TMTB: MSFT/OpenAI saga, Citi bulls SNOW, UBER convert offering, CHGG dg to sell at MS, DELL initiated Buy "AI Halo", ARM +ve initiation, MDB Previewed +ve at Gugg

Good morning - QQQs are flat today while yields are slightly up. China is up 1%, Crude is up 2%, and the dollar is down 30bps.

MSFT/OpenAI - Seems like the saga has come to an end (for now) as Altman and former OpenAI president Greg Brockman will join MSFT to lead a “new advanced AI research team.”

Satya and MSFT said they remain committed to the partnership with OpenAI and that it would move quickly to provide Altman and Brockman with the sources needed for the success.” OpenAI makes Emmet Shaer (former CEO of Twitch/ AMZN familiarity?) new CEO.

The bullish folks will say MSFT comes out of this looking better, Sam and co heading to MSFT lessen the reliance on OpenAI over time (non-profit structure was front and center this weekend) while providing optionality in terms of monetization and expansion of AI tech across MSFT platform. MSFT retains full access to Open AI and now has the team to possibly make the next great LLM and the best AI minds in the world to help implement it.

Semianalysis takes a positive view as well:

If the team went down the startup path, they would have had to spend significant time rebuilding GPT-4. Instead, at Microsoft they will have access to much of the IP they require for future products.

What’s more important to understand is if Microsoft has legal direct access to all the data and code used for pre-training and RL. It is obviously all stored on Azure, but if the new Sam-led internal team can freely access that, they can basically start exactly where they left off without much of a hiccup. If they cannot get it, then we estimate that it could possibly lead to only a 4-6 month delay vs prior. While this small of a delay sounds insane to say... Talent is everything."

Pushback I’m hearing this morning is:

• MSFT/OpenAI partnership was a better way for MSFT to invest in AI off balance sheet vs now they have to spend more opex/capex dollars to do that development in house

• Can MSFT reign in Sam and his ambitions?

• How does the future of OpenAI look and what does that mean for Azure/MSFT partnership?

@BankofBraavos notes some other pushback:

On Thursday, OpenAI was the undisputed leader, and Microsoft had exclusive access to its models b. Now, OpenAI faces challenges: 1) potential loss of talent (extent uncertain), 2) a slowdown due to the 'decel faction' winning. These two factors will slow down Microsoft's product roadmap

The recruitment of Sam and Greg is a great hedge, but it's not clear how fast they can stand up a world-class internal research lab at Microsoft. It's also unclear how many OpenAI staff will follow them to Microsoft. It's fairly possible that some will stay at OpenAI (decel faction), others may be lured by Google, Amazon, Meta, some may create or join start-ups, and then some will join Microsoft

This situation is likely to slow down Microsoft in the short term. Establishing a world-class research lab and training a competitor to GPT-4 or GPT-5 will take time. Additionally, with Microsoft now directly responsible, any risks or issues with the model will be their liability. This could undoubtedly lead to a more cautious internal approach and slower product launches compared to OpenAI's pace.

Open source triumphs: Open source emerges as the biggest winner. More companies might pivot to open source, reducing reliance on OpenAI and averting a single point of failure

Satya Nadella on X:

We remain committed to our partnership with OpenAI and have confidence in our product roadmap, our ability to continue to innovate with everything we announced at Microsoft Ignite, and in continuing to support our customers and partners. We look forward to getting to know Emmett Shear and OAI's new leadership team and working with them. And we’re extremely excited to share the news that Sam Altman and Greg Brockman, together with colleagues, will be joining Microsoft to lead a new advanced AI research team. We look forward to moing quickly to provide them with the resources needed for their success.

Sam Altman retweet of the above: “the mission continues”

Emmett Shear on X:

Today I got a call inviting me to consider a once-in-a-lifetime opportunity: to become the interim CEO of @OpenAI…. Ultimately I felt that I had a duty to help if I could.

I have a three point plan for the next 30 days:
- Hire an independent investigator to dig into the entire process leading up to this point and generate a full report.
- Continue to speak to as many of our employees, partners, investors, and customers as possible, take good notes, and share the key takeaways.
- Reform the management and leadership team in light of recent departures into an effective force to drive results for our customers.

PPS: Before I took the job, I checked on the reasoning behind the change. The board did *not* remove Sam over any specific disagreement on safety, their reasoning was completely different from that. I'm not crazy enough to take this job without board support for commercializing our awesome models.

In terms of laterals, there’s no strong hook that I have found so far…: For GOOGL, big negative is more talent might end up going to MSFT, but on the flip side if OpenAI development slows, GOOGL is in the lead with their LLMs…does the whole saga throw more regulatory light on the space? Does MSFT end up buying even more GPUs (NVDA, AMD)? Will MSFT invest more in their own internal chips as Sam was trying to start his own similar AI chip company? Sam was also trying to start its own hardware co with Jony Ive - does MSFT get on this and what does that mean for AAPL? Will investors come away from this more excited about AI acceleration? Does this change anything if at all for AMZN AWS — some saying Shear in as CEO a backup play more tightly linking to AMZN and their bedrock offering?