Sora Is No Mora

0:00Welcome to Motley Fool Money, I'm Travis Hoyam, joined today by Lou Whiteman and Rachel Warren and guys, the open AI news continues to come out. Lou, we talked about this a little bit yesterday with Tyler Crow on the show. But the breaking news yesterday was that they are shutting down Sora, this sort of social media video app that they launched not too long ago a few months ago. But not only that, they're actually shutting down making their own video models. Rachel, this seems like a huge shift for open AI. They're really focusing on that enterprise side, coding, their codex product. We talked about that. It was so striking that they have put so much time and energy, even a billion dollar deal

1:01with Disney, to try to build up this video business, one of those spaghetti at the wall kind of things. And now they're just saying, you know what? We're done with that. Yeah. I mean, there was a lot of viral buzz around Sora, but there had also been kind of some major challenges. So your Sora had this ability to generate life like videos. I mean, it was generating unauthorized clips of people like Michael Jackson, Martin Luther King, Jr. So there was fierce opposition from actors unions, family estates. There was even an issue they were having with the Japanese government demanding that open AI stop using copyrighted anime and manga characters in Sora V2. The other point, I think, to make here is very high computational costs required to run these models, very much putting a dent, I think, in the bigger dream of open AI for profitability. I had if it's reported IPO, potentially later this year, I think they're really refocusing on their upcoming spud model, AI agents, right, designed for coding and robotics. I think they're really trying to kind of cut their losses and reallocate their resources towards autonomous AI agents and our prize grade tools.

2:03It is interesting. The impact on Disney. I mean, they have this three year, billion dollar partnership, but included licensing over 200 characters from Marvel, Pixar, and Star Wars. That feels dead. Disney publicly said they respect open AI's decision, but there was some reports that the news caught the company off guard that maybe they didn't even hear about it until about 30 minutes after a joint meeting. So a lot going on there. I mean, for Disney's part, they're now an active free agent in the AI space. They're reportedly engaging with other AI platforms to find a new partner. So that could be something interesting to see. I think now with this kind of leader out of the race, a lot of eyes are turning to alphabet and anthropic, you know, anthropic has notably chosen to avoid video generators entirely. So maybe this is something that we're not going to see as much investment in the space. That remains to be seen, but it is a big shift for open AI for it. I think where a lot of people thought the business was going. Yeah, Lou, it does seem like they're at least focusing and we've asked a lot of questions about how are they going to build a sustainable business model. So this is maybe a step in the right direction.

3:06But the other interesting thing is it seems like they're kind of seeding a lot of this consumer space. You know, if you want to make a video, go to Gemini and that was the theory, even 12 or 18 months ago, was that alphabet was going to be in Google, we're going to be disrupted. This is kind of seeding that entire area to them. You're giving them the focus award, Travis, is that it? Yeah. Well, I mean, for now, we'll see until they go public and then start throwing spaghetti at the wall again. I think this is a rare moment of honesty from open AI, a company that loves a good press release for all of the bluster, for all of the statements about how wonderful it is. Things are not going well. And you know, we're supposed to make bold statements here, Travis, this may not contribute, but I am increasingly wondering if open AI will ever get to an IPO. I mean, the simple math here is is that they were not making money on this. See, as Rachel said, just the sheer bandwidth needed was too much for the revenue. Also, I think it's fair to say that they didn't see a path for revenue, which is kind

4:08of the scarier thing, and add into it the fact that even with a billion dollar sweetener from Disney, if they would have kept going, they still couldn't justify it. I think the conclusion here is, is they were losing tons of money with no path profitability and, hey, I guess credit to them for at least backing off. But look, Anthropic is doing it better. Anthropic is using a lot fewer resources to actually grab the enterprise customer. So copying them makes sense. I don't know if the consumer matters here. I think the enterprise matters for now. And yeah, Anthropic is showing the way opening AI would be insane not to follow. So is the theory there if you're looking at a potential IPO that, hey, the consumer space is just going to be too hard. Maybe Alphabet is already there with the ad business in particular, something that OpenAI really said they didn't want to do until it was kind of too late. So if you want to build a real business and go public, you have to go after these coding

5:09opportunities, these enterprise opportunities. And that's what they're focusing on, even though we've seen seemingly everything else. We have the browser shutdown. We've seen now Sora shutdown. Is even chat GPT going to be the future of the company or is it really just codex at this point? It's weird to compare them to Alphabet because it's such a different set of circumstances. We wanted us to establish business that in part is backfilling. Let's be honest, you know, the whole, it used to be Alphabet is going to get killed by OpenAI because search is going to be destroyed. Instead, they're kind of just transitioning search. But you have an established customer base and a established business. And so it makes sense to stay in that business that you know so well. I think on the OpenAI side, like inthropic starting from scratch, you need to earn customers. And the cost of acquiring a customer in almost any business is high. So you want to go after the customers with the highest payout. That's on the enterprise side. I mean, again, we'll see what becomes a consumer AI. We'll say maybe we all will pay hundreds of dollars a month for these magical tools that

6:09make our lives better. There's time to fight that out if and when that happens. For now, if you are trying to build a business, you need to see your efforts generate revenue. And clearly, I mean, I don't think this is unique to AI or anything that clearly the enterprise is the customer to go to get that. Yeah. I think it makes a lot of sense in a lot of ways, especially if you are trying to get to that IPO, but it's just striking how many things they've tried. They were supposed to be the future of technology. The future of artificial intelligence and they just didn't really work out. So we will see where open AI goes. I'm sure we're going to be talking about this again soon. When we come back, we're going to talk about crypto and what the future of stable coins looks like. You're listening to Motley Full Money. The Civil War and Reconstruction was a pivotal era in American history. When a war was fought to save the Union and to free the slaves. And when the work to rebuild the nation after that war was over, turned into a struggle to

7:10guarantee liberty and justice for all Americans. I'm Tracy and I'm Rich. And we want to invite you to join us as we take an in-depth look at this pivotal era in American history. Look for the Civil War and Reconstruction wherever you find your podcasts. Welcome back to Motley Full Money with the Hidden Gems team. Yesterday, we saw shares of Coinbase and Circle plunge. I think Circle was actually down over 20% at least one point. And the reason was Congress is pushing through this clarity act, which is going to set the rules for stable coins. And one of the things that's been on the docket is our crypto company is going to be able to offer rewards for holding stable coins is something that Coinbase does on their platform. If you have USDC stable coins, they'll pay you, I think it's three and a half percentage points right now as a reward for that. So it looks a little bit like interest on a bank account, even though it's a little bit different than that. But this would make that illegal, Lou. And the interesting thing here is this would make it maybe a little less attractive to

8:14be holding those stable coins in an account like Coinbase. But if you do still hold them and you don't really care about that three and a half percent because it's a more efficient payment method or whatever your logic is, this is actually going to make companies like Coinbase more profitable because they're not going to have that reward's expense. So it's sort of an interesting reaction from the market stocks are down, but at least short term, Coinbase should make more money because of this ruling if it ends up passing. Yeah, I keep thinking that life comes that you're fast. I see this. Sure, Travis, you know what? Banks would make more money if people just put their money in without demanding interest. So you're right. Definitely. But look, I don't know if this is fair, but I think it's the right call, okay? And look, life is not fair. I'm not pro-erantized stable coin. I'm not going to say that, but I want them to solve problems, not create problems. And for all of the flat and do you not see the, let's go there, let's go there, okay? For all of the issues we have with our US banking system and it's not perfect, it does work

9:17and it is the model the rest of the world bases itself on. We have a good thing here. Just like in medicine, the first rule should be do no harm. And to the extent that these stable coins are a threat to that core system, I think regulators should be aware and trying to avoid harm to this system that serves as well. Keep saying this about Fintech, but it is so true, the house always wins. Regulators are risk-adverse. That's a feature in the system. It's not a flaw. If you want to come up with something better, it has to be significantly better than the status quo. Because again, the status quo for all of our complaints about it works really, really well and most of the world wishes they had the problems we had. I've been following stable coins for quite a while, but the efficiency of moving money with stable coins, if you own a business and you're paying 3% for credit cards, having an alternative, which a company like Stripe does, they charge about half of the fee to take

10:19stable coins as they do to take credit cards. So that would be the disruptive angle. Is Lewis saying it's good that we're not allowing or we're not enabling some of this disruption from stable coins, which is going to just entrench companies like Visa and MasterCard? I guess what are your thoughts looking at that? That seems like the angle that Coinbase or Circle is going for is, hey, this is better. It's more efficient, but now we have regulatory capture coming in, which is always going to be a challenge. I think another way to look at it is this. We have heard some pretty lofty ambitions for what stable coins can do for the consumer for big business. One of the hallmarks of adoption, one of the on-ramps that enables adoption is greater regulatory environment and more regulations in place. So I think that in the long term, should this legislation pass, I actually think it's a good thing. You think about companies like Coinbase. They've been leaving gleaming pretty heavily on USDC rewards to drive engagement and revenues. Obviously, this is a massive regulatory red line, so to speak.

11:20You think about the genius act and other recent bills have really essentially been trying to treat stable coins more like traditional cash and less speculative investments, which again, is a really important element of long-term adoption. So I think by cutting off rewards, regulators are hoping to prevent a massive drain of deposits from traditional banks. I think that's one piece of it, but I think it's also about the fundamental safety of the financial system. And there's also the redemption factors. The new rules would mandate that stable coin holders get priority in case of an issuer's bankruptcy, and that would finally give users some of the same protections that they would expect at a regular bank. And again, there might be individuals and entities that have hesitated to adopt stable coin that should those regulations be in place would be more induced to do so. So I don't think this is a dead end. The free money, so to speak, we have rewards might be going away, but I think that core utility of stable coins is still very much intact. If you believe in this space, I think for the big players, this is more of a regulatory

12:21speed bump, if you will, then a dead end, they'll have to pivot their business models, focus more on transaction fees and infrastructure. But I do think that the genies are already out of the bottle here, and I think stable coins are probably here to stay. Well, Lou, I do want to push back on that a little bit, because the piece that we're missing here is there is still money, billions of dollars of revenue coming into these stable coin companies, because these assets are backed in the case of USDC. I think it's there around $80 billion market cap today. That money isn't just sitting in an empty room. It's sitting in bank accounts, it's sitting in US treasuries. That is generating interest, what they're doing with rewards, what they're calling rewards, is just returning that to the people that are actually holding the coins. Now you're saying you can't give them that money. So that profit is going to go to companies like Circle and Coinbase. Is that better? I think that's the argument you guys are making, is that that's better not to give the rewards out. That seems a little bit backwards. A couple of things. For one, we'll see how much of that money stays there for them to generate the interest if this evolves, if there isn't a use for it.

13:24Rachel said they can make it up in fees. If the goal is to like, hey, this is better than Visa and Mastercard because there's none of those pesky fees and a fees or less, here comes the crate. Again, the house is going to win here. Visa can cut their fees in half a lot easier than these companies will find it to just release. Well, Visa and the banks, though, I think that's going to be the sticky part, is that Visa takes a relatively small chunk of that 2.9% or so. But again, the banks. This is margin and it's always the path of least resistance is the incumbents lose a little margin versus a new system comes into place. That has happened over and over again. This isn't just about, quote unquote, protecting Visa or protecting the banks. Right now, the system that we all benefit from works because, in part, the banks have so much access to cheap deposits. Do the extent that we threaten that for the sake of lower credit card fees? We are potentially causing a bank crisis down the road that will do more harm than the

14:28toll that they are extracting on the economy. You can say that this is fear-mongering. You can say that it will never happen. You can say, oh, that's the worst case. The job of regulators is to avoid worst case. It is to keep the system stable and functioning because again, the system basically works. This may not be fair. It may not be consumer-first-friendly. It might mean that businesses still have to fear what to do with credit card fees. All of that can be true and it can still be the right decision in terms of financial stability and long-term financial stability. That's the point. We can argue to our blue in the face about fairness. We can argue about, oh, what are you doing in that? The end of the day, the job of the regulator is to keep the status quo working because the status quo has gotten us 200 years in pretty well. That's exactly what they're doing here. I'll be on it. Maybe I'm just an old bloodite, but I appreciate that holding.

15:29I think you put it really well. The investors who are listening to this who own maybe shares of banks, maybe shares of Visa or Massacre, the credit card processing companies, or myself, I own shares of Coinbase. Think about that. What sort of disruption is there? What does disruption potentially look like and what is holding off that disruption? I think you laid it out that you're arguing that the status quo is beneficial, even if it's less efficient and less consumer-friendly. Does that ultimately win? That's something that the market is going to eventually figure out one way or the other. For now, regulatory capture had rules of the day. When we come back, we're going to talk about Amazon's latest robots. You're listening to Motley Fool Money. Welcome back to Motley Fool Money with the Hidden Jams team. Amazon is one of the biggest employers in the world, but it may not be for long if it keeps buying robotics companies last week, acquired a company called River, that makes a kind of dog-looking delivery robot. This week, it added Fauna Robotics, a humanoid-ish, like a short, like a four-foot-tall, humanoid

16:32robot that's supposed to be, quote, capable, safe, and fun for everyone. It also, we've got Zooks in the mix. Richel, what is going on here is this, a company that's going to have a billion robots and no employees a decade from now? I mean, maybe that's the long-term vision, right? So River, they're the Swiss startup known for their dog-like, quadruped robots. They're designed to navigate stairs and drop off packages directly at your door. And then Fauna Robotics makes this humanoid-ish robot called Sprout. It's about three and a half feet tall. As you noted, when you add Zooks, obviously the self-driving robotaxing delivery service to the mix, this picture starts to get kind of clear. You know, you think about, could we be living in a world where a Zooks vehicle drives itself to your neighborhood, the River dog hops out the back to climb your porch steps and a fauna humanoid potentially manages the human interaction or complex tasks in the warehouse. I mean, I don't think we're there quite yet, but I can't help but wonder if that's the long-term vision. Amazon, for their part, publicly maintains that these robots are designed to work alongside humans, right?

17:36To make jobs smarter, not harder. There's been some leaked documents that have suggested that they maybe plan to replace, you know, half a million or more human roles by the early 2030s to solve some of their labor supply shortages. So we'll see what the reality is in practice. But the other thing to note here is that from these acquisitions, I mean, Amazon's also competing with, say, Tesla's optimists, as well as other players in this race for general-purpose humanoid robots. So whether they plan to sell these robots to other businesses or simply use them in the logistics machine, I think remains to be seen. It's an interesting move to be sure. I put out a memo to myself stating I want to be a trillionaire like mid-2030s. I mean, if they could happen, but we'll see. I don't think you should just assume it is fact. You know, similarly, I'm glad we reached a much lower logistics, because I think about this in terms of logistics. And I think not to say that this is an important, but it's just, Amazon is a different animal because of its scale. But really, all Amazon is doing is what everybody's doing.

18:38In the case of logistics, Amazon was just the one company big enough to take it in-house when everybody else is still delivering stuff. They're just using UPS or whomever. Similarly, I could give you pages and pages of various retailers, logistics companies, companies with warehouses that are partnering, experimenting with robotics. I could give you a trucking company. You used to spend $500 million a year on tech related to warehouse tech. What Amazon is doing is what everybody is doing. It's just more, I guess, in the spotlight because they're buying companies. It's just this long-term trend towards automation that's been going on since the 70s. I doubt it ends with zero employees, but if nothing else, it is the path to greater efficiency and scaling the number of employees you have. Not that this is much to do about nothing, because it does over time make these companies more profitable. But I don't know if there's anything Amazon is attempting that a lot of other companies can't do through vendors like Honeywell

19:39or through their own internal efforts. Yeah, I think that's probably true. We are seeing this vision come together with Amazon, especially with the Zooks vehicle, which I kind of left for dead for a long time. But now that that's approved, you can modify those. And there's obviously designing those in-house. So you could modify that to look in a look crews did this a few years ago. Instead of having people inside, you just have your refrigerated area, maybe for groceries, you've got packages coming out. Maybe it's just one of these robots that parks on the corner in my block. And a whole bunch of robots come out and deliver a handful of packages to different houses in the area. The future is going to be wild. I think that's what we can probably agree on at this point. And there's going to be more robots than there are today. Well, lots of things about for investors, but we do want to pour one out for Sora because that was one of those highly hyped products that kind of said to see go away. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have four more recommendations for or against, so to apply or sell stock space solely on what you hear.

20:39All personal finance content follows the Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored, content, and provided for informational purposes only. To see our full advertisement disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren, and Christy Waterworth, The Handling Glass, I'm Travis William. Thanks for listening to Motley Fool Money. We'll see you here tomorrow.