Waiting for the "Next Big Thing"
And also: Security risks in telecom services. Connectivity is a hype again, but it is being re-structured. Conflicts of interest in ESG and crypto investing. The antitrust regulation debate
Why we keep waiting for the “Next Big Thing”
This week Cade Metz, the NYTimes columnist, discussed the feeling that we might have been waiting too long for the “next big technology wave”. For all the (not always structured) talk about “exponential growth” and “acceleration”, the perception is that truly transformational technologies like Quantum Computing and Self-Driving Cars are not arriving when we expected them. Metz argues that this delay does not mean that we don’t have the right structure to keep innovating, or that we don’t have the right talent, but that the problems being addressed are more difficult than the ones that brought the mobile internet. At the same time, as Peter Thiel and David Graeber discussed some years ago, these new technologies could have a much larger (positive) impact on our lives
Of course, the implications of this can be subject to discussion, and this same week we have read another article considering a scenario in which Quantum Computing could be “a bust”. The authors mention a QC-skeptic physics professor, who claims that “we will never have a quantum computer”, but just a few expensive, task-specific quantumdevices, because the technology is “too hard a problem to solve”. All this could lead to a “Quantum Winter”, not that different from the “AI Winter” we already had during the 1970s, or to (even more radical) what has happened to Cold Nuclear Fusion
A different, more technical, paper has just been published about the challenges to develop ”General Artificial Intelligence”, claiming that it is still far away in the future
So, the big question is if there could be a risk that most of the (large) efforts applied today to “Deep Tech” initiatives could lead to this kind of disappointments. Let’s hope that is not the case. But it would be advisable to identify the potential bottlenecks and focus resources on addressing them or on finding alternative solutions (or projects)
The week
1. Consumers and businesses, after COVID
What is happening
New consumer risks:
Two claims this week about security problems in telecom operators’ networks (an area that they might want to keep as a “safe haven” to differentiate vs. other players): TracFone (now Verizon) customers complain about their phone numbers being stolen (WSJ). Meanwhile, WhatsApp highlights the “unsafety” of (not end-to-end encrypted) SMS in an NFL ad (Bloomberg)
Concerns about the IRS (US tax agency) being interested in using face recognition technologies (TheAtlantic)
Emerging consumer behaviors:
The New York Times says that the boom in chat groups that came with the pandemic is now fading, in a sign that the end of COVID-19 (as we’ve known it) might be near (NYTimes)
Work is also going back to normal, but only partially. People now expect things like “4-day working weeks” or hybrid schemes in which it will be key to draw clear work-life boundaries (FT)(WSJ)
What it means
Security has traditionally been seen as an advantage by telecom operators, subject to much stricter regulations vs. digital app providers. In a world where cybersecuritybecomes more of a priority (for both governments and citizens), this could turn into an asset to be exploited. That is why reports of operators’ vulnerabilities, like those published this week, are a negative message for the industry
The news that the IRS in the US is considering to use face recognition as a tool to identifytax-payers show that the West is not so far away from China in the scope of applications that are being thought for this technology, and in the potential to “invade” people’s privacy. The outcome of this initial debates might be key to shape our future (as asociety)
2. Platforms and digital enablers
Microsoft’s results were rather well received. All cylinders working: cloud (WSJ), gaming (FT), and even the PC (WSJ2)
Apple also pleased investors with its 4Q21: impressive sales in China (WSJ)(FT), and supply chain (WSJ) as a strategic advantage
Facebook (Meta) is closing its crypto / digital payments unit (WSJ)(FT)
Netflix’s growth crisis triggers concerns on the sustainability of streaming (FT)(FT2)
AI:
OpenAI has developed a new version of GPT-3, which eliminates “toxic language” (MITTechReview)
Connectivity:
The metaverse may require an upgrade of current access networks (FT)
So AT&T may have a point by offering ultra-high speed Fixed BB as a differentiator (Bloomberg)
Investors are excited about Vodafone (including some activists…) (Bloomberg)(FT)
Infrastructure:
DT, Vodafone and Orange are considering a tower JV (Bloomberg)
Semiconductors:
Intel’s (weak) results create concerns on the industry (Bloomberg)
What it means
Connectivity is (again) becoming an interesting theme for investors. The consensus is that network infrastructure is going to play a critical role for emerging applications, and whole ecosystems like the metaverse. And the dominant view is that assets are often undervalued, and poorly managed. That’s why Private Equity funds are attracted (as shown by rumors about Cinven’s stake in Vodafone)
Results from Big Tech companies have started to be published, with Microsoft and Apple releasing their numbers last week. Both companies showed strength and helped investors overcome the negative sentiment towards tech stocks that has dominated the first weeks of 2022
Intel’s results confirm the substantial challenges that the company is facing with its transformation plan
3. Financing digital innovation
What is happening
The results announced by Apple and Microsoft help Tech Stocks recover (Bloomberg)
Investors start to see opportunities in leading tech platforms, after the recent sell-off:
Blackstone looking for potential targets, to capitalize on the sell-off (FT)
Nvidia expected to abandon the Arm acquisition (Bloomberg)
Potential conflicts of interest in both ESG (risk auditors also advise clients on how to reduce the risk) (WSJ) and crypto (exchanges make profit from companies they list) (FT)
Emerging themes for investors:
Deep Tech: The ”next big thing” might require more efforts than previous milestones, involving more basic Science (NYTimes). Advanced Mathematics is expected to play a role (TheGuardian)
Metaverse: Second Life creator sees the eventual domination of Virtual Reality by Facebook as a risk (Wired). Microsoft’s military version of HoloLens is not ready yet (even after massive investments) (Bloomberg)
Electric Vehicles: A debate about Tesla. Do they just need to excel in production? Or do they need to go beyond (as a new Big Tech firm)? (WSJ)(FT)
What it means
There is an increasing perception that tech innovation might be decelerating. A NYT article this week attributes this to the challenges that need to be addressed before we have a new “major leap forward”. They involve solving difficult issues with technologies like quantum computing (e.g.: qubit noise reduction) or self-driving cars (e.g.: something closer to General AI). Even the Metaverse implies designing “an entirely new way of using computers”
This is nothing new, but two of the hottest topics in finance right now are revealing to be subject to substantial conflicts of interest. In ESG investing, firms auditing others on carbon footprints are often also advisors on how to reduce these footprints. In crypto, exchanges like Coinbase often hold positions in some of the projects related to cryptocurrencies that they list
4. Building new rules for the (digital) game
What is happening
Privacy & online safety
Google has announced a revision of its plan to replace cookies, after different market agents expressed privacy and competition fairness concerns (WSJ)(Bloomberg)(NYTimes)
China wants to eliminate all illegal content from local apps. An internet “purification” campaign has been launched (FT)
Antitrust:
A debate is under way in the US about how to apply antitrust to Tech Giants. The FTC wants to look beyond the recently dominant “consumer welfare standard” (WSJ). But some analysts claim this would be a mistake (Economist)
35 US States want to re-open the Epic Games vs. Apple case (FT)
US lawmakers might have a conflict of interest to judge Big Tech (given the stock they own) (BusinessWeek)
The “Tech Cold War”
Semiconductors are seen as the “great geo-strategic game” these days. And China might be on the way to dominate it (FT)(Economist)
A government program in China is funding startups to develop strategic technologies and compete with the US (Bloomberg)
What it means
We’ve already discussed here that the threat of regulation might be a more credible one for future Big Tech cash flows than the risk of higher interest rates. But even regulation hasplenty of challenges. For instance, antitrust measures against tech giants are difficult to justify with the current “consumer welfare standard”, as these companies typically offer free, high-quality services. The reaction of some regulators is to try to expand the scope of antitrust, but there is significant resistance to that (could be even more if Republicans win the mid-terms). On top of that, the fact that many lawmakers own stock in Big Tech companies probably doesn’t help to make fast progress with all this
Even China is betting on a de-centralized, entrepreneur-centric approach to develop the strategic technologies for the future. Food for thought for those in the West advocating for more centralized, “Apollo Program” models for tech innovation