Weekly Update: Amazon Jumps on the AI Train

Highlights from a SaaS VC on the week of 4/10

Happy Saturday!

It was a busy week, full of positive economic data and a continued barrage of AI developments - including Amazon furiously playing AI catch-up. In this edition of the Weekly Update, you’ll find:

• Market Update

• AI Update

• Tech Deal of the Week

• Podcast Recommendation of the Week

• Reading Recommendation of the Week

I. Market Update: Regime Change Confirmed

It was a good week for the stock market. While the WCLD cloud index was virtually unchanged, closing at $28.16, other major indices were up 1-2%.

The big news for the market was continued moderation in inflation data. The right-most area of the chart below illustrates the clear trend of decline in core CPI.

On Thursday, there was more good news:

US producer prices fell in March by the most since the start of the pandemic, driven by a decline in gasoline costs that has helped slow inflationary pressures.

The data points on the right of the chart below clearly show the favorable trend.

While inflation remains elevated, it’s coming down. The Fed likely has one hike left — Interest rate futures suggest the Fed will hike in May. After that, according to bond market expectations, that the Fed is likely to be cutting rates by year end.

In last week’s market update, I posed the question “Regime Change In Progress?” I think the answer is now clear. In a few quarters, the Fed will be in a rate-lowering cycle. This doesn’t mean that all will be rainbows and butterflies - a recession is still a distinct possibility.

For startups and VC, a rate-lowering environment will bring a measure of safety. A decline in the cost of capital will support pricing of risk-based assets. I wouldn’t predict a major rise in asset prices. But I would say that a major decline that tests the lows of last year will become quite unlikely. Barring major exogenous shocks, this year and next year will be better than last year. This alone won’t resolve the career trauma experienced by many in tech & finance in 2022, but it will help.

CB Insights put out an excellent report showing how the venture capital market has slowed down dramatically. The chart below nicely illustrates the dramatic pullback of 2022:

Venture capital historically lags the public markets, so I wouldn’t expect to see a big pickup in venture for another year or two. What will help get the VC market booming again? AI. Speaking of which…

II. AI News of the Week: Amazon tries to catch up & autonomous agents take off

Microsoft and Google have been garnering plenty of headlines for AI developments in the past few months. In Amazon’s last earnings call in Feb, they didn’t mention “AI” a single time. In contrast, Microsoft and Google mentioned “AI” 60 times and 29 times, respectively.

Amazon, where have you been?

This past week, they showed they are serious about catching up.

In Amazon’s annual letter to shareholders, CEO Andy Jassy described LLMs as “core to setting Amazon up to invent in every area of our business for many decades to come.” It’s safe to say that Amazon has (quickly) found AI religion.

This week they launched a major new generative AI service, Bedrock:

“Most companies want to use these large language models but the really good ones take billions of dollars to train and many years and most companies don’t want to go through that,” Amazon CEO Andy Jassy said on CNBC’s “Squawk Box” Thursday. “So what they want to do is they want to work off of a foundational model that’s big and great already and then have the ability to customize it for their own purposes. And that’s what Bedrock is.”

Amazon will offer companies access to multiple foundational models and provide the ability to “fine-tune” (customize) them with their own data. Expect Bedrock to see strong growth, although it’s unclear if Amazon has the R&D prowess to challenge Microsoft’s leadership position. I wouldn’t be surprised to see them turn to M&A to help play catch up.

Meanwhile, the broader AI landscape continues to be propelled by open source innovations. A stunning recent example is Auto-GPT, which in just a few weeks has amassed a remarkable 60k+ stars on GitHub. Powered by OpenAI’s GPT-4, Auto-GPT “chains together LLM ‘thoughts’ to autonomously achieve whatever goal you set.”

In other words, Auto-GPT is an AI “agent” that can pursue goals based on its own reasoning. Here’s an amazing example of this technology that works in the browser. It’s worth trying it out - anyone can give is a spin here.

AGI hasn’t yet arrived, but it’s coming.

III. Tech Deal of the Week: YC’s Continuity Fund Shut-Down

As deal activity continues to be slow (except for AI startup fundraising), the Deal of the Week is a contraction. Last month, YC decided that they were sunsetting their growth fund:

Silicon Valley startup accelerator Y Combinator won’t raise another continuity fund, which backs mature private tech companies, two people familiar with the matter said. The partners who led the fund, Anu Hariharan and Ali Rowghani, plan to leave the firm.

It’s safe to assume the startups who received funding from the continuity fund also received pledges of support. That’s not gonna happen.

Not surprisingly, these startups aren’t happy about it.

Ten startups, including YC graduates such as payroll provider Deel and credit card startup Brex, said they were “surprised and deeply disappointed” with YC’s recent decision to suddenly eliminate its late-stage Continuity fund last month.

It’s an unfortunate situation. It’s understandable that YC wants to refocus in this period of retrenchment, but it comes at a cost born by those portfolio companies.

IV. Podcast Rec of the Week: All-In Pod

This week, the All-In podcast offers a lively, thoughtful conversation on the rapid, escalating pace of AI innovation. They discuss the aforementioned, new class of autonomous AI “agents” such as Auto-GPT. This new technology has capabilities that are truly mind-blowing. And a bit scary, if I’m being honest.

Should AI be regulated? They offer many perspectives on a very topical, pressing issue.

All-In is usually an entertaining listen. This week’s episode delivers.

V. Reading Rec of the Week: Matt Levine on Twitter’s Trading Feature

Matt Levine is one of the best writers in finance. My only gripe is his ridiculous rate of output. I inevitably feel guilty when I don’t read all of his columns.

He has a wonderful take on the news that Twitter will enable stock trading in-app via a partnership with eToro.

Elon Musk generally seems a bit aggressive on compliance matters, and in particular he does not care at all about securities law compliance…I think a lot of people could offer a more seamless and convenient retail stock trading experience if they did not care about, and were not subject to, securities regulation.  

Why not Twitter?

As someone who always felt RobinHood was basically a casino, I can’t say I’m a big fan of Twitter enabling in-app day-trading. Regardless, the regulatory fireworks will be entertaining.

Levine’s whole column is worth reading.