Runaway Robots, Rising Oil, Soaring Semis, SpaceX Headaches
Let’s check the latest on how AI escaped the ‘sandbox,’ oil prices amid Iran unrest, the tech trade and … what’s happening with SpaceX.
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Mr. Roboto
The problem’s plain to see
Too much technology
Machines to save our lives
Machines dehumanize
The time has come at last (secret, secret, I’ve got a secret)
To throw away this mask (secret, secret, I’ve got a secret)
Now everyone can see (secret, secret, I’ve got a secret)
My true identity
– Dennis De Young (Styx), 1983
What We’ve Long Feared About AI
Late Tuesday night, Bloomberg News and other outlets reported some startling news. It was the kind of news that many of us have feared, but more or less had expected since generative and then agentic artificial intelligence moved from the realm of science fiction into our reality. What happened has to some degree, rattled financial markets overnight.
OpenAI, the AI company behind the Chat-GPT chatbot that many readers likely use on a regular basis, revealed that advanced AI models that it was testing, were able to escape their “sandbox” and had inadvertently hacked into, and compromised, systems run by Huggy Face during an evaluation of that company’s cyber capabilities.
Huggy Face had said last week that an autonomous AI-agent had broken into its AI-infrastructure providing systems. Over the weekend, Huggy Face revealed that it was able to reconstruct more than 17,000 such events. The intrusive agent led with a malicious dataset that exploited code-execution pathways in Huggy Face’s pipeline. The intrusive agent then was able to escalate privileges and moved throughout the system.
OpenAI has now come out and said that this incident was driven by multiple models including GPT-5.6 Sol and a “more capable,” but still unreleased model. Safeguards had been reduced for the test. In a blog post, OpenAI admitted that the event was “unprecedented” and the company is “sharing preliminary findings” in order to help “defenders understand what happened.”
Sarge Says…
This is going to be a bigger problem. This event illustrates how modern models are becoming ever more capable of carrying out highly complex, multi-step operations. This is particularly evident when the very safeguards designed to restrict activity are reduced or removed. Bad actors are not going to be especially concerned with keeping their models contained within any “sandbox.”
This announcement apparently came after OpenAI detailed a separate event where it had to pause another model that had also escaped. If OpenAI’s models are becoming too advanced to be contained, then so are everyone else’s. Think Anthropic. Think Elon Musk’s Grok. Even worse. Think the Chinese, the Russians, or Iran.
That said, it is a positive that we know just what the cutting-edge operations of this frontier industry are becoming capable of. OpenAI is arguing that advanced cyber-capable models will likely help security and defense teams find weaknesses in real-time or even before attackers do. OpenAI is not wrong about that. The key from here on out will be understanding very quickly how previously unknown vulnerabilities can be chained and then remedied at a speed unmatchable by human thinkers. Yes, we’re headed towards “good guy” AI versus “bad guy” AI. Heaven help us. We have no choice.
Breaking!
Yes, there’s more unsettling news. Front-month prices for crude oil are spiking on Wednesday morning. I have seen Brent trading at nearly $95 per barrel and the sweet stuff (West Texas) trading at just about $88. This latest surge in oil prices came after the U.S. had conducted an 11nth consecutive round of offensive military strikes inside Iran and after Secretary of State Marco Rubio spoke from the Philippines.
Rubio said that the U.S. remains committed to the diplomatic peace effort but accused Iran of violating multiple sides of the agreement to permit safe passage through the Strait of Hormuz. Rubio stated, “The problem we’re having right now is that they’re (Iran is) not serious about talks. If they’re serious, we’re serious. If they’re not, then we will do what is necessary to protect our interests and also the interests of our allies.”
ING released a note on Wednesday morning (that I read about at CNBC’s website) that expressed concern over “mounting supply risks” in energy markets. The note makes readers understand that “The disruptions facing the market don’t end in the Middle East. In the Black Sea, Russia’s CPC terminal has stopped receiving oil from Kazakhstan, with loadings suspended following ongoing attacks on tankers.”
Double Whammy
Not only are crude oil prices moving higher. Treasury debt security prices are moving lower. On Tuesday, the U.S. Ten-Year Note paid as much as 4.63% by day’s end and paid more than 4.64% earlier this morning. The Two-Year Note yielded more than 4.27% this morning as well. These yields are up from lows of 4.37% and 4.1% in roughly one month’s time.
These pressures are hitting U.S. equity index futures through the zero-dark hours on Wednesday morning. The man in the darkened window hasn’t said a word. He just stares. Nasdaq futures are being hit the hardest overnight after having rallied out of a somewhat oversold condition on Tuesday. This comes with both Alphabet (GOOGL) and Tesla (TSLA) ready to lead off the “mega-cap” earnings release season after this afternoon’s closing bell.
Marketplace
Tuesday was a great day for U.S. stocks at the headline level. The S&P 500 gained 0.89% for the day, as the Nasdaq Composite added 1.29%. Tech was hot. The Philadelphia Semiconductor Index rallied 5.21% as the memory / storage trade enjoyed a nice day. SanDisk soared 14.3% on Tuesday, followed by Micron Technology (MU), which was up 12.2%. This took the Nasdaq 100 a nifty 1.93% higher for the session. The small to mid-cap indexes all also did well, gaining between 1.06% and 1.53% on Tuesday.
Were the gains legit? Was Tuesday a “Day One” bullish reversal or confirmation of trend? Not really. Breadth was nice, but not overwhelmingly so. Seven of the 11 S&P sector SPDR exchange-traded funds closed out the Tuesday session in the green. Tech (XLK) easily led the winners. Cyclicals did outperform defensives, which was positive.
Back to breadth, though. Winners beat losers on Tuesday by a rough threee-to-two margin at the Nasdaq and by about five to four at the NYSE. Advancing volume took a commanding 74.4% share of composite Nasdaq-listed trade, but a more pedestrian 61% share of NYSE-listed activity. Aggregate trading volume was up 11.4% on a day-over-day basis across Nasdaq-listings, which is impressive. That said, activity was down small-day-over day across NYSE-listings and lower across the membership of the S&P 500. Hence, no “Day One” for market watchers.
More Headaches Coming for SpaceX?
News broke on Tuesday that Cathie Wood’s ARK Invest had purchased a rough $56.9 million worth of SpaceX (SPCX) stock during the week of July 13 to 17. This gave the stock, which has been under intense pressure, a boost, gaining 3.1% for the day to close at $123.54. That’s 8.5% below the IPO price of $135 and 45.3% below the post-IPO high of $225.64.
Investors buying the dip should be cognizant of the fact that SpaceX will begin releasing large blocks of currently restricted stock as soon as Aug. 6. That is when insiders will start becoming eligible to sell shares worth as much as $116 billion (with a “b”).
According to the company’s staggered lock-up schedule, a rough 911.5 million shares will become eligible for sale initially. That total could grow substantially if the stock meets certain performance targets. Potentially, by December, as many as 5.3 billion shares could be available for trade compared to just 639 million today.
Economics (All Times Eastern)
07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 6.65%.
07:00 – MBA Mortgage Applications (Weekly): Last -2.7% w/w.
10:30 – Oil Inventories (Weekly): Last -1.693M.
10:30 – Gasoline Stocks (Weekly): Last -1.533M.
1:00 p.m. – Twenty-Year Bond Auction: $13B.
The Fed (All Times Eastern)
Fed Blackout Period.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: T (.59), GEV (3.07)
After the Close: GOOGL (2.90), CSX (.52), IBM (2.92), NOW (.86), TSLA (.54), TXN (1.95)
At the time of publication, Guilfoyle was long IBM, SNDK, MU equity.
