ResearchThree Things (5/20)

Three Things (5/20)

May 20, 2024

Reddit partnership with OpenAI

Reddit announced a new partnership where OpenAI will now train its artificial intelligence models using its proprietary data, which is a valuable commodity in the race to train enterprise AI models. Reddit will also benefit from the deal by expanding its AI-powered features for users and making OpenAI one of its advertisers.

This is not the first time that Reddit has sold access to its data for the most up-to-date technology, as it set up a similar partnership with Google earlier this year. AI has been the biggest tailwind for stocks this year and has also helped reignite the formation of similar partnerships. The pace of innovation that companies like OpenAI have kept puts pressure on the rest of the market to integrate AI, whether that be through enterprise software, partnerships, or acquisitions - all of which are representative of a healthy economy.

Stocks’ recent win streak

Last week stocks made their longest weekly gain since February with the Dow closing above 40,000, a fresh new record, and the S&P 500 hitting 5,300. Strong first quarter earnings and early signs that inflation is cooling have sent stocks higher. The short lived meme stock rally also contributed to increased trading volume from retail investors.

Analysts have been raising earnings forecasts for the current quarter at an unprecedented speed, as more and more believe a soft landing is in store. A number of factors will affect how markets perform through the rest of the year, including inflation, the Fed’s monetary policy, and the election. However, if the stars align and inflation cools faster than expected, it’s possible stocks could keep making all time highs, although not without ample volatility along the way.

Snowflake in talks to buy Reka AI

Snowflake is in talks to buy Reka AI for over $1 billion in an effort to accelerate its business and integrate broader AI capabilities. Reka AI, which was valued at about $300 million in 2023, makes large language models that can be used for captioning images and for customer-supported chatbots. While Snowflake released its own large-language model in April and allows users to use third-party AI models on their data, this acquisition would take its cloud ecosystem to the next level.

We have seen this story before. Snowflake is another technology company aiming to update its business model in the wake of the AI revolution. Because AI has replaced cloud computing as the next biggest advancement, Snowflake needs to shift its focus in order to stay competitive. Databricks, one of Snowflake’s biggest competitors, acquired MosaicML for $1.3 billion last year with a similar goal in mind. Although the deal is not confirmed, we believe this is just the tip of the iceberg for mergers and acquisitions in 2024, and many companies, like Snowflake, are actively looking for potential acquisition targets that can help grow their businesses.


Disclosures:

As of the date of publishing, GOOGL is a holding in Titan's Flagship strategy. As of writing, OpenAI is a 4% holding in the ARK Venture Fund, and Databricks is a 4% holding in the ARK Venture Fund.

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