Oracle’s Cloud Growth; Debate Around AI Risks

21:30Ed Ludlow:thing. We don't have a sense from Anthropic specifically, right, that they have looked at the idea of slowing down work at the frontier. We do know that Anthropic, you know, has long been the company that has been very vocal about the existential risks of AI, right? You have CEO Dario Amidai has talked about, you know, it's actually been a sort of doomer term has been applied to him in something that he said he's not. But the company, I think Anthropic sort of philosophically has certainly been open to this idea, whether in practice in this moment, they are ready to do it. And of course, ahead of a potential public listing that could be one of the biggest is the real question.

22:15Ed Ludlow:Shereem, very quickly on the Doomerism debate, and that's probably putting it mildly, from an Anthropic employee that resigned, an Anthropic employee who amplified that statement. What has Anthropic actually said about everything that's being discussed largely online at the moment? Yeah, so the company did send a statement to us in response to the heated discussion among staff recently. And they said, we have always been transparent that AI will bring enormous benefits and unprecedented risks. You know, it's a long statement, so I'm not going to read all of it. But in summary, they sort of called out their responsible scaling policy and how for a long time Anthropic has, you know, had sort of framework in place to not release models if they feel they are overly dangerous.

23:04Ed Ludlow:Bloomberg's Shereen Ghaffari, who again broke that story on OpenAI with Rachel Metch. Go and read it on all Bloomberg platforms. It's time now for Talking Tech. I'm Yahaira Ana. First up, Moonshot AI is targeting a big jump in annualized revenue to$2 billion by the end of the year due to the breakout success of its Kimi K3 model. That's according to sources. It comes as Moonshot is in the process of raising funds at a$50 billion valuation. Plus, ZDOT AI is looking to tap investors for about$5 billion to fund more research and development. That's according to terms seen by Bloomberg. The firm, also known as Zipu, has been refreshing its model with stronger coding capabilities, releasing a new one just last month.

23:53And Micron is rewarding its employees in Taiwan after a huge jump in profits. Net income surged 15-fold in the third quarter, and unions have been pushing for workers to share in those gains. Now employees will get nearly$32 ,000 in cash bonuses plus additional stock awards. Ed?

24:14Ed Ludlow:Hi, thank you very much. Apple may be late in the foldables game, but it's hoping the wait was worth it. Bloomberg's Chris Welch got hands-on with the new iPhone duo and joins us now. And we were together at Apple Park. And then you went down into the theater and you had time with it. I did. First impressions? I'd say it just feels different. You know, I've used all these foldables over the years. ensure they're late to the game, but that's let them learn from Samsung, learn from Google, learn from Apple, all these brands that have tried, and kind of now take their own approach. And so it just felt different.

24:44I mean, yeah, the shape, the squat form factor is going to take a lot of, like, you know, it'll take time for people to adjust. It's shorter than your iPhone Max. It's a bit wider. But the great thing is, like, Apple has kind of, like, just made so many changes to iOS like the controls on the right side. They kind of like moved everything so your thumb can access them easily. And so it's just like much more ergonomic than like the Fold 8 is.

25:15Ed Ludlow:And so they've learned so much from all their competitors. That's so interesting. With the Galaxy Z Fold 8, I guess there's also like the weight of it in your hand. Yeah. And you have experience personally with foldables, but also you review all of them. Sure. What are the very simple differences with the Fold 8 and the Duo, for example? So the matte screen on Apple's new phone is very nice. The nanotexture coating, that kind of like avoids glare and fingerprints. And so that's like a big, and the crease, you know, the ever controversial crease is barely visible. It's there if you look very, very hard for it.

25:48Ed Ludlow:But on the whole, it's very, very hard to find. You have covered consumer technology for some time with respect. Where does this Duo moment kind of stack up against releases of past generations and moments in the evolution of consumer tech. It feels huge for Apple. I mean, you know, their whole thing is not being first, but being the best and having full control over the software stack and hardware. And so Samsung can only do what Android lets Samsung do, whereas Apple can change the whole paradigm of iOS for this device to make it feel more intuitive, more natural and truly fresh compared to an iPhone Max, for example.

26:23Ed Ludlow:Just very quickly, what was the vibe of everyone that was in the Steve Jobs Theater and also experiencing it for the first time alongside you? Pretty excited. Pretty excited. You know, just this new product. The first huge event for John Ternus, the new CEO. There are a bunch of famous folks down there, influencers having fun on the floor, trying out the duo, testing it, just seeing what it's all about. So I think we're in for a fun few months for Apple fans. Bloomberg vs. Chris Welch. Amazing week of top reporting. I really recommend you read Chris's review.

26:57Ed Ludlow:welcome back to bloomberg tech another check of oracle which has behaved strangely in this friday session it opened up and hit a session high more than eight percent it's now higher by half a percentage point but had fallen on a couple of occasions negative territory raising the full outlook for sales and for adjusted eps backlogs growing but they're moving more quickly to bring data center capacity online. That's been a big feature of the show so far. Zoom out. It's been a jiggery week on Wall Street, especially this Friday with the release of the latest CPI report from the Bureau of Labor Statistics.

27:30Ed Ludlow:So next, Chief Market Strategy Catherine Runavera joins us now to break everything down. And frankly, now we are thinking about inflation. We are thinking about what happens at a September Fed meeting and how technology as part of the equity market gets impacted. What are your expectations for that Fed meeting? I think my expectations are completely in line with consensus and market pricing, which is for a definitive hike next week. And I think this morning's CPI data just strengthened that consensus view that September, we're going to see a hike. I think the question, Ed, is December, if we get two hikes or if this is a one and done.

28:08Ed Ludlow:We're seeing a little bit about performance in the moment in technology, But on the week, you know, the NASDAQ 100, as an example, has been under pressure. And we've gone back to the basics of higher rates discount the present value of future cash flows. Old school. Is that the biggest consideration for tech right now? Yeah, I think it is. It's an interesting concept because, of course, you have longer duration equities that are going to be under pressure. And tech is one of the most vulnerable to rate increases. But is this going to be a big rate cycle? but probably not. It'll likely be shallow.

28:40But the other thing that really calls my attention is that AI is so tremendous. It's not just, you know, the biggest driver of the equity markets. It's also now a macro story. And so you have these countervailing winds of AI, which is pushing stronger GDP growth. We estimate maybe half a percentage point additive to U.S. GDP over the past year. That's a big number. And the Fed is trying to kind of slow economic growth with these rate hikes. So we have countervailing forces here, which I think shows that the AI buildout is so important and can potentially add mask weakness in other parts of the economy, including the consumer.

29:20Ed Ludlow:I don't want to get to this point in a sort of superficial manner, but, you know, every time there is a Fed meeting or a prominent Fed speaker, the idea of whether AI shows up on the economy or not is discussed, be that through productivity data or even like the impact to inflation from the spending itself. What do you see? I think it's generally understood by economists, and I subscribe to this, that AI is inflationary at the outset and then disinflationary over time. We haven't seen that pan out. Yes, I do think, of course, we see prices go up for chips and hardware and all of that stuff. Everyone knows the story.

30:00But I think what we haven't yet seen is in the offing, which is an increase in productivity. Now, productivity can be very positive because it brings down inflation. So AI over time, and I'm talking five years, 10 years, I'm not part of the camp that says AI is going to, I've heard one camp say, kill us all. It's kind of these apocalyptic views or part of the camp that says that it's going to take all our jobs in six months. I think adoption is relatively slow into the real economy. So those productivity numbers that maybe the doves in the FOMC are hoping for won't happen for the foreseeable future.

30:39I think it's more of a five to 10 year disinflationary effect. So the Fed's going to have to deal with that in the meantime. And that means higher rates.

30:48Ed Ludlow:Catherine, throughout the program so far, we've talked about the debate around AI doomerism and that spans a number of different stories and headlines. Right. But in general, do the markets treat that idea as a risk factor going forward? The concern that AI carries risk to society? Absolutely. Absolutely. And that's what I consider a risk, too. I mean, at some point, all these hyperscalers and massive investment, besides the Mag 7, which have had some earnings, A lot of the earnings are no longer as productive or as strong as they could otherwise be. But I think the market is going to demand some additional returns here from all of this investment.

31:32So that's the reason, in addition to the vulnerability in front of a tightening cycle, that I've been recommending to our clients to put on protective puts on technology positions, not liquidate them, not, you know, get spooked, but put on protective puts when complacency reigns in the market. And I measured that with the VIX below approximately 15. So that's worked for our clients. And I think that's the way to go. But unequivocally, there is a concern of a bubble, maybe not in the equity markets, but in the magnitude of the debt that these companies have been accumulating.

32:11Ed Ludlow:Catherine, how do you model for the midterms? And in this program, we talk often about data centers being a massive consideration for the electorate. But again, as a market strategist, is it for you? I care about the midterms because I care about the fiscal deficit. I think that the Fed is going to have a tough time and has had a tough definitively because we're in now the sixth year of missing the inflation target. But the Fed's going to have a tough time hiking rates when we have a fiscal deficit of near 6 percent in an expanding economy. That's, in my view, egregious and shows fiscal irresponsibility and profligacy unlike anything that I've seen in my lifetime.

32:50So if we get more populism, whether from the left, I think it probably will be because we may midterms generally favor the opposition party. If we get additional populism, but from the other side, then we can expect more spending. And that will weigh both on what the Fed is trying to do. It'll weigh on inflation expectations. It'll weigh on the back end of the yield curve. And it'll also weigh on the equity markets, which I think are facing an uphill battle with yields rising at the rate they are. The equity risk premium just pales in comparison at this point.

33:29Ed Ludlow:Stonex Chief Market Strategist, Catherine Rooney-Berro, back on the show. Thank you very much.

33:37Ed Ludlow:Warnings about the existential threats posed by AI, while not entirely new, have gained increasing urgency for investors. This can also be a pretty thorny issue. How can the investors help portfolio companies grow while managing potentially catastrophic risks? And what impact could a pullback on AI development have on efforts to re-industrialize the United States? We have a very wide-ranging conversation ahead with Lior Susan, founder and CEO of venture firm Eclipse, which backs some pretty familiar names, particularly in the worlds of physical AI, but also across the compute stack and the supply chain.

34:11Ed Ludlow:And Lior, it's great to have you back on the program. I said in the last segment, the AI doomerism debate spans many recent news stories and impacts lots of frontier labs and others in different layers of the stack. Where's your head at with this right now? First of all, Shanatov, it's great to be here. You know, I heard you talking about it in the previous segment, and I thought to myself, when we invented the car, naturally car killed people. Did we abandon cars? No. What I think we did, we united together to figure out the risk, the values of the cars, and, you know, moving people, moving goods, and start creating standards that allow us to actually use car in the most safe way.

34:55Still, by the way, unfortunately, we're losing people.

34:57Ed Ludlow:Well, so in that parallel example or analogy, you know, the seatbelt was the technology solution and regulation was done by regulatory bodies. Yeah, exactly. What's the equivalent here? Yeah, I mean, I think we definitely need to have some sort of a relationship between the private sectors and governments of how to set some regulations and how to create a safety belt and airbags and things that we invented for the cars, for the worlds of AI. The reporting, you're not directly invested in the Frontier Labs, right? But obviously, like in the portfolio, there's exposure to them. We work with them, yeah.

35:32Ed Ludlow:Yeah, you work with them. The proposal that was reported overnight from Sam Altman is that, well, we could pull back at the Frontier, but it would only work if the other Frontier Labs agreed to do the same. I think I'm a big fan of the idea of actually collaborate here. Although we compete with each other constantly, I think it's too big of a topic to not united. we also need to remember that if we will not do it our competitors like china are going to take the lead so we absolutely need to work together in the private sectors and our leadership in washington dc to make sure that we are aligned of how to do it in the most safe way but not lose the cutting edge physical ai um that could be robotics it could be other forms of physical ai is probably where you are most concentrated, would you say?

36:20Ed Ludlow:Where's the opportunity with that right now? Yeah, I mean, we started 11 years ago innovating in the physical world because we believed 85 % of the world GDP is in manufacturing and semiconductors and defense and whatnot. And today the world's called physical AI. We build many companies and we invested in many companies in that area. And it's exciting to see how AI, automation and autonomy is meeting each other. We are seeing the economy here is growing faster than ever. And I think, you know, there is a real shot to go back to grow five plus percent, similar to what Janna is doing here right now in the US, leveraging physical AI.

36:58Ed Ludlow:If the frontier labs go down the route of pulling back development at the absolute cutting edge, how would that impact your portfolio of companies that are working on physical AI? They might rely on the underlying model or as an example. Yeah, I mean, I think we need to make sure that we are a continued lead as a country in the global race. And I think we need to do it in the most safe matter. And I think we need to collaborate. And I think that was Sam asked yesterday that I'm completely aligned with and going to sign up for. I do think we are seeing companies in the semiconductor space, in the energy space, in the robotic space, becoming very large businesses in our country, first time ever.

37:43And it's just exciting to be a part of it.

37:45Ed Ludlow:You published some metrics around how some of your funds have performed. You did DPI, which basically doesn't include the paper gains. When we report on the performance of different funds, we go with TVPI. Just explain which vintages those funds are and where you've seen some performance. And then I guess we could talk about valuations. Yeah, I mean, we definitely have a few of our vehicles crossing the double-digit TVPI that will be best in class. That was not actually the point of the post. The point of the post was like, this is the best time in the history to build. The opportunity cost is so high.

38:23Me as an entrepreneur in this country, I think we never had that type of an opportunity. and I also talked about the sacrifice of being an entrepreneur right now, of spending our weekends and our nights building companies instead of being with our families.

38:39Ed Ludlow:There is an astonishingly well-read story on Bloomberg this morning. I shared it with you, but it's about the idea of sudden wealth syndrome. So if you're a founder and you do a seed round and within months you're raising so much more capital and your own personal net worth rockets, how does that feel? How does that go for the founders that you back? And how active are you in sort of counseling them on this? Yeah, there's no school of preparing you for fast success. Right. I view our job as now older-ish entrepreneurs. I'm 42, so now I'm not as though as my 20s when I started my first company, is to actually work with those young founders and explain them that even if the wealth creation happens so fast, what matters is substance and principles.

39:31And we need to remember that we need to do good for others. We need to remember that we need to build companies for the long run, kind of ignore valuation and focusing on the substance.

39:42Ed Ludlow:Team, let's bring that article back, just show it on the screen for the audience. A part of what they're discussing is the post-exit ecosystem. In your world and realm of physical AI, You know, there's a lot of M &A where an exit isn't necessarily an IPO or sale in the secondaries market. It's being acquired by a bigger entity. What would you counsel a founder in that context? You know, sometimes people want to get the return on their work. Yeah. And then I think, you know, my first company was being bought in a big company. It was a journey and I was young. I think what we're advising those founders is you can do a very good work post-acquisition inside a big company.

40:25You can be the next generation leader in that business. You can have much more resources than you might have when you build a standalone company. But I go back to the opportunity cost. And what I work with founders is to make sure that they understand the opportunity cost.

40:40Ed Ludlow:Do you mind to define opportunity cost? Yeah, I think opportunity cost is like you're a very talented person. You can do many things. The opportunity cost of not going and starting a company right now with the resource that we have around us is very, very high. And we want to have a mark on the world. We want to have a mark in our society. We want to have a mark on our economy. So the opportunity cost of not doing that is very high. Just very quickly on the three vehicles that are outperforming or you say will sort of be the benchmark for industry. Are there any single sectors or names that are driving that performance?

41:10A lot of our companies, naturally, in the compute, is doing extremely well with the growth of AI. Same with energy, same with defense, same with manufacturing. So, I don't know, it was necessarily a one event. Naturally, the Cerebrus IPO helped us a lot. And it's a phenomenal company that's growing extremely fast. But there is a bunch of others.

41:29Ed Ludlow:So, Cerebrus is really interesting. That was a big moment for the firm. You also back other compute or specialized inference platforms. And as you will have heard earlier in the show, right now, data centers are divisive in this country. How much do you model for that when you make an investment? I think we did, Ed, as an entrepreneur, not a great job explaining our society, the value of data centers. So you agree with the Treasury Secretary and with Sam Alton? 100%. we need to do a better job of explaining our communities, how many jobs we are creating, the cost of power that we can take down.

42:08We need to share with them some of our profits of those data centers and not let only social media turn by our adversary of maybe influence people's mind of if data center is good or bad. Data centers are good for our countries, but we need to do a much better job of sharing the profits and safety and energy with the communities.

42:29Ed Ludlow:Is it a risk factor for you? I posed the question earlier about the midterms, but I guess in aggregate, regulation forces the slowdown of data center build out too. I think regulation generally, it's a risk for the economy. And that's why we need the private sector to work faster and spend our calories with a different administration to work with them rather than go and block by them. And I feel much better in the last two years about some of the activities that I'm seeing between the private sector and the governments of how to actually set regulation right. Because if set wrong, it will slow down the economy.

43:09Ed Ludlow:Let's end just very quickly on venture as an asset class. You know, you've raised funds over the last year. You've hit a pretty large critical mass. Is it easy to go out and convince LPs to raise new funds right now? I mean, I think LPs see the opportunities. I think, you know, the physical industry is having a moment of transforming from analog to a digital. As a result of that, you're seeing an IPOs like SpaceX and Cerebras. And as a result of that, LPs want to have more access to those sectors. Lior Susan, founder and CEO of venture capital firm Eclipse, back on Bloomberg Tech. Thank you very much.

43:44Ed Ludlow:Good to see you. Indeed. Now, coming up, we're going to stick with the AI build out. Microsoft plans to triple its compute power in the next few years, Despite the increasing public pushback against data centers, Bloomberg broke that story. And Brody Ford is back with us next. This is Bloomberg Tech.

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47:03Ed Ludlow:Microsoft plans to more than triple its data center capacity in an effort to overcome a computing shortage that's forced the company to turn away some AI business and some cloud business. Bloomberg's Brody Ford broke the story of Matt Day and is back with us. let's get into the details that we're reporting all according to sources but this is a massive ramp up or the plan at least it's a big ramp up right and the big question for a lot of people whether in wall street or in the industry is just how big are these data center fleets and how big are they going to get this current building boom how long does it last how long do we get ramped up and this is the first time that i think we've had a pretty good sense of where a company thinks it's going, right?

47:44More than tripling a data center fleet through the coming years, hitting as much as, you know, 38 gigawatts. Wow. That's a big ramp up, you know, and this is a plan for multiple years out. And of course, plans change based on a number of things, delivery, demand signals. But this is the trajectory that one of the biggest data center developers in the world is on.

48:06Ed Ludlow:What did Microsoft say about our reporting? Did they respond to a request to comment? Initially, no. Later, they said the numbers were not accurate without giving a whole lot more. But, you know, as we said, this is a plan for multiple years out. Companies tend not to give us much more than a year or so out. And so it doesn't surprise me that we don't hear a lot more from the company. Just for transparency, let's go back to the idea that because they're compute constrained, they've turned away some AI business. How has that shown up? Right. This is something that Microsoft, Amazon, Google, everyone complains about, that if it weren't for the supply constraints as data centers, they'd be able to juice their cloud revenue much more.

48:49And so that's why you see this building frenzy trying to capture this demand while it's there. We saw Timu, for example, the Chinese e-commerce company, big customer, Microsoft Azure. They couldn't get more capacity, so who'd they go to? They went to Oracle. And this is the kind of situation that Microsoft is really trying to avoid.

49:06Ed Ludlow:So that brings us to the competitive landscape. Is Microsoft good at building data centers? It seems that way. They have a very big fleet. Today, they have 12 gigawatts across the world, two of that specifically for AI. That's big. We don't have the precise estimates for everybody, but likely that's bigger than anybody but Amalyn Web Services. One thing people will forget, because before AI, there was cloud computing, and cloud computing was for running any given software and for hosting and for storage. How does Microsoft manage that, AI versus non-AI? It's a really good point, because a lot of people out there seem to think that GPU means AI workload.

49:47And a message that Microsoft has been trying to give is that in the agentic era, a lot of what you think of as AI workloads is being done off CPUs. You're inferencing. Agents are going and accessing databases and creating records. And that in this era, you need maybe more CPUs than you expected even a year or two ago.

50:07Ed Ludlow:Bloomberg's Brody Ford with a must-read on Microsoft and its plans to triple compute capacity. That does it for this edition of Bloomberg Tech. Let's take a final look at technology markets. NASDAQ 100 higher on the day, basically flat on the week. The Mag 7 slightly outperforming. And Oracle, again, is flat, but it's been up as much as 8.5 % post-earnings and seen a little bit of chop. What a week it's been. Recap on the podcast. You know where to find it. From San Francisco, have a great weekend, everyone. This is Bloomberg Tech.

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