How we’re thinking about 7 portfolio stocks with ties to OpenAI after its latest shakeup
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OpenAI is once again confronting a major shakeup. We’re taking a keen interest because several stocks in the Club portfolio have ties to the startup behind ChatGPT. Less than a year after CEO Sam Altman’s short-lived ouster rattled the startup behind ChatGPT, OpenAI is said to be mulling a plan to adopt a for-profit structure and a trio of high-profile employees are leaving. The latest upheaval comes as Microsoft -backed OpenAI works to complete a blockbuster fund-raising round, which would value the firm at more than $150 billion, according to media reports. In the crosshairs of these developments are all the companies that have relationships with OpenAI, which rose to prominence and sparked an investment boom into generative AI with the launch of ChatGPT in late 2022 . Some firms are long-standing technology suppliers, such as Club holding Nvidia. Others have turned to OpenAI’s software to advance their own business pursuits. There’s also a whole class of companies that benefit from generative AI adoption more broadly because it drives demand for their own products. OpenAI, in many ways, is the poster child for the technology industry, putting its every move under scrutiny. And to be sure — there have been a lot of them lately, including the release earlier this month of its latest large language model, codenamed Strawberry, which it says is even more capable than previous versions. OpenAI also recently started to roll out advanced voice mode for ChatGPT. The flurry of OpenAI news that hit late Wednesday started with technology chief Mira Murati announcing she’s leaving after more than six years at the firm. The departures of Chief Research Officer Bob McGrew and Barret Zoph, a research vice president, also were announced Wednesday evening. Overshadowing the talent drain: OpenAI’s work to become a for-profit benefit corporation that is no longer overseen by its nonprofit board. Reuters was the first to report the effort. CNBC later confirmed it. OpenAI’s complicated structure came under the microscope last fall when the nonprofit board shockingly fired Altman, saying at the time it “no longer has confidence” in his ability to lead the startup. Just a few days later, following outcry from employees and some investors, Altman returned to OpenAI. The renewed drama at OpenAI raises questions about the downstream effects for companies, including those in the Club’s portfolio, that are closely linked to the startup. Changing to a traditional, for-profit corporate structure could be positive for existing OpenAI investors, including Club holding Microsoft, and prospective backers because it may simplify the path to an initial public offering down the road. On the other hand, it’s generally not ideal to see high-level technical employees defect from a company known for its cutting-edge technology. Co-founder Ilya Sutskever, who had been chief scientist, also left earlier this year and launched a new AI startup. In any case, it’s too early to know how the recent news will impact OpenAI’s relationships and its perceived leadership role in the world of generative AI. For now, here’s a closer look at the seven Club holdings that have benefited or should soon start benefiting from OpenAI’s rise to prominence. Apple When Apple Intelligence, announced in June , goes lives next month, ChatGPT will officially be integrated into some of the most iconic consumer hardware devices of all time. We expect Apple Intelligence, the company’s AI feature set, to usher in a robust upgrade cycle for the new iPhone 16, which was launched earlier this month. That would be huge for the stock. Apple gets roughly 46% of its overall revenue from the flagship device. Prior to the slew of recent departures at OpenAI, Jim Cramer touted Apple’s agreement with the startup because it comes at little financial cost for Apple, describing the iPhone maker as the “ultimate free rider” during the Club’s September Monthly Meeting. That’s because Apple can offer its customers access to OpenAI’s tech free of charge in exchange for giving OpenAI exposure to its massive user base. “It’s extraordinary that Apple does not have to spend, and instead can just piggyback off the big spenders,” Jim added. That’s not all. Apple and OpenAI’s relationship may strengthen even further soon. The iPhone maker is in talks to join the startup’s multi-billion dollar funding round, according to reports from Bloomberg News and The Wall Street Journal. Microsoft Microsoft got the first-mover advantage among big tech firms because of its early investment in OpenAI. This allowed the Redmond, Washington-based company to utilize OpenAI’s large language models before its peers — eventually leading to new offerings for both its ubiquitous software and Azure cloud-computing businesses. For example, Microsoft’s Copilot virtual AI assistant can be integrated into the company’s 365 productivity bundle — creating a nice recurring revenue stream from monthly subscription fees. In addition to serving as OpenAI’s go-to provider of computing power, Microsoft’s Azure cloud has seen an acceleration in revenue as other companies seek out access to the startup’s models. On its most recent post-earnings call, Microsoft said Azure and other cloud services revenue rose 29% year over year, with AI services contributing eight percentage points of that growth. Nvidia Unlike Apple and Microsoft, Nvidia is not utilizing OpenAI to improve or roll out its own offerings. Instead, Nvidia benefits because it is a massive supplier of graphic processing units (GPUs) that OpenAI has heavily relied on for many years. OpenAI’s ascent and its continued investment in new models and products boosts demand for Nvidia’s chips, which maintain a dominant position in the fast-growing market. At Nvidia’s annual meeting in late June, CEO Jensen Huang said OpenAI plans to adopt its next-generation Blackwell chip platform. Nvidia may also join fellow “own it, don’t trade it” name Apple in OpenAI’s upcoming funding round, according to reports. Palo Alto Networks Over the summer, Palo Alto Networks announced a software integration with OpenAI’s enterprise-specific offering — with the goal of improving data security and regulatory compliance for customers who use both its security solutions and the startup’s technology. More generally, Palo Alto Networks stands to gain from the proliferation of generative AI, whether it’s from OpenAI or other model providers in the industry because the technology is making the threat landscape more complex. Palo Alto CEO Nikesh Arora previously told CNBC that the generative AI frenzy has been the “fastest any technology trend has taken off” and that CEOs all want to “figure out a way of leveraging AI in their business.” He added: “And, guess what? The moment everyone starts to deploy, then they have to make sure that nobody’s data is getting stolen.” The Club sees less financial upside near term for the cybersecurity leader than what we expect for Apple or Microsoft. Morgan Stanley Morgan Stanley has unveiled two AI-powered tools in its wealth management division in recent years. Both are powered by OpenAI. These virtual assistants are used internally by financial advisors and their staff to automate grunt work. Employees, for example, can get quick answers about investment recommendations as well as draft summaries of meetings and follow-up emails to customers. The goal of these tools is to free up employees to focus on building relationships with clients. In the long run, that additional time with clients could help Morgan Stanley’s wealth business get closer to reaching its goal of $10 trillion in assets. The firm reported $7.2 trillion in client assets last quarter. Eli Lilly Eli Lilly announced in June a collaboration with OpenAI in an effort to come up with new treatments for drug-resistant pathogens. As of now, we still haven’t heard much about Lilly’s exact plan to utilize OpenAI’s technology. But, in general, using AI could help speed up the drug-development process and bring Eli Lilly’s offerings to the market much faster. That would help reduce costs for the drugmaker. Salesforce Salesforce is another beneficiary of OpenAI’s meteoric rise to fame. The company tapped OpenAI for its initial foray into generative AI last year with the rollout of AI assistant, Einstein GPT. At last week’s Dreamforce conference, Salesforce CEO Marc Benioff detailed the company’s new suite of AI-enhanced chatbot tools. Known as Agentforce, they have emerged as Salesforce’s flagship offerings, and OpenAI’s large language models, as well as those from other tech firms, can be utilized in running it, a Salesforce spokesperson confirmed to CNBC. Agentforce has sweetened investor sentiment on Salesforce by showcasing management’s strides to develop internal innovation that can grow revenue. Multiple Wall Street analysts agree, with Barclays last week describing Agentforce as a long-awaited “new catalyst” for the stock . (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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OpenAI CEO Sam Altman speaks during the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024.
Jason Redmond | AFP | Getty Images
OpenAI is once again confronting a major shakeup. We’re taking a keen interest because several stocks in the Club portfolio have ties to the startup behind ChatGPT.
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