China's Moonshot, Netflix's Slump & Greylock's $1.5B Bet

21:48You're also going to see updates to all the other iPads next year. That includes faster iPad Pros, new iPad Airs, and a new entry-level iPad. And the backdrop here is that Apple has made all of the iPads more expensive in recent weeks because of the memory shortage, right? Some of them went up by$100. Some of them went up by$150. Some of them went up by$200. So now you need upgrades to the product to make them more worthwhile in this competitive environment where you have great tablets from other companies like Amazon, Samsung and the like.

22:22Ed Ludlow:Mark, this is the first opportunity you and I have had to discuss Apple's AI plan for China. There was some developments this week in how they're able to put an AI product into that market. Could you just explain the basics of it to us? So right now, Apple intelligence inside of the United States and the rest of the world for the most part uses models from Apple on device, models from Apple in the cloud. And then there's partners for some features that Apple doesn't do so well. So search, they work with Google, and then they work with OpenAI as sort of a fallback for Siri. If you ask it something it doesn't know the answer to, it'll query ChatGPT if you allow it to.

23:06So for China, there's a few nuances. For Search, they're working with Baidu. For that chatbot, the OpenAI replacement, they're working with Baidu. Obviously, OpenAI, ChatGPT is not available in that part of the world. But then there's the Alibaba component. And so the phones in China will continue to use the on-device Apple models. But there will be a layer on top using Alibaba AI technology that I call a censorship filter. And so what this will do is we'll keep the phone in constant connection with the Chinese government. So as there's updated models that are hitting the iPhone, Apple, of course, is always updating its models in the background.

23:44Those will need to be approved every so often with the Chinese government. And this type of censorship filter is what other companies in China who operate have to do. Xiaomi, Huawei, the other phone providers with AI technology on their phones. All right.

23:59Ed Ludlow:Bloomberg's Mark Gurman with everything that's happened this week. Actually, not everything. There was a lot more with Apple, too, but thank you very much. Coming up just a little over a month after its blockbuster IPO, SpaceX is experiencing a few setbacks. There was a scrub star ship launch last night. The stock reacted, but the stock generally is under pressure. We're going to have more on that story next. A reminder, overnight, China's Moonshot released Kimi K3, an open weighted model that has top benchmarks. But there's a big focus on training costs and token economics. with this as well.

24:34Right now, the market's asking itself, do we need to reconsider all of the money

24:40Ed Ludlow:that is going into AI from an American perspective? And do we need to think again about what the moat is for some of these American companies? We're going to have that conversation next. Now, if I'm lucky, we're going to cut some beautiful pictures of San Francisco. It's halftime. We'll be right back. This is Bloomberg Tech.

25:23Ed Ludlow:Welcome back to Bloomberg Tech. All across the AI trade, US technology stocks are under pressure. The Nasdaq 100 and Sox both down in the session significantly, but on the week, the Sox is headed for its biggest weekly drop since April of 2025. The Nasdaq 100 is not far off that, about a percentage point from being in the realm of the same milestone. China's moonshot with the surprise release of Kimi K3, the market recalculating a lot of the spending that has, is and will happen on AI development and the infrastructure side. NVIDIA biggest points drag, Intel down significantly. One story which is kind of chopped and changed is that at one moment in the session, Apple overtook NVIDIA as the world's most valuable company.

26:12Ed Ludlow:We're going to do the math on that a little bit's time. It's close, but again, we're a few hours from the session being closed. Overnight, space. SpaceX's Starship rocket mission failed to launch yesterday. It would have been its 13th Starship test flight. Right at liftoff, plumes of smoke erupted or steam from the launch tower. There was an engine failure. This isn't the first time. Starship previously had delays and malfunctions. But what CEO Elon Musk said on X is that the next launch attempt would hopefully come in the next few days. What was interesting about it, in the moment in after hours trading, the stock immediately reacted.

26:49Ed Ludlow:And there was a decline of about 4%. Already in the session yesterday, SpaceX's shares have dropped below its IPO price. The company's facing turbulence just a little over a month after its historic IPO and dampening euphoria potentially for newly public companies. Joining us now is Bloomberg's Anthony Hughes. This is where we stand. We're showing it on the screen. June 12th to present day. What has been the market's digestion of the biggest IPO of all time? Yes. I mean, after all the hype of SpaceX going public last month, I think we've seen a bit of a hangover in the IPO market, really, with the momentum trade also coming off here at the same time, the AI trade coming off.

27:34But it's not unusual that a big IPO might sort of pull back here, given that some of the technical dynamics, once the price sort of settles down and the market settles down, that the stocks come back. So, I mean, obviously, it's a bit concerning for investors that SpaceX is already trading at a discount. I think it's about 3 % to the IPO price because we still have all this stock to come out of lockup as well. But overall, the IPO market has lost a lot of steam here, mainly because of SpaceX.

28:12Ed Ludlow:And the average return from IPOs this year has really evaporated to zero. I would just again make the point that SpaceX being down 5 % in this Friday session is in part because of the scrubbed Starship test 13 last night. We're measuring the success of an IPO based on the first 30 days of trade. But for the bankers and the investors that participated, this was a success, right, Anthony, that they would say that they pulled this off well? Yeah, I think at the time when SpaceS went public, I think it was a very well-executed process. I think that, you know, as time goes on, the stock's going to trade more on the news, the fundamentals and news that the news flow here.

28:59And obviously, there's been some bad news flow initially here. But, you know, it's a long for a lot of investors that got behind SpaceX. It's a long term proposition. And, you know, anyone who's familiar with what happened with Tesla knows that there's plenty of ups and downs along the way. But obviously, the investors will be hoping that longer term, the price performs a lot better.

29:21Ed Ludlow:Bloomberg's Anthony Hughes on SpaceX. Thank you very much. From SpaceX to the next generation of space startups. Texas is fast becoming the capital of the commercial space industry. So what's driving the boom? And what does it mean for the state's economy? Bloomberg Originals has the story. For most of spaceflight history, NASA and government or nation states were really the biggest players in charge. That has recently shifted. This was a frontier we really believed for a long time. It was only a place for governments to build and innovate. What we're seeing is a democratized space sector with a lot of smaller players and a lot of larger commercial players as well.

30:05Ed Ludlow:With the global space economy currently valued at over$650 billion, one American state in particular is betting big on this rapidly growing sector. Governor Abbott, coming to you from the great state of Texas. Texas is a really good snapshot of the new direction that the space industry is taking. The biggest tenant in Texas is SpaceX. So they have set up shop with their Starbase facility on the southern tip of Texas. Another big tenant is Blue Origin in West Texas, outside of Van Horn. And then you also have a big cluster of companies in Houston, the home of NASA's Johnson Space Center. So you have Axiom Space, you have Intuitive Machines.

30:49And then in central Texas, Firefly Aerospace has its rocket facility and development center.

30:58Ed Ludlow:Last year, the Texas Space Commission gave out$150 million in grants to support space business in the state. It's due to double that by the end of this year. What we wanted to do is make it well known that those companies who had already decided to be set up here in Texas, that they didn't leave, and that they are also helped to expand their existing footprint. And lift off the crew of Artemis II, now bound for the moon. From a NASA standpoint, because of that competition, they're lowering the overall cost. That allows us to be able to do more. Humanity's next great voyage begins. The more you can watch the full Bloomberg original story online and, of course, on the Bloomberg Terminal.

31:45Ed Ludlow:Let's get back to Apple, who at one point surpassed NVIDIA this morning as the world's most valuable company, likely benefiting from this broader rotation in the tech sector out of the big spenders on AI. Joining us is Bloomberg's Ryan Vostelica. I keep glancing down at my terminal. I think we're changing hands a few times here, but I think NVIDIA is now slightly back ahead. But that's been the story, right? Apple doesn't have the big capital expenditure story. It doesn't have the big dollar story around AI. NVIDIA has been the principal beneficiary of everything in the last four years. That's what's very interesting about this trade right now.

32:24What used to be seen as a real risk for Apple, that it wasn't aggressively pursuing AI in the way that some of the other big cap tech companies are, that's now become a real asset. It doesn't have the sort of CapEx risk that's being priced into Microsoft, to give sort of the typical example there. It's really been benefiting sort of as a safe haven as we see the chip space unwind, as we see more questions about the hyperscaler side of the market. It's really been pushing higher. I think it's up more than 20 % in a couple of weeks. That's a huge gain for a company of this size, and it's really because of its own unique path that it's charting within AI.

33:03I would also add that it does have the foldable iPhone that's expected to come out later on this year. It does have the agentic AI Siri digital assistant. There's been some disappointments with that, but there is optimism that we are going to start to see a big iPhone upgrade cycle going up that's going to help overshadow the increase in high memory chip prices. But in general, it does seem like the fact that Apple isn't participating in AI in the same way that some of its peers are, that's become a real positive and thing that is distinguishing the company.

33:34Ed Ludlow:In the here and now, I see the Philadelphia Semiconductor Index on the week on track for its biggest weekly drop since April 2025. We've talked a lot about Moonshot and Kimmy K3, a lot more to come in the show on that. But you and the team writing that the Sox is set to fall into a bear market. That's big. Yeah, there's been a real reversal in momentum in the chip space. I think there are some concerns about, you know, this the index is up. I think at some point it was nearly double year to date. So a huge gain there and still up quite significantly for this year, even though it has pulled back some.

34:07But I think there is a little bit of profit taking, a little bit of reversal in momentum. And as we are discussing this whole question about hyperscaler ROI, that is really feeding into the chip space as well. Because if the companies that are doing all of the spending on AI, if they're not seeing a dramatic return on that, if it's not flowing through to their revenue, the issue is, are they going to start pulling back on spending? Is the peak earnings being priced into the chip space right now? And where do they go from there if hyperscursors start pulling back chip stocks, likely we'll see weaker growth going forward, is the concern.

34:42Ed Ludlow:Bloomberg's Ryan Flostellica on it. Thank you very much indeed. Coming up, let's talk a little bit more about private markets. One of the oldest venture firms in the world just raised$1.5 billion for its 18th fund. There's also a lot of relevance here to what's happening around the world. Son Modamedi, general partner at Greylock here on Bloomberg Tech. Stay with us. This is Bloomberg Tech.

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35:44Ed Ludlow:Greylock Partners just raised$1.5 billion for its 18th fund, dedicated to partnering with founders at the earliest stages of AI across sectors like infrastructure, cybersecurity, and fintech. Joining us now is Greylock General Partner, Son Matamedi, and it's good and timely to have a deep private markets and venture capital conversation. And it's so interesting because I think in aggregate, we see a lot of the most established firms raising funds with some regularity. This is the 18th fund at some scale. So it's an early stage fund,$1.5 billion. What do we infer from that? Well, Ed, thanks for having us on the show.

36:25And as you mentioned, we just launched our 18th fund. It's$1.5 billion dedicated to early stage AI entrepreneurs. Greylock, over the last six decades, has been partnering with entrepreneurs when companies get started. Companies like Airbnb, Facebook, Palo Alto Networks. And we're excited with this new fund to back a new generation of AI entrepreneurs. And as you know, we've partnered with many of the early AI leaders, dating back many years before AI was obvious. So we rewind the clock to 2019. We backed Base 10. Base 10 today is the leader in AI inference with serving some of the leading application companies like Cursor, Abridge, and others.

36:59We backed Crest AI, one of the leaders in customer service AI. If you call United or Marriott today, you're talking to a Crest AI agent. And of course, we're partners with companies like Anthropic and OpenAI, powering the foundation model layer that's driving this whole economy. But at the same time, I think one of the benefits of our history is we've seen many of these technology waves. And when we think about the AI wave and you connect it back to, let's say, the mobile wave, we're in the equivalent of 2008 or 2009. We're one to two years after the iPhone moment. and I think we're going to look forward and many of the defining AI companies of this generation have yet to get started.

37:31And this new fund is all about finding those entrepreneurs and helping them build those companies.

37:34Ed Ludlow:And I think it's interesting what those entrepreneurs are doing and what kind of companies that they're forming. As an example, so you're investors in OpenAI and Anthropic. You got into Anthropic at Series F and the later rounds. Those are the leading frontier labs. With this new 18th fund, And you are not necessarily going after the model layer. What is it you're focused on? We think of it as three layers, and we will continue to invest in all three. So there's the model layer, and as you mentioned, we're investors in both Anthropic and OpenAI. We're seeing new companies get built around new data domains or new approaches, and we continue to look for and will back new companies at that layer.

38:12There's a very big opportunity in infrastructure. The entire stack's going to get rewritten around agents. Today we have companies like Base10 and Inference, BrainTrust and Observability, Snorkel and Data, but we believe we're going to see a whole new agent cloud get created. And just like we saw happen with the rise of the cloud and the hyperscalers in companies like Datadog and MongoDB and Snowflake, we're going to see similar purpose-built services for these new workloads. And that's an amazing opportunity for entrepreneurs. And then, of course, on top of that are applications. And within applications, we already have companies like Creston Customer Service or Abnormal and Cybersecurity.

38:47but we're going to see a proliferation of application companies, especially now that agents actually work. We're six months into the models that can power long-running agents, and we're seeing amazing results. For example, we're investors in a company called Resolve AI. They build agentic on-call engineers. In the last six months at companies like Coinbase, DoorDash, Fireworks, engineers don't have to wake up in the middle of the night when there's an incident because the Resolve agent can autonomously handle that incident. That's an example of agentic AI having huge impact. And we're just getting started in that era of technology.

39:19Ed Ludlow:We need to talk about Moonshot and Kimi K3. You know, the public markets is where you see the drama. But what is your interpretation of that and why a$20 billion startup from China topping a benchmark and people looking at their economics has caused this reaction? Well, I'd start by saying it was an amazing release yesterday. Largest open weights model to ever be released, 2.8 trillion parameters. As you said, really strong initial results. And they also showed a lot of interesting techniques from an efficiency perspective and how they built that model that's really impressive. And I think it's great that models like that, models like the one that came out from Thinking Machines the day prior, continue to give vibrancy to the open source ecosystem, which is an important part of our overall AI economy.

40:07At the same time, I think the reaction over the last 24 hours is perhaps a little bit premature. And I would say a couple of points. It reminds me a little bit of when the DeepSeek moment happened last year. And when you look at this new Kimi model, there's maybe a few things the audience should consider. The first is benchmarks are imperfect. You can take a model and make it very, very strong at a particular set of benchmarks. I don't think it's until that model's had time to percolate in the real world that we can get a true sense for the trade-offs that the model's incurred and what its real-world performance looks like.

40:37The second is this whole discussion around cost. I think the discussion misses the point. It's very focused on token cost. Yes. But we think about things more in terms of task cost. Not every token is equal. And so I'd make two points as it relates to the cost profile of Kimi. The first that's actually interesting is Kimi K3 is much more expensive on a per token basis than Kimi K2,

40:58Ed Ludlow:which is sort of contra to the narrative. We do not know what it costs to train Kimi K3. We have an idea on K2. I just want to put that out there. Absolutely. Absolutely correct. So the per token cost is more, but even more importantly, it's not particularly token efficient. And so what that means is for a given task, it actually uses many more tokens than an open AI or anthropic model. And you're seeing that already in the early cost benchmarking. And so I think this conclusion that it's going to lead to price erosion for the frontier is perhaps a bit premature. In this case, the frontier, let's say it's anthropic and open AI, right?

41:30Ed Ludlow:You know, some people are making the argument, well, hold on a minute. if a$20 billion valuation Chinese startup, we don't know the training costs, but they're basically saying$3 per million tokens on the input side,$15 per million tokens on the output side. If they can do that, why are we valuing Anthropic at nearly a trillion dollars? Like what's the moat that Anthropic has? I think both Anthropic and OpenAI have multiple moats. The first is they have very significant revenues. These are the fastest growing companies in human history. and those revenues are not just on the back of their models and their amazing API businesses, but their first-party products, right?

42:07And I think relative to the last time I was on the show, you look at the success that Anthropic has had with Cloud Code, Cloud Cowork, most recently Cloud Tag, it and OpenAI are full-stack AI companies.

42:18Ed Ludlow:Can I just say one thing? I think for two years, and it's been too long since you've been on the show, but we've basically assumed the best model wins. Is it as simple as that? You seem to be saying it's not. Well, it depends on how you define the best model, right? And I think I would be, again, I'd be careful to jump to the conclusion that Kimi is now competitive with the best. Certainly on some of the benchmarks that they release, it's competitive with, I'd say, one generation prior. And, of course, we don't know what's coming out from Anthropic and OpenAI in the coming weeks and coming months, but it's been rumored and reported that there are significant new releases coming out from those models.

42:52So we have a particular checkpoint in time that we're comparing it to. I think we're going to see a lot of really exciting releases in the coming months. But maybe, Ed, if I can, I want to make one broader point, which is if you just think about the overall size of the token economy and where we're going, right? In 2023, OpenAI's API was processing per day about 30 million tokens. In March of 2026, they announced they were doing 15 billion. So just in less than three years, a growth of 50 times. I think when we are talking in 2030, the overall token economy will be two orders of magnitude, larger than it is today.

43:26And so there's going to be plenty of opportunity for the best leading closed frontier models to grow, for the open source economy to grow, and for the application layer to grow. I think the only mistake one can make is underestimating the size of this overall wave.

43:40Ed Ludlow:Greylock General Partners, Sam Monometti, back on Bloomberg Tech. I hope to have you back with some regularity. Congratulations on the fund and in your success at the firm. Coming up, forget superheroes. Director Christopher Nolan is becoming a franchise eyes all on his own. We're going to take a very quick look at the blockbuster business behind the Odyssey that's next. This is Bloomberg Tech.

44:09Ed Ludlow:Let's get back to Netflix. Bloomberg Intelligence is out with a react, saying the results, quote, reinforce the bearish narrative with a muted third quarter in 2026, signaling a slowdown in revenue growth while plateauing engagement keeps sentiment subdued. Gita Ranganathan of Bloomberg Intelligence, the author of that research. You and I in real time went over Netflix yesterday, but the main point you want to hammer home? Yeah, the main point is they somehow have to turn the narrative around, Ed, on this whole deceleration in revenue growth. I mean, we've seen it significantly come down from 16 % in the first quarter to 14 % in the second quarter, and now 11.7 % guidance for the third quarter.

44:51And really the whole narrative, here is anchored by those double digit, solid double digit mid-teens gains in revenue growth. And until and unless we see that picking up along with a pickup in engagement and subscriber growth, I think it's going to be really hard to get behind this, you know, the whole Netflix thesis.

45:11Ed Ludlow:Straight after the show, Bloomberg Tech producer Justin Lau is running to an IMAX somewhere in New York City to watch the Odyssey. Is this going to be the big one of the year? It absolutely is. I mean, believe it or not, the tickets went on sale for this, Ed, over a year ago, and they sold out within minutes for all the IMAX and the premium formats. This one is going to be huge. We just got the numbers for the Thursday preview releases, highest ever this year, beating even Toy Story 5. So I think this, combined with all of the buzz, the fact that it was shot in an IMAX camera, and that everybody wants to...

45:48I mean, Christopher Nolan is always great at eventizing a film. And I think we're going to see that really translate into some very, very strong numbers at the box office.

45:57Ed Ludlow:I really want to see this one, too. Media and Entertainment Analysis, Gita Ranganathan of Bloomberg Intelligence. Thank you very much. That does it for this edition of Bloomberg Tech. Again, the picture in financial markets, in equity markets, is there's a lot of red. We're off session lows, significantly off session lows. But the catalyst was China's moonshot releasing Kimi K3 and that causing concerns that, well, why are we spending all this money in America on developing AI if a startup in China can do it at a much cheaper level with different economics? There is some dispute of that. We went over in the show, NVIDIA and Intel down, Apple lower.

46:36Ed Ludlow:At one point, Apple was the world's most valuable company pipping NVIDIA. Right now, it's not. We're gearing up for more tech earnings next week. This is your calendar. This is what we're bracing for. It really starts in earnest over the next seven days. Don't forget to recap the show on the podcast. You know where to find it on the Bloomberg platforms, but also online on Apple, Spotify, and iHeart. Have a great weekend. From San Francisco, this is Bloomberg Tech.

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