The artificial intelligence (AI) sector is experiencing a remarkable surge in investments and innovations, driven by Elon Musk's recent announcements and the rapid progress of Chinese tech giants like Alibaba and Baidu. As Wall Street embraces the investment craze, the global spotlight is now on AI-driven businesses and technologies.
The Clash of AI Titans
In a recent interview with Fox News host Tucker Carlson, visionary entrepreneur Elon Musk announced the formation of a new AI company, X.AI Corp, with a focus on creating a "universal app." Musk plans to develop TruthGPT, a truth-maximising AI, as a competitor to the widely-used AI language model, ChatGPT. Criticising OpenAI's closed-source nature and Microsoft's alleged control over it, Musk argues that his alternative can provide a more open and truthful AI platform.
Musk shared his concerns with Carlson, stating, "What's happening is they are training the AI to lie…not just say what the data demands that it say." Carlson joined in, suggesting that information was being withheld. However, it's important to note that Musk sold his OpenAI shares in 2018 to a "maximum-profit company," specifically Microsoft, which makes him partly accountable for the issue he's highlighting.
Musk also backtracked on his commitment to provide $1 billion in funding to OpenAI after his departure, contributing a mere $100 million instead. This could have forced OpenAI to seek alternative funding sources for ChatGPT. According to Fortune, OpenAI will regain full ownership of their business once $92 billion is paid to Microsoft (who currently owns 49%) and venture capitalists receive a collective $150 billion (they also own a collective 49%).
Microsoft's investment in OpenAI seems to be even larger than initially believed. Documents indicate that, prior to the current deal, Microsoft had already invested $3 billion into the company—$2 billion more than publicly reported. If the ongoing deal is finalised with the discussed figures, Microsoft's total capital contribution to OpenAI would amount to $13 billion, emphasising the importance of technologies like ChatGPT and DALL-E 2 for Microsoft's future.
Microsoft Copilot Demo
The unique deal structure appears to favour Microsoft. However, OpenAI's hybrid setup—with a nonprofit lab and a capped-profit business arm—alongside its extensive commercial partnerships with Microsoft, creates numerous variables that could influence the final outcome and payouts. Here are some key insights based on our analysis of the documents.
Venture capitalists are investing in OpenAI through a parallel tender offer of employee shares, alongside Microsoft's potential investment, as previously reported. All investors—including Microsoft—have caps on their potential returns. This doesn't mean the potential returns are insignificant: documents reveal that if OpenAI's technology becomes extraordinarily successful and profitable, Microsoft could make up to $92 billion from its collective investment, and venture capitalists participating in the tender offer could earn up to $150 billion. (An OpenAI spokeswoman declined to comment for this story, and a Microsoft spokesman didn't respond to a request for comment.)
As investors try to identify early winners in the AI race, Exchange Traded Funds (ETFs) linked with AI tech have been on the rise. Betashares Global Robotics fund, for instance, has seen a 24% increase in the past three months. Additionally, companies like Nvidia, the leading semiconductor manufacturer, are considered crucial players in the AI industry.
Meanwhile, Chinese tech giants Alibaba and Baidu have been making strides in AI regenerative technologies, raising concerns among governments worldwide. Italy has recently banned ChatGPT, and several tech leaders, including Elon Musk, have called for a global halt on training some AI systems due to the potential risks they pose to society and humanity.
As the AI race intensifies, it is crucial for governments and organisations to address concerns regarding privacy, copyright infringement, and potential misuse. In response to Alibaba's recent announcement, China's top cyberspace watchdog has proposed a rule to regulate generative AI, inviting public consultation until May 10.
The AI race is a double-edged sword that has the potential to revolutionise industries while posing significant risks if left unregulated. While the competition between AI giants like ChatGPT, Truth GPT, and Chinese tech companies may lead to rapid advancements in technology, it is essential to consider the ethical implications of these developments.
Natural Progression, Risks, And Considerations
Some sectors will be impacted by AI at different times, according to how the technology develops. If AI is already bringing in innovative ways to revolutionise current practices, then the potential for stock price returns in tech, transport, and online marketing might already be priced in. An alternative approach is to stay ahead of the curve and identify the sector where AI technology will next make a huge impact.
Microsoft’s market cap of $2.06trn makes it the third largest company in the world. The revenue streams from its software and Azure server operations provide the firm with not only relative stability, but cash flow to invest in new AI technology. As well as carrying out its own in-house research, the tech giant has also aggressively bought up smaller companies who are developing innovative projects. In the last five years, it has snapped up 39 firms – most notably Nuance Communications, which is a specialist in the AI healthcare sector.
The OpenAI ChatGPT product already mentioned is also connected to Microsoft. Commercial agreements relating to server hosting are matched by Microsoft providing OpeAI with $1bn in funding. Smaller investors who don’t grasp the granular details of how AI work might consider the approach of Bill Gates’ firm to be a template for investing in the sector.
Rival tycoon Elon Musk took to Twitter in March 2023 to disparage Gates’ understanding of the area: “I remember the early meetings with Gates. His understanding of AI was limited. Still is.”. Building a diversified portfolio could result in Gates and Microsoft being big AI winners.
California based C3.ai was founded in 2009 and represents a purer play on the AI sector than diversified tech giants NVIDIA and Microsoft. C3.ai is far smaller in size, with a market capitalisation of $2.9bn. The returns to investors have been even more impressive, especially as the AI sector takes off.
The forecast rate of adoption of AI technologies doesn’t equate to all the stocks in the sector performing equally well; there will be winners and losers. At a higher level, high-growth and technology sub-sectors are exposed to specific kinds or risks, meaning that there are also potential headwinds facing the AI industry as a whole.
Balancing Regulation, Sovereign Risk, and Billionaires' Battle for Truth in AI
The paradox surrounding AI sector investments lies in the fact that the potential upheavals the technology promises, which could be highly profitable for investors, might face significant resistance due to their transformative nature. The case of social media platform TikTok, though not an AI stock, highlights the growing concerns around tech adoption. TikTok's management has been called before the US Senate Intelligence Committee, demonstrating the increasing scrutiny of tech companies.
Influential political commentator Tucker Carlson commented on the prospect of autonomous vehicles displacing millions of US delivery drivers, stating:
"Driving for a living is the single most common job for high-school educated men in this country [US]… the social cost of eliminating their jobs in a 10-year span, 5-year span, 30-year span, is so high that it's not sustainable" (Source: YouTube).
There is a risk that AI firms might easily become entangled in the crossfire of what increasingly resembles a global tech 'turf war'. The sector's dynamic nature is causing numerous contradictions to surface, emphasizing the need for regulation to reduce sovereign risk and manage the ongoing battle for truth among billionaires in the AI industry.
As we observe, Chinese tech giants Alibaba and Baidu are advancing in AI regenerative technologies, raising concerns among governments worldwide. Italy has recently banned ChatGPT, and several tech leaders, including Elon Musk, have called for a global halt on training certain AI systems due to the potential risks they pose. Almost simultaneously, Musk announces a new version of TruthGPT to counterbalance Microsoft's perceived dominance, creating a potentially perilous environment for legislators and capital markets alike.
Investors must exercise caution when investing in AI-driven businesses and technologies, as the long-term impact of these investments on society remains uncertain. As AI continues to evolve, it is crucial for governments, tech leaders, and investors to collaborate in establishing a framework that ensures the responsible development and deployment of AI technologies.
The AI race is undeniably an exciting and transformative period in human history. Rapid advancements in AI technologies have the potential to revolutionise various industries, leading to significant gains for investors who can identify early winners. However, as the competition between AI giants like ChatGPT, TruthGPT, and their Chinese counterparts intensifies, addressing ethical considerations and regulatory challenges will be paramount to ensuring that AI development remains beneficial to society as a whole.
