>>> Barron’s Weekend Summary

Cover:
-President Donald Trump's desire for a simple solution to interest rates is likely to be achieved under the next Federal Reserve chair. The candidates running for the position are proposing significant changes to the central bank's fundamental mission, rethinking its approach to inflation and interest rates, cutting staff, and reorganizing or reducing the number of regional reserve banks. These changes are expected to amplify the economic uncertainty that has characterized the second Trump presidency, and economists and investors will be in for something different. The new Fed chair could begin rewiring the institution in just a matter of months, with the president's support, a supportive Senate, and buoyant markets. Kevin Warsh, one of the prominent candidates to replace Powell, emphasized that rate cuts are not the only solution.

Interview:
-No update

Tech Trader:
-Big Tech companies Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft all reported second-quarter earnings in the past two weeks, beating Wall Street's consensus estimates for earnings per share and revenue. On average, they exceeded EPS projections by 14% and sales by 4%. Meta Platforms was the standout, with revenue up 22% on the year and EPS up 38%. The company also beat expectations for its key ad growth metrics. Meta shares closed up 11.3% on the day after its earnings release. Apple had its first solid quarter in some time, with revenue growing nearly 10% year over year, its best performance in over three years. iPhone sales were up 13% from 2024, while Mac sales were up 15% and the high-margin services segment was up 13%.

The Trader:
-The stock market experienced its worst week since May, with the S&P 500 down 2.4%, the Dow Jones Industrial Average down 2.9%, and the Nasdaq Composite 2.2% in the red. The decline was surprising as the largest US companies, including Microsoft, Meta Platforms, and Apple, all posted strong second-quarter earnings. However, these stocks are now more like outliers than bellwethers, and the economy is looking shaky. U.S. payrolls grew by anemic 73,000 in July, and the government revised the prior two months down by 258,000 jobs. Fewer jobs were added over the past three months than in any three-month period since June 2020, during the Covid crash. Following the release of the July jobs report, President Donald Trump ordered the firing of the commissioner of the Bureau of Labor Statistics. The private sector added just 4,000 jobs in July, and investors expect more weakness ahead as layoffs accelerate for federal workers following a Supreme Court decision that sided with Trump.
-Some utilities, like Ohio-based American Electric Power (AEP) and Louisiana's Entergy, are making money from data centers while pushing the cost of new generation and transmission onto tech companies. Entergy plans to power one of the largest data-center campuses in the world for Meta Platforms in Louisiana, building three massive natural-gas power plants. Entergy also has a deal with Amazon.com for a major data center campus in Mississippi. AEP, operating in 11 states, has seen booming demand from tech companies wanting to operate data centers in its service territory, enough to double the total electricity load in central Ohio by 2030. To accommodate these customers without piling costs onto existing electricity users, AEP convinced the Ohio public utilities commission to sign off on a special rate structure. Data-center operators would need to pay for at least 85% of the energy they're expected to use, even if they don't use it in a given month.

Features:
-Kohl's, the largest department store chain in the US, has seen nearly 40% of its 112 million shares sold short as of July 29. This is due to concerns about the company's declining sales, shrinking profitability, and management turmoil. The stock has fallen about 70% since 2021 and recently traded for $10.70. Meme-stock traders often target heavily shorted stocks and try to "squeeze" short sellers by bidding up the price, which spurs them to buy back shares to limit losses. Kohl's operates over 1,100 midprice stores in 49 states and the Kohls.com e-commerce business. The company has struggled since the Covid-19 pandemic, with the growing popularity of online shopping causing a strain on its business model.
-Graham, a small-scale version of Berkshire Hathaway, owns a variety of businesses including a for-profit education company, TV stations, healthcare services firms, auto dealerships, manufacturing businesses, a picture-framing company, and restaurants in Washington, D.C. The company also has an investment portfolio and ample cash for deals. Graham's stock trades at a fraction of the value of the conglomerate's diverse businesses, but potential catalysts include a possible TV station spinoff, narrowing losses at smaller businesses, and increased attention on fast-growing healthcare businesses. Graham also has an overfunded pension fund, which is a valuable and underappreciated asset. The company's shares have an estimated asset value of over $1,500, far more than their current price of $950.

Europe:
-Adidas's Q2 earnings exceeded Wall Street's expectations, but investors were disappointed due to a sales miss and the company's decision not to raise its full-year financial guidance due to new tariff costs. Adjusted earnings were €2.03 ($2.33) a share, but revenue fell short of Street projections. Adidas' shares fell 10% in Germany. The company reiterated its fiscal year outlook, citing uncertain economic conditions and an additional €200M impact from tariffs on US imports in 2H25.

Emerging Markets:
-Emerging markets have seen a significant rebound in the past year, according to portfolio manager Lewis Kaufman of the $4.2 billion Artisan Developing World fund. The outlook is compelling as local currencies strengthen against a weaker U.S. dollar, enhancing local companies' buying power. Emerging market central banks are cutting interest rates, lowering borrowing costs. Kaufman targets companies selling modern-economy goods and services that people living in big cities are buying, believing that these modern population clusters have the propensity to consume faster and realize the promise of low penetration and scale in emerging markets. The fund has seen a 36.3% increase in one-year returns, ranking in the top 1% of its Morningstar peers. Kaufman seeks companies with scalable business models that can hold for long periods, preferring financially sound companies with high gross margins to produce "disproportionate equity outcomes."

Commodities:
-Copper experienced its worst day ever, with the Trump administration's tariffs on the metal causing a major selloff by investors who had been stockpiling copper in the US. The levies were not as broad as many feared, covering semifinished products like copper sheet and wires, but excluding input materials and copper scrap. Prices for front-month Comex copper contracts tumbled 22% to $4.33 per pound, the metal's largest one-day percentage decline on record since 1968. Copper mining stocks have also been hit hard, with Southern Copper down nearly 7% this week and Freeport-McMoRan down 11%. Some market watchers took the declines in stride, arguing they offer a healthy corrective to prices that had recently gotten out of whack.

Streetwise:
-no update

>>> Weekend Papers Summary

FINANCIAL TIMES
-Donald Trump made two public announcements on the day he launched new tariffs and disrupted global trading. He announced that he was making many deals, including a new ballroom at the White House and sports. This seemed to taunt US trading partners like Canada, Taiwan, and India, who lobbied to avoid more Trump tariffs. However, officials could not confirm which new trade deals Trump was referring to. Many foreign capitals are now locked into higher tariff rates through their agreements with Washington, while others, like Canada, are redoubling efforts to reduce the extra tariffs.
-International cocoa prices have risen above $10,000 a tonne since early 2023 due to climate change and crop disease outbreaks. However, state price controls in Ivory Coast and Ghana, which produce about two-thirds of the world's cocoa, mean local farmers earn only a slice of the market value. Many farmers are now selling their beans to intermediaries who smuggle them into neighboring countries, where they are sold at market prices. Government data shows that in the 2023-24 season, about 150,000 tonnes of cocoa beans were smuggled out of Ghana, by some estimates as much as a quarter of output, with a further 200,000 tonnes from Ivory Coast. The real figure is likely higher, with nearby countries such as Burkina Faso, Togo, and Sierra Leone reporting surging exports despite producing almost no cocoa.
-Donald Trump has ordered the deployment of two nuclear submarines in response to Russia's provocative statements, citing Dmitry Medvedev, deputy chair of Russia's security council. The deployment comes ahead of a deadline for Putin to agree to a ceasefire in Ukraine or face tighter US sanctions. Medvedev, a former Russian president, criticized Trump's actions as a threat and a step towards war. Trump urged Medvedev to "watch his words" and warned him of dangerous territory.
-Hamas has released a propaganda video depicting a starved Israeli hostage and emaciated Palestinian babies, causing international condemnation of Israel's blockade of Gaza. The video was released late on Friday, shortly after US special envoy Steve Witkoff and US ambassador Mike Huckabee visited a food distribution site in Gaza, which is currently suffering from famine. The video shows Evyatar David, a young musician taken hostage by Hamas on October 7, 2023, wearing shirtless clothes.
-President Donald Trump has sacked the head of the US's labor statistics agency, Erika McEntarfer, following a gloomy jobs report. McEntarfer was appointed by his predecessor Joe Biden and was fired without evidence of manipulation for political purposes. Trump claimed that McEntarfer's appointment was fair and accurate. The firing follows the resignation of Federal Reserve governor Adriana Kugler, who announced her resignation before the end of her term in January. This move paves the way for Trump to name a successor to chair Jay Powell, who is set to step down in May 2026. Trump has criticized Powell for resigning, comparing it to the resignation of former Biden appointee Adriana Kugler.
-Switzerland's watch industry is facing a threat to sales due to Donald Trump's proposed 39% tariffs on the country, potentially raising prices for US consumers and impacting volumes at some brands. The US accounted for 16.8% of Swiss watch exports in 2024, worth roughly SB ($5.4B). Swiss manufacturers The Swatch Group and Richemont, as well as London-listed Watches of Switzerland, a major Rolex and Patek Philippe dealer, face "pain" if tariffs are imposed next week. The 39% tariff exceeds the 31% proposed by Trump on "liberation day" in April and far outstrips the 15% facing Switzerland's EU neighbors.
-Tesla has been found partly liable for a fatal car accident involving its autopilot system in Florida, where a pedestrian was killed and another injured. The federal jury found Tesla a third of the responsibility for the accident, which was caused by driver complacency due to Tesla exaggerating the capabilities of its assistance systems, failing to upgrade the technology after prior incidents, and allowing drivers to use autopilot on roads it was not designed for. Tesla argued that the driver was irresponsible and that its guidelines state that people must always be alert and in control when its systems are engaged. Tesla must pay $200M in punitive damages, $19.5M in compensatory damages to the deceased woman's family, and $23.1M to her injured boyfriend. This verdict is significant for Tesla as it is the first federal case to find it responsible for an accident involving its self-driving software.
-Taiwan's failure to secure a trade deal with Donald Trump before the deadline has raised concerns that Washington may reduce security support for Taiwan to maintain good relations with Beijing. Taiwan, the world's largest chip manufacturer and seventh-largest US trading partner, was one of the first countries to initiate talks with Washington after Trump introduced his "liberation day" tariffs in April. Trump imposed a 20% tariff on Taiwanese imports, which will take effect next week.

NEW YORK TIMES
-President Trump has displayed his volatile side when faced with unwelcome news on two of the biggest issues on his plate this week. The jobs report for July showed a substantial slowdown in hiring, and Trump lashed out, claiming the figures were rigged and firing the head of the government agency that produces them. Dmitri Medvedev, once Russia's president but now little more than the Kremlin’s favorite online troll, got under Trump’s skin with provocative posts about nuclear war. Trump ordered submarines into position to guard against any threat. Just days earlier, Trump had returned to the United States from a golf trip happily flexing his political and diplomatic power.
-President Trump has fired Erika McEntarfer, the commissioner of the Bureau of Labor Statistics, after claiming weak job numbers were "rigged." McEntarfer was confirmed on a bipartisan basis in 2024 and was fired without evidence of data rigging. The Senate-confirmed Department of Labor official responsible for pulling together monthly job numbers was fired. Emily Liddel, an associate commissioner for the bureau, confirmed McEntarfer's firing, and William Wiatrowski, the deputy commissioner, would serve as acting commissioner. This move comes amid concerns that the removal of McEntarfer could undermine confidence in government economic data.
-Consumer prices are beginning to feel the pinch of tariffs as companies struggle to keep them stable. Government data shows that prices rose in June on appliances, which are heavily exposed to tariffs. Many businesses initially absorbed the additional tax during the early days of President Trump's trade war. However, evidence is emerging that they are running out of options to keep prices stable in the face of deteriorating profit margins, suggesting that tariffs could have a more pronounced effect on prices in the months ahead.
-India officials have confirmed that they will continue purchasing cheap oil from Russia despite a threat of penalties from President Trump. This move reflects India's growing frustration with the relationship with Russia, which was once praised but has been souring rapidly. The defiance of Prime Minister Narendra Modi's government reflects increasing frustration with the volatile American policymaking that has shaped India's choices on vital energy supplies for its 1.4B people. Trump has threatened an unspecified penalty and a 25% tariff rate if India does not cut off its imports of Russian crude oil. India's Prime Minister, Narendra Modi, has acknowledged that India will no longer be buying oil from Russia, but is uncertain if this is the right decision.
-International condemnation of Israel for its Gaza war is growing, with calls from Israel's allies for a Palestinian state. Mike Huckabee, the first evangelical to serve as American ambassador to Israel, is a passionate defender of the country. Despite President Trump's break with Prime Minister Benjamin Netanyahu of Israel and acknowledging "real starvation" in Gaza, Huckabee has not. The U.N. secretary general has referred to the situation as a moral crisis that challenges the global conscience. Christian conservatives and the Netanyahu government are pleased with Huckabee's dedication to the country.
-Iran is holding at least four American citizens, including two men and two women, in Iranian custody, according to human rights groups, lawyers, and Hostage Aid Worldwide. Two were seized after Israel and the US attacked Iranian targets in June, and two others have been held since 2024. Iran has long practiced hostage diplomacy, detaining foreigners and dual nationals to leverage them for prisoner swaps and the release of frozen funds. The detentions are likely to increase the already tense political climate between Tehran and Washington after the US joined Israel's attack on Iran and damaged three of its nuclear sites in June. Nuclear negotiations with Washington have not resumed since the war in June, but Iran's foreign minister, Abbas Araghchi, said that he and the U.S. special envoy, Steve Witkoff, have been communicating directly through text messages.
-The aggressive push by President Trump and Republicans in Texas to redraw the map for the state's U.S. House districts has led to Democrats, including some longtime institutionalists, vowing to "fight fire with fire" and even embrace some of the gerrymandering tactics they have long decried as anti-democratic. The attempt to squeeze as many as five House Democrats out of office before a single vote is cast in the 2026 midterm elections has opened up a new chapter in an era of unconstrained partisan warfare. Democrats, including some longtime institutionalists, are taking the party on a race to the bottom, with Representative Jamie Raskin, a Maryland Democrat, lamenting that his party must reluctantly participate in "this rotten system."

NEW YORK POST
-The US Federal Government is investigating allegations of overtime abuse at the NYPD's elite Aviation unit under former NYPD Chief Winston Faison. Faison allegedly approved payments for rescue training for cop cronies who had nothing to do with rescues. Lt. Lakeisha Smith, Lt. Winston Wright, and Detective Tanesha Facey, Faison's driver, made up to 20 overtime hours per month, funded by a federal maritime safety training grant administered by FEMA. Police sources said they were doing nothing for the training whatsoever except putting in overtime slips.
-President Trump has called on the Federal Reserve Board to take control if Jerome Powell fails to lower interest rates soon. He urged the board to take action if Powell continues to refuse. Fed Governor Adriana Kugler announced her resignation next Friday, giving Trump another ally in his push to lower interest rates. The 12-member Fed board had voted to maintain rates in the target 4.25% to 4.5% range and downgraded its view of the economy due to Trump's tariffs. Powell, whose term ends next May, wouldn't commit to a cut when policymakers gather in September. Fed Governors Christopher Waller and Michelle Bowman voted against Powell's "wait and see" approach, marking the first time in three decades when more than one governor on the board has dissented on an interest-rate vote

9 to5 : Tim Cook holds company-wide meeting to address Apple’s AI woes

Tim Cook holds company-wide meeting to address Apple’s AI woes

Just one day after revealing its financial results and fielding questions about Apple’s lag in AI, Tim Cook turned inward, holding what Bloomberg described as an ‘hourlong pep talk’ during a company-wide all-hands meeting. Here are the details.


‘Apple must do this. Apple will do this. This is sort of ours to grab’
As reported by Mark Gurman, Tim Cook held a company-wide meeting today at the Steve Jobs Theater at Apple Park, and stated that “the AI revolution is ‘as big or bigger’ as the internet, smartphones, cloud computing and apps,” as he promised to make the investment to do it:

“‘Apple must do this. Apple will do this. This is sort of ours to grab,’ Cook told employees, according to people aware of the meeting. “We will make the investment to do it.’

The meeting comes as Apple faces high-profile defections to Meta’s Superintelligence Labs initiative. Internally, teams have also faced setbacks, including leadership shakeups, competing priorities, and disagreements over strategic directions.

The Siri team, for instance, was reportedly blindsided by the delay of its AI revamp, and equally surprised to learn that Apple was pursuing partnerships with OpenAI and Anthropic, rather than continuing in-house development.

The company has also held internal discussions about acquiring AI search startup Perplexity, a possibility that was lightly alluded to during yesterday’s earnings call.

Craig Federighi also took the stage briefly during today’s meeting to speak directly to those issues.”

“Federighi explained that the problem was caused by trying to roll out a version of Siri that merged two different systems: one for handling current commands — like setting timers — and another based on large language models, the software behind generative AI. “We initially wanted to do a hybrid architecture, but we realized that approach wasn’t going to get us to Apple quality,” Federighi said.”

Back to Cook, he reportedly leaned on a familiar counter-argument when addressing concerns about Apple’s late entry into the AI race:

“‘We’ve rarely been first,’ the executive told staffers. ‘There was a PC before the Mac; there was a smartphone before the iPhone; there were many tablets before the iPad; there was an MP3 player before iPod.’

But Apple invented the ‘modern’ versions of those product categories, he said. ‘This is how I feel about AI.’”

During the meeting, Cook also reportedly addressed the upcoming retirement of long-time COO Jeff Williams, as well as matters such as Apple’s recent investments in health-related initiatives, and Apple TV+ performance.

When talking about regulatory pressure, he said:

“The reality is that Big Tech is under a lot of scrutiny around the world,” Cook said. “We need to continue to push on the intention of the regulation and get them to offer that up, instead of these things that destroy the user experience and user privacy and security.”

As Bloomberg noted, today’s meeting marked a rare departure from Apple’s typical small, town hall-style gatherings. More than anything, it signaled that Apple felt the need to rally its troops, take control of its AI strategy, and hopefully stem the ongoing brain drain to rival companies.

The Information : Why Big Tech’s Cloud Shift Threatens Microsoft and Google’s Ma

Why Big Tech’s Cloud Shift Threatens Microsoft and Google’s Margins

Don’t count out Amazon. This was not the commerce cloud giant’s week, to be sure. When it comes to the great artificial intelligence cloud race, which now overwhelms all else in tech, Microsoft and Google appear to be ahead. Both companies posted accelerating growth in their cloud units for the June quarter, unlike Amazon. But one element is widely missing from the discussion: how a long-term shift in big tech’s business mix toward cloud services could squeeze profit margins for both Microsoft and Google while improving Amazon’s overall margin.

Why? Because for both Microsoft and Google, their cloud businesses are much less profitable than their giant software and advertising businesses, respectively. Microsoft’s productivity and business processes unit—which includes its business software operations—had an operating profit margin of 57.4% in the June quarter. Its “intelligent cloud” unit, which comprises mostly Azure, had a margin of 40.6%. Its overall margin was 45%. A similar scenario holds for Google: Its cloud margin was 20.7% in the June quarter, while its margin in Google services—mostly advertising—was 40% and its overall margin was 32%.

Microsoft and Google already enjoy faster growth in cloud than in their software and ad businesses. In the most recent quarter, Microsoft’s software business expanded 16%, while its cloud business grew 26%. (Azure grew much faster, at 39%—but the cloud business also includes old-fashioned on-premise data center products, which shrank.) Ditto for Google, whose cloud business grew 32% in the quarter, while its services segment grew 12%.

This trend is likely to be accentuated by the growing demand for AI-cloud services. At the same time, there’s a risk that new AI products will cannibalize Microsoft’s lucrative enterprise software and Google’s search advertising businesses. Of course, both companies are working hard to head off those threats. Microsoft has introduced its own AI software services, including Copilot and AI agents, while Google has enhanced its search with AI features. But they face plenty of competition, as this story and this story make clear.

Amazon is in a very different position: its bottom line will benefit from a shift to the cloud. Its Amazon Web Services cloud unit’s margin in the June quarter was 33%, far higher than its e-commerce margin of 6.6%, reflecting the razor-thin profits shopping services typically operate on. Indeed, Amazon’s margin has improved as AWS has grown: Between 2017 and 2024, AWS rose as a percentage of Amazon’s total revenue from 9.8% to 17%. In the same period, Amazon’s overall operating margin jumped from 2.3% to 10.7%. (The latter increase likely also reflects the contribution of Amazon's expanding ad operation, as advertising is typically a very high-margin business.)

The focus this week was on AWS’ relatively tepid growth rate of 17% in the second quarter, the same rate as for the previous quarter. That’s still faster than for every other part of Amazon except its advertising business, which is half the size of AWS. Moreover, there’s reason to think AWS’ growth rate will pick up. New Street Research analyst Dan Salmon made that point in a report on Thursday, noting AWS’ 25% expansion in its backlog of business—customer commitments, which offers a picture of future revenue—in the quarter.

For all three companies, their cloud profit margins aren’t likely to improve, given how much the humongous levels of capital expenditures cloud requires will raise depreciation expenses. The real issue is that the overall margins for Google and Microsoft could drop closer to their cloud margins over time. The market is well aware of that risk for Google, whose stock has underperformed that of ad rivals like Meta Platforms for a while now. But investors seem to be ignoring the risk for Microsoft, judging by that stock’s premium valuation. At the same time, they may be ignoring Amazon’s potential for growth.

The Information : Inside OpenAI’s Rocky Path to GPT-5

Inside OpenAI’s Rocky Path to GPT-5
The troubles OpenAI has faced in developing GPT-5 point to slowing AI progress across the industry. Researchers believe advances in reinforcement learning will help to overcome that.

The Takeaway
• GPT-5 will show real improvements over its predecessors, but they won’t be comparable to leaps in performance between earlier GPT-branded models
• OpenAI confronted a series of technical problems that imperiled o3 and other models this year
• A disagreement between research chief Mark Chen and a deputy spilled into view on Slack

OpenAI made waves across the industry in December when it published the results from its tests of artificial intelligence that performs better on tasks when it gets more time and computing power to process them. The results implied ChatGPT customers were about to be blown away by what the new AI could do.

But the euphoria was short-lived.

When OpenAI researchers turned the new AI into a chat-based version called o3 that could respond to instructions from ChatGPT customers, the performance gains the company had published largely vanished, according to two people involved in its development.

The episode was an example of the technical challenges OpenAI has faced through much of this year, threatening to slow its pace of AI advances, if not its blockbuster ChatGPT business.

But its researchers have found ways to keep AI progress going through techniques that have surged across the industry.

OpenAI is now nearing the release of GPT-5, its next flagship AI model, which improves upon existing models’ ability to complete practical computer programming and math tasks, among other things, according to people who have used it or are familiar with the company’s internal evaluations.

For instance, when the new model codes applications, it’s better at adding features that make them easier to use and more aesthetically pleasing, one of those people said.

GPT-5 is also better than its predecessors at powering AI agents that handle complex tasks with minimal human oversight, this person said. For instance, it can follow complicated instructions, such as a list of rules that determine when an automated customer support agent should grant a refund.

Previous models needed to see several examples of tricky customer cases, known as edge cases, before they could handle such refunds, this person said.

The improvements won’t be comparable to the leaps in performance of earlier GPT-branded models, such as the improvements between GPT-3 in 2020 and GPT-4 in 2023, one of the people said. And the slowing performance gains OpenAI has experienced over the past 12 months suggest it may be hard for the company to surge ahead of its biggest rivals, at least in terms of AI capabilities.

But OpenAI’s current models are generating so much commercial value from powering chatbots and other applications that any improvements, even incremental, will increase customer demand. They could also give new investors the confidence to fund the company’s plan to burn through $45 billion in the next three and a half years as it rents expensive servers for developing and running its products.

Coding Priorities

The latest gains also help explain why OpenAI executives in recent weeks told some investors they believed the company could reach “GPT-8.”

The comments are in line with CEO Sam Altman’s public comments that, using existing technological know-how, OpenAI can attain the goal of creating AI whose capabilities are near or on par with those of the smartest humans. This technology is otherwise known as artificial general intelligence.

While it’s far from being AGI, the upcoming GPT-5 model may have other attractive attributes besides better coding and reasoning. Some leaders at Microsoft, which has exclusive rights to OpenAI’s intellectual property, have told staff their tests of the model show it produces higher-quality coding and other text-based answers without consuming a lot more computing power, according to a Microsoft employee with knowledge of the situation.

That’s partly because it is capable of figuring out which tasks require relatively more or less computing resources better than prior models, this person said.

Improving AI’s ability to automate coding tasks became a priority at OpenAI after archrival Anthropic last year took the lead in developing and selling such models to software developers and coding assistants like Cursor, according to OpenAI’s internal evaluations. OpenAI staff believe automated coding isn’t just important to the company’s business—it’s also critical to automating the work of the AI researchers themselves.

Reorg Strains

Progress at OpenAI hasn’t been a straight line, as both its researchers and its managers have faced new strains this year.

Some senior researchers have resisted the idea of giving away their inventions to Microsoft, OpenAI’s largest outside shareholder, despite the software firm’s contractual rights through 2030.

The two companies have a tight financial relationship but have feuded over the terms of their deal, with each side seeking concessions from the other as OpenAI tries to restructure its for-profit arm so it can eventually go public.

Discussions between Microsoft and OpenAI have been moving in a positive direction, according to two people who have spoken to negotiators. Many bargaining points are still up in the air, though others appear to be more settled, such as the roughly 33% equity stake Microsoft is likely to get in OpenAI’s for-profit arm as part of the restructure, according to one of those people.

More recently, Meta Platforms has hired more than a dozen OpenAI researchers, some of whom had been involved in the techniques the company has been using lately to improve its technology. Meta won them over by offering compensation packages worthy of the highest-paid soccer stars.

The departures and the staff reorganizations in response to them have weighed on senior OpenAI staff. Last week, Jerry Tworek, a vice president of research at OpenAI, complained about a team change to his boss, research chief Mark Chen, on the company’s internal Slack app, which is visible to many other colleagues.

Tworek said he had to take a week off to reassess things, but he later ended up not taking time off.

Orion’s Star Falls

The company’s business progress has masked some internal concerns about its ability to keep improving its AI and stay ahead of other well-capitalized rivals such as Google, Elon Musk’s xAI and Anthropic.

Problems had been brewing for months before the current year began. For much of the second half of 2024, OpenAI was developing a model known internally as Orion and intended to become GPT-5. According to people who worked on it, Orion was supposed to offer a big step up in performance compared to the current flagship, GPT-4o, released in May that year.

But the Orion effort failed to produce a better model, and the company instead released it as GPT-4.5 in February this year. It has since faded from relevance.

Part of the failure had to do with the limits of pre-training, the first stage of developing a model, in which it processes data from the web and other sources so it can draw connections between concepts.

Not only was OpenAI facing a dwindling supply of high-quality web data, but researchers also found the tweaks they made to the model worked when it was smaller in size but didn’t work as it grew, according to two people with knowledge of the issue.

More Nvidia Chips
As recently as June, the technical problems meant none of OpenAI’s models under development seemed good enough to be labeled GPT-5, according to a person who has worked on it.

OpenAI researchers faced other problems.

Last year, the company also developed reasoning models, which performed better if they got more computing power to process answers. The models stemmed from a breakthrough in late 2023 called Q* that had sent shockwaves among its researchers because it was able to solve math problems it hadn’t seen before. By 2024, reasoning models appeared to be helping the company overcome a slowdown in performance gains during pre-training.

Last fall, OpenAI turned the first major reasoning model into o1, a version it could sell to application developers and use to power conversations inside ChatGPT.

The launch gave OpenAI new clout within the AI field and set the stage for the development of AI agents that relied on reasoning models to handle tasks with minimal human supervision.

Before the end of 2024, OpenAI created the next reasoning model, o3, with the same underlying large language model, GPT-4o, it had used as the foundation of o1, according to a person who was involved in their development.

Despite their shared lineage, the parent model of o3—also known as a teacher model—made extraordinary gains compared to the parent model of o1 in understanding a variety of scientific and other domains, this person said.

One reason for the improvement came from OpenAI’s decision to develop the parent model of o3 with a lot more Nvidia chip servers, essentially giving it more processing power to understand difficult concepts, said two people who were involved. Another reason was that researchers gave it the ability to search the web or pull from code repositories, which also helped it improve over the parent model of o1, one of these people said.

The parent model for o3, similar to the o1 parent, also benefited from reinforcement learning, in which human experts come up with tough questions and answers in fields like biology, software engineering and medicine and ask the model to come up with thousands of its own responses to those questions.

OpenAI then trained the model on the responses that arrived at the same answers as the human experts. (The AI-generated responses are also known as synthetic data.)

Gibberish Reasoning

OpenAI generated headlines around the world and viral hype on social media when it publicly shared the results from special tests of the model’s strengths. But then reality set in.

When OpenAI converted the o3 parent model to a chat version of the model—also known as a student model—that allowed people to ask it anything, its gains degraded significantly to the point where it wasn’t performing much better than o1, the people who were involved in its development said.

The same problem occurred when OpenAI created a version of the model that companies could purchase through an application programming interface, they said.

One reason for this has to do with the unique way the model understands concepts, which can be different from how humans communicate, one of these people said. Creating a chat-based version effectively dumbs down the raw, genius-level model because it’s forced to speak in human language rather than its own, this person said. (The gibberish that reasoning models sometimes show in ChatGPT as they “think” about how to solve a problem reflects some of these communication differences.)

CrunchBase : The Week’s 10 Biggest Funding Rounds: Ramp Ramps Up While AI And He

The Week’s 10 Biggest Funding Rounds: Ramp Ramps Up While AI And Healthcare Hold Strong

This was a big week for big checks, both confirmed and reported. Among confirmed rounds, the largest financing went to fintech provider Ramp, which landed $500 million at a $22.5 billion valuation to scale its visions around agentic AI. The next-largest financings went to MapLight Therapeutics, a developer of medicines for brain disorders, and Ambience Healthcare, a healthcare AI startup.

As for giant deals that were reported but not officially closed, Anthropric was said to be close to finalizing a round of up to $5 billion led by Iconiq Capital that would push its valuation all the way to $170 billion.

1. Ramp, $500M, fintech: New York-based Ramp, a provider of financial products and tools for businesses to automate finance tasks, raised $500 million at a $22.5 billion valuation. Iconiq Capital led the Series E financing, which brings total equity funding to date to $1.9 billion.

2. MapLight Therapeutics, $372.5M, biopharma and neuroscience: MapLight Therapeutics, a biopharma startup developing medicines for brain disorders, announced that it raised $372.5 million in Series D funding. Forbion and Goldman Sachs Alternatives co-led the financing for the 7-year-old, Redwood City, California-based company.

3. Ambience Healthcare, $243M, healthcare AI: Ambience Healthcare, an AI platform for healthcare systems to use in documentation, coding and clinical documentation, raised $243 million in a Series C round. Oak HC/FT and Andreessen Horowitz led the financing for the San Francisco-based company.

4. Quince, $200M, fashion: Quince, an affordable luxury brand online retailer, raised $200 million at a valuation of more than $4.5 billion, according to a report from Bloomberg. Iconiq Capital reportedly led the San Francisco-based company’s latest financing.

5. Observe, $156M, AI enterprise software: San Mateo, California-based Observe, a provider of AI-enabled observability tools for businesses, raised $156 million in a Series C funding round led by Sutter Hill Ventures. The financing brings funding to date for the 8-year-old company to more than $460 million, per Crunchbase data.

6. (tied) Motive, $150M, fleet management: San Francisco-based Motive, a provider of fleet tracking and driver safety software, raised $150 million in a new funding round led by Kleiner Perkins. The 12-year-old company is also reportedly taking steps toward an IPO.

6. (tied) Anaconda, $150M, AI software: Anaconda, a provider of AI tools for businesses using Python and open source applications, announced it raised over $150 million in a Series C funding round led by Insight Partners. The Austin, Texas-based company said it currently operates profitably with over $150 million in annual recurring revenue as of July.

8. Artbio, $132M, radiopharmaceuticals: Cambridge, Massachusetts-based Artbio, a clinical-stage radiopharmaceutical startup developing therapies (ARTs) to treat a range of cancers, raised $132 million in a Series B round that included Sofinnova Investments and B Capital as lead investors.

9. Fal, $125M, generative media: San Francisco-based Fal, a startup offering a generative image, video and audio platform for developers, raised $125 million in a Series C led by Meritech Capital Partners. The 4-year-old company said it has seen revenue increase 60x in the past 12 months.

10. Oxide Computer Co., $100M, cloud infrastructure: Oxide Computer Co., a developer of cloud infrastructure for on-premises computing, raised $100 million in a Series B round led by US Innovativr Technology. Founded in 2019, the Emeryville, California-based company has raised over $260 million to date, per Crunchbase data.

WWD : Bogner Sells Majority Stake to Katjes International to Drive Global Expans

Bogner Sells Majority Stake to Katjes International to Drive Global Expansion
The Munich-based Bogner family will retain 40 percent of the shares.

Bogner, the Munich-based lifestyle and luxury fashion company, has found a new majority investor in Katjes International.

The Bogner family will sell 60 percent of its shares in Willy Bogner GmbH to Katjes International GmbH & Co. Katjes, based in Emmerich, Germany and part of the Katjes Group, which invests primarily in companies with established brands in the consumer goods sector.

The Bogner family will remain invested in Bogner for the long term with 40 percent of the company shares and will continue to be involved in the strategic direction of the company. The transaction is expected to be completed in September. It is subject to antitrust approvals. The price of the acquisition wasn’t disclosed.

Florinda Bogner, daughter of Willy Bogner Jr., said, “We are delighted about our strong new partner. In Katjes International, we gained a family-owned company that shares our values and is committed to investing in the future of Bogner alongside us. Together, we will continue writing the success story of our richly traditional brand.”

Tobias Bachmüller, managing shareholder of Katjes International, said, “With our success in the personal care sector — with Bübchen, Theramed and Shirin Beauty — we have proven that we can profitably develop brands outside our core business. The further development of brands in the consumer goods segment in Europe is our strength and is in line with our long-term strategy. With Bogner, we are expanding our brand portfolio into the luxury goods segment and further enhancing its value.”

Katjes International’s investment gives Bogner the opportunity to continue growing in the future with an experienced partner and with a strong capital structure. Both family-owned businesses, the partners intend to invest jointly in the expansion and further internationalization of the brand.

Arndt Geiwitz, chairman of the advisory board of Bogner, said, “Bogner has successfully transformed itself in the past few years and is now well positioned as a leading player in the lifestyle and luxury sports fashion sector. With Katjes International as a strong investor, Bogner is ideally equipped for the future.”

The company’s headquarters will remain in Munich, and Bogner will continue to operate as a legally and organizationally independent company. The company is known for its upscale sportswear and luxe snow sports attire.

Bogner posted record-breaking results for the 2023-24 fiscal year, with revenue climbing 7 percent to 187.6 million euros.

Daniel Hiendlmeier, managing director and chief brand officer of Bogner noted that Katjes’ investment is a milestone for the future of both the Bogner and Fire + Ice brands. “Katjes International shares our vision of innovation and brand management and brings a deep understanding of our identity. The partnership opens up great opportunities for the brand, our employees and partners,” he said.

Frank Wiesner, managing director and chief financial officer of Bogner, added, “The transaction strengthens our capital base and creates an excellent foundation for driving our international growth and expanding global customer relations. The move confirms the appeal of the Bogner brand and the success of our strategy in recent years.”

As reported last August, Bogner said it was looking for a partner to invest in its international expansion. The company said at the time it would part ways with its chief executive officer Gerrit Schneider, who had accepted a new post, at the end of 2024. At the time, the company said it had achieved the highest sales in its history in the last fiscal year.

Willy Bogner Jr., whose father Willy Sr. started the namesake company in 1932, is its primary owner with daughter Florinda. They serve on the company’s board, but aren’t active in its day-to-day operations.

Willy Bogner Sr., an Olympic skier, started Bogner as an import business for skis, equipment and Norwegian knitwear. The company specialized in skiwear and evolved into other areas. His wife, Maria, was credited with creating the modern skiwear look, overseeing design and serving as the company’s lead model.

Following Willy Sr.’s death in 1977, Willy Jr. and his wife Sonia, a model-turned-designer, expanded into other categories, introduced the Sônia Bogner label and the snowboard-inspired Fire + Ice brand, and opened freestanding stores. The husband-and-wife team built up and modernized the family business in the ’80s, ’90s and 2000s. In 2017, Sonia Bogner died after a long illness. Willy Jr. retired from the daily business in 2019.