MKM Partners’ annual note on Internet themes and “Black Swan” events for the year ahead has a focus on recent advances in artificial intelligence — and analyst Rohit Kulkarni even hands over the mic to a popular AI to give his own thoughts on where the 2023 focus will land.
Among the company’s “Black Swan” forecasts it says came true for the past year – what it deems “HILP” or “high impact, low probability” – it notes that 2022 had a significant impact on the online secular growth from the pull-forward effect of the COVID-19 pandemic; that tweet (TWTR) is no longer a public company, as it predicted; and that apple (AAPL) built up his ‘advertising muscle’. A bonus prediction also came true: that platoon (PTON) saw an “unusually high demand decline”.
No. 1 on the list for 2023 is the adrenalin effect on the “AI wars” highlighted by the artificial intelligence “chatbot” ChatGPT, which shows thousands of AI use cases (including text, image, audio and video, digital media generation/analysis) just since a debut in November.
Those “AI wars” will escalate as Google (NASDAQ:GOOG) (GOOGL) and Microsoft (NASDAQ:MSFT) race to acquire ChatGPT’s creator, OpenAI, Kulkarni said. (A longtime stakeholder, Microsoft would investigate increase its investment this fall.)
On a side note, the company asked ChatGPT for its own Internet theme predictions for 2023 – and perhaps unsurprisingly, the AI focused on increasing use of AI, machine learning, virtual reality/augmented reality, the Internet of Things, the cloud and cybersecurity .
A related theme for 2023 is the expectation that public cloud spending will increase in the coming year, Kulkarni said. “Currently, investors expect a continued slowdown in cloud spending, driven primarily by macroeconomic pressures and possibly due to pandemic pull-forward.” But there are two potential upside catalysts in increased AI/machine learning workloads, and another layer of secular spending that has yet to be “unlocked” due to a slowdown.
Other themes/Black Swan predictions include the premise that TikTok (BDNCE) end banned in the United States; that sucks mixed reality headset from apple (AAPL) turns out to be a “dud”; make it public through special acquisition companies can outperform traditional IPOs and direct listings; and that reopened capital markets big deals like Stripe (STRIP) and Databricks on the market after Memorial Day.
In line with last year’s prediction that Twitter (TWTR) would no longer be public, Kulkarni predicts that Pinterest (PIN) and platoon (PTON) will no longer be independent public companies. They have both seen intermittent media reports of M&A, and “if their stock prices continue to be under pressure, we wouldn’t be surprised to see such speculation flare up again.”
Retail media networks will grow larger than social media networks, a shift that would benefit Amazon.com (NASDAQ:AMZN), Uber (UBER) and Instagram (ICART), said Kulkarni. Meanwhile, Amazon will use M&A to expand into security and applications software, he adds.
and meta platforms (META) will “drastically” scale back ambitions for the “Zuckerverse” – its heavily invested plans for a metaverse internet experience. Companies doubled their metaverse spending to $120 billion by 2022, but “commercial traction remains limited and below expectations,” and “If META decides to limit cash burn on the metaverse in the near term, we think investors step would welcome.”