Defense Tech in Focus As Iran Conflict Widens

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1:04And when you're a Sinesta travel pass member, staying at Sinesta, ES, and simply suites means earning points toward free nights, upgrades, and more with every eligible stay. Go to Sinesta.com to book your stay and unlock the best rates with Sinesta Travel Pass. Here today, Rome tomorrow. Join now at Sinesta.com, terms and conditions apply. Bloomberg Audio Studios. Podcasts, radio, news. Bloomberg Tech is alive from coast to coast. With Caroline Hyde in New York and Ed Lovell in San Francisco. This is Bloomberg Tech. I'm Caroline Hyde in New York. And let's go straight to our top story today. The war with Iran. The conflict continues to reverberate across the Middle East today. This is President Trump says the bombing campaign against Iran could last for weeks. We are awaiting more updates from the President this hour,

2:04but we want to bring you the latest of Bloomberg's Daniel Williams, who is in Jerusalem. On the ground there, in Israel down, what is it like? As you can see, the sun is set on what has been the third day of this extraordinary war, a war that appears to be widening and gulfing not just the Middle East now, but even lapping up against southern Europe with Cyprus saying that a British air base on its soil was apparently targeted by a Hezbollah drone, Hezbollah being the Lebanese militia ally of Iran. In fact, an ally of Iran in Lebanon, which opened a front from Lebanon with Israel, reopen that front overnight. And now these really just saying their bombing targets in Lebanon, pace as they continue their bombing of Iran alongside US forces. So we have several fronts opening up, a number of Gulf Arab countries that also found themselves in the firing line being struck by Iranian missiles and drones and not just US bases on that earth, but also hotels

3:05and the like. This is imposing a good deal of economic pain on the region and it would appear that what the Iranian regime is trying to do even though it's massively outgunned by its enemies is to wait out this campaign in the hope that the pain and indeed the patience of the American public that apparently disapproves of this by quite a margin already will wear thin and some members of the Iranian regime might be able to survive. Talk to us about what remains of the Iranian regime down. It's very hard to know. The Supreme Leader was killed over the weekend in one of those opening salvos and almost by the minute we've received updates about other members who have been killed sometimes as successors of those who were recently killed. However, to judge by the cycle of fire being maintained by Iran, certainly in Israel, what we've been experiencing every half hour or about a couple hours sirens and calls to take shelter in the face of missiles

4:06or drones coming in, it would appear that there is still a vestigial cell state functioning, managing to keep up the fight and presumably domestically managing to deter members of the opposition from trying to take control of the country. That is of course the vision are enunciated both by Israel and the United States at the outset. A situation whereby the Iranian regime is sufficiently degraded, it's initially destroyed to enable the Iranian opposition, which many in the west would see as the bulk of the Iranian population, certainly the young population, to take to the streets again as it did only a few weeks ago, but this time not facing the guns of the state and being able to assume control. We extraordinary day in Jerusalem as you say a third day Dan Williams, we so appreciate you being with us of Bloomberg. Now let's check out what is a human story that is affecting markets right now, and that's at 100 off by four tenths of a percent. Big tech is seeing some significant moves on individual names, of course money moving into the likes of NVIDIA Palantir, as you're seeing up 6% as a defense-related name in the tech

5:10perspective pushes high. These are your big points contributors on the day, and in video in fact making a deal, putting money into optical companies, we'll dig into that a little bit later, but really we're also seeing significant moves in other parts of the market, different industry groups, different asset classes, Brent Crude, unsurprisingly, up more than 7%, extraordinary moves as we consider the straightforward moves, an issue about supply chains writ large for the globe to try and digest. Bitcoin is up by more than 5%, recovering some of its losses as it was one of the main tradable assets over the course of the weekend, and strategy of microstrategy is currently up 6.8% on the back of that Bitcoin buying. Let's talk about the market impact wall with IPEC Oscar Desker, Swiss quote, senior market analyst, and this is a moment of knee-jerk reaction of risk of sentiment, but interestingly we are still seeing big tech managing to see some flows into it. Exactly. What we see right now is that as the or the spike in oil prices is being retraced, technology companies are also finding some breathing room right now, and we also do see

6:13some individual divergences in the technologies phase. The companies that do have exposure, greater exposures to energy costs like the ones that run data centers or being head more heavily, then the others that are more or less capital intensive like Nvidia, for example, the defense related names are also gaining in on the back of the Middle East conflict news. Is that an automatic buying that you think will see the likes of Palantir hold on to gains, going forward, is there something that is sticky about this demand for such defense tech? Yes, we believe that globally the defense stocks have been in demand due to the rapid shift and the significant shift in global geopolitics, and we have seen a couple of times since last year that the geopolitical tensions are not ready to ease from the actual level, so the risk are being quite high and technology companies are technology and defense companies are benefiting

7:14granted from it. It's not only in the US, but we also think that the defense stocks in Europe will also continue to benefit from deriving geopolitical tensions and risk across the globe. I mean, what's notable is benchmarks are actually trying to turn around. I'm looking at the NASDAQ more broadly, only off by about a tenth of a percent now. The S&P in the US currently off by three tenths percent, even though we still market falls over in Asia and European trading epoch. Just the macro picture for someone who is in the audience right now trying to understand where to be navigating if they're exposed to technology names. Well, exactly. I mean, the big picture of today was the rapid rise that we saw in energy prices at the beginning of today's session, so the Asian and European stocks were heavily hit, but as we move on towards the US session, we see that these gains have been raised. So some of the hawkish expectations regarding the major central banks that would be lifted, that that would be that that was coming actually from the fact that the energy prices would lift inflation expectations are also being

8:16trimmed right now as oil prices are coming back down. And I think that that is the global macro economic picture that investors should understand. It is really today about the energy prices, the inflation expectations and the impact on central bank decisions. As energy prices move lower, we are getting back to the levels of risk that we saw in the beginning of the session. Now we are still higher in terms of energy prices and the risk of another upside potential move and sustain again in energy prices due process, but at the moment it's quite interesting to see how fast the early gains are being retraced and the global markets are immediately re-adjusting that retracement. What is Bitcoin acting as in this moment? Well it's interesting because Bitcoin has not necessarily been a risk haven or a safe haven asset over the past few weeks. It was very much in line with technology companies and was

9:19hit along with detectors to sell off that we saw across the technologist space. So what we see today is that the Bitcoin is actually acting as a safe haven asset and we suspect that the regional conflict could eventually bring some capital into Bitcoin regarding maybe the detentious or or the fact that the gold has been overly valued and investors may be looking for other safe haven. But to be perfectly honest with you, the mood that we see in Bitcoin and the coupling of the correlation with the technologist is quite interesting right now even more so as the higher energy prices should normally also have a negative impact on Bitcoin. Impact is great to catch up with you. Thank you very much indeed. Thank you. Impact, Oscar Deschkeis, with us from Swiss Quote. We appreciate it meanwhile coming up. We'll speak with representative Sam Lakado, a congressman from Silicon Valley about the conflict in the Middle East and AI policy. Meanwhile, check out shares of Apple. There is other news happening

10:20of course, the concerns in the Middle East were almost two tenths of percent. As Apple is unveiling the iPhone 17 E. It's the latest version of its lower end smartphone, faster version of an iPad Air also coming out with the iPhone 17 E including a faster processor new in-house wireless chips. This is Bloomberg Tech. Effective marketing is smarter, not louder. Cutting-edge technology alone won't deliver better experiences or outcomes. Adobe helps marketers use data and AI to drive smarter engagement, reduce noise and use AI effectively and responsibly. The brands winning in the AI era aren't the ones chasing every trend. They're the ones with the right systems and strategy. It's time to lead with insight, agility and innovation. It starts with Adobe. So there's a lot of noise about AI, but times too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology

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12:29We are awaiting remarks from President Trump in Washington who is about to participate in a public event and we anticipate there might be some commentary regarding the war with Iran. We will bring you up to the moment breaking news on that subject, but within the context of Middle East anthropic, it's been saying that there's been an outage that impacted thousands of Claude users, but it's now been resolved. Reports of the issues with the chatbot came, as the AI provider experiences a surge in demand driven by the company's feud with the Pentagon, over the potential use of its technology for mass surveillance in the development of autonomous weaponry. Now, Seth Vigvin, a Bloomberg News employee, says joins us to set the context first, because while a feud is erupted between anthropic, we've actually seen open AI complete a contract with the Pentagon in the use of its own AI technology. Just take us through the weekend, Seth. Yeah, I think this has to be the most dramatic weekend we've seen in AI lands since the ouster of Sam Altman a couple of years ago, but to your point, Carolyn, yes, OpenAI swooped in

13:31hours after anthropic was effectively blacklisted by the defense department, and so I think to deal with the defense department for classified AI work. Now, OpenAI is not saying of this replaces anthropics work, but they are signaling that they are comfortable with the contractual safeguards to make sure that their technology is not used for domestic surveillance or for autonomous weaponry, which were the two red lines that anthropic really centered on, and which led to this fierce standoff with the Pentagon. It's been a standoff that has erupted online with many people calling to stop using chat GPT to instead shift one's attention to anthropics consumer apps. Now, it might be said that Claude for Enterprise hasn't been affected by the outages today. It's interesting that Treasury Secretary Scott Besson has been saying that he's following President Trump's direction on anthropic and in the Treasury Department is terminating all use of anthropic products, but there's reporting to show that it's of course still being used at the moment and was over the course of the weekend with Iran. Yeah, I think to step back, let's just say that what

14:34seems clear is that the federal government is moving forward with rethinking its use of Claude. What's less clear is what the broader impact than blast radius will be on anthropic from the many other businesses and companies that work with the government to take pick the headsets tweet literally, he's implying that any business that does commercial business with anthropic must stop that if they also work with the military, but Dario Mede at the CEO of Anthropics over the weekend, he thinks it's much more limited in scope. It will just be if they do military work with anthropic, so that remains to be seen how it's interpreted. Still a lot of work to be done by the likes of Palantir, for example, Bluemeg Seffigman across the story. Thank you very much indeed. Now look, U.S. lawmakers, they're gearing up for a vote on a war power's resolution following the strikes in Iran. This is unfolding as the debate over AI use by the military continues. We're pleased to say we're joined by representative Sam Nacardo. His district includes parts of Silicon Valley. There is drama in Washington where you've just got the train to us from. There is drama in where

15:39you represent as well. Can I just ask you first and foremost, what do you think the relationship or some of the companies that within your district is like evolving with the Pentagon? How do you observe what occurred over the last few days? I think Silicon Valley, there's a strong libertarian district. And so there are many who are cheering to see Anthropic step up as it had. And look, there's a free market here and the Defense Department has many competitors to choose from, and it has a right to choose whoever it wants. But it seems to me that at the end of the day, when we're talking about AI safeguards, these ought to be decisions that are not confined to back room negotiations between lawyers at the Pentagon and individual companies. These ought to be very public discussions. The administration should be setting rules. Congress should be setting rules. And the way this all went down now with retribution against Anthropic and the way that Secretary Hegseth and others have articulated, I think, is very damaging to Silicon Valley and

16:39frankly to the country. In many ways, Anthropic and Daria Amadeh have tried to make it a public discussion, brought it into the light. What's interesting is Daria has also said that the law has not yet caught up with AI's ability. Therein lies your role in Congress. How can Congress keep up at this moment to ensure that there aren't these blurred red lines that everyone's trying to digest from OpenAI's contract and from Anthropics? This isn't the first time someone has said Congress is not moving at the pace of technology. We've been waiting 30 years for a day to privacy bill for protections against, for protections for children online, etc. But the reality is this is an area where both Congress needs to act and the administration needs to act. There should be clear lines. I don't think a lot of folks argue with the lines that Anthropic articulated. In fact, OpenAI seemed to have embraced them, so why not, rather than punching the company, hold these up as examples. This is an opportunity where the industry can inform the government and we

17:39ought to be taking those cues. You say OpenAI has embraced the red lines that Anthropic put forth. There's reporting to suggest that there's cynicism around that. Yes, well, that is to be determined. I guess I'm simply relying on what I'm hearing publicly, now obviously I understand why there might be cynicism. Look, the bottom line is this shouldn't be enforced by one particular CEO at one company. There's a reason why there ought to be a public discussion because this is going to impact all of us and certainly when we talk about issues like public surveillance. I mean, realistically, are you able to have the time, the insight, the focus at the moment when we've got an erupting war with Iran and indeed, well, government shut down. How effective can you be at this moment, Congress? Well, I'm not going to speak for Congress because, frankly, as you know, if you ever made a bet on Congress not getting anything done, you win 99 times out of 100. Diction's markets are for that. Well, yeah, they're doing pretty well. But I will say this week,

18:41I'll be introducing a provision in what's called the Defense Productions Act, really to prevent any federal agency from retaliating against companies like Anthropic when they propose reasonable limits on the deployment of their technology. Technology is obviously a wonderful thing. We know it has enormous risks. We ought to take the cues from industry when industry tells us these risks are too great. Let's draw lines. What do you think will be the support of that bill across both aisles? We'll be discussing it this week in the House Financial Services Committee where we're having a markup. I'm still having those conversations with my colleagues. Okay, so maybe we can find some support that it shouldn't be down. There shouldn't be retribution. There shouldn't be sort of unprecedented moves where you deem a company, a homegrown domestic champion, as a supply risk in some way. But when you think more broadly about AI regulation in the hands of Congress, or in the hands of the executive right now, are you comfortable with the amount of executive orders that have been deemed around AI, the way in which the administration

19:43has had to take maybe the steps necessary if the Congress void is still there? Well, I know this president is not unique in using executive orders where Congress is failing to act. The way in which these executive orders have been deployed are deeply problematic. And certainly, we've seen, in many cases, quite unconstitutional, Congress needs a step up. And that requires the majority party to do its job. That is to defend the progress under Article 1 of the Constitution where Congress has authority. And we've seen a host of areas from tariffs, certainly to AI, where Congress has simply not been stepping up and allowing this president to take too much of the turf. There's a reason why we want Congress to be deciding this. These are issues that have massive impacts in many communities that are diverse communities that are simply not benefiting from AI as much as my community, so okay, Valley might be. That's why you need to have a national conversation. You were having a national conversation before the conversation became much more

20:46more in the Middle East and more with Iran. You were talking about how we shouldn't see Congress just slam the brakes on AI innovation. But equally, they shouldn't accelerate. There should be a way of grabbing the steering wheel as the way you wrote it and op ed. Can we get some sort of bipartisan approach to grabbing a steering wheel? And when you say so many states are affected in different ways by AI? I'd like to think we can. Look, there's a lot of fears right now around AI, around lots of jobs, around impacts on utility bills. There are opportunities for us to move together. For example, we know these hyperscalers need speed. Let's give them federal permits and enable them to accelerate if they're keeping rate pairs whole and protecting them from these utility at the risk of higher prices on their utility bills and investing in batteries and the kinds of technology we know that will be sustainable rather than simply pulling more natural gas and coal in. For example, on jobs, there are things that we can do that are bipartisan that can

21:50incentivize companies to invest in community colleges and local state universities to upskill and reskill. These are not necessarily partisan notions. This is a time for us to be thinking more creatively across the aisle on these kinds of solutions. We don't have the kind of administration now in office that is particularly bipartisan and so it's really going to have to come from ground up. You mentioned social media and I think in many ways people have felt that there's been a void of law-making around social media because there is so much nuance to much of this. Is there sometimes too much nuance when it comes to the likes of impact by the Pentagon's decisions on mass surveillance, on issues of autonomous weaponry that really laws can't be made that can keep up with? It's fair to say this is incredibly complex and you can't simply declare amateur hour and start to announce, eat, et cetera, going to apply broadly across multiple

22:50industries where the impact may be very different. What I have been proposing and we'll be coming out of legislation soon is how, for example, on AI, we can essentially enable industry experts, academic experts to be able to establish what those best practices are in an industry, allow industry to reach those best practices rather than having some kind of monolithic edict come from Congress or the administration. Government is not going to get it right. We have to acknowledge that. This is moving too fast. We need to rely on the best thinking in the industry to establish what the best practices are and then mandate that if folks can reach those, they can have the benefits, for example, of preemption. If they don't, then they're subjected to the edicts of 50 different states. We appreciate you stopping by. It's great to be with you. I'm Lucy, here in New York, representative Sam Nakado, who represents the heart of Silicon Valley and much more in California. Now coming up, Bitcoin, it shakes off investor caution as Middle East

23:52tensions, they rattle global markets. We'll bring you more market impact next. This is Bremberg Tech. So there's a lot of noise about AI, but times too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smart to business. IBM. You need to make a huge presentation in an hour. Adobe Acrobat uses AI to take all your documents and generate a presentation with a single click. Build slides quickly and streamline the process. Need a last minute pitch deck? Do that with Acrobat. Need to level up your presentation design? Do that with Acrobat. You have 30 plus documents that need to be simplified

24:58into a proposal. Do that. Do that. Do that with Acrobat. Learn more at Adobe.com slash do that with Acrobat. Support for the show comes from public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a gain. Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On public, you can build a portfolio of stocks, options, bonds, crypto without all the bugs, or the confetti. Retirement accounts? Yep. High yield cash? Yes again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com slash market. Add paid for by public holdings, brokerage services by public investing member Finra SIPC, advisory services by public advisors, SEC registered advisor, crypto services by zero hash, all investing involves risk of loss,

26:01see complete disclosures at public.com slash disclosures. Bitcoin staging a comeback, nearing $70,000 levels after the US and Israeli attacks on Iran shook investor confidence over the weekend. Here with the latest is Bloomberg Cross asset reporter Isabel Lee. They shake people with thinking of a world of war that is not something to take lightly, but we think about the assets impacted. How is Bitcoin managed to rally through this? Definitely behaving like a risk asset. I feel like, I mean, when you see a big pullback like that, it's eventually going to bounce back. It's now higher by around 6% after dropping as much as 63%, 63,000 over the weekend. Other less liquid smaller coins are also in degree in higher by 6%, like Ether. The thing I love about cryptocurrency is it trades 24, seven and you really can see and use it as a risk sentiment when markets are closed. And now that we see US darks open, you see worries about an inflation resurgence. For instance, bonds are slumping, traders are trimming their fed rate cuts. Haven assets are surging, dollar, gold, oil. Of course, an interesting higher oil

27:05prices will actually weigh on crypto prices because crypto prices are behaving like tech stocks and risk assets. And of course, those are sensitive to fed rate moves. So everything is just interconnected and I find that very interesting in a top of all of this. It's a busy week for US eco data. We have non-farm payrolls. We also have unemployment rate. And now for now, we have more questions than answers. We have President Trump saying that the attacks could last a few weeks. So I think investors are just really preparing themselves for the Taylorist events and preparing for a worse case outcomes. But at least for now, Bitcoin is nearing 70,000. You keep us prepared as well. We appreciate it. On all things of the market's reaction to a story that continues because coming up, we will be joined by American Enterprise Institute senior fellow Corey Shockey. On all things, defense tech, geopolitics, so much more. This is Bloomberg Tech. Welcome back to Bloomberg Tech. We take a look at these markets, markets that are currently

28:09reacting to the news over the course of the weekend, war in the Middle East, war with Iran. We're currently down on the Nasdaq 100 by some 5.5%. Coming back into lows, having tried to bounce into the green on the border indices, Nvidia is actually up more than 2%. Because deals are still getting done from an MNA perspective or from an investment perspective. This is, as we see in video, making $4 billion investment in data center optics companies that's coherent and momentum. Their stocks surge. Palantir defense tech. There is buying of this name for obvious reasons on the day. We're up almost 6%. But crowd strike is also interesting. Look, our great colleagues at Bloomberg Intelligence, like Manning Singh, putting out really great notes talking about how Palantir, of course, is going to see buying amid geopolitical tensions. We'll also see tailwinds for security spending with the larger companies such as CrowdStrike, Palo Alto, likely to see some focus amid concerns about cyber attacks. We'll get into that in a little bit. But let's head back now to DC, where it's notable that the Pentagon is shifting AI providers after reaching a deal with OpenAI to deploy its models within the department's

29:12classified network. Remember senior tech editor, Mike Shepherd joins us on what is an extraordinary story that intertwines with a geopolitical story? How significant is this move that Sam Altman goes where Daria Amade won't? Well, it's not just significant that it happened. It's also carried that it happened so quickly after the Pentagon decided that it would walk away from its relationship with Anthropic, which had been in place for roughly a year. And Anthropic had really worked itself into the classified space that is crucial for the Pentagon. Being able to deploy artificial intelligence in some fashion during critical operations, including combat. And Anthropics products have been used by Palantir as part of this so-called Maven system that colloquially might be thought of as Windows for War, where battlefield commanders can have access to information and have it interpreted and processed and analyzed and assessed in a much faster

30:15fashion and presented to them. Now, what this means is that within six months, the Pentagon must transition to a new provider, an OpenAI and Archrival to Anthropic is stepping in. And what they are saying also is that they are willing to take the terms that Anthropic thought were unacceptable. Terms that OpenAI says still respects its own guidelines when it comes to two key areas, and that is mass surveillance of Americans and also deployment of fully autonomous weapons. OpenAI says that the contract and the relationship with the Pentagon are strong enough that those two requirements by the firm are respected. Anthropic from its standpoint did not see the same in the contract language. And it'll be interesting to see how this unfolds, Carol, because the U.S. government is declared Anthropica supply chain risk and also ordered it off U.S. government agency networks elsewhere. And Treasury Secretary Scott Besant talking this morning saying that

31:16the Treasury Department is terminating all use of Anthropic products. He's following President Trump's direction on Anthropic, but of course this is as the consumer moves in a different direction Mike. We've actually seen Anthropic in many ways knocked off line for consumers because so many people were demanding the product and downloading it. And maybe as some sort of pushback to OpenAI there's calls to cancel GPT on the internet. Well that's right, Carol. We are seeing some of this popular sentiment swell in Anthropic's favor. Certainly online there is a lot of applause in favor of Dario Amade and what has seen as a principled stance by many against the Pentagon, against the administration that look if you thought that you couldn't do business with Anthropic, why not just cancel the contract declaring them a supply chain risk was seen by many as going step too far and being vindictive. It's also important to remember that Claude's products are gaining popularity because many see them as quite good. And we have talked on this in this space

32:20about how much Claude is threatening to disrupt other industries such as law, such as financial services, wealth management, you name it. And the tools that Claude offers really have some benefits and that is yet another reason in addition to perhaps this popular sentiment swing. Mike Shepard, always on the news, we appreciate it so much from DC that let's bring in Corey Schrocke, Senior Fellow and Director of Foreign and Defense Policy Studies at the American Enterprise Institute. You've been thinking about really the Pentagon's reaction to this, just talk us through your thinking as to whether the step of banning Anthropic from the supply chain in this way is the right step. It's a petulant reaction by the Secretary of Defense that's likely to turn out to be advantageous to Anthropic but it's going to be bad for the Defense Department and bad for the security of the United States. The idea that you could either nationalize or blacklist

33:21a leading American company is outrageous and it's going to discourage other leading edge tech firms from being willing to expose their business by participating in the defense ecosystem. Okay, there's going to be immediate shock as you say from those in the space and their reaction function of the Pentagon. But more broadly, how transparent should these sorts of conversations become at this moment? Very difficult ethical questions that seem to be shown a significant public light on by Daria Amade, the leader of Anthropic himself. Yeah, I think that's exactly right. I mean, this is a frontier technology that we are still understanding what its consequences are going to be and to suggest that we have less transparency or that a firm has no right to set standards on how a cutting edge technology will be utilized by the Defense Department. I think is probably a losing proposition for DOD. What should be forced? What could be forced by Congress?

34:27We just had a representative of California to start the show talking about wanting to bring law to bear that companies are pushed off of any sort of national supply chain in any retribution act. But what more broadly can't be done by Congress at this moment to make clearer the lives? Well, Congress really runs defense policy and they can legislate in this space and DOD will be required to be compliant with it. It's actually shocking to think that the Defense Department blacklisted an American company. That's the kind of thing we do to Chinese firms, not to patriotic American firms who are already participating in classified DOD activity. Can you give us some guiding principles on then how open AI and Sam Altman might be able to find appeasement in a contract? Do you think extra steps had been taken? Is there really a need at this moment for companies to see the law as it stands

35:29as where the line should be rather than trying to insert their own language into certain contracts? Well, it's an open question, but I do think that open AI is saying yes, we trust the government that they won't use our product in a way they say they won't. And anthropic is saying we actually need proof and we need indemnification that our product is being used as we are advertising our product. I think given the low level of trust in the Trump Department of Defense, this is likely to be advantageous marketing for anthropic and very difficult for DOD to be able to say you need to trust that we will abide by the law when so much of their behavior, including blacklisting an American company, looks to be a bending of the law or at least an aggressive and predatory use of the law. Cory, it's interesting open AI defended saying that it

36:32built a number of safeguards into the contract with a Pentagon and said the Pentagon actually agrees with these principles and reflects them in law and policy. When we're thinking about where AI's role now is in defense, in law as we're currently seeing it unfold, can you just educate our audience as to how integral AI has now become? Yes, what AI is already proving incredibly valuable for in the defense space is serving enormous amounts of data and for example, identifying threat portfolios and the ability to see patterns in large amounts of data. But what anthropic is saying is we do not want it to be used for domestic surveillance of the US or for decisions about the use of lethal force before we have higher confidence in the model. And those are not unreasonable standards and provide the basis for what Congress

37:37perhaps ought to put into law until we have better transparency and better understanding of what these models are capable of in future iterations. Cory is shocking. Great to speak with you of the American Enterprise Institute. We appreciate your time and expertise today. Look as the conflict where they run intensifies cyber security experts. Their warning of a rise in Iranian linked cyber threats targeting critical networks and infrastructure. Joining us to discuss Cynthia Kaiser, SVP senior vice president of ransomware research center at Halcyon and former deputy director of the FBI cyber division, Cynthia, are those threats real? They are. We're already seeing Iran have real threats and conduct cyber activity against organizations in the Middle East and we anticipate that they could follow on with operations here in the United States. And we said infrastructure in particular, where are the vulnerabilities likely to be targeting? So throughout infrastructure in the Middle East and in the US, we see Iran target what they can get

38:40into. So it doesn't really matter the sector. It matters how the specific organization has done with their cyber security has been able to fix those vulnerabilities because what Iran does, they go on, they try to exploit something, get into something, and then they go out in the media and they say, we've done more. So I've gotten under one machine and an organization, but I'm going to say that we've gotten onto the entire facility and say a water treatment facility is down. So it's really a mix within critical infrastructure of getting onto something, but then moving on and lying and exaggerating to try to stoke fear and chaos. How sophisticated is their ability to get onto something? So they are one of the world's most malicious and capable cyber actors. In critical infrastructure overall, there are many, many devices that are connected to the internet and haven't been hatched for vulnerabilities that Iran is exploiting just late last year. FBI put out a warning

39:44about Iranian state-sponsored actors who are targeting critical infrastructure in the United States through these types of vulnerabilities. From the perspective that we see the market, as always, trying to get ahead of any sort of concerns and indeed, well, move money on the back of it, we've seen CrowdStrike on the higher side, seen Palo Alto Networks in the green. Are we seeing really a desire to be far the infrastructure of resistance to be see our companies having the right place, the right sort of restraints and, well, use cases in place in the moment? Absolutely. We've seen a lot of movement chores being able to practice incident response plans. Know what you're going to do if you are hit, including what you're going to do in the media to say if something's being exaggerated, to hatch devices that maybe were on some type of schedule to be patched later doing that today and conducting a lot of engagement across industry as well as with the FBI to be able to know the latest on what might be coming down and what threats that they're

40:49facing. On the threats of all AI in many ways, I'm sure Cynthia. They are. We've seen a lot of AI enabled threats and really where we see the biggest risk with AI enabled threats is in kind of want to be or very low level actors, but that's who I ran might use. I ran uses proxies to be able to conduct their activity. There's one group our healthy on intel team had identified who named Sikari who is currently telling its members to conduct activity, conduct attacks in the Middle East, but they've used AI to make their bad software. They're what they're deploying and it doesn't work very well, but what it actually means is it destroys networks when it gets on instead of being this kind of ransom you're going to pay to try to get back online. Oh, so like collateral damage when actually just tried to exert financial damage. Cynthia, from the perspective of AI, we just come off the beat back of a couple of weeks where software names were pummeled where

41:52particularly cyber companies were under pressure because people thought generative AI companies were going to be able to take their business. A plug-in from Anthropic would be the answer to all our ransomware and cyber concerns. How are you seeing that evolve? How are you seeing companies actually wanting to use and build from within or still dependent on external offerings? Being able to build within is really important in a way to consistently know what's going on your network, be able to fix those vulnerabilities I talked about in real time and then be able to identify other errors or things that might be going on that are malicious across a network. But it's only going to know what's plugged into it. It's not going to have a lot of these additional information. What a threat group might be saying in a dark web forum? What's the new zero day that might be coming down the pike? Figuring out that aspect being able to plug the really sensitive grade information the private sector has into some of these new

42:53processes organized to just being cybersecurity is going to be better. It doesn't mean there's a replacement on either side. Can you take us to allies? Can you take us just to how strong that defences on? Across the close allies the United States has there are lots of sharing things implemented as well as these sharing mechanisms where we're sitting inside different governments. They're sitting with us to be able to counter cyber threats because this has been practiced for years. Cyber threats just don't have any boundaries. They're going across the entire world. That's especially true with our European allies, with Australian allies, with Israel. And so we have really identified ways to share quickly, share in real time these threats that are facing all of us. And we all face the same challenges, but we all can come up with the same solutions and really

43:53counter these adversaries together. And look, Cynthia, from just an audience perspective, is this likely to be an attack that is focused in the enterprise, in one's work environment? Or could this be something that you're navigating as a consumer right now? It's mostly going to be focused within the enterprise environment, especially within the United States. We have seen Middle Eastern countries and organizations in those countries being targeted by Iranian state-sponsored groups in the last few days. For some of the data, they might have on people, whether that's patients, customers, parts and employees of that organization. We do see Iran going out trying to identify personal information for people they perceive, maybe dissidents or enemies of the Iranian regime. And that's something to watch out for there. But we haven't necessarily seen that come over to the United States or to our European allies. Cynthia Kaiser, of House in, I'm former FBI Deputy Director. We appreciate your time.

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