Will OpenAI's "Catfish Effect" halt the bull market in technology stocks?

After reaching record highs in market capitalization, many large technology stocks have recently fallen.

Google (GOOG.US) and Tesla (TSLA.US), which just announced their earnings, saw their stock prices plummet for two consecutive days due to poor performance. This year's star performer, NVIDIA (NVDA.US), also experienced consecutive declines in its stock price.

Wall Street speculations on the reasons for the decline in large technology stocks mainly include: excessive investment in AI with poor returns, or the need to adjust valuations; underwhelming performance of large technology companies leading to profit-taking.

These news seem to revolve around AI. OpenAI, which brought breakthroughs to the artificial intelligence industry two years ago, is now at the center of attention. There are indications that OpenAI has almost exhausted its investment funds, but the prospects for monetization do not seem as promising as expected, which has dampened investors' enthusiasm for AI development.

On the other hand, the groundbreaking innovations brought by OpenAI may have disrupted the core businesses of large technology companies, causing investors to worry about the future prospects of their heavily relied-upon main businesses.

Is OpenAI challenging Google's dominance?

On July 25, 2024, OpenAI quietly launched a prototype search engine called SearchGPT on its official website, currently undergoing testing for a small number of users and publishers. According to its introduction, this new AI search feature aims to provide users with quick, timely, clear, and relevant responses.

This may directly compete with Google's (GOOGL.US) search business.

Recently, Google introduced AI Overviews, where users can see summarized answers in the Google search bar. Management mentioned in the Q2 2024 earnings call that this feature is more commonly used by users aged 18 to 24, has been launched in the U.S., and will expand in scale and regional markets for the rest of the year.

However, foreign media reports that Google users have not responded positively to AI Overviews, believing that the results obtained from using this feature are not meaningful or accurate.

Despite the continuous increase in YouTube ad revenue and Google Cloud contributions, the search business remains Google's unshakable main source of income. According to Finet's estimation, in the 12 months ending June 2024, Google's search business may contribute a total revenue of $186.711 billion, accounting for approximately 56.87% of Google's total revenue, and is also Google's main source of profit.

In the past 12 months, Google's services, including Google Search, YouTube, online advertising, subscriptions, platforms, and devices, generated an operating profit of $108.238 billion, completely offsetting losses from Google's other investment businesses (such as the self-driving startup Waymo)

OpenAI launches SearchGPT, posing competition to Google's AI transformation in the search engine sector.

It is worth noting that behind OpenAI, the major shareholder is Microsoft (MSFT.US), a competitor of Google. If Microsoft's search engine Bing integrates OpenAI's AI advantages, it will be greatly enhanced.

There have always been copyright concerns in the publishing industry regarding search AI functions. OpenAI states that SearchGPT will focus on collaborating with publishers and creators to help them reach users, which in turn may help OpenAI acquire high-quality content.

OpenAI Bypassing NVIDIA for Chip Self-Sufficiency?

OpenAI's groundbreaking AIGC function has sparked Wall Street's enthusiasm for investments in the AI industry chain, leading to a surge in NVIDIA's AI chip demand and stock price.

Earlier, research firm The Information revealed that OpenAI has been in discussions with semiconductor design manufacturers, including Broadcom (AVGO.US), to develop new chips. It hinted that this AI startup is seeking to reduce dependence on NVIDIA and cultivate its own AI chip supply chain.

The ripple effects of OpenAI's rise have led to the emergence of AI unicorns worldwide. In order not to fall behind in the future AI era, major tech companies are ramping up efforts to build AI infrastructure and ecosystems, thereby driving demand for NVIDIA's AI chips like the H100 and future more advanced AI chips.

However, due to the high technological content and cost of AI chips, and with the main foundry TSMC (TSM.US) possibly unable to keep up with production capacity, especially in the face of the strongest typhoon this year, uncertainties in TSMC's supply chain may lead to even more acute shortages of wafers.

While TSMC's production capacity as a foundry will certainly impact the market, it is important to note that in terms of technology, NVIDIA's AI chips have other high value components, including NVIDIA's own design capabilities, platform capabilities, and technical capabilities.

It is therefore not difficult to understand OpenAI's intention to bypass NVIDIA.

In fact, not only does OpenAI find NVIDIA's AI chips expensive, but Elon Musk, one of OpenAI's early founders, also mentioned at Tesla's Q2 2024 earnings conference that NVIDIA's AI chips are unaffordable. Tesla is also doubling down on developing Dojo and setting a competitive path against NVIDIA.

With great power comes great responsibility. NVIDIA's competitive advantage makes it the top competitor for major tech companies. This AI chip demand frenzy sparked by OpenAI may ultimately lead to major tech companies developing their own AI chips, squeezing out NVIDIA in the end Summary

Artificial intelligence is an inevitable product of human civilization reaching a specific stage, and AI is likely to bring about significant changes from supply, production to consumption and services. OpenAI, at the right time, grasped the right direction, triggering an AI revolution and stirring up the interests of existing major technology companies.

Silicon Valley never lacks innovation, as the times move forward, companies that cannot adapt to the development of the times will be eliminated. Although OpenAI is the initiator of this revolution, it may not always stay at the forefront of the wave. Only those companies that adapt to the trend can ultimately succeed, and OpenAI is just a participant in this wave. Whether it can consistently succeed will depend on its innovativeness and adaptability.

Similarly, the technological revolution it brings will change the fate of many technology companies, such as NVIDIA, which revived from the cryptocurrency crash, relying on the opportunity provided by OpenAI. OpenAI, this "catfish," has activated peer companies in the market, but success and failure are only a fine line apart. Those who cannot adapt to the changes will be eliminated, whether it's NVIDIA, Google, or OpenAI. If they cannot maintain a competitive advantage, they will eventually be eliminated by the market