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All right, more just monster numbers being thrown about in this AI game. Open AI heid erase one hundred and ten billion dollars in new investment at a seven hundred and thirty million dollar pre money valuation. Extraordinary, straordinary amounts of money being raised. All the big names are involved here.
I need a little help.
We all need a little.
Help here, Caroline Hyde be tech co anker joints us Here in our Bloomberg Interactive Broker studio. The hits keep coming, Caroline, I mean the investments keep coming, and from big names.
We all know.
What do you make of it?
It makes for an interesting relationship of Open Air Microsoft going forward, because this is Amazon coming in, which already has a very strong relationship with anthropic Remember, and we've seen a lot of crossover of big strategic investors and venture capitalism putting money into both key frontier labs. What's interesting in this agreement is not only the whopping scale
of money. Fifty billion is going to be coming from Amazon, and we don't quite know if that is Thure cash or actually whether it's more in cloud costs that just get sucked up by Amazon instead, or indeed whether it's GPUs and chips.
But we also think that thirty billions coming.
From in video, so the deepening tie continues there and clearly therefore some gpusm in video are going to be intertwined in open AI's compute needs as well as Amazon Zone Tranium chips and the likes. But we're also seeing well as well as Massiyoshi Son being a big player in all of this, Microsoft being less of a player. And remember open ai first got its big chunk of change from Microsoft.
Microsoft was the key backer of.
The company, had exclusive rights to a lot of open AI's technology within the Azure platform. Well, now the frontier offering coming from open an that's basically the new offering to help build agents, which is all anyone can talk about at the moment, that's going to be exclusive on AWS.
Oh wow.
So all of this is just.
An interesting rearrangement of technology partners and just how people are deepening their ties.
I like your word rearrangement because we have open aico. Sam Altmann saying that he doesn't think his company's fundraising is looking called circular as long as revenue keeps going. And I feel like this is a conversation we've been having. It's like the self funding loop and is it risky? But he's saying it's not circular.
Well, and Video has had to try and prove this point time and time again.
And Video has been putting money into neo clouds like core Weave, which had its numbers today, putting money into the likes of an Anthropic and an open AI, which ultimately all want.
Chips from in video.
But many would say, look, it's not just circular financing, is actually strategic financing, because how better to understand how your technology works best is if you partner this closely and you can understand the way in which.
Your GPUs, your CPUs be used in the future.
So for the cynics among us, yes, it looks like the same big players are all moving money from one place to the other within each other.
But for perhaps the more practical it's.
That well who heals has the cash pile to be able to continue to build the flywheel effect to a generative AI here at the moment, and open ai has an enormous amount of compute needs. That's what they keep saying time and time against Sarah Friar as a CFO. Sam Altman is the CEO saying the thing that's holding back our revenue. And remember they guided us to a new kind of revenue stratosphere of to URN eighty billion by next year.
The way they get there is by computer increasing, not anything else.
They've got all the parts they need to build revenue from the twelve billion that they raise that they made in twenty twenty five. But what they really need is the galvanization of infrastructure, and that comes from power and that comes from compute.
I mean, open AI says, chat GPT has more than nine hundred million weekly active users, more than fifty million consumer subscribers and more than nine million paying business users that rely upon chet GPT.
That's deployment.
That Are they the biggest yet, I'm not even sure how we define the market better. Are they the biggest in consumer?
For sure?
Like in terms of like this is the size and scale of people using the problem is is of course Google how are you measuring Google? Many would say, like, is it the person who my mum who goes onto Google Search and gets an AI overview? Or is it someone who downloads the Gemini app and uses it in a distinct kind of model.
So there's two ways in which you can compare and contrast.
But certainly open Ai has beaten out Anthropic from a how many people are using their standalone application, nine hundred million is a huge amount.
But from an enterprise.
Perspective, many would say Anthropic has led the charge there, and that's why open ai has really been doubling down on this agentic focus and AWS is going to be call to that, putting it in within Bedrock.
There's also a headline from Anthropic they're refusing to Pentagon's lead as contract terms. They want to limit surveillance and autonomous weapons. Are those reasonable asks for a company supplying AI to the military.
The military would say no.
The military would say locking mar and has no power over us to dictate how we use the weapons. We just purchased them and us and there are laws that we have to abide by, and there's humanitarian things that we sign up for, and the way in which we police war worldwide. However, from anthropics perspective, and if you'd been keeping up with out Dario Amide, the CEO has
been writing of late. He put out a big piece thought leadership piece in January talking about the adolescence of technology and his worries and concerns about geopolitics, the use of generator of AI for surveillance, the use of generative A biotech and warfare. So no wonder he's still thinking along these worklines. He's given us all the breadcrumbs to
know that this is how it feels. They just earlier in the week, remember sort of put out this odd statement saying they're stepping back to from some of their safety as a core mission purpose. But within that statement they really made clear it's because the government doesn't care. The government has not been increasing their focus on AI ethics in the way that they thought they would.
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Dell technology shares.
They jumped pretty big here after the company gave an outlook for sales of its artificial intelligence service that exceeded estimates. As John said, stocks up nineteen point four percent today. Not bad for a big, big company. Ninety seven billion dollars in market cap. Would you know Joins is here senior technolog channels for Bloomberg Intelligence. That's a serious print for Dell. What's what's going on there?
I mean John just said, look, you're having these massive investments by from OAI right open OAI. So essentially all of these data center deployments are really starting to materialize, un tell us starting to benefit from it, and.
They're entering a year with a forty three billion dollar backlog. Does that give investors real visitibility? Or is the backlog vulnerable to supply chain constraints and maybe pricing resets.
Well, that's a fantastic question. Right on the pricing reset, I don't think so. I think there's a little bit of a leverage on Dells side because and videos holding the cars with the GPU chips, right, But in terms of the supply environment, Dell does the supply chain very very well, and the revenue guidance not only for the AI server side but also traditional servers NPCs. They're managing it a lot better than we thought, so they should be fine on the supply side for the rest of the year.
How big is the AI related product revenue for Dell and how's that grown and what do you expect it to go to?
Well, if we think about just the AI server piece by itself, it is twenty five billion for this year, doubling to fifty billion. I mean, we're talking about incredible numbers doubling to fifty billion next year. We've also seen that sort of momentum from super Micro as well that they reported a couple of several weeks ago. But on the AI PC front, they just started to pick up steam.
Still small portion of the business, but you know, quite frankly, every PC is eventually going to be an AI So what's an AI PC?
What is that practicality?
Yeah, you know, I'll tell you. In practicality, very little for you and I right, it's a chip that can handle a lot more processes, uh, and do it a lot faster.
Right.
I've been actually been playing around with cloud code as part of my work, and essentially what I'm doing is trying to use some of the processing that's on the on the PC. What I suspect is is that as corporates try to bring in AI into their workflow, they are going to look specifically for aipcs going forward.
The company says memory chips memoryship prices are right thing rapidly. Do you think that the margins and those segments will be sustainable if the component prices also keep climbing.
Yeah, So I think this is one of the reasons why the stock is up so much. Right, the sentiment going into the print was really really negative, primarily because of the component and memory pricing HPQ. HP said on just the other day that the memory pricing doubled over the past month, the round pricing alone, right, so that eight away margins. We actually did the math memory pricing plus a higher mix of AI servers. That's eating away
one hundred, one hundred basis points of gross margin. And the thing is is that just a relative scale of the AI server revenues is helping to lift EPs altogether.
So talk to us about the shortage of chips out there.
So we hear from a lot of your companies and other companies in the tech stack, What is it?
Why is it?
How does it get fixed?
We can blame AI on everything, yes, Right, So essentially AI servers take they use HBM high bandwidth memory that that's stacked, and it's sucking up a lot of the memory capacity that's out there. If we come off of the COVID period. Essentially, the memory makers, whether it's Microns, skhih Nicks or Samsung, they were hesitant to building out more capacity because they just didn't know if this AI thing was going to be real. And now it's starting
to catch up to them. It's causing this domino effect of everything else, servers, smartphones, PCs, They're just scrambling for supply right now.
How do you read the buybacks around ten billion dollars? Is that confidence in future cash flow or more like, oh no, the stock is still undervalued.
Well, you know when the stock was at one twenty, I'm sure, Michael Delta the stock was undervalued and I wanted to read a lot more confidence not only in the business outlook, but also in cash generation. Right, we are hearing mixed things on the cash generation front from from my hardware companies.
At least, did I d C takedown I d C is the the third party independent data provider for pretty much the whole technology industry. Did they take down their forecast for PCs?
Was it took them long enough?
Yeah?
No, No, we had minus seven percent unit declines.
Is that because there's enough chips to make the PCs?
It's it's twofold, right, not enough chips? And number two, PCs are very very elastic, right from a demand supply demand perspective. And essentially what they did was they cut their forecast from minus three percent to minus eleven percent on the PC side, and they also cut their forecast the smartphones to minus thirteen percent. Right, there's a couple
of things going on. The PC makers are going to focus more on the high margin businesses, right, so it leaves the lower end PCs at alert, so they're not going to start supplying those. And also the low end market tends to be a lot more price sensitive, so they're probably not going to upgrade.
And then we have server and networking margins. I think those came above expectations. Is THELL gaining pricing power in AI hardware or is it just because maybe they're executing better than their peers? How do you read that?
Yeah, so there's a couple of things going on as well. The first thing is is that they're raising prices right, and the term sheets are getting shorter. Instead of like, you know, three months, it's two weeks, so that that's happening as well, it's less price elastic. And then on top of that, from a margin perspective, as you we were talking about earlier, storage has a higher margin overall, and the storage business actually is doing very very well.
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Got big earning Saturday, Core Weave, and it wasn't good because a stock fell by the most and more than six months. That's after the company reported a better than expected loss and boosted capital expenditure. So this s burred some concerns that the company is overspending on infrastructure. And who else can talk to us about this better than ANAA Grana. He's Bloomberg Intelligence technology analyst. All the way from Chicago. So ANAURAG revenue exploded to one point nine
billion last year, but losses widen. Is this a classic gross at any cost when it comes to the AI story or is it something a little more concerning.
Yeah, I mean that's what the CEO is saying that Listen, we have so much back orders of you know, sixty plus billion dollars in orders, and we really need to fill it and we're going to go spend as much as we can. And today it seems investors are not liking it. But you know, I think what happened was they gave a bit of a outlook of what the expenses are going to be and they missed on that.
And I think people are extremely no, I wouldn't say extremely, but somewhat concerned that, you know, whether they have the capital down the road to keep on continuing this particular flow. I think that's really what it comes down to, is where is the profitability going to come and at what point? Because as we know, some of these businesses, you have to invest upfront and then realize the profit later.
Yeah, you got to back up for me and explain the basis, what in gun's name is a neo cloud.
Yeah, well that's just the nomenclature. But at the end of the day, this is just a cloud. At the end, you know, you are. What you do is you open a data center, you buy GPUs from Nvidia, and then you rent it out to people. It's a very simple business model, nothing so complicated about it. But what happens is you need to put that upfront capital to create
that data center. Then you need to buy the chips and put it in there, and then after that is what you start realizing the revenue when people use it. We have enough evidence that the backlog of that is absolutely stellar. Right now, there is so much demand. These guys are running around and trying to you know, put the data centers together and then go out and service that. So there is a mismatch between how much you're putting in terms of cost versus what's coming in as revenue.
Well, can you explain a little for what's how interwoven are they with Nvidia at this point and what's the significance of that.
Well, think of this as Nvidia is selling the chips, they are really the distribution arm for the services around it, and Video is a shareholder in cod viave and this is a pure play you could say, in Vidia Shop where it's basically going out and renting their chips out there. Now it is and again this is not so much in Vidia trying to just you know, give them capital to stay in business.
They actually have orders from.
Everybody we know, whether it's Microsoft or Meta or a bunch of a lot of enterprises as well well. So I mean, core Weve has real orders that it needs to fulfill. The question again, as I said, is how much you have to put up front for those chips and services versus how much you're going to realize as revenue.
And seventy seven percent of revenue came from just two customers, with Microsoft accounting for nearly two thirds. How big of a red flag is that, or if it's even a red flag for IPO investments.
Yeah, to me, it's not a red flag. It is a concentration issue. I get that. But at the end of the day, I think Microsoft is good enough in terms of you know, they will pay the bill to code if they have promised some revenue, so I'm not concerned about that part. But Codevieve is now seeing a lot more demand from other vendors. That's also not an issue.
As I said, this is not a demand issue. The question at hand is because one of the things code Weave has to do is it has to go out borrow money, issue some bonds, and then go out and create new data centers.
So it's a financing question.
How much the rate of that is going to be, how much they're going to charge for these services. So I mean it's it's pretty much a most of a cost overrun story at this point.
Do they give much clarity on when this is all going to pay off?
They basically said, listen, long term margins are very good. They are expecting margins to improve in the second half of twenty twenty six. But you know, they gave some guidance for operating income or adjusted operating income for four Q and they came below that. So the big question for the analyst is, you know, you're telling me that it's going to improve in the second half of twenty
twenty six. You know, whatever, it doesn't happen. So I think there are some doubts around that capabilities as this point.
And.
So the company could ask for a valuation north of thirty five billion dollars in this market. Do you think that's justified by the fundamentals or do you think it's kind of driven by AI momentum.
And I think the question always happens is, you know, one week, the entire AI infrastructure world is very happy and you know, bubbly, and then the next week people start getting concerns. The question what the code weave has to show right now is they have to go out and raise some debt.
I mean, you know that's tied to their.
Contracts, and we'll see what's the cost of that debt, because that's going to dictate how the next funding is going to be on the you know, I call it not so much funding ground but more so a debt raised round and how that's going to go about.
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Let's get dig into deeper this little deal there in the media space, Warner Brothers, Discovery again, the news being Netflix walking away.
So now paramounts guidance.
It's their deal.
Good for them.
And let's check in with Keitha Ranganath and she covers all the media stocks for Bloomberg Intelligence. Keith, we got Netflix stock trading higher. I guess the the shareholders like them kind of passing on this deal.
Yeah, big relief rally, Paul, you know, I mean this was always kind of muddying the narrative. I mean we've spoken about this multiple times. Netflix is such a clean, organic growth story and them just pursuing Warner Brothers Discovery, I mean just kind of added so much of uncertainty. You know, you have the regulatory risks of course, integration
execution risks. Plus we were talking about something like, you know, their dead levels going up to beyond hundred billion dollars, and yes, they do have the financial firepower, but at the end of the day, they have always been builders versus buyers. And once again they showed, you know that
they deserved. You know, they've always gained this reputation of being very, very disciplined spenders when it comes to M and A, and I think they once again exercised that discipline and investors are cheering.
So it seems that this is a smart move according to analysts, including you, This signal that the company is confident in its organic growth versus and a especially in a very crowded streaming market.
Yeah, Isabelle, I mean that had you know, been the question. I think that's what spooked investors so much when they actually went ahead with this eighty three billion dollar deal for Warner, about whether they were actually seeing a slowdown internally, and them not just abandoning the deal but also going ahead and resuming buybacks once again just kind of signals
confidence in their underlying growth model. So I think, you know, we know very well that they're operating metrics are really strong. I mean, this is a company that has guided to double digit revenue growth. We're we're going to see about twelve to fourteen percent revenue gains this year. We're looking at operating margin expansion of almost you know, a thousand basis points. It's gone up ten percent over the past two years. So and of course we also have fabulous
you know, free cash flow generation. So all of their you know, financial lever levers and all of their growth drivers very much in play place, and you know, not having this disc action anymore just helps them kind of really double down on their organic growth story.
On the other side of the equation, KEITHA, Uh, be careful what you wish for. So paramount They've got this great asset in Warner Brothers Discovery. What do we what's the street think about this management team at Paramounts pretty much unknown, untested this mister Ellison from the media community. Is there any report card to date? Do we think there's a market think that this is a man team that can make this acquisition work?
They probably can, Paul, I mean they do have you know, financial Uh, they do have some financial firepower here, although I would point out that leverage at this company is going to be extraordinarily high. We're looking at pro former leverage of around almost seven times, so those are you know, dangerously high levels. Yeah, and it's something that they're going to have to contend with. But at the same time, you know, they've spoken to synergies. We're looking at about
six billion dollars in synergies that they've committed to. And remember this is a team where the fairly tech heavy bent, so that might be something that kind of really serves them well as they poise themselves for this new streaming future. You know, you do have now they kind of are to turbo charging their content offering, their turbo charging their streaming business, and they have all of the you know pieces in place to make this a really good business.
We'll have to wait and see how they execute, but you're right, I mean, the management team is a little bit of an unknown, although you know, we do have Jeff Shell who has experienced from NBC. But again, it's going to be a little bit of a weight and watch.
And Netflix also said they plan to invest twenty billion this year in films and shows. Is that enough to keep them ahead again in this really competitive to streaming wars.
Yeah, the twenty billion that they committed was actually a pretty significant step up, Isabelle, from prior years. I mean, we've seen them increasing content costs by roughly about six to seven percent. This year was going to be a much more significant jump to about ten percent. And this is just basically Netflix saying that they are willing to
diversify into different forms of content. I mean, the big investments that they're making are in live in sports and international content just to kind of keep up that engagement metric and make sure that you know, they keep building on that competitive mode that they already have. And now you know the icing on the cake for them with this Warner Dealers that they're getting two point eight billion dollars in termination fees. So hey, much more K dramas, I guess.
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