E2220 - May 18, 2022
Recession Looming? Implications of ARM in the data center, streaming wars, Tesla, and lots of charts.
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Recession Looming?
After the Q1 negative GDP read, there has been a lot more talk about the US entering a recession. The chart below implies that a lot of consumer spending is being financed by credit cards. This is a precarious position given inflation. That being said, the job market still appears to be strong and the labor force participation rate (see macro section below) still has room to come up. Will be keeping an eye on this.
ARM in the Data Center
2022 is widely believed to be a big year for data center growth. Chip companies from Intel to AMD to Nvidia are all forecasting big data center quarters. However, ARM based servers are creeping in. Amazon launched its 3rd ARM based cpu on AWS at the end of last year. It is pretty easy to migrate from X86 EC2 instance to an ARM based Gravitron instance. This seems to save customers >20%. Customers appear to be plowing those savings right back into AWS and Snowflake…
Streaming Wars
New data show that people who have been subscribers to Netflix for more than three years accounted for a significantly greater share of cancellations in the first quarter than they did two years earlier.
Over the past couple years, streaming benefited from reduced competition (i.e. going outside and spending time with people). Meanwhile streamers (Netflix, Disney, Hulu, HBO, Discovery, Amazon, etc) poured more resources into content production. This is driving additional competition in an industry where there are very low switching costs. I expect to see reduced content investments by the streamers (especially Netflix), more aggressive pricing, and maybe even a shift back to bundling in the wake of slowing (or negative) growth.
Metals Powered Economy
On the podcast this week we said we’d dig into Tesla, and some other companies that are leading the charge to what we’ve been calling the ‘metals powered economy’. Here are two interviews from the last week with Tesla founder Elon Musk. Both videos have interesting insights on the future of energy, supply constraints, and why Tesla is quite different from other car companies.
Supplemental Data
1 SuperCompounders
2 Macro
3 Energy
3.1 Oil & Gas
3.2 Metals Powered
4 Tech
Cloud Multiples - Check out the most recent edition of Clouded Judgement for the latest SaaS multiples.
Semiconductors
Semiconductor Industry Association Global Billings Report
Bureau of Economic Analysis Semiconductor Import / Export
Cryptocurrency
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