What Nvidia's Megaspeed Scandal Is Really All About

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With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more at chase.com/business. Chase for business. Make more of what's yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JP Morgan Chase Bank NA member FDIC. Copyright 2026. JP Morgan Chase and company. Bloomberg Audio Studios. Podcasts, radio, news. Hello and welcome to another episode of the AdLots Podcast. I'm Joe Weissnthal. And I'm Tracy Allaway. Tracy, I gotta say like this gents and long story. I think it's one of the biggest stories ever. Yeah. Just as a new story to bow to as big as it could possibly get. It has everything. It has everything. A ledge, Chinese, spies, chips muggling. It's exciting stuff. Also, it's birth like 5,000 memes. Some of which are quite good. There have been definitely some good memes. But actually, so on a serious note, if you think about the AI trade, I mean the sun around which it all revolves is in video, both in terms of providing the actual chips that powers a lot of this technology. And also providing a lot of the financing and investments for these companies. And so any hint of a scandal has big implications for AI as a whole. No, I really like the way you put that. They are the sun of the universe. Both from it, they have the crown jewel technology, the chips, they have the financing to back all kinds of partners and neo-clouds and everything all around the world. Everyone wants it. And it is a technology that is both commercially, intensely in demand, and geopolitically in demand. Yeah. And so in addition to the fact that the tech is good and they have the financing, there are all these fights about who they could even sell it to, starting, you know, there are all these things of the Biden administration, lobbying of the Trump administration, how liberal should the policies be about who gets to buy them, etc. And that is why this story is just like so, it's huge. Yeah. And just on the geopolitical, automics, good word, on the geopolitical angle itself. I mean, there's this tension that we've seen more and more in recent years, where some people will argue that, well, you want the US, you want a company like Nvidia to be the backbone of like the AI tech stack, right? And so maybe you want lots of people you totally, totally. But on the other hand, you know, you have people in the Trump administration who argue that we are in this existential AI race with China, and therefore it's really important that China does not have access to the most advanced chips. And so we're seeing that sort of play out in a lot of the discussion on what's going on with Nvidia right now. The other thing that's very important, and this will allow us to get into the guest, is that in some sense, there's actually like the story is kind of old news. There's been a lot of reporting on this company, mega speed, and it's CEO and the company's closeness to Nvidia and Jensen, specifically where they know. So like in a way, like, what is the new news here is part of the question, but whatever, you know, the, I guess on some level, the new news is just specifically Jensen, long admitting to Nvidia that he had this relationship and affair with the this executive or someone associated with mega speed and the investigation into it. Anyway, that further ado, we really do have the perfect guest. Someone who I think is like the best beat in the world, whenever we get a chance to chat, I'm always learning more about both the sort of like politics, the geopolitics of chip flows around the world, someone who's reported on chips all around the world from DC to San Francisco. And now based in Hong Kong, we're going to be speaking with tech reporter here at Bloomberg News, Mackenzie Hawkins. So Mackenzie, thank you so much for coming on Adlots. Thank you so much for having me quite a week. Staying up late and coming on Adlots, because you're based in Hong Kong. So thank you. And you were just in the US, you're probably still kind of jet lagged, so and it's the biggest thing. Actually, like, I think I've gone back to working US hours. So I feel like I never left the US. I finally got over the jet lag and Jensen Wong is jet lagging me. I can't believe how fried you must be. So again, thank you for taking the time. Let me start with this question. You know, the reporters always think they know a little bit more than what they can write at any given moment, et cetera, because you're not waiting for verification. Let's say we were talking a week ago. And so based on only what you're allowed to report, let's say this conversation is happening sometime in October, and we say, Mackenzie, what's the deal with this company mega speed? What was the answer? Give me a week ago. Just that you're totally about who is mega speed? And why should we care about this company called mega speed? So pre-affair admission, mega speed is the single largest Southeast Asian buyer of Nvidia chips. It's a major supplier of AI computer Ali Baba, which is one of the most important tech companies in frontier AI leaders in China. It purchased $4.6 billion worth of Nvidia hardware after being spun off from a Chinese gaming company passing through a BVI shell and incorporating in Singapore, then becoming an official Nvidia partner four days later. It's executive had a close relationship with Jensen. We didn't know quite how close. And it had been under US investigation and Singapore investigation for if we're talking a week ago, at least a year. So why did this raise eyebrows in the first place? So mega speed renting out GPU capacity to a company like Ali Baba. My understanding is like, okay, that's allowed. People know that this is happening. But at the same time, if you're worried about Chinese companies having access to technologically advanced Nvidia chips, it seems like a pretty big loophole. Yeah. So I mean, the arrangement that mega speed has with Ali Baba is extraordinarily common across the Southeast Asian data center ecosystem. You know, in some ways the backbone of Chinese compute is like jahor Malaysia. So it's not actually the remote access cloud computing arrangement that got mega speed sort of looked at by the US government later in Singapore government. It's the suspicion that the company has not just rented compute to Chinese off-takers, but actually diverted those like the physical hardware into mainland China. Right. So that's the focus of the US investigation. It was looking at whether mega speed had smuggle chips, which the company has categorically denied having ever done. And also looking into its ownership structure, because even if mega speed is a Singaporean entity, if it were owned by a Chinese company, it would also be illegal to sell advanced Nvidia chips to mega speed without a US license. It is 100% Singapore owned, but by a shell. Let's get into like, there is this question of, you know, what do chip restrictions even mean if you could still just access a cloud in a different country? And like, is this the mother of all loopholes? But let's actually just start on the smuggling question. Why might investigators have been concerned that mega speed was literally smuggling chips or not? Like, what are the details that we know around this question? The actual, the physical movement of chips from say a delivery address in Johor Malaysia to an address inside of mainland China. Yeah. So I mean, the US government has a handful of export control officers overseas, including in Southeast Asia. And when I say a handful, it's really a handful. It's like a dozen. They're going to more than double the number this year to 25 for context. So you know, when we did our, our investigation into mega speed last year, I think I was on singular email chains that had like 50 Bloomberg people. So the, the, the capacity all of us in this room had been on email change with 50 Bloomberg people, a little inside baseball here. But this is a real phenomenon. All right. Keep going. But no one else serious. This, you know, the US government has, has fairly limited enforcement capacity overseas, but they do checks. And, you know, I, there's unfortunately not a ton that I can say about the initial trigger for the proven to mega speed. Okay. Through the course of looking at shipments through Southeast Asia, they thought that this company was worth digging into more. I can talk a little about why I started looking into it. Sure. That would be helpful. Yeah. So in April or of last year. I had sort of recently arrived in Hong Kong and I was working with a couple of colleagues here and in the mainland on a story about this cluster of data center operators in China's western deserts that had issued procurement orders and you know the local government tender notices that they had fulfilled to build data centers seeking 115,000 restricted and video ships. This was you know in order of magnitude larger than what anybody thought might be in China. And so a big question that we were trying to probe is you know it gets one thing for them to be constructing buildings you know Chinese companies love to construct shells I mean I mean that physically in the sense but obviously that is the case for shell companies as well but you know it's one thing to build the buildings it's another thing to put the chips inside and so one of the big questions that we were trying to tease out that we were unable to answer in that investigation was whether these particular operators had the supply chain the black market supply chain necessary to get the GPUs. And you know when I was asking around in South Asian supply chains everyone just kept saying like look at this company called mega speed. And so we started looking at them a year and a half ago maybe a bit over a year and a half ago and found out you know several months actually into our own investigation that the US government had been looking into them as well. The US investigation remains ongoing in a sort of complicated way which you can get into a bit later. In our reporting we didn't find concrete evidence that mega speed had smuggled any GPUs to China we found an extraordinary number of inconsistencies in their data center footprint that neither the company nor Nvidia have been able to explain. I want to ask about those inconsistencies but before we do can you just describe how chip smuggling typically works like how do people in the black market actually do this? Yeah so you know we have enough examples of you know public allegations things that are being actively prosecuted to sort of draw some thematic conclusions. There is a secondary market for Nvidia hardware but you know most Nvidia chips get to customers via official allocation from Nvidia. And Nvidia doesn't sell chips directly to the end user like they wouldn't be selling hardware directly to mega speed or directly to core weaver whoever they sell to OEMs original equipped manufacturers server makers like super micro or Dell or HP those server makers typically sell to distributors those distributors myself another distributor then they go into a data center and then they're often rented to another company so it's this extremely vast distribution network for Nvidia chips but ultimately in order to place an order and get your order approved by Nvidia you need to say like this is where they're going like this is the customer this is the data center location and a consistent theme across you know what's now like half a dozen cases being prosecuted and this is certainly the case in the indictment of super micro is co-founder earlier this year the stated location of where the chips are going to wind up was not the intended location you know it's not that there was some sort of rogue person at one node in the supply chain that was like yeah I'm just going to grab them. You have companies or individual actors that place orders that are purportedly for a destination outside of China with the intent of diverting that harbor to China the entire time is at least the allegation that's sort of laid out in several indictments and then it's a question of well how much work does Nvidia need to do and do the server manufacturers need to do to make sure that the actual state destination of the chips exists and there are some cases where prosecutors have alleged the data center like literally didn't exist there was never a place for those chips to go they were just always intended to go to China wait can I just I'm a little bit disappointed are there no like chip mules out there are people who are just like I don't know I have this vision of someone in a trench coat and they like open it up and it's lined with like probably not eight 100s with black wells or something well you know it's funny that you say that because you know in one of jensen's many denials of chip smuggling as an issue he said you know the grace black wall system waste you tons you're not putting that in your back back in your pocket anytime soon we reported a couple months ago that the u_s_ government has been investigating a single for a court of logistics company that a special like literally specializes in tech hardware transportation through complicated the logistics these are fragile systems and transported or is believed to have transported restricted hardware and then it's a question of like okay if you're a logistics company then how much is it your job to know what's in the package so a lot of these cases also involve fall speculation allegedly involve fall speculation you know putting on customs forms that it's just a computer server ambiguous what type of computer server sometimes random electronics there was one case where and this is a case where one one person actually put guilty already where they declared restricted in video hardware to be quote unquote adapter modules this is a category of electronics that includes like the thing you used to plug your phone into a foreign phone outlet like really adapter modules that weigh two thousand pounds so there are lots of cases where it's like really that's an eyebrow raising declaration but it's you know I get there are lots of colorful characters in broker markets it's actually a very sophisticated black market there are contracts you know brokers go and solicit hardware on behalf of specific suppliers there was one broker who complained to us that you know so like the trade is so good and so many people are trying to get it on it then now you have these scammers in the black market who are like purporting to have hardware it's not like a good honest black markets for like legitimate honest black market brokers no it's a pretty extraordinary and sophisticated of sprawling the system what's next for virtual assets I'm Jacob Grease host of economy scale a series exploring growth in key global sectors and this episode we're diving into the digital forces shaping finance Sean McEw from the by-base virtual assets registry authority has this to say we're seeing a lot of in social players come in digital asset dedicated hedge funds high-frequency traders and that's what I think in folks who service in social clients as more capital enters the market adaptive regulation is likely to become increasingly key risk miracle ripple says a lot of regulators globally would like to keep the industry at arms length that's the opposite here I think also what you'll find is that regulation and frameworks can come out but some of them are maybe a slight iteration on some 80 year old policy and not actually in line with what the technology can do and offer and again that's very different in Dubai listen to the full episode wherever you get your podcasts the series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism when you own your own business you 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or Super Micro or something like that. - Correct. - Okay. - Yeah, that's what makes Nvidia King Maker of this. - All right, explain, as you said, there's this question of smuggling is not locked down, but you said inconsistencies discovered in your reporting. Let's talk about these inconsistencies. - On Megasphere? - Yeah. - All right, let's get into it. So, you know, one of the sort of first ports of call that I look at when I'm investigating a company for smuggling, which has now become the big part of my job, is do they have the requisite data center space, like literally just the physical space in the building, the power supply to support the hardware that they have purchased? - And we learned at a point in our investigation the number of GPUs that Nvidia found when asked by the US government to go and check Megasphere facilities, which they did several times. You know, they tabulated all of the chips across were 12 data centers owned by eight companies in three countries. They added up all the chips, they reported to the US government, and around this time, you know, we got a statement from them in mid-November last year that said, everything that was shipped to our partners is where it should be. We compared that number to Malaysian and Indonesian trade records that we had gotten, and found that there were about 50,000 chips unaccounted for, which is like not a small amount of compute. And most of them were blackwall chips, which at the time were Nvidia's best hardware. And so we went back to Nvidia and we said, you know, we're not talking about one or two chips that are missing, we're talking about a significant proportion of the overall hardware that Megasphere has purchased. And after we asked about that, they went back to Malaysia and they said, oh, we found these warehouses that contain what's missing. And I said, okay, great. So we're gonna subtract from the amount of hardware that we found in trade records, the number of chips that we know you guys told the US government you found. And that should be the amount of hardware that's like in these warehouses that we didn't know existed until we could go. We have been talking to Nvidia about this for a really long time by this point. This is the number, right? And they declined to comment on whether that's the number. It was like, okay. And then they eventually, they submitted an updated statement that said we've identified quote unquote substantially all of the chips that Megasphere had purchased via its hardware partners. And we'll do additional checks in the near future. So that was December of last year. I've probably asked Nvidia 10 to 12 times over the past year whether those additional checks have occurred. I'm interested in particular in a handful of data centers. One, which is Megasphere's largest data center, dropped the company as a tenant a couple of months after our investigation and a story by the New York Times that first broke the news of the US investigation into Megasphere. I don't know the reason that they were dropped, but if they're no longer a tenant and that's where a significant portion of the Nvidia GPUs, that Nvidia told the US government have found, we're located, that raises some questions about where that hardware might be now. We've not gotten answers to those questions. And then, so that's one of the eight data center operators. Two of the others directly contradicted to us on the record in video's account of the hardware as described to the US government. And so that's of the hardware that Nvidia said it found in the data centers. And then you have this stuff that's in these warehouses. And we asked, OK, so Nvidia's policy is we prioritize customers that are ready to put their products to use. They don't want GPUs sitting in warehouses for months and months on end. We asked, what is Megasphere's plan with this hardware? When are we going to see it installed in the data center? We didn't get answers to those questions. So that's just on the hardware allocation piece. Then we look at what Megasphere has represented to investors and its data center footprint as the company describes it. And on its website, it had three data centers listed. We know that's an undercount of their total number of data centers all in Southeast Asia. But in a presentation to investors in 2024, Megasphere described five data centers across three countries, two in Indonesia, two in Malaysia, and one in a specific area of an unnamed third country that on another slide of that same investor deck was the only one described as not in Southeast Asia. And the rendering that Megasphere used to represent that data center is of a sprawling project in Shanghai, where Megasphere's Chinese corporate twin has been hiring engineers to work on restricted and video hardware, companies that Alice, who has become infamous in this scandal over the past couple of weeks, companies that she has longtime business ties to have been investors in that data center. And so we asked, what's up with this product in Shanghai, why is that the rendering that Megasphere used to represent this facility on its investor deck? We never got answers to those questions either. - It's such a weird decision to talk about, oh, and we also have this project in a country that we're not gonna name, but here's an illustration of Shanghai. - Okay, and just so we're clear, can you outline, what exactly are the responsibilities of NVIDIA here? So if it sells chips to a server company and the server company declares that the end user is definitely not a Chinese firm, is it incumbent on NVIDIA to double check those claims or investigate? What do they actually, what are they expected to do? - You know, this is the central tension that has been playing out over the past year is whose job is it to know? So in the case of Megasphere, NVIDIA told us last year, we asked the US government if we need to cut off Megasphere and we were told no. In the case where super micro's co-founders alleged to have smuggled $2.5 billion, so $2.5 billion worth of hardware to an unnamed Southeast Asian intermediary that then smuggled the majority of it to China, we've reported that that Southeast Asian intermediary is one of the most important AI companies in Thailand. That company is alleged to never have had the data centers to install that hardware. So, you know, a lot of people have asked, you know, did NVIDIA check? Did super micro check? And actually, super micro did check according to the US environment. They visited, they audited because the volumes that this type company was purchasing were so significant, they audited, but then they allowed the shipments to continue multiple times. I think companies are always going to say, you know, tell us what the law is and we will follow the law. If you don't want us to sell to this particular company, then tell us we can't sell to that company. But I think the question is, are there red flags that are so obvious that if you have sort of any competent due diligence program, you should have seen that. This is, it's a conversation that's sort of being actively litigated in Washington, shall we say. And NVIDIA has started actually in some ways to self-regulate, you know, they have this like top tier of NVIDIA cloud partners, these sort of like stamp of approval companies that are totally, you tell the industry, like, these are, these are our top tier, you know, top tier partners, mega speed is one of them. It's still one of them, it became one of them four days after it was incorporated in Singapore. Another NCP, it's CEO is on trial in Singapore for document false or for defrauding service suppliers about the ultimate destination of hardware. And there was like a mansion seized, that was the alleged proceeds of chip smuggling. The Thai company was like sort of the initial hardware supplier for the like national AI company, sovereign cloud of Thailand, which is the first NCP in Thailand. So you have to, like definitely, this interesting set of connections happening at the NCP layer. - The NCP? - NVIDIA cloud partner. - Oh, yeah, yeah, sorry, sorry. - Sorry. - So there's also like an internal whitelist of companies that NVIDIA has sort of pre-approved for purchase. And after the Super Micro co-founders indictment earlier this year, NVIDIA went and cleaved a lot of companies from that whitelist. And it's this interesting thing because on the one hand, this is the type of due diligence. Maybe that some Washington regulators would like to see the chip maker take. On the other it raises questions of on what basis did you remove those companies? Why were they on the whitelist in the first place? And so I think also for NVIDIA, which is trying in some ways to demonstrate to the US that it does take this seriously, but also has so deeply lost credibility on this issue that it's like a little bit of a catch-22. And that's not trying to absolve NVIDIA responsibility just sort of explaining a political reality the company I find itself in. - This was gonna be my next question 'cause NVIDIA, I mean, the thing we hear constantly is chips are in short supply. Everyone is scrambling to get chips. There's so much demand out there. Like it's hard to fill at all. They can afford to be selective with their customers, right? Like do you have a working theory for like why would they even take the chance if demand is so strong that they could sell to pretty much anyone? - That's a good question. NVIDIA's primary arguments on export controls are about the market share, the global market share of AI infrastructure that is American. They sort of view Huawei, their primary competitor in China as this sort of existential threat to US dominance. And there's a lot of demand out there. Your arguments are basically that Nvidia's interests are US interests and so when you talk about the question of remote access, companies completely, legally renting the use of Nvidia hardware that Chinese companies can purchase themselves to those Chinese companies. That's a policy choice by the US government. A lot of people describe that as it's a workaround of the export control, it's the loophole of the export controls. It's legal. The US has the ability to make it illegal and it's legal in the vast majority of cases. For Nvidia, that's a good thing because Nvidia chips are filling all these data centers in Southeast Asia that in many cases wouldn't exist if not for the off-take demand from Chinese companies. It's the same reason that Nvidia wants to be able to freely sell its chips in China, as we need to be able to compete with Huawei on its own turf. A question that a lot of regulators have pushed back on Nvidia on this topic is, "While we can't supply the world's data centers, we're so far off from a world of Huawei being able to supply the world's data centers, and so how existential is the threat of Chinese compute on the global stage, or even within China that the Nvidia sales are aiming to counteract? But I think Nvidia is very focused on these sort of battleground or what could become intense battleground regions of China build its own AI chip production capacity that they want to make sure that they're selling in these regions." I just want to point out one thing. You've talked to Ian Dunning twice from Hudson River Trading who has said he is not having a hard time getting GPUs. He's having a hard time getting GPU places to plug in. Yeah. So it's possible, at least it seems possible, that there is not as much like unlimited demand for GPUs per se, as maybe a video like this video would like to claim, and that actually like, let's say the bottleneck is in places to plug them in, that if you want to actually sell the most number of chips for the most number of dollars, setting aside these sort of broad market share questions that actually like the Southeast Asian customers are important. If we believe what we've heard from other purchasers of Nvidia GPUs, that they're available if you can plug them in. But before we get into like this sort of Nvidia versus Huawei part, which I do want to talk about. I want to just like clarify this remote access question. Are you saying like, let's say I started data center company, and I'm explicitly like, I'm going to build data centers in Malaysia, and I'm going to rent them out to deep seek and a bunch of other like Chinese frontier AI companies technically, and I'm going to buy a video like technically there is nothing as far as we know like, per se illegal about that arrangement. And beyond that, how do the hawks or the people who argue in favor of export controls into mainly in China? That seems really consistent. Like, can you look, walking through like, is that actually legal, and how is that, you say it's not a loophole that it's the law, but how is that law justified? Yeah, in the vast majority of cases, this is legal, I mean, this is like literally what mega speeds businesses, this is what a lot of Southeast Asian neo clouds do. The exceptions to that would be if you know that the compute is going to be used for intelligence activities by a foreign adversary military, it's a very narrow band of, band of restrictions. But they're not there's no restrictions on like selling chips into Southeast Asia to be used to train the most advanced open source models from Chinese. There's actually nothing illegal about it. And deep sea wealth rents from like a Southeast Asia data center, right? So the US government has said that moonshot rents Nvidia compute in Thailand. Deep sea by my understanding actually does more of it has more of its compute on shore. But you know, generally speaking across Chinese companies, you know, this is an existentially important resource is in India compute in Southeast Asia. You ask, you know, how is it that the hawks have not restricted this? They actually did. They restricted it at the end of the Biden administration. And it was part of this broad set of global restrictions on Nvidia hardware called the AI diffusion rule that was set to take effect in May 2025. And the Trump administration is not enforcing that regulation. Sorry, just to be clear, these Nvidia still can't sell their most advanced chips into the mainland China. But the Trump administration so far has been cool to sell them into Southeast Asia to then remote access. I mean, it's the Internet. I don't even know what borders mean why are like, it's the Internet. What we talking about. What does it matter that we are? That's where controls on hardware don't respect the cloud. Yeah. Yeah. No, it's, it's, it's sometimes a bit baffling. Okay. As long as I'm not the only one that's baffled. Okay. This is like an active raging debate in Washington to be there. And you know, one, one interesting thing that happened this summer. So, you know, after, after Kimmy comes out with K3, it's sort of, it's like seen as like a second deep seek moment, almost the, the science and tech advisor in the White House, Michael Kratzier's posts on X that the moonshot team acquired black wall chips, which is illegal and raises questions of why has the US government not, you know, why is the Commerce Department not take any action if that's the US government's determination? And also that they had remotely accessed these chips in Thailand. And a couple of days after that, the enforcement unit of the part of the Commerce Department that that handles chip export control. So the people who are like, oh, you violated, you smuggled, we're going to go after you. That unit started mapping where in the world remote access happens, which is very interesting because remote access is not illegal. And so if you're an enforcer of expert controls, you know, why, why is that your purview? But these started sort of crafting this list of, of countries where that's known to happen. And, you know, there have been at a very senior level of the Trump administration pretty intense at debate over whether to impose such restrictions. There's also interest on Capitol Hill, there's interesting Capitol Hill in being where Huckish on a lot of these policies, but including remote access. You know, this is sort of nightmare scenario for Nvidia. If remote access were to be restricted, it's also a nightmare scenario for some hyper scalers like Oracle that counts, you know, Chinese off-takers as a significant portion of its business. You know, there was great reporting in the financial times recently about Oracle, you know, having a cloud computing arrangement with Tencent that then the Trump administration stepped into kill basically, even though it was legal. And so it's like, okay, we're just going to do this at Huck. You know, they do a lot of things at Huck, but we'll see, you know, there's, it's an active regulatory debate. Like, you know, the answer to this question could change by the time this podcast airs although I doubt it. Well, okay, speaking of ad Huck, I mean, part of the scandal here is that Nvidia reportedly intervened in the US government's mega-speed investigation and said, yeah, it's all good. Yeah, they're cool. They're cool. Trust us. What do you expect to happen? I don't even know the status of that investigation now, but like, is it picking up again? Or like, what's going on there? Would you expect the DOJ to actually pursue those? Yeah, yeah. So I just wanted to clarify quickly on the sort of scope of Nvidia's intervention. So this is reporting from like two days ago and this is such an active story that I'm saying what I know as of 1038 PM Hong Kong time on Wednesday. So Nvidia's general counsel, like I called Tim Teeter, called the head of the Bureau of Industry and Security like the export controls enforcement and they just see that rights and enforces export controls at the Commerce Department in late summer last year to inquire about whether BIS was involved in the detention of Alice who we now know was, you know, having an extramarital affair with Jensen, but Nvidia says that Tim Teeter didn't know that at the time of this call called to ask if BIS was involved in her being detained in Singapore. She had been brought in for questioning and restricted from leaving the country as part of Singapore's own investigation into mega speed, which mega speed said recently had concluded this year with no adverse findings. So Tim Teeter called to ask about that. He later emailed BIS staff who were working on the case and asked to meet with one of them and they forwarded those emails to Jeffrey Kessler because Tim Teeter invoked Kessler's name. He's like, oh, Kessler said it was okay to talk to you and this was like, this is not normal practice for an export enforcement investigation. And Kessler said continue doing things by the book. You know, the Commerce Department said, or it was still exorcist for this agency within the Commerce Department said, you know, everything has been above board. But the sort of nature of the investigation and the ability of expert enforcement agents to act in the weeks and months after this sort of saga with Tim Teeter was diminished, you know, and agents or people working on expert enforcement, you know, were restricted from like requesting information directly from NVIDIA without getting Kessler's approval. Before hand, or routing it through him, that's a policy that's unique to NVIDIA. It's not how things operate with any other major tech company. You were told not to mention mega speed or speed matrix the name of mega speed's Malaysian subsidiary and external communications. And eventually the Department of Justice, which typically pursues these investigations alongside BIS. So you know, if anything is going to be turned into like a criminal indictment, it's going to involve the DOJ. The Department of Justice has been working alongside BIS for a bit on this case ended up asking BIS to stop its efforts. So now that case is with DOJ, you know, I think my My understanding of the status of the case a few weeks ago is probably very different from where things are right now There's obviously intense interest in this within the Trump administration on Capitol Hill So you know, it's funny like a lot of a lot of what we're talking about now was known such a long time ago You know, I was reported on it. We were reported on it But it's got a new life show me say in the past couple of weeks I feel like we should mention BIS is the Bureau of industry and security because whenever I hear BIS I always think bank for international settlements, but yes, and a lot of different type of nerd You can only only have so many three-letter acronyms, right? And so you're good. You're bound to now DC says every day We've all went up to new ones. 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You know, you described it at the very beginning Spun off from this gaming company BVI, Shell company, etc What do we know about its owners and its backers And how they have the money to buy a bunch of Nvidia chips and all that stuff Yeah, so mega speed on paper is 100% owned by a Singapore Shell company That has been 100% owned by a CEO who is a Singapore national We tried many times to get in touch with him last year We were unsuccessful In terms of where it got the money This is a big open question 4.6 billion dollars worth of hardware is not a small amount of hardware It has a compute rental agreement with Alibaba Alibaba, the way that these agreements often work is a company will put a prepayment Sort of a guarantee Hey, you put a deposit down and it's time to purchase We are going to off take this in the future So there are finital transactions between Alibaba via Singaporean subsidiary of Alibaba's Two mega speeds where the entirety of its Malaysian business was offered as collateral actually These are transactions that happened a couple of years ago But don't sort of fully answer the question of where it got all of the money that it did to purchase the hardware But on paper it is a Singaporean company and I don't have evidence to the contrary Let's talk a little bit about you mentioned Huawei And you mentioned that Huawei just doesn't have the capacity The scale yet to replace Nvidia on a global level Probably not even at a China level, given the demand among Chinese AI firms Yeah, you know, Huawei's senior executives themselves say it'll take until 2030 2030 to see a domestic demand All right, so talk a little bit about where are they on this process And you know, in AI, we're always talking about like six months behind, two years behind Whatever, like tell us a little bit about where Huawei is And it's fine, I guess, to be like a real competitor within video Yeah, so, you know, Huawei is such a black box It's the sort of preeminent competitor to Nvidia in China They're a handful of other companies, of course, that are You know, a lot of, in the same way that a lot of American companies are like designing their own chips You have that same pattern among a lot of the Chinese companies It's just a matter of like whether they can get the production capacity You know, that's the constraint In large part because the US and allied nations have restricted the flow of semiconductor manufacturing equipment into China But Huawei has made material progress on its chips over the past couple of years And you're starting to see Chinese companies become more interested in adopting Huawei hardware You know, I remember actually coming on a lot of the years ago and I was like You know, one of the things that I'm waiting for is like, is Huawei ever going to export Ascend chips, which are the name of its AI chips And also, are we going to see, you know, a frontier Chinese lab Complete a successful training run on Huawei chips You know, right now, you're starting to see motor releases out of China that have What are called, like, zero date infringing capabilities on Huawei Which is like, this is sort of optimized to run best on Huawei hardware from the moment that we release it But that's a very different thing from doing, you know, pre-training on Huawei And, you know, one data point for this is Gosh, then I'm busy and you're like, maybe like a month and a half ago, two months ago We reported that deep sea cut placed a very substantial order for Huawei hardware 160,000 of Huawei's best AI chips called 950DTs For use at a data center in Inner Mongolia that deep sea is building As it's sort of like next really, really large domestic computing cluster Instantly, this is the same location within China that the U.S. government Believes that deep sea cousin installed in video's blackwall chips We don't know what the overall composition of compute in that data center will be Huawei is not going to be able to fulfill that order for more than a year Deep sea is actually lobbying the Chinese government to pressure Huawei to speed up its allocation It would be great for Chinese labs if they had this alternative source of supply Right, it's obviously the U.S. government You know, we obviously we talked about their Monaxis piece But, you know, everybody would like to own their chips Have the, or at least have them in country The U.S. government has made it very difficult to use in video They would love people to use Huawei It's a matter of whether they can do a training run And, you know, at the time of our reporting, Huawei was planning on using these 950DTs For inference rather than training even though, or sorry, deep sea was planning on using Huawei 950DTs For inference rather than training even though they were designed as training chips And, Huawei's overall production capacity of that hardware is in the low hundreds of thousands You know, it's just orders of magnitude less than what Nvidia is shipping globally But, you still have started to see Huawei make some export attempts You know, I, I wrote about a couple of months ago as well That they had submitted in response to a tender from the Egyptian government To build AI compute for use by Egyptian defense And, it was a very small amount of compute It was like 2000 chips But, they were prepared to offer their best chips And, you know, it's like when you're that supply constrained It's like everything they are offering overseas is something that you're not offering domestically And so, as a company, you know, Huawei has to decide Like, you know, as important as it is to get more Chinese developers You know, working on its ecosystem Because you also get this sort of like iterative feedback loop When you have AI companies training on your hardware that helps you make your hardware better They also want to make sure that they like have these footholds in global markets It's the same strategy that made them sort of the pre-evident telecommunication provider and that the US government watched that happen years ago when Huawei became extremely successful in 3G4G and they want to avoid that happening with AI infrastructure. So actually when they learned of this bid that Huawei had made in Egypt, they gathered this consortium of American companies and they were like counterfeit. And a lot of these companies had never really thought of Egypt as an important market but they had these conversations with the Egyptian government. We don't know the outcome of that tender process yet. But it's just sort of an interesting, you know, Egypt is an interesting battleground for Huawei because they feel a little bit blocked or boxed out of the Persian Gulf because there were these, you know, big American AI infrastructure deals last year which I talked with you guys about about a year ago of how controversial those were and Egypt is sort of an anchor in the Middle East, also an anchor in Africa. So you're starting to see these battles play out. You know, the Malaysian government is seriously evaluating use of an earlier generation of Huawei assistantships for its sovereign AI capabilities, but you know, it's important to remember that the volumes that we're talking about here are just infinitesimally small at this time. So this is very much a live story as you've been emphasizing throughout this conversation and one reason why you're very sleep deprived at the moment. But what are you watching out for next? So we still, we don't really know what the DOJ is going to do and now we have this independent investigation going into Jensen and the spy affair in video, what do you think is going to be important? Yeah, I mean, look, obviously Jensen's fate is sort of important for global markets for the industry, you know, what the board ends up deciding to do. I think from a policy and regulatory perspective, you know, this is a very unique moment in administration that generally speaking has, you know, adopted a lot of the policies that in video would like it to. There is rage, honestly, on Capitol Hill, and in many parts of the Trump administration about the overall state of export controls, obviously this, you know, scandal within video gives people a lot of things to latch on to. So you're starting to see these voices that have not historically been particularly active on this issue, take great interest in it, and then you have this sort of baseline contingent of China hawks, who have been upset by what they see as a lack of action by the Bureau of Industry and Security, that VIS within the Trump administration on this topic and are trying to legislate some of the rules to at least like, okay, let's not roll back export controls more than they already have been. Let's put additional restrictions on semiconductor equipment shipments into China. Let's make sure that it's unambiguous that, you know, the executive branch has the authority to restrict cloud compute access by Chinese companies. And a lot of these measures are sort of going to be litigated over the next couple of months as part of an annual must pass defense package. So it'll be a really interesting couple of months on Capitol Hill. Obviously, you know, Democrats are taking Congress next year. I would expect a significant amount of oversight and to not just in video, but, you know, the major players in the ecosystem. And then I think, you know, for, for Southeast Asia, which is closer to where I sit, you know, there's been this sort of whiplash over the past couple of years where, you know, remember like the AI, the Fusion Rule, I mentioned that the Trump administration is not enforcing. So this was going to impose, you know, licensing requirements, meaning you need to get the US government's permission to ship and video ships to Singapore, Malaysia, Thailand and Indonesia, all these places where, you know, we have these smuggling cases happening. So actually, some of the companies that are, you know, suspected of being involved in smuggling, like massively ramped up their shipments right before those restrictions were set to take effect. And then they didn't take effect. And then the Trump administration worked on a regulation. They were like, "Hey, we're not doing that." But we are going to restrict to Malaysia and Thailand specifically. This was a draft rule that I read about in June or July of last year. And then they scrapped that in the diplomatic pressure from the Malaysian government. And then they worked on another replacement regulation that would have done global export controls. We wrote about that in March, I would say. And that was withdrawn shortly after it was sent to other US government agencies. And so, you know, for companies that are trying to build infrastructure in this region, you know, even the ones that are doing it completely legally, it's like, "Are we going to be able to get the chips?" I guess this constant sort of, you know, the US government is a little bit the boy who cried, "We'll fund this issue." You know, then we have this intense scrutiny and to mega speed, Asian banks sort of go through, like, ebbs and flows of how comfortable they are with, you know, financing deals without having a significant amount of Chinese off-takes or like, what if the US government does restrict it and then are suddenly, you know, left holding the bag. And this is, you know, one of the fast-scrolling, you know, infrastructure regions in the world. You know, the amount of compute online right now is, like, it doesn't hold a candle to what exists in the US, but it is fast-growing. A lot of companies are investing here. And it's just under, yeah, it intends to peer to scrutiny. So it's, yes. That's just developments that I'll be watching. And then on the Huawei front, you know, Huawei is making export attempts. And I think, you know, the US government, it's funny, like, over a year ago, there was an executive order to promote the export of the American AI stack to basically, like, design these packages that you could sort of offer to, you know, other countries of, like, adopt, you know, up and down, you know, from applications to models, to infrastructure, the American AI stack. And we haven't seen, like, anything come out of that program yet. And now we actually do have Huawei, like, starting to make these attempts. And the US is sort of responding to them on, like, an ad hoc basis. And I'm sure that we'll see more of that over the next years. You'll start to see, like, these battlegrounds in the global south that will be really interesting to watch, you know, how foreign governments make decisions about their own sovereign capabilities. And whether they think, you know, the US is a reliable partner, or they're willing to take, you know, maybe worse chips from China, but, you know, Huawei's happy to, like, send their engineers there and do the whole data center for you. And, yeah, I know it was exciting times. McKenzie, that was fantastic. Get some sleep. Well, deserve. You're going to need it. But, no, that was great. Thank you for staying up late, catching us up to speed on all this. And I don't think this will be the last time we check. And I appreciate your coming on up. Yeah, thanks so much for having me, always a pleasure, guys. She's so great. Yeah, you should like, man, what a, there's, these are such complicated stories, right? They really are. They're really complicated. There's so many different dimensions to them. Also, there's a lot of legal technicality in what Ken and Ken said, which I think sometimes people don't necessarily appreciate the journalistic perspective. And she's doing that all on like, I think she said she, like, hadn't slept for 70 hours. Yeah, that's pretty intense. No, it's a fascinating story. I keep thinking, like, it feels like a big tail risk right now for the chip maker. It's not, I mean, obviously what happens with Jensen and the investigation, but just the idea that as, as a lot of this becomes more public knowledge, as politicians become aware of it, that, that legal loophole of Chinese companies being able to rent GPUs via Southeast Asia, even if they can't actually buy certain chips, like that comes under scrutiny. And you can imagine if that, like, it's such a weird one. It's so weird. This to remote access. What does that even mean? It's a cloud, of course, it's remote access. It's like, oh, it's opposed to like the tenant of the user of the chips walk again to the data. The seven themselves are plugging in a laptop. It's all remote access. So it's a, it's always been very baffling to me that we have these intense conversations about, oh, you can't sell them to China. But actually, it's really not that big of a deal to sell into, and it's not illegal, currently, to sell into anywhere else who then rents that capacity to Chinese firms. Like, what? I don't know. I do, like, who couldn't explain this adjustment? Yeah. The other thing, the other thing that I thought was really interesting, and I wasn't aware of, was McKenzie saying that there's basically like a handful of US customs officers in Southeast Asia. And you can imagine, like, if you're going to ramp up export controls and expect them to be effective, you're going to have to staff up, right? It reminds me, I did an article on the corporate bond market many, many years ago, and at the time, I think this was like, and well, I can't remember, maybe an eight trillion market. And there was one guy at the SEC who devoted half his time to actually like the monitoring the corporate bond market, which blew my mind. You know, I really think actually, and I hadn't appreciated this until McKenzie brought up Huawei's sale to Egypt. That is it. I forget, you know, what is it? We did the story with Eva Doe who wrote the book, House of Huawei. And what was the story there? The story there was this is a company that is very aggressive about gaining footholds in parts of the world that like other companies aren't as aggressive about. So Egypt is like, as she explained, a pretty good example that's even with a scarce number of ascend chips, that is sort of like in their corporate DNA, it like go out and like win these global markets, which then of course, implicitly, as you gain this foothold, then of course implicitly helps sort of like broader Chinese like soft and hard power, et cetera. But then I was thinking about, okay, let's say after this mega speed scandal, you're like, you know, we really, no more of this remote stuff. We really got to like crack down on who we're selling to. in Southeast Asia. It's clear that today, you know, it doesn't sound like Huawei could replace Nvidia today. But if, you know, maybe a few years from now, like a number of these countries do become like Huawei countries. Yeah. It's going to be very tricky. Well, the other thing I just want to reiterate is like, again, with Nvidia itself, there's a weird like contradiction here where if chip demand is as strong as they describe, they shouldn't be very selective with their customers, right? Yeah. They just like, there shouldn't be any question marks over anyone, basically. Yeah. Yeah. And so I find that, I find that really interesting as well. And probably like an under-disgust angle in all of this. Like you can afford to like be discriminating. Be discriminating and have like the most intense compliance process in the world if you want. Yeah. Shall we leave it there? Listen to there. This has been another episode of The All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wasntel. You can follow me at the stalwart. Follow our guest, McKenzie Hawkins. She's at Mac Hawk. Follow our producers. Carmen Rodriguez at Carmen Armandash. She'll been at Dashbot. Kale Brooks and Kale Brooks and Kevin Luzano at Kevin Lloyd. Luzano. And you can share about all of these topics 24/7 in our discord discord.gg/odlods. And for more odd laws content, check out our daily news that are which you can find at Bloomberg.com/odlods. And if you enjoyed this conversation, if you like it, when we talk about chip smuggling, then please leave us a positive review on your favorite podcast platform. And if you're watching on video, then please like or leave a comment or better yet, subscribe. And remember, if you're a Bloomberg subscriber, you can listen to all of our episodes absolutely at free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for joining. If you listen to financial news, you know a lot of time is spent thinking about what's next. The next opportunity, the next investment, the next move. But sometimes what matters most is being ready for what you never saw coming. 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