Microsoft Gets $135 Billion OpenAI Stake
00:00Open AI's IPO may be imminent. We'll explain exactly what that means.Molly Fool Money starts now. Welcome to Molly Full Money. I'm Travis Hoy. I'm joined by Lou Whitemanand Rachel Warren. The big news of this week that we have to touch on is Open AI becominga for-profit company in a deal that was announced on Tuesday. The company is going to be convertingto 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. Thisalso accompanies a huge cloud deal with Microsoft. What is the takeaway here? Is this paving the way
00:59for an IPO? Is this a win or a loss from Microsoft? There's a lot to process here.Yeah, it's a lot to process. And it's opening eye 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, you know, for most of us,has a lot of money.For Microsoft, not so much, but it's still, it's good to get that out there.There's at least hope now that Open AI can, like you say, do an IPO or at least haveways to fund all of its massive amount of commitments.
01:30Microsoft gets that $250 billion as their spend commit, but also Open AI can go kind ofreach deals with others.I think it works for everyone.Maybe the biggest winner here is Oracle, because Oracle is so dependent on Open AI, evenrelatives of these other guys. And all of these questions, Travis, you were asking a few weeksago about how will Open AI actually afford all of these commitments they've made? This is atleast the beginning of the answer here. They can afford it because now, like every othercompany, they can go to market, raise money, do some of the things that just normal companies
02:01do. So, yeah, that's the interesting thing here. If they do end up IPOing, and I think that's kind ofthe expectation, this sort of...paves the way, whether it's in the next year or it's two years. But Rachel, this does seem toopen up a lot of potential opportunities to fund Open AIs ambitions. Those keep getting bigger. Even ahuge deal with Microsoft, it's sort of like, where does this, 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 thisthe kind of IPO that you're interested in investing in? Is this still a better way to playwith some of these other cloud players, like Oracle, like Microsoft.
02:42Where is your head at when it comes to Open AI actually becoming a 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.
03:07They're now structured as the Open AI.Group PBC. It's under the oversight of the original nonprofit, which is now named the Open AIFoundation. Microsoft's access to Open AI's technology is extended through the early 2030s now.And what's interesting is the new agreement removes previous restrictions on raising capital.It also ends Microsoft's right of first refusal for cloud services, which is important to note.Open AI just completed a share sale that valued around 500 billion. And Microsoft's 135 billion,stake is actually just ahead of the OpenEI non-profits, 130 billion stake in the for-profit company.So this shift really enables OpenEI to behave much more like a conventional tech company and the way
03:51that 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 OpenEI.I think it's the next logical step in their 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 chat GPT.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 sort of dance around this bubble talk.
04:38Well, this goes back to is an investable, too. The opening eye question you asked, too, becauselook, opening eye before the Microsoft announcement had two real questions they had to answer.How are you going to raise the money and how are you going to turn in profit?I would argue that the more important question is still left unanswered. Maybe they'reanswering the raise the money, but not the turn in profit. In theory, this is why deals likethe PayPal deal are important because, you know, I think the PayPal deal probably means moreopening eye than it does to PayPal because PayPal brings credibility. Us normies that want to makesure our money doesn't disappear if we're shopping on chat G, you know, or whatever, one of these
05:21models, 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 theplatform and doing commerce on the platform 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, like look to help with us searching.And then I end up on the Amazon website anyway.It sort of makes more sense to me for now.
05:52But 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, now 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 value in this company and thisstake, 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 corporateAmerica.
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07:24QINCE.com slash motley for free shipping and 365 day returns. Quince.com slash motley. Welcome backto Motley full money. Another big topic for investors lately has beenWhat'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.
07:59All of these companies have 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.
08:28There was a recent report that came out from the pay-broll 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 plentiful.There was a University of Michigan survey that came out this month that indicates that consumer sentiment remains lowas we're seeing persistent inflation and job market concerns.There's been an increase in debt payment delinquencies and inflation has been stubborn.We've also seen really just starting to begin.
09:02and to see the kind of trickle-down impact of the imposed tariffs and how that's puttingupward 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 numbersand maybe try to trace it back to past financial crises. Obviously, the 2008 financial crisisis one that is top of mind, I think, for a lot of consumers and investors. I think there aresome key differences here. I mean, it's very obviously concerning to see a series of majoror layoff announcements.But some of these recent cuts are very closely tied to factors like pandemic era overhiring,
09:40the 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 tokeep an eye on the national unemployment rate.You know, some companies might be cutting costs to boost profitability.You know, looking for things like a rise in defaults on consumer loans.There are a few key metrics to keep an eye on right now.I think Rachel's right. There's a lot of different factors going on here with a lot of different
10:06companies. And yes, some of it is more tied to past mistakes than the present. But the pointis, it's all happening now. And I think that, you know, as a macro watcher, the, you know, 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 economyand 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,
10:46and there's 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 shut down,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.And I look back at 2008 and the job losses in 2000.
11:18We 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.And then that bled into 2009.The market didn't bottom until March of 2009.But the job losses in 2008 were relatively modest in the first and second quarter,actually improved in the second quarter to 71,000 a month.You know, that would put, we would be a little bit alarmed by that.But by the fourth quarter, it was 510,000 job losses per month.
11:49So it was, you know, somebody gets laid off in the first quarter.They pull back their spending.Revenue for companies starts to go down.They for their cut back 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.And then if you find some sort of rot in the economy, we found these credit default swapsand all that stuff in 2008.
12:14Who knows what we'll find if things actually get worse now?So is that the worry is that, you know, this is a couple of announcements, but it's startingto 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 glass-half full case instead of kind of underlying everything you said.The economy is not the stock market.
12:38And there is at least a case we made that with the stock market now currently high,that we've called it the K-shaped economy 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.If there is a world here where we're cutting, we're becoming more efficient, there is stilla critical mass of consumers able to spend, and with interest rates coming down, like somedebt costs and costs like that are coming down, where earnings can sustain, even if thingsare getting worse on Main Street, that could mean for a while, even if things are worse than
13:15Main Street, the stock market can hold. I don't think, again, I don't want to be Chicken Littlehere. I also don't want to be too dismissive, because, yes, if things continue,on the wrong direction, it will resonate on Wall Street eventually. But for now, I don't thinkwe need to panic into streets as investors. I do worry just kind of, you know, as a consumer,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 aboutrobotics and where AI may be taking us in the future when we come back. You're listening to Motley FoolMoney. The old adage goes, it isn't what
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14:38With seven terrain modes to choose from, terrain response to fine-tuned your vehicle for the roads ahead.The Range Rover event is on now.Explore enhance offers at Rangerover.com.Welcome back to Motley Full Money.This week we saw some massive new.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.
15:05But Nvidia announced a bunch of different partnerships.A couple that caught my eye with Jobi and Stalantis.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.You know, that'd be great if we could 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.
15:28With 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, 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.
15:51Well, let's get to something that's a little bit more real today for, at least, stock investors.Joby announced a deal or that they were going to be using the Nvidia platform to power some of their AI tools.They've been talking about this for a while, so this isn't necessarily new.There was a new partnership between Stalantis, Uber, Foxcon, 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.
16:27And I'll tell you why.But first of all, Joby and Vidiya, 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.You know, everything we've talked about.You don't think that we're going to be able to hop in an EVTOL aircraft at your localheliport and just fly to the next city?
16:45No, no.Autonomously?Yeah, anytime soon?I'm going to take the under on regulation there.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.
17:01Everyone'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.You go out and talk on Main Street about how we're going to have just robot planes flying 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.
17:29You know, statistics aren't all what matters.Similarly with Stalantis, 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 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 meanto be dismissive of it. I think it's great. I also don't see it as actionable in the foreseeable future.
18:00Yeah, the Nvidia Drive, I did some digging on that. It doesn't seem like they're actually testinglevel 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 notthe companies. Yeah. But these. But these.These are not the companies that have autonomous vehicles on the road today, even on the Uber or Lyft platforms.Those are companies like Waymo, May Mobility.MobileI has partnership with Volkswagen.So there are kind of different levels of advancement here, but at least everybody's moving
18:33in 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. And I think when we talk about AI, you know, we talk so much aboutthe applications we're seeing in the tech space, which are very exciting. But there are so manyways in which AI is revolutionizing healthcare and the way that pharmaceutical drugs are
18:59developed. So Eli Lilly and Invidia have partnered to build what they're calling, quote,the most powerful supercomputer in the pharmaceutical industry. And the core of the collaboration isNvidia's DJX SuperPod. It's equipped with over a thousand ofNvidia's advanced Blackwell Ultra GPUs. The supercomputer is going to behoused within Lilly's facilities. And it's designed to reallyrevolutionize the entire life cycle from data intake and modeltraining to high volume predictions. This AI factory isessentially going to enable scientists to analyze entire genome
19:32sequences, predict patient outcomes, explore biochemicalpossibilities and an unprecedented scale. That is so key toto 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 anintelligent partner in the research process. They're even going to be utilizing theNVIDIA-Isaac platform to use intelligent robots to optimize their manufacturing operations.So this is very exciting.
20:08These 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 and 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 chat bots going to be the future or is it going to be airplanes that are flying around bythemselves? I'll take the airplane loose. All of the above. As always, people on the program may have
20:44interest in the stocks they talk about and the Motley Fool may have formal recommendations for oragainst, so don't buy our sell stocks based solely on what you hear. All personal finance contentfollows the Motley Fool's editorial standards and is not approved by advertisers. Advertisements aresponsored 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 glassand the entire Motley Cool team, I'm Travis Hoyum.Thanks for listening to Motley Cool Money.
21:12We'll see you here tomorrow.
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