From Marhart where Innovation, Money and Power Collie in Silicon Valley, NBN.
This is Bloomberg Technology with Caroline Hyde and Ed lud Love.
I'm Caroline Heinde at Bloomberg's World headquarters in New York, and I'm Ed Loudlin in San Francisco.
Happy Friday. This is Blaming Big Technology.
Coming up, Ed, we'll dig into the details coming to light, I mean Google's anti trust trial. Will dive deeper into that and get a look at big text performance this.
Week and how Huawei's surprise comeback marks a new phase in the tech cold war. Will have the latest on the US and China's battle for technological dominance. That's ahead.
Plus we'll get a read on the state of crypto. One year since Fchex's collapsed and as the co founder of Three Arrows Capital, it's detained trying to leave Singapore. The first Let's check in on these markets, including crypto. But I'm looking at the NASTAC actually coming off of its highs. We're up more than one point four percent in earlier trade.
The mood dips a little bit on the back of well, the.
Strike's still being protracted and shifting up a gear when it comes to the auto sector. But when you looked at some of the infrationary pressures, particularly the preferred gauge from the Fed PCE, actually looking like inflationary pressure just easing off a bit. So we're up six tens percent.
The two year yield dips down only by two basis points, but still we're now at five point zero four let's call it on the two year Blueberg Dollar index bounces off of its lows, but we're still off by about tenth of a percent, So I think that's helping risk appetite today across the board. Moving on, have a little
look at what's happening on individual areas asset classes. I bring you crypto because as the dollar is lower, so to his bitcoin, so actually risk aversion when it comes to the world of crypto, we're basically the bouncing around a certain area of trade twenty six, eight hundred and seventy. Look, we've been really range bound at the moment ed, but going to some of the micros, the individual moves when it comes to stocks.
Yeah, there's no sort of hyperbolic or standout move. I know that we're going to be looking really closely at Google and the government's antitrust pursuit of Google in the search context. Throughout the show, that stock a little bit softer, two tents of one percent in the session. Bloomberger reported, citing sources that back in twenty twenty, Apple was considering
buying bing from Microsoft, that search engine. That's kind of played into what's happening in the courts with the testimony we've had from Apple executives about the relationship with Google and search. That stock seven tens of percent higher. Not saying there's a causal relationship there, but it's just interesting to see Apple up for a second day. I actually want to go back to the index level because there's
a lot going on right now. We're kind of modestly higher on the week on the Nasdaq one hundred, around half a percentage point or so, but we're snapping, as it stands three straight weeks of declines on the Nasdaq one hundred, and we're passing economic data. We're thinking about, well, if the FED leaves rates higher for longer, does that
make megacaps attractive in the scheme of things. Na's that one hundred up to six tens one percent on the week, but actually September has been a bit rough for technology in general, and I cited the case of Apple. Apple's actually down quite a lot from each julypeak. What's going on here, Karl?
Yeah, let's ask someone who knows who's going to get us a broad investing outlook Sarada's money is with US portfolio manager Martin Curry, head of Global Long Term Unconstrained Invents Investing.
It's great to have you here, Welcome to the show.
Thank you.
What do you make of the landscape right now?
There are headwinds when it comes to regulation, there are headwinds when it comes to macro environment when we're thinking more inflationary pressure. Can technology still be an area to be allocating over allocating to?
The short answer is yes, we're very positive still on technology, but you have to be very selective in particular, you have to have devolution discipline always, but more so at this stage in the cycle, when we're heading into a
potential risk of sloden or potential recession. That discussion around recession risk has receded for Visuo, but we believe that when we're looking into twenty twenty four, there are headwinds that could make the economic landscape more uncertain Notably, we've got the US economy with grappling with rates that have
increased quite rapidly. We've got the Chinese economy as the second largest economy globally that is starting to lose momentum, and there's uncertainty but next year after the initial recovery that we've seen this year. So there are a lot of things to grapple with on the economic front.
You've grappled for years before, we've had downturns. I know you come from very senior roles at Black Rock. You waded through two thousand and eight financial crisis. You've been there, done that, And therefore, with that sort of mindset, do you have to be allocating into mega trends. You have to be thinking about valuations, even with the optimism around AI. I mean, as in video, just too extraordinarily highly valued now.
Yes, So there are a few things that we'd want to highlight. Firstly, on valuation, we want to remain discipline, so we use a discount rate that is capturing some of the potential for rates to be longer higher for longer. So we've got an assumption of five percent for our restory rate in the long term and this is something that we've been assuming for a long time.
So even when.
Rates were at zero close to zero negative in some economies eighteen months ago, we use the assumption that monetary policies would normalize and rates would go to initially four percent, and then last September we increase assumption to five percent, and that was on the basis of an assumption that inflation was going to be stickier and longer lasting. So we're assuming a long term inflation in our models of three percent. So that's on the economic side and on
the valuation front. Then in terms of mega trends, you're absolutely right. The way we look at opportunities going forward is looking at three mega trends, demographic changes, future of technology, and resource scarcity. And these are mega trends we'll be talking about for the next decade, two decades, three decades.
They're here to stay.
There are themes that are evolving within those mega trends, and AI is an important one in particular, but generally speaking, that permits us to put our clients strateg is on long term structural growth opportunities looking forward rather than looking backwards. Then onto your third question, which is around Nvidia and
AI and valuation around that. Our view is that you have to focus on companies that have a profitable profile, and we look at that as companies that have high returns and invested capital improvement in returns as well as an attractive gross profile. And we like that gross to
come from revenues, not just profits. So when you look at a company like Nvidia, we forecast sales growth at Nvidia of about thirty percent annualized over the next five years, and when you look at the bottom line, we're looking at closer to forty percent annualized over the next five years. So then when you're looking at the valuation of the stock, even just taking the pe a P twelve months forward of about thirty times, you look at a company on a PE to earnings gross ratio over the next five
years of less than one. So that to us, as a rule of some can argue that Nvidia still has strong voluation support.
Zerio it to dead in San Francisco. It's good to see you and thank you for making it through the storm in New York City to join us on the program. On that assumption that you just outline, I think it's so interesting because there's an element of surprise that some of the other mega caps in trench market positions big balance sheets also get hit. Right that you outline this assumption that the rest of the market has higher for longer.
Does the case for being overweight a name like Apple or another megacap hold up in a world where treasuries are pushing five percent? Do you see what I mean?
Yes, you're absolutely right hired. So there's a few things to bear in mind. Yes, quality gross companies such as Apple, such as Nvidia, which we define as high returns high gross profile, generally tend to be impacted negatively by rising rates or rising rates expectations because these are long duration names.
But there's a few aspects to mention.
Firstly, as you've got right in rates, you've got potential risk of economic cycle turning more negative, and in that instance, we want to have companies that have both structural growth exposures because that permits them to generate their own weather at a time when growth could be challenged at the economic level. Secondly, companies that have strong balance sheets, because if we're heading towards a sharp slowdown or potential risk
of recession, you want companies to have solid balance sheets. Thirdly, companies that have pricing power because in a higher inflation for longer environment, companies with pricing power will be able to better protect their margins and force companies that have resilience in terms of earning stand grades, because we still have a view that there's going to be ongoing earning
standing grades. So we want to be in companies that either resist those stand grades or are able to actually quite at the opposite surprise on the upside.
And so when we look across some.
Of the technological landscape, we do companies that have all those characteristics. And that's so once we want to focus on so yes, nearer term, the market will always have the knee jerk reaction of selling down or selling out of quality growth companies as rates increase because of them
being longer duration and therefore more sensitive to rates. But as you think about the second round effect of higher rates bringing potential risks to the economic cycle, you want to be in exactly those companies that can weather.
That's taught we've gone so macro.
I just want to go micro for a minute, because I know you follow in video very closely. The news twenty four hours ago was that France's regulator raided in videos Paris offices in a sort of antitrust action. Do something like that concern you.
We did see that there was that anti antitrust grade. At this stage, we're still taking stock of that news. We do have a consistent assessment of companies in terms of risks, and in the company risk section we have an element of regulatory risk assessment. We rate our companies from one to five, one being low risk, five being high risk, and in the case of Nvidia, we have a risk rating on the regulatory side of three, so
neutral generally. So we're going to be keeping an eye on this specific news, but at this stage we are not able to comment any further.
You can go so global for us though, and I like that you mentioned China as a macro headwind. China on the geopolitical and micro perspective as well, is going to be impacting the likes of in video of well, any company Tesla with an exposure to China. How do you think about that in your risk modeling?
It's an important focus for us.
So you asked earlier about mega trends, but within those mega trends there are themes, and there are eight themes that we particularly focus on going forward in the midterm.
Four of them are actually related to that technological and potential geopolitical and certainty, and the biggest one is what we label technological and geopolitical fragmentation, and that comes from that risk around Taiwan and the China ambitions around Taiwan, the US and the European approach to that territory, the need to actually manage the geopolitical risk by the governments, and therefore the US encouraging TSMC to build a plant in their territory, Japan doing the same. We believe Europe
will be doing the same. That's leading to technological fragmentation. There are potential challenges from that for companies like TSMC, but there are also opportunities for companies like SML. We believe that that technological fragmentation will be a benefit because where they were shipping their tools to Taiwan, they'll be
shipping some to each of those territories. Those factories become live and that will create some boosts to the top line as well as scale economies, which will also enhance the profitability of that company.
European chip equipment makers to big players in the US and more globally. What a great conversation, Sarah does Manie, thank you so much. Of course, from Martin Curry, Google antitrust a trial it is underway with the latest piece of evidence from the Justice Department saying that a senior Google executive wants like in the company's search advertising business to selling drugs.
Now, there is nuance to this, and.
We're talking about an executive, Michael Rozak, who's vice president for finance at Alphabet's Google ed and he's made the claim that, look, this was actually hyperbole, exaggeration, This was all done for a course in communications. This is not true, and I was not sending it to others. But still this was a piece of evidence, and it's actually getting very murky, a, isn't it as to what evidence should be shown. Its arguments coming from both sides is what should be made public.
So it's notes that Michael Rossak's made in a twenty seventeen internal presentation only on communications. But his point was that you can focus on the supply side, the advertisers, not necessarily the end users, in much the same way that if you're in the cigarettes industry, which was the analogy that he made. You know, you're focus on the selling the advertising, not the consequence to the end user. That's the point he was trying to make. But it a bit of a statement, isn't it.
Yeah, and perhaps as you're trying to claim an exaggerated.
One, exaggerated one.
Indeed. Okay, let's keep the conversation going on the anti trust action against Google and bring in Adam Kavakovic, who's the CEO and founder of the Chamber of Progress. Where we're at the latest conversation is around the dominance of search and you know it's important to point out this is in the context of a trial brought by the government. But what if you learned this week about how dominant Google is in the search market.
Well, we're also only in week three of ten, and it's hard to believe because we still have a work trial ahead of us. I think this week was bookended really by two main aspects of testimony. The first part of the week was really about Apple. Eddiq from Apple testified earlier in the week and the focus of his testimony was that Apple has picked Google as at search default because it thinks that Google's results are the best. But even though at Google's deals with Apple have been
kind of the center of this case. There's another company that kind of looms over this whole case, and that's Microsoft. DOJ has argued that Being is Google's only real competitor in general search, and that the reason it hasn't done better is because of Google's search default deals, and Being would probably be the biggest winner if the DOJ won
this case. Later in the week, we saw two separate Microsoft executives testify the trial, and in their testimony it kind of came out that Microsoft has underinvested in Being compared to Google's investments, and they also acknowledged even the Windows sets Being as the default search engine, most Windows users actually quickly change their default search from Being to Google.
So that kind of undermined aspects of the government's argument that search defaults are really sticky and hard to switch. But the real main event is probably Sati and Adella from Microsoft CEO. He'll be testifying next Monday, and but as I said, this are seven more weeks of this trial. That will be a moment to watch, but there'll be a lot more moments.
And I think, well, we're all fascinated by how EDQ would vindicate the billions that come towards Apple from this focus on using Google's search. But what's so interesting was come to light is that at one point back in twenty twenty, well, Tim Kok and Sati and Adella were in rooms talking about maybe even Apple buying thing that of course didn't come to bear, in large part because the argument was it's not as good a product.
But do you think.
That that really just shows the overall monopolistic environment in which we are. Do you think that ultimately this is better serving a consumer.
I don't know how that plays. That's important to say. I think you know that came out through Bloomberg's reporting non in court, but I don't know how that plays because it's just uncertain. I think I don't know. It seems somewhat peripheral to me to the heart of this question. The heart of the trial is really how to Google achieve its share in whether these search default deals were
the thing or whether it was their quality. And so in a trial like this, there's sort of arguments and things atmospherically that are kind of interesting and sallacious, but I'm not sure have that much bearing on the core of the case.
The other sort of big focus right now is the FTC's action against Amazon. We knew it would come. It did come Tuesday. By the way, out a chamber of progress. You represent the technology industry, right, Your essentially industry grew, so implants point out, But what is your assessment of the FTC's likelihood of success in its action against Amazon.
Well, the interesting thing is this case probably won't see a courtroom for two years at least, based on the normal trajectory of these things. I think some of the big dynamic I noticed about this case is it's really motivated by the complaints of some sellers on Amazon. Sellers are mentioned three hundred and sixty eight times in the FTC's complaint, Consumers were only mentioned fifty one times. And of course the FDC's argument is that Amazon's behavior towards
sellers has downstream impacts on consumers. But I think one of the challenges they're going to face when they finally do get to court is that Amazon has pro consumer justifications for these behaviors. So good example, Amazon tells sellers that if they want their products to have the Amazon Prime label, they have to be shipped through Amazon's own warehouses, And of course some sellers don't like that they don't
like the fees. But when Amazon experimented several years agone giving sellers the freedom to ship prime products themselves, only sixteen percent of the products made it to consumers in time. So even though sellers might complain about a rule like that and the FTC, does those rules protect consumers? And so I think when this case finally gets to court, you can bet that that's going to be a big tension in the case the interest of sellers versus the interest of the consumer.
Adams always great catching up with you, Thank you and Kavakovic of the Chamber of Progress, wishing you a great weekend. Meanwhile, coming up, well, we're not only discussing regulation here in the US, but also let's go global as well.
US curbing China.
The chips there, but it hasn't actually stopped from developing, surprising the advanced technology in that country. We'll bring you the details from today's A big take. Yes, we're talking Huawei. This has been big technology.
Now.
After years of geopolitical back and forth, the conflict between US and China are over chips switching a crucial moment and Huawei is one company at the center of things. A surprise release of the Make sixty pro smartphone in late August. Well, it was viewed kind of as a statement to the United States, a statement that China may still be able to capable to develop advanced technology despite US restrictions. Is the focus of today's Big Take for more on the broader tech which is between US and
China where police are welcome. Mark Montgomery is a retired Rear Admiral and Senior director of the Central Cyber and Technology Innovation And from your perspective, Mark, is China able to bypass restrictions?
Do they even need to be using US technology?
Can they grow it at home now in a more advanced manner than we thought?
Well, first, Carolyn, thanks for having me, And that's a great question. I think it's probably a mix. First, we do have to continue to uh, you know, put in place export controls and other policy leavers to prevent the tech, the transfer technology to China, really to prevent their military from using dual use technology, to continue to build systems at place US at risk, but also to create a
level playing field for our companies. And this phone definitely shows that they can work their way around our export controls. There's a few areas that really worry me. Risk five, which is the open source chip design, is really getting us in trouble.
Mark, I'm so glad you went there. Seven nanometer was a surprise, right, and the chips found in the May sixty pro Risk five the architecture, Why is that a technological concern to you? You see it as a backdoor.
Absolutely, you described it perfectly. It is a backdoor to allow the intellectual property work being done by engineers in the United States to be easily exported into China. It avoids the export controls that we put on very specific company chip designs of certain sizes and the provision of semiconductor manufacturing equipment for companies like AMSL and others. So this is allowing that intellectual property get back into China.
And if you look at who's using the Risk five products, it is broadly these Chinese companies.
Mark.
If the investigation finds breaches of sanctions, what is the remedy? What can the US actually do about this?
What I think first, put the proper export control where there was a gap, close the gap, and we definitely have to get more agile. I mean, our export control management are listing of companies who have made violations as extremely pedestrian and not agile. We have to become more agile, and we can't be playing whack a mole with a
thousand holes on the whack a mole grid, right. We have to more aggressively determine what are those technologies we're going to limit and pass broader export controls to get it.
I would tell you Risk five is a place i'd go first.
Mark, great to have some expertise for you today.
Thank you, Mark Montgomery of the Center on Cyber and Technology Innovation. From New York, from Washington, from San Francisco, there's a Bluemberg Technology.
Welcome back to Bloemberg Technology. I'm Caninehid to New.
York and I'm ed Lovelow in San Francisco. Carra quit check in on the markets. It is the last trading session of September. Then as like one hundred on a
weekly basis, up six ten to one percent. We have had till this point three straight weeks of declines at the index level, and as we've discussed in the show, there's this kind of recognition that whatever the Fed does next in the moment, it's going to be a higher for longer situation with rates, and I thought that Zero Doors Money did a great job explaining how you position
yourself within the technology sector on that front. But September itself has just been an interesting month, not just for risk assets in the equity space, but bitcoin as well. Bitcoin is holding around twenty seven thousand US dollars per token, and you go back to the start of the month, Basically over the last thirty days or so, we've traded in this range between twenty six thousand US dollars per token to just above twenty seven thousand US dollars per token.
The same factor is under consideration when it comes to Bitcoin, our favorite risk asset as they are inequities. But it's interesting to see a kind of less of a downward slide, I suppose, like we've seen in some of the megacap and higher evaluation x docs. Sticking with this space broadly, liquidators to Three Arrows Capital said The hedge fund's co founder. Suesu was apprehended in Singapore while trying to leave the country. This afters you failed to comply with a court order
compelling him to cooperate with a liquidation investigation. Three aras Capital's troubles started with the collapse of Lunar, you'll remember and its algorithmic stable coin Ust about one year ago, when the hedge fund failed to meet margin calls from its lenders, which led to its fallout Caroline, and of.
Course that story continued to unravel. A few months later it would be the turn of FTX, and of course I'm about to get a heavy duty dose of reminding ourselves of that time because sam Agmuan Fried is counting to trial for what prosecutors alleged is one of the biggest financial frauds in US history.
That's where in Bluembagcinia editor Macwagan to take.
The pulse of basically how it feels in the world of digital assets right now, because you've been reading and writing about one year on and it doesn't seem to upbeat.
Yeah, that's right.
And I think the headline in the story we had out today sort of sums it up very nicely. It's been miserable was a quote from Nico Cordiero, who's the chief investment officer of a crypto hedge fund called strichs Lebiathan.
And there's a variety of reasons for that I think importantly, on a personal level, a lot of people who work in crypto now or did in the wake of FTX, have just really been doing a lot of soul searching, you know, their friends and family reaching out to them asking them, why are you.
In this business?
You know, isn't this just a big scam. We talked to one guy named Halal Diab. He started a basically a analysis tool for the blockchain, and he said he told my colleague Ana Arera that whenever the topic comes up, even among his family, what he's doing with his career, they just clunch up. There's just this suspicion and this skepticism towards this asse class that has just gotten worse and worse since FTX blew up.
And that's just sort of the personal human level, Carolyn.
You know, if you look at the numbers, the capital coming into the market has really dried up. Venture capital investments in the crypto space or at about seven billion dollars a year to date according to Pitchbook.
In the heyday of twenty twenty one and twenty twenty two, those full year values were about thirty billions. So that you know that spicet of money from BC has dried up. The money coming in for retail investors has also dried up.
So really the opportunity sets more than just the human element, the opportunity sets for investors and traders in crypto have really been decimated in this year since FTX blew up and went bankrupt.
FA Vaccine.
Edit to Mike Reagan with just really must read peace out on the Bloomberg and on dot com today.
Thank you very much.
Let's keep a conversation going now with Ayakontorovich, co CEO and co founder of Fractal, an infrastructure provider enabling institutions to clear, settle, and margin digital assets on chain, and Aya, you heard what Mike had to say. He actually made the point in the story that, yeah, bitcoin is an example. What sixty percent year to day around twenty seven thousand US dollars partoken, nowhere near sixty nine thousand US sol
has partoken. This idea that a lot of these digital currencies will be in place of or alongside traditional currency hasn't quite happened. Based on everything you just heard, what do you think I.
Think it's important to really separate the difference between the appreciation and depreciation of these currencies and the actual underlying technology that's being built here that for example, we're working on, but also a number of players, especially after what happened with FTX in November, and I think it really emphasized the need for transparency, better capital efficient and see collateral management and operational overhead that the blockchain technology just naturally
is a better fit for. And I think that that has really shown clear in the adoption of some of those infrastructure providers.
Even if you look at going back to price.
Action, if you look at for example, maker Doo with a maker token appreciating forty five percent in the last thirty days relative to them being able to successfully bring on tokenized treasuries on chain for die holders to get access to. You've seen other forms of technology just being better for different forms of settlement, whether it's between bonds, FX,
repo markets. Circle just announced that they are publishing or pushing out a credit protocol which will basically have repos on chain, and so I think that technology it takes time for you to build these things long term, but it's there and it's there to stay.
There's no doubt we're in a bear market, but we're not going anywhere.
Do you think is institutional money still interested.
I mean, we had the anecdotal evidence of some people getting frustrated around the dinner table, but that doesn't speak to the fact that outside of their dinner table they might still be able to be striking deals with really big players from names that we have brumbergno, Morol.
Absolutely.
I think it's fair to say that all of the large banks, both in the United States and globally have a digital asset strategy right now, and they're all focusing on the underlying technology and how it helps with operational overhead for these banks, who have you know, teams of a thousand plus people working on these specific issues where it's not capital efficient and it's very expensive, and I think specific to you know, these institutional investors, they're staying
in the space. The numbers have decreased in terms of new allocation into the space, but that doesn't discredit all of the money that has already been placed in the industry and all of the work that's being done to build these new technologies.
You just use the word discredit, and I think that was I really gut punched to everyone, was that Sam mag Munfrey discredited an ecosystem that people were already trying to find the comfort levels with. Do you think in a way that Traum next week will help clear that air and makes outlet look he was doing what you could do in any industry, or do you think it will re engulf the whole crypto world and the worry that SEC governor SEC chair Garagensta has.
I think a little bit of both.
I think the industry is very ready to close this chapter move on, and I think that we are going to revisit a lot of the pain and trauma that a lot of these funds and many players in the space had to deal with in November of last year that led into you know, almost a year from now.
That said, and you'll see headlines on it.
I'm sure Gary Gensler will reference it in an addition to push and delay the Bitcoin ETF. That said, there are still rumors that the Ethereum ETF may get published in as soon as October, so next week, and so that I think there's.
Good news in the bad news. And again, SBF is just a person. He's a human being.
That doesn't again to your point, it shouldn't discredit the underlying technology and if anything, it should emphasize that we should put more trust into the technology versus the people managing them.
A number of industry leaders and participants have been on the program with US basically outlining what they see as a US administration and federal government that is not supportive of the industry broadly, so they're being pushed offshore. Do you recognize that as a trend or a theme.
I think there is no doubt about the fact that currently if you go to geographies like Singapore, Hong Kong, and Southeast Asia, the risk aversion is much higher and there's higher appetite for crypto, especially with there being clear regulatory standards for how to operate a business in these jurisdictions. That said, again referencing this ethereum ETF, if we do get guidelines for that in the next month, I think that will really change the tone of the conversations that
are happening in the United States. And you're starting to see that already with just markets overall. Implied volatility and ethereum is up this week with institutions trading around that potential rumor of the ETF approval, and you're seeing that this week was actually a very big call option by for institutional investors, and so that's really exciting as we look into Q four.
Let's end on a positive notes Friday, it does seem now to be potential for a lot to be approved, a lot to happen. The question that the market keeps asking is to regulates approve all of these proposed products all at once so that they have a fair footing, or do they stagger them? And I wondered if you had an opinion on that.
From my perspective, it has to be all at once. You really shouldn't be favoring different products in the market, and I think that's probably one of the reasons that you're waiting to get all of these approvals in whether
they choose to stagger or approve them. Either way will be really good reflection for the market at large and will mean that institutions at you know, who are comfortable trading through their Carno parties, whether it's banks or asset managers, will finally be able to access this underlying as a class, which is how outperformed the market year to date.
Hi Cantanovich, great to have you here with us.
Thank you from Fractal Fanwhile, coming up more than the potential US government shutdown and another industry it could be impacting.
But talk about defense tech next. More on that from Blue Big Technology.
Time for Talking Tech and first Up. Nvidia may be the target of an antitrust inquiry in France. The Wall Street Journal reports that French enforces raided offices of a business suspected of engaging in quote, anti competitive practices in the graphics cards sector. It's important to note that the agency did not name in Vidia in its statement. The move follows a doom report published by the agency on competition in the cloud computing market. And VideA also declined
to comment. And the US Commerce Department is setting aside five hundred million dollars in government grants for smaller chip suppliers. The funding is open to projects that cost less than three hundred million dollars. The application process is also designed to be less burdensome for some of those companies. It's part of an effort to beef up domestic semiconductor production. Plus, the United Auto's Workers' Union aren't the only union coming
to blows over labor. Construction workers responsible for building TSMC's Phoenix, Arizona plant are also seeking project labor agreement. The contracts would provide clarity over how the parties would address safety, training and other issues as they arise before starting work on TSMC's second site. In response, once TSMC says they keep an open channel of communication with all our construction partners and that also includes the unions Caroline well.
Aside from union focus, let's get back to the US government more broadly, fast approaching yet another shut down. Unless Congress enacts a temporary spending bill before the new fiscal year starts on well October first, this weekend shutdown could hold many facets of the US ecosystem, from services possessing your passports, your visas, overside of financial swap markets, economic reports from the Labor Department, some IRS services, and potentially
it could also impact the sector of defense technology. As why we're going to focus for a moment, please to welcome to the show, Jane Lee, Chief Government Affairs Officer, a rebellion defense and also a former senior advisor to Senate Majority leader on budget, on economic policy, on these very matters, and therefore, Jane, and can you just steer us a little bit as to how this could, in your mind's eye affect innovation and indeed defense.
Absolutely defense has become more about code than combat these days. And we actually at Rebellion Defense, we're a founding member of the Software and Defense Coalition, a group of forty CEOs and tech founders that are trying to push for faster adoption of emerging technology and bring the best tools and technology to the warfighter. This isn't about taking the operator out of the equation, but enabling their ability to do their mission better or faster and enable the technology.
You know who's not shutting down the doors.
It's China, and they're investing so much money into AI, into technology, into enabling the platform performance. And so it's really important and sucumbent upon us to make sure that our government remains open.
Jane, I want to bring you the stat of the day, but it shout out to Bloomberg Scarlet Foo, who's been writing about this. The US government is currently spending more to pay its interest on the thirty three trillion dollars in national debt than it does on national defense. That according to the the US Treasury's latest monthly statement. What's the lesson we take from that?
Ultimately, there does need to be structural reforms moving forward, But in the near term it's about keeping our doors open again. Our foreign adversaries are not going to be resting and in terms of stopping their investments while our government waits and deliberates on funding the federal government. And so again we need to join together in terms of this short term deadline here to allow for an opportunity to move forward, find consensus, and again keep our dwarves and agencies operating.
If that was a temporary shutdown, can you just go into intricacies of how this affects companies small and large, what happens, what's put on ice, how does it actually really hurt them?
Sure, in terms of small businesses, I'm concerned that actually the defense industrial base isn't prepared for shutdown. The last shutdown where Defense Department was materially impacted in terms of their operations was actually a decade ago.
In twenty thirteen.
In twenty eighteen, the shutdown only lasted for a weekend. In twenty nineteen, the shutdown was the longest shutdown in US history, But DoD.
Actually already had enacted appropriations.
So if the shutdown is lengthy, ultimately there's going to be a major squeeze on small businesses. Back in twenty thirteen, the last major SHUTDOWNJO and congressional reports looked at the impacts of small business operators that had federal contract with the federal government, and there's a material impact on their pocketbooks, their cash flow, and their ability to do operations. You had to furlough employees. Ultimately, there was a decline in
small business contracts by a third. Spending on small business engagements by DoD actually dropped by forty percent.
So there is material impact here for shutting our doors.
Jane, I'm sorry to jump around here. I'm just fascinated by your background, your cv A case. You've been in economic affairs policy on the government side. Now you're thinking about defense and technology, and Caroline and I always talk about the artificial intelligence in terms of the moral debate. The industry is worried that the AI gets used for defense or in the defense use case. But you're also saying that China is spending in this area, so the
US should too. How do we balance that moral conundrum out.
Again, in terms of the pacing challenge of China, they've made it very clear that in terms of emerging technology for AI, for cloud computing, for hypersonics, for Director of Energy. They want to be dominated by twenty thirty, and they have again amassed their investments. They're all of their resource to that particular goal and so trusted safe AI, for example, the debate that's happening right now is absolutely important. We have to make sure again that we're focusing in the
near term here about agency operations. This is about keeping our doors open just to do business and keep our investments skilling, because there will be material impact.
It slows down the capabilities to the warfighter.
There is again outcomes here that I think are unintended consequences of a shutdown.
Jane Lee, Chief Government Affairs Officer, a rebellion defense.
Great to have you on the program.
These are difficult considerations and conversations that we're having.
New York Fed President John Williams making statements at the moment, and the market not liking all of it, in particular the fact that he expects a need for restrictive policy for some time. Basically interest rates to remain high for longer. We're looking at an SMP that has eroded all of its gains for the day at the moment. Ends so some risk aversion, even though he also goes on to say that the FED is at or near peak level of interest rates, but valuations they're still hot in some areas.
Of the market.
Yeah, that's putting it lightly. Indeed, the race for AI chatbots is pretty hot right now. Character Ai is a startup offering chatbots that can impersonate virtually anyone or anything, and it's in early talks to raise new funding that could value it at more than five billion dollars. That's according to Bloomberg sources. I want to bring Bloomberg's Rachel mets In, who leads our coverage of AI, and Rachel,
this is one I reported out with the team. Right it's surprising because of where character ai is a company and also in development of this technology. Is what is character Ai? Does it make any money? Is it valued at five billion dollars?
Well, let's save the valuation for a last but we can start with what it is and what it does. Character is a really interesting company. The people behind it used to work at Google and they did some pioneering work in AI there, and they built a large language model, so a model that you can feed text too, like a text prompt, and it will generate text in response. What they built is a large language model that it's users character. AI users can then customize in basically infinite ways.
They can give it some more dialogue, to refer to, give it some details, and then you'll see if you go on their website, they have all these different chatbots that.
People have made.
Some of the most popular ones are referring to video game characters, so then you can other people can interact with them.
It's pretty interesting.
There's Mario and other ones, and I mean I was messing around with one that claimed to be a gassy Unicorn at one point.
That was pretty fun.
Pretty sure your kids would have loved that.
Why then raise money and where is the revenue opportunity?
Okay, that is a really good question, or two really good questions. So why raise money? What they're doing is super expensive, and for the most part, they're not charging people for it. It costs a lot of money both to train this kind of AI system and to operate it.
So every time somebody types in something to the Mario character or the Gassy Unicorn character, that is essentially that is costing the money a little bit, you know, a tiny bit of money at a time, but it adds up very very quickly, and they recently introduced a service where users pay I think it's ten dollars a month if C plus is the surface, and that gives you faster access because what users had been experiencing, like I did when I reported a story on them recently, is
sometimes the website can't load, or the service just.
Isn't coming to wait for your guests, unicorn.
I know there aren't many worse things in the world.
Yes, Rachel Matt's brilliant story. That does it for this edition of Like Technology Ed.
Yeah.
Check out the podcast recap show and stay safe, Caroline, stay dry out in New York City.