CIBC Tech & Innovation Market Update – September 2023

After UK regulators blocked Microsoft’s $69B purchase of Activision Blizzard earlier this year, Microsoft announced a restructuring of the proposed acquisition that involves transferring cloud gaming rights for current and new Activision Blizzard games to Ubisoft. The UK Competition and Markets Authority (CMA) is treating the revised offer as a new transaction and has initiated a phase 1 investigation. Elsewhere, EU antitrust regulators are closely monitoring the move to determine if the new transaction will impact concessions Microsoft previously made to the European Commission. With the changes, experts believe the deal will now address the CMA’s concerns.

Norway’s data regulator, Datatilsynet, imposed fines of $99K per day on Meta in the social media company’s most recent clash with European data privacy regulators. Big tech companies have amassed some of the largest collections of personal data in the world and have come under fire from a litany of regulators in recent years, particularly in Europe. As legislation around the world evolves to address the complex privacy issues that have arisen from data collection, Big Tech has been forced to continuously adapt to avoid fines and retain their ability to legally use their stores of data.

Earlier this month, Zoom became the latest company to announce the mandatory return of its workers, requiring those within a 50 mile radius of an office to return in person at least twice a week. Amazon, Apple, Disney, Google, Meta, Salesforce, Tesla, Twitter and Uber are among some of the other tech giants that have made similar announcements over the last year. After two and a half years of a global pandemic that forced corporations and their employees to adapt to a work-from-home environment, 2023 appears to be the year of returning to in-office work. According to a survey by Stanford University, ~59% of U.S. workers are now fully on-site as of July.

After an explosive year of venture capital (VC) investing in 2021, start-up funding came to a near standstill in late 2022. The first quarter of 2023 represented a three-year low for Toronto in terms of total venture capital invested, with $120 million raised, down 94% Y/Y. However, Canadian venture capitalists appeared to return to the playing field in Q2, with tech start-ups in Toronto raising $1 billion during the quarter, up significantly over Q1 and up 71% Y/Y. The Q2 uptick in Canada contrasts with the broader North American environment, where start-up funding continues to decline Y/Y. The current valuation environment could prove to be an attractive entry point for Canadian venture capitalists; data from the BDC shows that Canadian VC managers that raised funds in 2011-2013 after the financial crisis delivered their best net returns over the last 10 years.

With ChatGPT reporting a 10% loss in users in June and some experts claiming that its newer language models are more prone to generating false information, interest in ChatGPT is appearing to wane. A recent Pew survey found that only 18% of US adults have ever used ChatGPT, and generally are increasingly concerned about the impact of AI on privacy and the job market.

Venture capital and private equity-backed IPO exit values on US exchanges in 2020 totaled $339.3B and then jumped to $763.2B in 2021. In 2022, it plummeted to $9.1B, and IPO issuances continue to struggle drastically in 2023. With Instacart, Klaviyo, and Arm recently submitting for IPOs, these submissions will be an important litmus test of investor demand for new tech offerings.

With more than 10 years of expertise, Nvidia has become a market leader in producing chips that can handle AI processes like image, facial, and speech recognition, as well as generating text for chatbots. In today’s market, Nvidia accounts for more than 70 percent of AI chip sales and holds an even bigger position in training generative AI models, according to the research firm Omdia.