Dear Reader,
One of the easiest ways to get a quick look at how well the global economy is humming along is to track global semiconductor sales. This single metric is more relevant today than it ever has been.
After all, as the goods and services that we use every day lean more heavily towards digital services and devices, that means we have an ever-increasing need for one of the world’s most valuable commodities – semiconductors.
U.S.-based Semiconductor Industry Associations publishes the numbers every month, and the below chart is always a simple snapshot of where we are in any given economic cycle.
The blue line shows the monthly semiconductor revenue, and the red line shows the year-on-year percentage change for any given month.
The chart has the data through November of last year, which was a record month, bringing in an astounding $49.7 billion. That’s just for the month, not the year. Needless to say, the final numbers for 2021 will surely be at record levels.
How can we be so sure? Well, aside from the chart above, the semiconductor industry reached a historical milestone for the year in November. The total number of semiconductors sold eclipsed 1 trillion…1.05 trillion to be exact.
Can you think of any other industry that ships a trillion units in a single year? How about the ubiquitous banana? I checked… A mere 100 billion bananas are sold every year. Not even a tenth of the semiconductor industry.
The data point on the chart that really stands out to me though is the inflection point in the late 2016/early 2017 time frame. It was the beginning of the current semiconductor super cycle that we are currently in.
The brief pullback in late 2018/early 2019 was the Federal Reserve-induced market crash caused by a rapid series of interest rate hikes that were inappropriate and politically driven. The U.S. was not experiencing any threatening inflation at the time, and it was the severity and quickness with which the Fed attempted to cause economic damage that was so surprising.
The markets of course tanked in the fourth quarter of 2018, and it didn’t take long for the Fed to reverse course. The semiconductor industry snapped back quickly.
Even the irrational economic lockdowns that started in March of 2020 and continued through the second quarter of that year were only just a small blip on the chart. The industry powered ahead.
The catalyst for this super cycle is a confluence of rapid technological advancements all happening at the same time. The tech companies that emerged from the 2008–2009 financial crisis were a new breed of digital-first companies.
They simply weren’t anchored to any of the old ways of doing things. And they developed and employed the most advanced technology available throughout their businesses.
By 2016, these businesses reached scale. They reached the point where their exponential growth hit its own inflection point in terms of adoption. At the same time, we saw incredible breakthroughs in both graphics processors (GPU’s) and application-specific semiconductors designed to run artificial intelligence and machine learning.
And thanks to advanced manufacturing processes used by semiconductor manufacturers that increased processing power, reduced size, and reduced battery consumption, we saw an explosion in new mobile devices like smartphones, tablets, gaming consoles, smartwatches (thanks to Apple), fitness trackers, and so much more.
It’s also the time when Tesla lit a fire under the entire automotive industry dominating the global electric vehicle market, kicking off a massive wave of investment by both incumbents and new entrants in an effort to catch up. They’re still trying… And they are still years behind.
As long as the Federal Reserve doesn’t aggressively hike rates several times in 2022 – and I just don’t see the Fed doing that with the mid-term elections coming up – we’re in for another great year with semiconductors.
The industry has fantastic pricing power due to the semiconductor shortages, and it is aggressively building additional capacity this year in hopes of meeting demand. That usually means strong gross margins and increasing free cash flow.
There will come a period, I suspect in 2023 when the industry has excess capacity and semiconductor prices, and thus margins, will decline.
We’ll experience a short breather, and then we’ll be back to incessant growth. After all, the confluence is even greater than before. Now we are adding 5G wireless networks on a global scale.
5G technology is the densest wireless network architecture in history, requiring more semiconductors than ever before. That’s true of both the wireless infrastructure, as well as the 5 G-related semiconductors in phones.
And the hyper-fast adoption of artificial intelligence and machine learning is accelerating the build-out of data centers around the world to support the exponential growth of cloud-based computing and storage.
If that wasn’t enough, we’re building the next generation of the internet, financial services, gaming, identity, and money using blockchain technology.
And all of it requires more semiconductors…
Just wait until you see what happens next. And if you’d like to learn more about my #1 small-cap semiconductor company that has just hit its own inflection point in growth – a company that makes a critical semiconductor for 5G wireless networks – please go right here to get the inside story…
Early stage artificial intelligence company Synthesia just raised an impressive $50 million in its Series B round. It was led by Kleiner Perkins – one of the most successful VC firms of all time. Google Ventures (GV) was also a major player in the round.
Synthesia is working on the bleeding edge of artificial intelligence (AI) to create lifelike avatars. These aren’t computer graphic-generated avatars that we see in video games and early metaverses. Synthesia is generating avatars that look and sound just like humans. In fact, most people won’t be able to tell the difference.
Here’s a visual:
Synthesia Avatar
Source: Venture Beat
Here we can see a voice actor (on the right) reading a script. That input is fed into Synthesia’s AI to create the incredibly human-like digital avatar – essentially an artificial actress – on the left. The artificial intelligence can ingest the voice and mimic the facial expressions of the voice actress to make the avatar “human.”
And because the avatar is simply a digital representation, it can be dropped into any desired scene or background. This creates a perfectly professional and branded video. It looks and sounds like studio quality. And yet it does so without using an actual studio, production crew, or professional lighting.
And here’s the best part – Synthesia can produce the final product, the output, in a matter of minutes. That’s how fast the AI works.
So Synthesia basically abstracts away the expensive, time-consuming process of creating professional videos. There are countless use cases here.
Right now, the company is focusing on enterprise customers. Synthesia’s AI is perfect for automating corporate training videos and potentially even simple advertising campaigns.
These videos can be delivered by a newly created digital avatar with a customized background, as depicted above. Or a company could create an avatar around one of their own executives or a paid actor. This simply requires the AI to process sufficient audio and video footage of the person in order to “train” the AI. After that, the AI can be fed script to be “read” and the video will be produced.
This is a very compelling technology. Synthesia’s technology will likely gain adoption quickly. It just makes too much sense. There are so many companies out there producing video content consistently – including my own – and Synthesia can effectively automate that process and reduce costs at the same time.
I might just experiment with the tech myself. I wonder if you’ll be able to tell the difference? Sounds like an experiment might be in the works…
Coinbase recently announced that it is moving forward with its Lend program. This is Coinbase’s first foray into the world of decentralized finance (DeFi) and lending.
Lend allows customers to earn interest on the digital assets they hold at Coinbase. We can think of it as a savings account for cryptocurrency. But there is one major difference – the interest rate.
As we know, the yield banks pay on their savings accounts today is less than 1%, typically about 0.06% now. At the same time, inflation – as measured by the Consumer Price Index (CPI) – topped 6% last month.
That means savers are effectively losing purchasing power in savings accounts after inflation. The yield they receive can’t keep up with inflation.
Meanwhile, Coinbase’s Lend program will allow normal investors to earn yields of 5% or more. Some assets even offer interest of about 10% right now. That makes Lend a far superior option for those who want to stay liquid and simply earn interest on their “cash” holdings.
Coinbase has launched Lend in a whopping 70 countries. This makes DeFi easily accessible to most investors around the world. One country however was noticeably absent… the United States.
Regular readers may remember that the Securities and Exchange Commission (SEC) threatened to go after Coinbase if it launched Lend in the U.S. We talked about that back in November.
As we noted, Coinbase attempted to proactively engage with the SEC about this. Coinbase even proposed its own regulatory framework as an olive branch of sorts. But the SEC has not been willing to even discuss the issue.
So here we have a company that’s publicly traded in the U.S. – filing completely transparent financial statements every quarter, compliant with all regulations, and yet it’s not permitted to launch this new service within the country. How’s that for ironic?
Making matters worse, there are several other U.S.-based companies that have been actively offering lending programs and attractive yields on digital assets. Why the double standard?
Fortunately, some former and current regulators have been critical of the SEC’s heavy-handed approach. Even SEC Commissioner Hester Peirce has spoken out against SEC Chairman Gary Gensler’s aggressive stance. She noted that the SEC is stifling innovation and reducing investment options for U.S. investors.
It’s great to see regulators like Peirce stepping up. The destructive and political stance taken by Chairman Gensler is stifling innovation and restricting normal investors from having the ability to earn interest rates on their savings that at least keep up with real inflation.
As I have mentioned before, somehow it is perfectly acceptable for Americans to gamble all their money away at casinos or using online services. The SEC doesn’t protect U.S. citizens from that.
Yet we have policies that make it illegal for Americans to earn consistent interest on high-quality digital assets. And it still restricts normal investors from investing in most private placements apart from crowdfunding deals. That makes absolutely no sense.
So I’m hopeful the recent pushback will help light a fire under the industry and lead to a better regulatory climate.
Companies and decentralized organizations should be able to operate, innovate, thrive, and create jobs within a clear regulatory framework.
And all Americans should be able to participate in what will be one of the largest wealth-creation events in history – Web 3.0. The next generation of the internet and financial services is happening right now, and everyone who has an interest in participating in this growth should be able to do so.
We’ll wrap up today with a development that I’m disappointed about.
Nike just acquired one of my favorite non-fungible token (NFT) studios, RTFKT (pronounced “artifact”). While I hate to see this, it is yet another sign that NFTs and the metaverse trend are only going to get bigger.
We talked about RTFKT last October. That’s when the company began collaborating with celebrities to develop fashion products that would be sold both as a physical product and as NFTs for the metaverse.
The RTFKT RTX3080 sneakers are a great example.
RTX3080 Sneakers
Source: RTFKT
This sneaker was developed as an NFT in two different metaverses: Decentraland and The Sandbox. And anyone who purchases the NFT will also get a physical pair of the same sneakers shipped to them.
In addition, RTFKT is working on some other interesting projects related to the metaverse. The most ambitious of those is called CloneX.
Its goal is to create an entire ecosystem around high-quality customized digital avatars for the metaverse. And RTFKT has been collaborating with one of my favorite Japanese artists, Murakami, on this.
It’s easy to see how Nike would be attracted to RTFKT for the fashion side of the business. My disappointment comes from the likelihood that Nike will refocus the RTFKT team on Nike branded sneakers and sportswear – nothing but a big corporate shill. And that means that it probably won’t be building new projects like CloneX and others for metaverses.
Of course, none of this comes as a surprise. As I wrote in yesterday’s Bleeding Edge, digital fashion is going to be a major trend with NFTs and metaverses. To Nike’s credit, it clearly understands this. RTFKT was a smart, proactive acquisition.
Large corporate giants are starting to recognize the enormous growth potential here, and we’re going to see more and more companies with strong consumer brands getting in on the act this year.
And this is a big vote of confidence behind the investment potential in these trends… “Fashion” NFTs that our avatars can wear in the metaverse are an exciting area of development and investment.
If any readers want to learn more about how to get in on a position in this space, then please, go right here to watch my recent presentation.
Regards,
Jeff Brown
Editor, The Bleeding Edge
Like what you’re reading? Send your thoughts to feedback@brownstoneresearch.com.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
