Philippa Kaur

The playground rivalry between Mark Zuckerberg and Elon Musk dates back years—and in who-is-cooler-than-whom terms, Mr Musk usually wins easily. As an innovator, Mr Zuckerberg, co-founder of Facebook and boss of Meta, a social-media giant, has often been dismissed as a geeky dilettante in a hoodie. He has never received the Promethean kudos Mr Musk has for turning Tesla into a stallion of electric vehicles (EVs) and SpaceX into a rocket sensation. Mr Zuckerberg is notorious for his motto “move fast and break things”, which may have helped Facebook conquer the world but gave licence to critics to cast it as a social menace. Mr Musk is revered as a rule-breaker, plays up his bad-boy image and mostly gets away with it.Such was the tenor of their relationship when Mr Musk proposed a cage match with Mr Zuckerberg in June last year just before Meta launched a short-messaging app, Threads, to compete with Mr Musk’s Twitter (now X). Forget the physical fight that never happened. In business terms, even then Mr Musk had the upper hand. He was the richest man on Earth. Tesla’s market value, though falling, was higher than Meta’s. Its revenues were growing faster. Yet since then, he could not have kicked himself harder in the teeth. In the past few weeks Tesla has shocked investors with a horror-show earnings presentation. Mr Musk’s $56bn pay package from 2018 was rescinded by a judge, which has slashed his net worth. From America to China, his EVs have suffered recalls.Mr Zuckerberg, meanwhile, is punching the air. On February 1st Meta released earnings showing a staggering rise in sales and margins. Its market value has reached $1.2trn, exactly the level Tesla achieved at its peak in 2021, and more than twice what the EV-maker is worth now. To be sure, short-term measures of financial performance are not everything. But look at longer-term factors, such as the way both men run their businesses, treat their shareholders and customers, and respond to their own failures, and it is clear the fight is as good as over. Zuck has won.To understand why, start with the interplay between the way both gazillionaires control and run their companies. Each of them lords it over their firms in a way that makes corporate-governance advocates blanch: Mr Zuckerberg via a dual-share structure that gives him majority control of Meta; Mr Musk, by having everyone at Tesla in his thrall. But as Mr Zuckerberg has become more sensitive to his fellow shareholders, Mr Musk has become less so. That has had a big impact on performance.Mr Zuckerberg’s volte face started in 2022 when shareholders recoiled at the way he was blowing their money (and his) on moonshot projects like the metaverse, just as Meta’s core business was slowing. Instead of ignoring them, he listened. Since then he has changed his tune to focus on cutting costs, boosting profits, and using the cash to invest in artificial intelligence (AI) and the metaverse in a way that improves existing products as well as funding futuristic bets. Moreover, to convince shareholders he is not wasting their money, Meta will return more cash to them via share repurchases and pay the company’s first-ever dividend.Mr Musk has had no such epiphany. In the two years since Tesla’s share price peaked, he seems to have doubled down on disappointing fellow owners of the company’s stock. The sensible ones long for a cheap, mass-market EV. Instead Tesla is selling expensive ones at a margin-shredding discount. They want him to spend more time at Tesla, but he splits it with SpaceX and wastes it at (and on) X. They yearn for full-self-driving cars as the catalyst for a robotaxi revolution. Instead, even diehard fans were stunned recently when Mr Musk threatened to move his AI and robotics efforts away from Tesla unless he was given 25% voting control.That leads to a second big difference: motivation, which was the crux of the judge’s decision in Delaware on January 30th to strip Mr Musk of his gargantuan pay cheque. Mr Zuckerberg, as the judgment noted, receives no salary or share options. His 13% economic stake in Meta is the main incentive to come to work each day. Mr Musk, however, is different. Though his Tesla shareholding at the time meant he would become $10bn richer every time Tesla’s value jumped by $50bn, that wasn’t enough. Tesla’s board (many of whom the judge ruled were too chummy with Mr Musk to be independent) convinced shareholders that an extra incentive was needed to keep his nose to the grindstone: namely, the biggest payout in the history of public markets. Now that it has been voided, his motivation, presumably, is even more in doubt.Then there are both men’s attitudes to customers, which have also moved in opposite directions. Mr Zuckerberg was vilified for Facebook’s fast-and-loose approach to users’ data, content moderation and privacy. The concerns are still strong, especially when it comes to youngsters on social media. But Facebook now has an independent oversight board to rule on content decisions, and Meta says it has invested $20bn since 2016 in online safety. No doubt Mr Musk still has some loyalists as customers. But considering how many American EV owners lean Democratic, the more he rants on X, the more it is clear that he disdains their political opinions. The latest recalls are a further source of worry (though the problem can be fixed with a software update). In China, a huge market, he faces stiff competition. Meta, by contrast, credits Chinese advertisers with helping drive a big surge in ad revenues last year.Caged tyrant In a nutshell, as Mr Zuckerberg grows older, he appears to have learned from his mistakes. As Mr Musk grows older, he gets more puerile and distracted. His huffy reaction to the Delaware court’s judgment, threatening to up sticks and move Tesla’s incorporation to Texas, is a case in point. It indicates he wants the company’s shareholders to have even less protection from his capriciousness than usual. If anyone should get into the ring and hammer some sense into him, it is them. ■ More

America’s stockmarket is on a tear. Over the past three months the S&p 500 index of large companies has soared by nearly 15%, reaching a record high (see chart 1). Recent economic data support investors’ optimism. On February 2nd the Labour Department reported that 353,000 jobs were created in January, far more than expected. The economy grew by a healthy 3.3% (at an annual rate) in the final quarter of 2023. Despite that, inflation slowed to 2.6% on the Federal Reserve’s preferred measure, not far off its 2% target. Investors are now betting that by the end of the year the Fed will lower its benchmark interest rate from its current range of between 5.25% and 5.5% to below 4%, putting a rocket booster under America’s economy—and with it America Inc.image: The EconomistThis wager is not, however, by any means sure-fire. On January 31st Jerome Powell, chairman of the Fed, scuppered hopes of an imminent rate cut, arguing inflation was “still too high”. As cheap pandemic-era debts begin to mature, the interest bill on America’s $21trn pile of non-financial corporate debt will continue to creep upwards. Profits are more or less stagnant. In the final quarter of last year, which S&P 500 firms are currently reporting, they grew by a modest 1.6% year on year. What is more, three of the forces that propped up profits may now be weakening.One source of concern is America’s consumers. Some of the fuel that had sent consumption soaring, confounding expectations of a recession in 2023, is running out. The excess savings accrued by shoppers during the pandemic, thanks in part to government stimulus cheques, have now largely been spent, according to a recent paper by Francois de Soyres and co-authors from the Fed. Default rates on credit cards have been steadily rising. Student loan repayments, which resumed last October after the Supreme Court quashed a pandemic-era moratorium, are adding to pressure on pocketbooks.As a result, pedlars of discretionary goods are bracing for tough times. On January 23rd Wayfair, an e-emporium for furniture, announced it would lay off 13% of staff in response to “persistent category weakness”, just weeks after its boss sent an inspiring Christmas memo to staff extolling the joys of “working long hours” and “blending work and life”. On January 25th Levi Strauss, maker of America’s favourite jeans, said it expected its revenue to grow between 1% and 3% this year, below what analysts had anticipated, and announced it would fire 10% to 15% of its workforce. On January 30th Whirlpool, a maker of home appliances, said it expected like-for-like sales to be flat in 2024.That same day Mary Barra, boss of General Motors, America’s biggest carmaker, cheerily predicted that the number of cars sold in America would rise by 3% this year—not bad, but well below last year’s 12% increase. And prices are expected to fall to bolster demand, squeezing margins just as carmakers are digesting higher costs from a new wage deal won by their unionised workers late last year. American consumers are also switching more slowly to pricier electric vehicles (EVs) than carmakers had anticipated. On January 24th Tesla, America’s EV champion, warned that its growth “may be notably lower” this year. Its shares plunged by 12% in response, wiping $80bn from its market value.Even sellers of consumer staples are signalling caution. Over the past two years manufacturers of packaged food and sundry home essentials have managed to protect profits from rising costs by jacking up prices without crushing demand. That strategy now looks to be running out of road. On January 26th Colgate-Palmolive, a purveyor of toothpastes, said it expected sales to grow between 1% and 4% this year, down from 8% last year. On January 30th Mondelez, a confectioner, estimated revenue growth for 2024 of 3-5%, down from 14% in 2023.A second worry for some companies is the health of consumers in China. A collapse in the country’s property sector has weighed on consumer sentiment. In December Nike’s share price plunged after it reported slowing sales growth in China as a result of “increased macro headwinds”. An order by a Hong Kong court on January 29th compelling Evergrande, once China’s biggest property developer, to liquidate could further dampen the mood. The next day Laxman Narasimhan, boss of Starbucks, an American coffee chain, warned that “a more cautious consumer” in China was weighing on its growth. Although Apple, the iPhone-maker, managed to notch up year-on-year 2% growth in the final quarter of last year, its sales in China slumped by 13%. For Apple, Nike and Starbucks, stiffening local competition is adding to their woes.image: The EconomistBack at home, America’s manufacturing boom also looks to be slowing—a third source of concern for the year ahead. In the first half of last year monthly factory construction in America surged by 17%, adjusting for inflation. In the second half this growth slowed to 8% (see chart 2). TSMC, a Taiwanese chipmaker, announced on January 18th that it would delay the opening of a second semiconductor factory in Arizona by one or two years. It had already delayed the first in July. On February 1st it was reported that Intel, an American chip manufacturer, would delay the opening of a factory in Ohio. That may be because subsidies promised by the Biden administration have been slow to materialise. Of the $52bn designated in the CHIPS Act for supporting domestic semiconductor production, only a small fraction has been allocated so far. American carmakers are also postponing investments in EV production in response to disappointing demand. That could start to weigh on the factory builders and suppliers that have benefited from the boom.I think AI canOne area of activity that shows no sign of slowing down is artificial intelligence (AI). Amazon, Alphabet and Microsoft—America’s cloud-computing triumvirate—reported year-on-year growth in their cloud divisions of 13%, 26% and 30% for the final quarter of last year, powered in part by increasing demand from customers for the computationally hungry technology. All three told investors that their lofty ambitions for AI would lead them to increase their capital investments in the year ahead. On February 1st Meta, which also harbours AI ambitions, reported blockbuster earnings and said it would spend up to $37bn this year, a lot of it on data centres to train and run AI models. In contrast to its previous investment binge, on its unloved virtual-reality metaverse, investors lapped it up—as they did news that the company would buy back more shares and pay out its first-ever dividend. The next day Meta’s market value soared by nearly $200bn, to $1.2trn, the biggest one-day jump in Wall Street history.It may be some time, however, before the rest of corporate America sees a boost to the bottom line from AI. According to a recent survey by BCG, a consultancy, only 5% of companies are doing nothing whatsoever with the technology. But 71% are merely “pursuing limited experimentation and small-scale pilots”. As America Inc runs low on other fuel, more such pilots may be needed to ensure a smooth journey ahead. ■ More

America’s stockmarket is on a tear. Over the past three months the S&p 500 index of large companies has soared by nearly 15%, reaching a record high (see chart 1). Recent economic data support investors’ optimism. On February 2nd the Labour Department reported that 353,000 jobs were created in January, far more than expected. The economy grew by a healthy 3.3% (at an annual rate) in the final quarter of 2023. Despite that, inflation slowed to 2.6% on the Federal Reserve’s preferred measure, not far off its 2% target. Investors are now betting that by the end of the year the Fed will lower its benchmark interest rate from its current range of between 5.25% and 5.5% to below 4%, putting a rocket booster under America’s economy—and with it America Inc.image: The EconomistThis wager is not, however, by any means sure-fire. On January 31st Jerome Powell, chairman of the Fed, scuppered hopes of an imminent rate cut, arguing inflation was “still too high”. As cheap pandemic-era debts begin to mature, the interest bill on America’s $21trn pile of non-financial corporate debt will continue to creep upwards. Profits are more or less stagnant. In the final quarter of last year, which S&P 500 firms are currently reporting, they grew by a modest 1.6% year on year. What is more, three of the forces that propped up profits may now be weakening.One source of concern is America’s consumers. Some of the fuel that had sent consumption soaring, confounding expectations of a recession in 2023, is running out. The excess savings accrued by shoppers during the pandemic, thanks in part to government stimulus cheques, have now largely been spent, according to a recent paper by Francois de Soyres and co-authors from the Fed. Default rates on credit cards have been steadily rising. Student loan repayments, which resumed last October after the Supreme Court quashed a pandemic-era moratorium, are adding to pressure on pocketbooks.As a result, pedlars of discretionary goods are bracing for tough times. On January 23rd Wayfair, an e-emporium for furniture, announced it would lay off 13% of staff in response to “persistent category weakness”, just weeks after its boss sent an inspiring Christmas memo to staff extolling the joys of “working long hours” and “blending work and life”. On January 25th Levi Strauss, maker of America’s favourite jeans, said it expected its revenue to grow between 1% and 3% this year, below what analysts had anticipated, and announced it would fire 10% to 15% of its workforce. On January 30th Whirlpool, a maker of home appliances, said it expected like-for-like sales to be flat in 2024.That same day Mary Barra, boss of General Motors, America’s biggest carmaker, cheerily predicted that the number of cars sold in America would rise by 3% this year—not bad, but well below last year’s 12% increase. And prices are expected to fall to bolster demand, squeezing margins just as carmakers are digesting higher costs from a new wage deal won by their unionised workers late last year. American consumers are also switching more slowly to pricier electric vehicles (EVs) than carmakers had anticipated. On January 24th Tesla, America’s EV champion, warned that its growth “may be notably lower” this year. Its shares plunged by 12% in response, wiping $80bn from its market value.Even sellers of consumer staples are signalling caution. Over the past two years manufacturers of packaged food and sundry home essentials have managed to protect profits from rising costs by jacking up prices without crushing demand. That strategy now looks to be running out of road. On January 26th Colgate-Palmolive, a purveyor of toothpastes, said it expected sales to grow between 1% and 4% this year, down from 8% last year. On January 30th Mondelez, a confectioner, estimated revenue growth for 2024 of 3-5%, down from 14% in 2023.A second worry for some companies is the health of consumers in China. A collapse in the country’s property sector has weighed on consumer sentiment. In December Nike’s share price plunged after it reported slowing sales growth in China as a result of “increased macro headwinds”. An order by a Hong Kong court on January 29th compelling Evergrande, once China’s biggest property developer, to liquidate could further dampen the mood. The next day Laxman Narasimhan, boss of Starbucks, an American coffee chain, warned that “a more cautious consumer” in China was weighing on its growth. Although Apple, the iPhone-maker, managed to notch up year-on-year 2% growth in the final quarter of last year, its sales in China slumped by 13%. For Apple, Nike and Starbucks, stiffening local competition is adding to their woes.image: The EconomistBack at home, America’s manufacturing boom also looks to be slowing—a third source of concern for the year ahead. In the first half of last year monthly factory construction in America surged by 17%, adjusting for inflation. In the second half this growth slowed to 8% (see chart 2). TSMC, a Taiwanese chipmaker, announced on January 18th that it would delay the opening of a second semiconductor factory in Arizona by one or two years. It had already delayed the first in July. On February 1st it was reported that Intel, an American chip manufacturer, would delay the opening of a factory in Ohio. That may be because subsidies promised by the Biden administration have been slow to materialise. Of the $52bn designated in the CHIPS Act for supporting domestic semiconductor production, only a small fraction has been allocated so far. American carmakers are also postponing investments in EV production in response to disappointing demand. That could start to weigh on the factory builders and suppliers that have benefited from the boom.I think AI canOne area of activity that shows no sign of slowing down is artificial intelligence (AI). Amazon, Alphabet and Microsoft—America’s cloud-computing triumvirate—reported year-on-year growth in their cloud divisions of 13%, 26% and 30% for the final quarter of last year, powered in part by increasing demand from customers for the computationally hungry technology. All three told investors that their lofty ambitions for AI would lead them to increase their capital investments in the year ahead. On February 1st Meta, which also harbours AI ambitions, reported blockbuster earnings and said it would spend up to $37bn this year, a lot of it on data centres to train and run AI models. In contrast to its previous investment binge, on its unloved virtual-reality metaverse, investors lapped it up—as they did news that the company would buy back more shares and pay out its first-ever dividend. The next day Meta’s market value soared by nearly $200bn, to $1.2trn, the biggest one-day jump in Wall Street history.It may be some time, however, before the rest of corporate America sees a boost to the bottom line from AI. According to a recent survey by BCG, a consultancy, only 5% of companies are doing nothing whatsoever with the technology. But 71% are merely “pursuing limited experimentation and small-scale pilots”. As America Inc runs low on other fuel, more such pilots may be needed to ensure a smooth journey ahead. ■ More

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“FREEDOM GAS” saved Europe from an energy crisis. The old continent’s imports of American liquefied natural gas (LNG), first equated with liberty by Donald Trump’s administration in 2019, ballooned from 16m tonnes in 2021, the year before Russia invaded Ukraine and all but stopped piping gas to Europe, to 46m tonnes last year. The decisions to redirect LNG cargoes destined for Asia and elsewhere to Europe were made by private companies. But they enjoyed strong official support from Mr Trump’s successor, Joe Biden. So did LNG exports more broadly, turning America into the world’s biggest exporter, ahead of Qatar and Australia.On January 26th Mr Biden threw a spanner in the gasworks. He announced a “temporary pause” on pending LNG-export projects such as gas terminals, so that officials can scrutinise their economic, security and environmental impact. The decision is not an export ban and does not halt initiatives that have already been approved by the Department of Energy. But it does freeze a few big proposed but unapproved projects that would benefit countries which do not have free-trade agreements with America (a large group which includes big markets in Europe and Asia).The move delighted those climate campaigners who claim that LNG is not about freedom but about locking economies into continued dependence on fossil fuels. It disappointed the more level-headed sorts who see natural gas as a cleaner “transition fuel” that would help ease the shift to greener energy, especially in light of Mr Biden’s efforts to crack down on methane, a powerful greenhouse gas that can leak during the production and transport of the fuel. To America’s allies, it was another example of how the superpower is becoming an ever more unreliable partner.For Mr Biden, though, it was all about politics. To stop the war in Ukraine from disrupting energy markets, his administration has overseen a big expansion in domestic fossil-fuel output. As well as being the world’s top LNG exporter, America continues to be the biggest oil producer. That angers the climate-anxious left wing of Mr Biden’s Democratic Party. In announcing the pause, Mr Biden adopted its language. His decision, he said, “sees the climate crisis for what it is: the existential threat of our time”. The head of a big environmental group calls it “a big win for progressives in an election year”. Bill McKibben, an influential activist behind a campaign to end LNG exports, declared that “We all just won…I have a beer in my hand”.Mr McKibben may want to keep that beer on ice. As Joseph Majkut of the Centre for Strategic and International Studies, a think-tank, wryly points out, the impact of the pause on global markets—and thus on global emissions, which is what matters to the climate—will be minimal. Forgone American exports will be offset by fresh supplies from Qatar, Australia and elsewhere. “I think there is an opportunity,” declared Jonathan Wilkinson, Canada’s energy minister, on January 30th.Moreover, American hydrocarbons will wash over world markets, pause or no pause. Should the carbon-cuddling Mr Trump return to the White House, which polls suggest is as likely as not, America will drill, baby, drill. Even if Mr Biden staves off the Trumpian challenge, America will keep producing lots of LNG. The approved projects alone would propel American exports to a level 50% above those of Qatar, a gas superpower, by 2030.And if the extra scrutiny of projects pledged by Mr Biden, combined with his methane crackdown, leads to further reductions in the carbon-intensity of American LNG, that would make the stuff more competitive in places like Europe and Japan, which want their fuel produced in the cleanest way possible, argues Amy Myers Jaffe of New York University. The movement that sought to topple America’s LNG industry would then, in other words, shore it up instead, while damaging American alliances, which some of the same left-wingers would prefer to preserve. Mr McKibben had better enjoy a bitter. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Apple fans can’t wait for February 2nd. That is when the tech giant’s latest gadget, a new augmented-reality (AR) headset called the Vision Pro, goes on sale. Some early reviewers complained that it caused headaches and had a two-hour battery life. Many potential buyers will be put off by the price tag of $3,499. Still, perhaps 200,000 have been pre-ordered, about 40% of what Apple had reportedly expected to sell this year. Tim Cook, Apple’s boss, has described trying the Vision Pro as an “aha moment”. “You only have a few of those in your lifetime,” he added.Aha or not, the Vision Pro is part of a trend. In September techies got excited about a new pair of smart glasses made by Meta, Facebook’s parent company, and Ray-Ban, an eyewear brand. The spectacles are controlled by voice and can play music, send texts and film everything you see. Two months later Humane, a startup founded by former Apple executives, launched the Pin, a brooch with which users interact by talking and gesticulating. In January the r1, a voice-controlled gizmo half the size of a smartphone, enthralled attendees at the Consumer Electronics Show in Las Vegas. Its maker, a startup called Rabbit, has sold nearly 100,000.What all these devices have in common is that they do away with screens, keyboards and mice. Thanks to “generative” artificial intelligence (AI), computers are getting good at listening to, reading and watching stuff—and understanding it. That means hardware can be controlled by voice, gesture or image rather than touch. AI is thus enabling new “form factors”—tech speak for gadgets in new shapes and sizes, just as the iPhone looked different from older handsets.Silicon Valley’s elite are cheering on the potential shift. They believe AI could create a new market for consumer hardware, replacing the smartphone as everyone’s essential device. Sam Altman, boss of OpenAI, the startup behind ChatGPT, is reportedly in talks to start a firm with Jony Ive, former head of design at Apple, to make a gadget purpose-built for AI. Satya Nadella, chief executive of Microsoft, an AI-ambitious tech titan, recently said that “once you have a new interface…new hardware is also possible.”image: The EconomistOne reason for all the excitement about new gadgets is that the old ones are looking unexciting. Last year 1.2bn smartphones were sold worldwide, down by 3% from the previous year and the lowest level for a decade, according to IDC, a research firm. PCs did even worse, declining by 15% in 2023 to 242m units. Cash-strapped consumers are opting for cheaper alternatives, such as second-hand devices, or holding on to their current ones for longer.The hope is that they may be persuaded to fork out for all-new gadgets because they offer something that old ones do not. AI could, for instance, make using devices more seamless and more personal. Users can tell or gesture to the r1 to hail a ride, order food or play music without the need to toggle between apps. It also learns from users’ previous actions. Until now people had to adapt to software, says Vinod Khosla, a veteran venture capitalist and early backer of Rabbit. In the r1, “the AI adapts to you.”New gadgets are also less finicky to develop and manufacture. Lior Susan of Eclipse, a venture-capital (VC) firm, says that ten years ago building a high-tech widget required hundreds of staff. Today he can do the same thing with about ten. Every step of the manufacturing process has become easier. Initial versions can be mocked up in design software. Rather than buying an industrial machine to make parts for a prototype, they can be ordered from 3D-printing firms like Shapeways. Sensors, batteries and chips can be bought off the shelf. Contract manufacturers, such as Foxconn, no longer insist on working only for big clients like Apple. Some offer dedicated services for hardware startups.The resulting crop of new AI-powered devices falls into two broad categories. The first is headsets for virtual or augmented reality (VR and AR). So far they have been most popular among gaming enthusiasts. Sales of VR headsets peaked at around 10m units in 2020 after the release of Meta’s Quest 2, estimates George Jijiashvili of Omdia, a research firm. He thinks the Vision Pro will breathe new life into the industry by making VR appealing to non-gamers. Promotional videos depict people using the Vision Pro to watch films, work or talk to friends.The second category consists of subtler gizmos. Some 540m “wearables” worth $68bn were shipped last year, according to IDC. Many already incorporate AI in one way or another. They include earphones (which account for 63% of the units sold), smartwatches (another 30%), wristbands such as the Whoop, a fitness tracker, and smart glasses, like Meta’s Ray-Bans (which together make up most of the rest). Humane’s Pin and AI pendants made by two startups, MyTab AI and Rewind AI, are the latest additions to this group.All these devices are nifty. Whether they are nifty enough to dislodge the smartphone and become the next big platform is another matter. For that to happen, consumers must take to them. This requires them, first, to look good—which some failed early efforts, such as the dorky Google Glass, did not. The r1 owes its sleek retro feel to Rabbit’s collaboration with Teenage Engineering, a Swedish design firm. Before its launch, Humane’s Pin appeared on a Paris catwalk at an event held by Coperni, a French fashion house. Meta’s glasses are a hit in part because Ray-Ban knows what makes shades stylish.Second, the new gadgets have to be useful in ways the old ones are not. Many hardware-makers are adding AI to existing devices. On January 31st Samsung started selling an AI smartphone that can do neat tricks such as summarising text-message threads. Microsoft’s next generation of laptops and tablets will reportedly include specialist AI chips and a new keyboard button to summon “Copilot”, its AI chatbot. Smart speakers, such as Amazon’s Alexa and Google’s Nest, and earphones, such as Apple’s AirPods, are getting revamped with AI features. These including chatbots and, with AirPods, the ability to let through necessary sounds and turn down volume when the wearer is speaking.To break through, the AI hardware will have to make life either much easier (for instance by booking a whole trip, flight, car and hotel included, with a single command) or much more marvellous (creating Mr Cook’s “aha moment”). Users will also expect them to perform more than a couple of functions. That means lots of apps. Meta’s latest VR headset, the Quest 3, offers 500 or so. The Vision Pro already boasts around 350 purpose-built apps, and can run the iPhone versions of most of the roughly 2m available in the App Store. Humane’s Pin, which doubles as a phone, claims to be doing away with apps, instead offering a range of “AI-powered services” from providers such as OpenAI and Google. Rabbit’s r1 piggybacks on smartphones’ existing app universe, at least for the time being.Third, although manufacturing things has got easier, managing supply chains remains the hardest part of running a hardware business, notes Shaun Maguire of Sequoia, another VC firm. Suppliers may take phone calls from smaller firms but some are still reluctant to give good prices to unproven newcomers with small orders.None of the available AI devices overcomes all three challenges. Those that look pretty, like the r1, the Pin or Meta’s Ray-Bans, seem to be peripherals more akin to AirPods than the iPhone. Independently useful ones like the Vision Pro or the Quest are dorkier than Google Glass, and much clunkier. In addition, developing apps for Apple’s headset is expensive, which is putting off developers, including some video-game studios, Netflix, Spotify and YouTube (which also happen to compete with Apple’s own video and music-streaming services). Production problems afflict just about everyone. Jesse Lyu, founder of Rabbit, says that it took his product becoming an overnight sensation for him to gain a bit more bargaining power over his suppliers. Even Apple, the master of supply chains, reportedly had to scale back initial plans to ship 1m Vision Pros this year because of the complex manufacturing involved.If some gadget-makers clear all three hurdles, they may stumble on another: keeping up with the breathtaking pace of AI advances. Apple took seven years to develop the Vision Pro, aeons in AI time. Even the next generation of Rabbit’s device, which Mr Khosla says will be ready as soon as this summer, may be outmoded by the time it gets into users’ hands. One of today’s AI gadgets may one day dethrone the smartphone. More likely, the winning form factor has yet to take shape. ■ More

“IT IS THE most advanced AI accelerator in the industry,” boasted Lisa Su, boss of Advanced Micro Devices (AMD), at the launch in December of its new MI300 chip. Ms Su rattled off a series of technical specifications: 153bn transistors, 192 gigabytes of memory and 5.3 terabytes per second of memory bandwidth. That is, respectively, about 2, 2.4 and 1.6 times more than the H100, the top-of-the-line artificial-intelligence chip made by Nvidia. That rival chipmaker’s prowess in the semiconductors fuelling the AI boom has, over the past year, turned it into America’s fifth-most-valuable company, with a market capitalisation of $1.5trn. Yet most experts agreed that the numbers and Ms Su weren’t lying: the MI300 does indeed outshine the H100. Investors liked it, too—AMD’s share price jumped by 10% the next day.On January 30th, in its quarterly earnings call, AMD announced that it expected to sell $3.5bn-worth of MI300s this year. It also reported strong revenues of $23bn in 2023, four times what they had been in 2014, when Ms Su became chief executive. Its market value is up 100-fold on her watch, to $280bn. Relative to forecast profits in the next 12 months, its valuation is richer even than Nvidia’s. Last year it displaced Intel, which once ruled American chipmaking, as the country’s second-most-valuable chip company. Now it is taking aim at the biggest.image: The EconomistSuch ambition would have seemed fanciful a decade ago. Back then, recalls Mark Papermaster, AMD’s technology chief, AMD was facing an “existential crisis”. In 2008 it had spun off its chip-fabrication business to focus on designing processors, outsourcing manufacturing to contract chipmakers such as TSMC of Taiwan. The idea was to be better able to compete on blueprints with Intel, whose vast fabrication capacity AMD could not hope to match. It didn’t work. Several of AMD’s chips flopped. Sales of its central processing units (CPUs), mostly for personal computers, were collapsing. In 2013 it sold and leased back its campus in Austin to raise cash. A year later Ms Su inherited a net-debt pile of more than $1bn, a net annual loss of $400m and a market capitalisation of less than $3bn, down from $20bn in 2006.Ms Su realised the only way for AMD to get back in the game was to steer it away from the sluggish PC market and focus on more promising areas like CPUs for data-centre servers and graphics processing units (GPUs, which make video-game visuals lifelike) for gaming consoles. She and Mr Papermaster took a gamble on a new CPU architecture designed to beat Intel not just on price, but also on performance.When the going got toughThe idea was to use a Lego-like approach to chip building. By breaking a chip up into smaller parts, AMD could mix and match blocks to assemble different types of chips, at a lower cost. When the first such composite chips were released in 2017, they were zippier and cheaper than rival offerings from Intel, possibly in part because Intel was distracted by its own problems (notably repeated manufacturing slip-ups as it moved to ever tinier transistors). In the past ten years AMD’s market share in lucrative server CPUs has gone from nothing to 30%, breaking Intel’s monopoly.Having faced down one giant, AMD now confronts another. The contest with Nvidia is different. For one thing, it is personal—Ms Su and Jensen Huang, Nvidia’s Taiwanese-born boss, are distant relatives. In contrast to Intel, Nvidia is, like AMD, a chip designer and thus less prone to production missteps. More importantly, the stakes are higher. Nvidia’s market value of $1.5trn is predicated on its dominance of the market for GPUs—not because of their usefulness in gaming but because they also happen to be the best type of chip to train AI models. Ms Su expects global sales of AI chips to reach $400bn by 2027, up from perhaps $40bn last year. Does she stand a chance against Nvidia?Nvidia is a formidable rival. Both its revenues and operating margins are nearly three times AMD’s. According to Jefferies, an investment bank, the company dominates the market for AI accelerator chips, accounting for 86% of such components sold globally; before the launch of the MI300, AMD barely registered. Nvidia also offers network gear that connects clusters of chips, and software, known as CUDA, to manage AI workloads. Nvidia has dominated AI chipmaking because it has offered the best chips, the best networking kit and the best software, notes Doug O’Laughlin of Fabricated Knowledge, a research firm.image: The EconomistAMD’s new processor shows it can compete with Nvidia on semiconductor hardware. This, Mr Papermaster says, is the result of a ten-year investment. AMD is spending nearly $6bn a year on research and development, nearly as much as its larger rival—and twice as much as a share of sales (see table). This has enabled it to adapt its Lego approach to GPUs. Combining a dozen blocks—or “chiplets”—into a single chip lets AMD put processors and memory close to each other, which boosts processing speed. In December OpenAI, maker of ChatGPT and the world’s hottest AI startup, said it would use the MI300s for some of its training.To outdo Nvidia on networking and software, AMD is teaming up with other firms. In December it announced a partnership with makers of networking gear, including the two largest, Broadcom and Cisco. It is also supporting an open-source initiative for chip-to-chip communication called Ultra Ethernet Consortium as an alternative to InfiniBand, a rival championed by Nvidia.Chomping at the byteNvidia’s lead in software will be harder to close. It has been investing in CUDA since the mid-2000s, well before the current AI wave. AI developers and researchers love the platform, which allows them to fine-tune the performance of Nvidia processors. AMD hopes to tempt customers away from Nvidia by making its software, ROCm, open source and providing tools to make the switch smoother, by translating CUDA programs into ROCm ones.Beating Nvidia at its own game will not be easy. Mr Huang’s firm is not standing still. It recently announced plans to bring out a new chip every year instead of every two years. The tech giants with the grandest AI ambitions—Alphabet, Amazon, Meta and Microsoft—are busily designing their own accelerator chips. Despite AMD’s robust sales, investors were disappointed with its forecast for MI300 shipments. Its share price dipped by 5% the day after it reported its latest results.Still, AMD has one big thing going for it. It is not Nvidia. AI companies are desperate for an alternative to its larger rival, whose dominant position lets it charge steep prices and, with demand outstripping supply, ration chips to buyers. Despite efforts to design their own hardware, big tech firms will rely on chipmakers for a while yet, and AMD gives them more options, notes Vivek Arya of Bank of America. Microsoft and Meta have already announced plans to use AMD’s GPUs in their data centres. And if Nvidia slips up, AMD will be there to pick up the pieces. Just ask Intel. ■ More