it shares jump in pre market. Now I
Speaker 3: think they're lower again. But that's the idea. This is
Speaker 3: hot on the heels of a deal between open Ai
Speaker 3: and AWS, which I think was in January, maybe February.
Speaker 4: Yeah, in recent months, you know, OAI and AWS have
Speaker 4: been working together to distribute on that platform, which is
Speaker 4: still the leading cloud infrastructure platform. Microsoft reportedly was not
Speaker 4: super happy about that.
Speaker 5: We have to.
Speaker 4: Imagine the changes today are downstream of those discussions, or
Speaker 4: at least discussions like that. And what Microsoft gets in
Speaker 4: a return here is that they're no longer paying a
Speaker 4: revenue share.
Speaker 2: Yeah.
Speaker 4: Effectively they're saying, look, you can go and hang out
Speaker 4: with other people, but I'm not going to pay you
Speaker 4: to do it.
Speaker 3: So this is really interesting and again complicated. Basically, Microsoft
Speaker 3: was paying open ai a revenue share from revenues where
Speaker 3: it used open ais technology in some form, right. But
Speaker 3: the bit that's hard to understand is open ai is
Speaker 3: still a customer of Microsoft. They basically pay them for
Speaker 3: various reasons. Open ai pays Microsoft, and at the same time,
Speaker 3: Microsoft is the biggest investor in open ai.
Speaker 2: Explain me it's.
Speaker 4: Right, because it all stems from that original partnership with
Speaker 4: Microsoft and OI were for a long time folks saw
Speaker 4: as OI was almost a part of Microsoft. Right, So
Speaker 4: Microsoft gets access to these OI models everybody else has
Speaker 4: to pay for, but they just get to access them
Speaker 4: for free at least for the next couple of years.
Speaker 3: Bloemos Brodie Ford again two red headlines from the report.
Speaker 3: Markets have behaved very strange, and we'll get more on
Speaker 3: that later in the program. That's turned to matter. China
Speaker 3: has blocked the social media giant's two billion dollar acquisition
Speaker 3: of AI startup Mannus. The country's National Development and Reform
Speaker 3: Commission ordered the cancelation of the deal, stating it was
Speaker 3: prohibiting the foreign investment in accordance with laws and regulations.
Speaker 3: Without further elaborating here with more, Bloombergs Executive editor for
Speaker 3: Asia Tech Peter Elstrom, again another complicated story. Let's start
Speaker 3: with the what we need to know. This is a
Speaker 3: body in China unwinding at what we thought was a
Speaker 3: done deal.
Speaker 6: Yeah, this was a surprise, as you alluded to earlier.
Speaker 6: The NDRC jumped in today. It was only a one
Speaker 6: sentence announcement that they made. They didn't name Meta. They
Speaker 6: just said that this foreign deal with Manus had to
Speaker 6: be undone.
Speaker 2: So what the.
Speaker 6: DRC is doing here is they're trying to reverse a
Speaker 6: deal that was announced in December. The reason is that
Speaker 6: Manus's founders originally started the company when they were in
Speaker 6: mainland China. They decided to move to Singapore in the
Speaker 6: middle of last year. They declared themselves a Singapore company.
Speaker 6: They did set up shop there legally, and so when
Speaker 6: they cut the deal with Meta, Meta and Manus agreed
Speaker 6: to the deal and they did not get explicit regulatory
Speaker 6: approval from Beijing. But there were people inside of China
Speaker 6: who were saying that this was essentially losing critical AI
Speaker 6: technology to our biggest geopolitical rival in the United States,
Speaker 6: in Meta in particular, So they wanted some sort of
Speaker 6: pressure put to this, and we wrote a story last
Speaker 6: week about how regulars now are pressing other AI companies
Speaker 6: not to take money from US investors in particular. Now
Speaker 6: it's not clear whether China is going to be able
Speaker 6: to force Meta to undo this deal. These two companies
Speaker 6: have been operating together quite closely already. Metayee Manus employees
Speaker 6: have gone into the Meta offices. The executives are cooperating.
Speaker 6: All the investors in Manus have already gotten paid, They
Speaker 6: have their checks at this point, so it's not clear
Speaker 6: how they can underwin this.
Speaker 3: There's a technicality that Manis would say it was headquartered
Speaker 3: in Singapore, but it shows that China has reach if
Speaker 3: there's an origin within country. The political dimension is that
Speaker 3: President Trump in just a few weeks time will visit
Speaker 3: Jijing Pay and speak was Jijing Pay relationship as a
Speaker 3: negotiation has had chips semikindizers at the heart of it.
Speaker 3: What about software? What about AI and what we expect
Speaker 3: to be a negotiation there.
Speaker 6: Yeah, as you allude to, the technology transfer between the
Speaker 6: two countries has been a very significant deal. China would
Speaker 6: like more access to Nvidia chips in particular that are
Speaker 6: used to train some of these more advanced models. At
Speaker 6: the same time, Beijing has decided that they do need
Speaker 6: to develop their own semiconductor industry. It's not clear how
Speaker 6: big of a strategic priority this deal is going to
Speaker 6: be for the Trump administration. We've reached out to them
Speaker 6: for comment on this. They haven't weighed in so far.
Speaker 6: It's not clear that that's that big of a deal.
Speaker 6: Meta of course, is kind of playing catch up against
Speaker 6: Alphabit and Microsoft, as you were alluding to earlier Open Ai,
Speaker 6: so it's not one of the leading players in AI
Speaker 6: right now. But this deal was designed to get them
Speaker 6: back into the race. So we'll see whether Washington picks
Speaker 6: up the ball here and decides to make this a
Speaker 6: priority in those negotiations. Would be a bit of a surprise.
Speaker 3: Metas said in its own statement that they did the
Speaker 3: deal in compliance for applicable laws and that they expect
Speaker 3: a resolution.
Speaker 2: But didn't say any more than that.
Speaker 3: Bloomberg's Peter Elstrom, who leads our coverage of Asia tech,
Speaker 3: thank you very much saying with AI models and another
Speaker 3: story out of China, China's deep Seek is aggressively rolling
Speaker 3: out low cost plans for its newly released flagship model,
Speaker 3: intensifying competition in the country's AI sector. The company's offering
Speaker 3: developers a seventy five percent discount on its deep Seat
Speaker 3: V four pro model and as cut fees for input
Speaker 3: cachet hits to one tenth of previous pricing. The moves
Speaker 3: expected to heighten competitive pressures across the industry and could
Speaker 3: reignize a price driven race to the bottom. Here is
Speaker 3: another story that broke this morning. Shares of Qualcomm are
Speaker 3: now down one percent. They had jumped fourteen percent in
Speaker 3: the pre market. The company initially surged eight percent of
Speaker 3: the open after a closely watched industry analyst suggested the
Speaker 3: chip maker was working with Open.
Speaker 2: AI on a smartphone.
Speaker 3: Here with the details, Bloomberg's equities reporter Rhyan VLASLCA this
Speaker 3: was about an analyst who posted a report on x
Speaker 3: and the market reacted, what are the details?
Speaker 2: Hey, good morning, thanks for having me.
Speaker 7: So this is a very closely followed and highly respected analyst,
Speaker 7: and it really excited investors because Qualcomm right now is
Speaker 7: going through pretty uncertain times. It has been pretty strongly
Speaker 7: pressured this year the shares in large part because of
Speaker 7: the rise in memory prices, prices from memory related chips,
Speaker 7: which is having a negative impact on consumer electronics, especially
Speaker 7: its handset chips. So it's facing that kind of weaker backdrop.
Speaker 7: And at the same time, this has been a longer
Speaker 7: term story, but Apple is developing more of its own
Speaker 7: modem chips in house, developing more of its own internal hardware.
Speaker 7: That has been a major problem for Qualcomm, which used
Speaker 7: to count Apple as a major, major customer. So the
Speaker 7: prospect that they would get a new big customer in
Speaker 7: the form of open AI, a new market, a new
Speaker 7: smartphone market, is obviously very exciting for investors. But I
Speaker 7: guess it's maybe a little bit too far out there.
Speaker 7: It's too hard to price what this would really mean
Speaker 7: as far as revenue or anything else like that goes.
Speaker 7: So we did see the stop the stock pulled back
Speaker 7: after a pretty pronounced initial game.
Speaker 3: We're sharing that right now, qual comes down eight tens
Speaker 3: of a percent. The analyst we're talking about is Ming
Speaker 3: chi Quo of TF International Securities, And you know, the
Speaker 3: basics of it are. We know open Ai is planning
Speaker 3: some kind of device. We don't know much more than that.
Speaker 3: We know from January they were trying to establish us
Speaker 3: supply chain. Qualcom is the biggest maker of smartphone processes.
Speaker 3: What else is there to discuss, Ryan, I mean, that's
Speaker 3: the extent of our knowledge at this point.
Speaker 2: Right exactly.
Speaker 7: And the report did say that mass production will begin
Speaker 7: in twenty twenty eight, so again two years out. How
Speaker 7: do you begin to price something like that or factor
Speaker 7: it into a share price very hard to do, especially
Speaker 7: with so few details out there. We did reach out
Speaker 7: to all the companies involved, so far we haven't heard back,
Speaker 7: so a lot of the stuff remains sort of speculative.
Speaker 7: But like I said, right now, people are very focused
Speaker 7: on the memory situation and how Qualcom is going to
Speaker 7: navigate that. It does report as results I believe wednesday afternoon,
Speaker 7: so that's going to be a very closely watched report
Speaker 7: this week. You know, less in focus and some of
Speaker 7: the other megacaps, but certainly a notable one to come out,
Speaker 7: and I think maybe people are hoping that we'll get
Speaker 7: a little bit more clarity on the situation.
Speaker 3: Then Lumo's rhym Vesavaca, thank you very much. Now coming out,
Speaker 3: we're going to speak with Tim Alcuriy, UBS analysts and
Speaker 3: global cohead of AI. You just had the trio top stories. Well,
Speaker 3: this is a guy who can react to all three
Speaker 3: of them.
Speaker 2: That's next. This is Bloomberg Tech.
Speaker 3: Okay, three big technology stories driving markets. The first, Microsoft
Speaker 3: is down seven tens for percent. It has ended and
Speaker 3: broken its exclusivity packs with open Ai, Meta has had
Speaker 3: its deal with manas Ai and agentic ai platform blocked
Speaker 3: by regulators in China. That stock is up six tents
Speaker 3: one percent. And then the one that I don't think
Speaker 3: any of us really saw coming. Qualcom is now down
Speaker 3: about a percentage point eight tens of percent in the
Speaker 3: pre market. It was up fourteen percent in the open
Speaker 3: It was up eight percent all on an analyst report
Speaker 3: that it is working with open ai as the silicon
Speaker 3: provider on a future device, and that is all we know.
Speaker 3: Tim Hercury Ubs semi and Semi. Caab Anlyst, also UBS's
Speaker 3: global co head of AI is with us and I'm
Speaker 3: extremely grateful to have you on a daylight today, Tim.
Speaker 3: The basics of what we know is that there are
Speaker 3: talks right between open Ai Qualcom Media Tech was also
Speaker 3: named Qualcom is the biggest maker of smartphone processors. And
Speaker 3: the stock went sick and then quickly fell away. Your
Speaker 3: interpretation of the headlines, Yeah, look.
Speaker 8: I mean we haven't commented on this deal in particular,
Speaker 8: but you know what I would say is that, you know,
Speaker 8: Quacom has had a server, you know, effort now for
Speaker 8: a while, and it makes sense that they're going to
Speaker 8: be a player in an agetic world and and and
Speaker 8: you know certainly, you know, certainly they have a big effort,
Speaker 8: and and you know, the thing I would say about
Speaker 8: open Ai would be open ai tends to do a
Speaker 8: lot of deals with a lot of different companies, and
Speaker 8: so I typically put a little bit of a discount
Speaker 8: factor on, you know, any deal they could signed with
Speaker 8: open Ai, because they're doing deals with you know, virtually everybody.
Speaker 2: Tim.
Speaker 3: When I think about my use of an AI tool,
Speaker 3: I spend a lot of time at my desk Obviously
Speaker 3: I access that any given tool through a browser on desktop,
Speaker 3: but most of the time it's on this thing, right,
Speaker 3: the smartphone is the form factor by which I engage
Speaker 3: with AI in my daily life. In your research, is
Speaker 3: that the direction of travel that you see?
Speaker 8: Yeah, I mean we do. We think that you know,
Speaker 8: engagement with AI is going to be across of multitude
Speaker 8: of different platforms and a multitude of different devices, including
Speaker 8: you know, smartphones obviously, so you know, Qualcom.
Speaker 9: Is going to have a play here.
Speaker 8: Quacomm is has a you know, a very very strong
Speaker 8: edge franchise, and they will.
Speaker 9: Be a player.
Speaker 8: I think the issue with Qualcom, of course, is that
Speaker 8: seventy percent of the operating profit today comes from phones,
Speaker 8: and and you had mentioned in the you Know show
Speaker 8: previously the the you know situation with Apple, and we've
Speaker 8: talked about that where once Apple doesn't need their motive anymore,
Speaker 8: I don't think Apple is going to pay them a
Speaker 8: license either, and so there's there's more angles to this
Speaker 8: Apple story. So I think you're going to have to
Speaker 8: get through this period before we can then look ahead
Speaker 8: to Qualcomm being a player in a gentic world.
Speaker 3: I just want to update our audience on Bloomberg Tech
Speaker 3: that Intel went to the market for the investment investment
Speaker 3: grade bond market this morning. They want some help financing
Speaker 3: what they're building out in Ireland. But it was an
Speaker 3: astonishing news week for Intel last week as well. Where
Speaker 3: do you see Intel in its evolution in its turnaround?
Speaker 3: Under Litboutan.
Speaker 8: Yeah, you know, we've been talking for some time now
Speaker 8: about being more optimistic about their foundry business and about
Speaker 8: how they're turning around manufacturing. And I think that there's
Speaker 8: a lot of different customers that are potentially very interested
Speaker 8: in doing a deal with Intel on the foundry side,
Speaker 8: and I think you're going to hear more about that
Speaker 8: this fall. You know, we've talked about many, many different customers.
Speaker 8: So I think they are turning things around from a
Speaker 8: manufacturing point of view. They have a lot of you know,
Speaker 8: very good packaging IP to offer to these customers. I
Speaker 8: think the issue is their product roadmap. That that's kind
Speaker 8: of where I've been really stuck for now. I think
Speaker 8: because of the gentic the server CPU market's growing so
Speaker 8: much that that's what people are getting excited about from
Speaker 8: a stock point of view. So I would just you know,
Speaker 8: my caution really is on the product side, I think
Speaker 8: that they're turning things around. I think in foundry, the
Speaker 8: you know, turnaround will come a little faster than it
Speaker 8: comes on the product business.
Speaker 3: Tim we ended Friday show with the Philadelphia Semiconductor Index
Speaker 3: or socks up for an eighteenth straight day eighteen sessions,
Speaker 3: its longest winning streak on record. We're giving some of
Speaker 3: that back this morning. A nineteenth day would have been interesting,
Speaker 3: I'm sure, but Intel was a big part of that story.
Speaker 3: What else was driving investor sentiment around semiconductors that put
Speaker 3: us on that historic streak. Yeah.
Speaker 8: Look, I think there's been a resurgence in the realization
Speaker 8: that the analog sector, for one, is not I was
Speaker 8: pretty bullish on that sector into earnings, uh you know
Speaker 8: t I came out and gave you know, pretty good guidance.
Speaker 8: I think that customers are seeing the you know, capacity
Speaker 8: constraints get closer and closer to them, you know, customers
Speaker 8: in the industrial world, and so I think that customers
Speaker 8: pretty much across the board are beginning to think that
Speaker 8: they are going to have to start to build some
Speaker 8: inventories to protect against all of this. And that was
Speaker 8: one of the things that fueled this you know, rally
Speaker 8: last week was when you know, t I came out
Speaker 8: and basically guided you know, gave pretty good guidance and
Speaker 8: pretty good commentary, and I think you're going to hear
Speaker 8: more of that, So that was a big driver. I
Speaker 8: think also, you know, I've been builtished on semiicap equipment.
Speaker 8: I think you know you're going to hear more of
Speaker 8: that this week from you KLA and from some others, uh,
Speaker 8: you know, upping guidance there. There's just just so much
Speaker 8: capacity that has to get built out over the next
Speaker 8: three years. So you know, I think it's a myriad
Speaker 8: of things driving the sector right now.
Speaker 3: We we didn't even have time to talk about terrified
Speaker 3: and whether you're and the team are modeling that in
Speaker 3: as well, but we will now next time. Tim i
Speaker 3: Caurier of UBS, really great to have you on the program.
Speaker 2: Thank you. Now.
Speaker 3: Coming up, it's a huge week for tech earnings and
Speaker 3: two of the biggest names are slashing jobs. AI spending
Speaker 3: is surging, headcount is shrinking. What's really going on we'll
Speaker 3: discuss that next. This is Bloomberg Tech and Wednesday, two
Speaker 3: of the biggest names in tech step up to report earnings.
Speaker 3: Meta and Microsoft, and they do it under a cloud
Speaker 3: of contradiction. Just days ago, both companies signal cuts that
Speaker 3: could touch as many as twenty three thousand rolls, combined
Speaker 3: meta planning to slash about ten percent of its workforce.
Speaker 3: Microsoft offering buyouts on a scale it's never attempted before.
Speaker 2: At the same time, both are.
Speaker 3: Spending at record levels, pouring billions into AI data centers
Speaker 3: and chasing the next wave of growth. Here discussed attention
Speaker 3: Sarah Franklin ladders see the platform just sees massive flow
Speaker 3: of data right It's an HR platform and analytics platform
Speaker 3: that sees the world through numbers. And that's why I
Speaker 3: love having you on the program. I just outlined the
Speaker 3: story two of the biggest companies in this country, in
Speaker 3: the world cutting levels that we've not seen, but spending
Speaker 3: a lot. Is that the trade off that companies are
Speaker 3: managing right now.
Speaker 10: We're seeing this across the board. It's a trend in
Speaker 10: tech ed and it is really important right now that
Speaker 10: we look at people and their performance and not just
Speaker 10: what they're doing with tokens or what they're doing with AI.
Speaker 10: It's very interesting right now how you see leaders that
Speaker 10: are investing in severance and not necessarily the skills. It's
Speaker 10: a transformation in tech and we need to have leaders
Speaker 10: with the courage to take people from here to there.
Speaker 3: You know, job cuts and roles being eliminated is not pleasant, right,
Speaker 3: you know, And if anyone from Meta or Microsoft is watching,
Speaker 3: you know, reach out tell us what your experience has been.
Speaker 3: You said on performance is so interesting. So what the
Speaker 3: managers are measuring this in revenue per employee or output
Speaker 3: per employee to make that decision.
Speaker 10: You see a lot you see revenue per employee. You
Speaker 10: also see token maxing as a trend.
Speaker 2: Right they stay in age?
Speaker 10: Yeah, yes, right, but ask yourselves like, would you look
Speaker 10: at the person at your company that sends the most
Speaker 10: email as the most productive. It's a new thing that
Speaker 10: we can use to measure. It's not necessarily the correlation
Speaker 10: to performance. And what we need to do is help
Speaker 10: people get from where we are today to where we're
Speaker 10: going to with AI.
Speaker 3: You know a lot of people would look at the
Speaker 3: overall size of a Microsoft or a Meta and say,
Speaker 3: you know, well, ten thousand roles or eight thousand roles
Speaker 3: is or isn't a lot to anyone's point of view,
Speaker 3: from the payroll perspective. Does cutting that level really free
Speaker 3: up capital? Does it take the pressure off the finance teams?
Speaker 10: It doesn't really relieve the pressure. And it also deeply
Speaker 10: impacts culture. Whether it's one person or a thousand people
Speaker 10: or ten thousand, it is a human and people care
Speaker 10: about what happens to other humans.
Speaker 2: So there's a real.
Speaker 10: Cost on the spreadsheet. There's also a real cultural cost
Speaker 10: to what it means to lay off people.
Speaker 3: I always try and look deeper, what's the underlying story.
Speaker 3: I remember when you and I were talking kind of
Speaker 3: more immediately after the pandemic, the idea was to undo
Speaker 3: pandemic era exuberance and hiring. Now it's you know, it's
Speaker 3: about the AI era, right and freeing up for capex.
Speaker 3: But what those two things have in common is when
Speaker 3: you see waves of layoffs to that level that really
Speaker 3: experienced people in there, sometimes they go and found companies
Speaker 3: of their own.
Speaker 11: Yeah.
Speaker 10: No, it's what we're seeing right now is a big
Speaker 10: transformation in tech, and it's not just for the companies.
Speaker 10: It's also for the people with the careers. They've spent years,
Speaker 10: decades even working on refining their craft and what it
Speaker 10: means to be told to change overnight. It's like me
Speaker 10: telling you be in Europe in an hour unless you
Speaker 10: know how to teleport, not possible, but you can get
Speaker 10: there in a day. And so everybody's looking right now,
Speaker 10: how do I transform? How do I evolve with AI?
Speaker 10: And it's something that's the responsibility of leaders and also
Speaker 10: people to take it into theirselves to learn as well.
Speaker 3: I also want to make the distinction Meta is doing cuts,
Speaker 3: Microsoft is doing what I used to call in the
Speaker 3: UK voluntary redundancies, but buyouts here in America.
Speaker 2: Is there is there.
Speaker 3: Something to learn from that distinction or it's just a
Speaker 3: different means to the same end.
Speaker 10: It's still an investment in severance and not in the
Speaker 10: skills in your people. And that's the big difference. And
Speaker 10: so the more that we can invest in how we
Speaker 10: train people, how we get them from point A to
Speaker 10: point B, the better that we will all be, because
Speaker 10: it's a short term gain on the spreadsheet, but a
Speaker 10: long term loss in the knowledge that you have in
Speaker 10: the workforce.
Speaker 3: Sarah Franklin, the lattis, it's great to have you back
Speaker 3: on Bloomberg Tech and we are just at the start
Speaker 3: of what is a big week in earnings. Now coming
Speaker 3: up Elon Musk and Sam Oltman, and we'll face off
Speaker 3: in an Oakland court this week in a battle that
Speaker 3: could determine the future of open ai.
Speaker 2: This is going to be a big one and we're
Speaker 2: going to look at it right now.
Speaker 3: This is a market that's being driven by newsflow. It's
Speaker 3: kind of a situation where there have been so many
Speaker 3: headlines through the morning, everyone needed a moment to make
Speaker 3: sense of it. I would linger for a second on
Speaker 3: the Philadelphia Semiconductor Index or socks. We just talked about
Speaker 3: it with Tim akuriy from UBS on Friday. We ended
Speaker 3: the show by saying that that index was up for
Speaker 3: an eighteenth straight day, a record. We're giving some of
Speaker 3: that back. We're off by two percent. Also, what we
Speaker 3: used to say was our risk asset of choice Bitcoin,
Speaker 3: It's seventy six six hundred US dollars for token. Also,
Speaker 3: I guess we're saying this is a risk off environment.
Speaker 3: That's what the world looks like. We're only halfway through
Speaker 3: the program. It is halftime and this is Bloomberg Tech.
Speaker 3: Welcome back to Bloomberg Tech. Our top story open ai
Speaker 3: has broken free from its exclusivity packs with Microsoft. Microsoft's
Speaker 3: down four tenths of a percent when this story broke,
Speaker 3: two red headlines on the terminal. Microsoft fell four percent
Speaker 3: and then it came back. Everyone's assessing what this means.
Speaker 3: But basically open ai is free to distribute and sell
Speaker 3: its models with other cloud providers, and that is the
Speaker 3: reaction from Bloomberg Intelligence. A lot of focus on Amazon
Speaker 3: and AWS. Our colleague Anna Ragrana Bi he kind of
Speaker 3: leads the coverage for Hyperscalers, is saying that this amended
Speaker 3: partnership is going to be a net positive enter prize
Speaker 3: AI adoption, but more broadly for AWS, something he's been
Speaker 3: writing about all year. And of course open ai did
Speaker 3: that deal. Amazon jumps in the pre market. It's now
Speaker 3: kind of given up some of the menum Let's sad
Speaker 3: to another open ai story. One of the biggest feuds
Speaker 3: in tech heads to court today. Elon Musk claims open
Speaker 3: ai abandon its founding mission as a nonprofit. He's suing
Speaker 3: the company, two of its co founders, Sam Altman and
Speaker 3: Greg Brockman, and Microsoft. Musk is seeking up to one
Speaker 3: hundred and thirty four billion dollars in damages that he
Speaker 3: says should go to open AI's charitable arm. If he wins,
Speaker 3: let's bring in Bloomberg's AI editor Seth Figereman. We should
Speaker 3: note that there was a developing story at the end
Speaker 3: of last week when Musk actually dropped a number of
Speaker 3: the claims that he was making. So let's start there.
Speaker 3: We go to court today this jury selection. What are
Speaker 3: the claims that Musk is sticking with.
Speaker 12: Yeah, I mean, this is a years long saga that's
Speaker 12: really culminating in the court case this week. And at
Speaker 12: the heart of it, Elon is alleging that Altman and
Speaker 12: other leaders that Operanie effectively tried to enrich themselves by
Speaker 12: pursuing a for profit push at Obanie, which was originally
Speaker 12: founded by Musk, Alman and a group of others as
Speaker 12: a nonprofit research organization. And he's claiming that he has
Speaker 12: effectually been defrauded as part of that, and he is
Speaker 12: asking for or up to one hundred and thirty four
Speaker 12: billion dollars in damages. But in some ways, even more
Speaker 12: crucially than the amount of money he's asking for are
Speaker 12: some of the remedies for that, which range from seeking
Speaker 12: to have Altman pushed out as CEO and his other
Speaker 12: official positions at the company and also trying to unwind
Speaker 12: the for profit conversion that was completed early last year.
Speaker 3: We were just showing some of those that the dudes testify.
Speaker 3: It's a pretty blockbuster list. And who's who, right, Sam
Speaker 3: Altman is going to testify Elon Musk himself, Miramradi formerly
Speaker 3: open aicto now of Thinking Machines, Microsoft CEO Sati and Nadella.
Speaker 3: There is some historical beef here which you should explain
Speaker 3: the relationship between Musk and Altman plays out on social media. Musk,
Speaker 3: of course, is also the founder and leader of a
Speaker 3: rival frontier lab XAI.
Speaker 12: That's right, yeah, I mean these were two close colleagues
Speaker 12: for a time who were instrumental on the founding of
Speaker 12: Opening I more than a decade ago. Elion in some
Speaker 12: ways as very much the benefactor of the organization in
Speaker 12: its early days. Sam has previously said that he considered
Speaker 12: as Elon must to be a hero of his. But
Speaker 12: there was a falling out within the first few years
Speaker 12: of the company's launch, seemingly in OPENINGE Eye is telling
Speaker 12: of it, because Elon Musk wanted more control, He wanted
Speaker 12: it to operate as part of Tesla. He seemed to
Speaker 12: want to be CEO of the organization himself. Altman and
Speaker 12: others refrained from that and must ended up believing Opennie
Speaker 12: around twenty eighteen. Since then, there's been a lot of
Speaker 12: name calling on both sides, with Musk in particular loving
Speaker 12: to call Sam Alman scam Altman, among other things. Elon
Speaker 12: has also taken steps to undercut the organization, not just
Speaker 12: through launching a rival company, but making a hostile big
Speaker 12: as some might recall, to try to basically take over
Speaker 12: the nonprofit that controls Openiey. This core case should be
Speaker 12: understood in that larger fight.
Speaker 2: Bloomberg, Seth Magun, thank you very much.
Speaker 3: Let's talk through the legal claims that the jury will
Speaker 3: be asked to weigh in more detail with Dorothy Lund,
Speaker 3: professor of law at Columbia Law School, where she specializes
Speaker 3: in corporate ownership, governance, securities regulation. Let's start with the
Speaker 3: legal claims in the case. I mean, technically speaking, what
Speaker 3: is it that Elon Musk is suing for and based
Speaker 3: on what and hoping to achieve what?
Speaker 5: Yeah, So, at this point there are only two claims
Speaker 5: that remain a lot of others have been dropped or
Speaker 5: dismissed and So the first is that Altman in open
Speaker 5: ai violated a promise to Musk that open ai would
Speaker 5: have a permanent charitable mission to develop safe open source
Speaker 5: AI technology for the public good and not private gain,
Speaker 5: and this was violated when in twenty nineteen open ai
Speaker 5: created a.
Speaker 9: For profit affiliate. So that's the first allegation.
Speaker 5: In the second is that it's really related, is that
Speaker 5: Altman and open eye received undeserved benefits such as Musk's investment,
Speaker 5: because of these broken promises.
Speaker 3: Professor Lund, does it matter that this is a jury trial?
Speaker 5: You know, this is a jury trial, Yes, but the
Speaker 5: jury in this case is only being used as an
Speaker 5: advisory to Judge Gondalas Rogers, so she actually doesn't have
Speaker 5: to follow their opinion, although it will certainly give her
Speaker 5: some cover if she does. And so today, you know,
Speaker 5: we're starting jury selection and it's a really interesting process.
Speaker 5: And the law here, you know, it doesn't require that
Speaker 5: jurors have never heard.
Speaker 9: Of Elon Musk or they've never used open ai.
Speaker 5: But instead, you know, the goal will be defined people
Speaker 5: that can put aside what they've heard they know about
Speaker 5: these people, and to decide.
Speaker 9: The case only on the evidence presented. In court.
Speaker 5: But you know, these are two very infamous figures, right,
Speaker 5: Musk and Altman. Musk has been aggressively moving companies to
Speaker 5: Texas and out of California.
Speaker 9: It's been leaning hard into MAGA politics.
Speaker 5: Altman isn't as well known, but he's had some recent
Speaker 5: episodes suggesting he faces some real personality challenges as well,
Speaker 5: you know, the recent multiv cocktail attack on his house.
Speaker 5: You know, I think in general there's just growing uneasy
Speaker 5: and skepticism about whether AI is going to visit its
Speaker 5: dystopia in future on all of US and Employment Data Center,
Speaker 5: environmental effects, power consumption. So you know, I think here
Speaker 5: it's going to be these The jury's views may be
Speaker 5: colored on these specific views on each of these individuals
Speaker 5: and also AI generally.
Speaker 2: Well.
Speaker 3: Mister Altman is well known to regular viewers of this program,
Speaker 3: but just in case, he's the CEO of Open AI,
Speaker 3: which is regarded probably as the most consequential AI lab
Speaker 3: at this moment in time. But therein lies an interesting
Speaker 3: point elon Musk also at the helm of XAI, which
Speaker 3: is now owned by SpaceX, a company in which he
Speaker 3: is CEO. Does that matter going into the case that
Speaker 3: he leads a rival company to the one that Sam
Speaker 3: Altman now leads.
Speaker 5: Absolutely, I mean, you know, it's very easy to view
Speaker 5: this suit cynically because Musk is operating his own rival
Speaker 5: AI company, and he's he's tried to partner with or
Speaker 5: take over open Ai multiple times he's been spurned. So
Speaker 5: I think absolutely there's a reason to be suspect about
Speaker 5: his motives here, and even the judge in this case
Speaker 5: has called this out, you know, in some pre trial motions.
Speaker 9: You can in fact.
Speaker 5: See in his IPO letter for SpaceX that you know,
Speaker 5: they disclose that Grock is going to benefit if this
Speaker 5: suit is successful. So I think at the end of
Speaker 5: the day, the judge and jury are going to have
Speaker 5: to determine whether Musk is disingenuously using this lawsuit to
Speaker 5: niqu app open ai and create more room for his
Speaker 5: own for profit initiatives to thrive with less competition. And
Speaker 5: this is essentially what open ai is, you know, put
Speaker 5: pointing to in this litigation.
Speaker 3: So if we just have two minutes left here, but
Speaker 3: the central issue is the nonprofits origin of open ai,
Speaker 3: and within the world of AI, of course we have
Speaker 3: public benefit corporation structures as well. Is there a chance
Speaker 3: that this case sets precedent for the legal structure of
Speaker 3: companies that operate that way.
Speaker 5: Yeah, So, I mean, you know, there's a lot to
Speaker 5: say about this structure.
Speaker 1: You know.
Speaker 5: One of the arguments that Musk has made is that,
Speaker 5: you know, if we're not careful here, this is going
Speaker 5: to cause other nonprofits to.
Speaker 9: Follow the same path as open Ai.
Speaker 5: They're going to make promises and then fall behind on them,
Speaker 5: and whereas the other nonprofits kind of go and go
Speaker 5: this way.
Speaker 9: You know, I think this is ultimately a weak argument
Speaker 9: for one.
Speaker 5: Open ai is not your typical startup, right, This is
Speaker 5: a very unique company in business.
Speaker 9: It's had a very unique sort of governance history.
Speaker 5: Each of its iterations has looked really different in interesting
Speaker 5: ways that we could spend far more than two minutes on.
Speaker 5: And you know, the other thing I think is important
Speaker 5: to note in this conversation is that something that's true
Speaker 5: of corporate law is that it's enabling. It allows businesses
Speaker 5: to change their forms based on their unique business needs.
Speaker 9: Right, and so you know, over time.
Speaker 5: You know, the argument that open ai has made is
Speaker 5: that we started off as a nonprofit, but this is
Speaker 5: a really capital and tons of business and we just
Speaker 5: needed more money in order to continue to pursue our
Speaker 5: mission and develop this technology.
Speaker 9: And this is why we made these changes.
Speaker 5: And this is all sort of consistent with our initial
Speaker 5: goals and the promises that were made upfront.
Speaker 9: And so again I think.
Speaker 5: That this is this is something you would expect from organizations,
Speaker 5: that they change their business form over time, and you
Speaker 5: wouldn't necessarily want to deter that either.
Speaker 3: Dorothy Lund, professor at Columbia Law School. Again, the Open
Speaker 3: AI must trial jury selection starts today in Oakland, Thank
Speaker 3: you very much. Coming up, we're going to speak with
Speaker 3: Under Secretary of State for Economic Affairs Jacob Helberg about
Speaker 3: strengthening the US tech supply chain. Big focus on chips
Speaker 3: and silicon. This is Bloomberg Tech.
Speaker 6: We were the jip capital of the world, and now
Speaker 6: you know Intel.
Speaker 9: And now they're coming back. All the jip companies are
Speaker 9: coming back.
Speaker 2: Let's get back to one of our top stories today.
Speaker 3: China has blocked Meta's two billion dollar acquisition of AI
Speaker 3: startup Manus, effectively unwinding a deal that we thought was done.
Speaker 3: It's a clear move by Beijing to keep advanced AI
Speaker 3: technology from flowing to the US. Just weeks before the
Speaker 3: expected Trump Gee meeting. Joining us on the show today
Speaker 3: under Secretary of State for Economic Affairs Jacob Helberg, who's
Speaker 3: been shaping the US strategy on exactly this kind of thing,
Speaker 3: economic and technology competition.
Speaker 2: This is about state craft.
Speaker 3: You know, we are going to talk a lot about
Speaker 3: silicon you know that's been a big focus for you.
Speaker 3: But this moved by China and one of its regulatory
Speaker 3: bodies to block this deal. How do you interpret that
Speaker 3: as a strategy and state craft on China's side.
Speaker 11: Well, it's great to be here and great to be
Speaker 11: with the Bloomberg team. So I think this is just
Speaker 11: the latest example of how China's economic diplomacy branded itself
Speaker 11: to the rest of the world as being all about connectivity,
Speaker 11: and in fact it's really been about coercion and practice.
Speaker 11: What we have done at the State Department is built
Speaker 11: an economic security coalition with fourteen countries called Paksliga. In January,
Speaker 11: I gave a speech at HUDD and that really laid
Speaker 11: out the blueprint. And last week we announced a forward
Speaker 11: deployed industrial base with our partner, or our oldest ally
Speaker 11: in Asia, the Philippines, which really is the beginning of
Speaker 11: the build and we're incredibly excited to get to hit
Speaker 11: the ground running.
Speaker 3: When we talk about China and from a policy standpoint,
Speaker 3: in this program, we talk about Belton Road the initiative.
Speaker 2: How is pack Silica different.
Speaker 3: Why is the strategy through pack Silica a better form
Speaker 3: of state craft.
Speaker 11: Yeah, so we are obviously building this effort with the
Speaker 11: benefit of having been able to study what China has
Speaker 11: done through the Belton Road Initiative for the past twenty
Speaker 11: five years. And the easiest way to understand the Belton
Speaker 11: Road Initiative is it was China's attempt to build government
Speaker 11: owned roads and government operated bridges and railways with state
Speaker 11: owned enterprises. The Chinese government has done this entirely in house.
Speaker 11: We have a totally different model. We believe America's superpower
Speaker 11: is the power of its private companies and its ability
Speaker 11: to build products that delight and enchant billions of users
Speaker 11: around the world, and so we decided to partner with
Speaker 11: the private sector to really roll out platforms. The Forward
Speaker 11: Deployed Industrial Base is our first major rollout that will
Speaker 11: be a platform for American companies in partnership with a
Speaker 11: strong sovereign partner in the Philippines. And ultimately the framework
Speaker 11: that we adopted is a framework where both the US
Speaker 11: and the Philippines have skin in the game and share
Speaker 11: in the upside of success. And it's that kind of
Speaker 11: positive sum approach that we hope to bring to all
Speaker 11: of our partnerships.
Speaker 2: Just discuss the Philippines a little bit more.
Speaker 3: Is a case study beyond its geographic position on the map.
Speaker 3: Why is that an important partner? I guess if you
Speaker 3: looked at it through an economic lens, or through a.
Speaker 11: Trade lens or a supply chain lens, well, we're very
Speaker 11: excited to partner with the Philippines because it's our oldest
Speaker 11: ally in Asia, is a defense treaty. Ally, it's also
Speaker 11: a kind that has very rich manufacturing capabilities, and so
Speaker 11: ultimately that kindness.
Speaker 2: Is the potential, the forward looking bit, the forward looking bit.
Speaker 11: But they already today have a very deep manufacturing sector.
Speaker 11: And so the values alignment, combined with the complementary industrial capabilities,
Speaker 11: we thought, provide the Philippines with a very compelling value
Speaker 11: proposition as a first test bed for the forward deployed
Speaker 11: industrial base as well as for American companies and for
Speaker 11: Filipino workers. So we're thrilled to be partnering with them,
Speaker 11: and we think American companies will be very excited to
Speaker 11: go there.
Speaker 3: Under Secretary, this is the first opportunity we've had to
Speaker 3: speak I think since CES in January actually, but of
Speaker 3: course in between, we've had the conflict in Iran, the
Speaker 3: war in Iran, and we spend a lot of time
Speaker 3: on this program talking about the impact to chip supply
Speaker 3: chains because of helium, for example, key stabilizer in the
Speaker 3: chip manufacturing process.
Speaker 2: Has that had an impact in the world.
Speaker 3: That you were doing, you know, some of those golf
Speaker 3: partners a key to what you're trying to do.
Speaker 11: Well, let me just say that we, obviously, you know,
Speaker 11: have made a very conscious decision to really double down
Speaker 11: on our partnerships with the Golf we have. We work
Speaker 11: with them incredibly closely.
Speaker 2: I hosted the us.
Speaker 11: U AAI working group in Washington with my colleagues from
Speaker 11: the Office of Science and Technology at the White House
Speaker 11: as well as the Commerce Department. Ultimately, one of the
Speaker 11: big takeaways from an economic diplomacy standpoint of the Iran
Speaker 11: crisis is really just the importance of de risking single
Speaker 11: points of failure. Right now, we have a concentration risk
Speaker 11: across our supply chains, whether it's logistics, whether it's actuators,
Speaker 11: whether it's rare earth magnets that remains unacceptably high. And ultimately,
Speaker 11: that really is the genesis of what pack silica is
Speaker 11: meant to address.
Speaker 3: When the President meets Swushijingping, what's on the table a
Speaker 3: point of negotiation or interest both sides may well change.
Speaker 3: We spend a lot of time with you and other
Speaker 3: colleagues and government talking about the idea of whether China
Speaker 3: should or should not have access to leading edge chips.
Speaker 3: But there's a software component to this as well. If
Speaker 3: we take the Mannus case study, do you expect the
Speaker 3: President to bring that up and use the competence of
Speaker 3: Chinese AI companies on the software side as a point
Speaker 3: of discussion or we just focused on chips.
Speaker 2: I expect the President to.
Speaker 11: Really walk into that room with maximum leverage and decision space.
Speaker 11: His national security strategy made abundantly clear that America will
Speaker 11: secure the inputs it vitally needs for its supply chains,
Speaker 11: and ultimately President Trump has reshaped American economic diplomacy the
Speaker 11: way only.
Speaker 2: An executive could.
Speaker 11: And it is really thanks to his leadership that this
Speaker 11: historic arrangement and partnership with the Philippines was made passable.
Speaker 3: Jacob Helberg, us Undersecretary of State for Economic Affairs, back
Speaker 3: on Bloomberg Tech and what has been an astonishing start
Speaker 3: to twenty twenty six now coming up. It's a sixteen
Speaker 3: trillion dollar test for the tech market this week. Those
Speaker 3: are the names at the heart of it. This is
Speaker 3: Bloomberg Tech. Time for talking tech. First start Meta is
Speaker 3: reaching for the stars to fuel its AI ambitions. The
Speaker 3: tech giant reserved up to one gigawa of power from
Speaker 3: startup Overview Energy, which plans to beam solar rays from
Speaker 3: orbit back to Earth.
Speaker 2: Meta said it.
Speaker 3: Hopes to secure uninterrupted energy for its massive data centers
Speaker 3: by twenty thirty plus. A former Tokyo Electron engineer has
Speaker 3: been sentenced to ten years in jail for stealing TSMC's
Speaker 3: proprietary data. Taiwan is on high alert for technology leaks.
Speaker 3: The hefty prison term for the former engineer reflects the
Speaker 3: government's efforts to guard its world class semiconductor industry. Former
Speaker 3: Deepmine researcher and AlphaGo mastermind David Silver has raised one
Speaker 3: point one billion dollars for his new startup ineffable intelligence
Speaker 3: at a five point one billion dollar valuation. With backing
Speaker 3: from Sequoia, Nvidia, and Google, the Silver's moving beyond large
Speaker 3: language models to focus on reinforcement learning and robotics. Okay,
Speaker 3: it's a sixteen trillion dollar tests for the market rally.
Speaker 3: With the Magnificent Seven projected to grow profits by nineteen percent,
Speaker 3: the stakes could not be higher. Bluembe'skarmen Rhinikey joins us
Speaker 3: to break down it is a make or break week
Speaker 3: for the S and P five hundred, the mag seven.
Speaker 3: We can frame it in any aggregate you like, but
Speaker 3: we have big earnings Wednesday.
Speaker 2: We have big earnings Thursday. What are you watching for?
Speaker 13: Yeah, it's really going to be a flurry of excitement.
Speaker 13: Especially Wednesday after the bell we get four of the
Speaker 13: biggest hyper scalers reporting, that's Alphabet, Microsoft, Amazon and Meta Platforms.
Speaker 13: These companies are the biggest in the S and P
Speaker 13: five hundred. They've helped drive a lot of this rallied
Speaker 13: that's gone back to record highs that we've seen in April,
Speaker 13: and so these earnings are so important for the entire
Speaker 13: market and really what investors are going to be looking
Speaker 13: for is this balance between high capital expenditures on artificial
Speaker 13: intelligence infrastructure going forward and the return on that investment.
Speaker 13: So the group that we're getting this week, they're expected
Speaker 13: to spend more than six hundred and forty billion in
Speaker 13: twenty twenty six on capital expenditures. That's up from more
Speaker 13: than four hundred billion this year. So this is a
Speaker 13: huge jump in the amount of money these companies are spending,
Speaker 13: and investors are going to be watching for what the
Speaker 13: return on that investment is.
Speaker 3: We've become accustomed to watching the capital expenditures numbers, it's
Speaker 3: been several quarters now. But if we put that to
Speaker 3: one side, what else is it that investors are looking for?
Speaker 3: A guess across the forum Wednesday.
Speaker 13: Yeah, So there are a few line items that are
Speaker 13: going to be really important. One is cash flow, free
Speaker 13: cash flow, and there are some interesting facts to kind
Speaker 13: of dive into here. So for Amazon, for example, free
Speaker 13: clash flow is expected to be negative this quarter and
Speaker 13: potentially the widest sense twenty twenty two when what was
Speaker 13: happening then is that the company was investing a lot
Speaker 13: in warehouses to meet sort of demand that had been
Speaker 13: fueled by the pandemic. So that's something investors are going
Speaker 13: to be watching really closely. Meta's first quarter free cash
Speaker 13: flow is also expected to be the smallest in nearly
Speaker 13: four years. And then on the flip side with some
Speaker 13: of the other companies, including Amazon and Alphabet cloud sales,
Speaker 13: so how those cloud businesses are doing is going to
Speaker 13: be extremely important. Investors really want to see growth here.
Speaker 13: It's you know, proof for you know, the AI trend
Speaker 13: going forward.
Speaker 3: We didn't get to Apple, but that's on Thursday, so
Speaker 3: I'm giving us a breather. We can do it later
Speaker 3: in the week. But that was a great summary of
Speaker 3: what's to come. Calmen, Rhinicky, thank you, and that does
Speaker 3: it for this edition of Blueberg Tech. So many news
Speaker 3: headlines that were driving tech markets this morning. Recap on
Speaker 3: the podcast. You know where to find it on the
Speaker 3: Bloomberg terminal as well as online on Apple, Spotify and
Speaker 3: iHeart this is Bloomberg.