Tech Newsround – China and Meta

China – AI Detent?

• There are early signs that President Xi’s visit to the USA may result in at least some co-operation around AI, which has led to some of the China and AI doomsday risk being taken out of those companies that are most exposed.
• An earlier meeting between the USA and Chinese delegations led by Scott Bessent and Chinese vice-premier He Lifeng has resulted in an agreement to set up an AI dialogue mechanism aimed at reducing the risks of such rapid development of AI technology.
• Both sides have similar concerns, which include the use of AI to hack their respective governments (even if it is each other) as well as the use of AI by bad actors to create biological and chemical weapons.
• The recent use of Claude by the Houthis to improve their missiles is a recent example of exactly what the two sides are concerned about.
• This goes hand in hand with other issues such as the supply of rare earth minerals, soybean sales, oil imports from Iran, as well as imports from US companies.
• The results of this meeting are particularly relevant as it is likely that everything that the two Presidents announce on Thursday has already been pre-agreed through months of negotiations.
• Hence, this agreement is likely to form a part of a larger agreement that will, at least in the short-term, alleviate fears of the economic impact of the ongoing trade standoff.
• This would reduce the risk of further actions by China against US companies that have a high exposure to the Chinese market, such as Apple and Qualcomm.
• I suspect that any agreement that is finalised by the end of the week will not last very long.
• This is because while there are interests that the two countries have in common, they do nothing to reduce the ideological gap that exists, which has only grown wider over the last few years.
• Hence, in the short term, this will reduce the China-related risks that have impacted the valuation of many US companies, but this is unlikely to last very long.

Meta – Muse Agent

• Meta’s Muse agent is gaining early traction, having topped the download charts in the Apple App Store, which raises the possibility of Meta making an AI-related comeback following the implosion of Llama.
• Meta has had a rough few quarters, having ceded control of open source to China and restructuring its entire AI development, which saw it falling behind in terms of AI performance.
• However, the new agent is capable of taking actions on behalf of the consumer, and while there are still plenty of wrinkles to be ironed out, it has captured the attention of the press and the market.
• If its agent starts to see a lot of use, Meta will be able to leverage one of its key advantages, which is that more than 3.3bn users access one of its apps every day, meaning that it has a wealth of user data, which will allow the agent to improve the user experience when it is in use.
• Amazon has already seen this as a major threat to user adoption of Alexa and has blocked Muse from being able to make purchases on the Amazon website.
• This may backfire spectacularly, but for now it is a sign that users are willing to give Muse a chance, which is a substantial boost for Meta and the market’s faith in its AI efforts.
• This is what has triggered a 12% rally in Meta’s shares, with AMD, Intel, Arm and Qualcomm also seeing strong gains.
• To my mind, this is a big boost for the theme of running the AI agent on edge devices, which remains an inevitability, but the market may now be finally waking up to it.
• Running AI services on edge devices is a no-brainer from an economic perspective for the provider of the AI service, and also has the advantage of being able to offer better data security and privacy.
• The main winners from this perspective are Qualcomm, Arm and MediaTek, who are all offering silicon chips, IP, and software that allow device makers to enable this functionality.
• Meta has also enjoyed a relief rally and is starting to close in on my short-term target of $770 per share.
• This target is based on a reversal of the valuation discount as well as an extra $70 per share should the company decide to sell its AI compute capacity into the spot market.
• This week will see more announcements from Meta at its Meta Connect conference that starts on Wednesday, 23^rd September.
• I am hoping for Meta to announce some deals with the likes of Anthropic or OpenAI, etc., but if there are none, and positive sentiment around its agent drives the shares past my valuation, I will have a look at closing out this position.