Spy was discussing, over a very ordinary glass of claret, the DeepSeek AI hullabaloo with a tech-focused fund manager this week. He pointed to the wise words of wisdom, put in Jeff Goldblum’s mouth in the classic 90’s movie, Jurassic Park: “Because the history of evolution is that life escapes all barriers. Life breaks free. Life expands to new territories. Painfully, perhaps even dangerously. But life finds a way.” It seems to the fund manager that it is particularly futile for America to attempt to restrict China’s access to advanced technology in the form of chips, chip manufacturing machines and sophisticated software because, ultimately, great innovators “will find a way”. Whether DeepSeek has piggy-backed off large language models developed in the US is moot, the AI arms race is alive and very well.
If you want more analysis on the DeepSeek surprise, it is worth reading Janus Henderson’s insight piece on it. As the world digested the shocking news, one number stood out – how cheap it all was. But perhaps all is not quite what it seems, “Take the capex number with a pinch of salt…the capex numbers referred to are just comparing apples to oranges. The $5m cited relates to just one training run, ignoring any prior training runs and the training of the larger teacher models, whether at DeepSeek or the third-party open source LLMs they were built on.” That certainly puts a different spin on the breathless news.
What if you want private equity-like returns and reduced volatility in a single fund. Unsurprisingly, there is now an ETF for that. The PEO AlphaQuest Thematic PE ETF debuted last week in the US. Apparently, the strategy is actively-managed and seeks to achieve its investment objective through a portfolio of investments comprised of two primary components: an equity strategy (a portfolio of equity securities) and a derivatives strategy (a portfolio of futures contracts and futures-related instruments). What does it not do? Oh, that’s right, invest in actual private equity (PE). By targeting the sorts of companies PE firms typically invest in, the fund hopes to mirror their returns. It is charging 1.25% and Spy can’t help but think the marketing is a little out of control here.
Hat tip to Ninety One: they have a magnificent insight piece out on Nintendo, the Japanese gaming legend, which is worth reading in full. Portfolio manager, Abrie Pretorius writes, “Nintendo has touched most people’s lives. Dating back to 1889 when the company originally produced playing cards, this Japanese powerhouse has sought to bring joy to people by offering unique and innovative gaming experiences…its portfolio is unmatched, containing 17 of the top 20 best-selling console games of all time. However, unlike other companies in the industry, Nintendo chooses to exclusively offer its top tier games on its own devices. This strategy enables tighter control of its intellectual property and helps form a far stronger relationship with users.” Spy had no idea on the 17/20 stat. That is deeply impressive.
Spy is sure more and more of his readers are driving Chinese motor vehicles. The direction of travel is only one way. This week Spy came across a statistic that made his jaw drop. China now produces 40% of the world’s passenger cars, up from just 3.5% in 2020. No wonder Germany is in utter panic.
Figures that make one go hmmm. Warren Buffett’s cash pile has swelled to a monster $325.2bn. Is he being an utter fool or does he know something we do not? And for that matter, what do the gold bugs know? Gold has just hit an all-time high exceeding its October peak. At the time of writing, an ounce of gold is just over $2800. It is certainly glittering.
How do you lose $60bn? Well, you try and dominate the virtual reality world. Meta has just announced another $5bn in losses in its Meta Reality Labs unit. This brings total losses since 2020 to a whopping $60bn. Perhaps – and Spy is going out on a limb here – real people want to go to the pub and meet their friends, after all. Mark Zuckerberg is probably not too worried, though, Meta has just reached a record $164.5bn in annual revenue.
Spy’s quote of the week comes from Stanley Druckenmiller, “We all get the same information; it’s what we do with it that matters.” Absolutely spot on.
Until next week…
