xAI to Raise $20 Billion After Nvidia and Others Boost Round

0:28The news doesn't stop on the weekends. We put the past week's events into context, examining what happened in the markets and the world. Then on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television, listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast. That's Bloomberg this weekend, Saturdays and Sundays starting at 7 a.m. Eastern on February 28th. Make us part of your weekend routine on Bloomberg Television, Radio, and wherever you get your podcasts.

1:10Bloomberg 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. All right, let's stay with the tech space and move over to XAI, which is Elon Musk's AI startup. It's raising more financing than initially planned. And Ed Ludlow, our Bloomberg tech co-host, joining us from San Francisco to give us a little more context here. XAI is backed by a number of big companies, including NVIDIA.

1:51Tell us how much money it's raising? Yes, it's a very specific mechanism where a special purpose vehicle split between about$12.5 billion of debt and$7.5 billion of equity use the funds to go out and buy GPUs, specifically NVIDIA GPUs. XAI then basically rents or leases those GPUs from the investment vehicle over a period of five years is what we've been reporting and is our understanding. And as part of that, we have broken the news that NVIDIA is going to contribute about$2 billion to the equity piece. But basically, what it means is that the investors own the GPUs, they get guaranteed return because XAI has to pay them a fee or a rental fee over the course of the term.

2:40But XAI doesn't take all the debt onto its balance sheet. And so this could be a bit of a template, you know, for how these mega infrastructure deals go going forward. Where is XAI, Ed, in this AI story here? What's the feeling in the alley? Yeah, it's very hard to place because XAI and in particular Elon Musk move very quickly. And they have two specific data centers. One is more complete, Colossus One. and what we're reporting around this financing is the chips for colossus 2 which they started building in march and so from an infrastructure standpoint jensen hong has talked about this saying that he's betting elon musk can get to one gigawatt of capacity first because that's what elon musk does on the actual output side their large language model and grok we don't have as much evidence or data of the user base and and usership of grok like in the enterprise setting for example we don't know it about how uh that particular software that xai develops is in a competitive environment against like an open ai or anthropic but um largely noises from xai themselves but others in the valley talk about how it's somewhere that people really want to work They want to go and work for Elon.

4:01And in the talent war context, that's a big story. Okay. Thanks for that context, Ed. One thing you mentioned when explaining this deal that XAI has put together, the fundraising, is that NVIDIA is one of the backers, but the SPV, the special purpose vehicle, is going to then go out and buy NVIDIA chips. This all feels kind of circular, incestuous, if you want to put it another way. Is this going to create problems? I mean, are people raising their eyebrows over this, that this all feels very like I'm putting money in so that you can go then buy some of my other stuff? So important. Jensen Wang, the NVIDIA CEO, went on another network an hour ago and basically confirmed our reporting that NVIDIA was going to participate, that he wished he could have put more money into this, what he called, you know, fundraising.

4:51but he also talked about the idea that this mechanism was not traditional venture and it nor is it straight vendor uh vendor financing um the circular part is the is the bit that people are most focused on because on paper it's nvidia saying here's two billion dollars which we know xai is going to use indirectly through the spv to buy two billion dollars worth of nvidia chips but jensen huang did go on to say in that interview that if you take for example the open ai deal announced in the last 10 days that's a 100 billion dollar agreement over many years and according to nvidia and jensen huang there is no mandatory requirement that open ai use that uh uh money i'm pausing guys because we actually have no idea if it's cash we have no idea if it's just equity um but but according to jensen huang it's not mandatory for open ai to use the proceeds to buy NVIDIA gear.

5:49They are free to go out and do other deals like they did with AMD. Stay with us. More from Bloomberg Intelligence coming up after this.

6:00You'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. A new administration had a lot of industries saying, hey, maybe we're going to get some deregulation in our business with this Trump administration. One of those industries is the television broadcast industry. There are limits on how many stations you can own nationally, a company can own nationally. There's limits on how many stations a company can own in a particular market.

6:34But there was reason to believe those would be loosened and maybe significantly. And actually, some couple M &A deals have been announced in anticipation of those rules loosening. So let's check in with the expert here, Matt Schettenhelm. He's a media litigation analyst for Bloomberg Intelligence. He's down there in D.C. So, Matt, my FCC, they meet, I think, sometime this month. Are they going to loosen TV ownership rules? Yeah, there was some expectation that the deregulatory actions could start as early as this month for the TV broadcasters. Unfortunately for the industry, it doesn't look like October is going to be the month for movement on that national ownership cap.

7:11Brendan Carr, the FCC chairman, put out the agenda for the FCC's monthly meeting, and this item was not listed on that agenda. Now, he could still add it as late as seven days before the meeting, but that's unlikely. Typically, these things are announced three weeks before. So I still expect the FCC to move pretty quickly on this. The FCC took comments on this earlier in the summer. It really should be a pretty simple order to write up to ease that 39 % U.S. ownership limit. It's just a matter of getting it done. And also, the FCC is, you know, 80 % of the employees are off right now because we have a government shutdown, which could be impacting things.

7:55Okay. So, which companies, first of all, are most affected by this? Paul mentioned that there was some dealmaking in anticipation of this. We know that Nextar Media made a bid for Tegna. It was a$6.2 billion all-cash deal. Is that the most glaring example of companies that are directly affected? That's the biggest one, Scarlett. Sinclair is also a big name in this space. Scripps, Gray Media, also big owners of TV stations. But the one you pointed to, the Nextar, Tegna deal, is the biggest one, a$6.2 billion deal announced in August. And as we as we said, currently, the law limits you to basically reaching 39 percent of U.S.

8:36households. That deal would let Nexstar reach 70, 80 percent of U.S. households. So the deal only can move ahead if this rule is changed, if the rule is eased by the FCC. There's no way the FCC can approve the deal without a change in that rulemaking first. And so that's what we're really waiting for is action to ease those rules. And then we're inevitably going to have a court fight on that question because there are strong arguments on both sides of that one. One side says, look, the FCC might like to do that, but this is Congress's role to ease that 39 percent U.S. cap. The FCC can't do it itself.

9:20I think there's going to be a tough fight on that. The FCC probably can win it, but it's coming. It just seems kind of silly in the digital world here that there are ownership caps for traditional broadcasters, which are fighting for their lives in a world of cord cutting. I mean, the economics seem like, why wouldn't you do it? That's exactly the case that the National Association of Broadcasters have been pushing with the FCC really for many years. But they've really raised the volume on that argument recently. And it's really resonating with Republicans at the FCC. I think Brendan Carr, the FCC chairman, is really sympathetic to that argument that, look, in this world of all forms of new media online, all the ways that consumers get media today, and most of those are largely unregulated.

10:12that the traditional TV broadcast industry would face these strict limits on how many stations they can own in local markets, in Chicago, in New York, in D.C., and a national cap. Both of those don't really make as much sense, according to NAB. And I think that argument is really resonating with Republicans. Republicans have a majority at the FCC, so they're likely to do their best to move ahead to ease these rules if they can. That's for traditional broadcasting. Then you've got the streamers, right? Skydance, which is, of course, the owner of Paramount Global, is or was reportedly planning to make a bid for Warner Brothers Discovery.

10:53That actually hasn't come through yet, but that is something that is outside the FCC's jurisdiction. The FCC plays no part in any of this. Well, so it's a debated point that some have pushed to say, look, maybe the FCC should be regulating those over-the-top video providers like YouTube TV, like these streamers. Again, the problem, though, is that the FCC is confined by a law that was written in 1934 and then updated in 1996. And it's often a struggle for the FCC to extend its authority to online providers. And so the Obama FCC was actually ready to move ahead with a rulemaking to do just that, but it never went anywhere.

11:37And I think the reason is when you read the law, it's really a stretch to say that the FCC can reach those new online providers the way it has traditionally regulated broadcasters. Stay with us. More from Bloomberg Intelligence coming up after this.

11:57you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple car play and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube one of the big movers of late of course is dell and that's because of its ai server business that part of the business has really taken off and we We want to bring in now Woojin Ho, Bloomberg Intelligence Senior Technology Analyst, on the highlights from Dell's Investor Day. And Woojin, one of the things that Dell did was kind of lay out a vision, as Ed Ludlow was telling us, an outlook, a plan for the next couple of years, which I find remarkable given that this is such a fast-moving industry that, you know, companies need to update their guidance every quarter.

12:43And this company is talking about its guidance out to 2030. Yeah. Hey, Scarlett. So I know how you ended the last segment with Kyle Bunga. I'm going to start this segment with got to get Adele. So look, this is a very seasoned management team. They have a tendency to give out three to four year guidance plans. I think the surprise here is what's driving that 7 % to 9 % growth outlook from 2026 to 2020 over 2030. And it's going to be AI servers, right? And one of the things that they said at the analyst day that AI servers are going to grow at a 20 to 25 percent compounded rate. I think there was some skepticism there heading into the print in terms of is there an AI bubble?

13:30And by laying out a 20 to 25 percent AI server growth going through 2030 off of already high numbers shows that there is some durability to the AI server demand. All right. I'm looking at the ANR function for Dell Technologies. 23 buys on Wall Street, six holds and no sells. So it looks like the street's buying off on the message here. So, Wood, when you get an analyst meeting together, it's a big day for a company. They put a lot of time and effort in getting their senior management together, putting together presentations, presenting a vision here. What were some of the two or three takeaways from you from this investor day yesterday?

14:06Yeah, so the one highlight here is the AI server demand, the durability of AI server demand. But more importantly, and we talk about this all the time, you know, Paul, it's about earnings and cash flow. Right. And the other day, we're talking about EPS growth about 15 percent. And how do we get to that 15 percent? We're talking about 8 percent of the sales growth dropping down to the bottom line. But given all of that cash generation, there's going to be a fair amount of capital returns through buybacks. So you're going to get a lift on EPS there. So shareholders are going to be happy from an EPS standpoint.

14:46And we're already seeing that from a valuation standpoint, because it is lifting from an 8 to 10 times PE to about 15 times growth, which makes it into a 1 times peg. Woojin, another story that we're tracking here and that I've been fascinated by is this idea of legacy tech companies finding their feet in this AI wave, whether it's Oracle, whether it's Dell, and now Cisco as well. Cisco is releasing a new chip and networking system to connect AI data centers. And this is a move that pretty much puts it in more direct competition with Broadcom. How big of an opportunity is this for Cisco? And should Broadcom be worried?

15:27Yeah, so we published React this morning. And essentially, I don't think Broadcom should be fully worried. There's a couple of things that I'll say, right? Cisco is actually one of the biggest networking chip manufacturers globally, but more for their legacy enterprise IT chips. They produce their own chips that powers their own networking gear. They're fairly newer to the game in the networking chip side. From a revenue standpoint, it's really not a big driver, but it may be able to push more boxes. A couple of things that I'll say. They did about$1 billion in AI backend revenue. But to put that into context, they're doing about$55 to$56 billion in total sales.

16:14So from an overall percentage of AI as an overall percentage of sales, it's about 2 % to 3 % of total sales. Are they going to challenge Broadcom? I doubt it, but I do think there'll be a second source to the cloud providers versus Broadcom. Wooj, in your coverage area, what's your best AI play? Because I'm sure you get that call from clients all the time. You know, I mean, I have a handful. Dell was one. You know, HP is another one to take a look out for. They have an analyst day next week. But from a networking standpoint, Arista has actually been one of the high flyers from a networking standpoint.

16:58So I would look at Arista and people have been taking the AI networking angle and using Arista as one of the tools. I like that. Arista. I haven't heard that one come up yet. HPE or HPQ, just to clarify? Oh, HPE. So think of it as a mini Dell and a mini Cisco in one. Stay with us. More from Bloomberg Intelligence coming up after this.

17:27you'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 get back to the markets here the auto business in particular bmw took some guidance down here today citing weak demand out of china that can't be good so let's get the latest on what's happening in the global auto uh space here steve mann joins us bloomberg intelligence global autos and industrials research analysts so let's start with the bmw news here uh steve bmw cuts annual guidance on weak china sales and tariff costs what's going on there yeah seems like it's gonna never it seems like it's a never ending cycle here um what's happening to bmw in china is not new it's not new to them everybody every foreign automakers actually facing the pressure there.

18:21It's a hyper competitive market. Pricing has been spiraling down and the local automakers there are actually gaining a lot of traction with the consumer. Consumers there are tech savvy. They're looking for tech heavy vehicles and even though the foreign automakers are redesigning the screens to make it look jazzy, colorful, but it still, I think, lacks the capabilities that the consumer wants over there. Are there any foreign automakers that are holding on to market share? Not really. I mean, relatively speaking, I think the Japanese are a little bit better, but they are still losing market share.

19:07Companies like Ford has dwindled down their operation to a minimal over there. Even other European automakers like Peugeot, Citroën, they've essentially exited that market. So the Chinese local automakers like BYD and Geely are really coming out with really attractive product and at prices that are hard to beat. Yeah, I remember a long time ago, it seemed like every Chinese government official was in a black Audi. Audi was like the car, the foreign car in China. Those days are long gone, aren't they? Those days are long gone. You know, when Xi Jinping came in and started cracking down on corruption, those types of exhibition of wealth is pretty much disappeared.

19:56And, you know, then the consumers there are actually getting more sophisticated, right? They're looking for value for money. And over the past couple of decades, you know, the local automakers have actually learned quite a bit from the foreign automakers setting up shops there. And they've learned a lot about product design. They've learned a lot about manufacturing. And obviously, the local automakers there have an advantage, right? They understand the consumer over there and what they really want. Switch gears, Steve, to Tesla. They've launched their cheaper version. I guess it's under$40 ,000.

20:36What's your reaction? What's the market's reaction? Yeah, I think the market is somewhat disappointed because Elon Musk has projected for the last few years that they would introduce a vehicle that's$25 ,000 or maybe even cheaper. Obviously, there's inflation, but I think the market was expecting something more price competitive. but in any case it is a cheaper model it's about you know six seven thousand dollars cheaper than the higher the next variant up for the model y model three really look it's i don't think it's going to make a huge impact on tesla sales given that a lot of sales been pulled forward right just before the end of the 7500 ev tax credit but it does create a more intense competitive market in the US.

21:30Look, these vehicles are actually directly competing with the likes of the Chevy Equinox EV from GM and the Ford Mach-E. So, you know, I think, you know, we got cheaper vehicles coming in in a softening market. So it's going to be interesting to see. Wait, so the Ford and the Chevy cars, those models you cited, those are the cheapest on the market right now. What They're around$33 ,000,$34 ,000,$35 ,000. Okay, so no one has$25 ,000 then? No, well, not yet. I think we'll have to see. It looks like GM is expected to launch the Chevy Bolt. If you remember, Chevy Bolt is one of the most popular GM EVs.

22:17It's like a relaunch then? Yeah, it's a relaunch, redesigned with new battery, a lower cost structure. now i don't think that vehicle is going to get down to to 25 000 but it looks like it's going to be below 30 000 so what i mean are you an ev person no because i don't have a garage and so if i don't have a garage how am i going to charge this vehicle good point you know i want the hybrid route for the most recent i like the idea of a hybrid route but apparently those um i don't know the car parts but it's easy to steal and therefore you can be left you know stuck this This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.

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