The Next Phase of the AI Buildout

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1:29Carol Massar:Stay you. Visit VitalProteins.com to learn more and where to buy. These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. All right, we do have a lot to talk about with Dan Ives. There is a lot to talk. Cerebra Systems just reporting falling 8%. Second quarter revenue disappoints. Coreweave surging after the AI spending frenzy spurred faster sales growth than anticipated, with sales expected to be$3.45 billion to$3.6 billion in the third quarter.

2:08Carol Massar:We've got with us, for the next half hour or so, Dan Ives. He's partner and senior managing director at Yorkville Ives. It's the first time I've read that title for you, Dan, because for so long we knew you at Wedbush, and we knew you as what many people called a tech permable. I want to get to your outlook on not just this earnings season and what to expect from NVIDIA and the so-called circular financing. But before we do that, because we haven't had a chance to sit down with you since this job changed, I want to just hear from you why you left Wedbush and what you're doing now at Yorkville Ives.

2:42Yeah, I mean, for me, it was a great eight years at Wedbush, but it was to create what I view as like a modern merchant bank. You know, really something where when I think about this fourth industrial revolution and for my, you know, called going in Wall Street since the late 90s, it was seeing around corners and seeing the opportunity. And I just felt like for me, it was an evolution in my career for something that to build a bank and especially have great research that's focused on tech energy, you know, and really across industries. And I found great partners in Yorkville. And to me, it was the right place, right time to do something like this, given my view of the AI revolution.

3:25Carol Massar:Well, I want to get to more on that. And we're going to get to the AI revolution. But we spoke to you at Future Proof, where you'll be there again this year. It's September of last year. And I remember the conversation because it was not just about what you were doing at Wedbush, but it was about the ETF that you had launched. You were also chairman at the time of WorldCoin, this crypto project. Or ECO, yeah. Oh, ECO, thank you. Which is part of, which was? Yeah, which was related to WorldCoin. Okay, related to WorldCoin. So what is the status of those projects now? Yeah, so in terms of like I left ACO earlier this year.

3:59Yeah, but what about the IECF? Yeah, there's been no change in terms of that. And that's something where for me, look, it was sort of like simplifying, I think, some of my other activities. And really, to me, it was really doubling down to some extent on what people know me as in terms of when it comes to tech, when it comes to, you know, great research. And I think, you know, I think around the world, so many more investors have such a focus in tech. And it's something where to try to be some guiding light, you know, relative to a lot of the confusion that you see in the market.

4:36Carol Massar:What can you do now that you couldn't do before? I mean, there's, you know, we're still awaiting our research license. But for now, this is like, when it's all sort of built, it will be something that, it will be exactly the same Dan Ives, research and you know what we've done for investors over the decades and and and that's really why we built it but also it's for me it's finding the right people that want to do things and when it comes to innovation when it comes to building whether it's on the research side or you know across the industry and I just think right now like we're going through an innovation boom and in my career it's really been an evolution for me there was a natural next step And I've been super excited about the feedback that we've gotten and just from many around the world.

5:29Carol Massar:We have seen a lot of innovation cycles, and you have been along for that ride. And I'm just curious how you continue to put this particular cycle in its place and in its spot. And how much do we really know about the ultimate impact? I mean, it's something like myself that's done so much time in Asia. Yeah. So much time talking to CEOs, CIOs that's done this since the late 90s. This is the true fourth industrial revolution. And, you know, look, we've talked about it with you guys for many years. And that's why I think a lot of times, like, the skeptics or the bears, you know, they're bearish from the 15th floor of their New York City office building or wherever it may be.

6:09But they're not in fabs in Taiwan. They're not seeing the demand. And the reality is, like, for the first time in 30 years, the U.S. is ahead of China when it comes to tech. And I think that's extremely important relative to where we are. And I think what you've seen with earnings, whether it's on the neoclouds, the hyperscalers, it's just, it is crystal clear that the monetization fees is now starting to take over.

6:35Carol Massar:But do we have to be worried about China? Because they certainly have the government now saying, okay, they are prioritizing this. and with money, with efforts, you know how it works. We've seen it with cars. We've seen it in so many different industries, and they want to make sure they have a place at the table with this. So how far are they along? What do we really know about their expertise? Yeah, so I think as someone that might have said that's spent so much time in the region, it's one of counting them out is the wrong bet. Because the reality is that not just from a government perspective when it comes to energy, you know just how ahead they've been when it comes to nuclear energy when it comes to robotics and it's one where i think part of why jensen is so focused on selling into china and i think a lot of the chip companies because if you do not sell into china it just makes them that much more powerful yeah it narrows the gap and also when it comes to like the political whether it's grandstanding whatever you want to call in terms of like what's happened here in the data centers And data centers are the hearts and lungs of the AI revolution.

7:40So if you have like moratoriums and you shut down data centers, the winner in that becomes China relative to what could happen here in the US. So I actually think like the biggest sort of risk when you think about what could happen to AI revolution, it's not CapEx, it's not use cases. is that the biggest risk is just the political piece gets in the way in terms of the data center build out because i think that's something where any every data center that gets voted down yeah china smiles i think we have time for this question it's a really good one it's from

8:16Carol Massar:brendan in maryland yeah he has a question for he says you've likened the ai revolution to building out the vegas strip in the 50s can you elaborate on this analogy what role is microsoft playing here are the hyperscalers like the big casinos and famously does the house always win great a great great great question look and the reason i talk about like vegas 1955 because if someone told you in 1955 what eventually the sphere was going to be and what vegas is but then all of a sudden 1956 there was an issue with the building you're like oh that's the strip thing is not going to happen. It's not going to work.

8:52It just, that's big tech companies. Like that's their view, right? Like go back to Microsoft. Microsoft is a good example. Like two months ago, right? Like New York City cab drivers, bearish on Microsoft. And now today, right? There's ticker tape parades for it. It just speaks like, because you have like Nadella is a North Star and he's able to see around corners and understand that on the Vegas Strip, there's only one strip. If you don't have a place on that strip, Are you staying at that hotel two miles from Vegas? Eventually, you're in Santa Fe or whatever. I mean, the point is, I'm just trying to explain, like, these companies know there's one strip.

9:29And that's why when it's like, well, what about CapEx? If it's like metal, like stocks down, does that mean that they start to, you know, they like slow down their bill? Because they know that if they slow it down, they won't have a place in the strip. And then what happens when you look out a few years from now and you're three miles off the strip?

9:50Carol Massar:I want to get to the second part of Brendan's question. What a great question. Two parts. Bloomberg.com slash ask radio. That's how Brendan was able to ask the question. Bloomberg.com slash ask radio. This is for terminal subscribers, Bloomberg terminal subscribers, and those who also are subscribers to Bloomberg.com. So he went on, Dan, to say even more, some question whether this AI boom is due to chip sellers logging revenues faster than reporting their expenses. Can you speak to that? Yeah. So I view it as, right now, demand the supply for chips. Yeah. 13, 14 to 1. Demand the supply. The one thing is that, look, I view the whole thing as kind of like a Jenga puzzle, however you want to think about it.

10:31You put it together.

10:32Carol Massar:Right. Whether it's Cisco, Neocloud, Hyperscalers, what's happened, Palantir. on the the reality is is that they hold the cards the chip players because you don't have many of them and you're not going to create new ones and that's look that's similar what you see in korea in the kasi with the memory players and i just think it's one where when some try to kind of poke holes in some of these stores the reality is and it's always been our view that like investors or is your way underestimating the scale and scope of the AI revolution? But wouldn't you say, and certainly we've heard this around this table, of the semiconductor makers who are very sensitive to the cycles of the booms and busts, that they are going to be very careful also in controlling supply in the market.

11:20Carol Massar:So yes, they're going to invest and they're going to ramp up, but they're not going to do it so much that all of a sudden the price drops. So there's got to be a, I don't know what the factor is, that in that excess demand 13, 14 times, whatever you said, for chips. How much of that, though, is the semiconductor companies being very smart in kind of managing the situation and keeping those margins healthy? I think at one point you'll hit that. But for now? No. Look, equilibrium, you won't hit until probably 2 ,028. maybe early 2029. Everybody keeps talking about 2030. I'm like, I'm going to have it tattooed on my forehead because it just feels like I won't do that.

12:04And that's why the reality is we've always thought the AI revolution, we thought it was third inning and now you could argue it was Obama the second.

12:13Carol Massar:When you go to China, when you travel, I want to ask you about China. What do you actually get to see in terms of what's going on there? Because I just feel like they're so, I don't think it's so easy, but I'm curious because when somebody does get a peek into some of what's going at China, I think it really surprises everybody. It's the innovation. It's really what they're doing on robotics, on what they're doing in ships, on what they're doing on when you think about physical AI. to me that is the thing that stands out the most because i think the name of the game in ai today you could argue like some of the stuff's almost table stakes relative to when you think go to physical ai and when you go to what sort of the next phase is here and that's why right now like robotics autonomous true physical ai i i've always viewed physical ai is sort of the golden goose of so agentic ai and agents that that's not the gold i view that is a highway to get on to ultimately what's going to be the probably the biggest monetization piece and i think that's why like a lot of times i think investors whether it's like china in terms of open source and different models that come and we go through these sort of like mini scales deep seek type moments the value is in the data that's our sovereign data you know when you look at carbon palantir they talk about so much jensen's starting to talk about a lot but it's an arms race that's playing out across the board which speaks as you talk circular financing and just you know we go through these sort of ebbs and flows and the worries there well speaking of worries some folks out there are worried about concentration risk uh we spoke to ed zitron a few weeks ago from easy primary research.

13:59Carol Massar:He was on our program. Here's what he said about concentration risk. So in calendar year 2025, according to my own reporting about OpenAI's numbers, 69 % of the year-over-year growth of Microsoft Intelligent Cloud segment was actually from OpenAI. Without that, it would have only grown 8 % year-over-year, which is barely beating inflation. And so everyone is being sold what I consider kind of a lie. It's honestly kind of a scandal. That was Ed Zitron of Easy Primary Research. After he was on just a few days later, our Bloomberg News team reported that Microsoft generates most of its AI revenue from OpenAI.

14:34Carol Massar:It said that about 70 % of sales in a year came from just a couple of different companies. Excuse me. Microsoft's business, 70 % of its actual AI sales came from OpenAI during its most recent fiscal year. Is there concentration risk? but that would be like the chiefs if they lost Mahomes they're done the point is like the reality is like open AI and Anthropic their core central foundations of the AI rep no one will doubt that but the reality is is that when you continue to see the funding there and what's happening is that the tech companies whether it's the hyperscalers and others yeah they have so much invested in them but that's just the first phase that number two years from now three years from now the concentration risk is not meaning there will be many companies that are paying of course because now for these services exactly because today it's a small group of companies that are paying but when you think about what's happening sovereign ai and today really being much more just u.s based and china based what's happened in the middle east and india and just across the world we're still in the early parts of it but That's why open AI and Anthropic, when you think about as they go public and those opportunities, that just further solidifies the foundation for the AI revolution.

15:57Carol Massar:I'm going to play devil's advocate to you. Okay. Because I think what someone had said, too, is that, okay, so most of the AI revenue for Microsoft comes from open AI. But help me out here. I'm giving you a gift because I'm usually tough. I like to battle with you. But the idea is open AI has a ton of customers. And so that's where the diversification is, but it comes through that conduit. So I guess essentially if Microsoft and OpenAI go to battle, that could be a problem. But is that kind of – is that the right reasoning? Sorry, Tim. That's fine. No, because – but to that point is that the concentration risk, it's not just viewed as like it's OpenAI.

16:35You're talking about thousands of customers. Anthropics, same thing, what they're doing in the enterprise. It used to be like what I view – I go say for Microsoft it would be like concentration risk. but Microsoft is the core part of enterprises around the world. So Microsoft represents so many enterprises that are ultimately going. So I just, I view, I understand like, and that's been, that's been a concern. But 18 months ago, it was a concern. Look where we are today. And that's why I think those that bet against this, it's betting against a CapEx cycle that actually continues to accelerate.

17:13Carol Massar:It feels like there was this moment in New York in the mid-2000 teens where all these venture capital-backed companies were flush with cash. And Uber and Lyft were duking it out, giving you incentives to take this car, take this car. And as a consumer, and there was a service that came and picked up a package at my home and shipped it off and it was free. They went out of business. But the point is, is that venture capitalists were subsidizing this sort of on-demand lifestyle. It kind of feels like sometimes we're there with these LLMs. Where's the checks in? It's free to use Claude. Then 20 minutes later, you're like, okay, well, I can't use Claude anymore.

17:52Carol Massar:I'll just go use ChatGPT. Okay. You used up everything with ChatGPT. Oh, I'll go just go to Google and use the AI that Google offers. It kind of feels like we're in that moment again where these are interchangeable, at least the LLMs. But I've never viewed that the models are not going to be where the value is. That's why Anthropic and OpenAI, they're seeing around the corner. They're focused on enterprise building, enterprise sales force, ultimately really butting heads with core enterprise players. It's going to be in the data. I mean, if you just look where it's all heading, it is just going to be a conduit.

18:28Because eventually models, you're going to have hundreds of models. You have models, regional, vertical. It'll get more and more commodity. Industry-specific. Industry-specific, construction models, retail, consumer. The point is, and that's also where, if you think where Apple is starting to go on the consumer side in terms of they'll finally be a sort of player. But I just think it's one where, where AI is today and where it's going to be three, four years from now. I think for many investors, look, you get one or two investors. If you're a technologist and someone that tries to see around corners, you're going to view it as like this is a true fourth industrial revolution.

19:12If you're one of the bears that have called 10 of the last two downturns, then you'll say this is another one and they'll be in hibernation mood and they can't see AI in spreadsheets.

19:24Carol Massar:But you're a smart man. What's the risk? We have about a minute or so left. there's a risk to everything the biggest risk the biggest risk don't tell me it's government it's oversight like when you look like when you look at what's happening in new york state hokul moratorium you're talking about data centers data center that's the biggest midterm elections the political it's not just new york there are a lot of but around the country i spent so much time in dc and the point is like a lot of politicians that are still using blackberries is do you want them ultimately determining AI? And I think that's the scary thing, right?

19:57Like, it's one where what stifles innovation, that you need regulatory, no doubt. And PR problem, a lot of that has been caused by the tech industry in terms of wiping out jobs, 18 months, scare tactics, things like that. So they've definitely contributed. But I think that is the biggest risk when you think about AI revolution relative to the political piece.

20:18Carol Massar:Do you think AI, though? I mean, it's going to wipe out tons of jobs. People talk about universal basic income. I've talked to developers. We've talked to developers about thinking about building houses for people who are on, like, because of AI. Forgive me, only about 40 seconds. But I'll just take the other side. And someone, myself, I went over 3.5 million air miles and been around this country so many times. The amount of towns and cities, they used to have 75 ,000 people. Now it's 10 ,000 factories that went away to China. And I view it as for the first time in 30 years, the U.S. is ahead of China when it comes to technology.

20:53So the innovation boom and to what I view as really a renaissance, I view that as to add jobs in the United States, despite maybe some of the more negative views today.

21:04Carol Massar:All right. So go get that research license and come back. I will. I can't wait. I know. We can't wait. We can't wait to have you. Dan Ives, partner and senior managing director at Yorkville Ives, joining us here in studio. Good to have you back.

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