AI Selloff, Apple vs. OpenAI & the Future of Defense Tech

**SPEAKER_2** (0:02)
Bloomberg Audio Studios, podcasts, radio, news. Bloomberg Tech is live from the heart of Silicon Valley with Ed Ludlow in San Francisco.

**Ed Ludlow** (0:22)
This is Bloomberg Tech coming up, an AI-fueled stock route in South Korea spills over into the US market Monday, sending SK Hynix ADRs falling just their second US trading day. Plus, Apple and OpenAI's AI rivalry enters the courtroom, with Apple filing a sweeping trade secrets lawsuit against the chat GBT maker. And we're joined by FCC Chairman, Brendan Carr, to talk regulating space and Palantir co-founder and 8VC managing partner, Joe Lonsdale, on AI to defense tech.
Wall Street's been rattled by a sell-off in chip makers that once again originates from the trading session in South Korea. Samsung, the Cosby, SK Hynix. Overnight, the Cosby tumbles. SK Hynix suffers its biggest one-day drop on record. Samsung also sinking sharply. That weakness is spilling into the US session with SK Hynix's newly listed ADRs, but also more broadly looking at the SOX, AI chip stocks under pressure. So just the trading, second trading session after SK Hynix's record breaking US debut, investors again questioning whether the AI rally has simply run too far, too fast. Bloomberg's AI infrastructure reporter, Dina Bass is with us. And Dina, the last thing that you and I wrote about heading into the weekend, the question fundamentally is, has AI changed the memory business, right? Is it no longer cyclical? Today's sell-off, maybe some of those questions are being raised. Go back to that story. What was the net conclusion that we as a team had from SK Hynix selling ADRs?
Sure.

**Dina Bass** (1:54)
I think the net conclusion that we have is that certainly the memory companies like SK Hynix, like Micron, are trying to leverage the interest in AI to make their market less cyclical, which is to say there's been such a shortage of memory chips that the customers that need them, need them desperately. So they've been coming to these companies and asking for multi-year deals, which is a new thing in that business at least.
SK Group Chairman and SK Hynix's CEO were telling us, look, this is now less, not really a cyclical business when somebody comes to you and signs a bunch of your customers signed deals that go over many, many, many years and we don't expect supply to catch up with demand anytime soon. Certainly, those companies are trying to figure out ways to make this less cyclical.

**Ed Ludlow** (2:41)
The ADRs are down 6 percent, but not as severe as the record drop that we saw in Korea. I think it'd be really helpful just to set the scene and explain the field. There are just three names really in memory.
The situation right now is that demand far outpaces their ability to supply. In any market, that's a pretty healthy position to be in.

**Dina Bass** (3:02)
Sure. What's happened here is that SK Hynix pioneered using a type of memory called HBM for the critical AI chips that are sold by NVIDIA, the GPU chips, and there are not enough of those. Everyone is seeking more and more of those, and so it's made these three memory vendors who all make HBM much more central to the AI market. At the same time, while NVIDIA dramatically dominates the AI chip space, we are seeing some smaller new competitors as well as larger competitors like Google, and different types of chips are, in some cases, using other kinds of memory. The other question, I think, more long term is, if the HBM chips are such a bottleneck that they're holding everything up, do we see any sort of innovation, any way that companies develop to either have to use less of it or to use something different? Because at a certain point, being able to use something other than the thing you can't get enough of could become a huge benefit value add lead in a way to lead the market. If you're a company, they can figure that out. That over the long term also becomes the pressure.
If the supply is so short for so long and these companies, even with building out manufacturing facilities, can't keep up, there's a strong incentive to figure out a way to do it differently or use less of it. Whether that's possible, we'll see.

**Ed Ludlow** (4:30)
Bloomberg's Dina Bass, who leads our coverage of AI infrastructure. Thank you very much. Let's take a look at today's big number, $4.4 trillion. That's the combined value of TSMC, Samsung and SK Hynix. Three tech socks driving outsize returns in emerging markets. Now here's the story. Here's kind of what happened overnight. Investors are looking to rotate out of that. Those three names kind of have the equivalent weighting in the emerging markets indices, as the Mag 7 does in the S&P 500, and lots of evidence that big funds now are looking away in other areas of the emerging market economy, energy, gaming, and those three names maybe having some of the shine wear off. Our next guest believes a correction in chip stocks is already underway, and tech investors should brace for a deeper drop. Swiss Quote Senior Market Analyst, EPEC, Oscar Deschire, joins us for more.