AI Builds Itself as the Spending Boom Accelerates

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23:23Ed Ludlow:Wall Street Week goes to India to see what the fastest growing large economy offers to investors from the tech center of Bangalore to Genome Valley in Hyderabad. The economy is growing on the back of its tech sector, but its future hinges on its ability to keep up in the global AI race? So I think it's both a challenge and an opportunity. I think the challenge lies in the fact that India has had great strength in IT services and providing a lot of functions, white collar services at very attractive costs. Some of that will get replaced by AI. And so I think the India Bears say, ah, that's going to happen.

24:06I think what they fail to recognize is that these companies will evolve. We own a large stake in a business called Emphasis, an IT services company. And they have pivoted their business to focus on AI deployment because changing companies utilizing AI is also going to require an enormous amount of manpower. I also think they underestimate the willingness of people in India to utilize the AI and what it will do there. The creation of new companies there, the creation of AI infrastructure. If I look back two decades ago, we were like a call center. That call center has gone to a back office. The back office went to a mid office.

24:50And the mid office now is literally a front office because tech is really part of the business. And that's why I feel, despite AI, we're doing very well. The demand's very robust. And we look forward to a really strong rest of the decade.

25:07Ed Ludlow:You can watch the full episode of Wall Street Week today at 6 p.m. Eastern, 3 p.m. Pacific. OK, software stocks are making a comeback. Strong earnings and warnings about the pace of AI development are reversing one of this year's biggest trades. Long chips, short software. OK, this Friday session might not reflect that necessarily. But Bloomberg's Ryan Veselica has one of the best read stories on the Bloomberg. This happened in June. And today it's the same, right? The software doomerism is also saspocalypse fading. Yeah, there's been a real reversal of sentiment. The first half of the year was really marked by this concern that AI was going to come in and decimate the legacy software industry, which is why we saw the chip sector do so well and the software sector really just collapsed.

25:54Since then, we have seen a bit of a reversal.

25:57Ed Ludlow:We've seen some narrowing of this performance gap. Most recently, we had a very strong earnings season for the software group, including a number of companies that were really seen as being at risk of disruption. So companies like Salesforce, ServiceNow, we saw some mixed results, mixed positive results out of Oracle. Microsoft had a huge quarter. So all of these things just helped reinforce the idea that maybe the selling had gone too far. Maybe the valuations had gotten washed out. Everything was being sold indiscriminately since. And we've seen people show some signs of interest of getting back into the sector.

26:32Ed Ludlow:Ryan, real quick, Netflix, its first sell rating in a long time, and the stock's on track for its worst year since 2022. Yeah, Wells Fargo Securities downgraded the stock underweight. This is the first sell rating the stock has seen since I think late February. A lot of concern there about engagement trends. The analyst said that there's no big water cooler hits, no huge success for people to really be driving engagement there as Netflix is instead focusing on other kinds of content like gaming, like podcasts. It's viewing that not as a great strategy, at least in the near term. So we are seeing some more weakness in that stock there.

27:06Ed Ludlow:That's been a big underperformer this year. Bloomberg's Ryan Flostelica on software and on Netflix. Thank you very much. Coming up, as Frontier Labs push to work together, the antitrust debate heats up. Neil Chilson from the Abundant Institute, former FTC chief technologist. This is a really important conversation. Halftime, live from San Francisco, this is Bloomberg Tech.

27:40Ed Ludlow:Welcome back to Bloomberg Tech. A lot has happened this week. And in the end, the Nasdaq 100, a very tech-heavy index, is modestly higher over five days, three-tenths of a percent. Started the week with calls to pace at the frontier from the frontier labs in AI. In the middle of the week, we had the Fed. Yields have risen. Basically, the expectation is further Fed rate hikes because of energy and other inflationary pressures. We also continue to have disclosures from the Frontier Labs about models misbehaving. And then by the time we ended the week, we had some kind of, OK, let's all calm down a little bit.

28:17Ed Ludlow:The risk on an existential basis probably isn't what we thought it was on Monday. Chip stocks have underperformed, though. On a five-day basis, the Philadelphia Semiconductor Index or SOX is down half a percentage point, nothing too severe. The question public market investors had was, was all this warning about AI going to result in the market pulling back because they were concerned that spending on AI infrastructure would be impacted? No is the conclusion so far. Okay, so the week started with Anthropics CEO Dario Amadei arguing the frontier labs will need some antitrust exemptions in the U.S.

28:49Ed Ludlow:so they can coordinate in specific areas as well as have cooperation with China. David Sachs, who's co-chair of the President's Council of Advisors on Science and Technology, pushed back on that idea. You should go ahead and make your products safe without demanding any concession from the government. You know, we don't believe that you should be free from competition. I'm sure every company in America would love to have that kind of deal. You have a basic obligation to make your products safe. Do not demand antitrust waivers or liability waivers in exchange for that. honestly it feels like they're bartering with us.

29:26Ed Ludlow:For more on this debate Neil Chilson head of AI policy at the Abundance Institute and a former FTC chief technologist is with us. When we think antitrust we think monopolistic or anti-competitive practices. The Frontier Labs are saying Neil we need this waiver so that we can work together. Your response? So there's so many ways that companies can work together that are not anti-competitive. But obviously, antitrust has a big role in making sure that when companies collaborate, they're not doing things that ultimately harm the process of competition or consumers and the results that they expect from a competitive environment.

30:07And so I think that there are, like I said, there are, if you're building safe products and you need to build an industry standard or best practices to do that, There's lots of ways that these companies can collaborate. Most of all, they can try internally to build their products safely. And actually, they're obligated in many ways to do that.

30:28Ed Ludlow:You are, it seems, in a school of thought shared by lots of leaders in AI, that at the end of the day, the frontier labs should work this out for themselves if they have command of the technology. Regulatory capture is a concern. It's the idea that those frontier labs help set the rules that's to their benefit. Your interpretation. So regulatory capture is a huge problem. But what we know from history is that cartels are fragile. The only cartels that are durable are ones that are endorsed by the government. And so I think that is the risk that David Sachs is pointing to, that the types of exemptions that they're seeking here could make a durable cartel that would ultimately harm companies.

31:12competition and harm the U.S. ability to stay at the frontier.

31:17Ed Ludlow:Are existing laws, particularly those around illegal action, sufficient right now, Neil, to your mind? In other words, if a model does something that constitutes a criminal offense, there is a safety net of the law anyway. I think that's right. Especially in the liability space, our existing law says that if you're doing something, if these companies are training models and they're not doing it safely enough and those models cause harm to third parties, I think the law is pretty clear, especially FTC consumer protection law and I think many tort laws, that those companies will be responsible for those harms.

32:01And I think that is part of what's driving Dario's call for pacing And it's part of what is making the industry say, hey, we need to make sure that we ourselves are being cautious that we're creating a product and that we're creating it in a way that isn't causing harm to third parties.

32:19Ed Ludlow:You were formerly the chief technologist at the FTC, right? Could you take me inside the organization a week like this? How would the FTC be looking at, thinking about, responding to what has been a roller coaster of events? Well, I think for sure they would be looking at the various authorities that they have, both on the competition side and as well on the consumer protection side. And they'd be looking for unfair methods of competition. They'd be looking for unfair or deceptive acts or practices that might be occurring here. And the FTC in particular has a long history of data security enforcement under its consumer protection, unfair and deceptive acts and practices.

33:00and I think here they would be looking for some key indicators that what the companies are doing is not reasonable, it does not match best practices, and that it could be easily avoided by the companies with some extra precaution. And they will be looking to see if there's harm that's caused and whether or not the harms that are caused are outweighed by the benefits to those specific practices that the companies are doing. So I think there's a lot for them to think about

33:28Ed Ludlow:and they're doing it. Neil, the harm that's imagined by some, not all, some, is that AI poses an existential threat to human life, right? That's, even if you go back 10 days from the anthropic researcher that resigned, I mean, how does the FTC account for that harm, potential harm to a consumer? It's a great question. And, you know, obviously those types of speculative harms, one would hope in many ways that those would show up as much smaller types of incidents early on. And that does seem to be the case here. And so we're seeing incidents where there is not a lot of harm that's happening, but where it raises some red flags.

34:13And I think what that means is there's time to look at the laws, to look at the practices in the industry and say like, hey, we need to change course here. We need to correct things. How do we do that? Do we need some extra laws? We need to see if there's gaps in the law to fill. But I think we are getting warning signs here that are the exact types of that start this iterative process of saying, hey, how can we do better? And how can we avoid these bigger harms in the future?

34:40Ed Ludlow:You're at the Abundance Institute now, an organization who wants technology to grow and thrive, right? You know, there's a lot of positivity around AI. It's useful. There is some economic upside. Does the FTC ever take that into account? You know, again, drawing on your past experience and your current research on like how it's good for people. Oh, absolutely. I mean, I think that's a big part of the analysis, both on the competition side, where the question is, are these practices creating consumer welfare? Are they improving consumer welfare? And then on the consumer protection side, where the question in the unfairness analysis in particular is whether any harms caused by a practice are outweighed by benefits.

35:23And I think in the AI space in particular, there are enormous benefits. We're seeing that in stock values. We're seeing that investment. And we're seeing it in the huge amount of adoption and usage that individuals are doing. I think we're nowhere near the top of the types of problems that a general purpose AI system can help us with. And so I think there are enormous benefits here. We need to mitigate the harms, but we need to not lose sight of the fact that that mitigation, we want to make sure it doesn't prevent the best possible world of the benefits that could come.

35:57Ed Ludlow:Neil Chilson of the Abundance Institute, formerly chief technologists at the FTC. Thank you so much for your time on the show. Now coming up, Crusoe CEO Chase Lockmiller joins us on the race to build the infrastructure that's powering AI. The company's just closed out almost$4 billion in fresh funding. Fascinating list of names and strategic backers. Looking forward to that conversation next. This is Bloomberg Tech.

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38:02People can upload their own lyrics or start from scratch, record their own voices, or rely on ones provided by Suno. While most of the songs generated on the service go unheard of by the masses, a few have taken off, including a recent TikTok trend that involves users uploading text messages to Suno and turning them into musical performances. like taking the text from a crazy night out and making it a gospel song. Suno's pitch to investors is that it'll democratize music creation, leading to a more than$5 billion valuation for the company. The music industry, it's watching, as its biggest concern about AI is whether record labels, rights holders, and artists will be compensated for the work they claim built the training models for companies like Suno.

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39:44Ed Ludlow:crusoe closed the nearly four billion dollar series f funding round valuing the ai infrastructure your company at almost$31 billion. The new capital comes as Crusoe says it has more than $140 billion in contracted value across its platform. It's also adding board members has a lot of other momentum. Crusoe CEO Chase Lockmiller back with us on Bloomberg Tech. This round has been in the works a while. It's a big round, a vote of confidence. And I think the participants are super interesting as well, Chase. Let's talk about the capital need, what it is you're going to be able to get going on now.

40:18Absolutely. So thanks for having me on the show, first of all, Ed. Always great to see you. This round was an exciting moment and the culmination of just an incredible amount of hard work for many years across the Crusoe team. And it's really been an onus on the company and the whole industry to really dig deep and really work hard to deliver the infrastructure layer of intelligence. The capital needs are really tremendous for what's happening. And because of that, and the value creation potential is really enormous in terms of what AI is going to do to transform the global economy. And that's really why the capital is being driven to the sector.

41:05Ed Ludlow:Chase, people are familiar with Crusoe, probably because of the relationship with Oracle, the relationship with OpenAI. But if we really scale it back to simple terms, you help build data centers and you also have your own cloud computing platform now. Could you just explain that split? Yeah. So Crusoe is a vertically integrated AI infrastructure platform that helps manage infrastructure from the electron to the token. So this is both building, operating and energizing these large scale AI factories and then building software to operate these AI factories, which is the Crusoe cloud platform. So you really think about what we deliver to our customers can be a data center in the case of how we've worked with Oracle and Microsoft and a number of other big customers.

41:50It can be a managed compute cluster, which is what we're doing with folks like Perplexity and Figure and a number of other key AI innovators. And it can also be managed services and managed intelligence, which is what we're doing with delivering our Crusoe managed inference platform and some of our other services like serverless fine tuning.

42:10Ed Ludlow:So, Chase, with those kind of three buckets you just outlined, what's the kind of percentage of sales for each currently? And how is Crusoe's business kind of shifting in terms of the mainstay of what you do? Well, you know, each of those different businesses, each of those different ways of sort of serving customers, they typically have different durations. So when folks are making data center commitments to us, we're typically working with very large tech companies that have investment-grade credit ratings, and they're typically committing to us for somewhere between 15 and 20 years. They're multi-decade long commitments.

42:46When you think about the life cycle of a GPU and the managed compute clusters, those can range anywhere from a few months to five to six years, but they're typically don't go beyond that just because that's sort of the life cycle of the chips. And then when you think about managed inference and managed AI services, those are more, you know, they're developer tools. It's building in the developer ecosystem. So they're more on demand. You know, there are commitments that folks are making, but they're typically shorter term in nature as they're scaling their AI applications and the actual utilization of these services.

43:21So it sort of offers a broad spectrum of services that we can offer the industry, as well as a broad spectrum of contracts and revenue resources that we're receiving as a business.

43:34Ed Ludlow:You've added three important names as board members. And looking at the round, the size, the participants, a lot of people asking if this is kind of a precursor to you, Chase, taking Crusoe on a path to the public markets and an IPO. Yeah, so we've been thrilled to add, you know, when we think about Crusoe, you know, really the three core pillars of the business are energy, data centers, and AI cloud computing. You know, the three board members we added, you know, JB Strobel, who was the co-founder and CTO of Tesla, who's one of the most brilliant energy minds of our generation. He's joined our board, you know, on the energy side.

44:14You know, Bill Stein is widely considered to be sort of the godfather of the data center industry. And he's become, you know, a dear friend and a great mentor for me and, you know, has helped Crusoe grow quite a bit. He's joined our board that, you know, really represents that data center pillar. And then Thomas Seifert, you know, has been the longtime CFO of, you know, one of the most successful cloud companies of all time, which is Cloudflare. And Thomas brings a tremendous amount of, you know, financial knowledge and expertise and has joined us as our audit chair and board member. So, you know, as we think about the public markets, you know, look, it's something we're always, you know, considering, you know, what the best ways are to capitalize Crusoe's growth.

44:52We are seeing tremendous demand from, you know, across our suite of customers. And we do have, you know, massive ambitions to continue to grow this vertically integrated AI infrastructure platform. So, you know, I think, you know, at some point it probably does make sense for us to enter the public market, but it is kind of something that we're constantly evaluating.

45:12Ed Ludlow:Chase, I respect that Crusoe's business is not just in the United States, right? You are looking at the Gulf, for example, and other regions. But right now in America, data center is not necessarily a good word, a good phrase. You know, we have the midterms approaching where there are a number of races where data centers are an issue for voters. In Texas in particular, you have a big footprint in Texas. And Governor Abbott has this sort of moratorium. Abilene's the big one for you. It doesn't seem like that's impacted. But talk about the general attitude towards data centers in this country and if you are seeing any negative impact because of the political environment right now.

45:51Yeah. So, you know, we've been sort of, you know, working with the local communities where we are partnered. I think more than anything, the data center industry has sort of a marketing issue. You know, we are seeing a lot of information that's just, you know, frankly not accurate. I think that the benefits that we provide the communities and the partnership that we take when we're building those communities is not always being properly communicated. So, you know, I think the water narrative, for instance, is a great example of this where, you know, there's this narrative out there that data centers are consuming and using tons and tons of water.

46:28And, you know, the way we've designed and engineered these next-gen purpose-built AI factories is really to not use any water, use hardly any water. Each of our big buildings in Abilene, Texas, uses roughly the same water footprint as about 10 single-family homes. So you're talking about, you know, basically water usage from people going to the bathroom, you know, watering our plants, you know, just general purpose usage. But the water to cool the chips, that's actually operating on a closed-loop system. So you have cold water that goes into the racks, and it gets cooled off in these, you know, air-cooled chillers outside of the data center.

47:02You know, and from a job creation perspective, you know, these can be transformative for these communities. And from a tax revenue perspective, they can also be transformative as well. You look at a market like Abilene, we'll be about a third of the total tax base in Abilene and Taylor County. And we're more than doubling the annual receipts for the local school system. And another area where we're building in Texas, a large campus is Armstrong County, where we're increasing the tax revenue by over 100%. So these are massive transformational investments that really lead to these larger budgets that the communities can invest in long-term infrastructure, in services like the police, the fire department, the roads, and then obviously the education for the future generations of children.

47:55Ed Ludlow:But Chase, there's no specific projects that have been delayed or impacted or paused because of local policy or opposition? Not yet. But we're definitely seeing it happen and unfold in real time. So it's something that we're trying to get ahead of. And really, we think the truth is on our side. And as people really get to understand the type of partner that Crusoe is, we think that we can be really great partners to local communities where we're investing for multiple decades to come. Chase Lockmiller, CEO of Crusoe, almost$4 billion in funding, a lot of momentum, new board members. Thank you very much indeed.

48:39Ed Ludlow:Now coming up, more warnings from big names in AI. We're going to discuss what Microsoft's AI chief and Amazon have had to say this morning. This is Bloomberg Tech.

49:04Ed Ludlow:Let's stick with AI risks because we've been hearing more warnings and calls for rigorous testing. BlueMose Matt Day is with us. And Matt, there are different camps emerging, but we've heard from Microsoft's AI CEO. What's the thesis there? So the thesis, it's Microsoft's Mustafa Suleiman. He's a longtime AI developer, co-founded Google's DeepMind. He says part of the reason that AI might appear like it's got some kind of emotions or humanity is because it's been trained to believe that. They're taking a shot at Anthropic and Claude in particular, pointing to a bunch of instances in the training data where, you know, listen, if you say Claude might have, you know, some sort of proto-emotions or an identity or a sense of self, it's going to behave that way.

49:42Ed Ludlow:It doesn't mean the thing is conscious. It means you taught it to do that. And Microsoft is suggesting we all knock it off. So I should say, we're talking to Matt Day about this sort of Seattleite section of the AI market. We'll go to Amazon next. Amazon is a massive hyperscaler, right? A lot of workloads run on AWS, but also does a big body of work in its own right. And they just are kind of in line with Jensen Wong about don't ship the model if it's not ready. Pretty simple, right? Yeah, pretty common sense. And they said, don't ship it until it's safe. Don't ship it until it's been tested. You know, they're not really coming out one way or another on the sort of broader should we slow down debate, but sort of a pragmatic stance, which kind of fits with Amazon.

50:21Ed Ludlow:They've been sort of a neutral party in a lot of this. They're hosting some open AI. They're hosting some Anthropic. So this one kind of fits with their kind of reasonable position here. Matt, just very, very quickly, Microsoft has some exposure to open AI. Can we just explain that real quick? Exposure to open AI? Oh, big old investor, big old backer, big user of their models. Really, really tied up with them. And increasingly Anthropic, too. They're all kind of intertwined. Bloomberg's Matt Day with the kind of Microsoft Amazon viewpoint, which came right at the end of this week. Thank you very much.

50:56Ed Ludlow:One final story as we head into the weekend. Apple's iPhone 18 Pro is officially on sale around the world. It's the first major product launch under new CEO John Ternus, who marked the occasion at Apple's flagship store in New York City, opening up the doors, mingling, talking to people lined up to get that generation of handset. Of course, the foldable iPhone Duo does not go on sale until later next month. Apple shares softer by seven-tenths of 1%. Okay, that does it for this edition of Bloomberg Tech. There was so much in this show today about the events of the last seven days. A summary, a lot of different points of view weighing in.

51:36Ed Ludlow:Recap all of that on the podcast. You can find it on the Bloomberg Terminal as well as online on Apple, Spotify, and iHeart. I would wish you all a very happy and productive weekend. Ken, thank you for watching the show this week. This is Bloomberg Tech.

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