Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is live
Speaker 1: from the heart of Silicon Valley with Ed Lavow in
Speaker 1: San Francisco.
Speaker 2: This is Bloomberg Tech coming up, Bloomberg reports, and Thropic
Speaker 2: expects to match or top the size of SpaceX's record
Speaker 2: setting IPO. Plus sources say Braad Comms in talks to
Speaker 2: raise more than sixty billion dollars in debt for an
Speaker 2: AI chip financing deal that will benefit Anthropic and others.
Speaker 2: And all eyes on Nvidia reporting earnings next week, a
Speaker 2: lot of pressure on it. Let's get right to our
Speaker 2: top story. And Thropics aiming for an IPO that could
Speaker 2: make history. The company expects to match or even top
Speaker 2: SpaceX's record setting debut, which in the first instance raised
Speaker 2: seventy five billion dollars. That's according to sources. The maker
Speaker 2: of Claude could fall publicly as soon as the end
Speaker 2: of this month. Bloomberg Sherening Gafari leads coverage of Anthropic,
Speaker 2: and Bloomberg's Leanna Baker leads the deal's team here at Bloomberg.
Speaker 3: Both join us with more straining.
Speaker 2: Gonna start with you the basic details of what we're
Speaker 2: reporting here.
Speaker 4: Sure so we know that Anthropic is expecting to have
Speaker 4: an IPO that could matter exceed the size of SpaceX's
Speaker 4: record setting IPO quite recently. We also know we found
Speaker 4: out a few more details about their losses that their
Speaker 4: net losses in twenty twenty five were nearly forty two billion,
Speaker 4: and that's a fivefold increase from twenty twenty four. So
Speaker 4: that's going to be one of the key questions going
Speaker 4: into this, Right, there's this large IPO planned, a lot
Speaker 4: of excitement around the AI demand, but also questions around
Speaker 4: the very high cost needed to sustain this business.
Speaker 2: Leanna, there's a process happening here. In our report, we
Speaker 2: say that CFO Krishna Rao is kind of leading these
Speaker 2: earlier investor meetings. There's a confidential filing, a public filing
Speaker 2: will follow. This is your team's bread and butter, right,
Speaker 2: take us inside what we know is happening behind the scenes.
Speaker 5: Sure, so the story mentioned the CFO who's speaking with investors.
Speaker 5: It didn't mention the armies of investment bankers who are
Speaker 5: also there in the room or even behind the scenes
Speaker 5: trying to start to do early book building of who
Speaker 5: will be the investors that get in on this deal.
Speaker 5: These fees eventually do get paid to the banks, and
Speaker 5: it all comes down to how much does this IPO
Speaker 5: raise and at what valuation? That's another question. So you
Speaker 5: mentioned that Anthropic had been valued at nine hundred and
Speaker 5: sixty five billion, So in an IPO, do they get
Speaker 5: to one trillions, they get to one and a half
Speaker 5: two tres So those are all things that the bankers
Speaker 5: and the lawyers and the company. They have to figure
Speaker 5: this out, to figure out the support from investors. At
Speaker 5: what valuation you can support this deal. But it's really
Speaker 5: exciting for the IPO market, which always opens after Labor Day,
Speaker 5: and we'll be following when this S one finally hits
Speaker 5: and we'll get a look at all the financials for
Speaker 5: the first time.
Speaker 2: Right, Anthropic should have a lot of cash on its
Speaker 2: balance sheet, and so the question is why do a
Speaker 2: big IPO and sharene You spoke on stage right with
Speaker 2: Danielle m Oday, the president co founder of Anthropic in June,
Speaker 2: and you just put this question very directly.
Speaker 3: Why an ipo. What was the response at that time.
Speaker 4: Yeah, an IPO offers a repeatable process to raise large
Speaker 4: amounts of capital. Again, if you think about the incredibly
Speaker 4: high cost of compute to train a new AI model
Speaker 4: at the cutting edge these days can cost billions of
Speaker 4: dollars just for one model alone potentially, So you know,
Speaker 4: that's just sort of the state of play right now.
Speaker 4: So her answer was that we need to be able
Speaker 4: to raise money when we need. An IPO provides.
Speaker 3: That process, Leanna, I do want to get into the.
Speaker 2: I went back and checked my calendar from the time
Speaker 2: SpaceX flipped its S one public to IPO day was
Speaker 2: about twenty three days, and, like you know, I have
Speaker 2: a bit of shell shock from that period of time.
Speaker 2: I'm sure you and the team do as well of
Speaker 2: how it transpired, but it happened very quickly. So we're
Speaker 2: reporting that Anthropic might flip its S one public by
Speaker 2: the end of this month September. What happens, how does
Speaker 2: it happen?
Speaker 5: Sure? So you mentioned that Anthropic is already on file confidentially,
Speaker 5: so all they have to do is get their ducks
Speaker 5: in a row to make this public with the SEC
Speaker 5: and if they want to get on the road show,
Speaker 5: to get on the road after this labor day period.
Speaker 5: You know, analysts are saying this filing could hit as
Speaker 5: soon as next week. We have a report in on
Speaker 5: a specific timing. We said it could be within a
Speaker 5: few weeks, but it wouldn't be crazy to see this
Speaker 5: next week because as you mentioned, you have ten fifteen
Speaker 5: days maximum twenty three days, you know it. This all
Speaker 5: happens very fast, and IPOs are all about the market conditions.
Speaker 5: So SpaceX, sure it's trading a little below you know,
Speaker 5: its price, but it's still a massive company that went public.
Speaker 5: It's trading okay. It wasn't a total disaster. So if
Speaker 5: you're another company waiting in the wings to go public,
Speaker 5: you see that and you say, well, maybe we should
Speaker 5: strike when the iron's hot, and then don't forget. Also,
Speaker 5: open Ai is also keeping an eye on this, so
Speaker 5: Anthropic has that to think about too.
Speaker 2: The top line of our report, Anthropic is seeking to
Speaker 2: match or top what SpaceX raised and on a valuation
Speaker 2: basis two in the weeks to come. I'd also point
Speaker 2: out SpaceX just in the last ten minutes when above
Speaker 2: one hundred and thirty five dollars a share.
Speaker 3: It's IPO price.
Speaker 2: Bloombergshering Gafari covers Anthropiclyana leads the team on Blueberg deals.
Speaker 2: Thank you so much. As Entropic prepares for its IPO.
Speaker 2: The company is also addressing a key concern for its
Speaker 2: biggest customers, data privacy. According to a Bloomberg source, and
Speaker 2: Thropic plans to give businesses more control over where their
Speaker 2: data is stored when using its AI models, particularly its
Speaker 2: frontier models. Bloomberg Tech Managing ed as as Sarah Friars
Speaker 2: with us really important piece of reporting because Anthropic has
Speaker 2: been given so much credit for its commercial progress, but
Speaker 2: this was a key concerned customers had explain what we're
Speaker 2: detailing in that report.
Speaker 6: Well, Customers were concerned about Entropic retaining their data for
Speaker 6: a few reasons, but probably most of all because then
Speaker 6: Anthropic has their data and can train on it. Of course,
Speaker 6: Thenthropics said that it would not do that. They said
Speaker 6: they wanted to retain the data in order to guard
Speaker 6: against cybersecurity threats after some of the concerns earlier this
Speaker 6: year about potential breaches of customers there. They said, you know,
Speaker 6: we'll retain the data for a while to make sure
Speaker 6: that everything is fine. But of course that was not
Speaker 6: a popular plan with its customers, and it's deciding to
Speaker 6: give back more control.
Speaker 2: And Thropic declined to comment on our report, but it
Speaker 2: ties very closely to like what's happened in recent weeks
Speaker 2: and months, models acting outside of the instructions they've been given,
Speaker 2: and the focus on the race with open ai has
Speaker 2: been about enterprise right and arr what else do we
Speaker 2: need to know from this report.
Speaker 6: Well, Nthropic really does need those enterprise customers. It's so
Speaker 6: foundational to the success of that IPO and they're a
Speaker 6: leader right now in the market.
Speaker 7: But there are a lot.
Speaker 6: Of companies that are that are learning from Anthropic success.
Speaker 6: So you have Google, Gemini, you have open Ai they're
Speaker 6: trying and even even SpaceX. You know, they're trying to
Speaker 6: do things to cater to those enterprise customers that Anthropic has.
Speaker 6: It's still a very early market and so they do
Speaker 6: need to think about not just what do they think
Speaker 6: is the right move for cybersecurity, but balancing that against
Speaker 6: what their customers expect and require in order to retain
Speaker 6: those customers.
Speaker 3: BlueBag Tech head as a Sarah for I thank you
Speaker 3: so much.
Speaker 2: Indeed, now coming up broad cooms looking to raise more
Speaker 2: than sixty billion dollars in debt, We're going to break
Speaker 2: down one of the biggest bets yet on aim structure
Speaker 2: has a very complicated structure that the team are going
Speaker 2: to explain to us. This is Bloomberg Tech. Broad Coom's
Speaker 2: lining up another massive bet on AI. Bloomboats learned the
Speaker 2: chip makers in talks to raise more than sixty billion
Speaker 2: dollars in debt to help aanthropic and others secure chips
Speaker 2: and computing power. That's all according to sources. Blimbers Ryan
Speaker 2: Gord part of the team that broke the story. Actually
Speaker 2: this is not as simple as Broadcom going out and
Speaker 2: raising debt for itself. Can you just explain the structure
Speaker 2: of what we've reported.
Speaker 8: Yeah, it's a good point definitely to hit on at
Speaker 8: the start, because I think if you were to look
Speaker 8: at this headline, it could, you know, mean something quite different.
Speaker 8: But to break it down, I think in the most
Speaker 8: simplistic way possible. Broadcom is essentially looking to raise a
Speaker 8: special purpose vehicle that would be financed by others partners.
Speaker 8: We've already seen them sort of hint at this. They
Speaker 8: announced a partnership with blacks and Apollo in June that
Speaker 8: was essentially to finance a one giga what capacity compute
Speaker 8: sort of layer. This is essentially an expansion of that,
Speaker 8: so Borcom would go out and with those partners look
Speaker 8: to raise a chunk of money through debt that would
Speaker 8: essentially sit in a special purpose vehicle that would then
Speaker 8: go out and buy chips that.
Speaker 3: The Borcom makes.
Speaker 8: I think the interesting part of this deal is that
Speaker 8: you know, you have a situation where Boacom is not
Speaker 8: only helping to finance customers buying its chips, but is
Speaker 8: also then supplying them itself, So it's both the customer
Speaker 8: and also the capital provider in a certain way. I
Speaker 8: think what makes this seal more interesting is that Broadcom
Speaker 8: is going to actually effectively guarantee a significant chunk of
Speaker 8: that debt and therefore help to bring down the cost
Speaker 8: and make it safe for four investors who may look
Speaker 8: to participate in this SPV.
Speaker 2: It is somewhat comparable to what we saw from Nvidia
Speaker 2: in those large Wall Street firms, where the compute is
Speaker 2: the collateral in that case, but the firms are just
Speaker 2: to conduit to the capital third party capital.
Speaker 3: Doesn't come off balance sheet.
Speaker 2: I'm reading the details, so it looks like this could
Speaker 2: be up to one hundred billion, right seventy billion in
Speaker 2: senior secure debt thirty billion junior debt just fill in
Speaker 2: some of the other details for us.
Speaker 8: Yeah, so I think there's a there's the junior piece
Speaker 8: would be essentially guaranteed by Blackson and Apollo. The other
Speaker 8: sixty billion piece it could be as much as seventy
Speaker 8: billion we you know, according to sources. I think that's
Speaker 8: that's the key here. These are fluid discussions. Broadcom is
Speaker 8: not necessarily going out and saying it wants to raise
Speaker 8: sixty billion dollars. I just think given the parameters of
Speaker 8: what's been talked about here, it could be anywhere in
Speaker 8: that region. And I think if you put those two
Speaker 8: numbers together, you do give something that's in the region
Speaker 8: of one hundred billion dollars. I think taking a step
Speaker 8: back and just thinking about what this sort of looks
Speaker 8: like from the wider sort of AI infrastructure rollout. These
Speaker 8: are obviously kind of novel structures you just mentioned in
Speaker 8: video deal with the other private capital providers. It's in
Speaker 8: a way to two sides of the same coin. I
Speaker 8: think if you look at that deal, you have you know,
Speaker 8: some of the biggest sort of largest infrastructure financial infrastructure
Speaker 8: fans on Wall Street participating in that one. Here you have,
Speaker 8: you know, essentially private capital helping to you know, helping
Speaker 8: Balcon to sell those chips. I think we've seen this before, right,
Speaker 8: you look at things like aircraft leasing has happened in
Speaker 8: this way you think about data centers now. I think
Speaker 8: this is kind of the evolution of people are thinking
Speaker 8: on the fly with these kinds of structures, and.
Speaker 2: A lot of parts of the markets still have questions
Speaker 2: about it. By the way, from the equity perspective, broughk
Speaker 2: On up a percentage point following the report. Biomas Wrangel,
Speaker 2: thank you very much. That Broadcon deal gets right to
Speaker 2: a bigger concern over hanging the AI trade, the cost
Speaker 2: of funding it all, but record debt, issuants, higher rates,
Speaker 2: growing pushback on data centers, particularly in this country, all
Speaker 2: raising fresh questions about how quickly the build out can
Speaker 2: pay off.
Speaker 3: Delighted to welcome back to the show.
Speaker 2: Erica Klower, founder CIO CEO of Science and Technology Partners.
Speaker 2: Let's start with your interpretation of the reporting about this
Speaker 2: vehicle that Brocom is set up.
Speaker 9: Well, Thanks so much, lovely to see you this morning.
Speaker 9: And you know, this is an extension of what we've
Speaker 9: been seeing for the last several months, which is extraordinary
Speaker 9: levels of debt coming to the market to build out
Speaker 9: the AI infrastructure, and the market is having some indigestion
Speaker 9: with dealing with all of this debt. Just to wrap
Speaker 9: some numbers around it, it's quite staggering.
Speaker 10: We've had over two hundred and twenty billion dollars of
Speaker 10: debt issued so far this year, which is up more
Speaker 10: than double from twenty twenty five, and that's just year
Speaker 10: to date, and of course in twenty twenty four the
Speaker 10: levels were just about twenty so this is quite a
Speaker 10: big jump. And not only is the debt quite expensive,
Speaker 10: but there's so much of it so it's difficult to
Speaker 10: find homes for it. All the crepons have gone up,
Speaker 10: and so many of these companies are now having to
Speaker 10: face much higher borrowing costs than they had initially anticipated
Speaker 10: maybe six months ago.
Speaker 2: The reason that I wanted to get you back on
Speaker 2: Spoomberg Tech Science Technology Partners, a long bias fund, just
Speaker 2: zeroed in on the corners of the technology market we
Speaker 2: care about most. You're coming at this at cost of
Speaker 2: capital lens right for lots of people. They go straight
Speaker 2: to the circular financing question. How do you feel about
Speaker 2: that side?
Speaker 10: Well, I think it, of course is a concern because
Speaker 10: to offer financing to a customer and in turn expect
Speaker 10: that they will be buying your products is indeed circular financing,
Speaker 10: and so I think that this is a legitimate concern
Speaker 10: for all investors as they are examining these deals.
Speaker 2: In the United States, particularly ahead of the midterms, there
Speaker 2: is a lot of societal debate about the impact of
Speaker 2: data centers and there is action to push back against
Speaker 2: specific Do you have to model that into your outlook
Speaker 2: for CAPEX for growth of data center.
Speaker 10: I think this is such a good question because this
Speaker 10: gets at the heart of why we're seeing so much
Speaker 10: volatility in the market. It's not only that the cost
Speaker 10: to build out these MEGAAI infrastructure facilities are going to
Speaker 10: be higher because the coupon must be higher in order
Speaker 10: to get it placed, but also one will be carrying
Speaker 10: that more expensive debt, most likely for longer because of
Speaker 10: two key reasons. One you just mentioned, which is that
Speaker 10: in states like Pennsylvania, New York, Texas, there are data
Speaker 10: centers that are infacing whether it's regulatory or community concerns
Speaker 10: that are delaying some of the facility buildouts. There are
Speaker 10: also shortages of workers to build out these facilities, and
Speaker 10: there also are chip shortages, so all of this calls
Speaker 10: into question whether or not even these AI data centers
Speaker 10: will be built on time. And every month that goes
Speaker 10: by is another month of paying this fare very high
Speaker 10: coupon debt that is associated with this buildout ERKA.
Speaker 2: I would really value the long biased fund's action in
Speaker 2: response to what you see in the markets. Right since June,
Speaker 2: we've seen a correction in everything across the stack, memory, computes,
Speaker 2: other parts of the supply chain.
Speaker 3: How do you respond to that?
Speaker 10: So as a long buyased fund, we really look out
Speaker 10: over the next three to five years, and despite these
Speaker 10: very serious and legitimate concerns, we see extraordinary opportunity. We
Speaker 10: still think that we're very early on in AI infrastructure
Speaker 10: build out and more importantly AI uptake, And so far
Speaker 10: this quarter we've seen extraordinary results across many different sectors
Speaker 10: where earnings have come in ahead of expectations directly because
Speaker 10: they're using AI to their advantage, whether it is to
Speaker 10: control costs or advance innovation. And I think that is
Speaker 10: just the start. So what we do is we look
Speaker 10: at where we think that the most innovation will occur
Speaker 10: in the coming years, and we come up on the
Speaker 10: technology side in areas like memory, which have really seen
Speaker 10: a pretty sharp correction in many of those companies. We
Speaker 10: look to add to the companies where we think that
Speaker 10: there are best in class players. We look for optical
Speaker 10: interconnect as a replacement to copper as an extraordinary, extraordinary
Speaker 10: area of opportunity. We look to robotics, we look to
Speaker 10: space exploration. And then there are also incredible innovations right
Speaker 10: now in healthcare where companies are really using technology to
Speaker 10: advance their own discovery. So, for example, in areas like diagnostics,
Speaker 10: we've seen big jumps and we've seen a much more
Speaker 10: favorable regulatory backdrop and reimbursement backdrop for many of those
Speaker 10: companies as well.
Speaker 2: Erica Klod of Science and Technology Partners is great to
Speaker 2: have you back on the program. Thank you for responding
Speaker 2: to what is pretty big story in the markets today.
Speaker 2: Now coming up, Samsung is following in s k Heinig
Speaker 2: his footsteps in returning shareholders' buybacks in what could be
Speaker 2: the largest ever in South Korean history.
Speaker 3: More on that next, this is Bloomberg Tech.
Speaker 2: Software companies are deploying increasingly aggressive strategies to counter a
Speaker 2: crisis of confidence in their outlooks driven by fear that
Speaker 2: AI tools and startups will replace them.
Speaker 3: Some investors, meanwhile, see it is.
Speaker 2: A chance to get the potential survivors of the SaaS
Speaker 2: apocalypse at a discount to the high flying prices of
Speaker 2: the twenty tens.
Speaker 11: And that can be a great opportunity for investors to
Speaker 11: sort among companies that can survive and that maybe might
Speaker 11: not survive, or at least might not survive at the
Speaker 11: value they've been at. And so that's an area that
Speaker 11: I think for the long term investor, is really worth investigating.
Speaker 11: I do think the emphasis is on long term because
Speaker 11: it's hard to imagine that terminal value concerns can be
Speaker 11: alleviated in any one particular earning season.
Speaker 2: Let's discuss the tactics software firms are using with Boombo's
Speaker 2: Brodie Ford, who's published on this this morning, really interesting read.
Speaker 2: Can you just explain the basic tension in the story to.
Speaker 12: Us, software companies have had a pretty terrible year and
Speaker 12: a half. Right investors are convinced they're going to get
Speaker 12: replaced by AI. There's been a massive valuation meltdown, and
Speaker 12: by and large, software companies can't convince the market on
Speaker 12: virtue of their business results that their AI products are
Speaker 12: growing or accelerating revenue, and so they've turned to some
Speaker 12: kind of zany, cosmetic, sometimes aggressive strategies, you know, swapping
Speaker 12: out their leaders, fighting with analysts on earnings calls, renaming
Speaker 12: products to make them sound more like AI. And so
Speaker 12: in this story, we just kind of compile all the
Speaker 12: different novels, zany, whatever you want to call it, strategies
Speaker 12: that they've been trying to use to beat the SaaS apocalypse.
Speaker 2: Okay, so changing business strategy, you're talking up your competence
Speaker 2: in whatever areas different to doing a buy back. Buy
Speaker 2: back is just a very shareholder friendly policy. Yeah, bring
Speaker 2: us to that part of the story.
Speaker 12: Right, Failing all of the strategy we just talked about,
Speaker 12: you do a big buy back and that makes the
Speaker 12: market happy. I think the narliest one we saw was Salesforce,
Speaker 12: which borrowed twenty five billion to buy back twenty five
Speaker 12: billion and it's on stock and now you're paying interest
Speaker 12: for doing a buy back. And I think that one
Speaker 12: raised some eyebrows on Wall Street, but it just shows
Speaker 12: that they're really ready to pull whatever lever they can
Speaker 12: to help boost.
Speaker 3: Morale Bloomberg's brady forward. Thank you very much.
Speaker 2: Indeed, let's take a look at today's big number. Eighty
Speaker 2: billion dollars. That's how much Samsung's planning to return to
Speaker 2: investors this year, joining sk Heinex in sharing some AI
Speaker 2: win for and putting in motion the largest shareholder return
Speaker 2: program in South Korea's history. Bloomberg Executive editor Pieter Elstrom's
Speaker 2: back with us. You know there was reporting on this,
Speaker 2: but Samsung has followed on from sk Heinex's actions earlier.
Speaker 3: In the week.
Speaker 13: Yeah, talk about pulling levers to try to help your
Speaker 13: share price. You're seeing this out of South Korea in spades.
Speaker 1: Yeah.
Speaker 13: So today we got Samsung Electronics talking about returning eighty
Speaker 13: billion dollars in cash to their shareholders. That'll be through
Speaker 13: dividends and through some buybacks. They haven't said exactly how
Speaker 13: they're going to split those numbers, but as you say,
Speaker 13: it's going to be one of the largest buybacks in history,
Speaker 13: the largest ever in South Korea. Comes shortly after sk
Speaker 13: Heinex that it would spend about twenty nine billion dollars
Speaker 13: through November in order to buy back shares. Both of
Speaker 13: these companies are making tremendous amounts of money, and they've
Speaker 13: said that they want to give about fifty percent of
Speaker 13: their free cash flow back to shareholders at this point
Speaker 13: in one form or another, and a lot of that
Speaker 13: is driven by the fact that their shares are down
Speaker 13: quite a bit, so that's interesting.
Speaker 2: In sk Heinex's case, the stock was down fifty percent
Speaker 2: from a June peak, but still up one hundred and
Speaker 2: fifty percent, you'd state, and there was some dilution when
Speaker 2: they to eighty rs. What was Samsung's motivations for why now?
Speaker 13: Samsung's shares are not down quite as much, but they're
Speaker 13: still down a lot. They're down about twenty five percent
Speaker 13: from the peak, and they're making a tremendous amount of cash.
Speaker 13: They're going to make about two hundred and seventy five
Speaker 13: billion dollars an operating profit this year based on analysts estimates,
Speaker 13: huge numbers even for them compared with prior years. And
Speaker 13: they're looking at that share price that's come down quite
Speaker 13: a bit. They don't see the optimism that they saw
Speaker 13: in the past. They'd like to return some of that
Speaker 13: money to shareholders, probably buy back some stock. We haven't
Speaker 13: gotten the specifics on that, but buyback some stock to
Speaker 13: be able to push push the shares back up and
Speaker 13: give shareholders a reason to buy the shares again.
Speaker 2: But isn't Samsung doing super super well tons of profits
Speaker 2: and winning this AI thing?
Speaker 13: Well, Samsung is coming from behind, very unusual position for
Speaker 13: them compared to ske heinex Eskhynix had jumped out to
Speaker 13: a big lead in the HBM memory chips that are
Speaker 13: used in AI data centers, of course, so Samsung has
Speaker 13: gained a lot of momentum.
Speaker 3: In that area.
Speaker 13: They're competing in some cases exceeding s Khunnis in that field,
Speaker 13: but it's a very intense competition at this point. They're
Speaker 13: doing very well on memory chips. They're making a lot
Speaker 13: of money because prices have gone up so much. That's
Speaker 13: why we're going to see record profits this year from them,
Speaker 13: could be pretty phenomenal numbers going forward, and they'll probably
Speaker 13: have a pretty big year next year two. So they
Speaker 13: want to show shareholders that they can give some of
Speaker 13: this money.
Speaker 3: Back to them.
Speaker 2: Bloomberg's Peter Elstrim, thank you very much, indeed, Happy Friday coming.
Speaker 3: Up on the show.
Speaker 2: The first week of a trial accusing Meta of misleading
Speaker 2: the public and harming children has wrapped up. We'll discuss
Speaker 2: the arguments, what we learned, and what happens next. This
Speaker 2: is Bloomberg Tech. Welcome back to Bloomberg Tech. It has
Speaker 2: been a big week in the world of technology. Actually
Speaker 2: then as that one hundred is up modestly this Friday,
Speaker 2: but on a weekly basis, down for its first weekly
Speaker 2: drop since the week that ended Friday, July twenty fourth.
Speaker 2: There's been a lot of factors in that, and probably
Speaker 2: Bitcoin's the best case study. So Bitcoin is on track
Speaker 2: for its biggest or best week in about three years.
Speaker 2: One of the big factors was the Treasury's intervention in
Speaker 2: the bomb market, the Treasury saying it would at least
Speaker 2: double the size of long dated bomb buybacks. That is
Speaker 2: kind of what has been a catalyst outside of technology
Speaker 2: specific factors. We are bracing for a big earnings print
Speaker 2: next week from Nvidia, but risk on has taken Bitcoin
Speaker 2: with it. There is a big story playing out in
Speaker 2: technology this week, and that is Meta, which just started
Speaker 2: a legal fight. Mary Anne Frank's professor at George Washington
Speaker 2: University Law School, joins us to talk about what we've
Speaker 2: learned so far. This trial is an accusation by twenty
Speaker 2: nine states that Meta deliberately designed its platforms to keep
Speaker 2: children hooked to them and also deceive the public with
Speaker 2: some privacy breaches. But it's a complicated split of different
Speaker 2: state laws and one federal privacy law. Could you start
Speaker 2: by explaining the distinctions between state and national level.
Speaker 14: Sure, So the federal claims have to do with this
Speaker 14: federal statute that protects children's privacy under thirteen. Essentially, it
Speaker 14: says that if you are a company that wants to
Speaker 14: collect data about children under thirteen, you have to get
Speaker 14: parental consent. So the argument there from a federal perspective
Speaker 14: is that this company Meta and its products have violated
Speaker 14: that federal statute. And then you have these, as you said,
Speaker 14: twenty nine states that are saying in addition to that,
Speaker 14: there's violations of state consumer protection laws, and those mostly
Speaker 14: focus on claims that the company has made to the
Speaker 14: public about the safety of its products and services, in
Speaker 14: contrast to the internal documents and research that Meta has
Speaker 14: or they claim that they do have, that shows that
Speaker 14: these things are not true.
Speaker 2: Mary, Anne, really grateful for your de meeting expertise. You know,
Speaker 2: really simple level twenty nine states sue Meta. But this
Speaker 2: is playing out in a specific coll where there's an
Speaker 2: advisory jury, and the judge still needs to take that
Speaker 2: advice and decide both state and federal laws, and so,
Speaker 2: like lots of people, that's confusing. How best to simplify it?
Speaker 14: It is really difficult to simplify. It's a complex case.
Speaker 14: That's what's known as an MDL, a multi district litigation,
Speaker 14: And it happens when you've got several claims or many
Speaker 14: thousands of claims as we do here, that all seem
Speaker 14: to allege similar facts, similar harms, involve the same company
Speaker 14: Meta here, and it's a little bit like the tobacco
Speaker 14: litigation and settlements you saw in the nineteen nineties. And
Speaker 14: so what you have is one judge consolidating all these
Speaker 14: cases and taking what's called a Bellweather trial to take
Speaker 14: a look at some of these essential claims and try
Speaker 14: to figure out what the gist of them really is,
Speaker 14: how strong a party's arguments, and then see to go
Speaker 14: from there whether you can move these parties to settlements.
Speaker 2: The big headline of the week was that Meta, by
Speaker 2: its own calculation, faces a one point four trillion dollar
Speaker 2: potential penalty, right, which my understanding is just all of
Speaker 2: the potential violations and counts totted up in aggregate if
Speaker 2: they were to be found in breach of every single one,
Speaker 2: your your legal experience and expertise of that potential penalty, please.
Speaker 14: I think first of all, it's important to note that
Speaker 14: that's a number that Meta has given. This is not
Speaker 14: the number that the ags themselves, right, So the ages
Speaker 14: are saying we're really looking more at two hundred billion,
Speaker 14: which is still it's a lot of money, right, But
Speaker 14: when you think about the fact that you've got what
Speaker 14: eighteen billion dollars in quarterly profits for Meta, not that much, right, So,
Speaker 14: But I think Meta is putting out that number because
Speaker 14: it's trying to create the impression that this would be existential, right,
Speaker 14: This would be a Meta ending kind of fee. So
Speaker 14: I think that it's important to put that in context.
Speaker 14: And the idea that that's going to be the result here,
Speaker 14: I think is highly unlikely.
Speaker 2: Are there any precedents in the case law that will
Speaker 2: give us a guide of what might happen here?
Speaker 14: It's really difficult to say. I mean, we all know
Speaker 14: that in the last few months that we have seen
Speaker 14: some really important cases go forward against Meta and other
Speaker 14: social media companies that you know, ten years ago or
Speaker 14: twenty years ago simply would have been inconceivable because the
Speaker 14: way that the tech industry's immunity shield, the Federal Immunity
Speaker 14: Law Section two thirty was interpreted, these cases never even
Speaker 14: got to the stage, and so this is one of
Speaker 14: the first times that we're really seeing what's under the
Speaker 14: hood of these major social media companies. That's the biggest
Speaker 14: deal here, and it is somewhat analogous to some have
Speaker 14: said to some of the tobacco litigation, because there were
Speaker 14: similar claims there that tobacco companies were saying one thing
Speaker 14: that they knew something else at the same time, and
Speaker 14: that's what everybody is paying attention to.
Speaker 11: Now.
Speaker 2: You frame this in the distinction between what Meta says
Speaker 2: publicly and the practices it has in place. There is
Speaker 2: also a technology story right about the platforms themselves.
Speaker 3: How important will it be?
Speaker 2: Therefore, in terms of what we hear from Meta and
Speaker 2: who Meta we hear.
Speaker 14: From, extremely important. Those are going to be the kinds
Speaker 14: of things that are going to have the biggest impact
Speaker 14: not just on the judge, but on the advisory jury
Speaker 14: and maybe most importantly on the public. It's going to
Speaker 14: be a question of pointing out that there are documents
Speaker 14: where Meta said something publicly, made promises to parents, made
Speaker 14: promises to Congress, and then you look at some of
Speaker 14: the internal documents and say, at the same time you
Speaker 14: said these things, you also knew this was going on.
Speaker 14: It's direct you know. The argument is that this is
Speaker 14: in direct contradiction to what you were saying publicly. So
Speaker 14: what these individuals who represent the company their words and
Speaker 14: what it is that they say to themselves when no
Speaker 14: one is looking, is really going to become I think
Speaker 14: the heart of this trial.
Speaker 2: Meta has you know, commented quite regularly in the lead
Speaker 2: up to this case, and again that one point four
Speaker 2: trillion dollar potential penalty is a calculation Metas made, not
Speaker 2: the states that are suing themselves. Just in fifteen seconds,
Speaker 2: do you see an outcome here that's tangible in the
Speaker 2: first week or not?
Speaker 14: Maybe not in the first week. But again there's the
Speaker 14: question of the ultimate outcome of liability and whatever that
Speaker 14: dollar amount happens to be. But the much bigger question
Speaker 14: is what is the public going to learn? What is
Speaker 14: Congress going to learn about what these companies were actually doing,
Speaker 14: What did they know, when did they know it, and
Speaker 14: what are they going to have to change going forward?
Speaker 2: Mary Anne Franks from George Washington University Law School, thank
Speaker 2: you very much. There's message being sued by this pipe
Speaker 2: artisan coalition of states. We mentioned the company says it
Speaker 2: can face potential penalties of as much as one point
Speaker 2: four trillion does if it loses the trial, which raises
Speaker 2: existential questions about the future of its core business.
Speaker 3: Bloombos.
Speaker 2: Ryan Vselica from the equities desk is with us. You're
Speaker 2: looking at this from the stock perspective, right. Our investors
Speaker 2: really worried about the legal headwind here.
Speaker 7: Well, we've seen the staff come under pressure over the
Speaker 7: past several days, and it does seem like it coincides
Speaker 7: with the start of the trial. Like you mentioned, this
Speaker 7: could be a potentially existential risk for the company. The problem,
Speaker 7: according to the investors I've spoken to, said, it's very
Speaker 7: difficult to game out what the ultimate impact is going
Speaker 7: to be here. We don't know what a verdict would be,
Speaker 7: we don't know what the penalties would be, we don't
Speaker 7: know what appeal systems would look like. There's a lot
Speaker 7: of big questions out there. But it is another risk
Speaker 7: for the company at a time when people are already
Speaker 7: sort of souring on it. We've had a lot of
Speaker 7: questions about how much spending it's doing on AI, and
Speaker 7: it seems like the ROI side of things is harder
Speaker 7: for them than it is for other companies like Amazon
Speaker 7: or Microsoft or so forth. So this is just another
Speaker 7: element of uncertainty for a company that's already been living
Speaker 7: under a bit of a cloud.
Speaker 3: Right, Ryan, just go back to that key chart.
Speaker 2: The underperformance of Meta gives size and scope on that
Speaker 2: underperformance quickly.
Speaker 3: Yeah.
Speaker 7: I think it's down double digit percentage this year. I
Speaker 7: think Tessa's the only other name in the mag seven
Speaker 7: that sort of comparable to that. Naszek one hundred is
Speaker 7: doing pretty well this year. I mean that's largely due
Speaker 7: to the susseemic conductor sector, but Meta is a very
Speaker 7: dramatic underperformer, especially relative to the other AI spenders Memory chips.
Speaker 2: In the news cycle you've been take can you look
Speaker 2: at the sect So what are you writing about?
Speaker 7: Well, we've seen Memory, as has been the case for
Speaker 7: a while, become under a heavy amount of volatility. We
Speaker 7: saw the group kind of try to rebound earlier this month,
Speaker 7: but since then they've really taken another step lower. There's
Speaker 7: a lot of uncertainty out there about how durable is
Speaker 7: AI spending going to be and how durable.
Speaker 3: Is the growth going to be for these companies.
Speaker 7: People still view them as pretty attractively valued, and they
Speaker 7: still see a pretty strong fundamental backdrop. And I would
Speaker 7: note that SanDisk recently had an investor day where it
Speaker 7: gave some very positive long term financial targets. But there's
Speaker 7: a lot of debate about here, like maybe they've already
Speaker 7: seen peak growth, maybe they've already seen peak enthusiasm, and
Speaker 7: what is going to be the next catalyst to help
Speaker 7: them regain their leadership Right now, it seems like people
Speaker 7: are having a difficult time answering that question as far
Speaker 7: as what could take these stocks back to the records
Speaker 7: they were at not all that long ago.
Speaker 2: There's rhyme for Sedica, thank you very much. Indeed, coming up, Smikle,
Speaker 2: managing director of Kysla Bench, is going to join us
Speaker 2: to discuss the first investment in Discovery Loop.
Speaker 3: That's the AI startup.
Speaker 2: From Google's former chief scientist, something that was massive in
Speaker 2: the news cycle over the last ten days.
Speaker 3: This is Bloomberg Tech.
Speaker 2: A new AI startup called Discovery Loop has set out
Speaker 2: to boost the speed of scientific experimentation. It was started
Speaker 2: by former leaders at Google, including the company's chief scientist
Speaker 2: Jeff Dean, and has backing from high profile investors, including
Speaker 2: Coast Adventures, which code Let co led the seed round.
Speaker 2: KOSA managing director Sam Ule is here to talk about it. Smith,
Speaker 2: Welcome to the programs. This is one You're very welcome.
Speaker 2: This is one where people kind of want the backstory. So,
Speaker 2: like all good stories, let's start at the beginning. How
Speaker 2: did this all come about?
Speaker 15: Or Yeah, there's a lot of talk about this magical
Speaker 15: deck that apparently has been out there for the financee
Speaker 15: and yes, and as the guy that's leading the seed round,
Speaker 15: I'd like to see the deck, which I've yet to see.
Speaker 15: So there's a lot of lare already about this. Look
Speaker 15: when guys like Jeff Dean and his team, who are
Speaker 15: responsible for so many innovations at Google, TensorFlow, TPUs, Gemini,
Speaker 15: they come to you and say, look, we're coming up
Speaker 15: with it. We're going to leave after a collective eighty
Speaker 15: years at Google to start a new company that's going
Speaker 15: to be based in engineering and research and improving science.
Speaker 15: How do you say, no, We were just honored and
Speaker 15: thrilled that Jeff considered us to co lead this round.
Speaker 2: You know, Smith, you will appreciate right that the headlines
Speaker 2: of Jeff but others leaving Google and the kind of
Speaker 2: the changes in structure they made, that was big news.
Speaker 2: And so what was kind of the latency When did
Speaker 2: these conversations about discovery loops start relative to that period
Speaker 2: of changes at Google.
Speaker 15: It's all relatively recent, So this isn't something that's been
Speaker 15: hatched at least with us for a year or something
Speaker 15: along those lines. It's relatively recent.
Speaker 3: It moved very quickly.
Speaker 15: Just because of the caliber of the founders, and it's
Speaker 15: very consistent with our thesis. So we were the only
Speaker 15: venture firm in the first round of open AI because
Speaker 15: we believed in LLLMS. We were the first money in
Speaker 15: a company called General Intuition because we believed in world
Speaker 15: models and RSI. We believe is going to be the
Speaker 15: key to advancing science and engineering principles. RSI.
Speaker 3: It's great.
Speaker 15: AI is going to design experiments, it's going to test
Speaker 15: and figure out what the results of that experience are
Speaker 15: going to be and then it's going to design another
Speaker 15: thousands and thousands of parallel experiments in a closed loop
Speaker 15: system to give you answers about you know, what type
Speaker 15: of magnets should be used for fusion, types of battery
Speaker 15: materials for solid state battery is for electric vehicles, for
Speaker 15: drug discovery, for drug development. I mean, it's just an
Speaker 15: incredible tool like llms, like world models, and to have
Speaker 15: a guy like Jeff and his team lead that efforts
Speaker 15: just a dream.
Speaker 3: So that dream is what I want to get into.
Speaker 2: Because open AI and Thropic, Google Deep Mind, like other
Speaker 2: larger labs, are looking at similar domains. That's not their
Speaker 2: sole focus. So what is the distinction with Jeff and
Speaker 2: the Discovery Loop team. What is their technical advantage?
Speaker 15: Well, they've developed many of the principles that allow you
Speaker 15: to do RSI. And second, I think the large companies,
Speaker 15: especially if you're public, you can't be as focused and
Speaker 15: take as many risks as you can as a private company.
Speaker 15: Jeff's sole focus with Sunjay and Oriel and Quack are
Speaker 15: going to be RSI. That's it for science and engineering.
Speaker 15: He doesn't have fifteen other masters to respond to. That's
Speaker 15: going to be his sole focus. He's going to clearly
Speaker 15: be able to recruit a killer team and stay focused
Speaker 15: on that big prize.
Speaker 2: You started this conversation saying if there was a pitch deck,
Speaker 2: I didn't see it. So it sounds like, you know,
Speaker 2: the evaluation of the potential here was on their legacy,
Speaker 2: that their work to date in this field.
Speaker 3: Is that fair.
Speaker 15: Well, it's what the potential opportunity is the company that
Speaker 15: takes We've seen it already, you know, You've talked a
Speaker 15: lot about Anthropic on your show this morning, but Anthropic
Speaker 15: and Opening Eye and pioneering frontier models. You know, it's
Speaker 15: it's been speculated that combined they're already at one hundred
Speaker 15: billion dollars of revenue and nearly two trillion dollars of
Speaker 15: market cap. And if you believe that RSI is equally
Speaker 15: as profound and as impactful, and then you've got you know,
Speaker 15: four gentlemen who are as distinguished as these four, you know,
Speaker 15: it makes it a relatively quick investment decision in our
Speaker 15: investment committee.
Speaker 2: We're getting into the domain of the opportunity as referenced
Speaker 2: by the potential return. And it's so interesting, like Discovery
Speaker 2: Loop is also structured as a public benefit court. Sure, right,
Speaker 2: So going in at that seed stage, how do you
Speaker 2: get sort of the venture scale return from that structure?
Speaker 15: Well, I don't think that structure inhibits that at all.
Speaker 15: In fact, that structure may attract different types of engineers
Speaker 15: that want to work on this problem and be it
Speaker 15: a public benefit corporation. I mean, look, we invested in
Speaker 15: an open AI when it was still a nonprofit and
Speaker 15: it may be the most profitable investment we've ever made
Speaker 15: in twenty five years.
Speaker 3: Right.
Speaker 2: I appreciate you guys are not disclosing the size of
Speaker 2: the round or the valuation.
Speaker 3: It's a seed stage round, but.
Speaker 2: As we've written about a lot this year, the term
Speaker 2: seed is starting to not really mean anything. A coconut seed,
Speaker 2: a mango seed round. You know, I think about like
Speaker 2: humans and you're laughing, But think about humans and right,
Speaker 2: a group of a small group of individuals raising hundreds
Speaker 2: of millions of dollars out the gate at a very
Speaker 2: lofty valuation. Would you say that Discovery loop is on
Speaker 2: par with that level?
Speaker 15: Well, the prize is big enough that it warrants the
Speaker 15: round and the valuation that Jeff and his team have achieved.
Speaker 15: Let me just put one thing in perspective.
Speaker 1: Ed.
Speaker 15: So, when I moved out to Silicon Valley in two
Speaker 15: thousand and five, soon after the word unicorn was coined
Speaker 15: for a company with a billion dollar valuation, meaning it
Speaker 15: was so rare it was like a unicorn. You fast
Speaker 15: forward a decade or so after that word was coined,
Speaker 15: you now have twenty or so trillion dollar companies and
Speaker 15: a unicorn, by the old definition, is being funded on
Speaker 15: a weekly basis. So you have to reset everything in
Speaker 15: terms of what valuation gives you, venture scale returns, what
Speaker 15: exactly a seed round is because we may be sitting
Speaker 15: here in five years where there's a dozen or so
Speaker 15: ten trillion dollar company.
Speaker 2: Let's catch up in that timeframe and we'll see if
Speaker 2: you were right well, samkl coast of the event.
Speaker 3: Has been great to have you on blombo tech. Thank
Speaker 3: you very much.
Speaker 2: Some other news headlines in Talking Tech, first up Chinese
Speaker 2: robotics startup dex Mile, backed by tech giant Ali Barber,
Speaker 2: is seeking evaluation of three billion dollars in an ongoing
Speaker 2: funding ground, showing strong investor appetite in the country's embodied
Speaker 2: AI advancements. Follows Unitary Robotics raising nine hundred and four
Speaker 2: million in its Shanghai debut. This week, plus, open ai
Speaker 2: released a new feature that would allow chat GPT to read, write,
Speaker 2: and send text messages, in a move sparking privacy concerns.
Speaker 2: Open ai is stressed that the feature would require a
Speaker 2: user's consent and the plug in would run locally on
Speaker 2: Mac and use existing operating system tools. And SpaceX and
Speaker 2: AST space Mobile have expressed interest in acquiring Grain, a
Speaker 2: company providing wireless phone services directly from Space. Sources say
Speaker 2: Grain asked interested parties to submit preliminary offers with hopes
Speaker 2: of reaping six billion dollars from selling its licenses. Elon
Speaker 2: Musk waiting on next responding quote, not true to the
Speaker 2: report coming up. All eyes are on in video as
Speaker 2: the tech giant sets release at second quarter earnings next week.
Speaker 3: It's the big one. This is Sploomberg Tech.
Speaker 2: In videos in early talks with South Korean chip start
Speaker 2: up Rebellions about possible collaborations, sources say. In video, CEO
Speaker 2: Jensenwong met with Rebellion's co founder and CEO of Sungian
Speaker 2: Park on the potential deal, which could include a technical partnership.
Speaker 2: The chip firm raised roughly eight hundred and fifty million
Speaker 2: dollars from investors including s ke Heinix, Samsung and Armholdings,
Speaker 2: and was recently valued at two point three billion dollars.
Speaker 2: Let's stick with in video it's highly anticipated second quarter
Speaker 2: earnings the sex comand next week the street sees sales
Speaker 2: of ninety two billion to ninety five billion, either way,
Speaker 2: double what it was one year ago. Let's discuss what
Speaker 2: to expect with Kunjensavani seen Semia ducts ran less for
Speaker 2: Bloomberg Intelligence double a year ago, but a year ago
Speaker 2: is double the year before.
Speaker 14: Right.
Speaker 2: The main point is that you know the momentum in
Speaker 2: video's growth, it seems intact.
Speaker 3: What are you looking for?
Speaker 16: I mean, we again expect decent beaten race, but I
Speaker 16: don't think that will be enough. It never has been.
Speaker 3: In the fort talking about the market reaction for the market's.
Speaker 16: Reaction, yeah, I mean if they get close to the
Speaker 16: hundred mark, that will be something. We don't expect that
Speaker 16: given the supply constraints. But the focus right now is
Speaker 16: on three key areas. One, the concerns around vendor financing
Speaker 16: and off balance sheet obligation. Second, we would love to
Speaker 16: hear something positive on the China end right and one
Speaker 16: positive key impact form, which is the three Q guide.
Speaker 16: This is the first time ever that Vera Rubin we
Speaker 16: now expect to ramp day one at every single hyperscaler,
Speaker 16: frontier lab, cloud provider, neo cloud, you name it, which
Speaker 16: has not happened with Blackwell or the past prevision.
Speaker 2: So let's talk a little bit more about that Vera Rubin,
Speaker 2: VERA CPU, Rubin Accelerator or GPU latest generation. And what
Speaker 2: I see from executive video is constant commentary that it's
Speaker 2: in full production, it's in ramp. So you think that
Speaker 2: this is out there in the real world, is it
Speaker 2: where you think there might be a surprise in terms
Speaker 2: of contribution.
Speaker 16: There could be a positive surprise. We at this point
Speaker 16: do not expect anything negative surprise. Again, the reason they're
Speaker 16: out and about so much is the last time when
Speaker 16: this time of the year black Holes is ranking, there
Speaker 16: were a block of hiccups, So they want to avoid
Speaker 16: any concerns or fears or rumors around hiccups. The only
Speaker 16: one thing on the negative side we're looking for is
Speaker 16: gross margin impact. We don't expect Investors are not hoping
Speaker 16: or bracing for a lot of gross margin impact. Remember,
Speaker 16: whenever a new product rams, it's a gross margin head
Speaker 16: win initially, but from what the company has suggested, it
Speaker 16: might not be as big as for impact this time around.
Speaker 3: Gensen, one will get questions about circular financing. I'm sure.
Speaker 2: So let's go to your China points right now. The
Speaker 2: assumption is zero from China. But you want to see
Speaker 2: in video say this is how we're going to be
Speaker 2: able to do business real quick.
Speaker 16: Yeah, we really want to hear that. I mean, this
Speaker 16: has been something that has been dragged out and we
Speaker 16: just saw news headlines right that China is now enabling
Speaker 16: there our orders in the book. They really want to
Speaker 16: see this come to revenue at least in the tens
Speaker 16: to twenty billion dollars.
Speaker 2: To start with, Bloomberg Intelligence is Conjensabani, who leads our
Speaker 2: research of Nvidia and the other fabulous chip names.
Speaker 3: Thank you so much. That does it for this edition
Speaker 3: of Bloomberg Tech.
Speaker 2: Seriously, an astonishing week in technology in markets. Also in
Speaker 2: the news flow and Anthropic's been the big one. So
Speaker 2: much to recap on the podcast you knew where to
Speaker 2: find it on the Bloomberg terminal as well as online
Speaker 2: on Apple Spotify, and iHeart markets are ending the week
Speaker 2: higher six percent on an adzack, one hundred bit down
Speaker 2: on the week and set for the first weekly drop
Speaker 2: since that final week of July.
Speaker 3: Have a great weekend, everybody. This is Bloomberg Tech