Market chatter and ChatAI

Stocks rallied yesterday in the vacuum that precedes Thanksgiving. That vacuum was filled with the most dominant sentiment which appears to be positive… for a change.

Mirror mirror … who is the fairest? Go ahead and ask ChatGPT. You don’t have time? No problem, I have done it for you. Here is my prompt “what is the best generative AI platform available today?” GPT answered politically saying that it was “challenging to definitively say…” The chat engine then went on to tell me that the following were widely recognized AI platforms. They include, in addition to OpenAI’s, Google, Microsoft, Amazon, and IBM. Sorry, Siri, you didn’t make the short list, but maybe in the next promotion cycle . Does this list surprise you? Of course, not. You don’t have to be an AI expert to know who is who in the emergent business.

Can you remember back to the “browser war” between Microsoft and Netscape? That was way back when Internet 1.0 was first born. Then came the “search engine wars” as the Internet was still in short pants. That war was between Yahoo, Google, several others you have probably forgotten, and… once again Microsoft. Can you recall who didn’t win www.I or www.II? Certainly not Internet Explorer or Bing. Those are both Microsoft products. You may recall that Microsoft spent years attempting to hinder the competition with all sorts of legal challenges and so forth. All were unsuccessful, and while it was investing all that capital in legal expenses, the competition got even further ahead in technology, market share, and mind share. Microsoft literally missed the boat TWICE.

I want to first say something quite controversial. AI and machine learning are not new at all. They have existed for many, many years, and most of us Wall Street insiders use it in one form or another all the time. Now, applying those time-proven methods to a different application is what we have witnessed over the last 2 years or so. Let’s sweep all of that into the Generative AI bucket. Generative AI is just a type of AI that learns and uses what it learns to create new content from it. New content can include images, text, music, etc. The one everyone is excited about is text, or natural language. The other two, music and images, are quite controversial and I will not be touching that third rail today. The text generating AI is what most people think about when they talk about ChatGPT, which has scoured the “whole Internet” and will tell you about it in words you can understand. Now, I am oversimplifying, but it is a very important step in the evolution of how we interact with the web. Guess who wanted to make sure it would not miss this boat?

Now let’s turn to what is emerging as www.III, the “AI wars.” Earlier this year Microsoft woke up equity markets which were in a deep slumber after last year’s horrifying performance. It came with an announcement to its commitment and progress in AI development. It was kind of a coming out party for the AI buzz-moniker. It was certainly not news to your kids and grandkids who probably were already using it to do their homework. They were using ChatGPT, which was first made available to the public in June 2020. You probably missed it because you were hunting for hand sanitizer, toilet paper, and surgical masks. Chat GPT matriculated along with students in the 2021 school year which was largely remote and a perfect environment to dabble with the new technology.

Back to March of this year where Microsoft launched its first salvo in the emergent battle. Microsoft had invested some $13 billion dollars in OpenAI and has since released its own version of ChatGPT called Bing Chat available in its Edge Browser, under Copilot. Wanna guess what platform it is built on? GPT-4… from none other than OpenAI. Yesterday morning, I reported to you that Microsoft was on the climb before the opening bell. This was in response to its hiring of OpenAI’s founder and freshly sacked CEO Sam Altman. The story, as I said yesterday, is still developing but it is getting more salacious by the moment. Yesterday, 700 out of 770 OpenAI’s employees signed a letter to the board demanding its resignation and reinstatement of Sam Altman. Microsoft has already made it clear that it would hire those employees. Microsoft’s strategy? It could be attempting to salvage its $13 billion investment. But, more likely, it is hoping not to miss this boat… or rather, fall off the boat it is already on. I will give you a break from the charts today, but I will describe 2 charts I have on my desktop. The first one shows how from 2004 to 2019, Google returned +1,479% versus Microsoft’s +487%. While there was a lot that happened during that period, Google was clearly the winner, which started with its winning the browser wars. Chart number 2 shows both of those companies in 2023. Wouldn’t you know it, Microsoft has returned +57.38% year to date versus Google’s +54.43%. It would seem that Microsoft has played this hand well, and it will come out a winner despite how OpenAI’s board decides to fix the mess it created. Finally, I want to end by reminding you that Netscape was acquired by AOL in 1998, which was subsequently acquired by Verizon in 2015.

WHAT’S SHAKIN’ THIS MORNIN’

Best Buy Co Inc (BBY) shares are lower by -4.45% in the premarket after it announced that it missed Sales estimates in the last quarter. The company cut its current quarter guidance significantly citing uneven demand as we enter the holiday season. In the past 30 days, 7 analysts have lowered their price targets while 15 kept them unchanged. Dividend yield: 5.4%. Potential average analyst target upside: +17.7%.

Agilent Technologies (A) shares are higher by +7.8% in the premarket after the company announced that it beat EPS and Revenue estimates by +2.67% and +0.90% respectively. Agilent has a forward PE of 20.53x which is slightly lower than the 22.01x of its peer group. Dividend yield: 0.82%. Potential average analyst target upside: +13.8%.

YESTERDAY’S MARKETS

NEXT UP

• Chicago Fed National Activity Index (Oct) may have slipped to 0 from the prior month’s 0.02.
• Existing Home Sales (Oct) are expected to have fallen by -1.5% after declining by -2.0% in September.
• FOMC Meeting Minutes (Nov 1^st Meeting) will be released at 14:00 Wall Street Time. This can be a market mover, so pay attention. The market has clearly factored in no more rate hikes and Fed watchers will look for signs that THE PEOPLE CASTING THE VOTES may have other plans.
• Earnings after the closing bell: NVIDIA, HP Inc, Nordstrom, Deere, and VMware.