OpenAI Raises $110B from Amazon, Nvidia, Others

23:24Over the last couple of months, Paramount had waged this campaign to change it. For most of that time, it still seemed like Netflix was the clear front runner. But over the last week, you know, Paramount made a bid that Warner Brothers thought was better. And people started to get the feeling that, you know, that Netflix was having second thoughts. But I think the speed with which it all came together on Thursday was a real surprise. And it came straight after the meeting at the White House with Ted Sarandos. Can we interpret anything from a political perspective? Look, I think the political pressure that Paramount brought to bear definitely had an influence.

23:56It made a lot of Warner Brothers shareholders believe that the Netflix deal was going to take a long time and be more complicated and maybe be more interested in the Paramount deal. But I don't I wouldn't read too much into the meeting just yesterday. I don't think it's like Ted Sarandos walked into the White House, came away saying, oh, we can't do it, and then pulled out. I think Netflix had been sort of building to this point for a little while. And now all eyes on the Ellisons and what's next. Lucas Shaw, thank you so much for jumping on that news. Meanwhile, coming up, Jack Dorsey announces huge job blocks over at Block as the fintech makes a big bet on AI.

24:31But is AI really the only catalyst for these job cuts at Block? More on that next. This is Blue Meg Tech.

24:44Welcome back to Bloomberg Tech. Checking in on these markets, checking in on individual names that are the downside after earnings. This time it's CoreWeave off by 19%. We haven't seen this sort of fall in six months for the neocloud. And this is as their capital expenditure continues to balloon to$30 to$35 billion for the year. That was more than the market had anticipated. They're also posting a bigger loss than had been thought, even though revenue did climb. Look, again, Michael and Trader, the CEO, saying this is our business model. We build because we've already got the orders from the likes of Microsoft, from the likes of other key cloud demand and GPU demanders.

25:18But for now, the market still wants more proof point and we're lower. Let's move on to some individual names also on the move. On the back of that big private market deal, I'm looking at what's happening to this points of NVIDIA. We're off by three points. We're down by 2 % for the giant. Yes, second day running that we're on the downside after its earnings. But crucially, it's putting$30 billion of its own money into OpenAI. Now, does that come in the form of GPUs? We get to understand. But really, this is as we understand that we are going to see Amazon lent on more by OpenAI as they put$50 billion into this$110 billion funding round for OpenAI.

25:50Does that mean that we're dependent less on NVIDIA, more on Amazon's own chips and cloud? Certainly, Microsoft to the downside as people start to interpret that that relationship between OpenAI and Microsoft is continuing to untangle. We can talk more about CapEx and the likes with Bloomberg Equities reporter Ryan Vestelica, who you've been singling out ultimately how cheap NVIDIA has become. But after its earnings, we are still trying to find the proof point that it still is going to dominate market share like it always has. Maybe this deal with OpenAI and Amazon showing that perhaps we can't depend on that so much.

26:21Hey, good morning. Thanks for having me. Yeah, I'd say that's become a growing concern. So even though NVIDIA continues to grow pretty rapidly, its multiples getting pretty cheap, we are seeing a number of competitors, including its own customers, showing pretty good success with their own internal chip offerings. Obviously, we have Alphabet with its TPU chips. You mentioned Amazon this morning and the deal that they had with OpenAI. This just shows that even though NVIDIA looks like the results and their just overall trends are pretty positive there, you still have a lot of concern about how sustainable is this, what is competition going to look like, and what does all that mean for how we should be interpreting the stock's prospects, especially as we look at it over the longer term.

27:01I mean, extraordinary because NVIDIA posted more than 70 % growth in revenue, said that it's going to be accelerating into its fiscal quarter. They were currently in, Ryan, at the moment. But this ongoing AI capex uncertainty is also running at the same time as you've got the software uncertainty as well. What is it that the market needs to hear to galvanize some support? That is a great question because it really does seem like no matter what part of the market you're looking at, when it comes to AI, it seems like there's just sort of growing concerns everywhere. I mean, you mentioned CoreWeave not too long ago, another company that's spending very aggressively.

27:36And while they're also showing pretty good growth, people are skeptical. How much is this spending going to pay off? When are we going to start to see more pronounced returns from it? What is the impact all this is having on earnings and cash flow and so forth? Major concerns out there. Then software is a little bit of a separate issue. But at the same time, you have this sort of growing adoption of AI. You have sort of improved efficiency. of these models and more capabilities. What does this mean for sort of traditional vendors? And we did get some mixed results out of the software group this week, companies like Salesforce, Intuit, Autodesk, all these companies coming out, painting sort of a mixed picture.

28:12I think I'll just flag Duolingo. So maybe a little bit of a separate thing here, but the language learning software company, that stock is plummeting today because they gave a weaker than expected outlook. And that looks like one where people are just sort of looking and saying like, what is the demand for this kind of service going to be in a world where we have AI providing auto translation sort of services out there? So that is just sort of, I think, indicative of just the growing concern and fear out there. Duolingo off by 15 % at the moment. Ryan Veselica, thanks for bringing us that one.

28:41Look, as we think about how powerful these models have become, just take a look at the two-day chart of block shares. We've got that huge spike coming after the company, which owns Square and Cash App, told shareholders it plans to cut almost half of its workforce. Why? AI. Let's talk about it with Bloomberg FinTech reporter, Emily Mason. And there was a lot of hand-wringing as to whether this is AI washing or actual AI productivity, Emily. But first of all, give us the facts. What did Jack Dorsey announce? I mean, he is really saying that this is driven by AI. They've made a lot of investments in their internal tools like Goose, which are meant to help employees across the board operate more efficiently.

29:19So they were really trying to communicate that this is coming from a position of strength and that, you know, it's a bet on AI making them more efficient. I think they're getting a lot of skepticism that, you know, they hired really aggressively over COVID and similar to a lot of their peers. And, you know, maybe they needed to reduce and bloat. When they say a position of strength, I think the CFO was talking about how they've seen more than 20 % growth in their gross profit for the quarter they just talked about. Here's Jack Dorsey discussing how they, yeah, they did overhiring COVID. He admitted that.

29:49But they also feel that they've been pretty well run. That's something that I've been hearing echoed by analysts as well, that compared to other payment companies, actually, they're pretty profitable on a per-employee basis. On a one-year basis, it's been more volatile for the stock. So, Emily, paint us as to what the reaction is going to be like internally and how you actually let go of that many people, 4 ,000 all in one shot. I mean, that's part of what made it so surprising, right? It's like, it's not totally clear what pushed them to make such a dramatic change if they are performing so well.

30:23They're really trying to increase their product velocity to keep up with competitors. I think people feel like they've done a good job of that, catching up with Toast as far as feature parity for serving restaurants, which has been a focus area for them on the square side. So I think that's kind of where they are, and they're hoping to just continue on that trajectory. They've made a lot of restructuring changes to kind of operate more efficiently. They've gotten rid of a lot of middle management people. And I think part of a question I have is like, is this the culmination of that? Like, are they now happy with their organizational structure?

30:53And are they going to be able to just execute without restructuring anymore? And that was the argument. Don't have wave after wave. Just do it once and do it efficiently, shall we say. But still, this is a human story. Emily Mason, thanks for bringing it to us from blog. And therefore, let's get you the wider human picture here as it intertwines with AI. J.P. Gounder is with us. He's vice president and principal analyst at Future of Work team at the research firm Forrester. You've been writing a lot about the potential for AI washing for companies to blame AI and technology for job cuts, but what do you interpret Block as?

31:28I think it's a story in part potentially of AI washing. AI washing is incredibly pervasive right now. After all, if you lay people off and you say, well, we've just become so much more productive because of AI, it makes you sound innovative, it makes you sound in control. But the truth of the matter is that Block does, as you've pointed out, have some other problems. They're down 75 % from their record high, all-time high of stock. But they also did overhire during COVID, and that can't be overlooked. I will say this. In the tech sector, when you have a software developer-centric kind of organization, there is more potential for using AI to fill in for productivity because coding is moving in the direction of becoming very much generated by AI.

32:16What caught my attention when I first read the post yesterday from Jack Dorsey was he was saying, I'm late. I'm not early. Others are going to copy me now. Do you think there's going to be a copycat effect here, particularly from software, from tech companies that are at the cutting edge of using the latest, greatest frontier models? Probably. I mean, there have been quite a few tech layoffs, including of developers from some of the biggest firms in the world. We've seen Amazon lay off 30 ,000 employees over the last few months, and it will be happening everywhere. But again, all of these companies were in a war for talent during COVID, and they were kind of hiring everyone they could get their hands on who had talent.

32:59Now, these newer tools that allow software developers to generate code at a much faster pace, well, it does change the economics a bit. But there's still a war for talent, just a different kind of war for talent. And so I'm interested as to who, therefore, these companies are fighting to hire and who gets let's go in this scenario. Right. Well, look, I think what we saw that was different during COVID is even relatively junior developers were being snapped up, people straight out of college. And right now, we know that junior talent is suffering in the job market. Very qualified people find it hard to get on that first rung of the career ladder.

33:39Who they're fighting over are really the leading edge AI experts and people with a lot of, you know, hardcore AI experience who are really adept at using these tools in a variety of ways and who have proven that they could drive some business value because we know that ROI remains relatively elusive with AI writ large. At the end of the day, scapegoating or not, job cuts are still occurring. JP, push us forward as to what the future of work in your mind's eye actually does look like. The reason this block announcement had such an impact is because it comes on the back of a week where we had the Citrini research to kick it off.

34:17And we all had this angst about what a dystopian two years time looks like with 10 percent unemployment. Is that what you're thinking is a reality? So at Forrester, we have a forecast. We believe that by 2030, that AI and automation will take about 10 million jobs out of the U.S. economy, which is about 160 million jobs. So that's about 6.1 percent. That is nothing to sneeze at. There's real human pain involved there. But it's not the apocalypse that some people are talking about. We believe that usually AI is augmenting rather than effectively replacing people. And if you look beneath the covers, MIT did a study, 95 % of companies have yet to see any tangible return on investment in a financial sense from all the AI investments they've been making over the last few years.

35:08So we have a sober look. It will have an impact. 10 million jobs is not nothing, but it is hardly the apocalypse. Will it create jobs, JP? Yeah, there are definitely some new categories, at least of skills that are necessary. I mean, did you ever hear of a prompt engineer three years ago? I know, but are they still needed? I thought that was last year's issue. It certainly was. And now we're moving to who's good at agentic AI. But those agents still base their actions on a lot of prompting. So prompting hasn't quite gone away to the degree that people would lead you to believe. But we are indeed moving toward a more agentic world.

35:48JP Gounder, it's great to connect with you today of Forrester. Thank you for the thought leadership. Look, coming up, 13%. That's the amount the global smartphone market could shrink this year. More on that IDC number next. This is Bloomberg Tech. This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophorus. Bloomberg Surveillance also brings you the analysis behind the headlines.

36:29We do that through conversations with the smartest names in economics, finance, investment, and international relations. We do all this live each and every weekday that bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keen, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day.

37:12A new report from IDC says the global memory crunch will lead to a historic contraction in the smartphone market. Nabila Popol, Senior Research Director at IDC, joins us to discuss this next. You call it a crisis like no other. What's driving it? Purely the fact that we all need memory for data centers? Absolutely. I mean, it is like no other because we've been through the pandemic. We've been through a really volatile year just now, like with the tariffs, and we still didn't see a drop like this. Right. So this is a completely different situation. And essentially, there is just not enough memory for the players that need it.

37:51And given that how many different products we need memory in. Right. So that's what's essentially creating the crunch. But more importantly, it's not just about the drop now and then the market will recover. It's about what makes us really different and much more dire for the industry. It's how this is going to create a permanent change, a structural reset of the entire industry, both in terms of TAM. So just this year, we're looking at about 160 million units wiped off the market. But even when it starts to recover, which as of our assumptions, the situation would stabilize somewhat mid-27 and we're starting to go in positive growth territory.

38:27But you're still looking at, you know, close to 160 million off the TAM. So throughout our forecast, we're not expecting the TAM to get back to prior 2025 levels. Right. But within that, again... Can I jump in on that TAM? Why will it be so long-term diminished? So essentially, the reason for the drop is how the change in the competitive landscape is going to, you know, the impact that that's going to take. So where is that$160 million coming from? It's the prices of the memory, right? And why we keep saying, I mean, the prices of the memory that has shot up up to even 300 percent from what they were last year, and they're continuing to go higher.

39:11Memory that used to contribute to about 20 percent of a smartphone bomb cost is now anywhere, you know, tripling that. So imagine a smartphone that is below$100. If the memory cost used to be$15,$20, and that's tripled, it's essentially making below$100,$150 smartphones uneconomical to make anymore. So those OEMs, and there are a lot of Android OEMs operating in that space with the majority of their portfolio, some with 90 % of the portfolio below that. Those are the ones that are at extreme risk. Not to say that anyone is immune, even the larger players like Apple and Samsung are going to face higher memory prices, but at least they are able to secure the supply.

39:54And when they get the supply, or at least majority of it, they can afford those higher prices, right? Because their devices have larger margins. It's really those lower end Android players that are already operating on razor thin margins that simply not going to be able to make those phones, those below$150 phones. So it feels, Nabila, like it's the emerging markets that are going to be hit the most in terms of end demand, in terms of low cost phones. Can we not innovate our way out of this? You know, I would. And I think I said that earlier to someone that we are, you know, this is going to be a time of like survival of the fittest where the, of course, the larger players are going to be able to secure their supply and leverage their, you know, their margins to be able to absorb some of the costs.

40:37But we're, you know, we always see, right, at times of crisis is when the biggest innovations come out. Right. So, you know, we're curious to see and we're already hearing of some of the lower OEMs either resorting to use devices to get the RAM from that or, you know, and memory from older phones. But, you know, we still don't think it'll be enough to avert the drop that we're seeing. The other strategy or mitigation strategy that they're thinking about or going to leverage is that they're going to try to move up in price segments, right? So target above$200 phones. But again, the challenge there is that demand there is going to be very sensitive because, one, there's going to be so much increased competition from more established players in those price segments that it's going to be really hard for the low and below$100 brands to be able to get demand or consumers to buy their devices above$200.

41:30So even though they're being ambitious, I think it's going to be a big challenge to operate at the same volume at higher price segments. So, you know, that brings me to my other point. We're not only looking at a full competitive landscape change where many players exit and, you know, share change between the larger players that are remaining, but also a complete product makeshift of the industry that is going to last for a long time. Because even when the crisis stabilizes and memory prices go down slightly, they're not going to go back to prior levels. So it's almost never permanently uneconomical to make those sub -$100,$150 devices.

42:06So are we going to be keeping our phones for longer, Nabila? That was already a trend. Yes, exactly. So the consumers that are not going to be able to afford those higher price segments or higher prices, which are across the board, not just on low end, some are going to end up resorting to keeping their devices longer or resorting to the used market. So there's just so many dynamics at play and we're eager to see how OEMs and consumers adapt. But it's going to be a very challenging couple of years. Nabila Popol, it was fascinating research. Senior Research Director at IDC. Thank you. Coming up, a new way to start your weekend.

42:45Bloomberg TV is launching Bloomberg this weekend. Co-host David Gurra is going to be joining us for a preview. This is Bloomberg Tech.

43:00NASA shaking up its Artemis mission to the moon. The space agency decided to cancel a multi-billion dollar Boeing upgrade to the centerpiece space launch system rocket and is slotting in a test fighter flight closer to Earth as the program remains beset by delays in coast overruns. Now, even with this latest turn of events, NASA insists the 2028 deadline for a lunar touchdown remains unchanged. Meanwhile, there is something changing at Bloomberg TV, unveiling a brand new show to start your weekend. Bloomberg this weekend. Joining us is the program's co-host, David Gurra, one of three and a whole team behind it.

43:37David, I have a feeling you might be talking some tech stuff this weekend. Indeed we will. So there will be plenty of tech stuff. Certainly watching what's been happening with the Pentagon and Anthropic and also the private credit story continues to be roiling as well. So I think it highlights why we're doing this program. that is. It doesn't seem like everything is contained in a Monday through Friday week anymore. It seems like it starts to build even more at the tail end of Friday going into the weekend. So between that, what's happening in tech, private credit, and then of course what's happening in geopolitics, I think it has the makings for a very busy launch weekend for us.

44:05I blame crypto. Yes, fair enough. They started there throughout the weekend vibes. But what we like to do on a weekend is maybe digest in a different way. It's kind of a sit back approach rather than a lean in. Is that kind of the style of the program? That is definitely the plan. And of course, if something major happens, we will change course and accommodate that and cover the live news very capably with all of our colleagues around the world. But having done this once before, hosted a weekend show, I know that the importance of it centers largely on being able to exhale at the end of the week.

44:33Think about what's happened on Saturday, maybe have some longer conversations about themes that have developed over the course of the week. And then on Sunday, kind of position everyone for the week ahead, set the table for that. So it'll be three hours, a significant amount of time, but we're on TV, radio and streaming as well. So folks can kind of listen to the show as they move about their day. They don't have to be stationary in front of the television or the radio to do it. I mean, I really feel like the themes that have engulfed this week in many ways are the themes that continue from our tech audience perspective day in, day out.

45:01What does AI mean for the future of work? What does it mean in terms of a dystopian future in 2030 that is articulated on a substack by Cetrini Research that we've never heard of before? Sorry, Cetrini Research. But is that something that you're thinking about? Is that what the audience are asking for as well? I think so. And there's some plasticity to this. We're at the beginning of the evolution of a lot of these things. And I think that people are very hungry for all kinds of analysis. Yes, the most alarmist and thought-provoking. But I think there are many opportunities when it comes to AI, when it comes to productivity, when it comes to the economy broadly to kind of sit back and really hear interesting conversation about what people are thinking about where it's headed, where it might be headed, where it could be headed.

45:39And we'll be having those conversations on the show. Guests? Who can we look forward to? Let me fly that we'll have the Minority Leader of the House of Representatives, Hakeem Jeffries, on the show tomorrow. And the Democrats have just had a big meeting outside of Washington, D.C., obviously on the heels of the State of the Union. We'll be having a conversation with him about that, the Democratic agenda. Certainly we'll get into tech, talk about Iran as well as we continue to watch what's happening there. And the House prepares to vote on a war powers resolution next week. Light stuff. Light stuff.

46:04There'll be light fare as well. I don't mean to worry people. There'll be some laughs. I know that with your team. We thank you. To be sure, tune in to the premiere of Bloomberg this weekend. That's tomorrow starting at 7 a.m. Eastern. That does it for this edition of Bloomberg Tech, but keep an eye on some of these stocks. The Nasdaq 100 having its worst week since March, worst month, in fact, of March of last year. It's down on the week. It's down on the day. NVIDIA off by 2.2%. Amazon with that open AI$50 billion funding of 110. This is Bloomberg Tech. I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast.

46:44Now, every day we are bringing you reporting from the magazine that helps global leaders stay ahead. We've got insight on the people, the companies and trends that are shaping today's complex economy. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the U.S. market close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it. We also have a lot of fun doing it. Bloomberg Business Week also brings you the analysis behind the headlines through conversations with our expert guests.

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