Financial clouds over technology
And also: The fragility of our digital infrastructure. DeepMind's exciting new development. The ethical challenges of the Metaverse. Apple helping maintain Big Tech's status quo
Financial clouds over tech stocks and startups
This week we learned that Big Tech founders are taking advantage of the current market peak and selling stock at historic levels. The (noisy) case of Elon Musk (Tesla) is well known, but Zuckerberg (Facebook) and Larry Page and Sergei Brin (Google) are also selling. This could be driven by an expectation of higher taxes for capital gains in the US, but for some people it also suggests that market perspectives for tech stocks are not good, and there are even comparisons with the last days of the dot-com boom, around 2001
On Monday, Paul Singer, who founded and leads Elliott Management, the famous activist fund, argued that these are not good times for risky stocks, and that current valuations could be (dangerously) misleading, as they might have been supported by monetary and fiscal policies. He mentions rising inflation and rising interest rates as potential triggers of a “substantial market decline”
In the VC space, even if startup funding and IPOs are happening at record levels, the average performance of the new public companies after debuts is getting worse, exactly the effect we have just seen with BuzzFeed. The FT’s Lex Column sees this as a sign of investors becoming more selective. Chris Bryant, from Bloomberg, thinks that “hyperactive VCs” may now relax a bit
Finally, large tech-centric funds, such as SoftBank and Ark Invest, are suffering as the value of their portfolios feels the pressure
The week
1. Consumers and businesses, after COVID
What is happening
Emerging consumer risks
On Friday the World learned of a new software vulnerability, linked to Log4j, a widely used open-source logging library, through which hackers could gain control of servers that use it. Microsoft, Alibaba, Apple and many others are affected (Wired)
Credit Suisse has plans to require employees to give the company access to their personal phones (FT)
The post-pandemic economy
Labor shortages in the US could be shifting bargaining power to workers (vs. employers). Earnings are growing (WSJ)
Uncertainty linked to the Omicron variant is driving new commitments from firms like Facebook to remote work (WSJ)
On a longer term, investors diverge on their views of the future of remote work. Some are betting against office space, while others try to buy cheap (WSJ)
Emerging consumer behaviors
Success is more ephemeral than ever for content creators, as a result of excess supply in apps like Netflix or TikTok (NYTimes)
What it means
Office space is not seen as a “safe and predictable” asset anymore. An emerging vision that the virus could stay with us much longer than initially forecasted seems to be moving some hedge funds to short office owners. We still don’t know what will happen, and there are also bullish investors, but this is one more sign of the deep implications of the pandemic on the way we live and work
The new threat revealed this week, with Log4j, is one more example of how fragile are some of the digital systems on which we increasingly rely. New design principles or regulatory requirements, at least for critical services, might be needed
Incentives for content creation are becoming a priority for digital apps. The radical shortening of the lifetimes of hits may increase pressure for this
2. Platforms and digital enablers
What is happening
Alibaba has announced a reorganization to increase flexibility in a rapidly changing e-commerce market in China (and elsewhere) (WSJ)
Amazon has become powerful agent on the US labor market (WSJ)
However, Amazon won’t probably solve the problem of declining shopping mall assets(that hope to become logistics centers) (WSJ)
Tight labor rules are challenging Uber (and other Gig Economy companies). Maybe network effects have a limit, after all (FT)(FT2)
Artificial Intelligence:
Google’s DeepMind creates a lighter, cheaper alternative to OpenAI’s GPT-3 (MITTechReview)
Face recognition could be on the way to our airports (NYTimes)
Researchers look at neuroscience to address current limitations of deep learning models (Quanta)
Connectivity:
SouthEast Asian operators see mergers as a solution to make 5G profitable (FT)
The UK presents a plan to accelerate deployments of cloud-centric, open radio networks (Bloomberg)
Cloud:
AWS had a serious outage this week (NYTimes)
This showed how much we already depend on them (WSJ)
They said it was their fault (Bloomberg)
Semiconductors:
What it means
As with the Log4j cyber security issue, this week’s AWS outage creates concerns on the fragility of our digital infrastructures. Yes, Amazon / Microsoft / Google are working to solve this, but this is becoming a serious question that should probably be addressed together with governments and other public institutions
The power that this same company (Amazon) has as a shaper of the labor market is one more reason to include them in the political agenda
AI makes progress. DeepMind’s new language model is an exciting development, radically improving the applicability of something so powerful as OpenAI’s GPT-3 tool. In parallel, the expected expansion of face recognition systems is an economic / convenience opportunity, but a privacy challenge
3. Financing digital innovation
What is happening
IPOs and startup funding are beating records, both in US and Europe (WSJ)(Bloomberg)
However, IPOs are becoming more expensive, and returns don’t look good, given frequent stock falls after debuts (FT)
ESG investing may be based on a “mirage”, according to Business Week, because metrics are kind of… perverse… (BusinessWeek)
Emerging themes for investors:
Metaverse: China is developing its own Metaverse, and local censors have high expectations (Bloomberg). Meta works to control harassment in Virtual Reality social experiences, potentially worse than in current social apps (CNET)
Electric Vehicles: Investors question the future profitability of electric cars (and it might depend on software services) (WSJ). Elon Musk is against government subsidies for electric car infrastructures (WSJ)(Elon Musk Interview). GM and Rivian plan US factories (Bloomberg)
Autonomous cars: Stellantis wants a piece of the pie (Bloomberg). Tesla might be sacrificing safety to move faster (NYTimes). Apple loses specialized engineers to startups (Bloomberg)
Quantum Computing: Honeywell spins off Quantinuum, that will offer a quantum-generated encryption key (Bloomberg)
What it means
As the details of future Metaverse apps start to be discussed, some challenges are appearing. Two examples this week: First, virtual activities can be more easily monitored than “physical” ones, and authoritarian regimes (like China) may try to exploit this. Second, “VR harassment” could be much worse than in current social networks, as people get more exposed
There is consensus that future car profitability could shift to software services. The question then is who is best positioned to capture that value. If it works like in smartphones, it won’t be traditional hardware (car) vendors
Encryption is confirmed as the (only?) killer app for Quantum Computing in the short term. This could be a large business, as many systems would have to be updated
4. Building new rules for the (digital) game
Customer protection: privacy & safety:
US Senators recommend stricter regulation for Instagram and other social media apps (NYTimes)
Meanwhile, Instagram presents new tools to increase safety (WSJ)
Algorithms: TikTok accused of “reading minds” (NYTimes). Claims to build “ethics” into tech development (FT). Uber’s algorithm seen as a key piece to improve their working conditions (Wired)
Antitrust:
Big Tech controls 50% of the advertising market, ex-China (FT)
Apple delays the execution of the order to offer alternative payment systems at the App Store (NYTimes). Also, they may have reached a truce with Facebook and others over iPhone’s privacy tools (FT)
The “Tech Cold War”:
China expected to “soon lead” the US in technology (WSJ)
China invests to build a national semiconductor champion (WSJ). Germany is negotiating with TSMC about a local factory (Bloomberg)
Europe wants rules for the space race (FT), and about US Big Tech firms building data centers in the region (FT)
What it means
Like infrastructure (still fragile and vulnerable, as we saw this week), algorithms within leading digital apps are increasingly important for people’s lives, so it makes sense that governments look for ways to make them safer. This could include redesigning business models (i.e.: algorithm’s objectives) but also “softer” initiatives, like raising the profile of ethics in software developers’ curricula. This is starting to be debated in the business press
Bad news this week for those who want to change the tech status quo. Apple have succeeded in delaying the application of the only restriction for them that had come out of the recent App Store trial. At the same time, some reports claim they have stoppedrestricting apps like Facebook to trace iPhone’s users’ activities. If confirmed, this won’t look too good for Apple…