The Lex Newsletter: strange reality in the land of start-ups

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Dear reader,

Artificial intelligence startups have done a perfect job of dreaming up their own reality. Amid sharp declines in valuation, they exist in a bull market. Investors can be closing their wallets to the old favorites, but the money keeps flowing into AI thanks in large part to San Francisco open AIwhose ChatGPT chatbot caused a lot of buzz last year.

Of course, Lex is a big fan of anything that gives us the kind of glowing description that ChatGPT does (see image above). Although we question OpenAI’s seemingly sincere call for regulation, something that could ensure early-mover leadership. AI experimentation is expensive. Google and Microsoft (plus OpenAI) may end up dominating the industry.

Either way, the rest of the US tech startup scene hasn’t benefited much, no matter how many times they include the acronym “AI” in pitches. by SoftBank the dry stop in investments is a good example.

Maybe the smart money runs SoftBank accountant. Investors flock to Chinese e-commerce giant alibaba seems to believe it. Lex isn’t so sure. Alibaba has been slow to catch on to the rise in online sales through short-form video platforms. Throughout China, the post-reopening boom has quickly faded.

We are much more positive about the outlook for Japan’s economy. This week, the stock market hit a 33-year high. If retail investors can be persuaded that this is not a repeat of the bubble of the late 1990s, it could increase even more. Repurchase of shares in hitachi and fujitsu look hopeful. The same is true for investor activism and low valuation multiples supporting further price rises.

scrap ends

AI is, of course, the latest creation from the west coast that promises to change the world. Not long ago, alternative meat companies he said the same thing, stating that they could improve our health and reduce greenhouse gas emissions by moving away from pork, beef and chicken. Fast food chains added fake meat burgers and coffee shops added non-dairy milks. Shortly after Los Angeles-based startup beyond the meat joined the markets in 2019, it was valued at $14 billion.

That now looks like a high point that the sector cannot recover. A flood of competitors, backed by cash-strapped venture capital firms, ate up the Beyond Meat market. The market then contracted as customers became more picky about ingredients and more cost conscious. It is still cheaper to kill an animal than to buy meat substitutes. From a valuation of 122 times sales, Beyond Meat is down to two. Lex doesn’t expect it to go up.

Speaking of miracle cures for social ills, weight loss medications they are still in demand, with Denmark’s Novo Nordisk and USA’s Eli Lilly leading the way. Although Lex points out that long-term use increases the chances of hitherto unknown side effects.

The backlash against processed meatless meat is reminiscent of the life cycle of vaporizers. Once hailed as the best way to prevent smokers from lighting up, they are now subject to their own crackdown. That’s bad news for british american tobaccoWhat did I expect? alternative products to nicotine would more than make up for lost tobacco sales.

Here in San Francisco, cigarette smoke is treated as evil incarnate. Vaporizers are popular, but they’re less common than they were a year ago. If BAT’s new chief executive, Tadeu Marroco, spends much time watching rivals’ share prices, he’ll know that companies that talk less about replacing cigarettes perform better.

Still, new bosses with new plans don’t always reverse performance. When from Vodafone Chief executive Nick Read left last year, with little change at the telecoms group. Nothing that replacement Daisy Della Valle The dreams are likely to match the kind of value a breakup would unlock. As a Lex reader pointed out, job cuts are not a strategy.

summer calm

Brookfield try to sell central parks was received with dismay by the British press this week. The Canadian alternative asset group bought the resort business in 2015 and tried to expand it at a fair pace, reducing free cash flow in the process. Blockades and planning permission difficulties proved to be intractable obstacles.

Still, this has not a bad bet. The resorts are popular, with users willing to look beyond the American spelling of “downtown” and pay £250 per person per day to stay in cabins, swim and cycle through the woods. There are few alternatives. Using some assumptions about the debt used in the purchase and a £4.5bn asking price, which Lex believes is possible, Brookfield could secure an annualized return of 18 per cent.

US homeowners Those who refinanced homes during low rates have also used the period to accumulate wealth. Now that rates are up, refinancing is down. Commercial british owners they are looking at the rates as well. british land and land values they are scrambling over office blocks as debt payments mount and tenants try to strike new deals to accommodate staff working from home. The same negotiations are taking place all over Europe. But Lex thinks that London is in better shape than many other cities. The central skyscrapers are still in demand. Readers are skeptical, but we say: bet against the capital at your own risk.

the best of the rest

If you are interested in OpenAI, this 2016 New Yorker Profile by CEO Sam Altman is a good primer. It includes the ominous line: “Like everyone in Silicon Valley, Altman professes to want to save the world; unlike almost everyone here, he has a plan to do it.”

I liked this sobering analysis of San Francisco’s troubles in FT Magazine. I also wonder how nervous business leaders must get when they hear that the FT’s Dan McCrum has some questions.

Finally, a wild tale from the world of aspiring YouTube influencers. A 29-year-old pilot accused of deliberately crashing his plane to gain views is faces up to 20 years in prison. the video is here. It’s a little telling that she was holding a selfie stick when she jumped.

Enjoy your weekend,

elaine moore
Lex’s Vice Principal