Revenge of reality: how technology has been discounted in 2022

There is ironic symbolism in the news that Bernard Arnault, LVMH’s French boss and purveyor of fancy frocks, handbags and champagne to the laid-back elite, has overtaken the man. future rocket Elon Musk like richest billionaire in the world.

One of the themes of 2022 is how the future of technology has been heavily discounted by investors. The more conventional industries of the past, such as luxury goods, energy and defense, are back in fashion. Call it the revenge of reality, and not of the virtual kind.

The mood swings are extraordinary. At the end of last year, a rash idiot in the Financial Times predicts that the stock of Tesla, the electric car company run by Musk, will continue to rise into 2022. Although the stock is overvalued by any traditional financial measure, those Tesla fans are still enthralled by them as an irreplaceable variant token: a non-financial ticket to the future. But I’m not the only one surprised by the suddenness and severity of the turn. The tech-heavy Nasdaq index is down 32% this year. Shares of Tesla fell 66%.

Indeed, one of the most lucrative trades of the year was short selling technology futures. Shares of the Ark Innovation ETF, run by popular, tech-optimistic fund manager Cathie Wood, who has invested heavily in attractive tech stocks like Tesla, Zoom, and Coinbase, are currently trading only. translate at 21% of their peak value. Ark fund short sellers this year made 110% profit, by S3 . Partner. “We just came out of a crazy environment at the edge,” an investor told the FT this week.

Rising inflation and rising interest rates caused a reversal in the stock market. As the most overbought sector, tech stocks are particularly vulnerable to cyclical swings. It may be true that the Covid pandemic has accelerated the massive transition to digital as we all spend more time of our lives online. But many tech companies and investors overestimate the depth and duration of the trend. Even the giants of Silicon Valley are laying off workers when they withdrew.

The big question is whether investors were premature and overpaid for their enthusiasm for the technology — or were they simply wrong. Did they buy into the future too soon or did they buy into an illusion? The latter arguments were made strong by technology historian Jeffrey Funk, who compared the burst of the bubble in 2000 to what’s happening today.

Prior to that, the bubble financed the growth of e-commerce, digital media, and enterprise software, all of which had lasting economic value. On the contrary, Funk argues, it is hard to see comparable gains in the latest crop of tech companies investing in the metaverse, web3, and crypto. “When the air comes out of this bubble, we are most likely left with almost nothing of value,” he wrote in an article on American affairs, co-authored with Lee Vinsel and Patrick McConnell.

It is true that many of the recent burgeoning tech startups, particularly in the fintech, ride-hailing and fast-food delivery sectors, are built on cheap and seemingly endless flow of capital. Now that money has to pay, they are struggling to sustain loss-making business models. Much of the crypto excitement also seems absurd following the collapse of crypto exchange FTX amid allegations of fraud.

But the public tech sector still boasts a number of dominant and highly profitable companies, including Apple, Microsoft and Alphabet. Parts of the technology market, including semiconductors, cloud computing, and games, also continue to boast excellent growth prospects. And just as one tech bubble deflated, another burst.

Attracted by the capabilities of content creation models, such as OpenAI’s ChatGPT for text and Dall-E for images, venture capitalists poured money into innovative artificial intelligence companies. Venture capital firm Antler has identified More than 160 startups in the field, four of which are emerging as unicorns, are valued at more than $1 billion this year alone.

The theory is that the marginal cost of creating text, code, and images would fall to zero, boosting the productivity of knowledge workers in most creative industries. “Innovative AI has the potential to generate trillions of dollars in economic value,” said Sequoia Capital. in a recent report.

Given my own track record in the predictive business, I don’t make any forecasts other than saying: a lot of money will be made — and lost — in general AI.

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