OpenAI Saga Continues

On Monday, the most important development of the OpenAI saga was a letter [The Daily Peel... ]() November 21, 2023 | Peel #590 Silver banana goes to... [Brilliant. ]( In this issue of the Peel: - According to projections from institutions such as Morgan Stanley, the NAHB, and others, a general economic slowdown anticipated in 2024 would likely come with fair, rapid cuts to interest rates as well. - Boeing and Microsoft had a ripe day, seeing positive returns on their stock price. On the other hand, Chegg and Bayer AG had a down day after witnessing share price declines. - On Monday, the most important development of the OpenAI saga was a letter signed by over 500 of OpenAI’s ~770 employees, threatening to quit the firm and follow Sam if the board doesn’t resign immediately. Market Snapshot Happy Tuesday, apes. There’s more drama in Silicon Valley, and of course, the guy who put [Taylor Swift](=) on the map means more gains for markets, apparently. Shoutout to the WSJ for keeping up the hard-hitting news—you love to see it. Hard-hitting was fortunately not how traders reacted to the newfound volatility at the world’s second most valuable company. Markets gained in stride across the board as Microsoft and Nvidia surged to all-time highs leading up to the latter firm’s earnings report, which is set to drop today. The Nasdaq’s 1.13% rip led the day, while the heavily followed WSO Alpha portfolio saw a 0.57% snoozefest in comparison. Treasury yields moved higher for the most part, at least on the shorter end of the spectrum, with the 2-year yield settling just south of 4.95%. The 10-year was flat to lower, truly proving how boring bonds really can be. Let’s get into it. AI-Powered Stock Picking That (Actually) Beats the Market [image]( [Danelfin]() brings AI technology, once reserved for hedge funds and elite investors, to everyone, revolutionizing stock picking. 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[Get started for ZERO BANANAS today!]( Banana Bits - “He’s got high Apple pie in the sky hopes” as Mr. Market pushes Nvidia to an all-time high at closing [prior to earnings.]( - Apparently, OpenAI as an entity [might be out](=) along with Sam Altman. - The best thing about this story might be the fact that some people think Big Dawg President Joey B has any sort of idea [what these things are.]() - Equity markets have snapped back so quickly they’re already in stretched territory, according to [Goldman data.]( Macro Monkey Says The New Oregon Trail Back in the day, when the U.S. was busy manifesting its destiny, bold and brave settlers across the young nation turned west for a chance to start a new life. The great migration of citizens from the east and south out to the wild west became known as the “Oregon Trail,” and as you can imagine, it wasn’t exactly an easy pathway. Disease, wild animals, and a constant stream of various nonsense sought to stop these travelers from building those new lives, much like those looking to enter the housing market in the U.S. today. Sure, instead of dysentery and getting gored by a wild buffalo, today’s fears when it comes to buying a new home and starting a new life are more focused on mortgage rates, realtor fees, and getting far enough away from your in-laws. But that sounds just about as treacherous to me. "... I think I’d rather take my chances with a buffalo than a 30-year mortgage rate these days ..." Welcome to the new Oregon Trail, in other words. Honestly, I think I’d rather take my chances with a buffalo than a 30-year mortgage rate these days, especially with my credit score, but that’s a story for another day. Anyway, there’s been a lot going on lately in the United States’ most important asset class, so it’s about time we checked back in. For the first time in a while, we have some good news for prospective homebuyers. But, as always, the news is very regional, and what’s true in one moment could be the opposite in the next. In other words, just take it with a grain of salt. As all you wise apes know all too well, mortgage rates are still hovering around two-decade highs on the back of JPow’s rate-hiking escapades/economic nuclear bomb he set off. With that, home prices are supposed to fall. Needless to say, to anyone who’s opened Zillow in the past few months, that has clearly not happened just yet. However, some signs are pointing to a brighter future for buyers in 2024. Unfortunately, that “brighter future” for prospective homebuyers might come at the cost of much more darkness for everyone else. According to projections from institutions such as Morgan Stanley, the NAHB, and others, a general economic slowdown anticipated in 2024 would likely come with fair, rapid cuts to interest rates as well. With rates on the decline, that would almost certainly start to thaw out the frozen housing market we’re living in as—like we always say—the direction often matters more than the level. For instance, the would-be marginal home seller has been put through the wringer, too. Moving out of a home that was purchased anytime in the last decade and a half almost certainly would bring higher rates as well. "... once interest rates are moving in the right direction again, we’ll see those marginal sellers pile on more and more." Psychologically, that’s just not something most Americans are willing to tolerate, but once interest rates are moving in the right direction again, we’ll see those marginal sellers pile on more and more. The downside, for sellers at least, is that Morgan Stanley and the NAHB are also projecting up to 5% declines in home prices. That’s less of a concern as home prices appear to have peaked around May of this year (reaching levels 0.7% higher than the previous peak in June 2022), and most of these would-be sellers purchased their homes before the massive price run-up we saw as C-19 showed up on our shores. So, a 5% decline from the peak could very well (and is) likely still be a solid gain for most would-be sellers. Along with that, it’s not unreasonable to expect the floodgates to gradually open once rates start moving back down. Plus, lower rates with newly elevated prices incentivize home builders like DR Horton, Lennar, and others to increase supply while the gettin’s good. In turn, that increased supply should lead to further declines in home prices, and *fingers crossed* maybe we can get to a place of equilibrium if that actually does exist. According to my macro textbook, this elusive equilibrium is, in fact, achievable. But none of my textbooks ever mentioned anything about negative oil prices, and 2020 gave us that fun surprise, so you really never know. What's Ripe Boeing (BA) ↑ 4.65% ↑ - Boeing shares took off on Monday as the turbulence the stock has experienced in the past few weeks, months, and years may finally be clearing up. - Analysts at Deutsche Bank are calling for clear skies ahead as more than a few positive catalysts are coming up over the horizon for the plane makers. A recent $52bn order from Emirates, along with China signaling a lift on the 737 MAX ban, are just the beginning. - DB analysts expect Boeing to get back to delivering planes at a rate of 800/yr by 2025, a milestone not achieved since the glory days of 2018. If you’re traveling this week for Thanksgiving or any other reason, Boeing would like to thank you for playing your part in helping their recovery. Let’s just hope they get you from point A to B… Microsoft (MSFT) ↑ 2.05% ↑ - For most companies, spending $13bn to hire two employees would be seen as a colossal f*ck up worthy of a new movie documentary or something. But, for Microsoft and former OpenAI employees Sam Altam and Greg Brockman, it’s just another day in Bellevue. - On Monday, Microsoft announced that the recently ousted CEO of OpenAI, Sam Altman, would be brought in-house at the big tech firm along with his top lieutenant and former President of OpenAI, Greg Brockman. The two will lead an advanced AI research team at Microsoft, and I’m sure they’ll all live happily ever after. - Just kidding. This almost definitely still isn’t the final interaction of the OpenAI ousting story. If Altman and Brockman plan to work on a competitor, Microsoft may very well have to limit or even divest exposure to the world’s hottest startup, but it’s far too early to tell. - Once again, by the time you read this, I’m almost certain there will be new developments to discuss. But for now, former Twitch CEO Emmet Shear is still leading OpenAI as interim CEO. We have no word on how Sam, OpenAI’s board, Microsoft’s board, or anyone else is feeling now, but like in all divorces, the kids matter most. So, has anyone asked ChatGPT how he feels? What's Rotten Chegg Inc (CHGG) ↓ 6.17% ↓ - Every student's (former) favorite stock took another trip through the gutter as we currently watch the process of obsoletion of this company in real-time. - Chegg’s core value proposition to customers is essentially the ability to cheat your way through any assignment, class, or project teachers could throw your way. Now, ChatGPT does all of that and will even write their answers for them. - Cheating has never been easier, in other words. Chegg’s former monopoly on the ability to bum your way to a degree is fading, and with that, so is its bottom line. But the stock still trades at a P/E multiple near 150x, so we might have a long way to go… - Morgan Stanley thinks so, too. The Wall Street bank slapped shares with a brutal downgrade to underweight yesterday, causing the session’s loss of over 6.00%. Bayer AG (BAYRY) ↓ 17.54% ↓ - It was a bad day to be a healthcare stock that started with the letter B yesterday, but even worse if that B was followed with a-y-e-r. - German pharma giant Bayer AG nearly flatlined on the day in response to weak clinical trial data for a blood-thinning potential mega-drug they’d been working on. Worse yet, the call to halt development wasn’t exactly made in a vacuum. - They called the study off seemingly in response to more horrific news on the day as the firm was ordered to pay $1.56bn to victims in relation to cancer-causing allegations of the firm’s hyper-popular weed killer, Roundup. - Bristol Myers Squibb, a fellow B-named pharma stock and competitor in the quest for a better blood thinning agent, dropped as well but lost a much more digestible 3.82%. Thought Banana Opening AI Yes, we talked about it yesterday, and yes, this story continued to be what everyone’s talking about today. The developments between OpenAI, former CEO Sam Altman, chief investors Microsoft, and probably your drunk uncle too (somehow) continue to rage, and you’re not gonna wanna miss it. Only this time, let’s do our favorite thing to try to figure out the why: speculate wildly. The best part about speculating wildly is that you need no actual evidence to do it, just a broad imagination and maybe just a splash of logic mixed in, too. So, to recap: Sam Altman was ousted as the CEO of the hottest startup in the world, OpenAI, on Friday in a completely surprising move that Microsoft didn’t even know about despite the fact that Altman has arguably created more shareholder value than anyone else not named Nvidia in 2023. Wow, we actually got it into one sentence! Anyway, since then, all hell has broken loose. On Monday, the most important development of the day was [this letter](=), signed by over 500 of OpenAI’s ~770 employees, threatening to quit the firm and follow Sam if the board doesn’t resign immediately. "... Sam Altman was ousted as the CEO of the hottest startup in the world, OpenAI, on Friday in a completely surprising move ..." I feel like I’m out of breath already, but we gotta go a little deeper. Altman and Brockman were, of course, immediately hired internally at Microsoft and given charge over an advanced AI research arm at the tech giant, with almost certainly a much nicer pay package than the now-infamous “zero equity” line Sam described as his financial exposure to OpenAI. Naturally, Microsoft shares surged, as described above, in response to Silicon Valley’s latest alleged genius. But… the question obviously becomes—how in the hell does it make any sense to fire this guy right now? Well, to the employees at OpenAI, “Despite many requests for specific facts for [the board’s] allegations, you have never provided any written evidence.” "... the board at OpenAI grew fed up with how much time Sam had spent dedicating to other ventures ..." The board fired back, of course, with the most vague statement you’ve ever seen, saying that it was “not about product safety or security, the pace of development or OpenAI’s finances. This was not about any singular incident,” per the [Wall Street Journal.](=) Leading theories suggest the board at OpenAI grew fed up with how much time Sam had spent dedicating to other ventures like his side hustle with Apple and a game plan to become the Walmart of AI chips. After all, that’s exactly what happened to him at Y Combinator… when he was spending too much time at OpenAI. The guy is onto the next thing more often than Mike Rowe on “Dirty Jobs.” Now, outside of mainstream channels, other theories adding more clarity here include: - Altman was beefing with Facebook co-founder Dustin Moskowitz (the drop the “the” guy in The Social Network”) as Moskowitz has quite a few relationships with the OpenAI board members that ousted Sam. But, bigwig Silicon Valley reporter/journalist Kara Swisher finds it “[Unlikely](=)” (not that I know why). - As of yesterday, Swisher’s own instincts pointed to a potential lateral by Elon to “[grab the booty](” sitting at OpenAI, which I assume is meant both literally and figuratively. - Beef between Quora CEO [Adam D’Angelo]() as he gets his lunch eaten by OpenAI and ChatGPT’s prominence (albeit a little less seriously). In response, several companies, including Microsoft (obviously) and [Salesforce](=), have swooped in to try to seize the moment. Without much visibility into the driver of these changes, it’s tough to imagine how things could unfold. The point here is that no one knows what’s going on, and the most convincing theory so far seems to be that the board has no idea why it did what it did. Either way, it seems to have made itself a solid candidate for business story of the year, especially in tech, just about a month before the elusive and highly prestigious Platinum Banana awards are given out here at the Peel. Stay tuned. The big question: Has Microsoft effectively just bought out OpenAI at this point, after already holding 49% equity? What’s gonna happen next? Banana Brain Teaser Yesterday — Exactly how many minutes is it before eight o'clock if 40 minutes ago, it was three times as many minutes past four o'clock? Answer 50 minutes Today — When Sumei opens a book, two pages face her. If the product of the two-page numbers is 3192, what are the two-page numbers? Shoot us your guesses at vyomesh@wallstreetoasis.com Wise Investor Says “Have patience. Stocks don’t go up immediately” — Walter Schloss How would you rate today’s Peel? [All the bananas]( [Decent]( [Rotten AF]() Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? 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