Wharton professor and renowned economist Jeremy Siegel is bullish on a Big Tech boom fueled by artificial intelligence despite concerns of a bubble.
An AI chip craze, driven by demand for AI-powered chatbots and high-powered graphics processing units — used to train such chatbots on supercomputers — has seen investors piling into certain stocks with some raising concerns of a bubble.
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“It’s not a bubble yet,” saidSiegel, Russell E. Palmer professor of finance at the Wharton School at The University of Pennsylvania, on CNBC’s “Street Signs Asia” Monday. He noted that he has been getting questions around whether it would lead to a repeat of the dot-com bubble in the late 1990s.
Economist David Rosenberg, known for his contrarian views, had predicted that the current AI boom could collapse like late 1990s dot-com stocks. The dotcom bubble burst when capital dried up after a massive adoption of the internet and a proliferation of available venture capital into internet-based companies, especially startups that had no track record of success.
“First, there was excitement about AI and Nvidia ratified that excitement with blowout earnings. That’s a double push,” said Siegel.
Nvidia CEO Jensen Huang said during the earnings call that the company was seeing “surging demand” for its data center products. Nvidia shares are up 166% year-to-date.
“[In the] long term I would say that [Nvidia shares] were probably slightly overvalued. But for the short term, we know momentum can carry stocks far higher than their fundamental value, and no one can predict how high they might go,” said Siegel.
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On Sunday, Nvidia announced a new class of large-memory AI supercomputer created to enable the development of giant, next-generation models for generative AI language applications. The supercomputer powered by Nvidia GH200 Grace Hopper Superchip is expected to provide nearly 500 times more memory than the previous generation Nvidia DGX A100 — which was introduced in 2020.
“Generative AI, large language models and recommender systems are the digital engines of the modern economy,” said Huang, in the press release. “DGX GH200 AI supercomputers integrate Nvidia’s most advanced accelerated computing and networking technologies to expand the frontier of AI.”
Wharton’s Siegel said that AI stocks have helped lift the S&P 500 and that it could become “a winner from the banking crisis.”
“As we all know that the top eight or nine companies have accounted for all the gains of the S&P 500. This year, the other 490 have been flat or down. Yes, [the] Nasdaq was oversold in 2022 and it did bounce back but I think AI has pushed those big cap tech stocks even higher,” said Siegel.
“Remember big cap stocks of any sort, whether they’re tech or not, don’t have to worry about the credit conditions. Yes, they have to worry about interest rates to be sure. The credit conditions are going to affect the small and mid size [companies],” said Siegel.
“The S&P could actually become a winner from the banking crisis.”
A man walks past a poster that informs customers that bitcoin can be used in this shop in Tokyo on January 06, 2018.
Toru Yamanaka | Afp | Getty Images
Japan’s government pension fund on Tuesday said it is requesting information on “illiquidity assets” such as bitcoin, as part of research into potential new investments.
The Government Pension Investment Fund (GPIF) of Japan, the world’s largest pension fund by assets under management on several different rankings, said it is looking for “basic information” on illiquid assets other than those in which it already invests.
GPIF said it currently puts funds in domestic and foreign bonds and stocks, real estate, infrastructure and private equity. It is now looking for information about other assets such as forests, farmland, gold and bitcoin and how these might be incorporated into the portfolio of pension funds.
There is no indication that GPIF will invest in bitcoin or other cryptocurrencies.
Pension funds have been very cautious about stepping into cryptocurrency investments due to the latter’s volatile nature. Some have nevertheless dipped their toes, with South Korea’s pension fund — the National Pension Service — buying shares of Coinbase last year.
In Japan, the government in February proposed a law that would, if passed, allow investment funds to hold digital assets like cryptocurrencies.
Michael Sonnenshein, CEO, Grayscale Investments at the NYSE, April 18, 2022.
Source: NYSE
LONDON — The boss of digital asset management firm Grayscale, which manages the $26 billion exchange-traded fund GBTC, has said that fees on its flagship product will come down over time, after its outflows reached $12 billion.
Grayscale CEO Michael Sonnenshein said that the crypto fund manager expects to bring fees on its Grayscale Bitcoin Trust ETF down in the coming months, as the nascent crypto ETF market matures.
“I’ll happily confirm that, over time, as this market matures, the fees on GBTC will come down,” Sonnenshein told CNBC in an interview on Monday. The firm previously defended its costlier-than-market-average charges.
“We have seen this in countless other exposures, countless other markets, you name it, where typically when products are earlier in their lifecycle, when they’re new to be introduced, these [fees] tend to be higher. And, as those markets mature, and as those funds grow, those fees tend to come down, and we expect the same to be true of GBTC.”
GBTC has logged outflows of more than $12 billion since it was converted into an ETF in early January, according to data from crypto investment firm CoinShares, due in no small part to its higher-than-average fees.
CoinShares’ data shows that GBTC recorded its biggest single daily outflow on Monday, with withdrawals totalling $643 million.
“Of course, we anticipated having outflows,” Sonnenshein told CNBC. “Investors have been wanting to either take gains on their portfolio, or arbitragers coming out of the fund, or people unwinding positions that were part of bankruptcies through forced liquidation.”
Market commentators argue that the bankruptcy of crypto giant FTX has played a significant role in the selloff of GBTC. FTX was a major holder of GBTC before it filed for insolvency in November 2022, holding about 22 million shares as of Oct. 25.
The FTX bankruptcy estate reportedly offloaded the majority of its shares in Grayscale’s bitcoin ETF, according to January reporting from Bloomberg and CoinDesk.
“None of that came as a surprise, right,” Sonnenshein said, speaking about the outflows. “What we’ve seen is GBTC continue to trade liquidly with tight spreads, and across a very diversified shareholder base. So we kind of think we’re between the first and the second inning of this.”
“We’re kind of at the end of that first inning now, where the pent-up demand for buying has hopefully been satisfied, the pent up demand for selling has also hopefully been satisfied,” Sonnenshein added.
“And now we’re kind of starting to move towards that second and third inning, where there’s so much more of the market that still is not yet accessing these products.”
The crypto fund manager charges a 1.5% management fee for GBTC holders, significantly higher than the charge commanded by many ETF providers, including BlackRock and Fidelity.
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Vanguard has waived fees for investors entirely until March 2025 in a bid to lure in deposits.
Grayscale’s Sonnenshein defended the firm’s high fees at the time, telling CNBC they were justified by GBTC’s liquidity and track record. He said that the reason other ETFs have lower fees is that their products “don’t have a track record,” and the issuers are trying to lure investors with fee incentives.
Sonnenshein said the reason other ETFs have lower fees is that the products “don’t have a track record” and the issuers are trying to attract investors with fee incentives. “I think from our standpoint, it may at times call into question their long-term commitment to the asset class,” he said.
Sonnenshein told CNBC Monday that “all of these new issuers really came into the market to compete with us” and are also rivaling each other.
Grayscale also wants to introduce other ways of giving investors less costly ways of accessing its bitcoin ETF, including a “mini” version of its flagship product — the Grayscale Bitcoin Mini Trust, announced last week. The new ETF is set to trade under the ticker “BTC” and have a materially lower fee than GBTC.
The new BTC ETF would be effectively spun out of the Grayscale Bitcoin Trust ETF and seeded with an as-yet undisclosed portion of bitcoin underlying GBTC shares.
Under this structure, existing holders of GBTC would be able to benefit from a lower total blended fee while maintaining the same exposure to bitcoin, spanning ownership of shares of both GBTC and BTC.
Existing GBTC shareholders would also be able to convert into BTC without paying capital gains tax.
The firm is currently awaiting approval from the U.S. Securities and Exchange Commission for its Bitcoin Mini Trust ETF.
Moving forward, Sonnenshein wants investors to turn their attention toward the business’ other crypto investment products, which track prices of different cryptocurrencies including ether and solana.
The company is trying to have its Grayscale Ethereum Trust converted into an ETF, but is awaiting SEC approval.
BYD electric cars waiting to be loaded onto a ship are seen stacked at the international container terminal of Taicang Port in Suzhou, in China’s eastern Jiangsu province on February 8, 2024.
STR | AFP | Getty Images
In the race against Tesla for the global electric car market, Chinese automaker BYD is pushing hard overseas despite rising barriers to the U.S. market.
The Shenzhen-based company has already tested the waters in a number of countries with some immediate sales success, often just one year after entering.
Given policy uncertainty around Chinese EV exports to major markets like the U.S. and Europe, BYD is seeking to bolster overseas sales by moving production to regions perceived as more friendly. Already, the company has factories in Thailand, Brazil, Indonesia,Hungary and Uzbekistan in the works.
“They are targeting countries without very strong domestic auto industries, where they are likely to face less political pushback or headwinds from a policy perspective,” said CLSA research analyst Xiao Feng, noting that recent developments in the U.S. underscored the need for such an approach.
The Biden administration last month said it’s begun investigating whether Chinese-made cars pose national security risks, and raised the possibility of restricting the vehicles. The U.S. has tried to support adoption of electric cars domestically, but sales penetration is well below that of China.
BYD is moving quickly, beginning with Thailand, where the company expects its first factory outside China to be in operation by the end of this year. The automaker surpassed Toyota to grab the top spot for passenger car sales in Thailand in January, despite having no sales there just one year prior, according to data from Marklines.
BYD has established itself in Southeast Asia as the top-selling EV brand, grabbing more than one-third of the market last year after barely selling cars there previously, according to data from Counterpoint Research.
Edge against Tesla
BYD sold 70,000 electric cars in Southeast Asia last year with a 35% market share, putting it ahead of rivals Vinfast and Tesla, according to data from Counterpoint Research.
One of BYD’s advantages over Tesla is a number of offerings in the mass market, as well as a mix of hybrid and battery-powered cars. Tesla exclusively makes more premium-priced, battery-only cars. Having hybrid options is beneficial for emerging markets where battery-charging infrastructure remains limited.
Southeast Asia will likely remain BYD’s strongest overseas market in the short term as the company pursues its goal of doubling its car exports from last year to 500,000 in 2024, according to Canalys automotive analyst Alvin Liu.
“The Southeast Asian EVs market is still in its early stages, and consumer habits need to be cultivated,” said Liu. “Cost-effectiveness” is particularly important, he added, with BYD’s Atto 3 and Dolphin models sold in the region at very competitive prices.
The company is also investing $1.3 billion to build an electric car factory in Indonesia in 2024, local media reported in January. This year, BYD also reportedly plans to significantly increase the number of its stores in Singapore and the Philippines.
The company did not respond to a request for comment about the reported plans.
While BYD does not break out capital expenditure by country, it disclosed 81.52 billion yuan ($11.33 billion) in autos-related capex in the first six months of 2023, nearly double the 45.94 billion yuan reported for all of 2022.
In another contrast with Tesla’s direct-dealership model, BYD often relies on local distributors and partners for sales in countries outside China. For example, in late 2022, BYD signed a distribution agreement with Sime Darby Motors in Malaysia.
Plan for the Americas
While U.S. scrutiny on China’s electric vehicle dominance is only growing, BYD is expanding in Brazil and has its sights on Mexico, on the U.S. border.
The company’s Americas CEO Stella Li told Reuters BYD is considering plans for a factory in Mexico, where it has started selling more electric cars.
If BYD does build a factory in the country, that could make it a “beachhead for the Americas,” Bill Russo, founder and CEO of investment advisory firm Automobility, recently told CNBC’s “Squawk Box Asia.”
“Mexico is part of the USMCA so there is an opportunity to export perhaps from Mexico to North America,” he said, referring to the free trade agreement that the United States, Mexico and Canada enacted in 2020.
BYD does not plan to sell passenger cars to the U.S., Li reportedly said at the end of February.
The automaker did not respond to a request for comment on this story.
China remains by far BYD’s largest market. Out of more than 3 million new energy passenger vehicles the company produced last year, just over 242,000 went overseas.
The rapid growth of BYD and other Chinese electric car companies has other automakers worried.
In February, the Alliance for American Manufacturing released a report warning that low-cost Chinese imports could be an “extinction-level event for the U.S. auto sector” and called on Washington to prematurely block imports from Mexico.
That was just weeks after company releases confirmed that BYD was well ahead of Tesla in terms of vehicle production.
Europe and other markets
A global push to go electric has given Chinese automakers potential market opportunities, especially as growth slows at home.
“BYD needs to look for more overseas opportunities in other regions where the EV penetration will accelerate with infrastructure development for its long-term sustainable growth, not losing share against the US and European automakers,” said Liz Lee, associate director at Counterpoint Research.