DeepSeek, China AI Startup, Panics Markets

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In joining us.

And you know last night when this was blowing up, I said get me Mandeep saying.

You'll join us in a bit here.

But aniog Rana joins us now from Chicago with a little different take than Mandeep. More on the cloud, more on the systems analysis, if you will. Of these big companies, man Anerog, thank you so much for joining.

You don't do biholed sell.

But would you suggest the cell side will shift opinion today.

For the cloud providers?

I don't think so because, as you know Paul just mentioned about the tweet from my ACOFT CEO, he's probably a little bit happier because for him, if the cost curve goes down in the long run, and we don't know if that's going to happen, you know, his adoption rate goes up and his CAPEX goes down.

So it's it's you know, in a roundabout way.

Now, we don't think there is going to be an impact on CAPEX in the near term, but in the long run, if that just shifts, you know, it helps their profitability. But more important to that the enterprise you know, you could say take create on AI adoption goes up the.

Theme this morning, Paul's been great about this is like drunken sailors from where in Anerich you're just world class at this. Are they drunken sailors in terms of CAPEX? Or is there a plan? Is there a sequence? Is there a pace to spending billions?

So one of the things, if you would say, is if if this AI adoption curve, which is absolutely in infancy right now, the only thing we have seen is in the consumer world, if enterprises start to put this in their core app locations, then they would need a lot more you could say, firepower to run it. Most of the things that we have discussed is people would

The question is whether do.

They need the expensive chips to do with this or can they run this in with cheaper chips. And that's really I think the biggest discussion going to be over the next twelve months.

An raglick Tom has often want to say, my head is spinning here. Just since Friday. I've got a big, big tech company called Meta I call it Facebook given the IPO. We spent a lot of time thinking about that name in the tech the ticker FB. They up their cap x from fifty billion to sixty five billion, a large part on AI. Now I've got this Deep Seek thinking about I can do this in.

Much lower costs. How do we square those two things?

Yeah, but one thing is for sure, this Deep Seek news of the paper has been out for a while, so it does got It did get publicized over the last few days. But I'd be very surprised if Meta AWS and Microsoft did not know about this. It has been around for a while, so both of them, both Meta and Microsoft talked about their capex last week after knowing this news, so you know they have moved.

I mean, they're far smarter than I am when it comes to this.

So if they're taking up their Capex, I mean there must be a real need for it.

What's it mean for Coopertino there having an early morning? They don't have lotes at Coopertino? They got something, Lisa. What's the thing with the green powder in it?

The machi?

Yeah matter, they're having the machiat Coopertino some undrinkable bilge. What are they saying at Apple today?

They're actually smiling and saying, you guys fight it out and tell me what's the best large language model out there. I'll just put it in my phone and I won't even pay for it. So they if you just look at you know, Apple right now, that's kind of the safety haven for people is they're not spending that capex. If you look at that Capex line, it hasn't moved at all in two years, and the free cash slow just keep on coming. Their issue, honestly, is more so

All right, Well, let's just stay on the Apple story. It stocks down eleven percent year to date this year, it's only a fifteen percent over the trailing twelve months, which is radical on the performance. And for a company like Apple, is there a bulkcase here short term?

For Apple?

In the short term, it's very difficult to come up with the bulkcase because, as we talked about it, even you know a few months ago, Apple Intelligence is not going to be out in other parts of the world. It's not out in China, and China is where they are struggling honestly at this and they need to come out and pacify investors that you know, we have a strategy in China, we will gain market share back. Otherwise this is going to be another mut the year for them.

Right, and Agrana with us in Chicago right now. We welcome all of you on your commute across the Nation. For those of you in the office at home on YouTube, thank you for being on youtubday. Just brilliant live chat of learning a lot from people smarter than me on the YouTube live chat this morning. Subscribe at Bloomberg Podcast. That's the best way to get to the show out there. This is a rare privilege. And for senior management listening

As we talked to both and Ruana and.

Mandy man Deep Seeing covers the technology space along with Ana rog Rana, there are two leaders globally running our technology franchise and it is a global franchise analyst in Europe, Asia and North America. Man Deep, But I guess what we're hearing such Antela from Microsoft put out something that hey, cost coming down is pretty natural for the technology space. That happens, and it's a good thing because it helps adoption.

Does that make sense to you, Well, clearly, I think the investor expectations were different, which is why you see this sort of stock reaction.

So yes, we.

Have Moore's law and we have other laws in terms of figuring out how the cost curve may look like over time. But clearly this is a step change in terms of, you know, what you can do with the existing chips that are out there, as well as what you will need going forward. So I think this is a big moment in terms of just that we can see with these chips and the kind of scale that is required for the next versions of these foundational models.

Anrak, what do you think this means to you know, I know you guys at Bloomberg Intelligence you have access to this I d C data, which is some of the best data on technology spending in the marketplace, and you guys feature that in your research. Is this going to change i DC's forecast of tech spending?

AI spending? Do you think so?

AI spending has been going up, Paul, We've talked about this a few times, but it's the other non AI spending that has actually not done so well in the last two years and over the next I would say month, month and a half, we will get a much clearer picture if corporations or enterprises are moving up there over our tech budgets or not, because right now AI spending is coming at the expense of areas you know, normal software or you know, just bording hardware upgrades or consulting

Mande.

If I think when I think of this news today again, I'm like everybody else. Our listeners and viewers are learning about deep Seek and what it means. I can't help but think about TikTok at some point. Again, I feel like by the end of business today, we're gonna have a story coming into Washington. There's gonna be an opinion coming from Washington as it relates to deep Seek. Does oppose a similar risks? Do you think to TikTok from a regulator's perspective, Well.

It's still the app is still you know, early in terms of adoption, and look, I'm sure it's got millions of users in East Asia and you know, China and whatnot. But I think when it comes to AI consumers, just look at the functionality, and you know the fact that they have an app wage is accessible for free as opposed to paying two hundred dollars a month, they'll end up using it. So it's the same argument with TikTok.

The data man keep saying with us and ana ug Runa, we continue anerog, let's go to earnings. Let's like remove ourselves from deep seek. What is the character of the cloud mystery that you see in the earning season, Aniog.

Yeah, we are anticipating in improvement in growth rates for both Microsoft and AWS going in. In fact, Microsoft, we are hoping they come out and increase their guidance for Azure numbers for the next two quarters. They have been struggling with supply challenges where they are not able to fulfill the demand that's coming in in their data centers, and if they give that signal that you know, that should revive or pacify some of the fears that we

So I'm hopeful that.

Both companies will come up with good numbers over the next you know, ten days.

But let's say it's not like you know, Procter and Gamble. It's not a unit and price store hit the revenue line. But where is the fear in the earning season analog on the income statement. Is it a margin fear, a revenue fear, or something I don't understand.

I think it's going to be a backlock slash revenue fear more than the margins, because everybody understands this is a very you know, unique business. When you have a fixed cost business like this, you can scale it up in the near town, but once you reach a mature face, you know, all the revenue comes back, or you can distribute that over a very large platform.

That has been the case for Cloud over the last you know, ten years.

So in an expansion of capacity, people don't really you know, see that as a big issue in the near town man Deep.

Last Friday, Meta took their capex guidance from fifty billion, which was consensus, which was kind of guidance, to sixty five billion. I've never seen that before. In order of magnitude, what's going on there.

Well, and I guess they probably knew this deep Seek advancement, so it's not as if, you know, they were cut off guard with the deep Seek release, so they did it despite the you know, the whole thing around deep Seek. So to my mind, you know, every company is doubling down on AI right now, even though we are talking

The room a ROD does a public one AI. Is there any interest that Lisa Mateo is waiting and waiting and waiting for AI.

See, the thing is that the consumers have already embraced it through chat, GPT, through Gemini, through Perplexity. But when you look at the enterprise use case, we are still in the building phase. And that's probably this year is going to be like next year, we should see a much fostered adoption by companies in terms of and that you said will show up in cloud numbers right now.

So all right, Tom, we like to talk to anog.

Do you like Ludlow this morning?

No?

You just I mean we're likes will be Bloomberg Tech exactly.

I mean, can you get the shoes with the White Souls?

Yes, that's what David shoes.

No, you weren't shoes of the White Souls.

No, No, old school.

And Tom, you know Man Deep and Hon they're pretty good. But the research, the real investment research on this whole Deep seek Chinese AI.

Robert Lee. These are Bloomberg intelligence analysts in Hong Kong.

So folks who have access to the Bloomberg terminal go there because Man Deep and they're just he was out with research a couple of months ago on this and he says, hey, this stuff is there.

Okay.

You know Lea in Uh in Hong Kong was way out front of this. Why are we stunned this morning?

Well because he didn't found the table in terms of saying, my god, the table we're negative?

Where are we negative? Three point five percent? In YAC right now? What I mean, let's bring it back to what happened. Why were we surprised.

By this, No, I don't think you are surprised because open source has been talked about a lot. We have been talking about how companies are looking to you know, drive scaling uh at inference time, and how pricing was a constraint, and so look, this is the way the industry was headed. It's just that Deep Sea came out with a you know, a long paper that describes what they did in detail, and everyone else is kind of

So the baniers to entry here on ROD just in general, on AI are the banished entry low for AI.

I think that's exactly what this paper that Mandep is alluding to is talking about. That you and I can go out and build some of this thing without much capital. Now the question is how are you going to distribute it? And which is why I go back to the cloud providers that those are the guys who are going to work with enterprises to embed some of this technology. If you look at somebody like an AWS, they work with all these providers, they work with Meta Islama model or

So it's really the distribution.

What I'm saying is is the value here which takes us back to the cloud providers and also do Apple.

This has been fun erragran and your trooper to get up this early in Chicago aner Agroana with Bloomberg Intelligence at Man Deep saying, can we say on behalf of all of us?

Mandep, thank you much.

Okay, we'll try not to do it three times tomorrow, maybe once, or maybe we'll see.

A Wednesday or whatever.

Man Deep sing and enter Agrana. Is what the show is about, just world class on tech analogy.

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.

We Get Lucky.

Joe Wisenthal has done so much for Bloomberg, I should say, for business journalism, and of course it's work here at Bloomberg with Tracy Alloway. But one of the great things is he did Paul, he you know, I'm like a I E I E I O. Joe's actually doing it, he said, no, but but nobody. He looked at the summer tour of Light Sweet Crude and said, I can't do the Light Sweet Crude analysis without AI. You three

So I'll just see the main There are two main takeaways for me. One is I have never experienced any technology in the history of any tech, computers, apps, whatever, that have zero switching.

Costs the way AI chatbots have.

I used Chad GBT for a long time. Claude came out, the one from Anthropic, I was like, oh, this works Gemini. I used Gemini now that for some reason, that one hasn't sucking as much then I. But then deep Sea came out and I said, or I saw the chap out last week online and I was like, I'm gonna try this out. It took me thirty seconds to register, and I was like, this is just as good as what I'm getting from Chad. You know, I ask at random things during the day and.

It's just zerop radio. It's all, you know.

I asked a random historical questions or linguistic I'm interested in Lenco, like.

Why did Texas lose to Ohio? No, I can't. That's too painful. I don't ask that.

But then the other thing is I made a twenty twenty five one of my New Year's resolutions. Yep, I've never I said I'm going to try and code something with AI one of my goals. Yeah, And so I started like building a little software. But I just asking to create this code, and uh, I was able to plug my app that I'm building on my home. It's a little linguistics app into the Deepseek API, and it's like a fraction of the cost of what I use for the open AI API. So, like I just played

That seems just good changing formosa.

So yes, I'm not surprised that, Like, all right, the dumb question there, Yeah, are we not using Google anymore because of this?

No?

I still well, look it is you know, like I still do. I still use Google all the time. I still use Wikipedia all the time. They're just different.

But what's your initial go to, oh, I need to know about this.

I think it really depends on the context. I say, I really like using AI for things like understanding a term within a specific context or something like that or something. But you know, like you don't know if it's true, So you know, I always do a backup. I see something and then I say, oh, look at Google is like is this actually true?

Morgan Brown, Dropbox Imperial w He's out with the smartest note I've seen where he's talking about decimal points. I don't want to go into that. You and Tracy at audience talk a lot more to techy people about this. What's their message on the future of American AI versus these shock threats.

I mean, you know what, here's what my my take, which is that they're already I mean, we saw the Trump announcement last week with Stargate right half a trillion dollar.

I thought that was I thought that was the movie with what's happening now?

I think because of the arrival of this very compelling Chinese model, is it just cements the notion that there is a global arms race allah the bomb And I don't know if achieving AGI or whatever people talk about is a breakthrough on par or is strategic as a nuclear bomb. But now everyone is just going to be we have to beat them, we have to beat them, and there's gonna be so much money flowing to tech companies now in this idea that there is a global race, Joe.

I feel like by the end of business today, the top star on the Bloomberg terournal will be US government looking at deep Seek as it's looking at TikTok TikTok.

Well, you know what, so this is interesting.

The other thing, and thanks for reminding me of this, which is that deep Seek is a piece of open, open source software. It is it's unbannable. Now, there is an app that theoretically could be banned from the app store, but I think it'll be high. But it's a piece of open source software.

I have a friend.

You know, you can run it on your own computer if you have the And so this is fundamentally different from TikTok in the sense that anyone can run this piece of code, just download it, and so it's fundamentally unbannable.

You've been on fire, Adam Tooms this weekend. Very nice, come your euro dollar three part series. You have Howard Marx on Good morning, mister Mark, thank you so much for your support over the years. What's your message from Howard Marx about this?

Odd He doesn't think we're in an AYE bubble yet, he said, you know, he like doesn't zuberans he doesn't see, which I thought was really interesting because to me, it feels like exuberance. But the idea of me questioning Howard marks on questions like what is exuberance really feels like someone who has experienced multiple cycles over the years, right, I don't think I would go with my take versus take.

Okay, did you go to NAM were you out?

And well?

Well, I mean the endorsements like sweet crudez. Should I go with the Gratch, pink Rander Penguin?

I mean, that's what's got the fishman pick you got it? You got it? I mean it's five forty nine and Sweetwater. I'll tell missus that's like you got to it's free and it's pink.

Is that done with the Jeff?

Oh?

Yeah, they did, Joe bid But I'm sorry, Wretches on fire, Retches on fire, that's the real break. Fender bought Gretch and you know what's light sweet crew?

Doing you playing.

We have a show this Wednesday the eleventh Street Bar in Manhattan. It's free, eight o'clock East Village. Everyone should come out. We're gonna play some new songs.

Are you really for?

And I like, you know, I'm in bed at a thirty? Does it really start at eight? Or are you doing the rock star?

Do we have an opening act at eight? We're going to be on just after nine? But you know after come out one night. It's one night, yeah.

But the next morning have one.

You have one off day the next day.

Okay. So you got Howard Marks coming up online out today. Check it out?

Okay, Joe Wisenthal, thank you so much and really folks followed Joe the Stalwart and uh on Twitter, and also followed Joe on LinkedIn where he's really going step by step through his experience with AI, which I think is really cool.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa play Bloomberg eleven thirty.

Stacey Raskin is double chemical engineering definitive out of UCLA and mit he wandered back to the Avenue of the Stars where he is a star for Bernstein. What you need to know is in the old days, you had a black covered book from Sanford Bernstein and you knew good morning Brad Hints that you were dealing with the best Stacy honored that you could join us this morning. Will you change by hold sell on the American tech companies because of this Deep Seak announcement, I mean.

Lok, so we're not change.

We haven't changed anything. We get killed ourselves over the weekend to go through some of this stuff and put some views in places like I had three kind of broad takeaways please from yeah, from from from the work. But number one is I think there's been a headline.

For those of you are for those of you are on radio.

On YouTube, you can see a space shuttle behind a gentleman from m I T I.

I didn't even know that I lived.

That Stacey, and we were certain it worked until the heat panels didn't work in January of nineteen eighty six. Do we have a certitude that the stuff is going to work for Nvidia or Microsoft? Are the other fourteen names you follow?

I cover ten names Microsoft and some of the others are covered by my college cover semicaracters. When you talk about work, like, I don't understand what you mean. But the question here is these models look really efficient, and the resources that were required to train them, you know, look lower than what we've seen from some other models

This is a good one.

It was like one tent or even even better than that. But I don't think it's a miracle. And you got to remember, like remember I'm a semiconductor analyst. Like for fifty years, costs and semiconductors got cut in half, like for every every cheers for fifty years. That was not a bad thing for semiconductor man, that was a good thing. We all want adoption. To get adoption, we need lower costs.

Will be used.

I don't think we're anywhere close to the end of compute needs for artificial intelligence. We're gonna need this just given I mean.

The costs have been going up. Right next year, we need this.

But anytime anybody coast William Stanley, Jefvins on the show, they get to come back.

They get to continue.

Stacey, what do you expect to hear from the semiconductor companies that you cover in terms of their response to this news, whether it's and video or others.

Yeah, well, I mean, so we were in the middle of earning season right now, so we'll see as they come out, right, but we forget the semiconductor comings from it. We've already seen, like like some of the other like responses, and you have to remember everything that that that we've seen deep seaking like this. I don't want to I don't want to dismiss it like they're they're really good

Well, Tracey Stacey, I got to get this in. It's too important. At UCLA. You had to survive Physics one A a few years ago. The smartest thing I've seen is that American AI is trying to go out to thirty two decimal points, where the Chinese are saying, you know what eight decimal points is?

Okay?

Is this a question of granularity or we're being too perfect in AI? And the Chinese are saying, you don't need to be too perfect.

Now, so they use what you're trying. They use mixed precision. They use mixed precision numbers to train this that they used to have floating point eight eight bit numbers you typically use floating point sixty or floating point thirty two. It's actually really interesting though, in Vidia with their Hopper generation, which is the H one D eight hundreds. It has something called on it. It's actually called a transformer engine. What that actually did was it enabled you to train

Things they're looking at it.

And if you actually look over time, we've seen the numerical precisions that people are using coming in and other the reason you do this, did you get more compute? If I go from sixteen bit to eight in theory, I get twice as many flops, twice as many operations per second. But no, these are things that have been

We're out of time. Don't be a stranger thing. You're trooper to get up this early. Really really appreciate these. In Los Angeles daily lunches at Michael's. They're closed now because of the fire, but I'm sure when Michael's reopened, you know Stacy will be there. Stacy redskin with burns, definitive there.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.

The daily look at the front pages. It's brought to you by IBKR. With the average US temperature in January twenty twenty five be greater than thirty four degrees. Trade your prediction with IBKR forecast Trader that yes was recently at fourteen percent. Makes sense by yes or no anterner dollar if you're right. Go to ibkr dot com slash forecast Interactive Brokers ibkr dot com slash Forecasts.

We dashed to the newspapers. Lisa tell me we're deep, deep seek free.

We are newspaper free.

I know, trying to do something a little different. We talked about more companies pushing workers back to the office, right, but not everyone at the company is being treated the same. They're saying. It's causing a lot of tension now in the workplace because you have some people in a company, like the top performers, the employees with those certain skill sets. They're being given that flexibility, and so he comes in once in a while because the companies don't want to

So it's truly fluid, I mean into the warmer season into spring.

To me, it's a hugely fluid debate.

Some people take Fridays off in the summertime.

I've heard, well they do.

Yes, I've heard we missed that memo.

It works.

It works out with me in PA because he takes every Friday off, and I'm like, you know, you're in the fam and all that.

It works out.

Nextll does we want to go to the airline industry because you're seeing this shift in the pricing power now going back to the carriers. If you've been pricing tickets out there, notice prices for the cheapest flights up twelve percent this month from a year earlier. That's according to Hopper. But the airlines are saying people are gonna pay it no matter what. And they're saying people are paying it domestic, yes, international as well.

And there.

I don't know, I don't know how much of a deal there you got, But they're saying what's shifting to is that the discount airlines. You know, you've seen them who usually go to these you know consumer you know, budget conscious people. They are starting to shift to the to the more advanced. And then you have the luxury sector. Now you have all these luxury items being offered out on the plane. So if you go on a flight, you may have a you know, a cosmetic bag filled

You have not seen.

You haven't gotten your crystal champagne.

What is it Hudson River, Yeah, exactly right.

I mean it's everything's a cart though you pay for everything now, so I mean, you know the bags that that that the better seats so.

We had an offspring at the airport with a lot of luggage. Call up and say, I can't believe what they're you know, yep, they want it for me right now, for three extra bags or.

Whatever, two weeks in Europe with one check on check it. Yep, I don't take it. You don't take a bag. I don't take the kids.

They travels, they take too much stuff today.

Next, lastly, okay, so you heard about costco is switching back from coke back to coke from pepps. Really, yeah, that's that's huge for you. I know, Paul, you know you're the Coke.

Pepsi coke person. But I won't die on that hill. You will put PEPs in front of me.

I'll be fine.

But it's like this huge debate on.

Someone to explain a Costco on a Saturday morning Cocono Pepsi.

Yeah.

People are like Ritt. They want it with their dollar fifty hot dog. They want to have their certain soda because they're used to it.

Can you tell the difference?

I can't wait.

Wait, you haven't had mix?

Now.

I'm the soda person here and I actually have almost a year and a half. I put in a ticket every day to bring back the soda machines on the sixth floor. It's going up to the highest level of bloom But if you.

Did the blind taste test, could you tell you yes, you could?

You can.

Yeah.

But again, I'm a coke person, but you put a PEPs in front of me just as happy.

I mean, I don't know anybody else back there coke PEPSI I don't know who cares. I don't know.

But the organic stuff they have on the sixth floor has to go. If somebody's listening that can do something here at bloom or get rids.

They have organic soda on the sixth floor. I mean, that's un American. It's un America exactly.

So I'm talking to the highest people in here at Bloomberg to get our soda.

Machines, the newspapers. Lisa Mateo, thank you so much.

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