OpenAI’s Explosive Growth Continues

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1:49Bloomberg Tech is live from the heart of Silicon Valley with Ed Ludlow in San Francisco. This is Bloomberg Tech. I'm Tim Stenevek in for Ed Ludlow. Coming up on the program, OpenAI is on track to generate annualized revenue of more than$40 billion. That's roughly doubling its run rate from the end of 2025. Plus, a new city bill backed by Mayor Zoran Mamdani calls for Amazon to directly employ their delivery workers. What will Amazon do if the bill passes? We discuss. us. And Meta's former chief AI scientist is joining a new venture firm to invest in AI startups. We'll be joined by the firm's leader, Sean Johnson.

2:32But let's start with today's big number, and that is$40 billion. OpenAI is on track to generate analyzed revenue that tops that number. That's according to sources. That would roughly double its run rate from the end of 2025. I want to bring in Bloomberg's AI reporter, Rachel Metz, who broke this story. Rachel, So what specific products are driving this annualized revenue runway that is such a jump from last year? So according to what we've been told in our reporting, it's actually kind of a range of things. The company's consumer business is still by far its largest business. And they recently announced that they had passed this one billion active weekly user mark, which they've been pushing toward for a long time.

3:14So they've got more paying users on the consumer side. They also have a lot more businesses that are using it. And this is driven in some part by Codex, which is its coding assistant. Okay, well, we can't talk about this. It's the open AI in a vacuum. How does it compare to what the latest is from Anthropic, its chief rival? I mean, they've been that sort of neck and neck in a way. Okay, I hate to say like it's one versus the other because I think that it's like much bigger and broader than that. And there are a lot of companies here in this ecosystem. But I think Anthropic definitely has proved over the last year or so that they're a really handy rival to this company.

3:51And they have, especially on the coding front, they in some ways really outpaced OpenAI. But OpenAI is showing us as revenue is going up that customers are also willing to pay for its products as well. Okay, we're talking top line here. Do we know anything about the bottom line and what expenses are and cost of revenue here and what it's spending? we're still looking into that as far as like specific numbers but what we do know generally and i feel like we've we've talked about this so many times we have and it's it's so frustrating but it's the same thing over and over compute is really expensive it costs a lot open ai has worked very hard to amass a war chest essentially of computing power and it has that at its disposal and yet the company also will still say that its biggest obstacle is getting enough compute But that is going to take up a huge chunk of any revenue that it brings in.

4:44So other than that, I would say that's probably by far its largest expense. Bloomberg's Rachel Metz out there on the West Coast. Rachel, thanks for the update. We're going to keep asking you those questions about top and bottom lines at these companies. Appreciate your time. Well, strategists at Citigroup and Bank of America are finding that the chips index is in, quote, bubble land after it rose over two standard deviations above its long-term trends. in real terms. As risks develop in the AI trade, our next guest argues that early winners aren't necessarily winners forever. An early winner NVIDIA is at the center of it all.

5:21Grenadilla Advisory Founder and CEO Anna Rathbun joins us now. Anna, you talk about this, quote, duration mismatch between the realities of AI infrastructure and investor expectations. How do you quantify that? Yeah, you know, we're looking at quarter to quarter numbers, and perhaps that's not the right timeframe, even though that's what we're used to as equity investors. The hyperscalers and semiconductor companies are telling us, look out to 2027, 28, 29. I mean, they're issuing bonds that go all the way out to 2066. I'm not saying that we have to wait until 2026, but we definitely have a mismatch in expectations of when we might actually see return on some of these investments.

6:06The revenue expectations that are being promised years out, they have to be able to meet it years out. And that takes a lot of investment today in numbers that we're totally not used to, right? So I think we have to sort of adjust our expectations to be a little bit more longer-term focused than we are today. Okay. But how longer-term? I mean, at least when we're talking about memory makers, we still hear about 2030 over and over again. I mean, the visibility in quarter to quarter is, I think, tough for a lot of people to comprehend. How much time do we have to wait? Yeah, and that's the uncertainty, right?

6:41And that's why you see the volatility in the markets. And that's basically investors expressing that uncertainty. The answer, I think, is we don't really know. And I'm not entirely sure that the hyperscalers know either. Right now, they are in an existential race. Let's capture that future compute that we get to sell by building data centers and buying NVIDIA chips and perhaps making our own chips. And that is, I think, how the industry is changing. And frankly, we have to wait and see. A sort of field of dreams. If we build it, they will come. Maybe. Okay, maybe. Well, help us envision that future and what it looks like.

7:19Because there's the conversation, too, happening where there's no guarantee on this ROI. Do you buy into that or do you think that there will be an ROI on this? I think there will be an ROI on it. I mean, and this is the other expectation that we have perhaps misplaced is the level of compute, right? Overall, investors are, we're used to looking at the last 20 years of Internet and cloud growth, etc. At the AI level, the sophistication of these models and just how much compute that it takes. I'm not entirely sure the market has digested it. And that's why there's so much money going into it. I do believe that we will see the ROI.

7:58It's just, as you mentioned before, it's the timing is uncertain. And that's why we have to take a long-term view. In your view, are we talking about the right names? Are we looking at the right names, at least on the public equity side? We're going to talk to some venture capitalists a little later this hour. You know, they're thinking about it from the perspective of, okay, what are the early companies now we should be investing in? But you focus on public markets. Are we talking about the right names here? I think those are the names that we have to talk about because that's where the spend is coming from.

8:25That's where the circular financing is. That's where the debt issuance is coming from. And so if you are a public market investor, those names you do have to pay attention to. Now, what we have discovered in the last two or three years is that sometimes names come up out of nowhere, out of the left field in terms of being in the front line of AI. So until we see those names, I think we are focusing on the names that we see today. But we do have to think about the risks. You mentioned NVIDIA earlier. It was an early winter. Now everyone is making their own chips. What does that mean for NVIDIA?

8:58Now, CoreWeave is actually dependent on NVIDIA and their debt is actually collateralized by NVIDIA chips. What does that mean for NVIDIA? I mean, I think we have to look at it differently, give it a second look in the same names that we all talk about today. Yeah, we'll find out a couple of weeks what NVIDIA says. August 26 is when they're scheduled to report their most recent quarter. Anna, before we let you go, you mentioned circular financing. Certainly, that gets a lot of attention, but increasingly, we're hearing about concentration risk and worries that some of these hyperscalers really have two customers, Anthropic and OpenAI.

9:32What's your view on concentration risk? Yeah, concentration risk is something that these companies need to work on. I mean, we heard from Cerebra saying that they actually have a huge concentration risk, right? But they're actually new to the public markets. So I think we're going to have to expect that to reduce the risk. If at least they're not going to be able to tell us when we're going to get the ROI, tell us that they're actually reducing the risk on their business side. Well, I guess the question that I have is who would take the place of those large customers at this point? Well, right.

10:07And who else is out there? Yeah, that's the conundrum of the circular financing, right? Because, You know, it takes so much capital and size in order to build this AI ecosystem that there are a few players. Right. And so, I mean, I think we're going to be able to see in about a year or two. I mean, we have the hyperscalers trying to reduce their dependence on the number one supplier. And I think the companies are going to continue to make those innovative changes to their business model. And so this, unfortunately, is also a wait and see because of the nature of the AI ecosystem and how much money it takes to build it out.

10:41Anna Rathbun of Grenadilla Advisory joining us this morning on Bloomberg Tech. Anna, thanks so much. Do appreciate your time. Well, coming up, applied materials beats expectations. Investors, though, well, they're not so impressed. Shares down by about 4.6 % right now. We're going to break down the chip equipment giant's outlook next. I'm also watching shares of Broadcom. That owns VMware. Shares of Broadcom down this morning, trading and dragging the S &P 500 lower. It follows a report that VMware security vulnerability being actively exploited across several countries. Broadcom shares off their worst levels, but still down 5.3%.

11:19This is Bloomberg Tech.

11:27AMD has raised$4.75 billion in its biggest ever U.S. dollar bond sale. It joins a wave of borrowing tied to the AI boom. The chipmaker ramping up spending as demand for computing capacity surges. AMD says the proceeds will be used for general corporate purposes, potentially including debt repayment with$875 million of bonds due next month. Applied Materials delivered a better-than-expected forecast. Investors, though, hard to impress. It's the biggest U.S. chipmaker of equipment, I should say. It says that customers are pushing it to ramp up production even faster. Bloomberg's Ian King covers all things semiconductors, and he joins us now.

12:05Ian, so shares were up about 108 % going into this print yesterday. Expectations, fair to say, were pretty high. It looked like a pretty good print across the board. What are investors upset about? Yeah, whether they're actually upset about anything in particular isn't really clear. I mean, all of the numbers look very clean. But really what we've got is yet another case of a company comes out and says, hey, guess what? Our earnings are going to be hundreds of millions of dollars better than you had expected. and the reaction they get is, yeah, great, we know that. What are you going to do for us next?

12:38And so a lot of the conversation on the call was about next year. Okay, well, let's talk about that because the question that I think a lot of people have is about how this firm is somewhat of a barometer for the entire industry. Can you talk a little bit about visibility that we got from applied materials into what the rest of the year and what next year looks like? Yeah, no, that's a very good question and this is one of the reasons why you would concentrate on a company that does something a little bit more esoteric. So what the CEO told us in a conversation after the numbers hit was, look, I've got eight quarters of guidance from my customers because it takes so long to make this equipment, to then ship it, to then install it and get it up and running in these factories.

13:20We have to plan over the horizon. And guess what? They're giving me even more visibility than they normally would. So he's saying, look, next year, things are going to get better. So the call was all about, well, how much better? Tell us exactly how much better. And, you know, he said, look, a lot better. So I don't really know what more of a conversation that you could have as a management team at this point. Ian, before we let you go, we have 30 seconds. You've been doing this a long time and covering these types of companies a long time through different cycles. So I'm just curious, contextualize the moment for us.

13:51Have you seen anything like this? Never, never. The extent that we are, you know, sort of getting in front of ourselves and projecting growth, we've never seen anything like this. We've seen ups and downs before, but never anything to this extent. Ian King, it's always great to chat with you. Thanks for getting up early. Do appreciate it. That's Ian King out in our San Francisco Bureau. Well, Chinese AI firm Z.AI is upgrading its flagship model as it looks to close the gap with US rivals OpenAI and Anthropic. The new GLM 5.3 will focus on stronger coding capabilities and stronger performance gains over its previous model.

14:26The company plans to release the new LLM weights within two weeks, allowing developers to download and customize it. Stanford's AI Index finds a striking divide in attitudes toward AI in China and the U.S., but the question, what's driving that gap? And could China's enthusiasm give its AI industry an edge? Bloomberg's Min Min Lo explains. The Stanford University AI Index shows that more than 80 % of Chinese are optimistic towards AI compared to less than 40 % in the US. And Edelman has a similar survey showing the same trend, that more than 70 % of Chinese trusts AI compared to less than 40 % in the US.

15:06And again, why is there such a huge gulf in attitudes between Chinese and Americans? One reason could be people's experience with technology. In China, over the last two decades, it's still in a rapid development phase, and people's experience of tech is one of empowerment and transformation. We're talking about rural residents getting to sell their goods through e-commerce channels, leapfrogging credit cards to become a cashless society, experiencing the convenience of door-to-door delivery and very cheap, efficient logistics, for example. But in the US, that's already a norm, right? People are familiar with big box retail.

15:46They have reliable mail. And the experience of the tech explosion has been one of addiction, data privacy violation, over-concentration of power in big tech. So that's one reason. And the other concern is around whether there is enough guardrails that has been put in place. And in China, these tech firms are still under the thumb of the government. They're constantly worried about crackdowns. And when the government pushed this common prosperity campaign, tech firms were rushing to pledge billions of yuan to support that. While in the US, it's a different story where you have a revolving door, where tech executives raise funds to run political campaigns, where billions are being poured into lobbying.

16:26So again, that concern around guardrails, and there's just not enough trust that the government is protecting the interests of residents. So why does this matter? When people are more willing to try new technology, that means market adoption rate can be much faster. And while China lags behind in some of the foundational technology like the chips and the hardware, Chinese firms could have an advantage in having that more fertile ground to test new products and to allow much faster adoption of new AI products. Min Min Lo, Bloomberg News, Hong Kong. Well, some breaking news crossing the Bloomberg terminal.

17:03Luigi Mangione to plead guilty to killing of healthcare CEO. Once again, Luigi Mangione to plead guilty to U.S. charges, this according to Luigi Mangione's lawyer. We'll continue to bring you updates on that story as it continues to break. Well, staying with China's AI boom, DeepSeek is sharply raising prices for its flagship V4 models. Peak hour rates will more than quadruple starting August 16th. This is the startup prepares for a potential IPO and puts greater focus on profitability. Even after the hike, DeepSeek says its models remain significantly cheaper than major rivals. Well, coming up, how close are we really to a world full of humanoid robots?

17:45We've got some answers next. This is Bloomberg.

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19:38The promise of embodied AI, think humanoid robots, drones, autonomous vehicles, seems to be coming into its own and increasingly entering the real world. Bloomberg Tech Europe's Tom McKenzie spoke with Google DeepMind's head of Robotics' Carolina Parada about whether physical AI is finally having its, quote, chat GPT moment. I would say not yet, but you can see it. You can see it in light. In my opinion, it depends what you call the chat GPT moment for robotics. In my opinion, a chat GPT moment for robotics would be one where everybody can experience what it's like to interact with a robot and the robot responds to what you want and does what you want in a completely new environment or a completely new setting.

20:20So that's what it means to me. I don't think we're there yet. but we're getting there. What gets us there? What are the technological barriers that need to be overcome to get to that point? Yeah, I mean, this is precisely what we're invested on. So our goal is to build the intelligence layer that can power any robot and make it really intelligent so that it's intuitive for humans to use so that it can do a broad range of tasks so that it can make the robot smart enough to understand an environment, reason about it and then take action to complete a completely new task that you might have asked it to do.

20:54That's what we're going after. I think that there's been significant progress over the last three, four years. I mean, before, robots didn't even understand what an object was and what their environment. They were just simply points in space without any meaning. We've actually introduced around 2022 LLMs and BLMs into robots that taught them to understand natural language. It also taught them how to reason about their environment and then how to take action in a way that was towards a particular semantic task or a particular meaningful task for the robot. That didn't exist before. Humanoids get a lot of headlines.

21:32They get a lot of buzz. Do you think that's distracting? Do you think investors, the media, others, do you think we're still kind of overly obsessed with humanoids? That's a great question. I mean, we live in a world where there will be many different robot types. I actually think I'm very practical about this. I think that there's going to be a lot of tasks where a different form factor that is not a humanoid is the right thing. However, I do think humanoids are going to become useful and are going to be an important form factor for a few reasons. First, I think the world is made for humans. So if you want to immediately deploy a robot in an environment that is human centric, then a humanoid is probably going to be an easy one to deploy.

22:10Actually, there's an interesting research aspect to this, which is if we want robots to learn from humans and the robot has a human form factor, it's actually easier because it can now translate what the human is doing when he's, say, cooking a recipe into what the robot should do in order to do the same task. So that's a learning perspective that I find interesting. And then the other piece is that my goal is to really show that we can get to AGI in the physical world. What does that mean? It really means that the robot can do anything that human can. So I feel like humanoids are going to enable us to show and really believe that we have gotten to that level.

22:47So that is another reason why I like it. But we care about all kinds of robots, and we're interested in enabling, bringing intelligence to all robots. That was Google DeepMind's Carolina Parada speaking with Bloomberg's Tom McKenzie. You can check out the full interview in the latest episode of Bloomberg Tech Europe as Tom looks into whether we are on the cusp of a robot reality. You can find it on YouTube and Bloomberg.com. Well, let's take a look at more tech stories with Bloomberg's Yahaira Anand now. Yahaira, take it away. Hi, Tim. It's time now for Talking Tech. First up, France's highest court blocked a ban on social media for children under the age of 15, calling the ruling unconstitutional for harming youth's freedom of speech and communication.

23:28The ruling shows how global efforts to ban kids from social media are crashing into major legal and technical roadblocks. Plus, Nintendo climbed as much as 7.5 % in Tokyo today following the success of its hit game, Pokemon Pocopia. The Nintendo Switch game's global sales topped 5 million units since it launched back in March. Shares are on course for their third weekly gain, the longest winning streak since November. And a judge ordered Kalshi to stop offering some wagers in Washington state after regulators said the prediction markets app likely constituted an illegal gambling operation. CalShift's head of enforcement, Robert Deneau, spoke on Bloomberg surveillance earlier today.