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- [00:00]
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Bloomberg Tech Host
Amazon Health AI presents Painful Thoughts why
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Bloomberg Promo/Ad Voice
did I search the Internet for answers to my cold sore problem? Now I'm stuck down a rabbit hole filled with images of alarmingly graphic sores in various stages of ooze. I can clear my search history, but I can never unsee that.
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Brilliant Advertiser
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Bloomberg Promo/Ad Voice
Bloomberg Audio Studios Podcasts Radio News.
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Bank of America Advertiser
Bloomberg Tech is live from the heart
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Bloomberg Promo/Ad Voice
of Silicon Valley with Ed Ludlow in San Francisco.
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Bloomberg Tech Host
This is Bloomberg Tech coming up. It's an upside share sale for intel, raising $20 billion, a third more than it was targeting when it announced the deal yesterday. Plus, sources tell Bloomberg Apple's Glass centric iPhone overhaul is still on track for 2027 after an analyst's report said it had been canceled. And drone startup Nero's raises $250 million in a funding round that triples its valuation. We'll talk to nearest CEO Soren Monroe Anderson, one of its lead investors, Sequoia partner Sean McGuire, later this hour. Intel gets big demand for sale. We're flat in Tuesday session. On a two day basis it's a decline of 4%. Remember this is a stock that's up 164% year to date, also seeing its value almost triple. $20 billion sold in the end they had initially marketed $15 billion. There was probably about five times that in terms of demand, Bloomberg Reporting citing sources. Let's get more. Bloomberg's Ian King, who leads our semiconductor coverage, is with us. Let's go back over the basics. Intel said we will sell $15 billion worth of stock in the end they sold 20. Where did they price it? What did demand look like?
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Ian King (Bloomberg Semiconductor Reporter)
Yeah, I mean demand is obviously strong. Our reporting says that as many as a third of the people who tried to buy the stock weren't able to do so. So obviously this is an, you know, a strong endorsement of the future prospects of this company that they're able to attract new shareholders. We're seeing in the market. Obviously some of the existing shareholders don't like being diluted, but in general this is a pretty strong signal that intel is going to be joining the race and that people believe that.
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Bloomberg Tech Host
Why do they need to sell stock? What do they need the $20 billion for?
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Ian King (Bloomberg Semiconductor Reporter)
Yeah, I mean the number one priority of this management team has been to sort out this balance sheet, right? They've got about $50 billion in debt. Up until this offering they had about $30 billion in cash. Obviously that situation is improving. This takes them very close to being sort of net cash positive, which is a real turnaround from where this company was just a couple of years ago and obviously gives them a much more solid footing to do new products to build.
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Bloomberg Tech Host
We're recapping what we talked about 24 hours ago basically. But that's because the deal has now been done. And we said in the Bloomberg story this was the first time intel did a public share sale since 1971 when it listed different company. Now part of this is they are a bit more adventurous with Capex and you explained that yesterday they have to buy chip making machines, right?
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Ian King (Bloomberg Semiconductor Reporter)
I mean, 20 billion is a lot of money. Maybe not for somebody who works on tv, but for us reporters it's a huge amount of money. But in the grand scheme of things, if you are trying to do leading edge semiconductor manufacturing, $20 billion doesn't really even get you a full factory from the ground up. Right? So huge numbers and that kind of factory goes away within five years. It's not as useful as it used to be.
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Bloomberg Tech Host
So now, very quick, this is not a GPU story, this is a CPU story.
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Ian King (Bloomberg Semiconductor Reporter)
That's right. I mean intel has joined the kind of the party by accident in a way because the way that the factories are working, the way that the software is being run is kind of shifted back towards general computing. And that's where Intel's strength is. There's a shortage and a lot of demand for what they make.
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Bloomberg Tech Host
$20 billion is a lot of money and a big number for Bloomberg's in King. Let's take a look at today's official big number. $500 billion. That's how much capital Nvidia is looking to mobilize from US investment giants Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR. The idea, Wall street raises debt backed by Nvidia compute, then leases that compute to customers. According to a Bloomberg source, it effectively turns GPUs into a financeable infrastructure asset. Our next guest says that the infrastructure buildout is among the key factors driving markets and our global economy is being reshaped for the next phase of the industrial revolution. BMO Wealth Management chief market strategist Carol Schleif joins us now. So the idea in this story is COMPUTE as collateral. How do markets digest that?
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Carol Schleif (BMO Wealth Management Chief Market Strategist)
Think markets have done a really great job of digesting a lot of this and being super discerning this year. You've seen it in the bond market, you've seen it in the stock market, you've seen it in reaction to earnings and the parsing of that. So I think having asset based finance is, you know, those six key players think the asset based finance is there and I would suspect that the demand will be there. Not unlike the prior story where you were talking about the demand for intel shares.
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Bloomberg Tech Host
Right. Carol, the pitch from Jensen Huang and Nvidia is that COMPUTE becomes an investable infrastructure asset class of its own. Would you regard it as an asset class?
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Carol Schleif (BMO Wealth Management Chief Market Strategist)
Possibly. I mean it would definitely take some looking at. The key thing is too it's hard for investors to play infrastructure because technology is such a large percentage now of the S and P in infrastructure and manufacturing is shrunk to so small and we are in the very early stages of repositioning that especially as we reshore. It's primarily about AI, but it's also about all of the stuff that supports AI and all of the things we can do with AI and we need hard, hard assets to be able to do that.
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Bloomberg Tech Host
There are some circular financing concerns in video would say there's a degree of separation here because this is third party capital. Right. Those six asset managers, investment managers go out and find the investors in video doesn't finance the project. How does that sit with you in the structure of this market right now?
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Carol Schleif (BMO Wealth Management Chief Market Strategist)
You know the interesting thing is is there's circular financing in a lot of ways. You look at even the earnings of some of the hyperscalers had one time events in there from write ups of Open Air and their venture investment. So you've got circular financing in the equity market, you've got circular financing in the debt market. And the key is, is you've got a whole bunch of the Economy really leaning on those. But I think it's important too to consider it's not just the data center build out, that's the infrastructure, a piece of the infrastructure we need. But A, we haven't invested in infrastructure here in a big way in decades so we need have a lot of catch up to do. But B, it's also about the usage and what we can do with it and the levering and moving into a whole new scenario because there's, there's the kinds of questions we couldn't even ask before that we can ask now because we have technology to help us figure out the answer.
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Bloomberg Tech Host
I want to go back to our opening statement about rewiring the global economy. Data centers are a big part. Data centers are being built in the United States. There are other things happening in the United States. The reinsuring of all kinds of industries. Semiconductor capacity. How do those other lanes factor into your assessment of the economy and what markets are really focused on right now?
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Carol Schleif (BMO Wealth Management Chief Market Strategist)
I think the interesting thing is too is like let's not forget automated manufacturing. It's been going for a long time too. And as we pull stuff back in, as we build infrastructure, we put sensors and bridges and we do lots of different things. There's all sorts of aspects that they may run on an infrastructure of air be accelerated by AI but they're also about the nuts and bolts of putting capital back on the s and P500 balance sheet. Because if you look at it where it was in the 1990s, that's substantially more capital intensive businesses. Then we went to very much asset light businesses and now we're swinging that pendulum back. And those industries are only a small single upper single digit to low double digit percentage of the S and P and there's room to grow.
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Bloomberg Tech Host
We should probably talk about the stock market. There's been rotation semiconductor stocks, the MAG7. Does that continue to your mind and if so, why?
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Carol Schleif (BMO Wealth Management Chief Market Strategist)
I think a piece of it does and I'm not quite sure if it's the combination of investors who didn't get a chance to get in and then had a chance. I mean when you look at the chip stocks even in the last quarter, I mean they're up year, they're up substantially year to date up in the quarter. But they had a nearly 50% pullback in the quarter. So there's the opportunity to get reinvested. I also think exacerbating things definitely at the fringes are these hyper levered ETFs, especially the single stock one year round in the very crowded Trade and the fact that you've only got a handful of names that everybody comply.
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Bloomberg Tech Host
We're going to go very big on the big take around Those highly leveraged ETFs are just really quick. The other thing that's true is bond yields go up. Is there a connect between that and technology stocks?
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Carol Schleif (BMO Wealth Management Chief Market Strategist)
The interesting thing with the technology stock stock piece is that theoretically textbook would tell you that higher interest rates should, should lead to a lower discount rate for the for tech stocks and lower valuations. But I think a piece of what's pushing those rates up, especially at the long end, is the growth that we're seeing and the bottlenecks that you're seeing in technology. And I think the hope is longer term you see some disinflationary impact.
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Bloomberg Tech Host
I feel like Bart Simpson on the chalkboard. Higher rates, discount, present cash flow value, future cash flows, etc. Carol Schlife of Management back on the show. Thank you very much indeed. Now coming up, sources tell Bloomberg Apple's glass centric design is still on track for 2027 despite an analyst report saying it had been scrapped. We've got the details next. This is Bloomberg Tech.
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Edison Lee (Jefferies Analyst)
In 2027. That's the 20th anniversary of the iPhone. And that's why our understanding is that Apple actually has this new design which is all glass. I think that over time this form factor may actually be transported to the pro and Pro max, maybe at FY28 and FY29 as well. So this is how Apple intended to move up the product roadmap and move up the esp, which I think is very important right now, giving soaring memory costs.
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Bloomberg Tech Host
That was Jefferies analyst Edison Lee, who downgraded his core on Apple yesterday after his supply chain checks led him to conclude the iPhone maker had cancelled a 20th anniversary all glass handset overnight. Bloomberg reported that iPhone is still on track. Let's try and understand this. Some analysis with Animagrana of Bloomberg Intelligence. It's almost in isolation, the idea that there will be a 20th anniversary largely glass handset. The bigger point that Jefferies was making is they want to see Apple find a mechanism to raise ASPs and maintain higher ASP for longer. Let's start that. Why does that even matter?
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Anuragrana (Bloomberg Intelligence Analyst)
See, the reason it matters right now is because of higher memory prices. You will have an impact on unit shipments. Now Apple's really gained market share over the last two quarters and in fact, we think it's going to be this quarter as well because it's only one of the only ones in the premium segment that has not raised iPhone prices and that's going to most likely happen in the fall. So, you know, eventually when you raise prices for consumer devices, the shipments don't go down. So ASP increase is the single most important thing for them to continue to show iPhone segment growth rate for the next couple of years.
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Bloomberg Tech Host
In Mark Gurman's reporting, we don't have a price for the proposed 20th anniversary glass centric iPhone, but I guess the logic is that that would be a premium model. It's one mechanism, along with the folding phone to have a mix of handsets where you can command asp. Higher asp, yeah, absolutely.
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Anuragrana (Bloomberg Intelligence Analyst)
In fact, the foldable, if it comes out to what I think Marcus said, somewhere around what, to $2500 or somewhere in that range. I mean that's a massive lift compared to whatever the basic price of 1200 or 1300 for a pro max or somewhere in that. So I mean you can even imagine for that audience that can buy a pro max, you know, you're going and getting a similar device with a much higher asp. So that's a big lift to that. The question really is how many of those are there in your ecosystem? Because think about it, Apple sells somewhere in the range of 220 to 240 phones a year. I mean, how many of those could be in that category? So I think that's, that's a more important piece at this point. But memory price is far, far more important for Apple than anything else.
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Bloomberg Tech Host
What Mark reported last night is that Apple still plans to launch iPhone pro models next year that have the glossy look glass used on the front and back, curving into the sides of the devices that have a metal band. An Apple representative declined to comment. Real quick, what did Apple get wrong in that earnings print last quarter? Was it supply chain mismanagement? Misreading demand?
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Anuragrana (Bloomberg Intelligence Analyst)
I think it could be just a matter of that. The stock has gone through a massive run. I mean, if you look at the multiple before it started to go down, it was in the low 30s where all the hyperscalers were trading in the low 20s. So I think it's a big mismatch in terms of valuation than anything else. I think everything else they said was pretty much in line with what people were expecting. And big, big iPhone number which is not easy to replicate, frankly, given the history of the the phone being saturated around the world.
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Bloomberg Tech Host
Anuragrana of Bloomberg Intelligence, thank you very much. This is a top story. A New York City proposal backed by Mayor Zoram Dani is risking Amazon's cheap delivery model, the Delivery Protection act aims to close a loophole that's allowed Amazon to distance itself from worker injuries and grueling conditions. But the e commerce giant argues this could make delivery slower and more expensive. Bloomberg Spencer Soper has the story. Loads of people reading this this morning. Just explain what is the issue here.
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Spencer Soper (Bloomberg Reporter)
Well, so Amazon has done this nationally for the past several years, really built up its last mile delivery network. And it's done it not by hiring delivery people directly. Directly it's kind of stood up this network of small businesses that directly employ these delivery people, usually drivers, but can also be electric cargo bicyclists and even people in New York pushing carts on the sidewalk. So what the Delivery act is looking to do is saying, hey Amazon, we want you to employ any of those people directly. And so it's not just specific to Amazon. It would affect any company with delivery hubs in New York City making deliveries to people in New York City and it would require them to directly employ those delivery people. It's very convoluted subject but gets at this subcontractor model, which is a way that a lot of big companies can kind of unload the costs of their operations by relying on smaller businesses who offer them better, better costs on labor.
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Bloomberg Tech Host
The proposed legislation aims to close that loophole. Amazon is acting in response. They want to oppose the measure. But what literally does that, that response look like?
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Spencer Soper (Bloomberg Reporter)
Well, they've thrown about $5 million at this. By comparison, FedEx would also be affected by this. They've donated like 1/100th of that amount. So Amazon's really coming at this in a big way because if this passes in New York network, other cities could, could replicate it. So, so Amazon is not just thinking about oh no, this could hurt us in New York City. They're worried like man, if other big cities see this as a labor friendly move that is good for their constituents, this really threatens our model on a national scale. So that's why Amazon's coming out so hot and heavy. Try to nip this thing before it even gets out of the gate.
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Bloomberg Tech Host
Bloomberg Spencer SOPA published the story this morning and a lot of people engaging with it on the terminal and on.com as well. Thank you very much. Coming up, Rum Group is fresh off a record quarter with revenue jumping 61%. We're going to talk to CEO Chris Pabloski about what's driving the growth. And spoiler, it's an AI story. This is Bloomberg Tech.
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- [20:40]
Our Town Podcast Narrator
90 miles northeast of Nashville, a battle for the future of America plays out in one small town.
- [20:46]
Our Town Podcast Voice
Developers with right wing ties have purchased hundreds of acres of land. We need cities on a shop.
- [20:51]
Our Town Podcast Narrator
Shining Hill this is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back.
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Bloomberg Tech Host
Guess you didn't move in on a
- [21:01]
Carol Schleif (BMO Wealth Management Chief Market Strategist)
bunch of dumb hillbillies now, did you?
- [21:03]
Our Town Podcast Narrator
Listen to Our town on the iHeartRadio app, Apple Podcasts or wherever you get your podcasts.
- [21:18]
Bloomberg Tech Host
Rum Group coming off a record quarter with second quarter revenue jumping 61% from a year ago to more than $40 million now forecasting as much as $93 million this quarter as it pushes deeper into infrastructure. Rum Group CEO and founder Chris Pavloski back with us June 17th. You closed the acquisition of Northern Data and in this quarter gone. That shows up as a $10.1 million contribution. So it's early, but let's start there. You know, how had that gone and what's the direction of travel and maybe just explain the pivot that you made.
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Our Town Podcast Voice
No, absolutely. Thanks for having me back on. So in Q1 we did 25 and a half million. In Q2, which we just reported, we did 40.4 million, which is a record for the company. We closed Northern Data in mid June, we rebranded the company to Rum Group. So now we have two divisions. We have the video platform platform which is Rumble. And on the other side we have Quake AI, which is the AI compute as a service business. And that showed up in the quarter and we posted a record, a record in the, in the history of the entire company since the inception of going public. And we, for the very first time we initialed, initiated formal guidance as a company now that we see that we can predict and be better at telling the market and where we're going and telling the story. And we are forecasting between 87 and 93 million for the third quarter of 2026.
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Bloomberg Tech Host
Chris, did the investors accept, understand and believe the Quake story?
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Our Town Podcast Voice
I think that's, that's something the market's missing right now. I think that we're, we, we have to execute as a team and we have to show that, that we can take this business and capitalize on the opportunity that we have. We have over 250 megawatts of unmonetized power. 150 megawatts. That's in Georgia. That represents a 3 billion annual revenue opportunity for the business. So at this moment I think, I think the market wants a see some execution and I think we're starting to show that we posted a record here in Q2 and we're anticipating on posting a record in Q3.
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Bloomberg Tech Host
So that's interesting, right? Not yet monetized from a megawatt perspective. You could even just do it on a per GPU basis. You guys have more than 20,000 Nvidia GPUs across H100, 800 generations. What does it take to monetize that capacity? Bring it online.
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Our Town Podcast Voice
Yes. So our current estate, that's monetized right now we have about 22,000 GPUs. That's monetizing at about 6 to 7 million per megawatt. And as you, as you've probably seen with a lot of different earnings out there and Space X, etc. There's a lot of different projections on where that can go for, for the estates. The 250megawatts that we do have, that's currently unmonetized. If you throw Rubens in there, if you throw Blackwell's in there, depending on the customer customer that we put there and what chipset we put there, that, that can scale up pretty dramatically from 6 to 7 million per megawatt. You heard Elon talking about 30, he was guessing between 30 to 50 billion per gigawatt. So you know, the scale can get pretty, pretty rapid there. And that is exactly the opportunity we have in front of us. And my team is heads down 100% on monetizing that to 50 as fast as possible. It's only been a month and a half. We've got the utilization up on the current estate up to 80, roughly 85%. And now it were we're heads down on trying to get that 250 monetized, get the right client there and capitalize on that 3 billion annual revenue opportunity that sits right in front of us.
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Bloomberg Tech Host
Again, this was a pivot. So in the quarter gone, you know, the video platform still contributed more than $30 million in revenue. What's, what's the future of that business? Right. You see an inflection point where is just the vast majority and video goes away or it's more even set.
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Our Town Podcast Voice
I see like there's a real opportunity that's coming in the future and I think it's, it's a little early at this moment, but robotics, I think the next major leg on AI obviously AI compute the demand. Demand. It's very scarce. The demand is super high. There's very low supply. And that's going to be a very big business going forward for us. But I also think the, the video side provides a real opportunity. When we get into this robotic era of AI, the video data is going to be very compelling in order for training robotics. So we sit in a very interesting place with over 57 million monthly active users on the video platform platform and a community, a very strong community that can contribute a lot of video data and monetize their video data for that robotic era AI. And I think that creates a moat around rum group that, you know, the typical neo clouds don't have. We have what the Neo clouds have and that's the power, the land, the GPUs. But we also have something they don't have and that's the, that's the video data.
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Bloomberg Tech Host
Rum Group CEO Chris Pavlov Trotsky back on the show. Really appreciate your time. Thank you very much. Coming up, leveraged ETFs are growing in popularity, adding even more exposure to mega cap tech and semiconductor names. Stocks that have experienced some of the sharpest swings in years. What could that mean for risk across the broader market? It's a really important big take coming up next. By the way, this is what markets look like, a lot of it focused on what's happening with the US And Iran. We see bonds drive higher most most stocks largely higher than as that 100 flat chip stocks outperforming. It's half time. This is BLOOMBERG Tech. Welcome back to Bloomberg Tech. One increasingly popular area for investors in the past few years has been leveraged exchange traded funds. Many of these are tied to AI related stocks, ETFs. The dramatic increase in the issuance and trading volume means the risks of these leveraged ETFs are no longer contained by individual investors, but could impact the underlying stocks or even the wider market. Bloomberg's Cross asset reporter Denisa Sokova joins us with today's big take. And it is a big take. So many people are reading this this morning. Start with the basics like what is, what is the top line, the big takes trying to get across.
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Denisa Sokova (Bloomberg Cross Asset Reporter)
We've been talking about the concentration in names. So I'm taking you back to 2022. The concentrations of air exposure was about 26%. Looking at this number this year, we're talking about 58%. At the same time, those ETFs have really increasing a whim. And most importantly in their derivative based bullish exposure, we're looking at 500 billion of bullish exposure. And as we said, about 60% of this is a name very concentrated. But we're talking a lot about how big they are. But the most important number is how much they're traded and they're traded alone. In the last 30 days they were traded about 70 billion of them. So despite their relatively small part of the ETF universe, they really exert great influence. And that's what we saw in South Korea obviously SK Hynix and Samsung, we saw really big volatility. And this is one of the few examples where we clearly saw leveraged ETFs up and exacerbate that. Of course, those stocks are not as liquid as the videos and AMD and all those companies that those products are concentrated. But we saw clearly how big their influence can be in a market like that.
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Bloomberg Tech Host
Denise Leveraged ETFs, particularly AI related ones, have been in the news flow a lot. But for the section of the Bloomberg tech audience that just needs the basics. What is a leveraged ETF? How does it work?
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Denisa Sokova (Bloomberg Cross Asset Reporter)
So leverage ETFs uses derivative to either increase the exposure of ETFs so I can have three times the leverage of an Nvidia stock for example, or it goes the other way. We can have an inverse leverage, inverse leverage where the product can go short in video for two or three times. Over the past few years they there have been fewer 3x products. So a lot of the products we see are two times. But clearly that's a lot of leverage. There were some suggestions about five times leverage products that didn't make it in the US but some of those actually exist in Europe. And what we're seeing in markets like Asia, especially South Korea and Hong Kong is that those popular are extremely popular. They're all about really not so liquid products. And retail investors, investors are putting billions. We're Talking about the SK Signix products that became the biggest single name leveraged ETF and it reached 17 billion earlier this year after regulator. Actually after that regulators reined in and now it's smaller. But still we're talking about a lot of leverage in that product.
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Bloomberg Tech Host
Bloomberg's in. It's a cover. Thank you so much. Go and read the big take. So much traffic on it already today on the Bloomberg terminal and on the website. And you know again, this is something that's been in the news cycle a lot of late. Another big story breaking this morning. E commerce startup Fear use software that allowed it to take credit for sales it didn't drive. And its co founders Phoebe Gates and Sofia Kiani knew about and pushed for those features for more than half a year. That's all according to sources and internal communications. Bloomberg's Olivia Solon joins us with the story. I think again start with the basics. How does Fear work?
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Olivia Solon (Bloomberg Tech Editor)
So Fear sells itself as a sort of digital shopping assistant and it has an app that kind of recommends products and then it also has a browser extension which pops up as you're sort of shopping online on retailers websites and shows you coupon codes for discounts. And if you click on one of those coupon codes or click on a Fear link before buying something, something Fear gets a commission for that from retailers.
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Bloomberg Tech Host
So Our reporting is that Fear has been taking credit for sales that it didn't drive. How
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Olivia Solon (Bloomberg Tech Editor)
so? As I just said, you know, if, if you actively click on a link from Fear or you use one of its coupons, Fear deserves to get a commission under the rules set out by its commercial partners. But what we noticed was happening was that Fear was Fear was taking credit for sales that it wasn't involved in. There was no human interaction. And it was doing this because of the way that this sort of attribution model works, is that when you click a link, you have to drop a little cookie on the shopper's browser and that tells the retailer, hey, I, you know, Fear recommended this shopper to buy this product and so you should pay them a commission. But what Fear was doing was something called cookie stuffing, which is dropping a cookie at other times, not when anyone was clicking. So it was doing it automatically in the background using a number of different tools and including when you were trying to kind of close down Fears Pop up tool, which again, you're not supposed to do. You have to be taking an intentional action for it to count to get a commission.
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Bloomberg Tech Host
We're just showing the response from a spokesperson at the company. We're reviewing every transaction we're fully committed to and have already begun issuing transaction reversals to brand partners as a result of many misattribution. The two founders, as we said in the intro, are kind of core to this story. What do we need to know about their role?
- [32:48]
Olivia Solon (Bloomberg Tech Editor)
So we have internal, I've seen internal Slack messages that indicate that they knew about these features and were kind of actively encouraging different ways to drop cookies, even when there was no kind of shopper interaction. We have messages from Phoebe Gates back in December where she's talking about one of these features that automatically drops a cookie in the background on, on the mobile browser. And we have messages from Sophia proposing another feature and discussing. Discussing another way that cookies are dropped automatically without any human interaction.
- [33:24]
Bloomberg Tech Host
Bloomberg Tech editor Olivia Salon, thank you very much in indeed. Coming up, drone startup Nero has raised $250 million in a funding round that's tripled its valuation. We're going to talk to Nearest CEO Soren Moreau Anderson and one of its lead investors, sequoia partner Sean McGuire. A very big conversation coming up next. This is Bloomberg Tech.
- [33:51]
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- [34:54]
Our Town Podcast Narrator
90 miles northeast of Nashville, a battle for the future of America plays out in one small town.
- [35:00]
Our Town Podcast Voice
Developers with right wing ties have purchased hundreds of acres of land. We need cities on a shining hill.
- [35:06]
Our Town Podcast Narrator
This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back.
- [35:14]
Bloomberg Tech Host
Guess you didn't move in on a
- [35:15]
Carol Schleif (BMO Wealth Management Chief Market Strategist)
bunch of dumb hillbillies now.
- [35:16]
Our Town Podcast Narrator
Did you listen to Our town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts?
- [35:28]
Bloomberg Tech Host
Rocket Lab CEO Peter Beck just told Bloomberg the company still intends to launch its Neutron Rocket this year as it pushes to take on Space X. Shares are lower after Beck appeared to soften the timeline for Neutron's first launch during the company's earnings call. Here's what he said.
- [35:44]
Peter Beck (Rocket Lab CEO)
Their intention here is to still definitely push hard to try and get a first flight away this year. But I think the real question that should be asking is, is what about the 10th flight? Because you know these programs and obviously first flight is important, but flight number 10 is actually really, really important because, you know, that shows that you've, you've got into a full sense of, you know, scale and cadence and reusability.
- [36:09]
Bloomberg Tech Host
Sequoia's made one of its biggest defense bets on drone startup Nero's. The company just closed a $250 million round, tripling its valuation to $2.5 billion as it looks to ramp up production of its attack drones near us. CEO Soren Monroe Anderson and Sequoia partner Sean McGuire join us here in San Francisco. I think you know that big number numbers, congratulations on the round people.
- [36:33]
Sean McGuire (Sequoia Partner)
Big numbers, but he deserves them.
- [36:34]
Bloomberg Tech Host
The big numbers people focus on the valuation tripling, right? But I think it's A really interesting idea to be specific about near us, what you're working on, what the specific technical challenges you're trying to overcome in your lane.
- [36:47]
Soren Monroe Anderson (Nero CEO)
Yeah. Well, thank you for having us. For us, this round is really interesting because we are going from being a single product, single capability company with the Archer Strike drones into multiple products. So recently we started publicly talking about Bandit, which is the counter UAS interceptor that we are developing. And today we're also announcing Archery, which is the first time one of our drones is going to have autonomous capabilities on board. So this is something that we've been really thinking about intentionally as a company. How do we become multi threaded by multiproduct? And we want to have as big of an impact as possible for the war fighter. And the way to do that is delivering more capability away from the specific technology.
- [37:30]
Bloomberg Tech Host
There's also the ambition to ramp up output essentially through the end of the year. I guess that is partly where the capital comes in.
- [37:39]
Soren Monroe Anderson (Nero CEO)
Yeah. And we've been focused on ramping production for a long time. Really since we started the company, we knew we had to be very forward on production and supply chain. But this year we've seen a big growth there. So today we're at about 50,000 drones per year output and by the end of the year we'll be at 100,000 drones per year run rate. And we're looking forward. We think that getting the company to a million drones per year capacity is extremely important for having a strategic impact for America and our allies. So that's really what we focused our factory that we moved into a few months ago, we call Millennium 1. We focused it around this goal of getting to a million drones per year vertically integrated.
- [38:20]
Bloomberg Tech Host
Sean, come in here. You led squares investment in Space X and at that time, the initial investment, but present day as well. Right. You would say Space X is a company one of one, an asset, one of one in the drone field. There are other proxies you can make your evaluation against. So how did you do that with nearest this time around? Around.
- [38:40]
Sean McGuire (Sequoia Partner)
Yeah, look, I think that's a fair question. And a couple of things. One, I think there's a gap right now. There's probably about five of these next generation defense tech companies that have actually done useful things in the field. Like it's about five, it's not.
- [38:55]
Bloomberg Tech Host
And a real shield. I. Yeah, I would say, I would
- [38:58]
Sean McGuire (Sequoia Partner)
say, you know, definitely Andrew, but Nero says one of the companies at the top of the list, like what they've done is pretty striking. So that's kind of Point one, point two on this question like Space X, when they started with the Falcon one initially that wasn't yet, you know, a just massive leading rocket company, they were just getting started. And then with Falcon 9 it was still not as good as some of the state of the art rockets from the past. But it was really, you know, over the last five, six years where just the, through usability, through production, through cadence, Space X just became, you know, it's 90% roughly of the world's mass orbit last year for Nero's. The way I think about where these guys are, it reminds me a lot of where the cellular communications industry was in the 90s. Interesting where and like if you think about what is an FPV drone, this may sound crazy, but it's actually very. Is basically a flying cell phone.
- [39:55]
Bloomberg Tech Host
Yes.
- [39:56]
Sean McGuire (Sequoia Partner)
So the most important thing is comms, where you don't want, you know, you need very advanced radios that don't get jammed, etc. You need a bunch of sensors, cameras, infrared cameras, you know, other, you know, other sensing payloads. And you need to be able to do this kind of in a way where you're doubling your performance every year or so to kind of outpace all the defensive capabilities. And so like the actual body of the drones are more or less commodities. The motors, the, you know, the carbon fiber chassis, all this. But the payload, you're basically flying an iPhone that is on an exponential race. It's like a Moore's Law development pace. So if you go back to the 90s, there were a lot of companies that were basically buying the same components and making cell phones, but it ended up with, you know, Apple as the dominant player and then Android, you know, as an operating system that went on other hardware. But I think it's going to be the same thing with drones. Like these guys are building the whole product ecosystem where there's an operating system that lets everything happen seamlessly across drones and to accomplish a mission. And the development is in this kind of. It's very similar form factor as a cell phone.
- [41:06]
Bloomberg Tech Host
It's going to be very hard distinction or the core competency is software. What you would say, or I would say it's, it's.
- [41:13]
Sean McGuire (Sequoia Partner)
And I'll let you go one second. It's radios, it's sensors, it's integration of the electronics in a way that is scalable and reliable and is on an exponential trajectory. The same way making cell phone is plus the operating system to integrate with their other products, plus being able to manufacture insane numbers of units with a very reliable Supply chain.
- [41:37]
Brilliant Advertiser
That's key.
- [41:37]
Soren Monroe Anderson (Nero CEO)
Yeah, I think Sean hit the nail on the head. And historically, we've been more hardware focused than software focused. What we really wanted to solve off the bat was the manufacturing of these drones without a Chinese supply chain. When we started the company three years ago, there was no way you could go and buy an FPV drone that did not use Chinese components, Chinese chips. And so that was really like our core focus over the last three years was building up this ecosystem of, of radios, flight computers, all these other things that are critical going inside of the drone and being able to actually manufacture them at scale. Now that we've established a strong baseline there, we are pushing more on the software aspect with the autonomous capability that we're adding, as well as using that same component ecosystem from Archer into Bandit, our new platform. So we really think there's this flywheel where you build up this amazing base of components and it allows you to go build other types of platforms very quickly.
- [42:36]
Bloomberg Tech Host
You said it yourself three years ago, you founded this company. Today you have what you describe as major contracts with the Army, Marine Corps, contracts with every component of SOCOM and other allied countries. Give us the backstory of how you were able to do that in that period of time.
- [42:55]
Soren Monroe Anderson (Nero CEO)
Yeah, we've had to move really fast. We saw three years ago, our primary focus when we started was just in Ukraine working along the side alongside the Ukrainians, building a better drone for them. And at that point, the Pentagon did not really care about what we were
- [43:12]
Bloomberg Tech Host
doing from a procurement perspective.
- [43:13]
Soren Monroe Anderson (Nero CEO)
From a procurement perspective, they didn't really think that small drones had a massive impact for the US Warfighter. We had this bet that they would be and that the Pentagon would realize that. And I think we've had a really interesting front row seat to watching that realization happen over the last 18 months and being well positioned to start delivering on real contracts. As America has said, hey, we actually need drones, we need drone dominance. And so that has been, you know, because we focus very heavily on building a useful product and use Ukraine off the bat and then scaling the production. I think we've shown that we are really one of the only drone companies in America that can scale very quickly and actually deliver when these big contracts are coming down the pipe.
- [43:59]
Sean McGuire (Sequoia Partner)
Soren's too humble. Can I just add.
- [44:01]
Bloomberg Tech Host
Jump.
- [44:01]
Sean McGuire (Sequoia Partner)
So Soren is a young man. He was. Many people don't know this, but there's professional drone racing leagues. There's two of them. He was the world champion and one of them, and professional in the other. So Starting as a young kid, he was just obsessed with drones.
- [44:14]
Bloomberg Tech Host
That's the technology story, your background story.
- [44:17]
Sean McGuire (Sequoia Partner)
And, and then kind of when the war in Ukraine started. He's very patriotic for the west in general, for America, for Ukraine, for the entire West. And as a young guy, very early 20s, maybe even 19 at the time, basically flew to Ukraine and just started trying to help the Ukrainians learn how to fly drones and push the limits of their technologies. That led to, you know, really getting the company going. And he's just been delivering. Everything he said he's going to do, he's done. And so it's just led to a big gap between Niros and most of the other competitors.
- [44:48]
Bloomberg Tech Host
Sean, could I ask you a slightly more difficult question about the future? Because, you know, you don't have a crystal ball, but this is about reindustrialization for that specific vertical, the national interest of this country or the West. Those contracts we've discussed are with the public sector essentially. So how do you model for that Tam, in the future? You are an investor first and foremost. How do you have a sense of how real and big the opportunity is?
- [45:13]
Sean McGuire (Sequoia Partner)
Good question. So I think about it in two ways way. Number one is my like kind of, I've been very lucky to see Space X up close and then follow Tesla and by seeing how Space operates, which to me is the most vertically integrated company in the world. And I feel pretty confident in that statement. My vision is that there should be 10 companies like Space X in America. And that is how we re industrialize. And what that means is that you start by, you know, selling one thing where you, you know, you buy a lot of your components from other people and you over time vertically integrate your supply chain more and more and more. And then once you have this vertically integrated supply chain, I mean like SpaceX is now the biggest. They make PCBs. They're the number one producer of PCBs in North America for starting terminals that's trained a lot of other people in how to make PCBs that we had lost the skill in the West.
- [46:06]
Bloomberg Tech Host
That's a supply chain ripple effect.
- [46:07]
Sean McGuire (Sequoia Partner)
Yeah, it's a whole supply chain ripple effect. And so the people that learn how to, you know, make steel, alloys, etc. Like they go and kind of do other things and you need. So Space X is done in space. Tesla is doing an automotive. I think if we had 10 companies that became national champions in some vertical, roughly 10, it almost doesn't even matter what they are. It will, that will fully re Industrialize America. And so I think near us by getting, by being at the beginning of this exponential trend of drones and warfare, they're just getting pulled along and they're able to compete even with China. And granted, China's vastly far ahead right now in drones, but they're close enough that they can actually compete. And my forecast is 10 years from now, people are going to be shocked by how vertically integrated.
- [46:53]
Bloomberg Tech Host
So that also raises questions of economics. Right. You know, you talked about establishing the supply chain. You've raised a pretty sizable round. Is it just purely dependent on scale in order that you give the value proposition to your customers that you know, the different arms of the defense apparatus of this nation, or is it still a technology advantage that you think will win out in the end?
- [47:15]
Soren Monroe Anderson (Nero CEO)
I think it has to be a good combination of both. We've seen that today we can deliver a drone that is highly capable. That when our drone was certified for usage by the Department of War, it was about an order of magnitude cheaper than anything else. So we've already been able to massively reduce the cost of using small drones for the Department of War. We see that over time more what scale is really going to get us and what investment into the space is going to get us is actually closing the gap on some of these critical, critical technologies. So Sean mentioned radios. And as an example, this is one of the areas where Chinese drones are incredibly good. They iterate radios extremely quickly. And dji, which is the world leader in drones, has built custom silicon around their radio stack and they have by far the most performant radio stack in the world. And so we think that the investment that is going into the defense space and really what near us wants to do is take that volume and take that capital and put it towards these foundational technologies that will allow us to actually close or even get ahead of where China is at today in consumer drones.
- [48:26]
Bloomberg Tech Host
We just have two minutes left in the show is unfortunate but I want to get get to the back story of Bandit, the new inception drone. This was catalyzed by a specific event. If the war in Iran. Could you just pick it up both of you and why you move so quick?
- [48:39]
Soren Monroe Anderson (Nero CEO)
Yeah, I mean we had been watching the development of interceptor drones in Ukraine for the last year and a half and it's something that we knew was going to be on our roadmap. But we've tried to be very focused as a company because we do not want to get distracted and, and build too many things at once and lower quality. And so we really had to Pick the right point to go and build bandit our interceptor. But when events started happening in the Middle east we saw that American assets were getting targeted by Iranian drones and we just did not have a reasonable defense.
- [49:15]
Bloomberg Tech Host
This is interceptor, it literally intercepts other
- [49:18]
Soren Monroe Anderson (Nero CEO)
drones so like goes after you know Shaheds style drones and takes them out of the sky. And this is the most economical way to defend against these types of drones. And so when we saw US service members lives in danger in the Middle east because of those threats, we knew we needed to act quickly.
- [49:35]
Bloomberg Tech Host
Your 60 second assessment of how they moved quickly, their execution on that.
- [49:39]
Sean McGuire (Sequoia Partner)
I think this is something that a lot of software investors get wrong about. Hardware companies for software companies, when you have one successful product it doesn't give you much of an advantage to building a new product. In hardware, when you have one successful product, the probability of having another successful product is very very high. You get to reuse a lot of the same components. You get to, you know, you already have the supply chain, you already have the electrical engineers, etc. So these interceptor drones is actually about 80% or so overlap in the actual componentry and know how and so it's just I think, I think the same will be the second but not the last product these guys make.
- [50:15]
Bloomberg Tech Host
Again it's a big but early round. I'm sure you'll have be back on the program in future raises. I appreciate you both taking the time. Sergeant Monroe Anderson Nero CEO and Sean McGuire partner at Sequoia, thank you very much. Some other news headlines in talking tech. First up, the White House has rolled back a tick tock ban on government devices. A memo from Yesterday states that TikTok is no longer a quote covered application for the purposes of the no TikTok on government devices act, effectively allowing the app back onto federal devices. Plus anthropic and riot platforms joined forces on a $9.1 billion deal that would have the Bitcoin mining company supplying 191 megawatts of capacity to anthropic over 20 years. All according to sources. The move underscores anthropic efforts to gather enough computing power to meet its customers demand. And Open Air is said to be buying back $7 billion worth of shares ahead of a potential IPO. According to sources, the chat GBC makers said to be buying back shares from current and former employees instead of tapping external investors for that tender offer. We're still tracking more earnings. Yes, it continues after the bell core wave again a story about moving quickly to get compute classic capacity online. The stocks treading water up 810 of a percent before the print. Largely speaking it's events in the Middle east that are driving public equity right now. Like there's a big movement in bonds that that might be going on here. There's the kind of feel good around a day to story on Nvidia's $500 billion deal with Wall street to collateralize compute the NASDAQ 100 is flat the stocks is higher 9. 10 of 1% and again Intel $20 billion share offering it marketed $15 billion. We're reporting that there was 00 billion of demand that is all playing into what's happening on your screen right now. My goodness, what a fast start to the week. It is only Tuesday so much across public and private markets. That does it for this edition of Bloomberg Tech. Please recap on the podcast. You know where to find it on the Bloomberg Terminal as well as online on Apple, Apple, Spotify and on Iheart. From San Francisco, this is Bloomberg Tech.
- [52:33]
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- [53:39]
Jason Kelly (Bloomberg Podcast Host)
Have you ever wondered how Jessico took the Savannah Bananas from this?
- [53:43]
Bloomberg Tech Host
We had a $6 million failure last year. We're going to have bigger ones as
- [53:46]
Jason Kelly (Bloomberg Podcast Host)
we go to this.
- [53:47]
Bloomberg Tech Host
We've got shareholders, investors that reach out to us regularly and the answer is always no.
- [53:52]
Our Town Podcast Voice
Or why Elle Duncan would say this
- [53:53]
Bloomberg Tech Host
about a Netflix sports broadcast. Sometimes we're going to take really big
- [53:57]
Bloomberg Promo/Ad Voice
swings and we're going to frickin whiff,
- [53:59]
Our Town Podcast Voice
then the deal is the show for you.
- [54:01]
Jason Kelly (Bloomberg Podcast Host)
It's a Bloomberg podcast hosted by me, Alex Rodriguez, and me, Jason Kelly. We talk to the biggest names in the world of sports and business, including NBA hall of famer Tracy McGrady on one of his biggest blunders.
- [54:15]
Bloomberg Tech Host
I think I've created something magical.
- [54:17]
Ian King (Bloomberg Semiconductor Reporter)
Mm.
- [54:18]
Bloomberg Tech Host
Well, I struck out.
- [54:19]
Jason Kelly (Bloomberg Podcast Host)
And you'll even get some of my baseball hot takes. I've had owners tell me it doesn't matter. The game has to be fixed. It's broken. If we have to lock out the
- [54:27]
Bloomberg Tech Host
whole year, we will.
- [54:28]
Our Town Podcast Voice
New episodes air every Thursday.
- [54:31]
Jason Kelly (Bloomberg Podcast Host)
Don't miss out.