Losses on Bitcoin and other cryptocurrencies are reaching legendary proportions. Total losses on Bitcoin are now around 70% since its peak last December. The loss brings it close to the 78% decline in the Nasdaq seen during the Dotcom bubble. Many other coins have gone to essentially zero.
FINSUM: The Dotcom bubble is an interesting comparison. The reason why is that though prices were far too high, the market did call correctly that the internet would be hugely disruptive to industry and create very valuable businesses. Will the same happen with crypto, but ten years down the line?
Many investors are currently worried about the potential for a tech bubble. Between high valuations, data breaches, and a growing call for more regulation of the sector, it is easy to feel bearish. However, Barron’s is telling investors to not be too worried. The opinion is based on analysis of tech price movements and outperformance against a new Harvard study. Historically speaking, a bubble can be referred to as at least a 100 percentage point outperformance of a sector versus the market as a whole over a two-year period, followed by at least a 40% drop over the following two years. By that metric, the tech sector isn’t even close, as it has only outperformed the market by 36% over the last two years.
FINSUM: So this was a valuation-based study, but it could theoretically also be applied to individual stocks. When you do that, both Amazon and Netflix look vulnerable, as both have satisfied criteria for a bubble.
One of Elon Musk’s most promising and exciting ideas just won a major funding bid. A couple of years ago Musk divulged his idea for underground “hyperloop” travel that sent people whisking around at hundreds of miles an hour underground. Well, the idea is going to become a reality, as Chicago has just awarded Musk’s “Boring Company” a contract to build such a link between O’Hare airport and the city. The distance between the two is 18 miles and currently takes around 40 mins. Musk’s plan would cut the trip to 12 min. The deal will be privately funded.
FINSUM: This sounds like a great proof of concept for Musk, but we do worry it will take some of his focus away from executing on Tesla.
Artificial intelligence is one of the hottest concepts in tech, and one of the most intangible from an investing standpoint. Since “AI” seems to be something that most companies are developing internally, the concept remains difficult to invest in directly for most investors. Those wanting to invest in AI can look beyond Google, Facebook, and the rest of the FAANGs, however. According to one analyst, one should look for specific software companies that have “tremendous expertise in their specific industry, understand their customers’ businesses, and provide highly tailored solutions”. These include Aspen Systems, Guidewire Software, and Veeva Systems.
FINSUM: AI doesn’t have many widely available direct investing opportunities, so these seem like some very interesting picks if you want to bet directly on the technology.
One of the most disruptive technologies in industry might not seem that disruptive—batteries. Yet advances in batteries are about to reshape many areas, not least of which is the power grid. Home energy storage and car battery power are two of the biggest areas of disruption, and investors need to understand the dynamics in play. Better batteries mean less energy costs as power can be stored to smooth out demand-based pricing. It also makes electric vehicles legitimate, and possibly cheaper competitors to gas vehicles. Additionally, improved energy storage makes renewables profitable.
FINSUM: Batteries are going to change the economics of almost everything related to power. Make sure you understand some of the key battles because share prices are going to start reflecting the changes.
Increasingly, investing in tech companies means you need to go big or go home. What we mean is that large cap tech companies have been outperforming their smaller peers handily. The S&P 500 Information Technology Sector is up about 14% this year, much better than the index’s 3.7% overall gain, but the S&P 600 Information Technology Sector has only gained 9.9%. That means that the largest tech company are significantly outperforming their smaller peers.
FINSUM: This is not a surprise given the overall momentum the FAANGs have had over the last few years. However, given the worries over regulation, it is odd to see they have outperformed smaller rivals very recently.