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Narrator/Announcer
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
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IBM Representative
there's a lot of noise about AI, but time's too tight for more promises, 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 help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM,
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Narrator/Announcer
Bloomberg Audio Studios Podcasts Radio News.
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Ed Ludlow (Bloomberg Tech Host)
Bloomberg Tech is live from the heart
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Narrator/Announcer
of Silicon Valley with Ed Ludlow in San Francisco.
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Ed Ludlow (Bloomberg Tech Host)
This is Bloomberg Tech. Coming up, a sell off in chip stocks drags the Nasdaq 100 near correction territory after signs of progress in China's chip making add to worries about the sustainability of the spending boom. Plus, Space X shares a raise 1/5 of their value since the record setting debut of Musk's company as investors start to avoid riskier tech firms and Apple briefly becomes just the second company ever to achieve a $5 trillion market valuation. We got the deets. It is a tech wreck. The NASDAQ 100 is flirting with Correction territory. There are concerns about spending in big week for tech earnings, particularly on the hyperscaler side. But semiconductors are a big part of it as well. The Philadelphia Semiconductor index of stocks down for a four straight session, its lowest level since May. That's its longest run of declines going back some time. Then there's the single names. Space X is a top story for us today. $1.2 trillion of value, yet $1.2 trillion of value erased from the peak it hit just days after its IPO. $135 when you get the details it is semiconductors that are the focus right now. China's chip industry is giving investors a reason to pause. New signs of progress are raising fresh questions about whether Beijing's catching up faster than expected. Bloomberg's Peter Elstrom, who leads our coverage of Asia Tech is with us. That's one factor. You know, you see that in European trading with asml, you see it carried over into the US session. But the market's paying close attention to what China is capable of doing in its domestic chip industry.
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Peter Elstrom (Bloomberg Asia Tech Editor)
Yeah, that's right. As you know, as you've talked about many times on this show, we've had these valuations in the industry that have gone up and up and up and up and now we're seeing them start to come back down with some additional momentum. As you were referring to earlier, I think there are a few different areas where we've seen causes for concern. Part of it is capex spending. We saw Alphabet report last week they said they were going to raise their capex that that hit their stock pretty hard a few months ago that would have helped their stock and in fact this time it was the revers. I think when it comes to the China competition, there are concerns on a number of different fronts. Moonshot of course gave us a wake up call that the AI models in China are very good. It's not just deep seek. You also have Moonshot, you have Alibaba. You actually have quite a few of them that are very strong. There was this report that you're alluding to that the Chinese are actually making progress in lithography. The machines that are used to make chips that would hit ASML in particular and may be able to provide more cost advantageous machines for China. And then on top of that, you had 6mt go public this week. I think this we maybe haven't talked about enough. This is really the fourth big memory chip maker out there. It's going to compete with SK Hynix and Samsung. It went public this, this week in China. Their market value is $460 billion. It's already the most valuable company listed in China, may soon become the most valuable listed Chinese company any place. So that's putting pressure on SK Hynix and Samsung and Micron in particular. These, these stocks that have just been on a tear recently. So add that up and there are some concerns.
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Ed Ludlow (Bloomberg Tech Host)
Bloomberg's Peter Elstrom, executive editor for Tech in Asia, thank you so much. The sell off in AI and chip stocks is now hitting one of the biggest names in the market and that is Space X SpaceX shares have fallen 20% below their IPO price. That's more than $1.2 trillion of value erased since last month's peak, which was just within four days or four trading sessions of the listing. Bloomberg's Bails tracking the story A lot of traffic on this one. Straight away on the sell side, everyone's pretty bullish on Space X, but in the weeks that have followed that ipo, it's been a downward trajectory and we've
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Bailey Lipschultz (Bloomberg Tech Reporter)
seen kind of a war, if you will, with short sellers piling in. About 30% of the shares are sold short, so shorts are making a lot of money. To your point, the sell side came out very optimistic, unsurprisingly because either their banks worked on the IPO and made a pretty hefty fees or they want to kind of cozy up to Space X management and be able to to tout relationships. The big question now is what has fundamentally changed about the story after Friday's successful starship launch? Kind of a step in the right direction. The big debate though, as you mentioned, we're seeing a lot of the steam coming off the market writ large. We're seeing the likes of SK, Hynix and other big IPOs from this year trading well below their IPO price. So when you go back to Space X you say how much did that $1.77 trillion valuation at IPO makes sense? And how does the company deliver from here? Especially because we will get their first earnings report in early August, in August6. Two days after that, we're going to have a lot of shares potentially unlocked for sale. So investors are really clamoring for how to best position ahead of those earnings the first time we'll hear from the management team in a formal setting. And also what happens when north of 900 million shares potentially are unlocked just two days afterward?
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Ed Ludlow (Bloomberg Tech Host)
Again, we're showing the trading of Space X since its debut on June 12. I would point out that in the session, basically 90 minutes into it, the stock rebounded. It's now flat but had gone to a gain of 2%. There is volatility in this session. Let's talk a little bit more about that starship test. You know when the test was scrubbed or aborted at the last moment a week prior, thought it was amazing in the moment, the sharp drop in the stock stock in after hours trading and then there was a positive reaction when they finally got it done. Is anyone tracking that? Is that core to the thesis around Space X? For any investors?
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Bailey Lipschultz (Bloomberg Tech Reporter)
It's absolutely core. And in the big debate around the IPO and around Space. X's merger with Xi or acquisition of Xi was is data centers in space going to be the key pillar for the thesis? And if you talk to anyone who's invested in the stock or the sell side analysts, it is critical. So that launch, that successful launch was a critical step in the right direction. But it doesn't address the fundamental debate that we're having across this market over valuations, particularly around artificial intelligence. And the fact of the matter that this is still a low float stock, still has a hefty, hefty valuation on a fundamental basis, and still has that overhang of shares coming unlocked. We're going to watch the shares available for trading go from a few hundred million to north of 5 billion by the end of December. So there's a lot to be coming on to float and what that ultimately means from a dynamic of an IPO and of one of the largest companies in the world.
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Ed Ludlow (Bloomberg Tech Host)
Bloomberg's Bailey Lipschultz, thank you very much. Let's get back to the market. Shanti Kellerman 7 IM CO Chief Investment officer who says that while the fall in chips have been steep and quick, don't forget the rises were also sharp and fast. Started the program by saying we're in a technical bear market on the stocks, 25% drop from that June peak now. But it's so interesting that actually it's only now that we're down for a full straight session for the first time since December. This is an index that's gone up and down. Why are you sanguine about what's going on?
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Shanti Kellerman (7IM CIO)
Well, I think we live in a world where there's increased volatility. So we know that we, you know, we get new models out, new technology and new changes. And I think you have to remember that a lot of these indices, you know, if you go look at places like Korea and Taiwan or you look at the semiconductor index, they're very concentrated. So it's almost like we're taking definitions of bull and bear markets and corrections and, you know, that were meant for broad stocks and broad economies and we're putting them on indices. I think, you know, a lot of these companies are still up quite a bit year to date. I think what's happened is the rally was built on a lot of earnings growth, but then also some leverage and probably some fear of missing out. And I think if you strip away those second two and go back to the earnings story, you probably get to a more realistic place on where the valuations of these Companies should be.
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Ed Ludlow (Bloomberg Tech Host)
The Philadelphia semiconductor index or stocks is still up 55% year to date. So take your point. The market, the industry would tell you they are still in a position where demand severely outpaces their ability to supply. That is in most cases an enviable position to be in. Is that what the market's trading on?
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Shanti Kellerman (7IM CIO)
I think the market we know that's probably going to be the case for a bit longer. But the market will always look to the future and you start to see developments like, you know, China's technological capabilities getting better. People will start to value stocks on that even though you might not see chips come to the market for a year or two. And I think it's similar with earnings growth. People will look at the rate of increase of earnings growth rather than the absolute earnings growth. And I think on those things we've just gotten to a place where expectations were probably a bit too high.
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Ed Ludlow (Bloomberg Tech Host)
A big story just 24 hours ago was the return of circular financing, particularly in the case of Nvidia. For lots of people though, they said that's constructive, right? Nvidia is basically greasing the wheels of the build out. It allows people to move faster. But it had an impact in the moment on the stock. Where do you sit on that circular financing debate?
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Shanti Kellerman (7IM CIO)
I think it's hard to fully know how much of it is actually committed funds that people can like have to spend versus things that are more like call options on the future. And a lot of those contracts aren't fully disclosed. So you don't know all of that. I think there's also a bit in who are the reliable buyers and suppliers. You know, for example, if you're getting an order from Apple that's five years out in the future, you can be pretty confident they'll be accepting that order and you know, putting their money through. There's probably other companies in the sector where you can have less confidence in the ability that they'll actually come through and ultimately want to pay for the demand. So I think it's something to worry about, but I don't think that is going to be the fundamental thing, the fundamental risk in the industry. I think it's more about is the technology fundamentally useful and does it drive return on investment, more efficiencies, business growth in the whole economy.
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Ed Ludlow (Bloomberg Tech Host)
The other story that we started the program on and we'll track throughout Bloomberg Tech is Space X. Right. And Bailey in my conversation focused on the Dynamics post IPO and the recent catalysts for One Direction other being Starship, but really the prospectus put in couldn't be more clear. This is about AI And I wonder how you value Space X right now in the context of of it is a as a frontier lab and a seller of enterprise AI products.
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Shanti Kellerman (7IM CIO)
Well, I think the vast majority of the time that they laid out in their prospectus was related to AI. So I think every time you have a, you know, an AI wobble in the market, you should expect to see Space X down a bit because that's what they've sold their self as. Granted, they have this whole space business which is really exciting, but the majority of the value is from that. I think the other huge pressure is probably the additional shares that are coming to market. And if you look at a lot of a lot of retail investment and retail enthusiasm around that offering, if there's a bit less money that retail investors have due to margin calls or leverage or other, you know, other investments they own coming down, it probably means there's a bit less ability to take that extra supply in the market when we get it in the next few weeks.
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Ed Ludlow (Bloomberg Tech Host)
And to be clear, the stock did open lower and we talked about its 20% drop from the IPO price. It's rebounded. It's now up half of the percentage point. Just very quick earnings. The simple next catalyst for Space X August 4th.
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Shanti Kellerman (7IM CIO)
Yeah, I think that'll be really interesting, not just what the earnings are, but to see how they're presented, how they're delivered. Do do we get more detailed information? And then I think with earnings season we've got really high expectations in general. So it's going to be hard for anyone to beat that. We've obviously got Microsoft Matter, Amazon this week. So I think those will be key tests of whether, you know, how the market reacts and if it stabilizes or if we drift lower.
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Ed Ludlow (Bloomberg Tech Host)
Shanti Kellerman of 7 Im great to have you back on the show. Thank you very much. Coming up, we actually speak to Microsoft Security EVP Galo as they announce a new AI platform to combat AI cyber threats. That's next. This is Bloomberg Tech. Beijing is warning Washington over tariffs and air sanctions just weeks before the leaders of the country countries are set to meet after the US imposed a new 12.5% tariff. China said the two sides had agreed to cap tariffs at 20%. Minutes later, Beijing also warned it would take, quote, all necessary measures if the US Sanctions Chinese AI companies like startup Moonshot AI over claims they used American models to train their own systems. This comes as Anthropic CEO Dario Amodei joins the chorus of tech leaders warning against a crackdown on open weight models. In a blog post, he wrote that they can offer a public good and his company has never supported a ban against them. Let's get more with Bloomberg's tech editor in Washington, Mike Shepherd. Let's start with the China piece. There's a this is live, right? This is something that happened in quick succession with China's Commerce Ministry and then the country at large basically warning the US Ahead of some crunch talks.
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Mike Shepherd (Bloomberg Tech Editor, Washington)
Well, that's right, Ed. They are responding in essence to the comments that we heard last week from Treasury Secretary Scott Bessen and the White House science and Technology technology and policy adviser Michael Kratzios, warning that Beijing needed to be careful with the practices of Chinese startups and that those companies if they were found to be improperly using American AI technology through a process known as the distillation, where they extract data on an industrial scale to produce rival chat bots, that practice was out of bounds and could be subject to sanctions. China is warning that such a move would prompt retaliation by Beijing and they are trying to lay out a defense for their own industry and also pointing out that, look, distillation is a common practice one engaged industry wide and we have not stepped beyond those bounds. And so like the tariffs, they are trying to set the rules of the road from their perspective ahead of this crucial meeting with President Donald Trump and Xi Jinping set to take place here in Washington sometime in September.
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Ed Ludlow (Bloomberg Tech Host)
Just very quickly on the Anthropic and Dario Amadev it or I would point out that there was a lot of chatter about Anthropic not being a part of the open weight letter that went out from Jensen and from Nvidia, Microsoft, etc. But just quickly update us from what Anthropic had to say.
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Mike Shepherd (Bloomberg Tech Editor, Washington)
Well, that did not go unnoticed. On Friday there was this industry wide letter that dozens of companies signed led by Nvidia CEO Jensen Huang and Microsoft's Satya Nadella calling for protection of open weight AI models and that the the US Government should not crack down on them. As a response to the moonshot moment, Anthropic's name was not on that list. And there was some some speculation, including from former White House czar David Sachs, that Anthropic actually favors more restrictions on open weight models to protect its own proprietary business. Anthropic shot back yesterday with this blog post from Dario Amadeus saying that that was not the case. However, they did lay out that they do believe that open weight and close weight models should be subject to mandatory safety reviews, which is a break from the industry. And he also disagreed with this notion that open weight models actually enhance cyber defenses. In fact, that was a key point that he disputed and one that Jensen Huang had also raised yesterday in a separate missive aimed at promoting open source not only as a technology that is fundamental to growing the economy and growing AI, but also to making sure that it is secure.
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Ed Ludlow (Bloomberg Tech Host)
And I point out that Mr. Wang is in Washington D.C. for more talks on the future of AI and public policy. This sweet. Bloomberg's Mike Shepard, thank you very much. Also an eye Taiwan has detained an Nvidia employee over allegations of smuggling chips into China. That's according to sources. Nvidia has not been accused of wrongdoing. The investigation is part of a broader effort spanning four jurisdictions as officials from Washington to Singapore target the shadow trade in AI chips. As AI models get more capable, so do the threats. Microsoft points to the recent Open Air and Hugging Face case study as proof. AI powered attacks are already here. We spoke exclusively with Microsoft Security Evp Gallo about those threats and Microsoft's new project Perception.
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Microsoft Security EVP Gallo
Take the most recent headline right last week with Hugging Face. When you think about it, they were attacked by AI and they had to defend using air and they had on the flow to adapt themselves and build security workflows to try to find what is happening in my environment. Unfortunately this is an illustration of what's happening. What we're seeing through our threat intelligence across all customers. AI is happening at scale and our customers need that real time protection. That's what we're building this new stack today. You have a lot of signal signals, but signals are signals. Customers don't want more signals, they want protections.
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Interviewer/Host with Microsoft EVP Gallo
Right.
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Microsoft Security EVP Gallo
And that's what we're trying to do with AI is really arming them to be able to defend themselves.
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Ed Ludlow (Bloomberg Tech Host)
I want to get into the Hugging face open air study, but what I wanted to ask you is what is the attack that you're braced for? Where is the attack coming from?
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Microsoft Security EVP Gallo
It's interesting because I'm glad you're asking this question. When you think about security, there is multiple vectors of attack. One that has been talked about a lot recently is software vulnerability.
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Ed Ludlow (Bloomberg Tech Host)
Right.
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Microsoft Security EVP Gallo
And you've seen there was the big moment with methods and people talking about software vulnerability. This is a real vector of attack. And so if you think about AI, what it's done is you used to be able to find maybe this many vulnerability and now in no time you can find thousands of them. Which means this is increasing your surface area for attackers. To go after you. So really now it's how do you help customers find those vulnerabilities before somebody can take advantage of it and fix them. So that's an exact example of a scenario right now and is really top of mind for every customer because it's a reality that they're facing thing and they're seeing themselves as discount their code.
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Ed Ludlow (Bloomberg Tech Host)
It puts vulnerability to AI into context because historically we might talk about a malicious actor being at the state level or a hacking group. You know, I know that's a pretty less than sophisticated example, but now genuine. The point I'm getting to is it's genuinely now comes from AI.
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Microsoft Security EVP Gallo
It is now your point is really on target with AI. Now we've made it much more accessible to explore exploit vulnerabilities and customers are seeing it and that's why they're moving very fast with a
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Ed Ludlow (Bloomberg Tech Host)
that was part of my conversation with Microsoft Security Executive Vice President Gallo. You can watch the full conversation on the Bloomberg terminal and online now. Coming up, Matter and BlackRock have plans to invest $14 billion to build a 1 gigawatt datacenter complex in Texas. We've got more in that deal next. This is Bloomberg Tech.
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Narrator/Announcer
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 the extraordinary benefits Ireland has to offer. Learn more@idaiirland.com invest in extraordinary
- [21:44]
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- [22:37]
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Ed Ludlow (Bloomberg Tech Host)
Investing Brokerage Services by Open to the Public Investing Inc.
- [23:36]
Ryan Vasilika (Bloomberg Equities Reporter)
Member FINRA and SIPC Advisory Services by Public Advisors, LLC. SEC registered advisor complete disclosures available@public.com disclosures
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Hira Anand (Bloomberg Tech Reporter)
I mean Hira Anand and this is talking tech. First up, Visa is eliminating about 2,600 jobs, or roughly 7% of its workforce. A CEO writing in a staff memo viewed by Bloomberg that the cuts will mainly impact the technology and product teams. Plus a new lawsuit brought by 26 former and current Meta employees alleges matter is using discriminatory AI team to fire workers. They say Metta did not consider factors like workers protected leave or disabilities when it used AI to help select employees for a 10% layoff. And sticking with Metta, it is planning a 1 gigawatt data center complex in Texas with BlackRock. The project is expected to cost about $14 billion and come online in 2028. It's the latest sign Metta isn't backing away from its AI spending even as investors scrutinize the returns on those investments like today.
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Ed Ludlow (Bloomberg Tech Host)
Ed Yahir, thank you. Let's stay with that story. Joining us is Bloomberg's Kurt Wagner and as Johari said, it's the latest example of Met his commitment. It sounds like a lot of money. It sounds like a big project. Is it in the context of everything else that matters doing a few years
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Kurt Wagner (Bloomberg Tech Reporter)
ago I would have said, Whoa, $14 billion. That's a huge project. Nowadays. When you think about all of these data centers being spun up and built, I would say it's it's sort of the kind of thing that we're hearing from them more often now. To put it in some perspective, I believe they recently announced that they were going to spend about $50 billion on their big data center in Louisiana. And that doesn't include a projection of, you know, 200 billion or so in the chips that are going to go inside that data center. So this is a big project. Sure. Is it their biggest?
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Brody Ford (Bloomberg Reporter)
No.
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Kurt Wagner (Bloomberg Tech Reporter)
And I imagine this is the kind of thing we're going to continue to see more of from them.
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Ed Ludlow (Bloomberg Tech Host)
Real quick, Metta reports earnings tomorrow. What are we expecting?
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Kurt Wagner (Bloomberg Tech Reporter)
I think it's, it's going to be spending. We saw Google last week raise their CapEx guidance and that sent the stock down. Metta did the same thing last quarter. They raised their, their target for capex. We'll see if they do so again. But the spending on this infrastructure for AI is really a focus for investors right now.
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Ed Ludlow (Bloomberg Tech Host)
It is a big one as part of a big week in big tech earnings. And Bloomberg's Kurt Wagner leads the big tech team. Thank you very much. Coming up, Apple has big plans to reenter the smart home market after years of delay. Another Bloomberg report on the progress there. This is what markets look like right now. The NASDAQ 100 near correction territory. The stocks down for a fourth straight day for the first time since December and in a technical bear market. And why not? Let's throw crypto in that bitcoin caught up in the risk off attitude of the financial market this Tuesday, $63,816 per token. Also out there is earnings and spending and a whole lot more. We'll go over it. It's half time from San Francisco. Beautiful. This is Bloomberg Tech. Welcome back to Bloomberg Tech. Good morning from San Francisco. Today's big number, $5 trillion. That's how much briefly. Apple was valued at at one point this morning with the iPhone maker becoming just the second company ever to hit that market. Valuation shares rose as much as 1.8% in the session. We were off those session highs, but the company's market cap was pushed just above $5 trillion for the first time. We've dipped back below that. Apparently. The stock closes above $340.43, it will cross and stay at that threshold. This is what markets look like. It is a tech wreck where there are concerns about spending. There's an ongoing rotation out of stocks and chip stocks are continuing to be under pressure. The stock's down for a fourth straight session, the first time since December in a technical bear market down 25% from a June peak. Bloomberg's equity equities reporter Ryan Vasilika is across all of the tech market. The chip story is so interesting. There are so Many factors behind what's going on. What are you seeing from the equities desk right now?
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Ryan Vasilika (Bloomberg Equities Reporter)
Hey, there is a real reversal in momentum really across the tech space, but especially in the memory and storage part of the chip sector that we're seeing today. Obviously this is a group that has done extremely well this year. The chip index had doubled in the first half of the year, but like you said, it is now in a bear market. There have been pretty dramatic reversals. I think there are a lot of concerns about the air spending outlook, especially in the wake of Alphabet last week. We are seeing these major hyperscalers either go cash flow negative or otherwise. Their cash flow has been severely diminished. And I think that is having people really question how much longer are people going to tolerate this level of spending and what does that mean for the chip demand outlook? At the same time we are seeing increased competition out of China, just more greater efficiencies with new AI models. That also throws a wrench into the demand outlook for these groups. If we have more efficient models, then arguably you don't need as much infrastructure. So there is a lot that people are dealing with right now in addition to just how much they rose over the first half of the year and some kind of natural profit taking off of that.
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Ed Ludlow (Bloomberg Tech Host)
It's not just us names. I mean a case study that's interesting is SK Hynix, right? Because we have the ideas. We were there for it at the nasdaq. But again, memory an area of pressure, I think Micron today down significantly. Tell me a bit more about that specific space.
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Ryan Vasilika (Bloomberg Equities Reporter)
Yeah, well again this is an area that has been of particular interest throughout the year. Some of these names rose 2, 3, 4 fold even more than that. So one I would highlight is SanDisk. I believe it's on track for its third straight session with a double digit drop. It's lost a third of its value in just the past couple of days. These are pretty remarkable moves. And again it does come after an extremely strong first half of the year. Memory has been very much in focus throughout 2026. There's been so much demand for these components which are a part of the AI datacenter build out. We've also seen really higher prices as a result of result for these components. DRAM prices I think are up something like 800% since the end of August. So amid all of that maybe isn't surprising to see them pull back some just because of how well they've done. But again with prices up so much, there are some concerns about really how much can companies absorb these higher prices? And again, what does that mean for their outlook? How much has already been priced in? Is it some kind of blue sky optimistic scenario? And if not, then you really need to assess maybe are these companies trading at peak earnings and if they are, what is their outlook? What is a fair valuation for them? I think that's why you're just seeing so much heavy volatility really in both directions. But lately it's really been to the downside.
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Ed Ludlow (Bloomberg Tech Host)
Nvidia CEO Jensen told me Friday memory is still the bottleneck. Bloomberg's Ryan Vasilica, thank you very much. Let's get back to shares of Space X. The stock had been extending a post IPO slide that at one point this morning had taken the value erosion to $1.2 trillion since last month's peak. George Ferguson of Bloomberg Intelligence covers all things aerospace, defense and has the Space X deck on the terminal. We point out the stocks rebound a little this morning. Wall street continues to value this company based on AI, but everything that's happened in the last two weeks has been about a rocket. What's the latest by thinking on that?
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Interviewer/Host with Microsoft EVP Gallo
You know, I think though this slide is all a function of AI, right. That the model we built out on, on Space X just showed that if the AI business worked, it could potentially grow into valuations that were similar to peers by the end of the decade.
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Kurt Wagner (Bloomberg Tech Reporter)
Right.
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Interviewer/Host with Microsoft EVP Gallo
You know, the peers, the hyperscaler peers. And so I think, think whenever you're going to have, whenever you have a slide in the tech world and the hyperscalers, I think you're going to see it felt extensively inside the Space X shares. I think that's what you've seen in the last couple, last couple days.
- [31:57]
Ed Ludlow (Bloomberg Tech Host)
Right. Again, I just want to point out for the Bloomberg Tech audience, George, the stock has really rebounded. It's up almost 3% now in the session at one point to be down like 2% which is why we say it was $1.2 trillion or down 20% from the IPO price. Starship still feels important. You know, if you read the prospectus, go back and read it. All of that future business on the side, be it Orbital Data center be it's the sale of enterprise software is predicated on Starship working to deploy the payload to orbit. What did you make of the test flight and the success of it?
- [32:33]
Interviewer/Host with Microsoft EVP Gallo
Yeah, I guess again, like I think it's just, it's another step in facilitation of the strategy. But you know, really what I want to do is I want to start to see starship lifting extensively into orbit. They also have to increase capacity on starship as well. So every success is important. It's also important for Starlink in the near term. But Starlink just won't generate the revenue and profitability in the long run. But so, so yeah, always happy to see a successful test flight. But it's just a facilitator for AI data centers in space.
- [33:07]
Ed Ludlow (Bloomberg Tech Host)
Okay. Again, Space X had opened down almost 4%, dropped to 5%. It's now back up almost 3%. George Ferguson, part of the team at Bloomberg Intelligence covering Space X. Apple wants to get inside your home. The smartphone makers preparing a new push into the smart home market it with devices that have Siri at the center of it all. That's according to sources. Bloomberg Senior tech editor Dana Walman joins us now. We're talking about the market where Apple takes on Amazon with the Echo Devices, Google Nest, but it's something at the center of your home where there's an interaction with voice. And in Mark Gurman's latest report there's a lot of detail on what happens next. What do we need to know?
- [33:47]
Dana Walman (Bloomberg Consumer Tech Editor)
Yes, absolutely. So this is a smart home hub and I think think the competitors you mentioned are really good comps to start the Echo devices and Nest devices. This will have he says a roughly 7 inch display. You could use it for things like video conferencing, controlling the smart home objects in your home. I imagine something like recipe use in kitchens would also be a really great and popular use case. And according to our report, Apple has been working on this a long time and really wanted to enter this space earlier. But it was waiting for its software engineers to catch up on the AI side. We're of course course it's been a noted laggard. So finally the company has Siri out and really what's one of the new details in our report out today is that the company is ready to unveil some new devices in this area this fall.
- [34:28]
Ed Ludlow (Bloomberg Tech Host)
At last we also got confirmation of something that Bloomberg reported on July 21st which is Apple upgrade with Klarna financing and we have some pricing. What do we need to know?
- [34:41]
Dana Walman (Bloomberg Consumer Tech Editor)
Yes, this is will be a device leasing program really meant for the growing generation of people who have gotten more comfortable with buy now, pay later models for buying things. And this is a nice boost for Apple services business which is already its fastest growing unit. So that should please investors as well alongside the news that it's it's making this delayed effort to boost its home and wearables business, which is the unit at where the smart home devices will go.
- [35:11]
Ed Ludlow (Bloomberg Tech Host)
Bloomberg's Dana Walman, Consumer Tech Editor, thank you so much. Now coming up, our next guest believes we're entering the next phase of enterprise AI. It's all about deployment. Joining us, Sapphire Ventures partner Kathy Gal. Back on the show, this is Bloomberg Tech.
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Ed Ludlow (Bloomberg Tech Host)
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Ryan Vasilika (Bloomberg Equities Reporter)
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Ed Ludlow (Bloomberg Tech Host)
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- [38:12]
Ed Ludlow (Bloomberg Tech Host)
If public markets are debating whether AI spending has peaked, venture investors are asking a different question. Where does the next wave of value actually get created? Increasingly, our next guest argues the answer isn't another foundation model. It's AI built for industries like health care, real estate, legal services. Joining us now back on Bloomberg Tech, Safi Sapphire Ventures partner Kathy Go. That's, that's where you focus vertical. I, you know, I reflect that over the last year and more at the very early stage, we've seen insane seed rounds of Neo Labs.
- [38:48]
Kathy Gal (Sapphire Ventures Partner)
Yes.
- [38:49]
Ed Ludlow (Bloomberg Tech Host)
Still intense news. Headline domination of anthropic and open AI. You think there's of a lot more out there.
- [38:55]
Kathy Gal (Sapphire Ventures Partner)
So we're in a very interesting point in time right now where we've shifted from the first stages of enterprise AI adoption where it was all about the race to intelligence. Who has the better models? Let's find the use cases. And now we're entering an era of true deployment.
- [39:12]
Ryan Vasilika (Bloomberg Equities Reporter)
Right?
- [39:12]
Kathy Gal (Sapphire Ventures Partner)
Right. So fitting these solutions into everyday workflows, into existing systems, figuring out precisely what the use cases are, and of course, having measurable roi. This shift dramatically favors, I would argue, vertical AI companies. These are companies that have deep domain expertise, they have deep understanding of their customers, and they have the capability to solve the long tail of things that could go wrong. And as intelligence continues to commoditize everything else around, intelligence will become more important.
- [39:47]
Ed Ludlow (Bloomberg Tech Host)
You are, you were raised by a software engineer. You have had a lot of experience in the world of finance, financial markets, and you've been a software investor. You still need to model somehow that there is an addressable market for vertical AI. How are you doing that? Like, is it there a public proxy? Is there a, an example to follow?
- [40:08]
Kathy Gal (Sapphire Ventures Partner)
So the pitfall is when you look at historical software spend for some of these verticals because it could be very, very small. Take residential real estate for example. If you just look at the comms and look at historic software companies focused just on that sector, it's not interesting enough for many VC investors. However, what we're seeing now with AI in particular agents is that the agents are taking ownership of the workflow end to end. It's no longer just about digital digitizing paper, but it's about automating entire workflows. And that lets you tap into a much bigger market which is the existing labor market and the services market. So the best vertical AI companies that I'm seeing are very tam expansionary. They're creating net new market.
- [40:56]
Ed Ludlow (Bloomberg Tech Host)
The hard question is why don't the foundation model companies and Frontier Labs just go after that addressable market too?
- [41:04]
Kathy Gal (Sapphire Ventures Partner)
That is a great question. And I think it all comes down to a difference between breadth and depth. The reality is that these foundation models have been and will continue to build massive businesses, but they can't do everything. And it comes down to focus. When you think about these very specific vertical AI companies, they are hyper focused on going that last mile to make sure every edge case is covered. They're integrating deeply into existing legacy systems, some of which haven't been changed in decades. And they're deploying armies of experts as forward deploy engineers to actually sit with the customer and work out all the kinks. Can the model companies do this? Yeah, they will do this for some of the largest models, but they can't cover everything.
- [41:49]
Ed Ludlow (Bloomberg Tech Host)
So interesting to hear about legacy industries and trends, entrenched industries that have a hard time changing their habits. Right. Legal services, health care, but they're very different from one of those. Is there one particular domain that you are most bullish on right now that will be just completely upended by a vertical offering?
- [42:10]
Kathy Gal (Sapphire Ventures Partner)
That's a great question. I tend to think that the most interesting vertical markets are actually hiding in plain sight. And what I mean by that is, at first blush, these industries don't look super attractive. They tend to be super operationally complex. A lot of edge cases, I like to call them very gritty industries. And many founders might take one look and run away, but it turns out that grittiness is not a bug, it's actually the moat. Right. If you can crack that and really get into the workflow, it becomes really, really sticky. So a great example, I mean, I called this out already and one of our portfolio companies, Elise, is focused on residential real estate. Right. That market is again, not a huge software market historically, but probably around 200 billion when you consider labor and services. Elise has now taken built built products that cover the workflows end to end, really expanding into that market. And today they've crossed over 200 million RR and shockingly to me, they cover 1 in 6 US base apartments.
- [43:22]
Ed Ludlow (Bloomberg Tech Host)
Let's go macro a little bit. The news cycle has been dominated in the last seven days about open models. Yes, you know, a number of prominent leaders in technology, Jensen Huang, Satya Nadella is a sort of coalition came out and said we need America to do more on open weight models. You know, what was your reaction to that and why, why do you think they timed it such as they did?
- [43:47]
Kathy Gal (Sapphire Ventures Partner)
Well, first of all, the letter was not surprising to me at all. If you just follow the incentives, especially around economics, it makes all the sense in the world. The companies that signed the letter that supported open weight models are exactly the companies that stand to gain from having wider ecosystem. Right. The more models there are, the more money Nvidia makes. So none of that is surprising to me. I think what was surprising a little bit is the timing.
- [44:14]
Public.com Advertiser
Right.
- [44:14]
Kathy Gal (Sapphire Ventures Partner)
Why now? And you could, you could guess. You know, a lot of these companies are getting ready for IPO and they want to take control of the narrative.
- [44:24]
Ed Ludlow (Bloomberg Tech Host)
It's interesting, I was going to say the timing also immediately post OpenAI and hugging for face. I mean, in that example, right. You know, hugging face looked to open models to defend itself. It was a cyber case study as a, as a venture capitalist, as someone that helps companies get off the ground, but is trying to make a positive story, frankly. How did you interpret that?
- [44:49]
Kathy Gal (Sapphire Ventures Partner)
Well, I'll say that open weight models, I think in general are great for the industry. A lot of our apps companies, if they have more access to models, more competition at the model layer, it'll drive down costs and they'll have more options to choose from. And I definitely believe that's where the future is moving. In fact, the best AI companies are already multimodel companies.
- [45:12]
Brody Ford (Bloomberg Reporter)
Right.
- [45:14]
Kathy Gal (Sapphire Ventures Partner)
On the other side, there are real risks that we have to think about as an industry, from security to safety, safety to, you know, ip. And part of the reason why I think it was such a wake up call to see the hugging face OpenAI story is reminding ourselves that security is not something that we could diminish. And in fact, we actually spend a lot of time investing in cybersecurity as well at Sapphire Ventures.
- [45:39]
Ed Ludlow (Bloomberg Tech Host)
Let's finish by reflecting on Sapphire Ventures. You know, what I recognize is even at the earliest stages, there are private growth activities, equity mutual funds, crossover funds, public private funds from some of the biggest Wall street firms involved in that. In that field, you're a $10 billion firm. But what's that been like in the last 12 to 18 months?
- [46:00]
Kathy Gal (Sapphire Ventures Partner)
That's such an interesting question, Ed. We're really starting to see a barbell distribution in terms of our investments. We're seeing some companies really break out, especially in particular vertical verticals, but also horizontal companies as well as infrastructure companies where they've taken the leadership position, they've built distribution channels They've built platforms that we feel like give it a better shot at defensible durability. And it's no longer growth at all costs. Growth is very, very important. But the narrative has switched to what about durability in the long run? And so we're investing in later stage companies that we see follow that arc and we feel like are initially cementing themselves as leaders. But we're also looking at the very early stage companies, post product market fit, but still early stage companies. And there we're backing the best founders in thematic areas that we really like.
- [46:55]
Ed Ludlow (Bloomberg Tech Host)
What's the benefit of going with Sapphire and not with another firm? What is your unique selling point?
- [47:00]
Kathy Gal (Sapphire Ventures Partner)
Oh, that's a great question, Ed. First of all, we are very focused on enterprise AI. That's all we do. Everything we do is B2B. And so that specialization and focus really comes across in different ways. We have a massive support team to support our portfolio companies from BD to Talent. And everything again is geared to these companies where we've seen across the last 15 years that we've been in business. And the second thing I'll say is we strive every day to make our founders happy. I think we're one of the few venture firms that track founder nps. We solidly believe that the only way to build a lasting franchise is that our customers, which are our founders, really love us and promote us.
- [47:47]
Ed Ludlow (Bloomberg Tech Host)
Kathy Go partner at Sapphire Ventures. Back on Bloomberg Tech. It's been too long. Thank you very much for coming into the studio. Now coming up, the next next time you say speak to an agent when calling a customer service line, you may not be put through to a human. Will have the latest on AI's replacement of call center workers next. This is Bloomberg Tech. We've all heard it. That robotic voice asking how it can direct your call. Automation has loomed over call centers for years, but the the sector has been very reliant on humans until now. Bloomberg's Brody Ford joins us with the story. Brody, every time I call a customer service line of some kind, I get a robotic voice that says, yeah, how may I direct your call? Well, what's changed? What's new here?
- [48:39]
Brody Ford (Bloomberg Reporter)
You might notice that the voice is a lot less robotic these days. Right. That when you contact chat bots or voice systems, you tend to get an AI system for much longer that in many cases can actually help you.
- [48:51]
Ed Ludlow (Bloomberg Tech Host)
Right.
- [48:51]
Brody Ford (Bloomberg Reporter)
And you know that's more akin to
- [48:52]
Ed Ludlow (Bloomberg Tech Host)
an AI voice assistance level of speech capability.
- [48:56]
Brody Ford (Bloomberg Reporter)
Absolutely. And you know, that might be a good thing for customers, but what we found is that it can be a pretty bad thing if you're working in these call centers, which you know, millions of Americans do. And when you hear executives talk about the labor impact of AI, it's often very lofty, a bit squishy. What we found is that in a lot of big companies it really is about cutting costs and thousands of people are being impacted here.
- [49:19]
Ed Ludlow (Bloomberg Tech Host)
What are the companies behind this? Like, is there some startup somewhere that's really nailed this on behalf of these call centers?
- [49:25]
Brody Ford (Bloomberg Reporter)
Oh, there are so many vendors here. More than any other software category I've seen. There are a million vendors trying to identify the contact center. Brett Taylor Sierra is a name you hear a lot. Decagon is one you hear a lot. But it's a very unsettled market.
- [49:38]
Ed Ludlow (Bloomberg Tech Host)
At of now we're showing the performance of call center based company shares. But also like the companies that rely on call centers, Commonwealth bank of Australia, Microsoft, Hyatt Hotels, Hotels, oh my gosh, that's the main one for me is very quick. This is happening at all levels, right?
- [49:55]
Brody Ford (Bloomberg Reporter)
Think about any company that has a lot of consumer inbound airlines, banks, telecommunications. They rely on thousands of people and they are really wanting to reduce their labor expenses in most cases.
- [50:09]
Ed Ludlow (Bloomberg Tech Host)
Bloomberg's audience if you're looking at the screen yelling operator, representative, we get it. Bloomberg's Brady Ford, thank you very much. That does it for this edition of Bloomberg Tech. This is what markets look like again. The NASDAQ 100 flooding with correction territory. We're off session lows, but the Philadelphia Semiconductor index or stocks it is. Chip stocks down for a fourth day. Apple briefly, a $5 trillion company. SpaceX rebounding. Check out the pod. This is Bloomberg Tech.
- [50:40]
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Kathy Gal (Sapphire Ventures Partner)
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