Nvidia’s China Shift, Meta AI Drama, Paramount's Pitch | Diet TBPN

Nvidia can sell H2 hundreds to China now. It's a big reversal from the chip controls of a few years ago, which actually started during the Biden admin. We were really pushing to not allow big, you know, the best and the best and most amazing chips to go to China. Well, all of that's changed with this H200 news. Now Nvidia can sell to China, but they got to pay 25% to Uncle.

Sam, the big man.

The big man, Uncle Sam. The estimate for you, the taxpayer, assuming you're an American taxpayer, is that you will be $5 billion richer because Nvidia is estimating that they will be able to sell $5 billion of chips to China every quarter.

That's right.

25% of that of course, is 5 billion per year. But it's unclear where this will actually pan out. I'm not sure where it will land. It is an interesting question because there's been a lot of. There's been a lot of diversion. There's been a lot of engineering that's happened in China to work around the frontier. But then also they might have gotten their hand on some Blackwell. There's a whole bunch of crazy headlines going back and forth. So there's a bunch of good. There's a bunch of good arguments on both sides and there's a bunch of terrible arguments as well. The best argument that I have heard for allowing an American company, Nvidia, to sell H200s to Chinese companies is basically just free trade. Keep the government out of the boardroom. Nvidia is over 30 years old. They make computer parts. If you don't believe in nuclear level AI capabilities, then why would you be so worried about AI going to China? It's just autocomplete. It's just better SaaS, you know, yes, it might increase their GDP, but there are tons of things that we sell to China that does increase their gdp. We bring the business of manufacturing iPhones there, right?

We bring them quite a lot of business.

We sell soybeans, we sell all sorts of food. They sell us stuff like free trade has happened for decades. Like, yes, there is a little bit of a decoupling, but for the most part, the modus operandi of the American geopolitical system has not been try and reduce GDP growth in all of our geopolitical rivals, full stop. Right? No, it's never been that way. And at the end of the day, if you're an American company, I am sympathetic to this idea that Jensen is just like, look, I'm just Trying to build a big company. I want to sell my stuff everywhere. I think my stuff's good. I don't think it's dangerous. I don't think I'm making nuclear weapons. I didn't get in the nuclear weapon business and now I'm being treated like I'm selling nuclear weapons. It doesn't quite make sense. I understand that there are other.

It's hard for him to go over there, go to Washington and argue. It's really not that important. It's just kind of like an extension of the existing software paradigm. It's just SaaS.

Well, yes, yes, yes, yes, you're right. It's hard because you can't do that.

And then also, you know, continue to sell this.

Yes.

Did we just lose power? What's going on boys?

Yeah, what's going on with the lights?

Probably a nation state as usual. Who knows Trying to take us offline.

One sort of gigabrain take is, you know, if you believe that AI slop will one shot people, it will reduce the birth rate because people will be so obsessed with AI avatars, romantic companions. And if you are anti China maybe you should export as much as possible. I don't see anyone making those, those arguments today but I do wonder if there's someone if you are doom pilled in that way where you think that AI is bad but you also think China is bad. Do you have to argue in favor of the export of the H200 maybe let them have. I don't know. We don't. We also don't know exactly how big of a deal this H200, you know, unbanning is because last time there was news on this front the CCP basically said like hey, we don't want our Chinese companies buying these even if they are available, we don't want them. We don't want them here. And the ccp, you know, kind of doesn't want Nvidia chips filling up Chinese data centers. It feels like China at the very least has been somewhat receptive to this idea that they don't want to become dependent on the American tech stack. But companies, clearly Chinese companies do want Nvidia. We saw this with the Deep Sea team figuring out how to get some Blackwell apparently and it's actually going further than that. There's some Chinese nationals that have been recently risking legal consequences from the American justice system. This is very interesting. On Monday the U.S. attorney's office in Houston revealed something called Operation Gatekeeper. Very exciting name.

The government is weirdly great at naming and coining some of these operations.

Interestingly, when you Google, Google Operation Gatekeeper, you get something about building a border wall. And it was, but, but from the presidency of Bill Clinton. So Operation Gatekeeper originally was a measure implemented during the presidency of Bill Clinton by the United States Border Patrol. Then the INS aimed at halting illegal immigration to the United States. At the US Mexico border near San Diego. They constructed a wall on the Beach. In the 1990s. He literally built a wall, which is crazy to me because I thought that was like a Trump era thing. Anyway, the new Operation Gatekeeper, the operation.

For that Canadian snowboarder is called Operation Giant Slalom.

Giant Slalom, that's a good name too. So the new Operation Gatekeeper has nothing to do with the domestic immigration across the US Mexico border. It instead is focused on AI chip smuggling. And this particular operation has just uncovered $160 million worth of illegal AI chip smuggling. A 43 year old Chinese citizen named Fan Yui Gong was living in. Yeah, his name's Gong, which, I mean, we love Gongs here, but I don't.

Before we figure out the bad stuff that he's doing, let's give a quick.

He's a great, fantastic name. So this guy's living in Brooklyn. 43 and also separately a Canadian citizen from China. They independently conspired with employees of a Hong Kong based logistics company and a China based AI technology company to circumvent US export controls. Basically, they bought a ton of Nvidia GPUs, then they would send them to a co packer or like a fulfillment center, remove the Nvidia labels, put new labels on the chips that would say San Kian. Once the chips were packaged back up, they would ship them. Oh, I said chip them. Need to change that. Probably already went out. They would ship them to China or Hong Kong under a generic classification of generic computer parts. And so everyone involved faces significant legal consequences. Now, I couldn't figure out exactly what the consequences are. I'm not sure if it's like years in prison, but it doesn't seem good.

The question then becomes, how did it get in their hands initially?

Oh, because they were just like, hey, I'm a Brooklyn guy, I want to buy some Nvidia.

I know, but 160 million, it's a big company, they do a lot of revenue. But you would think, oh, what's this address that we just got this order from? You'd be like, is that a.

It'd be like, yeah, I'm shipping it to a company in Brooklyn.

Oh, it's probably like a coffee shop or something like that.

Yeah, maybe it's like, you know, I want to have an accelerated, you know, design studio in Brooklyn, something. I don't know.

I know, I know. But the. Seems like a KYC failure.

I don't know. There was one of the guys involved. It was technically a Canadian citizen who was from China. And so you stack these, all these up, and you have like, I'm shipping it to Brooklyn and the guy's a Canadian national. And you know, at a certain point, you're like. And it could have been through some sort of reseller. I don't know. I'm sure we'll find out.

Last name is Gong.

His last name's Gong.

ESPN hits a Gong a lot. It's probably.

They probably got too excited and they were just like, wait, we sold how? We sold 160 million boxes today. Let's ring the gong. Mr. Gong will unfortunately not be hitting any Gong soon because he might be going to jail. So we initially were selling the nerfed one. Then now with this new. With this new Trump rule, you no longer have to sell the nerfed version. You can just sell the real American version, which, of course is Blackwell. Actually, Blackwells are shipping now. And so we're still like, the US policy is still keeping China one iteration behind, and maybe that will be the ongoing decision here, the ongoing strategy. I'm not exactly sure. It doesn't like the. The administration hasn't really laid out a philosophy of this at all. I mean, originally, what was it Lutnick said? Like, we're not giving them the best we have, we're not giving them the second best we have. We're not even giving them the third best we have. We're giving them the four fourth best. But now it's like we really are giving them the second best we have. So I don't know. That seems like a shift in policy, but we shall see. What's interesting is that now that Nvidia is approved for export, I'm interested to understand, where will sales to China land? They've said if there were no geopolitical considerations, we could sell5.5 billion a quarter, 20 billion a year, which is. It's not a drop in the bucket, but it's not exactly, you know, half of their revenue. I think they did 60 billion last quarter or something like that. You're looking at, like a $200 billion company. This is like of their revenue is going to be in China next year. If they really take the handcuffs off. The big question Is like how much smuggling was actually happening. We know 160 million was happening because it caught them, but was there a billion happening? Because you don't catch 100% of what's going on. Right. So in theory there could be like a couple billion, maybe 10 billion that was happening. What is demand actually for Nvidia GPUs in China? I would imagine it's higher. But then of course, you have the dynamic of the CCP.

Yeah, it seems like netting at around 10% of global sales make sense given they're projecting 210 billion or that sort of consensus for next year and nearly 300 billion for 2027.

I would expect, you know, I would expect something more like 30, 40, 50% of China's really trying to like keep up and win the race. And this is like the best supplier. There's a lot of debate over this particular deal, the decision to sell H2 hundreds to China for 25% tax. There's some debate over, like, whether this should be some sort of like, you know, big picture trade deal where we sort out the rare earth element picture in Taiwan and we also work through the soybean issue and we work through, you know, a whole bunch of different export things all at once instead of just doing like one off, one deal after another in isolation. I'm not that nervous about that. I don't, I don't really feel like I really need it all to be resolved once I feel like it's fine to have this happen and then watch the consequences of that and see how the chips stack up. And how valuable is this? I don't know that it has to all be done within one deal. But regardless of whether America wins from this, China wins from this, it's clear that Nvidia wins and also that smugglers lose because the smugglers are going to jail.

The Warner deal will take a While. M&AI data, trillion dollar IPOs and good TV is bad for stocks.

We're really doing Bloomberg Day.

Warner Wars. It's perhaps worth saying that Paramount offer for Warner Brothers Discovery Inc. Is not exactly a classic hostile tender offer. Warner has signed a merger agreement with Netflix in which Netflix would buy most of Warner for about $27 per share in cash and stock, leaving Warner shareholders with a bit of the company worth somewhere between $1 and $5 per share. That merger will take a long time to complete. For one thing, Warner shareholders have to vote on it, which means that Netflix and Warner need to put together a proxy statement and and prospectus for the deal file it with the SEC and hold a shareholder vote. That could take months. For another bigger thing, the U.S. department of justice will need to review the deal for antitrust concerns. Those concerns are significant, and Netflix and Warner have budgeted at least a year for that review. That deal was announced last Friday, and on Monday, Paramount jumped in with an all cash$30 per share offer to buy all of Warner, which we discussed on Monday. It took the offer directly to Warner shareholders. It launched a tender offer scheduled to expire on January 8th to buy those shares. The two deals operate on different timelines. Warner plans to ask its shareholders to vote on the Netflix deal, but that vote will happen long after Jan.8th. And if Paramount buys all the shares before the vote, then the question is moot.

Well, because they'll own all the shares, they'll vote no.

If the shareholders all sell their shares to Paramount in January, they can't vote on the Netflix deal in March. And if 51% of the shareholders sell to Paramount, Paramount will control Warner, vote down the Netflix deal and acquire the company itself. That is the classic benefit of the hostile tender offer. It's fast. If Paramount's tender is more appealing than Netflix's merger, then Warner's shareholders will sell their shares to Paramount before the Netflix vote and Paramount will win. And if the deals are roughly equally appealing, if shareholders are more or less indifferent between the two bids, then the speed of the tender offer is a real advantage.

The headline here is that this deal is going to take a long time and here he's saying it's fast, so.

Let'S see where he gets.

This is interesting.

I'm hooked. Then the speed of the tender offers a real advantage. Shareholders think I don't care too much, but if I tender to parallel Paramount, I'll get this done faster. So I might as well tender and Paramount wins. Where? That is a classic theory, but it is hard to achieve in practice and it's not really true. Here Paramount's offer says at the top that it expires on January 8th. But it's not like it will buy the shares on January 9, even if 51% or. Or for that matter, 100% of Warner shareholders tender to the Paramounts into Paramount's offer. The offer will not close until two other conditions are met. One, Paramount Steel also requires antitrust clearance. It is not legally allowed to buy the Warner shares until it gets that clearance.

Interesting.

For a combination of fundamental and trumpy reasons, Paramount thinks it will have a much easier time getting antitrust clearance than Netflix would. Yeah, Paramount's proposal expects to receive regulatory approvals likely within 12 months, faster than Netflix's expected timeline, but a lot slower than Jan.8 2. Paramount Steel is, by its terms, conditional on becoming a friendly deal. In addition of its offers that Warner Brothers shall have entered a definitive merger agreement with Paramount and the purchaser, substantially in the form of the merger agreement submitted by Paramount to Warner Bros. On December 4, 2025. That is, Paramount does not just want to buy a majority of Warner's stock and block the Netflix deal that way. It wants Warner's board to abandon the Netflix deal, pay that $2.8 billion reverse termination fee and sign a deal with Paramount instead. The deal is too big and the antitrust approvals and financing are too complicated to do as a purely hostile deal, Paramount will need Warner's help. In some sense, then, the Paramount deal is not a real tender offer, one that depends only on the shareholders, one that shareholders can accept even over the board's objections. The Paramount deal is a pressure tactic, a way to get shareholders thinking, hey, I would rather get $30 in a year than $27.75 in 18 months. And telling the board that if the shareholders all would tender into the Paramount deal, then it's hard for the board to stick with the Netflix deal as a matter of fiduciary duties and shareholder pressure. But it's not like if those shareholders all do tender into the Paramount deal, it will just close. It's a jumping off point for negotiations. Paramount and Netflix are girding for a battle they predict will stretch well into 2026. Lucas Shaw says Warner Brothers was given 10 business days to respond to Paramount's hostile $30 a share bid for the company on Monday. Since that offer was already rejected once, the Warner Brothers board isn't planning to cancel the merger agreement signed last week with Netflix, according to people familiar with the company's thinking, doing so would require Warner Brothers to pay Netflix a 2.8 billion termination fee. That puts the onus on Paramount to make the next move and what everyone expects to be a drawn out affair. Last Paramount can follow through on its tender offer to buy Warner Brothers shares from investors at $30 each on January 8th. It can also extend the bid sue to stop the Netflix deal or increase the terms. Shareholders of Warner Brothers, one of Hollywood's biggest film and TV companies, are hoping for a bidding war that further boosts the price of the deal. Both companies have communicated that they have the ability to increase their offers. Paramount is privately weighing an increase or whether to instead add sweeteners intended to give WBD's board greater confidence in its regulatory prospects versus Netflix. This position that the Ellisons are in where feels like every other week they have to offer a higher price. It's like, it's kind of a vicious cycle.

It's pretty crazy to have them going back and forth here. I feel like it's going to land with Netflix. It just feels like the breakup fee is real. Like the fact that there's a massive multi billion breakup fee on both sides. That's like material to their market cap, material to their, to their, you know, you have to pay, you know, essentially 1%, 2% of your market cap in the event of a breakup. That, that feels like Warner Brothers and Netflix were like, let's actually make this happen. Let's be really sure this is going to happen. I don't know. Then again, like the Adobe Figma thing, I was shocked when that broke up because that felt like a crazy breakup. Fee. But 1 billion was still lower than what Adobe was trading at at the point it was less than 1%. This is higher on a percentage cap.

Meta's new AI superstars are chafing against the rest of the company. It's Chaf gate. We've established this. It's an us versus them mentality has emerged between Meta's top artificial intelligence team and longtime lieutenants to Mark Zuckerberg. Yes, Eli writes, when Mark Zuckerberg revamped Meta's AI operations this year, he recruited a new leader, former guest of the show, Alexander Wang.

Let's go.

A 28 year old entrepreneur, to build a team of top researchers from rivals like OpenAI and Google. That team, called TBD Lab for to be Determined, was placed in a siloed space next to Mr. Zuckerberg's office at the center of Meta's headquarters, surrounded by glass panels and sequoia trees. Mr. Zuckerberg wanted to separate the new AI group from the bureaucracy of the company which owns Facebook, Instagram and WhatsApp meetings this fall. Mr. Wang has privately told People that he disagreed with some of Mr. Zuckerberg's longtime lieutenants. You're going to be interested in this, John. So in one case, Mr. Cox and Mr. Bosworth wanted Mr. Wang's team to concentrate on using Instagram and Facebook data to help train Meta's new foundation model to improve the company's social media feeds and advertising business. You've been wanting this this whole time?

Yes.

It's like do this whole thing, personal superintelligence and then just make, just deliver, make the ads Better, you know, grow. Grow the business in that way.

So what did Mr. Wang say?

He argued that the goal should be to catch up to rival AI models from OpenAI and Google before focusing on products that people said. So this makes sense, right? This makes sense for Wang. I don't know that it makes sense for the company. From everything that we've seen so far, it feels like Meta could add a trillion dollars to its market cap by just focusing all this incredible talent on just making the core business better. But Wang and the rest of the team are going to be a lot less motivated by that than having the biggest data centers doing the biggest training runs, having the best model competing on the global stage. And so I can see why Wang is pushing the other direction.

Okay, let's actually unpack this because, like, if you know Mr. Wang here, who says he's developing the model, he argues that the goal should be to catch up to rival AI models from OpenAI. Like, if they wind up having a model that is, you know, actually be in the same league as Claw and Gemini and OpenAI and XAI and it's this like, you know, closed source, it's an API, it does well on mmlu, it does really well in the benchmarks. Like, what value does that really bring?

Like, if you want to compete in search, knowledge retrieval, even, even agentic commerce, you can take models off the shelf. Yeah. In the same way that, in the same way that Apple's doing. So I'm just trying to think you make the best model in the world. Are you going to go compete with. So, so we've seen this, we've, we've run this with xai. Right. They are trying to build the best model in the world. And it's now becoming clear that just having a great model does not automatically give you a meaningful amount of market share.

Yeah, no, no, you need to productize it. And OpenAI has productized very well with a viral. Like it is synonymous with AI, consumer AI. Everyone has the app mostly on their home row. They're using it a ton. They have a billion daus. It's growing, you know, doing great, or maus. Then you have Google just so much surface area to actually stuff knowledge retrieval AI in knowledge retrieval products.

They are.

You're already trying to do that with Google search, anthropic, super focused on code, super focused on B2B. Facebook doesn't have a B2B team. Like, they're not like a hyperscaler. Like, that might make sense for Amazon to be like, hey, we want to get, you know, we want to take that approach and then XAI is sort of the same thing. At least they have X to distribute through. But being the fifth hottest, even if the model is for this week, the number one, I don't know, I would be very focused on what can be done within Instagram and Facebook and WhatsApp to a lesser extent.

The reason to be excited about that as a Meta shareholder is that AI is such an obvious tailwind for Meta's business. Meta has been pushing, you know, this personal super intelligence narrative. The only problem with that is that I don't know what that means. Right. It sounds awesome, but. And I'm happy to wait and see. But they've been having, you know, there's been a number of employees kind of churning out already and it's possible that there's. That they don't necessarily know exactly what that means themselves yet. Right. They're running it like a startup internally.

Yeah. What does personal superintelligence mean? I feel like there is room for product led innovation in AI. New instantiations of the underlying, like new ways to interact with the fundamental.

We'Re having this AI moment and then we get video models, we get image models, we get image editing, we get knowledge retrieval, get agents, deep research, we get coding agents. Like we've had three or four or five like really cool instantiations of it. And not every lab is frontier at every single instantiation. Anthropic doesn't have an image generator.

Right.

Other labs like there, you know, obviously OpenAI really thrives in the consumer and has created just a great app that is reliable and answers your questions reliably. Other other companies have struggled to, you know, to hit that, to hit that instantiation. It would be very, very cool to watch the Facebook team figure out what is a way that they can bring AI to bear inside of Instagram in a cool way, in a new way. The problem is, is that Facebook and Instagram don't really have that DNA. They sort of tried it with the Vibes app, but also as soon there's very low like ROI on that. Because as soon as you, as soon as you like, let's say that they do come up with like the next stories and it's like, oh wow. Like you take AI and you stuff it in a social app and you do this one special thing and then everyone loves it. It's great. It's not just like, well, they didn't create that.

No, I know, I know, I know.

But let's say that they did it's like it's gonna get copied everywhere anyway. So it's not really that much. Like, they really should just wait around for everyone else to do their R and D. They should wait. They should be Evan Spiegel, what are you doing? Come on, invent something for us. And so I can actually see Alex Wang's pushback on, like, hey, you want to use Instagram and Facebook? You want to do something more incremental? But, like.

How are we going to do something great in AI in those ecosystems? I don't know that there is that.

Much Part of what maybe we haven't discussed so far is how TBD will tie into Reality Lab. Right. Is it possible that they need, in order to fully realize the Reality Lab's vision of having a pair of glasses that see and process everything that you see and can provide you that personal super intelligence? So you're walking around, it's like, oh, I forget that person. It just pops up like a name tag for somebody. Right? You see an item in the real world and you're like, you do this and you buy it. Right. It's very possible that they need to eventually get that on device in order to be fast enough, in order to be super valuable. And so they do need this internal competency. There's, of course, stuff that we're doing missing here, but ultimately, I can see why Boz and Chris Cox were like, hey, why don't we just figure out how to make an extra $50 billion a year by taking some of the best researchers in the world and applying them to the core business.

Gyms are coming to airports.

This is big.

This is big. Will you work out on your next.

Consumers have been saying the other passengers aren't sweaty enough.

Yeah. So this is for.

We gotta have gyms in right next. Right next to the gate.

This is hilarious because it seems to be a collab between Secretary Kennedy, who's the Health and Human Services secretary, so there's HHS crossing over with DOT somehow, and they're like, let's make the airports healthier. Which is like, a funny thing.

I feel like these labs don't happen before, but they're happening now. The idea of working on an airport, it's kind of crazy because if you are all sweaty and then you have to. And they also said, like, you should dress up when you go to the airport. And if you're dressed up and then you are all sweaty, that seems pretty rough. But I don't know. I like the idea of doing something new in airports. I think it's cool. I think it's good that there's some, some opportunity for some sort of grant program.

I guess the question is the one billion dollar grant program with how much it costs to make like is this like 10 gyms?

Well so I don't know because like there's a world where you build like a proper gym in the 10 most premier airports that has like a sauna, showers, like full laundry, like you know, you're good to go, you can spend like a couple hours and they're really get a serious workout in. Or it could just be like a couple of pull up bars and you put one in every, in every terminal in America. Can you imagine if it's just like okay, yeah, like you know, turns out JFK put in an awesome, awesome application.

They got all 1 billion little calisthenics sound.

They got it all. I don't know. It's a very funny story.

Deeply amused by all the confident commentary that data centers in space do not work from a physics or engineering perspective. Elon operates two of the largest coherent GPU clusters in the world. SpaceX is responsible for over 90% of mass to orbit, and SpaceX operates the largest satellite constellation in the solar system. More than 10 years later, no other company or country can consistently land and reuse orbital rockets. He publicly states that the lowest cost way to do AI compute will be with solar powered satellites. Maybe, just maybe, his pencil and paper analysis of the physics or the economics at play is superior to yours. Perhaps they have thought of a cooling solution that has not occurred to the galaxy brain accounts here. Even after they took several minutes to carefully think about the problem. The CEO of Google also agrees that data center data centers in space will be normal within a decade. If you're not currently operating a large AI data center, a large satellite cluster, and have not landed a rocket, I think a lot of the reaction was just like, hey, like three to four years feels super aggressive.

Yeah, I would probably say like there will be under 1 gigawatt of capacity in space by the end of 2027. It really feels like we're talking about, you know, timelines here more than if it's more.

When Elon responded and said fools are determined to be fools, trying to stop them from being so is futile.

Hey, optimists get rich. Pessimists sound smart.

This clip from Sea of Netflix we go from 8% of view hours today in the United States to 9%. So we're still behind YouTube at 13%. And potentially worth noting that we would be behind what would be if paramount combined with WBD them at 14%. So we think that there's a really strong fundamentals based case here for why regulators should approve this deal. Yeah, this is 8% of view hours today in the United States.

So yeah, view hours, is that like a good metric? There's something. He's definitely including YouTube in there.

And using view hours at the same time. I think that's, that's valuable. I don't know, it's. Oh, no. All of a sudden there's only one place to get content. That's not what people are the most worried about. They're maybe worried about a one buyer scenario for the movies that they make.

If you thought paying for your kid's college tuition was nice. Larry Ellison is writing a $40 billion check for his son to acquire a movie studio and a television network. That, my friends, is father of the year. Totally agree. We should all aspire to one day write a $40 billion check for our children. 100%, each of them actually doing a deal with your son.

It seems fun. It seems like Larry is definitely in the conversation. He's at the dinner, you know, he's hanging out. He's part of this. Even though David's obviously driving the story. And have a great day. Merry, merry Christmas. Merry Christmas to you. The holiday season is upon us and we love you. We'll see you tomorrow.

Goodbye. Cheers.