Good morning. Andrew here. Breaking: The parent company of the N.Y.S.E. just agreed to invest up to $2 billion in Polymarket, the big prediction market operator. We have details on that deal and much more below. (Was this newsletter forwarded to you? Sign up here.)
A vendor financing flashback?S&P 500 and Nasdaq futures have dipped into the red this morning — but AMD appears to be riding high again, thanks to its huge new deal with OpenAI. It was the latest move by OpenAI to deploy by some counts more than $1 trillion into the artificial intelligence ecosystem, an expansive investment spree that has fueled bullishness about the industry. Such spending has lifted the stock market again and again, but concerns are growing in some sectors about the durability of the A.I. boom. Putting OpenAI’s spending in context:
Skeptics are also worrying about the circular nature of some deals. We’ve pointed out the vendor financing-ish quality of the up-to-$100-billion Nvidia deal, in which the chipmaker pledged to invest in OpenAI — money that would then go toward buying more of its processors. The AMD deal announced yesterday also has a circular element to it. In exchange for agreeing to buy AMD chips for its data centers, OpenAI will receive a warrant in that chipmaker that amounts to a 10 percent stake. As the value of AMD stock grows, OpenAI could use its gains to … well, buy more AMD processors. Some analysts and investors note that vendor financing was prevalent during the dot-com boom, obscuring the true nature of demand for the industry’s offerings — something that they worry could also overstate the robustness of the A.I. ecosystem. Jim Chanos, the prominent short seller, wrote on social media of the AMD deal, “Don’t you think it’s a bit odd that when the narrative is ‘demand for compute is infinite,’ the sellers keep subsidizing the buyers?” (Others are feeling more sanguine: “We don’t think this risk is present today, and we’re skeptical this will occur in the long term, since A.I. demand is both real and booming, but it bears watching,” wrote Brian Colello, a senior equity analyst for Morningstar.) But how long can this last? The answer depends in large part on whether OpenAI can afford its spending spree. The start-up’s president, Greg Brockman, told Bloomberg Television that it was working on the issue. “We look at equity and debt and all kinds of ways to pay for it,” he said. Critics say that the company is playing with fire. “OpenAI is in no position to make any of these commitments,” Gil Luria, an analyst at D.A. Davidson, told The FT. If it fails, that could have dire consequences for the increasingly broad and yet also tightly interconnected ecosystem the company is building.
The N.Y.S.E.’s owner takes a big stake in Polymarket. The Intercontinental Exchange agreed to invest up to $2 billion in the prediction market at an $8 billion valuation. The deal comes amid growing financial interest in online betting markets after they shot up in popularity following last year’s U.S. presidential election; Polymarket has also sought to start doing business in the U.S., and partnering with the Big Board’s parent company may aid in that effort. Elon Musk names a new C.F.O. for xAI. Anthony Armstrong, a former head of global technology M.&A. at Morgan Stanley who advised Musk on his takeover of Twitter, will become the artificial intelligence start-up’s financial chief, according to The Financial Times. In his new role, Armstrong will be tasked with helping xAI gather the resources to compete with bigger rivals like OpenAI, as well as with assisting with the rebuilding of its X social media division’s ad business. The White House takes a stake in a Canadian mining firm. Shares in Trilogy Metals are up nearly 200 percent in premarket trading today, after the Trump administration said it would take a 10 percent stake in the miner. The move is part of U.S. efforts to secure supplies of critical minerals, though the strategy chief of the mining giant BHP warned that “nationalistic tendencies” were complicating deal-making in the industry. The E.P.A. is sued for canceling solar grants. Solar energy firms, unions and nonprofit groups took the agency to court over the termination of $7 billion in grants intended for the installation of solar panels in low- and moderate-income households. The lawsuit, which accuses the E.P.A. of illegally revoking the money under the Solar for All program without congressional approval, escalates the White House’s efforts to claw back billions of dollars in climate funding approved during the Biden administration. The S.E.C. is said to investigate AppLovin over how it collected user data. The regulator has focused on whether AppLovin, a mobile advertising tech company, violated service agreements with partners by pushing more targeted advertising than was allowed, Bloomberg reports. The investigation came after a whistle-blower complaint and short-seller reports accusing the company of harvesting proprietary information to track users, according to Bloomberg. AppLovin’s shares fell more than 14 percent on the report. Shutdown updatePresident Trump briefly appeared to take a step toward negotiating an end to the government shutdown with Democrats as the stoppage approached seven days. With the first signs of dialogue, political observers eased back their expectations of a lengthy standoff, at least a little. Here’s the latest:
Are the odds of a negotiated end to the shutdown improving? Roughly a third of bettors in a Kalshi contract expect the government to remain closed for more than 25 days, down from yesterday. “We’re definitely on a bit of a sugar high in the U.S. economy right now.”— Ken Griffin of Citadel, on how worries about the safety of dollar-denominated assets have driven investors to safe-haven assets like gold, which is near $4,000 per ounce. Griffin added that the flight to safety was “really concerning.” Universities enter their austerity eraSome of the country’s most prestigious universities are planning for potential funding shortfalls after the Trump administration froze billions in research grants and threatened to end or limit federal support. Any hope from university officials that the president would soften his stance appeared dashed last week when the administration urged nine schools to sign a so-called compact to freeze tuition, cap international student enrollment and abide by other demands in exchange for federal funding priority. The cuts will turn into a “crisis” within a few years, Cristian Tiu, an associate professor of finance at the State University of New York at Buffalo who specializes in college endowments, told Niko Gallogly. Tiu said universities have been left to “re-budget themselves.” Cutting costs. Some of the targeted universities have announced layoffs, hiring freezes, program cuts and financial aid freezes, among other budgeting measures.
Seeking liquidity. Chief investment officers at Brown and Northwestern said at a recent Bloomberg conference that with private equity in a continued deal drought, they were tapping into secondary markets for cash, following similar moves by Yale, Harvard and Princeton. As funding uncertainty grows, Tiu said he expected more endowments to reallocate from private equity and venture capital investments toward assets like stocks and bonds, which are more easily convertible to cash. Universities are also seeking new revenue sources to offset losses, like expanded executive education programs and new corporate sponsorships for research. Schools, Tiu said, “are rethinking how the model works.” We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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