CIBC Tech & Innovation Market Update – August 2023

Q2 results from the US software companies we track have been solid, with roughly 70% of the software names beating revenue and EPS estimates. Earnings beats continue the trend seen in Q1, when software results outperformed lowered Street expectations. This quarter, revenue increased 8% Y/Y on average for the companies we track, while EBITDA increased ~14% Y/Y on average. Post Q2 results, the Street revised its F2023 revenue and EBITDA estimates upwards by an average of 1% and 2%, respectively.

Recently the Washington Post reported that the FTC has initiated an expansive investigation into Microsoft’s OpenAI, delivering the company a 20-page demand letter seeking details on how it handles risks related to its AI models. The FTC has repeatedly warned it would take action on AI, with many articles posted on the agency’s site outlining the risks of the technology dating back to over a year. The probe into OpenAI marks the agency’s first substantial move to enforce consumer protection laws in the AI realm, and we expect the outcome will set the stage for future law enforcement and regulation of the space.

Earlier this month Meta launched Threads, its Twitter rival app, another blow to Elon Musk’s struggling social media platform. Threads gained 30 million users in its first 18 hours, and has now climbed beyond 100 million users in just five days – surpassing ChatGPT as the fastest growing app. By comparison, Twitter had ~240 million monetizable daily active users as of its last public disclosure in July 2022. Threads is linked to Meta’s photo-sharing social media platform Instagram, making installation simple for existing Instagram users – and there are currently ~1 billion monthly active users worldwide. The platform is currently ad-free and Meta CEO Mark Zuckerberg has disclosed no active plans to monetize Threads this year, focusing first on user growth. With Meta already controlling a massive market share in social media, some are questioning whether adding another platform to the company’s roster allows Meta to wield too much power.

In today’s age, the adoption and integration of new technologies is critical to sustained operational success. However, many new technologies can present challenges when the risk of their misuse or their inability to live up to expectations meets or exceeds the risk of not adopting them. Enter ChatGPT, the now familiar natural-language processing tool open to the public and trained on databases from the internet. For industries that rely heavily on accuracy such as law, healthcare, education and finance – to name a few – ChatGPT is a double-edged sword. The tool can be used to maximize productivity, but the data used to train the AI may be biased, misleading, or inaccurate. As such, an opportunity has arisen for entrepreneurs and developers to create generative AI tools specific to these sectors, and AI start-ups are taking advantage of these niches.

While many were surprised by Twitter’s recent rebranding to “X”, Musk has had a long history with the letter: X is used as his signature, his child X Æ A-XII goes by X for short, Tesla has a ModelX and there is even his SpaceX program. But the rebrand to some seems like a full circle moment of his original “X” venture, X.com which was an online finance company back in 1999. His vision with Twitter now is to create a WeChat-like “everything app” that includes payments, streaming video, and e-commerce.

There is an enthusiastic tech ecosystem growing in Alberta, receiving more venture capital funding than any other Canadian region in Q1 2023. James Lochrie, Partner at Thin Air Labs and Brett Colvin, CEO at Goodlawyer, guest star in the latest BetaKit podcast to talk about the recent venture capital developments for the province.

In a recent congressional hearing, David Grusch, a United States Air Force officer and former intelligence official publically claimed that the US government maintains a UFO recovery program that has non-human spacecraft and extraterrestrial remains. Ross Douthat of the New York Times cautions that while the source may appear credible, there may be a vested interest for the military to promote this idea of UFO landings.