Weekly TLDR - 300K Users For $300B
The TLDR
In this week’s TLDR, we focus on the new semiconductor giant (NVDA), the old semiconductor giant (INTC), the Fed’s 3 month timeframe to keep the printers running, Meta’s $300B for 300K users, NFTs hacked, and Web3 adoption from major corporations.
Chart of the Week:
Looks like property investors are listening to their “Rich Dad” as investor share of all homes bought reached an all time high. With increasing interest rates depressing buying power for individuals and rental properties generally seen as an inflation hedge, expect investors to increasingly scoop up a higher percentage of all homes sold. This dynamic drives up home prices for non-investor home buyers and rents are also going up all across the country right now. Let's hope wage growth can keep up.
Stock Market TLDR
No trust in Intel’s investment plan to capture foundry opportunity. Analysts and the market showed low trust in Intel’s ability to invest and capture the foundry business opportunity after Intel CEO detailed out an investment plan that gets Intel back in the lead in 5 years. Intel tested that trust even further by announcing a $5.4 billion acquisition of Tower Semiconductor, an analog and specialty chip manufacturer. The acquisition would makes sense if not for Intel’s horrendous track record with acquisitions. Tower Semiconductor gives Intel access to more customers and experience in making chips for other folks. We expect Intel margins and cash flow to be depressed before seeing revenue acceleration. Even if you are positive on the investment plan, the current holders of INTC are almost all value investors who will exit as cash flows decrease. Longer-term, we think INTC stock has a lot of potential as a strategic asset as the only major leading edge semiconductor manufacturer not in China’s sphere of influence in an era of rising geopolitical tension. The perfect timing to pick up shares at a discount could be a quarter or two into heightened spending but before Intel meaningfully captures new revenue opportunities.
Fed has 3 months to keep the printers running. The federal reserve announced a new policy that will ban its senior members from trading stocks, bonds, cryptocurrencies, derivatives, and a bunch of other financial assets. These measures will take into effect in May. From a self interest perspective, this new policy means that in 3 months, the members of the Fed will no longer personally benefit from a healthy stock market… conspiracy theorists go wild!
Nvidia doesn’t need crypto. Nvidia crushed its quarterly earnings, exceeding analyst expectations both for their Q4 results and Q1 guidance. In fact, Q1 is expected to be Nvidia’s first quarter with over $8B in sales and likely it’s first quarter where the datacenter business is larger than the gaming business. Nvidia’s strong performance is despite crypto headwinds as its crypto focused processor saw revenue declines of 77% (page 17) versus last quarter. The decline in crypto revenue also highlights concerns if Nvidia will be a beneficiary of the billions of dollars VCs are putting into Web3 companies. Something Intel is already touting.
Meta’s $300B for 300K users. Facebook has lost around $300 billion in market cap since its rebrand into Meta, which comes to around $1 million for every metaverse user it has acquired so far… Jests aside, while its still very early for the Metaverse, Facebook needs another growth driver as Google talks about making the same data restrictions Apple enacted that caused a revenue shortfall for Meta. This is on top of potentially looming EU data regulations that has Facebook positioning the possibility of exiting the European market altogether. Facebook needs a win and 300K users in 3 months is clearly not enough for a company of Facebook’s size and reach. One would think that a couple of 1st party ads on Instagram and Facebook should be able to drive more than 300K users?
Where did market liquidity go? Recent fears of inflation and a likely kinetic war in Eastern Europe have placed strong downward pressures on the stock market. While everyone can see that stock prices have fallen, here’s a chart showing another interesting perspective on the impact of macro fears on the market. The chart shows the drying up of order book liquidity for S&P500 futures, which is another way of saying there are just not as few buyers in this fear-driven market. In fact, liquidity has fallen so badly that it’s now around the same levels as the Feb-Mar 2020 market meltdown at the start of the COVID pandemic.
Russian markets are down 13% as Putin declares the Donetsk and Luhansk regions as independent entities and plans to send peacekeeping forces in. The markets are anticipating broad sanctions but the initial reaction from the US and European leaders seems to be limited sanctions but time will tell if the conflict escalates and further sanctions start impacting the global economy. US market futures are also down for Tuesday as global conflict, increasing interest rates, and a pandemic that seems to never end weigh on an otherwise strong economy.
Crypto TLDR
Major corporations continue to adopt Web 3 (JP Morgan, Spotify, Intel, and Universal Music). One of the best justifications for sky-high crypto prices relative to a couple years ago is adoption of the technology by large corporations. Over the past year, numerous mega corps have dipped their toes in Web 3, typically to sell NFTs for marketing. This Web 3 adoption trend is continuing with JP Morgan opening a virtual lounge in virtual land crypto platform, Decentraland. Spotify appears to also be interested in entering the fray with a recent job listing on LinkedIn looking for a senior backend engineer to explore Web 3. Intel also recently revealed it’s second generation Bitcoin mining setup and chip (Bonanza Mine) during an IEEE conference. Finally, Universal Music Group is also embracing Web 3, striking a deal with NFT platform Curio to develop NFT collections for its record labels and artists.
World’s largest NFT marketplace hacked. The world’s largest NFT marketplace, OpenSea, was hacked over the weekend and the company has confirmed that at least 32 users have lost NFTs worth $1.7 million. The company has also confirmed that this was a result of a phishing attack, which is a sigh of relief as a hack on OpenSea’s smart contract would have disastrous consequences for the platform and its users. OpenSea is currently in the process of upgrading their marketplace contract.
NFTs are coming to the real estate market. Propy, a real estate blockchain company, sold its first property in the United States on February 8. The property is based in Florida, has an NFT that represents it, and was sold for 210 ETH (over $600k). The excitement for this real estate + Web 3 technology is clear, with 3000 potential bidders. Propy wants to schedule its technology and marketplace up to facilitate real estate sales over the blockchain all over the world. This isn’t the first property transaction Propy has facilitated, the first-ever real estate sale conducted over Propy was for a property in Ukraine in 2021.
More regulations for StableCoins. Stablecoins is one of the more promising applications of blockchain technology. While Bitcoin and Ether make for poor forms of currency because of their volatility, a stablecoin is transacted over a blockchain without the volatility. A report by Fitch Ratings estimated that the market cap of stablecoins grew by around 450% in 2021 to $156 billion. No wonder regulators are so interested in stablecoins, with the SEC releasing a report about them in November last year, the Federal Reserve releasing a research paper on them in January earlier this year, and a Congressman released a draft of federal stablecoin legislation last week on the morning of a hearing on the subject in the US Senate.