1) The strong perf of megacap tech in Q1 (up 31% per GS) is strange to me.
They were all in their own monopolistic swim lanes for 10+ yrs.
Now they are all facing an existential threat/opp from Generative AI/LLMs.
They were all in their own monopolistic swim lanes for 10+ yrs.
Now they are all facing an existential threat/opp from Generative AI/LLMs.
2) More importantly, competitive intensity is going up significantly as soon to be seen agentic AI forces them all into the same swim lane. Competition between them was previously either contained (iOS/Android), overstated (search vs. social) or oligopolistic (cloud).
3) The significant increase in competitive intensity plus existential risk for all of them seems like it should have more than overwhelmed the increased opportunity for all of them and compressed multiples.
4) Offset is obviously that the โyear of efficiencyโ is powerful and they can all comfortably cut headcount dramatically while likely accelerating innovation. โLighter is faster.โ
So E can continue to move up for most absent Econ implosion, but unsure about multiples from here.
So E can continue to move up for most absent Econ implosion, but unsure about multiples from here.
5) Generally think there are better opportunities in companies where Generative AI is mostly upside - i.e. no existential risk to the business model and stable competitive intensity.
Time will tell.
Time will tell.
6) The Megacaps have more data, compute and distribution - the key ingredients for success here - than anyone else. Some of them will win. Issue is that losing might be existential and it is too early to call winners/losers. Execution will be everything as always.
7) Should also note that outside of open source, I am not particularly bullish on LLM startups for the reasons mentioned above.
There are no barriers to entry on the internet, only barriers to scale so distribution wins championships.
Posting all this for sake of clarity.
There are no barriers to entry on the internet, only barriers to scale so distribution wins championships.
Posting all this for sake of clarity.
8) Also think all of this is exciting. The defining trade for last decade was to just mindlessly own FANG/MAGMA. The increase in competitive intensity plus existential threat/opportunity from said competition will make for a more interesting sandbox for investing.
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