Motley Fool Hidden Gems Investing - Microsoft Gets $135 Billion OpenAI Stake

Starting point is 00:00:00 Open AI's IPO may be imminent. We'll explain exactly what that means. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoy. I'm joined by Lou Whiteman and Rachel Warren. The big news of this week that we have to touch on is Open AI becoming a for-profit company in a deal that was announced on Tuesday. The company is going to be

Starting point is 00:00:33 converting to that for-profit. Microsoft is going to have a 27% stake. The OpenAI Foundation has a 26% stake. The rest is going to be owned by employees and investors. So Lou, this seems like a big thing. This had to happen by the end of the year, according to some of their initial agreements. This also accompanies a huge cloud deal with Microsoft. What is the takeaway here? Is this paving the way for an IPO? Is this a win or a loss for Microsoft? There's a lot to process here. Yeah, it's a lot to process. And opening continues to be a confusing structure even with this. But I think this is a win all the way around. Microsoft gets to put a value on its stake, $135 billion, which for most of us is a lot of money. For Microsoft, not so much. But

Starting point is 00:01:19 still, it's good to get that out there. There's at least hope now that OpenAI can, like you say, do an IPO or at least have ways to fund all of its massive amount of commitments. Microsoft gets that $250 billion Azure spend commit, but also OpenAI can go reach deals with others. I think it works for everyone. Maybe the biggest winner here is Oracle, because Oracle is so dependent on OpenAI, even relative to these other guys. All of these questions, Travis, you were asking a few weeks ago about how will OpenAI actually afford all of these commitments they've made. This is at least the beginning of the answer here, of they can afford it because now, like every other company, they can go to market, raise money, do some of the things that just

Starting point is 00:02:01 normal companies do. So, yeah, that's the interesting thing here. If they do end up IPO-ing, and I think that's kind of the expectation, this paves the way, whether it's in the next year or it's two years. But, Rachel, this does seem to open up a lot of potential opportunities to fund OpenAI's ambitions. Those keep getting bigger. Even a huge deal with Microsoft, it's sort of like, this is still a company that just has, I think, still less than $20 billion in revenue run rate as we're speaking today. So is this the kind of IPO that you're interested in investing in? Is this still a better way to play with some of these other cloud players like Oracle, like Microsoft? Where is your head at when it comes to OpenAI actually becoming a

Starting point is 00:02:45 for-profit? I do think that this is a company that if and when it became publicly traded, there would be a lot of interest. For me personally, seeing how they're able to effectively monetize a lot of these new products they've released in the recent weeks and months, I think would be really key there. But there's some kind of really important details to focus on here. So they've converted into a for-profit public benefit corporation. They're now structured as the OpenAI Group PBC. It's under the oversight of the original nonprofit, which is now named the OpenAI Foundation. Microsoft's access to OpenAI's technology is extended through the early 2030s now. And what's interesting is the new agreement removes previous restrictions on

Starting point is 00:03:25 raising capital. It also ends Microsoft's right of first refusal for cloud services, which is important to note. OpenAI just completed a share sale that valued at around $500 billion. And Microsoft's $135 billion stake is actually just ahead of the OpenAI nonprofit's $130 billion stake in the for-profit company. So this shift really enables OpenAI to behave much more like a conventional tech company in the way that we think about it, which could, of course, be massive if they enter the public markets. One final thing I'll note, I mean, they have been moving in this direction for a few years now. This isn't something that comes as any surprise to those of us who've been following OpenAI. I think it's the next logical step in their

Starting point is 00:04:07 company story. Lou, we got to bring in some of the partnerships that they announced this week, because this is moving markets. PayPal announced that they're going to be a checkout partner for their instant checkout, but basically the shopping on ChatGPT. Are these the kind of things where it's both going to be good for some of these existing companies and it's showing how these are going to monetize? It just seems like announcements are really driving the market today rather than actual financial results, which is a little concerning as we dance around this bubble talk. Well, this goes back to, is it investable too? The opening eye question you asked too, because look, opening eye before the Microsoft announcement had two real questions they had to

Starting point is 00:04:48 answer. How are you going to raise the money and how are you going to turn a profit? I would argue that the more important question is still left unanswered. Maybe they're answering the raise the money, but not the turn in profit. In theory, this is why deals like the PayPal deal are important because I think the PayPal deal probably means more to OpenAI than it does to PayPal because PayPal brings credibility. Us normies that want to make sure our money doesn't disappear if we're shopping on ChatGPT or whatever, one of these models, we trust the PayPal name. I just don't know if the world needs this. I might use ChatGPT to find me a deal and then check out on a website This whole idea of doing everything on the platform and doing commerce on the platform

Starting point is 00:05:38 versus just kind of a replacement for search, we'll see. I still think that's a big hurdle to get there. I think it's as a tool to help with searching, and then I end up on the Amazon website anyway. It sort of makes more sense to me for now, but it's a step in the right direction. The other thing I want to look at is what is this stake marked as on Microsoft's balance sheet? Because if it goes up, if it goes down, none of those gains and losses are going to have to be marked to market each quarter. So we are going to at least have an idea how Microsoft is valuing

Starting point is 00:06:10 this company and this stake, now $135 billion or so. So potential for both gains and losses in the future. When we come back, we're going to talk about some job cuts at some big companies in corporate America. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. another big topic for investors lately has been what's going on with the economy. And one of the concerns over the past couple of weeks has been a number of major layoffs that have been announced. Amazon was rumored to be interested in cutting about 30,000 jobs. I think they actually announced about 14,000 this week. Target had 1,000 or 1,800 layoffs, depending on how you're counting things. But you have UPS, Intel, Nestle, Accenture, Ford. All of these companies have

Starting point is 00:06:54 huge layoffs. This could potentially impact economic spending. We are coming up to the holidays. This is a huge quarter for a lot of companies. So Rachel, how should we be thinking about this, these changes in the job market and how it's going to ultimately impact revenue profits and ultimately the stock market? I do think that there is a potential for a significant impact here. And I think we're already kind of starting to see cracks, if you will, in the labor market. to be. There was a recent report that came out from the payroll processor ADP that had reported a tepid quote-unquote and slow recovery in private sector hiring. There was a different report from the conference board's labor market differential. It showed that fewer consumers believe jobs are

Starting point is 00:07:37 plentiful. There was a University of Michigan survey, right, that came out this month that indicates that consumer sentiment remains low as we're seeing, you know, persistent inflation and job market concerns. There's been, you know, an increase in debt payment delinquencies and inflation has been, you know, stubborn. We've also seen really just starting to begin to see the kind of trickle-down impact of the imposed tariffs and how that's putting upward pressure on prices. And so, that has a lot of reverberations for a lot of different industries. One thing I will say, I think that there is sort of this drive sometimes to look at these numbers and maybe try to trace it back to past financial crises. Obviously, the 2008 financial crisis is one

Starting point is 00:08:17 that is top of mind, I think, for a lot of consumers and investors. I think there are some key differences here. I mean, it's very obviously concerning to see a series of major layoff announcements. But some of these recent cuts are very closely tied to factors like pandemic era overhiring, the increased role of automation and artificial intelligence. That's certainly part of it. You know, if you're worried about the state of the economy, I think that we need to keep an eye on the national unemployment rate. You know, some companies might be cutting costs to boost profitability, looking for things like a rise in defaults on consumer loans. There are a few key metrics to keep an eye on right now.

Starting point is 00:08:55 I think Rachel's right. There's a lot of different factors going on here with a lot of different companies. And yes, some of it is more tied to past mistakes than the present. But the point is, it's all happening now. And I think that, as a macro watcher, yes, there was maybe a lot of excess capacity in some of these companies, but why are they axing it now. That is what concerns me. Travis, you said just the potential for this to ripple through the economy and what seems to be a no-hire economy. For a while, we were no-fire, no-hire, where there weren't really layoffs. It was just really hard to find a job if you needed one. If we're moving into a period where there are increasing numbers looking for jobs and there's

Starting point is 00:09:39 still not enough certainty that companies are looking to hire. Things could get a lot worse from here just in terms of consumer spending and all that. We really need clarity on the corporate side. And I'm worried that's not coming anytime soon, especially with the government shutdown, with tariffs, with so many things going on. There's a real potential for things to get worse from here. Lou, I wanted to get your thoughts on just how this could be a snowball rolling down the hill. I look back at 2008 and the job losses in 2008. We think of 2008 as a really bad year, but for the stock market, it didn't actually get really bad until third quarter, I think even into the fourth quarter. Then that bled into 2009. The market didn't bottom until

Starting point is 00:10:23 March of 2009. The job losses in 2008 were relatively modest in the first and second quarter. It actually improved in the second quarter to $71,000 a month. We would be a little bit alarmed by that. By the fourth quarter, it was 510,000 job losses per month. Somebody gets laid off in the first quarter. They pull back their spending. Revenue for companies starts to go down. They, for their cutback, a little bit more. Maybe they do some layoffs. It just is the kind of thing that is a self-fulfilling prophecy almost in the wrong circumstances. Then if you find some sort of rot in the economy. We found, you know, these credit default swaps and all that stuff in 2008, who knows what we'll find if things actually get worse now. So is that the worry is

Starting point is 00:11:12 that, you know, this is, this is a couple of announcements, but it's starting to become a trend. And if that trend becomes a snowball, then we've got real problems. Absolutely. And I think you articulated it well. So I'll give you the, the glass half full case instead of kind of, you underlying everything you said. The economy is not the stock market. There is at least a case to be made that with the stock market now currently high, that we've called it the K-shaped recovery, where some people are doing very well, but others are not doing well at all. That's not great for society, but it can sustain businesses. There is a world here where we're cutting, we're becoming more efficient. There is still a critical mass of consumers able to spend,

Starting point is 00:11:55 and with interest rates coming down, like some debt costs and costs like that are coming down, where earnings can sustain even if things are getting worse on Main Street, that could mean for a while, even if things are worse on Main Street, the stock market can hold. I don't want to be chicken little here. I also don't want to be too dismissive because, yes, if things continue in the wrong direction, it will resonate on Wall Street eventually. But for now, I don't think we need to panic in the streets as investors. I do worry just kind of, you know, as a consumer, as a, as a citizen, just the societal impact more right now than I do the investing impact. Speaking of potential job cuts and changes to the economy, we're going to talk a little bit about

Starting point is 00:12:39 robotics and where AI may be taking us in the future. When we come back, you're listening to Motley Fool Money. Welcome back to Motley Fool Money. This week, we saw some massive news for AI outside of chatbots, which is interesting. Could be really interesting if you're interested in getting a humanoid robot. It also could be really bad for the economy, as Lou talked about, with some jobs being displaced. But NVIDIA announced a bunch of different partnerships. A couple that caught my eye were Joby and Stellantis. But first, I want to talk about the Neo Robot. Lou, did you see this one? It's a five-foot-six robot. It will, at least my understanding, at least clean up after my kids. That'd be great if we could

Starting point is 00:13:18 actually get somebody to do that. Maybe fold the laundry. Maybe we're moving to the point where these are going to be in more and more homes. With a click of the button or a simple verbal command, Neo transforms into a personal housekeeper. Yeah. Wow. Who wouldn't want that, right? All for $500 a month on subscription. I don't know what to think of this. My mom used to say, if something sounds too good to be true, dot, dot, dot. But they claim these are coming in 2026. I'm not going to put a deposit down, but wow, we'll see. The Jetsons may be here. Well, let's get to something that's a little bit more real today for at least stock investors. Joby announced a deal that they were going to be using the NVIDIA platform to power some of

Starting point is 00:13:58 their AI tools. They've been talking about this for a while, so this isn't necessarily new. There was a new partnership between Stellantis, Uber, Foxconn, NVIDIA. Autonomy, autonomous driving, autonomous flying seems like we're really, really reaching an inflection point and everybody is moving in that direction. Yeah. So, Lou, the consumer, is very excited about the potential. Lou, the investor, I don't think there's anything I can do with this today. And I'll tell you why. But first of all, Joby and NVIDIA, they're working on autonomous flight technology. I hope they get there. I believe they could get there, but I'm not sure I'll still be investing when they get there. Everything we've talked about- You don't think that we're going

Starting point is 00:14:35 to be able to hop in an eVTOL aircraft at a, at your local heliport and just like fly to the next city? Uh, no, no. I, I autonomously anytime, anytime soon. I, I, I, I'm going to take the under on regulation there. Okay. There's a boring part of the Joby thing. We're basically using AI for predictive maintenance, which I think makes a lot more sense. That's boring. And it's not really going to move the needle. Everyone's doing this already, but that makes a lot of sense. The idea, I want to see self-driving cars everywhere with no restrictions before we even talk about it. You go out and talk on Main Street about how we're going to have just robot planes flying

Starting point is 00:15:13 through the air. I don't think that's going over right now. Accidents do seem like less of a problem in the air than it is on the ground. Yes, but no one's afraid of a car crash. Everyone's afraid of a plane crash. Statistics aren't all what matters. similarly with Stellantis, what they signed was, and I quote, a framework for technology development, licensing, production, and vehicle procurement. That's corporate speak for we're going to get in

Starting point is 00:15:38 a room and brainstorm. And that's great. A lot can come out of brainstorming, but not a lot of concrete action for now. I love the direction. Everyone's doing exactly what they should be doing. I don't mean to be dismissive of it. I think it's great. I also don't see it as actionable in the foreseeable future. Yeah. The NVIDIA drive, I did some digging on that. It doesn't seem like they're actually testing level four or level five autonomy today. So it is a lot of frameworks. We're going to develop some stuff, but there's, you know, GM involved, Lucid is involved. So everybody's moving in the right direction, but these are not the companies. Yeah. And the, but these are not the companies that have autonomous vehicles on the road today,

Starting point is 00:16:17 Even on the Uber or Lyft platforms, those are companies like Waymo, May Mobility. Mobileye has a partnership with Volkswagen. So there are kind of different levels of advancement here, but at least everybody's moving in that direction. Rachel, let's turn to the medical space. Eli Lilly is not necessarily the first company I think of when I think of artificial intelligence, but they are at least looking at using AI for some of their development. What are we learning this week? Yeah, this is very exciting.

Starting point is 00:16:44 And I think when we talk about AI, you know, we talk so much about the applications we're seeing in the tech space, which are very exciting, but there are so many ways in which AI is revolutionizing healthcare and the way that pharmaceutical drugs are developed. So, Eli Lilly and NVIDIA have partnered to build what they're calling, quote, the most powerful supercomputer in the pharmaceutical industry. And the core of the collaboration is NVIDIA's DJX SuperPOD. It's equipped with over 1,000 of NVIDIA's advanced Blackwell Ultra GPUs. The supercomputer is going to be housed within Lilly's facilities.

Starting point is 00:17:16 And it's designed to really revolutionize the entire life cycle from data intake and model training to high volume predictions. This AI factory is essentially going to enable scientists to analyze entire genome sequences, predict patient outcomes, explore biochemical possibilities in an unprecedented scale. That is so key to aid and quicken the pace of drug discovery in a way that is efficient and meaningful. One of the things that Eli Lilly's chief AI officer, yes, they do have one of those, noted was that the company is shifting from using AI merely as a tool to really embracing it as an intelligent partner in the research process. They're even going to be utilizing the NVIDIA

Starting point is 00:17:59 Isaac platform to use intelligent robots to optimize their manufacturing operations. So this is very exciting. These are very practical applications for AI, and it's part of a larger trend we're seeing. You know, you already have companies like Johnson & Johnson, like Nova Nordisk that are investing heavily in AI technologies and in many cases working with NVIDIA. So it's an area to track if you're interested in AI and the intersectionality with healthcare. We will see where all of this AI development ends up, but definitely a lot going on. And I think by 2030, we're going to see what's real here and what's not. Are chatbots going to be the future or is it going to be airplanes that are flying around by themselves? I'll take the airplane

Starting point is 00:18:37 all of the above as always people on the program may have interest in the stocks they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear all personal finance content follows the motley fool's editorial standards and is not approved by advertisers advertisements are sponsored content and provided for informational purposes only to see our full advertising disclosure please check out our show notes for lou whiteman rachel warren dan boyd behind the glass and the entire motley pool team. I'm Travis Hoyum. Thanks for listening to Motley Fool Money. We'll see you here tomorrow.

Motley Fool Hidden Gems Investing - Microsoft Gets $135 Billion OpenAI Stake

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