NAS100 Reacted Positively to the OpenAI Leadership Turmoil, Now Turns to Nvidia

OpenAI Leadership Change

OpenAI's Board of Directors fired CEO Sam Altman on Friday, in a move that astounded the tech world and created turmoil. Over the weekend there were efforts to bring Mr Altman back, with board member Ilya Sutskever twitting his regret for the decision ^[1] and most employees threatening to quit according to journalist Kara Swisher ^[2].

With its ChatGPT generative AI chatbot, OpenAI sparked the artificial Intelligence boom that has fueled this year's tech rally. Moreover, it is a partner of Microsoft, which has invested billions of dollars in it. This collaboration has allowed the tech giant to emerge at the forefront of the AI revolution, with its latest results underscoring the advance. It has also helped in propelling MSFT.us to an approximately 55% rally year-to-date.

The OpenAI leadership debacle could stall Microsoft's AI progress and create opportunities for its competitors to catch up, but CEO Satya Nadella showed quick reflexes. He stressed that "we remain committed to our partnership with OpenAI", while announcing that Mr Altman will be joining the company ^[3]. Speaking on Bloomberg, he offered a message of continuity stressing that Microsoft remains partner to both OpenAI and its former leader ^[4]. Markets reacted positively to the swift action, with the stock clinching new record highs on Monday, as they seem to think that Microsoft is getting the best of both worlds.

However, the situation is still fluid and it is unclear yet where the chips will fall. Mr Nadella did not rule out a return of Mr Altman to OpenAI and said that "surprises are bad", expressing desire for governance changes at OpenAI. Microsoft is a minority owner at the capped profit entity, with no seat at the board of the non-profit organization that sits at the top.

Eyes on Nvidia

The artificial intelligence revolution, sparked by OpenAI, would not be possible without chip designer NVIDIA. Its GPUs are the go-to (and basically the only) solution for the development and deployment of generative AI applications and services such as ChatGPT. NVIDIA reaps the benefits of its leading work with its revenues more than doubling in Q2 FY24, compared to a year ago. Furthermore, its stock has more than tripled from this year, closing at all-time highs on Monday.

Investors now turn to tonight's latest earnings for an update on the firm's progress and broader AI demand. The semiconductor giant has dismissed concerns around supply and demand, expecting sales to increase further in the reported quarter. NVIDIA recently displayed its latest chip for AI workloads, although its near-monopoly won't last forever. ^[5]

Rival Advance Micro Devices (AMD) returned to revenue growth in Q3 and projected an acceleration in the last quarter of the year, when it also expects to start seeing the impact of its newly minted AI chips. Microsoft meanwhile, revealed this month its first AI chip to compete with Nvidia ^[6]. Furthermore, the US government tightened its exports curbs on advanced tech to China, restricting shipments of NVidia's A800 and H800 integrated circuits that were previously allowed ^[7] and forcing Chinese giant Alibaba to shelve its planned cloud business spinoff.

NAS100 Analysis

Investors did not seem concerned around the OpenAI turmoil and liked Microsoft response, helping a broader upbeat sentiment. NAS100 jumped on Monday, surpassing the 16K mark for the first time this year. This takes it closer to its record highs (16,770), but these could prove elusive in the near term. The move looks stretched and a pullback looks reasonable. Strong catalyst would be needed though for the EMA200 (15,200) and the bullish bias to be challenged. In any case, the next leg of the move will determined by tonight's quarterly results by Nvidia and the Fed's minutes.