VIDEO: Responding to OpenAI's Google 'Code Red'

In the latest Portfolio video, Chris Versace weighs in on the AI-related headlines making waves on Tuesday morning, including OpenAI’s “Code Red” alarm when it comes to Google’s (GOOGL)  Gemini 3 model and how the Portfolio is positioned. 

He quickly touches on the initial performance of our EPS Diplomats model strategy, and segues into quarterly results last night from Credo Technology (CRDO)  and explain why it brings several confirming data points for the AI trade and our holdings. Chris also touches on a speculated acquisition by Marvell (MRVL) , which reports after Tuesday's market close. 

At the time of publication, TheStreet Pro Portfolio was long GOOGL and MRVL.

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here. Tuesday, December 2. And folks, coming in today, we kind of expected it was going to be one that more or less focused on AI, given the fact that today we have Amazon's Reinvest conference. And after today's market close, we'll get quarterly results from Marvell.

But there was also a very nice, unexpected, but not unsurprising callout when it came to AI. I'm referring to the fact that consumers increasingly used AI as part of the holiday shopping season over the last several days. And we talked about that in our opening comments this morning, the significant increase not only in AI traffic over the holiday shopping weekend, but also the greater conversion rate, as well. Check those comments out. We talked about them in our opening comments this morning, as I just mentioned.

But moving on and sticking with the concept of AI, what we didn't expect to get was the Wall Street Journal report indicating that OpenAI's Sam Altman declared a, quote, "code red" on the need to improve ChatGPT as Google threatens its AI lead.

Now, as we think about this, we know that Google's Gemini 3, its latest model, has been getting rave reviews. We've talked about it. We also know that Google is working with Apple as part of its efforts to deliver an AI-enabled Siri in the spring of next year. But, remember, remember, as well, earlier this year, we said it would be a mistake to rule Google out of the AI race. Why? Well, it's because of the amount of content that it has to train its models on, whether its presence in search, shop, or YouTube. It has a treasure trove of content to train on, and we can make similar arguments for both Meta and Amazon.

But we also have to remember that OpenAI also has a treasure trove of content licensing partnerships, as well-- News Corp, which owns the Wall Street Journal, as well as the FT, Condé Nast, Reddit, media company Dotdash Meredith, which isn't a household name in my opinion, but who does it own? People, Better Homes and Gardens, and other publications. It also has a content relationship with Axel Springer, the company behind Business Insider and Politico, as well as The Atlantic and Vox Media.

So what I would say to folks is, yes, Sam Altman is kind of firing a warning shot, but let's not jump to any conclusions, or any rash conclusions, I should say, especially for folks who are saying, what content partnerships does OpenAI have? As we've seen, they have quite a bit.

But let's talk a little more about what we see across this landscape in the short to medium term. Now, as we think about this, one company coming out leapfrogging an existing player-- we've seen this time and time again. We can reference the gaming industry, the PC industry, any other hardware industry for that matter, where there's a constant, like I said, one upsmanship across those vying to participate in the space.

And again, as we sit here, we're still in the relatively early innings of AI adoption and usage. So, arguably, it would be a mistake to rule any one company out. Remember, as we think about this, what we saw in the internet browser wars. If we go into the Wayback Machine, as I like to call it, we went from Nexus to Mozilla to Netscape to AOL's arguably crappy dialup browser to Internet Explorer, which was kind of hte home-run champ for a period of time, to Opera and then to Google Chrome. And Google Chrome, as we know, took the crown from Internet Explorer. And Internet Explorer was eventually replaced by Microsoft Edge, which, have to be honest, I don't know of anybody who uses it, and it's got a pretty low market share.

So the point I'm trying to illustrate in all of this is that, because we are still in the early innings of AI adoption and usage, it would be silly to declare any one company as the end all, be all. I also think that AI tools probably likely to be a lot like apps, in that there will be a lot of competing efforts out there that do the same or similar things that can have adoption based on the user experience and whether it's a consumer enterprise or government-focused solution.

Now, that's not to say there won't be any shakeout over the longer term. There probably will be. I would expect it. And in fact, if we think about the consolidation of most markets, the lion's share, market share, 70-80%, tends to shake out to top three, top four players. So, at some point, we will see it. But I don't think we're there yet.

In the meantime, what are we going to hear about? New innovations, new solutions, new user metrics, all the things that speak to a expanding and growing market. But here's the thing, folks. As we think about all of this, when we examine what we have in the portfolio, we've got all the major bases covered between Alphabet, Microsoft, Meta, OpenAI through Microsoft and Zero Capital, Anthropic through Amazon, and others. So we're going to see how this all shakes out. But in the meantime, we're not going to fret about it, because as AI adoption and usage grows, we've got it covered.

Now, I also wanted to talk about something I touched on in the November monthly roundup, and it also relates to AI. I'm referring to our EPS diplomats strategy, which, out of the gate, has performed rather well for the portfolio. Still early days, don't want to get ahead of ourselves, but we are encouraged by the early performance of this basket of eight stocks and its impact so far over the last two weeks and initial days into the month of December.

Now, one of those basket residents, Credo Technologiy, has reported last night, and the stock, last I looked, was up about double digits this morning. And for those who haven't heard of Credo, it provides high-speed connectivity solutions that connect computer servers, storage devices, and networking equipment in the data center. So why is Credo up so strong? Here's the thing. Its quarterly revenue was up more than 270% year over year and 20% quarter over quarter.

What was the fastest growing segment in its business? Hyperscalers, which we all know are continuing to lift their AI and data center capital spending. And we also see that reflected in Credo's guidance as it calls for 27% sequential revenue growth.

Now, what does all that tell us? Well, for starters, the ramp in data center spending and construction is real, and we can back that up with Dell's outlook for AI server shipments as well. We also know that demand for connectivity is growing, which bodes very well for our shares in Arista Networks and Marvell.

Now, remember, we have Amazon's AWS Reinvent event later today. So we'll be listening for what we hear more on all of this front, whether it's about wins, whether it's about new solutions, or perhaps some useful data points about its trainium chips, which connects us back to Marvell.

And with that, I also just want to quickly mention that we are seeing some chatter out there that Marvell might be circling a company known as Celestial AI, which happens to be the creator of something called photonic fabric. What is that? It's an optical interconnect technology platform for AI computing systems.

As we think about it, in our comments yesterday, we did mention that earlier, a few months ago, Marvell closed on the sale of its AI ethernet business for about 2.5 billion or so. So we'll have to see. Again, we don't assume acquisitions happen. That's not what we do. It's not very savvy or smart or prudent. Choose your words. But we will follow and see, A, if Marvell does go forward with this. B, does it use the proceeds from that sale? Which could also be used to fund its accelerated share repurchase program, again, something we touched on yesterday.

But if we see Marvell announce such an acquisition, we'll want to hear, What is expected in terms of how is it folded into its business? What are the synergies and cost savings? How does it leapfrog its business? And how is it paying for it? Based on those learnings, again, if an acquisition happens, we'll revisit our thinking on Marvell. But conceptually, if Marvell were to expand its presence in such a way, that's likely going to be a good thing as it continues to try and swim upstream in AI and data center. There could also be some positive implications for its custom AI silicon business.

So as you can see, we're going to have a lot more coming your way-- Amazon comments Marvell after the close and some of the things we've got that we want to talk with you about. So please be sure to check your emails, your alerts. And by the way, you might want to just mark your calendar for this afternoon. Reports indicate that President Trump will be giving an unspecified announcement at 2:00 PM Eastern. That's according to the White House schedule. Not sure what it is, but if it's anything meaningful, rest assured, we'll be breaking it all down for you. Thanks for watching.