Wall Street drops as AI worries pummel chipmakers
Market Scorecard
US markets jumped higher yesterday. Maybe traders are expecting a softer inflation print this afternoon? The indices edged higher at the open, gained steam through the session and rallied into the close. We're hoping for a more benign economic outlook this week which should help markets rally into the year-end.
In company news, Sam Bankman-Fried, the disgraced co-founder of crypto exchange FTX has been arrested in the Bahamas as the US files for criminal indictment, following allegations that client funds were misused. SBF is being held in custody pending an extradition process. Elsewhere, Valero Energy (NYSE:VLO) rose 5.2% making it the S&P 500's best performer. On the other side of the coin, Tesla (NASDAQ:TSLA) shed 6.3% as bad Musk publicity continues to impact the share price.
At the end of the trading day, the JSE All-share closed down 0.17%, the S&P 500 was 1.43% higher, and the Nasdaq rose 1.26%.
Byron's Beats
The $ 70 billion purchase of Activision Blizzard (NASDAQ:ATVI) by Microsoft (NASDAQ:MSFT) was announced in January this year. Unfortunately, the deal is facing growing critics from the powers that be. Usually, the European Competition Commission is the hardest nut to crack but now even the US Federal Trade Commission (FTC) plans to block the deal.
Regulators are worried that this will give Microsoft too much power in the gaming world even though they will still only be the third biggest player if the merger goes through. The problem is that Activision creates games that are sold to Microsoft's competitors. It may be tempting for Microsoft to lower the quality on other devices or delay releases.
It is not all bad news for Microsoft. The world is very different today than it was in January 2022. For one thing, interest rates are 4% higher and almost all asset prices are lower. Gaming has experienced a big slowdown after a Covid-induced surge. If the deal falls through maybe they will feel relieved they got out of overpaying for a very large acquisition.
Michael's Musings
Have you heard of ChatGPT? The app has set the internet abuzz, and now holds the record for the fasted app to one million users. It is an artificial intelligence (AI) interface that texts you like a know-it-all human. For now, it seems like people are using the app to have some fun - asking it weird questions and seeing the answers.
What makes the app stand out is the quality of answer; it is pretty good. It isn't clunky like the chatbots that you get on some websites. Being able to give quick and clear answers poses a threat to Google. Alphabet (NASDAQ:GOOGL) has been developing their own search AI because they know it is the future. Maybe they will buy OpenAI, the owner of ChatGPT.
The team at Axios made the following observation: "When asked how to make chocolate chip cookies, ChatGPT gave me a short, clear recipe that looked pretty standard. Compare that to Googling, which returns links to long, overwritten blog posts that require endless scrolling before you get a recipe."
ChatGPT isn't infallible. People are trying to find questions that it can't answer, or answers badly. Ironically, the more weird questions asked, the quicker the AI learns and corrects its errors.
The era of functional AI has officially arrived.
Bright's Banter
Southwest Airline's (NYSE:LUV) quarterly dividend is taking flight again. The Herb Kelleher founded company is the first major airline to reinstate the payout after more than two years as the travel industry recovers from the Covid-19 pandemic.
The dividend payment of around $428 million could become a flashpoint in its tense labour negotiations. The company can't claim poverty if it can afford to pay out dividends. After all, most employees don't get paid in stock.
It is a matter of time until other companies in the tourism space, like Royal Caribbean Cruises, recover to a point where they can also pay dividends at pre-Covid levels. Most of their share prices are trading above the Covid-19 lows, notwithstanding this year's market rout.
Signing Off
Asian markets pared gains, after an earlier rally that was spurred by Hong Kong's decision to scrap its three-day Covid monitoring period for arriving travellers. Benchmarks in Hong Kong and Japan are still in the green, while mainland China and South Korea fell slightly.
All eyes are on the US inflation print that will be out around 15:30 SA time. The expectation is for inflation to slow to 7.3% from 7.7%. JP Morgan estimates that if inflation comes in at 6.9%, the market could rally as much as 10%. Hang on for the ride.
US equity futures are slightly lower in early trade. The Rand is trading at around R17.61 to the Greenback.
