Popular technology stocks are in some ways a reflection of the times. In 2021, when the pandemic was at its peak, the most hyped technologies were the metaverse and cryptocurrencies. On Google Trends, cryptocurrency trends peaked in April 2021 while the metaverse was at its most talked about in November of that year.
Cryptocurrency, in part, is an interest rate story. Rock-bottom rates pushed up valuations, which increased interest in the asset. However, it was also sold as a method to take back control from government. The theory was that crypto wasn’t at the whim of central banks and as more couldn’t be printed it was less likely to be inflated away.
Likewise, virtual reality was presented as the technology that solved the fact we couldn’t leave our homes without risking interaction with a virus. In October 2021, Mark Zuckerberg rebranded Facebook as Meta (US:META) and the following year capital expenditure reached $32bn (£27bn). However, as lockdowns and mask mandates eased, the fear of government overreach receded, and, in an instant, the problem of how to interact with people in-person was solved. Bitcoin and Meta’s values have dropped 30 per cent and 50 per cent, respectively, in the past year.
Google searches show inflation is a major concern
The biggest concern this year is inflation. People are Googling inflation three times more than they were in 2021. In the short term, inflation has been caused by too much monetary stimulus and disruptions to global energy supply, but there is also the well-reported worker shortage.
Jeremy Hunt’s solution to this problem was to ask over-50s to “step up to the plate” and come back to work. For the technologists, the solution is artificial intelligence (AI). OpenAI chief executive Sam Altman regularly preaches that AI will push the marginal cost of intelligence to zero, causing a huge boost in productivity. He outlined this theory in his essay ‘Moore’s Law for Everything’.
The theory is that if a worker can produce more with less this will boost supply and bring prices down. Microsoft (US:MSFT) is one of the biggest investors in AI and its chief executive Satya Nadella has also been helping push this inflationary saviour narrative. On an earnings call last year he said, “digital technology is a deflationary force in an inflationary economy”.
Other software companies have spotted the chance to push their products as a cure for the anxieties of the time. Sage (SGE) sells accounting and HR software to SMEs and during its half-year results call chief executive Stephen Hare said its customers would benefit from “efficiencies and productivity gains that help mitigate inflationary pressures”.
Salesforce (US:CRM) chief operating officer Brian Millham was even more explicit about the marketing power of deflation. On a recent call with analysts, he said his sales team would be “pivoting its marketing messaging to this value orientation”. Millham emphasised how “very lucky” the sales team was to be able to talk to “customers about cost savings, efficiency gains and productivity gains”.
Sage and Salesforce are yet to see material share price gains from this messaging. But there are some AI stocks that already appear to be entering bubble territory. Nvidia (US:NVDA) sells the general processing units (GPUs) used in the supercomputers that produce and train the AI models. Its share price is up 50 per cent in the year to date. Investors’ Chronicle wrote an investment idea on Nvidia in December but, even with the secular growth trends we identified still present, it is already starting to look a little expensive. Meanwhile, C3.ai (US:AI) – the lucky owner of the ticker AI – has seen its share price soar by more than 100 per cent this year.
The future of AI, blockchain and virtual reality is still uncertain. All these technologies may play a part in our future, but what is certain is that we will have a whole new set of problems to deal with by then. Invest because you think a company is a good business. Don’t do it because you are convinced our anxieties today will be the same tomorrow.
