AI Legal Battle: The New York Times suing Microsoft, OpenAI 12/27/23

0:00Morgan, thank you very much. Live from the Nasdaq market site in the heart of New York City's Times Square getting ready for New Year's this is fast money. And here's what's on tap. Stocks on the doorstep of new highs. The S &P now less than half a percent from record levels and up more than 11 percent since just November. Is this fourth quarter rally stealing potential gains from the new year? We will debate that one. Plus, the Bitcoin boom. Yeah, you heard me right. Booming again, surging more than 160 percent this year and lifting the fortunes of the whole crypto universe. looking into 2024.

0:38Would you rather Bitcoin or the crypto stock? Steve Grasso will opine on that, among other things. And later, the obesity bulge. Are the supersized returns this year going to get slimmed down in 2024, no matter how massive the GLP-1 market gets? We will go inside the numbers. I'm Tyler Matheson, everyone, in for Melissa Lee tonight. So glad you could Join us coming to you live from Studio B upstairs at the NASDAQ on the desk tonight. Steve Grasso, Courtney Garcia, Mike Coe is remote and guest trader Stuart Kaiser, city's head of equity trading strategy. Welcome one and all. Glad to have you with us.

1:16But we start with a major legal fight over the explosion of AI and just how all that data being collected by engines like ChatGBT and BARD being scrapped, or rather I should say scraped from the web. One major news organization is crying foul, and it could have major implications for AI as we head into the new year. CNBC's Steve Kobach reports. Hey there, Tyler. Yeah, the New York Times sued OpenAI and Microsoft today, alleging the pair used the Times' copyrighted material to train their AI models. And the examples the Times shows in its suit are quite egregious, and it's evidence the chatbot basically plagiarizes articles from the news outlet.

2:02It's also a sign it's using the articles nearly verbatim without permission or compensation. The Times says in the lawsuit seeking damages worth billions, but not specific on the exact amount they're seeking. New York Times also reported today the outlet approached OpenAI and Microsoft in April to work on an agreement for the tech companies to train AI on the Times material, but nothing came of the talks. This is also the first major media organization to sue OpenAI over how it trains its chat GPT bot. Microsoft is a major investor in OpenAI with an investment reportedly valued at$13 billion. Now, that investment gives it early access to some OpenAI technology, which has been put into products like Bing Search and Office apps.

2:48Now, this likely won't be the last lawsuit either. A group of authors have already sued OpenAI and Microsoft based on similar allegations. Tyler? All right, Steve Kovach, thank you. For more on this, let's turn to Deepwater Asset Management's Gene Munster. Gene, I guess one question that comes to my mind is what took them so long? I mean, AI engines like ChatGPT or BARD have been aggregating content from all kinds of sources, the New York Times, Time Magazine, National Journal, wherever, for as long as there's been AI. Why does it take them so long? Well, maybe there was a little push from Elon Musk on November 29th at the DealBook Summit.

3:31This is his famous interview where he really took aims at a lot of people, and he also took aim at these foundation models that were training on copyrighted data. When the question, the topic came up, he said that it's a lie that the foundation models are not training on copyright data, so he's saying that they are. And then he later, I think, reiterated three times it's a lie, it's a big, fat lie, it's a straight lie. And classic Elon Musk. So maybe they were emboldened by those comments from Musk, but this is long overdue. And, Tyler, just to set up what's really at stake here is this dynamic around fair use.

4:10That's what I was going to ask you. When does when does copyright material that has been in the, quote, public domain or been out there for a while fall under the fair use doctrine, which enables republishers to republish? So this is a topic that I suspect will find its way to the Supreme Court because it's a big deal. A.I. is a big deal. And how they train on that is important. And so right now, fair use is something that is by a reasonable person's standard, something that is out and readily available. And the way I think about it is the article is written in the New York Times. That article is circulated around different professional and user-generated people, whether that's through Twitter and X or other news outlets, content on YouTube, give their own spin on it.

5:02And that becomes part of fair use. And so that's this dynamic that it's just really hard. It's like trying to adjudicate what is truth. I mean, there's all these gray areas. And so unfortunately, this fair use topic is at the center. And it's fun to look at. I would recommend anybody go and use ChatGPT today. Ask it questions about New York Times and the content. And it's been quick to hold its tongue and say you have to revisit the New York Times. So they made a quick correction there. But that is exactly it. And that's why this isn't going to get resolved anytime soon. We're going to spend most of the next hour discussing what is truth, basically.

5:43Right. I just do that philosophically. But I know Steve has a question for you. My wife always asks me that. It's a big topic in my house. So, Gene, when you look at this, what we've done a great deal of this year is trying to figure out what the worth is for some of these companies in the in the A.I. department. So now we have Microsoft where you could see some licensing fees. The fees will go up. So the AI might go, the value of that might go down. When I look at a company like NVIDIA, how far downstream do we get now when we talk about the chips and how the AI is actually programmed? But when I switch gears, a company that you know very well, Tesla's AI might be more valuable than Microsoft's AI because there's not a lot of copyright that would go to it.

6:29Indeed, I think that is probably the biggest takeaway here is, you know, which companies are going to be best positioned from this. It's probably companies like Tesla. Like you said, it's X from X.ai and all that Twitter X data that they have. That's 500 million daily tweets that is proprietary to X. You have Google and all that content on YouTube and the search content that can be, that can use to train Gemini. I think that's where they, all those end up stronger. And to answer your question, just, you know, how does this play out in terms of creation of value? There's these little levers that we're talking about.

7:05where does licensing go and how does that impact kind of down the downstream effects of that. But ultimately, I think that, you know, the biggest picture here is that this isn't going to change how fast AI is going to be developed. It may slow it by months, but not years. And effectively, I think we still are well positioned for what's going to be a massive bull market that's going to be driven by AI across tech in the next three to five years. And so this is a headline. This is worth talking about. This is important about fair use. But it doesn't change what that end trajectory is, which that AI is going to live up and exceed all the expectations.

7:43Yeah, this is a bump in the road. Before we go, we trade it, Jean, I want to turn to Courtney for a quick thought or question. Yeah, I think the question that investors are really looking at right now is how is this going to affect them in the long run, right? I mean, if you look at some of those things that Steve was reporting on, it looks pretty damning. I mean, the plagiarism is like highlighted completely in red there of what they're doing. So how realistic is it that, you know, these media companies are going to get some sort of compensation from them? And what does that take away from the bottom line of Microsoft?

8:10Is it going to be short term until it becomes publicly used? Or is it something that actually is going to be affecting their earnings going forward that we need to be more worried about from an AI standpoint? It's going to be fractional. I think there will be many of these payouts. I think there are going to be a lot of these relationships, just like what happens with music and how music is distributed throughout a lot of different. There was the Peloton and what happened with music, and then they licensed it. And I think that ultimately is that there's going to be a lot of these relationships between publishers and the companies that train on it, but even tens, hundreds of millions of dollars of annual licensing fees, which I would expect it to be, isn't going to matter in the long term when you look at what the type of value that these companies are trying to generate.

8:51And so it's going to be probably, it probably won't even be measurable, even at the hundreds of millions of dollars level. And I suspect those will be the types of relationships that are going to form in the years to come. All right. Gene Munster, thanks very much for giving us the context here. We appreciate it. Thank you. Gene Munster. All right, let's trade this. Mike Cole, what are your thoughts on all this? Well, you know, first of all, we could take a look at the$13 billion that Microsoft invested. That's really not material in the grand scheme of Microsoft,$2.8 trillion company. and, of course, it's still going to be growing EPS at about 15 % year on year.

9:28I wonder whether some of this, shall we call it, duplicative language issue that we're seeing here with ChatGPT and others might be solved in part by attribution. And I would say that I think that this is a material benefit for those that are actually generating this content initially because we don't want to disincentivize that. I mean, whatever that source is, we want to make sure it's properly identified. And I wonder whether some of this solution might be found in that way. I guess what you're saying there is if if the copy that shows up in your feed on BARD or ChatGPT attributes the content to the to the Wall Street Journal or The New York Times or whatever, you could you could blunt the impact of this.

10:11Stu, do you have a thought here on on how this lawsuit and this sort of theory of appropriation by these might affect the equities? Look, I think it highlights really the challenge and the opportunity of investing in AI for the last 12 to 24 months, which is picking winners and losers has become extremely complicated. So people are focused on owning the pipes. And effectively, that's meant owning the chip designers. Because if AI is growing, those pipes are going to get bought and used. And it takes away the challenge of kind of picking winners and losers. And you could actually go back to crypto.

10:43It was the same issue. You don't necessarily know which coin is going to win, but you know they need processing power to produce them. So I think AI is kind of following that same approach. And for now, I think it keeps people investing in the pipes and the infrastructure. So the way to go, if you're going to play this space in a safe way where you don't have to choose one winner, is to go with the sure winners, the ones who are going to be part of the distribution team. Yeah, I think that's how people have been doing it. And I think something like this makes people continue to do that same thing.

11:09Court, quick thought before we move on. Yeah, and I think also bigger picture, what's kind of interesting to think about here is AI, whether, you know, we might not know who the winners or losers are. Microsoft arguably is probably going to be one of the bigger winners of it, of the mega cap seven. Seems that way now. But it's going to help productivity in the general economy. And we have this shortage in the labor market. And this is going to make companies more productive over the long run. So whether there's winners or losers, it's going to help that tight labor market, which is ultimately going to be a good thing for the economy.

11:35All righty. Let's move on and turn to the markets. The Dow closing at a fresh all time high. The S &P now just points away from a record level. And while the Nasdaq still Still has a bit of work to do to get back to new highs. It is on track to have its best yearly performance in 20 years. One of the major factors boosting the appetite for stocks has been the move in the 10-year note. It is downward in yield. The yield keeps dropping now under 3.8 percent, lowest level since July. So, Stu, should investors be cheering all these December games? Are worried that we're front-running some of the returns that might otherwise be delivered in January, February?

12:14Are we having our dessert too early? Well, I think we should always cheer gains, regardless of when we get them. But, look, I think we were pretty bullish going to year end. I think that December FOMC kind of extended the window for that bullishness. So, yeah, you could argue there's maybe been a little bit of pull forward from 24 into late 2023, particularly in the lower end of the market cap spectrum. But, look, we think that's a net positive, and we remain pretty constructive in equity markets. You know, whether you're getting the returns now or in a month, I think you should just want – you want to be long equities, you want to participate.

12:41It would be a bold soul who would say that 2024 could measure up to 2023, right? No. You think that? You think 2024 could be as good? Stuart's probably the best person to have on the desk to do this. I don't want to throw him a grenade. That's why I'm looking at him. No, no, no. I'm going to get deeper into the analytics because we've talked about the MAG-7. But if you pull out the MAG-7, we're only up 10 % for the year. And so you've got the unweighted index, basically the unweighted. Equal weighted. Equal weighted. Equal weighted index. And everyone's looking at these in the mid-20s on performance, and we think, oh, my gosh, we hit a dozen grand slams here.

13:17How could we possibly ever do this again? That might be the way. If I tell you that we were up 10%, you would say, all right, that's a good year. Because historically, markets are up 10 % on average. From the start, they were trading underneath that buttonwood tree downtown. Look, I think that's right. There's a lot of space to catch up in kind of the broader market cap space. If I was going to give you degrees of bullishness, the first degree would be, hey, we don't go into recession next year. The uber-bullish outcome would be what the Fed hinted at in December, which is not only are we not going into recession, but we're doing insurance cuts on top of that.

13:52So, look, you do have to thread a bit of a needle to be as bullish about 24 as you have been about 23. But there is a playbook there that people are looking at. So is the place to look, sort of the point Steve just made, is the place to look at those equal-weighted kinds of stocks? If you're an index player, play the equal weight SPX, SP. Yeah, SPW. Exactly. And that's very much our view because we think the reason you had narrow leadership in 2023 is because earnings growth was very narrow and concentrated in a small number of stocks. You get into next year, we think that earnings growth broadens out, which means equity participation broadens out, which means something like S &P equal weight is really where you want to have your exposure on.

14:31Courtney, jump in here. Yeah, I absolutely agree with that. I think things have really turned a corner end of October, and I think that trend is going to continue. Things like your small caps, things like your energies, things like your real estate, anything that's really interest rate sensitive has taken off. And I think, to Steve's point, those things were really underperforming earlier this year. A lot of those are actually down up until October. Now we're starting to see them come back on. They still have a lot of room to grow. There could be some sort of pullback. I think the only hesitation is, like, investor optimism is overly optimistic right now.

14:59And they're really hoping there's going to be six cuts next year, which probably isn't going to happen. So bringing back some of the excitement might happen, but I think that will only be minor. And I think markets will go higher. Mike Coe, any perspectives here? Yeah, sure. I mean, if you think that the S &P has outdone itself and you're concerned about the fact that you've seen some multiple expansion, there hasn't been any, actually, in the equal weight. Equal weight's trading about 17 and a half times, and that's approximately where it was 10 years ago. I mean, if you take a look at price earnings on the Equal Weight Index, it essentially is unchanged for a decade.

15:31So I think what everybody on the desk has said so far is right. I mean, if you're trying to chase the best performing stocks this year and expecting them to do the same thing in 2024 that they did in 2023, I think that's probably pretty ambitious. I think there's already been a lot baked into the cake there, but there's a lot of other names in the index that haven't performed anywhere near as well. So let me put out sort of a jump ball for the table here. If there is an unloved sector from 2023 that you think is going to get some love in 2024, what might it be? Would it be energy? Would it be finances?

16:05Would it be health care? What could it be? Health care, biotech. I think we've traded pretty much on health care and biotech just in M &A stocks, which we'll talk about tonight as well. We talk about those marquee names and the marquee things that they are used to treat. But there's been a host of names. There should be a MAG-7 or a MAG-4 with those names because we've forgotten about all small-cap biotech. They don't trade until there's a reason to trade. So you have to buy an index versus picking the winner that's going to be taken. So here's one cheer for health care. You got one that is unloved that you like?

16:40I agree on health care, but I'd probably pick up on the bank's theme. I mean, if you avoid a recession, you get rates a little bit lower. That takes some of those mark-to-market losses out. You get the term structure, 2s, 10s, back positively sloping. I think there is room there for the bank sector. Look at health care. Look at banks. What do you say, Court? Yeah, actually, we're looking at small caps. I actually have both of these things embedded in them. So I'm going to agree with both of you, but I'm going to go with small caps. You go with small caps. How about you, Mike? Is there an unloved sector from 23 that you think is going to get some shade or maybe some sunshine in 24?

17:08Yeah, I'm alongside the bank call that we just heard. I mean, first of all, they're trading at a relatively low multiple. We've seen pretty abysmal numbers out of CNI loan demand. And I think that obviously if we're seeing lower rates, then that demand should pick up quite materially. And so I think that's a positive. And, you know, obviously the multiple is a positive as well. And also in the health care space, I think that's definitely outside of a couple of the names that really have been bumped up by some of the things we're going to be talking about with respect to obesity drugs. But as a general case, I think that that is also an area that people should be taking a look at.

17:43Yeah, we're going to talk a little more about health care more broadly, but specifically those particular stocks in pharma in just a little while. OK, let's take a quick break, shall we? Coming up, it has been a heck of a year for Tesla, up more than 100 percent. Will record deliveries help fuel more gains or will China's EV boom dent Tesla's growth? We will debate that one next. You can never get too much Tesla. And speaking of big years, crypto winter thawing out in a major way with Bitcoin jumping more than 150 percent. And a few stocks tied to the space have done even better. The name's to watch when Fast Money returns.

18:20You're watching Fast Money here on CNBC. We'll be right back.

18:32All right, welcome back to Fast Money. We've got a news alert now on the Apple Watch sales ban. And Pippa Stevens has the latest. Hi, Pippa. Hey, Tyler. Apple announcing just now that it is going to restart sales of the Watch Series 9 and the Ultra 2. They will be available in Apple retail stores today and back on online stores tomorrow. This, of course, comes after Apple said earlier that they were able to start reselling the Apple watches after an import ban was temporarily paused by an appeals court. That was earlier today. Once again, Apple is going to restart selling the Watch Series 9 and Ultra 2.

19:08Tyler? Steve, thought? Yes, there's been probably a dozen reasons why you should get out of Apple. And it keeps defying all laws of probability. With the watch, you know they're going to get over that. And then it was China. You couldn't have a cell phone that was an Apple. And in the meantime, two of the top-selling five phones are Apple phones. There's always a wall of worry specifically to Apple. Yeah. And you're still going to be able to buy that watch somewhere else. And what do people do? As soon as they heard they were going to stop selling it, they ran out and they bought more watches.

19:42So there's going to be you talk about pull forward your your your dessert in the market. People pull forward their watches. Now, the people that sat on the sidelines and said, let me wait until this works it out. They're actually able to buy it, too. So I think if you're waiting on buying Apple, you should hold your nose. Don't look at the price. Buy it. Save it. Put it away. Put it away. All right. Let's switch gears now and go to Tesla. Another one that seems to move forward. charging higher on news that 2023 looks like it's going to be a record-breaking year for sales of their EVs. The stock almost higher by 2 % today.

20:14The company now projected to deliver over 1.8 million vehicles this year. That's a bit below Musk's projection of 2 million at the beginning of the year, but up 37 % nonetheless from 2022. And while Tesla is dominating here in the U.S., Bloomberg reports that Chinese EV maker BYD will overtake Tesla worldwide this year. So is this as good as it gets for Tesla? Mike, let's start with you. What do you think on this? I don't think so. You know, Tesla really, I think, is the leader in EVs. I mean, I speak a little bit with bias on this. We have a couple of them. I think they're phenomenal cars and and arguably the most efficiently priced cars that you could buy right now.

21:00There's a reason the Model Y is the best-selling car in the US right now. And frankly, they just have levers that they can pull on that other automakers do not. Now, obviously, BYD has some advantages in terms of manufacturing. I think actually Tesla is going to end up benefiting from improved operating efficiency. And we talked about this earlier. They have a lot of data that they've been collecting. They're, I think, almost certainly the leader in self-driving. You know, you put these things together, they're also building all of the infrastructure here. We've got Ford they're going to be piling on for their supercharging network.

21:35You know, in the U.S., at least, they definitely have a lead. And it's hard for me to imagine, even if BYD is making good progress in China, that they're going to overtake here and in Europe. Yeah, the Model Y, you see them everywhere. I was in Europe over the summer, and it was amazing to me how dominant And Tesla was among EVs in a land, Norway, where I was, which has the highest penetration per capita of electric vehicles in the world. Courtney, thought on Tesla. And actually something Mike brought up, which I think is interesting, is the cost of a Tesla is a lot more like a BYD, for example.

22:09They make them significantly cheaper. And that has been one of Elon Musk's problems. He's saying, well, interest rates being so high, it's pricing a lot of people out of Teslas right now. And especially the U.S. hasn't quite adopted them as much as other countries. It's almost a third of all cars sold in China are EVs. We're about 8 % here in the U.S. So there's definitely still a lot of room to run, but they are definitely getting some significant competition from China. So, you know, I think Tesla cars are fantastic, but as a stock, it's definitely more expensive. It could be worth looking at something like that as an alternative.

22:38It actually is one that Berkshire Hathaway had invested quite a bit in as well. Steve? So Tesla is, as Mike had said this, Tesla is by far and away the name, the premium brand in the space. If we're worried about BYD taking a chunk out of Tesla, we should worry about Ford and GM a lot more than the dramatic effects that it's going to have on Tesla. Tesla has outperformed the entire space. It's broken on a technical basis. It's broken a declining trend line. I actually think the stock can go higher because people aren't factoring in how much money and how much monetization is going to happen with that charging network that Mike referred to.

23:16Yeah, the charging network keeps growing and growing and growing. It's convenient. Now it's going to open up to all different kinds of things. I hear as well that Tesla has a refresh of the Model Y in the pipeline, which is probably needed. It's been sort of the same car for several years. And that is going to give them probably a boost when and if it comes forward. All right, a lot more fast to come. Here's what's coming up next. Constructive trading. Homebuilders putting hammer to nail over the last few months as home prices keep climbing. So will the gains keep coming or should you close the door on this trade?