Fed Rate Cuts, OpenAI vs. Google, Elon Musk AI, and Warren Buffett Likes Cash

Okay, as you could tell from the title, there are four parts to today’s article. First, the probability that The Fed cuts rates and the impact that the October Jobs Report had. Then, OpenAI directly taking on Google with a new feature, then Elon Musk’s AI company, and finally, Warren Buffett has $300 billion plus in cash right now.

Two months ago, The Fed cut interest rates by 50 basis points. Most people thought that next they would cut rates by 25 bps, but then the October Jobs Report came out, and it was not extremely positive. The jobs market is slowing, but at the same time, people are spending a lot and consumer spending is driving the economy up. It’s a tricky dilemma. From July to September, the US economy grew at a 2.8% clip, which is stellar. From July to October though, the private sector has only added about 70,000 jobs, which is…bad.

While Helene and Milton both damaged the South quite a bit and Boeing’s strike has junked up the entire aerospace chain, those events are on the whole, irrelevant. The general trend is clear, America is creating fewer jobs. Unemployment has stayed at 4.1%, which is about par for the course, but the share of workers permanently laid off jumped to its highest level this year.

The Fed will definitely stick with this 25 bps cut. I think consumer spending is lagging behind a weakening American economy, not telling us that things will get a ton better immediately. I think 25 bps cuts at the next few meeting should be appropriate to keep this economy racing forward.

OpenAI added a search engine aspect to its ChatGPT model. This is a direct challenge to Google, which received bad news on the search engine front as well, as Meta is introducing a search engine feature to its AI-model as well. ChatGPT’s search engine is named “ChatGPT search,” and it solves a major problem with ChatGPT right now, which is that it is behind. With the current models, I cannot ask for sports scores, stock prices, weather, etc…, but now I can.

This is a big step for OpenAI obviously, but they will not find themselves as the next Google or anything. Every company with an AI-model will soon have this feature or already does. This more lowers Google than it raises OpenAI, even though this is a great development for the latter.

I know I said recently that I was not going to talk about this fella, but this is actually relevant, and I promise this is not just dunking on him. Elon Musk is going through another funding round for his AI company, xAI. A few months ago, he went through one of these for xAI, and the company was valued at $24 billion. He is now asking for a valuation of $40 billion. I have no idea where the extra $16 billion in value has come from over the months, but this is about right for AI companies. These guys are like everything about Silicon Valley on steroids. They raise money at breakneck speeds, racking up valuation jumps at every step along the way.

OpenAI has had multiple rounds recently, each of which has boosted the value of the company, Perplexity is having one right now, and Anthropic has had them. These companies need money because they are directly competing with companies like Microsoft (sort of in OpenAI’s case), Meta, and Google.

XAI is behind the 8-ball though. They have been playing catch up to the other startups like OpenAI and Perplexity, as well as the big guys like Google. You might be saying, “Henry, if they are playing catch up, doesn’t that mean that a $40 billion valuation is insane?” You would actually be wrong.

This feels weird. I am actually about to praise Elon Musk’s business, not him. Elon’s xAI might actually be undervalued. XAI has the world’s fastest supercomputer, and they are making it faster, adding GPUs at an insane pace. The more powerful this datacenter is, the faster they can train their AI. This datacenter/supercomputer is faster than anything Google has, anything OpenAI has, anything that anyone has. In the long-term, this will push xAI up the pecking order. They also have the backing of the world’s richest man, since it is his company. This backing comes with connections to all of his other companies, Tesla, SpaceX, Neuralink, X etc… He can trade technology back and forth between these companies.

Frankly, I have seen Elon will his companies, beating expectations (and haters like me) again and again. I really would not be surprised if xAI becomes another one of those.

Finally, Warren Buffett, pretty much the opposite of Elon. Buffett has $300 billion in cash on hand, more than double the market cap of BlackRock, the world’s 107th most valuable company. His cash pile would be 30th in the world, in terms of most valuable companies, just behind Netflix and Bank of America. Buffett has gotten this cash from selling out of his Apple and Bank of America stock. He has also stopped all buybacks, as the price of the company has jumped.

So, why does he have all this money, and is it worrying? Short answer, no this is not too worrying. Long answer, there are not great buying opportunities, and Buffett is picking up $13 billion a year just from interest on his cash.

I will be interested to see where he puts this cash when he does decide to invest though.