Defense Tech in Focus As Iran Conflict Widens

Summary

Bloomberg Tech Podcast Summary

Episode Title: Defense Tech in Focus As Iran Conflict Widens
Date: March 2, 2026
Hosts: Caroline Hyde (New York), Ed Ludlow (San Francisco)
Main Theme:
This episode explores the broad-reaching impact of the escalating US and Israeli conflict with Iran on defense technology, global markets, and US policy—especially the intersection of AI, cybersecurity, and government contracts. Contributors include market analysts, lawmakers, tech editors, defense policy experts, and cybersecurity specialists.

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Episode Overview

The episode examines:

• The rapidly evolving war in the Middle East, focusing on its immediate effects on technology, defense industries, and financial markets.
• How defense technology providers—especially in AI—are navigating changing Pentagon requirements and ethical boundaries.
• The debate over government AI procurement policies, with special focus on the Pentagon’s controversial move from Anthropic to OpenAI, and industry reaction.
• Ongoing concerns about cybersecurity amid rising Iranian-linked cyber threats.
• Policy responses from Congress and analysis from defense and tech experts.

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Key Discussion Points & Insights

1. On-the-Ground War Update & Economic Fallout (01:49–05:00)

• Daniel Williams (Jerusalem): Describes a "widening" war now involving attacks in Southern Europe (e.g., Cyprus), with multiple fronts between Israel, Lebanon, and Iran, alongside US military support. He highlights economic pain across the Middle East and the Iranian regime's apparent strategy—waiting out attacks to preserve survival despite being "massively outgunned."
• Notable Quote:

  "To judge by the cycle of fire being maintained by Iran, it would appear that there is still a vestigial state functioning, managing to keep up the fight and presumably domestically managing to deter members of the opposition from trying to take control of the country." – Tom Keene (04:18)

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2. Tech Markets & Defense Stock Surge (05:00–10:13)

• Caroline Hyde: Notes significant market impacts: surge in defense tech stocks (Palantir up 6%), Nvidia investments, energy price jumps (oil up >7%), and Bitcoin’s rebound.
• Oscar Descartes (Swiss Quote, 06:15–10:16):
  • Defense stocks globally benefit from geopolitical tension, not just in the US but Europe as well.
  • Divide between tech companies sensitive to energy prices (e.g., data centers) versus capital-light firms like Nvidia.
  • Bitcoin, usually correlated with tech stocks, momentarily acts as a "safe haven."
• Notable Quote:

  "Defense stocks have been in demand due to the rapid shift and the significant shift in global geopolitics... risks are being quite high and... defense companies are benefiting grandly from it." – Oscar Descartes (07:01)

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3. Anthropic, OpenAI, and Pentagon AI Contracts (12:34–15:57, 28:36–31:46)

• Caroline Hyde & Seth Feigman (13:24–14:37):
  • Anthropic, after objecting to Pentagon requests for domestic surveillance/autonomous weapons, is blacklisted. OpenAI quickly fills the contract, claiming respect for these "red lines."
  • Debate on whether the government’s blacklisting is overreaching, and the broader impacts on Anthropic’s business relationships.
• Mike Shepard (28:36–31:46):
  • Details the "extraordinary" speed of Pentagon’s switch to OpenAI and how Anthropic’s AI tools had been integral to defense data processing ("Maven system").
  • OpenAI claims sufficient safeguards, while Anthropic felt contract language was inadequate to prevent unacceptable military uses.
  • Government’s declaration of Anthropic as a “supply chain risk” seen as perhaps “vindictive.”
• Notable Quotes:

  "OpenAI says that the contract... are strong enough that those two requirements by the firm are respected. Anthropic, from its standpoint, did not see the same in the contract language." – Mike Shepard (29:40)
  "[Declaring] Anthropic a supply chain risk was seen by many as going a step too far and being vindictive." – Mike Shepard (30:50)

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4. Congressional Reaction & AI Regulation Debate (15:57–24:10)

• Rep. Sam Nicado (Silicon Valley):
  • Argues the importance of public—not private—debate over AI safeguards, stating decisions "should not be confined to backroom negotiations" (15:57–16:46).
  • Criticizes punitive action against Anthropic, calls for legislative clarity on AI's limits in defense.
  • Lays out plans to propose that government cannot retaliate against companies setting "reasonable limits" on their technology (18:31).
  • Calls for bipartisan solutions on AI regulation, upskilling workers, and balancing innovation with oversight.
• Notable Quotes:

  "These ought to be very public discussions. The administration should be setting rules. Congress should be setting rules." (15:57)
  "There should be clear lines. I don't think a lot of folks argue with the lines that Anthropic articulated. In fact, OpenAI seem to have embraced them. So why not, rather than punishing the company, hold these up as examples?" (17:10)
  "Technology is obviously a wonderful thing. We know it has enormous risk. We ought to take cues from industry. When industry tells us these risks are too great, let's draw lines." (18:31)

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5. AI Ethics, Supplier Blacklisting, and Strategic Risk (32:10–36:56)

• Corey Shockey (American Enterprise Institute):
  • Assertively opposes the Pentagon's blacklisting of Anthropic: "The idea that you could either nationalize or blacklist a leading American company is outrageous" (32:10).
  • Warns such actions will "discourage other leading edge tech firms" from helping the US defense ecosystem.
  • Argues Congress should define AI deployment limits in law, not leave it to discretionary executive actions.
  • Notes OpenAI's trust in government, contrasting with Anthropic’s demand for proof and indemnification.
• Notable Quotes:

  "It's actually shocking to think that the Defense Department blacklisted an American company. That's the kind of thing we do to Chinese firms, not to patriotic American firms..." (33:55)
  "What Anthropic is saying is we do not want it to be used for domestic surveillance... or for decisions about the use of lethal force before we have higher confidence in the model. Those are not unreasonable standards." (36:03)

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6. Cybersecurity Threats: Iran’s Growing Cyber Capabilities (36:56–44:02)

• Cynthia Kaiser (Halcyon, ex-FBI):
  • Describes active Iranian cyber threats to Middle East and US infrastructure; attacks focus on finding entry points and then exaggerating impact for psychological effect.
  • Emphasizes Iran’s significant sophistication, exploiting unpatched internet-connected devices.
  • Warns that recent cyber activity shows Iranian groups using AI, mainly as a tool for low-level actors and destructive rather than lucrative attacks.
  • Stresses importance of proactive defenses, industry-academic collaboration, and international intelligence sharing.
• Notable Quotes:

  "They are one of the world's most malicious and capable cyber actors in critical infrastructure." (38:33)
  "We've seen a lot of AI enabled threats... Iran uses proxies to be able to conduct their activity." (40:03)
  "Being able to build within is really important... but it's only going to know what's plugged into it." (41:21)

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7. Market Underpinnings: Bitcoin & Defense Tech Rally (25:20–26:44; 26:44–28:36)

• Isabel Lee (Bloomberg):
  • Bitcoin rallies nearly 6% after dipping post-attacks, reflecting risk sentiment during geopolitical shocks.
  • Defense tech stocks surge; Nvidia invests $4B in data center optics, Palantir and CrowdStrike benefit from growth in defense/security spending.
  • Cybersecurity stocks (Palo Alto Networks, CrowdStrike) also gain amid heightened hacking threats.
• Notable Quotes:

  "Bitcoin is nearing $70,000... behaving like a risk asset... but everything is just interconnected and I find that very interesting." (25:39)

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Notable Quotes with Timestamps

• Daniel Williams (War Impact):

  "This is imposing a good deal of economic pain on the region... even though it's massively outgunned by its enemies [Iran] is to wait out this campaign in the hope that the pain... of the American public... will wear thin..." (02:24)

• Oscar Descartes (Market View):

  "Defense stocks have been in demand due to the rapid shift and the significant shift in global geopolitics...risks are being quite high and the technology companies are benefiting grandly from it." (07:01)

• Rep. Sam Nicado (Regulation):

  "When we’re talking about AI safeguards... These ought to be public discussions. The administration should be setting rules. Congress should be setting rules." (15:57)

• Corey Shockey (Defense Policy):

  "The idea that you could either nationalize or blacklist a leading American company is outrageous." (32:10)

• Cynthia Kaiser (Cyber Threats):

  "They are one of the world's most malicious and capable cyber actors in critical infrastructure." (38:33)

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Important Timestamps & Segments

| Timestamp | Segment | |-------------|----------------------------------------------------------------------------------------| | 01:49-05:00 | War in Iran: On-the-ground report, regional and economic impacts | | 06:15-10:16 | Market analysis: Defense tech, Bitcoin, global macro picture, safe haven shifts | | 13:24-15:15 | Pentagon drops Anthropic for OpenAI, AI contract ethics, government tech procurement | | 15:57-24:10 | Rep. Sam Nicado: Big Tech-Pentagon relations, AI regulation, public interest | | 25:20-26:44 | Bitcoin’s rebound and defense stocks surge post-attack | | 28:36-31:46 | OpenAI’s Pentagon deal detail, Anthropic’s challenge, supply chain risks | | 32:10-36:56 | Corey Shockey: Policy implications of blacklisting Anthropic, AI in defense | | 36:56-44:02 | Cynthia Kaiser: Iranian cyber threats, AI in hacking, industry and allied defense |

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Conclusion

This episode of Bloomberg Tech offered a comprehensive, real-time analysis of how a rapidly intensifying war is impacting defense technology, corporate and government relationships, and the financial markets. The episode captured the tension between innovation and regulation, highlighted the ethical high-wire act facing AI companies contracting with the Pentagon, and spotlighted new frontiers in cyber warfare. Policymakers are under pressure to adapt swiftly—though as Rep. Nicado notes, “If you ever bet on Congress not getting anything done, you win 99 times out of a hundred.” The battle over defense tech is as much in the halls of government as on the digital frontlines.

Transcript

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[Caroline Hyde]

Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech. I'm Caroline Hyde in New York. And let's go straight to our top story today, the war with Iran. The conflict continues to reverberate across the Middle east today. This is President Trump says the bombing campaign against Iran could last for weeks. We are awaiting more updates from the president this hour, but we want to bring you the latest. Bloomberg's Daniel Williams, who is in Jerusalem on the ground there in Israel. Dan, what is it like?

[Tom Keene]

Well, as you can see, the sun is set on what has been the third day of this extraordinary war. War that appears to be widening, engulfing not just the Middle east now, but even lapping up against Southern Europe, with Cyprus saying that a British airbase on its soil was apparently targeted by a Hezbollah drone. Hezbollah being the Lebanese ally of Iran, in fact, an ally of Iran in Lebanon, which opened a front from Lebanon with Israel, reopened that front overnight. And now the Israelis are saying they're bombing targets in Lebanon apace as they continue their bombing of Iran alongside US forces. So we have several fronts opening up, a number of Gulf Arab countries that also found themselves in the firing line, being struck by Iranian missiles and drones. And not just US bases on that turf, but also hotels and the like. This is imposing a good deal of economic pain on the region. And it would appear that what the Iranian regime is trying to do, even though it's massively outgunned by its enemies is to wait out this campaign in the hope that the pain and indeed the patience of the American public that apparently disapproves of this by quite a margin already will wear thin and some members of the Iranian regime might be able to survive.

[Caroline Hyde]

Talk to us about what remains of the Iranian regime, Dan.

[Tom Keene]

It's very hard to know. It's the supreme Leader was killed over the weekend in one of those opening salvos and almost by the minute we've received updates about other members who have been killed, sometimes as successors of those who were recently killed. However, to judge by the cycle of fire being maintained by Iran, certainly in Israel, where we've been experiencing every half hour or a couple hours sirens and calls to take shelter in the face of missiles or drones coming in, it would appear that there is still a vestigial state functioning, managing to keep up the fight and presumably domestically managing to deter members of the opposition from trying to take control of the country. That is, of course, the vision enunciated both by Israel and the United States at the outset, a situation whereby the Iranian regime is sufficiently degraded, sufficiently destroyed to enable the Iranian opposition, which many in the west would see as the bulk of the Iranian population, certainly the young population, to take to the streets again, as it did only a few weeks ago, but this time not facing the guns of the state and being able to assume control.

[Caroline Hyde]

An extraordinary day in Jerusalem, as you say, a third day. Dan Williams, we so appreciate you being with us of Bloomberg. Now let's check out what is a human story that is affecting markets right now. Nasdaq 100 off by 410 of a percent. Big tech is seeing some significant moves on individual names, of course. Money moving into the likes of Nvidia Palantir as you're seeing up 6% as a defense related name in the tech perspective pushes higher. These are big points. Contributors on the day and Nvidia in fact, making a deal, putting money into optical companies. We'll dig into that a little bit later, but really we're also seeing significant moves in other parts of the market. Different industry groups, different asset classes. Brent crude, unsurprisingly, up more than 7%. Extraordinary moves as we consider the Strait of Hormuz, an issue about supply chains writ large for the globe to try and digest. Bitcoin is up by more than 5% covering some of its losses as it was one of the main tradable assets. Profits over the course of the weekend and strategy of MicroStrategy is currently up 6.8% on the back of that bitcoin buying. Let's talk about the market impact more with apec. Oscar Descartes Swiss Quote Senior Market Analyst and this is a moment of knee jerk reaction of risk off sentiment. But interestingly we are still seeing big tech managing to see some flows into it.

[Oscar Descartes]

Exactly what we see right now is that as the spike in oil prices is being retraced, technology companies are also finding some breathing room right now. And and we also do see some individual divergences in the technology space. The companies that do have exposure, greater exposure to energy costs like the ones that run data centers are being hit more heavily than the others are more or less capital intensive like Nvidia for example. And defense related names are also gaining in on the back of the Middle east conflict news.

[Caroline Hyde]

Is that an automatic buying that you think will see the likes of Palantir hold on to gains going forward? Is that something that is sticky about this demand for such defence tech?

[Oscar Descartes]

Yes, we believe that globally the defense stocks have been in demand due to the rapid shift and the significant shift in global geopolitics. And we have seen a couple of times since last year that the geopolitical tensions are not ready to ease from the actual level. So the risks are being quite high and the technology companies are. And technology and defence companies are benefiting grandly from it. It's not only in the US but we also think that the defense stocks in Europe will also be will also continue to benefit from the rising geopolitical tensions and risk across the globe.

[Caroline Hyde]

I mean what's notable is benchmarks are actually trying to turn around. I'm looking at the NASDAQ more broadly only off by about a tenth of a percent now the S&P in the US currently off by 3, 10 of a percent even though we saw market falls over in Asia and European trading impact. Just the macro picture for someone who is in the audience right now trying to understand where to be navigating if they're exposed to technology names.

[Oscar Descartes]

Well, exactly. I mean the big picture of today was the rapid rise that we saw in energy prices at the beginning of today's session. So the Asian and European stocks were heavily hit. But as we move on towards the US session we see that these gains have been retraced. So some of the hawkish expectations regarding the major central banks that would be lifted that would be that there was coming actually from the fact that the energy prices would lift. Inflation expectations are also being trimmed right now as oil prices are coming back down. And I think that that is the global macroeconomic picture that investors should understand. It is really today about the energy prices, the inflation expectations and the impact on central bank decisions as energy prices move lower. We are getting back to the levels of of risk that we saw in the beginning of the session. Now we are seeing still higher in terms of energy prices and the risk of another upside potential move and sustain gain in energy prices do persist. But at the moment it's quite interesting to see how fast the the early gains are being retraced and the global markets are immediately readjusting to that retracement.

[Caroline Hyde]

What is Bitcoin acting as in this moment?

[Oscar Descartes]

Well, it's interesting because Bitcoin has not necessarily been a risk, a risk haven or a safe haven ass over the past few weeks. It was very much in line trend, very much in line with technology companies and was hit along with the tech. There's a sell off that we saw across the technology space. So what we see today is that the Bitcoin is actually acting as a safe haven asset and we suspect that the regional conflict could eventually bring some capital into Bitcoin regarding maybe the detentions or, or the fact that the gold has been overly valued and investors may looking for other safe haven. But to be perfectly honest with you, the move that we see in Bitcoin and decoupling of the correlation with the technology stocks is quite interesting right now. Even more so as the higher energy energy prices should normally also have a negative impact on Bitcoin impact.

[Caroline Hyde]

It's great to catch up with you. Thank you very much indeed.

[Oscar Descartes]

Thank you.

[Caroline Hyde]

Oscar Deshka is with us from Swiss quote. We appreciate it. Meanwhile coming up we'll speak with Representative Sam Nicardo, a congressman from the Silicon Valley about the conflict in the Middle east and AI policy. Meanwhile, check out shares of Apple. There is other news happening amid of course the concerns in the Middle east were up almost 2.10of a percent as Apple is unveiling the iPhone 17. It's the latest version of its lower end smartphone, faster version of an iPad Air also coming out with the iPhone 17 including a faster processor, new in house wireless chips. This is Bloomberg Tech.

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[Caroline Hyde]

We are awaiting remarks from President Trump in Washington, who is about to participate in a public event and we anticipate there might be some commentary regarding the war with Iran. We will be bringing you up to the moment breaking news on that subject, but within the context of Middle East Anthropic has been saying that there's been an outage that impacted thousands of CLAUDE users, but it's now been resolved. Reports of the issues with the chatbot came as the provider experiences a surge in demand driven by the company's feud with the Pentagon over the potential use of its technology for mass surveillance in the development of autonomous weaponry. Now, Seth Feigman of Bloomberg News, I'm pleased to say, joins us to set the context first, because while a feud has erupted between Anthropic, we've actually seen OpenAI complete a contract with the Pentagon in the use of its own AI technology. Just take us through the weekend.

[Seth Feigman]

Seth yeah, I think this has to be the most dramatic weekend we've seen in AI land since the ouster of Sam Altman a couple of years ago. But to your point, Carolyn, yes, OpenAI swooped in hours after Anthropic was effectively blacklisted to by the Defense Department and second inked a deal with the Defense Department for classified AI work. Now, opening is not saying that this replaces Anthropic's work, but they are signaling that they are comfortable with the contractual safeguards to make sure that their technology is not used for domestic surveillance or for autonomous weaponry, which were the two red lines that Anthropic really centered on and which led to this fierce standoff with the Pentagon.

[Caroline Hyde]

It's been a standoff that has erupted online with many people calling to stop using chatbots to instead shift one's attention to anthropic consumer apps. Now, it might be said that Claude for Enterprise hasn't been affected by the outages today. It's interesting that Treasury Secretary Scott Bessant has been saying that he's following President Trump's direction on Anthropic and in the Treasury Department is terminating all use of Anthropic products. Products. But there's reporting to show that it's of course still being used at the moment and was over the course of the weekend with Iran.

[Seth Feigman]

Yeah, I think to step back, let's just say that what seems clear is that the federal government is moving forward with rethinking its use of clog. What's less clear is what the broader impact in blast radius will be on Anthropic from the many other businesses and companies that work with the government. To take P. Hegset's tweet literally, he's implying that any business that does commercial business with Anthropic must stop that if they also work with the military. But Dario Made, the CEO of Anthropic, said over the weekend he thinks it's much more limited in scope. It will just be if they do military work with Anthropic. So that remains to be seen how it's interpreted.

[Caroline Hyde]

Still a lot of work to be done by the likes of Palantir, for example, Bloomberg, Seth Fagerman, across the story. Thank you very much indeed. Now look, US Lawmakers, they're gearing up, up for a vote on a war powers resolution following the strikes in Iran. This is unfolding as the debate over air use by the military continues. We're pleased to say we're joined by Representative Sam Nicodo. His district includes parts of Silicon Valley. There is drama in Washington where you've just got the train to us from. There is drama in where you represent as well. Can I just ask you first and foremost, what do you think the relationship of some of the companies that within your district, it is like evolving with the Pentagon. How do you observe what occurred over the last few days?

[Representative Sam Nicado]

I think Silicon Valley, there's a strong libertarian streak and so there are many who are cheering to see Anthropic step up as it had. And look, there's a free market here and the Defense Department has many competitors to choose from and it has a right to choose whoever it wants. But it seems to me that at the end of the day, when we're Talking about AI safeguards, they. These ought to be decisions that are not confined to backroom negotiations between lawyers at the Pentagon and individual companies. These ought to be very public discussions. The administration should be setting rules. Congress should be setting rules. And the way this all went down now with retribution against Anthropic in the way that Secretary Hegseth and others have articulated, I think is very damaging to Silicon Valley and frankly to the country in many ways.

[Caroline Hyde]

Anthropic and Dario Amadei have tried to make it a public discussion, brought it into the light. What's interesting is Dario has also said that the law has not yet caught up with AI's ability. Therein lies your role in Congress. How can Congress keep up at this moment to ensure that there aren't these blurred red lines that everyone's trying to digest from OpenAI's contract and from Anthropics?

[Representative Sam Nicado]

Well, this isn't the first time someone has said Congress is not moving at the pace of technology. Technology. We've been waiting 30 years for a data privacy bill for protections against protections for children online, etc. But the reality is this is an area where both Congress needs to act and the administration needs to act. There should be clear lines. I don't think a lot of folks argue with the lines that Anthropic articulated. In fact, OpenAI seem to have embraced them. So why not, rather than punishing the company, hold these up as examples? Examples. This is an opportunity where the industry can inform the government and we ought to be taking those cues.

[Caroline Hyde]

You say OpenAI's embrace the red lines that Anthropic put forth. There's reporting to suggest that there's cynicism around that.

[Representative Sam Nicado]

Yes, well, that is to be determined. I guess I am simply relying on what I'm hearing publicly now. Obviously, I understand why there might be cynicism. Look, the bottom line is this shouldn't be in enforced by one particular CEO at one company. There's a reason why there ought to be a public discussion because this is going to impact all of us. And certainly when we talk about issues

[Caroline Hyde]

like public surveillance, I mean, realistically, are you able to have the time, the insight, the focus at the moment when we've got an erupting war with Iran and indeed, well, government shutdown. How effective can you be at this moment, Congressman?

[Representative Sam Nicado]

Well, I'm not going to speak for Congress because frankly, as you know, if you ever made a bet on Congress, Congress not getting anything done, you win 99 times out of a market. So for that, yeah, yeah, they're doing pretty well. But I will say this week I'll be introducing a provision in what's called the Defense Productions act, really to prevent any federal agency from retaliating against companies like Anthropic when they propose reasonable limits on the deployment of their technology. Technology is obviously a wonderful thing. We know it has enormous risk risks. We ought to take the cues from industry. When industry tells us these risks are too great, let's draw lines.

[Caroline Hyde]

What do you think will be the support of that bill across both aisles?

[Representative Sam Nicado]

We'll be discussing it this week in the House Financial Services Committee where we're having a markup. I'm still having those conversations with my colleagues.

[Caroline Hyde]

Okay, so maybe we can find some support that it shouldn't be down there, shouldn't be retribution. There shouldn't be sort of unprecedented moves where you deem a company a homegrown domestic champion as a supply risk in some way. But when you think more broadly about AI regulation in the hands of Congress or in the hands of the executive right now, is you comfortable with the amount of executive orders that have been deemed around the way in which the administration has had to take, maybe the steps necessary if the Congress void is still there?

[Representative Sam Nicado]

Well, I know this president is not unique in using executive orders where Congress is failing to act, act. The way in which these executive orders have been deployed are deeply problematic and certainly we've seen in many cases quite unconstitutional. Congress needs a step up, and that requires the majority party to do its job, that is to defend the prerogatives under Article 1 of the Constitution where Congress has authority. And we've seen a host of areas, from tariffs certainly to AI, where Congress has simply not been stepping up and allowing this Constitution, this president, to take too much of the turf. There's a reason why we want Congress to be deciding this. These are issues that have massive impacts in many communities, that are diverse communities that are simply not benefiting from AI as much as my community, Silicon Valley might be. That's why you need to have a national conversation.

[Caroline Hyde]

You were having a national conversation before the conversation became much more of a war in the Middle east and war with Iran. You were talking about how we shouldn't see Congress just slam the brakes on AI innovation, but equally they shouldn't accelerate. There should be a way of grabbing the steering wheel is the way you wrote it in op ed. Can we get some sort of bipartisan approach to grabbing a steering wheel in when you say so many states affected in different ways by AI, I'd like

[Representative Sam Nicado]

to think we can look, there's a lot of fears right, right now around loss of jobs, around impacts on utility bills. There are opportunities for us to move together. For example, we know these hyperscalers need speed. Let's give them federal permits, enable them to accelerate if, if they're keeping rate payers whole and protecting them from these utility at the risk of higher prices on their utility bills and you know, investing in batteries and, and the kinds of technology we know that will be sustainable rather than simply pulling more natural gas and coal. And you know, for example, on jobs, there are things that we can do that are bipartisan, that can incentivize companies to invest in community colleges and local state universities to upskill and reskill. These are not necessarily partizan notions. This is a time for us to be thinking more creatively across the aisle on these kinds of solutions. We don't have the kind of administration now in office that is particularly bipartisan. And so it's really going to have to come from ground up.

[Caroline Hyde]

You mentioned social media and I think in many ways people have felt that there's been a void of, of lawmaking around social media because there is so much nuance. Too much of this, is there sometimes too much nuance when it comes to the likes of impact by the Pentagon's decisions on mass surveillance, on issues of autonomous weaponry, that really laws can't be made that can keep up.

[Representative Sam Nicado]

It's fair to say this is incredibly complex and you can't simply declare amateur hour and start to announce edicts that are going to apply broadly across multiple industries where the impacts may be very different. You know what I have been proposing, and we'll be coming out with legislation soon, is, is how, for example, on AI, we can essentially enable industry experts, academic experts to be able establish what those best practices are in an industry, allow industry to reach those best practices rather than having some kind of monolithic edict come from Congress or the administration. Government's not going to get it right. We have to acknowledge that this is moving too fast. We need to rely on the best thinking in the industry to establish what the best practices are and then mandate that if folks can reach those, they can have the benefits, for example, of preemption. If they don't, then they're subjected to the edicts of 50 different states.

[Caroline Hyde]

We appreciate you stopping by.

[Representative Sam Nicado]

It's great to be with you.

[Caroline Hyde]

Here in New York, Representative Sam Nicoto, who represents the heart of Silicon Valley and much more in California. Now coming up, Bitcoin. It shakes off investor caution as Middle east tensions they rattle global markets markets. We'll bring you more market impact next. This is Bloomberg Tech.

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[Caroline Hyde]

Bitcoin staging a comeback nearing $70,000 levels after the US and Israeli attacks on Iran shook investor confidence dominance over the weekend. Here with the latest is Bloomberg Cross asset reporter Isabel Lee. They shape people. We're thinking of a world of war. That is not something to take lightly. But we think about the assets impacted. How is bitcoin managed to rally through this?

[Isabel Lee]

Definitely behaving like a risk asset. I feel like, I mean when you see a big pullback like that, it's eventually going to bounce back. It's now higher by around 6% after dropping as much as 63%, 63,000 over the weekend. Other less liquid smaller coins are also in the green, higher by 6% like ether. The thing I love about cryptocurrency is it trades 24, 7 and you really can see and use it as a risk sentiment when markets are closed. And now that we see US Stocks open, you see worries about an inflation resurgence. For instance, bonds are slumping, traders are trimming their Fed rate cuts. Haven assets are surging dollar gold oil of course. And interestingly, higher oil prices will actually weigh on crypto prices because crypto prices are behaving like tech stocks and risk assets. And of course those are sensitive to Fed rate moves. So everything is just interconnected and I find that very interesting. And on top of all of this, it's a busy week for US Eco data. We have nonfarm payrolls. We also have unemployment rate. And now for now we have more questions than answers. We have President Trump saying that the attacks could last a few weeks. So I think investors are just really preparing themselves for the tailorous events and preparing for worst case outcomes. But at least for now, bitcoin is nearing 70,000.

[Caroline Hyde]

You keep us prepared, Isabelle. We appreciate it on all things of the market's reaction to a story that continues because coming up we will be joined by American Enterprise Institute senior fellow Corey Shockey on all things defense tech, geopolitics, so much more. This is BLOOMBERG tech. Welcome back to BLOOMBERG tech. We take a look at these markets, markets, markets that are currently reacting to the news over the course of the weekend. War in the Middle east, war with Iran. We're currently down on the NASDAQ 100 by some 5, 10% coming back into lows, having tried to bounce into the green. On the broader indices, Nvidia is actually up more than 2% because deals are still getting done. From an M and a perspective or from an investment perspective. This is as we see in video, making $4 billion investment in Datacenter optics companies that's coherent and momentum their stocks surge. Palantir Defense Tech there is buying of this name for obvious reasons on the day we're up almost 6%. But CrowdStrike is also interesting. Look, our great colleagues at Bloomberg Intelligence like Mandeep Singh Singh putting out really great notes talking about how Palantir of course is going to see buying amid geopolitical tensions. We're also seeing tailwinds for security spending with the larger companies such as CrowdStrike Palo Alto likely to see some focus amid concerns about cyber attacks. We'll get into that in a little bit. But let's head back now to D.C. where it's notable that the Pentagon is shifting AI providers after reaching a deal with OpenAI to deploy its models within the department's classified network. Bloomberg's senior tech editor Mike Shepard joins us on what is an extraordinary story that intertwines with the geopolitical story. How significant is this move that Sam Altman goes where Dario Amadei works?

[Mike Shepard]

Well, it's not just significant that it happened. It's also carried that it happened so quickly after the Pentagon decided that it would walk away from its relationship with Anthropic, which had been in place for roughly a year. And Anthropic had really worked itself into the classified space that is crucial for the Pentagon being able to deploy artificial intelligence in some fashion during critical operations, including combat. And Anthropic's products have been used by Palantir as part of this so called maven system that colloquially might be thought of as windows for war, where battlefield commanders can have access to information and have it interpreted and processed and analyzed and assessed in a much faster fashion and presented to them. Now, what this means is that within six months, the Pentagon has transitioned to a new provider and OpenAI, an arch rival to Anthropic, is stepping in. And what they are saying also is that they are willing to take the terms that Anthropic thought were unacceptable, terms that OpenAI says still respects its own guidelines when it comes to two key areas, and that is mass surveillance of Americans and also deployment of fully autonomous weapons. OpenAI says that the contract and the relationship with the Pentagon are strong enough that those two requirements by the firm are respected. Anthropic, from its standpoint, did not see the same in the contract language. And it'll be interesting to see how this unfolds, Carol, because the US Government has declared Anthropic a supply chain risk and also ordered it off U.S. u.S. Government agency networks elsewhere.

[Caroline Hyde]

And Treasury Secretary Scott Bessant talking this morning, saying that the Treasury Department is terminating all use of Anthropic products. He's following President Trump's direction on Anthropic. But of course, this is as the consumer moves in a different direction. Mike, We've actually seen Anthropic in many ways knocked offline for consumers because so many people were demanding the product and downloading it. And maybe as some sort of pushback to OpenAI, there's calls to cancel GPT on the Internet.

[Mike Shepard]

Well, that's right, Carol. We are seeing some of this popular sentiment swell in Anthropic's favor. Certainly online there is a lot of applause in favor of Dario Amadei. And what is seen as a principled stance by many against the Pentagon, against the administration, that, that, you know, look, if you thought that you, you couldn't do business with Anthropic, why not just cancel the contract? Declaring them a supply chain risk was seen by many as going a step too far and being vindictive. It's also important to remember that Claude's products are gaining popularity because many see them as quite good. And we have talked on this, in this space about how much Claude is threatening to disrupt other industries such as law, such as financial services, wealth management, you name it. And the tools that Claude offers really have some benefits. And that is yet another reason in addition to perhaps this populist sentiment swing.

[Caroline Hyde]

Mike shepherd, always on the news. We appreciate it so much from D.C. but let's bring in Corey Shocking senior Fellow and Director of Foreign and Defense Policy Studies at the American Enterprise Institute. You've been thinking about really the Pentagon's reaction to this. Just talk us through, through your thinking as to whether the step of banning Anthropic from the supply chain in this way is the right step.

[Corey Shockey]

It's a petulant reaction by the Secretary of Defense that's likely to turn out to be advantageous to Anthropic. But it's going to be bad for the Defense Department and bad for the security of the United States. The idea that you could either nationalize or blacklist a leading American company is outrageous. And it's going to discourage other leading edge tech firms from being willing to expose their business by participating in the defense ecosystem.

[Caroline Hyde]

Okay, there's going to be immediate shock, as you say, from those in the space and the reaction function of the Pentagon. But more broadly, how transparent should these sorts of conversations become at this moment? Very difficult ethical questions that seem to be shone a significant public light on by Daria Day, the leader of Anthropic himself.

[Corey Shockey]

Yeah, I think that's exactly right. I mean, this is a frontier technology that we are still understanding what its consequences are going to be. And to suggest that we have less transparency or that a firm has no right to set standards on how a cutting edge technology will be utilized by the Defense Department, I think is probably a losing proposition for DoD.

[Caroline Hyde]

What should be forced, what could be forced by Congress? We just had a representative of California to start the show talking about wanting to bring law to bear that that companies aren't pushed off of any sort of national supply chain in any retribution act. But what more broadly can be done by Congress at this moment to make clearer the lines?

[Corey Shockey]

Well, Congress really runs defense policy and they can legislate in this space and DOD will be required to be compliant with it. It's actually shocking to think that the Defense Department blacklisted an American company. That's the kind of thing we do to Chinese firms, not to patriotic American firms who are already participating in classified DoD activity.

[Caroline Hyde]

Can you give us some guiding principles on then how open air and Sam Altman might be able to find appeasement in a contract. Do you think extra steps had been taken? Is there, though really a need at this moment for companies to see the law as it stands as where the line should be, rather than trying to insert their own language into certain contracts?

[Corey Shockey]

Well, it's an open question, but I do think that Open Air is saying, yes, we trust the government that they won't use our product in a way they say they won't. And Anthropic is saying we actually need proof and we need indemnification that that our product is being used as we are advertising our product. I think given the low level of trust in the Trump Department of Defense, this is likely to be advantageous marketing for Anthropic and very difficult for DoD to be able to say you need to trust that we will abide by the law when so much of their behavior, including black listing an American company looks to be a bending of the law or at least an aggressive and predatory use of the law.

[Caroline Hyde]

Corey it's interesting OpenAI defended saying that it built a number of safeguards into the contract with the Pentagon and quote, agrees with said the Pentagon actually agrees with these principles and reflects them in law and policy. When we're thinking about where AI's role now is in defense in war as we're currently seeing it unfold, can you just educate our audience as to how integral AI has now become?

[Corey Shockey]

Yes, what AI is already proving incredibly valuable for in the defense space is surveying enormous amounts of data and for example, identifying threat portfolios. You know, the, the ability to see patterns in large amounts of data. But what Anthropic is saying is we do not want it to be used for domestic surveillance of the US or for decisions about the use of lethal force before we have higher confidence in the model and those are not unreasonable standards and provide the basis for what Congress perhaps ought to to put into law until we have better transparency and better understanding of what these models are capable of in future iterations.

[Caroline Hyde]

Corey Shocking great to speak with you of the American Enterprise Institute. We appreciate your time and expertise today. Look, as the conflict with Iran intensifies, cybersecurity experts their warning of a rise in Iranian linked cyber threats targeting critical networks and infrastructure. Joining us to discuss Cynthia Kaiser, SV senior Vice President of Ransomware Research center at Halcyon and former Deputy Director of the FBI Cyber Division. Cynthia, are those threats real?

[Cynthia Kaiser]

They are. We're already seeing Iran have real threats and conduct cyber activity against organizations in the Middle east and we anticipate that they could follow on with operations Here in the United States and we said

[Caroline Hyde]

infrastructure in particular, where are the vulnerabilities likely to be targeting?

[Cynthia Kaiser]

So throughout infrastructure in the Middle east and in the US we see Iran target what they can get into. So it doesn't really matter the sector, it matters how the specific organization has done with their cybersecurity, has been able to fix those vulnerabilities. Because what Iran does, they go on, they try to exploit something, get into some something, and then they go out in the media and they say we've done more. So I've gotten under one machine in an organization, but I'm going to say that we've gotten onto the entire facility and say a water treatment facility is down. So it's really a mix within critical infrastructure of getting on to something but then moving on and lying and exaggerating to try to stoke fear and chaos.

[Caroline Hyde]

How sophisticated is their ability to get on onto something?

[Cynthia Kaiser]

So they are one of the world's most malicious and capable cyber actors in critical infrastructure. Overall there are many, many devices that are connected to the Internet and haven't been patched for vulnerabilities that Iran is exploiting. Just late last year, FBI put out a warning about Iranian state sponsored actors who are targeting critical infrastructure in the United States through these types of vulnerabilities.

[Caroline Hyde]

From the perspective that we see the market as always trying to get ahead of any sort of concerns and indeed well move money on the back of it. We've seen crowdstrike on the higher side, seen Palo Alto networks in the green. Are we seeing really a desire to beef up the infrastructure of resistance to be see our companies have the right place, the right sort of restraint constraints and well, use cases in place at the moment.

[Cynthia Kaiser]

Absolutely. We've seen a lot of movement towards being able to practice incident response plans, know what you're going to do if you are hit, including what you're going to do in the media to say if something's being exaggerated to patch devices that maybe were on some type of schedule to be patched later. Doing that today and conducting a lot of engagement across industries, industry as well as with the FBI to be able to know the latest on what might be coming down and what threats that they're facing.

[Caroline Hyde]

And the threats are all AI in many ways, I'm sure Cynthia, they are.

[Cynthia Kaiser]

We've seen a lot of AI enabled threats and really where we see the biggest risk with AI enabled threats is in kind of wannabe or very low level actors. But that's who Iran might use. Iran uses proxies to be able to conduct their activity. Their is one group our Halcyon intel team had identified who named Sakari, who is currently telling its members to conduct activity conduct attacks in the Middle East. But they've used AI to make their bad software their their what they're deploying and it doesn't work very well. But what it actually means is it destroys networks when it gets on instead of being this kind of ransom you're going to pay to try to get back online.

[Caroline Hyde]

Oh, so like collateral damage when actually just trying to exert financial damage. Cynthia, from the perspective of look, we just come off the beat back of a couple of weeks where software names were pummeled, where particularly cyber companies were under pressure because people thought generative AI companies were going to be able to take their business. A plug in from anthropic would be the answer to our all our ransomware and cyber concerns. How are you seeing that evolve? How are you seeing companies actually wanting to use and build from within or still dependent on external offerings?

[Cynthia Kaiser]

Being able to build within is really important in a way to consistently know what's going on your network, be able to fix those vulnerabilities I talked about in real time and then be able to identify other errors or things that might be going on that are malicious across a network network. But it's only going to know what's plugged into it. It's not going to have a lot of these. This additional information, what a threat group might be saying in a dark web forum, what's the new zero day that might be coming down the pike, figuring out that aspect, being able to plug the really sensitive great information the private sector has into some of these new processes organization. You just mean cybersecurity is going to be better. It doesn't mean there's a replacement on either side.

[Caroline Hyde]

Can you take us to allies? Can you take us as to how strong their defenses are?

[Cynthia Kaiser]

Across the close allies the United States has, there are lots of sharing implement things implemented as well as these sharing mechanisms where we're sitting inside different governments, they're sitting with us to be able to counter cyber threats because this has been practiced for years. Cyber threats just don't have any boundaries. They're going across the entire world. That's especially true with our European allies, with Australian allies, with Israel. And so we have really identified ways to share quickly share in real time these threats that are facing all of us us and we all face the same challenges, but we all can come up with the same solutions and really counter these adversaries together.

[Caroline Hyde]

And look, Cynthia, from just an audience perspective, is this likely to be an attack that is focused in the enterprise in one's work environment, or could this be something that you're navigating as a consumer right now?

[Cynthia Kaiser]

It's mostly going to be focused within the enterprise environment, especially within the United States. We have seen Middle Eastern countries, organizations in those countries being targeted by Iranian state sponsored groups in the last few days for some of the data they might have on people, whether that's patients, customers, parts and employees of that organization. We do see Iran going out trying to identify personal information for people they perceive may be dissidents or enemies of the Iranian regime. And that's something to watch out for there. But we haven't necessarily seen that come over to the United States or to our European allies.

[Caroline Hyde]

Cynthia Kaiser of Halcyon and former FBI deputy Director, we appreciate your time.

[Cynthia Kaiser]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.

[Representative Sam Nicado]

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[Cynthia Kaiser]

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