The Economy’s Weekly Recap

12/1/23 - 12/8/23

Raymond Lin

This Week’s Prominent Events

Google’s Gemini AI

• Google has renewed efforts to establish itself as a major player in the field of generative AI via its AI Gemini. Gemini, at least according to Google, outperformed human experts on certain tasks and surpassed ChatGPT 4 on multiple tests. However, Gemini is not a single product. Instead, Gemini will come in three variations: Nano, Pro, and Ultra. 

• Nano will be utilized on mobile devices and apps, such as running natively on Google’s Pixel 8 Pro to summarize audio recordings and automatically reply to messages. Furthermore, Google has said that Android developers will be able to easily build AI features and apps via Nano.

• Pro is the most broadly applicable variation as it will be the premier choice for most ordinary consumer and enterprise functions. 

• Ultra, which will power Google’s Bard Advanced chatbot, is the most advanced variation of Gemini. Unlike the other variations of Gemini that will be rolled out soon, Ultra will be selectively released to certain customers and developers to ensure safety and allow for feedback.

Another Pharmaceutical Acquisition

• While it's not too strange to see major pharmaceutical acquisitions happening every week, it certainly becomes more intriguing when the acquirer is the same as last week. 

• That’s right, Abbvie, which announced their $10.1 billion acquisition of Immunogen last week, has announced a whole new acquisition this week. Abbvie will be acquiring Cerevel Therapeutics for about $8.7 billion. 

• Cerevel Therapeutics is a neuroscience drug maker that could help expand Abbvie’s existing portfolio for psychiatric and neurological disorders as well as help make up for Abbvie’s star drug Humira facing increased competition and lower sales. 

• Abbvie CEO has also said that Cerevel’s drug portfolio will be able to make billions in sales thanks to Abbvie realizing the drug portfolio’s potential through Abbvie’s commercial capabilities and infrastructure. 

AMD’s AI GPU

• AMD has announced their answer to Nvidia’s immensely successful H100 AI GPU through AMD’s MI300X GPU. 

• The MI300X is based on a new architecture that has 192 GB of high performance memory, allowing the GPU to have improved performance in data transfer and AI models. According to semiconductor consulting firm SemiAnalysis, the MI300X dominates the H100 in terms of specs. Keep in mind that Nvidia is working on its H200 chip already, so AMD’s superiority may be nullified by Nvidia in 2024. 

• Meta, Microsoft, Oracle, and OpenAI have already said they will use the MI300X in their products, although the extent of the MI300X’s usage will vary greatly and likely still be less than Nvidia’s H100. 

• AMD expects to generate $2 billion from the MI300X in sales in 2024. However, $2 billion is far smaller than the $14 billion Nvidia made in just Q3 this year, although not all of that $14 billion is from the H100. 

• To this disparity, AMD’s CEO Lisa Su has said Nvidia does indeed have a vast majority of the market. However, since the AI GPU market could grow to $400 billion by 2027, AMD believes it can still carve out a lucrative slice of the market. 

AT&T’s Open RAN Networks

• Open radio access networks(Open RAN) allow for telecommunication networks to be built from a variety of suppliers rather than being forced to commit to one company’s equipment. 

• According to AT&T, this will allow for niche suppliers to gain a more prominent role and grant networks more flexibility, lower network costs and improved operational efficiencies. 

• To implement Open RAN, AT&T had the choice of working with Nokia or Ericson, with AT&T choosing Ericson. This has resulted in a $14 Billion deal where AT&T will buy Ericson’s equipment to replace Nokia’s, which means about a third of AT&T’s wireless footprint will be replaced.

• By 2026, AT&T expects 70% of wireless network traffic to pass through open RAN.  

McDonald’s Expansion

• McDonald’s has announced plans to increase the size of burgers to better satisfy customers, increase the usage of and personalize rewards programs, double down on marketing and social media, and, most significantly, open 10,000 new stores by 2027. 

• This store expansion entails 900 US stores, 1900 McDonald’s operated international stores, and 7,000 licensed international stores. Almost half of that 7000 will be in just China alone, which Mcdonald’s CEO said could become McDonald’s biggest market eventually. 

• These stores will take McDonald’s from around 40,000 to 50,000 stories in just 4 years, whereas it took McDonalds 18 years to grow from 30,000 to 40,000. 

• McDonald’s also plans to open 10 CosMc's restaurants by the end of 2024 that would focus on the lucrative coffee market. Some items CosMc's will offer are the Churro Frappe, a kind of Spanish donut, and the S'Mores Cold Brew. CosMc’s will also allow costumes to make otherworldly drinks with popping boba bubbles or flavored syrups. 

Future Events

EU AI Regulation

• The EU has reached a provisional agreement on the regulation of AI, with the fine details being hashed out in the coming days. But, since EU policymakers have agreed on it already, it is likely to pass largely unobstructed, making the EU the first major power to pass laws governing AI.

• The act contains a number of laws, with some of the most important effects being…

  • Transparency obligations general purpose AI systems must meet

  • Compliance with with EU copyright law 

  • Documentation of content used for training 

  • Systemic risk evaluations and mitigation for high impact AIs

  • Fines up to 7% of global sales

• These regulations will likely have an outsized impact as the EU’s regulatory power leads to companies making changes across the globe. They may also have an outsized effect because other countries may look at the EU’s regulation as a model to be emulated.

A Supreme Court Case

• A case has made it to the Supreme Court concerning taxation that may have serious implications for the wider public. 

• The dispute is over Charles and Kathleen Moore’s $40,000 investment into an Indian company 15 years ago and a Trump era one time levy on unrealized foreign assets. This meant that Mr. and Mrs. Moore were forced to pay taxes on unrealized gains, which their lawyers have argued is unconstitutional because an unrealized gain is not income.

• Meanwhile, the Justice Department has argued that the tax is entirely constitutional, with the Government having the right to tax unrealized gains. The Justice Department has also mentioned that Congress has previously enacted similar taxation and that the Supreme Court has upheld those measures before. 

• Regardless of the result, it will be sure to have a major effect. If the Supreme Court rules for the Moores, many tax provisions could be challenged as unconstitutional and the government could lose tens or hundreds of billions of dollars in tax revenue over the next decade. If the Justice Department wins, then efforts to levy wealth taxes will have firmer ground, and the government may start to tax more heavily.

Moody’s China Outlook

• Moody’s, which also changed the US to a negative credit outlook in November, lowered its outlook on China’s credit rating from stable to negative. It lowered its outlook because of China’s…

  • Real estate downturn

  • Distressed local governments and state owned enterprises

  • Slowing economic growth

  • Potential future problems, such as demographic issues

• This doesn’t mean that Moody has downgraded China’s credit though. Rather, it just means that China’s credit rating is subject to change in the near future if economic factors don’t change. 

• Regardless, Chinese officials responded negatively with statements that the Chinese economy is still resilient and that local governments have cut down on spending to cope with decreased revenue. Erin Chan, Hong Kong’s No. 2 official, said that Moody’s negative credit outlook was an attempt by the West to smear Hong Kong and China. 

• S&P and Fitch, the other major credit rating agencies, have not changed their outlooks on China yet.

Weekly Question

How much revenue did Youtube generate in Q3 2023?

• A: $4 billion

• B: $10 billion

• C: $8 billion

• D: $1 billion

Answer: C. Youtube, being the enormous video streaming and advertising platform that it is, generated around $8 billion in Q3 of 2023.