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- [00:00]
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Dina Shakir
Bloomberg Audio Studios Podcasts Radio News.
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Ed Ludlow
Bloomberg Tech is live from the heart
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Dina Shakir
of Silicon Valley with Ed Ludlow in San Francisco.
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Ed Ludlow
Bloomberg Tech Coming up, Tim Cook's final Apple earnings call as CEO is a story of supply crunches, demand misreads and a tough outlook. Plus, Amazon shares roaring on AI progress, big spending and accelerating cloud growth. And after Open Air's breaches, it's now Anthropic's term with the company saying its AI models breached three organizations during cybersecurity tests. We have the details. Technology, earnings and a very big reaction in stocks. Apple is on track for its biggest drop since March of 2020. Amazon is on track for its biggest jump since April of 2012. Let's get the stories. Bloomberg's Ryan Vaselica is with us. Let's start with Apple. Everything we need to know about Tim Cook's final quarter as CEO of Apple.
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Ryan Vaselica
Well, I think the major takeaway from Apple's report was how much the increase in memory prices is really starting to weigh on the company. They talked a lot about component shortages. People have been very concerned that the memory issue was going to really eat into their margins, potentially eat into demand. But as we talked about a couple of days ago, the stock hadn't really been reflecting a lot of these concerns going into the report. It had a very strong month going into it, I think just as part of the overall anti AI sentiment. Now it does seem like that has flipped again and people are sort of reassessing some of the issues that Apple is facing even as they continue to maybe take a new look at some of the names that had been selling off prior to this.
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Ed Ludlow
Apple saying revenue growth in the September quarter 9 to 11%. The street was looking at 12. And they also admitted they misjudged demand. They didn't even place the right amount of orders for chips on the processor side. Amazon, there is growth in us and there's clearly a demand. What do we need to know?
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Ryan Vaselica
Yeah, they also talked about how their chip business is starting to see pretty strong revenue there overall, a very strong report out of Amazon. I think it really highlights the divide we've seen this earnings season between the companies that are able to do a lot of AI related spending, but make the case that they are justifying that with improved growth, with improved prospects. So you put Amazon and Microsoft into one bucket. Both of those companies really had powerful reaction to the results. I think people sort of reassessing their outlooks following the strong results from their cloud business even in the face of higher spending. On the other side of that equation, you had Alphabet and Metta maybe didn't do as good a job justifying how much money they're spending. And you saw those stocks come back.
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Ed Ludlow
Amazon did raise capex by $20 billion in part because the cost environment's higher, but a lot of momentum. Bloomberg's Ryan Vista, thank you very much to our next guest. Amazon's set of numbers define game changer. Jordan Klein, Managing director, Sector Sector Specialist for tech media and Telecom at Missouri securities, is with us. You see it as a game changer. What was it about Amazon's numbers that you liked?
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Jordan Klein
Well, yeah, I definitely think it was a game changer. Just because the acceleration input growth on the top line at 37% I think has really convinced more people that AI is, you know, improving their overall business. And then the disclosure they gave in terms of how AI is impacting them on the silicon side, you know, with their Gravitron and Trainium chip, they're really well positioned. So all in all, you know, the bookings, growth, the backlog and the commentary from Andy Jassy about what's to come, I think set this, this stock up to, to continue to like outperform going forward for sure.
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Ed Ludlow
What Amazon said is its chip business where it rents compute capacity but based on their in house Silicon right has a revenue run rate $25 billion. Dwell on that a little bit. Are you kind of extrapolating out and saying wow, that's another line of business where Amazon can get some upside?
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Jordan Klein
Yeah, I think it's, it's, it's showing how much benefit that they get from having their own custom chip. Not only does it enable them to get supply right because it's so difficult to get points graphic processors from Nvidia, it also enables them to offer that to their customers probably at a lower cost. So you win on both sides, supply and price or cost. And you saw that because their margins are going up very healthily. And I think that's also encouraging to investors because all these companies are going to be continuing to spend, they need more compute, more capacity. But what the worry would be is they see compression on the margins or the cash flow. And even though Amazon's cash flow was negative for the last 12 months, their margins in their US business are increasingly going higher.
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Ed Ludlow
I think some would point out in the chip business as well that they're not surrendering any margin to Nvidia if they go the in house Silicon. John, let me ask you this, do you have any Amazon Echo devices in your household?
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Jordan Klein
Yeah, I have one.
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Ed Ludlow
Okay, and how many days a week would you say you have an Amazon prime package on your doorstep?
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Jordan Klein
Every other day at least.
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Ed Ludlow
Okay, so what I found so interesting were the other data points, the non financial. Right. Where they say here is some evidence that people that use Alexa plus that consumer facing AI are more likely to sign up for prime, are more likely to spend in a greater basket size on Amazon.com, less talked about this morning. I mean is anyone brought that up on your desk?
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Jordan Klein
Actually no. I think people are so focused on the AI, the data center, the compute side of the business because it drives all the profit that they've kind of. Yeah, I wouldn't say overlooked but they're not, they're not as concerned or worried about E commerce where they're doing very well and I think that's a good thing. But I agree like you, you would like to see them get more value or credit for their breadth, their, their strength, their traction, their brand and people. What they are saying is why does Amazon trade at kind of a mid to low 20s forward multiple when you look at Costco And Wal Mart, look at their valuations.
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Ed Ludlow
I appreciate you bringing it back to the stock. I mean, we're a household where my Echo device competes with my baby is the alarm clock every morning. And we've not really move beyond that. On the side, you heard Ryan talk about Apple was the safety trade in a way in Apple. This is a hell of a reaction in the stock. There's no sentimentality here for Tim Cook's final earnings call. You talk about that in your note on the stock and the trade. What are you making of all of it?
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Jordan Klein
Well, I would tell people that the move, you know, down 9% is, is probably more than the actual results would suggest, but that's because the stock has materially outperformed tech and the Mag 7 over the last 30 days. So there was a ton of money hiding in. Apple is like the anti safety trade that's going to come out and it's going back to Microsoft and Amazon and some others.
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Ed Ludlow
Right.
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Jordan Klein
But what I would make of it is, is that they're going to probably continue to see higher risk and struggling a bit, not only in iPhone to get components and supply, but their services business fast. And that's where they get a lot of profit and margin. And it sounds like that's going to remain at a lower growth rate as you look into the end of the year. And my concern, and this is why I wouldn't be chasing Apple even down 9%, is that they're going into their iPhone18 launch cycle. And I feel like the risk is, is that you go into a new product cycle and you can't get enough components. Okay, what does that mean for your ability to beat and raise numbers? I don't think it's good.
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Ed Ludlow
So this is a people story as well.
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Claire McDonagh
Right.
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Ed Ludlow
Like Tim Cook, a core facet of his career has been his ability to manage the supply chain. And he made the admission that they misjudged demand, they miscalculated how many processors they should order in September in the launch cycle for the 18 he hands the reins to turn us, who is a product guy. I mean, how worrying has that been for people phoning you today?
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Jordan Klein
I don't actually think people are all that nervous or worried about the management transition. I think they're going to be status quo, they're going to focus on the supply chain. That's what they do best. I think they need to have a good flashy launch with this foldable product. Actually that could go a long way to helping turn us. Even though that was probably put into place well before he took the reins. But it would help at least on the margin, convince people that they've got some new innovations, some exciting new products coming. But end of day it's about how much are consumers going to be willing to spend. They're going to raise the price of the iPhone probably by $200 and they're doing really well actually when max where they raise prices and they can't ship enough product to meet demand. But the question is going to be come early next year after the launch quarter, you know, in the fall is behind them and they've raised prices. Is demand holding up as well given the higher price? And we'll have to wait and find out. I think it's, it's undetermined right now.
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Ed Ludlow
Again, a decline of 9% in the session puts Apple on track for its biggest drop since March of 2020. Jordan Klein, Managing Director, TMT Sector Specialist Mizuho Go and read his end of July note. There's some relief in there. Thank you very much. Now coming up, concerns about Chinese startup Moonshot grow following a Bloomberg report. It has a computing power agreement with Alibaba, which uses or relies on Nvidia chips. We have the details next. This is Bloomberg Tech.
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Ed Ludlow
Chinese AI champion moonshot has a computing power agreement with Alibaba for the use of around 20,000 Nvidia chips, according to sources. Those sources say that the hardware forms a substantial chunk of the computing capacity Moonshot uses for its Kimi models, the latest of which rival US competitors. You remember, of course, that Washington restricted China's access to some generations of a media chip on national security grounds. Bloomberg's executive editor Peter Elstridge joins us. Let's start with the basics of what we're reporting here.
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Peter Elstridge
Yeah, well, just to back up one step, of course, Moonshot announced itself really to the Western world at least a couple of weeks ago, where it came out with this Kimik 3 model, which has very strong performance, really near the leading edge of the frontier labs in the models at OpenAI and Anthropic. And one of the questions since then has been how did they do it? We know that there's been breakthrough engineering at a number of the different Chinese companies. Of course, Deep Seek was really the phenomenon last year, but now the questions are around Moonshot and how did they actually pull this off? And we've seen a couple of bits and pieces of it, but this kind of helps us understand the broader picture. We know that Alibaba has an investment in Moonshot, and what we're reporting in this story is that Alibaba is also supplying a bunch of the computing power behind that model. We know that they're using 20,000 of Nvidia chips, the hopper generation of chips from Nvidia Alibaba did get back to us, and they said they're not the H200 check chips, which are the leading edge. Our sources have told us that they actually are those H200 chips, but they're definitely the hopper generation of chips that they're providing. And Moonshot has been able to use that to build out this model. We also, of course, had the White House, Mike Gradcios, saying that they believe they're also accessing Grace Blackwell chips, even more advanced chips from Nvidia.
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Ed Ludlow
We're just showing that sort of communication from Alibaba on what, what they are denying and what they're not. I guess, you know, it's worth a discussion, Peter, of what we don't know. For a long time we've been asking about what. Well, how many Nvidia chips are actually going into China? Are Chinese firms using this technology outside of the United States and outside of China pose some of those questions for us?
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Peter Elstridge
Yeah, it's a complicated picture, and we do have this shifting regime of export regulations that's affected a bunch of this. Nvidia is not allowed to sell its most advanced chips, the Blackwell chips, into China right now. What we have seen in the past is they were able to sell a number of the hopper generation of chips, some of the earlier generations of chips. More recently, the US signed off on Nvidia selling those H2 hundreds into China. That would be a pretty advanced chip for many of these companies to use, including Moonshot and Deep Sea. But Beijing has pushed back on that idea that domestic companies should use those chips. It would prefer to continue building out its own semiconductor industry, particularly supporting companies like Huawei and Camera Con in particular. So if you are using H200 chips, that would be. It's possible from the US standpoint within. Within China, but there would be a little bit of pushback from Beijing if you're using H200 chips that they would prefer you not use at this point. Just to. Just to flag one other loophole here, it is still entirely possible, entirely legal, for Chinese companies to access all of Nvidia's chips outside of the country. They can go to Southeast Asia and they can get access to some of these chips, including the H2 hundreds there. That's. That's not forbidden. In any case. This is a loophole that some of the China hawks have wanted to close for a long period of time. But at least at this period of time, you can still access there.
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Ed Ludlow
We have a Bloomberg Terminal client. Just send me an IB and make a point. That's in the story that, you know, Alibaba. Alibaba is one of Moonshot's biggest investors and of course, they're also competitors. I go away and read it. Bloomberg's Peter Ellstrom, thank you very much indeed. And Fropic says its AI models broke out of a closed testing environment and breached three outside organizations. And from it said it made the discovery after reviewing its own cybersecurity tests following OpenAI's announcement of a similar incident. Let's get the latest. We're Bloomberg's Patrick Howe o'. Neill. One of the most read stories, unsurprisingly, surprisingly, on Bloomberg. Tell me everything that we're reporting right now. Yeah, happy to be here. So, as you mentioned, Anthropic began an internal review of their cybersecurity tests after the hugging face incident was disclosed a little over a week ago and discovered that in three instances, their models, which were conducting their own internal tests, had broke out and had hacked three external organizations. I think it raises a ton of really interesting and important questions about these AI companies abilities to control, understand and monitor these models. And especially the fact that it took in at least one case, three months for Anthropic to discover what had happened, which just raises questions about the ability to really see what's going on. Right. Patrick, in the Anthropic case, we don't know who the three companies are. Right. But we do know that there was a connection to the Internet escaping the sandboxed environment. Go over all that real quick. That's right. So there's an important distinction to be drawn here. In the recent Open Air case, which is obviously drawing a lot of comparisons. OpenAI's model discovered novel vulnerabilities and hacked its way out of its environment. In the Anthropic case, there was a human misconfiguration that allowed Internet access for the model, and therefore the model thought that everything it had accessed, at least at the beginning, was part of the test. And this is something that Anthropic is really insistent on because they're positioning this as primarily a human error or a human series of errors as opposed to an air. I invited Anthropic on the show. They said no. Bloomberg's Patrick Howe o', Neill, thank you very much indeed. Troubled hedge funds. Situational Awareness explored selling stakes in private companies to raise cash as it faced a wave of margin calls from lenders. This week, its assets plunged from $45 billion to roughly $10 billion as stocks got hit in recent weeks. That's when Citadel's Ken Griffin swooped in to buy a bulk of the fund's public portfolio. You're seeing pictures of Leopold Ashen Brenner, founder of Situ Awareness, coming from the website for our posterity. Let's get the details. Bloomberg hedge fund reporter Heather Palmer is with us. Extraordinary reporting the new bit is trying to offload some private stake to continue to manage the situation.
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Heather Palmer
So what we were seeing is really incredibly dramatic unfolding of events over the past 24 hours. And what we reported last night was the news that while situational awareness was in conversations with Citadel Millennium Jane street to offload their public book, they were also having conversations conversations to potentially offload their private portfolio. This is a sizable portfolio that includes a $5 billion position in anthropic. And the fact that they were in talks with Sequoia and Green Oaks to potentially offload those stakes really shows how dramatic the situation was. Ultimately, they did not go ahead with that because they got the Citadel deal. But it is not a great sign when a Fox fund is looking at trying to sell their public and their private book to meet margin calls.
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Ed Ludlow
Hammer, what's the state of play? It sounds like the firm is still there and has its private book. Has anyone hold heard from Leopold Aschenbrenner in the last 24 hours?
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Heather Palmer
Yes, he sent a letter to investors apologizing for the dramatic unfolding of events saying that he is responsible, saying that the fund still has its own year to date or since inception performance of up 80%. But keep in mind the monthly performance down nearly 70%. Also really important is thinking about when investors got in the LPs that got in early in the fund's existence. They're probably doing okay. But if you're an investor and you got in the past few months, the pain is pretty bad.
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Ed Ludlow
Bloomberg's Hammer Palmer, thank you very much indeed. Tesla is considering separating its China business to pave the way for a potential Space X merger, all according to a report in the Wall Street Journal. While the Journal said some Tesla execs have been told to prepare for that move, CEO Elon Musk wrote on the report was, quote, fake news. Joining us now, Bloomberg Managing editor Craig Trudeau. Let's start with what is in the Wall Street Journal report. There are multiple lines of information about what's being considered. Summarize as best you can.
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Craig Trudeau
Yeah, I think in the sort of broad scheme of things that all eyes have been, you know, for months now on is, you know, Space X and Tesla, are these companies going to combine? And one of the big questions has been how do these companies sort of come together considering the fact that Space X is this great big, you know, US defense contractor and Tesla has this, you know, huge China business that is crucial to the company. Aren't those two things sort of in conflict? I think, you know, what was, you know, very interesting about this report last night was yes, it laid out some elements of the fact that, you know, these companies already are kind of separate. But I think that's pretty well known and understood. I think the question is, you know, what exactly are advisors thinking or how is this possibly going to work out considering the fact that the Chinese Communist Party probably is not particularly climbed for the Shanghai factory that's so crucial to Tesla sort of closing up to, you know, the Space X business or at all sort of overlapping with, with Space X which, you know, Musk has been quite open about, you know, not being crazy about Starlink.
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Ed Ludlow
Exactly. So you know, Musk posted more than once. This is one of the posts next. This has never even come up in a discussion ever. Absurdly fake news people should use is fake until proven otherwise. I think our colleagues in China were also able to make contact with Tesla China who disputed the report. Right?
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Craig Trudeau
That's correct. And you know, look, I think the fact that Musk has been sort of, you know, very public about the fact that Starlink is a no go in China has also talked quite openly about, you know, just how much China is competing with Space X. There are a lot of elements of the Journal's reporting that sort of ring true. The question is, of course, you know, what's going on behind the scenes for these, these companies to sort of game out what could be done. I think, you know, the Journal, you know, sort of brought some new things to light last, last night of course, Musk and his campus pushing back on
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Ed Ludlow
what was reported the investor, Craig Trudeau, thank you very much. Let's stick with Mosque. Just a year after his bitter split with President Donald Trump, he looks to reenter the political sphere with plans to spend at least $100 million to back Republican candidates for the midterms. That's according to the New York Times. However, just last week Musk told the Economist that he got, quote, a little too important involved in politics. Got carried away, frankly. According to reports is Super PAC's planning to spend between 100 million and $120 million on a new field program in at least eight states. Welcome back to Bloomberg Tech. Earnings in the world of tech is the big story. But I thought let's take a beat this Friday and look at the NASDAQ 100 on the week, modestly lower 4.10of a percent in semiconductors on the stocks. We're down 4% on the week and there's just been so much news flow. Remember, the week started with concerns about circular financing Nvidia and we've kind of ended the week with pretty upbeat picture of capital expenditures in the world of AI, largely through Amazon Horizons lens. But Apple, wow, that was a bit of a surprise. Their management of the supply chain. Apple's on track for its biggest drop Since March of 2020 on an outlook for the September quarter that was below expectations. But disclosure of some mismanagement of the supply chain and one would not expect to say that about Apple in Tim Cook's final earnings call. Then there's Amazon, on track for its biggest jump since 2012. Incredible cloud growth and a lot of momentum. Let's talk about earnings, Apple, Amazon and how it's all going. Joining us now is Lafitting Investments CEO and CEO Nancy Tanglar. And let me tell you, on a Friday, we have to go through all of it. There's no one better. Let's start with Amazon. You know, you know both companies well and you have for the firm and for your clients, you know, a clear strategy that involves both of them. Was there one single thing with Amazon that just jumped out at you and thought, yep, we've got this one right?
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4imprint Advertiser
Yeah.
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Nancy Tanglar
And we started adding it to our value portfolio and actually used proceeds from Apple earlier this week to continue that addition. It has been trading like a value stock. And what we knew was CEO Jassy understands how to roll out new technologies as he was kind of the father of us. So our bet has been on him. It was our stock of the year. It didn't look so good until today. Yesterday and today, or today mostly. But effectively what we believe is that the company is in a position to monetize the capex spend and that's been the big concern on Wall Street. So, you know, a lot of levers to pull there. They pulled all the levers and it was an outstanding quarter.
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Ed Ludlow
The two that people focus on beyond sort of growth of the cloud business is the revenue run rate for the chip business, rental in cloud capacity, but on their own silicon and then what they call us AI, which is services, bedrock models, etc. Do you look at those or does it still just fall to us overall?
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Nancy Tanglar
I mean, in fact, well, we look at all the segments and the One that always gets overlooked is, is the retail side, maybe even advertising. We certainly look at all of them. But what we're, we're concerned, concerned about as investors is the management pivoting. And that was the reason we got out of Adobe because you had a CEO who missed kind of now the stocks recovered some, but it's still half of where we got out. So we're looking for management teams that, that really are driving into the future. And that is the case at Amazon. You know, Jassy's cut costs in pretty much all the right places, invested in the right places and he keeps going a low profile which I think is also very important as, as an investor. So yes, we pay attention to that and we care about it. But generally speaking, overarching. What is the catalyst for outperformance? And we think it's being in the sweet spot of investing in capex and monetizing it from an AI standpoint.
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Ed Ludlow
Nancy, would it be fair to say that in financial markets people have different opinions on the same metric? And, and the case study I put to you is free cash flow. You know, matter showed its lowest level of free cash flow since 2022. Amazon's been in negative free cash flow on trailing twelve month basis. And no one seems to mind. Like I'm not an investor, I'm a financial and technology journalist but you know, people would always say free cash flow is the much better measure than margin or any form of profit. And everyone seems to sort of be calm about that.
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Nancy Tanglar
Well, I think, no, you're 100% right, Ed. But I think we are in an economy and a sector that's in a major transformation and during those periods, historically, I've been doing this for 40 plus years. You must invest. It is an arms race. And so we can tolerate as investors periods of negative free cash flow, particularly when a company has the balance sheet quality that these hyperscalers have. So it is, it is a metric that's super important to most investors and to us as well. But if you're investing for the future, you have to be willing to sacrifice free cash flow at some point to invest for the next round. And I think what we saw in this report is the investment is paying off and free cash flow will return. And he talked quite a bit about that.
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Ed Ludlow
Let's talk about Apple. It was Tim Cook's final earnings and core CEO becomes executive chair September 1st. John Turner becomes CEO the September quarter. The world is getting more difficult for them, but there was this admission that they'd got it wrong. On how they handled supply chain. What did you make of that?
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Nancy Tanglar
Yeah, I kind of, I mean, I'm not happy about it, but that is one of the things I've loved about Tim Cooks. Over Tim cook, over the 13 years we've owned the, the stock we got in after the Google Map debacle, he wrote, if you recall, he wrote an apology basically acknowledging this mistake in January of 2019 when they missed earnings. He wrote a letter to shareholders. I don't know other CEOs that do that. So he is a competent, obviously manager of the supply chain and the business. But he made mistake, as we all do. I make him every day. And so I think what we learned, however, is that the next quarter, which was expected to continue to be a really strong momentum quarter, is not going to be in. In that whole discussion though, Ed, what I thought was interesting was that he said even though the supply of memory chips, it may improve, we don't expect prices to go down, we expect them to go up. And he also didn't say that he was going to be in China buying those part. So I think the market's still trying to digest all of that. We had sold a chunk of our holdings, about 25% going into earnings because it had just been such a strong performer relative to everything else. And so we thought some of the good news was priced in and we wanted to fund names like, like Amazon that we. That had not participated in the rally. So I think it's a name you hold on to. We call it our Treasury Bill of Technology Holdings. But I don't think you chase it in here. You let it settle and watch very carefully. They are going to have an announcement. We are going to have a new CEO. They always get tested. Jassy did, Tim Cook did. So I think you have some time to, to, to. To at least accumulate the holdings, but certainly not today.
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Ed Ludlow
Nancy Tangla, CEO and CIO of Laffer Tanglar Investments. Happy Friday. It's been a long week. Thank you very much. Revision's quarterly revenue beat estimates, but the EV maker still posting losses. They're narrowing. It begins. Deliveries of the new midsize SUV. R2 shares open higher. They're now down 8%. I caught up with CFO Claire McDonagh who says that the new R2 will be a key catalyst for Revision's anticipated growth.
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Claire McDonagh
We're really excited about the opportunity to both introduce R2 to the world in June. So it's the start of our first external customer deliveries. Also the first opportunity for consumers to test drive the vehicle as well. And we were able to complete 57,000 demo drives over the course of the second quarter. And R2 was a key enabler and driver of the increase that we saw in our demo drive and traffic across each of our retail locations and spaces. And the reaction from the media has just been fantastic. And the same is true as we looked at the feedback that we're seeing from consumers who are getting behind the wheel, experiencing it for themselves. And for someone like myself that's been here for five and a half years now, just a really great moment to see R2 out into the wild. And now Rivian in position to scale up production over the second half of the year.
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Ed Ludlow
Claire, do you track the conversion rate of those 57,000 demos? How many end up being actual sales?
- [34:09]
Claire McDonagh
Right now we're in the process of both taking existing reservation holders who are interested in R2 and giving them really the first look to experience the product and then also introducing more and more customers into the broader Rivian ecosystem. So this is a big moment for the business as we're trying to drive and expand our brand awareness and introduce more households into the Rivian community.
- [34:37]
Ed Ludlow
Can you try and quantify what the sales contribution from R2 was in that quarter? And kind of where you're tracking, you've already said that, you know, in the back half of this year, that's where we'll start to see R2 in a meaningful way. But what is the trajectory you see
- [34:53]
Claire McDonagh
in the second quarter? RT was limited in terms of the number of deliveries that was was contributed to our overall delivery volumes of just over 12,000 units. But embedded within our 65,000 to 70,000 units of guidance for the year, we'll see a significant step up in the second half for deliveries. And R2 will be a key catalyst for the growth that we anticipate seeing.
- [35:19]
Ed Ludlow
That was Rivian CFO Claire McDonagh. President Trump now holding a cabinet meeting at Camp David. Let's listen in.
- [35:26]
Donald Trump
Basically his favorite nation. So we have the lowest drug prices anywhere in the world from the highest drug prices anywhere in the world. Now, what that does for your health care, I mean, I see these fake polls where the Democrats have wonderful numbers on this stuff and they are horrible what they've done. Obamacare is a total disaster. It's a costly wreck. It's unaffordable. We call it the Unaffordable Care Act. It's a disgrace. They never even thought of being able to do something like this. They didn't even try. They didn't even Try. So I got the drug companies first, and then I got the countries, and the drug companies agreed because they knew the countries wouldn't agree. And when I called Germany, France, what I called the UK when I called all of these countries, I said, you got to do it. It's unfair. We're paying 10 times more than you're paying for the same drug. You can't do this. And they said, well, we're not going to do that because we're going to have to double our price in order to make you happy. I said, no, maybe you're going to have to triple your price. They said, well, we can't do it. I said, that's all right. If you can't do it, then I can't do something also. And I'm going to charge you very substantial tariffs, which are far more than we're talking about about. And they all said, we'd love to do it. We would love to do it. It would be our great honor to do it. So nobody else would do this. This would have never happened. So your drug prices have gone down by numbers. Not even thinkable. My first term, I had the privilege of having lower drug prices from the beginning of the year till the end for the first time in 28 years, you remember? And I called a news conference to announce it. So the year had ended and I was turned out 1.8of a percent, 1/8 of a percent. Little tiny, this much. It went down that much during one year. First time in 28 years it went down. It was always like this, just up, more expensive. And I called the news conference. I was so proud of myself. And I said, ladies and gentlemen, the first time in 28 years, drug prices have gone down from January till the end of December. And I want to just congratulate everybody for being a part of this wonderful experiment. And 1/8 of a point. Now we're talking about 400, 500, 600% coming down. We pay the lowest drug prices anywhere in the world from the highest. So, you know, and I'll say it again and again, because the press doesn't want to report it, the fake news doesn't want to report it. They don't want to talk about it. What that does for healthcare, Bobby, is unbelievable because medicine is a big part of health care. So I wish that people would understand that. And I hope they're going to vote for us in the midterms because you'll see some stuff that will be horrible because they can blow it very fast if they don't know what they're doing so. Your drug prices are great. You know, I saw Spain yesterday and I watched the catastrophe that took place. It looks like an invasion of a country by hundreds of thousands of people. And that same thing is going to happen to us if the Republicans don't get elected. Except worse. Much bigger, much easier to get into, despite the fact that we have built thousands of miles of wall, which I said we were going to do, but we didn't have that. Forget it. But we have the safest border in the world if we're not in office.
- [38:45]
Ed Ludlow
That was President Trump speaking in a cabinet meeting at Camp David. No headlines other than the President touting the stock market will continue to monitor and bring you headlines if and when they come for terminal users. You can get to this in full by going to live. Go with Anthropic joining OpenAI in revealing some of its AI models broke out of sealed testing and hacked outside organizations. Fears about the real world risks and calls for safeguards arising. The concern isn't just what I knows anymore. It's what I can do. As these systems become more agentic and begin taking actions in the real world, trust security become more important. Dina Shakir, partner at Lux Capital and an investor across the spectrum with a focus on health, something that the President has been speaking about in the last few minutes, joins us now. You know, you know so many founders that have a strong view on this. You're investing into the space. Just to start your reaction to Anthropic's disclosure last night in aggregate with the open air hugging face situation.
- [39:51]
Dina Shakir
Great to see you. Thanks for having me. Yeah. You know, two weeks in a row of disclosures here are certainly ringing, ringing alarm bells for quite a few people. But I think it's really illustrating a broader point which is that we are moving beyond the commoditization of intelligence models to your point into what happens when models interact with the real world. These disclosures show both what can happen when there is a misconfiguration in the anthropic case around a sandbox and also when you stress test these super hyper intelligent models, the potential risks. At the same time, I think it's incredibly exciting. Exciting how advanced these models are getting and where the real opportunity might actually be moving beyond the commoditization of models into the operating system and most importantly the trust infrastructure around it.
- [40:45]
Ed Ludlow
The president was speaking about drug prices, about the role and positioning of drug prices in health care. You know, my hope is you come on the show and kind of do. The newspaper is with me Anyway that, you know, you are very focused on that vertical and I mean literal vertical AI application of health care. There's an opportunity there, it seems to really change industry.
- [41:09]
Dina Shakir
There is. And you were with us in March when we hosted a whole conference around the opportunity at the intersection of health care and AI. Since then there have been quite a few exciting developments from all of the labs. Whether it's entertainment, going on the record, saying health care is, is one of their biggest priorities. Going deep into life sciences, talking about in fact develop drug development as a potential priority for them, or open eyes launched just, just last week around, around health care. And I don't know if you've played around with it at all. It's, it's been really fun. I've enjoyed using it. As someone who helped launch Google Health over a decade ago, it's really remarkable to see just how far these models have taken the, the, the opportunity to really take health care information into your own hands. But I think more importantly moving beyond information gathering into actual action. And I think that's where the next generation of innovation in and around health care and frankly across regulated industries will be.
- [42:11]
Ed Ludlow
When I was with you at the conference in March, in the room there were the founders of specialized startups, there were representatives from all kinds of technology companies, former clinicians and some regulators. Right. And I think the question posed was if Open air and Anthropic are so big and their capabilities so wide, why do they not go after this field more intensely?
- [42:38]
Dina Shakir
Yeah, you know, I think this is an existential question for pretty much every appointment applied AI company with regard to health care specifically, it's a valid one. As I just mentioned, both of those labs have gone on the record, not only launching in and around health care and life sciences, but talking about how important these priorities are. But I think what's become clear is that they will not happen in isolation. If you, if you saw the launch coming out of chat GPT on the health care side, the product itself is, is grounded in partnership. It's about literally connecting your health information, whether it's your function health labs or your EMR records or Apple Health to these labs. And so at the end of the day it's again incredibly exciting how good these models are getting. But it's less about extracting information and more about taking that information and applying it to the real world context. And health care might very well be the best example of the real physical world interacting with models. We, without those partnerships, the health care information is, it is just living in isolation. It is Going to be dependent on deployment and on partnership. And so that's where I think it's actually never been more exciting for startups and for third party companies. Right. Rather than trying to replicate a model or build a new foundational layer, they are the ones who can take deployment to the next level.
- [44:01]
Ed Ludlow
Dana, can we talk a little bit about some of your recent investments? You're very busy person. I mean that in the, in the kindest way that, you know, you have been doing some interesting rounds of late. You know, Lux Capital has scale, which I always find so interesting. But I also recognize increasingly some of the more legacy Wall street institutions, private growth, equity, mutual funds, getting earlier into the game in some of these verticals.
- [44:27]
Dina Shakir
Yeah, I mean there's so much opportunity, I think everybody wants to, to have a hand in it for sure. At Lux, we are excited about the opportunity across a number of verticals, health care being one of them, but, but across quite a few others as well. I think physical AI and robotics is a massive opportunity. We're still really at the early days there, but it's, it's clear that AI is no longer just, you know, it's not even a sector. It's like how we used to talk about tech. Right. And tech eventually became everything AI is, is an operating system. And the opportunity across these legacy institutions is absolutely massive. And we're literally just getting started.
- [45:06]
Ed Ludlow
It's so funny you say, like, when I moved to San Francisco in 2018, I kind of felt like I missed the boat a little bit, you know, on the social media wave and on hardware. And now, you know, is, is technology in itself.
- [45:18]
Jordan Klein
We.
- [45:19]
Ed Ludlow
What do you think happens kind of in the balance of the year in private markets? You know, there are certain spaces, Defense tech's one that looks super focused on where there's just such momentum. The numbers this year are bigger than last year. Does that apply to health? What is the kind of zoomed out view of the industries you're, you're investing in?
- [45:36]
Dina Shakir
Yeah, I mean, I think there's a lesson here that every time you think, you know, something pops up and proves you wrong. But I think with regard to private markets, markets, as I said, like the opportunity has actually never been better in the application layer. And that's not, that wouldn't have been the case if I had come on the show just a couple of years ago. I think the focus at that time was more around infrastructure and around the models. But it's become clear just how quickly these models can advance. And it's also become clear again that they can't do it in isolation. So we're excited about everything from real world health companies like Sonata Health, which just we just announced a few days ago, to sovereign AI companies that are taking the next the next layer of deployment, even geographically. We recently announced a new investment in a company called 1001AI in the GCC and I think those are great examples whether it's health care or sovereign AI, where that trust layer, especially given the news in recent weeks and these incidents, is going to be more important than ever. And there are more and more interesting companies in the works right now that we'll be excited to unveil in weeks to come.
- [46:49]
Ed Ludlow
Dana Shakir, partner at Lux Capital, back on Bloomberg Tech thank you very much indeed. Now coming up mid investor concerns of heavy spending from the hyperscalers, Microsoft's kind of easing fears by promising to stay cash flow positive. Details next. This is Bloomberg Tech.
- [47:07]
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- [48:30]
Optum Healthcare Advertiser
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- [49:36]
Ed Ludlow
Today's big number $450 billion. That's how much Microsoft added to its value yesterday after his market cap jumped 16%, increasing more than any company ever in a single day. That number is even higher today with the stock up 2.3%. Why are investors so happy? Because, writes Bloomberg's Brady Ford, Microsoft struck a cautious tone on spending like many of its MAG7 peers managed to ease investor fears over spending by remaining cash flow positive. Bloomberg's ready. Ford joins us now with the tech in depth poor. This is important. Free cash flow is the metric people are looking at and they are making a commitment. They stated it right.
- [50:16]
Brady Ford
That's the whole debate over the last couple of months, right. All the money being spent on data centers. Is it going to have looked like a shrewd bet? We see some of the world's great cash flow businesses, Amazon, Matt, Google heading towards negative free cash flow. And Microsoft has said that we're going to prioritize staying cash flow positive. We're going to strike a lot moderate tone on our spending. And at least for now, the market is super happy to see that.
- [50:40]
Ed Ludlow
It's not like Microsoft's capex commitment is small, right? Yeah. I mean I remember the big moment of the last year, maybe it's more than a year ago now. Is Oracle tipping into negative free cash? Right. Markets freaked out comparing Charles last night with Amazon. Amazon's, you know, on a trailing basis been negative cash flow for a while.
- [50:59]
Brady Ford
You make a good point. When Oracle went free cash flow negative, they were the first big company to do so. Everybody thought Larry Ellison's crazy. What is he doing? Everybody's digested that that might be what's needed to do a massive cloud build out. Right. So yeah, Microsoft is still spending 175 billion a year. That's a lot of money, but they're signaling that there's somewhat of an end in sight, that it's not going to be this constant ratcheting up of spending, which is what makes the market super nervous.
- [51:26]
Ed Ludlow
Last night, Amazon raised Capex for the year very quickly, $20 billion because costs were higher. Microsoft explained how they're going to pull off their goal.
- [51:36]
Brady Ford
No, they haven't. And the fact that costs are going up with memory and they're still holding it steady, it means they're finding cost efficiency, right? And so if that is truly what's happening, folks will be happy to see it.
- [51:47]
Ed Ludlow
Bloomberg's Brady Forbe with a must read thank you. That does it for this edition of Bloomberg Tech. Don't forget Recap the podcast. You know where to find it on the Bloomberg Terminal as well as online on Apple, Spotify and Iheart. Goodness, what a week. A big earnings week. It started with circular financing chat. We've had AI models break free of sandboxes and still the city of San Francisco looks beautiful this Friday. Have a great weekend. This is Bloomberg Tech.
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Optum Healthcare Advertiser
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Dina Shakir
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