Season 4, Post 21: On the road, part 2

Your author landed back from the US yesterday, having completed his 9-day cross-country tour, visiting 23 businesses over 6 different states. The early part of this week and the tail end of last were spent in California and Arizona, having previously toured the North East of the country. The sun may have shone (with temperatures pushing the high-30s), but all was not well in Silicon Valley. Meanwhile, the impact of climate change was an inevitable topic in Arizona particularly. Regardless of location or the person with whom your author was speaking, inflation – and the cost of fuel especially – was top of mind.

Begin in Silicon Valley and none of the buzz or energy your author commonly associates with this region seemed present. Most offices were little more than 10% occupied with staff preferring to work from home wherever possible. Many said that until the Valley’s large businesses (Google, Apple et al) enforced return-to-work policies, they would be unlikely to follow suit. The mood was also generally sombre – perhaps a reflection of what’s been happening in equity markets since the start of the year. There was much anecdotal talk of down funding rounds (i.e. current valuations for private businesses being revised south relative to prior levels), staff lay-offs (particularly at start-ups) and increasing stock/ options being offered to attract and retain potentially disgruntled employees (easier, of course, to do given current valuation levels).

There were, however, bright spots too. The first was a more realistic assessment of how the future might look. Per the message we heard on the East Coast, digital transformation is real, driven by a combination of rising supply-chain costs and the need to build increased resilience in the event of uncertainties (pandemic, inflation, war etc.). This creates clear opportunities, with technology seen increasingly as a means to an end. Think of artificial intelligence and the internet of things as enablers. No one mentioned blockchain or quantum to us. The term metaverse was also broadly absent from conversation. When your author brought this topic up with the CFO of a significant player within the space, he preferred the term ‘syncronet.’ Any conception of the metaverse, in his view, was simply a synchronisation of existing infrastructure (gaming, social media, e-commerce etc.) in one place. We have sympathy with this view. 

Elsewhere, a combination of high gas (i.e. petrol) prices and clear evidence of drought in both California and Arizona meant a heightened awareness of the need for solutions. Executives with whom we met in both the solar and hydrogen industries suggested that their time was now. More utilities had recently accelerated discussions regarding energy transition. Your author was told by one solar CFO that “we have not yet scratched the surface” regarding electric vehicle adoption – and such cars will clearly need to be powered by renewable energy if they are to be truly carbon neutral. Energy storage will comprise part of the critical future infrastructure. If the loop could be closed by allowing, say, vehicle batteries to act as grid back up when they are not being driven, then this could be a clear win-win for both renewable energy businesses and utilities. Expect more water tech (monitoring, analysis and predictive maintenance) in the future too. Change is coming.

25 May 2022​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.  ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

 ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​Alex Gunz, Fund Manager