WEBVTT - Neocloud Concerns Return After Elice Selloff 0:00:02.520 --> 0:00:04.210 Bloomberg Audio Studios. 0:00:04.680 --> 0:00:06.210 Podcasts. Radio. 0:00:06.650 --> 0:00:07.050 News. 0:00:13.430 --> 0:00:16.990 Bloomberg Tech is live from the heart of Silicon Valley 0:00:17.070 --> 0:00:19.930 with Ed Ludlow in San Francisco. 0:00:22.720 --> 0:00:23.860 This is Bloomberg Tech. 0:00:23.880 --> 0:00:27.280 Coming up, South Korea data center firm Ellis plunges 32% 0:00:27.280 --> 0:00:30.520 in its market debut, soaking fears about the billions being 0:00:30.560 --> 0:00:33.839 poured into AI infrastructure. Bloomberg Plus, Anthropic's in talks with 0:00:33.950 --> 0:00:36.830 Nscale for a massive new computing deal that could be 0:00:36.870 --> 0:00:40.410 worth as much as $ 45 billion. And Eric Schmidt's early 0:00:40.450 --> 0:00:43.360 Anthropic bet could pay off big with a stake worth 0:00:43.600 --> 0:00:47.180 as much as $ 20 billion if Anthropic hits a $ 2 0:00:46.900 --> 0:00:52.169 trillion IPO valuation. It is absolutely all changed. The first 0:00:52.210 --> 0:00:55.150 hour of the session, chip stocks down, tech stocks down, 0:00:55.190 --> 0:00:57.230 brought it one point. The SOX was down two and 0:00:57.250 --> 0:00:59.510 a half percent and trading in its lowest level since 0:00:59.550 --> 0:01:02.550 late July. In the last hour, complete reversal of that 0:01:02.630 --> 0:01:06.009 tech stocks pushing higher. Chip stocks in particular rebounded now 0:01:06.069 --> 0:01:09.010 up one percent. It was a sell off in chip 0:01:09.030 --> 0:01:12.990 stocks and technology that stemmed from a concern around neoclouds. 0:01:13.470 --> 0:01:16.880 South Korean data center firm Ellis plunged 32% in its 0:01:16.920 --> 0:01:20.240 market debut, the country's worst opening day for a sizable 0:01:20.319 --> 0:01:23.800 IPO on record, reviving concerns about the billions being poured 0:01:23.819 --> 0:01:28.120 into AI infrastructure. Bloomberg's Peter Elstrom is with us. Everyone 0:01:28.180 --> 0:01:30.800 is reading about this this morning. What on earth happened 0:01:30.840 --> 0:01:32.240 with this Ellis IPO? 0:01:33.740 --> 0:01:36.130 Yeah, it's amazing how many times we've been talking about 0:01:36.209 --> 0:01:38.830 South Korea in this AI boom and where we're seeing 0:01:38.850 --> 0:01:40.520 a lot of these issues emanate from it. 0:01:40.770 --> 0:01:42.930 This time, it's not Samsung. It's not SK Hynix. 0:01:43.250 --> 0:01:45.470 It's this company, as you were mentioning, this little data 0:01:45.500 --> 0:01:48.340 center company called Elise. So they had their IPO. They 0:01:48.380 --> 0:01:51.300 actually priced it pretty well. They raised a bit more money. 0:01:51.640 --> 0:01:53.280 They raised at the top of the range. 0:01:53.020 --> 0:01:54.840 And got about $ 150 million. 0:01:54.940 --> 0:01:57.990 But as they began trading, shares traded down very hard. 0:01:58.010 --> 0:01:59.790 They were down as you As you said, more than 0:01:59.790 --> 0:02:02.970 30 percent. They closed down 32 percent. Now, this is 0:02:03.030 --> 0:02:05.270 part of this concern about what's going on with the 0:02:05.310 --> 0:02:08.709 neocloud push at this point in the build out. This 0:02:08.790 --> 0:02:12.130 is more than three's a trend. You've got Firmus, of course, 0:02:12.169 --> 0:02:14.490 the data center company in Australia that had to pull 0:02:14.510 --> 0:02:17.089 their IPO. You have these troubles with CoreWeave that we've 0:02:17.110 --> 0:02:20.380 been detailing in quite a bit. SB Energy had to 0:02:20.400 --> 0:02:24.120 pull back on their valuation. And also we've heard that 0:02:24.260 --> 0:02:26.080 Nscale is probably not going to be able to hit 0:02:26.100 --> 0:02:28.340 the valuation that it wants as it goes public. So 0:02:28.600 --> 0:02:30.360 they're adding up at this point, but this time it 0:02:30.380 --> 0:02:33.190 was this surprising trigger coming out of South Korea and 0:02:33.210 --> 0:02:34.070 this company, Elise. 0:02:35.220 --> 0:02:38.800 You know, I think you're exactly right. It's actually an aggregate. 0:02:38.900 --> 0:02:41.810 Everyone's thinking about this sort of change sentiment to Neoclouds. 0:02:42.370 --> 0:02:46.070 They've lost faith. So park the quite small South Korean 0:02:46.110 --> 0:02:49.430 company to one side for a minute. There is still 0:02:49.490 --> 0:02:53.060 in Asia, in Asia trading, this lack of faith. And 0:02:53.100 --> 0:02:54.780 that spilled over into the U.S. What else can you 0:02:54.800 --> 0:02:55.320 tell us, Peter? 0:02:56.330 --> 0:02:59.330 I think in particular, there are concerns about the financing 0:02:59.370 --> 0:03:01.980 behind some of these smaller companies. These are not concerns 0:03:02.040 --> 0:03:05.380 about OpenAI or Anthropic or Google for that matter, but 0:03:05.419 --> 0:03:08.100 these are the smaller companies that have gotten pretty creative 0:03:08.139 --> 0:03:08.880 with the financing. 0:03:08.910 --> 0:03:10.530 We've talked about the circular financing. 0:03:10.910 --> 0:03:13.990 Nscale, of course, is one of those examples where NVIDIA 0:03:14.030 --> 0:03:16.150 has backed the company, they have a 10% stake in 0:03:16.169 --> 0:03:19.460 the company, and Nscale is a huge customer for NVIDIA too. 0:03:19.470 --> 0:03:22.179 So there's a lot of financial incentive for companies like 0:03:22.260 --> 0:03:25.260 NVIDIA to sprinkle their money within the system to be 0:03:25.320 --> 0:03:26.800 able to increase sales. 0:03:26.580 --> 0:03:28.000 And get these build-outs done. 0:03:28.280 --> 0:03:30.520 But now investors are questioning whether that's going to get 0:03:30.560 --> 0:03:32.880 across the line. And as we detailed in the story 0:03:32.940 --> 0:03:35.810 on Nscale that we talked about, Before, they've had a 0:03:35.850 --> 0:03:38.630 hard time executing here. The issue is not getting contracts 0:03:38.670 --> 0:03:41.130 like the one that they may be able to get 0:03:41.170 --> 0:03:43.290 with Anthropic here, but their issue is they have to 0:03:43.310 --> 0:03:45.120 be able to get power connected to these sites. They 0:03:45.130 --> 0:03:48.160 have to be able to get the financing for the GPUs, 0:03:48.180 --> 0:03:49.760 and then they have to be able to build the buildings. 0:03:50.580 --> 0:03:52.980 Execution right now is really top of mind for investors. 0:03:53.790 --> 0:03:55.590 Bloomberg's Peter Elstrom, thank you very much. 0:03:55.650 --> 0:03:59.330 And even as investors question this AI infrastructure boom, the 0:03:59.370 --> 0:04:00.630 deals keep getting bigger. 0:04:00.690 --> 0:04:01.530 Some new details. 0:04:01.570 --> 0:04:05.120 Anthropic is in talks with Nscale for a massive new 0:04:05.180 --> 0:04:08.340 computing deal that could be worth as much as $ 45 billion, 0:04:08.380 --> 0:04:11.320 all according to sources. Bloomberg's Bailey Lipschultz broke this story 0:04:11.360 --> 0:04:14.680 last night. It is new because there's an existing relationship 0:04:14.720 --> 0:04:17.870 between Nscale and Anthropic. And it is counter to some 0:04:17.880 --> 0:04:19.630 of the other reporting we've done earlier in the week. 0:04:19.890 --> 0:04:21.470 But let's start with what's new. What do we need 0:04:21.490 --> 0:04:23.150 to know about this deal? And the big thing to 0:04:23.190 --> 0:04:25.550 keep in mind is this is for their Monarch campus. 0:04:25.610 --> 0:04:27.589 And people at first, when we broke the story yesterday, 0:04:27.610 --> 0:04:30.400 were like, wait, wasn't this already announced? No, this is 0:04:30.440 --> 0:04:32.860 a campus that has three buildings. So the first building 0:04:33.260 --> 0:04:37.479 was inked in a partnership with Anthropic, a similar nominal announcement. 0:04:37.540 --> 0:04:38.580 That was back in August. 0:04:38.680 --> 0:04:41.080 Our reporting is that Anthropic is in talks for a 0:04:41.250 --> 0:04:44.750 similar deal for the second building in West Virginia. And 0:04:44.770 --> 0:04:46.550 they also have a right of first refusal for that 0:04:46.690 --> 0:04:49.210 third building. So to your point, this is a big deal. 0:04:49.250 --> 0:04:52.230 This is a big potential contract for N scale at 0:04:52.270 --> 0:04:54.920 a time when we've been writing ad nauseum about the 0:04:55.020 --> 0:04:58.219 neoclouds and kind of whether they deserve to exist or 0:04:58.260 --> 0:05:01.219 continue to grow. Well, All signs point towards a potentially 0:05:01.320 --> 0:05:04.540 big announcement coming from Nscale that they are leaning further 0:05:04.580 --> 0:05:07.490 into that partnership with Anthropic, again, just a few days 0:05:07.570 --> 0:05:08.850 after Microsoft. 0:05:08.370 --> 0:05:10.290 Walked away from a pact on the other side of 0:05:10.310 --> 0:05:10.650 the pond. 0:05:11.970 --> 0:05:16.110 In the background, an Nscale IPO is in limbo based 0:05:16.170 --> 0:05:18.290 on our reporting, right? You were on the show 24 0:05:18.290 --> 0:05:21.770 hours ago telling us that Nscale sees itself at one 0:05:21.830 --> 0:05:26.300 valuation and a group of investors are saying, no, significantly lower. 0:05:26.339 --> 0:05:28.779 Remind us of that and where they stand in this IPO. 0:05:29.140 --> 0:05:32.180 So our reporting over the weekend was that N scale 0:05:32.240 --> 0:05:35.110 is having some investors push back and say you're worth 0:05:35.190 --> 0:05:38.770 between $ 16 and $ 19 billion. That stands opposite of the 0:05:38.810 --> 0:05:43.159 management kind of vocal push towards a $ 30 billion valuation. 0:05:43.420 --> 0:05:45.600 So quite the discrepancy when we're talking about a 40% haircut. 0:05:46.740 --> 0:05:48.720 give or take there and what that does or doesn't mean, 0:05:48.760 --> 0:05:51.640 not only for the company, but for longer term private investors. 0:05:51.660 --> 0:05:53.860 The interesting thing, Ed, when I talked to folks about 0:05:53.920 --> 0:05:57.380 our story yesterday is how does this ultimately impact the 0:05:57.420 --> 0:06:00.750 math for say 2029 or 2030 EBIT and how that 0:06:00.790 --> 0:06:03.190 could kind of potentially be ascribed to a higher valuation 0:06:03.550 --> 0:06:05.890 that puts and takes still come back to the need 0:06:05.910 --> 0:06:08.589 for N scale to actually build Monarch One in the 0:06:08.670 --> 0:06:09.310 second building. 0:06:09.390 --> 0:06:10.310 That's the big risk. 0:06:10.910 --> 0:06:13.750 It seems like Wall Street and management teams are seeing 0:06:13.790 --> 0:06:16.330 it differently in how you actually can discount whether or 0:06:16.380 --> 0:06:19.580 not these are really projects that will be fully online 0:06:19.940 --> 0:06:23.340 in a few years and actually delivering the promised compute 0:06:23.560 --> 0:06:24.640 that are in some of these deals. 0:06:25.839 --> 0:06:31.110 Nscales public filing was September 18th. Today is October the 20th. 0:06:31.930 --> 0:06:33.570 What's going on in this interim period? 0:06:33.920 --> 0:06:37.440 We're expecting the company to refile updated S1. So that 0:06:37.480 --> 0:06:40.099 would put the ball back in the SEC's court. Whether 0:06:40.140 --> 0:06:43.310 that details this contract, whether it details something else, we 0:06:43.370 --> 0:06:45.890 do not know. But they need to clear those SEC 0:06:45.910 --> 0:06:47.990 comments before they can begin marketing the deal. 0:06:48.370 --> 0:06:49.990 Then really, you say about a week from there. 0:06:50.250 --> 0:06:54.219 The clock is ticking because, again, we sit here on Tuesday. 0:06:54.560 --> 0:06:56.680 In two weeks, we will have a midterm election. This 0:06:56.720 --> 0:06:58.679 is a company that does not want to go publicly. 0:06:58.920 --> 0:06:59.940 The week of midterms. 0:07:00.000 --> 0:07:02.700 So really needs to get on file potentially this week 0:07:03.000 --> 0:07:06.410 and start that roadshow. Otherwise, all signs would point towards 0:07:06.470 --> 0:07:09.850 potentially being held up until December. I say potentially because, again, 0:07:10.190 --> 0:07:13.710 our reporting report, our reporting focuses on Anthropic wanting to 0:07:13.750 --> 0:07:16.270 go public before Thanksgiving. So a lot of moving parts 0:07:16.510 --> 0:07:18.040 and a really crowded calendar. 0:07:18.860 --> 0:07:20.620 Bloomberg's Bailey Lipschultz, thank you very much. 0:07:21.550 --> 0:07:23.050 Step back from those headlines. 0:07:23.150 --> 0:07:27.090 The common thread is financing, huge upfront capital needs, higher 0:07:27.170 --> 0:07:31.070 borrowing costs, construction delays, revenues that may sit years in 0:07:31.100 --> 0:07:31.500 the future. 0:07:31.520 --> 0:07:33.120 And that matters because. 0:07:32.920 --> 0:07:36.220 The AI build out is increasingly shifted from cash funded 0:07:36.260 --> 0:07:40.040 CapEx toward debt funded CapEx. Our next guest writes that 0:07:40.100 --> 0:07:43.750 this shift will keep volatility elevated and the AI balance 0:07:43.790 --> 0:07:47.750 sheet's are no longer created equally. Stephanie Aliaga is global 0:07:47.790 --> 0:07:50.370 market strategist at JPMorgan Asset Management. 0:07:50.890 --> 0:07:51.800 That was dramatic. 0:07:51.950 --> 0:07:54.840 But across the news headlines of last week, the movement 0:07:54.880 --> 0:07:58.840 in credit markets, what Bailey just outlined in that report, 0:07:59.480 --> 0:08:02.190 where do you net out in how deep the concern 0:08:02.260 --> 0:08:05.070 is in the health of this neocloud sector? 0:08:05.420 --> 0:08:08.840 Absolutely, I mean, one thing absolutely top of mind right 0:08:08.880 --> 0:08:11.700 now is that the AI build out is not immune 0:08:12.000 --> 0:08:14.820 to the climate interest rates. And we are seeing that 0:08:14.840 --> 0:08:18.440 tighter financing conditions are having a toll in some of 0:08:18.460 --> 0:08:21.550 the more riskier and levered parts of this AI build out. 0:08:21.940 --> 0:08:23.290 And so I think a lot of what we're seeing 0:08:23.350 --> 0:08:26.630 in spreads, yes, there is a degree of this neocloud 0:08:26.650 --> 0:08:30.030 situation becoming the focal point for AI anxieties that have 0:08:30.050 --> 0:08:32.770 been bubbling up over the course of this whole year. 0:08:33.809 --> 0:08:37.010 But it's also a reflection that we should probably reprice 0:08:37.450 --> 0:08:40.930 the risk around these companies given that higher financing costs 0:08:41.240 --> 0:08:44.040 do challenge some of the economics around these players. 0:08:44.440 --> 0:08:46.340 That doesn't mean that they're all going to go bust. 0:08:46.840 --> 0:08:47.980 And it could be that there's. 0:08:47.800 --> 0:08:50.800 Maybe more pessimism than optimism priced into some of these 0:08:50.840 --> 0:08:53.900 CDS spreads, just given some of the inherent uncertainties here. 0:08:54.220 --> 0:08:57.120 But it is a reflection of just growing drag from 0:08:57.160 --> 0:08:59.000 higher interest rates on this AI build-out. 0:08:59.500 --> 0:09:01.900 Some of that pessimism stems from a Gartner report that 0:09:01.920 --> 0:09:05.990 was published October 14th, where they said expected spending this 0:09:06.030 --> 0:09:09.969 year $ 1 trillion, and then $ 6 trillion between 27 and 30, 0:09:09.970 --> 0:09:13.520 the end of the decade. So seven in aggregate. but 0:09:13.570 --> 0:09:17.050 the expected revenues generated, 3.6 trillion. So they see a 0:09:17.090 --> 0:09:21.319 mismatch and they expect write downs, particularly in the neo-clouds, right? 0:09:21.780 --> 0:09:24.940 Is that something that you modeling for too, JP Morgan 0:09:24.960 --> 0:09:25.560 Asset Management? 0:09:26.090 --> 0:09:29.090 I will say there is an inherent uncertainty that as 0:09:29.130 --> 0:09:32.830 this AI build-out grows and grows, the hurdle that you 0:09:32.870 --> 0:09:35.740 have to reach in terms of ROI, just mathematically, is 0:09:36.120 --> 0:09:39.760 a bit more difficult. Our estimates put that somewhere between 0:09:39.760 --> 0:09:44.599 $ 100 to $ 300 a month per paying user. And that 0:09:44.679 --> 0:09:47.360 is up from a year and change ago, that was 0:09:47.400 --> 0:09:51.080 like $ 50. So that hurdle has moved higher. Now, the 0:09:51.500 --> 0:09:56.189 demand environment for AI has also changed enormously and continues 0:09:56.250 --> 0:09:58.089 to look very constructive. 0:09:58.410 --> 0:10:00.510 But the reality is, the proceeds. 0:10:00.550 --> 0:10:03.450 The revenue generation, the monetization of AI is not. 0:10:03.309 --> 0:10:04.910 Going to be shared evenly. 0:10:05.550 --> 0:10:08.080 But in the near term, as we do look at 0:10:08.120 --> 0:10:10.660 an AI build out that is continuing to grow and 0:10:10.700 --> 0:10:14.260 shows a lot of durability, all of that spend should 0:10:14.300 --> 0:10:18.380 be directed to various different pieces of this AI infrastructure wave. 0:10:18.420 --> 0:10:21.570 So we do think AI enablers are going to continue 0:10:21.590 --> 0:10:23.730 to account for the lion's share, roughly 75% of earnings 0:10:23.750 --> 0:10:24.230 growth next year. 0:10:27.730 --> 0:10:31.110 The pessimism is also not universal, right? 0:10:31.150 --> 0:10:35.250 Goldman upgraded Corweave, saying that the debt concern was overdone. 0:10:35.370 --> 0:10:36.810 And I think at the beginning of this conversation, we 0:10:36.850 --> 0:10:40.650 pointed out not all balance sheets are the same. You know, 0:10:40.720 --> 0:10:42.390 Corweave is in a very different position than some of 0:10:42.410 --> 0:10:47.540 the other neoclouds. You know, Bailey just brought you the reporting. Nscale, 0:10:47.800 --> 0:10:51.400 potentially an additional $ 45 billion of capacity with Anthropic. How 0:10:51.460 --> 0:10:54.500 closely do you kind of track the progress of those 0:10:54.559 --> 0:10:56.520 kinds of deals, those commercial agreements? 0:10:56.600 --> 0:10:59.080 Yeah. I mean, I think violent moves in some of 0:10:59.140 --> 0:11:03.400 these debt and CDS spreads as of late don't necessarily 0:11:03.440 --> 0:11:05.120 tie cleanly to the fundamentals. 0:11:06.280 --> 0:11:09.350 In reality, the interwovenness. 0:11:08.550 --> 0:11:11.690 Of this AI ecosystem can actually be a benefit to 0:11:11.710 --> 0:11:13.750 some of these players too. If you have some of 0:11:13.770 --> 0:11:15.949 these players that are a bit weaker, they're having more 0:11:16.010 --> 0:11:19.720 challenges in raising funds, they can be supported by their 0:11:19.890 --> 0:11:25.180 much meatier, stronger AI balance sheets across this AI build-out 0:11:25.220 --> 0:11:26.720 through the strength of these partnerships. 0:11:27.140 --> 0:11:29.120 So that's one thing I think to keep in mind here. 0:11:29.240 --> 0:11:33.770 So long as the overall pie of AI revenue growth 0:11:34.130 --> 0:11:37.929 continues to grow really strongly, it really diminishes the risk 0:11:37.970 --> 0:11:40.959 of massive upsets and even some of these smaller, more 0:11:41.020 --> 0:11:45.500 fringe players. Ultimately, leverage in and of itself isn't a 0:11:45.520 --> 0:11:48.179 bad thing, but it is a riskier thing. So some 0:11:48.210 --> 0:11:51.430 of this repricing is rational again, but on the other side, 0:11:51.470 --> 0:11:54.090 there is probably some room for optimism to reenter the 0:11:54.150 --> 0:11:57.330 equation once we hear more about the demand picture of AI, 0:11:57.670 --> 0:12:02.100 once we hear progress around the build-out itself, and just 0:12:02.500 --> 0:12:05.120 a clearer picture of what the economics of the data 0:12:05.140 --> 0:12:06.179 center build-out are going to look like. 0:12:06.700 --> 0:12:08.560 I mean, to draw a line under the credit story, 0:12:08.600 --> 0:12:11.939 the CallWeave 2032 notes hit a yield of 15% distress. 0:12:12.000 --> 0:12:13.920 But like at the beginning of October, 20 days ago, 0:12:13.940 --> 0:12:16.320 they were at 13%. So I feel like the credit 0:12:16.360 --> 0:12:18.420 markets knew about that. A lot of what's in the 0:12:18.480 --> 0:12:23.410 news cycle is IPOs around the world going badly, being postponed. 0:12:23.830 --> 0:12:26.590 And then Anthropic is the big like, we're all waiting 0:12:26.630 --> 0:12:29.970 for that. What do you see in investor appetite for 0:12:29.990 --> 0:12:30.730 these IPOs? 0:12:30.970 --> 0:12:31.110 Yeah. 0:12:31.600 --> 0:12:35.359 These IPOs are very key because sentiment is a very 0:12:35.460 --> 0:12:38.640 powerful thing in this market. You have a lot running 0:12:38.760 --> 0:12:41.760 on AI and a lot of high momentum parts of 0:12:41.800 --> 0:12:44.809 this market. However, it's also really important to take a 0:12:44.830 --> 0:12:47.790 step back and to just look at the broader fundamentals 0:12:47.850 --> 0:12:50.830 of this AI wave, the earnings growth at play, the 0:12:50.929 --> 0:12:53.670 strength of these players are very much important. need to 0:12:53.690 --> 0:12:57.099 go public so we have clear visibility around the financials 0:12:57.150 --> 0:13:00.580 of these massively important ai companies and the build out 0:13:00.820 --> 0:13:03.800 i think we will get um you know those companies 0:13:03.840 --> 0:13:07.120 going public but the details around all of this are 0:13:07.160 --> 0:13:09.560 absolutely going to be scrutinized and i think the reality 0:13:09.679 --> 0:13:12.530 is you know there is this air of uncertainty of 0:13:12.770 --> 0:13:16.230 we don't know what some of these model labs ultimately 0:13:16.290 --> 0:13:19.570 mean for the broader ai ecosystem until we have that 0:13:19.610 --> 0:13:22.990 visibility into their earnings However, I think on the debt 0:13:23.200 --> 0:13:27.860 and the equity, markets do seem very well equipped to 0:13:28.020 --> 0:13:30.730 absorb all of this new AI issuance. And that is 0:13:30.760 --> 0:13:32.410 something that is important not to lose sight of. 0:13:34.030 --> 0:13:35.630 Stephanie, what happens next? 0:13:36.150 --> 0:13:39.150 Well, literally the midterms happen next, but I mean, what 0:13:39.200 --> 0:13:41.559 is it that you've got in your market outlook right now? 0:13:41.980 --> 0:13:43.840 We're not too worried about the midterms, I will say. 0:13:43.920 --> 0:13:46.140 These are kind of more noise than I think the 0:13:46.179 --> 0:13:49.560 fundamental drivers of this build-out. Look, this earnings season is 0:13:49.600 --> 0:13:51.840 going to give us a lot of clarity around how 0:13:51.860 --> 0:13:57.290 we're tracking around AI revenues, the monetization of the build-out overall. Also, 0:13:57.330 --> 0:14:00.570 we're going to get visibility into the personal AI assisting 0:14:00.590 --> 0:14:03.330 craze this week and what that's meant for some certain 0:14:03.370 --> 0:14:06.429 applications like Muse. And I think all of this is 0:14:06.450 --> 0:14:08.510 gonna give investors a lot to digest, could give us 0:14:08.570 --> 0:14:10.929 more good news around this AI build out to calm 0:14:10.950 --> 0:14:14.090 some of these jitters. I think that's gonna be really key. 0:14:14.530 --> 0:14:16.709 And then again, just looking at the long term, and 0:14:16.750 --> 0:14:19.050 that's something that we've been talking about a lot from 0:14:19.070 --> 0:14:21.110 JP Morgan this week with the launch of our long 0:14:21.130 --> 0:14:25.100 term capital market assumptions, we do see AI contributing to 0:14:25.180 --> 0:14:29.600 this structural climb in productivity, which should allow this economy 0:14:29.620 --> 0:14:32.060 to grow at an above-trend rate of growth. And that's 0:14:32.100 --> 0:14:33.980 a bit of this rising tide lifting all ships. It's 0:14:34.000 --> 0:14:35.760 not going to be smooth sailing. There's going to be 0:14:35.780 --> 0:14:39.020 bumps along the way. But long-term investors should maintain that outlook. 0:14:40.160 --> 0:14:43.920 Stephanie Aliaga of JPMorgan Asset Management. Really grateful for a 0:14:43.960 --> 0:14:47.560 really broad conversation. A lot of news headlines today. Coming 0:14:47.580 --> 0:14:48.480 up in the show, we're going to take a look 0:14:48.500 --> 0:14:51.100 at SpaceX, ahead of earnings, which, of course, come after 0:14:51.120 --> 0:14:51.960 the market close. 0:14:52.320 --> 0:14:53.220 This is Bloomberg Tech. 0:15:00.960 --> 0:15:03.020 An early bet on Anthropic could be about to pay 0:15:03.060 --> 0:15:06.120 off big time for former Google CEO Eric Schmidt. According 0:15:06.160 --> 0:15:09.930 to sources, the former Google exec owns around 1% of 0:15:10.070 --> 0:15:13.070 Anthropic from early investments, a state that could be worth 0:15:13.350 --> 0:15:16.870 as much as $ 20 billion if Anthropic goes public at 0:15:16.910 --> 0:15:20.070 a $ 2 trillion valuation. Bloomberg's Natasha Mascarenhas broke the story. 0:15:20.470 --> 0:15:21.130 And is with us. 0:15:21.410 --> 0:15:23.840 And it kind of reflects some of the early investment 0:15:23.880 --> 0:15:26.440 history that Anthropic has, the types of people that got in. 0:15:26.640 --> 0:15:27.580 Give me the story. 0:15:27.680 --> 0:15:30.700 Yeah, I mean, listen, up until 2023, Anthropic did not 0:15:30.760 --> 0:15:33.620 have any of those big name institutional investors that you 0:15:33.660 --> 0:15:37.880 and me are often talking about. Sequoia Capitals, Dragoneers, Iconics, 0:15:37.920 --> 0:15:41.230 they all came in relatively late. The first three rounds 0:15:41.250 --> 0:15:45.210 were actually mostly angels and high net worth individuals. Eric Schmidt, 0:15:45.270 --> 0:15:49.570 his first investment, I mean, tens of millions, $ 461 million valuation, 0:15:49.590 --> 0:15:51.170 and now we're looking at a $ 1. 0:15:50.770 --> 0:15:52.500 8 trillion IPO. 0:15:52.840 --> 0:15:54.600 Pretty good individual return there. 0:15:55.140 --> 0:15:56.460 Pretty good individual return. 0:15:56.520 --> 0:15:59.620 It's also interesting, right, because he continues to have an 0:15:59.820 --> 0:16:04.920 affiliation with Google. Google is a frontier lab to all 0:16:04.960 --> 0:16:09.480 intents and purposes. How normal or atypical is it for 0:16:09.500 --> 0:16:13.530 a 1% stake in a company of like Anthropic scale. 0:16:13.570 --> 0:16:16.130 Now I get it's paper, right? It depends how the 0:16:16.190 --> 0:16:16.770 IPO goes. 0:16:16.810 --> 0:16:17.310 Totally. 0:16:17.810 --> 0:16:19.910 Is he like one of one or are there others 0:16:20.050 --> 0:16:20.690 in that profile? 0:16:20.810 --> 0:16:22.109 I would say he's one of few, right? 0:16:22.130 --> 0:16:25.130 I mean, we know the co-founders of Anthropic are very 0:16:25.210 --> 0:16:28.270 much expected to also net out billions of billions of 0:16:28.960 --> 0:16:32.520 returns themselves. But when it comes to the individual, this 0:16:32.580 --> 0:16:35.040 is a seat that investors usually like to play. And 0:16:35.080 --> 0:16:37.620 so For an individual to have this is rare. For 0:16:37.660 --> 0:16:39.980 Eric Schmidt to have this is rare. I mean, he 0:16:40.400 --> 0:16:43.060 has made many investments before in companies. 0:16:42.720 --> 0:16:44.729 That you and me cover and follow. 0:16:44.750 --> 0:16:48.410 But Anthropic is by far the most prominent private investment 0:16:48.430 --> 0:16:49.990 we've seen him make in a very long time. 0:16:50.030 --> 0:16:53.350 This is absolutely something everybody is reading about this morning. 0:16:53.410 --> 0:16:57.150 Catch it on the terminal and on Bloomberg.com. Bloomberg's Natasha Mascarenas. 0:16:57.500 --> 0:16:59.120 Thank you very much. Coming up, we're going to take 0:16:59.140 --> 0:17:01.320 a look at SpaceX, ahead of earnings which come after 0:17:01.340 --> 0:17:02.140 the market close. 0:17:02.480 --> 0:17:03.340 This is Bloomberg Tech. 0:17:03.520 --> 0:17:03.820 Thank you. 0:17:18.130 --> 0:17:20.810 SpaceX's third quarter earnings will be out after the bell 0:17:20.850 --> 0:17:23.250 later today. The report comes after sending a new crew 0:17:23.290 --> 0:17:26.230 into space, helping Tesla show off a rocket powered car, 0:17:26.750 --> 0:17:30.949 all while pouring billions into AI infrastructure. Bloomberg Intelligence's Mandeep 0:17:30.990 --> 0:17:34.610 Singh and George Ferguson are here for the preview roundtable. 0:17:34.730 --> 0:17:35.650 Mandeep, I'll start with you. 0:17:36.050 --> 0:17:41.720 SpaceX is a quasi neocloud, a frontier lab. and it 0:17:41.780 --> 0:17:44.889 has a chatbot and an AI agent. And I'll go 0:17:44.930 --> 0:17:47.190 to you first to tell me what we expect to 0:17:47.260 --> 0:17:49.440 be told about that tonight from SpaceX. 0:17:50.150 --> 0:17:52.840 Yeah, look, they do have a lot of contracts when 0:17:52.900 --> 0:17:56.060 it comes to renting the compute capacity, and they have 0:17:56.119 --> 0:17:59.000 given us guidance for $ 100 billion in ARR by the 0:17:59.060 --> 0:18:01.980 end of the year. So from that perspective, I do 0:18:02.020 --> 0:18:05.670 think they have visibility into that ARR. But the key 0:18:05.690 --> 0:18:09.130 question is, how much is going to be the 2027 0:18:09.130 --> 0:18:13.150 CapEx number? And given all the jitters we have seen 0:18:13.210 --> 0:18:18.440 with CoreWeave, how will investors look at a 150 billion 0:18:18.500 --> 0:18:22.380 plus capex number for someone like SpaceX, given they don't 0:18:22.420 --> 0:18:25.200 have the operating cash flow that the other hyperscalers have. 0:18:26.290 --> 0:18:30.129 Q2 CapEx was 18.4 billion. The expectation on consensus is 0:18:30.130 --> 0:18:35.669 19.6 billion CapEx for this quarter. George, SpaceX, it's a 0:18:35.869 --> 0:18:40.109 space company, rocket company. That's the bit you're modeling for. 0:18:40.369 --> 0:18:42.869 And I look at the breakdown of revenues and space 0:18:43.350 --> 0:18:47.929 is the third bucket way behind AI and connectivity. 0:18:48.520 --> 0:18:49.280 What are you looking for? 0:18:50.300 --> 0:18:54.060 Yeah, so like you said, it sounds like a space company, 0:18:54.080 --> 0:18:55.939 but I'd say it's not a space company. 0:18:56.790 --> 0:18:58.020 It's all about sort of that. 0:18:57.970 --> 0:19:01.179 AI business and turning that into a very profitable enterprise. 0:19:01.780 --> 0:19:05.859 In the near term, the connectivity business is generating most 0:19:05.880 --> 0:19:06.560 of the profits. 0:19:06.619 --> 0:19:09.080 That's the Starlink satellite system. 0:19:09.100 --> 0:19:12.850 And space, the portion that I focus on the most, 0:19:13.350 --> 0:19:17.750 is really just the enabler of those two businesses. It's 0:19:17.770 --> 0:19:21.669 going to enable Starlink in the near term. as they 0:19:21.710 --> 0:19:25.200 try to generate as much cash and profit as possible 0:19:25.220 --> 0:19:27.420 to help offset some of those challenges that Deep was 0:19:27.460 --> 0:19:30.139 just talking about. But in the long term, I guess 0:19:30.160 --> 0:19:32.619 they're going to put data centers in space, which should 0:19:32.640 --> 0:19:34.859 probably fix a lot of problems on the world. 0:19:35.380 --> 0:19:36.679 And in the near term, they. 0:19:36.580 --> 0:19:41.490 Record no revenue for internal launches, which are over two-thirds 0:19:41.530 --> 0:19:42.650 of the launches that they do. 0:19:43.410 --> 0:19:45.810 And so you used the word George Enabler there. We're 0:19:45.850 --> 0:19:49.550 talking specifically about Starship, which is the modus operandi by 0:19:49.590 --> 0:19:53.040 which all of this future vision is achieved, right? 0:19:53.900 --> 0:19:54.200 Yes. 0:19:54.859 --> 0:19:58.200