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- [00:01]
Ed Ludlow
With the highest number of young STEM graduates per capita in the eu, Ireland has the people and skills your company needs to succeed here. IDA Ireland, the national investment development agency, can help you find and nurture the people you need to internationalise and thrive. Our talent is just one of the extraordinary benefits Ireland has to offer. Learn more@idailand.com invest in extraordinary
- [00:31]
Bloomberg's In King
so there's
- [00:31]
Bloomberg Tech Host
a lot of noise about AI, but
- [00:32]
Ryan Vasilika
time's too tight for more promises.
- [00:34]
Bloomberg Tech Host
So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions. Not noise proof of how we can
- [00:51]
Ryan Vasilika
help companies get smarter by putting AI
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Bloomberg Tech Host
where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM Amazon Pharmacy Presents Painful Thoughts of course I see my co worker in line at the pharmacy.
- [01:08]
Jensen Huang
Can you tell I'm picking up prescription hemorrhoid cream?
- [01:11]
Bloomberg Tech Host
I'm probably standing weird. Why is he smiling? He knows he's going to call me Hemorrhoid Lloyd tomorrow. I know it.
- [01:20]
Jensen Huang
I got to quit my job.
- [01:21]
Shlomo Kramer
Next time, avoid awkward conversations and get fast free delivery.
- [01:26]
Bloomberg Tech Host
With Amazon Pharmacy, healthcare just got less painful.
- [01:33]
Ed Ludlow
Bloomberg Audio Studios Podcasts Radio News. Bloomberg Tech is live from the heart of Silicon Valley with Ed Ludlow in San Francisco.
- [01:53]
Bloomberg Tech Host
This is Bloomberg Tech. Coming up, we speak to Nvidia CEO Jensen Huang as the AI industry gets back to talking circular financing. Plus this week. Week's power on all about Apple taking on matter in the smart glasses department and the biggest week of the year so far for big tech earnings. Microsoft Matter, Amazon, many more on deck. Our top story the technology world is talking about circular financing again. Today's big number 750 billion. That's the potential value of a fresh round of infrastructure deals. Nvidia is working on the first piece Bloomberg reports Nvidia is in talks to guarantee up to $250 billion to help OpenAI lease computing from SoftBank's planned data center in Ohio. It's also discussing, by the way, financing $350 billion of Open Air's Nvidia chip purchases for that project. And that's not even counted in today's big number. The second piece? A $500 billion plus deal with SK Group. Nvidia buying SK Hynix memory SK builds infrastructure using Nvidia systems On Friday, I discussed the SK deal with Nvidia CEO Jensen Huang in San Francisco.
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Jensen Huang
This is the Golden Ages For Korea, as you know, their semiconductor business is booming, their industrial business is booming. You know, this is a country that has the ability to help the world build out the infrastructure that they're incredibly adept at adopting new technologies and is a really technologically forward leaning society. And they love using AI. AI has really diffused throughout their society and their industry. So this is a great time for them. We're announcing several things. We announced a big partnership with SK Group where our companies are going to enter into a business partnership where we do over $500 billion of business with each other. Whether it's consumption of and purchasing of memories or selling supercomputers to them as they scale out 2 gigawatts of AI factories. There's a whole bunch of other announcements. We're investing $1 billion in Naver to help. They're the Korea's leading AI cloud. They're going to scale up in Korea up to 2. They're going to scale up 200 megawatts I think it is. And they're going to expand across the world. And so we have a whole bunch
- [04:19]
Bloomberg Tech Host
announcements that we're making today with the expanded SK relationship. There's also sort of more direct involvement with Nvidia on the roadmap for hbm. Future generations of hbm. Talk about that. I remember you being on stage earlier this year saying, five years ago we told our supply chain what was going to happen and it did happen. And you gave some credit to the memory makers in going with you on that journey. But clearly you want to be involved in the direction of travel for future generations of hbm.
- [04:49]
Jensen Huang
Yeah, we're working together on of course we started with HBN2, worked on HBN3, 3e4 4e and then beyond. And so we've got a whole roadmap of memories that we're working on together. It is also the case that the semiconductor industry has really changed. And the reason for that because we used to build computers for people to use. And we're going to still continue to build incredible computers. These are now processing AIs for humans to collaborate with. But in the future we also have AI agents and robots and they're going to be using computers. So instead of just a billion people using computers, we're going to have 100 billion agents and billions of robots all using computers. The computer industry that's built on top of the chip industry surely is not big enough. And so this is one of the realizations of the semiconductor industry that now computers are built not just for people to use, but Computers are being built. For computers to use, my guess is that the semiconductor industry is probably going to have to be 10 times larger than it is today over the next decade or so. Working with our partners in Korea and around the world to scale up the supply chain of semiconductors so that we're prepared for this AI future is really important.
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Bloomberg Tech Host
That was part of my conversation with Nvidia CEO Jensen Wong from Friday. And the deals aren't stopping. Just this morning, Nvidia announced a substantial investment in Ilya Sutsk of a startup Safe Superintelligence. SSI says the partnership will increase its computing power tenfold over the next year, allowing it to scale its AI research. Meanwhile, the mask is asking another question. Is Nvidia creating a feedback loop by helping finance demand for its own products? Joining us now is Alison Porter, Janice Henderson, investor portfolio manager on the Global Technology Leaders team and Nvidia is the top holding. SK is in there as well. A lot of news flow to digest, but that is the question once again, is this circular financing and if it is, should we be worried about that?
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Janice Henderson
I think when we think about circular finance, I guess it's an answer to a secular problem which is that the ability to be able to grow AI revenues and applications is being constrained still by the capacity that the hyperscalers have. Just as the market continues to be surprised as Alphabet and Metal this week and Amazon continue to push out CapEx, push up CapEx not just for 2026, but for 2027 and 20. Flip side of that is Nvidia doubling its free cash flow year over year. So it makes sense that Nvidia at the heart of this ecosystem is trying to help resolve some of this secular problem that we have in being able to help underwrite some of that growth. Now there is a point at which that can be problematic. We don't think that that's there because tech still has amongst the strongest balance sheets in the market. But we continue to keep a close, a close watch on that circularity.
- [08:06]
Bloomberg Tech Host
The constructive view on it is that in the case study I gave where Bloomberg reports that in video would guarantee the lease financing but also finance OpenAI's purchase of chips, you know, our own analysts would say, well actually the banks might look at that and say, oh good, Nvidia is involved, that gives us confidence. It gives literally the construction industry confidence to get involved in the project. Is that something that is worth hanging one's hat on? The Nvidia effect that the market gets confidence from?
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Janice Henderson
Nvidia have the free cash flow as do an Alphabet. So I think that's important. I think we have to look ultimately it's about will open. I continue to generate revenues and the kind of gold standard that investors are looking at here is not so much the capex that they spend, but really whether that annual revenue run rate that they have is going to grow more quickly than the CapEx run rate that they require. And the credit markets continue to look at that. But just the actual quantum and this magnitude of this capex reason means that it's an important lever for Nvidia or some of these companies with the strongest balance sheets and strongest free cash flow to be able to back that because it's difficult for the credit markets to be able to underwrite that otherwise find that so interesting.
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Bloomberg Tech Host
I think you know, Nvidia ended its fiscal 26 year with $97 billion of free cash flow and had to like blink do a double take that the street sees $206 billion of free cash flow next year. And to many that might even be conservative. Final one on Nvidia. What's the metric that we track in video by now, right? Is it as simple as top line growth? Is it as simple as free cash flow because they continue to be in a position where they have a near technical monopoly in compute and nothing is really slowing down.
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Janice Henderson
It's such an interesting question. I think I go back to how we used to think about Apple. The key metrics that we have to think about for Nvidia are very much how they grow the ecosystem. So just as people used to wonder if you know, Apple was its saturation, if it was just about the number of iPhones that they sold for Nvidia is beyond just how many GPUs or what the next generation is. It's really about how Nvidia is growing the ecosystem and remaining core to the AI ecosystem overall. Because the valuation on Nvidia is really inexpensive versus other semiconductors versus the rest of the complex because the market quite hasn't quite bought into the sustainability of this. And we think really developing their, their position and the ecosystem, the software and the platform aspects as they develop is really going to help enhance not just their earnings but the multiple and how investors value that.
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Bloomberg Tech Host
I appreciate that a great deal. It's a big week, maybe a big week every week at the moment. But in the earnings context, wow, we really get underway. So Metta, Microsoft Wednesday, Apple on Thursday, Amazon on Thursday. It used to be really simple. If capital expenditures went up and there was top line growth, then great Wall street love Technology, but it seems to not be as simple as that anymore. What's kind of the watch for you this week?
- [11:37]
Janice Henderson
Yeah, I think, you know, we learned a little bit from Alphabet last week because, you know, within Alphabet SC Cloud division they grew that 82%. And previously we were watching these cloud divisions and saying are they going to grow revenues more than CapEx? And that was certainly the case versus just the cloud division. But we're now looking at that from an overall perspective. So the market will want to see that not just Amazon is growing its AWS division, but the overall, overall we're starting to see revenue growth and I think one of the golden metrics ultimately is going to be at what point we see an inflection where these companies continue to grow revenues above their capex. And it doesn't look like given all of the signs or the capex is going up significantly materially for 2027. It looks like that's going to be a 2028 event. But the market's going to look for continued growth on aws, continued backlog growth. And seeing that they're being able to manage those costs and margins are very important, particularly at Amazon at the largest cloud division, they've got a huge role to play in orchestrating the cost of AI with their bedrock division. And that's something the market's going to be looking for, how their margins progress because we saw real margin enhancement there at Alphabet last week.
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Bloomberg Tech Host
Alison Porter, Janice Henderson, Investors back on Bloomberg Tech. Thank you very much indeed. There's another big story in the chip sector. ASML's European shares down 7.5%. 20 minutes left to go in the European session, but on track for this biggest drop since July of 25. At one point, the biggest drop on record, the information reported that a Chinese state backed technology company has started production of deep ultraviolet lithography tools, DUV tools, and a case study, an example that China's domestic industry could bridge the gap with what is the key chip equipment maker in the world in asml, it's really rocked the stock and as we get more info, we'll bring it to you. Coming up on the show, Cato Network CEO Shlomo Kramer joins us with an update on his company's financials, but also his take on the state of cybersecurity. Post that hugging face incident. That's next. This is Bloomberg Tech. Cybersecurity firm Cato Network says it has surpassed $415 million in annual recurring revenue. It's driven by what it sees as a shift from companies Buying a slew of security products to single platform solutions. Cadda's co founder and CEO Shlomo Kramer. Back with us on Bloomberg Tech. This is growth about 40 to 45% year on year. But what's so interesting is what's behind it. You see clearly a shift in how enterprises are doing business. Give me the evidence of that shift as seen through your top line growth.
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Shlomo Kramer
So obviously the market is maturing and we are seeing larger and larger enterprises adopting sase as evidenced by the multi million dollar deals of Fortune 500 customers were closed beginning first half of this year. And this is driven by the fact that our platform based solution now is not only about operational efficiency and business agility, but with a threat landscape. It's a do or die security innovation for the for customers. So that has really been a tailwind in mainstream adoption.
- [15:28]
Bloomberg Tech Host
What I find further interesting is the different industries or domains that are looking to manufacturing robotics. You know, people like gentleman tell us that that's the next wave physical AI. The physical world you seem to also be benefiting from spend there.
- [15:48]
Janice Henderson
Yeah.
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Shlomo Kramer
You know, every organization is facing with two huge transformations. One is internally implementing AI that has, as we've seen from recent attacks, is a very significant additional area to protect and is facing an increasingly agentic threat landscape. And this is going to replace in every organization the previous generation of appliance based solution of proxy based solutions with true network and security cloud solutions that can address this new realities.
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Bloomberg Tech Host
The top story of the last week were two powerful open AI models escaping their sandbox environment and mistakenly accessing hugging faces systems. A big moment for AI. You're a veteran of of the technology industry and of security. Your impressions of that this is a
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Shlomo Kramer
watershed, a moment in security where it's becoming increasingly clear that unleashing an army of agents inside the organization creates a completely new level of insider threat to organizations and the need to control these agents, control the user interactions of them, control the other agent interaction with them and primarily control their interaction with data. Data and critical applications is becoming the number one security challenge of enterprises. And this has to be addressed by a network security solution like kitten Networks.
- [17:54]
Bloomberg Tech Host
What happened was a frontier lab tested the capabilities of cutting edge models. Right. And that was really cheered by industry. They were saying it's not a scandal, we want to see the frontier labs do that. But in its defense, Hugging Face relied on open weighted models or open models where the guardrails on that model, the open model diminished its ability to defend itself. So now we have this huge open close debate as well, you understand the field, explain your position on that.
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Shlomo Kramer
Yeah, so two points here please. The one is the fact that I do not expect the model companies, whether it's volunteer models or open source models, to provide this cyber protection to these models. It always has been the case that cyber is a very specialized category that needs to be addressed by specialized company that focus on that and that's exactly what we are doing at Cato. And the second is it's also has nothing to do with nationality. It's not about the open source model which is Chinese models or the closed models, American models. I think the challenges here and cybersecurity is the least of which there are such bigger challenges, political, social, economical challenges that globally we need to unify in order to address them. And I don't think that defining borders and creating and even uncontrolled competition between countries is helpful in order to face and solve these issues.
- [19:42]
Bloomberg Tech Host
Tomo Kramer, CEO, Cato Networks who's hit $450 million. They are, but also giving the veterans perspective of security in the air. Thank you so much. Coming up, Apple aims to separate itself in the smart glasses market with an emphasis on privacy. We're going to tell you about its plans next. This is Bloomberg Tech.
- [20:10]
Ed Ludlow
With the highest number of young STEM graduates per capita in the eu, Ireland has the people and skills your company needs to succeed here. IDA Ireland, the national investment development agency, can help you find and nurture the people you need to internationalise and thrive. Our talent is just one of the extraordinary benefits Ireland has to offer. Learn more@idaiirland.com Invest in extraordinary.
- [20:39]
Bloomberg Tech Host
Get the news you need in just 15 minutes. Start your day with Bloomberg Daybreak, the
- [20:44]
Jensen Huang
podcast with a global view on the stories that matter.
- [20:47]
Mark Bergen
I'm Nathan Hager.
- [20:48]
Morgan Hitzick
And I'm Karen Moscow.
- [20:49]
Bloomberg Tech Host
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Jensen Huang
Plus one conversation on the day's biggest
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Mark Bergen
developments, all in just 15 minutes.
- [20:59]
Bloomberg Tech Host
Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter.
- [21:04]
Jensen Huang
Listen to Bloomberg Daybreak each morning on Apple, Spotify or anywhere you listen.
- [21:15]
Ed Ludlow
It's time now for talking tech. First up, Chinese channel chip maker CXMT surged 466% in its Shanghai trading debut, making it the country's largest onshore listed company at a $488 billion valuation. Cxmt, which makes DRAM chips, is emerging as China's best hope to building a self sufficient semiconductor industry plus staying in China. It says it will take, quote, all measures necessary if the US sanctions Chinese AI companies over claims they train their models on American technology. Beijing's commerce ministry rejected the Trump administration's accusations of IP theft, calling the allegations a smear campaign. And SoftBank's $40 billion bridge loan for its OpenAI investment is attracting more lenders. That's according to people familiar with the matter. A new group of 21 lenders has taken on about 7 billion billion of the financing. Meanwhile, First Abu Dhabi Bank, GIC and Standard Chartered have each taken a nearly $1 billion share.
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Bloomberg Tech Host
John Ed, thank you, Hira. Now Apple is aiming to unveil its first smart glasses next June. That's according to sources. It's a year later than initially planned as the iPhone maker looks to overcome some concerns dogging the wearable tech. One of them is privacy. Bloomberg's consumer tech editor Dana Woolman joins us for more. So we kind of had the calendar. Now the Apple Smart glasses will come WWDC of 2027. Talk a bit about what we know about the product, the approach, the timing and its selling points.
- [22:51]
Ed Ludlow
Yes, so if Apple does indeed at least give an initial preview, an initial announcement of the glasses during WWDC next year, that would suggest the company is looking to get buy in from developers to make sure that their apps, as many apps as possible, would integrate and work well with these glasses. And our understanding is that the glasses wouldn't go on sale, wouldn't hit the market until later next year, but the developer show would be a good opportunity to get the creative juices flowing, so to speak. On the developer side, your team has
- [23:21]
Bloomberg Tech Host
been so busy in the world of consumer electronics consumer technology. Foldable phones is one big category and I think you've been able to get hands on with Samsung's Galaxy Z Fold 8. What the team's impressions? What do we know? Is it just like any other foldable phone? Why do foldable phones matter? These are all big questions for Bloomberg Tech.
- [23:42]
Ed Ludlow
Yes to My colleagues had a chance to play with the Galaxy Z Fold 8 and I think what's notable about it is more of the form factor. Not just that it's a foldable, but it has a shorter squatter design that looks a lot like what what we understand the folding the upcoming foldable iPhone to look like, which of course it hasn't been announced, but based on our best understanding and aside from it being kind of cute and definitely different, meaningfully different from normal smartphones which have kind of hit a very incremental update cadence, I think it's harder for even regular people to be impressed by new smartphones this definitely is different looking than most smartphones on the market. And just from a practical point perspective, it is especially well suited to media consumption including both looking at all the photos you have on your phone and watching videos. The the aspect ratio is just better suited for both of those things.
- [24:33]
Bloomberg Tech Host
And Dana, real quick remind us how much the Z fold costs.
- [24:36]
Ed Ludlow
It ain't cheap, just just short of $2,000. I think it's about 1900 here in the US so definitely not cheap even by modern smartphone standards which have undergone some price hikes across different brands.
- [24:52]
Bloomberg Tech Host
Wallman, editor on the consumer technology team with everything Apple and everything Samsung. Thank you very much. Now coming up, Nvidia doubles down on new investments, bigger partnerships. The growing debate over who's really financing the AI boom. It is interesting that in video is now down almost 5%. For all the headlines on what were headline positive pieces of news, this is what markets look like. We opened higher. We're now a lot lower, particularly in chips. We can unpack all that. All it is half time. We'll be right back. This is Bloomberg Tech.
- [25:33]
Jensen Huang
We used to build computers for people to use and we're going to still continue to to build incredible computers. These are now processing AIs for humans to collaborate with. But in the future we also have AI agents and robots and they're going to be using computers. So instead of just a billion people using computers, we're going to have a hundred billion agents and billions of robots all using computers. The computer industry that's built on top of the chip industry surely is not big enough.
- [26:04]
Bloomberg Tech Host
Welcome back to Bloomberg Tech. Some of my conversation with Nvidia CEO Jensen Huang. Let's get back to today's big number, $750 billion. That's the potential value, potential value of a fresh round of infrastructure deals Nvidia is working on. Markets have reacted in a really unusual way to a number of headlines this morning. The concerns about circular financing, the idea that Nvidia is bankrolling the same companies that are buying their technology. There's some nuance in that $750 billion number. We need to understand it. But having opened higher, NASDAQ 100, but particularly chip stocks are now markedly lower. Joining us for more is Bloomberg's In King who is with me in San Francisco Friday night trying to understand what was a big event hosted by the Korean government. Let's just focus on the SK bit. Half a trillion dollars. I had the opportunity to ask Jensen to sort of just explain what it encompasses. You also did some reporting what it Encompasses. What does it encompass?
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Bloomberg's In King
Yeah, it's a good question. And the problem is we still don't know. I mean, a while ago, big numbers were a good thing. It was great. They were celebrated. Now you need to bring the details. So this could be spending by SK on the data centers. That would be SK Telecom. This could be spending by Nvidia on sk. Hynix is memory chips. This could be investment by Nvidia on helping SK Hynix develop future memory chips. We just don't know because we don't know there's the risk.
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Bloomberg Tech Host
I think Jensen's response is basically all of the above. Right. And there's no timeline for the deployment of that $500 billion. But SK Hynix has 60% market share in high bandwidth memory. Nvidia has a greater market share of compute. So that's kind of how it was explained to me. Me, there's the open air piece of this and one thing I think the audience really appreciate is there's all the reporting about what Nvidia is or isn't committed to. But what argument does Nvidia make historically about whether it is or isn't circular financing?
- [28:01]
Bloomberg's In King
Yeah, I mean, it's pretty much what Jensen said to you, which is, look, this thing is going to the moon. It's growing and it's growing and it's growing. I'm making these investments to speed up that growth and to facilitate that growth, make sure it doesn't stall. And guess what if I'm buying parts of these fantastic companies and that's going to provide a great return on that investment. That's his argument, but obviously underpinning that is that we're going to the moon. And not everybody believes that.
- [28:24]
Bloomberg Tech Host
Right. So it's whether or not you believe in the future state of the market that Jensen's outlined. Just to finish, it was very interesting to be there on Friday. You know, Jensen Huang is still a leader in industry, but it's kind of more than that. You had the president of South Korea, all of the major air CEOs and then Jensen kind of leading the way in the middle. What else did we learn from that event?
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Bloomberg's In King
Yeah, I mean, you have arguably the two leaders of, you know, the AI software development efforts. You have, you know, Dario and you have some Altman and we're talking about who's doing what, who's doing chips said they want is like, oh, well, you know, these guys are making chips now. And that was a revelation. And you know, Dario was there on stage with him, sports, supposedly having told him, this Jensen, who it would be competing with was there on stage. So there was a lot of dynamics and that just showed how fluid the situation is.
- [29:15]
Bloomberg Tech Host
On a very serious note, Nvidia's decline is now accelerated to 5% again markets opened higher. Nvidia is now down. There's no explicit headline, but the chat in the market is about circular financing. Bloomberg Zanking, thank you very much indeed. Let's get more on Nvidia. Mandeep Singh of Bloomberg Intelligence joins us now. And really interesting to see what you and the team had to write. I talked a little bit earlier, Mandeep, with a portfolio manager who really agreed with with your thesis, which is on the other hand, Nvidia doing this gives a lot of confidence to the market. Right. It's constructive overall for the AI build out. Is that what we're writing here?
- [29:54]
Mandeep Singh
It is. And look, I think because the numbers are getting so big and who has the most free cash flow to invest in the backstop of leases, it's Nvidia. And Nvidia wants to boost up, you know, not just Open Air or any specific company, but that entire new cloud complex because they want that compute to be deployed beyond the cloud providers who are in turn developing their own chips. But at the end of the day, the more fragment this model ecosystem is and the more companies that use Nvidia, I think that's what they are focused on for the next few years.
- [30:35]
Bloomberg Tech Host
Right Now Nvidia is down 5%, its biggest drop since the first week of June. But I'm just trying to understand the sort of reaction in markets to what was like lots of different headlines. We're also showing your research and there's a line in that easing concern, that capacity demand is fading demand you still see very long term demand outpacing this industry's ability to supply.
- [30:56]
Mandeep Singh
Yeah, I think the core of the thesis is that, you know, AI is going to be a lot more compute and power intensive than it used to be, memory intensive. And when it comes to the type of computing that is required for large language models that have got trillions of parameters and do so much computation to get the next word, there is no shortcut. I mean if these open rate models were tomorrow coming up with, you know, a much smaller model that can have the same type of reasoning as the frontier models, then we would have a very different conversation. But for now, even with the open rate models, the number of parameters seems to be going up. Kimik3 is 2.8 trillion parameters. So that's where I think the compute needs will remain. And that's the kind of the core thesis that Jensen has as well.
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Bloomberg Tech Host
I got some details on that model in just a minute. Mandy, real quick. The research on Nvidia also ties in what we learned last week from Alphabet and this week we have a big earnings week on deck. Where are you thinking right now about Capex as a guide?
- [32:03]
Mandeep Singh
I mean these number at the hyperscale Capex would exceed 1 trillion for those five companies and everyone will raise their Capex. I see no reason for anyone, you know not raising Capex. And if they're not raising Capex then that's where you know, the memory price increases have to be accounted for and there is some sort of an offset.
- [32:22]
Bloomberg Tech Host
I'll be looking for Bloomberg's Mandeep Singh, leading technology research at bi. Thank you so much. Now we've just been discussing Beijing based Moonshot AI has officially released its its latest model Kimmy K3 as Chinese firms close the gap with US rivals. Moonshot posted on saying the model has architecture of 2.5 times the intelligence per unit of compute. The initial announcement of Kimmy's K3 and benchmark performance triggered a sell off in AI related stocks earlier this month. We covered it on this show. The company was accused by the White House last week of improperly using AI models and banned Nvidia chips as part of development and training of their products. Coming up, we've got way more on private markets, specifically why one firm is looking into supply chains for its next investment. Joining us is Overmatched Ventures general partner Morgan Hitsick. This is Bloomberg Tech,
- [33:21]
Ed Ludlow
The Bloomberg this Weekend podcast, news, analysis and the lighter side of Bloomberg, including our weekly news quiz.
- [33:29]
Bloomberg Tech Host
Mattel reported higher than expected first quarter revenue thanks to the demand for which toy car brand?
- [33:36]
Bloomberg's In King
Hot Wheels.
- [33:36]
Bloomberg Tech Host
Hot Wheels, Hot Wheels, yes.
- [33:39]
Morgan Hitzick
I've stepped on many of those with
- [33:40]
Bloomberg Tech Host
my children when they were young. Those are not very much on bare feet.
- [33:44]
Ed Ludlow
Yeah. The Bloomberg this Weekend Podcast. Subscribe today on Apple, Spotify or wherever you listen.
- [33:54]
Bloomberg Tech Host
Europe is divorcing Palantir. Despite being a critical component of the continent's security apparatus, Palantir's Trump aligned infamy has heightened urgency for Europe to repatriate key services that have long been outsourced to American companies, giving way to European newcomers. Bloomberg's Mark Bergen joins us with one of the most read stories in tech on Bloomberg today. This has all the hallmarks of something that's like right at the heart the Bloomberg Tech audience's interest right now. But in simple terms, Europe wants to Find a European Palantir to do the business that Palantir is currently doing. What are you reporting?
- [34:29]
Mark Bergen
Yeah, that's right. I think there's a couple of things happening. One, as you mentioned, Palantir is becoming the stand in for Silicon Valley tech. And a particular type of Silicon Valley company is very close to Trump administration working with the Pentagon, working in Israel. It has the political baggage and the outspoken CEO Alex Karp of co founder Peter Thiel. The second component is that it, you know, the impetus for our story was, was that the French intelligence agency has swapped out the Palantir contract for a local provider called Chaps Vision, working with the intelligence services for the past decade. This is kind of national critical work. And you seeing increasing amount of officials in Europe saying this is something that we just can't afford to outsource.
- [35:10]
Bloomberg Tech Host
Well, this is being played out in the public domain. French Prime Minister Sebastian De Canou posted this on Instagram. The divorce line that we opened our conversation with, that's a case study. But are the European nations kind of following in his example?
- [35:25]
Mark Bergen
I think that was far more political theater than when you're going to see elsewhere. But, but we have seen, we've seen the Dutch Defense minister come out and say we're going, we're looking to phase out Palantir. You know, we have some reporting in our story that the Poland is, is looking for alternatives as well. The company we profiled is Chaps Vision, a pretty, I would say relatively obscure tech company. Kind of operates more like a private equity roll up firm. It's bought almost 30 different companies. They told us they want to be a European champion, that they're talking to every single country in Europe right now. Again, they are very small relative to Palantir, but clearly they have a lot of political will on their side.
- [36:05]
Bloomberg Tech Host
Mark, with our colleagues in research, you've essentially calculated what it's going to take for Europe to get to a pace where it's not, not reliant on US Tech. What's the headline dollar figure and what does it account for
- [36:17]
Mark Bergen
in the trillions? It's massive. And I think there's a distinction however between you know, the kind of building of the cloud infrastructure, building up chips, building out even large language models and then some of the tooling and the services layer that a company like Palantir provides. And you know, Palantir obviously will argue that they have 20 years plus of experience and that their, their tools are far more advanced than these countries and companies that are switching off are going to realize that they're suffering. But I think the counterpoint to that is that it's much cheaper to build an alternative to Palantir than it would be to build an alternative to Open Air and Anthropic.
- [36:54]
Bloomberg Tech Host
Bloomberg's Mark Bergen from London, thank you very much indeed. We have more on defense tech California startup Antares Nuclear raised $470 million to advance its plan to build tiny reactors aimed at supplying power for US Military bases. The torrent space startup is part of a U.S. energy Department program aimed at acceleration of nuclear power. Venture capital firms Paradigm and Caffeinated Capital are co leading the funding round. The investments expected to help the company deploy its first systems to US military installations by 2028. And the Financial Times reported that Space X's European rival, the X Exploration Company, is in talks to raise at least $300 million, bumping the company's valuation to more than $2 billion. The funding round, which isn't yet finalized, is aimed at financing the exploration company's efforts to develop the first European reusable space capsule, which will be used to transport cargo to the International Space Station and its planned successors, according to the FTSE report. Let's stick with private markets and deep tech. One venture firm believes investing in single points of failure, or SPOFs, as a core part of its investment thesis. Joining us is Over Match Ventures general partner Morgan Hitzig. Spof spof Single points of failure. You and I have had really robust conversations about how to be specific, how to focus on what is now a broad category, right? Defense tech, national interest tech. Explain your thesis here.
- [38:24]
Morgan Hitzick
Thanks Ed. It's great to be back with you. One of the things we focused on is single points of failure. And we wrote this piece last week. We called it the most valuable map in the world. And this really came on the heels of the President's executive order focused on supply chain. And that executive order had sort of three key pieces of it. The one we honed in on was mapping supply chains down to the raw materials, particularly for defense contractors. So how does that manifest for us here at Overmatch? We're really focused on companies that have some edge that is oriented on these single points of failure. And those single points can be technical in nature. So think the heat shielding on a hypersonic missile. They can be physical in nature. It could be a plant or a mine. We've got a couple of companies that are orienting in that domain. Or it could be regulatory or labor or several other other key key facets we're focused on.
- [39:17]
Bloomberg Tech Host
So, so I Want to get deeper into what we are literally talking about. Drones are a good case study. So you can go out and invest in a drone company, but the fetters or barriers to the drone industry are their supply chain. So it sounds like what you're trying to identify is that problem and then the people that are solving specifically for the supply chain problem.
- [39:38]
Morgan Hitzick
Correct. And I think they're. The drone example is a great case in point. You know, the Department of War has been very focused in the Office of Strategic Capital. Their first major tranche of financing was oriented on critical minerals. They're now focused on the unmanned systems supply chain. And so that's everything from printed circuit boards. We actually have a company that's focused on that space called Principal Mineral. They're also focused on actuators. All of these places where we have drone companies that are effectively, I mean they're systems integrators at their core, but they are also doing this hardware software combination. But one of the things we realize is they're all reliant on the same core suppliers. And how do we create better secondary suppliers to create more robust supply chains?
- [40:26]
Bloomberg Tech Host
You write today SPOFs are simultaneously a strategic crisis for America as well as one of the most mispriced investment opportunities. Mispriced to the downside of. What do you mean by that?
- [40:41]
Morgan Hitzick
So they're mispriced because they're not factoring in just how critical they are from a geopolitical perspective. So Space X is a good example. If you think about the upside of Space X. I think one of the things that's not yet priced in is just how reliant some of the communications companies are. Just how reliant the military increasingly is on Star Shield. So there's a lot of upside there if you factor in geopolitical risk. Same thing for, for some of these assets that are sort of sleepy industrial assets. Think actuators, think, think uranium mining. Think all of these things that used to not be venture backable but with the combination of some of the financing that's coming from the government side. So Office of Strategic Strategic Capital is one example. But you also have Ex IM Bank. You also have DFC under Ben Black's leadership. You've got a whole bunch of organizations that are making it pricing some of these assets in a way where they're actually venture back able now. Although there's always still going to be that, that conversation of what can be an early stage venture business and what should stay in the private equity equity domain.
- [41:49]
Bloomberg Tech Host
Okay, so that last point I find fascinating. The cap tables look different when I read, you know, big rounds, maybe at the growth stage, but the names are different. Right. So American dynamism for Andreessen founders funds very focused on this area. But increasingly you've got like the, the legacy mutual funds, private growth equity. Also kind of catching on that this is important what's overmatches experience of playing in that field yield.
- [42:15]
Morgan Hitzick
So we have great relationships with these organizations. I think one of the things that has built a bridge to the Blackstones of the world, to the Cerberus of the world, to the JP Morgans of the world, is the fact that the government is putting their money where their mouth is. There's a real demand signal there. And so, you know, we work a lot with J.P. morgan. That's, that's one example I'm sure you've talked about on the.
- [42:38]
Bloomberg Tech Host
Yeah, we covered it there.
- [42:39]
Morgan Hitzick
They've, they've been really focus not just on, on and off balance sheet investments, but also They've got a $10 billion fund focused specifically in this domain. So we see it as a great way to bring follow on capital alongside some of our early stage companies. We, we just had that in our, one of our more recent funding rounds with a company called Armada. Really getting some of that growth capital in earlier to focus on some of the capex spend. That's just really tough when it's early stage venture capital dollars.
- [43:11]
Bloomberg Tech Host
Overmatch Ventures General partner Morgan Hitsick, thank you very much indeed. Now coming up events, investor anxiety of spending has picked up ahead of big tech earnings. That's the calendar for this week. But let's take another look at Nvidia, down 5%, you know, having opened up higher with the rest of the market. And like very quickly the conversation has gone from announcements on investments in infrastructure to circular financing. There's more to come. This is Bloomberg Tech. Big tech earnings coming thick and fast this week. Bloomberg's Ryan Vasilika here to talk us through how markets are gearing up. I would say there's a lot of pressure, pressure particularly in semiconductors right now. Look, that's a lot of names. Microsoft, Amazon and Metta. It's going to come down to capital expenditure, right? Like the vibe has changed on what Wall street needs to see to get a pass on the scorecard.
- [44:16]
Ryan Vasilika
Yeah, Someone told me last week that it used to be the more capex you were doing, the better. Now it's completely the opposite now the less you're doing, the better. We saw last week even Alphabet, which by most accounts is the best positioned company of the big four hyperscalers to compete in AI. It has Gemini, it has chips, it has Waymo, it has search, it has YouTube, it has all these different businesses that it can use its AI in. And even it was unable to justify the amount of capex it's doing, at least based on the stock price reaction. It had the worst day in more than a year in part because it is spending so much that it turned cash flow negative for the first time in its history as a public company. Now we have, like you said, Microsoft, Meta, Amazon, they're all reporting this week the spending plans are going to be, I would say by far the most important thing people are watching for as well as their ability to kind of articulate why they feel like they need to continue to spending this much and they need to show that it is translating to improved growth, improved prospects, improved efficiencies. There is a big hurdle here for them.
- [45:26]
Bloomberg Tech Host
Reading your weekend piece with Jaron about how earnings collide with this sort of market revolt of higher spending. Apple is the outlier, right? Different to the hyperscalers. What do we look for there?
- [45:40]
Ryan Vasilika
Well, Apple, I'd say the thing I am most paying attention to is, is how it's talking about memory prices. Obviously memory chips have been in huge demand this year because of the AI infrastructure buildout. Now Apple recently raised prices for some products but not the iPhone. So it's be very interesting to see what they say about the landscape with respect to memory. Is it having an impact on demand, Is it having an impact on margins? Are they thinking about expanding their pricing to other categories like the iPhone? Of course we have the foldable iPhone that's expected later on this year. We don't really know what the pricing is going to look like there. Maybe this is a way for them to kind of sweep some of the memory prices under the rug with just a higher price target for this new form of the phone. We don't know but that's going to be something I am paying a lot of attention to and I imagine memory is going to be the real issue for people.
- [46:30]
Bloomberg Tech Host
Just very, very quick. The market's kind of weird today. It seems circular financing concern. Is there anything else you see?
- [46:37]
Ryan Vasilika
One thing I would just flag that when you see an Nvidia down quite a bit today and it looks like at least at the moment, Apple is once again the largest company in the world. So really shows you right now this the bifurcation in the market. Apple not really participating in the spending trade. The stock has really been rewarding and others have been falling back.
- [46:54]
Bloomberg Tech Host
Bloom is run for Celica across everything. Thank you so much. That does it for this edition of Bloomberg Tech. And as Ryan said this what markets look like big sell off in chip stocks in video down 5%. Some conversation around circular financing which you can recap on the podcast. Find it online on Apple, Spotify, Iheart and also on the Bloomberg Terminal. Have a good week. This is Bloomberg Tech.