Anthropic Preps for Blockbuster Public Listing

21:27Ed Ludlow:Software companies are deploying increasingly aggressive strategies to counter a crisis of confidence in their outlooks driven by fear that AI tools and startups will replace them. Some investors, meanwhile, see it as a chance to get the potential survivors of the SaaSpocalypse at a discount to the high flying prices of the 2010s. And that can be a great opportunity for investors to sort among companies that can survive and that maybe might not survive or at least might not survive at the value they've been at. And so that's an area that I think for the long term investor is really worth investigating.

22:02I do think the emphasis is on long term because it's hard to imagine that terminal value concerns can be alleviated in any one particular earnings season.

22:12Ed Ludlow:let's discuss the tactics software firms are using with bloomberg's brodie ford who's published on this this morning really interesting read can you just explain the basic tension in the story to us software companies have had a pretty terrible year and a half right investors are convinced they're going to get replaced by ai there's been a massive valuation meltdown and by and large software companies can't convince the market on virtue of their business results that, you know, their AI products are growing or accelerating revenue. And so they've turned to some kind of zany, cosmetic, sometimes aggressive strategies, you know, swapping out their leaders, fighting with analysts on earnings calls, renaming products to make them sound more like AI.

22:58And so in this story, we just kind of compile all the different novels, zany, whatever you want to call it, strategies that they've been trying to use to beat the SaaSpocalypse.

23:07Ed Ludlow:Okay, so changing business strategy or talking up your competence in whatever area is very different to doing a buyback. Buyback is just a very shareholder friendly policy. Bring us to that part of the story. Right, failing all of the strategy we just talked about, you do a big buyback and that makes the market happy. I think the gnarliest one we saw was Salesforce, which borrowed$25 billion to buy back$25 billion in its own stock. And now you're paying interest for doing a buyback. And I think that one raised some eyebrows on Wall Street. But it just shows that they're really ready to pull whatever lever they can to help boost morale.

23:47Ed Ludlow:Bloomberg's Brady Ford. Thank you very much indeed. Let's take a look at today's big number,$80 billion. That's how much Samsung is planning to return to investors this year, joining SK Hynix in sharing some AI windfall and putting in motion the largest shareholder return program in South Korea's history. Bloomberg executive editor Peter Elstrom is back with us. You know, there was reporting on this, but Samsung has followed on from SK Hynix's actions earlier in the week. Yeah. Talk about pulling levers to try to help your share price. You're seeing this out of South Korea in spades. Yeah. So today we got Samsung Electronics talking about returning$80 billion in cash to their shareholders.

24:29That'll be through dividends and through some buybacks. They haven't said exactly how they're going to split those numbers. But as you say, it's going to be one of the largest buybacks in history, the largest ever in South Korea. It comes shortly after SK Hynek said it would spend about$29 billion through November in order to buy back shares. Both of these companies are making tremendous amounts of money. And they've said that they want to give about 50 percent of their free cash flow back to shareholders at this point in one form or another. And a lot of that is driven by the fact that their shares are down quite a bit.

25:03Ed Ludlow:So that's interesting. In SK Hynix's case, the stock was down 50 percent from a June peak, but still up 150 percent year to date. And there was some dilution when they did the ADRs. What was Samsung's motivations for why now? Samsung shares are not down quite as much, but they're still down a lot. They're down about 25 percent from the peak and they're making a tremendous amount of cash. They're going to make about$275 billion in operating profit this year based on analyst estimates. Huge numbers even for them compared with prior years. And they're looking at that share price that's come down quite a bit.

25:39They don't see the optimism that they saw in the past. They'd like to return some of that money to shareholders, probably buy back some stock. We haven't gotten the specifics on that, but buy back some stock to be able to push the shares back up and give shareholders a reason to buy the shares again.

25:53Ed Ludlow:but isn't Samsung doing super super well tons of profits and winning this AI thing well Samsung is coming from behind very unusual position for them compared to SK Hynix SK Hynix had jumped out to a big lead in the HBM memory chips that are used in AI data centers of course so Samsung has gained a lot of momentum in that area they're they're competing in some cases exceeding SK Hynix in that field, but it's a very intense competition at this point. They're doing very well in memory chips. They're making a lot of money because prices have gone up so much. That's why we're going to see record profits this year from them.

26:30Could be pretty phenomenal numbers going forward. And they'll probably have a pretty big year next year too. So they want to show shareholders that they can give some of this money back to them.

26:40Ed Ludlow:Bloomberg's Peter Elstrom. Thank you very much indeed. Happy Friday. Coming up on the show, The first week of a trial accusing Meta of misleading the public and harming children has wrapped up. We'll discuss the arguments, what we learned and what happens next. This is Bloomberg Tech.

26:59Ed Ludlow:Welcome back to Bloomberg Tech. It has been a big week in the world of technology. Actually, the Nasdaq 100 is up modestly this Friday, but on a weekly basis down for its first weekly drop since the week that ended Friday, July 24th. There's been a lot of factors in that and probably Bitcoin is the best case study. So Bitcoin is on track for its biggest or best week in about three years. One of the big factors was the Treasury's intervention in the bond market. The Treasury saying it would at least double the size of long dated bond buybacks. That is kind of what has been a catalyst outside of technology specific factors.

27:34Ed Ludlow:We are bracing for a big earnings print next week from Nvidia. But RiskOn has taken Bitcoin with it. There is a big story playing out in technology this week, and that is Meta, which just started a legal fight. Mary Ann Franks, professor at George Washington University Law School, joins us to talk about what we've learned so far. This trial is an accusation by 29 states that Meta deliberately designed its platforms to keep children hooked to them and also deceive the public with some privacy breaches. But it's a complicated split of different state laws and one federal privacy law. Could you start by explaining the distinctions between state and national level?

28:18Sure. So the federal claims have to do with this federal statute that protects children's privacy under 13. Essentially, it says that if you are a company that wants to collect data about children under 13, you have to get parental consent. The argument there from a federal perspective is that this company, Meta, and its products have violated that federal statute. And then you have these, as you said, 29 states that are saying in addition to that, there's violations of state consumer protection laws. And those mostly focus on claims that the company has made to the public about the safety of its products and services in contrast to the internal documents and research that Meta has or they claim that they do have.

29:00That shows that these things are not true.

29:03Ed Ludlow:Marianne really grateful for your domain expertise you know to like really simple level 29 states sue meta but this is playing out in a specific court where there's an advisory jury and the judge still needs to take that advice and decide both state and federal laws and it's like lots of people that's confusing how best to simplify it it is really difficult to simplify it's a complex case it's what's known as a mdl a multi-district litigation and it happens when you've got several claims or many thousands of claims, as we do here, that all seem to allege similar facts, similar harms, involve the same company, Meta here, and it's a little bit like the tobacco litigation and settlements you saw in the 1990s.

29:45And so what you have is one judge consolidating all these cases and taking what's called a bellwether trial to take a look at some of these essential claims and try to figure out what the gist of them really is, how strong are party's arguments and then see to go from there whether you can move these parties to settlements.

30:03Ed Ludlow:The big headline of the week was that Meta by its own calculation faces a 1.4 trillion dollar potential penalty, right, which my understanding is just all of the potential violations and counts totted up in aggregate if they were to be found in breach of every single one. Your legal experience and expertise of that potential penalty, please. I think, first of all, it's important to note that that's a number that Meta has given. This is not the number that the AGs themselves, right? So the AGs are saying we're really looking more at$200 billion, which is still, it's a lot of money, right? But when you think about the fact that you've got, what,$18 billion in quarterly profits for Meta, not that much, right?

30:45But I think Meta is putting out that number because it's trying to create the impression that this would be existential, right? This would be a Meta ending kind of fee. So I think that it's important to put that in context. And the idea that that's going to be the result here, I think, is highly unlikely.

31:02Ed Ludlow:Are there any precedents in the case law that will give us a guide of what might happen here? It's really difficult to say. I mean, we all know that in the last few months that we have seen some really important cases go forward against Meta and other social media companies, that, you know, 10 years ago or 20 years ago simply would have been inconceivable because the way that the tech industry's immunity shield, the federal immunity law, Section 230, was interpreted, these cases never even got to this stage. And so this is one of the first times that we're really seeing what's under the hood of these major social media companies.

31:38That's the biggest deal here. And it is somewhat analogous, as some have said, to some of the tobacco litigation because there were some other claims there. that tobacco companies were saying one thing, but they knew something else at the same time. And that's what everybody is paying attention to now.

31:56Ed Ludlow:You frame this in the distinction between what Meta says publicly and the practices it has in place. It's also a technology story, right, about the platforms themselves. How important will it be, therefore, in terms of what we hear from Meta and who at Meta we hear from? Extremely important. Those are going to be the kinds of things that are going to have the biggest impact, not just on the judge, but on the advisory jury and maybe most importantly on the public. It's going to be a question of pointing out that there are documents where Metta said something publicly, made promises to parents, made promises to Congress.

32:31And then you look at some of the internal documents and say, at the same time you said these things, you also knew this was going on. It's direct. You know, the argument is that this is in direct contradiction to what you were saying publicly. So what these individuals who represent the company, their words and what it is that they say to themselves when no one is looking is really going to become, I think, the heart of this trial.

32:54Ed Ludlow:Meta has commented quite regularly in the lead up to this case. And again, that$1.4 trillion potential penalty is a calculation Meta's made, not the states that are suing themselves. Just in 15 seconds, do you see an outcome here that's tangible in the first week or not? Maybe not in the first week. But again, there's the question of the ultimate outcome of liability and whatever that dollar amount happens to be. But the much bigger question is, what is the public going to learn? What is Congress going to learn about what these companies were actually doing? What did they know? When did they know it?

33:26And what are they going to have to change going forward?

33:29Ed Ludlow:Mary Ann Franks from George Washington University Law School. Thank you very much. There's metas being sued by this bipartisan coalition of states. We mentioned the company says it could face potential penalties of as much as$1.4 trillion if it loses the trial, which raises existential questions about the future of its core business. Bloomberg's Ryan Veselica from the equities desk is with us. You're looking at this from the stock perspective, right? Are investors really worried about the legal headwind here? Well, we've seen the stock come under pressure over the past several days, and it does seem like it coincides with the start of the trial.

34:03Like you mentioned, this could be a potentially existential risk for the company. The problem, according to the investors I've spoken to, is that it's very difficult to game out what the ultimate impact is going to be here. We don't know what a verdict would be. We don't know what the penalties would be. We don't know what appeal systems would look like. There's a lot of big questions out there. But it is another risk for the company at a time when people are already sort of souring on it. We've had a lot of questions about how much spending it's doing on AI. And it seems like the ROI side of things is harder for them than it is for other companies like Amazon or Microsoft or so forth.

34:39So this is just another element of uncertainty for a company that's already been living under a bit of a cloud.

34:45Ed Ludlow:Right, Ryan, just go back to that key chart, the underperformance of Meta. Give size and scope on that underperformance quickly. Yeah, I think it's down double digit percentage this year. I think Tesla is the only other name in the Mag 7 that is sort of comparable to that. NASDAQ 100 is doing pretty well this year. I mean, that's largely due to the semiconductor sector. But Meta is a very dramatic underperformer, especially relative to the other AI spenders. Memory chips in the news cycle. You've been taking a look at the sector. What are you writing about? Well, we've seen memory, as has been the case for a while, become under a heavy amount of volatility.

35:19We saw the group kind of try to rebound earlier this month. Since then, they've really taken another step lower. There's a lot of uncertainty out there about how durable is AI spending going to be and how durable is the growth going to be for these companies. People still view them as pretty attractively valued and they still see a pretty strong fundamental backdrop. And I would note that Sandisk recently had an investor day where it gave some very positive long term financial targets. But there's a lot of debate about here. Like maybe they've already seen peak growth. Maybe they've already seen peak enthusiasm and what is going to be the next catalyst to help them regain their leadership.

35:54Right now, it seems like people are having a difficult time answering that question as far as what could take these stocks back to the records they were at not all that long ago.

36:04Ed Ludlow:That's Ryan Veselica. Thank you very much indeed. Coming up, Samir Kyle, Managing Director of Coastal Ventures, is going to join us to discuss the firm's investment in Discovery Loop. That's the AI startup from Google's former chief scientist, something that was massive in the news cycle over the last 10 days. This is Bloomberg Tech.

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39:13Ed Ludlow:Managing Director, Samir Kool, is here to talk about it. Samir, welcome to the program. Thanks a lot, Ed, for having me. This is one, you're very welcome. This is one where people kind of want the backstory. So like all good stories, let's start at the beginning. How did this all come about? Well, you know, there's a lot of talk about this magical deck that apparently has been out there for the financing. And as the guy that's leading the seed round, I'd like to see the deck, which I've yet to see. So there's a lot of lore already about this. look when guys like Jeff Dean and his team who are responsible for so many innovations at Google TensorFlow TPUs Gemini they come to you and say look we're coming up with a we're going to leave after a collective 80 years at Google to start a new company that's going to be based in engineering and research and improving science how do you say no we were just honored and thrilled that Jeff considered us to co-lead this round.

40:13Ed Ludlow:You know, Samir, you all appreciate, right, that the headlines of Jeff but others leaving Google and kind of the changes in structure they made, that was big news. And so what was kind of the latency? When did these conversations about discovery loops start relative to that period of changes at Google? It's all relatively recent. so this isn't something that's been hatched at least with us for a year or something along those lines it's relatively recent it moved very quickly just because of the caliber of the founders and it's very consistent with our thesis so we were the only venture firm in the first round of open ai because we believed in llms we were the first money in a company called general intuition because So we believed in world models.

41:00And RSI, we believe, is going to be the key to advancing science and engineering principles. Yes. RSI is great. AI is going to design experiments. It's going to test and figure out what the results of that experience are going to be. And then it's going to design another thousands and thousands of parallel experiments in a closed-loop system to give you answers about what type of magnets should be used for fusion, types of battery materials for solid-state batteries for electric vehicles, for drug discovery, for drug development. I mean, it's just an incredible tool like LLMs, like world models.

41:43Samir. And to have a guy like Jeff and his team lead that effort is just a dream.

41:50Ed Ludlow:So that dream is what I want to get into because OpenAI, Anthropic, Google DeepMind, like other larger labs, are looking at similar domains. That's not their sole focus. So what is the distinction with Jeff and the Discovery Loop team? What is their technical advantage? Well, they've developed many of the principles that allow you to do RSI. And second, I think the large companies, especially if you're public, you can't be as focused and take as many risks as you can as a private company. Jeff's sole focus with Sanjay and Oriel and Kwok are going to be RSI. That's it for science and engineering.

42:30He doesn't have 15 other masters to respond to. That's going to be his sole focus. He's going to clearly be able to recruit a killer team and stay focused on that big prize.

42:42Ed Ludlow:You started this conversation saying, if there was a pitch deck, I didn't see it. So it sounds like, you know, the evaluation of the potential here was on their legacy, their work to date in this field. Is that fair? Well, it's what the potential opportunity is. The company that takes, we've seen it already. You know, you've talked a lot about Anthropic on your show this morning. But Anthropic and OpenAI and pioneering frontier models, you know, it's been speculated that combined, they're already at$100 billion of revenue and nearly$2 trillion of market cap. And if you believe that RSI is equally as profound and as impactful, and then you've got four gentlemen who are as distinguished as these four, it makes it a relatively quick investment decision in our investment committee.

43:34Ed Ludlow:We're getting into the domain of the opportunity as referenced by the potential return. And it's so interesting, like Discovery Loop is also structured as a public benefit core. Sure. Right. So going in at that seed stage, how do you get sort of the venture scale return from that structure? Well, I don't think that structure inhibits that at all. In fact, that structure may attract different types of engineers that want to work on this problem and be at a public benefit corporation. I mean, look, we invested in OpenAI when it was still a nonprofit. And it may be the most profitable investment we've ever made in 25 years.

44:12Right.

44:13Ed Ludlow:I appreciate you guys are not disclosing the size of the round or the valuation. It's a seed stage round. But as we've written about a lot this year, the term seed is starting to not really mean anything. A coconut seed, a mango seed round. You know, think about like humans and you're laughing. But think about humans and right. A group of a small group of individuals raising hundreds of millions of dollars out the gate at a very lofty valuation. Would you say that Discovery Loop is on par with that level? Well, the prize is big enough that it warrants the round and the valuation that Jeff and his team have achieved.

44:50Let me just put one thing in perspective, Ed. So when I moved out to Silicon Valley in 2005, soon after the word unicorn was coined for a company with a billion dollar valuation, meaning it was so rare it was like a unicorn. you fast forward a decade or so after that word was coined you now have 20 or so trillion dollar companies and a unicorn by the old definition is being funded on a weekly basis so you have to reset everything in terms of what valuation gives you venture scale returns what exactly a seed round is because you know we may be sitting here in five years where there's a dozen or so 10 trillion dollar companies.

45:34Ed Ludlow:Let's catch up in that time frame and we'll see if you were right. Samir Kaur of Coastal Ventures, it's been great to have you on Bloomberg Tech. Thank you very much. Some other news headlines in talking tech. First up, Chinese robotics startup Dexmal, backed by tech giant Alibaba, is seeking a valuation of$3 billion in an ongoing funding round, showing strong investor appetite in the country's embodied AI advancements, follows Unitary Robotics raising$904 million in its Shanghai debut this week. Plus, OpenAI released a new feature that would allow ChatGPT to read, write and send text messages in a move sparking privacy concerns.

46:11Ed Ludlow:OpenAI has stressed that the feature would require a user's consent and the plugin would run locally on Mac and use existing operating system tools. And SpaceX and AST Space Mobile have expressed interest in acquiring Grain, a company providing wireless phone services directly from space. Sources say Grain asked interested parties to submit preliminary offers with hopes of reaping$6 billion from selling its licenses. Elon Musk waded on X, responding, quote, not true to the report. Coming up, all eyes are on NVIDIA as the tech giant sets release its second quarter earnings next week. It's the big one.

46:46Ed Ludlow:This is Bloomberg Tech.

46:54Ed Ludlow:NVIDIA's in early talks with South Korean chip startup Rebellion's about possible collaborations, sources say. NVIDIA CEO Jensen Wong met with Rebellion's co-founder and CEO Sung Young Park on the potential deal, which could include a technical partnership. The chip firm raised roughly$850 million from investors, including SK Hynix, Samsung and Arm Holdings, and was recently valued at$2.3 billion. Let's stick with NVIDIA. It's highly anticipated second quarter earnings are set to come out next week. The street sees sales of$92 billion to$95 billion. Either way, double what it was one year ago.

47:28Ed Ludlow:Let's discuss what to expect with Kunjan Sabani, senior semiconductor analyst with Bloomberg Intelligence. Double a year ago. But a year ago was double the year before, right? The main point is that, you know, the momentum in NVIDIA's growth, it seems intact. What are you looking for? I mean, we again expect decent beaten race, but I don't think that will be enough. It never has been for the market. You're talking about the market's reaction. For the market's reaction, yeah. I mean, if they get close to the 100 mark, that will be something. We don't expect that given the supply constraints. But the focus right now is on three key areas.

48:00One, the concerns around vendor financing and off-balance sheet obligation. Second, we would love to hear something positive on the China end, right? And one positive key impact for which is the 3Q guide. This is the first time ever that Vera Rubin we now expect to ramp day one at every single hyperscaler, frontier lab, cloud provider, NeoCloud, you name it, which has not happened with Blackwell or the past revisions.

48:25Ed Ludlow:So let's talk a little bit more about that. Vera Rubin, Vera CPU, Rubin Accelerator or GPU, latest generation. And what I see from executive video is constant commentary that it's in full production. It's in ramp. So you think that this is out there in the real world. Is it where you think there might be a surprise in terms of contribution? There could be a positive surprise. We at this point do not expect anything negative surprise. Again, the reason they're out and about so much is the last time when this time of the year BlackWolf was ranking, there was a lot of hiccups. So they want to avoid any concerns or fears or rumors around hiccups.

48:58The only one thing on the negative side we're looking for is gross margin impact. We don't expect investors are not hoping or bracing for a lot of gross margin impact. Remember, whenever a new product ramps, it's a gross margin headwind initially. But from what the company has suggested, it might not be as big of an impact this time around.

49:16Ed Ludlow:Jensen Wang will get questions about circular financing, I'm sure. So let's go to your China point. Right now, the assumption is zero from China. But you want to see NVIDIA say, this is how we're going to be able to do business real quick. Yeah, we really want to hear that. I mean, this has been something that has been dragged out. And we just saw news headlines, right, that China is now enabling. There are orders in the book. We really want to see this come to revenue, at least in the tens to 20 billion dollars to start with. Bloomberg Intelligence is Kunjan Sabani, who leads our research of NVIDIA and the other fabulous chip names.

49:50Ed Ludlow:Thank you so much. That does it for this edition of Bloomberg Tech. Seriously, an astonishing week in technology. In markets, also in the news flow, and Anthropik's been the big one. So much to recap on the podcast. You know where to find it on the Bloomberg Terminal, as well as online on Apple, Spotify and iHeart. Markets are ending the week higher, six tenths of a percent on the Nasdaq 100, but down on the week and set for the first weekly drop since that final week of July. Have a great weekend, everybody. This is Bloomberg Tech.

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