Mad Hedge Technology Alerts!
Elon Musk wants to buy OpenAI and that partly has to do with the vendetta he has against OpenAI CEO Sam Altman.
This fiery feud isn’t going away anytime soon.
My bet is that it will burst into the open and OpenAI is actively attempting to put the governance in place to block Musk from seizing the company.
The issue Musk has with OpenAI is that it was founded as a non-profit from capital Musk gave.
It was responsible for doing what is right for humanity, but Altman’s attitude to the industry shows the inverse of that.
It appears to the outsiders that Altman is hellbent on driving the price of AI up for the consumer and delivering profits to big tech that have invested into his “non-profit.”
Musk’s recent attempt at an unsolicited takeover was rejected by CEO Sam Altman and OpenAI's nonprofit board.
Now the creator of ChatGPT reportedly wants to make sure that there are indirect poison pills associated with any outsider takeovers.
All of that will take some maneuvering by OpenAI’s board members and Altman, all of whom are defendants in a lawsuit from Musk that seeks to block OpenAI from converting to a for-profit business.
Right now, investors like Microsoft are not equity holders in OpenAI but instead hold limited profit interests in OpenAI's for-profit subsidiary. Once OpenAI is profitable, Microsoft is entitled to 75% of profits until it recoups its $13 billion principal investment. The other 25% of profits go to employees and early investors, up to specified profit caps.
Once Microsoft’s principal is repaid, it is entitled to 50% of its profits until it reaches a profit cap of $92 billion.
OpenAI said it wants to convert its nonprofit parent to a Delaware public benefit corporation (PBC) that would issue ordinary shares of stock.
Charitable organizations aren’t typically targets for hostile takeovers, especially not the type that Musk had in mind — an unsolicited $97.4 billion bid for OpenAI’s estimated $157 billion in intellectual property and other assets.
Musk's lawsuit seeking to prevent OpenAI's conversion to a for-profit enterprise centers around Musk's initial $45 million donation to fund the startup, which he claims was contingent on OpenAI remaining a nonprofit organization.
If Musk ever acquires OpenAI, I believe he will put on his DOGE hat and cut the costs of doing AI.
The genie is now out of the bottle and the Chinese have proved that AI doesn’t need the bloat.
AI can run on cheaper and older chips while not needing the same amount of data centers.
My belief is that Musk wants to democratize AI and make it cheap for everyone and that would be bad for tech shares specifically Nvidia and Microsoft.
Big tech has the incentive to make the price of AI high just like the supermarkets have an incentive to place higher prices in the supermarkets.
Don’t believe in this mumbo jumbo of supermarkets operating on thin margins when they do produce a lot of their own house brands.
Musk wants to take a samurai sword to AI and make it applicable to the average American.
He doesn’t want to see a situation in which AI is used by executives at corporations to fire everyone, and the readers should know that we are barreling right down the path of replacing workers with robots right now.
If Musk ever gets into the position of neutralizing OpenAI, sell your tech stocks right away, because there will be less peaks and more valleys in tech share prices after that.
Mad Hedge Technology Letter
February 21, 2025
Fiat Lux
Featured Trade:
(THE AFFORDABLE IPHONE FROM APPLE)
(AAPL)
A $599 cheaper iPhone with worse features is clearly a sign that Apple (AAPL) is on its way down from peak innovation.
This new cheap phone won’t save the company, but the company doesn’t really need saving.
The company is on auto-pilot mode. Let me explain.
At this point, CEO Tim Cook has done the calculations and he has decided that the company doesn’t need to innovate.
Apple needs to milk its subscriber base whom are famously loyal to its ecosystem.
Apple users are the least likely to just jump ship and switch to the Android ecosystem.
Cook knows that which is why he can push through annual increases in service charges.
Apple’s balance sheet is also another key part of the story and Cook will wield it with extreme efficacy through shareholder returns.
It could be true that we are past the stage of Apple delivering big growth numbers.
That looks to be a thing of the past.
Now, competing with China on cheaper phones is a massive step back and it won’t flow through to the bottom line.
It’s easier to argue that this phone will cannibalize sales of Apple’s more expensive phones.
We have arrived at this point and it is sad for most technologists.
Apple AAPL expanded the iPhone 16 family with the launch of a cheaper iPhone 16e version powered by the latest A18 chip and supporting Apple Intelligence.
iPhone 16e is available in a 6.1-inch display size and has the best battery life ever on this display size offered by Apple. The iPhone 16e, available from Feb. 28, will cost $599 compared with $799 for iPhone 16 and $999 for iPhone 16 Pro.
Although iPhone sales decreased 0.8% year over year to $69.14 billion in the first quarter of fiscal 2025, Apple saw better iPhone 16 sales in those regions where Apple Intelligence was available. iPhone’s active installed base grew to an all-time high and saw a record level of upgrades in the reported quarter. The iPhone was a top-selling model in the United States, Urban China, India, the U.K., France, Australia and Japan.
AAPL maintained its lead over Samsung for the second consecutive year, with a market share of 23% compared with the latter’s 16%. Xiaomi trailed both Apple and Samsung with 13% market share. Global smartphone shipments increased 7% year over year to $1.22 billion units in 2024.
Apple has more than 1 billion paid subscribers in its ecosystem and the focus is entirely on them. There are only 8 billion people on this planet and Apple has decided it is not worth going after the other 7 billion.
If they haven’t adopted an Apple phone or tablet then this last cheap phone is the last chance. Even then, the reason they most likely haven’t adopted an Apple device is because they cannot afford it.
Apple shares are down 1% this year at the time of this writing and I still believe this is a buy-the-dip stock even with a weakening business model.
Apple knows they can withstand earnings whenever they want by just increasing their dividend.
Another headwind is that Apple is not one of the leaders in AI and shareholders will wait to see how that plays out.
Buy the dip in Apple, but don’t hold it long-term.
