Tech Brew Ride Home - Thu. 09/12 – OpenAI’s Big New Raise

Episode Date: September 12, 2024

As expected, OpenAI is in talks for a new capital raise at a $150B valuation. More layoffs in Microsoft’s gaming division. More holes poked in our creaking internet infrastructure. The tiny SpaceX competitor who’s stock has been soaring lately. And a look at what Apple’s recent AirPods announcement could do to the hearing aid industry. Links: OpenAI Fundraising Set to Vault Startup’s Valuation to $150 Billion (Bloomberg) The AI Spending Spree, in Charts (WSJ) Microsoft Lays Off Another 650 Staff From Its Video Game Workforce, Xbox Boss Phil Spencer Sends Memo to Staff (IGN) Rogue WHOIS server gives researcher superpowers no one should ever have (ArsTechnica) Adam Neumann’s Climate Company Is Issuing Refunds After Failing To Launch Crypto Token (Forbes) SpaceX’s Tiny Rival Soars 1,300%. Now Comes the Satellite Launch (Bloomberg) Apple turning AirPods into hearing aids underscores effort to crack massive health market (CNBC) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech meme right home for Thursday, September 12th, 2024. I'm Brian McCullough today. As expected, Open AI is in talks for a new capital raise at a $150 billion valuation. More layoffs in Microsoft's gaming division, more

holes poked in our creaking internet infrastructure, the tiny SpaceX competitor whose stock has been soaring lately, and a look at what Apple's recent AirPods announcement could do to the hearing aid industry. Here's what you miss today in the world of tech. sources are telling Bloomberg that OpenAI is in talks to raise $6.5 billion in equity financing at a $150 billion valuation, but also at the same time to raise $5 billion in debt from banks in the form of a revolving credit facility. Quoting Bloomberg, the new valuation, a figure that doesn't include the money being raised, is significantly higher than the $86 billion valuation from the company's tender offer earlier this year and cements its place as one of the most valuable startups in the world.

The funding round is slated to be led by Thrive Capital, Bloomberg previously reported. Thrive declined to comment on the latest valuation. Microsoft, the company's largest investor, is also set to participate, and Apple and and VyDia have been in talks about investing as well. OpenAI is not the first major tech startup to turn to Wall Street banks for a revolving credit facility, a slew of technology companies, including Facebook, Alibaba, Uber, and DoorDash have tapped Wall Street for credit lines before pursuing an initial public offering, often in part to strengthen banking relationships. Historically, companies tend to reward banks that make big credit

commitments with roles on their IPOs. In return, lenders sometimes offer better terms on the financing. In a memo to employees last month, Open AI Chief Financial Officer Sarah Fryer said the financing will support the need for computing power and other operating expenses, Bloomberg reported. She also said in the memo that the startup is aiming to allow employees to sell some of their share, in a tender offer later this year." End quote. So I tweeted online last night asking, and honestly asking, is this bullish or bearish? And I meant that in the sense of, here's one of the hottest companies in the hottest space

in tech. Does a $150 billion valuation seem low or high to you? I could make the case either way. Also, is the credit facility a warning sign or a sign of strength? Are they not able to cobble together the money they needed all in equity? And this is a face-saving measure to hide a desperate need for ready cash. Or does this show confidence that Open AIs overall products, which again have gotten the most traction of anybody in the industry, are about to take a step change up in terms of sales because you need serious and reliable

cash flow to service that debt? Also, are we signaling an IPO is nigh? I honestly don't know the answers to any of those questions, just asking. Fairly related to that previous segment, quoting the journal, Venture Capital Investments in AI startups are at $64.1 billion so far this year, putting them on track to approach a peak set during a broader investing upsurge in 2021. And the total share of VC investments going toward AI this year is the highest on record and accounts for about a third of VC dollars invested so far this year. But that pales in comparison to the spending on AI by the big tech platforms,

just last quarter, Meta Alphabet, Microsoft, and Amazon alone accounted for $52.9 billion in Cappex spending, a large percentage of that going to data centers to power AI features. The risk of underinvesting is dramatically greater than the risk of overinvesting, Sundar Pichai, chief executive of Google Parent Alphabet said on an earnings call in July. The fruits of all that spending can be seen around the U.S. as new data centers are popping up with increased frequency. In the past, data centers were used primarily to remotely store data, and run non-AI software. AI optimized data centers house specialized chips needed to develop and run

generative AI applications. From early 2020 through this year, Microsoft has more than doubled its number of data centers. Google's total is up 80% over the same period. Oracle is heavily focused on the business and plans to build 100 new data centers. AI data centers are more power-hungry than those built in the past because AI chips require a constant and reliable source of energy to operate. Even brief dips in power could damage the training runs in which AI models improve by analyzing reams of data. For large models, each training run costs tens or hundreds of millions of dollars. Since 2015, the amount of power that data centers in the U.S. and Canada have ordered from energy companies has increased nearly

ninefold, end quote. The hits keep on coming in gaming, not in a good way. Also, especially in Xbox gaming, unfortunately. Microsoft is laying off a further 650 staff from its gaming business, bringing the cuts in that gaming unit to 2,550 jobs just since Microsoft acquired Activision Blizzard. Quoting IGN. In the memo, Xbox Chief Phil Spencer said the roles affected mostly corporate and support functions and were made, quote, to organize our business for long-term success. He clarified that no games, devices, or experiences are being canceled, and no studios are being closed as part of these cuts. These latest layoffs mean Microsoft has let go of 2,550 staff from its gaming business since acquiring Activision Blizzard for $69 billion

in 2020. In his memo, Spencer makes it clear that the cuts are related to the acquisition. While Spencer has insisted Microsoft's video game franchises are, quote, getting stronger, and Xbox console players, quote, are as high this year as they've ever been, the gaming business is now bringing a number of its games to rival platforms, including the PlayStation 5. Xbox hardware sales were way down again in Microsoft's Q4, the latest financial quarter we have figures for, while gaming content sales skyrocketed again, thanks to the company's acquisition of Activision Blizzard. Gaming revenue overall appears to be doing more than fine in terms of year-on-year comparisons, even setting quarterly records, but this was

largely due to the boost offered by Activision Blizzard. It wasn't there to make money for the company last year, now it is, so the numbers have gone up. Gaming revenue was up 44% year-over-year, but with 48 points of net impact from the acquisition, which indicates that Xbox's not Activision Blizzard-related business isn't doing as well as it was last year. Xbox content and services revenue fared better up 61% year-over-year, with 58 points of net impact from the acquisition. Overall, Microsoft's more personal computing division, which includes Xbox as well as other segments such as Windows, brought in $15.9 billion in revenue up 14% year-over-year during Q4, end quote. We seem to be getting this somewhat regularly, all of a sudden, hacks into basic internet

protocols and infrastructure. The latest example sees researchers detailing the ability to generate counterfeit HTPS certificates and more after buying an expired who is server domain for the dot MOBi top level domain for just 20 bucks, quoting RSTECA. Now that we have the ability to issue a TLSSSSRT for a dot MOB domain, we can in theory do all sorts of horrible things, ranging from intercepting traffic to impersonating the target server. The researcher Benjamin Harris, who is also CEO of security firm Watchtower, wrote, it's game over for all sorts of threat models at this point.

While we are sure some may say we didn't prove we could obtain the certificate, we feel this would have been a step too far. So whatever. The nefarious things Harris can do with his rogue who is server aren't limited to obtaining counterfeit certificates. Many email servers and anti-spam services, including those used by government, military, and large organizations, queried his dot-mobie registry.net domain each time they received an email from a dot-mobi domain.

The ability to track email chains over sustained periods of time could give him the ability to passively infer the parties involved in sending and receiving the communications. Various who-is clients and security services also contain vulnerabilities, some of which make it possible for an attacker to execute malicious code on the querying device. Normally, exploits of these sorts of vulnerabilities would be considered unlikely because only a trust who his server would be in a position to capitalize on them. A rogue server like the one Harris created, however, would be under no such constraints. Quote, the purchase of a $20 domain that allowed the passive inference of dot-gov.m.l certifications and the subversion of the certificate authority

verification system should be a clear demonstration that the integrity of the trust and security processes we as internet users rely on is and continues to be extremely fragile, Harris wrote in an online interview. The systems and security we all take for granted is in many places truly held together in ways that would not pass approval in 2024, end quote. Sources are telling Forbes that Adam Newman's flow carbon, which raised $70 million back in 2022 from A16Z and others, is refunding investors after failing to launch its goddess nature token. Newman, you'll recall, was the WeWork founder. Quote, since debuting more than two years ago, the startup has struggled to realize

its mission in bringing carbon credits onto the blockchain. In 2022, Flow Carbon announced it had raised $70 million in funding from investors like Andresen Horowitz to create a new token backed one-to-one by carbon credits, certificates that companies typically buy en masse to offset their greenhouse gas emissions. Each credit represents a metric ton of carbon dioxide that has been removed or prevented from entering the atmosphere. Tokenizing them would, in theory, make it easier for anyone to participate in the carbon market, a system that some reports have claimed can do more harm than good. But in recent weeks, flow carbon has been issuing refunds to people who purchased its goddess nature token and waited years for a launch that never happened. According to sources who were contacted by the company last

month, flow carbon cited market conditions and resistance from carbon registries as the reason for returning buyer's funds instead of continuing to hold them indefinitely. These individuals told Forbes that the company relayed this information over Zoom calls. As part of the refund process, Goddess Nature token purchasers were asked to sign a release, including a broad waiver of claims against Flow Carbon and its affiliates, as well as confidentiality terms, according to a contract viewed by Forbes. Earlier this year, Flow Carbon stopped using Discord as a communications channel telling Forbes that anonymous users were increasingly posting inappropriate content, sometimes of a graphic nature. Spokesperson Jennifer Owens added that email, phone, and Zoom are all much more effective for communicating directly and regularly with our audiences, as is X and LinkedIn, where we are very active. Flow carbon does not appear to have disclosed the recent refunds on any public platform. Flow carbon isn't the only crypto-carbon project, but its profile was arguably the highest,

thanks to Newman's WeWork renown and a lineup of major backers. Adam and Rebecca's vision is a key part of the story, and that is really what gave birth to the company, Andriesen Horowitz's general partner, Arianna Simpson enthused during the $70 million series A she led, touting flow carbon as Best in Breed. Also on the cap table are General Catalyst. Samsung Next, Hollywood producer Sam and Ashley Levinson, and Euphoria producer Kevin Turin, who passed away last November. There was so much demand for the pre-sale that everyone was asked to help, a former flow-carbon employee told Forbes, andresen Horowitz did not respond to a request for comment. At least $38 million of that $70 million round was raised through the sale of flow-carbons token,

though it's unclear if that figure includes retail buyers. Venture capital firm Fifth Wall bought $4 million worth and did not respond to questions about whether it has also been refunded. At one point, Flowcarbon had a requested minimum purchase amount of $25,000 for pre-sale participants, it told Forbes earlier this year, but insisted it was, quote, never intended as a floor, and that many purchases were for less, end quote. Congratulations to SpaceX for doing the first private spacewalk this morning in, you know, space. SpaceX is still private, though it does have a valuation even above what OpenAI is going for, but this caught my eye. AST Space Mobile is a publicly traded company, and its stock is up a whopping

1,300 percent since last April. Why? They've apparently cut deals with AT&T and Verizon to provide wireless service from space. Quoting Bloomberg. AST Space Mobile, the tiny telecom company that wants to compete with SpaceX, has become one of the hottest stocks in the world this year after soaring from $2 to $28 in just six months. Now it faces $8,000. Now it faces $8,000. a key test on the road to vindicating its massive rally and proving skeptics wrong. On Thursday morning, AST is set to launch its first five commercial satellites into low Earth orbit from Cape Canaveral, Florida aboard a SpaceX rocket. AST's stock is up about 1,300 percent since hitting a record low in April and the best performer in the small cap Russell 2000 index over the past six months.

First, AST reached an agreement with AT&T on May 15th to partner on providing wireless service from space, putting it in competition with Musk's space exploration technologies, which has a similar deal with T-Mobile US. Two weeks later, Verizon said it would invest $100 million in a partnership sending the stock price flying. Now the Midland Texas-based company faces something of a show-me moment with its satellites, which are roughly the size of a one-bedroom apartment ready for launch. AST is among a few firms trying to provide broadband cellular connectivity through low orbiting satellites rather than cell towers. eventually it plans to have dozens of satellites orbiting more than 300 miles above Earth, end quote. Finally today, maybe the biggest news from a low-news iPhone event this week was,

hey, we're going to send out a software update, and it will turn your AirPods Pro 2 headphones into FDA cleared over-the-counter hearing aids. CNBC takes a look at how this could transform a whole industry, where most hearing aids range from the like of $800 to maybe thousands of dollars. quote, Apple announced on Monday that its AirPods Pro 2 headphones will become an FDA cleared hearing aid in the coming weeks through a software update. That means that adults with mild or moderate hearing loss, about 30 million Americans, according to the Food and Drug Administration, will be able to use Apple's earphones to amplify specific sounds they want to hear better. The announcement is the latest example of Apple's strategy to break into the health industry, a potential $15 trillion market by the year 2030. According to RBC Capital Markets, Apple's CEO Tim Cook has highlighted health features as the company's quote,

most important contribution to mankind. What's really cool about Apple now saying their AirPods can be over-the-counter hearing aids is we're seeing that technology innovation at a price point and in a product that's very mainstream, said Barbara Kelly, Executive Director of the Hearing Loss Association of America. Apple's launch has been boosted by a recent regulatory change. Previously, all hearing aids required a prescription after testing from a licensed audiologist. In 2022, the FDA opened up the market to over-the-counter hearing aids that were significantly cheaper due to the use of audio testing. software or at-home fittings. However, Apple's AirPods won't immediately make other hearing aids obsolete. Among its limitations are the battery, which lasts six hours. That's not enough for the kind of

all-day wear that some OTC hearing aids can manage. Also, the AirPods Pro are only for those with mild or moderate hearing loss, meaning people who have trouble making out speech in noisy settings. Anyone with severe or profound hearing loss still needs to see a licensed audiologist, expert said. Bridget Dobion, Executive Director of the Hearing Industries Association, said that she welcomed Apple's entrance into the market to increase awareness of hearing health, but there are still many hearing loss situations that require a doctor-based approach. OTC hearing aids may be suitable for adults with mild to moderate hearing loss, but seeing a licensed hearing care professional can also help determine unique hearing health needs,

Dobbyn said, end quote. I gotta take Archie the podcast Beagle into the vet again. This time he won't stop scratching himself all over. I don't think it's fleas. He's always on flea medication, but anyway, off to do that literally right now. Talk to you tomorrow.