Nvidia Buyer Megaspeed Faces Smuggling Probe

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

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1:12Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech. Coming up, ServiceNow agrees to buy cybersecurity startup Armist for$7.75 billion, its largest acquisition to date. Plus, Nvidia's biggest Southeast Asia buyer faces a chip smuggling probe, despite the tech giant's insistence that chip diversion doesn't exist. And crypto's big year that wasn't a win for all, the billionaires hit hardest by recent price drops. First, we check in on those markets and Bitcoin continues to be on the downside. We're off by a percentage point, 87 ,361.

1:53So once again, another annual loss for the OG in the crypto space. But we're seeing risk on perpetuate a little bit in the Nasdaq 100. We're higher on the day, we're higher on the month, and boy, are we higher on the year, up more than 20%. And of course, today's figures, the U.S. economy expanding at 4.3 % annualized pace, maybe just easing back a little bit of risk on feeling if indeed the Fed doesn't cut as much as had been anticipated, because this economy looks like it's doing fine. But let's talk about some of the animal spirits that's in the market right now, particularly when it comes to M &A.

2:23And let's look at service now. We're currently trading lower on that particular stock. We're off by 2.5 % because, well, they're going to use cash. They're going to use debt for its biggest acquisition so far. It's all about the world of cyber. And it's actually a story that Bloomberg broke well ahead of the formal announcement. Let's get to it. Bloomberg's Andrew Martin. And it was last week that you made clear to the market that ServiceNow was looking at this particular acquisition. Why is it building up in cyber? Well, I think they're sort of following a path that Microsoft and Google have already followed, which is combining an enterprise software product and offering cyber as sort of a bonus.

3:01And so Microsoft sort of perfected this idea of having a package of their software offerings in the cloud and bringing in cyber. Google bought Wiz to do something very similar. And now ServiceNow is basically saying, as we automate, they basically automate IT and personnel, and now they're offering cyber as sort of a broader package to entice customers. The safety of agentic AI is crucial. Why is Armist the right holding? Tell us about the founding team and other Israeli success stories. Armist is an interesting company. Like a lot of cyber startups, it was started by Israeli military veterans who had worked in one of their elite cyber units.

3:44And what these guys do is they call it cyber exposure management. It's basically looking across your whole digital footprint and finding in real time flaws and vulnerabilities and fixing them quickly. And it's something that really lends itself to AI. You can see that being automated. And, you know, the company's grown incredibly fast. and for a company that automates processes, automating cyber just makes sense as part of that. What's interesting is, as you said, this is part of a theme, the fact that the mega deal of the year was whiz with Alphabet. Are we expecting yet more and more of these platforms looking to bolt on cyber acquisitions?

4:27Yeah, it just makes sense, right? I mean, it just makes sense to offer cyber as part of a broader package and among the big cyber players, Microsoft being the biggest, Google, CrowdStrike, Palo Alto, they're all trying to build a bundle that can attract users with sort of one-stop shopping and cyber. That word platformization, which Palo Alto... It's a horrible word. It's a horrible word, but they love it. Bloomberg's Andrew Martin, we so appreciate you coming on about the latest deal. Let's turn our attention to another huge piece of reporting by Bloomberg. NVIDIA's largest buyer in Southeast Asia.

5:04It's under investigation by the U.S. government over whether it smuggled advanced chips into China. Now, Singapore-based Megaspeed imported at least$4.6 billion worth of NVIDIA hardware through November since its founding back in 2023. The company, what's an obscure spinoff of a Chinese gaming enterprise, could become a prime example of Washington's fears of Beijing gaining access to advanced chips for commercial and military uses. Megaspeed denies any wrongdoing, says it abides by all regulations from the US and elsewhere relevant to its operations. Let's get the details on what was a very long-running investigation from Bloomberg's chips reporter, Ian King, and the deep dive that reporters have done to understand whether we really understand how many GPUs are going to Megaspeed and where they're ending up, Ian.

5:50Talk us through it. Yeah, I mean, there's a lot of evidence. It's important to point out, as you already did, that NVIDIA says there's nothing going on here. Megaspeed itself says there's nothing going on here. But our colleagues reporting here, Caroline, is that there is an investigation going on and Southeast Asian governments and also Washington are looking at this and still trying to find out whether there has been anything significant going on. Go ahead, sorry. Well, from what we know, it's a Singapore-based company, Megaspeed, operating fully in compliance, as they say, with applicable laws.

6:28But what ultimately has had to spring up ever since the Biden administration back in 2022 was a restriction on sophisticated chips coming from NVIDIA to China. So suddenly you saw other Asian countries become real areas of focus for importing chips so that Chinese companies could actually do the workload, could do the compute outside of their own country, correct? Yeah, no, that's absolutely right. There's nothing illegal with setting up a data center and serving Chinese customers, providing those customers don't have links with a banned entity in the U.S., whether that's the military or some company which the U.S.

7:06government has decided serves China's military. However, there is a suspicion about these links, about who's in control of what. There is a, you know, and this is the problem that NVIDIA has to face. And NVIDIA, you know, say, look, there's nothing to see here. There's nothing to worry about. But as you'll see from our story, there's a lot of links between individuals in China. There's a lot of a lack of clarity in the relationships, which I think everybody is trying to work through to make sure that there is nothing untoward going on. Because Bloomberg didn't find evidence of any Megaspeed NVIDIA chips actually being diverted to China.

7:47But there's all these inconsistencies, as you say, in Megaspeed Southeast Asia demand and chip inventory and wherever they all end up in. What's so interesting is this is a moment where maybe actually NVIDIA will get more access to China. H200s have in theory, or at least according to a Truth Social post, been allowed back into China. The question is whether China wants them, but also whether Megaspeed will actually have Chinese demand going forward if indeed we start to see access once again to mainland. Yeah, I mean, again, we're in a kind of a transition period where we're trying to find out exactly how this will all play out.

8:24NVIDIA wants to do business directly in China. That's absolutely true at the moment. It cannot do that because of these restrictions. What we're trying to find out is whether the Chinese want to do business directly with NVIDIA. And if that's the case, what level of demand that will be there. NVIDIA has really kind of had a good year in Washington. It's gone from really restrictive rules to a freeing up of some of them. But again, that has to translate into shipments into that Chinese market. And we haven't seen that yet. And we don't know that that will actually happen. Clearly, stories like this, that there are suspicions about smuggling, that we perhaps should be more secure and more kind of careful in how we deal with China and Chinese entities don't help that case.

9:10So again, there's a lot at stake here, and we really need a lot more clarity about the details of how this is all going to work out. It's a very thorough, incredibly complex story, and you broke it down perfectly for us. Bloomberg, Zien King, thank you very much indeed. Go read more about the NVIDIA supplier on your terminal or online. But let's talk more now about chip and trade news, because the U.S. has actually accused today China of engaging in unfair trade practices in the semiconductor sector. But Washington won't place additional tariffs on chip imports until at least mid-2027. Chinese embassy in Washington did not immediately respond to the request for comment.

9:46Let's get the details of Bloomberg's Jordan Fabian. And so we understand that USTR, that's the Office of U.S. Trade Representative, are saying, look, what they're doing isn't fair.

9:58Exactly. It's an interesting development. This investigation actually started under the administration of former President Joe Biden with the expectation that Donald Trump, who talked tough on China during the campaign, would follow up on it when he became president. But in the interim, he started a trade war with China. He then struck a deal with Xi Jinping to take off those tariffs. And so the U.S. right now, if you listen to what Jameson Greer, the trade representative, has said, other senior administration officials, they want a stable relationship with China on trade. And so they're not going to look to hike tariffs at the current moment, which is why you have this odd outcome of an investigation saying the obvious, really, which is that China is using non-market practices to dominate the chip industry.

10:47But at the same time, the U.S. isn't really going to do anything about it, at least not for the foreseeable future. So the USTR was legally required to publish the outcome of the investigation, the 301 investigation. But what actually is being thought of that China is up to in terms of unfairly supporting its industry? They say China's targeting the semiconductor industry for dominance is unreasonable and burdens or restricts U.S. commerce and thus is actionable. Jordan, what are they being told or accused of? you know they're they're being accused of using non-market practices to bolster their domestic industry you know sell those chips at perhaps below market rates into various countries to get them hooked on the chinese technology stack and and they're thereby increasing the market share of their chip industry the irony is that the u.s is pretty much trying to do the same thing which is basically doing a take it or leave it deal with countries around the world saying that you need to use the U.S.

11:50tech stack. We want to make sure that countries are not on the Chinese tech stack. And it had been for a while trying to limit exports to China, to other countries that are deemed unfriendly and also crack down on the Chinese market. So they're saying essentially China can't try to dominate the market. We're going to try and dominate the market. But right now, they're, again, going to sort of stand off our hold back on increasing tariffs further on Chinese chips to address that problem. Complex trade web. Jordan Fabian, thanks so much for talking us through it. We really appreciate you. Meanwhile, coming up, talking about Larry Ellison, his big bet on Paramount that could alter his vast Oracle fortune.

12:38More on that next. This is Bloomberg Tech.

12:53Larry Ellison, no stranger to bold bets, but his biggest one yet may be in media, a potential personal guarantee. More than$40 billion to backstop Paramount's all-cash bid for Warner Brothers' discovery, it could dramatically reshape the Oracle founder's fortune. Bloomberg's Dylan Sloan joins us for more as we're picking apart how Larry Ellison is basically helping his son, David Ellison, potentially buy Warner Brothers Discovery. What's so extraordinary about your reporting on The Billionaire is that he has sold very little of Oracle stock over the years. He has, yeah. And even amongst the billionaires that we're looking at on the Bloomberg Billionaires Index, he really stands out.

13:27He's sold about$7.5 billion worth of stock, lifetime, no more than a billion dollars in a single year since 2010. So that really pales in comparison in looking at some other founders. He still owns about 40 % of the company, which is multiples higher than a lot of comparable tech founder peers. So his strategy in terms of his wealth management has been to stick really closely to holding his Oracle stock, not cashing out at any point, which has been very successful for him as the stock has done well. But it does raise some questions about the cash that he has on hand and whether or not he would be able to immediately meet those equity financing commitments should he be called on to do so.

14:03Yeah, because like$40 billion in the grand scheme of things is actually not that much compared to his$252 billion net worth. But how liquid is any of that? Where has money gone? What could he sell to help out? Yeah, and you raise a good point, which is it's important to say that he can afford this, of course, many times over. Third richest man in the world. He has got more than enough assets to be able to cover this. But historically, Ellison's has relied on debt to finance many of his investments, his lifestyle purchases. Currently, about 30 percent of his Oracle stake is pledged to secure loans, which he uses to raise cash and fund his many lifestyle purchases.

14:36He has a really extensive real estate portfolio. You may remember even earlier this year, it feels like a lifetime ago, but he put up a big chunk of the equity for his son David's acquisition of National Amusements, the acquisition of Paramount. So should he need to raise cash down the line, of course, selling shares would be one option if he's called on to backstop this deal, which again would constitute a pretty significant change from his strategy over the past few decades or potentially increasing the size of those loans, which is something that the Oracle board would need to go through a review process of to be able to okay.

15:07Just like Tesla learned when Elon Musk bought now X was Twitter. Dylan Sloan, it's great reporting. Go and check it out on all things billionaires. But let's talk a little bit more about the potential bid or deal of Paramount fighting Warner Brothers Discovery and indeed Netflix too. The legal stakes of the mega media mergers. Fiona Scott Morton, professor of economics over the Yale University School of Management and adjunct professor of Yale Law School is with us now. Fiona, let's just go back to whether or not any of these will get through regulatory approval. Let's start with Paramount buying Warner Brothers Discovery.

15:43Does it cut legal muster, do you think? Well, all three of the bidders, remember there was Comcast in there to begin with, have overlaps with Warner Brothers. If you think about three buckets of, say, content production, streaming, and then channels or networks, they all overlap. And And Paramount in particular has a lot of production studio kinds of assets, particularly because, of course, Paramount merged with Skydance first. So that's a big issue for them. And they have a significant share of streaming as well. You served as Deputy Assistant Attorney General for Economic Analysis, Chief Economist.

16:18You basically helped with antitrust division in your time. When ultimately it comes down to it, the courts are going to say, who's the competitor here? Do you think it's right that they bulk in YouTube and new ways of consuming content, even TikTok, versus us all be on linear and certainly on cable? Yes, I think this is the tricky thing for the Paramount bid. I mean, we all understand what producing content is, and I think we have a pretty good grip on who does that and why it's different and what sort of market there is there. Streaming, however, is much trickier because we have user-produced funny cat videos.

16:57We have user-produced videos that actually sustain those users in terms of income. We have professionally produced short things, professionally produced long things. And so we're getting a kind of a continuum of content. And that includes YouTube, as you point out, which has a big chunk of that continuum. and it's going to be very difficult to draw the line on what is what we call the relevant market, which in antitrust is what matters because that's where you get head-to-end competitors. It feels as though Netflix, for its part, which thus far is meant to be the front-runner for buying Warner Brothers, or at least the streaming and the studio side of it, they've tried to front-run this sort of argument by making clear they think the market competitors are YouTube and they are TikTok and they are just where our eyeballs are at.

17:44Who do they need to convince in this? Because many would say, oh, the Ellisons have got the ear of the administration, but really it's the courts. That's right. The president can say he wants the Ellisons to have it and he can say that about his friends or the people who give him money or silence the voices that he doesn't want to hear. But ultimately, we have a law in the United States that can be enforced not only by the public, the federal public authorities, but the states and actually by private plaintiffs as well. And so if there's some harm to competition, and that can be shown by a state or a private plaintiff, then they can go to court and try to block the transaction just like the federal government can.

18:23And indeed, we have seen states, coalitions of states being very active in antitrust lately when they have felt that the federal government is not doing a good job. Fiona Scott Morton, I have a feeling this story is going to run. So it'll be good to have you back. Yale University School of Management. We appreciate your expertise.

18:46It's been a wild year in crypto. Despite big regulatory wins, it hasn't been kind to everyone. Even as prices and interest surged early on, billionaires tied to the space, they're charting very different paths heading into 2026. Let's take the Winklevoss twins. They saw their fortunes pressured as Gemini space station continues to face losses after the exchange's shares were 460 % following September IPO. On the other side, Jeremy Allaire's circle benefited from growing adoption of its USDC stablecoin helped by clearer regulation. And the shares have almost tripled since listing in June, although you can see they're well off their previous highs.

19:21Meanwhile, let's talk my novogratz. Galaxy Digital has actually seen some sort of a rebound alongside Bitcoin's gains earlier in the year, but it has had a tough stretch. Then there's Michael Saylor's wild ride too as the strategy founder doubled down on his high conviction Bitcoin bet, further tying his wealth to the token's price swings. His net worth has collapsed almost 40 % this year. So what next for crypto in 2026? Not just the billionaires. Elise Killeen, Stillmark, Managing Partner, says she's going to see momentum. She writes, we expect continued progress through increased M &A activity, expanded entrepreneurial innovation, and a deeper, more robust base of both retail and institutional users.

20:03She joins us now. For you, Elise, reflecting on 2025, what was the biggest landmark move? Was it institutional adoption? Well, 2025 was one of the most consequential years in Bitcoin's history, not because of price appreciation, but because of structural progress. And that includes policy, product and institutional adoption. Across all of these fronts, Bitcoin moved meaningfully into the mainstream as an embedded part of the financial system. And 2026 will be able to take advantage of that foundation. What does advantage look like? Well, what it looks like is recent regulatory clarity and an effort by regulators and policymakers to acknowledge Bitcoin as part of the financial system and to lay the foundational groundwork in terms of policy so that the U.S.

20:57can continue to lead both in terms of innovation, distribution, as well as institutional adoption that can provide efficiencies and gains for U.S.-based institutions. from Bitcoin, the asset and Bitcoin technologies. Elisa, remind us, quickly, just remind us where we are on policy, because Genius Act ticked that helped stable coins and pass through Congress. But the Clarity Act, what will that give us if indeed it does get through the Senate? So in addition to the Genius Act passing this year, we've seen advancement of the Clarity Act. What the Clarity Act attempts to do, or aims to do, I should say, is to create a framework for Bitcoin and other digital assets.

21:39Things can create clarity as well as consumer protection and can offer definitions of what these digital assets are. So, for example, we expect that Bitcoin will be defined as a commodity along with other decentralized assets under the purview of the CFTC. And that will help drive institutional adoption, both in terms of institutions' own interaction with Bitcoin but also institutions comfort with distribution of Bitcoin to their own clients. We've got about a minute left, but your portfolio is so interesting because it's all around the Bitcoin ecosystem. A lot of it's energy focused. How is that playing into also this need for energy and power in the AI era as well?

22:23That's right. So we began the year talking about Bitcoin and the intersection of Bitcoin with other critical trends, And that included AI and energy infrastructure. What we've seen as the year comes to an end is an acknowledgement or recognition of the opportunity at the intersection of Bitcoin and energy. We've seen this with large transactions, such as those advanced by major AI stakeholders seeking energy development and looking for a way to drive efficiencies, and especially in terms of pace of development, including through partnership with Bitcoin miners and Bitcoin mining development institutions.

23:07Elise, it's been great, as always, getting your take throughout the year of 2025. I'm very much looking forward to checking in with you in 2026 as well. And apologies for a technical glitch we had throughout that interview. Elise Killeen, we thank you so much of Stillmark.

23:24Welcome back to Bloomberg Tech. Let's check in on these markets for you as we head towards what is a very shortened week. We're up two tenths of a percent on the Nasdaq 100 at the moment. And stocks actually driving near all time highs, very close to the S &P 500 as well. Four straight session of gains. We've got some renewed appetite for tech in particular. This is even as the U.S. economy expanded fastest than we've seen in two years. 4.3 % annualized pace. But does that mean the Fed won't cut as much? Maybe that's why Bitcoin's under pressure. We're off by 0.5 % on crypto, 87 ,828. It's expected to have a down year.

23:57Tell you what's also had a down month and also a down on the day. The last quarter has been pretty painful for some of these neoclouds. CoreWeave off by 3%, but off by almost 40 % in the last trading quarter. Nebius is another neocloud. Basically, these new types of companies that come out to offer compute for the ever necessary need for AI were off by 2.8 % on Nebius. Alphabet, though, up 1.2 % as it's actually really thinking about the energy side of this AI equation. And it bought, of course, a power company we saw yesterday, Intersect Power, to be able to offer more climate-friendly energy for its AI needs.

24:30And that's been a big theme of the year. And data centers, energy demands is one that we keep on intersecting with Bloomberg's Josh Saul, who covers energy, been highlighting the strain that it's all been putting on the power grid. So I'm interested as to, if you reflect on 2025, how energy markets were disrupted by the AI gold rush that we saw. It absolutely changed so much. We've never seen so much money rushing into the power sector. The numbers are just wild. I mean, the four biggest tech companies spending$344 billion this year. The power sector expects to invest$1.1 trillion over the next five years on the power grid in order to both work on decaying infrastructure, but also to connect all these new data centers.