What happened last week?
- OpenAI’s co-founder and CEO was ousted from the firm (only to return a few days later).
- Chipmaker Nvidia reported yet another set of outstanding results.
- Traders upped their bets for interest rate cuts in the UK and eurozone.
- The Nikkei 225 Index of Japanese stocks hit a fresh 33-year high.
- Foreign investment into China’s stock market has gone into reverse.
What does all this mean?
Over an eventful and dramatic week, Sam Altman, the co-founder and CEO of ChatGPT-creator OpenAI, was fired by the firm’s board of directors for “not being consistently candid in his communications”. The move then backfired, with the company’s president quitting in solidarity and almost all of the firm’s employees threatening to quit if the board didn’t reinstate Altman. Microsoft (OpenAI’s biggest investor) lobbed in some pressure to bring him back, then opted instead to hire him (and OpenAI’s president) to lead the software giant’s AI wing. After five days of drama, the board brought back Altman and fired themselves (well, three out of four of them).
In quieter AI corners, Nvidia reported better-than-expected quarterly results. The chipmaker at the forefront of this year’s AI boom more than tripled its revenue from a year ago – raking in $18.1 billion. And it signalled that this party’s just getting started, forecasting higher-than-expected sales of around $20 billion for the current quarter, despite a big drop in sales to China due to newly toughened AI chip export rules from the US government.
Investors have been making up their own minds about what’s next for the European Central Bank (ECB) and the Bank of England (BoE). The two central banks, encouraged by falling inflation, both left interest rates unchanged at their latest meetings, but warned that it was way too soon to think about interest rate cuts. But investors aren’t buying it: they see the eurozone and UK economies headed for a period of near-stagnation (that is, really low growth), which they believe will force both central banks to slash interest rates at least three times next year, starting in June, to be precise. That’s a big shift from just seven weeks ago when traders thought the BoE and ECB would make their first cuts in early 2025 and September 2024, respectively.
The Nikkei 225 Index, a benchmark for Japanese stocks, briefly touched a new 33-year high this week. The index has seen a roughly 29% gain this year, driven by strong company earnings, reforms in corporate governance led by the Tokyo Stock Exchange, and a prolonged period of yen depreciation, which enhances the earnings of exporters. The Japanese currency has tumbled more than 12% against the US dollar this year, leaving it not far from its weakest level in three decades.
Global investors began this year buying Chinese stocks at a record pace – anticipating a strong economic rebound after the country abandoned its restrictive zero-Covid policies. But that didn’t quite materialise. So, foreigners have significantly reduced their positions in recent months, as they become increasingly tense about troubles in the property sector and an overall sluggishness in economic growth. At this point, more than three-quarters of the foreign money that flowed into China’s stock market in the first seven months of the year has now left, despite the government’s efforts to restore confidence in the world’s second-biggest economy.
This week’s focus: AI and the future of humanity
Many speculate that Altman’s dismissal was ultimately due to conflicting visions between him and the board regarding OpenAI’s future direction. Word is that he wants to transform the firm from a non-profit organisation focused on the scientific exploration of AI into a business that builds and monetises paid products, allowing it to attract the heavy funding needed to power its AI tools. See, every time a customer asks OpenAI’s ChatGPT chatbot a question, it saps a huge amount of expensive computing power – so much, in fact, that the company’s been having trouble keeping up. To cope, the company set limits on the number of times a customer can query its most powerful AI models, at least until it can expand the chatbot’s capabilities.
It would be easy to dismiss the whole episode, especially now that the board has reversed their decision on Altman’s dismissal. But consider all that’s at stake: members of the board (now former members) were worried that OpenAI’s expansion was too much, too fast, and getting out of control, maybe even becoming dangerous. AI, after all, could be the biggest threat humankind has ever faced, so it’s essential that the forces harnessing the super-sensitive tech are trustworthy and stable. And a letter penned by several staff researchers to the board prior to Altman’s departure reportedly warned of a significant AI discovery with potential risks to humanity. Suddenly, the drama doesn’t seem so small…
The week ahead
- Monday: US new home sales (October).
- Tuesday: US consumer confidence (November). Earnings: Intuit.
- Wednesday: Eurozone economic confidence (November).
- Thursday: Japan industrial production and retail sales (October), eurozone inflation (November) and unemployment rate (October), China PMIs (November). Earnings: Salesforce.
- Friday: Japan unemployment rate (October).
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