- Front Research
- Posts
- Apple Backs Out of $6.5B Investment in AI Giant OpenAI
Apple Backs Out of $6.5B Investment in AI Giant OpenAI
Tech brief: 5-minute tech market update.
Kristoffer Lindström
September 30, 2024
RESEARCH NOTE
Research note unlocked
Interest Rates and Their Double Effect on SaaS Valuations
The SaaS (Software as a Service) sector has experienced significant changes in its valuation trends over the past few years, driven by broader macroeconomic factors like interest rates. As shown in recent data, there's a clear link between rising interest rates and falling SaaS valuations. Now, with the Federal Reserve’s first interest rate cut since the pandemic, the market is anticipating a potential reversal—possibly pushing valuations back toward pre-pandemic levels.
This research note has now been fully unlocked to all free readers.
TECH BRIEF
Despite weaknesses in the tech and chip industries, the Dow Jones rose to a record close due to calm inflation data. The economy's health was supported by good data, pulling back inflation, and a consistent decrease in interest rates. However, possible volatility could emerge with elections approaching and soft information could potentially cause stock market instability. Encouragingly, Wall Street seems well protected against unforeseen shocks, especially with the latest monthly Personal Consumption Expenditures (PCE) price index report showcasing a rise of only 0.1% for both headline and core readings.
Thrive Capital is slated to invest over $1 billion in OpenAI's ongoing $6.5 billion funding round, with the unique prospect of investing an additional $1 billion next year at the same valuation if a revenue target is met. OpenAI, which looks to increase revenues from an estimated $3.7 billion in 2024 to $11.6 billion next year, could hit a $150 billion valuation following a proposed restructure and a successful funding round that includes key investors like Microsoft, Apple, Nvidia, and Khosla Ventures.
A second judge overseeing the Apple versus Epic Games lawsuit has cited skepticism over Apple's disclosure of decision-making documents regarding its App Store policy, labeling the tech giant's court filing as "not believable". This controversy stems from Epic Games breaching the App Store's terms by introducing its own in-app payments system, denying Apple its 30% commission. Apple originally claimed that this policy wasn't financially motivated, but now faces increased scrutiny over its credibility and compliance with court orders.
Starting a Venture Capital (VC) fund requires more than just capital; understanding the industry, having conviction and investing in outstanding companies can help to stay ahead in the game. To start a successful fund, you must have the ability to raise capital, source and win the best deals, support founders and help lead the companies to successful exits. Quality sourcing, deal-winning skills, and investor judgement play critical roles in raising a successful VC fund. The article outlines steps to follow, from raising capital to becoming a top-tier investor.
Apple has pulled out of negotiations to participate in OpenAI's upcoming $6.5 billion funding round, leaving Microsoft and Nvidia as potential key investors. Following a $13 billion previous investment, Microsoft was anticipated to contribute around $1 billion. This fundraising initiative could value the maker of ChatGPT, OpenAI, at over $100 billion, a figure propelled by the current AI arms race. Thrive Capital is reportedly leading the funding round with an estimated $1 billion investment.
Meta is experimenting with AI-generated content in Facebook and Instagram feeds, adapting to user preferences and current trends. In addition to tailored visuals, voice capabilities are being added to the Meta AI assistant for photo queries, edits, and Reels video translations. The company states that 400 million people use Meta AI monthly, aiming for it to be globally most used by year-end. The move could potentially increase user engagement, serving Meta's intent to rise ad revenue.
California Governor Gavin Newsom has vetoed a divisive artificial intelligence (AI) safety bill, citing its narrow focus on large and costly AI models. Tech leaders like Google, Meta, and OpenAI criticized the bill, but numerous scientists supported it. In place of the bill, Newsom is collaborating with leading AI researchers to create more all-encompassing legislation that he would back. This comes amidst his approval of other AI-focused laws earlier this year.
Reply