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Insights from Deepwater Asset Management: Trends and Predictions for 2024 and Beyond

In a recent episode of the OK Computer podcast, host Dan Nathan engaged in an in-depth discussion with Jean Monier, managing partner at Deepwater Asset Management. Their conversation explored significant trends observed in 2024, the evolving landscape of technology companies, and projections for the year ahead.

Transparency and Consistency in Investing

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Nathan commended Monier for his transparent investment philosophy, noting that in the previous months, Monier had effectively navigated the bullish market trends. While acknowledging Monier's accurate forecasts, Nathan indicated a desire to understand the driving factors behind the considerable shifts in the tech sector—specifically companies like Tesla, Apple, Google, and Microsoft.


Key Trends Heading into 2025

Monier highlighted several impactful trends poised to shape the remainder of 2024 and lead into 2025:

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  • Custom Silicon Development: A pivotal theme is the increasing emphasis on customized silicon, particularly by hyperscalers like Amazon and Microsoft, who are harnessing proprietary chips to enhance AI operations. Monier contrasted Broadcom's conservative growth guidance of 60% over three years against Nvidia's more tempered expectations, suggesting a potential shift in investor focus.

  • Software Growth and Pullbacks: Monier indicated a modest anticipated revenue growth from software applications in the back half of 2024. He also flagged the likelihood of market corrections; historical patterns suggest that 10% pullbacks are typical in extended bull markets.


Market Dynamics: Historical Context and Future Uncertainties

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As the conversation progressed, Nathan provided a historical backdrop, recalling parallels between today's tech landscape and the late 1990s internet boom. He underscored the multitude of macroeconomic challenges currently threatening market stability—ranging from potential trade conflicts to geopolitical tensions—and pondered the implications for major tech firms.

Monier acknowledged that while tech stocks, dubbed the "Fateful Eight" (including giants like Apple, Google, and Tesla), remain powerful players, their current valuations are heavily concentrated, raising questions about sustainability as corporate earnings must justify massive capitalizations.


Sector-Specific Insights: Tesla, Apple, Google, and Microsoft

Moving on to discuss specific companies:

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  • Tesla: Monier observed the remarkable stock resurgence, where Tesla gained over $600 billion in market capitalization within a month. The narrative surrounding its growth, fueled by expectations of full self-driving capabilities, raises concerns about sustainability amid weak consumer demand and heightened competition.

  • Apple: Nathan and Monier delved into Apple's recent struggles and the underperformance linked to broader market sentiments. Despite fears of stagnation in iPhone sales, Monier posits that Apple’s focus on services could prop up revenue and offset hardware stagnation—if adequate growth in services occurs.

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  • Google: Google’s resurgence post a challenging phase was another focal point. Monier highlighted Google's strong positioning in search and the resilience of its advertising revenue, even amidst the rising relevance of generative AI technologies.

  • Microsoft: The duo expressed skepticism regarding Microsoft’s slow adoption of AI technologies, particularly the uptake of co-pilot features. Monier suggested a potential disconnect between investor expectations and the realities of operationalizing AI across Microsoft’s suite of products.


Looking Ahead: Lighting the Path Forward

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As 2025 approaches, Monier remained optimistic about opportunities in the tech landscape, particularly surrounding AI and its broader applications. He noted the potential of advancements in agentic AI and the transformative impacts they may have on various sectors.

In closing, their conversation encapsulated a blend of caution and optimism, a reminder that while tech investments remain compelling, the road ahead is fraught with uncertainty. Monier's insights suggest a need for careful navigation through potential pullbacks, sector volatility, and the challenge of fostering sustainable growth in an ever-evolving technological landscape.

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Both Nathan and Monier left listeners with a sense of hope for the future, emphasizing the importance of discernment and strategic thinking as they look toward better opportunities in 2025.