👀 Years of warnings

SCOREBOARD

Tuesday close. S&P up 0.4%, Nasdaq up 0.8%. On the week: Nvidia −5.2%, S&P −2.0%, Nasdaq −4.2%. Futures fell overnight as the election results came in (CNBC).

ON WATCH

Five people familiar with OpenAI told Reuters on Tuesday that staff spent years warning its leaders and board about weak security. Some concluded management cared more about keeping pace with Google and Anthropic than about protecting what it had.

Most of OpenAI's code sat in one giant store, the "monorepo", that anyone with code access could browse. The "sandboxes" where researchers test models didn't get regular security reviews.

It came to a head in October, when an engineer was charged with hiding a recording device in an executive meeting room. A court filing says he used an internal AI tool to find which executives were likely to meet Saudi ministers.

Will DePue, a researcher who left OpenAI in April, put it plainly on X: "It is more important to them to move fast than to be secure."

OpenAI says it's "one of the most targeted organizations in the world" and that its security program is "doing its job". It says the monorepo doesn't hold its model weights, the files that are the AI itself.

Then again, OpenAI's own sweep team found the device, and it says it saw no sign he reached model weights or customer data. In August it moved a quarter of its production engineers onto security work, one source told Reuters.

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THE MACHINE

Texans elected Democrat Gina Hinojosa as governor on Tuesday, the first Democrat to win the job since 1990, the Texas Tribune reports. She campaigned on pausing new data centres until lawmakers set rules on water, power bills and local say.

That matters because Texas holds 27% of the data-centre capacity planned in the US, according to Wells Fargo. AI stocks slid in late trading, with CoreWeave down 7% and Oracle 4% on Robinhood, CNBC reports.

Let Meerkat translate. A governor can slow permits quickly, but bigger changes, like scrapping the data-centre sales tax break, need the legislature, which isn't back until 12 January.

The case against the panic is that most of next year's build is already in the ground. Roughly three-quarters of the 33.8 gigawatts due across the top 20 states is under construction, SemiAnalysis counts, and existing permits protect that work.

SOMEONE SMART SAID

AMD's data-centre sales rose 97% to $8.5 billion, its results show, and it expects about $17 billion of total sales this quarter, against $13.4 billion last. Its shares jumped around 8% after hours.

The small print carries a $1.1 billion non-cash charge for warrants AMD gave "certain customers". Reuters says those are OpenAI and Meta, who can each buy up to about 10% of AMD for as little as a penny a share if their chip orders hit milestones.

AMD says the charge moves with its own share price, so a rising stock makes it bigger. Finance chief Jean Hu says existing shareholders get diluted once the conditions are met, and AMD will say more on timing next year.

THE CHART

Nvidia's data-centre sales went from $15 billion in its 2023 financial year to $194 billion in 2026. Bloomberg reports it'll fill only about 1% of roughly 6 million RTX Pro 5500 chips that Chinese firms including Alibaba, Tencent and ByteDance ordered, worth around $70 billion (via Crypto Briefing).

The bear case is that its biggest buyers are borrowing to keep buying. Meta was selling up to $25 billion of bonds on Tuesday, and S&P has Meta on a negative outlook.

In fairness, Nvidia has more buyers than chips. Chinese firms alone ordered about twice as many of that cut-down card as Nvidia reportedly plans to make next year.

HEADS UP

ON THE HORIZON

MEERKAT ON YOUTUBE

The SpaceX Situation Is a Total Sh*tshow... SpaceX renamed itself twice in a year, and each new word added the best part of a trillion dollars to its value. Meerkat follows the money and finds 86 cents of every dollar now going to AI, not rockets. Watch on Meerkat Explains.

THE BURROW

Quick vote. OpenAI staff say they warned for years that security came second to speed, Reuters reports. What should happen now?

Trivia. AMD's big early break came in 1982, when IBM wanted a second supplier for the chips in its first PC. Whose chip designs was AMD licensed to copy? Answer's at the bottom of the email. No peeking.

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HOW DID WE DO?

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Texan with a data centre going up down the road? Forward them this.

Meerkat is not a financial adviser, and nothing here is advice. Meerkat is a small animal with a whiteboard and a padlock nobody remembered to close. Please do not sue Meerkat.

TRIVIA ANSWER

Intel's. IBM wanted a backup supplier for its PC chips, so Intel licensed AMD to make its x86 processors, the start of a rivalry that's still running.