Finimize - 💸 The next big AI spending frenzy

SoftBank pledged billions to AI investments | Elon Musk's AI startup pulled off a mega fundraising round |
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Today's big stories

  1. SoftBank went back on the prowl, eager to make up for its disastrous WeWork bet
  2. The size of the US government debt pile has folks wringing their hands – Read Now
  3. Elon Musk’s AI startup xAI raised $6 billion in its latest fundraising round

Plenty-Plenty Eyesight

Plenty-Plenty Eyesight

What’s going on here?

SoftBank set a multi-billion-dollar target for investments into AI, determined to give its Vision Fund something to focus on.

What does this mean?

SoftBank is preparing to push nearly $9 billion into AI investments. The cash will come from the famed SoftBank Vision Fund, which has struggled to find an opportunity that lives up to its successful purchase of UK-based chip designer Arm from many moons ago. So now, the Vision Fund is selling off assets to focus on what’s worked before: chips and high tech. SoftBank has even said that it could end up spending more than the $9 billion target, so long as the right deal comes along. That shouldn’t be hard to find, either. SoftBank has $180 billion in net assets, reassuring any lenders that they’ll get their money back.

Why should I care?

Zooming out: It’s a group effort.

SoftBank has pegged areas like data centers and power generation for its investments, since they have the potential to benefit from the rise of AI and come in handy for Arm. That does mean, however, that SoftBank’s pitting itself against the likes of Microsoft, Amazon, and Google, which have committed billions to AI-focused partnerships. That said, Japanese-based SoftBank has a tailwind: Japan’s low interest rates make it cheaper for the company to raise funds.

The bigger picture: Talk about strong-arming.

Arm’s market value has hit the roof since going public last year, reaching the lofty heights of about $120 billion. That means SoftBank’s 90% stake in the chipmaker is worth more than the whole investment company’s business. To keep that up, SoftBank aims to launch an Arm AI chip and a large language model – a Japanese rival to OpenAI’s ChatGPT – this year. But it risks becoming a little fish in a big pond: Statista Market Insights data predicts that Japan’s AI market will be worth some $13 billion by 2030, roughly 17 times bigger than last year.

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Analyst Take

US Government Debt Is A Ticking Time Bomb. It Doesn’t Have To Be.

US Government Debt Is A Ticking Time Bomb. It Doesn’t Have To Be.
Photo of Stéphane Renevier, CFA

Stéphane Renevier, CFA, Analyst

The US debt load is really weighing on shoulders across the country.

The amount the country owes, relative to the size of its enormous economy, has never been so big, outside of wartime.

It wasn’t such a worry when interest rates were ultra-low, but with today’s higher rates, the risks are rising – and that’s not just because of the increased costs of repaying all that debt.

That’s today’s Insight: why US government debt is a ticking time bomb.

Read or listen to the Insight here

Frenemies

Frenemies

What’s going on here?

Elon Musk’s artificial intelligence startup raised $6 billion, which might show those former allies at OpenAI what they’re missing.

What does this mean?

Elon Musk was once a big backer of OpenAI, but he distanced himself in 2018 when his concerns over the safety of AI uses were seemingly pushed aside. So now, he’s all-in on his own AI startup instead. xAI has already birthed Grok, a generative AI system that runs on X, formerly Twitter. And eager to keep the momentum up, Musk’s startup has just raised $6 billion to bolster infrastructure, speed up research and development, and fund product launches. The round attracted some of Musk’s usual partners, including Saudi prince Alwaleed Bin Talal’s Kingdom Holding, and Silicon Valley titans Andreessen Horowitz and Sequoia Capital.

Why should I care?

For markets: Show me the money.

A $6 billion funding round is off the charts for an early-stage startup, and values xAI at an eye-watering $24 billion. So clearly, investors believe in the money-making potential of both Musk’s startup and AI itself. Good job, too: developing and operating AI doesn’t come cheap, since the tech runs on vast data centers, costly licensing deals, and expensive top-of-the-line chips. Add in the fact that companies need to front sky-high salaries to win over the very best talent, and it’s clear that they need to spend big to win big.

The bigger picture: Shuffle the deck.

The headlines might make AI seem like the only tech worth tinkering with, but in reality, traffic on ChatGPT is starting to level out. So wary of the hype dying off, tech giants are rethinking their strategies. Some are trimming down to sleeker, more efficient language models, while others are introducing more advanced and flashy features that juggle text, images, and audio. Case in point: Meta is betting big on a new approach called “world modeling,” which aims to give AI human-like common sense and understanding.

You might also like: How to invest in AI.

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💬 Quote of the day

"Rough diamonds may sometimes be mistaken for worthless pebbles."

– Thomas Browne (an English polymath and author)
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👀 how to hedge like Goldman

You’d think that hotter-than-usual inflation and high interest rates would be bad for unprofitable growth stocks.

Their potential profits are in the distant future, so they often need financing to operate. That makes them extra vulnerable when the cost of borrowing ticks up.

So Goldman Sachs sees an opportunity: the big bank says making a certain play on certain unprofitable tech stocks could be an attractive way to protect your portfolio from a potential stock market pullback.

Read The Quicktake

🎯 On Our Radar

1. Multitasking mind. An interview with the first recipient of Elon Musk’s Neuralink.

2. Self-proclaimed "tradwives" are becoming food-fluencers. You just need a lot of patience and a few business days to follow the recipe.

3. Into the limelight. Three big conspiracy theories have taken hold in Canada.

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