Good morning. Andrew here. There is a phrase being used to describe Nvidia: the central bank of the A.I. economy. Today’s example is a new report that says the chipmaker is brokering a $250 billion guarantee for OpenAI’s immense Ohio campus. While underwriting debt for unprofitable partners is undeniably risky, it offers the broader A.I. ecosystem a form of cheap capital that traditional credit markets refuse to provide. Throughout history, almost every generational infrastructure leap has relied on hardware titans to co-sign their buyers’ credit — think British steel makers funding 19th-century American railroads and General Electric underwriting early power utilities. This playbook has a mixed track record: It successfully built America’s electrical grid and, later, broadband internet. But it also incited devastating vendor-debt crashes during the 2001 telecom bust. What will it be this time? Let me know your thoughts. (Was this newsletter forwarded to you? Sign up here.)
Huang takes sidesThe first post that Jensen Huang, the Nvidia C.E.O., made on X took aim at one of the biggest debates dividing Big Tech. His words continue to reverberate in Silicon Valley and beyond after the company today announced the creation of the Open Secure AI Alliance, a coalition with other tech companies to bolster cyberdefenses for the artificial intelligence era. The stakes are high for Huang, whose chipmaker, Nvidia, is helping to power the A.I. boom. His big-tent contention that A.I. can be developed safely on so-called open-source models as well as on closed ones has major implications for policymakers and investors, and could completely upend the A.I. economy. Watch for it to be a major discussion point this week as Amazon, Meta and Microsoft weigh in on their latest quarterly results. A recap: In Huang’s post, which appeared on Friday and which has more than 60 million views, he shared a letter that was also endorsed by tech and investment giants like Andreessen Horowitz, Meta and Microsoft. It said that open models would accelerate innovation and strengthen security. “The world needs both frontier closed models and frontier open models,” Huang wrote. Frontier labs like Anthropic and OpenAI argue the opposite: Some of the technology is too powerful for an open-source approach and should be limited to controlled environments like theirs. A reminder: Nvidia has skin in the “closed” camp; it’s been a major backer of Anthropic and OpenAI.
Others have echoed Huang’s comments, including Satya Nadella, the C.E.O. of Microsoft; Mark Zuckerberg, the C.E.O. of Meta; Sundar Pichai, the C.E.O. of Alphabet; and Demis Hassabis, the C.E.O. of Google DeepMind. Why would Huang and other tech execs side with open models? Easier access to open-source A.I. should speed up the technology’s growth and drive demand for, say, Nvidia’s chips or Microsoft’s cloud, analysts say. New competition from Beijing has intensified the debate. The Chinese start-ups Z.ai and Moonshot AI have recently released “open-weight” models that are powerful and relatively cheap — a potential antidote for corporate sticker shock over tokenmaxxing. But Anthropic and OpenAI claim foul play. They accuse Chinese start-ups of copying their technology via a technique called distillation. Trump officials appear to be walking a fine line. They want to avoid stifling A.I. innovation at home, while also playing tough against the threat of international companies stealing U.S. technology. In a post on social media, Treasury Secretary Scott Bessent threatened Chinese companies with sanctions if their creations “cross the line into IP theft.” In related news:
Hollywood’s blockbuster run continues. “The Odyssey,” Christopher Nolan’s Homeric extravaganza, brought in $87 million in North American ticket sales over its second weekend, putting its global take so far at almost $640 million, according to Deadline. With the successes of “The Odyssey,” “Toy Story 5,” and “Michael,” Hollywood appears on track to reach $10 billion domestically for the first time since the coronavirus pandemic. A Chinese chipmaker cashes in on the artificial intelligence boom. ChangXin Memory Technologies, known as CXMT, rose about 470 percent on its first day of trading today. It makes memory chips needed for the A.I. buildout and became the most valuable company on the Shanghai Stock Exchange. CXMT’s I.P.O. gains underscore Beijing’s push to develop domestic A.I. suppliers to rival Western giants. The Fed and earnings will dominate the markets this week. Wednesday is decision day for the central bank, as the debate around inflation intensifies in the face of volatile energy prices. While Big Tech earnings will get plenty of attention, investors will also get a glimpse into the health of consumers, with Coca-Cola (tomorrow), Procter & Gamble (Wednesday) and Mastercard (Thursday) all reporting earnings. Finally, the Personal Consumption Expenditures Price Index for June, the Fed’s preferred inflation measure, is set for release on Thursday. The peace trade rally returnsGlobal markets are rebounding today as investors cheer a pause in fighting between the U.S. and Iran that lasted through the weekend. The bulls see the apparent de-escalation as a sign that Washington and Tehran could give diplomacy a chance to reach a more lasting peace that also lessens the war’s blow to the global economy. But bears could point to signs of a slowdown in ship traffic through a vital Red Sea trade route, after the Houthis, an Iran-backed militant group in Yemen, attacked Saudi oil installations in the region, Reuters reported today. The latest:
Is the pause being driven by the markets? Energy prices had soared after the U.S. and Iran resumed their exchanges of attacks, prompting new inflation fears that could compel central bankers to raise interest rates. The average price of gasoline in the U.S. remained at $4.11 today, according to AAA. That’s nearly a dollar above where it was at this time last year, an issue that could add to voter discontent before the midterm elections. Or is it more about the munitions? The Times has reported that dwindling U.S. stockpiles of Patriot antimissile interceptors may be one reason for Washington’s decision to hold off on a major military escalation. Investors may be getting a case of déjà vu. Businesses and market observers have been wondering whether the economic fallout from the war in Iran would persuade President Trump to seek an off-ramp to hostilities. He did so last year when his trade war roiled the bond and stock markets, giving rise to the market shorthand of “TACO,” or Trump always chickens out. Pinning hopes on a Tehran TACO may be misguided, Paul Donovan, the chief economist for UBS Global Wealth Management, wrote to investors this morning: There are two key differences for investors. The trade war was largely unilateral, but the Gulf war needs Iran to act too. The oil price drop required Iran to cease strikes on US targets. The trade war directly affected the US economy, not the global economy (global trade is at a record high). Erratic oil prices have a more global direct impact.
Shorting A.I. (and Musk)Short sellers are having a rough year so far, but they continue to go all in on one sector. In recent months, traders eyeing a market swoon have increasingly bet against the giants of the artificial intelligence race as worries about a bubble grow. And one target has been especially profitable: SpaceX, Elon Musk’s rocket and A.I. company. Here are the numbers, according to S3 Partners, a data company:
SpaceX has become the second most profitable company to short this year, according to S3 Partners. Tesla is No. 1, with short sellers of the electric vehicle maker up nearly $9.1 billion in mark-to-market profits this year. (Short sellers typically borrow shares of a target company and sell them, hoping to buy them back at a lower price later.) “We’ve seen continued SPCX short selling since its inception,” Ihor Dusaniwsky, a managing director at S3 Partners, told DealBook over email, referring to SpaceX by its ticker symbol. The bets against SpaceX are especially bold. The company secured fast-track inclusion on the Nasdaq 100 index of tech heavyweights, and on other big indexes, generating excitement and alarm among investors and fund managers. (Nasdaq, FTSE Russell and CRSP changed their rules before SpaceX’s I.P.O., making it possible to bring in SpaceX.) Worth watching: SpaceX reports quarterly results on Aug. 4. Two days later is the first “lockup expiry” date, when some SpaceX pre-I.P.O. shareholders can begin selling the stock. That could add volatility to a stock that’s down nearly 15 percent from its listing price.
Shorts are targeting other A.I. heavyweights, too. Tech giants with a major stake in A.I. — think hyperscalers like Alphabet, Amazon and Microsoft, and chipmakers like Broadcom, Micron and Nvidia — are among the top 10 most shorted stocks this year, according to S3 Partners. The mounting bearish bets are another headwind as investors grow increasingly wary of the sector’s A.I. spending spree. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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