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- [00:00]
ADP Representative
ADP knows any big thing, any small thing, any trendy thing, even a trendy thing that everyone knows isn't a great idea, but management just wants us to give it a try for a bit. Can change the world of work. From HR to payroll, ADP designs forward thinking solutions to take on the next anything.
- [00:19]
Pierre Bienname
Welcome to Tech News briefing. It's Wednesday, February 5th. I'm Pierre Bienname for the Wall Street Journal. There's a new power couple in the world of artificial intelligence. The relationship between SoftBank CEO Masayoshi Son and Sam Altman, the head of OpenAI, is built on what could be the biggest ever investment in a startup. And then we take a look at the rush of AI investments coming from every corner of Wall street too, and how some investors are making big bets in the new digital economy. First up, SoftBank CEO Masayoshi Son has a history of latching onto charismatic startup founders, and he's found one in OpenAI head Sam Altman. This week, the two companies announced a joint venture to provide Japanese businesses and maybe at some point the wider world with AI services. And sun is also preparing to put as much as $43 billion toward OpenAI in a pair of transactions. Berber Jin covers startups and venture capital for the Wall Street Journal and he joins me now. And we should quickly note before we get into it that News Corp, owner of the Wall Street Journal, has a content licensing partnership with OpenAI. Berber, what's this relationship like between Masayoshi Son, the head of a Japanese conglomerate, and OpenAI's Sam Altman?
- [01:35]
Berber Jin
As you mentioned, SoftBank is agreeing to invest up to $43 billion in OpenAI. There hasn't been an investment of this size ever before in Silicon Valley, and it eclipses Microsoft's $10 billion investment that it made into OpenAI a few years ago. So Masayu Shisan basically has become overnight the biggest backer of OpenAI. And it's a partnership that's going to span across not just providing funding for OpenAI's business operations, but obviously undergirding this massive infrastructure effort called Stargate to build data centers in the US helping OpenAI distribute its technology across Japan and eventually the world. Moss has been out of the limelight for a while. He obviously made a really big splash in Silicon Valley with his two vision funds, which were the largest startup funds in Silicon Valley history. He had a few high profile catastrophes, most notably with WeWork and some other investments that flamed out and he's kind of been behind a bit with the AI boom. He Missed out on investing early in a lot of the buzzy, generative AI companies. And if you are a student of MASAYOSHI San and SoftBank, you know that he likes to go really big. He likes to find these charismatic founders with ambitious visions. And he's found the sort of next iteration of his journey through tech is going to come through OpenAI and Sam Altman. And he's obviously putting a lot of his reputation and career and money on the line for this partnership.
- [03:12]
Pierre Bienname
And on the other side of that, for Sam Altman and OpenAI, how important is this kind of money right now?
- [03:18]
Berber Jin
It's crucial. I mean, OpenAI, last year our reporting indicates that they were expecting to post $5 billion in operating loss. It's an intensely cash burning business. It's extremely expensive to train new models to run applications for these models. And so OpenAI, they constantly need to raise money. And before Stargate was announced there was this big question of how they would be able to fund it because they were raising a lot of money. But there was a sen that in Silicon Valley there just wasn't enough cash lying around for them to be able to fundraise. And you saw their valuation growing higher and higher. And so there was this question of whether at some point, you know, investors would stop feeding the company with cash. And so SoftBank is kind of a saving grace for OpenAI from that perspective because they're not only willing to fund the main business, they're also putting a large chunk of cash for Stargate, which is essentially building out OpenAI's own cloud computing capacity. Like there are very few big tech companies that own and run data centers.
- [04:29]
Pierre Bienname
And how do these two men see the future of AI, both as a money maker and a world changing technology potentially.
- [04:36]
Berber Jin
Sun is in some sense the ideal partner for Altman because they both have this really grand vision about AI, not only changing the way we work and making us more productive and giving us an AI assistant, but this idea that artificial general intelligence will really just transform everything that we know about the world and will have an impact that's so profound that we aren't even able to grasp it today.
- [05:06]
Pierre Bienname
Microsoft has said its relationship with OpenAI is still strong. But what does SoftBank's big investments mean for that?
- [05:13]
Berber Jin
Microsoft's OpenAI partnership, in some sense SoftBank is replacing Microsoft. Basically Microsoft was the one that was funding OpenAI, providing the computing power that OpenAI needed to train its models. They're still doing that, but they agreed at the end of last year to allow OpenAI to go to other sources of cloud computing power to train their models. And that was a very big development in their relationship because up until that point, OpenAI could only use Microsoft. And the softbank relationship is almost the next chapter in OpenAI's development. Microsoft is developing its own models. They listed OpenAI as a competitor last year in corporate filing. So Microsoft, they still have access to OpenAI's technology. They're still providing the computing power. That partnership is still very much alive, but it's growing apart.
- [06:07]
Pierre Bienname
That was our reporter Berber Jin. Coming up, what Wall Street's massive commitments toward AI have in common with previous financing booms, except when it comes to risk. That's after the break.
- [06:24]
ADP Representative
ADP imagines a world of work where smart machines become too smart.
- [06:28]
Janet
Copier, I need 15 copies of this printing, by the way. Irregardless. Not a word, Janet.
- [06:36]
Berber Jin
Yeah, I know.
- [06:37]
Janet
Page 6 should be regardless of or irrespective of, just print them, please. If it were a word, Janet, it would mean without irregard, which is copier. Switch to silent mode. Let's put a pin in it.
- [06:49]
ADP Representative
Anything can change the world of work. From HR to payroll. ADP helps businesses take on the next anything.
- [06:59]
Pierre Bienname
AI requires mountains of data, energy, and, yes, money to operate. According to the BlackRock Investment Institute, big companies like Amazon and Microsoft could easily spend about $3 trillion on data centers by the end of the decade. Tech and power companies are raising cash every which way, issuing shares, loans, and bonds on publicly traded markets and in private deals. Matt Wirtz covers markets for the Wall Street Journal, and he looked at some of the big financial bets in AI. Matt, what are some of the specific deals that stood out to you?
- [07:30]
Matt Wirtz
Yeah, so the deals that we picked, each one is a little bit different. One of the things that they all have in common is that they have billions attached to the numbers. So these are very large transactions. One that I thought was super interesting was because it's going to fund the first data center for Stargate, this company that I know as, like, a private credit fund called Blue Owl. They're very fast growing, but they're pretty new to data centers. And they're putting a billion dollars of their own money into building this new data center. Another transaction that's really interesting is actually a series of transactions. It's for this company called Digital Realty, which operates a huge portfolio of data centers. They've been doing it for a long time, but in the last year, they have raised a really just amazing amount of money. I mean, close to $10 billion in lots of different forms. So they've done a private debt deal, which is loan from a bunch of big private equity and hedge fund type firms. They've done a couple of, I guess you would call it venture capital raises. And then they've gotten money from regular big banks like JP Morgan and Goldman Sachs. So that just showed the breadth of the money sources that these companies have to look at because they need so much money to build to meet the demand that's coming from the ChatGpts of the world, the Microsofts of the world, the Amazons of the world, et cetera.
- [09:01]
Pierre Bienname
And that breadth of investment is also there because everyone wants in on AI.
- [09:05]
Matt Wirtz
Everyone wants in on AI. And these things are really expensive. We're talking about very expensive microchips. We're also talking about just the real estate alone. We're talking about the technology to power these data centers and also to cool these data centers. It's just like a lot of infrastructure and tech combined. And so they're just not cheap to build. And we're building a lot of them all at the same time. And that is creating a massive sucking sound on Wall street as dollars get funneled from funds and banks into this new industry.
- [09:39]
Pierre Bienname
And what are some of the risk reward calculations for investors in AI?
- [09:43]
Matt Wirtz
Yeah, so this isn't the first time that Wall street has bet big on an industry that has a new technology attached to it. One over the last ten. Fracking and natural gas. That was a technology that revolutionized extraction of these very lucrative raw materials in the United States. And it led to companies issuing convertible bonds, regular bonds, private equity, public equity, and a huge boom. A lot of people made a lot of money. And then guess what happened to the price of gas? It collapsed. And when that happened, a lot of these companies went bankrupt and a lot of the investors lost their money. However, eventually the price of gas went back up. And in the long term, now natural gas fracking and oil fracking are commonplace. And the companies that have survived are very profitable. That's all to say that we've seen this movie before. There are winners in these big booms and there are losers in these big booms. And it's very hard to pick at the current point in time because we don't know exactly how this cycle is going to play out. You know, I spoke to a banker at J.P. morgan, Catherine O'Donnell, and she used to bank a lot of the frackers and she said to me, look, there's going to be winners and losers. We are trying to be as diligent as we can and looking for really safe bets. And at the same time, that is complicated because we're dealing with the risk of being disrupted by a technological change. It's just much higher in this boom than in previous.
- [11:18]
Pierre Bienname
That was our reporter Matt Wirtz. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer Kathryn Millsop. I'm Pierre Bienname for the Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.
- [11:37]
ADP Representative
ADP knows any big thing, any small thing, any trendy thing, even a trendy thing that everyone knows isn't a great idea, but management just wants us to give it a try for a bit. Can change the world of work. From HR to payroll, ADP designs forward thinking solutions to take on the next anything.