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Boeing Wins Largest-Ever Order as Qatar Buys Long-Range Jets · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news, and Android auto with
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  Speaker 1: the Bloomberg Business App. Listen on demand wherever you get
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  Speaker 1: your podcasts, or watch us live on YouTube.
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  Speaker 2: One of the big stories that come out of this
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  Speaker 2: trip to the Middle East, at least for the Boeing company,
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  Speaker 2: Boeing won the single biggest deal in US planemaker's history,
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  Speaker 2: with Qatar Airways placing in order for at least one
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  Speaker 2: hundred and sixty wide body aircraft during.
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  Speaker 3: A visit to Doha by US President Donald Trump. So
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  Speaker 3: we're going to dig into that story.
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  Speaker 2: Sid, Philip joints his deputy team leader for Global Aviation
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  Speaker 2: a good day for Boeing here, what do you make
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  Speaker 2: of it?
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  Speaker 3: Sid's what's Boeing saying about this?
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  Speaker 4: So Boeing hasn't already said a whole lot about this,
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  Speaker 4: But I mean, this is a significant deal for Boeing
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  Speaker 4: because they can sort of add another sort of milestone
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  Speaker 4: order to their backlog, especially for their seven eighty seven,
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  Speaker 4: which is the sort of state of the odd white
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  Speaker 4: Buddy jet, as well as potential for the Triple seven X,
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  Speaker 4: which is again a jet that Katara Airways has ordered
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  Speaker 4: and is still to be certified and so as airlines
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  Speaker 4: sort of look to the next generation of aircraft that
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  Speaker 4: they're looking to order, this is sort of these are
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  Speaker 4: these You're going to see these mega deals coming up
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  Speaker 4: where everyone's looking to sort of replace their current generation
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  Speaker 4: planes with newer models which are more advanced, better fuel economy,
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  Speaker 4: and that sort of great for Boeing in terms of
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  Speaker 4: just building out that backlog and sort of selling out
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  Speaker 4: aircraft past the end of the decade.
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  Speaker 5: What is the delivery time for something like this, but
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  Speaker 5: when it's clearly had some operational execution issues exactly.
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  Speaker 4: I mean Boeing has been struggling to deliver both the
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  Speaker 4: seven eight seven as well as seven three seven Max
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  Speaker 4: and get the seven Triple seven X, which is their
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  Speaker 4: latest sort of generation aircraft certified. So it is we're
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  Speaker 4: still not clear on the details for what the sort
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  Speaker 4: of intricacies of this Qatara deal are, but potentially these
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  Speaker 4: will sort of play out and go out into the
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  Speaker 4: next decade because I mean, they've got a significant backlog
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  Speaker 4: of aircraft that need to deliver in the short term.
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  Speaker 4: So this is not going to be aircraft deal that
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  Speaker 4: sort of happens in the next two or three years.
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  Speaker 4: Is going to be a drawnout deal that goes into
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  Speaker 4: the next into the next decade.
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  Speaker 3: Well, stock market likes it.
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  Speaker 2: Stocks up one point four percent today, Boeing is hitting
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  Speaker 2: a fifty two week HI. It's up sixteen and a
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  Speaker 2: half percent year to date, So maybe Boeing's finally digging
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  Speaker 2: itself out of its hole from the last several years.
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  Speaker 2: So that kind of goes to the big question said,
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  Speaker 2: it's all about production, you know, getting planes off, and
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  Speaker 2: people just say, like George Fergus from Bloomberg Intelligence says,
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  Speaker 2: just focus on the seven thirty seven Max deliveries. That's
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  Speaker 2: the number. Is there a sense that Boeing's making improvements there?
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  Speaker 4: We have seen Boeing deliveries inch up and we've sort
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  Speaker 4: of they've had sort of milestone in terms of just
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  Speaker 4: hitting better production levels on the sevent three seven, And
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  Speaker 4: we've heard from Aline customers, including United Airlines yesterday saying
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  Speaker 4: that the deliveries of the seven three seven Max are
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  Speaker 4: sort of going up and they're waiting on the seven
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  Speaker 4: eighty seven, which is the aircraft that we understand that
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  Speaker 4: Katara Airways ordered. That's also going to be sort of
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  Speaker 4: key to getting production and profitability going.
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  Speaker 5: What other kind of pitch can Boeing make to outstrip
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  Speaker 5: Airbus because in a duopoly market, and I appreciate that
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  Speaker 5: China has some smaller players, but if you're dealing with
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  Speaker 5: a duopoly, like I mean, people got to buy your
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  Speaker 5: planes exactly.
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  Speaker 4: I mean, we have adopoly in at the moment.
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  Speaker 6: And does that change it all? You think? It sort
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  Speaker 6: of has.
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  Speaker 4: Changed a little bit in terms of just the sort
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  Speaker 4: of there's a lot of politics behind aircraft orders again,
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  Speaker 4: and that's something that we've seen where Trump's been announcing
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  Speaker 4: these mega Boeing orders. I mean, yesterday announced the deal
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  Speaker 4: for thirty planes in Saudi Arabia, and so there is
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  Speaker 4: a lot of politics attached to aircraft orders. But at
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  Speaker 4: the same time, both Airbus and Boeing are sort of
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  Speaker 4: sold out of aircraft until the end of the decades.
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  Speaker 4: So it is sort of you're notching up all these orders.
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  Speaker 4: But at the same time, the biggest thing that airlines
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  Speaker 4: are talking about is give me my plane, because that's
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  Speaker 4: really the biggest question where airlines are saying that plane
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  Speaker 4: deliveries are delayed, and the air Bus has repeatedly talked
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  Speaker 4: about how supply chain issues continue to haunt the industry
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  Speaker 4: now five years after the pandemic.
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  Speaker 2: Yeah, which I can't imagine, although again I'm what I
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  Speaker 2: understand is one of the bottlenecks is labor getting the
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  Speaker 2: This is not just you know, sitting an assembly line
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  Speaker 2: and hitting a hammer. You've got to be really, really
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  Speaker 2: skilled at labor, and during the pandemic you lost a
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  Speaker 2: lot of that and retraining these folks are getting new
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  Speaker 2: people in it. I'm hearing that's a big problem.
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  Speaker 4: Labor is a major problem as well as I mean,
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  Speaker 4: just one part being short holds up the entire production line.
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  Speaker 4: I mean, you have millions of parts that go into
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  Speaker 4: an aircraft, and Evers and Boeing are the final assembly
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  Speaker 4: lines where the plane actually gets put together. But then
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  Speaker 4: if parts are not available in the sort of process,
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  Speaker 4: you can't actually build those planes. And that's where the
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  Speaker 4: bottlenecks come up. Because you have smaller suppliers who are
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  Speaker 4: struggling financially, You've got parts in short supply. I mean
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  Speaker 4: EBUS talks about it's sort of it's whack a mole
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  Speaker 4: where you get one part sorted out and something else breaks,
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  Speaker 4: and so it's it's really a question of getting that
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  Speaker 4: supply chain to sort of hum along nicely and then
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  Speaker 4: actually building those planes and delivering those planes because you've
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  Speaker 4: now got record backlogs at both Boeing and Airbus.
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  Speaker 6: So are they exempt from tariff issues?
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  Speaker 4: That's again a really important question. No one's quite clear
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  Speaker 4: about in terms of what the tariff impact is going
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  Speaker 4: to be because for fifty years almost that the aviation
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  Speaker 4: industry has largely functioned tariff free, and the tariffs added
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  Speaker 4: complexity to it because now everyone's not quite sure if
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  Speaker 4: aircraft are example. I mean, you've seen like all sorts
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  Speaker 4: of industry players and industry groups making representations to President
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  Speaker 4: Trump saying that we would like to have tariffs removed
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  Speaker 4: on aircraft and aircraft parts, and so we're trying to
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  Speaker 4: see where that sort of actually lands up, because potentially
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  Speaker 4: aircraft manufacturers and airlines may have to pay tariffs on
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  Speaker 4: planes depending on what they're mean and what parts they have.
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  Speaker 5: Right, which makes all of this that much more complicated
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  Speaker 5: and more difficult.
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  Speaker 6: All right, should be great to say that.
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  Speaker 5: Thanks very much joining us here, said Phillip, Deputy Team
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  Speaker 5: leader for Global Aviation. We appreciate that. Always good to
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  Speaker 5: see you in New York too. Thank you.
• 6:02
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 6:16
  Speaker 2: Alex Deal, Paul Swiney, we are live here in our
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  Speaker 2: Bloomberg Interactive Brokers studio in New York City, or streaming
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  Speaker 2: live on YouTube as well. I'm looking at the S
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  Speaker 2: and P five hundred, absolutely flat on the year. So
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  Speaker 2: you know, we were down thirteen fourteen percent of the year,
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  Speaker 2: peaked the trough twenty percent, climbed, you know, crawled out
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  Speaker 2: of that hole.
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  Speaker 3: Right here, and we'll see where we go from here.
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  Speaker 3: Sean oh Harry joins US.
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  Speaker 2: President Pastry Ets join us via zoom from Florida. Hey Sean,
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  Speaker 2: what do you do now? I mean, you're we were
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  Speaker 2: really selling off hard. Recession talk was getting pretty heated.
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  Speaker 2: Now the President has kind of walked back seemingly some
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  Speaker 2: of the tariff uncertainty in the marketplaces, and that seems
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  Speaker 2: to be enough for investors that come back into the markets.
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  Speaker 3: What do you guys see?
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  Speaker 7: Yeah, thanks for having me. I think there was three
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  Speaker 7: things that were sort of headwinds into the market earlier
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  Speaker 7: this year. One was the tariff stuff. I think, you know,
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  Speaker 7: I don't think anybody was surprised that he was going
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  Speaker 7: to make an issue of it.
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  Speaker 8: I think the.
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  Speaker 7: Severity, if you will, sort of spooked people a little bit.
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  Speaker 7: I never thought they were ever going to come in
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  Speaker 7: at that rate, you know, I always thought this was
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  Speaker 7: going to be a negotiation, and as you see, where
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  Speaker 7: are in the midst of a lot of negotiations. I
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  Speaker 7: think the second sort of headwind was uncertainly about tax policy,
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  Speaker 7: and hopefully that will get itself resolved.
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  Speaker 8: And then the third ist.
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  Speaker 7: Has always been the Fed and whether they're being too
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  Speaker 7: slow in terms of their approach to interest rates. One
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  Speaker 7: of those tailwinds I think has turned into a I
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  Speaker 7: mean headwinds has turned into a tailwind, and that's the
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  Speaker 7: tariff policy.
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  Speaker 8: I think we're seeing.
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  Speaker 7: Terrific progress there across the board, and I think we'll
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  Speaker 7: continue to see that. Hopefully, you know, Congress will get
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  Speaker 7: their act together and they'll get the quote unquote big
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  Speaker 7: beautiful bill done, and then we'll wait and see with
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  Speaker 7: regard to what's going with with with with Sherman Pale.
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  Speaker 7: So I think the environment has changed from a somewhat
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  Speaker 7: die or you know, oh gosh, we're going to have
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  Speaker 7: it in a recession and inflation is going to be
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  Speaker 7: horrible because of all these tariffs, to an environment where
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  Speaker 7: I think there's less talk of a recession and less
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  Speaker 7: concerned about the potential inflation regarding terrorists. There is, you know,
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  Speaker 7: some good news in this market, and that is that
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  Speaker 7: energy prices are down and energy has a big input
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  Speaker 7: to inflation. And we saw a really nice print the
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  Speaker 7: other day, So I think you can be somewhat optimistic now,
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  Speaker 7: whereas I think earlier, with those three headwinds, you had
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  Speaker 7: to be a little bit more cautious.
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  Speaker 6: Do we still see the buy the mentality?
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  Speaker 7: Uh? You know, it's interesting, Alex. We're seeing two different
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  Speaker 7: camps here. The big institutional investors in the hedge funders
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  Speaker 7: are have been net short, and so I'm looking for
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  Speaker 7: some kind of a short rally it's, you know, as
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  Speaker 7: they finally capitulate on their short positions. But the retail
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  Speaker 7: investor has been really, really strong, and so I think
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  Speaker 7: the retail investor is sort of thinking about this differently
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  Speaker 7: than the big institutional investors and putting money in every
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  Speaker 7: time they get a chance to and that's probably, you know,
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  Speaker 7: the smarter move in the long run. I mean, in
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  Speaker 7: the short run, nobody knows what the market's going to do.
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  Speaker 7: But in the long run, over time, you know, you
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  Speaker 7: could describe this dock market in eight simple words. The
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  Speaker 7: advance is permanent and all declines are temporary. So we're
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  Speaker 7: seeing sort of two camps out there.
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  Speaker 2: So Sean as president Pacer ETFs, where are you guys
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  Speaker 2: seeing fun flows?
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  Speaker 3: Is it different maybe this.
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  Speaker 2: Week versus a couple of weeks ago when we had
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  Speaker 2: companies pulling guidance and again real angst in the marketplace.
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  Speaker 7: Well, it's funny, you know, Paul. A couple of weeks ago,
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  Speaker 7: our volumes were insane, like three four times the average
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  Speaker 7: down volume on ours across the board, and so that
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  Speaker 7: was to me a sign of panic in the market.
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  Speaker 7: They've now sort of settled down. We're seeing, you know,
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  Speaker 7: surprisingly some good flows into international and global as you know,
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  Speaker 7: those markets have done better. I think our global fund
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  Speaker 7: is up somewhere around nine or ten percent year to date.
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  Speaker 7: I just looked at emerging markets the other day. It's
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  Speaker 7: up pretty handily as well. So we're seeing flows there
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  Speaker 7: we're seeing consistent flows into the cash Cow series on
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  Speaker 7: the value side, so you know, those are high quality
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  Speaker 7: stocks that generate higher return on assets and traded a discount,
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  Speaker 7: so that's sort of a more conservative quality play. And
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  Speaker 7: then we're seeing really significant flows into one of our
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  Speaker 7: growth ETFs that uses free cash flow margin. And then
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  Speaker 7: there's a little bit of sort of in the financial
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  Speaker 7: advisor community, there's really two camps as well, those that
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  Speaker 7: sort of want to tap the brakes a little bit
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  Speaker 7: and those that want to put their foot on the gas.
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  Speaker 7: For those that want to tap their brakes a little bit,
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  Speaker 7: we're seeing flows into some of the risk management strategies.
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  Speaker 8: That we have.
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  Speaker 5: Interesting so, I mean, guess is how you make a market?
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  Speaker 5: I mean you have two different directions and then and
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  Speaker 5: then you move around that really interesting stuff. Thank you
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  Speaker 5: so much, Sean Shaan O'Hair, president of Pacer ETFs, joining
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  Speaker 5: us about all the flows within the market.
• 10:57
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 6: This is Bloomberg Intelligence Radio.
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  Speaker 5: take over two thousand companies and one hundred and thirty
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  Speaker 5: industries all around the world.
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  Speaker 6: We're also privileged to speak to a lot of CEOs.
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  Speaker 5: From all around the world, and one of us joins
• 11:25
  Speaker 5: us in the studio right now, EOS Energy Enterprise. It
• 11:29
  Speaker 5: is a zinc powered grid scale batteries. We know we
• 11:33
  Speaker 5: need updates to the grid. We know we need batteries
• 11:37
  Speaker 5: and storage, and how we make them and where the
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  Speaker 5: supply chains are are also a key. Now this company
• 11:43
  Speaker 5: is interesting because it has a US manufacturing plant and
• 11:47
  Speaker 5: supply chain. Joining us now in the studio is a CEO,
• 11:49
  Speaker 5: Joe Mastragello mass Strandgello.
• 11:52
  Speaker 6: There we go, I got it. Welcome, It's good me
• 11:54
  Speaker 6: withee you.
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  Speaker 5: So basically you're looking at a seven hundred and twenty
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  Speaker 5: percent increase in your stock in the last year.
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  Speaker 6: What is a zinc powered grid scale battery. Let's start there.
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  Speaker 9: Yeah, so when you think about this, think of think
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  Speaker 9: about the battery you see in your car. So we
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  Speaker 9: have a plastic enclosure that has the active materials of
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  Speaker 9: the battery inside of it, the zinc, so zinc, bromine
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  Speaker 9: based water based electrolyte base on what you're doing. You
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  Speaker 9: put a charge in the zinc and the bromine separate.
• 12:26
  Speaker 9: When the charge goes in the zinc plates onto a
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  Speaker 9: conductive plastic, the bromine is absorbed into a carbonized felt
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  Speaker 9: and then you discharge it. And you can do that
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  Speaker 9: anywhere from two hours up to fifteen hours. It's all
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  Speaker 9: common core raw materials, highly flexible in its operation and
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  Speaker 9: at scale, is very cost competitive.
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  Speaker 2: All right, I'm looking you are a Puppety Trader company,
• 12:47
  Speaker 2: and we'll set your income statement on the Bloomberg terminal
• 12:50
  Speaker 2: twenty twenty four. You at like fifteen million of revenue.
• 12:52
  Speaker 2: Consensus looks like the analysts are looking for a one hundred
• 12:54
  Speaker 2: and sixty million this year, maybe four or fifty million
• 12:57
  Speaker 2: and twenty twenty six.
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  Speaker 3: What are you guys doing helping your business?
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  Speaker 9: So we are scaling up the manufacturing of our battery modules.
• 13:05
  Speaker 9: So basically we manufacturer battery modules that go into an enclosure.
• 13:09
  Speaker 9: The enclosure goes out into the into the field. It's
• 13:13
  Speaker 9: coupled with some energy source. It could be coupled direct
• 13:15
  Speaker 9: to the grid to help with grid firming or peak shaving.
• 13:18
  Speaker 9: It could be coupled with a power generating source wind
• 13:21
  Speaker 9: solar or traditional fossil fuels, or could be put and
• 13:25
  Speaker 9: a microgrid for a commercial and industrial application. The growth
• 13:30
  Speaker 9: that you're seeing is basically taking our manufacturing process and
• 13:33
  Speaker 9: going from a semi automated manufacturing line to a fully
• 13:36
  Speaker 9: automated manufacturer manufacturing. So we manufacture in Turtle Creek and
• 13:40
  Speaker 9: outside Pittsburgh, Pennsylvania, and our headquarters is in Edison, New Jersey.
• 13:43
  Speaker 8: Edison, there you go.
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  Speaker 6: There is this You mentioned it's cost competitive at scale?
• 13:49
  Speaker 6: Are you at scale?
• 13:50
  Speaker 8: We're getting there. So we first the way we did
• 13:52
  Speaker 8: this was we.
• 13:54
  Speaker 9: Went in and got the assembly of the battery automated,
• 13:56
  Speaker 9: and now we're doing our upfront parts to automate those.
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  Speaker 9: That gets our line to two gigawat hours a year
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  Speaker 9: of production.
• 14:03
  Speaker 8: From there, you take the lines.
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  Speaker 9: The way we designed this was you cut and paste
• 14:07
  Speaker 9: lines to expand capacity, and we have plans to get
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  Speaker 9: our Pittsburgh facility, our Turtle Creek facility up to eight
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  Speaker 9: gigawat hours a year in production.
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  Speaker 3: Who's your customer, generally.
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  Speaker 9: Type utility utilities, utility scale developers. We also have a
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  Speaker 9: large segment now that's emerging with data centers for all
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  Speaker 9: the energy needs they have.
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  Speaker 6: So we can now I get it.
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  Speaker 3: This is another play on the AI story.
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  Speaker 2: Is that the investment call out there, it's one of them,
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  Speaker 2: one of yes.
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  Speaker 9: Well, when you think, when you think about so, it
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  Speaker 9: took me a while to understand this, right, I'm a
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  Speaker 9: simple guy, right, So I always saw the hey, data
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  Speaker 9: centers go up and they run of the EU power.
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  Speaker 9: But there's a lot of fluctuations in the power demands
• 14:44
  Speaker 9: that you have.
• 14:45
  Speaker 8: So we help smooth those out and.
• 14:46
  Speaker 9: We make it more efficient and give them, give them
• 14:48
  Speaker 9: lower cost energy to run their operation.
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  Speaker 6: Which which is sort of the whole deal with intermitt
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  Speaker 6: and power. You need the batteries that go with it.
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  Speaker 5: You can have intermittent power, but you need the batteries
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  Speaker 5: or a variety. Right, Okay, So talk to me about
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  Speaker 5: then your costs. How are they looking? Are they coming down?
• 15:02
  Speaker 5: When you sign contracts with customers? What does that look like?
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  Speaker 5: How hard is it to get to agreements?
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  Speaker 8: Yeah?
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  Speaker 9: So on the on the product cost side, you know,
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  Speaker 9: we designed when we designed this battery as a small startup,
• 15:14
  Speaker 9: we only used materials that are used somewhere else.
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  Speaker 8: So we basically drafted.
• 15:19
  Speaker 9: Off of other supply chains and said there's another supply chain,
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  Speaker 9: use that material, don't put anything custom in the battery.
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  Speaker 8: Because it is a small company, we can't afford it.
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  Speaker 9: So that allows you as you scale, the cost comes down,
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  Speaker 9: Like we've taken our cost down from launch of our
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  Speaker 9: new product. The cost is down over seventy five percent
• 15:34
  Speaker 9: since we launched the product. When you think about on
• 15:37
  Speaker 9: the flipping that over to like the seal side in
• 15:40
  Speaker 9: the industry, you know, like like the miracle of flipping
• 15:42
  Speaker 9: your light switch, there's a lot of technology and a
• 15:44
  Speaker 9: lot of safety that goes into that. Customers want to
• 15:46
  Speaker 9: make sure that the product works. We've gone through the
• 15:48
  Speaker 9: process of qualifying that technology, improving that it works, and
• 15:52
  Speaker 9: showing people where it is. So like what we're doing
• 15:54
  Speaker 9: is we go out, we sell the product, show the
• 15:57
  Speaker 9: use case, and when they see the use case.
• 15:59
  Speaker 8: In the return, they wind up purchasing.
• 16:00
  Speaker 9: Right now, our backlog in order stands above six hundred
• 16:03
  Speaker 9: and fifty million dollars in backlog with an opportunity pipeline,
• 16:06
  Speaker 9: that's over fifteen billion.
• 16:08
  Speaker 8: Wow.
• 16:08
  Speaker 3: How are you capitalizing the company this growth?
• 16:11
  Speaker 9: So we're publicly traded. We we got an investment last
• 16:15
  Speaker 9: year from Service Capital, very very good strategic strategic partner
• 16:21
  Speaker 9: that's helping us grow.
• 16:22
  Speaker 8: We have a loan from the Loan Program's.
• 16:24
  Speaker 9: Office and the DOE which will help us expand the
• 16:26
  Speaker 9: manufacturing in the United States. And then we're starting to
• 16:29
  Speaker 9: get the company as we scale. And getting back to
• 16:31
  Speaker 9: Alex's question on the cost is that you know we're
• 16:33
  Speaker 9: going to we're targeting to fund ourselves from operations as
• 16:36
  Speaker 9: we get into into twenty twenty six.
• 16:39
  Speaker 5: So you've also had a Department of loan three hundred
• 16:42
  Speaker 5: and three point five million dollars to fund some new
• 16:44
  Speaker 5: production lines, new.
• 16:45
  Speaker 6: Administration, different world. Is that loan still intact?
• 16:49
  Speaker 8: It is? And look, I think, like anybody.
• 16:52
  Speaker 6: Do confidence that will stay intact?
• 16:54
  Speaker 8: I do?
• 16:54
  Speaker 9: I Well, Look, I think when you look at the company,
• 16:58
  Speaker 9: this company at fifty employees in twenty eighteen, we have
• 17:01
  Speaker 9: over six hundred. Now we created four hundred manufacturing jobs
• 17:05
  Speaker 9: in an area that lost a lot of manufacturing jobs.
• 17:08
  Speaker 8: It's right down the fairway. What we want to do
• 17:10
  Speaker 8: as a country.
• 17:11
  Speaker 2: Is, so how do you guys, what's the future of
• 17:14
  Speaker 2: the company just just grow internally.
• 17:16
  Speaker 3: Is that kind of the play?
• 17:18
  Speaker 8: Yeah? Maybe.
• 17:18
  Speaker 9: Look, I think there's a lot of opportunities, opportunities to
• 17:22
  Speaker 9: think a little bit bigger.
• 17:23
  Speaker 8: The way we thought about the strategy.
• 17:24
  Speaker 9: The company is a differentiated battery technology packaged really well
• 17:28
  Speaker 9: with software around it to optimize operations when you think
• 17:31
  Speaker 9: about what customers buy. There are other opportunities there, but
• 17:34
  Speaker 9: right now we're focused on get factory one at scale,
• 17:37
  Speaker 9: get factory two launch, and then look from there.
• 17:39
  Speaker 2: All right, great stuff, great story, Joe, appreciate you. It's
• 17:41
  Speaker 2: taking a few minutes coming to the studio. Joe Masta Angelo,
• 17:44
  Speaker 2: he's the CEO of EOS Energy Enterprises, joining us here
• 17:47
  Speaker 2: in our Bloomberg and Directive Broker studio talking about the
• 17:50
  Speaker 2: smart battery stuff. It's chemistry. I did take chemistry, but not.
• 17:54
  Speaker 3: Really that good at it. So that's why.
• 17:56
  Speaker 6: Which is girt Because you like numbers, well, like.
• 17:59
  Speaker 3: Wall Street numbers. Ok yeah, like big round numbers. You'll
• 18:01
  Speaker 3: be a bonus of X.
• 18:03
  Speaker 6: Okay, so that number.
• 18:04
  Speaker 3: See I'm charging you for this option. That is why
• 18:08
  Speaker 3: you get paid that.
• 18:10
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us Live
• 18:14
  Speaker 1: weekdays at ten am Eastern on Applecarclay, and Android Auto
• 18:17
  Speaker 1: with the Bloomberg Business App. Listen on demand wherever you
• 18:21
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 18:24
  Speaker 2: Remember before all this towers tariff in discussion over the
• 18:27
  Speaker 2: last several months, we were talking about something called AI
• 18:30
  Speaker 2: that was kind of a big topic for the market.
• 18:32
  Speaker 2: So we had this Deep Seek come out of China
• 18:35
  Speaker 2: and really throw a wrench into the narrative, which is
• 18:38
  Speaker 2: more tech growth, more growth overall, were riding this thing
• 18:41
  Speaker 2: to the moon than the Deep Seat came out.
• 18:44
  Speaker 3: Let's rethink this.
• 18:45
  Speaker 8: A little bit.
• 18:46
  Speaker 3: Let's go revisit that story. We can do that.
• 18:48
  Speaker 2: Austin Krb, Bloomberg Technology Reporter. Now he's got the big
• 18:51
  Speaker 2: take story here. It's in Bloomberg BusinessWeek. Deep sakes tech
• 18:55
  Speaker 2: madman is threatening us dominance over AI.
• 18:58
  Speaker 3: That got my attention. I clicked on it.
• 19:00
  Speaker 2: Austin, talk to us about your column here in Bloomberg BusinessWeek.
• 19:04
  Speaker 3: Talk to us about Deep Seek.
• 19:06
  Speaker 2: What do we know about them and the individual behind them?
• 19:11
  Speaker 10: So Deep Seek, as you'll recall, gained a lot of
• 19:14
  Speaker 10: attention a few months ago when it released its new
• 19:16
  Speaker 10: R one reasoning model as well as another one called
• 19:19
  Speaker 10: V three, And the big deal about this was they
• 19:21
  Speaker 10: sort of claimed to have trained it without access to
• 19:24
  Speaker 10: a lot of the most cutting edge Nvidia chips, and
• 19:27
  Speaker 10: they also trained their models for a lot less, at
• 19:30
  Speaker 10: least on the surface than a lot of the model's
• 19:33
  Speaker 10: equivalent models here have been trained in the US, and
• 19:36
  Speaker 10: that raised a lot of questions about some of the
• 19:39
  Speaker 10: fundamental notions about how many chips are needed to train
• 19:42
  Speaker 10: these big AI models and how much it's going to
• 19:45
  Speaker 10: cost to develop them. The reason it was also a
• 19:49
  Speaker 10: big deal was just because the startup was sort of
• 19:51
  Speaker 10: very mysterious. There had not been much written about them
• 19:54
  Speaker 10: before sort of January twenty twenty five, and we spent
• 19:58
  Speaker 10: a lot of time the last couple of months talking
• 20:00
  Speaker 10: to about a dozen former employees that worked for this company,
• 20:03
  Speaker 10: it's founder Leong Win Feg, as well as forty sources
• 20:07
  Speaker 10: close to the Chinese AI scene, to really just give
• 20:10
  Speaker 10: you a sense of how their sort of market is
• 20:12
  Speaker 10: developing very differently than what's happening in the US, which
• 20:16
  Speaker 10: is they're doing a lot more with less and sort
• 20:18
  Speaker 10: of just trying to innovate despite the constraints that the
• 20:21
  Speaker 10: US has placed on it with all its export controls.
• 20:25
  Speaker 6: How did he do it?
• 20:26
  Speaker 5: How is he able to undercut the price in such
• 20:29
  Speaker 5: a tremendous way.
• 20:31
  Speaker 10: Well, I think that's one of the big topics that
• 20:34
  Speaker 10: we explore in the story. We trace it actually back
• 20:36
  Speaker 10: to the history. Leong Win Fang had started a quant
• 20:39
  Speaker 10: fund back in about fifteen twenty sixteen, and you actually
• 20:43
  Speaker 10: see a lot of those sort of quant sensibilities looking
• 20:46
  Speaker 10: for efficiencies in the market, which they later applied to
• 20:50
  Speaker 10: their AI models. It was sort of a sort of
• 20:53
  Speaker 10: spin off of what they were doing with that quant
• 20:55
  Speaker 10: fund that became Deep Seek. One of the big things
• 20:57
  Speaker 10: they did was called mixture of experts, basically a lot
• 21:01
  Speaker 10: of the sort of when you used CHATCHVT back in
• 21:03
  Speaker 10: the day, you asked it a question, it activated the
• 21:05
  Speaker 10: entire model. So think of that like your entire brain
• 21:08
  Speaker 10: is activated just for the question two plus two. What
• 21:11
  Speaker 10: Deep Seat did that was a little bit different was
• 21:13
  Speaker 10: chop it up into what are called experts. So every
• 21:16
  Speaker 10: time you ask a question, it actually routes that to
• 21:18
  Speaker 10: the particular part of the brain that is expert in math,
• 21:21
  Speaker 10: or expert in physics, or expert in cooking, what have you.
• 21:24
  Speaker 10: So it's a lot more efficient approach. But the downside
• 21:26
  Speaker 10: is it risks hallucinating more or perhaps sending the question
• 21:29
  Speaker 10: to the wrong part of the brain. But that's one
• 21:31
  Speaker 10: of the techniques that they use to really bring this
• 21:33
  Speaker 10: model to life for a lot cheaper and according to
• 21:36
  Speaker 10: the Deep Seek, with a lot less or a lot
• 21:38
  Speaker 10: fewer of in vidio chips than to them a lot
• 21:41
  Speaker 10: of the Western players like open Ai have access to.
• 21:45
  Speaker 2: I guess one of the things that surprised people, maybe
• 21:47
  Speaker 2: scared some people, is how deep Seat was able to
• 21:50
  Speaker 2: make so much progress when supposedly all these Western sanctions
• 21:55
  Speaker 2: on technology going to China didn't really seem to slow
• 21:57
  Speaker 2: it down at all.
• 21:58
  Speaker 10: What's the status saying, I think that's that's one of
• 22:00
  Speaker 10: the big ironies actually, if incidentally, I had interviewed Jensen
• 22:04
  Speaker 10: Huang from the CEO of Nvidia in May twenty twenty three,
• 22:07
  Speaker 10: and that was the very month, coincidentally that you know,
• 22:11
  Speaker 10: on the other side of the world, China was, you know,
• 22:13
  Speaker 10: getting started with deep Seek, and Jensen told me at
• 22:16
  Speaker 10: the time, you know, one of his big concerns about
• 22:18
  Speaker 10: export controls is it's actually just going to incentivive Chinese
• 22:22
  Speaker 10: chip makers to work a lot harder to develop chips
• 22:24
  Speaker 10: that can compete within videas. But the other near term
• 22:27
  Speaker 10: threat is actually software makers sort of their constraints from
• 22:31
  Speaker 10: the sources that we've talked too close to Deep Seek
• 22:33
  Speaker 10: are actually what really drove this company to develop workarounds
• 22:37
  Speaker 10: do a lot more with less, and that's become a
• 22:39
  Speaker 10: sort of founding DNA of a lot of the Chinese
• 22:41
  Speaker 10: startups that we've talked to, a lot of these what
• 22:43
  Speaker 10: are called AI dragons across Beijing and Hangzhou that are
• 22:46
  Speaker 10: doing a lot more with a less access to compute.
• 22:50
  Speaker 10: And I think that that's you know, I think the
• 22:52
  Speaker 10: other sort of component of that is they almost have
• 22:54
  Speaker 10: this national pride that we've heard resonate throughout our interviews
• 22:58
  Speaker 10: that really doesn't exist in the US in quite the
• 23:00
  Speaker 10: same way. No one's you know, quite as excited or
• 23:04
  Speaker 10: you know, we don't think of Sam Altman necessarily as
• 23:06
  Speaker 10: a celebrity as the same way as in China. People
• 23:10
  Speaker 10: descend on that campus, the Deep Seek office just to
• 23:13
  Speaker 10: see pictures of him. It seems like a national hero
• 23:15
  Speaker 10: they are, just because he's over able to overcome these constraints,
• 23:19
  Speaker 10: And I think that's a really interesting component of the
• 23:21
  Speaker 10: AI scene in China, which we don't have puite in
• 23:23
  Speaker 10: the US.
• 23:24
  Speaker 5: So about forty five seconds here, what's to prevent the
• 23:27
  Speaker 5: AI companies here in the US doing the same thing
• 23:29
  Speaker 5: that deep Seek does.
• 23:32
  Speaker 10: There's really not I mean, that's one of the things
• 23:34
  Speaker 10: that you know, they did make their models open source
• 23:37
  Speaker 10: for so the most part they did, you know, unveil
• 23:40
  Speaker 10: some of their secret sauce, but they didn't quite explain
• 23:42
  Speaker 10: all the techniques and how they did them under the hood.
• 23:45
  Speaker 10: But that said, yes, I mean that was part of
• 23:47
  Speaker 10: the really compelling things. By making this model open source,
• 23:50
  Speaker 10: they really have this ethos. One of the first quotes
• 23:52
  Speaker 10: they put with their first public announcement was takis cheap,
• 23:56
  Speaker 10: show me the code. And so they have this really aggressive,
• 23:59
  Speaker 10: let me prove it to you attitude that I think
• 24:01
  Speaker 10: in the in the US space, with these proprietary models,
• 24:04
  Speaker 10: they're not willing to do. And I think the difference
• 24:07
  Speaker 10: here is that Deep Seek having an open source approach
• 24:09
  Speaker 10: is really putting the pressure on Google and OpenEye to
• 24:13
  Speaker 10: do something similar or at least undercut the costs of
• 24:17
  Speaker 10: their models, and you can get the same completing power
• 24:19
  Speaker 10: for thirty six dollars through deep Seek, as it would
• 24:22
  Speaker 10: cost one thousand dollars in open AI.
• 24:24
  Speaker 3: All right, Austin, thank you so much.
• 24:25
  Speaker 2: Fascinating story, Austin Car Technology Reporter four Bloomberg, Bloomberg News,
• 24:30
  Speaker 2: and you can read all that story on the Bloomberg
• 24:32
  Speaker 2: termin on Bloomberg dot com slash Big Take.
• 24:34
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify,
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