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The Briefing

Aug 2, 2024

The Briefing

By Akash Pasricha

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Greetings!

Anyone involved in artificial intelligence right now has to be entering the weekend deeply introspective about when this technology will actually start making businesses money.

One by one, big tech companies have spent most of the past two weeks telling shareholders about their mammoth investments in AI that sent capital expenditures skyrocketing. Microsoft and Amazon each grew capex more than 50% in Q2 compared with one year prior; Google grew capex more than 90% on that basis; Meta’s capex grew more than 30%, according to S&P Global Market Intelligence. Revenue from these investments is still modest compared to that spending.

AI startups, too, seem to be quickly coming to terms with how hard it will be to generate enough revenue to pay their bills in the near term. The Information reported today that Character.AI’s founders have agreed to join Google in a deal that pays investors roughly 2.5 times the value of shares in Character’s 2023 fundraising—not terrible, but far from the kind of returns venture capitalists hope for.

It’s the third time we’ve seen AI founders abandon their startups for bigger tech companies, behind Amazon’s Adept deal and Microsoft’s Inflection deal. It’s hard to see why any of these high-flying founders would jump ship if they didn’t see significant business challenges ahead.

To be sure, some companies are seeing AI spending start to pay off. ServiceNow, for example, boosted its fiscal revenue guidance last week on account of significant traction with its AI products. Many other enterprise software firms are due to report earnings over the coming weeks. But given the brutal year most of these companies have had, it’s likely to be a roller coaster for investors.

And let’s not forget about the chip companies, which might be in for their own reckoning after a multiyear rally. That appears to be the way Elliot Management sees it. The hedge fund recently wrote to investors that Nvidia is currently in a “bubble” and that shares are “overhyped” at the current price, according to the Financial Times.

The news didn’t do much to sway Nvidia’s stock price Friday, though shares are down more than 12% over the past month, despite a nearly 13% jump on Wednesday. Worries about an economic slowdown, which pushed the Nasdaq into a technical correction (off 10% from its recent July high) won’t help that.

The Information’s Stories of the Week

We also broke news and went deep on topics outside AI (though we had a few AI scoops too.)

Building a business with your billionaire boyfriend’s money can get messy, as Cory Weinberg and Michael Roddan reported. Their eye-popping tale chronicles how 30-year-old Michelle Ritter founded an investment firm with funding from 69-year-old Eric Schmidt, the former CEO of Google and her now-ex-boyfriend. She blames him for the investment firm’s unraveling, though people that worked at the firm also say Ritter mismanaged the company.
The U.S. Department of Justice is probing Nvidia over complaints that allege the chipmaking giant is pressuring and even threatening customers.
The clock has been running out for some AI startups. Kalley, Stephanie and Natasha revealed details on Character’s deal with Google, which will hire the chatbot maker’s founders and about one-quarter of its staff. This resolves months of uncertainty over the Andreessen Horowitz–backed startup, which xAI also had mulled buying.
Separately, we scooped that Cisco’s former CEO John Chambers is joining the board of Humane after the AI startup considered a sale. Chambers led 180 deals while leading Cisco over two decades.
Meta Platforms is axing its celebrity AI chatbots after they struggled to gain traction with social media users, we reported.
To learn more about the inside story of how Warner Bros. Discovery lost out on the latest negotiations for NBA media rights, check out Sahil Patel’s story. Cord cutting was a major factor, he reported.

In Other News

Apple is pushing ByteDance and Tencent to address loopholes in their platforms that let users avoid Apple’s usual commissions on in-app purchases, according to Bloomberg.
Morgan Stanley is letting its financial advisors pitch clients on buying bitcoin ETFs, beginning next week, according to CNBC.

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