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ResearchThree Things (10/25)

Three Things (10/25)

Oct 25, 2023

“Lots of companies don't succeed over time. What do they fundamentally do wrong? They usually miss the future." – Larry Page

Big Tech earnings

Alphabet, the parent company of Google, and Microsoft reported earnings on Tuesday evening, kicking off an important week for Big Tech. Microsoft recorded a strong beat on top and bottom lines as Azure, the company's cloud segment, came in well above expectations. Alphabet, on the other hand, reported sales and profit that topped analysts’ estimates but their cloud segment missed, sending the stock lower after hours.

One of the major storylines from the third quarter has been speculation surrounding Microsoft’s ability to take share from Google via their head start in generative AI. Although the third quarter results aren’t revealing of this dynamic just yet, Microsoft is clearly firing on all cylinders while Google is hitting a rough(ish) patch. Time will tell as the two heavyweights head to Round 2.

Cruising to a halt

The California Department of Motor Vehicles suspended Cruise’s autonomous vehicles and driverless testing permits on Tuesday. The agency ruled that Cruise’s vehicles are not only unsafe for public operation but they misrepresented information related to safety standards for the autonomous driving technology.

Following labor strikes and delays towards their transition to electric, the news is yet another set back for General Motors, the company who owns Cruise. It’s not only a blow to GM, but the broader industry as the misrepresentation of safety, the north star for autonomous driving, could push back mass adoption by several years. Innovation by acquisition is not always the most efficient path to success.

Semi sweet IPO

Semiconductor equipment maker Kokusai Electric will start trading Wednesday in Tokyo after raising around $720 million in an initial public offering last week. Kokusai is the biggest Japanese IPO in nearly five years and is valued at $2.8 billion. The company represents a new way to play the upstream end of the chip supply chain which should be welcomed by investors moving forward.

The biggest winners from the deal? U.S. private equity firm, KKR, who is set to net returns of more than 60%. It’s also a win for Japanese equity markets who have finally caught a bid following decades of glacial growth. Investor appetite for Japanese tech is a strong signal of confidence for a region that has been troubled by sluggish growth and non-existent inflation.

As of writing, MSFT and GOOG are holdings in Titan's Flagship strategy and EWJ is a holding in Titan's Offshore strategy. Titan continuously evaluates alternative assets to bring to its clients, including those offered by KKR.

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