Barrons : Schlumberger Stock Was Once as Hot as Nvidia. Why It’s a Buy.

Schlumberger Stock Was Once as Hot as Nvidia. Why It’s a Buy.
Shares of the oil-services company have the potential to nearly double.

Schlumberger was the Nvidia of the 1980s—and the beaten-down stock could still produce some Nvidia-like gains.

It’s hard to remember now, but Schlumberger, now called SLB, was one of the market’s hottest stocks as the leading servicer to the then-dominant energy industry, and at one point had the world’s fifth-largest market cap. SLB is still the world’s leading oil-services company, with operations in 100 countries, but energy matters little in the S&P 500, and the out-of-favor stock isn’t trading much higher than it did 40 years ago. With a market value of under $60 billion, it doesn’t crack the top 100 stocks in the index.

SLB is worth a fresh look. Despite fears of obsolescence, the oil-and-gas business will probably be around for the rest of this century—demand continues to rise globally and stands at more than 100 million barrels a day—and the industry needs the varied expertise in assessing and developing energy deposits that SLB provides.

Shares don’t reflect that possibility. SLB stock, at about $40, trade near a recent 52-week low after dropping 23% this year. It fetches a reasonable 11 times projected 2024 earnings of $3.50 a share and under 10 times estimated 2025 profits of $4.13 a share, while yielding 2.8%. It’s an attractive entry point for the oil-services company.

“SLB is the industry’s technology leader,” says James West, an oil-services analyst at Evercore ISI. “It’s the entrenched go-to company in every major international market, with the highest returns among its peers.”

West carries an Outperform rating and a $74 price target, almost double the current price. He doesn’t view his target, which is 14.5 times his 2026 earnings estimate of $5.10 a share, as overly aggressive. “Historically, this was a 20 multiple stock. It’s now trading close to high-single digits,” he says.

The stock has fallen lately with the rest of the energy sector as oil prices, as measured by West Texas Intermediate , have fallen under $70 a barrel, a new low for the year. That weakness in energy prices reflects concerns about Chinese demand and ample spare capacity among members of the Organization of the Petroleum Exporting Countries. Many energy stocks have recently hit new 52-week lows.

SLB, which was founded in 1926 by French brothers Conrad and Marcel Schlumberger to map geological formations using electrical measurements, has issues of its own, as well. SLB is strong in important deepwater markets such as Brazil, Guyana, West Africa, and the Gulf of Mexico, and in the Middle East, including Saudi Arabia, where it has operated for decades. Typically, that global reach is an advantage, but Saudi Arabia’s decision not to invest in boosting oil production in the spring—although it is committed to expanding gas output 60% this decade—has weighed on oil-services stocks.

But the overall backdrop for the oil-services industry looks healthy. Global energy capital spending for new deposits—so-called upstream spending—continues to rebound from lows hit in 2020 and could approach $500 billion in 2026, up about 20% from this year, according to Barclays energy analysts.

SLB, like energy industry leader Exxon Mobil, has a strong corporate culture. CEO Olivier Le Peuch, 60, is a company lifer, as are several in the European-heavy top management team. Domiciled in Curaçao, the company has executive offices in four cities, including Paris and Houston.

Le Peuch was upbeat on the company’s earnings call in July. He projected “further growth and margin expansion in the second half of 2024 and 2025.” Earnings per share are projected to rise 17% this year and next year. The company, he noted, plans to return $3 billion in cash to shareholders in dividends and stock buybacks in 2024 and $4 billion next year.

Greg Buckley, a manager of the Adams Natural Resources closed-end fund, says SLB trades at a free-cash yield of more than 7%, higher than Exxon and Chevron, a sign that it is undervalued relative to its Big Oil peers.

He says that SLB is now valued at about six times projected 2025 earnings before interest, taxes, depreciation, and amortization, or Ebitda, its lowest level in 10 years. He notes that consensus earnings estimates have changed little in recent months even as the stock has come down.

Given the decline in oil prices, there could be risk to 2025 and 2026 earnings estimates, but that possibility seems to be captured in SLB’s depressed stock price.

“SLB and its peers are benefiting from strong capital discipline, meaning there isn’t too much equipment in the market, and the companies have maintained pricing,” Buckley says.

SLB’s technological advantage should also benefit the stock, he says. The industry is evolving, with the recovery of oil and gas from existing deposits becoming a critical area for oil explorers. SLB has leading technologies and is poised to enhance its position with a $6 billion deal for ChampionX, a specialist in enhanced oil recovery, that is due to close around year end.

SLB’s core business is assessing the size and characteristics of energy deposits and the construction of wells to reach them, no easy job when offshore deposits can be miles beneath the ocean surface. It has a fast-growing, high-margin digital business now accounting for 20% of its profits that involves migrating energy companies to the cloud from on-premise data centers.

The company changed its name to SLB in 2022 to highlight what it called a transformation from an oil-services company “to a global technology company focused on driving energy innovation for a balanced planet.” There have been successes in what the company calls its transitional technologies portfolio, which includes hydrogen and carbon capture. The portfolio topped $1 billion in revenue in 2023—still just 3% of overall sales.

The company said it achieved a breakthrough in lithium production at a demonstration plant in Nevada, making the light metal 500 times faster than conventional methods while using only 10% of the land.

But SLB is still an oil-and-gas company, and when the cycle turns, investors should return to the industry leader. It’s better to buy the stock before they do.

BArrons : U.S. Steel Deal Looks Dead. Japan Won’t Hold a Grudge.

U.S. Steel Deal Looks Dead. Japan Won’t Hold a Grudge.

Kamala Harris and Donald Trump don’t agree on much, except stopping Japan’s Nippon Steel’s proposed $15 billion acquisition of U.S. Steel. Joe Biden’s White House has signaled that it will nix the deal as a supposed threat to U.S. national security.

From Washington, this looks like a bit grimmer-than-usual politics, given the crucial role in the looming presidential election of Big Steel’s home state of Pennsylvania. For Tokyo, it feels like an insult to one of America’s staunchest allies and, by the way, its biggest source of foreign direct investment, or FDI.

Japan wrested that title from the United Kingdom five years ago, and at last count had poured a cumulative $783 billion into U.S. partners and subsidiaries, according to the Japan External Trade Organization, or Jetro. “Japan has made a long-term bet on the U.S. as the only growing market in the developed world,” says William Chou, deputy director of the Japan chair at the Hudson Institute.

Iconic auto makers are doubling down on the U.S. for the electric-vehicle transition. Toyota Motor has earmarked $14 billion for an EV battery plant in North Carolina. But the largest FDI category, at $167 billion, is chemicals, which in tradespeak includes pharmaceuticals. Japanese buyers have closed three multibillion-dollar acquisitions of U.S. biotechnology firms over the past 18 months, led by Astellas Pharma’s $5.9 billion deal for New Jersey–based Iveric Bio last year.

The Nippon Steel rebuff may cool this enthusiasm, a bit. “At the margin, it might discourage some investors from putting the next dollar into the U.S.,” says Matthew Goodman, director of the Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations.

Japan Inc. lacks great alternatives for all of the cash that its global corporate powerhouses spew, though. Its once-favored destination, China, has antagonized Tokyo with everything from laying claim to Japan’s Senkaku Islands to periodically locking up Japanese executives on espionage charges. “China lost the No. 1 spot in Japanese investor surveys around 2020, when the nature of Xi Jinping’s regime became apparent,” Chou says.

The U.K. was hot until the 2016 Brexit vote shook its status as a foothold into Europe, notes Tobias Harris, founder of consultant Japan Foresight.

Pending elections on both sides of the Pacific could pose new threats to Japanese-U.S. symbiosis. Prime Minister Fumio Kishida steps down as leader of the governing Liberal Democratic Party on Sept. 27, unleashing an unusually vociferous nine-way race to succeed him. “At least a few of the candidates are being a little more critical of the U.S.,” Harris says.

A bigger factor is Trump’s possible return to the White House. Japanese investors spied opportunity in Biden’s big industrial policy statutes, says Hiroshi Yoneyama, head of research at Jetro’s New York office.

The Inflation Reduction Act, with its generous green energy subsidies, has encouraged EV-linked projects like Toyota’s. The Chips and Science Act indirectly sweetens pharmaceutical investment, increasing the National Science Foundation’s research budget by tens of billions. “The IRA and Chips Act were quite big news in Japan, boosting companies’ enthusiasm,” he says.

Trump has pledged to “rescind all unspent funds” from the IRA if elected. Japanese investors have “shifted slightly to wait-and-see” until Nov. 5, Yoneyama says.

With ties reaching back to the 1980s and an increasingly truculent China on Tokyo’s doorstep, the U.S.-Japan alliance should withstand whatever the next four years bring, however.

“In geostrategic terms, Japan is willing to put up with a lot to maintain the relationship,” says Harris.

WSJ : Berkshire Hathaway’s Stock Is So Rich Even Berkshire Is Buying Less of It

Berkshire Hathaway’s Stock Is So Rich Even Berkshire Is Buying Less of It
Stock buybacks have slowed to a trickle. ‘If Buffett’s not buying his own stock, then why should we?’ one investor asks.

Warren Buffett’s Berkshire Hathaway BRK.B -0.72%decrease; red down pointing triangle recently joined a rarefied club of companies valued at $1 trillion. Not everyone’s celebrating, though.

The powerful rally that lifted the Omaha, Neb.-based company’s market value above the trillion-dollar threshold has some investors and analysts thinking its shares look a little pricey. Their concern might be shared by someone who ought to know: the legendary stock picker himself.

Berkshire disclosed in August that its stock buybacks slowed to a trickle in recent months, after many periods of hefty repurchases. The company said in its quarterly report that it can buy back stock whenever Buffett, its chairman and chief executive, “believes that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.”

Berkshire said it bought back about $345 million of stock in the second quarter, its smallest quarterly repurchase since 2018, according to filings and news releases. In the second half of 2020, the company snapped up about $9 billion of its stock each quarter.

Bill Stone, chief investment officer at Glenview Trust, said he thinks of Berkshire as “the ultimate sleep-at-night stock,” with a rock-solid balance sheet, a trusted leader and a widely diversified range of business. But he advised a client this week to wait for a pullback before buying additional shares.

“It’s certainly not a screaming buy,” Stone said. “We’re not frankly anxious to add a whole lot here.”

Buffett warned in his February letter to shareholders that Berkshire’s huge size, along with a shortage of attractively priced businesses to acquire, means it has “no possibility of eye-popping performance.”

Berkshire is the seventh-largest U.S. company by market value and was the first U.S. company outside big tech to hit the $1 trillion mark. Apple was the first, followed by Microsoft, Alphabet and Amazon.com, according to Dow Jones Market Data. Meta Platforms followed, then Tesla and finally Nvidia, before Berkshire crossed the line Aug. 28.

Membership in the club can be fleeting. Tesla’s market value has shrunk to $736 billion, while Berkshire closed Friday at $965 billion, according to FactSet.

Berkshire’s sprawling empire extends to many corners of the economy. It operates businesses including the insurer Geico, BNSF Railway and the retailers See’s Candies and Oriental Trading. It manages a massive stock portfolio with big positions in Apple, Coca-Cola and other household names.

Its stock has been on a tear. Class B shares have soared 26% in 2024, compared with an 18% advance by the S&P 500. Investors’ recent enthusiasm for insurers might have fueled Berkshire’s gain. Progressive shares, for example, are up 60% this year, while Allstate shares have climbed 35% and Chubb shares have risen 28%.

Class B shares traded earlier this week at 1.46 times their average projected book value, a measure of net worth, over the next 12 months, above a five-year average of 1.28, according to FactSet. Some close observers of Berkshire refrain from using standard price/earnings ratios to judge whether the company is a good buy, since fluctuations in the value of its stock portfolio can cause big swings in reported profit.

Of course, high valuations don’t necessarily signal the end of a rally, whether in Berkshire shares or the market as a whole. Stocks can continue to advance as investors put money to work and avoid—or shrug off—bad news. But for investors who carefully choose when to enter or add to a position, a rich valuation can be discouraging.

The slump in buybacks has also caught the attention of onlookers.

“That tells you a lot too about the valuation, if Buffett’s not willing to go out there and buy the stock at these prices,” said Greggory Warren, a stock strategist at Morningstar.

Buffett often writes that stock repurchases can benefit shareholders by increasing their ownership of the company. But he emphasizes that buybacks are only a good deal for remaining owners if they are carried out at the right price.

“What is sensible at a discount to business value becomes stupid if done at a premium,” he wrote in his February letter.

One recent development in the buyback calculation: a 1% tax on stock buybacks that went into effect last year. Repurchases by big U.S. companies slipped in 2023 but showed signs of bouncing back in the first part of this year.

Berkshire says it won’t repurchase stock if the buybacks would bring its tally of cash and Treasury bills below $30 billion, but there is little risk of that. The company’s cash hoard was nearly $277 billion at the end of June. Big sales of stocks, especially Apple, contributed to the buildup.

All in all, it looks as though Buffett thinks the best investments right now are cash and Treasurys, said Aash Shah, head of investments and senior portfolio manager at Summit Global Investments. The firm holds Berkshire shares but isn’t adding to the position at the moment.

“If Buffett’s not buying his own stock, then why should we?” Shah said.

CrunchBase : The Week’s 10 Biggest Funding Rounds: Another Big Week For Biotech

The Week’s 10 Biggest Funding Rounds: Another Big Week For Biotech And AI

Biotech and AI had another strong week, as the sectors saw two big nine-figure rounds each — including one for $370 million in biotech. However, there wasn’t much else that was big. That continues a trend we have seen since before Labor Day.

1. Candid Therapeutics, $370M, biotech: Every week there’s a big biotech raise — and this week there’s one that’s really big. San Diego-based Candid Therapeutics launched with a $370 million capital raise co-led by Fairmount Funds Management, TCG Crossover, venBio Partners and Venrock Healthcare Capital Partners. Candid is developing T-cell engager antibodies to treat inflammatory diseases.

2. Glean, $260M, artificial intelligence: Less than seven months after raising a more than $200 million Series D at a $2.2 billion valuation, the AI-enhanced work assistant and enterprise search startup raised more than $260 million in a Series E funding at a $4.6 billion valuation co-led by Altimeter Capital and DST Global. The Palo Alto, California-based startup hit unicorn status in May 2023 after raising a $100 million Series C led by Sequoia Capital. Founded by former Google engineers, Glean’s generative AI search tool connects with enterprise companies’ applications and databases, and its AI assistant and platform lets users build their own AI apps. Founded in 2019, Glean says it has raised $620 million.

3. World Labs, $230M, artificial intelligence: Spatial intelligence AI startup World Labs launched this week with more than $230 million in total funding. The funding was co-led by Andreessen Horowitz, NEA and Radical Ventures. Other investors include Marc Benioff and NVentures, the venture capital arm of Nvidia. It was reported just last month that the Stanford, California-based company had raised a pair of financing rounds two months apart, and that the latest valued the company at over $1 billion. World Labs is co-founded by artificial intelligence pioneer Fei-Fei Li, commonly referred to as the “godmother of AI.” She previously led AI at Google Cloud and is a co-director of the Stanford Institute for Human-Centered Artificial Intelligence. She has spent much of her time trying to solve the issues surrounding building Large World Models for AI that can perceive and interact with the 3D world.

4. Superluminal Medicines, $120M, biotech: Companies at the intersection of AI and biotech continue to raise massive rounds. Boston-based Superluminal Medicines, an AI-focused biotech startup, closed a $120 million Series A led by RA Capital Management. The company’s platform creates candidate-ready compounds by utilizing a “combination of human understanding, generative biology, chemistry, machine learning and proprietary big data infrastructure.” Founded in 2022, the company has raised $153 million, per Crunchbase.

5. Forterra, $75M, autonomous vehicles: Clarksburg, Maryland-based self-driving technology company Forterra closed a $75 million Series B led by Hedosophia, Moore Strategic Ventures and XYZ Venture Capital. The company focuses on autonomous systems for both the defense and industrial industries. This is the company’s first round with a disclosed amount, per Crunchbase.

6. Second Front Systems, $70M, defense: Wilmington, Delaware-based defense tech startup Second Front Systems closed a $70 million Series C led by Salesforce Ventures . Founded in 2014, the company has raised approximately $152 million, per Crunchbase.

7. Inflammatix, $57M, biotech: Inflammatix, a molecular diagnostics company, locked up a $57 million Series E led by Khosla Ventures and Think.Health. Founded in 2016, Sunnyvale, California-based Inflammatix has raised more than $200 million, per the company.

8. Strider Technologies, $55M, productivity tools: Strider Technologies, a provider of strategic intelligence, closed $55 million in Series C funding. With this funding, Salt Lake City-based Strider will continue advancing its AI-driven capabilities into its integrated global intelligence platform, expand operations to new geographies in Europe and Asia, and more aggressively address the public sector market. Founded in 2019, Strider has raised $112 million, per Crunchbase.

9. CSA Medical, $53M, medical device: CSA Medical, a medical device company for the treatment of chronic bronchitis, raised a $53 million Series D co-led by TVM Capital Life Science and Yonjin Venture. Founded in 1993, Boston-based CSA has raised $159 million, per Crunchbase.

10. (tied) Finally, $50M, fintech: Miami-based finally, a startup automating accounting and financial processes, raised a $50 million Series B from PeakSpan Capital and a $150 million credit facility from Encina Capital Partners. Founded in 2018, finally says it has raised $305 million.

10. (tied) SpectraWave, $50M, healthcare: Bedford, Massachusetts-based SpectraWave, a medical imaging company, locked up a $50 million Series B led by Johnson & Johnson Innovation – JJDC. Founded in 2017, the company has raised nearly $80 million, per Crunchbase.
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10. (tied) Tune.FM, $50M, music: Philadelphia-based decentralized music streaming platform Tune.FM received $50 million in capital from Global Emerging Markets. Founded in 2011, Tune.FM has raised $80 million, per the company.

CrunchBase : The Week’s 10 Biggest Funding Rounds: Another Big Week For Biotech

The Week’s 10 Biggest Funding Rounds: Another Big Week For Biotech And AI

Biotech and AI had another strong week, as the sectors saw two big nine-figure rounds each — including one for $370 million in biotech. However, there wasn’t much else that was big. That continues a trend we have seen since before Labor Day.

1. Candid Therapeutics, $370M, biotech: Every week there’s a big biotech raise — and this week there’s one that’s really big. San Diego-based Candid Therapeutics launched with a $370 million capital raise co-led by Fairmount Funds Management, TCG Crossover, venBio Partners and Venrock Healthcare Capital Partners. Candid is developing T-cell engager antibodies to treat inflammatory diseases.

2. Glean, $260M, artificial intelligence: Less than seven months after raising a more than $200 million Series D at a $2.2 billion valuation, the AI-enhanced work assistant and enterprise search startup raised more than $260 million in a Series E funding at a $4.6 billion valuation co-led by Altimeter Capital and DST Global. The Palo Alto, California-based startup hit unicorn status in May 2023 after raising a $100 million Series C led by Sequoia Capital. Founded by former Google engineers, Glean’s generative AI search tool connects with enterprise companies’ applications and databases, and its AI assistant and platform lets users build their own AI apps. Founded in 2019, Glean says it has raised $620 million.

3. World Labs, $230M, artificial intelligence: Spatial intelligence AI startup World Labs launched this week with more than $230 million in total funding. The funding was co-led by Andreessen Horowitz, NEA and Radical Ventures. Other investors include Marc Benioff and NVentures, the venture capital arm of Nvidia. It was reported just last month that the Stanford, California-based company had raised a pair of financing rounds two months apart, and that the latest valued the company at over $1 billion. World Labs is co-founded by artificial intelligence pioneer Fei-Fei Li, commonly referred to as the “godmother of AI.” She previously led AI at Google Cloud and is a co-director of the Stanford Institute for Human-Centered Artificial Intelligence. She has spent much of her time trying to solve the issues surrounding building Large World Models for AI that can perceive and interact with the 3D world.

4. Superluminal Medicines, $120M, biotech: Companies at the intersection of AI and biotech continue to raise massive rounds. Boston-based Superluminal Medicines, an AI-focused biotech startup, closed a $120 million Series A led by RA Capital Management. The company’s platform creates candidate-ready compounds by utilizing a “combination of human understanding, generative biology, chemistry, machine learning and proprietary big data infrastructure.” Founded in 2022, the company has raised $153 million, per Crunchbase.

5. Forterra, $75M, autonomous vehicles: Clarksburg, Maryland-based self-driving technology company Forterra closed a $75 million Series B led by Hedosophia, Moore Strategic Ventures and XYZ Venture Capital. The company focuses on autonomous systems for both the defense and industrial industries. This is the company’s first round with a disclosed amount, per Crunchbase.

6. Second Front Systems, $70M, defense: Wilmington, Delaware-based defense tech startup Second Front Systems closed a $70 million Series C led by Salesforce Ventures . Founded in 2014, the company has raised approximately $152 million, per Crunchbase.

7. Inflammatix, $57M, biotech: Inflammatix, a molecular diagnostics company, locked up a $57 million Series E led by Khosla Ventures and Think.Health. Founded in 2016, Sunnyvale, California-based Inflammatix has raised more than $200 million, per the company.

8. Strider Technologies, $55M, productivity tools: Strider Technologies, a provider of strategic intelligence, closed $55 million in Series C funding. With this funding, Salt Lake City-based Strider will continue advancing its AI-driven capabilities into its integrated global intelligence platform, expand operations to new geographies in Europe and Asia, and more aggressively address the public sector market. Founded in 2019, Strider has raised $112 million, per Crunchbase.

9. CSA Medical, $53M, medical device: CSA Medical, a medical device company for the treatment of chronic bronchitis, raised a $53 million Series D co-led by TVM Capital Life Science and Yonjin Venture. Founded in 1993, Boston-based CSA has raised $159 million, per Crunchbase.

10. (tied) Finally, $50M, fintech: Miami-based finally, a startup automating accounting and financial processes, raised a $50 million Series B from PeakSpan Capital and a $150 million credit facility from Encina Capital Partners. Founded in 2018, finally says it has raised $305 million.

10. (tied) SpectraWave, $50M, healthcare: Bedford, Massachusetts-based SpectraWave, a medical imaging company, locked up a $50 million Series B led by Johnson & Johnson Innovation – JJDC. Founded in 2017, the company has raised nearly $80 million, per Crunchbase.

10. (tied) Tune.FM, $50M, music: Philadelphia-based decentralized music streaming platform Tune.FM received $50 million in capital from Global Emerging Markets. Founded in 2011, Tune.FM has raised $80 million, per the company.

TechCrunch : First impressions of ChatGPT o1: An AI designed to overthink it

First impressions of ChatGPT o1: An AI designed to overthink it

Image Credits: David Paul Morris/Bloomberg / Getty Images

OpenAI released its new o1 models on Thursday, giving ChatGPT users their first chance to try AI models that pause to “think” before they answer. There’s been a lot of hype building up to these models, codenamed “Strawberry” inside OpenAI. But does Strawberry live up to the hype?
Sort of.

Compared to GPT-4o, the o1 models feel like one step forward and two steps back. ChatGPT o1 excels at reasoning and answering complex questions, but the model is roughly four times more expensive to use than GPT-4o. OpenAI’s latest model lacks the tools, multimodal capabilities, and speed that made GPT-4o so impressive. In fact, OpenAI even admits that “GPT-4o is still the best option for most prompts” on its help page, and notes elsewhere that GPT o1 struggles at simpler tasks.

“It’s impressive, but I think the improvement is not very significant,” said Ravid Shwartz Ziv, an NYU professor who studies AI models. “It’s better at certain problems, but you don’t have this across-the-board improvement.”

For all of these reasons, it’s important to use GPT o1 only for the questions it’s truly designed to help with: big ones. To be clear, most people are not using generative AI to answer these kinds of questions today, largely because today’s AI models are not very good at it. However, o1 is a tentative step in that direction.

Thinking through big ideas
ChatGPT o1 is unique because it “thinks” before answering, breaking down big problems into small steps and attempting to identify when it gets one of those steps right or wrong. This “multi-step reasoning” isn’t entirely new (researchers have proposed it for years, and You.com uses it for complex queries), but it hasn’t been practical until recently.

“There’s a lot of excitement in the AI community,” said Workera CEO and Stanford professor Kian Katanforoosh, who teaches classes on machine learning, in an interview. “If you can train a reinforcement learning algorithm paired with some of the language model techniques that OpenAI has, you can technically create step-by-step thinking and allow the AI model to walk backwards from big ideas you’re trying to work through.”


ChatGPT o1 is also uniquely pricey. In most models, you pay for input tokens and output tokens. However, ChatGPT o1 adds a hidden process (the small steps the model breaks big problems into), which adds a large amount of compute you never fully see. OpenAI is hiding some details of this process to maintain its competitive advantage. That said, you still get charged for these in the form of “reasoning tokens.” This further emphasizes why you need to be careful about using ChatGPT o1, so you don’t get charged a ton of tokens for asking where the capital of Nevada is.

The idea of an AI model that helps you “walk backwards from big ideas” is powerful, though. In practice, the model is pretty good at that.
In one example, I asked ChatGPT o1 preview to help my family plan Thanksgiving, a task that could benefit from a little unbiased logic and reasoning. Specifically, I wanted help figuring out if two ovens would be sufficient to cook a Thanksgiving dinner for 11 people and wanted to talk through whether we should consider renting an Airbnb to get access to a third oven.
(Maxwell Zeff/OpenAI)
(Maxwell Zeff/OpenAI)
After 12 seconds of “thinking,” ChatGPT wrote me out a 750+ word response ultimately telling me that two ovens should be sufficient with some careful strategizing, and will allow my family to save on costs and spend more time together. But it broke down its thinking for me at each step of the way and explained how it considered all of these external factors, including costs, family time, and oven management.
ChatGPT o1 told me how to prioritize oven space at the house that is hosting the event, which was smart. Oddly, it suggested I consider renting a portable oven for the day. That said, the model performed much better than GPT-4o, which required multiple follow-up questions about what exact dishes I was bringing, and then gave me bare-bones advice I found less useful.
Asking about Thanksgiving dinner may seem silly, but you could see how this tool would be helpful for breaking down complicated tasks.


I also asked ChatGPT o1 to help me plan out a busy day at work, where I needed to travel between the airport, multiple in-person meetings in various locations, and my office. It gave me a very detailed plan, but maybe was a little bit much. Sometimes, all the added steps can be a little overwhelming.
For a simpler question, ChatGPT o1 does way too much — it doesn’t know when to stop overthinking. I asked where you can find cedar trees in America, and it delivered an 800+ word response, outlining every variation of cedar tree in the country, including their scientific name. It even had to consult with OpenAI’s policies at some point, for some reason. GPT-4o did a much better job answering this question, delivering me about three sentences explaining you can find the trees all over the country.
Tempering expectations
In some ways, Strawberry was never going to live up to the hype. Reports about OpenAI’s reasoning models date back to November 2023, right around the time everyone was looking for an answer about why OpenAI’s board ousted Sam Altman. That spun up the rumor mill in the AI world, leaving some to speculate that Strawberry was a form of AGI, the enlightened version of AI that OpenAI aspires to ultimately create.
Altman confirmed o1 is not AGI to clear up any doubts, not that you’d be confused after using the thing. The CEO also trimmed expectations around this launch, tweeting that “o1 is still flawed, still limited, and it still seems more impressive on first use than it does after you spend more time with it.”
The rest of the AI world is coming to terms with a less exciting launch than expected.

“The hype sort of grew out of OpenAI’s control,” said Rohan Pandey, a research engineer with the AI startup ReWorkd, which builds web scrapers with OpenAI’s models.
He’s hoping that o1’s reasoning ability is good enough to solve a niche set of complicated problems where GPT-4 falls short. That’s likely how most people in the industry are viewing ChatGPT o1, but not quite as the revolutionary step forward that GPT-4 represented for the industry.

“Everybody is waiting for a step function change for capabilities, and it is unclear that this represents that. I think it’s that simple,” said Brightwave CEO Mike Conover, who previously co-created Databricks’ AI model Dolly, in an interview.
What’s the value here?
The underlying principles used to create o1 go back years. Google used similar techniques in 2016 to create AlphaGo, the first AI system to defeat a world champion of the board game Go, former Googler and CEO of the venture firm S32, Andy Harrison, points out. AlphaGo trained by playing against itself countless times, essentially self-teaching until it reached superhuman capability.
He notes that this brings up an age-old debate in the AI world.

“Camp one thinks that you can automate workflows through this agentic process. Camp two thinks that if you had generalized intelligence and reasoning, you wouldn’t need the workflow and, like a human, the AI would just make a judgment,” said Harrison in an interview.
Harrison says he’s in camp one and that camp two requires you to trust AI to make the right decision. He doesn’t think we’re there yet.
However, others think of o1 as less of a decision-maker and more of a tool to question your thinking on big decisions.
Katanforoosh, the Workera CEO, described an example where he was going to interview a data scientist to work at his company. He tells ChatGPT o1 that he only has 30 minutes and wants to asses a certain number of skills. He can work backward with the AI model to understand if he’s thinking about this correctly, and ChatGPT o1 will understand time constraints and whatnot.
The question is whether this helpful tool is worth the hefty price tag. As AI models continue to get cheaper, o1 is one of the first AI models in a long time that we’ve seen get more expensive.

FT : Soaring coffee prices have Italians ‘afraid and panicking’

Soaring coffee prices have Italians ‘afraid and panicking’
Poor harvests are pushing up costs up for a nation that consumes 6bn shots a year in bars and cafés

Italians are in a froth over the future of their cheap espressos as global coffee bean prices surge.

Long accustomed to ultra-affordable shots — prices were once even regulated by the state — Italians are growing restive at prices set to increase by as much as two-thirds.

“Everybody is quite nervous, afraid and panicking about the price of espresso,” said Luigi Morello, president of the Italian Espresso Institute, which certifies quality.

Italians drink some of western Europe’s least expensive coffee, paying about €1.20 for an espresso or €1.50 for a cappuccino, in the country’s ubiquitous and convivial coffee bars.

Low coffee prices have driven a heavy caffeine habit, with influential consumer association Assoutenti estimating Italians and foreign tourists consume 6bn coffees a year at public establishments, generating revenues of about €7bn.

But disruptions in global coffee supply caused by climate change could force Italians to pay up to €2 per shot of their daily fix: still charmingly cheap for Londoners or New Yorkers but a shock for Romans.

Consumer groups are up in arms, with Assoutenti noting Italy’s espresso prices have risen about 15 per cent since 2021, as baristas confront surging energy costs and other pressures.

Assoutenti president Gabriele Melluso lamented that any further increase in prices at the local café would threaten “a daily ritual for millions of citizens”, pushing those who acquired coffee machines during the Covid-19 pandemic to drink it at home.

“If the price of coffee rises further, a portion of the population might completely forgo espresso at the bar,” Melluso said.

However, associations representing baristas warn further price increases are inevitable, especially for traditional coffee bars, where sales of espresso and other coffee concoctions typically account for as much 30 per cent of sales.

Global coffee prices have soared to record highs recently as a result of poor weather in the world’s main growing regions.

Futures prices for higher-end arabica coffee traded in New York climbed to $2.49 per pound this week, while prices for robusta beans in London topped $5,000 per tonne, double the prices a year ago.

Supply chains are also facing disruption from Houthi militants’ attacks on ships in the Red Sea. Since November, vessels moving between Asia and Europe have been forced to travel the much longer route around the Cape of Good Hope instead of through the Suez Canal.


Roasters have raised their prices. Further increases are likely to follow, Giuseppe Lavazza, chair of Lavazza Group, told the Financial Times in July, a warning echoed by Cristina Scocchia, chief executive of Illycaffè, at a large public forum last month.

Yet despite this rise in coffee prices, Melluso insisted that for Italy’s coffee bars “the production cost of a cup is significantly lower than the selling price, and profit margins continue”.

Morello and others representing the sector disagree.

“Dedicated coffee bars are in trouble,” said Luciano Sbraga, deputy president of the Federation of Italian Public Establishments, which represents many of Italy’s estimated 132,000 coffee bars.

“They can only work if they are run by families, with no employees, and no expensive locations. Then you can keep yourself alive.”

Historically, Rome regulated the price of espresso to keep it affordable for all and though price controls ended decades ago, customers have become accustomed to cheap coffee.

“There is an expectation among the people to have a fixed price, which is a political price,” Morello said. “From the other side, baristas are afraid to increase too much, so as not to lose the volume.”

Sbraga said baristas — deeply embedded in the communities they serve — also face social pressures to maintain low espresso prices, though they may charge more for elaborate drinks such as cappuccinos and for snacks.

“A product like an espresso is a necessity — like bread,” he said. “When customers have the perception of such an importance of the product, it is not easy to raise the prices.”

In Liguria, one bar owner responded to customer complaints about the price by offering to sell espresso for just 70 cents if they brought their own cups, spoons and sugar from home.

Gianni Manganiello, 54, now runs the Tazza D’Oro coffee shop that his father started 70 years ago in the working-class district of Centocelle in Rome. He currently sells espresso for €1 per cup, after a post-pandemic price increase from the previous rate of 90 cents.

But he said he would be willing to raise espresso prices by another 10 per cent if raw material prices surge. “You can’t increase every price or all the customers disappear,” he said. “You have to maintain a balance.”