2023-04-22 01:43:45 ET
Summary
- Amazing risk-reward.
- Huge volume Thursday.
- No downside.
Question: What's hotter than artificial intelligence, machine learning and ChatGPT?
Answer: Nothing.
For students suddenly there's a magical way to write their papers and do their homework. For companies suddenly there is less staff needed and a better looking bottom line.
So what is ChatGPT?
ChatGPT is an artificial intelligence chatbot developed by OpenAI. Although the core function of a chatbot is to mimic a human conversationalist, ChatGPT is versatile. It can write and debug computer programs. mimic the style of celebrity CEOs and write business pitches, compose music, teleplays, fairy tales and student essays, answer test questions, write poetry and song lyrics, emulate a Linux system; simulate entire chat rooms, play games like tic-tac-toe and simulate an ATM-Wikipedia
Questions
Who owns ChatGPT? OpenAI
Is OpenAI publicly traded? No
Who is the CEO of OpenAI? Sam Altman. Altman is also the co-founder.
What most don't know is that Altman is also the co-founder and CEO of a publicly traded company. Altman runs AltC Acquisition Corp ( ALCC ). ALCC is a special purpose acquisition company or SPAC. SPACs are blank check companies, shell corporations listed on stock exchanges with the purpose of acquiring a private company.
AltC Acquisition Corp went public in July of 2021 and so far hasn't found a company to buy. While the company says that it may pursue an initial business combination target in any business or industry, it makes logical sense that with Mr. Altman's expertise being in tech and specifically AI, ALCC could buy a company in that field. They have until July 8 to buy someone, though October 8 if they have executed a letter of intent. Furthermore, it is common for SPACs to extend the time allowed to pursue a deal via an extension vote from its shareholders. So worst case for someone buying now is ALCC doesn't find a deal, extends for three months with an LOI and then gives the money back through liquidation or an extension vote. In that case with interest there would still be a small gain.
No Downside
An attractive feature of SPACs is that the money raised is held in a trust so shareholders can redeem their shares for cash in the event of a merger or extension vote. The current NAV for ALCC is $10.20. That includes interest on the cash in trust which is held in treasury bills. The stock traded below that price all but one day of its 22-month history. Until Thursday.
Volume Explosion
Since February 6, ALCC traded in a tight range from $10.09-10.17. But on Thursday the stock traded as high as $10.26, and closed at an all-time high of $10.24. But the real telling stat was the volume. By far shares traded the most since the IPO back in July 2021. More than 6.5 million shares changed hands, compared to a 10-day average of 100K.
What accounted for the huge volume?
- A leak of an impending merger
- Rumor real or not of a deal
- Fund or funds building position ahead of the public finding out about a connection to ChatGPT. At least to their CEO.
These days SPACs are largely owned by arbs. For the most part, speculative individual investors exited the space about a year ago when the SPAC frenzy burnt out. Arbs buy the SPACS for less than the trust value and make bond like returns. But when SPACS trade above the NAV on high volume that's a sign that the majority of the arbs have sold to speculators. And speculators buying in size at $10.15-10.20 with arbs out of the way have a possible path to take ALCC to higher prices.
Conclusion
Buying ALCC at $10.24 gives you essentially no downside but unlimited upside. While that can be said about every SPAC, not every SPAC has its CEO as the CEO of ChatGPT. And not every SPAC just traded above NAV on huge volume. Something may or may not happen with ALCC but it would be hard to argue that the risk-reward isn't fabulous here.
For further details see:
AltC Acquisition: SPAC To Buy For A Possible Home Run