Tech Brew Ride Home - Mon. 05/12 – Saudi Arabia Enters The AI Race

Episode Date: May 12, 2025

Looks like China tariffs are back off, question mark? But not soon enough for some deals. OpenAI and Microsoft are trying to work out how to get to an IPO. Saudi Arabia, the country, makes a big AI play. Why you might want to take out AI insurance? And did the Pope choose his name because of the AI moment? Sponsors: Tonal.com MackWeldon.com promocode BRIAN Links: Apple Considers Raising iPhone Prices, Without Blaming Tariffs (WSJ) SoftBank Stargate Venture With OpenAI Snags on Tariff Fears (Bloomberg) OpenAI negotiates with Microsoft to unlock new funding and future IPO (FT) Saudi Arabia launches AI venture Humain ahead of Donald Trump visit (FT) Insurers launch cover for losses caused by AI chatbot errors (FT) Klarna Slows AI-Driven Job Cuts With Call for Real People (Bloomberg) Pope Leo signals he will closely follow Francis and says AI represents challenge for humanity (CNN) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech meme right home for Monday, May 12th, 2025. I'm Brian McCullough today. Looks like China tariffs are back off, question mark, but not soon enough for some deals. Open AI and Microsoft are trying to work out how to get to an IPO. Saudi Arabia, the country, makes a big AI play,

why you might want to take out AI insurance, and did the Pope choose his name because of the AI moment? Here's what you miss today in the world of tech. The U.S. and China have announced a deal to lower tariffs for the next 90 days, a sign of easing tensions in this hottest part of the trade war. The U.S. will cut tariffs on Chinese goods to 30% from 145%, which that's good. It's still 30%. That still cuts into margins and could lead to noticeable price raises. And again, this is still just for 90 days. Do we have to go through all this again in the summer, quoting the FT? China will reduce duties on U.S. imports to 10% from 125% China said it would also suspend or cancel non-tariff measures taken against the U.S.

The agreement marks a step toward reaching a more permanent deal and the first sign of tension easing between the two economic superpowers. Tai Hui, A PAC chief market strategist at JPMorgan Asset Management, said the size of the tariff cut was larger than expected. This reflects both sides recognizing the economic reality that tariffs will hit global growth and negotiation is a better option, they said. The U.S. will cut the additional tariffs imposed on Chinese goods. during Trump's second term to 30% from 145% while Chinese retaliatory duties on U.S. imports imposed since April 2nd will fall to 10% from 125% the two countries announced on Monday. The consultancy capital economics calculated that because of duties that predated Trump's return to power this year, total U.S. tariffs on China will come down to about 40% after the agreement,

while Chinese tariffs on the U.S. would be about 25%, end quote. Well, fair enough, but this news might not be soon enough to stop some concerns. Sources are telling Bloomberg that SoftBank and OpenAI's $100 billion Stargate investment has hit significant snags over tariff fears. Apparently, talks with dozens of lenders starting earlier this year have thus far yielded no deals. Quote, preliminary talks with dozens of lenders and alternative asset managers from Missouho to J.P. Morgan to Apollo Global Management to Brookfield Asset. management kicked off earlier this year. But no deals have ensued as financiers reassess data centers in the wake of growing concerns of economic volatility and cheaper AI services, according to people familiar with the matter who asked not to be named, as the information is not public.

President Donald Trump's aggressive trade policies have thrown a wrench into financial projections for AI, higher capital costs with lenders and debt investors shunning high-risk bets, and fears about how a possible global recession might sap data center demand are bogging down discussions the people said. Complicating matters is the emergence of a flurry of cheaper AI models such as Chinese startup deep seeks and questions over how they might affect long-term profitability of projects linked to open AI. Uncertainty is weighing on talks with tariff discussions on the table for everything from server racks to cooling systems and chips, data center build costs may raise by 5 to 15 percent, with some operators facing even higher prices, according to

TD Cohen analysts led by Michael Elias. Perspective Stargain investors are also holding back as fears of overcapacity spike. Tech providers have been allocating billions of dollars to data centers to power AI, but now Microsoft is pulling back on data center projects around the world, and Amazon is adjusting its data center strategy, analysts said, while Amazon Web Services reported its slowest growth in a year, end quote. Finally, this is sort of related. Apple is apparently considering raising the prices for this Falls iPhone lineup, but they want

you to know. They stress this. won't be about tariffs. Wink, quoting the journal. Company executives are wary of blaming increases on tariffs when a news report in April said Amazon might show the impact of tariffs to its shoppers. The White House called it a hostile act, and Amazon quickly said the idea was never approved and is not going to happen. These circumstances have led Apple to look at what supply chain insiders described as the least bad choice, raising prices on the new iPhones to preserve profit and finding reasons other than tariffs to explain the move. It couldn't be determined what new features Apple may offer to help justify price increases.

Apple traditionally rolls out new models of its iPhones in the fall. If it follows convention, this fall's models will be known as the iPhone 17 lineup. Current iPhone models range from the base model iPhone 16, which starts at $799 to the iPhone 16 Pro Max, which costs $1199 and up. This fall's lineup is expected to include a thinner model that would stand in the place of the current iPhone 16 Plus, which retails for $899 in the U.S., end quote. Sources are telling the F.T. that OpenAI is negotiating with Microsoft to enable a future IPO. Microsoft is offering to cut its equity stake in order to maintain access to OpenAI's tech beyond the year 2030.

Quote, Microsoft, OpenAI's biggest backer, is a key holdout to the $260 billion startup's plans to undergo a corporate restructuring that moves the group further away from its roots as a non-profit with a mission to develop AI to benefit humanity. A critical issue in the deliberations is how much equity in the restructured group Microsoft will receive in exchange for the more than $13 billion it has invested in OpenAI to date. According to multiple people with knowledge of the negotiations, the pair are also revising the terms of a wider contract drafted when Microsoft first invested $1 billion into Open AI in 2019. The contract currently runs to 2030 and covers well. what access Microsoft has to OpenAI's intellectual property such as models and products,

as well as a revenue share from product sales. Three people with direct knowledge of the talk said Microsoft is offering to give up some of its equity stake in OpenAI's new for-profit business in exchange for accessing new technology developed beyond the 2030 cutoff. That deal is critical to Open AIs restructuring efforts and could dictate the future of a company which has been in the vanguard of tech groups building large language models, a transformative technology that is beginning to disrupt global industries. Negotiations between OpenAI and Microsoft are complicated by a cooling between the companies, according to multiple people with direct knowledge of their relationship.

The groups remain close collaborators. Microsoft has embedded OpenAI's technology into its software products while providing it with huge amounts of computing power to train AI models. But OpenAI's ambitions have increased competition with its biggest benefactor. The startup has targeted enterprise customers with AI products while seeking partners such as Japan's Softbank and Larry Ellison's Oracle to build its own vast computing infrastructure dubbed Stargate. The friction comes partly due to style. OpenAI says to Microsoft, give us money and compute and stay out of the way. Be happy to be on the ride with us.

So naturally, this leads to tension, said one senior employee at Microsoft. To be honest, that is a bad partner attitude. It shows arrogance, end quote. One person close to OpenAI said, quote, Microsoft still wants this conversation to succeed. It's not like it's all gone to hell and it's open warfare. There's a tough negotiation, but we're confident we'll get it done, end quote. What did I say about AI eventually being the domain of nation states? Potential huge new player in the AI space is Saudi Arabia, the country, as it launches Humane, a multi-billion dollar AI company chaired by Crown Prince Mohammed bin Salman, the main vehicle to drive the kingdom's AI strategy going forward. Quoting the F.T. The new multi-billion dollar entity named Humane was unveiled a day before

U.S. President Donald Trump touches down in Riyadh on the first leg of a three-nation tour of the oil-rich Gulf. Tesla's Elon Musk, open AIs Sam Altman and Metas Mark Zuckerberg, are also expected to be in the Saudi capital on Tuesday to attend a U.S. Saudi Investment Forum when a raft of multi-billion dollar deals are set to be announced in AI, defense, and other sectors. No details were given for the size of Humane's capital, but the company plans to build a suite of AI technology and infrastructure, including data centers, according to a statement published by the Saudi State News Agency. It will be both an investor and an operator of AI assets and plans to offer advanced Arabic large language models targeting users in Saudi Arabia and across the Middle East.

Building a state-of-the-art AI model typically runs into the hundreds of millions of dollars involving cutting-edge chips, huge energy demands, and other infrastructure costs. U.S. tech companies are increasingly looking to the Gulf, which manages some of the world's largest and most active sovereign wealth funds to raise capital and lure investments. Riyadh will hope that the launch of Humane, which is owned by the $940 billion public investment fund, will bring clarity to its AI strategy. In recent years, Saudi officials have made numerous statements about the kingdom's grand ambitions in the sector, but it has been unclear which entity was leading the plans. The PIF has already launched several AI companies, including

A lot, also chaired by Prince Mohammed, which has pledged to invest $100 billion by $20,000,000,000, 2030 in AI hardware and technology infrastructure, end quote. Lloyds of London insurers have launched a product to cover companies for losses if they get sued over AI chatbot errors, with policies being developed by a Y Combinator-backed startup called Armilla, quoting the FT yet again. The policies developed by Armila, a startup backed by Y Combinator, will cover the cost of court claims against a company if it is sued by a customer or another third party who has suffered harm because of an AI tool underperforming.

The insurance will be underwritten by several Lloyd's insurers and will cover costs such as damages and legal fees. Companies have rushed to adopt AI to boost efficiency, but some tools, including customer service bots, have faced embarrassing and costly mistakes. Such mistakes can occur, for example, because of flaws which cause AI language models to hallucinate or make things up. Virgin Money apologized in January after its AI-powered chatbot reprimanded a customer for using the word virgin, while Courier Group DPD last year disabled part of its customer service bot

after it swore at customers and called its owner the, quote, worst delivery service company in the world. A tribunal last year ordered Air Canada to honor a discount that its customer service chatbot had made up. Armilla said that the loss from selling the tickets at a lower price would have been covered by its insurance policy if Air Canada's chatbot was found to have performed worse than expected. Karthik Ramakrishna, Amila chief executive, said the new product could encourage more companies to adopt AI, since many were deterred by fears that tools such as chatbots would break down. Some insurers already include AI-related losses within general technology errors and emissions policies, but these generally include low limits on payouts. A general policy that

covers up to $5 million in losses might stipulate a $25,000 sublimit for AI-related liabilities, said Preet Gill, a broker at Lockton, which offers Armi-Las products to its clients. A mistake by an AI tool would not on its own be enough to trigger a payout under Armila's policy. Instead, the cover would kick in if the insurer judged that the AI had performed below initial expectations. For example, Armila's insurance could pay out if a chatbot gave clients or employees correct information only 85% of the time. After initially doing so, in 95% of cases, the company said, we assess the AI model, get comfortable with its probability of degradation, and then compensate if the models degrade, said Ramakrishnan. Tom Graham, head of partnership at Chaucer, an insurer

at Lloyds that is underwriting the policies sold by Armilla, said his group would not sign policies covering AI systems they judged to be excessively prone to break down. We will be selective, like any other insurance company, he said, end quote. Again, I am endeavoring on this pod to give you both sides of the AI debate. So from the maybe AI is under delivering file, Clarna, which said in 2024 that AI was doing the work of 700 customer service agents, has resumed hiring remote human workers to field customer service issues after the AI approach led to, quote, lower quality, quoting Bloomberg. The development also underscores the risks that financial services firms are facing when replacing humans with a still largely untested technology. A growing number of

companies are considering how best to use AI to reduce workforces and save costs. Klarna was one of the first firms to collaborate with OpenAI, with founder Sebastian Simeatowski, declaring in 2023 that he wanted his company to be the tech giant's favorite guinea pig. The enthusiasm was in part driven by Klarna's need to shed costs after the end of the FinTech boom in a 2022 fundraising round. Its valuation plunged as low as $6.7 billion down from a peak of $45.6 billion a year prior. The FinTech stopped hiring for over a year as it focused on building AI capabilities, and an announcement in 2024 about how AI was doing the work of 700 customer service agents sent shares in call center provider

teleperformance SE spiraling. The Paris-based group's stock advanced as much as 4.4% on Wednesday. C. Matowski says that Klarna's AI strategy isn't the right fit anymore, quote, as cost, unfortunately seems to have been a too predominant evaluation factor when organizing this. What you end up having is lower quality, he said. really, investing in the quality of the human support is the way of the future for us, end quote. To be sure, Klarna remains enthusiastic about AI. Siamatowski points to the rebuilding of the company's tech stack that will incorporate AI to improve efficiency, end quote. Finally today, yes, there's a tech angle to the new Pope, an AI angle even.

Pope Leo the 14th says he chose his name to honor Pope Leo the 8th's work during the 5th. first industrial revolution, as AI poses challenges in a new industrial revolution. Quoting CNN, Pope Leo XIV, indicated on Saturday that his papacy will follow closely in the footsteps of the late Pope Francis, telling Church Cardinals that they should take up that precious legacy and identifying artificial intelligence as a main challenge for working people and, quote, human dignity. In his first formal meeting with Cardinals, which began with a standing ovation, the new pontiff said he chose his papal name to continue down the path of Pope. Leo the 8th, who addressed, quote, the social question in the context of the first great industrial

revolution, end quote. Pope Leo the 8th ruled the Roman Catholic Church from 1878 until his death in 1903 and is remembered as a Pope of Catholic social teaching. He wrote a famous open letter to all Catholics in 1891 called Rerum Novarum of revolutionary change, which reflected on the destruction wrought by the Industrial Revolution on the lives of workers. Quote, In our own day, the church offers to everyone the treasury of her social teaching in response to another industrial revolution and to developments in the field of artificial intelligence that pose new challenges for the defense of human dignity, justice, and labor. The new American pontiff said Saturday, speaking in fluent Italian, end quote. I started reading Enders game this weekend for the first time.

It's not the story I expected, not saying that's good or bad because I'm only halfway through, but definitely not the story I, expected talk to you tomorrow