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Top stories today:
1. First Republic Bank drops 49%, could be shut down on Friday
2. Alphabet sales +3% to $69.8B, operating margin falls from 30% to 25%
3. Microsoft sales +7% to $52.9B, operating margin rises from 41% to 42%
4. Hugging Face launches HuggingChat
5. ChatGPT lets users disallow their data to be used for training
6. GOP bill to cut debt-to-GDP from 118% to 106% in 2033

0. Data and calendar

1. First Republic Bank drops 49%, could be shut down on Friday

Our view: The FDIC likes to take over on Friday nights, so we could see that with FRB

• “Struggling to come up with a viable solution, such as a sale of all or part of the bank.” It could either:

  • Sell to the large banks that lent $30B to FRB in March. - Bloomberg

  • Be rescued by the FDIC, which would likely follow SVB/Signature and guarantee all deposits.

• Feds not concerned about spillover? “One of the people said that the government was not concerned about contagion beyond First Republic.” - FT

2. Alphabet sales +3% to $69.8B, operating margin falls from 30% to 25%

Google Search and Cloud saw revenue growth, while Youtube and display ads fell

Operating income came almost exclusively from Services (likely concentrated in Search)

The stock is +1% in the pre-market

Our view: never bet against Google

• Google invented modern search, they invented Transformers (the T in ChatGPT), they have Youtube, Gmail, Android, they have the talent, they have the money. Don't bet against them.

• Still, they have to work to do on margin expansion. They can learn a lot from Microsoft, as you can see below.

3. Microsoft sales +7% to $52.9B, operating margin rises from 41% to 42%

Their stock is +7% in the pre-market

Markets liked what they saw:

4. Hugging Face launches HuggingChat, open-source alternative to ChatGPT

• Currently runs the OpenAssistant/LLaMA 30B model. - Techcrunch, HuggingChat

  • ChatGPT is 33x larger: their GPT-4 model has 1T parameters.

Our view: the quality of GPT-4 is currently significantly higher

• But maybe HuggingChat v0 can compare favorably to GPT-3.5, or more likely, to GPT-3. We'll have to wait and see the formal tests come out.

• Given AI's high-CAPEX requirements, closed-sourced options will likely continue to have the lead, as OpenAI, Google Deepmind, Microsoft, Anthropic, and other private companies are literally pouring billions into GPU farms — billions that these open-source projects usually do not have.

  • Meta could change this if it releases another LLaMA, with a higher parameter count this time. It might choose to do this to negatively affect Microsoft's AI lead — suicide bombing style — as Meta does not have interest in the search market, at this time. - Reuters

5. OpenAI now lets ChatGPT users disallow their data to be used for model training

• They are also set to launch ChatGPT Business “in the coming months.” The premium version will have more enterprise-like data controls, in addition to the disallow training mechanism by default. - Bloomberg, OpenAI

Our view: we want the ability to save history but disallow training

• Right now, you either get both or neither. But the ideal is a mix: saving history locally, but not letting OpenAI use it for training.

6. CBO: GOP bill to cut debt by $4.8T, debt-to-GDP from 118% to 106% in 2033

Still, debt would continue to go up versus current levels:

Our view: Japan suggests that debt-to-GDP can still go up a lot higher (226%)

• Japan's debt-to-GDP is 2.3x higher than the U.S.'s, at 226% debt-to-GDP. Even then, it suffers from a deflation “problem,” not an inflation one.

• Macroeconomics is still a very new science. Regardless, what matters most for U.S. economic growth is innovation/microeconomics, e.g. how long does it take for the FDA to approve a drug. And the U.S. has a lot of development opportunities there.

Read more: Reuters, CBO report.

7. Other headlines

AI

• Apple reportedly developing AI-powered health coach, Quartz.

• Runway launches iOS app with video-to-video generative AI.

• Yelp adds AI-powered search, videos in reviews.

• Republican National Committee ads feature AI-generated videos.

• News app Artifact now uses AI to summarize articles, including in fun styles.

• Federal regulators claim existing civil rights laws apply to AI.

Tech

• Replit raises $97.4M at $1.16B, has 22.5M devs, 2x Dec. 2021 levels.

• Spotify: 515M MAUs, +22% YoY; 210M paying customers, +15%.

• Cruise's driverless robotaxis now 24/7 in SF, division still lost $561M in Q1.

• Refurbished iPhone volume grows 16% YoY in 2022.

• Tesla Model Y, at $47K, now costs less than the average U.S. car.

• Meta hires Microsoft silicon engineering president to lead team.

• Elon accidentally leaks his burner account.

Biotech

• Florida sues FDA to allow the state to import drugs from Canada.

• Novartis’ revenue +8%, cuts 10% of its R&D projects.

• Senators reach deal on pharmacy benefit managers bill.

Business

• Chips R&D: Commerce Department to devote $11B in funding.

• Meta head of global affairs grouses that TikTok can operate in the U.S. but they can't operate in China.

• EV sales +55% in 2022 to 10M+.

• UK to pass bill that could fine Big Tech up to 10% of global turnover.

• Twitter says it removed 6.5M of improper content in 1H22, +29% YoY.

• Consumer stocks: some have been able to adjust prices by inflation.

Crypto

• FTX to sell LedgerX for around $50M.

• Binance US ends $1B deal to buy bankrupt Voyager's assets, blaming regulators.

• Binance US has 100 contract workers in Shanghai: Bloomberg.

• Coinbase trading volume falls to $27B, lowest in 16 months.

• USDC CEO: stablecoin is losing out to USDT thanks to U.S. crackdown.

• zkSync DEX Merlin hacked for $2M after code audit.

• Bitcoin whitepaper to be removed from Mac computers.

U.S. politics

• Fauci shifts blame for lockdowns onto governors, President.

• Sanders endorses Biden, ruling out 2024 bid.

• Senate to introduce bipartisan bill mandating SCOTUS code of ethics.

• Chief Justice Roberts declines to testify to Senate on ethics.

• Ted Cruz talked to Bartiromo about overturning 2020 election.

• Nate Silver to leave FiveThirtyEight after 15 years, as layoffs at Disney continue.

• Fox has oppo file on Tucker, in case he attacks, mostly about alleged toxicity.

• Was Tucker fired because of his excessive religionism?

• SF murder suspect to plead not guilty, saying camera evidence is unclear.

World

• U.S. says Ukraine lessons are useful for a “potential Pacific challenge.”

• U.S. worried about China's space capabilities: leaked docs.

• South Korea, U.S. pledge cooperation on nuclear arms.

• Taliban kills ISIS head of Kabul suicide bombing that killed 13 U.S. troops.

8. Interesting tweets, memes, and images

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