The Lookout: two recent good listens on tech stocks
This is the first of a new series of recommender newsletters. I'm starting with two recent podcast listens I've really enjoyed, each looking at the precarious world of tech stock valuations, and reflect on what it can mean for all of us. As always you tell me if you'd like more or less of this at the bottom of this email, or by replying - Liz.
LISTEN: FT on precarious tech stocks
The FT's Unhedged podcast is always a good listen; their recent episode on the drop in US markets ("Trump Dump") is a banger.
It contains two vignettes that capture the insane world of tech company valuations - the foundation of much of the economic growth of the past decade+.
Firstly Lex column writer John Foley spells out just how much speculative (ie. imagined) value is tied up in certain blockbuster tech stocks:
"And the thing about stocks is that most of the value comes from future cash flows, right? So think about Nvidia, Palantir, probably like 80 per cent of their value comes from stuff that happens after 2030."
{Yes, the same Palantir of the election stock selling scandal}
He also talks about CoreWeave, a data centre firm coming to a stock market near you soon, worth "anything up to $40billion". Yet, as he notes in classic Oxbridge understated style, "because this is tech, it comes with quirks that would in a normal world be extremely off-putting". He goes on;
"it has data centres and it rents them out, but it rents them out mostly to one company, which is Microsoft. And its supplier is mostly one company, which is Nvidia... it has basically one dominant supplier, one dominant customer. That’s a lot of risk... But you’re also between the founders who have super voting shares that give you no power. There is a staggered board where you can’t eject all the directors in one go. I mean, all the greatest hits."
What could go wrong?
LISTEN: Hard Fork on the amazing vanish Chegg
Another micro-case study on a different podcast encapsulated what is happening in "search" (ie. Google) and how tweaks can erode billions of dollars of value, especially for publishers.
Hard Fork, the NYT's insider-y weekly tech podcast had this nugget in their recent episode "Is Google Search Cooked?". They talk about "Chegg", a homework cheating website that charges students about $15 a month to access a database of answers to test questions. Casey Newton explains what happened next:
"Well, then along comes Google and its AI Overviews. And using who knows what methods, but I’m going to assume they did some pretty aggressive scraping of Chegg and other websites, they started to put the answers to all these homework questions directly in the AI Overviews.
All of a sudden, there is no need to visit Chegg. And Chegg, Kevin, is now on life support. This is a company that was riding high during the pandemic. It was valued at $12 billion in 2021.
And now its stock is basically a penny stock. And it is exploring strategic alternatives, which is corporate speak for, we’re going to have to unload this thing in a fire sale.
So what?
"So what?" I hear you cry.
Well, for one thing, something fundamental is happening to the web that will affect us all. We are transitioning from a search based web, where Google directs us to an infinite array of content scattered across infinite websites / businesses; to one where "content" is scrapped and squeezed through LLMs to personalised answers.
What this means for information quality, for publishers, for plurality and contestation and the kind of decentralised and uncontrollable architecture of the Web as originally envisaged remains to be seen.
And, it is worth noting, if you have a pension, the chances are high that you have a lot of money tied up in a particular idea of what 2030 might look like, and that can change with a the stroke of a key.
