Today I am breaking one of my cardinal rules: I asked ChatGPT for the answer to a routine question. Given the soap opera-like circumstances surrounding OpenAI and Microsoft (MSFT) that emerged on Friday afternoon and continued through this morning, I thought the following query was appropriate: “ChatGPT soap opera.”Here’s what I got when I asked the ChatGPT assistant in MSFT’s Edge iPhone App:ChatGPT is a popular artificial intelligence chat service that is built into the Opera browser1. You can use ChatGPT to generate content, get answers, and have fun conversations with the AI. One of the features of ChatGPT is that it can create soap operas based on your prompts and preferences. ChatGPT is a popular artificial intelligence chat service presented in a series of continuing stories and characters and intended to appeal to the emotions2.I’ll skip the rest of the instructions for now[i], but it should be dismaying to the folks at MSFT that their highly touted AI assistant sends you to another company’s browser. At some level, though, it fits. The craziness of the events surrounding Sam Altman’s ouster on Friday and subsequent hire by MSFT early this morning defies easy explanation, so we can perhaps understand why ChatGPT seems equally confused.We won’t delve too deeply into the specifics of the recent machinations. Quite frankly, there are scores of better-informed analysts and journalists who can offer more nuanced views. But thanks to some deft maneuverings by MSFT’s CEO, Satya Nadella, the behemoth may have turned this into a win-win for itself. When the news broke on Friday afternoon, it was a negative.MSFT has invested significant sums into OpenAI, so it would certainly be a parlous development if the smaller company faltered. Yet by hiring Altman and one of his key partners after the OpenAI board rejected his return, MSFT mitigated the damage immediately. We have now learned that hundreds of OpenAI’s engineers have threatened to leave for MSFT if the OpenAI board doesn’t resign.This would obliterate the value of OpenAI as a company, but if MSFT can absorb its intellectual talent – if not its intellectual property – essentially for free. Hence, a potential win-win for MSFT.Yet the bigger test for AI-mania comes tomorrow when Nvidia (NVDA) reports its third-quarter earnings after the close. If there is a poster child for AI, it is NVDA. We can bicker about whether MSFT, Alphabet (GOOG, GOOGL), or an as-yet barely known company will be the best at utilizing generative AI, but it is unquestionable that NVDA has been perhaps the biggest beneficiary. The stock rallied over 14% in February and over 24% in May when its 4Q and 1Q earnings leapt dramatically as companies bought NVDA chips to power their adoption of AI technologies. The stock has more than doubled since management leaned heavily into AI after that February report. We noted this on the following day:
Seemingly echoing its role when “crypto” was at the forefront, NVDA is perceived as a key beneficiary of the potential for widespread adoption of AI. There is a definite logic to this perception. For starters, AI is likely to require significant computing resources and those computers would all require high-performance chips -the kind NVDA makes. Also, many investors take a “gold rush” approach. During the California and Klondike gold rushes, selling supplies to prospectors was a safer and smarter to make money than the actual prospecting. It is quite reasonable to think of NVDA as selling picks and shovels, first to the cryptocurrency gold rush, now to the AI gold rush.
It is quite clear that NVDA management is leaning heavily into the AI theme.By my count, management mentioned “AI” 70 times. They mentioned it 37 times even before the first question was asked!
But there is much riding on tomorrow’s report. First, coming as it will after the close on the Tuesday of a short week[ii], it will likely be the last significant piece of news that traders react to before heading out for the holiday. Second, it is important to keep in mind that NVDA stock barely budged in August after a significant earnings beat. Finally, bear in mind that the stock is up almost 25% this month. Investors are clearly hoping that conditions remain favorable for the key “pick and shovel” supplier to the AI gold rush.We expect to offer a more detailed look-ahead at market expectations for NVDA tomorrow ahead of the earnings release. But if there was ever a week when AI mattered more to the overall tone of the markets, it is hard to recall. Perhaps I should have asked ChatGPT how to write a suspense thriller…[i] By the way, in case you are so inclined, here’s how to create a soap opera – on Opera – using ChatGPT:To use ChatGPT to create a soap opera, you need to follow these steps:• Open the Opera browser and sign in to your ChatGPT account.• Click on the ChatGPT icon on the sidebar or press Ctrl + / to open the chat window.• Type in a prompt for your soap opera, such as “a love triangle between a doctor, a nurse, and a patient” or “a family feud over a fortune”.• ChatGPT will generate the first episode of your soap opera based on your prompt. You can read it and give feedback to the AI, such as “more drama” or “less violence”.• ChatGPT will continue to generate more episodes of your soap opera based on your feedback and the previous episodes. You can stop the soap opera at any time by typing “end” or “quit”.• , or share it with your friends using the Opera browser.I hope you enjoy using ChatGPT to create your own soap operas. Have fun! [ii] US equity markets are closed on Thursday and have a half-day on Friday.More By This Author:Goldilocks Or Dorothy? Turning A Market Adage Upside Down Playing Musical Chairs With Bankrupt Shares