Musk and Meta enter the A.I. ring
The rivalry between Mark Zuckerberg and Elon Musk won’t be confined to social media posts or a cage fight. The tech heavyweights are accelerating pushes into the artificial intelligence world to take on the Microsoft-backed OpenAI and Google, taking different approaches in the buzziest sector of the software industry.
Meta is further along than Mr. Musk in developing a commercial A.I. venture. The social media giant is set to release an open-source version of its A.I. language model, allowing start-ups and developers to build tools and software of their own using the tech, The Financial Times reports.
That approach runs counter to the proprietary systems developed by OpenAI and Google; it may also be the quickest way for Meta to catch up with its walled-off rivals. The company has said that encouraging industrywide collaboration could assuage some of the big fears surrounding the technology.
Meta has spent billions on A.I. for decades. Well before Meta took a turn into the metaverse, the firm’s programmers developed LLaMA, an A.I. technology that can power chatbots. Yann LeCun, Meta’s chief A.I. scientist, is considered one of the three “godfathers” of A.I. But unlike his peers, who have recently warned of the existential threat posed by the technology, he is adamant that those fears are “ridiculous.”
Enter Mr. Musk’s xAI. The Tesla/SpaceX/Twitter boss will lead the new company and its team of a dozen A.I. experts who used to work at Google, Microsoft and OpenAI. Mr. Musk, who co-founded OpenAI but left after clashing with management, has often warned of the potential dangers of the technology. He’s also complained bitterly that A.I. firms have been scraping Twitter, slowing its servers.
There were no such grumbles on Wednesday. The goal, according to the xAI website, “is to understand the true nature of the universe.” Tune in Friday night to Twitter Spaces for an explanation.
HERE’S WHAT’S HAPPENING
Bob Iger will stay on as Disney’s C.E.O. for two more years. The mogul was initially set to step down next year, but he will postpone his second retirement until 2026, in part to give him time to find a new successor. In his second tour as C.E.O., Mr. Iger has had to contend with sweeping layoffs, rethinking the company’s streaming strategy, a stagnant stock price and prominent failures at the box office.
Rosy inflation data lifts global stocks. A better-than-expected Consumer Price Index report on Wednesday that showed inflation cooled in June sent shares to near highs for the year on Thursday morning, and the dollar fell to a 15-month low. Traders are now pricing in greater odds that the Fed will raise interest rates this month and then stop tightening.
Chinese hackers accessed the commerce secretary’s emails. An account belonging to Gina Raimondo was among those infiltrated by hackers believed to be tied to the Chinese military or intelligence services ahead of Secretary of State Antony Blinken’s visit to Beijing last month, U.S. officials say. Ms. Raimondo is among the most vocal China hawks in the Biden administration, having tightened limits on exports to Chinese companies.
A second front opens in the war in Hollywood
A day after the entertainment industry celebrated the latest Emmy Award nominations, it faces one of its worst crises in decades: the prospect of a complete shutdown, after contract negotiations between studios and the main union representing actors broke down overnight.
Hollywood was already struggling with a writers’ strike that halted most scripted movie and TV productions. Adding striking actors could deal a huge blow to embattled studios.
Actors are poised to approve a strike this morning. The board of the SAG-AFTRA union unanimously called for a work stoppage after weeks of acrimonious negotiations with the group representing the studios. Sticking points included higher wages and payouts from streaming and limits on the use of A.I. tools — issues also raised by the Writers Guild of America.
The studios were caught off guard by the hard-line negotiations, according to The Times. Though many in the industry were prepared for a writers’ strike — with some suggesting that Hollywood executives intended to inflict economic pain on writers to end that stoppage — they hadn’t expected the actors’ union to bring a 48-page list of proposals.
Writers and actors haven’t been on strike together since 1960. The consequences are huge: All U.S. productions with union performers will likely have to be suspended, while other projects in preproduction will likely be pushed back. Stars may also join writers’ picket lines, giving those demonstrations more prominence.
Studios had already responded to the writers’ strike by greenlighting more unscripted projects — as in reality TV — through the fall. But a prolonged delay for fresh scripted content could wound these companies, which are already struggling with box-office bombs, high streaming costs and declining viewership numbers.
Khan keeps her big Microsoft fight alive
The F.T.C. isn’t backing down in its effort to block Microsoft’s $70 billion takeover of Activision Blizzard after suffering a big loss in court this week. The agency said on Wednesday that it would appeal a ruling by a federal judge that let the deal proceed.
It’s a sign that Lina Khan, the F.T.C.’s chair, who is set to testify before the House Judiciary Committee on Thursday, is intent on continuing her aggressive antitrust enforcement strategy despite a number of legal setbacks. But for Ms. Khan to achieve her goal of blocking the transaction, a number of things will have to break her way.
The F.T.C. wants to extend a temporary restraining order on the deal, which is set to expire at 11:59 p.m. Pacific on Friday. It isn’t clear on which grounds the regulator will appeal, but a law professor who is known to speak with the F.T.C. previously told DealBook that he believed the judge had applied the wrong standard for how the deal would affect competition.
Meanwhile, Microsoft must reach an agreement with Britain’s antitrust watchdog. The Competition and Markets Authority unexpectedly said after the U.S. ruling was published that it was open to hearing settlement offers, after blocking the deal in May.
Investors initially wondered whether a compromise could be reached quickly, but the C.M.A. suggested on Wednesday that it would need to conduct a new review.
It’s unclear what concessions would be acceptable, or how quickly any new review could be done.
Time is ticking for Microsoft and Activision. Their deal agreement is set to expire on July 18, though they could extend that deadline.
How lousy was last quarter?
Earnings season kicks off on Thursday with PepsiCo and Delta Air Lines, and the big banks start to report on Friday, with questions looming over corporate profits and consumers’ financial health.
Companies ran into trouble last quarter. According to FactSet, S&P 500 firms estimate that they had their worst drop in profits since the second quarter of 2020, at the height of the Covid pandemic.
Up Friday are earnings from BlackRock, JPMorgan Chase, Wells Fargo and Citigroup. Investors will be keen to see how lenders are moving beyond the tumultuous collapse of Silicon Valley Bank in March and preparing for tighter capital requirements and regulatory scrutiny. Also in the spotlight: banks’ exposure to the commercial real estate market. McKinsey, the consulting firm, estimates that the post-pandemic shift to remote work will slash the value of office buildings by $800 billion.
All eyes will be on Goldman Sachs on July 19. In a rarity, Goldman has been delivering updates ahead of its earnings report — none of them particularly upbeat. “This is likely the worst quarter since David Solomon became the C.E.O.,” Mike Mayo, a Wells Fargo analyst, told Bloomberg. “There’s probably half a dozen items this quarter that fall into the weak, bad or ugly category.”
The continued deals slump and subdued trading by its investor clients will hurt Goldman and its rival Morgan Stanley, analysts say. Reports have been rife that both firms will reduce head count to get through the downturn.
“I sincerely believe that with today’s actions, Farmers Insurance is well on its way to becoming the Bud Light of insurance.”
— Jimmy Patronis, Florida’s C.F.O. This week, Farmers became the latest insurer to say it would reduce its risk exposure in Florida, where climate change is making storms more severe.
E.S.G. in the House
Republican lawmakers started “E.S.G. month” on Wednesday, a series of hearings that mark the latest step in their fight against so-called woke capitalism, one that has already hit investors. Patrick McHenry, Republican of North Carolina and chair of the House Financial Services Committee, made his goal clear: “It’s time to get politics out of corporate boardrooms and discourage financial regulation from being weaponized to drive far-left environmental and social policy.”
The legislation they have proposed may not get far. The slate of 18 bills is mostly focused on changing rules about the proxy process and curbing the S.E.C., but Republicans don’t seem to have the votes to pass them. “This is all about signaling and politics,” Joshua Lichtenstein, a partner at the law firm Ropes & Gray who tracks E.S.G. policies, told DealBook. But, he added, “red states may pick up lines of inquiry from Congress” for new investigations and enforcement actions.
Big asset managers dodged a bullet. Firms like BlackRock, State Street and Vanguard that face state boycotts or have been hit by pension funds pulling their money out haven’t been targeted by the House Republicans, and were even defended by an expert witness.
“I urge this committee to focus on legislative reforms oriented toward the proxy advisers and the regulatory agencies,” Benjamin Zycher of the American Enterprise Institute think tank testified. The firms have to answer to shareholders interested in high returns, Mr. Zycher said, but influential proxy advisory firms like ISS and Glass Lewis can “indulge their political preferences” without having much stake in management decisions.
THE SPEED READ
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The businessman accused of masterminding a $590 million fraud involving nickel trading said that the scheme had been devised by its victim, the commodities trader Trafigura. (FT)
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Carlyle Group and Trustar are reportedly trying to sell some of their stake in McDonald’s China and Hong Kong operations for $4 billion. (Bloomberg)
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