China Orders Companies to Stop Buying Nvidia AI Chip

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1:55Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. China reportedly telling its tech companies stop buying NVIDIA's AI chips. You know what? Even cancel your existing orders. Here to talk about it is Mandeep Singh, Bloomberg Intelligence Global Head of Technology Research, joining us here in our New York studio. Mandeep, thanks for being here. Just how big a blow is this to NVIDIA at this moment in time, given how much of its business is tied to China? Well, if you go back to the guide that NVIDIA gave during their second quarter earnings, they sort of anticipated this, that a lot of the China revenue may not materialize, even though they said it could be$2 to$5 billion.

2:44But the guide was almost de-risked that they didn't include any of that. So from that perspective, it's not that big of a deal. And I think the stock reaction validates that. With that being said, they also said that the China GPU market is almost$50 billion addressable market and it's growing at almost 50 % plus growth rate. So when you factor in, you know, the multi-year investment cycle we are in and not being able to sell into China will be a big kind of factor in terms of... If it continues. If it continues. And look, I think when I look at the biggest large-angle model companies, it's either in the U.S.

3:26or in China. And those are the companies that need the NVIDIA chips for training their models. And so from that perspective, once they move away from NVIDIA, they're not coming back. Isn't this just a political football? And at some point, President Trump and Xi are going to get together somewhere, hash all this out, including chips and TikTok and all that stuff. It sounds like NVIDIA has been caught in that crosshairs when it comes to the U.S.-China deal. And clearly, there is a lot of sensitivity around the use of their chips when it comes to, you know, the data and how important it is for countries in terms of just how they're thinking through their AI strategy.

4:12So with that being said, look, I don't think there is an easy resolution here when it comes to the use of NVIDIA long term for a country like China, where clearly there are tensions. And I don't think even if there is a deal, the sensitivity around the data is kind of going back to where it was, you know, a few years back. That's why we have the TikTok deal. And, you know, what we are going through in terms of ByteDance having to give up ownership is because clearly the U.S. doesn't want, you know, the data of the users to be stored in China or be accessible in some way. So from that perspective, I think the data sensitivity is big and chips are a big part of that.

4:59I'm glad you brought up TikTok because since we have you here, I wanted to ask you about that. More details are now emerging. It looks like there may be a consortium, right, including Oracle, Silver Lake, Andreessen Horowitz, that may take over the U.S. operations. But might there be a bidding war here in any talk as to how much they're valuing this company? So when we did a valuation a few months back, because this has been in the news, you know, for quite a while, we thought a good benchmark would be companies like XAI, Snapchat, Pinterest, Reddit. And so from that perspective, you know, TikTok U.S.

5:38assets will be valued at somewhere between 40 to 50 billion. In fact, XAI's last valuation before, you know, XAI and X merged, the Twitter portion of it was valued at around 33 billion. So from that perspective, it will be somewhere in that vicinity. But with that being said, you know, given the geopolitical aspects involved in this deal, Oracle seems to be the one entity that will likely be involved in buying the assets because it's running the TikTok backend infrastructure right now. So I can't imagine this deal happening without Oracle. The private equity players are Silver Lake and clearly Andreessen Horowitz.

6:23And look, I mean, this would be among their biggest deals. Even if you think about that 40 to 50 billion sort of transaction value, it'll be quite huge. So I do think, you know, it's a valuable asset. But because of the geopolitical nature of this, there may not be, you know, an entity among the Mag7 players that would try and bid for a TikTok. Talk about a political football, right? Yeah, exactly. Exactly. So, I mean, but part of the deal, if this thing were to be spun out as a separate company, you'd have to ask all these little TikTokers out there to download a new app and all that kind of stuff.

6:59Is that perceived to be a potential problem or is that not? Actually, if you had asked me that question one year back, I would have said yes. But now with generative AI, a lot of the systems are being rewritten. So when I think about TikTok's algorithm advantage, I feel it's somewhat offset by the fact that we have got all these new generative AI-based recommendation tools and new things that are out there that companies that are looking to develop new AI apps are doing that natively using LLMs. So if somebody was to rewrite the algorithm, they could do that now with all the LLM tools that are available.

7:40That wasn't the case one or two years back when TikTok really had an advantage with their algorithm. I think that's been somewhat offset. You know where I'm a little confused? I don't know if you have any clarity on this, but say you're an influencer who gets a lot of income from TikTok, right? A lot of people do. If you have to download the new app, do all of your followers come along, too? Is it just basically your account, but on a new app, in essence? That's true. And you get all the social graphs. It's just the recommendation algorithm changes. And guess what? Google search changes their algorithm so many times.

8:13Even in a year, they change their algorithm a lot. So what's the big deal if the algorithm changes? Look, it will impact the creators and how they're used to monetizing once a recommendation algorithm changes. But meta has changed it. Google search changes it. So I don't think it will be that big of a deal. And that's why I think they are going in that direction where either they license the algorithm from ByteDance or they rewrite their own algorithm. And I think both should be acceptable solutions. All right. Here's my the one I have to do every time I see it. My AI is going to kill Google. I'm not clicking on the links, dude.

8:51If I put in a search query into Google, Google AI serves me up exactly what I want. I don't have to click. How's that changing their model if I'm not clicking? So you're right. The 10 blue links has definitely changed. So the relevance of maybe in addition to AI overviews, the top two links has increased. And so because generative AI drives more engagement that you are going to ask a follow-up question in addition to your first query. So instead of showing you 10 blue links at once, they'll show you two blue links in the first one, two blue links in the follow-up query. And even though you are interacting with the Google page a lot more than going to the publisher website, they will show you the top two links and charge more for those links to the advertiser.

9:39So clearly the model is changing and the algorithm is changing, but they seem to be adopting well. Stay with us. More from Bloomberg Intelligence coming up after this. Over$100 trillion estimated to be transferred to generations in the next 25 years. It's both a risk and opportunity because we see that only about 18, 19 percent of high net worth investors plan on sticking with their advisor post-transfer. This has to be a tough statistic for some to hear. People who work so hard trying to grow their net assets, they want to protect that life work and they want to make sure that it is able to transfer in a seamless way.

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12:17General Mills is one of them. I pulled up the Bloomberg Intelligence Research, which is awesome. Now I'm going down this rabbit hole where you can get the earnings model for all these companies that the Bloomberg Intelligence analysts have put together right there on the terminal. I'm going down this rabbit hole. I'm changing scenarios and changing margins and all this kind of stuff to see how the earnings are. So let's get back to it. But Diana Roseto-Pena, she covers a lot of these consumer stocks for Bloomberg Intelligence. Diana, talk to us about General Mills here. How were their earnings recently?

12:46They were mainly in line with expectations. It wasn't that much of a surprise, but still, you know, the stock is a little bit on the soft side. People expected better news than what they disclosed. Yeah, I mean, North America sales came under pressure. What was the drag there? It was mainly on volume. We expected volume declines, but not to the magnitude that they did. It was down 4 % on the organic part. So obviously consumers are still trading down. They are mentioning that about eight brands of theirs, it was positive, but still it wasn't enough for the whole segment to pull through. What are they doing or what are they saying about tariffs and the impact on their costs versus maybe what they're trying to pass along to customers?

13:41So they are upsetting some of the costs with cost savings. It's usually going to be they expect to be about one to two percent of COGS this year, which is a little bit lower than, for example, Campbell's expected. They expect around four percent. So, you know, they're not there. They do not want to raise prices. They want to be competitive because obviously volume growth is not happening. So, yeah, I mean, they're getting competition from more folks. I mean, on the one hand, they're they're benefiting from the fact that more people are eating at home. Right. But yet when we're going to the supermarket, more people are choosing those private label brands.

14:20Correct. So did they did they talk about that at all on the earnings call? And what's their sort of, you know, plan of attack there? Yeah, so they're increasing marketing. They're hoping for innovation. They mentioned that 25 % of sales growth in North America retail will probably come from innovation this year. And this is what everybody's trying to get to. The problem is, and that was mentioned on the call as well, was that even though price increases are not as significant as it used to be, they're still high. So on a basket size, you're still paying a lot more than you used to two years ago.

14:58Talk to us about store brands versus kind of the brands we all grew up with here. Talk to us how that's changed over time. Are store brands becoming a bigger, bigger part of the average cart? Yes. Well, retailers are investing more on their private label. It allows them to bring people into the store. Some of the brands have a cult following, I would say. Hello, Costco. Exactly. So people are going to the store to buy that particular brand. They're more profitable than national brands. So obviously there's still incentive for retailers to deploy some of their own brands. I think some people think it's chic to buy private label, right?

15:41We're like a badge of honor. Well, certainly, I was shocked at the price differential. Yeah, because they have that pricing power, right? These stores, which, you know, make their products a lot more attractive. Really quick, Blue Buffalo, it's their pet food. I was surprised to see that that was not a leader for them. Yeah, so Wilderness is not doing as well as they are hoping. Dog food in general has been a headwind, not only for them, but also for the overall industry. Cat food seems to be the leading indicator here, which is surprising. So cat food is outpacing dog food? Yes, correct. We have seen this for the past year.

16:23God's name is going on. John Tucker had to chime in on that. Talk about dog food and cat food. Well, there seems to be growth in the cat population more than the dog population. Wow, interesting. Interesting. We had a good retail sales number yesterday, better than expected. Are your companies, the consumer products companies, what are they saying about the consumer? Yeah, like I said, they're looking for value. They're still seeing their budget as a whole, rather than the price increase or decrease. They're looking for price cuts wherever they can, and they're willing to trade down for it. Stay with us.

17:01More from Bloomberg Intelligence coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. or if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest.

17:38Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., Member FINRA, and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a Gentic finance that eliminates that work before it starts.

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19:01You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. More details are emerging now on the U.S.-China TikTok deal. We know it is an app that nearly half the country has, 170 million Americans. What might that deal look like? What are some of the hurdles? Let's bring in Matthew Schettenhelm, Bloomberg Intelligence Media Litigation Analyst. He is joining us from Washington, D.C. So, Matthew, just tell us sort of where do things stand right now?

19:38We know that there might be this consortium that would take over the U.S. TikTok, but might there be other bidders here? Yeah, so I think we're finally seeing progress here for the first time. As you know, Congress passed this law last year. The Supreme Court upheld it in January. It was supposed to take effect and effectively ban TikTok on January 19th. And President Trump has granted extension after extension to prevent that from happening. I think this is the first sign of real progress. It sounds like there are two or three bidders involved. And the potential framework for a deal that potentially could be announced as early as tomorrow.

20:24Well, you know, I think, well, I certainly forgot that TikTok passed a law that says, hey, you either got to divest this thing or shut it down. I mean, Congress is involved here. So whatever deal eventually gets done, it has to kind of hew to those requirements by Congress, doesn't it? Yeah, I mean, that's right. This is not the way the law typically works. Usually, you know, Congress passes a law. That law is still on the books. And as of January 19th, TikTok is supposed to be banned. And yet it's continued to operate because President Trump's Department of Justice has sent letters basically saying, don't worry about it.

21:02So that raises the question, how much is the law going to matter with respect to this deal? Because Congress specifically addressed what sort of divestiture should happen under this arrangement. One of those term says that ByteDance can't control the new entity. I think they can address that by keeping ByteDance's interest below 20 % in the new entity. But the second one might be trickier, and that goes to the operation of the algorithm, which is TikTok's secret sauce. The law that Congress passed said that there can be no operational relationship, no cooperation between between ByteDance and any new entity.

21:45And that's going to be the really interesting thing to watch as these deal terms come out. How are they addressing the algorithm going forward and how will that change TikTok as we know it? And Matthew, one of the stipulations I read is that the U.S. government would have a seat on the company's board. This is not common, right? I mean, you usually see this when the government has to come in an emergency situation. Maybe there's a sponsored bailout like we saw during the 2008 financial crisis with some of the insurers and the auto companies. Do you think if the U.S. gets a seat on the board, it gets a seat on the board, you know, forever?

22:19It's not a temporary situation. All of this is sort of unprecedented. So, you know, it's possible that this is sort of just a temporary solution. It's also possible that it lasts longer than that. We're sort of making it up as we go here in terms of the law. And so it's very difficult to say exactly what shape a deal like that takes and how long any of it endures. So what are next steps here, Matt, from your perspective? Yeah. So yesterday, President Trump again issued an extension. The law was set to again take effect and effectively banned TikTok. His extension extends it through the middle of December.

23:06And so that gives some breathing room now to make this deal happen. Of course, he could just kick it down the road again if the deal doesn't happen. So it sounds, though, like there's real progress on a framework for a deal. And so I think we should learn more details about it tomorrow and the day after and potential for a deal that actually resolves this issue and is a genuine divestiture from ByteDance as Congress intended. This may end up actually working out as Congress intended it to work at the end of the day. Matthew, I think you hit it earlier when you were talking about the algorithm being the special sauce, the most lucrative part of any deal.

23:45To be clear, do we know? I mean, the U.S. would not be outright buying this algorithm. They'd be licensing it at the end of the day, right? Yeah, that's what it sounds like from some of the reporting on the deal. And there's the potential that that would be consistent with what Congress intended. What the law bars is an operational relationship and cooperation with respect to the algorithm. So the workaround here may be a licensing of the technology and saying the U.S. entity gets to do all the work on that algorithm. But I'm really curious about the details of how that will work as a practical matter, whether that's consistent with the law and maybe the biggest question of all, whether anyone's going to stand up and insist that the law be followed.

24:33This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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