LBA Monthly View | February 2023


• RIP TINA. For much of the last decade, equity markets were buoyed by “there is no alternative” (TINA) as interest rates were suppressed. Now, yields on short-term US Treasury securities are nearly equivalent to the earnings yield (earnings divided by price) of the S&P 500. For the first time in years, there may be an alternative.

• 2022 was the worst year for IPOs—as measured by volume and proceeds—in over a decade.

• The US’s Strategic Petroleum Preserve (SPR) continues to shrink. After selling 180 million barrels of oil from the SPR in 2022, an additional 26 million barrels were sold to satisfy laws enacted in 2015. The SPR now stands at its lowest level since 1983.

• The landline is slowly dying. Today, 70 percent of US households have only cell phones, while the number of households with landlines has fallen to 29 percent. (Twenty years ago, 95 percent of households had a landline, while just 3 percent relied solely on cell phones to communicate.)

• The average monthly payment for a new car has reached a record high: $777—nearly double the 2019 average.

• Just how much has technology impacted business operations and productivity? Significantly. Today, the S&P 500 is 70 percent less labor intensive than it was in the 1980s.

Company Highlights

• Nestlé (NSRGY)
During FY22, Nestlé was able to raise its prices by 8.2 percent while keeping volume essentially flat. The company’s ability to raise prices without causing customers to change their purchasing habits is testament to the strength of Nestlé’s products.

• S&P Global (SPGI)
The IHS Markit merger is already delivering positive results; during FY22, SPGI captured $276M in cost synergies, higher than forecasted, and gained almost 7,000 cross-selling referrals.

• PAR Technology (PAR)
CNBC recently reported that CAVA, a PAR customer since 2017, has confidentially filed for an initial public offering (IPO). PAR grows with the success of its customers, and it is encouraging to see CAVA’s growth trajectory continue as it taps public markets.

• Amazon (AMZN)
In 2022, the amount of renewable energy purchased by Amazon was record-breaking—the most of any company within a single year, ever. AMZN’s renewable energy portfolio now contains more than 20GW, which is enough energy to power 5.3M US homes.

• Vontier (VNT)
Circle K migrated its network of more than 600 public EV charging stations in Europe and North America to the Driivz platform after Driivz won the company’s competitive evaluation process.

On Our Minds

AI, Chatbots, and Tech-Giant Competition

Corporate America loves buzzwords. Just as “unprecedented” became unprecedentedly popular in 2020 with the onset of the COVID-19 pandemic, the term AI (artificial intelligence) recently surged in popularity. During fourth quarter earnings calls, management from Alphabet (the parent company of Google), Microsoft, and Meta collectively used the phrase “AI” 126 times. Cynics have suggested the prolific use of “AI” is an attempt to distract us from slowing growth, but AI is not the new flashy distraction some make it out to be. In fact, the AI we know today has been around for a while; it grew out of efforts and advances made by programmers in the mid-20th century. By 2015, AI was fetching headlines like the following from the Economist: The dawn of artificial intelligence: powerful computers will reshape humanity’s future. How to ensure the promise outweighs the perils. As computers have become faster and more powerful and as the cloud has grown and freed more data from on-premise servers, AI research and applications have improved dramatically; they now have better access to larger data sets on which they can be trained. ChatGPT, the AI-powered chatbot from OpenAI, is just one of the most recent examples.

Microsoft first invested in OpenAI in 2019, invested again in 2021, and—it’s rumored—invested an additional $10 billion in the company last month. Following this most recent investment, Microsoft was quick to roll out new AI-powered improvements to its search engine (Bing), its web browser (Edge), and its communication platform (Teams). Microsoft’s demo for Bing and Edge generated substantial excitement and publicity, which Microsoft CEO Satya Nadella smartly capitalized on. In an interview with the Financial Times, he stated, “From now on, the [gross margin] of search is going to drop forever … There is such margin in search, which for us is incremental. For Google it’s not, they have to defend it all.” Buoyed by its investment, fast rollout, and positive reception, Microsoft quickly painted Google as a company “scrambling to make up lost ground” despite years of AI investments, including the 2014 acquisition of DeepMind. In response to the competitive threats from Microsoft, Google unveiled its own AI-powered chatbot, Bard, in early February. After Bard made factual errors in its demo, the negative narrative gained more steam and Alphabet lost over $100 billion of market cap. However, the new AI-powered Bing made similar errors in its demo that were overlooked amid the hype. Bing AI not only generated factual inaccuracies, it also fabricated data that didn’t exist.

Though both Bing AI and Bard have a number of limitations in their current form, it’s clear AI holds tremendous promise to better harness data, enhance the user experience, and improve existing technologies. AI will have profound implications for humanity beyond search or chatbot features—its applications in medicine, pharmaceutical discovery, and data analysis have already shown remarkable promise. And we’re encouraged by the renewed competition between Alphabet and Microsoft, which we believe will fuel continuing improvements to AI technology by both companies over time.

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