ResearchThree Things (6/20)

Three Things (6/20)

Jun 10, 2024

Low vol, not all bad

It is easy to look at the daily moves in the S&P 500 and think the market has been relatively boring recently. Underneath the surface, however, there have been some furious swings – the implied dispersion of stocks, a measure of how much individual stocks move versus each other, over the next 30 days is at its highest since data began in 2014. There have also been more 10% swings in a day than at almost any other time in recent memory. Options investors are betting on it continuing too: options market pricing indicates the big swings won't be over any time soon.

Although there hasn’t been a 2% move since February and the VIX gauge of expected volatility is only up slightly, the environment is a positive for active stock pickers. When market risk turns into idiosyncratic risk, individual stocks move a lot and the index doesn't, resulting in bigger rewards for those who get it right. Time will tell whether this dynamic will continue, but the importance of centering investors around the strongest businesses has never been more important.

Cybersecurity and AI

Greylock Partners, a venture capital firm, led a $36 million financing for Seven AI, a startup that uses artificial intelligence to help enterprises boost their defenses against cyberattacks. According to Greylock, historically cybersecurity has been a battle between humans, but increasingly the fight will be between AI and AI. Seven AI is developing AI-based software that hunts for cyber threats autonomously and conducts investigations, reducing the burden on enterprise security-operations teams.

Seven AI’s mission is impressive and if Greylock’s interpretation of cybersecurity is true, the total-addressable market could be enormous. What piques our interest is that the infrastructure is a departure from how companies use generative AI today – typically a person has to ask the AI a question but Seven AI’s system is designed to ask the right questions and answer them in the same work stream. We wonder if more companies may structure their services like Seven AI is building theirs.

Roaring kitty roars back

Meme stock leader Keith Gill, also known as Roaring Kitty, made his return to YouTube after three years away from the platform with a livestream that generated more than 600,000 viewers and addressed his belief in video game retailer GameStop. Shares jumped near the start of the livestream before steadily declining, with the stock trading down more than 36% by the end of Friday’s trading. Gill, who revealed he holds a $160.4 million position in GameStop, said he’s a “believer” in the retailer moving forward.

Gill may believe in the stock, but business fundamentals don’t suggest there’s much to believe in when it comes to the business’ ability to transition the legacy business to one that’s more attuned to the modern world. But momentum investing is a real thing in markets, and GameStop seems to have a lot of it. What will be interesting is if E-Trade, the brokerage that holds Gill's positions, tries to claim that Gill is participating in market manipulation and attempts to kick him off the platform – who knows what will transpire (good or bad) if that happens.


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