Tech Scrambles to Adjust Supply Chains, Tariffs Could Backfire on Trump’s AI Goals
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From the heart of where innovation, money, and power collide in Silicon Valley and beyond, this is Bloomberg Technology with Caroline Hyde and Ed Ludlow. ♪♪

Live from New York and San Francisco, this is Bloomberg Technology. Tariff anxieties are not going away with President Trump's global levies going into effect today, including those eye-watering 104% tariffs on China. This is both China and the EU fight back

with counter tariffs on US products. We cling to gains, but we fade this rally hard quickly. We're only up about a tenth of a percent on the Nasdaq 100 after we managed to sell off yesterday as well. And it feels as though the magnificent seven been trying to claw on it, but no longer. What do you got on the micro?

I want to go to a story that Bloomberg Spencer Soper broke in the last 30 minutes. That is, Amazon has started canceling orders of inventory on specific products made in China. I'm talking consumer electronics, household goods. It didn't do much to change the fortune of the stock. It's higher, as many Mag7 names are. But that is an interesting real-time, real-term story about the impact of tariffs that are now implemented, right? Elsewhere, there's buoyancy.

in some of the Mag7 names, Apple in particular, for now.

Emphasize the four now. Why? Because at one point in yesterday's session, Apple was hired by a similar level, closed down more than double that, 5%. There is a function on the Bloomberg terminal, ECTR. It's our trade flow map. The data is backward looking. We care about the relationship between US and China. There is a trade deficit. The US has a trade deficit with US and China. Later in the program, when it comes to tech, it is so important to discuss that number. $260 billion in 2023. We know from prelim data, it went up.

up in 2024. And we are talking about a U.S. reliance on Chinese computers, consumer electronics, hair dryers, electric heated blankets. And that ties into that Amazon story that Spencer Soper broke. And Amazon just turned negative as you were talking about it, Ed. Let's just get the perspective of this global trade war heating up. China, the EU both retaliating against U.S. tariffs. This is President Trump aims to bring back manufacturing in America, setting all his eyes on Apple.

jobs and advanced technologies. The president is looking at all of those. He wants them to come back home. But iPhones specifically, is that something that he thinks is the kind of technology that can move to the U.S.? Absolutely. He believes we have the labor, we have the workforce, we have the resources to do it. And as you know, Apple has invested $500 billion here in the United States. So if Apple didn't think the United States could do it, they probably wouldn't have put up that big chunk of change.

Well, as we await for more U.S.-made products, Amazon, meanwhile, canceling orders on some China-made goods, according to sources. And as Kayleigh Lyons joins us from Washington, and at the moment, the responses are coming thick and fast, EU and China. What does the White House make of it?

Well, the White House is sticking to its guns here, Caroline. President Trump, while he has indicated he wants to make a deal with China, wants China to come to him. And at this point, it doesn't look like China is willing to have those conversations as they have retaliated with this 84% tariff against all U.S. imports in exchange for the 104% levies the U.S. implemented yesterday.

as of 12.01 a.m. this morning. So obviously an escalation in the trade war between the two largest economies and potentially has the ability to choke off the vast majority of trade that happens between the U.S. and China. Already we're seeing obviously reporting on Amazon cutting off orders of things like air conditioning units or beach chairs. That is changing company behavior in terms of where they want to source their inventory from. But it also has the potential ramification to affect

whether or not Americans can access supply of things that don't easily have alternative suppliers to China at the moment. According to data from the U.S. Trade Commission, things like laptop computers, for example, PC monitors, gaming consoles, all of that

has about a 70% or more share of imports that come from China specifically. So that is where you could start to see some gaps emerging as this, depending on how long this continues. But the administration argues all of this has an aim, and that aim is to bring back

American manufacturing, as we just heard from the White House press secretary, Caroline Leavitt, but we've heard from others and the administration as well. If you recall, just this past weekend on Sunday morning television, the Commerce Secretary, Howard Lutnick, talked about the army of millions and millions of people screwing in tiny little screws into iPhones. He says that's the kind of thing they're bringing back to America.

That aim is so interesting because for the last 24 hours I listened to everybody on Bloomberg television, read every story, and I think the market still thinks, what is the aim here? Is it revenue generation for our country, bring manufacturing back? I unusually would like to go to the politics. I think I'm right in saying that away from tariffs, President Trump has not yet spoken to President Xi at any point since he took office. Am I right?

He has spoken to President Xi and he actually invited him to his inauguration, but there hasn't been a conversation really since this escalation of the trade war. The initial tariffs that went into place regarding fentanyl, which first, of course, was 10 percent and 20 percent, then the 84 percent uptick.

on top that has gone into effect as of midnight tonight. But there have not been direct high-level talks between those two leaders, though there has been communication at some lower rungs of the Chinese and US government when it comes to trade. I guess we'll see if that phone call is scheduled because again, the president and others in the administration and White House have made clear he is looking to make a deal with China here. And we understand based off of

and as well as what the White House is saying, that there's some 70 countries that have called into the White House to try to begin negotiations. It's just not clear at this time that China is one of them. In the meantime, the administration is arguing that China fundamentally has been messing with the U.S. on trade. It has been engaging in unfair...

trade practices for years and that is what they are trying to reverse which is one of the reasons they used to justify tariffs that it's not just about bringing back American manufacturing they also think it's about lowering trade deficits with the US making trade fair across the globe in addition to the revenue a raising aspect they also argue would be a benefit at this the thing is if you have tariffs at this level like a hundred four percent that is likely to reduce import volumes according to most economists you would speak with and that means less

imports that you actually can tariff, which actually could mean that you're not bringing in the kind of revenue levels you would think that you will. Bloomberg Economics estimates that if tariffs are intact as it stands now, they could bring in about $300 billion a year because of the reduction in imports. That's half of what the White House has argued could generate.

Bloomberg's Kayleigh Lyons. We appreciate it. Thank you very much. Let's get more on the global tech markets perspective amid what is an active trade war. Seema Shah, Principal Asset Management, Chief Global Strategist, joins us now. When you think about the Mag7, let's say Apple in particular is an example, right? Are you preparing for that scenario Kayleigh outlined, which is the onshoring of jobs in this country? Or is this more about pricing in, modeling a fundamental change in how the world does trade effectively?

I think everything is on the table at the moment. I mean, one of the things that Kelly was talking about with regards to having a lot of those other jobs that go into making the parts starting to move to the U.S., I mean, one of the clear impacts of that is the U.S. has got much, much higher wage rates.

wages than parts of Asia. So you would be looking at significant increase in cost pressures for these companies, for the Mag7, impact on their margins and therefore on their earnings growth potential. So there are so many offsets of this that it makes it quite difficult to even fathom that you could see this complete alteration and change in the way that I think the world has got accustomed to thinking about trade and products.

But this is all-encompassing. Of course, it's not just technology. This is about every single product that you think through. Because of global trade, every single part will have elements of different countries about them. And shifting it back to the U.S. is simply very inflationary.

I want to show the earnings calendar for the MAG7 and those names that have asterisks next to them are still tentative, right? They haven't confirmed the date. But there is a split in the market I see this morning. Many believe that we won't see a bottom in equity markets until we have earnings calls and a revision to guidance that's been given or a complete removal of guidance. Others say that earnings and guidance is not important. All we need is a strong, positive piece of political news. Where do you stand, Seema?

I think we need one or the other. Either one would be important. I think probably the most important would be if the administration walks back from tariffs very significantly. Then you would see the market sentiment improving and I think you'd see markets start to rally. Probably not a very, very sharp rally because I think some fundamental damage has been done here, but certainly a rally. In terms of earnings guidance, I think one of the things that we're waiting to see is that if recession really is on the cards,

we need to see a more realistic earnings outlook for companies across all sectors including technology. And it's only once you have that realistic forecast, when you have got that forward guidance, talking through what the impact of tariffs in this new global environment is, only then can you start to think about where the floor is and then once you know where the floor is, then you can start thinking forward. Why then are people buying if we're not sure where the floor is at the moment, Seema? Why is Apple in the green, for example?

Well, I think one of the things that we've been seeing for MAC7 has been really interesting for us is, I mean, from an asset allocation portfolio perspective, we have been trying to move away from the tactical. It's very difficult to be tactical when there's such an uncertain environment. So you almost go back to your strategic positioning. From a strategic perspective, we still like big tech if you're looking at over five, 10-year horizon. Certainly, the outlook has deteriorated even on a long-term horizon, but it's still

fairly important from a global or a U.S. growth perspective. The other part of this is, is that typically in this kind of environment, when there is uncertainty, when there are fears about what's going to happen to economic growth, you want companies which have got the big balance sheets, the positive cash flow,

the fairly large moats around them. And the Mag 7 does still come into play. And you've already seen a very significant valuation re-rating in the past couple of months, which means that at least the Mag 7, the big tech companies, are a little bit ahead of the game in terms of having a slightly more realistic picture attached to them. It has to be said, Apple having its worst four-day sell-off since the year 2000. Many saying from an RSI perspective, relative strength index, it was oversold. This must be the point at which you pick up.

some of these shares. But Seema, who are the investor base right now who are willing to buy into big tech? You yourself sat in London. Are international buyers still coming in? Are we seeing it more from long-only funds in the United States, for example?

I think we have seen some retail investors starting to dip their feet in them. They really believe in the brand's perspective. So I think that's where you're seeing a bit of a dip buying. But as I said, you know, I mean, the other thing to consider is that once you do start to see if we see some positive headlines coming through, which can be sustained. Again, these are the companies which have got that long term earnings potential. So I think people have got an eye on on the idea that there could be a walk back at any time may not come, but certainly could happen at any moment.

So, people do still want to have exposure to these companies that can potentially ride out what would most likely be still a challenging economic environment for the coming months.

There's this note from Bank of America out this morning that says a US-built iPhone could cost 90%, 90% more than it currently does. But that is a goal of this administration, right? Bring jobs, manufacturing jobs in tech back to the United States or to the United States for the first time. Is there any upside or sort of silver lining or bright outcome that you see with this tariffs process?

I'm not sure if there's – well, look, I think over a long-term perspective, you know, a four-, five-year period, then maybe, yes, there could be some positive. You would have maybe a U.S. economy which is a bit stronger. You have a manufacturing base which is more formidable. You have less reliance on external partners. So that would be the positive, but it really comes during the long side. It's really in the short term that you start to see this additional pain coming through.

So I think it's challenging to see some really good positive news coming through. I guess the one thing is, though, is that, you know, to that point where an iPhone could be significantly more expensive, that inflation pressure just puts upward pressure on the long end of the yield curve. We're already seeing that playing out in the last couple of days.

From our perspective, that may be the pressure point from the Trump administration. They have repeatedly talked about their focus on treasury yields. So maybe this is what necessarily pushes them back from the edge. And you could see some negotiations coming through in the next couple of days. More of a buyer strike on the bond market at least yields up about nine basis points in the 10-year. Seema Shah, Principal Asset Management. Thanks so much for joining us. Coming up, look, as companies, they race to adjust plans amid the trade tensions.

Neither the US or China appears to be backing down. We'll have more on the impact for the tech sector. This is Bloomberg Technology.

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China's paid almost $700 billion in tariffs under me. And then they say Donald Trump hasn't been tough on China. Meanwhile, Apple's lost about $700 billion worth of its market cap since the tariffs were imposed. Let's get more on what the 104% tariffs on Chinese goods could mean for the tech world.

and of course the 80% counter tariff on U.S. exports to China. Reva Gujran is with us, director for Rhodium Group. Reva, it's really interesting to understand how supply chains are going to be impacted by all of this because we know that in many ways China is the assembly point for Apple. Some of the products in an Apple phone are actually made in Kentucky and shipped to China and then shipped back to us. But ultimately, are we in a game of chicken when it comes to U.S.-China tit-for-tat right now?

Well, yeah, at 104% tariffs, I'd say so. And so, yeah, there are loaded assumptions on both the U.S. and the Chinese sides over this trade war. Each side believes the other is in the weaker economic position, that the other one will fold. And

Beijing at this point is basically saying bring it right there. They're counting on US inventories to get shaved down People checking their their Amazon orders and seeing that they're not coming through going to Walmart seeing their shelves empty out And so at that point, this is obviously going to force a conversation But to what end right? There's not much fodder for a real negotiation here you could have some sort of a reset and

maybe getting back to, let's say, 54% tariffs. But that's not much of a win here, right? After this scale of disruption and already supply chains, as you mentioned, are going to be greatly disrupted. We've heard time and time again that the US thinks China wants to make a deal. Do you think that ultimately it does? That we ever get to a better outcome in this scenario? Because there are companies currently locked, not knowing what to do in this scenario as to whether the tariffs are short-term or long-term.

Look, China would, of course, love a real negotiation with the U.S. that spans into other domains as well to say, for example, OK, if the U.S. wants to reduce its trade deficit with China, then fine, let's talk about large scale purchases. Let's talk about importing more NVIDIA semiconductors, for example, which would in part

then blow apart the export control regime. You can see how Beijing would be angling for that. Now, would that happen? I think that's very low likelihood because remember, we're just talking about a conflict spiral in the trade domain right now. There is a whole other layer here when it comes to the tech controls trajectory, escalation on that front. Also, how China is getting more creative with its own retaliatory toolkit, which is going to put multinationals in China, particularly tech companies, in a very difficult position in the months ahead.

So I want to stay on this point because for the technology industry, tariffs are one tool or policy point. And the export of technology and the controls on those exports, as you point out, were the most significant prior to last week. Do you expect both to increase? In other words, will we see further specific controls by the United States on cutting edge GPUs and other technology?

So attention span is a question, right, for the current U.S. administration. We'll have to see, you know, as BIS under Commerce is starting to ramp up, is it going to have the latitude to patch up export controls? For example, there have been pending controls to expand chip controls to cover, for example, NVIDIA H20 chips in the wake of DeepSeek's big breakthrough. But there's more than that.

There's a bigger conversation around how do you evolve economic security standards that effectively exclude China from AI infrastructure buildouts globally. So there's a lot more that's coming on the tech front. And meanwhile, China's looking at a number of retaliatory tools where it's singling out U.S. big tech companies as well. Reva, how do you interpret China's responses, China's actions in this?

Yeah, so a few things, right? So when you look beyond the tit for tat on the tariffs, right? China's doing some interesting things where, for example, in its implementing provisions for the anti-foreign sanctions law, it's talking about countermeasures that include suspending IP rights for U.S. companies in China. That's explosive, right? If China goes down that path, that's a very slippery slope. That's something that's going to spread alarm, not just to U.S. companies, right, but Japanese, European, everyone, right?

once you start to break apart those norms. Moreover, China has its anti-monopoly arm, SAMR, that has veto power over a number of strategic M&A around the world. There are a lot of strategic deals that are supposed to be struck as a result of these trade wars. At least that's the intent of the administration. We still don't know, for example, what's going to happen with Intel and TSMC, right, as Intel has been struggling. Do you really

think that the U.S. is going to recognize a Chinese veto over a major merger that is based on national security arguments. So we're already veering toward this conflict of law conundrum on that front, as well as on the IP front, which, again, is a very slippery slope for tech companies. We have a Gujan director at Rhodium Group. Really great to have you on the show. Thank you.

President Trump's AI promises, they started strong with the announcement of a $500 billion Stargate infrastructure project back in January, remember?

But his new Liberation Day agenda looks set to undermine those earlier AI ambitions. Bloomberg Opinion columnist Dave Lee writing, the Trump tariff agenda risks a cascading effect that will drag down the America AI effort. The new economic order could force the American AI industry to compete on China's terms rather than harness its own strengths. Dave Lee is with us now. When you say compete on China terms, ultimately it's about

forcing them not to have access to the most sophisticated GPUs and therefore having to do more with less. We become more deep-seek. Absolutely, exactly like deep-seek. I mean, you remember when there was the market sell-off, when deep-seek made its arrival, because everyone thought, wow, China knows how to do this more cheaply and with less computing power and so on.

But the American response and the response that we got from the likes of Satya Nadella at Microsoft was, don't worry because our differentiators, we can do this on a bigger scale with more computing power. We can serve more people. We can do more inferencing, the powering of AI once you've trained it.

Now, if all of that gets more expensive, which these tariffs seem set to do, then all of a sudden that advantage doesn't go away completely, but I think it becomes just harder to deploy and it could take longer to deploy as well. So I've spoken to a number of people who have said maybe if you're a small startup in the space, you might be thinking maybe we try and become more of a deep seek than an open AI, for example.

Well, your core point is that the ability of a Meta or an Amazon or a Microsoft to invest was built on its core businesses. And that is where the uncertainty impact comes, I think at least. Yeah, absolutely. And last earnings season, all of these companies came out and shared their CapEx plans for the year. And they were huge. I think I totted up at one point more than $350 billion that was going to be spent on data centers and getting more energy and so forth.

That money, even if they keep it at those levels, which I think is in question, is not going to go as far because building these data centers just got considerably more expensive, even though the sort of core component, the semiconductor right now, isn't subject to a tariff, although some are speculating that it might be in the not too distant future. So yes, and all of that spending was...

concocted and agreed backed by investors on the basis that companies like Apple have the iPhone and it was a roaring business. Or companies like Meta have this great advertising business that just prints money. That may not be the case anymore. Dave Lee of Bloomberg Opinion. It's a must read today, Liberation Day. Thank you very much.

This is like uncharted territory we are talking about here. It's really tough to be a technology hardware company right now. I think the most significant area that is affected is the Asian nations that have deeply embedded supply chains. Obviously, Apple is more of a focus because of the tariffs and what they manufacture in China.

The rest of the Mag 7, more the communication names, they're in a little bit better space, but it's not as if anyone's in great space. From a valuation perspective, I think the good news is we don't have a valuation problem in tech. Magnificent 7 has something like 55% of profits coming from overseas. So while they have a lot of secular AI-driven growth, they also tend to have a lot of international-driven growth. So we don't really see Mag 7 coming back to the fore.

if these tariffs stick. Big tech has massive free cash flow generation, even if we kind of discount some of the tariff issues at hand right now.

that's what some of bloomberg television's recent guests had to say about the impact of tariffs on the tech sector and this is what markets look like right now way off session highs on the nasdaq 100 you know i go to the nasdaq 100 because concentration of tech but the nasdaq golden dragon china index really interested u.s listed adrs of many chinese technology companies had been higher two and a half percent now lower in the session we're trying to digest china's retaliative measures single names

This is what we're looking like in the green. Apple continues to push higher, and Caroline made a really important point earlier. Prior to this session, four straight days of declines where Apple experienced its biggest drop since the year 2000. That's important. We should keep saying that.

We should. But also what's interesting, Ed, another data point that you and I saw today, the PC shipment data. It actually grew. Fastest quarterly pace in four years. That's as companies stocked up inventory ahead of tariffs. Look, desktops, workstations, portable computers, they rose more than 9%, according to market tracker Canalys.

For more on how these tariffs are impacting tech supply chains, we've got the perfect guest, David Warwick, Executive Vice President over at Overhaul, a supply chain visibility and risk management company. You worked for Microsoft for years overseeing their global supply chain. How long have they bought in terms of inventory? Because they seem to see the risk while investors didn't.

I mean, I think everybody has known this is coming at some level. And so what they've been trying to do is they've been trying to prepare as best they can. And, you know, even this week, you know, in the last seven or 10 days, what we've seen is an increase in freight rates for air cargo coming out of China, which means that, you know, supply is drying up a little bit and people are still trying to move as much product as they can before they were impacted by tariffs.

So I think that companies have tried to be smart. They've tried to position themselves as best they can. But I'm not sure that anybody actually saw the sheer extent of these tariffs and what it would mean.

You are currently still advising the Microsofts, the Dysons. I go to the data that shows that China is basically 90% of all consoles coming from China to the United States. And I'm interested as to what on earth Xbox executives do at this moment. Are they thinking, okay, longer term, we shift our supply chain even further away from China, or do they just ride this out in the short term?

I think that it's a very challenging situation to be in. I think that the advice that I'm giving a lot of companies right now is basically to hurry up and wait. Making a strategic decision today could fall apart very quickly within the next week.

As we've kind of seen over the last month, Caroline, you know, we saw the Mexico-Canada dispute. We saw a lot of things happening there very quickly. If you'd made a strategic decision to move everything overnight, you could have been caught on the wrong side of that. So right now, I think that, you know, it's not just consoles. It's not just PCs. It's across the board. And I think that companies have to be really careful.

really thoughtful in terms of their immediate next steps versus their longer term strategies. If the tariffs stick and if we have to ride out this entire storm, it's a different set of decisions that you would make if you knew that this was going to happen for maybe three months and then start to taper off. So it's a very challenging time for supply chains and trying to figure out the short term versus the medium term versus the long term.

David, explain to our audience how an iPhone would be built or assembled in the United States and what the price impact would be based on your experience.

That's a challenging question, Ed. I'm not sure that I understand the full extent of the Apple supply chain. But look, you've got to understand that this is not about just moving a manufacturing plant. This is an ecosystem. The tier two suppliers, the tier three suppliers have all built up over time around those specific factories in China or in Vietnam or in India.

And it takes time to develop that ecosystem. So what would it take? Well, you have to build a factory. Then you have to develop that ecosystem to be able to supply that factory. You have to source your raw materials. You have to source your semi-finished goods, your sub-assemblies, and bring all of those in. So this isn't just flicking a switch and you build a new factory and everything starts up again. It takes time to build that ecosystem and to make sure that your supply chain remains intact from a quality perspective and everything else.

That was a pretty good answer, David, to be fair. I think that sums it up well. And I know Tesla in its local supply chain in Shanghai has a similar situation. What happens in four years' time if there's a completely different administration in the White House and all of the tariffs get undone and the executives at the companies you advise decided to do something extreme in adjusting their supply chain here and now?

I think in the first case, I'll be a little bit bored. If it all reverses, then I'm not sure what I'll be doing every day. But I think that...

This short-term versus medium-term versus long-term, I think that that is where we're caught in a trap right now, whereby it's very difficult to make that long-term decision because, to your point, a new administration could decide to go in a very different direction from a trade perspective. And so supply chains have to be cautious. Now, we were taught some lessons over the last five years through COVID. We realized that our supply chains were ultimately fragile.

And we had to find a better way to build some resilience into those supply chains. So we diversified a little bit. We started to move manufacturing to other countries. We started to do very sensible things. Did we do that to the level that we should have done it? Maybe not. Maybe there was more room to actually move things about. But I think supply chains now, you know, we are problem solvers. Supply chain practitioners are designed to solve problems.

This is another major problem. Call it a gray swan or a black swan. It's another major problem that we have to deal with. It will force a change in terms of how supply chains think, how supply chains are engineered over the coming years.

And ultimately, you might have tried to front run by moving out of China, as many have, taking Apple more into India and Vietnam. And ultimately, they've been tariffed too. I mean, of course, to a less extent when it comes to India. But longer term then, are we seeing companies willing to hit

the margin. When you've got a record gross margin of 46.9% for Apple recently, in the short term, they swallow it, David. Is that what Dyson's and Microsoft's do? They take the hit until they get long-term clarity.

I think in the short term, any supply chain will look at what can be done. So if you've already diversified to some level and you've moved production to more friendly or tariff countries, you would look now to say, is there any excess capacity available? Can I move?

maybe from China to the Philippines or to Malaysia to reduce some of that tariff burden. However, the longer term is going to be, okay, what does a tariff-friendly country actually look like? Have we actually moved the dynamics too far?

And, you know, we're all hoping that this will actually roll over. We are all hoping that the president will do as he says and he is open to negotiation and the countries are coming to the table. We've heard today South Korea, Japan are already coming to the table. From a supply chain perspective, we're hoping that common sense will prevail and there will be a more balanced trading agreements set of trading agreements.

put in place in the coming weeks and months, which will alleviate some of the current pain. But it still doesn't take away from the longer term strategy now needs to be figured out. And that's what supply chains are going to be working hard to do. David, I'm going to make a really pointed question. Are many of the executives you're talking to taking it seriously that they need to build or assemble in the United States more fully?

A lot of executives are certainly having the discussion. They're looking at the implications of obviously the capital cost and also the timelines involved. You know, setting up a factory in the United States to manufacture in the United States, you don't do that overnight. And then, as I said earlier, it's the ecosystem, which is the really important part. How long will it take to actually, you know,

bring all those things together. I answered a question earlier on this week in a different interview where somebody said, hey, you know, for American-made products, how are those going to be impacted by the new China tariffs? And my question to that question was, well, what do you mean by American-made products? You're talking about chocolate in this instance. You know, where does the cocoa come from to make that chocolate? It in itself is subject to a tariff coming into the U.S. to manufacture in the U.S.,

Supply chains are complicated. Supply chains are very, very complex elements. And so figuring these pieces out is everything that executives are doing right now to understand the impact, but also to understand what can be done next.

Hair dryers, toasters all come from China as well. David Warwick from Overhaul, really great conversation. Thank you for joining us, Caro. Now coming up, we're going to get the VC, the private market perspective. Ben Lehrer is with us. VC firm Lehrer Hippo has actually just closed a mammoth $200 million round for a new fund amid all this uncertainty. How'd they do it? This is Bloomberg Technology.

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VC firm Lera Hippo has just closed a $200 million fund, its ninth early stage one. This is VCs and startups face tariff anxiety, many opting to pause plans for IPOs, but yet the conviction is there from LPs. Let's talk about why. Lera Hippo managing partner Ben Lera joins us now. Ben, how did you get this over the line in this current environment?

Yeah, I think, look, one of the things we're proudest of is that we, over a long period of time, have been really consistent and I think pretty disciplined. We do one thing, we do one thing well, which is true early stage investing. And so while markets rise and fall and lots of things outside of our control happen in the background,

We don't tend to get sucked into sort of hype cycles, and it's sort of been reflected in our returns. And so we're fortunate that LPs continue to support us, but let's say we're happy to have this behind us in the smart good.

Ben, you know, we've discussed for many years how early stage companies and their investors are more like insulated from public markets and macro events until what happened with Silicon Valley Bank and it became about operational cash flow, right? But you're still doing a new fund. There's reports about Andreessen doing a very, very big fund. Just talk to me about that environment more specifically at the early stage.

Yeah, and actually, I think the SDB crisis was, for certain funds, a wake-up call where that was sort of coming out of a hype cycle in 21 where money was flowing very freely, companies were raising lots of money and chasing growth at all costs.

I think even for us at LH, we took a moment to be very introspective and say, are we on a company by company by company basis making sure that folks are being really responsible and not falling prey to lots of late stage money chasing hot companies and driving some not great behaviors? And

Right now, as we sort of enter another moment of crisis, I think that some of the learnings from that last significant blip have set

at least our portfolio up in a way where we feel like we have arms around every company in the portfolio, where companies on a quarter by quarter basis are burning less and less, are just taking more responsibility for building really sustainable long-term businesses and falling a little bit less sort of a victim to getting on the late stage VC, you know, sort of hamster wheel.

What kind of companies? Where are the companies? And how much of an unlock has AI been? Because what hits my inbox all the time right now and is disgusting, the zeitgeist is you don't need to learn how to code anymore. Previously, if you pitched at Y Combinator or something and you didn't code or have anyone on your team that was a computer scientist or engineer, that would be dead for you, that avenue. I think that's changed, right?

Yeah, look, I mean, our goal has always been sort of to find great talent. As true early stage investors, that's the key to every investment that we make. And AI is going to be an unlock in every single industry. And frankly, if you're not leaning in incredibly heavily to AI as an existing business or certainly as a sort of de novo startup, you're missing a huge opportunity to create efficiency and move faster. And the tools that exist now in terms of, you know, helping companies grow

code and build product faster are unbelievable. There are companies in our portfolio that are writing less than 5% of code by hand at this point and are really just prompting and managing third-party AI software who are helping them with much smaller teams create unbelievable leverage in their business. It's really exciting, but it's also terrifying because it's moving so quickly. And, you know, we're kidding ourselves if we know how this all sort of

of where this lands and where the value falls and what is owned by the big large language models and what's gonna be owned by application layer companies. And so, we take solace in the idea that we're gonna back incredible people and they're gonna navigate through this challenging environment and we're gonna be there to help keep them on the rails.

Big personal fan of Bauble Bar. I can imagine that's the sort of company that's having to think about its supply chains right now, Ben. But I go to that company because many associate you with consumer-focused tech. But you are exposed to enterprise. You've got fingers in the fintech space, in DeFi as well. You're across the board. But when you're looking at the consumer opportunity right now, Ben, how unnerving is that? Yeah, so...

I think that, you know, we've been talking to our sort of scaled consumer companies about tariffs and what the implications of this could, would, should be over the last several months. I think the best and most mature businesses have been planning for this and have, you know, and have some mitigations in place. But the reality is that there are companies that this is going to punch directly in the face and it's going to be unpleasant and they're going to need to figure out how to manage through it. I think people are also

It's just so unclear. The floor moves by the hour right now. And so I think people don't want to over-rotate and over-respond and decide that they're absolutely positively pulling out of China on a permanent basis. But

It's something that companies are gonna manage through. People had to manage through COVID and we saw the best founders handle that, not easily, but survive and thrive on the backside of it. And the same is gonna happen here. I really believe that the best founders find a way. - And Ben, you're known for investing right here in New York. Is that still a thesis?

Yeah, I mean, we are huge believers in New York. I grew up in New York. We started the fund here in New York on a sort of high-level bet that New York has always had.

unbelievable talent. But 20 years ago, that talent naturally matriculated first to Wall Street. And over time, that talent now wants to go work in tech. That's the biggest growth area that New York has seen over the last decade in terms of job growth and company growth. We think it's going to continue. And we, again, see that sort of overlap of very early stage in New York as a competitive edge for us in a space where we have real right to win. So we're going to keep doing that.

Ben Lehrer of Lehrer Hippo, it's great to have you back on the program. Appreciate it. Thank you. Caroline, some news in Talking Tech. Yeah, time for Talking Tech. First up, Google, Ed, plans to help developers build AI assistance for a variety of tasks. At its annual cloud computing conference in Las Vegas yesterday, the company said it would release the agent development kit, which can increase dependence on and revenue for its cloud services.

Plus the EU, it's just presented a plan to boost its AI industry and help it compete more aggressively with the US and China. One of the ways Europe plans to bolster regional AI developments is a commitment to build a network of AI factories and create specialized labs to improve the access of startups to high quality training data.

And the Energy and Commerce Committee just approved a bipartisan bill known as Take It Down Act, which aims to curb the spread of unauthorized deepfake pornography. Getting the bill to the president's desk could mark one of the most significant actions by Congress to respond to risks and harms posed by AI Ed.

Another news story we're watching, a Meta whistleblower set to testify before Congress, claiming that the social media giant threatened U.S. national security as it cozied up with China. The former Meta executive alleges that the company briefed members of the CCP on emerging tech, which includes A.I.,

Meta is denying those allegations from all spring and Bloomberg's Riley Griffin here in SF. What do we need to watch for? This is going to happen very soon. Yes, this is coming later today in Washington, D.C. We're seeing Sarah Wynne-Williams, the author of the bestselling memoir now, Careless People, be asked to speak before lawmakers about her, what she witnessed, the dealings between Meta and China back

through her tenure in 2017. The interesting thing about her prepared remarks, which we've gotten our hands on here at Bloomberg, is that she's going to make the case that Meta's discussions with China have actually helped it in its AI ambitions in this global arms race that she's describing around AI.

What's interesting is Meta's response has been clear on all of this, Riley. And for example, they've said that Mark Zuckerberg has been public about the company's past interest in offering services in China and details were widely reported beginning over a decade ago. But the fact is this, says Andy Stone, we do not operate our services in China today. What will Meta's response be, particularly in this global environment of U.S. versus China?

Meta is holding firm that it does not offer services like Facebook, Instagram, and China. Sarah Wynn-Williams, however, will be...

contending that it continues to make a great deal of its revenue out of China. About 18 billion last year in advertising revenue came from China. And so she is making the case that this is a present discussion. While Meta calls this old news, Sarah N. Williams is making this about the here and now and about this arms race and about the money that Meta continues to make. Well, we'll watch for that hearing later today. Riley Griffin, thanks for bringing it to us. Now, let's stick with social media.

Can't Look Away. It is a new film by Bloomberg Originals, which followed a team of lawyers battling tech giants on behalf of families whose children suffered great harm linked to social media. And the film is based on the reporting by our bureau's very own Olivia Carville, who joins us now. The reaction, of course, is to the legal battle that is trying to hold big tech accountable. Is it managing to in the courts right now?

We don't know yet. There are positive signs that some of these cases are breaking through and that we might see at least one lawsuit pierce Section 230 of the Communications Decency Act, which has really been that immunity blanket for big tech over the past two decades, preventing them from being held liable for user harms like what are portrayed in the film.

As it currently stands, it looks like we are going to see one of these cases go to trial later this year. So it's kind of all eyes on the justice system right now. Olivia, please could you explain what the process of making the film was like? And it's a different medium, but I guess the reporting that went into it from you.

Yeah, it's been a two and a half year journey to get here. I first approached Kristen Powers, Bloomberg's deputy head of media, asking if it might be possible to shadow this law firm. And we really dove in without knowing where these cases were going to go or if any of them would eventually reach trial. So it was a leap of faith by Bloomberg and the production team at DCTV, particularly directors Matt O'Neill and Perry Peltz,

Documentary is a completely different medium to print, which is what I'm used to. It's like a jigsaw puzzle trying to pull together all these different scenes and you really need to have visual segues between talking heads on camera. And that's something that, you know, it's been a huge learning process for me trying to understand what it takes to bring a documentary to the screens.

And I also think that there needs to be a broader message in the film. And for us, with Can't Look Away, that is really the fight for corporate accountability. Can't Look Away is about exactly what that title implies, that there's a generation of kids who are glued to their screens and quite literally can't look away, and the lawyers and families fighting to hold those companies accountable for the situation.

Protections continue to come, though. Meta has brought them to Instagram, bringing them also to Facebook, some of their other products. You've had Roblox CEO joining us recently with more parental controls. I'm interested as to the visuals that Mark Zuckerberg himself had to be confronted with, the pictures of the children that have had tragic ends to consumption of social media. They're getting it, do you think, or not?

Well, I think the whole conversation around social media has shifted in recent years. We've seen it move from a question of can these platforms harm mental health? Are they really good for our kids? And it's moved towards this is a full-blown public health crisis for our children. And that's what I'm hearing now from the experts because we've seen books like Jonathan Haidt's Anxious Generation, Sarah Wynne Williams' Careless People, which we're just talking about on this show,

Netflix series like Adolescence really pushing the cultural conversation towards is this a good situation for our children? Is this what we want them to be doing? And let's just think about the facts. 95% of kids use social media. More than a third are showing signs of addiction. And this film was chronicling the very extreme harms that some of those kids have experienced in the digital world.

It's been such a long journey of reporting and now into the big theatres as well. Olivia Carvel, we thank you so much. That does it for this edition of Bloomberg Technology. Let's just check in on these markets for a moment. Ed, we're currently seeing a whipsawing on the day. Magnificent Sevens staying higher to the tune of 1.3%. But who knows how we'll close today. The Nasdaq 100 rebounding from yesterday's sell-off. This is Bloomberg Technology.

Developers like you are building the future, but you need the right tools to move fast and go further, right? That's where Microsoft comes in. With tools like GitHub Copilot, VS Code, and Azure AI Foundry, you have everything you need to push the limits and bring your ideas to life faster. And with security, compliance, and responsible AI built in, you can focus on what matters most, building the next big thing. Learn more at developer.microsoft.com.