Regulators Take on Nvidia, Microsoft and OpenAI

An A.I. antitrust fight is coming

Nvidia has joined the $3 trillion valuation club as a blistering A.I. rally has turned it into the world’s second-most valuable company behind Microsoft.

Both companies are at the center of the artificial intelligence boom that has lifted the wider S&P 500 — and both have attracted regulatory scrutiny of the sector’s biggest players.

The F.T.C. and Justice Department are set to proceed with antitrust investigations against the duo, and OpenAI, writes The Times’s David McCabe. The F.T.C. is already looking into Microsoft, according to The Wall Street Journal, over how the company structured a deal with the start-up Inflection AI to avoid scrutiny.

In March, Microsoft hired almost all of the start-up’s staff and agreed to pay around $650 million to license its technology.

The deal added to Microsoft’s leading A.I. position. The company has stakes in OpenAI, the French start-up Mistral and Abu Dhabi’s G42, and it has also partnered with those businesses to develop and deploy A.I.

(The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems.)

The regulators are splitting their approach. The Justice Department will look at whether Nvidia has violated antitrust laws and the F.T.C. will focus on OpenAI and Microsoft.

Jonathan Kanter, the Justice Department’s antitrust chief, told The Financial Times that he was looking into “monopoly choke points” and competition. Kanter also promised that regulators would look at “acqui-hires.” He didn’t name Microsoft’s deal with Inflection, but Brad Smith, the tech giant’s president, defended the transaction. “We didn’t want to own the company,” he told The FT. “We wanted to hire some of the people who worked at the company.”

The Biden administration has pushed to rein in Big Tech. U.S. regulatory action trails the likes of the European Union, which passed one of the world’s first comprehensive A.I. rules last year.

But the F.T.C. and Justice Department are intensifying their inquiries: The agency is already investigating OpenAI’s data collection practices and reviewing the company’s partnerships with A.I. start-ups.

Geopolitics could add complications. The Biden administration engineered Microsoft’s deal with G42 to box out China. As Washington battles with Beijing over controlling A.I., it will try to keep the Big Tech on its side even as it tightens the screws.

HERE’S WHAT’S HAPPENING

Boeing’s Starliner finally blasts off. The company’s spacecraft is expected to take two NASA astronauts to the International Space Station on Thursday after a series of costly delays. NASA hailed the launch as a milestone in the agency’s effort to rely on the private sector for human spaceflight; it’s also a rare bit of good news for Boeing amid scrutiny of its airplanes.

Elon Musk’s xAI plans to build a supercomputer facility in Memphis. The artificial intelligence start-up will construct a building that local officials described as the “largest multibillion-dollar investment” in the city’s history. It’s part of xAI’s efforts to catch up with more established rivals in amassing the computing power needed for A.I. innovations, as well as cities’ efforts to lure tech industry dollars.

EBay will stop accepting American Express cards over a fee dispute. The online retailer said it was taking the step, which will become effective Aug. 17, because of the “unacceptably high fees” the financial giant charges for card transactions. Despite the high-profile battle over interchange fees, analysts said that American Express was unlikely to reduce them.

The unexpected opposition to halting congestion pricing

The surprise decision by Gov. Kathy Hochul of New York to slam the brakes on a congestion plan for Manhattan, the first of its kind in the U.S., has set off more debate over one of the most contentious urban policies in recent memory.

But it has also split New York’s business community along unexpected lines, as industries argued for and against the move.

Hochul’s announcement was an 11th-hour U-turn, after speaking publicly in favor of the policy as recently as two weeks ago. It would have charged some drivers $15 a day (so long as they use the E-Z Pass tolling system) for entering Manhattan south of 60th Street.

The policy had potentially big economic consequences:

• Proponents argued that it would reduce gridlock and pollution in Manhattan, while raising an estimated $1 billion a year for the city’s buses and subways.

• Opponents said it would place an undue burden on lower-income city residents, commuters, commercial truckers and local businesses. This camp also included New Jersey Democrats — Gov. Phil Murphy sued to block its implementation — and lawmakers in suburban areas.

For context: Other cities, including London, have already put in place similar measures, with varying degrees of success.

Various business interests had opposed the plan. Hochul had cited a potential chilling effect on commuters coming into the office, with vacancy rates hovering around 20 percent at times. And in March, the chair of the Broadway Association — whose members include Midtown theaters and hotels — fretted that the plan might sharply reduce tourism.

Meanwhile, The Lever reports that Hochul had received thousands of dollars in donations from lobbyists for auto dealers, who have been worried about a potential drop in car sales.

An equally broad group criticized Hochul’s reversal. Among them was the Partnership for New York City, one of the city’s most influential corporate associations: “The toll revenues would amount to only $1 billion a year, which is far less than the $20+ billion cost of lost productivity, overtime and fuel expenses, environmental and health costs that are the result of excess traffic congestion,” said Kathryn Wylde, its president.

The Real Estate Board of New York, a trade group for commercial real estate firms, said that any delay be only temporary. And the president of the New York Building Congress, which represents the construction industry, said, “We are living in a bad episode of ‘The Twilight Zone.’”

At the same time, congestion pricing had already drawn support from Uber — despite the ride-hailing service’s customers being required to pay an extra fee under versions of the initiative.

The S.E.C. hits a roadblock

The S.E.C.’s efforts to clamp down on the booming $27 trillion private funds industry and its oversight of Wall Street are looking shakier this morning.

The agency suffered a significant blow after a federal appellate court on Wednesday struck down disclosure rules that fund giants, including groups connected to Apollo Global Management and Blackstone, have been fighting for months.

The setback puts the S.E.C. in a tough position. It is considering an appeal, setting up a potential Supreme Court showdown. But a loss there could further diminish the agency’s authority as legal challenges mount from pro-business groups accusing the S.E.C. of regulatory overreach.

A recap: Last year, the agency passed mandates that hedge funds, private equity funds and venture capital firms must provide investors more information about fees and expenses. At the time, Gary Gensler, the S.E.C. chair, said the new rules would offer greater protection to “all investors — big or small, institutional or retail, sophisticated or not.”

State pension funds were big supporters of the proposed rules. But Wall Street pushed back hard, calling the rules onerous. The S.E.C. itself estimated that the rules would introduce $5.4 billion worth of compliance costs.

The decision could hamper the S.E.C. The agency is considering other rules related to how private funds work with investors, Jason Brown, an asset management partner at the law firm Ropes & Gray, told DealBook. “I think this case may embolden the industry to challenge those rules in court if they don’t come out the right way,” he said.

What’s next? One possibility is appealing to the Supreme Court. Its conservative majority has recently appeared more open to arguments seeking to curtail the power of regulatory agencies.

That said, regulators scored a big win last month when the court rejected a challenge to the Consumer Financial Protection Bureau’s funding.

The PGA Tour and the Saudis, one year later

Thursday is the first anniversary of the deal that shook the professional golf world: that the PGA Tour and the Saudi sovereign wealth fund, which backs the upstart LIV Golf, would seek to combine forces.

The tie-up may appear to be moving at a snail’s pace, but talks are continuing, and the two sides are set to meet in New York tomorrow, two people familiar with the plans told DealBook’s Lauren Hirsch. (The two people were granted anonymity because they weren’t authorized to speak publicly about the matter.)

Who will be involved? Members of the PGA Tour’s transaction committee, which includes Tiger Woods and Fenway Sports Group’s John Henry. Rory McIlroy, who is also on the committee, will be playing in a tournament and joining remotely, one of the people said.

The fact that it’s an in-person meeting is significant. It shows that there’s some real intention to get a deal done. But sources on both sides caution that a breakthrough is far from imminent.

The two sides recently exchanged term sheets, DealBook has reported. It’s a sign that the deal — which sees the Saudis and a new group of U.S. investors each kicking in $1.5 billion — is on more than life support even if progress seems slow.

A year on, the PGA Tour looks very different. It raised at least $1.5 billion from U.S. investors, including the hedge fund mogul Steven Cohen, and created a separate unit for its commercial operations. It also appointed a new board of directors, including Woods, the Home Depot co-founder Arthur Blank and Fenway’s Sam Kennedy, to oversee the commercial business.

That said, two directors from the original PGA Tour’s board have resigned: Mark Flaherty, a Goldman board member, and Jimmy Dunne, the Piper Sandler vice chairman who helped spearhead the deal.

Are more moves on the way? One big question for Wall Street insiders: whether Ed Herlihy, the Wachtell partner who worked closely with Dunne on the original deal, will step down. (He declined to comment.)

Another question: given that high turnover, who exactly has the final say on getting a deal done?

THE SPEED READ

Deals

Elections and policy

• Donald Trump and Jeff Zients, the White House chief of staff, are expected to address the Business Roundtable at the influential corporate lobbying group’s meeting on June 13. (CNBC)

• Canada became the first Group of 7 nation to cut interest rates this year; the European Central Bank is expected to follow suit on Thursday. (CBC, DealBook)

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