CIBC Tech & Innovation Market Update – March 2024

Not long after the child safety hearing that took place on Capitol Hill concluded with no clear resolution, the State of Utah is pushing ahead a piece of legislation that would restrict social media access by individuals under the age of 18. The law has been the subject of controversy since it was first put forward in early 2023; pushback from critics has centred around privacy matters tied to how the law would be enforced. Age verification will require access of sensitive personal information of minors by the tech companies, which may pose even more risks to the impacted users. The main changes in the revised bill include clearly identifying the harms, and including a safe harbour for social media companies that shields them from civil litigation provided they adhere to the guidelines. News reports expect the law to be passed in the next two weeks; however, its overall impact will ultimately remain in the hands of the parents providing consent.

Recently, the Canadian Civil Rights Tribunal (CRT) ruled against Air Canada in a case where the company had argued its AI-powered chatbot was liable for providing false information to customers, rather than the airline itself. In 2022, an Air Canada customer used the airline’s chatbot for information on the company’s bereavement policy for last-minute airfare. The chatbot provided the customer with information that included applying for a refund retroactively; however, this response turned out to be fabricated (commonly referred to as an AI hallucination). Air Canada argued that the chatbot is a separate legal entity and the company should not be liable for the information it provides, but the CRT ruled that Air Canada failed to provide reasonable care to ensure its representations are accurate and not misleading. The case sheds a light on some of the issues still underlying GenAI: the possibility of hallucinations, and who is responsible for them.

Nvidia was a clear market darling last year: the company’s share price more than tripled and ended the year up ~240%, leaving many investors with investment “FOMO”. Nvidia is up a further 49% year to date as of yesterday’s close; however, the chip designer is no longer the star semiconductor stock in 2024. In what appears to be a hunt for the next golden chip stock, Arm Holdings’ (which went public in September 2023 at $51/share) shares are up 69% year to date after the company reported better-than-expected quarterly results and a strong outlook that was well above Street expectations. The PHLX Semiconductor Index is up 80% since the beginning of 2023, significantly outperforming the S&P 500, which was up 31% over the same period.

Dividend investors have typically shied away from the tech sector for obvious reasons: technology has long been synonymous with growth. While there are still a myriad of high-growth, unprofitable tech companies (and more arising as the AI wave continues) that continue to gain the attention of growth investors, the technology sector may now be attracting a new type of investor. As we move deeper into the 21st century and away from the dotcom boom, more and more technology companies are reaching a mature stage, demonstrating healthy margins and stable cash flows all while maintaining a strong growth profile. Such is the case for Meta, which recently rang in Facebook’s 20th birthday by declaring the company’s first-ever dividend.