In today’s issue:
- Microsoft using AI to level up
- Is this a bigger short-term opportunity than AI or quantum?
- Another multi-billion-dollar AI start-up valuation
Microsoft is having quite the week.
From inventing new matter in the form of topoconductors for its quantum computing chip – which not only could change computing as we know it, but physics too – to the release of AI-powered Xbox real-time game creation, it feels like Microsoft (MSFT) is fast moving away from Outlook and Word titan to the most diverse tech company on earth.
Hand it to CEO Satya Nadella – he was a damn fine replacement for Steve Ballmer in 2014.
Just how damn fine?
Let me show you the best way I know how…
The Microsoft stock price on a chart from 2000 to 2014 (Ballmer’s reign) and from 2014 to today (Nadella’s reign).
Source: Koyfin
Maybe, it was luck? After all Ballmer did have to contend with 2008. Or maybe it’s the fact you’d never, ever, ever, ever see Nadella like this:
Instead, if you want to get a look into how Nadella’s mind works, I highly suggest you take the hour or so to watch him on this podcast. He discusses the new quantum chip, artificial intelligence and everything Microsoft has cooking.
There’s been a lot of whizz-bang stuff Microsoft has been talking about recently – from its $80 billion spend this year on AI infrastructure, to its reboot of the Three Mile Island nuclear plant, to its collaboration with OpenAI, to the release of the physics-bending topoconductors. But it was a post Nadella put on X.com amid the quantum chip news that showed us a glimpse of something arguably more important in the short term than anything else Microsoft is working on.
Source: Satya Nadella via X.com
Microsoft calls this AI model “Muse”.
It’s a generative AI model that creates real-time worlds and gameplay based on a players actions, controller movements and in-game actions.
One of the novel applications of this is the ability to play historic games from previous gaming consoles. The problem with new advanced hardware is that old games are usually not compatible. They just simple aren’t built to run with modern hardware.
As Microsoft explains,
Today, countless classic games tied to aging hardware are no longer playable by most people. Thanks to this breakthrough, we are exploring the potential for Muse to take older back catalogue games from our studios and optimize them for any device. We believe this could radically change how we preserve and experience classic games in the future and make them accessible to more players.
Further along, Muse could create unique bespoke gaming experiences for players. Think about playing your favourite open-world game. The experience you have is like no one else that plays it, custom to your preferences and actions. Personalised in every way, all done in real time by AI.
Over the next eight years the online gaming market is projected to grow to as much as $276 billion. I think the rise of AI in gaming will push that number higher. It also reinforces why it was such a big deal for Microsoft to acquire Activision Blizzard in October 2023 – which almost didn’t go through because of global anti-competition regulators.
The $69 billion deal might start to look like a bargain if Microsoft, through Xbox, can roll out AI in a meaningful and revenue-generating way.
For all the promise of Microsoft’s other businesses – be it Azure, its Business and Productivity services, or devices for that matter – I think it might be gaming where it really sees the biggest short-term growth opportunity.
Boomers & Busters 💰
AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week.) [Figures correct at time of writing.]
Boom 📈
- Gorilla Technology (NASDAQ:GRRR) up 13%
- Intel (NASDAQ:INTC) up 5%
- EchoIQ (ASX:EIQ) up 5%
Bust 📉
- BigBear.ai (NYSE:BBAI) down 24%
- Palantir (NASDAQ:PLTR) down 15%
- Vertiv (NYSE:VRT) down 11%
From the hive mind 🧠
- This may be the biggest AI news of the week! Considering everything that’s been going on, I don’t say that lightly. But the intersection of AI with genomics is a game changer.
- Carrying on the theme of AI and medical science, here’s another example of how AI is set to transform how we look at disease, illness and medical therapies.
- It was a start-up yesterday with a few hundred million invested and a $4 billion valuation. Today it’s another one, a few hundred million invested and a $3.3 billion valuation.
Weirdest AI image of the day
ChatGPT’s random quote of the day
“There are only two kinds of programming languages: those people always bitch about and those nobody uses.”
– Bjarne Stroustrup
Thanks for reading, see you next time.
Sam Volkering
Contributing Editor, Fortune & Freedom
|
The UK State Pension Crisis – Retirement in Ruins
We all know the government’s welfare spending is unsustainable. But Maxwell Marlow of the Adam Smith Institute has bravely put a date on when the State Pension system will fail. Trouble is, the deficit is so large that it threatens to drag the rest of the government down with it… |
Payback
Bill Bonner, writing from Baltimore, Maryland
‘There is no means of avoiding the final collapse of a boom brought about by credit expansion.’
– Ludwig von Mises
My colleague Dan Denning says our view of the stock market is ‘almost un-American.’ It defies the evidence of the stock market since 1925 – which is up 366 times. It seems to contradict the greatest investor of all time – Warren Buffett – who says you should ‘never bet against America.’
And our dear readers, too, think we are off track:
Astonishingly, Bill seems to leave out *productivity* gains in his argument. Sure, a chicken in 1925 produced the same eggs as a chicken in 2025… *unless* from bioscience knowledge over the years you now know how to better keep the bird healthy and more nutritionally fed such that it produces 6 eggs a week instead of 4 and produces for 4 years instead of two. That bird is arguably worth 4 times what the 1925 bird is worth, even if both are Rhode Island Reds. Increased productivity, either by working more hours or producing more per hour, is what generates wealth over time.
Seems obvious. Seems right.
Progress!
Improved productivity. Companies have more output even with reduced inputs. Therefore, they are worth more… right? And we are all richer; all we have to do is to hold stocks ‘for the long run,’ right?
Maybe. But our Law of Conservation of Value tells us that stocks shouldn’t be worth a single penny more, even over 100 years. Today, we’ll figure out why.
We all know the dollar can’t be trusted. It’s lost about 97% of its value since 1925. But the feds can manipulate the dollar. They can’t manipulate time. It’s a constant… marching forward by minutes and hours… eternally.
In 1925, the journeyman baker in Baltimore earned nearly $40 a week. We’ll make the math easy by saying that the median wage was about $1 an hour. At that rate it would have required three weeks’ work to buy the 30 Dow stocks. Today, the average wage is around $1,200 per week. So it will take 36 weeks to buy the Dow – 12 times as much.
Even in ‘time prices’ stocks have gone way up. But what about in terms of real money, gold?
A couple of days ago came this exciting news from Tom Dyson:
The Dow/gold ratio is 14.8 today. Our strategy used 5 and 15 as the buy and sell triggers…so this may be the last time we can pound the table on the Dow/gold trade. Next stop might be a Dow/gold ratio of 5, in which case we’d have to start preparing to buy stocks as per the system!
We keep score in gold. It’s the only real money. Everything else is credit. And in April 1929 – 96 years ago – the Dow/gold ratio was… you guessed it… 14.80. From there, stocks moved higher for another six months, before collapsing over the next four years, down to two ounces of gold to the Dow in 1933.
You could trade your Dow stocks for 14.80 ounces of gold in 1929. So can you do so today. In dollars, stocks went up. And in time too, they went up. But in real money, they went up and down… to nowhere.
What to make of it? What happened to all of those ‘productivity gains?’
We’ve seen that wages, earnings, sales, costs, and profits are all linked together, like alpine climbers connected to a single rope. Individual companies can go off on their own and climb to whatever heights they can achieve. But taken altogether, the key elements of a real economy stick fairly close together. Productivity raises them all up… and makes us all better off… but it doesn’t separate capital values from the rest of the economy.
Corporate America (not including memes or zombies) should be worth the present value of its anticipated earnings. And earnings are limited by wages, sales, competition and costs. Taken together, those earnings should never get too far out of line with the rest of the economy… including productivity enhancements.
With the help of bio-science and workplace innovations, hens may produce more eggs. But people only have so much money to spend and can only eat so many eggs. And the new abundance lowers egg prices, so that farmers’ profit margins remain more or less the same. The real values of the egg producers oughtn’t to change.
As productivity raises the amount of ‘stuff’ available to consumers…it also increases the amount of real money for them to buy it with. As innovation, education, and specialization improved corporate results generally, they have a similar effect on the gold mining industry. For the whole 19th century, gold increased along with the economy, leading to more or less stable prices.
But in 1971, the feds replaced the rope with a bungee cord. Funny money gave the system much more flexibility… much more stretch.
Milton Friedman didn’t miss the point. He applied it to his post-1971 flexible money system. He recommended that the feds add 3% to the nation’s money supply every year… roughly in line with GDP growth.
Alas, the feds couldn’t be trusted with the nation’s money. They allowed the money supply to expand far faster than Friedman recommended. The result was an economy so disfigured that even its own mother wouldn’t recognize it.
Normally, consumers can only spend what they earn… and investors can only invest what they save. Cometh the new dollar – lent at artificially low interest rates – and all of a sudden, US businesses, consumers and investors were living it up, using money that nobody earned or saved.
Sales went up, and with no offsetting wage cost, much of the money fell right to the bottom line. And speculators could now gamble with almost no carrying cost. GDP rose too… lifted up by funny money.
Nobody understood better how to take advantage of mis-priced credit than the money mavens of Wall Street. Speculators borrowed at very low rates – even below the rate of inflation – and bought stocks, cryptos, bonds, and real estate. They bet – correctly! – that their own betting (more dollars invested in assets) would lead to capital gains.
Thanks to the Fed, they won their bets. But the game is not over; the bungee still hasn’t snapped back. The pay-back phase of the credit boom is still ahead. The Dow/Gold ratio goes over 40 (as it did in 1999). But it also goes down to 1 (as it did in 1980). It just passed 15… look out below.
Stay tuned.
Regards,
Bill Bonner
Contributing Editor, Fortune & Freedom
For more from Bill Bonner, visit www.bonnerprivateresearch.com
