Chris Miller on the Nvidia spy scandal: congressional reckoning, tighter export controls, and second-order risks for Oracle and ByteDance

Speaker 2: Anyway, what do you think of hobbies? Wait. Actually, we have Chris Miller. Let's bring Chris in. We can can have our hobby debate later. That's much less important than Chris Miller. Chris. Are Great to have you back on. It's been too long. Thanks for having me. Thank you so much for coming on. We were just about to to debate whether or not you should have hobbies because that was taking over the timeline. But there are much more important things in the news.

Speaker 1: The best hobby this week would have been spending the last decade obsessing over global Semiconductor supply chains. And chains. Yes. I think you need help. So thanks for thanks for getting the head start.

Speaker 2: Yeah. How have you how have you been processing the news? Is it as is it as vague what actually happened as it is to you as it is to us? Because it feels like every day it's getting worse, but there's also more tentacles. There's like seven different points of contention right now. How have you been processing the overall story as it's been developing over the last few days?

Speaker 6: Yeah. I mean, I think with, with scandals like this, we should expect they have a long way to run. You find out new things as the investigation deepens. I I think already, though, for for NVIDIA, the damage is clear. I I think the other, damage is in the Trump administration, which let this go on. Now it seems like for a year Yeah. Without notifying anyone that there was a Chinese spy involved with the CEO of one of the most valuable companies in The United States, which is a puzzle as to why that happened. Yeah. Yeah. That's very odd. So

Speaker 2: in terms of... One thing that I've been really interested in is, like, we were, you know, obviously, it's a it's a American tragedy. It is a disaster. It is a crisis for NVIDIA. At the same time, it feels like it's a it's a victory for the CCP. It's a victory for the spying that they wanted to do. They were successful in many ways. We don't know how successful. We don't know if they were had access to devices and networks and Nvidia if they were able to steal designs. It's so much it's so much more a mixed bag. Like in some ways you lost

Speaker 1: you you've lost that your greatest ally, somebody that wants to sell as many as many GPUs as you possibly can to China. He doesn't want to lose the Chinese market. He knows they're gonna still build their own independent supply chain anywhere and you lost somebody who was like the most important person in terms of financing the global AI build out was... Had clearly aligned interest with you. Yeah. By default. Same Do nothing aligned. Not not not total alignment but enough alignment that he Yeah. Was gonna do everything in his power. And my big question is like, why did Nvidia not start this clean up a year ago? Like it seems like they they hired the the the sort of PR firm Heller. So so clearly they they they assume that that this would go public at some point, but it feels like they could have reduced the damage by like just coming out in being the ones that that led with this and they would have controlled a lot more of the narrative. Whereas now I'm sitting here being like, I expect to get more bad news about NVIDIA every single day for the next six months. And, like, I don't, you know, I just don't know where the bottom is.

Speaker 6: Yeah. I I think I think that all sounds right. And I I I think if you, you know, look at the response in Washington, it's gonna be to put tougher controls on NVIDIA tougher controls on the Trump administration to make them enforce the rules that are actually on the book. And and so it's an interesting question for China. Are the second order effects negative rather than positive? If if you can no longer smuggle as many chips in through Southeast Asia or get access to as many data centers that are in turn training and deploying, Chinese models. It'll be a important question to see what, if anything, China did learn as a result of this. Right now, too soon to tell. Maybe we'll never, be certain. But if the Chinese firms can't get access to Southeast Asia, that's a big deal for them. Yeah. The other the other thing is, like,

Speaker 1: NVIDIA, as they navigate through, like, communicating through this crisis, they can't, in my view, take a stance on either side without looking, like, bad. Like, if they say, like, alright, we're gonna change our ways, it looks like there there were people that were effectively, like, compromised. Right? Mhmm. And if they just, like, continue the status quo, it's like, okay, also, you know, it's like there there's no winning from here either direction you take. And it just feels like, again, for me when you look at Jensen, it seemingly was doing like two to three public speaking events a day. Like, 365 days a year. I don't know when the guy, like,

Speaker 2: takes a day off. Yeah. You know?

Speaker 6: Yeah. I mean, I I think it I think it is it is sad. It's it's kind of tragic to to see what happened. I I think if you're in video though, you've you've got to change your relationship with with Washington. And it's been super adversarial... Positive with the Trump administration, adversarial with congress Mhmm. Over the last eighteen months. And now congress is in the driver's seat on this issue. They're gonna investigate both NVIDIA and the Trump administration as to how this happened. And I think NVIDIA needs a big reset Yeah. With congress. Otherwise, investigations are gonna keep rolling. Yeah. Talk about the the difference in in NVIDIA's perception on the West Coast versus in Washington? Because on the West Coast, NVIDIA is just going around being like, you get a $100,000,000,000,

Speaker 1: you get 500,000,000, you get 2,000,000,000, you know. This NeoLab gets 5,000,000,000, this NeoLab gets, you know, 3,000,000,000, this inference provider gets a billion, whatever. They're just giving money to everyone and through that are very popular. Even you saw this the last couple days, a lot of people going out defending Jensen just because he is, one, a friend to many people on the West Coast, but also because he's funding all of their companies and portfolio companies and things like that. Whereas everyone in Washington that I know is like, this company made so many enemies over the last couple years that like the balance of power has shifted like very much like you said to Washington and nobody is exactly seemingly wants to give them the benefit of the doubt on anything.

Speaker 6: Yeah. I just look at, you know, who's sponsoring legislation in congress that's gonna restrict NVIDIA. You got one piece of legislation that has senator Jim Banks, most conservative Republicans from Indiana, and senator Elizabeth Warren. They agree on nothing other than regulating, NVIDIA, and that just shows the the cross party agreement on putting more restrictions on AI chip sales and in pressuring the Trump administration to enforce the current rules. And I think for a long time, NVIDIA thought it could fight that, and now it's gonna be very hard to fight that. Because the the argument that NVIDIA would make was was that, you know, these customers in Southeast Asia are just normal commercial customers. You know, you can't make that argument. One of them is run by a spy. Do do you have an... Do you have a a sense of why,

Speaker 2: diversion needs to go... Like, the GPUs physically need to get to China? Like, why can't Baidu

Speaker 1: just use a data center that's in Malaysia or Singapore that's set up with NVIDIA GPUs and just do all the training and inference over the wire? Well, they are doing that. I think you have to assume that they have a bunch of the most advanced chips in China and they're also buying as much compute as they possibly can. It's hosted in Southeast Asia. Some of it's I'm sure hosted in America. It seems like there's gonna be a lot of new regulation around not being able to just buy cloud services if you're... Like, again, like, so much of the stuff was like every... The the market's been moving so quickly that there's a bunch of these little edge cases that are allowing their labs to develop advanced models even on the data side. Like, I would expect now there to be probably enough momentum to sort of regulate, like, can American data companies turn around and sell the same data that they're selling to, or the same type of data that they're selling to the labs to Chinese companies. Like, the whole the whole landscape, I think, is gonna shift. Mhmm.

Speaker 6: No. I I think that's right. And I think one of the ironies, though, is that this is actually a small share of video revenue. Like, if you look at the best estimates of chips smuggled into China physically plus chips in Southeast Asian data centers,

Speaker 2: you're talking a couple percentage points of NVIDIA revenue for both. Yeah. It's signing. It truly is one of the worst, like, own goals or, like, bad fumbles, unforced errors because... Yeah. Like, I mean, you know, Jensen has built a fantastic business, but it does feel like the last three years, you could do nothing and win. You could you could even go out there and say, look. Yeah. The TPU is great. Tranium is great. Intel is great. You can buy from them. Ours is good. Do whatever you want. Don't even go on the offensive domestically. Admit that it's an oligopoly. I am a car, and you'd still be a trillionaire. Like, you'd still be a trillion dollar company. You would be extremely successful. But it was like, you gotta do more. You gotta win. It's it's some some other motivation there, to not just like, you you know, Apple has not chased the the AI. Well, we gotta train a foundation model. They haven't... They... They've stuck to their core and it's been fine. And they are the most valuable company in the world now and it feels like like you could you could say, oh, yeah. Like, we're, you know, I'm I'm NVIDIA. I'm gonna make incredible cash flow over the next couple of years. I'm I'm actually not gonna travel at all. I'm not gonna leave The United States ever. I'm not gonna take a call with somebody on the other side of the Pacific because

Speaker 6: who cares? I'm making so much money. It's great. I don't know. Well, I think that's gonna be the new policy. I think it's gotta be something like that. Refocus in The US market. That's where the money is anyway. And Southeast Asia and China are gonna be written off. Yeah. Yeah. I mean, I know a lot of the... Not just the AI doomers, but also safety

Speaker 2: focused people, EAs, all sorts of people in the AI landscape, even more optimistic people were always upset about any GPUs making it across The Pacific because they were saying like, there's enough demand here. We'll buy them. There are so many there are so many American companies that would love to buy those at the full price. And and so you're you're chasing this revenue diversification across across The Pacific for not even that much of a financial gain, not just on the revenue scale, but also what it would actually do to the margins because you could still keep the the prices high. One interesting question is, like, how much of that philosophy is a legacy of the the global capitalist mindset of the nineties, the two thousands, like throughout the birth of NVIDIA. I was trying to sort of steel man that philosophy because it's very out of vogue right now when we are in the era of tariffs and protectionism and, and geopolitical sort of nationalism America first, but also there's a whole bunch of other, political groups that are in favor of of restricting AI to China. And... But but if you go back to the nineties, it feels like that that selling internationally, expanding your business globally is something you would get, like, a pat on the back for as a business leader in America. Does that track with your understanding of how the the the global political business landscape has evolved?

Speaker 6: Yeah. I I think the way I would frame it is that most chip companies came to terms with the fact that over the last five or ten years, governments were gonna have a big say in the future of the industry. Sure. And NVIDIA tried to push against that. Yeah. NVIDIA wanted to stop that from happening. It thought it could tell Washington that actually its chips weren't strategically important. And now we've got not only evidence that Washington's gonna make its voice heard, that China believes they're so important that they're worth sending a spy to gather information on. Yeah. And I think this is this is gonna be the final data point that forces NVIDIA to realize that everyone else around them thinks that their chips are strategically significant even if they don't think that governments are gonna force that upon them. It was always such a hard argument to make

Speaker 1: too Yeah. From their side, which is that, like, yes, AI is gonna change everything and and we need to rally trillions of dollars of of capital as a country and as the West to set up all this infrastructure because we are going to solve all the major challenges of humanities, but also this technology, this magical technology is not relevant to national security and we should just sell it to everyone. It was like, it was always an impossible argument to make and I don't think they they... They're sort of, like you said, forced into not Yeah. Being able to make that argument anymore. Can you give us a quick quick tour of the other American semiconductor companies and their stances on China? Because

Speaker 2: Google tried to go to China. They tried to bring Google search to China, unsuccessful. They were asked to censor it. They never really developed a business in China. I don't imagine that they're selling TPUs to China. I'd imagine that they don't even take meetings with anyone that looks like they could be diverting TPUs to China, which would be another big issue. Amazon probably similar. Even though Amazon sources a lot of products from China, they're probably not selling stuff. Intel, is that a more complicated situation because ultimately Intel chips go into IoT devices, cars, all sorts of different things? But take me through some of the other landscape and the other postures that we've seen from the semiconductor industry.

Speaker 6: Yeah. I mean, I think Intel's certainly a more complicated case. I I would say most chip companies want to sell their products around the world. Sure. Fair enough. That's their job. Their job is to sell. I think the difference is that most chip companies would have gone to the US government and said, hey, you know, we have this economic interest in selling to China. Yep. Or, hey, our chips aren't actually that good. Let them sell to China. Sure. Whereas NVIDIA said, actually, no. These aren't strategically important. You're misunderstanding The US China relationship. It's actually not about AI competition. Mhmm. Going to the core of what both Washington and Beijing actually think the competition's about. And so it's this clash of worldview that made NVIDIA really stand out, and I Yeah. Think that's what's gonna have to change. Yeah. Last question for me.

Speaker 2: On on the... In America, it it it it is overwhelmingly... We are overwhelmingly focused on AI. We are fully awake. ASI, RSI, these discussions are all over the place from the New York Times to the Dorakash Patel podcast. Like, it... It's everywhere. What what is the status quo in China? Have they woken up? Are they are they taking this really Is this an... Is this evidence that that they take it so seriously that they would deploy us by potentially? Or or is there is there still a little bit of they haven't fully shifted into gear?

Speaker 6: You know, I think that's a a key question in the Chinese system. It's not monolithic. On the one hand, you've got spies deployed to track NVIDIA. That's an important point. On the other hand, you know, recent reporting this week that you've got NVIDIA h two hundreds stuck in customs in Hong Kong purchased by Chinese firms, but the Chinese one actually let them into data centers. Interesting. But you wouldn't do if you were super AGI pilled. Yeah. So I think there's still a debate in the Chinese system about,

Speaker 1: just what approach to take on on this topic. Yeah. It's probably longer time Last question. I know we're out of time. What story do you think is being overlooked now that this will dominate sort of all of the headlines for months to come?

Speaker 6: What... The the second order impact on on data centers outside of China serving Chinese customers. Mhmm. It's both Southeast Asian firms, but also you look at Oracle, which has ByteDance as a huge customer. Sure. I think that's gonna be, in focus as well as this investigation rolls on. Yeah. No. That makes a ton of sense. Well, thank you so much for taking the time to come chat with us. Yeah. I really appreciate it. Have a great rest your day. Busier than ever. This is... The furthest.