Sector Spotlight: Could Big Tech’s AI obsession be short sighted?

Welcome to the latest edition of “Sector Spotlight,” where The Fly looks at a new industry every week and highlights its happenings.

TECH NEWS: Apple (AAPL) is in early talks over using Google Gemini AI (GOOG) to power an overhauled version of the Siri voice assistant, Bloomberg’s Mark Gurman reported. The iPhone maker recently approached the search giant to look into creating a custom AI model that would serve as the foundation of the revamped Siri in 2026, Gurman says, citing people familiar with the matter. Google has begun to train a model that could run on Apple’s servers as well, the author notes.

Nvidia (NVDA) asked some of its component suppliers, including Samsung (SSNLF), Foxconn (HNHPF) and Amkor (AMKR), to stop production related to its H20 AI chip after Chinese officials urged local firms to avoid using it, The Information’s Qianer Liu wrote. The order comes weeks after the Chinese government told companies to stop buying the chips due to alleged security concerns, the report noted.

In a court filing, Microsoft-backed (MSFT) OpenAI said Elon Musk tried to enlist Meta (META) CEO Mark Zuckerberg for the $97.4B bid that his consortium made for OpenAI earlier this year, but Zuckerberg did not come on board, Reuters reported. OpenAI requested a judge to order Meta to produce documents and communications related to any bid for the company. “Meta’s communications with other bidders, or internal communications, including those reflecting discussions with Musk or other bidders, would also shed light on the motivations for the bid,” OpenAI said.

Meta’s chief AI officer Alexandr Wang said via X, formerly Twitter: “We are truly only investing more and more into Meta Superintelligence Labs as a company. Any reporting to the contrary of that is clearly mistaken.” The Wall Street Journal previously reported that Meta froze its hiring spree for its AI division after hiring over 50 AI researchers and engineers, which also prohibits employees from moving between teams inside the division.

Google has won over a $10B cloud contract from Meta, Jordan Novet and Jonathan Vanian of CNBC wrote, citing two people familiar with the matter. The Information reported the same earlier tonight. The agreement is for six years, sources told CNBC.

Bloomberg’s Matthew James Mcarthur noted that the U.S. General Services Administration announced in an emailed statement an agreement with Google for the company to “provide a suite of AI and cloud services that will accelerate the adoption of AI across government.” Government agencies will pay $0.47 per agency for Google’s AI tools, reported Blomberg, which also notes that OpenAI and Anthropic have offered the U.S. their AI tools at a cost of $1 per year.

Microsoft has limited Chinese companies’ access to advance notifications about cybersecurity vulnerabilities after investigating a potential leak, reported Bloomberg. Under the new policy, Microsoft will no longer provide MAPP participants affected by the change with “proof of concept” code, instead issuing them a “more general written description” of the vulnerabilities when patches are released, Bloomberg cites David Cuddy, a Microsoft spokesperson, as having said.

The National Football League and Microsoft announced a multiyear strategic partnership extension, ushering in a new era of AI innovation across the league. Technologies like Microsoft Copilot and Azure AI are helping the league and its teams enhance sideline evaluation and workflows, scout new talent, and streamline operations that keep the stadiums running. With 30 stadiums and over 330 events each year and hundreds of millions of fans, the NFL is one of the most widely watched sports leagues worldwide. Integrating Microsoft’s AI business solutions and cloud and AI platforms into game days and beyond will enable coaches and players to access and analyze game insights and performance in real time to make more informed decisions.

Tesla (TSLA) CEO Elon Musk, stated in a post to X: “This variant of the Model Y doesn’t start production in the US until the end of next year. Might not ever, given the advent of self-driving in America.”

Musk is also quietly pumping the brakes on plans to start a third political party, the America Party, with a desire to focus on his companies, The Wall Street Journal’s Brian Schwartz wrote. Musk is wary of alienating Republicans and wants to maintain ties with Vice President JD Vance, a potential 2028 presidential candidate, according to people with knowledge of his plans. The Tesla CEO’s team canceled a meeting with a third-party campaign-organizing group, according to the report.

Apple is making all four iPhone 17 models in India ahead of debut, a first, as it expands to five factories to cut reliance on China for U.S.-bound units, Bloomberg’s Sankalp Phartiyal and Mark Gurman reported. Plants controlled by Tata Group will account for as much as half of India’s iPhone output over the next two years.

Texas Attorney General Ken Paxton said via X, formerly Twitter: “I’m investigating Meta and Character AI for misleading children with deceptive AI-generated mental health services. In today’s digital age, we must continue to fight to protect Texas kids from deceptive and exploitative technology.”

Meta may debut “Hypernova” smart glasses with display for $800 in September, Bloomberg’s Mark Gurman wrote. The roughly $800 will be the starting price, meaning style variations and prescription lenses will quickly push up the cost, Gurman noted, adding that the smart glasses will include a small screen for mini apps and alerts on the right lens, and the spectacles can be controlled via a so-called neural wrist accessory.

Tech companies are paying AI researchers billions and using unconventional methods to hire founders and top AI researchers at startups but, while these moves might help them in the near term, this could stifle innovation in the long run, Asa Fitch of The Wall Street Journal reported. Many startups have been left as shells of their former selves, which can lead to issues since innovation is made by a combination of top researchers as well as employees who handle sales, marketing, human resources, and engineering teams.

ANALYST COMMENTARY: Wedbush raised the firm’s price target on Nvidia to $210 from $175 and keeps an Outperform rating on the shares ahead of the fiscal Q2 report on August 27. The firm said hyperscale spending results for Q2 “were ubiquitously positive.” Conversations throughout the quarter indicated “robust” demand for Nvidia with supply at times seemingly falling shy of demand, the analyst tells investors in a research note. Wedbush’s checks suggest Nvidia’s GB300 server shipments appear on track for late Q3 or Q4. The increased both its earnings expectations and the stock’s multiple to reflect solid demand trends and some rebound in China sales.

Loop Capital lowered the firm’s price target on Apple to $226 from $230 and keeps a Hold rating on the shares. The firm is updating its model to reflect mix shifts toward Pro/Pro Max models, lower air models, and adjustments in averages sales prices, the analyst noted. Loop further cites Apple having revised its expectations for the iPhone 17 Air model, now projecting it to account for about 20% of total unit sales, down from the originally anticipated 30%.

William Blair keeps a Market Perform rating on Tesla after demoing the company’s robotaxi service in Austin prior to the public launch in September. Unlike Waymo and Zoox vehicles, which are outfitted with a complex sensor suite “that stick out like a sore thumb,” Tesla’s autonomous vehicles blended in with all the other Teslas on the road, the analyst tells investors in a research note. Blair says the robotaxi was half the price of Uber (UBER), demonstrating its ability to win market share. The robotaxi “felt like a more luxurious service for half the cost and the driving felt more human-like,” the firm contends. It remains enthusiastic about the robotaxi launch but notes Tesla is facing a period of margin headwinds from pending regulatory cuts.