00:00:02 Speaker 1: Bloomberg Audio Studios. Podcasts. 00:00:05 Speaker 2: Radio. News. 00:00:09 Speaker 3: Hello and welcome to another episode of the Odd Lot Podcast. 00:00:22 Speaker 4: I'm Joe Wiesenthal. 00:00:23 Speaker 2: And I'm Traci Alloway. 00:00:25 Speaker 3: Tracy, I got to say, this Jensen Wong story, I think it's one of the biggest stories ever. 00:00:30 Speaker 2: Yeah. 00:00:30 Speaker 3: Just as a news story, it's about as big as it could possibly get. 00:00:35 Speaker 4: It has everything. It has everything. 00:00:37 Speaker 5: Alleged Chinese spies, chip smuggling. It's exciting stuff. Also, it's birthed like 5,000 memes, some of which are quite good. 00:00:47 Speaker 4: I've definitely seen some good memes. 00:00:48 Speaker 5: But actually, so on a serious note, if you think about the AI trade, I mean, the sun around which it all revolves is NVIDIA, both in terms of like providing the actual chips that powers a lot of this technology and also providing a lot of the financing and investments for these companies. Yeah. And so any hint of a scandal has big implications for AI as a whole. 00:01:12 Speaker 3: No, I really like the way you put that, that they are the son of the universe. Both from it, they have the crown jewel technology, the chips. They have the financing to back all kinds of partners and neoclouds and everything all around the world. 00:01:27 Speaker 4: Everyone wants it. 00:01:28 Speaker 3: And it is a technology that is both commercially intensely in demand and geopolitically in demand. And so in addition to the fact that the tech is good and they have the financing, there are all these fights about who they could even sell it to starting, you know, there are all these things of the Biden administration, lobbying of the Trump administration, how liberal should the policies be about who gets to buy them, et cetera. That is why this story is just like, so it's huge. 00:01:57 Speaker 2: Yeah. 00:01:57 Speaker 5: And just on the geopolitical, atomic's a good word. On the geopolitical angle itself, I mean, there's this tension that we've seen more and more in recent years where some people will argue that, well, you want the U.S., you want a company like NVIDIA to be the backbone of like the AI tech stack, right? And so maybe you want lots of people using their chips. 00:02:19 Speaker 4: Totally, totally. 00:02:19 Speaker 5: But on the other hand, you know, you have people in the Trump administration who argue that we are in this existential AI race with China, and therefore it's really important that China does not have access to the most advanced chips. And so we're seeing that sort of play out in a lot of the discussion on what's going on with NVIDIA right now. 00:02:39 Speaker 3: The other thing that's very important, and this will allow us to get into the guest, is that in some sense, there's actually, like, the story's kind of old news, right? There's been a lot of reporting on this company, Megaspeed, and its CEO, and the company's closeness to NVIDIA and Jensen specifically, and where they know. So, like, in a way, like, what is the new news here is part of the question, but whatever, you know. I guess on some level, the new news... is just specifically Jensen Wong admitting to NVIDIA that he had this relationship, an affair, with this executive or someone associated with Megaspeed and the investigation into it. Anyway, without further ado, we really do have the perfect guest, someone who I think is like the best beat in the world. Whenever we get a chance to chat, I'm always learning more about both the sort of like politics, geopolitics of chip flows and, around the world, someone who's reported on chips all around the world, from D.C. to San Francisco, and now based in Hong Kong. We're going to be speaking with tech reporter here at Bloomberg News, Mackenzie Hawkins. So, Mackenzie, thank you so much for coming on Odd Lots. 00:03:53 Speaker 2: Thank you so much for having me. Quite a week. 00:03:55 Speaker 5: Staying up late and coming on Odd Lots, because you're based in Hong Kong, so thank you. 00:04:00 Speaker 3: And you were just in the U.S., so you're probably still kind of jet-lagged. 00:04:03 Speaker 2: You know, I'm actually, like, This week I've gone back to working U.S. hours, so I feel like I never left the U.S. I finally got over the jet lag and Jensen Wong is jet lagging me. 00:04:12 Speaker 3: I can't believe how fried you must be. So again, thank you for taking the time. Let me start with this question. You know, reporters always think they know a little bit more than what they can write at any given moment, etc. 00:04:26 Speaker 4: Because, you know, you're waiting for verification. 00:04:28 Speaker 1: Let's say we were talking a week ago. 00:04:32 Speaker 3: And so based on only what you're allowed to report, let's say this conversation is happening sometime in October and we say, Mackenzie, what's the deal with this company Megaspeed? What was the answer you gave me a week ago? Just that you're totally able, who is Megaspeed? And why should we care about this company called Megaspeed? 00:04:51 Speaker 2: So pre-affair admission, Megaspeed is the single largest Southeast Asian buyer of NVIDIA chips. It's a major supplier of AI compute to Alibaba. which is one of the most important tech companies and frontier AI leaders in China. It purchased $ 4. 6 billion worth of NVIDIA hardware after being spun off from a Chinese gaming company, passing through a BVI shell, and incorporating in Singapore, then becoming an official NVIDIA partner four days later. Its executive had a close relationship with Jensen. We didn't know quite how close. And it had been under U.S. investigation and Singapore investigation for, if we're talking a week ago, at least a year. 00:05:34 Speaker 5: So why did this raise eyebrows in the first place? So Megaspeed renting out GPU capacity to a company like Alibaba. My understanding is like, OK, that's allowed. People know that this is happening. But at the same time, if you're worried about Chinese companies having access to technologically advanced NVIDIA chips, it seems like a pretty big loophole. 00:05:57 Speaker 2: Yeah. So, I mean, the arrangement that Megaspeed has with Alibaba is extraordinarily common across the Southeast Asian data center ecosystem. You know, in some ways, the backbone of Chinese compute is like Johor, Malaysia. So it's not actually the remote access cloud computing arrangement that got Megaspeed sort of looked at by the U.S. government, later by the Singapore government. It's the suspicion that the company has not just rented compute to Chinese offtakers, but actually diverted those, like the physical hardware into mainland China. Right. So that's the focus of the U.S. investigation. It was looking at whether Megaspeed had smuggled chips, which the company has categorically denied having ever done. And also looking into its ownership structure, because even if Megaspeed is a Singaporean entity, if it were owned by a Chinese company, it would also be illegal to sell advanced NVIDIA chips to Megaspeed without a U.S. license. It is 100 percent Singapore owned, but by a shell. 00:06:53 Speaker 3: Let's get into like there is this question of, you know, what do chip restrictions even mean if you could still just access a cloud in a different country? And like, is this the mother of all loopholes? But let's actually just start on the smuggling question. Why might investigators have been concerned that Megaspeed was literally smuggling chips or not? Like, what are the details that we know around this question? The actual, the physical movement of chips from, say, a delivery address in Johor, Malaysia to an address inside of mainland China. 00:07:30 Speaker 4: Yeah. 00:07:31 Speaker 2: So, I mean, the U.S. government has a handful of export control officers overseas, including in Southeast Asia. And when I say a handful, it's really a handful. It's like a dozen. They're going to more than double the number this year to 25. For context, you know, when we did our investigation into Megaspeed last year, I think I was on singular email chains that had like 50 Bloomberg people. So the capacity of the U.S. 00:07:54 Speaker 1: Government. 00:07:55 Speaker 4: Hold up, hold up. 00:07:56 Speaker 5: Probably says more about Bloomberg. 00:07:57 Speaker 3: All of us in this room have been on email change with 50 Bloomberg people. A little inside baseball here, but this is a real phenomenon. 00:08:06 Speaker 4: All right, keep going. 00:08:08 Speaker 2: But no, in all seriousness, the U.S. government has fairly limited enforcement capacity overseas, but they do checks. And there's unfortunately not a ton that I can say about the initial trigger for the probe into mega speed. But through the course of looking at shipments through Southeast Asia, they thought that this company was worth digging into more. I can talk a little about why I started looking into Max Speed. Sure, go for it. 00:08:31 Speaker 5: If that would be helpful. 00:08:32 Speaker 2: Yeah. So in April or May of last year, I had sort of recently arrived in Hong Kong and I was working with a couple of colleagues here and in the mainland on a story about this cluster of data center operators in China's western deserts that had issued reports procurement orders and local government tender notices that they had fulfilled to build data centers seeking 115,000 restricted NVIDIA chips. This was, you know, in order of magnitude larger than what anybody thought might be in China. And so a big question that we were trying to probe is, you know, it's one thing for them to be constructing buildings. You know, Chinese companies love to construct shells. I mean, I mean that physically in this sense, but obviously that is the case for shell companies as well. But it's one thing to build the buildings. It's another thing to put the chips inside. And so one of the big questions that we were trying to tease out that we weren't able to answer in that investigation was whether these particular operators had the supply chain, the black market supply chain necessary to get the GPUs. And when I was asking around in Southeast Asia supply chains, everyone just kept saying, look at this company called Megaspeed. And so we started looking at them a year and a half ago, maybe a bit over a year and a half ago. and found out, you know, several months actually into our own investigation that the U.S. government had been looking into them as well. The U.S. investigation remains ongoing in a sort of complicated way, which we can get into a bit later. In our reporting, we didn't find concrete evidence that Megaspeed had smuggled any GPUs to China. We found an extraordinary number of inconsistencies in their data center footprint that neither the company nor NVIDIA have been able to explain. 00:10:12 Speaker 5: I want to ask about those inconsistencies, but before we do, can you just describe how chip smuggling typically works? Like, how do people in the black market actually do this? 00:10:23 Speaker 2: Yeah, so, you know, we have enough examples of, you know, public allegations, things that are being actively prosecuted to sort of draw some thematic conclusions. There is a secondary market for NVIDIA hardware, but, you know, most NVIDIA chips get to customers via official allocation from NVIDIA. And NVIDIA doesn't sell chips directly to the end user, like they wouldn't be selling hardware directly to Megaspeed or directly to CoreWeave or whoever. They sell to OEMs, original equipped manufacturers, server makers like Supermicro or Dell or HP. Those server makers typically sell to distributors. Those distributors might sell to another distributor. then they go into a data center, and then they're often rented to another company. So it's this extremely vast distribution network for NVIDIA chips. But ultimately, in order to place an order and get your order approved by NVIDIA, you need to say, like, this is where they're going. Like, this is the customer, this is the data center location. And a consistent theme across, you know, what's now like half a dozen cases being prosecuted, and this is certainly the case in the indictment of Supermicro's co-founder earlier this year, The stated location of where the chips are going to wind up was not the intended location. You know, it's not that there was some sort of rogue person at one node in the supply chain that was like, yeah, I'm just going to grab them. You have companies or individual actors that place orders that are purportedly for a destination outside of China with the intent of diverting that hardware to China the entire time is at least the allegation that's sort of laid out in several indictments that And then it's a question of, well, how much work does NVIDIA need to do and do the server manufacturers need to do to make sure that the actual stated destination of the chips exists? And there are some cases where prosecutors have alleged the data center literally didn't exist. There was never a place for those chips to go. They were just always intended to go to China. 00:12:16 Speaker 5: Wait, can I just, I'm a little bit disappointed. Are there no chip mules out there? People who are just like, I don't know. I have this vision of someone in a trench coat and they like open it up and it's lined with like, probably not H-100s, with black wells or something. 00:12:32 Speaker 2: Well, you know, it's funny that you say that because, you know, in one of Jensen's many denials of chip smuggling as an issue, he said, you know, the Grace black well system wastes you tons. You're not putting that in your backpack or pocket anytime soon. We reported a couple months ago that the U.S. government has been investigating a Singapore headquarter logistics company that literally specializes in tech hardware transportation through complicated logistics. Those are fragile systems and transported or is believed to have transported restricted hardware. And then it's a question of like, OK, if you're a logistics company, then how much is it your job to know what's in the package? So a lot of these cases also involve false declaration or allegedly involve false declaration, you know, putting on customs forms that it's just a computer server. Ambiguous what type of computer server. Sometimes random electronics, there was one case where, and this is a case where one person's actually pled guilty already, where they declared restricted NVIDIA hardware to be, quote unquote, adapter modules. This is a category of electronics that includes the thing you use to plug your phone into a foreign power outlet. 00:13:37 Speaker 6: Really? 00:13:37 Speaker 2: Adapter modules that weigh 2,000 pounds? So there are lots of cases where it's like, really? That's an eyebrow-raising declaration of But there are lots of colorful characters in broker markets. It's actually a very sophisticated black market. There are contracts. Brokers go and solicit hardware on behalf of specific suppliers. There was one broker who complained to us that the trade is so good and so many people are trying to get in on it. that now you have these scammers in the black market who are like purporting to have hardware. 00:14:11 Speaker 4: Oh, yeah. 00:14:12 Speaker 5: Good, honest black markets. 00:14:14 Speaker 2: For like legitimate, honest black market brokers. No, it's a pretty extraordinary and sophisticated and sprawling ecosystem. 00:14:37 Speaker 3: Just one slight detail. You said that technically an entity like a Megaspeed or even a CoreWeave does not actually buy the chips from NVIDIA directly? And that actually the first buyer of the chips is the server maker? 00:14:52 Speaker 2: Yeah, typically speaking, NVIDIA is not selling directly to the end user. 00:14:56 Speaker 3: But the end user gets the allocation. So the end user, a CoreWeave, a Megaspeed, whoever, will get some allocation directly. that NVIDIA decides, okay, they're gonna get this many, but the actual chain first goes through one of the server makers like a Dell or a Supermicro or something like that. 00:15:13 Speaker 2: Correct. 00:15:14 Speaker 6: Okay. 00:15:14 Speaker 2: Yeah, that's what makes NVIDIA the kingmaker. 00:15:16 Speaker 4: All right. 00:15:17 Speaker 3: Explain, as you said, this question of smuggling is not locked down, but you said inconsistencies discovered in your reporting. Let's talk about these inconsistencies. 00:15:28 Speaker 2: On Megaspeed? 00:15:29 Speaker 5: Yeah. 00:15:29 Speaker 2: All right, let's get into it. So, you know, one of the sort of first ports of call that I look at when I'm investing in a company for smuggling, which has now become a big part of my job, is do they have the requisite data center space? Like literally just the physical space in the building, the power supply to support the hardware that they have purchased. And we. 00:15:56 Speaker 2: Learned at a point in our investigation the number of GPUs that NVIDIA found when asked by the U.S. government to go and check Megaspeed's facilities, which they did several times. You know, they tabulated all of the chips across over 12 data centers owned by eight companies in three countries. They added up all the chips. They reported to the U.S. government. And around this time, you know, we got a statement from them in mid-November last year that said everything that was shipped to our partners is where it should be. We compared that number to Malaysian and Indonesian trade records that we had gotten and found that there were about 50,000 chips unaccounted for, which is like not a small amount of compute. And most of them were Blackwell chips, which at the time were NVIDIA's best hardware. And so we went back to NVIDIA and we said, you know, we're not talking about one or two chips that are missing. We're talking about a significant proportion of the overall hardware that Megaspeed has purchased. And after we asked about that, they went back to Malaysia and they said, oh, we found these warehouses that contain what's missing. And I said, OK, great. So we're going to subtract from the amount of hardware that we found in trade records and the number of chips that we know you guys told the U.S. government you found, and that should be the amount of hardware that's in these warehouses that we didn't know existed until a week ago. We have been talking to NVIDIA about this for a really long time by this point. This is the number, right? And they declined to comment on whether that's the number. I was like, okay. And then they eventually submitted an updated statement that said we've identified, quote-unquote, substantially all of the chips that Megaspeed had purchased via its hardware partners. And we'll do additional checks in the near future. So that was December of last year. I've probably asked NVIDIA 10 to 12 times over the past year whether those additional checks have occurred. I'm interested in particular in a handful of data centers. One, which is Megaspeed's largest data center, dropped the company as a tenant a couple of months after our investigation and a story by the New York Times that first broke the news of the U.S. investigation into Megaspeed. I don't know the reason that they were dropped, but if they're no longer a tenant and that's where a significant portion of the NVIDIA GPUs that NVIDIA told the U.S. government it found were located, that raises some questions about where that hardware might be now. We've not gotten answers to those questions. So that's one of the eight data center operators. Two of the others directly contradicted to us on the record NVIDIA's account of the hardware as described to the U.S. government. And so that's of the hardware that NVIDIA said it found in the data centers. And then you have this stuff that's, you know, in these warehouses. And we asked, okay, so NVIDIA's policy is, you know, we prioritize customers that are ready to put their products to use. They don't want GPUs sitting in warehouses for months and months on end. We asked, you know, what is Megaspeed's plan with this hardware? When are we going to see it installed in the data center? We didn't get answers to those questions. So that's just on the hardware side. allocation piece. Then we look at what Megaspeed has represented to investors and its data center footprint as the company describes it. And on its website, it had three data centers listed. We know that's an undercount of their total number of data centers, all in Southeast Asia. But in a presentation to investors in 2024, Megaspeed described five data centers across three countries and Two in Indonesia, two in Malaysia, and one in a specific area of an unnamed third country that on another slide of that same investor deck was the only one described as not in Southeast Asia. And the rendering that Megaspeed used to represent that data center is of a sprawling project in Shanghai. where Megaspeed's sort of Chinese corporate twin has been hiring engineers to work on restricted NVIDIA hardware. Companies that Alice, who has become sort of infamous in this scandal over the past couple of weeks, Companies that she has long-time business ties to have been investors in that data center. And so we asked, what's up with this product in Shanghai? Why is that the rendering that Megaspeed used to represent this facility on its investor deck? We never got answers to those questions either. 00:20:24 Speaker 5: It's such a weird decision to talk about, oh, and we also have this project in a country that we're not going to name, but here's an illustration of Shanghai. Yeah. OK, and just so we're clear, can you outline what exactly are the responsibilities of NVIDIA here? So if it sells chips to a server company and the server company declares that like the end user is definitely not a Chinese firm, is it incumbent on NVIDIA to like double check those claims or investigate? Like what do they actually what are they expected to do? 00:20:58 Speaker 2: You know, this is sort of the central tension that has been playing out over the past year is whose job is it to know? So, you know, in the case of Megaspeed, NVIDIA told us last year we asked the U.S. government if we need to cut off Megaspeed and we were told no. In the case where, you know, Supermicro's co-founders alleged to have smuggled two and a half billion or sold $ 2. 5 billion worth of hardware to an unnamed Southeast Asian intermediary that then smuggled the majority of it to China. We've reported that that Southeast Asian intermediary is one of the most important AI companies in Thailand. That company is alleged to never have had the data centers to install that hardware. So a lot of people have asked, did NVIDIA check did Supermicro check. And actually, Supermicro did check, according to the U.S. indictment. They audited because the volumes that this Thai company was purchasing were so significant. They audited, but then they allowed the shipments to continue multiple times. I think companies are always going to say, tell us what the law is and we will follow the law. If you don't want us to sell to this particular company, then tell us we can't sell to that company. But I think the question is, are there red flags that are so obvious that if you have sort of any competent due diligence program, you should have seen that? This is it's it's a conversation that's sort of being actively litigated in Washington, shall we say. And NVIDIA has started actually in some ways to self-regulate. Um, you know, they have this like top tier of NVIDIA cloud partners, these sort of like stamp of approval companies that are totally, you tell the industry, like these are, these are our top tier, uh, these are our top tier partners. Megaspeed is, is one of them, is still one of them. It became one of them four days after it was incorporated in Singapore. Another NCP, its CEO is on trial in Singapore for, uh, document for defrauding server suppliers about the ultimate destination of hardware. And there was like a mansion seize that was the alleged approach seize of chip smuggling. The Thai company was like sort of the initial hardware supplier for the like national AI company, Sovereign Cloud of Thailand, which is the first NCP in Thailand. So you have like definitely this interesting set of connections happening at the NCP layer. 00:23:21 Speaker 4: The NCP stands for? 00:23:23 Speaker 2: NVIDIA Cloud Partner. Oh, yeah, yeah. 00:23:25 Speaker 4: Sorry, sorry. 00:23:26 Speaker 2: Sorry. Yeah, yeah. So there's also like an internal whitelist of companies that NVIDIA has sort of pre-approved for purchase. And after the Supermicro co-founder's indictment earlier this year, NVIDIA went and cleaved a lot of companies from that whitelist. And it's this interesting thing because on the one hand, this is the type of due diligence maybe that some Washington regulators would like to see the chipmaker take. On the other, it raises questions of, you know, On what basis did you remove those companies? Why were they on the whitelist in the first place? And so, you know, I think also for NVIDIA, which is trying in some ways to demonstrate to the U.S. that it does take this seriously, but also has so deeply lost credibility on this issue that it's like a little bit of a catch-22. And that's not trying to absolve NVIDIA of responsibility, just sort of explaining a political reality that the company now finds itself in. 00:24:17 Speaker 5: This was going to be my next question because NVIDIA, I mean, the thing we hear constantly is chips are in short supply. Everyone is scrambling to get chips. There's so much demand out there. It's hard to fill it all. They can afford to be selective with their customers, right? Do you have a working theory for why would they even take the chance if demand is so strong that they could sell to pretty much anyone? 00:24:42 Speaker 2: That's a good question. NVIDIA's primary arguments on export controls are about the market share, the global market share of AI infrastructure that is American. They sort of view Huawei, their primary competitor in China, as this sort of existential threat to U.S. dominance. And their arguments are basically that NVIDIA's interests are U.S. interests. And so, you know, when you talk about the question of remote access, you renting the use of NVIDIA hardware that Chinese companies can't purchase themselves to those Chinese companies. You know, that's a policy choice by the U.S. government. You know, a lot of people describe that as like, oh, it's a workaround of the export controls. It's the loophole of the export controls. It's legal. The U.S. has the ability to make it illegal and it's legal in the vast majority of cases. You know, for NVIDIA, that's a good thing because NVIDIA chips are filling all these data centers in Southeast Asia that in many cases wouldn't exist if not for the offtake demand from Chinese companies. It's the same reason that NVIDIA wants to be able to freely sell its chips in China. We need to be able to compete with Huawei on its own turf. A question that a lot of regulators have pushed back on NVIDIA on this topic is Huawei can't supply the world's data centers. We're so far off from a world of Huawei being able to supply the world's data centers. And so how existential is the threat of Chinese compute on the global stage or even within China that the NVIDIA sales are aiming to counteract? But I think NVIDIA is very focused on these sort of battleground or what could become intense battleground regions if China builds its own AI ship production capacity that they want to make sure that they're selling in these regions. 00:26:24 Speaker 4: I just want to point out one thing. 00:26:26 Speaker 3: We've talked to Ian Dunning twice from Hudson River Trading, who has said he is not having a hard time getting GPUs. He's having a hard time getting GPUs. GPU places to plug in. 00:26:38 Speaker 6: Yeah. 00:26:38 Speaker 1: So one could, it's possible, at least it seems possible that there is not as much like unlimited demand for GPUs per se as maybe NVIDIA would. 00:26:51 Speaker 4: Like to claim. 00:26:52 Speaker 3: And that actually, like, let's say the bottleneck is in places to plug them in, that if you want to actually sell the most number of chips for the most number of dollars, setting aside these sort of broad market share questions, that actually the Southeast Asian customers are important if we believe what we've heard from other purchasers of NVIDIA GPUs, that they're available if you can plug them in. But before we get into the sort of NVIDIA versus Huawei part, which I do want to talk about, I want to just clarify this remote access question. Are you saying like, let's say I start a data center company and I'm explicitly like, I'm going to build data centers in Malaysia. and I'm going to rent them out to deep seek and a bunch of other like Chinese frontier AI companies, technically. And I'm going to buy a video, like technically there is nothing as far as we know, like per se illegal about that arrangement. And then beyond that, how do the Hawks or the people who argue in favor of export controls into mainland China, that seems really inconsistent. 00:28:02 Speaker 1: Like, Can you walk me through, like, is that actually legal? 00:28:06 Speaker 3: And how is that, you say it's not a loophole that it's the law, but how is that law justified? 00:28:15 Speaker 2: Yeah, in the vast majority of cases, this is legal. I mean, this is like literally what Megaspeed's business is. This is what a lot of Southeast Asian neoclouds do. The exceptions to that would be if you know that the compute is going to be used for intelligence activities by a foreign adversary military. It's a very narrow band of restrictions. 00:28:32 Speaker 3: But there's no restrictions on like selling chips into Southeast Asia to be used to train the most advanced open source models from China. 00:28:43 Speaker 4: There's actually nothing illegal about it. 00:28:45 Speaker 5: Doesn't DeepSea rents from like a Southeast Asia data center, right? 00:28:51 Speaker 2: So the U.S. government has said that Moonshot rents NVIDIA compute in Thailand. 00:28:57 Speaker 6: Okay. 00:28:58 Speaker 2: DeepSeq, by my understanding, actually does more of it, has more of its compute onshore. But, you know, generally speaking across Chinese companies, you know, this is an existentially important resource is NVIDIA compute in Southeast Asia. You ask, you know, how is it that the hawks have not restricted this? They actually did. They restricted it at the end of the Biden administration. And it was part of this broad set of global restrictions on NVIDIA hardware called the AI diffusion rule that was set to take effect in May 2025. And the Trump administration is not enforcing that regulation. 00:29:36 Speaker 3: Sorry, just to be clear, NVIDIA still can't... sell their most advanced chips into mainland China. But the Trump administration so far has been cool with sell them into Southeast Asia to then remote access. 00:29:53 Speaker 4: I mean, it's the internet. 00:29:53 Speaker 1: I don't even know what borders mean. Why are like, It's the internet. 00:29:57 Speaker 4: What are we talking about? What does it matter? 00:29:59 Speaker 2: Export controls on hardware don't respect the cloud. Yeah, yeah. No, it's sometimes a bit baffling. 00:30:08 Speaker 1: As long as I'm not the only one who's baffled. 00:30:12 Speaker 2: This is like an active, raging debate in Washington, to be fair. And, you know, one interesting thing that happened this summer. So, you know, after Kimmy comes out with K3, it's sort of, it's like, seen as like a second deep-seek moment almost. The science and tech advisor in the White House, Michael Kratzios, posts on X that the Moonshot team acquired Blackwell chips, which is illegal. It raises questions of why has the U.S. government not, you know, why does the Commerce Department not take any action if that's the U.S. government's determination? And also that they had remotely accessed these chips in Thailand. And a couple of days after that, the enforcement unit of the part of the Commerce Department that handles chip export control. So the people who are like, oh, you violated, like you smuggled, we're going to go after you. That unit started mapping where in the world remote access happens, which is very interesting because remote access is not illegal. And so if you're an enforcer of export controls, you know, why is that your purview? But they started sort of crafting this list of countries where that's known to happen and And, you know, there have been at a very senior level of the Trump administration, pretty intense debate over whether to impose such restrictions. There's also interest on Capitol Hill. There's interest in Capitol Hill in being more hawkish on a lot of these policies, but including remote access. It's, you know, this is sort of nightmare scenario for NVIDIA if remote access were to be restricted. It's also a nightmare scenario for some hyperscalers like Oracle that counts Chinese offtakers as a significant portion of its business. There was great reporting in the Financial Times recently about Oracle having a cloud computing arrangement with Tencent that then the Trump administration stepped in to kill, basically, even though it was legal. And so it's like, OK, are we just going to do this ad hoc? You know, they do a lot of things ad hoc, but we'll see. You know, there's it's an active regulatory debate. Like, you know, the answer to this question could change by the time this podcast airs, although I doubt it. 00:32:12 Speaker 5: Well, OK, speaking of ad hoc, I mean, part of the scandal here is that NVIDIA reportedly intervened in the U.S. government's Megaspeed investigation and said, yeah, it's all good. 00:32:25 Speaker 4: Yeah, they're cool. 00:32:26 Speaker 5: They're cool. Trust us. What do you expect to happen? I don't even know the status of that investigation now, but like, is it picking up again or like what's going on there? Would you expect the DOJ to actually pursue those? 00:32:38 Speaker 2: Yeah, yeah. So I just want to clarify quickly on the sort of scope of NVIDIA's intervention. So this is reporting from like two days ago. And this is such an active story that I'm saying what I know as of 10.38 p.m. Hong Kong time on Wednesday. So NVIDIA's general counsel, a guy called Tim Teeter, called NVIDIA. the head of the Bureau of Industry and Security, like the export controls enforcement and the agency that writes and enforces export controls at the Commerce Department in late summer last year to inquire about whether BIS was involved in the detention of Alice, who we now know was, you know, having an extramarital affair with Jensen. But NVIDIA says that Tim Teeter didn't know that at the time of this call, called to ask if BIS was involved in her being detained in Singapore. she had been brought in for questioning and restricted from leaving the country as part of Singapore's own investigation into Megaspeed, which Megaspeed said recently had concluded this year with no adverse findings. So Tim Teeter called to ask about that. He later emailed BIS staff who were working on the case and asked to meet with one of them. And they forwarded those emails to Jeffrey Kessler because Tim Teeter invoked Kessler's name. He's like, oh, like Kessler said it was OK to talk to you. And this was like this is not normal practice for an export enforcement investigation. And, you know, Kessler said, continue doing things by the book. You know, the Commerce Department said, or a spokesperson for this agency within the Commerce Department said, you know, everything has been above board. But the sort of nature of the investigation and the ability of export enforcement agents to act in the weeks and months after this sort of saga with Tim Teeter was diminished. You know, and agents or people working on export enforcement investigations you know, we're restricted from requesting information directly from NVIDIA without getting Kessler's approval beforehand or routing it through him. That's a policy that's unique to NVIDIA. It's not how things operate with any other major tech company. You were told not to mention Megaspeed or Speed Matrix, the name of Megaspeed's Malaysian subsidiary and external communications. And eventually the Department of Justice, which typically pursues these investigations alongside BIS. So, you know, if anything is going to be turned into like a criminal indictment, it's going to involve the DOJ. The Department of Justice had been working alongside BIS for a bit on this case, ended up asking BIS to stop its efforts. So now that case is with DOJ. You know, I think my my understanding of the status of the case a few weeks ago is would be probably very different from where things are right now. There's obviously intense interest in this within the Trump administration on Capitol Hill. So, you know, it's funny, like a lot of a lot of what we're talking about now was known such a long time ago. You know, New Times reported on it. We reported on it. But it's got a new life, shall we say, in the past couple of weeks. 00:35:26 Speaker 5: I feel like we should mention BIS is the Bureau of Industry and Security, because whenever I hear BIS, I always think Bank for International Settlements. 00:35:34 Speaker 2: But yes. Different type of nerd, you guys. 00:35:37 Speaker 4: You can only have so many three-letter acronyms, right? That's true. And so you're bound to. 00:35:42 Speaker 2: No, DC says every day we will invent a new one. Oh, yeah. 00:36:02 Speaker 3: One more question on Megaspeed before I want to get a little bit, talk a little bit about Huawei. One more question on Megaspeed. What do we know right now? You know, you described at the very beginning, spun off from this gaming company, BVI shell company, etc. 00:36:18 Speaker 4: What do we know. 00:36:19 Speaker 3: About its owners and its backers and how they have the money to buy a bunch of NVIDIA chips. 00:36:26 Speaker 4: And all that stuff? 00:36:27 Speaker 2: Yeah, so Megaspeed on paper is 100% owned by a Singapore shell company that is 100% owned by a CEO who is a Singapore national. We tried many times to get in touch with him last year. We were unsuccessful. In terms of where it got the money, this is a big open question. $ 4. 6 billion worth of hardware is not a small amount of hardware. It has a compute rental agreement with Alibaba. Alibaba, you know, the way that these agreements often work is a company will put sort of a prepayment, sort of a guarantee, like, hey, like, you know, it's like you put a deposit down on an expensive purchase. Like, we are going to offtake this in the future. So there are, you know, financial transactions between Alibaba via a Singaporean subsidiary of Alibaba's two mega speeds where, you know, the entirety of its Malaysia business was offered as collateral actually. These are transactions that happened a couple of years ago, but don't sort of fully answer the question of where it got all of the money that it did to purchase the hardware. But on paper, it is a Singaporean company, and I don't have evidence to the contrary. 00:37:31 Speaker 3: Let's talk a little bit about, you mentioned Huawei, and you mentioned that Huawei just doesn't have the capacity, the skill yet to replace NVIDIA on a global level, probably not even at a China level, given the demand. 00:37:45 Speaker 4: Among Chinese AI firms. 00:37:47 Speaker 2: Yeah, you know, Huawei's senior executives themselves say it'll take until 2030 to satiate domestic demand. 00:37:53 Speaker 3: All right, so talk a little bit about, like, where are they on this process? And, you know, in AI, we're always talking about, like, are they six months behind, two years behind, whatever. 00:38:02 Speaker 1: Like, tell us a little. 00:38:03 Speaker 3: Bit about, like, where Huawei is in its fight, I guess, to be, like, a real competitor with Nvidia. 00:38:10 Speaker 2: Yeah, so, you know, Huawei is... is such a black box. It's the sort of preeminent competitor to NVIDIA in China. There are a handful of other companies, of course, that are, you know, a lot of in the same way that a lot of American companies are like designing their own chips. You have that same pattern among a lot of the Chinese companies. It's just a matter of like whether they can get the production capacity. You know, that's the constraint in large part because the U.S. and allied nations have restricted the flow of semiconductor manufacturing equipment into China. But Huawei has made material progress on its chips over the past couple of years. And you're starting to see Chinese companies become more interested in adopting Huawei hardware. You know, I remember actually coming on OddLots a year ago and I was like, you know, one of the things that I'm waiting for is like, is Huawei ever going to export Ascend chips, which are the name of its AI chips? And also, are we going to see, you know, a frontier Chinese lab complete a successful training run on Huawei chips? You know, right now you're starting to see model releases out of China that have what are called like zero-day inferencing capabilities on Huawei, which is like, this is sort of optimized to run best on Huawei hardware from the moment that we release it. But that's a very different thing from doing, you know, pre-training on Huawei. And, you know, one data point for this is, gosh, it's been a busy news cycle, maybe like a month and a half ago, two months ago, we reported that DeepSeq, had placed a very substantial order for Huawei hardware, 160,000 of Huawei's best AI chips called 950DTs for use at a data center in Inner Mongolia that DeepSeq is building as its sort of like next really, really large domestic computing cluster. Incidentally, this is the same location within China that the U.S. government believes that DeepSeq has installed NVIDIA's Blackwell chips. We don't know what the overall composition of compute in that data center will be. Huawei is not going to be able to fulfill that order for more than a year. DeepSeq is actually lobbying the Chinese government to pressure Huawei to speed up its allocation. It would be great for Chinese labs if they had this alternative source of supply, right? It's obviously the U.S. government. you know, obviously we talked about their Monaxis piece, but, you know, everybody would like to own their chips, or at least have them in-country. The U.S. government has made it very difficult to use NVIDIA. They would love people to use Huawei. It's a matter of whether they can do a training run. And, you know, at the time of our reporting, Huawei was planning on using these 950DTs for inference rather than training, even though, or sorry, DeepSea was planning on using Huawei 950DTs for inference rather than training, even though they were designed as training chips. And Huawei's overall production capacity of that hardware is in the low hundreds of thousands. You know, it's just orders of magnitude less than what NVIDIA is shipping globally. But you still have started to see Huawei make some export attempts. You know, I wrote about a couple of months ago as well that they had submitted in response to a tender from the Egyptian government to build AI compute for use by Egyptian defense companies. And it was a very small amount of compute. It was like 2000 ships, but they were prepared to offer their best ships. And it was like, when you're that supply constraint, it's like everything that you're offering overseas is something that you're not offering domestically. And so as a company, you know, Huawei has to decide like, you know, as important as it is to get more Chinese developers, you know, working on its ecosystem, because you also get the sort of like iterative feedback loop when you have AI companies training on your hardware that helps you make your hardware better. They also want to make sure that they have these footholds in global markets. It's the same strategy that made them sort of the preeminent telecommunications provider. And that, you know, the U.S. government watched that happen years ago when Huawei became extremely successful in 3G, 4G. And they want to avoid that happening with AI infrastructure. So actually, when they learned of this bid that Huawei had made in Egypt, they like gathered this consortium of American companies and they were like, counterbid. And, you know, a lot of these companies had never really thought of Egypt as an important market. But, you know, they had these conversations with the Egyptian government. You know, we don't know the outcome of that tender process yet. But it's just sort of an interesting, you know, Egypt is an interesting battleground for Huawei because they feel a little bit blocked or boxed out of the Persian Gulf because there were these, you know, big American AI infrastructure deals last year, which I talked with you guys about about a year ago, how controversial those were. And Egypt is sort of an anchor in the Middle East, also an anchor in Africa. So you're starting to see these battles play out. You know, the Malaysian government is seriously evaluating use of an earlier generation of Huawei Ascend chips for its sovereign AI capabilities. But, you know, it's important to remember that the volumes that we're talking about here are just infinitesimally small at this time. 00:42:46 Speaker 5: So this is very much a live story, as you've been emphasizing throughout this conversation, and one reason why you're very sleep deprived at the moment. But what are you watching out for next? So we still we don't really know what the DOJ is going to do. And now we have this independent investigation going into Jensen and the spy affair at NVIDIA. What do you think is going to be important? 00:43:11 Speaker 2: Yeah, I mean, look, obviously Jensen's fate is sort of important for global markets, for the industry, you know, what the board ends up deciding to do. I think from a policy and regulatory perspective, you know, this is a very unique moment in an administration that, generally speaking, has, you know, adopted a lot of the policies that NVIDIA would like it to. There is... rage, honestly, on Capitol Hill and in many parts of the Trump administration about the overall state of export controls. Obviously, this scandal with NVIDIA gives people a lot of things to latch on to. So you're starting to see these voices that have not historically been particularly active on this issue take great interest in it. And then you have this sort of baseline contingent of China hawks who have been upset by what they see as a lack of action by the Bureau of Industry and Security, that BIS, within the Trump administration on this topic and are trying to legislate some of the rules to at least like, OK, let's not roll back export controls more than they already have been. Let's put additional restrictions on semiconductor equipment shipments into China. Let's make sure that it's unambiguous that the executive branch has the authority to restrict cloud compute access by Chinese companies. And a lot of these measures are sort of going to be litigated over the next couple of months as part of an annual must pass defense package. So it'll be a really interesting couple of months on Capitol Hill. Obviously, you know, Democrats are taking Congress next year. I would expect a significant amount of oversight into not just NVIDIA, but, you know, the major players in the ecosystem. And then I think, you know, for Southeast Asia, which is a bit closer to where I sit, you know, there's been this sort of whiplash over the past couple of years where, you know, remember like the AI diffusion rule I mentioned that the Trump administration is not enforcing? So this was going to impose, you know, licensing requirements, meaning you need to get the U.S. government's permission to ship NVIDIA ships to Singapore, Malaysia, Thailand, Indonesia, all these places where, you know, we have these smuggling cases happening. And so actually some of the companies that are suspected of being involved in smuggling like massively ramped up their shipments right before those restrictions were set to take effect. And then they didn't take effect. And then the Trump administration worked on a regulation. They were like, hey, we're not doing that, but we are going to restrict to Malaysia and Thailand specifically. This was a draft rule that I read about in June or July of last year. And then they scrapped that amid diplomatic pressure from the Malaysian government. And then they worked on another replacement regulation that would have done global export controls. We heard about that in March, I would say. And that was withdrawn shortly after it was sent to other U.S. government agencies. And so, you know, for companies that are trying to build infrastructure in this region, you know, even the ones that are doing it completely legally, it's like, are we going to be able to get the chips? Like it's this constant sort of, you know, the U.S. government's a little bit the boy who cried wolf on this issue. You know, we have this intense scrutiny into mega speed. Asian banks sort of go through like ebbs and flows of how comfortable they are with, you you know, financing deals that have a significant amount of Chinese offtakes? Or like, what if the U.S. government does restrict it and then are suddenly, you know, left holding the bag? And this is, you know, one of the fastest growing, you know, AI infrastructure regions in the world. You know, the amount of compute online right now is like, it doesn't hold a candle to what exists in the U.S., but it is fast growing. A lot of companies are investing here and it's just under, yeah, an intense period of scrutiny. So it's, yes, that's the developments that I'll be watching. And then on the Huawei front, you know, Huawei is making export attempts. And I think, you know, the U.S. government, it's funny, like over a year ago, there was an executive order to promote the export of the American AI stack to basically like design these packages that you could sort of offer to you know, other countries of like adopt, you know, up and down, you know, from applications to models to infrastructure, the American AI stack. And we haven't seen like anything come out of that program yet. And now we actually do have Huawei like starting to make these attempts. And the U.S. is sort of responding to them on like an ad hoc basis. And I'm sure that we'll see more of that over the next year. So you'll start to see like these battlegrounds in the global south that will be really interesting to watch, you know, how foreign governments are make decisions about their own sovereign capabilities and whether they think, you know, the U.S. is a reliable partner or they're willing to take, you know, maybe worse trips from China that, you know, Huawei is happy to like send their engineers there and do the whole data center for you. And yeah, I know it's exciting times. 00:47:47 Speaker 1: Mackenzie, that was fantastic. 00:47:48 Speaker 4: Get some sleep. Well-deserved. You're going to need it. But no, that was great. 00:47:52 Speaker 3: Thank you for staying up late, catching us up to speed on all this. And I don't think this will be the last time we chat. 00:47:58 Speaker 4: And I appreciate your coming on the hotline. 00:48:00 Speaker 6: Yeah, thanks so much for having me. Always a pleasure, guys. 00:48:15 Speaker 4: She's so great. These are such complicated stories. 00:48:21 Speaker 5: They really are. 00:48:21 Speaker 3: They're really complicated. There's so many different... dimensions to them. 00:48:26 Speaker 5: Also, there's a lot of legal technicality in what can and can't be said, which I think sometimes people don't necessarily appreciate from a journalistic perspective. And she's doing that all on like, I think she said she hadn't slept for 70 hours or something. So that's pretty intense. No, it's a fascinating story. I keep thinking it feels like a big tail risk right now for the chip makers. I mean, obviously what happens with Jensen and the investigation, but just the idea that as a lot of this becomes more public knowledge, as politicians become aware of it, that that legal loophole of Chinese companies being able to rent GPUs via Southeast Asia, even if they can't actually buy certain chips, that comes under scrutiny. And you can imagine if that... like it's such a weird one it's. 00:49:18 Speaker 3: So weird this term remote access what does that even mean it's a cloud of course it's remote access it's like oh as opposed to like the tenant of the user of the chips walking into the data instead of themselves are plugging in a laptop it's all remote access this so it's a it's always been very baffling to me that we have these intense conversations about, oh, you can't sell into China. 00:49:42 Speaker 4: But actually, it's really not. 00:49:43 Speaker 3: That big of a deal to sell into, and it's not illegal currently, to sell into anywhere else who then rents that capacity to Chinese firms. 00:49:55 Speaker 4: Like, what? I don't know. I do, like, Who can explain this. 00:50:02 Speaker 1: In just a moment? 00:50:03 Speaker 5: Yeah. The other thing that I thought was really interesting and I wasn't aware of was McKenzie saying that there's basically like a handful of U.S. Customs officers in Southeast Asia. And you can imagine like if you're going to ramp up export controls and expect them to be effective, you're going to have to staff up, right? It reminds me, I did an article on the corporate bond market many, many years ago. And at the time, I think this was like... well, I can't remember, maybe an eight trillion market. And there was one guy at the SEC who devoted half his time to actually monitoring the corporate bond market, which blew my mind. 00:50:42 Speaker 3: You know, I really think actually, and I hadn't appreciated this until McKenzie brought up Huawei's sale to Egypt. That is, I forget, you know, what is it? We did the story with Eva Doe, who wrote the book, House of Huawei. And what was the story there? The story there was this is a company that is very aggressive about gaining footholds in parts of the world that, like, other companies aren't as aggressive about. 00:51:09 Speaker 4: So Egypt is, like, as she explained, a pretty good example of this. 00:51:13 Speaker 3: Even with a scarce number of Ascend chips, that is sort of, like, in their corporate DNA, like, go out and, like, win these global markets, which then, of course, implicitly, as you gain this foothold, then of course implicitly help sort of like broader Chinese, like soft and hard power. 00:51:31 Speaker 6: Et cetera. 00:51:31 Speaker 3: But then I was thinking about, okay, let's say after this mega speed scandal, you're like, you know what? We really are no more of this remote stuff. We really got to like crack down on who we're selling to in Southeast Asia. It's clear that today, you know, it doesn't sound like Huawei could replace Nvidia today, but if, you know, maybe a few years from now, like a number of these countries do become like Huawei countries. 00:51:58 Speaker 2: Yeah. 00:51:58 Speaker 4: It's going to be very tricky. 00:52:00 Speaker 5: Well, the other thing I just want to reiterate is like, again, with NVIDIA itself, there's a weird like contradiction here where if chip demand is as strong as they describe, they should be very selective with their customers, right? 00:52:17 Speaker 2: Yes, yes. 00:52:18 Speaker 5: Like there shouldn't be any question marks over anyone, basically. 00:52:21 Speaker 2: Yeah, yeah. 00:52:23 Speaker 5: And so I find that really interesting as well. And probably like an under-discussed angle in all of this. Like you can afford to like- Be discriminating. Be discriminating and have like the most intense compliance process in the world if you want. Anyway, shall we leave it there? 00:52:39 Speaker 4: Let's leave it there. 00:52:40 Speaker 5: This has been another episode of the All Thoughts Podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. 00:52:46 Speaker 3: And I'm Joe Wiesenthal. You can follow me at The Stalwart. Follow our guest Mackenzie Hawkins. 00:52:51 Speaker 4: She's at Mack Hawk. 00:52:53 Speaker 3: Follow our producers, Carmen Rodriguez at CarmenArmond, Dashiell Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash oddlots. And for more Oddlots content, check out our daily newsletter, which you can find at bloomberg.com slash oddlots. 00:53:13 Speaker 5: And if you enjoyed this conversation, if you like it when we talk about chip smuggling, then please leave us a positive review on your favorite podcast platform. 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