China Targets Nvidia Over 2020 Deal, Straining Trade Talks 

0:00So, like 100 % of investors think that protection is important, but only about 70 % of advisors are like talking to their clients about that.

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1:46Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You'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. Up next, Carla, we have this big news today. I feel like I was preparing for the show and then suddenly crossing the wire is China targets NVIDIA over a 2020 deal. And with us to explain all of that is Bloomberg Intelligence Global Head of Technology Research, Mandeep Singh. So, Mandeep, based on what we know so far, how serious are the alleged conditions that NVIDIA may have breached this Mellanox acquisition?

2:28And is this noise or should this be something that we should take seriously? Well, I mean, typically what we have seen in cases like this when a regulator investigates, you know, an acquisition that was done in the past is there could be a fine and there could be a hefty fine given, you know, the size of the acquisition. although we don't know what the investigation was all about. So there are very little details on what transpired. But my sense is this is the timing is influenced by the trade negotiations and what's going on with the US. Look, at the end of the day, China knows that NVIDIA has some of its largest potential customers in China.

3:15And they would prefer those customers to get off of NVIDIA dependency. I mean, that's the one thing that it's very obvious from the Chinese government. They don't want their largest customers of large language models to be relying on NVIDIA chips.

3:32Scarlet Fu:Right. It's a national security issue for them. China had approved the NVIDIA purchase of Mellanox, a$7 billion deal, on the condition that NVIDIA not discriminate against Chinese companies. That wording is very vague. How do you interpret that? Well, so, I mean, look at, you know, how many architectures have been released by NVIDIA since then. And so from that standpoint, the fact that, you know, in the prior administration, NVIDIA was barred from selling their latest chips to the customers in China is just an illustration that, yeah, I mean, all the other customers had, you know, the latest NVIDIA chips accessible.

4:13That wasn't the case with the Chinese customers. So there could be a lot of things that could be in play here in terms of the exact conduct that they found, you know, was not proper. But to my mind, it is just a negotiation lever that the Chinese government is pulling here. And look, in terms of the size of the market, we know NVIDIA has said it's a$50 billion addressable market for GPUs in China. And it's expected to grow at a 50 % plus CAGR. So it is a pretty big opportunity for a company like NVIDIA and for other chip providers here in the US. And from that standpoint, you know, they could see the stakes are pretty high for companies that want to do business in China.

5:01The stock opened lower today. It's down by one and a half percent. How do you see this affecting investor sentiment around NVIDIA? Like what are potential downside risks to the stock? You alluded that it could be just noise and the timing is curious, but still investors must be a little bit rattled at the very least. So what NVIDIA started doing is they've started embedding that in the guide. They said if they were allowed to sell H20s to China in 3Q, it could add another two to five billion dollars for the quarter. So that's how they guide going forward because of all the uncertainty. And remember, the U.S.

5:35government may be getting a 15 percent cut of those NVIDIA or Blackwell sales in China. So that's where the administration is negotiating. They want a cut of the chip sales. So I think everyone is involved, which is very surprising. You know, you would think it's a, you know, a company that is doing business. But in this case, there's a big geopolitical dimension to the entire thing that's going on.

5:59Scarlet Fu:Yeah, so it makes it extra complicated. At the same time, or maybe separately, I'm not sure which one it is, China has opened an anti-dumping investigation into some U.S.-made analog chips. So the companies affected here would be Texas Instruments, Analog Devices, Broadcom, and OnSemi. What can you tell us about this? Well, so again, I think when it comes to the analog side, the drivers are very different. Like we are supply constrained on the GPU accelerator side. On the analog side, the auto chip market has been pretty lackluster when you compare that to the overall chip complex. And so from that perspective, everyone is trying to find a lever to boost their sales given the lackluster demand.

6:46And I don't think there was any anti-dumping, but that's where the negotiation aspect comes into play that, OK, TI is another company that does business in China. What have they been up to? Is there anything in the conduct that they could point to? And so to my mind, you know, it's probably a reflection of that. Maybe very briefly, what lessons should other U.S. and foreign semiconductor companies take from this experience in terms of risk to China, regulatory backlash or conditional approval being revisited after a deal? That doing business in China is getting harder and harder. I mean, if you're a company that relied, like look at Synopsis, the stock dropped 30 percent.

7:26partly it was because of Intel paring back on the license consumption, but also in China. They couldn't sign long-term agreements in China, and they have a pretty sizable customer base in China. So that's just another illustration of the risk with China sales.

7:42Scarlet Fu:The goalposts are constantly moving for companies operating in China, and you could argue for companies operating in the US as well. All right, Mandeep Singh, thank you so much. Bloomberg Bloomberg Intelligence, global head of technology research, joining us here. And again, we are looking at shares of NVIDIA. Isabel, lower today because Beijing unexpectedly ruled that the company violated anti-monopoly laws with its 2020 acquisition of Mellanox. Stay with us. More from Bloomberg Intelligence coming up after this. I don't love the word retirement because I think it has negative baggage. I like the word financial independence.

8:16If you were to be financial independent, like how would you spend your time? And that's exactly what a lot of my clients talk And the term they'll use is a work optional lifestyle.

8:24Scarlet Fu:I agree. Like the next gen, millennials and below are not thinking about retirement. We're thinking about let's find something that we enjoy, that we can have financial independence. I think that's a better way to think about the end of life stage versus quote unquote retirement.

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10:23Scarlet Fu:You'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. Let's move on now to the headline we got this morning, that this TikTok deal has been secured, or at least a framework deal has been reached, according to Scott Besson, our Treasury Secretary. President Trump says he will now speak with Chinese President Xi Jinping on Friday to complete the deal. Let's bring in Matthew Schettenhelm. He is Bloomberg Intelligence Media Litigation Analyst from Washington, D.C.

10:58Scarlet Fu:Matt, where does this leave TikTok's legal status? Well, Scarlett, it looks like we may finally be seeing some movement here. This has been an extended legal limbo as President Trump has extended this law three times, even though it's not really clear that that's what Congress envisioned. He's been able to adopt these extensions in January, in April, and in June. And that extension is set to expire on Wednesday of this week. And as you said, it sounds like there may be at least the shape of a deal coming into place to to maybe be finalized after those talks on Friday. So it looks like there probably will be another extension since since the law is set to take effect on Wednesday and we might not be done then.

11:48But this at least seems like progress. So it is progress indeed. And I feel like there has been one extension after the other. What outcome are we hoping to expect on Friday when President Donald Trump will speak with Chinese leaders Xi Jinping, are we expecting a share of American company or like tell us what you're looking at? Well, it's really hard to know exactly what, you know, the law contemplates a divestiture so that the company that runs the U.S. operations would not be controlled by ByteDance. And so what the way you read the law, it contemplates that there would be a divestiture likely to a U.S.

12:29entity, probably where ByteDance owns less than 20 percent of that company, and that there would be no cooperation between those two companies. They would be formerly affiliated under the law. I think the really interesting thing to watch is how much is this deal going to stick to the terms of the law? You could make a pretty strong argument that President Trump hasn't exactly adhered to the law so far, and he hasn't gotten any pushback. So it's not clear how much any deal will need to stick to the law or not. Right, right, right.

13:05Scarlet Fu:No, that's an important point. And, you know, it could not stick to law, but it doesn't matter if everyone's OK with it. Matthew, in terms of companies affected by some kind of framework deal reached, for which companies is this good news? Well, sure. I mean, so Apple and Google have been hosting TikTok in their app store at enormous legal risk. With this law in place, in theory, they are potentially exposed to liability of$5 ,000 per TikTok user. And you do that math and it's absurd. And so no one wants to operate with that cloud hanging over your head. So in that sense, some clarity in the law here is good for those companies.

13:45I'm not sure it's so good for TikTok's competitors like Meta that had the opportunity to have one of their top competitors in the U.S. It's knocked out of the market, and it looks like that is going away. So it looks like TikTok will remain a fierce competitor in the United States, and so Meta won't be able to use this law to its advantage. We also have a story published less than 30 minutes ago. It's about Treasury Secretary Scott Besson saying that the threat of allowing TikTok to go dark in the U.S. was what ultimately sealed a framework deal. Can you talk to us more about how this strong arm negotiations may shape future negotiations between foreign companies in the U.S.?

14:28And at least for this one, specifically in isolation, it looks successful. It does look like this may have worked. This is not the way that these things typically work. But here, Congress really gave President Trump a lot of leverage by passing this law. You know, I think it was questionable whether President Trump was using that leverage by letting TikTok continue to operate. You could make the case that he could have made a stronger, had more leverage if he hadn't. But it seems to be working.

15:03Scarlet Fu:Matthew, always a pleasure. Matthew Shettenhelm, Bloomberg Intelligence Media litigation analyst from Washington, D.C. on TikTok's legal status now that there has been a framework deal reached on TikTok, according to Scott Besant. Stay with us. More from Bloomberg Intelligence coming up after this.

15:46move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring 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.

16:26Complete disclosures available at public.com slash disclosures. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping 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. Ask yourself, what are your best people spending their time on right now? Expense reports?

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17:32Scarlet Fu:You'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. Now we're going to talk all about Tesla and Elon Musk buying one billion dollars worth of Tesla shares. We're joined by Craig Trudell. He's a Bloomberg Global Autos editor joining us from London. So, Ed, Craig, what can you tell us about Elon Musk purchasing one billion worth of Tesla shares? What signal do you think he's trying to send markets and shareholders with this move?

18:07I think I think it's pretty clear there was an all out push on Friday with Robin Denholm, the chair of the company, speaking with us at Bloomberg Television, speaking with, you know, the New York Times, the Wall Street Journal, all sorts of major news organizations about the merits of this pay package that the board is proposing. There's going to be a big shareholder vote in November on handing Musk this potentially up to$1 trillion worth of stock. There's a lot of caveats to all that, that Musk would have to sort of pull a rabbit out of the hat again after doing so after a 2018 pay package where the board laid out all these really ambitious market value and performance milestones.

18:53And Musk, you know, at that time, it was kind of perceived as this moonshot pay package. He proceeded to knock them all out. And they're now calling this next pay package a Marshot pay package. So, you know, I think this is all sort of part of a piece, right, of trying to get investors to sort of, you know, focus on, you know, far out there targets, objectives for Musk that would make shareholders a whole lot of money. And it comes amid real signs of stress for the core here and now business for Tesla, where their sales have just really struggled this year. And there haven't really been signs of sort of meaningful change in that trend even into this quarter.

19:37Scarlet Fu:Right. So this will properly motivate him. I'm so glad you brought up the 2018 pay package and some of the moonshot milestones that it laid out for Elon Musk. What was the most, I don't want to use the word outrageous, but the most ambitious of those milestones? And did he surpass each and every one of them? Yeah, I mean, in terms of the milestones there, I mean, just even the market cap figures, I think, you know, when they were laid out, you know, it was just sort of unfathomable that, you know, a car company could be, you know, a trillion dollar company. And, you know, give the guy credit. He went out there and made it happen.

20:13You know, I think Tesla now is trying to sort of, you know, incentivize him to, you know, turn Tesla into a company that is many multiples of even NVIDIA, the most valuable company in the world in the here and now. And yet, you know, the sort of path to getting there is really uncertain because, you know, you've heard Musk make these pitches about robo taxis and about humanoid robots. But, you know, he's starting essentially from zero from a humanoid robot perspective. And from a robo taxi perspective, he's got, you know, a very, very small number of cars on the roads in Austin, Texas, that still have people, you know, in the in the front row, minding those cars and in certain cases actually still behind the wheel.

21:01So, you know, he is a long way from accomplishing some of these new objectives that the board has set for him. Does Musk buying shares personally ease governance concerns or could it even actually reinforce skepticism about how closely Tesla's board is aligned with his self-interest, his being Musk? You know, I think just generally whenever a CEO or an insider of a company is buying shares, it's taken as a good thing and not necessarily, you know, something to look at from a corporate governance perspective. It does, however, I think it's worth sort of thinking about this billion-dollar purchase in context.

21:39This is a guy who's sort of a billion dollars can be found in his couch cushions, right? He is the top person on the Bloomberg Billionaires Index. He was very briefly knocked from that spot last week by Larry Ellison, but he's worth about$420 billion at the moment. And so, you know, just how meaningful this is with any other CEO, you would look at a billion dollar stock purchase and maybe take, you know, take real note of that. With Musk, is it that, you know, huge a show of confidence? Maybe not in the context of, you know, just how much wealth he has.

22:20Scarlet Fu:Craig, all of this emphasis on what Elon Musk can do and what Elon Musk can achieve by a certain period really raises a key man risk here. Is there a succession plan for Elon Musk if something should happen to him? I mean, I'm looking at the company management, and he's got 17 years tenure at Tesla. The person with the next closest tenure or next longest tenure is Xiaotong Zhu, Tom Zhu, at 2.4 years. He's the senior vice president of AIPAC. Yeah, it's a very good question. And it's something that's sort of considered actually in this new proxy where, you know, the board sort of lays out this idea of getting, you know, some buy-in from Musk in terms of helping and assisting on succession.

23:05At the same time, you're hearing Robin Denholm, the chair of the board, you know, tell Bloomberg TV last week that there aren't any other people out there like Elon who can actually lead this company over the next decade or so. And so, you know, I think they want to kind of have it both ways, right, of we must, you know, incentivize this guy because he's the only one who can do this. And yet we do realize we need to sort of assuage these concerns about succession.