US Orders Anthropic to Disable Foreign Access to Mythos

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1:39Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily. Reporting from the magazine that helps global leaders stay ahead. with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. Just a warning to everybody, we're going to get a little technical, but Maggie's going to help us understand what jailbreaking is and what's at stake when it comes to Anthropic, Fable 5, and Mythos. Anthropic executives planning to meet with Trump administration officials on Monday to discuss an unprecedented U.S.

2:25government directive barring foreign access to the company's most advanced AI models. That's according to a person familiar with the matter. For more, we're joined by Maggie Eastland, Bloomberg News tech reporter. She's based in Washington, D.C. It's where she joins us from right now. So, Maggie, I said this would get a little technical because I think we should just start off by explaining the Fable 5's relationship to mythos and what has the government right now so concerned. and why Anthropic is pushing back on this. Yeah, absolutely. It definitely helps to sort of get some definitions down to start.

2:57So Mythos, that was released in April by Anthropic. It's their latest model, but it was not released to the public because the company was too worried that it had a lot of cyber capabilities and it could be used for cyber attacks. So it was only released to a limited group of government and business partners to sort of help those partners shore up their own cybersecurity efforts. What happened last week was Anthropic actually released a version of that model with some added safeguards to the public. So that's what we call Fable 5. And that's sort of what started this whole situation between the government and Anthropic.

3:34So a few days after that public release, the government sent Anthropic a letter that was an export control directive that essentially blocks anyone who was a foreign national from even accessing that Fable 5 or that Mythos 5 model. So in effect, Anthropic was forced to immediately disable those models, especially since they have foreign nationals who are employees. So this affects their employees. It affects their customers. All of a sudden, they're only able to provide these models to US citizens. And they don't even have a way currently of sort of a know your customer standard in terms of where those people reside who are using their models.

4:15I'm glad you said that because I'm opening Claude from Anthropic right now on my phone. I don't pay for it, but I have it. I can use it. I had the ability to use Fable 5 if I paid for it, but now it says currently unavailable. It also advertises that it's for your toughest challenges. But Claude has no idea where I live. in terms of like what my nationality is. So they just have to disable it because they don't have those Know Your Customer guardrails in place. Exactly. It would definitely take some time to develop those. There could be some privacy concerns from folks in Washington. It certainly wasn't something that they could do on very short notice.

4:55And they were sent this letter at a pretty quick turnaround. So, you know, as we've reported, anthropic executives are now in Washington, D.C. They're meeting with the Commerce Department today. We'll see what comes of that. They're trying to work through this. The concern here, I should point out, and Anthropic has said this in their statement, they believe that the government is concerned about a jailbreak. Now, there's not necessarily one definition for what that is, but typically it means that users who are using Fable might be able to prompt it in a certain way so that they're able to access those cyber advanced capabilities that they're not supposed to access.

5:35So Microsoft was involved in surfacing this vulnerability, and that's certainly going to be dominating the conversation in terms of just trying to figure out if this is something Anthropic could fix, if they could potentially fix it with more of these know your customer standards. So that's what's going on right now. And we'll have to see if they're able to work this out and somehow remove that export control. So on one hand, you know, Maggie, it seems like the White House, the Trump administration, is actually very keen to what could possibly happen and is staying ahead of the game, it almost sounds like.

6:15Like, who is leading kind of the strategy and the process when it comes to the White House? And like, it sounds like the expertise is there. Is that correct? Because I feel like with social media, we felt like maybe everybody didn't quite understand everything that was going on. And so there's been some consequences as a result. But it does sound like the team at the White House and the administration is kind of on top of things. Is that fair? Yeah, I think a few things like at the principal level, after Mythos was released in April, you did kind of see this full government response. You know, Susie Wiles, Trump's chief of staff got involved Scott Besson, the Treasury Secretary, Sean Karncross, the director of the national cyber efforts.

7:02So you saw a lot of actors coming together very quickly to essentially write an executive order to make sure that the government could have early access to these cyber capable models, including mythos. So this cyber use case kind of like scared everyone, woke everyone up across the Trump administration. But what we're seeing now is a little bit more confusion, I guess, and it's unclear exactly what the policy is, because that executive order in the process of writing it, there was some internal policy debate over whether this should be a mandatory regime or a voluntary one. And ultimately, what you saw in that executive order in early June was a completely voluntary situation where AI model companies on, you know, on their own terms would offer their models to the government and the government would sort of review them, help them ensure that everything was safe.

7:55At the same time, the government would be able to make sure that critical infrastructure and its own data was protected from potential cyber attacks. And this is all going to be sort of a kumbaya voluntary thing. And I guess the lack of clarity now is what we're seeing is it's really no longer voluntary for Anthropic in this case. When push came to shove, the company was doing something that the government didn't like, and then ultimately found a tool to sort of compel it into paying more attention to this jailbreak. So that's definitely casting some uncertainty onto the whole industry, because Anthropica is not the only one sort of operating under this voluntary situation.

8:35And it seems that potentially it's more voluntary, but with a looming threat of, you know, you could be compelled to do something if the government decides to do that. Maggie, I'm curious, the folks you talk to who are observers of this type of technology and understand tech policy, do any of them say that we're missing the mark here? Because what I think about is the constant refrain, which is like you're using right now the worst version of AI that will be available. You have all these companies here in the U.S. that are working on this. You have all these companies in China that are working on this.

9:11And here we are talking about some model that a year from now is going to look like pretty basic and simple if the last three years are, you know, any indication of how quickly this technology moves. Are we just missing the mark here by focusing on this one thing? Yeah. Yeah. I mean, I think there's been a lot of criticism, both like in the cybersecurity community and in the AI policy community to this decision. I think the main criticism is just that it's a bit incoherent, right? Sort of like this is probably the worst thing for AI model companies is like regulatory uncertainty. Because this was done through essentially a letter.

9:48So it's not public. And Drabik has said that it wasn't even clear exactly why this was done. They only found out later, that is their position. They found out later that the government was worried about this vulnerability. So certainly some folks have said that the Trump administration is missing the mark because, you know, if they wanted to do a more regulatory approach, they should make that clear. Right. Because that would be the best thing for the markets is to have just a clear signal in terms of what the regulation was going to be. or if they were going to take sort of the pro-innovation laissez-faire approach, then sort of doing something like this in a last minute export control, blocking all foreign access is certainly not aligned with that.

10:30So I think the main criticism right now is just the lack of coherence, which is probably the worst thing for the market, even compared to a more clear regulatory policy. Yeah. And it does wonder, you know, as you guys, you and the team, in your reporting, Maggie, say after decades of disseminating cutting-edge U.S. technology around the world as a diplomatic and economic tool, Washington is now moving in the opposite direction. And you do wonder, is it not just a Trump administration shift, but maybe something that on both sides of the political aisle, there's been a pulling back? Because it's safe to say, there was certainly, you know, the continuation of Trump's first-term policies when it came to China on certain things and technology in the Biden administration.

11:15So you do wonder if this is something more significant going on. Yeah, there's definitely this unique tension with artificial intelligence in particular, where folks in Washington are concerned that actually, you know, disseminating this technology might be sort of at odds with actually preventing foreign actors like China and Russia from accessing it. You know, the U.S. adversaries, the people that they don't want to access it. So this is kind of a unique tension. And it's been, you know, currently, as we're seeing, it's sort of leaning in the direction of safety, which is certainly not what we would have expected from the Trump administration at the start of the president's term.

11:57But I think it's, you know, it's one thing to say that you want to have, you know, a light touch approach. It's another to actually be sort of confronted with these cyber vulnerabilities as folks like Scott Besson have been, and then to sort of figure it out on the fly. Right, and you have to wonder about, especially as a lot of these companies are getting ready to do some maybe mega cap IPOs. What does it mean for their business going forward? Some great reporting. Maggie, thank you so much. We really appreciate it. Maggie Eastland, she's Bloomberg News tech reporter. She's based in the nation's capital, our Bloomberg News Bureau in Washington, D.C.

12:32Stay with us. More from Bloomberg Businessweek Daily coming up after this. What if data didn't sit still? What if intelligence moved with us? Not buried in reports, but activated in real time. Where lives are being shaped. Where decisions are being made. It all starts with a question. Where is the potential? Cotality turns data into clarity. Intelligence into insight. Insight into action. Because when intelligence moves, we all move forward.

13:08So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. deep in the work that moves the business. Let's create smarter business, IBM. Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto.

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14:58Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. It's interesting. We're obviously watching the war and we just kind of covered all of that in terms of the market enthusiasm that's playing out. Also playing out is, again, we're focusing on what is the world's largest IPO. We're talking about SpaceX. Successful launch on Friday. We continue to see the stock shooting higher today. Shares jumping in their second day of trading adding to gains following a blockbuster debut that instantly vaulted this company into the ranks of the world's most valuable public companies.

15:32Now, keep in mind, the offering syndicate for the IPO included several lead underwriters, including JPMorgan Chase. The list, to be fair, though, of all the banks involved, reads like a who's who of Wall Street's biggest and best known banks. We've got a great couple of voices joining us with an inside look at how all of this played out and continues to play out at this point. Bailey Lipschulz is Bloomberg News IPO reporter. David Bauer joins us, too. Head of Equity Capital Markets Americas over at JPMorgan Chase. They both join us here in the Bloomberg Businessweek studio. Dave, good to see you.

16:02Bailey, I feel like we... Usual, yeah. It's like I badging, I badging out. We are always seeing you, and we're lucky. SpaceX, of course, the largest IPO ever. I'm just curious, from your view, how you think market participants right now, Dave, should be looking at this in the context, not just of other potential IPOs in the future, but really in the context of everything we're seeing out there right now, the talk of people taking money from other assets, selling that, getting into SpaceX, just your view. Yeah, I think, I mean, first of all, for somebody in the ECM world, what a time to be alive.

16:36These are great times for the markets. And I think unlike other cycles we've seen where IPO issuance has been extremely active, you have a real catalyst forming the investment thesis behind this. This is the reindustrialization of America. We're creating new ecosystems, new economies. I mean, you think about what space could become, what AI could become. These are investment theses that many people haven't been able to invest behind before. And so I think seeing that this euphoria in the IPO market is warranted and appropriate. What's the signal to the market and market participants specifically?

17:09I think right now you're seeing that the IPO worked. And you saw Friday a very strong trading with the stock finishing up 19 % from the IPO price. And I think today you see broader markets rallying on the news with Iran peace treaty. And you're seeing just more enthusiasm coming in. SpaceX up another 15 % today. Exactly. And so I think it's all systems go to make a pun intended for SpaceX. But I think if there was any hesitancy of should I continue to buy up 20%, I think the answer is yes. And if you look long enough, this is a business that could be generationally transformational. But thinking about the generational transformation, Dave, when I look at the pipeline or the kind of group of companies that could be coming public, they don't look like SpaceX.

17:52When you're meeting with people, maybe your former employer, KKR, talking about something in their portfolio, a number of other private equity firms, what are they looking at? Obviously, this is a big one for IPO buyers, but does that translate to someone who owns, say, software companies or other companies in other industries? Look, the mega IPOs are getting the headlines right now, but there's been a very active and very accommodative equity market in general throughout this year. And putting SpaceX aside, new issuance volumes are up almost 2x this time from last year. And the vast preponderance of that has been other sectors.

18:28And we've seen health care coming back. We've seen biotech issuance coming. We're seeing industrial energy. So the markets are working at large. But aren't all those themes still off of AI in some capacity? If the bottleneck is power and I'm a power company, then I at least have an AI pitch. Because when I look at AirTalk to folks, it's kind of like your TAM is either infinite because you have AI behind it or it's zero because your software and the worry is that your kind of total market could be at risk. How do you think about kind of other industries and how that fits into that? Yeah, look, I don't think the market is shut out for certain issuers.

19:03I think it does come down to price and having the right starting point in the public markets. And I think there is a bid for those other businesses. You know, you mentioned sponsor-backed businesses. It's a good time to, you know, what I would say, get the puck on the ice, start it. And, you know, we always say when we're advising our clients and our issuers, proof points in the public market are worth even more than in the private market. And so getting out there, starting it, and you can see how your valuation can expand as you perform. You can get your share price to a level that you might be more interested in selling at.

19:36But getting started can be helpful. What is it about this moment right now, Dave, that is compelling so many of these companies, not just to go public, but also to look into going public? And I am going back to sort of the companies that, when they do go public, will become mega cap companies. And just to tag on to what Tim's saying, opportunistic or fundamentally based? I think this is a more fundamental-based market. And you look back to 2021, which felt a little bit more technical. It was like rates were zero, and so therefore equities were attractive. And you had a very different dynamic that drove that.

20:07I think this is much more of a fundamental. I think the market is looking at what the next three to five years could be and potentially looking past some of the near-term volatility. And it's not saying they're ignoring downside risk, but I think saying there are certain businesses right now that are very much worth investing in. There's a whole slate of new issuance that is different than the portfolio I've had in the past, and I'm going to take that opportunity to invest in it. I am thinking, though, about those mega IPOs, be it Anthropic or OpenAI. Should we make any assumptions about their market reception just because of what happened with SpaceX?

20:40I think, I mean, SpaceX is an N of one of itself from the fact that no one else is doing space at the scale that this is velocity. But it's an AI play. But it is an AI play. But where I was going with that is, I do think, I mean, this bodes, if you're anthropic and open AI, you're applauding that this type of market reception happened. And the size of the deal getting done, having a trade as well as it did, to me, that gives you more confidence that the next wave could get done in a very positive way. Well, when we look at what the next few months can look like, back to the broadening out, is AI still the flavor of the day?

21:15If we look at some of the reports that are out there in SK Hynix or other large companies in the AI space looking to tap the market like Carol was mentioning because of these tailwinds and kind of what does that mean for this July, this August class? Yeah, look, I think we're going to have a very active summer. Even the SpaceX period of time, you know, a lot of people thought coming in, we'd have a dearth of issuance and you'd have a real quiet period. We did$10 billion of equity capital outside of SpaceX last week. And so, you know, the market was still working. There were still a ton of deals getting done.

21:45I think this CapEx cycle, to your point of AI, people still want to invest on it. And that's across equity, debt, all the facets of capital here. And so the public markets are helping that, but it's also the private capital markets as well. We're seeing capital formation in almost every corner of the capital markets. You oversee ECM. I come back to the point that Google, Alphabet, however you want to call them, raised close to$90 billion across the suite of products. Is that something we should expect from all these hyperscalers who need capital to attack the equity market? And is there any risk that that gets oversaturated?

22:19I think the speed at which Google is able to raise in the public markets shows the depth and the capacity for the capital markets. And I think as long as companies are showing an ROI and a good use of proceeds to raise that equity capital, the markets will be there for them. How do we know when it becomes uncomfortable, crazy, exuberant? Frothy? Frothy. Well, think back to 2021. It's easy now to say that these were companies that were advantageous. But in the moment, did it feel that way? I go back to when you look at fundamentals and you look at valuations, we're not terribly stretched and we're not at a new point in time.

22:59And you go back and you look at, for example, software valuations in 2021, those were hitting new highs and they were hitting kind of new records of where the market was trading that we're not seeing that writ large in the public market. But SpaceX isn't profitable. No, it's not. And it's being valued on a sales multiple for 2025 sales. And I think that some people have come and sat here and said, you know, it's starting to feel like, you know, when we're valuing IPOs on sales multiples, it started to feel a little bit like the dot-com boom. Why is this time different? Well, one, I think that's unique.

23:30One, SpaceX, I think, is its own animal. And I think when you're thinking about the space economy, you have to look at that in a very different way. I don't think you're seeing the rest of the market being valued aggressively on a sales multiple or other. metrics where people are trying to extend and get comfortable with it. I think these are based more in fundamentals. It's based on growth right now. And people are seeing where the capital being laid today has a return in the future. And I think you can pull that forward. And that's what's going on. But the circular financing doesn't worry you guys?

23:57We have this conversation a lot. Are we stupid to have that conversation about a company that seems to buy from another part of its properties or invests in a chip maker because they need to like, you know what I'm saying? what's the conversation you guys have about that circular financing the the what keeps me sleeping well at night about this is the fact that we're having the conversation and i think if people are acknowledging it we're talking about it you're dissecting it you're diligencing it i think the cycle has room to continue and to grow i think it's the unknown risks not less the the known risks that um i think you know could could derail the cycle and when we look at this market is there risk and kind of just thinking about the difference between a hyperscaler who is historically been the best cash flow cows in the history of mankind, they can at least turn off spending.