Coatue Management, a technology-focused fund, hosts every year the Coatue’s EMW (East Meets West) conference. EMW has become a significant event in the tech world, bringing together “who is who” in tech. So, let’s take a closer look at the highlights from the 2024 edition.
Staring with the wisdom of the (huge qualified) crowd. In the 2023 edition it was asked:
* Has the market bottomed? 49% believed that the market would hit new lows. Yet, since then, Nasdaq is up 30% and an AI basket is up 59%
* Are we in an AI or Mega Cap bubble? 56% thought we were in a bubble or overextended, but AI stocks have delivered a stellar performance since then. Interestingly, Nvidia is now traded at a forward P/E of 35x. To put that into perspective, during the height of the internet boom, Cisco, the most valuable company at the time, saw its P/E ratio soar to 132x
* Who will be the most valuable AI company in 5 years? Only 22% picked Nvidia. Since then, its market cap has grown by 209%
Now, looking ahead to Coatue’s 2024 (and beyond) outlook:
* AI is not in a valuation bubble like the .com era
* A ~$3T valuation for dominant “OSs” seems to have become the norm — per tech wave: AI-Nvidia, Smartphones-Apple, E-commerce/Cloud-Amazon, Internet-Google, SaaS-Microsoft
* Semis margins are the new software the software margins – EBIT margins: Nvidia = 65%, Broadcom = 59% vs. Microsoft = 44%, Meta = 39%, Google = 37%
* Yes, the world can afford all the GPUs chips – 5M units to 25M units in 2030, which will represent 18% of the global IT spend
* There is sufficient value to justify the cost of AI – pay back obtained by increasing 3% of the global companies’ revenues
* Software is not dead, despite software valuations being near all-time lows — justified by lower growth expectations (AI investments are crowding out SaaS budgets). Moreover, pricing models are shifting from seat-based to consumption & value based, and code will no longer be a software moat; replaced by data, workflows and knowledge graphs
* VC funding is normalizing, but AI VC funding may be too hot
* Still no IPOs in sight
Conclusion
As shown by EMW’s 2023 survey, even the top tech insiders misjudged the tech outlook for 2024.
Investing, differently from speculating, is for the longer term and thus asset, market and region matter, besides timing.
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