It’s your first day at Meta, and your desk is directly next to Mark Zuckerberg’s. That’s what’s happening for new AI employees at Meta, where Bloomberg reports Zuck is personally assembling a squad to lead a new lab that’ll build AI that’s smarter than humans, aka “superintelligence.”

Meta’s bringing on Scale AI CEO Alexandr Wang to lead the lab, reports The New York Times, as the tech giant prepares to pour $10 billion into the AI startup. ScaleAI’s business model involves helping other companies, including OpenAI and Microsoft, build AI.

Machine (Still) Learning

If Meta can crack superintelligence, it’d set the tech company apart from rivals that are stuck trying to build “artificial general intelligence” (AGI) that can match, but not go beyond, the human brain’s capabilities.

As ChatGPT’s partial outage yesterday goes to show, AI companies are still struggling to scale up to AGI. During the blackout, OpenAI’s chatbot experienced more errors and delays than usual — like an AI brain freeze. The chatbot also struggled to keep up with queries in March, when Sam Altman said its “GPUs are melting” after a flood of users asked it to make Studio Ghibli-style selfies.

ChatGPT accelerated the AI race when it came on the scene, but its struggles to scale up could create a lucrative opening for tech rivals willing to throw their multi-billion-dollar hats in the ring:

• A $10 billion investment into ScaleAI would be Meta’s biggest external investment in artificial intelligence so far as it earmarks tens of billions toward developing the technology this year. It previously focused on internal efforts, like its Llama AI model and its Meta AI app.
• Meta missed the chance to buy AI company DeepMind, which Google scooped up for $600 million in 2014 and has made integral to its AI strategy. Meanwhile, Amazon has poured $8 billion into Anthropic, and Microsoft has tied its cart to OpenAI, investing $13 billion in the startup so far. Apple has taken a smaller role in the AI race.

Talent Competition: Some of Big Tech’s billions spent on AI are going toward hiring, as securing the best talent becomes a competitive sport. Not only is Zuck said to be personally involved in AI recruiting at Meta, but Meta has been sending out seven- to nine-figure offers to lure AI researchers away from OpenAI and Google. Meta is reportedly still losing talent to competitors that are also spending billions on recruitment. Last year, Google paid $3 billion on hiring specialists and execs and licensing tech from Character.AI. Winning the AI race could hinge on HR.

Could GLP-1 weight loss drugs and changing economic winds really take a bite out of the almighty Big Mac?

Analyst after analyst after analyst seems to think so, as Redburn Atlantic on Tuesday became the third firm in as many trading days to downgrade McDonald’s stock, often heralded as recession-proof.

From Triple Cheeseburger to Triple Downgrade

For years, McDonald’s has been like the Dennis Rodman of the market. No, not for the ear piercings or the wild publicity antics or the Van Damme action movie: for being possibly the best defensive stock in the business. Shares in the fast food company outperformed the market in the 12 months leading up to all five recessions in the past 40 years and in the majority of recessionary periods that followed.

With 41,000 locations, its massive scale allows it to set competitive prices, and 90% of its locations are franchises, meaning it obtained that scale with minimal capital investment. That has allowed McDonald’s to focus on its chief proposition to customers: value. The sudden spate of downgrades, however, has called into question whether both behavioral and financial realities could erode the defensive prowess of the Golden Arches by rendering that proposition insufficient on its own:

• First under threat is McDonald’s value proposition to consumers worried about the economy. McDonald’s has seen same-store sales drop in the US for two straight quarters, with a 3.6% dip in the latest period and executives flagging even more concerning 10% drop-offs in traffic from lower- and middle-income consumers in the same period.
• On top of that, Redburn Atlantic analysts argued as they double-downgraded McDonald’s from “buy” to “sell” on Tuesday, there are “new behavioral challenges”: the proliferation of glucagon-like peptide-1 drugs such as Ozempic, they said, could have a “cumulative” impact on the chain’s business, noting “a 1% drag today could easily build to 10% or more over time.”

There’s also, according to Morgan Stanley analysts, a threat to McDonald’s value proposition to investors: They pointed out on Monday upon their downgrade of the stock that the fast food chain is trading at nearly 25 times this year’s earnings estimates. Compare that with Burger King-owner Restaurant Brands, Wendy’s and Jack in the Box, which trade at 19, 12, and 4 times earnings estimates, respectively. An ongoing “value war” among these and other chains, they noted, also means McDonald’s “pricing power has eroded,” reducing its leverage against its bargain-priced competitors.

What Others Are Saying: Loop Capital, which downgraded McDonald’s on Friday, cited negative feedback about the company’s new chicken strips. Other words on the street might not bode well for business either. In April, Pepsico CEO Ramon Laguarta said GLP-1 consumers were “keeping our brands in their repertoire, probably in a smaller portion,” hinting that food brands might have to cope with less consumptive consumers. Campbell’s CEO Mick Beekhuizen said earlier this month that the budget-friendly canned goods company is observing people eating at home the most since the start of the pandemic in 2020. McDonald’s shares fell 1.4% on Tuesday, paring this year’s gains to 2.7%. Still, if you don’t believe in the Cramer curse, CNBC clairvoyant Jim Cramer says the analysts betting against the Golden Arches are wrong.

Consider it the “Hot or Not” list of the business world. And who’s not hot? Robinhood and AppLovin, for starters. At least, not quite hot enough.

Shares of both companies are slipping this week after each failed to break into the S&P 500, disappointing eager investors who thought they looked like strong candidates to get tapped for the big leagues during the index’s quarterly adjustments. Alas, they remain on the outside looking in.

Wall Street’s Hottest Club Is …

Conventional wisdom says being on the S&P 500 isn’t just a status symbol. It’s one that is supposed to come with plenty of benefits. Namely: a steady rise in passive inflows, as index funds and ETFs tracking it buy up stock. It’s a major reason why both Robinhood and AppLovin saw positive share price movement through May as speculation swirled that they might be called up to the A-Team. For context: Robinhood is still up 26% in the past month, and AppLovin almost 11%, though they have slipped 3% and 8%, respectively, since the index revealed on Friday it’d be adding no new companies in its latest round of quarterly rebalancing.

That means short-term investors looking for a quick fix by betting that the companies would score S&P 500 membership — and post-membership gains — got singed by the bad news. On the other hand, research shows that scoring that shiny new credential may not mean much in the long run anyhow, despite what conventional wisdom might have you believe:

• In a study published last year, researchers at McKinsey analyzed hundreds of companies that were added or removed from the S&P 500 and found that company’s stock prices ultimately returned to their “intrinsic value” within two months of the inclusion or removal, writing “shareholder returns drive index inclusion or exclusion, not the other way around.”
• In fact, that temporary bump may be getting smaller and smaller. In a study titled “The Disappearing Index Effect” published last year, a pair of Harvard Business School researchers found “the abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 7.4% in the 1990s to less than 1% over the past decade.”

Door Policy: To get an S&P 500 nod, companies have to meet several criteria, including having a market cap of $20.5 billion or higher and having a positive sum of GAAP net income over the four most recent consecutive quarters. Robinhood and AppLovin check those boxes, so why the rejection? One theory recently floated by Barron’s is that they’ve both been more volatile than the broader market — though that didn’t prevent the similarly volatile CoinBase from getting accepted in May. In other words: Earning a spot on the premier index is sort of like trying to enter Berghain, the popular all-night dance club in Berlin with an infamously arbitrary door policy.