Musk Launches xAI
Elon Musk formally announced his AI play, xAI, which will “work closely with X (Twitter), Tesla and other companies to make progress towards” the company’s mission to “understand the true nature of the universe”.
The company will be hosting a Twitter Spaces discussion on 14th July where they will share more details and provide the public with an opportunity to ask questions of the core team, including former members of OpenAI, Google Research, Microsoft Research and DeepMind (part of Google).
One of the company’s co-founders, Greg Yang, says on Twitter that “the “theory of everything” for large neural networks will be central to taking AI to the next level” with this AI enabling “everyone to understand our mathematical universe in ways unimaginable before.”
Although the ownership structure and relationship between Musk entities is unknown, it is clear that xAI can benefit from a very strong ecosystem, in particular the considerable data sitting at Tesla, Twitter (and SpaceX/Starlink), as well as the significant synergy by being aligned to Tesla’s Dojo supercomputer and D1 chip which is being developed to train the considerable pool of data to power autonomous driving. Such tech could also be applied to train data for other applications…such as xAI.
Microsoft moves closer to securing $75bn purchase of Activision
Microsoft’s long fought out battle to acquire Activision has taken another, more positive turn, this week after a US judge rejected a request from US regulators (the FTC) to block the deal.
After a five-day trial, Jacqueline Scott Corley, a US district judge for the northern district of California, concluded that “the FTC has not shown it is likely to succeed on its assertion the combined firm will probably pull Call of Duty from Sony PlayStation, or that its ownership of Activision content will substantially lessen competition in the video game library subscription and cloud gaming markets”.
However, there is still the significant hurdle of the UK’s Competition and Market Authority (CMA) which blocked the deal back in April after concluding the deal could “alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come.”
In response to the FTC win, the CMA said “Microsoft and Activision have indicated that they are considering how the transaction might be modified, and the CMA is prepared to engage with them on this basis….these discussions remain at an early stage and the nature and timing of next steps will be determined in due course”.
It’s likely that a small divestiture in the UK market will be put forward to appease concerns from the CMA.
To illustrate the point of competition, I refer to the gaming ecosystem below (last updated mid-22) which shows Microsoft towards the bottom right corner - owning XBox, Mojang (Minecraft), Zenimax and Bethesda.
What is clear is that this is a highly fragmented market and, despite Microsoft’s quite strong position in cloud (i..e XBox), there is also sizeable competition in that market from the likes of Google, Amazon, Sony, Tencent (Epic Games), Meta, Nintendo, Apple and even the likes of Netflix who are actively exploring the gaming space.
Oklo’s Nuclear Microreactor Going Public
Oklo, a micronuclear reactor venture chaired by OpenAI founder Sam Altman, is going public via a SPAC deal ($850m pre-money equity value).
In the investor presentation here, the company claims that each plant would generate cumulative cash flows of ~2.5x the capital costs, with initial construction and fuel capex being $24m and $33m respectively. Over the 40 year lifetime of each 15 MWe plant, the expectation is annual revenue of ~$13m, with marginal $3m annual fixed costs. For a 50 MWe plant, the unit economics compounds, with cash flows expected to be ~5x cumulative capital costs.
At present, the company claims to have non-binding interest for 700 MWe, with the first plant targeted to go live in 2026/27 at the Idaho National Laboratory.
An Arm Wrestle for Anchor Investment
Last month it was reported that Intel was eyeing off an anchor investment in Arm, the Softbank owned company which is the preeminent chip architecture for most advanced applications today. Next to Taiwan Semi and ASML it is likely the most important chip company in the world today.
Unsurprisingly (after their failed bid for Arm), Nvidia are now being reported to be in discussions with the company about being the anchor investor for a NYSE listing, according to the FT.
However, it’s highly likely that a number of Arm’s customers (i.e. Apple, Qualcomm) will join the queue to be long term anchor investors in the business, which could list as early as September.
The difficulty though is agreeing on a price, with Nvidia putting a $35-$40bn price tag on the business (vs $80bn sought by Softbank).
India’s Vedanta Outfoxed in Chip Plans
There are bound to be a few hiccups along the journey as India set a path towards being a globally significant chip hub.
This week saw Foxconn, the major supplier to Apple, pull out of a $19.5bn deal (announced less than a year ago) with Indian conglomerate Vedanta to build a chip plant in the country.
According to Foxconn there was “recognition from both sides that the project was not moving fast enough” and “there were challenging gaps we were not able to smoothly overcome”.
No doubt this is a significant blow to India.
The complexity of building a semiconductor fab, even with less sophisticated nodes, cannot be underestimated. There are significant technical challenges, as well as supply chain and, critically, barriers with obtaining and training highly skilled labour (to name a few areas). Further, questions will be asked as to whether either Vedanta or Foxconn were the right parties to execute such a deal in the first place (local JV’s are hard enough to execute in India, let alone JV’s developing highly complex manufacturing capabilities).
In the meantime, I do expect India to continue to gain significant ground in other parts of the supply chain (i.e. test and assembly) and will be keeping a keen eye on how the country approaches fab development in future (is it viable to pursue this path with a local partner?).
Roku x Shopify Creates Shoppable TV Ads
Roku, which has collapsed in the past two years, got a much-needed boost this week after announcing a deal with Shopify which will allow users to buy products directly through actionable ads with their TV remotes.
At present the tech is quite unremarkable (i.e. ads with QR codes), however, the reason for calling this out is that, according to Statista, adults are spending over 4 hours each day in front of the TV (see below).
This is a very obvious avenue for e-commerce innovation, and it is highly likely that over the coming years we see more intuitive experiences embedded, not only within ads, but during streams. For example, it’s likely that Shopify, Google, Netflix and others start tagging products (and using image recognition/deep learning) within a movie or series which can be purchased instantly by clicking a ‘shop’ button on the remote.
Thank you and have a great weekend ahead!
Charlie Nave
LinkedIn or E-Mail (cnave@granitebaycap.com)
Associate Professor (Practice) Monash Business School and Monash Centre for Financial Studies (MCFS)
Granite Bay Capital is an innovation focussed consultancy with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity. Any views expressed in this article are those of the author and do not constitute financial advice.