OpenAI, Broadcom Ink 10-Gigawatt Chip Deal

24:20Crypto market experienced a brief but seriously intense crash. That was particularly felt in the altcoins at one point, losing as much as 40 % within minutes as the 100 % tariff threat on Chinese imports came from President Trump. Critics really talking about crypto market structure here, a lack of liquidity, excessive leverage, in particular some glitches that seem to occur in auto-deleveraging control mechanisms over in exchanges like Binance. But we keep an eye on Bitcoin now up and flat over the course of three days. We're coming up plenty more on OpenAI and Broadcom. A multi-year arrangement for custom chips and networking equipment that has sent Broadcom stock soaring.

24:56From New York, this is Bloomberg Tech.

25:11Welcome back to Bloomberg Tech. We check in on these markets that are back in rally mode. After Friday's anxiety, China-US dialing up once again, the trade tensions, we bounce back as both seem to calm rhetoric on the day. We were at almost two percentage points, particularly chip stocks. Let's just dive in and see what's happening in terms of the semiconductor index, which is basically every single member in the green all bar one. NVIDIA are up 2.8 % as we continue to dial in on the AI opportunity. AMD is up 1.6%, but Broadcom leads the charge. More than 9%,$150 billion added in market capitalization as we see a deal to be helping with custom chips and indeed networking gear for OpenAI.

25:53And they don't even have to spend their own equity, it seems. Let's get to that key story of the day between Broadcom and OpenAI with Manip Singh, his Bloomberg Intelligence Global Head of Tech Research. And what's been so interesting about these golden touches from OpenAI for some of the big publicly traded companies is usually OpenAI has been given a sweetener by NVIDIA or by AMD. Broadcom, it just seems to be independence that they give to OpenAI. Yeah, and I think the model here is the Google GPU model. I mean, when you think about Broadcom's almost$20 billion run rate for AI chips, more than half of that is from Google TPUs.

26:26So what OpenAI is saying is you help us get there in terms of the ramp up like Google TPUs, which is in their seventh version of chips. I mean, and they've done it at a very quick pace. So from that perspective, it will help OpenAI reduce costs of up to 30 % to 40 % per gigawatt. If you think about, you know, one gigawatt takes$40 to$50 billion. One gigawatt with Broadcom chips will be at least 30 % to 40 % cheaper because the cost of those chips is the highest component in that gigawatt build-out. So Broadcom helps you lower that cost of chips. And I think that's the model here that, yes, we want merchant silicon, but we also want custom silicon with Broadcom because that's the kind of diversification Google has.

27:16And that's why their cost of infrastructure is the lowest among all the hyperscalers. Well, do the read across for the TPUs from Google. Who else is in the mix there? Because here Broadcom says, I'll help you custom design a chip. I'll help you with networking gear. But there's a lot more to an AI data center than all of that. Absolutely. And you need to source the power. You need all the other deals. But in the end, when you look at, you know, what Amazon is trying to do with Tranium, they're doing that with Marvel. Microsoft is doing that with Marvel as well. And they haven't had the same kind of success that Google has had with TPUs, with Broadcom.

27:52So to my mind, you know, it was natural for OpenAI to try with Broadcom, given the success that, again, Google has had compared to everyone else who is trying to do custom silicon. And yeah, they will do deals for power. That's what OpenAI is good at in terms of sourcing different providers. That's what Sam Altman has shown. But clearly, chips is the component that costs 60 % to 70 % of the data center. So you want to make sure you get that at the lowest cost. You won't be able to do that with NVIDIA. NVIDIA will still be the highest cost chip provider, even though they are making an investment.

28:28AMD will likely cut its cost, but it won't be the same performance per watt. Broadcom will do it custom specs for you, and then they can do it at scale that Google is doing. And it's for inference. And I'm interested if you can interpret when OpenAI, Sam, and Hocktan get together on a podcast and announce this sort of a deal. What is it that by understanding your own large language model and the needs of it that can really be built into the custom silicon? I mean, just this past weekend, I read about tiny recursive models. So everyone is looking at how these large models can be run more efficiently in terms of inferencing costs.

29:05And, you know, whether it's tiny recursive models or some other form, you want minimum latency as well as, you know, power is your real constraint. So you want maximum performance per watt. So if you're optimizing for those two, you are going to go with custom silicon because that's what Google has shown us. They can run YouTube videos best because it's their custom silicon. No other merchant silicon can give you that kind of performance. And I think that's what OpenAI is going after. Multi-year deal,$10 million is what they signal back on their earnings at the beginning of September. Mandi Singh and Bloomberg Intelligence really breaking down the why.

29:41Now let's go to Bloomberg's tech equity reporter, Ryan Vlastelica now, who can help talk through the U.S. tech stocks, the rebound that we're seeing at the moment, and indeed what Oracle is up to on the day. But first, Ryan, we talk about the rally we're seeing in tech stocks. How much is that a relief from some of the talk between U.S. and China over the weekend or indeed this latest Broadcom deal? Hey, good morning. So when I came in this morning, everything was pretty broadly higher, which did seem to be some relief over the latest developments with respect to China. But certainly when we got the news about Broadcom and OpenAI, that stock absolutely skyrocketed.

30:12I think you mentioned before,$140 or so billion in added market cap really helped augment the moves that we are seeing in the chip space today. And obviously this comes in the wake of several other deals involving OpenAI, AMD, Oracle, NVIDIA, so on and so forth. Obviously this has become an incredibly influential company that is really describing massive gains across the space. I'm talking of massive gains throughout the year, but now perhaps also rallying on the day is Oracle. We've had an interesting narrative come back to really realization last week that maybe Oracle doesn't make that much margin every time that it's selling compute to OpenAI.

30:49What has Oracle got on the agenda this week and the time that they need to prove it? Well, they have their AI World Conference this week. I believe it starts today and goes all the way till Thursday. A lot of highlights. There's going to be a couple of keynotes tomorrow, including from Larry Ellison and the new co-CEO. There's going to be an analyst day on Thursday where people are expecting some updated financial targets. So there is a lot that's going on this week, and there's going to be a lot that people are going to be paying attention to. One person I spoke to said he's actually hoping Oracle increases its CapEx guidance here at the conference because that would be an indication that people are feeling pretty confident that the recent deal they announced with OpenAI, which was, I think, for$300 billion over five years, that that money is going to be a pretty reliable driver for them.

31:30There is some concern right now about where is all this money coming from? How is OpenAI going to finance all these massive deals it's doing right now? So maybe getting some more CapEx figures there, that's something people are watching out for, to maybe justify some of the moves that we've been seeing. I mean, and$35 billion was where CapEx was meant to be hitting in fiscal 2026. They see that. That was up more than 60 % year on year. So Ryan, talk to some of that anxiety about where money is ultimately coming from. Do you think this week we will still see the concerns around an AI bubble? I think it's going to be hard to ease those concerns completely unless we get some real sort of updated numbers out of some of these companies.

32:05I know a lot of people are really looking ahead to the upcoming earnings season and and see what we get out of Microsoft and Amazon and Alphabet and Meta, all the major cloud companies, all the major customers to NVIDIA and the other AI infrastructure stocks. That's going to be really key for people to feel like that the spending train continues to move on. And, of course, anything we get that sort of speaks to the ROI that these companies are seeing from AI, that's going to help ease concerns as well. Really thanks, Ron Vlaselica. Thank you very much indeed for joining. Meanwhile, coming up, Warner Brothers' robust takeover approach from Paramount Skydance.

32:38More on that next and the future of the companies. This is Bloomberg Tech.

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33:54You actually need more content to yield more engagement. And so we would actually want to be in the business throughout whatever lens we were looking at of actually producing more, you know, more movies, more television series, more to get to scale because you need that content. You need that great storytelling to yield engagement. And from that standpoint, we're also in the business, first and foremost, of creating long-term value creation. David Ellison there, CEO of Paramount Skydance at, of course, our Screen Time Summit last week. For a moment, his company, it seems, won't be getting more content from a takeover of Warner Brothers Discovery.

34:31According to sources, Warner Brothers rejected Paramount's offer for being too low. Let's get more on this from Geeta Raganathan, she's U.S. media analyst from Bloomberg Intelligence. And it seems from your analysis that really Paramount needs the content, perhaps more than Warner Brothers needs the price point. Absolutely. Paramount really needs a strategy, Caroline. So, yes, they have Skydance. That deal, as you well know, it took months, played out for months, but finally everything was done and dusted in early August. But really, I mean, as you kind of look at Paramount, you kind of look at the assets, you look at the business, there's really not a whole lot to get excited about.

35:09You know, you have the linear TV networks. They bring in majority of the profits. But remember, that's a declining business. We've seen profits almost being halved over the past, you know, four to five years. You have streaming, which is the way of the future, but it's really not generating profits yet. And it's a subscale business when you compare it to the likes of Netflix or Amazon or even Disney+. they have only about 70 million subscribers. So they absolutely need content. There's no doubt about it. Warner Brothers, arguably one of the best businesses out there in the media ecosystem. You just look at some of the, you know, the IP, it's top tier IP.

35:43I mean, whether you're thinking of Game of Thrones or, you know, Harry Potter or DC Comics, they have it all. So I think definitely that, you know, Paramount needs them pretty badly. Let's talk about what Warner Brothers Discovery is currently up to, though. They're splitting in two, feeling that more or certainly more value can be accreted to the streaming and the movie side. What then happens to your average cable that they're continuing to have as a separate part of the company? Yeah, so that really, I think, is the major dilemma right now for David Zaslav and his team at Warner Brothers Discovery, because they know very well that once they split the company, I mean, streaming and studios will be off to a fabulous start.

36:22There's going to be a lot of demand in terms of content. The profitability looks good. The real problem is with what is called the global networks business, and which is being called Discovery Global, just to kind of reflect all of the cable networks. So the problem here, again, is right now, actually, it brings in majority of the company's profits. So it's about 75 % to 80 % of the company's profit. But again, here, it's the same old story, which is advertising revenue, affiliate revenue in decline. So we're going to see EBITDA fall. And so that's kind of where really the big head scratcher is for David Zaslav, because the offer that Paramount is giving now is for the entire company.

37:01So he's also kind of he can get to offload the TV networks, basically kind of say bye bye and not have to worry about it. If you go through with the split, the problem is what happens to the TV networks. There's not a whole lot of bright prospects in terms of growth. And the bigger problem is that it will also have a lot of the debt. Remember, Warner Brothers right now has about$30 to$35 billion in debt, majority of which will travel with that global networks segment. The story will keep unfolding. We thank you, Geetha Ranganathan, U.S. media analyst for Bloomberg Intelligence. Sticking on entertainment, shares of Disney, they spiked earlier this morning after Taylor Swift announced new content, including a docuseries that would premiere on Disney Plus in December.

37:41The company, as you see, shares up 1.5%, at one point up 3.5 % in pre-market trading. really another sign of the economic power of Taylor Swift. Meanwhile, President Trump's proposed TikTok transfer plan would give Washington greater oversight over the app's safety and data security and could allow US authorities access to user data. For more on the future of TikTok, Bloomberg's Alex Levine, who covers the platform, joins us now. And we've got to put us in the context of US-China diplomacy or lack thereof at the moment and the worries about dialing up of trade tensions, what that means to TikTok.

38:16But Alex, what's really important about your Business Week story is it shows how much control the U.S. government can have over data, not just the Chinese government now. Absolutely. You know, there's still lots of details around this deal that are being worked out. And as you've said, there's questions about U.S.-China relations and how things could really change as they have over the last couple of days that could affect how this deal plays out. But one thing we've been very interested in focusing on is the role that the U.S. government could play, really raising the question that the U.S. government may be able to do some things on TikTok here that Americans have for many years been concerned China is doing on its own version of TikTok there in potentially determining, you know, inspecting code on the app and in potentially determining how the algorithm is retrained.

39:03And there's some sort of reading between the lines in the executive order that President Trump signed on TikTok and some briefing that the White House put out with reporters that could suggest that the White House may actually have more sway over a future TikTok than people may be aware of. Yet there's a line in your story when President Trump was quoted as saying, if I could make it 100 percent MAGA, I would, he said from the Oval Office September the 25th. But I'm not going it's not going to work out that way. Just, Alex, we have so many questions around ensuring that these social media companies aren't biased in any way.

39:39So what do you think ultimately will become of trying to signal that lack of bias or not in the future for TikTok? Well, I think what Trump's, you know, the rest of that quote is that Trump really wants to ensure that there is no bias on the platform. But I think that based on what we have seen with other social media platforms and the way that they have gone, especially since President Trump has taken office again, we know that there are really no guarantees and also that ownership of these platforms really matters. When Elon Musk took over Twitter, which he now renamed to X, it became a very political platform.

40:12Even though he allowed a lot more speech to flourish on the platform than previously, it really became a bullhorn for his own politics. Similarly, since Trump took office, we saw that Mark Zuckerberg has made meta platforms more in line with the Trump administration's policies and allowing more speech. So I think even though Trump reassured everybody in the Oval Office and that statement that you just pointed to, that he does want this to be a platform that's not just 100 percent MAGA, but that does include perspectives and philosophies and ideologies from across the spectrum. There is always the chance that the ownership could have some sort of a role in what people ultimately see on the platform.

40:49And talking about platform, TikTok has not been pulled off the table at this point, according to Jameson Greer, who's negotiating with China. Bloomberg's Alex Levine. Thanks for the update. Coming up, we'll discuss the business of space and growing space tourism industry. Esne Uzo Okoro from the Harvard Belfast Center. This is Bloomberg Tech.

41:19SpaceX plans to launch Flight 11 of its Starship mega rocket tonight. The last one using Starship version 2. This is the company prepares to transition to Starship version three, which is expected to perform orbital launches and recoveries. Joining us now is Ezene Uzo Okoro, senior fellow at the Harvard Belfer Center. You used to be serving as a NASA executive and a former assistant director for space policy at the White House. So you are in the know. Just how crucial is this test later this evening? Oh, it's critically important because what we're going to see are thermal tests, some stress tests, some flight maneuvers as they prepare for the next version, as you indicated.

41:58And it's going to take them several months because they are going to ensure that Starship version three will go into orbit, conduct some recoveries. And it will be very exciting to see what's coming down from SpaceX after that. I think that the market will be very interested in where this unstoppable company is headed. Put it into the context of how unstoppable it is, because we've had a slight delay on delivering Amazon's Kuiper satellites into low mid-Earth orbit. But that's still on track. And the fact that basically SpaceX is helping other competitors enter and get into space. What does that signal about its dominance still and Elon Musk's?

42:40I think that it's just clear how important this company is as a whole, not just as a competitor, but as a leader in the sector. So as a leader in space at launch, they are able to help competitors get up to space. And as a leader in broadband communications and in the space sector writ large, they are able to continue to accelerate their progress. So this is very big. And with CalPAR, we also have to acknowledge that what this does is it's great news for the U.S. geostrategically, since we will now have two major, at least two major players in the broadband from space ecosystem as other countries continue to build their satellite constellations to provide the same service.

43:32When we think about dominance, not only in the provision of satellite communication, but just in rockets full blown, how are we seeing other companies perform? I mean, Blue Origin has been active in the last month. They have been, and they have been doing quite well. So you see New Shepard, which was designed for commercial purposes, has taken six additional people up to space, and their numbers are totaling at about 86, which is exciting for space tourism. You know, you and I should be able to get on their backlog of space tourist tickets, you know, perhaps soon as they continue to complete these launches.

44:13So it's really important to see the companies continue to show consistency. You know, when you particularly in a business, it's so complex and that consistency really helps to ensure that, you know, the market keeps moving. The space economy keeps growing bigger and bigger. Are they getting consistency from NASA at the moment? I put a pointed question to you because our own Ed Ludlow has been breaking extraordinary stories here at Bloomberg. And really one of them being that Jared Isaacman is perhaps back in the mix discussions with President Trump to potentially lead NASA. Him, of course, of shift for payments and close relationship with himself being an astronaut and having relationship with, of course, Elon Musk.

45:00Is there need, a void felt in NASA right now without someone at the helm? Well, the agency is closed at the moment, given the government shutdown. True, true. There's that political pause. And secondly, you have to think of this technically as well as economically. So technically, while NASA is needed, these companies are mature enough that they can continue to show consistency in their products without NASA conducting reviews, which is fantastic news. And then economically, quite like with space tourism and with SpaceX's Starship tests, you don't really need the agency around as these companies continue to show that the commercial space sector continues to grow.

45:49So we do need them politically and strategically for the future. But the companies are showing that they are part of a growing asset class and they're part of a mature sector. And they are not completely reliant on an agency that is currently closed. What it seems, though, is that perhaps mission operations over at NASA have been saying perhaps, look, then we'll still be stop start when it comes to getting to the moon or getting to Mars. Just update us on what the longer term goals are for NASA and for U.S. space more broadly, briefly. So currently, the Trump administration is supportive of us returning to the moon and then moving on to Mars.

46:29They are interested in moving that timeline closer so that we get there sooner than probably 2028. and at the intersection of all those timelines is SpaceX. Not a surprise. They are going to supply some of the critical transportation and there are some NASA vehicles that are going to also conduct these transportation to the moon and elsewhere. But we do stand a good chance to meet both the administration's goals and NASA's goals of exploration, just given how mature and consistent the technical team are. As an Ava Zoukora, we appreciate your time at the Harvard Belfer Center. Thank you. That does it for this edition of Bloomberg Tech.

47:20Markets rallying today. Don't forget our podcast. This is Bloomberg. This is Caroline Hyde. And I'm Ed Ludlow, inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation, and the future of business. Every weekday, we bring you the top headlines from the world's biggest tech companies. From finance to defence, AI to entertainment, and from startups to the magnificent seven. We highlight the latest stories of the people and companies pushing the tech sector to new frontiers and the politics that shape global tech markets. We do this all every weekday, then bring you the most important conversations and analysis in our podcast.

47:58Search for Bloomberg Tech on YouTube, Apple, Spotify, or anywhere else you listen. Join us every afternoon on your commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech Podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today, wherever you get your podcasts.