For this week’s OSINT Drip, we examined technical sub-sectors within machine learning and other stocks with upside potential. As always, reach out with thoughts or comments - Chandler
Stocks
Lululemon Athletica Inc. (NASDAQ: LULU ) The recent dip presents an excellent opportunity to buy into a company that has consistently shown market share growth and offers high-quality, innovative garments at a premium price. The company is also expanding into international markets, with a particular focus on China, which has significant growth potential as brand awareness is still relatively low. Moreover, the company's search interest is approaching its five-year peak in 2023, and web traffic has shown robust growth, with an increase from ~9.4 million visitors to 15.2 million over the last two years. These are strong indicators of the company's potential for long-term success.
Lululemon Five-Year Google Search Interest
Lululemon Two-Year Wed Traffic
SoundHound AI (NASDAQ: SOUN): Back in February, Nvidia made a regulatory filing indicating that it had purchased a small 0.6% stake in SoundHound AI at a cost of $3.7 million. This investment by the leading AI chipmaker generated a lot of buzz, and sparked a 295% surge in SoundHound's stock price. The company also reported strong Q4 results, with revenue growing 80% YoY and net losses cut nearly in half. Looking ahead, the company is forecasting 53% revenue growth for 2024.
Jabil Inc. (JBL): The company has benefited from the growing demand for application-specific integrated circuits (ASICs), valued at around $15-16 billion in 2022/2023. It is expected to grow at a CAGR between 5.7% and 9.32% during the forecast period, reaching approximately $24-35 billion by 2030/2031, depending on the source. The growth is driven by increasing demand for customization, adoption of advanced technologies like AI, IoT, and 5G, and the need for high-performance and power-efficient solutions in various industries, including consumer electronics, telecommunications, automotive, and aerospace & defense.
On World Wide Google Search Trends - “Application-specific integrated circuit.”
Lattice: (NASDAQ:LSCC): Recently the company announced its new Avant FPGA platform, expanding its offerings into the mid-range FPGA market. Avant FPGAs are well-suited for edge computing applications like machine learning inference, factory automation, robotics, and embedded security. Further, their programmability allows them to be upgraded over time as AI algorithms advance. They also enable hardware acceleration of AI models developed in popular frameworks like TensorFlow and Caffe.
Altair Engineering Inc. (NASDAQ: ALTR): While notable insider selling has occurred recently at Altair Engineering, analysts remain optimistic about the company's prospects. Several firms have raised price targets or reiterated "Buy" ratings. Institutional investors have also been accumulating shares, hopeful that their focus on AI and organizational adoption rates is far from maxed out.
Descartes Systems (NASDAQ: DSGX): The global leader in logistics and commerce recently announced its acquisition of OCR Services, Inc., a top provider of global trade compliance solutions and content. The $90 million cash acquisition strengthens Descartes' global trade intelligence content solutions and complements its existing investments. Descartes also reported strong financial results for Q4 2024 and fiscal year 2024, with record revenues and earnings growth driven by new and existing customers and contributions from recent acquisitions. The firm is well-positioned to benefit from the growing demand for cloud-based logistics and supply chain solutions and its strategic acquisitions and investments in the capacity expansion are expected to support future growth.
Investment Trends
The network below shows investment data on companies from Crunchbase data, which are focused on graph neural networks, hypergraphs (both core areas of my Ph.D. research), Retrieval-Augmented Generation (RAG - the foundation of Generative AI/LLMs), system-on-a-chip, GPUs, edge computing, and application-specific integrated circuits (ASIC).
AI-Related Technologies Network (CrunchBase Data)
The network represents various companies, and the size of their nodes indicates their corresponding revenue. Notably, Broadcom (Purple/Manufacturing cluster) and Nvidia (Game/Yellow Cluster) appear to be the most profitable. The network density exhibits how interconnected and reliant the different sub-domains are. Among them, Edge computing and AI are the most interlinked (Inter-cluster connectivity) and influential (Page rank), whereas blockchain and cooling are the most specific and different areas within the domains.
Connectivity and Page Rank of Clusters
After analyzing investment data with machine learning, we found that both page rank and inter-cluster connectivity can be leading indicators of revenue potential. Using these metrics, our model achieved an 82% accuracy rate. This suggests that companies involved in AI and Edge computing can achieve higher growth by generating diversity within their product offerings and finding adjacent applications and markets for their IP/technologies.
Investment Amounts Over the Last Ten Years
Investment levels have been consistently increasing over the past decade, with a significant surge between 2021 and 2023. Some of the newer areas of investment growth include data centers, cloud computing, and edge computing. On average, companies tend to invest between $7.4 and $30 million dollars (histogram below).
Distribution of Investment Amount Received
Financial Indicators of Each Cluster
The matrix chart above compares the different technology clusters based on various financial and investment-related metrics. The ASIC cluster stands out with the highest number of companies, which is 273, and the highest total investment received, amounting to $12.2 billion. On the other hand, the Cooling cluster has the lowest number of companies, only 12, but its median investment CAGR between 2020 and 2023 is the highest at -54.8%. Additionally, Data Centers, Manufacturing, and Cooling clusters have the highest company-to-IPO percentage. In contrast, only 3.9% of companies in the Artificial Intelligence cluster have had an IPO compared to the average of 12.3% across all clusters. This finding suggests that companies in the Artificial Intelligence cluster are still maturing their business models or technologies.
Geopolitics
Biden Administration Tightens AI Chip Exports to China
The Biden administration's recent decision to tighten restrictions on the export of AI chips to China has generated global attention and controversy. The purpose of these measures is to limit Beijing's access to critical U.S. technology due to national security concerns. This includes preventing tech giants like Nvidia from exporting their products and concerns about China's military advancement. Despite China's efforts to overcome these obstacles, the export curb marks a significant development in the ongoing technological competition between the two superpowers. This event highlights the intricate interplay between geopolitics and technology that will shape the future landscape.
How We Got Here..
China and the United States Quietly but Fiercely Compete on Another Technological Front: Patent Applications.
While the United States maintains an overall lead in innovation, China is rapidly closing the gap, particularly in strategic areas like quantum computing. The Chinese government's subsidies and initiatives like Made in China 2025 are driving a surge in patent applications, although concerns remain about the quality of these patents. As the competition intensifies, both countries are poised to invest heavily in cutting-edge technologies to secure their economic and technological leadership.
The Bloomberg Innovation Index ranks the U.S. 6th and China 22nd out of 50 countries based on factors including R&D spending, manufacturing, research, and patents.
Quantum science accounted for 56.5 percent of China’s total domestic patent grants from 2013 to 2022.
The quantum computing market is poised to reach up to $5 billion by 2025, underscoring the intense competition between the US and China.
China accounted for 37 percent of quantum patent applications worldwide from 2003 to 2022, surpassing the US at just over 28 percent, the paper said.
China Profiting from EU Climate Policy on Cars, says German EPP Chief
Manfred Weber, the leader of the center-right European People's Party group in the European Parliament, has recently spoken out in favor of the combustion engine, arguing that China benefits climate policy. Weber believes that the ban on combustion engines in Europe was a serious industrial policy mistake and that China is capitalizing on it. Germany, a major producer of cars with combustion engines, has a significant stake in the auto industry, a crucial sector in the country's economy. However, despite being a leader in the automotive industry, Germany has been slow to embrace electric cars. Federal Motor Transport Authority data shows that only one in 35 cars on German roads are purely battery-powered electric vehicles (BEVs), with 1.41 million BEVs registered in Germany as of January 1. The sales of electric cars are sluggish, and most German manufacturers are still focusing on the combustion engine. Furthermore, no German manufacturer currently has an electric car that costs less than 25,000 euros, with most prices well over 30,000 euros. In contrast, China, the world's largest car market, has almost a quarter of all new cars sold as all-electric vehicles.
Japan and EU to Develop Formal Collaboration
Japan and the European Union (EU) have announced a formal collaboration that will begin in April 2024. The partnership, tentatively named the Dialogue on Advanced Materials, aims to develop advanced materials for next-generation semiconductors and electric vehicle (EV) batteries. The goal of the collaboration is to reduce their dependence on China for crucial materials. The two parties will engage in regular discussions on potential joint projects focusing on areas such as renewable energy, mobility, construction, and electronics.
The specific areas of collaboration include the development of sodium-ion batteries for EVs, which do not rely on rare metals controlled by China. Japan's expertise in metallic nanoparticles will also be leveraged to enhance solar panel efficiency and energy-saving capabilities for smartphones. The collaboration comes amidst growing concerns over supply chain vulnerabilities and the need for diversification in key industries.
The EU plans to allocate research funding to advance materials development and production, with a focus on establishing international standards for cutting-edge materials. The global demand for EVs and renewable energy solutions is on the rise, making it a priority for both Japan and the EU to ensure a resilient and sustainable supply chain for essential components. Commissioner Iliana Ivanova, responsible for innovation and research, emphasized the importance of working together on safety assessments of nanomaterials using digital modeling techniques to ensure safety and environmental management in high-tech applications.
Aselsan Unveils AESA Aircraft Nose Radar
Aselsan, which is the leading defense technology firm in Turkey, has recently showcased its advanced AESA Aircraft Nose Radar technology. This new technology is a significant upgrade in combat aircraft capabilities and has already had a successful maiden flight alongside the F-16 OZGUR. This development marks a leap toward a 4.5-generation as the development of the advanced AESA radar technology will reduce its dependence on foreign suppliers, bolstering its defense industry self-sufficiency. Aselsan is well-positioned to secure a significant share of the estimated $5 billion global fighter jet AESA nose radar market through ongoing export negotiations. The company's AESA radars are expected to increase market share in air defense, naval platforms, and surveillance domains as well. Major defense contractors such as Raytheon Technologies and Boeing may face increased competition from Aselsan in the AESA radar market, especially for 4.5 and 5th-generation aircraft upgrades. Successful deployment of Aselsan's radars across different Turkish platforms could make them attractive alternatives to Western systems for countries seeking advanced capabilities at potentially lower costs.
US Senate Votes to Sustain Military Presence in Niger Amid Strategic Concerns
In a decisive move, the US Senate has voted against a bill proposing the withdrawal of American troops and drone operations from Niger, emphasizing the strategic significance of US military presence in the Sahel region. Despite recent political upheavals in Niger and mixed signals from the new junta regarding the presence of US forces, the American military commitment remains unwavering. As the US Senate decisively opts to maintain its military presence in Niger, the decision reflects a broader commitment to countering terrorism and opposing geopolitical rivals in the Sahel.
Economy
French Inflation Slowed in March
French inflation eased further in March as food, tobacco and energy prices slowed, official data showed Friday, fueling hopes of interest rate cuts in coming months. Food price inflation slowed sharply last month to 1.7 percent compared to 3.6 percent in February, while tobacco prices increased by 10.7 percent, down from 18.7 percent in the previous month. Investors are closely scrutinizing inflation data across eurozone countries in hopes that the European Central Bank will start to cut rates as soon as June.
EUR/USD Falls to Five-Week Low
The EUR/USD dropped as low as 1.0768, its lowest level since February 21. On an annualized basis, retail sales slumped by 2.7%, a fourth straight decline. The European Central Bank held the key interest rate at 4.0% for a fourth straight time this month and must decide on the appropriate timing for a rate cut. Germany, the largest economy in the eurozone, continues to struggle, and that is weighing on the eurozone as well as the euro.
OPEC’s Oil Cuts Pose Challenge to Central Banks
Oil prices complicate the inflation indices central banks use to guide their monetary policy decisions. This is due to oil’s essential role in the global economy, impacting the entire price chain, and the West’s limited ability to influence oil production. Despite recent increases, he argues that oil prices are not “particularly high,” especially in a historical context, and unlikely to force a change in the central bank’s rate decisions. According to experts, oil would need to exceed $100 per barrel to significantly affect inflation and interest rate decisions, a scenario few anticipate for now. High oil prices affect all consumer countries, including the US and China, but the eurozone is particularly hard hit due to its sensitivity to global oil market fluctuations.
Thank you for reading. Please reach out with your thoughts or comments.
Cheers,
Chandler