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In today’s edition,
- Disney’s $5B push for content
- Groq AI chip breakthrough
- Perplexity and AI search
- The rise of smaller AI models
- Crypto lending’s resurgence
Market Snapshot
Last week, Wall Street was quite volatile. It began with a global sell-off sparked by a drop in Japan’s Nikkei index. This was due to a stronger yen and concerns about the US economy. As a result, the Volatility Index surged to pandemic-era highs. Investors then flocked to safer Treasury assets.
Market fluctuations were also influenced by economic indicators and changes in expectations for Federal Reserve policy. Following a disappointing July jobs report, most investors now anticipate a significant half-point rate cut from the Fed in its next meeting. This marks a notable shift from previous expectations.
Despite a shaky start, the market bounced back on Thursday with its biggest gain of the year. By the week’s end, the major indices stabilized. The S&P 500 slightly increased to 5,344.16. In contrast, the Dow Jones dropped 0.6% to 39,497.54, and the Nasdaq fell 0.2% to 16,745.30.
Stock market closing data for the week of Aug 5th to Aug 9th, 2024
News Summaries
Disney has announced plans to invest $5 billion in the UK and continental Europe over the next five years. This decision aims to boost blockbuster movies and TV shows. It seeks to capitalize on the success of recent hits like “Deadpool & Wolverine.” Disney’s investment strategy is focused on producing content locally, allocating about $1 billion each year to film, Disney+, and National Geographic productions. This move aims to enhance Disney’s position in the streaming market (see Figure 1). It competes with Warner Bros.’ Max and Paramount+. Recently, Disney+ reported its first quarterly profit. This success showcases the effectiveness of Disney’s content-focused strategy. Additionally, Disney is expanding its presence in Europe through other ventures. It plans to invest €2 billion to enlarge Disneyland Paris and continues to build cruise ships in Germany and Italy. These efforts aim to diversify Disney’s operations and enhance its influence across European markets.
Groq, a semiconductor startup in Silicon Valley, has raised $640 million. A funding round led by BlackRock, with Cisco and Samsung Catalyst Fund, did it. The funding boosted its valuation to $2.8 billion, up from $1.1 billion in 2021. This increase in valuation reflects strong investor confidence in Groq’s niche within the AI chip market. Groq makes AI chips that boost response times for AI apps. It competes directly with the giant Nvidia. The company focuses on AI inference. It optimizes how AI models use trained data to answer queries. This is critical to AI functionality. The investments, despite Groq’s lack of revenue, show faith in its technology. It claims to be faster and more power-efficient than its competitors. With the new funds, Groq aims to deploy over 108,000 of its language processing units (LPUs) by March 2025. It wants to manage half of the world’s AI inference tasks. Groq has formed partnerships with tech giants like Meta and Samsung and struck deals with Saudi Aramco. These moves are crucial for its growth and market expansion. Moreover, Groq’s adherence to U.S. regulations strengthens its position. The company is set to become a major player in the AI chip sector, potentially transforming the competition.
The AI industry is shifting towards smaller, specialized language models. This change is driven by the high costs and energy needs of larger models. Companies like Arcee.AI are at the forefront, focusing on specific applications for businesses. For example, Arcee.AI recently raised $24 million. It developed smaller models that answer tax questions for Thomson Reuters and provide career coaching for Guild. These smaller models use less data and are less expensive to run. They can also run on local devices, like smartphones. This avoids the need for cloud services and improves security. Major tech firms, including OpenAI, are adopting this approach as well. OpenAI released the GPT-4o mini, a smaller, more affordable model suitable for simpler tasks. This shift shows the industry’s response to economic and environmental worries. It highlights a trend towards more practical and sustainable AI solutions.
Perplexity, an AI search startup, has seen its revenues and user engagement increase sevenfold since the start of the year. This follows a $250 million funding round that boosted its valuation to $3 billion. Perplexity processed 250 million questions last month. It’s quickly carving a niche in a generative AI market dominated by big tech firms like Google and OpenAI. In adapting to its growing user base, Perplexity transitioned from a subscription model to advertising, aiming to tap into the lucrative $300 billion search ad industry and compete directly with major players. This change introduces ads and shares revenue with news publishers, showing a commitment to quality content. Despite early data issues, the company has become more transparent. It has also built its own search technologies. It now prioritizes trustworthy sources from journalism and academia for better search results. This movement reflects the broader trend of significant tech investments in AI (see Figure 2), highlighting the transformative impact these technologies are having across various sectors.
Figure 2: Generative AI fundraising in 2023
From the World of Crypto
The cryptocurrency lending market is recovering after a significant decline caused by the collapse of major crypto firms. This revival is fueled by Bitcoin’s price, which has jumped over 50% this year, and the introduction of U.S. spot Bitcoin ETFs in January. Howard Lutnick, CEO of Cantor Fitzgerald, announced plans for a Bitcoin lending business. It will start with a $2 billion loan, increasing with demand. Meanwhile, Ledn, a lender for ex-Celsius borrowers, has issued over $1.16 billion in digital loans this year. This shows a rise in interest and confidence in the crypto lending market.
Crypto lending has overcome past issues of instability and speculation. Now, it’s growing, mainly thanks to institutions. The launch of Bitcoin ETFs, requiring large Bitcoin trades, is crucial to this growth. This demand has sparked a need for strong credit options. For instance, Ledn noted that many of its loans this year went to institutional investors, including those running ETF operations. This shift towards regulated lending shows the market is maturing and moving away from speculation.
Crypto financing is beginning to resemble traditional prime brokerage services. These services provide credit, trade funding, and asset storage, mainly for large banks. Smaller crypto brokers struggle to grow due to balance sheet limits. In contrast, larger firms like Cantor easily manage high volumes. Meanwhile, strict regulations prevent banks from fully engaging in crypto. This creates an opportunity for non-banking firms to lead in this market. If major asset managers and sovereign funds adopt crypto, early movers like Cantor could lead the way.
