September 29, 2025 • 44 mins
Bloomberg’s Caroline Hyde and Ed Ludlow discuss Electronic Arts’ agreement to be sold in a record-breaking leveraged buyout. Plus, Huawei plans to ramp up production of its most advanced AI chips in a bid to take market share from Nvidia. And Peloton is preparing to launch new AI software in its latest bid to revive the struggling fitness firm.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive
from coast to coast with Caroline Hide in New York
and ever Low in San Francisco.
Speaker 2 (00:22):
This is Bloomberg Tech coming up. Electronic Arts agrees to
sell to a group of private investors in a deal
that values the company at about fifty five billion dollars
in the largest leveraged buyout in history.
Speaker 3 (00:34):
Plus Jawe plans to ramp up production of its most
advanced AI chips in a bid to take market share
from Nvidio, and.
Speaker 2 (00:40):
Big Tech pushes hire as investors look at and beyond
the magnificent seven.
Speaker 4 (00:44):
In a key week for economic.
Speaker 3 (00:46):
Data, and talking of keywek for economic data, let's check
out these markets ahead of non farm payrolls on Friday.
We are really seeing Ashley market sentiment trade higher on
the NASAK one hundred, up eight ten percent. After a
little bit of digestion last week, we're back on top
f big tech, and I'm looking at crypto also getting
a bit of buying. We're up almost three percent on bitcoin.
We're still of our record high zed but it's notable
(01:07):
after some of those leverage bets came out of the
market last week, there's some tentement buying as we see
gold og gold and a record high. We see digital
gold pushing high.
Speaker 5 (01:16):
To what have you got?
Speaker 2 (01:17):
Let's go to our top story and that is Electronic
Arts the biggest leveraged buyout in history. It equates to
an offer of two hundred and ten dollars per share.
It's the chop behind Illustrates. That is a significant premium
over where the stock was trading when the rumors started
coming out. We now have confirmation and we're not that
far off two hundred and ten dollars a share. The
structure really important silver Lake, Saudi in Public Investment Fund
(01:39):
and a group of other investors, and there's a debt
portion here as well. JP Morgan's involved, and I remind
everyone look at the historic relationship between Saudi's PIF and
Electronic Arts.
Speaker 4 (01:51):
We need more details, we do, and we.
Speaker 3 (01:52):
Can do that exact thing. Someone helped break the news,
Deanna Bakers with us. Of course, whenneberg Us deals Managing editor,
the deal is an one just from the shas scale
of it, Leanna, but also the players involved, and why
are this group of investors interesting considering what they already own.
Speaker 6 (02:09):
So Ed mentioned a bunch of investors, but he didn't
mention Jared Kushner's Affinity Partners. It's a firm that he
founded during Trump's first administration, and as you know, the
son in law of the president. There's a view that
maybe his involvement could help ease the approval of the deal.
Any foreign takeover does need sephia's approval.
Speaker 2 (02:26):
This is really interesting, but it's in line with what
Saudi Arabia has been doing in video games. Like three
years ago, billions and billions of dollars pledged to this
and they already held ten percent of Electronic Arts. Anyway,
could you just explain a little bit the structure of
the leverage buyout and how we think it's going to work.
Speaker 6 (02:41):
So you mentioned JP Morgan, So they're providing about twenty
billion dollars of financing. So that's just you know, bank debt.
Goldman Sachs advised Electronic Arts. But in terms of the structure,
it's just a leverage buyout. These investors are putting debt
on the company. They're valuing it at over fifty billion.
We'll try to report out, you know, how much money
(03:02):
specifically are these equity checks that silver Lake, PIF and
Affinity are putting in. But we're hearing you know. As
you mentioned, PIF already is a big shareholder with about
ten percent of EA. They're certainly going to be involved.
They have a huge portfolio video games.
Speaker 3 (03:18):
Right now, we've got a penny more to discuss. We're
going to get a little bit more detail, of course
from our gaming report as.
Speaker 5 (03:25):
Well at it.
Speaker 2 (03:26):
Yeah, and I just point out one thing real quick.
This is a company that's free cash flow positive, just
doesn't have a massive growth story. Blue mostly on a
Bak who leads the deals team, Thank you very much.
What does this mean for gaming? In fact, the question
is why is Electronic Arts going private? Let's get out
to Bloombos. Jason Schreier, who leads our video games coverage industry.
Speaker 4 (03:44):
When I was a kid, you know this story.
Speaker 2 (03:46):
I would save up for weeks and I would spend
my allowance at a store to buy a disc from
my PlayStation or my PC. The video games industry does
not work like that anymore, and I think it speaks
to the core of how EA is running right now.
Speaker 7 (04:01):
And I think nowadays you would be saving up to
buy a new costume for your character in EA's Apex Legends.
Speaker 4 (04:09):
Yeah.
Speaker 7 (04:10):
The big number that I would look at that I
think helps illustrate why this happened is EA's revenue split
between what they call live services and products. Live services
meaning in game transactions where people spend with inside their
games rather than buying new ones. And that's what is
seventy five to twenty five. Seventy five of EA's revenue
(04:32):
in the last fiscal year came from live service micro transactions,
people buying costumes, people buying FIFA players Ultimate Team players,
and that to me is a is a shocking number
in many ways, but I think largely what it says
is that gaming has started to become. If it's not
already a mature market where it is not seeing a
(04:53):
ton of growth, it is certainly not seeing double digit
growth anymore. It is seeing maturity and predictability among its
games and EA's yearly sports franchises, which is kind of
generating predictable revenue is free to play titles like Apex Legends.
Speaker 4 (05:08):
That tells that story.
Speaker 3 (05:11):
Just to go in on why private equity therefore thinks
this is the moment to take this out of the
public markets. You're not having to report on a quarterly basis, Jason.
But it's also interesting timing because they've got a Juggernaut
about to come out in October, Battlefield six.
Speaker 5 (05:25):
Could this change the.
Speaker 3 (05:26):
Dynamics of what this is priced out, whether other people
come into the field and try and scoop it up.
Speaker 7 (05:31):
Yeah, it's a little baffling to me. I was actually
pretty surprised at the time, in because I would think
that EA would want to hold off for a better price,
given the Battlefield is expected to be a pretty big hit.
That said, from what we've heard, from what other people
have reported, this deal has been in the works for
months now. EA has actually been looking to sell themselves
(05:51):
or to participate in an m and A of some
sort for years now.
Speaker 8 (05:54):
Andrew Wilson has been, if.
Speaker 7 (05:56):
Not quite public, at least semi public about that fact
about wanting to become a bigger BDA company, whether through
a merger or an acquisition. And it could be just
that the timing worked out kind of independently of their
release schedule and they were looking to do this regardless.
But yes, I would think they would be able to
get a better premium if Battlefield six comes out and
does Gangbusters or even beats Call of Duty, their biggest rival.
Speaker 3 (06:19):
Andrew Wilson did put out a statement to his own
employees saying that entering a new era of opportunity will
dig into what that looks like a little bit later
in the show as well, but most Jason Schua, it's
great to have you meanwhile, broad a market outlook for
you right now with Michael Green, Simplify Asset Management, chief
investment Strategists and portfolio joining us now, Michael, just this
scale of desire to hold and buy into debt. We
(06:39):
think of Oracle's sale and bonds we've got leveraged by
out now being clearly taken down by banks because they
think they can syndicate this. What does it signal about
the wash of cash that we have in the market
and the valuations we're getting on companies.
Speaker 9 (06:52):
Well, I think there's two separate components that are coming through. First,
we're seeing more and more evidence that the cash flow,
that is the prodigious cash flow that has come through
many of the technology companies now has claims against it,
and taking on debt is simply a way of pulling
that forward. You've effectively said the two billion dollars a
free cash flow that Electronic Arts currently has is going
to go to servicing debt as compared to significant investment.
Speaker 8 (07:16):
And I'll be honest with you, this is part.
Speaker 9 (07:18):
Of a signal that we are very, very interested in
actually buying debt. We have incredible tightness in both a
high yield market and in the investment grade market. The
demand for debt is very very high given the retirement
needs of the baby boomers, and interestingly enough people are
trying to deliver into that. This is very very similar
(07:39):
in a lot of ways to what we would have
done in historical time periods of manufacturing IPOs if that's
what's demanded.
Speaker 8 (07:44):
We're seeing that on the platforms like.
Speaker 9 (07:46):
Robin Hood and coinbase, where there's a ton of demand
for new IPOs. The older generation really wants to own
investment grade debt and high yield debt.
Speaker 2 (07:55):
Michael, I just scrambled a bit, if I'm being honest,
but I think you guys do have like less than
a thousand EA shares. I don't know why, whether that's
sort of a historical or tangential fact, but just talk
a little bit more about that. You know, biggest leveraged
buyout in history has a big shiny headline. We've reported
that JP Morgan is going to do like twenty billion
of the debt. You sort of interest in a mechanism
(08:17):
like that, Well.
Speaker 8 (08:20):
If we have exposure to.
Speaker 9 (08:23):
Electronic arts, it's going to be through one of our
index oriented products. We are not going to select shares
in electronic arts. So I would be misspeaking if I
spoke about a particular inserted desire that drove that.
Speaker 8 (08:37):
I would just highlight that.
Speaker 9 (08:38):
Ultimately, when we think about the quantity of debt that
is being offered, there is tremendous demand for debt, both
in actual form as we're discussing, and then also in
synthetic form. You know, Eric Bokunas of Bloomberg speaks often
of of boomer candy, the idea of products that offer
extremely high yields. That the type of call overwriting is
(08:59):
just a way of creating synthetic debt exposure. So that
is demographic demand that's driving through on all of this stuff,
and I think this is just telling you there is
more of that out there.
Speaker 2 (09:08):
There is an alternative to market based debt, and that's
a mechanism that we're seeing from Nvidia. It's called circular
financing to some you give an equity investment or capital
to a company and they use some of that to
then buy the product that you're known for. Can you
talk a little bit about that, Michael.
Speaker 9 (09:28):
Yeah, A lot of people are starting to become increasingly
aware of this component of vendor financing. And it's not
just vendor financing. We see it not just with InVideo,
with their deals with core Weave that are circular, and
an equity investment is made into core Weave that then
flows back into repurchases of in video products. One that
reduces the price competition associated with it. If in Video
(09:52):
is giving me the equity investment or lending me the
money to make purchase and going to be less willing
to negotiate speaks to in videos extraordinarily at high margin
j genes.
Speaker 8 (10:00):
And the protection of those.
Speaker 9 (10:02):
The more transactions that are going through in that form,
the more I would argue we have to be thinking
perhaps the margin is not as sustainable.
Speaker 8 (10:09):
As it actually appears.
Speaker 9 (10:11):
The thing that I would emphasize is if we look
at other types of debt that are being taken on,
they're being taken on. Meta in particular has taken on
an extraordinary amount of debt where they are simultaneously financing
or underwriting the debt for the financing of building of
data centers, and they are also entering into operating lease
agreements where they are effectively committing on both sides of
(10:32):
the equation. We're seeing more and more evidence of this,
and one of the great ironies I would highlight is
is that all of this is equity finance at its core.
Speaker 8 (10:42):
It's really not.
Speaker 9 (10:43):
Subject to the whims of federal reserve rate policy. It
tells us nothing about whether policy is restrictive or not.
Speaker 3 (10:50):
Michael, It's interesting that below the surface, when you think
about the check the money that's being promised to open
AI from Nvidia, many it said, actually it then helps
open AI go out and take on debt because they've
got this backing from Nvidia. More broadly, is this an
asset class you want to be piling into at this moment?
What are the risks clear for everyone to see, and
(11:11):
what are some of the hidden risks when you're piling
into a very few names who are going all in
on each other and indeed data sent the More broadly.
Speaker 9 (11:19):
Well, I think that there are two really really interesting
components to it right. One is, remember that the vast
majority of people are piling in here without any explicit
thought behind it. You guys obviously know the work that
I spend talking about the impact of passive investing.
Speaker 8 (11:32):
The average American investing.
Speaker 9 (11:33):
Into their four oh one K putting money into a
target date fund, has no interest in Video or Microsoft,
or has any critical evaluation of it. It's simply the
way we plan our retirement today. And so a huge
chunk of the money that is flowing in is not
being sent through thoughtfully. It's being sent through mechanically. So
people are very allocated to this, regardless of whether it's
(11:55):
discretionary or not. The second component that I would emphasize
is that this type of circularity is again a byproduct
where in many situations you would look at this and
you would say, wait a second, this really seems like
anti trust activity.
Speaker 8 (12:08):
Google just lost a verdict in terms of anti trust.
Speaker 9 (12:12):
The judge failed to forest remedies, and immediately they turn
around and engage in the activity that they were actually
dinged for, working with Apple to basically lock in a
monopoly position in Apple's user interface. So we're seeing this
circularity across multiple components of it, whether it stops, whether
it continues to be enabled by the way that we
(12:34):
invest We simply can't know yet.
Speaker 2 (12:36):
Michael Green of Simplify Asset Management across Asset News of
the Day, really appreciate it. Now coming up, Israeli Prime
Minister Benjamin et Yaho discusses AI with investors and tech
leaders last night here in New York ahead of his
visit with President Trump. He's due to arrive at the
White House any moment. We'll have the details. This is
Bloomberg Tech.
Speaker 3 (13:04):
Is re any Prime Minister Benjamin Netanyah, who met with
tech executives and investors in New York during his United
Nations General Assembly visit, And now, according to sources, Nestanya,
who discussed using AI to boost his country's economy and
his military capabilities.
Speaker 5 (13:17):
For all Blueboks of aidances.
Speaker 3 (13:18):
Co host amriy Horden joins us now from the White House,
where President Trump now is set to meet the Prime
Minister netanya who and that's much more about military, much
more about geopolitics right now.
Speaker 10 (13:29):
Yeah, absolutely, we're just moments away though for Prime Minister
Benjamin netna who firm arriving at the White House to
have this really crucial meeting with President Donald Trump after
the President last week at the UN General Assembly, met
on the sidelines with a number of Arab leaders and
discussed this twenty one point plan alongside the UN General
(13:50):
Assembly Benjamin Nenyaw, who also had a little bit more
of an informal conversation with these tech executives. According to
reporting from my sources as well as ED sources, individuals
like Lyman, venture capitalists like Josh woolfel part of this meeting,
and most notably Jacob Helbert was also there.
Speaker 5 (14:07):
This was an individual that was.
Speaker 10 (14:09):
An advisor to Pallenteer that he was tapped to join
the Trump administration. He had his hearing, he'll be an
under secretary of the State Department, just waiting for final
Senate confirmation. And the discussions really involved around how to
use artificial intelligence to not just boost the Israeli military,
but also Israel's economy as we see an absolute arms
race when it comes to AI infrastructure and development. It's
(14:33):
also on the keels of almost two years ago Pallenteer
deciding to have this strategic relationship with the Israeli military.
So Bendri Ninya, who's sitting down when none of these
tech leaders on how exactly Israel was going to advance
some of this capability in a military format as well
as an economic one before he sets foot inside the
Oval Office with President Trump.
Speaker 4 (14:54):
Exactly.
Speaker 2 (14:54):
So, Amory, I think the point that the sources made
to you and I is that this was a group
of tech industry people that had exist relationships with President,
Prime Minister net and Yaho. What do we need to
know about this upcoming meeting with the President?
Speaker 4 (15:06):
What's on the agenda?
Speaker 10 (15:08):
Well, this one is going to be incredibly important for
both President Trump and Prime Minister net and Yahoo. As
I mentioned, it comes on the heels of President Trump
outlining how he can see an end of the war
in Gaza, which is feeling very optimistic about with this
twenty one point plan he discussed with Arab leaders, and
I sat down with the Egyptian Foreign Minister on Friday,
who was optimistic after being in that meeting with President
(15:31):
Trump that they do have a path forward on ending
the war in reconstruction. Of course, the devil on all
this is going to come in the details when it
comes to the Israeli red lines as well of Arab
leaders red lines as well.
Speaker 2 (15:44):
Bloomberg Za, Marie Harden, thank you very much and be
sure to stay with Bloomberg for complete coverage of that
meeting between President Trump and Prime Minister net and Yahoo.
That's coming up at one fifteen pm New York time.
Coming up on Bloomberg Tech, Huawei plans to ramp up
production of its most used to advance AI chips in
a bid to take market share. From the video, we
have the details. Next, this is Bloomberg Tech. We're seeing
(16:09):
live pictures of President Trump walking in with Israel Prime
Minister Benjaminette Naho, who's just arrived at the White House.
The two set to participate in a bilateral meeting in
just a few moments time. Back to our other top story,
Huawei is preparing to sharply ramp up production of its
most advanced AI chips over the next year, aiming to
win customers in the world's biggest chip market. Is in
(16:30):
Nvidia struggles with geopolitical headwinds. Bloomberg's Global Technology Executive editor
Peter Elstrom joins us, we're talking about the nine ten
c ascend chip, right. This is kind of the marquee
Huawei talk us through the numbers that we learned in
the course of reporting about the next two years.
Speaker 5 (16:47):
Right one.
Speaker 11 (16:48):
Wai course is probably best known for its communications equipment,
had smartphones for a long time too, but it is
also really the leading developer of semiconductors within China. It's
put a ton of research and development into this process
and it's made quite a bit of progress. So what
sources are telling us is that the company is preparing
to ramp up production of some of these high end
chips that would be used to run AI models within
(17:12):
the country and also train some models in the country.
As you mentioned, the nine ten C is the most
advanced chip that they have on the market right now.
We understand from sources they'll produce about three hundred thousand
this year and they're planning on ramping that up to
about six hundred thousand next year. That's not enough to
meet all of the domestics supply, but they're hitting the
market at a very vulnerable moment for Nvidia. In Nvidia
(17:35):
had hoped to be able to sell a bunch of
chips into China. There's a very vibrant AI see there.
Companies want to buy their chips, but there have been
these geopolitical tensions where the H twenty chip was banned
for a while, then Washington allowed it to be sold,
but then Beijing pushed back and said they don't want
their companies to buy that chip right now. So as
in Vidia stalls, Huawei is racing ahead and trying to
(17:56):
fill that market need.
Speaker 3 (17:57):
Temeracon Technology is also trying to raise a This is
a moment for domestic chip making talent, but ultimately we're
still worried about how Smick can actually produce or manufacture
and how powerful any of these next iterations that Eric Shue,
the rotating leader of the business, can actually be compared to.
In video, it seems as though analysts think they're not
(18:17):
going to nearly rival the GPUs and the next iteration
from Nvidio.
Speaker 11 (18:22):
Right they're still very far behind in video. I mean,
in Video is the most valuable company in the world.
They have tons of resources to be able to throw
at this, and obviously they've helped companies in the US
like OpenAI and Microsoft a ton on this front. Now,
Beijing is very concerned about that reliance on American technology
at this critical juncture, so as Hi Jimping and President
(18:43):
Donald Trump entre into these trade negotiations. They have many
issues on their plate, including TikTok. The Communist Party wants
to do whatever they can to be able to wean
themselves off of that American technology, so they poured a
ton of resources into building these domestic capabilities. As you mentioned,
Cabrico is coming on one of the upstarts that's probably
the most promising in the market. And then Huawei is
(19:04):
also spending a lot of money on this front. Ali Baba,
the e commerce company, is investing in semiconductors too, So
you're seeing really this nationwide effort to try to make
some progress in chip production. Again, they're very far behind
what the Americans can do and the Taiwanese can do
right now, but they are making progress, and I think
what sources are telling us now is they're making progress
(19:24):
over the next year to an extent that we had
not anticipated.
Speaker 3 (19:27):
Feate Astrom always breaking it down. We so appreciate that. Meanwhile,
fitness company Peniton, it's that to.
Speaker 5 (19:32):
Unveil new products this week, refreshing.
Speaker 3 (19:34):
Its exercise equipment, hardware, and its software lineup. Of course
it's including AI Let's get more from Lumo. Consumer Tech
Managing Editor Mark Gum and how wholesale is the change
going to be for Peloton this week.
Speaker 12 (19:48):
This is going to be their biggest hardware revamp in
at least half a decade. This is under new CEO,
Peter Stern. I know a lot of us love and
use Peloton, but they've been struggling lately from a revenue perspective,
from a sales perspective, from a profit perspective, management perspective,
but also from a products perspective, and it's time for
(20:08):
them to step it up under new leadership, and that's
what they aim to do this week. Peter Stern will
be holding a keynote address in the middle of the
week and introducing an end to end hardware refresh that
includes new bikes, new treadmills, new rows, a fully upgraded
operating system across all a Peloton hardware that deeply integrates
what they call internally Peloton Intelligence. This is AI for
(20:32):
personalized coaching and creating plans for users.
Speaker 8 (20:35):
So this is a big refresh.
Speaker 12 (20:37):
This is Peter Stern's moment to put his stamp on
the company. The last CEO, Barry McCarthy, basically ran the
company into the ground, something that they said was necessary
after the CEO before him, co founder John Foley, pulled
some levers that put the company in a very bad
financial position. So we'll see if Stern is the ones
(20:57):
to be able to turn things in the correct direction.
Speaker 2 (21:00):
Mark, Karen and I are both uses of the hardware
and subscribers to the platform. There'll be an audience watching
the show that have like deja vu and say, well,
hold on, isn't this the latest of several turnarounds that
have happened in the last many years.
Speaker 12 (21:13):
The last turnaround was mostly focused on re architecting the
fundamentals of the company. They moved production to third party manufacturers,
they shut down facilities, they tried to right size the company.
They did I think four or five different rounds of layoffs.
What Peter Stern is doing after that was done by
the last CEO is actually trying to go into the
(21:36):
growth mode here, which means rolling out new products and
new initiatives. No new products or major initiatives are rolled
out under the prior regime, So this is about bringing
new hardware into the market and we'll see if that's
successful for them. You know, so far, they're up quite
a bit on an annual basis, let's see if investors
(21:59):
like the hardware.
Speaker 2 (22:00):
The end of twenty twenty, the pandemic year, this was
the stock there was at one hundred and sixty two dollars.
It's now just above eight dollars. Bloomberg's Mark German a
big week, Thank you very much. Now coming up is
EA goes private in a fifty five billion dollar deal.
We're going to speak with Jason Chapman of investment firm
Convoy on the impact of the gaming industry. This is
a firm that only looks at the gaming industry and
(22:20):
we've gone over the.
Speaker 4 (22:21):
Details of this deal, Caro.
Speaker 2 (22:22):
We've looked at how historic it is from a financial perspective,
but there will be gamers out there going, look, I
love some of these EA games.
Speaker 4 (22:28):
Yeah, why are you doing this?
Speaker 3 (22:30):
My son recently new to the whole EA experience. But
I'm looking though at the market effect. We're up four percent,
but remember the market moved on Friday. That was an
initial reporting came out. It's a nice tacy premium. We'll
see what private equity could do for the business.
Speaker 5 (22:44):
This is a Bloomberg Tech.
Speaker 4 (22:56):
Welcome back to Bloomberg Tech.
Speaker 2 (22:58):
Electronic Arts or EADEO, Game company is going private in
the largest leverage buyout in history. We talked about the
structure of the deal throughout the program, but like we
started the question, why this is a five year chart
of the stock and apart from that spike on the
far right hand side, which was the trading, remember two
hundred and ten dollars for shares the offer at like
two one hundred and three right now, So stock this
(23:19):
traded sideways five years and there are a lot of
questions about whether executives at EA saw the writing on
the wall or on their console screen or whatever that
there's some uncertainty for the future, Carrot, and I'm still
trying to understand it.
Speaker 5 (23:33):
Well, we've got a good voice to dig into it.
Speaker 3 (23:36):
For more on in the EA deal, Jason Chapman, Convoy
Managing partner, joins us. Convoy is an investment firm. It's
dedicated to video game and interactive entertainment industry. You understand
better than anyone the disruption that's happened within this industry.
Is going private the right tactic for EA.
Speaker 13 (23:53):
Thank you for having me on again, Caroline and Ed
and I absolutely do think it is the right thing
for you to go private and here's here's why today
EA has represented kind of the digital home for many
core tenant properties and games. Think of the sports division,
which composed about sixty percent of revenue. You've got the sins,
You've also got Battlefield which is about to launch. And
(24:15):
a lot of speculation for EA has been that they
continuously go back to the well of producing the same
types of IPS and they haven't come up with anything
quote unquote new in a while. Going private will allow
them to take a risk to develop some new IP
and also be a powerhouse once again for generating new
experiences for gamers. And so for therefore, as a gamer myself,
(24:35):
I like the transaction.
Speaker 3 (24:37):
You're investing in the frontier of gaming and the next experiment.
So what is it that they can innovate on at
the moment. What are the trends that you're seeing in
your portfolio companies that can be adopted by the biggest studios.
Speaker 8 (24:49):
Yeah.
Speaker 13 (24:49):
So one of the challenges for large studio driven public
entities is that the public market cycle is difficult for
developing new IP. And so you know, you saw the
act vision Blizzard acquisition by Microsoft. You're seeing this again
finding homes where these companies can actually innovate in private.
Think of what Rockstar is doing with Grand Theft Auto.
(25:11):
That is difficult to do as a public entity. It
just is unless you have a multitude of properties that
can kind of play defense for you in the short term.
Speaker 4 (25:20):
And so what am I excited about.
Speaker 13 (25:21):
I'm excited to see what that infrastructure optimized, let's call
it further refined, which I have full confidence the PIF
and their other partners will do here in this transaction
to see what they can produce on the other end,
and they produce Battlefield. I don't know if you all
saw that test, but it was the nineteenth most successful
(25:44):
CCU event on Steam and ed.
Speaker 2 (25:48):
I've seen the test, and like all over Instagram reels
and TikTok, is the early access experience. What you just
said about PIF though, this is the letter that that
Andrew Wilson sent employees right and in the limited amount
of time I've spent with EA's leadership this year, they've
talked about IP in the context of going outside of
games and this letter. He talks about sports, and he
(26:09):
talks about gaming, and he talks about entertainment broadly. This
is something that Saudi Arabia has been working on for
a number of years. Do they just give EA a
new domain to move into.
Speaker 13 (26:21):
Absolutely so. You know, roughly, right now about two percent
of the PIF's assets are in entertainment in sports. That's
going to move to about three and a half percent
at the conclusion of this transaction. They've seen massive success
with Scope Ly they acquired that for just a hundred
five billion. They've rapidly expanded and acquired Nyantic for an
additional three and a half billion. They are now looking
(26:42):
at EA as the mothership of their gaming strategy outside
of mobile. I believe that you will continue to see
scopely dominate their mobile strategy, and EA will now probably
dominate their popular console and PC and alternative strategies outside
of mobile. And so this is this is form a
four pmative move by the PIF, and I'm excited to
(27:03):
see what they do with it.
Speaker 2 (27:04):
I'm keeping a team in New York on their toes.
But like Battlefield six we're showing on the screen right now, SIMS, Madden,
EAFC formerly known as FIFA, what are the future of
those properties? Do they change somehow?
Speaker 13 (27:19):
People are spending less time on new titles and more
time in existing titles that's going to continue to propagate here.
And that's why I look at this transaction by the
PIFs as a very intelligent move. EA has dominated the
digital homes that we're familiar with for years, and that's
what people want. They want innovation on things they're slightly
(27:40):
familiar with. Also, they will have the ability when going
private to risk it and go for some new properties
that will come to love, like a new battlefield. I'm
excited to see them challenge Call of Duty with their
battle reale. And so for all these reasons, I like
the transaction.
Speaker 3 (27:54):
What about consolidation do they start picking away at companies
that you invest in?
Speaker 13 (28:01):
I think when you have a new buyer in the market,
which the sovereign wealth funds appear to be, you know one,
we're seeing this with PIF mainly, but secondarily we're seeing
this with Tamasik with their move into Keyword Studios. So
absolutely having a new buyer on the scene is a
good thing for the industry. It is not a bad thing,
and especially one that's willing to pay a premium. You know,
(28:21):
typically when you look at privately, you're not that excited
given that the multiples you may receive or not quite
what you would hope for if you're going to go public.
But sovereign wealth funds are here to play, They're here
to play well, and I think having another place of
capital liquidity is only a good thing for startups and
for those who motivating building.
Speaker 4 (28:40):
I saw a twitch and r about that very quick.
I think Cara's question.
Speaker 2 (28:43):
Is it's a good opportunity for your portfolio companies to
get acquired by a bigger beast, because like EA goes
for very technical acquisitions.
Speaker 13 (28:51):
Yes, yes, absolutely, and I'm very excited about this. I
think it's a good sign for what is to come.
And there's many good companies in our portfolio that I
think would love to work with EA and many of
the parties involved in this transaction.
Speaker 2 (29:04):
Jason Chapman of Convoy really appreciate you coming on Bloombo Tech.
Thank you very much. At Caroline, we're looking at shares
for Comcast. So much news coming out today. Basically it's
a very simple story. They're down three tens of percent,
basically flat the story. Michael Kavan has been promoted to
co CEO, joining Brian Roberts. I don't know much more
to save you on that well landscape's interesting.
Speaker 3 (29:24):
It's interesting because he used to be heading up M
and A and another big bank and institution before he
came on board to Comcast. So clearly whe are dealing
there as they particularly sell off some of their assets.
But coming up, we're getting through the world of crypto
ed I'm Immersinger, CEO of the Rock Chain Association, can
be joining us discuss the group's new campaign to defend
the stable coin legislation.
Speaker 5 (29:44):
It was only passed in July or on that.
Speaker 3 (29:46):
This is bloombog Tech, Soft Bank and Arc Investment are
among potension investors in a major funding round for tether holdings.
Speaker 5 (30:06):
According to sources, the funding could.
Speaker 3 (30:08):
Give the company behind the world's largest stable coin I
value is high as five hundred million dollars. It's got
the details of bling bag Finance reporter Catherine Doherty and
why are we seeing such a gargantuan overall valuation for
this company? What are they thinking? What is Ark and
soft Bank backing here?
Speaker 14 (30:25):
So there's a few against the backdrop of a changing
regulatory environment. I would say that is probably the number
one force behind the decision that firms like soft Bank
and Arc Investment are looking into When you have a
firm like Tether that has been at the forefront of
stable coin and emerging technology in the crypto space, these
(30:47):
firms in putting their money behind a private firm and
the development that Tether is working on behind the scenes
is really a signal to the rest of the industry
of where things are potentially headed. It also sets up
the stage for a really increasing environment of setting up
major firms in what they're trying to do in expanding
(31:10):
into other forms of payment and lending. So it's really
all eyes on how big the valuation really does become.
The numbers that we're reporting out at Bloomberg are on
the higher end, so it really remains to be seen
whether or not they come in or are lower than expectations.
Speaker 2 (31:28):
You know, there's this moment in time about whether this
round is sort of unique to Tether and what it
tells us about valuation a moment more broadly, then there's
the strategy, how does this backing help Tether grow as
an issue of stable coins?
Speaker 4 (31:43):
Give us the one two and answer those Catherine, Yes.
Speaker 14 (31:45):
Well, on the second point that you're making, it really
is about where they're going to put their money, where
they go next I mentioned lending payments. These are all
emerging technologies and Tether has always been a firm that
is at the forefront. And now that the regulatory environment
is changing, where there is engagement with the industry and regulators,
(32:06):
that is really where the industry is going to look
to see what happens next. And in terms of the
actual size, that is really the big question here on
if they do get the higher end of the range,
how will they put that money to work and what
does that mean for the rest of the sector. Will
there be other firms that are looking to raise money
(32:27):
either privately or going out and potentially we've been seeing
some big IPOs and that really sets the scene. When
you have a firm like Circle that is out there
publicly having to report to their investors and disclose what
kind of money and the investments that they're making. That
really sets up a stage between Circle and Tether. You
(32:48):
have a public company and a private company both working
in the same industry and looking to compete in the
stable coin issuance space.
Speaker 2 (32:56):
Luis Kevin, doc's great to have you back on Bloomberg Tech.
Speaker 4 (32:59):
Appreciate it.
Speaker 2 (32:59):
Elsewhere in the world of stable coins are Battle's brewing
between crypto supporters and traditional finance over the Genius Act.
Let's get the perspective of some immersing a CEO of
the Blockchain Association context. The Genius Act creates a regulatory
structure for the issuance of stable coins, a form of
crypto pegged to the dollar, and it was just signed
into lauren' ly and I think you and I talked
(33:20):
about it.
Speaker 4 (33:20):
Yeah, surely there are yeah, absolutely, you know.
Speaker 2 (33:23):
Like we've discussed the idea that David tax is out
there like talking this is dollarization, this is fantastic. But
we're talking about now tension between a more modern industry
and traditional finance. How for your association is that tension
being debated?
Speaker 15 (33:36):
Well, we're coming out pretty strongly against some of the
proposals that the traditional banks have in front of Congress.
Speaker 1 (33:44):
Now.
Speaker 15 (33:44):
They'd like to row back a lot of what the
Genius Act does. They have claimed that they want to
close some loopholes that truly are not loopholes. They were
out the table when we negotiated this bill, so any
concerns that they have now are kind of you know,
late to the game concern At the end of the day,
stable coins have the opportunity to change how we move
(34:06):
money in this work, in this globe, in the globe,
and we want to make sure that the regulations are
such that we can continue to see that innovation thrive
and grow.
Speaker 5 (34:17):
If you can't beat them, join them, as the saying.
Speaker 3 (34:19):
So it's the idea that I've heard of just bank
crafter bank considering launching their own stable coins. Why then
fight the Genius Act which would allow them to do that.
Speaker 15 (34:27):
Yeah, I mean, I believe they will start to issue
their own stable coins. This is a competition question right now.
A lot of the exchanges are able to offer a
reward around four percent for stable coins. Your traditional savings
account is offering less than one percent, and they don't
want to compete. So the idea is, let's try to
(34:49):
stop the competition and really kind of create a regulatory
mode around traditional finance and let them get out ahead
where the stable coin issuers are our ahead of the banks.
And I think that's probably the biggest concern they have.
Right now.
Speaker 3 (35:05):
You're sending a letter to Congress, You're you're arguing against
some of these actions taken by the big banks, but ultimately,
when you're looking at the broader context of TeV out
there raising funds fifteen to twenty billion dollars maybe giving
it evaluation five hundred billion doing those those the numbers
are reasonable as to the market opportunity right now.
Speaker 15 (35:22):
Yeah.
Speaker 5 (35:22):
Absolutely.
Speaker 15 (35:23):
When you think about how money moves in the in
the world, it's tradition, it's slow, it's inefficient, there's a
lot of friction. Stable coins take that out of the system.
It's an opportunity to again move money quickly and efficiently,
and it's something that I think the financial services sector
has been waiting for. So I'm not surprised by the
(35:45):
evaluations we're seen for these companies. I think there's just
a lot of opportunity in the stable coins sector going
forward real quick.
Speaker 2 (35:54):
As the point of clarification, Tether Holdings is a member
of your association, somebody that you are support.
Speaker 15 (36:01):
Tether No, they're not a member. They just you know,
we were just at their launch for tether us. Certainly
somebody that we would love to see in our membership
circles in our membership. So if you have stable coin
issuers in our membership.
Speaker 2 (36:14):
The reason I also I want to go back to
the Genius Act point, which is that the banks want
one thing and you your association as members want something different.
You basically don't agree. That being said, what is it
that the banks are wrong about? Just distill that please.
Speaker 15 (36:27):
Yeah, So they're calling this loophole where the exchanges are
able to offer a reward for stable people putting money
in stable coins. This is no different than a reward
you would get if you're using a bank credit card.
They are claiming that that is a loophole around the
yield prohibition in the bill. This is not a yield offer.
(36:47):
This is a separate reward offered by the exchanges. This
is not the stable coin issuers offering yield. Again, it's
the exchanges offering a reward. It's very different. It is
not a loophole. And again, if the banks want to compete,
their welcome to do so by offering similar rewards or
similar interest rates on savans accounts.
Speaker 3 (37:07):
What's interesting is Tether, of course, makes its money by
allocating the money it holds and the US treasuries it
holds and farming yield from those. All of this is
about regulation. Yes, you come from the CFTC. At the moment,
the CFTC has one person in it with yet to
see a new leader installed. Is there an anxiety? Is
(37:30):
the anxiety that some have about a void of regulatory
over seeing of this very nascent industry group.
Speaker 5 (37:37):
Is that right or wrong in your perspective.
Speaker 15 (37:38):
Right now, I think there's some concern that there's not
permanent leadership at the CFTC that probably you see that
play out more with potential market structural legislation that the
Capitol Hill's working on. But at the end of the day,
you see very strong leadership coming out of book the
SEC and the CFTC. They're holding a round table together today,
So it's certainly, you know, even though there's only one
(38:01):
person at the CFTC, that's not stopping the agency from
moving ahead doing what is necessary to ensure that they
are allowing innovation to thrive. So I think the concern
while it, you know, probably is something to think about
with market structure, because they do need long term leadership
at the CFTC. Right now, the CFTC and the SEC
(38:23):
is doing everything they need to be doing to make
sure the innovation is going to thrive in the US.
Speaker 3 (38:28):
Caroline fram Republican Acting Chair, the sole member at the
moment of the CFTC. It is great to have you
here though, of course we really appreciate some there coming up.
Motor Lab CEO Eric Burden, how does Beern Hodgson is
joining us to talk about the aim structure company Series
B funding around and at one point one billion dollar
post money valuation.
Speaker 5 (38:47):
There's a really big tech.
Speaker 4 (39:01):
Startup.
Speaker 2 (39:02):
Modal Lab says it provides AI infrastructure for AI native startups,
enabling the building and testing of AI applications.
Speaker 4 (39:09):
It's just close of you.
Speaker 2 (39:10):
Eighty million dollar Series B funding round led by Lux Capital.
Model Labs CEO Eric Bernhardson joins us.
Speaker 13 (39:16):
Now.
Speaker 2 (39:17):
Caroline and I have been discussing all morning, kind of
a bit like the salesforce question what does model do?
But I think like the understanding is it's more analogous
to like a together AI and maybe nearer to a neocloud.
But just explain that basic question to us to start.
Speaker 16 (39:33):
Yeah, totally, and it's great to be here about it.
So we built the infrastructure layer of a lot of
AI applications. So if you think about a lot of
all these AI applications, you know, people building things like
generator media or large language models or things like Vibe
coding platforms, they only need a software layer to run that,
and so we basically provide a software layer by aggregating
a lot of underlying physical infrastructure, a lot of GPS
(39:56):
all over the world, and then make it easy for
engineers to build things on top of that. Build things,
whether that's related to training or inference or batch processing
or code the execution, or many other things. We have
a lot of customers like Meta, Lovable, Pseuno, Ramp and Scale,
a lot of happy developers who basically build things using
(40:17):
our SDK on top of this infrastructure platform.
Speaker 2 (40:19):
So that sounds very much like AWS and AWS Lambda.
Speaker 1 (40:23):
Is that fair?
Speaker 2 (40:25):
Like what's the landscape here?
Speaker 16 (40:28):
There are some similarities like AWS LAMB that is built
for more of a traditional infrastructure, and I think what
we realized when we started this company was basically a
lot of traditional infrastructure, you know, things like you know
a WSLAM or Kubernators or Docker just isn't built for AI.
So we realize in order to build this new layer
of infrastructures to support all these applications, basically to throw
out a lot of the existing infrastructure and build a.
Speaker 8 (40:50):
Whole news stack.
Speaker 16 (40:51):
But we're very happy customers of AWS. We run an
AWS we run many other hyperscalers. We have great partnerships
with them. I think what they're good at is running
all the physical infrastructure, all the data centers, and then
what we're very good at is innovating in the layer
above with the developer experience and building this platform that
enables engineers to build all these AI applications on top
of it.
Speaker 3 (41:11):
So you've got eighty million dollars more in funding. We've
raised more than eighty million, and now that takes you
to one hundred and eleven. What do you need all
the money for? What are your absolute costs?
Speaker 5 (41:22):
Eric? What's keeping you up?
Speaker 8 (41:24):
Yeah?
Speaker 16 (41:24):
For sure, So so far we've actually been pretty capital efficient.
But we see a lot of demand out there. There's
so many customers building these applications, you know, starting to
see a lot of adoptionals in later stage company. A
lot of enterprise companies are now taking what's maybe previously
research prototypes and putting it into production and they need
a platform to run these applications, and that's when they
(41:44):
come to you. We think there's just a massive opportunity
that the market is exploding, so much demand out there.
Since we're going to take this money and you know,
first first and foremots hire a lot of engineers to build,
you know, because we need to.
Speaker 4 (41:55):
Invest in this platform.
Speaker 16 (41:56):
We're building a very deep platform, but also invest of
course in sales and marketing.
Speaker 3 (42:00):
How hard is it to find the right talent? How
expensive is it?
Speaker 4 (42:04):
It's hard, It's hard.
Speaker 16 (42:05):
I mean we're in New York, so I think we're
actually a little bit sheltered from the very worst part
of it. But yeah, it's very hard to find all
these you know hard you know, these people solving these
hard infrastructure problems.
Speaker 2 (42:16):
Eric, we're going to bring back some video. We're just
showing the platform. It still comes back to access to infrastructure,
the GPUs, the underlying technology, right, are you taking on
the capital burden of that? Like who's actually paying for
access to lease or buy out the capacity?
Speaker 16 (42:35):
Now, we're trying to be a very capital efficient in
the sense that we don't actually own any underlying physical
and infrastructure. Like I mentioned, we run on top of
a lot of different clouds. We run on all the majorhyperscalers.
We're adding a bunch of neoclouds and so our view
is that, you know, in order to move fast, in
order to expand very quickly, it's much better to build
in the existing physical infrastructure, and we focus more on
the layer above the software layer, and that enables us
(42:57):
to move very quickly and expand very quickly in a
more capital efficient way.
Speaker 5 (43:00):
Eric, you're going global.
Speaker 3 (43:01):
You've got a lot of love from the likes of
Scale AI, but Lovable as well. That's more an overseas play.
How much you able to broaden this.
Speaker 4 (43:10):
A lot more?
Speaker 16 (43:11):
And it's great to see customers like Lovable. I actually
grew up in Sweden and so you know Lovable is Swedish.
But yeah, most of the customers are in the US.
But we're seeing a lot of very wide different types
of use cases, right, Like I mentioned, you know things
like generated media or large language model applications. But some
of the stuff we've also seen more recently is you
(43:31):
know a lot of computational bi tech. Well literally I
talked to a customer the other day. It's literally using
model to cure cancer. And then you know weather forecasting.
There's many other applications. So it's super exciting.
Speaker 3 (43:42):
All right, Ben Hadson, it's great to have you on
the show. Thank you, CEO Modile Labs. And then he's
just funding around Meanwhile, that does it for this edition
of Bloomberg Tech, right here in New York.
Speaker 15 (43:50):
Both.
Speaker 2 (43:50):
Yeah, it's taken US fifty six minutes, but I am
here in New York this week. I'm really happy to
be here. Incredible amount of news recap this show. EA,
that's a big moment podcast. You know where to find
it online on the Bloomberg platforms. Let's do it from
New York today. This is Bloomberg Tech.
Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive
from coast to coast with Caroline Hide in New York
and ever Low in San Francisco.
Speaker 2 (00:22):
This is Bloomberg Tech coming up. Electronic Arts agrees to
sell to a group of private investors in a deal
that values the company at about fifty five billion dollars
in the largest leveraged buyout in history.
Speaker 3 (00:34):
Plus Jawe plans to ramp up production of its most
advanced AI chips in a bid to take market share
from Nvidio, and.
Speaker 2 (00:40):
Big Tech pushes hire as investors look at and beyond
the magnificent seven.
Speaker 4 (00:44):
In a key week for economic.
Speaker 3 (00:46):
Data, and talking of keywek for economic data, let's check
out these markets ahead of non farm payrolls on Friday.
We are really seeing Ashley market sentiment trade higher on
the NASAK one hundred, up eight ten percent. After a
little bit of digestion last week, we're back on top
f big tech, and I'm looking at crypto also getting
a bit of buying. We're up almost three percent on bitcoin.
We're still of our record high zed but it's notable
(01:07):
after some of those leverage bets came out of the
market last week, there's some tentement buying as we see
gold og gold and a record high. We see digital
gold pushing high.
Speaker 5 (01:16):
To what have you got?
Speaker 2 (01:17):
Let's go to our top story and that is Electronic
Arts the biggest leveraged buyout in history. It equates to
an offer of two hundred and ten dollars per share.
It's the chop behind Illustrates. That is a significant premium
over where the stock was trading when the rumors started
coming out. We now have confirmation and we're not that
far off two hundred and ten dollars a share. The
structure really important silver Lake, Saudi in Public Investment Fund
(01:39):
and a group of other investors, and there's a debt
portion here as well. JP Morgan's involved, and I remind
everyone look at the historic relationship between Saudi's PIF and
Electronic Arts.
Speaker 4 (01:51):
We need more details, we do, and we.
Speaker 3 (01:52):
Can do that exact thing. Someone helped break the news,
Deanna Bakers with us. Of course, whenneberg Us deals Managing editor,
the deal is an one just from the shas scale
of it, Leanna, but also the players involved, and why
are this group of investors interesting considering what they already own.
Speaker 6 (02:09):
So Ed mentioned a bunch of investors, but he didn't
mention Jared Kushner's Affinity Partners. It's a firm that he
founded during Trump's first administration, and as you know, the
son in law of the president. There's a view that
maybe his involvement could help ease the approval of the deal.
Any foreign takeover does need sephia's approval.
Speaker 2 (02:26):
This is really interesting, but it's in line with what
Saudi Arabia has been doing in video games. Like three
years ago, billions and billions of dollars pledged to this
and they already held ten percent of Electronic Arts. Anyway,
could you just explain a little bit the structure of
the leverage buyout and how we think it's going to work.
Speaker 6 (02:41):
So you mentioned JP Morgan, So they're providing about twenty
billion dollars of financing. So that's just you know, bank debt.
Goldman Sachs advised Electronic Arts. But in terms of the structure,
it's just a leverage buyout. These investors are putting debt
on the company. They're valuing it at over fifty billion.
We'll try to report out, you know, how much money
(03:02):
specifically are these equity checks that silver Lake, PIF and
Affinity are putting in. But we're hearing you know. As
you mentioned, PIF already is a big shareholder with about
ten percent of EA. They're certainly going to be involved.
They have a huge portfolio video games.
Speaker 3 (03:18):
Right now, we've got a penny more to discuss. We're
going to get a little bit more detail, of course
from our gaming report as.
Speaker 5 (03:25):
Well at it.
Speaker 2 (03:26):
Yeah, and I just point out one thing real quick.
This is a company that's free cash flow positive, just
doesn't have a massive growth story. Blue mostly on a
Bak who leads the deals team, Thank you very much.
What does this mean for gaming? In fact, the question
is why is Electronic Arts going private? Let's get out
to Bloombos. Jason Schreier, who leads our video games coverage industry.
Speaker 4 (03:44):
When I was a kid, you know this story.
Speaker 2 (03:46):
I would save up for weeks and I would spend
my allowance at a store to buy a disc from
my PlayStation or my PC. The video games industry does
not work like that anymore, and I think it speaks
to the core of how EA is running right now.
Speaker 7 (04:01):
And I think nowadays you would be saving up to
buy a new costume for your character in EA's Apex Legends.
Speaker 4 (04:09):
Yeah.
Speaker 7 (04:10):
The big number that I would look at that I
think helps illustrate why this happened is EA's revenue split
between what they call live services and products. Live services
meaning in game transactions where people spend with inside their
games rather than buying new ones. And that's what is
seventy five to twenty five. Seventy five of EA's revenue
(04:32):
in the last fiscal year came from live service micro transactions,
people buying costumes, people buying FIFA players Ultimate Team players,
and that to me is a is a shocking number
in many ways, but I think largely what it says
is that gaming has started to become. If it's not
already a mature market where it is not seeing a
(04:53):
ton of growth, it is certainly not seeing double digit
growth anymore. It is seeing maturity and predictability among its
games and EA's yearly sports franchises, which is kind of
generating predictable revenue is free to play titles like Apex Legends.
Speaker 4 (05:08):
That tells that story.
Speaker 3 (05:11):
Just to go in on why private equity therefore thinks
this is the moment to take this out of the
public markets. You're not having to report on a quarterly basis, Jason.
But it's also interesting timing because they've got a Juggernaut
about to come out in October, Battlefield six.
Speaker 5 (05:25):
Could this change the.
Speaker 3 (05:26):
Dynamics of what this is priced out, whether other people
come into the field and try and scoop it up.
Speaker 7 (05:31):
Yeah, it's a little baffling to me. I was actually
pretty surprised at the time, in because I would think
that EA would want to hold off for a better price,
given the Battlefield is expected to be a pretty big hit.
That said, from what we've heard, from what other people
have reported, this deal has been in the works for
months now. EA has actually been looking to sell themselves
(05:51):
or to participate in an m and A of some
sort for years now.
Speaker 8 (05:54):
Andrew Wilson has been, if.
Speaker 7 (05:56):
Not quite public, at least semi public about that fact
about wanting to become a bigger BDA company, whether through
a merger or an acquisition. And it could be just
that the timing worked out kind of independently of their
release schedule and they were looking to do this regardless.
But yes, I would think they would be able to
get a better premium if Battlefield six comes out and
does Gangbusters or even beats Call of Duty, their biggest rival.
Speaker 3 (06:19):
Andrew Wilson did put out a statement to his own
employees saying that entering a new era of opportunity will
dig into what that looks like a little bit later
in the show as well, but most Jason Schua, it's
great to have you meanwhile, broad a market outlook for
you right now with Michael Green, Simplify Asset Management, chief
investment Strategists and portfolio joining us now, Michael, just this
scale of desire to hold and buy into debt. We
(06:39):
think of Oracle's sale and bonds we've got leveraged by
out now being clearly taken down by banks because they
think they can syndicate this. What does it signal about
the wash of cash that we have in the market
and the valuations we're getting on companies.
Speaker 9 (06:52):
Well, I think there's two separate components that are coming through. First,
we're seeing more and more evidence that the cash flow,
that is the prodigious cash flow that has come through
many of the technology companies now has claims against it,
and taking on debt is simply a way of pulling
that forward. You've effectively said the two billion dollars a
free cash flow that Electronic Arts currently has is going
to go to servicing debt as compared to significant investment.
Speaker 8 (07:16):
And I'll be honest with you, this is part.
Speaker 9 (07:18):
Of a signal that we are very, very interested in
actually buying debt. We have incredible tightness in both a
high yield market and in the investment grade market. The
demand for debt is very very high given the retirement
needs of the baby boomers, and interestingly enough people are
trying to deliver into that. This is very very similar
(07:39):
in a lot of ways to what we would have
done in historical time periods of manufacturing IPOs if that's
what's demanded.
Speaker 8 (07:44):
We're seeing that on the platforms like.
Speaker 9 (07:46):
Robin Hood and coinbase, where there's a ton of demand
for new IPOs. The older generation really wants to own
investment grade debt and high yield debt.
Speaker 2 (07:55):
Michael, I just scrambled a bit, if I'm being honest,
but I think you guys do have like less than
a thousand EA shares. I don't know why, whether that's
sort of a historical or tangential fact, but just talk
a little bit more about that. You know, biggest leveraged
buyout in history has a big shiny headline. We've reported
that JP Morgan is going to do like twenty billion
of the debt. You sort of interest in a mechanism
(08:17):
like that, Well.
Speaker 8 (08:20):
If we have exposure to.
Speaker 9 (08:23):
Electronic arts, it's going to be through one of our
index oriented products. We are not going to select shares
in electronic arts. So I would be misspeaking if I
spoke about a particular inserted desire that drove that.
Speaker 8 (08:37):
I would just highlight that.
Speaker 9 (08:38):
Ultimately, when we think about the quantity of debt that
is being offered, there is tremendous demand for debt, both
in actual form as we're discussing, and then also in
synthetic form. You know, Eric Bokunas of Bloomberg speaks often
of of boomer candy, the idea of products that offer
extremely high yields. That the type of call overwriting is
(08:59):
just a way of creating synthetic debt exposure. So that
is demographic demand that's driving through on all of this stuff,
and I think this is just telling you there is
more of that out there.
Speaker 2 (09:08):
There is an alternative to market based debt, and that's
a mechanism that we're seeing from Nvidia. It's called circular
financing to some you give an equity investment or capital
to a company and they use some of that to
then buy the product that you're known for. Can you
talk a little bit about that, Michael.
Speaker 9 (09:28):
Yeah, A lot of people are starting to become increasingly
aware of this component of vendor financing. And it's not
just vendor financing. We see it not just with InVideo,
with their deals with core Weave that are circular, and
an equity investment is made into core Weave that then
flows back into repurchases of in video products. One that
reduces the price competition associated with it. If in Video
(09:52):
is giving me the equity investment or lending me the
money to make purchase and going to be less willing
to negotiate speaks to in videos extraordinarily at high margin
j genes.
Speaker 8 (10:00):
And the protection of those.
Speaker 9 (10:02):
The more transactions that are going through in that form,
the more I would argue we have to be thinking
perhaps the margin is not as sustainable.
Speaker 8 (10:09):
As it actually appears.
Speaker 9 (10:11):
The thing that I would emphasize is if we look
at other types of debt that are being taken on,
they're being taken on. Meta in particular has taken on
an extraordinary amount of debt where they are simultaneously financing
or underwriting the debt for the financing of building of
data centers, and they are also entering into operating lease
agreements where they are effectively committing on both sides of
(10:32):
the equation. We're seeing more and more evidence of this,
and one of the great ironies I would highlight is
is that all of this is equity finance at its core.
Speaker 8 (10:42):
It's really not.
Speaker 9 (10:43):
Subject to the whims of federal reserve rate policy. It
tells us nothing about whether policy is restrictive or not.
Speaker 3 (10:50):
Michael, It's interesting that below the surface, when you think
about the check the money that's being promised to open
AI from Nvidia, many it said, actually it then helps
open AI go out and take on debt because they've
got this backing from Nvidia. More broadly, is this an
asset class you want to be piling into at this moment?
What are the risks clear for everyone to see, and
(11:11):
what are some of the hidden risks when you're piling
into a very few names who are going all in
on each other and indeed data sent the More broadly.
Speaker 9 (11:19):
Well, I think that there are two really really interesting
components to it right. One is, remember that the vast
majority of people are piling in here without any explicit
thought behind it. You guys obviously know the work that
I spend talking about the impact of passive investing.
Speaker 8 (11:32):
The average American investing.
Speaker 9 (11:33):
Into their four oh one K putting money into a
target date fund, has no interest in Video or Microsoft,
or has any critical evaluation of it. It's simply the
way we plan our retirement today. And so a huge
chunk of the money that is flowing in is not
being sent through thoughtfully. It's being sent through mechanically. So
people are very allocated to this, regardless of whether it's
(11:55):
discretionary or not. The second component that I would emphasize
is that this type of circularity is again a byproduct
where in many situations you would look at this and
you would say, wait a second, this really seems like
anti trust activity.
Speaker 8 (12:08):
Google just lost a verdict in terms of anti trust.
Speaker 9 (12:12):
The judge failed to forest remedies, and immediately they turn
around and engage in the activity that they were actually
dinged for, working with Apple to basically lock in a
monopoly position in Apple's user interface. So we're seeing this
circularity across multiple components of it, whether it stops, whether
it continues to be enabled by the way that we
(12:34):
invest We simply can't know yet.
Speaker 2 (12:36):
Michael Green of Simplify Asset Management across Asset News of
the Day, really appreciate it. Now coming up, Israeli Prime
Minister Benjamin et Yaho discusses AI with investors and tech
leaders last night here in New York ahead of his
visit with President Trump. He's due to arrive at the
White House any moment. We'll have the details. This is
Bloomberg Tech.
Speaker 3 (13:04):
Is re any Prime Minister Benjamin Netanyah, who met with
tech executives and investors in New York during his United
Nations General Assembly visit, And now, according to sources, Nestanya,
who discussed using AI to boost his country's economy and
his military capabilities.
Speaker 5 (13:17):
For all Blueboks of aidances.
Speaker 3 (13:18):
Co host amriy Horden joins us now from the White House,
where President Trump now is set to meet the Prime
Minister netanya who and that's much more about military, much
more about geopolitics right now.
Speaker 10 (13:29):
Yeah, absolutely, we're just moments away though for Prime Minister
Benjamin netna who firm arriving at the White House to
have this really crucial meeting with President Donald Trump after
the President last week at the UN General Assembly, met
on the sidelines with a number of Arab leaders and
discussed this twenty one point plan alongside the UN General
(13:50):
Assembly Benjamin Nenyaw, who also had a little bit more
of an informal conversation with these tech executives. According to
reporting from my sources as well as ED sources, individuals
like Lyman, venture capitalists like Josh woolfel part of this meeting,
and most notably Jacob Helbert was also there.
Speaker 5 (14:07):
This was an individual that was.
Speaker 10 (14:09):
An advisor to Pallenteer that he was tapped to join
the Trump administration. He had his hearing, he'll be an
under secretary of the State Department, just waiting for final
Senate confirmation. And the discussions really involved around how to
use artificial intelligence to not just boost the Israeli military,
but also Israel's economy as we see an absolute arms
race when it comes to AI infrastructure and development. It's
(14:33):
also on the keels of almost two years ago Pallenteer
deciding to have this strategic relationship with the Israeli military.
So Bendri Ninya, who's sitting down when none of these
tech leaders on how exactly Israel was going to advance
some of this capability in a military format as well
as an economic one before he sets foot inside the
Oval Office with President Trump.
Speaker 4 (14:54):
Exactly.
Speaker 2 (14:54):
So, Amory, I think the point that the sources made
to you and I is that this was a group
of tech industry people that had exist relationships with President,
Prime Minister net and Yaho. What do we need to
know about this upcoming meeting with the President?
Speaker 4 (15:06):
What's on the agenda?
Speaker 10 (15:08):
Well, this one is going to be incredibly important for
both President Trump and Prime Minister net and Yahoo. As
I mentioned, it comes on the heels of President Trump
outlining how he can see an end of the war
in Gaza, which is feeling very optimistic about with this
twenty one point plan he discussed with Arab leaders, and
I sat down with the Egyptian Foreign Minister on Friday,
who was optimistic after being in that meeting with President
(15:31):
Trump that they do have a path forward on ending
the war in reconstruction. Of course, the devil on all
this is going to come in the details when it
comes to the Israeli red lines as well of Arab
leaders red lines as well.
Speaker 2 (15:44):
Bloomberg Za, Marie Harden, thank you very much and be
sure to stay with Bloomberg for complete coverage of that
meeting between President Trump and Prime Minister net and Yahoo.
That's coming up at one fifteen pm New York time.
Coming up on Bloomberg Tech, Huawei plans to ramp up
production of its most used to advance AI chips in
a bid to take market share. From the video, we
have the details. Next, this is Bloomberg Tech. We're seeing
(16:09):
live pictures of President Trump walking in with Israel Prime
Minister Benjaminette Naho, who's just arrived at the White House.
The two set to participate in a bilateral meeting in
just a few moments time. Back to our other top story,
Huawei is preparing to sharply ramp up production of its
most advanced AI chips over the next year, aiming to
win customers in the world's biggest chip market. Is in
(16:30):
Nvidia struggles with geopolitical headwinds. Bloomberg's Global Technology Executive editor
Peter Elstrom joins us, we're talking about the nine ten
c ascend chip, right. This is kind of the marquee
Huawei talk us through the numbers that we learned in
the course of reporting about the next two years.
Speaker 5 (16:47):
Right one.
Speaker 11 (16:48):
Wai course is probably best known for its communications equipment,
had smartphones for a long time too, but it is
also really the leading developer of semiconductors within China. It's
put a ton of research and development into this process
and it's made quite a bit of progress. So what
sources are telling us is that the company is preparing
to ramp up production of some of these high end
chips that would be used to run AI models within
(17:12):
the country and also train some models in the country.
As you mentioned, the nine ten C is the most
advanced chip that they have on the market right now.
We understand from sources they'll produce about three hundred thousand
this year and they're planning on ramping that up to
about six hundred thousand next year. That's not enough to
meet all of the domestics supply, but they're hitting the
market at a very vulnerable moment for Nvidia. In Nvidia
(17:35):
had hoped to be able to sell a bunch of
chips into China. There's a very vibrant AI see there.
Companies want to buy their chips, but there have been
these geopolitical tensions where the H twenty chip was banned
for a while, then Washington allowed it to be sold,
but then Beijing pushed back and said they don't want
their companies to buy that chip right now. So as
in Vidia stalls, Huawei is racing ahead and trying to
(17:56):
fill that market need.
Speaker 3 (17:57):
Temeracon Technology is also trying to raise a This is
a moment for domestic chip making talent, but ultimately we're
still worried about how Smick can actually produce or manufacture
and how powerful any of these next iterations that Eric Shue,
the rotating leader of the business, can actually be compared to.
In video, it seems as though analysts think they're not
(18:17):
going to nearly rival the GPUs and the next iteration
from Nvidio.
Speaker 11 (18:22):
Right they're still very far behind in video. I mean,
in Video is the most valuable company in the world.
They have tons of resources to be able to throw
at this, and obviously they've helped companies in the US
like OpenAI and Microsoft a ton on this front. Now,
Beijing is very concerned about that reliance on American technology
at this critical juncture, so as Hi Jimping and President
(18:43):
Donald Trump entre into these trade negotiations. They have many
issues on their plate, including TikTok. The Communist Party wants
to do whatever they can to be able to wean
themselves off of that American technology, so they poured a
ton of resources into building these domestic capabilities. As you mentioned,
Cabrico is coming on one of the upstarts that's probably
the most promising in the market. And then Huawei is
(19:04):
also spending a lot of money on this front. Ali Baba,
the e commerce company, is investing in semiconductors too, So
you're seeing really this nationwide effort to try to make
some progress in chip production. Again, they're very far behind
what the Americans can do and the Taiwanese can do
right now, but they are making progress, and I think
what sources are telling us now is they're making progress
(19:24):
over the next year to an extent that we had
not anticipated.
Speaker 3 (19:27):
Feate Astrom always breaking it down. We so appreciate that. Meanwhile,
fitness company Peniton, it's that to.
Speaker 5 (19:32):
Unveil new products this week, refreshing.
Speaker 3 (19:34):
Its exercise equipment, hardware, and its software lineup. Of course
it's including AI Let's get more from Lumo. Consumer Tech
Managing Editor Mark Gum and how wholesale is the change
going to be for Peloton this week.
Speaker 12 (19:48):
This is going to be their biggest hardware revamp in
at least half a decade. This is under new CEO,
Peter Stern. I know a lot of us love and
use Peloton, but they've been struggling lately from a revenue perspective,
from a sales perspective, from a profit perspective, management perspective,
but also from a products perspective, and it's time for
(20:08):
them to step it up under new leadership, and that's
what they aim to do this week. Peter Stern will
be holding a keynote address in the middle of the
week and introducing an end to end hardware refresh that
includes new bikes, new treadmills, new rows, a fully upgraded
operating system across all a Peloton hardware that deeply integrates
what they call internally Peloton Intelligence. This is AI for
(20:32):
personalized coaching and creating plans for users.
Speaker 8 (20:35):
So this is a big refresh.
Speaker 12 (20:37):
This is Peter Stern's moment to put his stamp on
the company. The last CEO, Barry McCarthy, basically ran the
company into the ground, something that they said was necessary
after the CEO before him, co founder John Foley, pulled
some levers that put the company in a very bad
financial position. So we'll see if Stern is the ones
(20:57):
to be able to turn things in the correct direction.
Speaker 2 (21:00):
Mark, Karen and I are both uses of the hardware
and subscribers to the platform. There'll be an audience watching
the show that have like deja vu and say, well,
hold on, isn't this the latest of several turnarounds that
have happened in the last many years.
Speaker 12 (21:13):
The last turnaround was mostly focused on re architecting the
fundamentals of the company. They moved production to third party manufacturers,
they shut down facilities, they tried to right size the company.
They did I think four or five different rounds of layoffs.
What Peter Stern is doing after that was done by
the last CEO is actually trying to go into the
(21:36):
growth mode here, which means rolling out new products and
new initiatives. No new products or major initiatives are rolled
out under the prior regime, So this is about bringing
new hardware into the market and we'll see if that's
successful for them. You know, so far, they're up quite
a bit on an annual basis, let's see if investors
(21:59):
like the hardware.
Speaker 2 (22:00):
The end of twenty twenty, the pandemic year, this was
the stock there was at one hundred and sixty two dollars.
It's now just above eight dollars. Bloomberg's Mark German a
big week, Thank you very much. Now coming up is
EA goes private in a fifty five billion dollar deal.
We're going to speak with Jason Chapman of investment firm
Convoy on the impact of the gaming industry. This is
a firm that only looks at the gaming industry and
(22:20):
we've gone over the.
Speaker 4 (22:21):
Details of this deal, Caro.
Speaker 2 (22:22):
We've looked at how historic it is from a financial perspective,
but there will be gamers out there going, look, I
love some of these EA games.
Speaker 4 (22:28):
Yeah, why are you doing this?
Speaker 3 (22:30):
My son recently new to the whole EA experience. But
I'm looking though at the market effect. We're up four percent,
but remember the market moved on Friday. That was an
initial reporting came out. It's a nice tacy premium. We'll
see what private equity could do for the business.
Speaker 5 (22:44):
This is a Bloomberg Tech.
Speaker 4 (22:56):
Welcome back to Bloomberg Tech.
Speaker 2 (22:58):
Electronic Arts or EADEO, Game company is going private in
the largest leverage buyout in history. We talked about the
structure of the deal throughout the program, but like we
started the question, why this is a five year chart
of the stock and apart from that spike on the
far right hand side, which was the trading, remember two
hundred and ten dollars for shares the offer at like
two one hundred and three right now, So stock this
(23:19):
traded sideways five years and there are a lot of
questions about whether executives at EA saw the writing on
the wall or on their console screen or whatever that
there's some uncertainty for the future, Carrot, and I'm still
trying to understand it.
Speaker 5 (23:33):
Well, we've got a good voice to dig into it.
Speaker 3 (23:36):
For more on in the EA deal, Jason Chapman, Convoy
Managing partner, joins us. Convoy is an investment firm. It's
dedicated to video game and interactive entertainment industry. You understand
better than anyone the disruption that's happened within this industry.
Is going private the right tactic for EA.
Speaker 13 (23:53):
Thank you for having me on again, Caroline and Ed
and I absolutely do think it is the right thing
for you to go private and here's here's why today
EA has represented kind of the digital home for many
core tenant properties and games. Think of the sports division,
which composed about sixty percent of revenue. You've got the sins,
You've also got Battlefield which is about to launch. And
(24:15):
a lot of speculation for EA has been that they
continuously go back to the well of producing the same
types of IPS and they haven't come up with anything
quote unquote new in a while. Going private will allow
them to take a risk to develop some new IP
and also be a powerhouse once again for generating new
experiences for gamers. And so for therefore, as a gamer myself,
(24:35):
I like the transaction.
Speaker 3 (24:37):
You're investing in the frontier of gaming and the next experiment.
So what is it that they can innovate on at
the moment. What are the trends that you're seeing in
your portfolio companies that can be adopted by the biggest studios.
Speaker 8 (24:49):
Yeah.
Speaker 13 (24:49):
So one of the challenges for large studio driven public
entities is that the public market cycle is difficult for
developing new IP. And so you know, you saw the
act vision Blizzard acquisition by Microsoft. You're seeing this again
finding homes where these companies can actually innovate in private.
Think of what Rockstar is doing with Grand Theft Auto.
(25:11):
That is difficult to do as a public entity. It
just is unless you have a multitude of properties that
can kind of play defense for you in the short term.
Speaker 4 (25:20):
And so what am I excited about.
Speaker 13 (25:21):
I'm excited to see what that infrastructure optimized, let's call
it further refined, which I have full confidence the PIF
and their other partners will do here in this transaction
to see what they can produce on the other end,
and they produce Battlefield. I don't know if you all
saw that test, but it was the nineteenth most successful
(25:44):
CCU event on Steam and ed.
Speaker 2 (25:48):
I've seen the test, and like all over Instagram reels
and TikTok, is the early access experience. What you just
said about PIF though, this is the letter that that
Andrew Wilson sent employees right and in the limited amount
of time I've spent with EA's leadership this year, they've
talked about IP in the context of going outside of
games and this letter. He talks about sports, and he
(26:09):
talks about gaming, and he talks about entertainment broadly. This
is something that Saudi Arabia has been working on for
a number of years. Do they just give EA a
new domain to move into.
Speaker 13 (26:21):
Absolutely so. You know, roughly, right now about two percent
of the PIF's assets are in entertainment in sports. That's
going to move to about three and a half percent
at the conclusion of this transaction. They've seen massive success
with Scope Ly they acquired that for just a hundred
five billion. They've rapidly expanded and acquired Nyantic for an
additional three and a half billion. They are now looking
(26:42):
at EA as the mothership of their gaming strategy outside
of mobile. I believe that you will continue to see
scopely dominate their mobile strategy, and EA will now probably
dominate their popular console and PC and alternative strategies outside
of mobile. And so this is this is form a
four pmative move by the PIF, and I'm excited to
(27:03):
see what they do with it.
Speaker 2 (27:04):
I'm keeping a team in New York on their toes.
But like Battlefield six we're showing on the screen right now, SIMS, Madden,
EAFC formerly known as FIFA, what are the future of
those properties? Do they change somehow?
Speaker 13 (27:19):
People are spending less time on new titles and more
time in existing titles that's going to continue to propagate here.
And that's why I look at this transaction by the
PIFs as a very intelligent move. EA has dominated the
digital homes that we're familiar with for years, and that's
what people want. They want innovation on things they're slightly
(27:40):
familiar with. Also, they will have the ability when going
private to risk it and go for some new properties
that will come to love, like a new battlefield. I'm
excited to see them challenge Call of Duty with their
battle reale. And so for all these reasons, I like
the transaction.
Speaker 3 (27:54):
What about consolidation do they start picking away at companies
that you invest in?
Speaker 13 (28:01):
I think when you have a new buyer in the market,
which the sovereign wealth funds appear to be, you know one,
we're seeing this with PIF mainly, but secondarily we're seeing
this with Tamasik with their move into Keyword Studios. So
absolutely having a new buyer on the scene is a
good thing for the industry. It is not a bad thing,
and especially one that's willing to pay a premium. You know,
(28:21):
typically when you look at privately, you're not that excited
given that the multiples you may receive or not quite
what you would hope for if you're going to go public.
But sovereign wealth funds are here to play, They're here
to play well, and I think having another place of
capital liquidity is only a good thing for startups and
for those who motivating building.
Speaker 4 (28:40):
I saw a twitch and r about that very quick.
I think Cara's question.
Speaker 2 (28:43):
Is it's a good opportunity for your portfolio companies to
get acquired by a bigger beast, because like EA goes
for very technical acquisitions.
Speaker 13 (28:51):
Yes, yes, absolutely, and I'm very excited about this. I
think it's a good sign for what is to come.
And there's many good companies in our portfolio that I
think would love to work with EA and many of
the parties involved in this transaction.
Speaker 2 (29:04):
Jason Chapman of Convoy really appreciate you coming on Bloombo Tech.
Thank you very much. At Caroline, we're looking at shares
for Comcast. So much news coming out today. Basically it's
a very simple story. They're down three tens of percent,
basically flat the story. Michael Kavan has been promoted to
co CEO, joining Brian Roberts. I don't know much more
to save you on that well landscape's interesting.
Speaker 3 (29:24):
It's interesting because he used to be heading up M
and A and another big bank and institution before he
came on board to Comcast. So clearly whe are dealing
there as they particularly sell off some of their assets.
But coming up, we're getting through the world of crypto
ed I'm Immersinger, CEO of the Rock Chain Association, can
be joining us discuss the group's new campaign to defend
the stable coin legislation.
Speaker 5 (29:44):
It was only passed in July or on that.
Speaker 3 (29:46):
This is bloombog Tech, Soft Bank and Arc Investment are
among potension investors in a major funding round for tether holdings.
Speaker 5 (30:06):
According to sources, the funding could.
Speaker 3 (30:08):
Give the company behind the world's largest stable coin I
value is high as five hundred million dollars. It's got
the details of bling bag Finance reporter Catherine Doherty and
why are we seeing such a gargantuan overall valuation for
this company? What are they thinking? What is Ark and
soft Bank backing here?
Speaker 14 (30:25):
So there's a few against the backdrop of a changing
regulatory environment. I would say that is probably the number
one force behind the decision that firms like soft Bank
and Arc Investment are looking into When you have a
firm like Tether that has been at the forefront of
stable coin and emerging technology in the crypto space, these
(30:47):
firms in putting their money behind a private firm and
the development that Tether is working on behind the scenes
is really a signal to the rest of the industry
of where things are potentially headed. It also sets up
the stage for a really increasing environment of setting up
major firms in what they're trying to do in expanding
(31:10):
into other forms of payment and lending. So it's really
all eyes on how big the valuation really does become.
The numbers that we're reporting out at Bloomberg are on
the higher end, so it really remains to be seen
whether or not they come in or are lower than expectations.
Speaker 2 (31:28):
You know, there's this moment in time about whether this
round is sort of unique to Tether and what it
tells us about valuation a moment more broadly, then there's
the strategy, how does this backing help Tether grow as
an issue of stable coins?
Speaker 4 (31:43):
Give us the one two and answer those Catherine, Yes.
Speaker 14 (31:45):
Well, on the second point that you're making, it really
is about where they're going to put their money, where
they go next I mentioned lending payments. These are all
emerging technologies and Tether has always been a firm that
is at the forefront. And now that the regulatory environment
is changing, where there is engagement with the industry and regulators,
(32:06):
that is really where the industry is going to look
to see what happens next. And in terms of the
actual size, that is really the big question here on
if they do get the higher end of the range,
how will they put that money to work and what
does that mean for the rest of the sector. Will
there be other firms that are looking to raise money
(32:27):
either privately or going out and potentially we've been seeing
some big IPOs and that really sets the scene. When
you have a firm like Circle that is out there
publicly having to report to their investors and disclose what
kind of money and the investments that they're making. That
really sets up a stage between Circle and Tether. You
(32:48):
have a public company and a private company both working
in the same industry and looking to compete in the
stable coin issuance space.
Speaker 2 (32:56):
Luis Kevin, doc's great to have you back on Bloomberg Tech.
Speaker 4 (32:59):
Appreciate it.
Speaker 2 (32:59):
Elsewhere in the world of stable coins are Battle's brewing
between crypto supporters and traditional finance over the Genius Act.
Let's get the perspective of some immersing a CEO of
the Blockchain Association context. The Genius Act creates a regulatory
structure for the issuance of stable coins, a form of
crypto pegged to the dollar, and it was just signed
into lauren' ly and I think you and I talked
(33:20):
about it.
Speaker 4 (33:20):
Yeah, surely there are yeah, absolutely, you know.
Speaker 2 (33:23):
Like we've discussed the idea that David tax is out
there like talking this is dollarization, this is fantastic. But
we're talking about now tension between a more modern industry
and traditional finance. How for your association is that tension
being debated?
Speaker 15 (33:36):
Well, we're coming out pretty strongly against some of the
proposals that the traditional banks have in front of Congress.
Speaker 1 (33:44):
Now.
Speaker 15 (33:44):
They'd like to row back a lot of what the
Genius Act does. They have claimed that they want to
close some loopholes that truly are not loopholes. They were
out the table when we negotiated this bill, so any
concerns that they have now are kind of you know,
late to the game concern At the end of the day,
stable coins have the opportunity to change how we move
(34:06):
money in this work, in this globe, in the globe,
and we want to make sure that the regulations are
such that we can continue to see that innovation thrive
and grow.
Speaker 5 (34:17):
If you can't beat them, join them, as the saying.
Speaker 3 (34:19):
So it's the idea that I've heard of just bank
crafter bank considering launching their own stable coins. Why then
fight the Genius Act which would allow them to do that.
Speaker 15 (34:27):
Yeah, I mean, I believe they will start to issue
their own stable coins. This is a competition question right now.
A lot of the exchanges are able to offer a
reward around four percent for stable coins. Your traditional savings
account is offering less than one percent, and they don't
want to compete. So the idea is, let's try to
(34:49):
stop the competition and really kind of create a regulatory
mode around traditional finance and let them get out ahead
where the stable coin issuers are our ahead of the banks.
And I think that's probably the biggest concern they have.
Right now.
Speaker 3 (35:05):
You're sending a letter to Congress, You're you're arguing against
some of these actions taken by the big banks, but ultimately,
when you're looking at the broader context of TeV out
there raising funds fifteen to twenty billion dollars maybe giving
it evaluation five hundred billion doing those those the numbers
are reasonable as to the market opportunity right now.
Speaker 15 (35:22):
Yeah.
Speaker 5 (35:22):
Absolutely.
Speaker 15 (35:23):
When you think about how money moves in the in
the world, it's tradition, it's slow, it's inefficient, there's a
lot of friction. Stable coins take that out of the system.
It's an opportunity to again move money quickly and efficiently,
and it's something that I think the financial services sector
has been waiting for. So I'm not surprised by the
(35:45):
evaluations we're seen for these companies. I think there's just
a lot of opportunity in the stable coins sector going
forward real quick.
Speaker 2 (35:54):
As the point of clarification, Tether Holdings is a member
of your association, somebody that you are support.
Speaker 15 (36:01):
Tether No, they're not a member. They just you know,
we were just at their launch for tether us. Certainly
somebody that we would love to see in our membership
circles in our membership. So if you have stable coin
issuers in our membership.
Speaker 2 (36:14):
The reason I also I want to go back to
the Genius Act point, which is that the banks want
one thing and you your association as members want something different.
You basically don't agree. That being said, what is it
that the banks are wrong about? Just distill that please.
Speaker 15 (36:27):
Yeah, So they're calling this loophole where the exchanges are
able to offer a reward for stable people putting money
in stable coins. This is no different than a reward
you would get if you're using a bank credit card.
They are claiming that that is a loophole around the
yield prohibition in the bill. This is not a yield offer.
(36:47):
This is a separate reward offered by the exchanges. This
is not the stable coin issuers offering yield. Again, it's
the exchanges offering a reward. It's very different. It is
not a loophole. And again, if the banks want to compete,
their welcome to do so by offering similar rewards or
similar interest rates on savans accounts.
Speaker 3 (37:07):
What's interesting is Tether, of course, makes its money by
allocating the money it holds and the US treasuries it
holds and farming yield from those. All of this is
about regulation. Yes, you come from the CFTC. At the moment,
the CFTC has one person in it with yet to
see a new leader installed. Is there an anxiety? Is
(37:30):
the anxiety that some have about a void of regulatory
over seeing of this very nascent industry group.
Speaker 5 (37:37):
Is that right or wrong in your perspective.
Speaker 15 (37:38):
Right now, I think there's some concern that there's not
permanent leadership at the CFTC that probably you see that
play out more with potential market structural legislation that the
Capitol Hill's working on. But at the end of the day,
you see very strong leadership coming out of book the
SEC and the CFTC. They're holding a round table together today,
So it's certainly, you know, even though there's only one
(38:01):
person at the CFTC, that's not stopping the agency from
moving ahead doing what is necessary to ensure that they
are allowing innovation to thrive. So I think the concern
while it, you know, probably is something to think about
with market structure, because they do need long term leadership
at the CFTC. Right now, the CFTC and the SEC
(38:23):
is doing everything they need to be doing to make
sure the innovation is going to thrive in the US.
Speaker 3 (38:28):
Caroline fram Republican Acting Chair, the sole member at the
moment of the CFTC. It is great to have you
here though, of course we really appreciate some there coming up.
Motor Lab CEO Eric Burden, how does Beern Hodgson is
joining us to talk about the aim structure company Series
B funding around and at one point one billion dollar
post money valuation.
Speaker 5 (38:47):
There's a really big tech.
Speaker 4 (39:01):
Startup.
Speaker 2 (39:02):
Modal Lab says it provides AI infrastructure for AI native startups,
enabling the building and testing of AI applications.
Speaker 4 (39:09):
It's just close of you.
Speaker 2 (39:10):
Eighty million dollar Series B funding round led by Lux Capital.
Model Labs CEO Eric Bernhardson joins us.
Speaker 13 (39:16):
Now.
Speaker 2 (39:17):
Caroline and I have been discussing all morning, kind of
a bit like the salesforce question what does model do?
But I think like the understanding is it's more analogous
to like a together AI and maybe nearer to a neocloud.
But just explain that basic question to us to start.
Speaker 16 (39:33):
Yeah, totally, and it's great to be here about it.
So we built the infrastructure layer of a lot of
AI applications. So if you think about a lot of
all these AI applications, you know, people building things like
generator media or large language models or things like Vibe
coding platforms, they only need a software layer to run that,
and so we basically provide a software layer by aggregating
a lot of underlying physical infrastructure, a lot of GPS
(39:56):
all over the world, and then make it easy for
engineers to build things on top of that. Build things,
whether that's related to training or inference or batch processing
or code the execution, or many other things. We have
a lot of customers like Meta, Lovable, Pseuno, Ramp and Scale,
a lot of happy developers who basically build things using
(40:17):
our SDK on top of this infrastructure platform.
Speaker 2 (40:19):
So that sounds very much like AWS and AWS Lambda.
Speaker 1 (40:23):
Is that fair?
Speaker 2 (40:25):
Like what's the landscape here?
Speaker 16 (40:28):
There are some similarities like AWS LAMB that is built
for more of a traditional infrastructure, and I think what
we realized when we started this company was basically a
lot of traditional infrastructure, you know, things like you know
a WSLAM or Kubernators or Docker just isn't built for AI.
So we realize in order to build this new layer
of infrastructures to support all these applications, basically to throw
out a lot of the existing infrastructure and build a.
Speaker 8 (40:50):
Whole news stack.
Speaker 16 (40:51):
But we're very happy customers of AWS. We run an
AWS we run many other hyperscalers. We have great partnerships
with them. I think what they're good at is running
all the physical infrastructure, all the data centers, and then
what we're very good at is innovating in the layer
above with the developer experience and building this platform that
enables engineers to build all these AI applications on top
of it.
Speaker 3 (41:11):
So you've got eighty million dollars more in funding. We've
raised more than eighty million, and now that takes you
to one hundred and eleven. What do you need all
the money for? What are your absolute costs?
Speaker 5 (41:22):
Eric? What's keeping you up?
Speaker 8 (41:24):
Yeah?
Speaker 16 (41:24):
For sure, So so far we've actually been pretty capital efficient.
But we see a lot of demand out there. There's
so many customers building these applications, you know, starting to
see a lot of adoptionals in later stage company. A
lot of enterprise companies are now taking what's maybe previously
research prototypes and putting it into production and they need
a platform to run these applications, and that's when they
(41:44):
come to you. We think there's just a massive opportunity
that the market is exploding, so much demand out there.
Since we're going to take this money and you know,
first first and foremots hire a lot of engineers to build,
you know, because we need to.
Speaker 4 (41:55):
Invest in this platform.
Speaker 16 (41:56):
We're building a very deep platform, but also invest of
course in sales and marketing.
Speaker 3 (42:00):
How hard is it to find the right talent? How
expensive is it?
Speaker 4 (42:04):
It's hard, It's hard.
Speaker 16 (42:05):
I mean we're in New York, so I think we're
actually a little bit sheltered from the very worst part
of it. But yeah, it's very hard to find all
these you know hard you know, these people solving these
hard infrastructure problems.
Speaker 2 (42:16):
Eric, we're going to bring back some video. We're just
showing the platform. It still comes back to access to infrastructure,
the GPUs, the underlying technology, right, are you taking on
the capital burden of that? Like who's actually paying for
access to lease or buy out the capacity?
Speaker 16 (42:35):
Now, we're trying to be a very capital efficient in
the sense that we don't actually own any underlying physical
and infrastructure. Like I mentioned, we run on top of
a lot of different clouds. We run on all the majorhyperscalers.
We're adding a bunch of neoclouds and so our view
is that, you know, in order to move fast, in
order to expand very quickly, it's much better to build
in the existing physical infrastructure, and we focus more on
the layer above the software layer, and that enables us
(42:57):
to move very quickly and expand very quickly in a
more capital efficient way.
Speaker 5 (43:00):
Eric, you're going global.
Speaker 3 (43:01):
You've got a lot of love from the likes of
Scale AI, but Lovable as well. That's more an overseas play.
How much you able to broaden this.
Speaker 4 (43:10):
A lot more?
Speaker 16 (43:11):
And it's great to see customers like Lovable. I actually
grew up in Sweden and so you know Lovable is Swedish.
But yeah, most of the customers are in the US.
But we're seeing a lot of very wide different types
of use cases, right, Like I mentioned, you know things
like generated media or large language model applications. But some
of the stuff we've also seen more recently is you
(43:31):
know a lot of computational bi tech. Well literally I
talked to a customer the other day. It's literally using
model to cure cancer. And then you know weather forecasting.
There's many other applications. So it's super exciting.
Speaker 3 (43:42):
All right, Ben Hadson, it's great to have you on
the show. Thank you, CEO Modile Labs. And then he's
just funding around Meanwhile, that does it for this edition
of Bloomberg Tech, right here in New York.
Speaker 15 (43:50):
Both.
Speaker 2 (43:50):
Yeah, it's taken US fifty six minutes, but I am
here in New York this week. I'm really happy to
be here. Incredible amount of news recap this show. EA,
that's a big moment podcast. You know where to find
it online on the Bloomberg platforms. Let's do it from
New York today. This is Bloomberg Tech.
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