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CONFIDENTIAL
WALL STREET MASTERMIND
Sector Spotlight: February / March Recap
Sector Leads
Jagger Lambert | Media & Entertainment
James Concepcion | Media & Entertainment
Pan | Technology
Teddy Kesoglou | Technology
Nina Chhor | Healthcare
Joe Ames | Healthcare
Project Founders
Jagger Lambert
James Concepcion
CONFIDENTIAL
WALL STREET MASTERMIND
Technology
Contributors
Teddy Kesoglou | Group Head
Pan | Group Head
Jonathan Z. | Research Analyst
Mario D. | Research Analyst
Luis Urbina | Research Analyst
Willem Coertzen | Research Analyst
Ben | Research Analyst
Justin | Research Analyst
3
TABLE OF CONTENTS Technology
I. Tech Stocks Rally 5
II. AI Regulations 12
III. Social Media Industry Deep Dive 21
IV. Deal Coverage 34
4
Tech Stocks Rally Technology
I. Tech Stocks Rally 5
II. AI Regulations 11
III. Social Media Industry Deep Dive 18
IV. Deal Coverage 32
5
Introduction To Technology Stock Rally
S&P 500
Leaders
Tech Stock
Rally
Market
Conditions
AI
Advancements
*Sources: jpmorgan, Statista
1. Chart as of Jan. 2024
Technology
Sector
Performance
Magnificent 7 % Change of Stock Price1
+239%
+194%
+102%
+81%
+59%
+57%
+48%
+24%
0% 50% 100% 150% 200% 250%
NVDA
META
TSLA
AMZN
GOOGl
MSFT
APPL
S&P 500
The "Magnificent 7" and other tech giants collectively wield a
remarkable 35.8% influence, with the Mag 7 alone commanding
28.8% in the S&P 500 . This dominance underscores the pivotal role
technology stocks play in index's performance
The Magnificent 7 collectively represent nearly 30% of S&P 500
market capitalization. The remarkable rise in stock prices for these
seven companies explain why the S&P is up almost 32% since 2023.
This came after the big tech stocks delivered exponential earning
reports
Investors are recognizing the pivotal role AI plays in enhancing
efficiency and innovation. This has driven more investors to invest
into tech stocks
It is crucial for investors to remain vigilant and closely monitor
interest rates and inflation. Despite the positive momentum, with
recent halt in high interest rates(5.3%-5.5%) and inflation being
higher than expected, it damped the recent positive news regarding
the tech stocks
Companies Day Close Price ($USD) 52 Week High ($USD) % Change of 52 Week Shares O/S ($M) Market Cap ($B USD) Enterprise Value ($B USD) EV / EBITDA EV / Revenue
TSLA $ 196.20 $ 299.29 -21.6% 3,185.0 $ 620.0 597 40.6x 6.2x
NVDA $ 745.94 $ 746.11 40.1% 2,500.0 $ 1,667.1 1660 72.8x 37.0x
MSFT $ 404.85 $ 420.82 8.4% 7,340.0 $ 3,020.0 2990 24.8x 13.5x
META $ 475.00 $ 488.62 35.2% 2,210.0 $ 1,193.0 1170 19.9x 8.7x
GOOG $ 144.04 $ 153.78 3.1% 5,670.0 $ 1,779.0 1740 17.3x 5.5x
AMZN $ 170.39 $ 175.39 12.5% 10,390.0 $ 1,751.0 1880 20.1x 3.1x
APPL $ 182.98 $ 199.62 -1.8% 15,500.0 $ 2,840.0 2850 21.3x 7.4x
6
Earnings Growth And Market Valuations
-50.0%
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
Meta Platforms, Inc. (META) Apple Inc. (AAPL) Amazon.com, Inc. (AMZN) Microsoft Corporation (MSFT)
Alphabet Inc. (GOOGL) Tesla, Inc. (TSLA) NVIDIA Corporation (NVDA)
0% 5% 10% 15% 20% 25% 30%
Magnificent 7
S&P 500
Remaining 493
Earning Growth 2024
Top Opportunities to Expand From LLMs
• We saw an overall earning growth of 53.7% among the magnificent 7
with leaders like NVDA and META raking in the best earning for YOY Q4
1
Earnings
growth
• Despite the inflationary pressures leading to rising material costs, these
companies have witnessed increased spending, which could potentially
stem from the accumulated household savings during the pandemic
2
Increased
spending
• Meta, Nvidia, and Microsoft are aggressively hiring for AI roles despite
recent layoffs, reflecting their confidence in AI's potential. Meanwhile,
other big Tech companies have reduced hiring, opting for a more
cautious approach in uncertain times
3
Technology
layoffs
Earning Growth From Previous Quarter within S&P 500
One-Year Share Price % Change: The Magnificent 7 Stocks
7
The Role of Artificial Intelligence
CLOUD SERVICES
CONTENT
GENERATION
SEMICONDUCTORS
CUSTOMER SUPPORT
AUTONOMOUS
SYSTEMS
• Microsoft (MSFT):
Provides Azure AI
Services like machine
learning, natural
language processing, and
computer vision on
Azure
• Amazon (AMZN):
Delivers AI-powered
services through AWS,
including generative AI
and AI chips
• Google (GOOGL):
Employs AI in Google
Cloud for large language
models and
recommendation systems
• Microsoft (MSFT): Uses
AI chatbots for customer
support, partnering with
OpenAI
• Amazon (AMZN): Offers
AI chatbots for service
and AI for personalized
recommendations.
• Google (Alphabet)
(GOOGL): Applies AI in
customer service and
user experience with
recommendation
algorithms
• Tesla (TSLA): Relies on
AI technology for
autonomous driving
systems in its vehicles,
utilizing computer vision
and machine learning
algorithms
• Apple (AAPL):
Integrates machine
learning algorithms into
products for features like
Siri and facial
recognition, enhancing
user experience and
interaction
• Nvidia (NVDA): Provides
GPUs optimized for AI
training and inference
tasks, powering AI
applications across
various industries
• Amazon (AMZN):
Develops custom AI chips
optimized for AI
workloads, supporting AI
initiatives in cloud
services and other
applications
• Meta Platforms (META):
Utilizes AI-powered
recommendation systems
for content
personalization on social
media platforms
• Apple (AAPL):
Integrates AI in products
for content generation
and personalization, such
as predictive text and
photo organization
8
Tech Horizons: Advancements and Regulations
Beyond the Magnificent Seven
AMD (Advanced Micro Devices): With almost all
AI processing being done on Nvidia GPUs in 2023,
AMD is expected to gain market share in 2024
thanks to its new MI300 chip. This positions AMD
as a strong competitor in the semiconductor space,
especially for AI processing
Micron Technology Inc. (MU): As AI processing
demands significantly more onboard memory,
Micron is emerging as a leader in high bandwidth
memory (HBM). The company's advancements in
HBM are expected to drive a meaningful
acceleration in its fundamentals in 2024
Regulations & Competition
AI Arms Race: U.S. and global regulators are
intensifying scrutiny on symbiotic relationships
between Big Tech giants (Amazon, Google,
Microsoft) and rising startups (Anthropic, OpenAI)
to ensure these partnerships don't stifle
competition or innovation
Regulations: Tech giants like Meta are intensifying
efforts to ensure user privacy and combat
misinformation, particularly during pivotal
election cycles. Startups are proactively embedding
safety and privacy into their platforms, recognizing
the critical need for trust in technology
Cybersecurity
Generative AI acts as a double-edged
sword with cybersecurity companies
better equipped to detect and respond
to breaches but it has allowed hackers to
increase the number and scale of
ransomware attacks
FinTech
Utilizes AI and blockchain for tailored,
secure financial services; employs cloud
technology for growth. Spurs payment
innovations, showcasing vast expansion
and investment appeal in this swiftly
advancing industry
BioTech
By 2025, >30% of new drugs to be AI-
discovered, with $60B invested in 2023,
doubling in 2024. Pioneers such as
Araceli Biosciences, Pathos,
April19Discovery, CardiaTec
Biosciences, and Skymount Medical are
spearheading this innovative wave
9
Investment Themes and Risk Considerations
Risk Considerations
Investment Themes
Magnificent
Seven
Monetary
Policy
The anticipated shift in Federal Reserve policy towards rate
cuts amidst ongoing economic growth sets the stage for
rising longer yields in 2024. This adjustment is expected to
lead to the normalization of the yield curve, moving from its
current inverted state to a traditional upward slope,
signaling investor confidence and a healthy economy
Global
Elections
In 2024, a significant portion of the world's market
capitalization will be influenced by major election cycles,
including the pivotal U.S. elections. Historically, the S&P
500® has performed well during U.S. election years,
indicating that, despite political volatility, there may be
robust investment opportunities in the financial markets
The magnificent seven, known for their higher margins,
expected sales growth, and strong tech presence have led
the charge for the current rally. With the advancements of
artificial intelligence incorporated within these companies,
these tech stocks are expected to see a 22% growth in 2024,
with the rest of the market expected to grow at 7.8%
Market volatility remains a persistent backdrop as investors
navigate the changing yield landscape, with the timing and
impact of Fed rate cuts introducing uncertainty. Additionally,
fluctuations in supply and demand for Treasury securities
may lead to yield level variances, adding complexity to fixed-
income investment strategies
The global stock market has an increasingly concentrated
focus on a handful of large-cap tech stocks highlighting a
growing concentration risk, reminiscent of the 1970s Nifty
Fifty and the 2000 tech bubble. Therefore, portfolio
diversification is needed for investors to be less vulnerable
to any negative development that impacts this sector
Political events can introduce uncertainty and volatility
into global financial markets, with election outcomes
potentially affecting economic policies, international
relations, and market sentiment. Investors must stay
vigilant of the geopolitical landscape and be prepared for
shifts in market dynamics that elections could precipitate
10
Market Outlook and Strategic Implications
Market Outlook S&P 500 Performance in Reelection Years
▪ Market Breadth: Investors are transitioning from sellers to buyers as seen
with 90% of stock within Q3 2023 in the S&P 1500 index moved above their
50 day moving average which is a bullish indicator for positive returns
▪ Soft Landing: Inflation rates are gradually decreasing, with headline inflation
at 3.1% and core CPI at 3.9% year-over-year as of January, and are expected to
approach the Federal Reserve's 2% target by Q4 2024, assuming the absence
of major economic shocks and supported by cooling economic momentum
▪ Reelection cycle: Historically, U.S. stock markets gain in election years when
incumbents run for reelection, averaging 16% returns since 1944 across 13
instances, partly due to presidents boosting the economy through policies,
exemplified by Biden's infrastructure and economic acts
Strategic Implications LTM Inflation Data
19.5% 18.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
▪ Profit-Taking and Reinvestment: With tech stocks experiencing volatility,
strategic profit-taking and reinvestment into different tech sub-sectors, such
as AI infrastructure or software, could be prudent
▪ AI Investment Focus: Investing in AI is categorized into three buckets: data
center construction, cooling and power for servers, and vendors selling into
data centers, offering diverse opportunities for sector engagement
▪ Economic Resilience: Companies that are innovating within their traditional
business models, such as Walmart, are showing resilience and may be
attractive to investors seeking stability in the evolving tech landscape
▪ Market Reactivity: The market remains sensitive to interest rate changes,
highlighting the need for investors to stay nimble and responsive to economic
indicators such as PCE, CPI, and PPI reports
6.0%
3.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
11
AI Regulations Technology
I. Tech Stocks Rally 5
II. AI Regulations 11
III. Social Media Industry Deep Dive 18
IV. Deal Coverage 32
12
Introduction To Tech Industry Regulations
• Rapid technological advancements challenge regulators to balance innovation,
consumer protection, and regulation, necessitating agile and sustainable solutions
• Regulatory discussions on private data usage have emphasized the necessity of robust
frameworks to safeguard privacy, mitigate misuse risks, and protect consumers
• LLMs like ChatGPT4 and Google's AI products drove calls for U.S. regulation due to
amplified risks including discrimination, bias, misinformation, and privacy concerns
1
Current Technological Landscape Overview
• Current tech regulations comes with higher costs and barriers to entry. Larger
technology companies can absorb these costs while complying with regulations
• Goldman Sachs research indicates that the impulse toward early regulation of AI
technology may favor large, well-capitalized companies over small AI tech startups
• Wedbush analyst Ives highlights the current lack of consensus in Washington as
advantageous for Big Tech, with Microsoft emerging as a notable leader
Latest Regulatory Policy Implications
2
• Regulations play a critical role in ensuring that the development and deployment of AI
technologies adhere to ethical standards, fostering trust among stakeholders
• Clear regulatory guidelines can create a level playing field. By eliminating legal
uncertainties, firms can easily compete based solely on the quality of their innovations
• Regulations instill public trust by assuring citizens that AI and Tech systems are
designed with their well-being in mind, ensuring safety to consumers
Importance of Regulations
3
• The EU’s Digital Services Act (DSA) regulates online intermediaries and platforms,
ensuring user safety and fundamental rights while fostering fair competition
• EU’s Digital Markets Act (DMA) targets gatekeeper platforms. The DMA promotes
openness, competition, and user rights in digital markets, ensuring transparency
• The U.S. AI Executive Order ensures AI safety, encouraging responsible innovation by
requiring AI developers to share safety test results with the Biden administration
Main Regulatory Policies
4
13
European Union AI Act
Risk-Based Approaches:
Addresses risks associated with certain dual-use
foundation models, focusing on safety test
disclosures to the government
Data Quality and Human Oversight:
Directs the Department of Commerce to develop
rules for disclosing AI model information, but
with a broader scope om equity considerations
Cybersecurity:
Requires disclosures from companies developing
infrastructure for AI models under certain
circumstances but lacks specific mandates
U.S. AI Executive Order
Impact on AI Providers and
Compliance Challenges
Compliance
Cost
Major
Companies
Potential
Fines
European Union
AI Act
U.S. AI Executive
order
€29,000 per model. 10%
high-risk systems.
Annual: €1.6-€3.3 BN
Center for Data
Innovation: compliance
costs estimated $6B Per
Annum
Key Features
• Many AI providers operate internationally
and will need to comply with regulations
from multiple jurisdictions. Additionally,
regulations from influential entities like
the EU and the U.S. may serve as models
for other countries, leading to global
regulatory changes
1. Resource Allocation: Compliance may
demand significant resources in terms of
time, manpower, and financial
investments. Small and medium-sized AI
providers may particularly struggle due
to limited resources
2. Data Privacy and Security: AI providers
must adhere to strict regulations,
safeguarding user data and
implementing privacy-enhancing
technologies
3. Monitoring and Reporting: Establishing
robust monitoring mechanisms and
reporting processes is essential for
continuous compliance
Up to EUR 30 million or
7% of global annual
turnover
Statutory damages
$150,000 per work
Major technology
giants (FAANG)
are subject to
compliance
requirements due to
their substantial AI
development
Cybersecurity:
Mandates that high-risk AI systems
ensure robustness and cybersecurity
measures
Data Quality and Human Oversight:
Emphasizes data governance, human
oversight, and accuracy in high-risk AI
systems
Risk-Based Approaches:
Implements a risk-based approach,
imposing stringent requirements on
providers of high-risk AI systems
Comparative Overview of AI Regulation EU vs. US Frameworks and Impacts on Compliance
14
Navigating the New Era Regulatory Challenges in Technology and Data Privacy
Emerging Regulatory Frontiers
Newer Technologies Data Privacy and Security
Increased Stringency:
- Stricter data privacy laws worldwide, similar to GDPR in Europe, may
require companies to obtain explicit consent for data collection and use,
and giving individuals more control over their data
Focus on Specific Sectors:
- Regulations might target specific sectors, like healthcare or finance,
where data privacy and security are particularly crucial
Global Harmonization:
- There might be efforts to harmonize data privacy regulations
across different countries to create a more consistent global framework
Focus on emerging technologies:
- Regulations might address data privacy and security concerns specific
to emerging technologies like artificial intelligence and the Internet
of Things (IoT)
Quantum Computing: Regulations might focus on:
- Security: Mitigating risks of hacking and ensuring the integrity of
sensitive data processed by quantum computers
- Competition: Preventing monopolies and fostering a fair playing field for
different quantum computing companies
- Access and control: Determining who has access to quantum computing
resources and how such access is controlled
Blockchain (beyond cryptocurrencies): Regulations might address:
- Standardization: Establishing common protocols and frameworks for
different blockchain applications
- Consumer protection: Addressing potential scams and ensuring
transparency in blockchain-based transactions
- Energy consumption: Regulating the energy usage of proof-of-work
consensus mechanisms used in some blockchains
15
Two Ways Companies can Adapt to Regulations
Innovation in
Compliance
Ethical Tech
Development
- Develop AI-powered compliance tools: These tools can automate tasks like data analysis, risk
identification, and reporting, reducing manual workload and improving efficiency
- Implement blockchain-based solutions for data tracking and record-keeping: This can enhance
transparency and auditability, facilitating compliance with data privacy regulations
- Build internal compliance training programs: Regularly train employees on relevant regulations and
ethical practices to ensure awareness and accountability across the organization
- Conducting algorithmic bias audits: Regularly assess algorithms for potential biases and implement
safeguards to mitigate discriminatory outcomes
- Developing privacy-preserving technologies: Design technologies that minimize data collection and
ensure user control over their data, adhering to data privacy regulations
- Establishing clear ethical guidelines for AI development and deployment: These guidelines should
address issues like transparency, accountability, and fairness in AI decision-making
16
How OpenAI Overcame Regulatory Concerns
Ethical Use and Responsible AI Development: OpenAI encountered
regulatory challenges related to ensuring the ethical use of AI and
responsible development practices. With the growing concerns
surrounding AI's societal impact, regulatory scrutiny intensified,
requiring organizations like OpenAI to navigate ethical
considerations and regulatory expectations effectively
Data Privacy and Security Compliance: The sensitive nature of data
used to train AI models posed regulatory challenges concerning
data privacy and security compliance. As data protection
regulations such as GDPR and CCPA became more stringent, OpenAI
needed to ensure robust measures to safeguard user data and
comply with evolving legal requirements
Export Control and International Regulations: OpenAI faced
regulatory hurdles regarding export control and compliance with
international regulations governing the export of AI technology.
The global nature of AI development necessitated meticulous
attention to export control laws and navigating complex
international regulatory frameworks
OpenAI conducted thorough assessments of export control
regulations in different jurisdictions to understand the regulatory
landscape comprehensively. By staying informed about export
control laws such as the Export Administration Regulations (EAR) in
the United States and similar regulations in other countries,
OpenAI ensured compliance with relevant export control
requirements
OpenAI addressed data privacy and security compliance challenges
through encryption, access controls, and anonymization
techniques. Regular audits ensured regulatory compliance, with
prompt action taken to mitigate risks. Collaboration with legal
experts facilitated navigation of international regulations and
acquisition of export licenses for global AI distribution
OpenAI conducted thorough ethical reviews of AI applications,
engaging stakeholders for feedback, and adhering to ethical
principles like fairness, transparency, and accountability.
Collaborating with regulatory bodies and industry groups helped
shape AI governance frameworks and advocate for responsible AI
practices at the regulatory level
Navigating the Complexities of AI Ethics and Compliance OpenAI's Strategic Approach
17
Balancing Innovation and Regulation The Societal and Corporate Impact of AI and Cryptocurrency
AI Impacts on Society
AI Impacts on Companies
- Increased financial inclusion: Bitcoin and other cryptocurrencies could potentially offer alternative financial
tools for individuals and communities excluded from traditional financial systems
- Innovation and technological advancements: The development of blockchain technology underlying Bitcoin
has the potential to spur innovation in various sectors beyond finance
- Potential risks: Concerns regarding financial stability, money laundering, and consumer protection
necessitate careful consideration and responsible regulatory frameworks to mitigate these risks
- Clarity and predictability: Clear and adaptable regulations can provide a more predictable environment for
AI companies to invest and innovate
- Focus on ethical development: Regulatory frameworks emphasizing ethical considerations can
encourage responsible AI development and mitigate potential societal harms
- Challenges and adaptation: Adapting to evolving regulations can be resource-intensive and require
ongoing efforts from AI companies
18
Social Media Industry Deep Dive Technology
I. Tech Stocks Rally 5
II. AI Regulations 11
III. Social Media Industry Deep Dive 18
IV. Deal Coverage 32
19
4.9
5.8
4.4
4.6
4.8
5
5.2
5.4
5.6
5.8
6
2023 2027
Active Users in Billions
The Timeline of Social Media A Journey from SixDegrees to Today's Giants and the Advertising Landscape
145 minutes daily
average use per person
77 % of all businesses utilize social media to reach
audiences
76% of social media users have purchased a
service or good on social media
Social media adspend has crossed $182B which
marks 15.2% growth YoY (largest in all verticals)
Implications for Advertising
Social Media Evolution
Social
Media
Today
1997 2003 2005
2017 2022 Today
SixDegrees: First
social media
network.
Amassed 1m+
users and
acquired for
$125m
MySpace is
founded and
peaked 25
million
users
Facebook,
Linkedin,
Youtube,
Wordpress
founded
2010
Instagram
founded
2012
Facebook reaches 1B
users and acquires
Instagram for a
significant $1B
Tiktok is
born
Elon Musk buys
Twitter for a record
breaking $44B
20
Social Media Market Dynamics Dominance of Short-Form Content and TikTok's Growth
84%
81%
73%
45%
0% 20% 40% 60% 80% 100%
18-29
30-49
50-64
65+
Social Media Use by Age Group
Largest Players by Market Cap
$1.2T
$18B
$351B
$- (Private)
Rise of Tik Tok:
1. Tiktok has crafted near-perfect short-form content for instant gratifying and
digestible information
2. Within 8 years Tiktok has over 2B downloads indiscriminately from all age
groups and demographics
3. Tiktok prioritizes user engagement through AI/ML, music licensing deals,
and creative expression through authentic growth
4. Short-form content has become the most effective type of content for lead
generation and engagement for marketing and ad-spend
5. More importantly, Tiktok has recently aggressively expanded its in-app e-
commerce shop to integrate the consumer and social media experience
Shifting Engagement to Short-Form Content
54%
36% 36% 34% 32% 30%
Short-form
Long
videos
Live
stream
User-generated
content
Interviews,
podcasts,
etc
Infographics
Which Formats do Social Media Marketers Use
21
Integrated social-commerce platforms
The Evolution of Social Commerce Integration, Impact, and Regulatory Challenges
Influencers
The Social Commerce
Digital
Marketing
User-
generated
content
• Social commerce integrates social media and the e-
commerce experience into a 1 stop shop, generating a
new type of experience for online shoppers. Social
media platforms are introducing eCommerce features,
allowing users to buy products directly from posts and
stories
• 89% of consumers have bought goods online after
seeing products in their social media feed; now Tiktok,
Facebook Instagram, and WeChat have all
implemented a form of integrated marketplace.
Anyone can become an affiliate for a commission or
push brand exposure through user-generated content.
The marketplace utilizes network marketing and
trends to push sales
• AI algorithms study consumer behavior and interest
alongside big data feeders to accelerate social
commerce integration. Social media is a feeding
ground of information that is trained to push and filter
relevant content to its user base
• As these social media companies become large “data
storage centers” privacy and data protection have
become a roadblock for the space. There have recently
been multiple congressional hearings and attempted
regulatory controls set in place to restrict the data
collected and used by these social media giants
Data and Privacy
Regulations
AI, data analytics
Livestreaming
AI, data analytics
User-generated
marketing and
sales affiliation
Content
generation
Corporations
22
Social Media Industry Challenges
Privacy and
Data Security
• Social media companies collect tons of user data, including personal info, browsing history, location data which they share frequently share with
third-party developers, advertisers, and business partners for purposes such as targeted advertising. People have raised concerns about how their
data is being handled and who can access it
• The GDPR imposes strict requirements on the collection and processing of personal data. The organization makes sure that social media companies
have a lawful basis for collecting user data, such as obtaining explicit consent
Content
Moderation
• Content moderation for social media companies is has many issues including the delicate balance between free speech and preventing harm, the
sheer amount of user-generated content requiring efficient review, consideration of cultural contexts, challenges with algorithmic biases, the
psychological impact on human moderators, and legal compliance. Achieving effective moderation is a challenge. Thus incorporating AI tools, human
expertise, transparent policies, is necessary to protect free expression, and uphold ethical standards
Market
Saturation
• With lots of options and intense competition, companies have to adapt to changing user preferences fast which is hard to predict. They also have
to manage content overload, and balance monetization pressures from investors while maintaining user trust amidst privacy concerns. In order to
stand out, platforms need to innovate, offer personalized experiences, and address diverse demographic preferences. Ultimately, success depends on
value, engagement, and differentiation for brands
Social Media's Biggest Challenges
23
Evolution of Social Media Monetization Advertising, Influencers, and Data Analytics
Monetization Strategies Influencer Economy Analytics and ROI
Social media companies generate
revenue primarily through advertising,
subscription services, and in-app
purchases. Advertising models utilize
user data for targeted ads which many
different companies have adapted to
their sites. Subscription services offer
ad-free experiences or premium
features for a fee like X (formerly
Twitter) which allows users to pay to be
verified in the app. Lastly, in-app
purchases enable users to buy virtual
goods like gifts on livestreams within the
app. Some sites integrate e-commerce
for direct shopping like Instagram has
Influencers have become pivotal in
social media marketing, collaborating
with brands through sponsored content,
affiliate marketing, and product
placements. They create
seemingly authentic, relatable content
that resonates with audiences. Although
maintaining authenticity, adhering to
regulatory disclosure requirements is a
challenge. Despite these challenges,
influencer marketing remains a
powerful tool for brands to engage with
consumers effectively and drive sales
Analytics help by providing insights into
audience behavior, campaign
performance, and ROI. Tools for
measuring campaigns like click-through
rates, help marketers understand the
effectiveness of their ads. ROI is
assessed through metrics such as
conversions, customer acquisition costs,
and revenue generated from social
media campaigns, then marketers
evaluate the impact of their marketing
efforts. Big data analytics leverage large
datasets for targeted advertising,
personalized content, enhancing the
effectiveness of social media advertising
24
Future Outlook and Ethical Considerations
Predictions for the Future
The future of social media will be
shaped by technological
advancements like augmented
reality (AR) and virtual reality
(VR). Short-form video content,
live streaming, and ephemeral
stories will remain popular.
Personalized content through AI-
powered algorithms will gain
popularity. It's hard to say exactly
what the future holds for social
media companies but they will
stay relevant through
competitive practices
Strategic Considerations
In today's landscape a business
can become a household name
simply by creating content,
leveraging targeted
advertising.Partnering with
influencers, fostering
communities, and analyzing
performance metrics enable
businesses to amplify their reach
and optimize their strategies
effectively. Businesses can
cultivate loyal followers,
differentiate themselves, and
position themselves for success
Ethical Considerations
Social media bears ethical
responsibilities like data privacy,
content moderation while
promoting transparency and
accountability. Social media also
has a big impact on society with
communication, and civic
engagement. The role of social
media in democracy is complex,
as it involves political activism,
and public discourse, but also
involves things like echo
chambers
25
Tik Tok Ban Overview
The Biden Administration
signs the "No TikTok on
Government Devices Act,"
prohibiting the app on
federal government devices
December 2022
The Administration calls on
ByteDance to either sell TikTok or
face a ban due to security
concerns. Additionally, there
is an investigation into TikTok
jointly conducted by the DOJ and
the FBI to investigate allegations
of spying on American journalists
March 2023
The Senate will now consider the
legislation passed by the House. If
passed by the Senate, it would
then go to President Biden for his
signature
Future
House Foreign Affairs Committee Vote
On March 13th 2024, the House passed H.R. 7521, which would
effectively ban TikTok unless its parent company, ByteDance,
divests itself of the app in a way that satisfies security concerns.
This vote by the House Foreign Affairs Committee is a significant
step towards a potential ban
Proponents Opponents
Lawmakers worry that ByteDance
could be forced to share user
data with the Chinese government,
which could include browsing
history, location information, and
even private messages
This group argues that a ban would
violate First Amendment rights to free
speech and expression as they point
out that millions of Americans use
TikTok for entertainment and
communication
26
Strategic Response and Legislative Concerns Surrounding TikTok Operations
Risks of Outside Influences
▪ TikTok surfaces as a vector for
potential cybersecurity threats
within the U.S. regulatory
framework, amplifying the dialogue
on digital platforms' data integrity to
external influence. Consideration of
TikTok's protocols is critical to
mitigating cybersecurity risks of
U.S.-China tech competition
Legislative
Guardrails
Strategic
Recalibration
Regulatory and Compliance
▪ U.S. policymakers advocate for
decisive action, proposing legislation
mandating ByteDance's divestiture
of TikTok. This reflects a proactive
stance toward enforcing data privacy
and addressing potential foreign
control within the tech sector,
highlighting the need for robust
compliance mechanisms and
Market Viability
▪ Facing legislative challenges,
TikTok's strategic maneuvers in the
U.S. include potential litigation,
fierce advocacy, and operational
adjustments. The platform's efforts
to maintain its presence in the U.S
will require adept navigation of
policy developments, positive user
sentiment, and strong market forces
Corporate Decoupling
▪ TikTok's rebranding as a global
entity, distinct from its Chinese
roots, is an exercise in strategic
corporate positioning. The
platform's proactive data
management and market exit
strategies aim to comply with
international standards and navigate
the complex geopolitical landscape
27
Analyzing the Legal and Political Hurdles in the TikTok Divestiture Debate
Legal Complexities Political Dynamics
Infringement on 1st Amendment Rights: The bill would give
ByteDance six months to divest and find a buyer for Tiktok.
However, ‘Restricting Americans' right to access information or
ideas on a media platform from abroad implicates the First
Amendment. Three separate federal district judges have blocked
efforts to ban TikTok — two courts during the Trump
administration, and one U.S. court more recently in Montana
Geopolitical tensions with China: Many in Washington,
including lawmakers from both parties and top intelligence
officials, fear the Chinese government could use TikTok to spy on
Americans, push pro-China propaganda, or use the service to
interfere in U.S. elections. Chinese officials have said they would
oppose a divestiture due to an export ban on algorithms. It
seems as though the Chinese government has been making laws
specifically to complicate a TikTok divestiture
The Roadblocks and Issues
Potential Solution
Publish & document evidence: To date, lawmakers have
not offered any evidence of the Chinese Communist Party
using TikTok as a weapon against American interests.
Providing a strong case of tangible & credible threats to
domestic American security would legitimize the bill for
cause
28
Prospects and Challenges in the Potential Acquisition of TikTok by American Tech Giants
Background
• Why is TikTok a target?: In October 2019, Senator Marco Rubio
initiated a request for a Committee on Foreign Investment in the United
States (CFIUS) investigation into TikTok. The concern stemmed from
worries that ByteDance, the app's parent company, was engaging in
content censorship not in line with democratic principles, potentially
influenced by the Chinese Communist Party. In 2020 former president
Trump tried to get the application banned before it was ultimately
blocked. In 2023 with the Israel-Palestine conflict, the rise of pro-
Palestine hashtags started to gain a lot of traction, with many politicians
getting concerned that it was propaganda. In 2024 The Protecting
Americans From Foreign Adversary Controlled Applications Act passed
in the House of Representatives.
• Impact on American Tech Companies: It's unclear how the
banning/sale of TikTok could impact other American tech companies,
some worry that the bill could potentially hurt domestic tech companies
if companies are deemed to be "foreign controlled". One thing for certain
is that competitors might try to gain a competitive advantage during the
complex sale of the company.
Acquisition Scenario
Microsoft
•Microsoft having previously been open to acquiring the company
in 2020, it seems most probable that the company will move
quickly and in conjunction with TikTok.
•As they have previously said that they would be committed
to acquiring TikTok " subject to a complete security review and
providing proper economic benefits to the United States". This
would most likely be one of the first things that they would do
Oracle
•Oracle already has a working relationship with TikTok which is
housing its U.S. data. Which gives it the upper hand and could
help speed up the process should the sale be completed
•Still many obstacles they would face. One of the first is clear
understanding of what TikTok would sell, and whether that
would include the algorithm. Many speculate that the algorithm
is the key to the transaction
What will happen?
Considering that so many different aspects have to be taken into
consideration, its hard to realistically see that the transaction happens on
time if at all. With regulations, money, legal, and specific deal terms all of
which needs to be clarified and approved in under 6 months or less. This
means that it's really uncertain what will happen.
29
• China will prevent the sale of TikTok’s
Algorithm. Chinese authorities are
widely expected to block the deal,
considering the company’s algorithm a
“home-grown technology”.
• TikTok’s potential sale faces antitrust
challenges. Former justice department
official claims antitrust laws will block
the forced merger if big tech attempts to
acquire the social media platform.
• Deal must be executed in 6 months.
Due to the legislation, the deadline for
the acquisition may not be enough time
for effective due diligence.
Key Considerations in the Acquisition Risks of TikTok
Technology &
Security
• Banning TikTok might not solve data
security concerns. Experts from the
Center of Strategic and International
Studies described the ban as symbolic.
TikTok will still be accessible through
private security networks.
Judicial &
Legal
• TikTok may attempt to block
legislation through judicial due
process. TikTok can execute First
Amendment rights, which will cause a
deal fallout if the target succeeds in
blocking the legislation.
Valuation &
Deal Structure
• TikTok’s Valuation is approximately
$223.5 Billion. The merger requires
access to significant capital reserves.
Multiple competing strategic and
financial sponsors will be needed to
execute the acquisition.
30
TikTok Ban Global Implications and Industry Shifts
US – China
Relation
Digital Rights
Tech Industry
Impact of the Ban
The forced sale of Tik-Tok
could further strain an
already tense relationship.
The Chinese company
ByteDance is worth
roughly $264B and one of
China’s largest companies.
This ban could limit
economic cooperation
between companies
Tik-Tok ban could
potentially challenge first
amendment with argues
for freedom of speech.
Data privacy could
heighten awareness for
other social media
companies
Foreign media companies
could face more regulations
and investigations in future.
This could accelerate a trend
of the US and China
developing separate
technological spheres. This
would limit collaboration and
innovation on a global scale
Upsides to the Ban
• Rise of Domestic Alternatives: A ban could create space for new
US-based social media apps to emerge. This could foster innovation
and competition in the tech industry, potentially leading to
platforms with better privacy features or content moderation. We
could see Tik-Tok users stream to other media platforms like
YouTube, Instragram and Facebook
• Intellectual property protection: TikTok has come under fire for
enabling users to upload videos without giving credit or receiving
payment. Businesses can safeguard their rights to intellectual
property and stop illegal usage of their content by outlawing TikTok
Downsides to the Ban
• Uncertainty for Content producers: Millions of content producers
depend on TikTok for their careers; a ban would ruin their way of
life. It might require time and effort for them to adjust and possibly
move to new platforms
• Effect on Influencer Marketing: Companies using TikTok
influencer marketing would need to modify their approaches. Tik-
Tok has over 170 million users, reaching people across the globe.To
reach their intended audience, they might have to look for new
channels or influencer partnerships
31
Deal Coverage Technology
I. Tech Stocks Rally 5
II. AI Regulations 11
III. Social Media Industry Deep Dive 18
IV. Deal Coverage 32
32
Synopsys Acquire Ansys Deal Introduction
• Announcement Date: December 21st, 2023, and expected to close 2025
• Transaction Value: $35 billion
• Form of Payment: Combination of cash and stock
Key Details
• Synopsys: Synopsys, Inc. is known for its electronic design automation (EDA)
tools and semiconductor IP. It plays a crucial role in designing and testing
integrated circuits and systems
• Ansys: A global leader in engineering simulation software, helping the world's
most innovative companies deliver radically better products to their customers.
Ansys offers a portfolio of engineering simulation software to support the
development of complex products across industries
Brief Introduction of Synopsys and Ansys
Stock Performance
• Marks the largest acquisition in the tech sector, placing it among the top five
largest ever tech deals
• Reflects the growing importance of integrated chip and system design in
powering next-generation computing hardware and AI applications
• Demonstrates the industry's shift towards more complex, software-defined
systems requiring advanced simulation and design capabilities
• Addresses the expanding needs of both tech and non-tech businesses in
integrating advanced semiconductor functionalities
Importance of the Deal in the Context of the Industry
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Synopsys, Inc. (NasdaqGS:SNPS) ANSYS, Inc. (NasdaqGS:ANSS)
S&P 500 Index
• The acquisition is transformative for the engineering and design simulation
industry, marking one of the largest deals in this sector
• It signifies a major consolidation in the market, aiming to create an end-to-end
integrated circuit and system design platform
• Addresses growing demand for integrated software solutions that can
accelerate development cycles in the rapidly evolving tech landscape,
particularly in semiconductors and electronics
Key Objectives of the Deal
Announcement of
Deal: Dec 21st, 2023
33
Electronic Design Automation (EDA) Industry & Market Overview
Potential Regulatory Impacts or Considerations
• The acquisition could lead to a decrease in market
competition, which would attract scrutiny from
regulators like the FTC in the U.S. or the European
Commission in the EU. These entities aim to prevent
monopolies and ensure a competitive market landscape
Data
Privacy and
Security
• Regulators will closely examine the companies data
handling and privacy practices to ensure they comply
with stringent data protection laws such as GDPR in
Europe. This scrutiny aims to safeguard user data and
maintain high security standards
• There will be conditions set to prevent the
inappropriate transfer of sensitive technologies,
especially those that could affect national security. This
is important in industries like semiconductor
manufacturing, where technology can significant
strategic implications
• Since both companies operate globally, the acquisition
will be subject to review by various international
regulatory bodies, which could prolong the approval
process and impose different conditions in different
jurisdictions
Antitrust
Concerns
Internation
al Scrutiny
Technology
Transfer
and IP
Global Electronic Design Automation Market Forecast
$3.4
$8.0
$0.0bn
$1.0bn
$2.0bn
$3.0bn
$4.0bn
$5.0bn
$6.0bn
$7.0bn
$8.0bn
$9.0bn
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
(NasdaqGS:CDNS) (NasdaqGS:SNPS) (NasdaqGS:ANSS)
(ENXTPA:DSY) (ASX:ALU)
Top Industry Players (% Share Change)
34
Electronic Design Automation (EDA) Industry & Market Overview Specifically Relating to Deal
Underlying
R&D Growth
Secular
Trends
Estimated
2023 TAM
Estimated
2023 TAM
Systems
Silicon
~$10B
Sector:
Simulation
& Analysis
~$7B
Sector:
IP
~$11B
Sector:
EDA
TAM CAGR
2023-2028
CAGR ~11%
CAGR ~12%
TAM CAGR
~12%
~6-7%
~8-9%
• Sustainability
• Autonomy
• IoT
• Engineering Digital
Transformation
• Model-Based Systems
Engineering
• Avaliablility of Compute
(Cloud)
• Engineering Complexity
• AI-Powered design &
anaysis
• Talent Constraints
• Software-defined systems
• Domain-specific silicon
• Multi-die
• Angstrom-size nodes
35
64% 63% 63%
25% 26% 26%
9% 9% 9%
0%
20%
40%
60%
80%
100%
Fiscal 2021 Fiscal 2022 Fiscal 2023
Revenue by Product Group
EDA Design IP Software Integrity Other
Synopsys Company Overview
Company
Overview
Inception
Business
Segments
Synopsys, Inc. is a global leader in electronic design
automation (EDA) software for designing and testing
integrated circuits and electronic systems, including
cloud-based solutions to enhance chip design. They
also offer a suite of semiconductor intellectual
property (IP) products & software tools for improving
software security, quality, compliance across industries
Founded as a synthesis company in 1986
• Design Automation: EDA software for circuit
design and testing.
• Design IP: Pre-designed circuit components for
chip designs.
• Software Integrity: Tools for software security
and quality
Customers and
End Markets
Synopsys
Company
Overview
Intel Corporation, IBM, STMicroelectronics,
Honeywell International, Top Universities
• Revenue Growth: Revenue increased significantly from $4.2 billion in FY21 to
$5.8 billion in FY23, indicating strong top-line growth
• Operational Efficiency: Operating income grew notably, with EBIT margins
expanding from 18.3% to 23%, reflecting improved operational efficiency
• Profitability: Net income rose from $757.5 million to $1.23 billion, and net income
margin improved, signaling enhanced overall profitability
• Gross Margin Stability: Gross margin remained consistently high at around 80%,
indicating stable cost control relative to revenue
• Healthy Balance Sheet: Total assets and equity both increased, pointing to a
robust financial position
Key Takeaways from FY21 to FY23 Financials
Income Statement Historical:
($M USD) FY21 FY22 FY23
Total Revenue: 4,204.2 5,081.5 5,842.6
(-) Cost of Sales -813.3 -996.8 -1147.3
Gross Profit: 3,390.9 4,084.8 4,695.3
Gross Margin % 80.7% 80.4% 80.4%
(-) Total Operating Expenses: 2622.7 2910.7 3349.0
Operating Income (EBIT): 768.2 1,174.1 1,346.3
EBIT Margin: 18.3% 23.1% 23.0%
EBITDA 921.8 1,335.4 1,516.2
EBITDA Margin: 21.9% 26.3% 26.0%
(+/-) Other Income (Expense) - - -
Earnings Before Income Tax (EBT): 805.5 1,115.5 1,301.8
(+/-) Income (Loss) from Discont. Ops - - -
Net Income to Parent: 757.5 984.6 1,229.9
Net Income Margin: 18.0% 19.4% 21.1%
Balance Sheet
Total Assets: 8,752.3 9,418.1 10,333.1
Total Liabilities: 3,453.3 3,858.9 4,148.8
Total Equity: 5,298.9 5,559.2 6,184.3
36
ANSYS, Inc. Company Overview
Income Statement Historical:
($M USD) FY21 FY22 FY23
Total Revenue: 4,204.2 5,081.5 5,842.6
(-) Cost of Sales 813.3 996.8 1147.3
Gross Profit: 5,017.5 6,078.3 6,989.9
Gross Margin % 119.3% 119.6% 119.6%
(-) Total Operating Expenses: 768.2 1174.1 1346.3
Operating Income (EBIT): 768.2 1,174.1 1,346.3
EBIT Margin: 18.3% 23.1% 23.0%
EBITDA 921.8 1,335.4 1,516.2
EBITDA Margin: 21.9% 26.3% 26.0%
(+/-) Other Income (Expense) - - -
Earnings Before Income Tax (EBT): 768.2 1,174.1 1,346.3
(+/-) Income (Loss) from Discont. Ops - - -
Net Income to Parent: 757.5 984.6 1,229.9
Net Income Margin: 18.0% 19.4% 21.1%
Balance Sheet
Total Assets: 8,752.3 9,418.1 10,333.1
Total Liabilities: 3,453.3 3,858.9 4,148.8
Total Equity: 5,298.9 5,559.2 6,184.3
Company
Overview
Inception
Business
Segments
ANSYS, Inc. offers engineering simulation software and
services worldwide, supporting diverse industries with
open, flexible solutions for efficient product
development. The company targets growth by
enhancing its multiphysics portfolio and broadening
user access, responding to increasing demands fueled
by trends like electrification and sustainability
Founded established in 1994
• Simulation and Modeling Software: Providing
engineering simulation and 3D design software
used across various industries for product
development, testing, and optimization
• Services and Support: Offering consulting,
training, and customer support services to enhance
software implementation and utilization
Customers and
End Markets
Synopsys
Company
Overview
Cummins Inc, Hyperloop One, General Electric, Elbit
Systems of America, Panasonic Corp, Fujitsu Ltd
• Revenue Growth: ANSYS has shown a consistent increase in total revenue,
growing from $4.204 billion in FY21 to $5.843 billion in FY23
• Profitability Enhancement: The company has significantly improved its net
income, from $757.5 million in FY21 to $1.229.9 million in FY23
• Operational Efficiency: Improvement in operating income and EBIT margin
reflects ANSYS's enhanced operational efficiency and profit retention
• Financial Health: The growth in ANSYS's assets indicates an overall
enhancement in the company's financial stability and health
Key Takeaways from FY21 to FY23 Financials
Significance of the Deal
1.Margin Improvement: The acquisition aims to enhance Synopsys' non-
GAAP operating margins by about 125 basis points
2.Free Cash Flow: There is an expected increase in unlevered free cash flow
(FCF) margins by approximately 75 basis points in the first year following the
deal's closure, suggesting better cash generation capabilities
3.Earnings Per Share: The deal is anticipated to positively impact non-GAAP
(EPS) starting from the second full year after the acquisition, contributing
positively to Synopsys' earnings and potentially increasing shareholder value
4.Long-Term Financial Benefits: The acquisition is expected to provide
significant contributions to the financial metrics of the merged company
beyond the initial years, aiding in sustained growth and profitability
37
Deal Breakdown and Potential Synergies
Revenue
Synergies
Cost
Synergies
Financial
Synergies
• Cross-Selling and Up-Selling Opportunities: With Synopsys’s strong
presence in the semiconductor and EDA market and Ansys’s leadership in
simulation for various industries, there’s significant potential for cross-
selling & up-selling products to the existing customer bases
• Integration of Technologies for New Solutions: By combining
Synopsys's EDA tools with Ansys's simulation capabilities, the merged
company can create integrated solutions that are more powerful and
comprehensive than what competitors offer
• Consolidation of Platforms and Services: The integration of similar
technologies and services between the two companies can eliminate
redundancies and lower operating costs
• Shared R&D Activities: By aligning their research and development
activities, Synopsys and Ansys can avoid duplicate efforts in areas where
their technologies overlap
• Improved Borrowing Terms: The combined entity’s increased size and
market share could enable it to negotiate better terms on debt or
refinancing, potentially reducing interest rates & lowering cost of capital
• Enhanced Cash Flow Management: The merger could lead to improved
cash flow management, as the combined company leverages economies
Potential Synergy Opportunities
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
ANSYS, Inc. Synopsys, Inc.
6.4%
23.7%
• Announcement: Synopsys Inc. and Ansys announced the acquisition of Ansys on 21st December, 2023
• Valuation: Ansys shareholders will receive $197.00 in cash and 0.3450 shares of Synopsys common stock for each Ansys share, which totals approximately $35
billion in equity. This valuation implies a per-share value of $390.19, which indicates a premium of about 29% over Ansys' last closing price before the announcement
• Rational Behind Deal: The deal is poised to create a new leader in a highly consolidated business software sector, particularly focusing on semiconductor electronic
design automation (EDA) and system simulation and analysis
• The deal is expected to close by the end of the 3rd quarter of the calendar year 2025, subject to regulatory approval and other customary closing conditions, including
approval by Ansys shareholders
• The investment bank underwriters for the Ansys-Synopsys deal are Evercore (for Synopsys) and Qatalyst Partners LP (for Ansys)
Cisco Splunk Deal Breakdown
Tracking % Change of Ansys and Synopsys
38
Ansys Multiples Show That It’s In Line with Its Public Comps
Source: Calculated from Ansys 10k & Comparable Companies 10Ks
10.6 x
9.0 x
9.5 x
0.0 x
10.8 x
11.6 x
9.4 x
8.3 x 8.4 x
9.9 x
EV / FY24 Revenue EV / FY25 Revenue
37.1 x
41.3 x
25.6 x
34.0 x
85.4 x
0.0 x
24.4 x
32.5 x 34.8 x
22.0 x
29.9 x
52.6 x
22.8 x
22.8 x
EV/FY24 EBITDA EV/FY25 EBITDA EV/FY24 EBITDA
TEV/
Revenue
Multiples
TEV /
EBITDA
Multiples
12.9 x 18.6 x 16.5 x
39
Ansys Football Field
Methodology
Selected Public
Comparable
Companies
Assumptions
LTM TEV / Revenue
CY 24 TEV / Revenue
CY 25 TEV / Revenue
LTM TEV / EBITDA
CY 24 TEV / EBITDA
CY 25 TEV / EBITDA
CY 24 P / E
CY 25 TEV / EBITDA
Transactions between
2020 to 2023
CY 25 P / E
22x - 35x EBITDA Exit
Multiple,
7% - 11% WACC
Precedent
Transactions
Ansys Valuation - Range of Implied Share Prices
Discounted Cash
Flow
Selected Comps
1. Bentley Systems
2. Cadence Design
Systems
3. PTC Inc
4. Tyler
Technologies
5. Guidewire
Software
ARM is
currently overvalued,
based on our DCF projections
and trading multiples
$303
Pre-Offer Price
$235.24
85.81
277.94
289.76
316.30
493.39
251.63
252.26
250.03
$308.80
203.53
499.88
459.05
510.17
671.17
354.90
359.83
365.52
$- $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 $800.00
25th to Median
Median to 75th
Current Share Price
$ 303
Pre-Offer Price
$ 197 in
cash +
0.3450
share
exchange
Source: Calculated from Ansys 10k & Comparable Companies 10Ks

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WSMM Technology February.March Newsletter_vF.pdf

  • 1. CONFIDENTIAL WALL STREET MASTERMIND Sector Spotlight: February / March Recap Sector Leads Jagger Lambert | Media & Entertainment James Concepcion | Media & Entertainment Pan | Technology Teddy Kesoglou | Technology Nina Chhor | Healthcare Joe Ames | Healthcare Project Founders Jagger Lambert James Concepcion
  • 2. CONFIDENTIAL WALL STREET MASTERMIND Technology Contributors Teddy Kesoglou | Group Head Pan | Group Head Jonathan Z. | Research Analyst Mario D. | Research Analyst Luis Urbina | Research Analyst Willem Coertzen | Research Analyst Ben | Research Analyst Justin | Research Analyst
  • 3. 3 TABLE OF CONTENTS Technology I. Tech Stocks Rally 5 II. AI Regulations 12 III. Social Media Industry Deep Dive 21 IV. Deal Coverage 34
  • 4. 4 Tech Stocks Rally Technology I. Tech Stocks Rally 5 II. AI Regulations 11 III. Social Media Industry Deep Dive 18 IV. Deal Coverage 32
  • 5. 5 Introduction To Technology Stock Rally S&P 500 Leaders Tech Stock Rally Market Conditions AI Advancements *Sources: jpmorgan, Statista 1. Chart as of Jan. 2024 Technology Sector Performance Magnificent 7 % Change of Stock Price1 +239% +194% +102% +81% +59% +57% +48% +24% 0% 50% 100% 150% 200% 250% NVDA META TSLA AMZN GOOGl MSFT APPL S&P 500 The "Magnificent 7" and other tech giants collectively wield a remarkable 35.8% influence, with the Mag 7 alone commanding 28.8% in the S&P 500 . This dominance underscores the pivotal role technology stocks play in index's performance The Magnificent 7 collectively represent nearly 30% of S&P 500 market capitalization. The remarkable rise in stock prices for these seven companies explain why the S&P is up almost 32% since 2023. This came after the big tech stocks delivered exponential earning reports Investors are recognizing the pivotal role AI plays in enhancing efficiency and innovation. This has driven more investors to invest into tech stocks It is crucial for investors to remain vigilant and closely monitor interest rates and inflation. Despite the positive momentum, with recent halt in high interest rates(5.3%-5.5%) and inflation being higher than expected, it damped the recent positive news regarding the tech stocks Companies Day Close Price ($USD) 52 Week High ($USD) % Change of 52 Week Shares O/S ($M) Market Cap ($B USD) Enterprise Value ($B USD) EV / EBITDA EV / Revenue TSLA $ 196.20 $ 299.29 -21.6% 3,185.0 $ 620.0 597 40.6x 6.2x NVDA $ 745.94 $ 746.11 40.1% 2,500.0 $ 1,667.1 1660 72.8x 37.0x MSFT $ 404.85 $ 420.82 8.4% 7,340.0 $ 3,020.0 2990 24.8x 13.5x META $ 475.00 $ 488.62 35.2% 2,210.0 $ 1,193.0 1170 19.9x 8.7x GOOG $ 144.04 $ 153.78 3.1% 5,670.0 $ 1,779.0 1740 17.3x 5.5x AMZN $ 170.39 $ 175.39 12.5% 10,390.0 $ 1,751.0 1880 20.1x 3.1x APPL $ 182.98 $ 199.62 -1.8% 15,500.0 $ 2,840.0 2850 21.3x 7.4x
  • 6. 6 Earnings Growth And Market Valuations -50.0% 0.0% 50.0% 100.0% 150.0% 200.0% 250.0% Meta Platforms, Inc. (META) Apple Inc. (AAPL) Amazon.com, Inc. (AMZN) Microsoft Corporation (MSFT) Alphabet Inc. (GOOGL) Tesla, Inc. (TSLA) NVIDIA Corporation (NVDA) 0% 5% 10% 15% 20% 25% 30% Magnificent 7 S&P 500 Remaining 493 Earning Growth 2024 Top Opportunities to Expand From LLMs • We saw an overall earning growth of 53.7% among the magnificent 7 with leaders like NVDA and META raking in the best earning for YOY Q4 1 Earnings growth • Despite the inflationary pressures leading to rising material costs, these companies have witnessed increased spending, which could potentially stem from the accumulated household savings during the pandemic 2 Increased spending • Meta, Nvidia, and Microsoft are aggressively hiring for AI roles despite recent layoffs, reflecting their confidence in AI's potential. Meanwhile, other big Tech companies have reduced hiring, opting for a more cautious approach in uncertain times 3 Technology layoffs Earning Growth From Previous Quarter within S&P 500 One-Year Share Price % Change: The Magnificent 7 Stocks
  • 7. 7 The Role of Artificial Intelligence CLOUD SERVICES CONTENT GENERATION SEMICONDUCTORS CUSTOMER SUPPORT AUTONOMOUS SYSTEMS • Microsoft (MSFT): Provides Azure AI Services like machine learning, natural language processing, and computer vision on Azure • Amazon (AMZN): Delivers AI-powered services through AWS, including generative AI and AI chips • Google (GOOGL): Employs AI in Google Cloud for large language models and recommendation systems • Microsoft (MSFT): Uses AI chatbots for customer support, partnering with OpenAI • Amazon (AMZN): Offers AI chatbots for service and AI for personalized recommendations. • Google (Alphabet) (GOOGL): Applies AI in customer service and user experience with recommendation algorithms • Tesla (TSLA): Relies on AI technology for autonomous driving systems in its vehicles, utilizing computer vision and machine learning algorithms • Apple (AAPL): Integrates machine learning algorithms into products for features like Siri and facial recognition, enhancing user experience and interaction • Nvidia (NVDA): Provides GPUs optimized for AI training and inference tasks, powering AI applications across various industries • Amazon (AMZN): Develops custom AI chips optimized for AI workloads, supporting AI initiatives in cloud services and other applications • Meta Platforms (META): Utilizes AI-powered recommendation systems for content personalization on social media platforms • Apple (AAPL): Integrates AI in products for content generation and personalization, such as predictive text and photo organization
  • 8. 8 Tech Horizons: Advancements and Regulations Beyond the Magnificent Seven AMD (Advanced Micro Devices): With almost all AI processing being done on Nvidia GPUs in 2023, AMD is expected to gain market share in 2024 thanks to its new MI300 chip. This positions AMD as a strong competitor in the semiconductor space, especially for AI processing Micron Technology Inc. (MU): As AI processing demands significantly more onboard memory, Micron is emerging as a leader in high bandwidth memory (HBM). The company's advancements in HBM are expected to drive a meaningful acceleration in its fundamentals in 2024 Regulations & Competition AI Arms Race: U.S. and global regulators are intensifying scrutiny on symbiotic relationships between Big Tech giants (Amazon, Google, Microsoft) and rising startups (Anthropic, OpenAI) to ensure these partnerships don't stifle competition or innovation Regulations: Tech giants like Meta are intensifying efforts to ensure user privacy and combat misinformation, particularly during pivotal election cycles. Startups are proactively embedding safety and privacy into their platforms, recognizing the critical need for trust in technology Cybersecurity Generative AI acts as a double-edged sword with cybersecurity companies better equipped to detect and respond to breaches but it has allowed hackers to increase the number and scale of ransomware attacks FinTech Utilizes AI and blockchain for tailored, secure financial services; employs cloud technology for growth. Spurs payment innovations, showcasing vast expansion and investment appeal in this swiftly advancing industry BioTech By 2025, >30% of new drugs to be AI- discovered, with $60B invested in 2023, doubling in 2024. Pioneers such as Araceli Biosciences, Pathos, April19Discovery, CardiaTec Biosciences, and Skymount Medical are spearheading this innovative wave
  • 9. 9 Investment Themes and Risk Considerations Risk Considerations Investment Themes Magnificent Seven Monetary Policy The anticipated shift in Federal Reserve policy towards rate cuts amidst ongoing economic growth sets the stage for rising longer yields in 2024. This adjustment is expected to lead to the normalization of the yield curve, moving from its current inverted state to a traditional upward slope, signaling investor confidence and a healthy economy Global Elections In 2024, a significant portion of the world's market capitalization will be influenced by major election cycles, including the pivotal U.S. elections. Historically, the S&P 500® has performed well during U.S. election years, indicating that, despite political volatility, there may be robust investment opportunities in the financial markets The magnificent seven, known for their higher margins, expected sales growth, and strong tech presence have led the charge for the current rally. With the advancements of artificial intelligence incorporated within these companies, these tech stocks are expected to see a 22% growth in 2024, with the rest of the market expected to grow at 7.8% Market volatility remains a persistent backdrop as investors navigate the changing yield landscape, with the timing and impact of Fed rate cuts introducing uncertainty. Additionally, fluctuations in supply and demand for Treasury securities may lead to yield level variances, adding complexity to fixed- income investment strategies The global stock market has an increasingly concentrated focus on a handful of large-cap tech stocks highlighting a growing concentration risk, reminiscent of the 1970s Nifty Fifty and the 2000 tech bubble. Therefore, portfolio diversification is needed for investors to be less vulnerable to any negative development that impacts this sector Political events can introduce uncertainty and volatility into global financial markets, with election outcomes potentially affecting economic policies, international relations, and market sentiment. Investors must stay vigilant of the geopolitical landscape and be prepared for shifts in market dynamics that elections could precipitate
  • 10. 10 Market Outlook and Strategic Implications Market Outlook S&P 500 Performance in Reelection Years ▪ Market Breadth: Investors are transitioning from sellers to buyers as seen with 90% of stock within Q3 2023 in the S&P 1500 index moved above their 50 day moving average which is a bullish indicator for positive returns ▪ Soft Landing: Inflation rates are gradually decreasing, with headline inflation at 3.1% and core CPI at 3.9% year-over-year as of January, and are expected to approach the Federal Reserve's 2% target by Q4 2024, assuming the absence of major economic shocks and supported by cooling economic momentum ▪ Reelection cycle: Historically, U.S. stock markets gain in election years when incumbents run for reelection, averaging 16% returns since 1944 across 13 instances, partly due to presidents boosting the economy through policies, exemplified by Biden's infrastructure and economic acts Strategic Implications LTM Inflation Data 19.5% 18.4% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% ▪ Profit-Taking and Reinvestment: With tech stocks experiencing volatility, strategic profit-taking and reinvestment into different tech sub-sectors, such as AI infrastructure or software, could be prudent ▪ AI Investment Focus: Investing in AI is categorized into three buckets: data center construction, cooling and power for servers, and vendors selling into data centers, offering diverse opportunities for sector engagement ▪ Economic Resilience: Companies that are innovating within their traditional business models, such as Walmart, are showing resilience and may be attractive to investors seeking stability in the evolving tech landscape ▪ Market Reactivity: The market remains sensitive to interest rate changes, highlighting the need for investors to stay nimble and responsive to economic indicators such as PCE, CPI, and PPI reports 6.0% 3.1% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
  • 11. 11 AI Regulations Technology I. Tech Stocks Rally 5 II. AI Regulations 11 III. Social Media Industry Deep Dive 18 IV. Deal Coverage 32
  • 12. 12 Introduction To Tech Industry Regulations • Rapid technological advancements challenge regulators to balance innovation, consumer protection, and regulation, necessitating agile and sustainable solutions • Regulatory discussions on private data usage have emphasized the necessity of robust frameworks to safeguard privacy, mitigate misuse risks, and protect consumers • LLMs like ChatGPT4 and Google's AI products drove calls for U.S. regulation due to amplified risks including discrimination, bias, misinformation, and privacy concerns 1 Current Technological Landscape Overview • Current tech regulations comes with higher costs and barriers to entry. Larger technology companies can absorb these costs while complying with regulations • Goldman Sachs research indicates that the impulse toward early regulation of AI technology may favor large, well-capitalized companies over small AI tech startups • Wedbush analyst Ives highlights the current lack of consensus in Washington as advantageous for Big Tech, with Microsoft emerging as a notable leader Latest Regulatory Policy Implications 2 • Regulations play a critical role in ensuring that the development and deployment of AI technologies adhere to ethical standards, fostering trust among stakeholders • Clear regulatory guidelines can create a level playing field. By eliminating legal uncertainties, firms can easily compete based solely on the quality of their innovations • Regulations instill public trust by assuring citizens that AI and Tech systems are designed with their well-being in mind, ensuring safety to consumers Importance of Regulations 3 • The EU’s Digital Services Act (DSA) regulates online intermediaries and platforms, ensuring user safety and fundamental rights while fostering fair competition • EU’s Digital Markets Act (DMA) targets gatekeeper platforms. The DMA promotes openness, competition, and user rights in digital markets, ensuring transparency • The U.S. AI Executive Order ensures AI safety, encouraging responsible innovation by requiring AI developers to share safety test results with the Biden administration Main Regulatory Policies 4
  • 13. 13 European Union AI Act Risk-Based Approaches: Addresses risks associated with certain dual-use foundation models, focusing on safety test disclosures to the government Data Quality and Human Oversight: Directs the Department of Commerce to develop rules for disclosing AI model information, but with a broader scope om equity considerations Cybersecurity: Requires disclosures from companies developing infrastructure for AI models under certain circumstances but lacks specific mandates U.S. AI Executive Order Impact on AI Providers and Compliance Challenges Compliance Cost Major Companies Potential Fines European Union AI Act U.S. AI Executive order €29,000 per model. 10% high-risk systems. Annual: €1.6-€3.3 BN Center for Data Innovation: compliance costs estimated $6B Per Annum Key Features • Many AI providers operate internationally and will need to comply with regulations from multiple jurisdictions. Additionally, regulations from influential entities like the EU and the U.S. may serve as models for other countries, leading to global regulatory changes 1. Resource Allocation: Compliance may demand significant resources in terms of time, manpower, and financial investments. Small and medium-sized AI providers may particularly struggle due to limited resources 2. Data Privacy and Security: AI providers must adhere to strict regulations, safeguarding user data and implementing privacy-enhancing technologies 3. Monitoring and Reporting: Establishing robust monitoring mechanisms and reporting processes is essential for continuous compliance Up to EUR 30 million or 7% of global annual turnover Statutory damages $150,000 per work Major technology giants (FAANG) are subject to compliance requirements due to their substantial AI development Cybersecurity: Mandates that high-risk AI systems ensure robustness and cybersecurity measures Data Quality and Human Oversight: Emphasizes data governance, human oversight, and accuracy in high-risk AI systems Risk-Based Approaches: Implements a risk-based approach, imposing stringent requirements on providers of high-risk AI systems Comparative Overview of AI Regulation EU vs. US Frameworks and Impacts on Compliance
  • 14. 14 Navigating the New Era Regulatory Challenges in Technology and Data Privacy Emerging Regulatory Frontiers Newer Technologies Data Privacy and Security Increased Stringency: - Stricter data privacy laws worldwide, similar to GDPR in Europe, may require companies to obtain explicit consent for data collection and use, and giving individuals more control over their data Focus on Specific Sectors: - Regulations might target specific sectors, like healthcare or finance, where data privacy and security are particularly crucial Global Harmonization: - There might be efforts to harmonize data privacy regulations across different countries to create a more consistent global framework Focus on emerging technologies: - Regulations might address data privacy and security concerns specific to emerging technologies like artificial intelligence and the Internet of Things (IoT) Quantum Computing: Regulations might focus on: - Security: Mitigating risks of hacking and ensuring the integrity of sensitive data processed by quantum computers - Competition: Preventing monopolies and fostering a fair playing field for different quantum computing companies - Access and control: Determining who has access to quantum computing resources and how such access is controlled Blockchain (beyond cryptocurrencies): Regulations might address: - Standardization: Establishing common protocols and frameworks for different blockchain applications - Consumer protection: Addressing potential scams and ensuring transparency in blockchain-based transactions - Energy consumption: Regulating the energy usage of proof-of-work consensus mechanisms used in some blockchains
  • 15. 15 Two Ways Companies can Adapt to Regulations Innovation in Compliance Ethical Tech Development - Develop AI-powered compliance tools: These tools can automate tasks like data analysis, risk identification, and reporting, reducing manual workload and improving efficiency - Implement blockchain-based solutions for data tracking and record-keeping: This can enhance transparency and auditability, facilitating compliance with data privacy regulations - Build internal compliance training programs: Regularly train employees on relevant regulations and ethical practices to ensure awareness and accountability across the organization - Conducting algorithmic bias audits: Regularly assess algorithms for potential biases and implement safeguards to mitigate discriminatory outcomes - Developing privacy-preserving technologies: Design technologies that minimize data collection and ensure user control over their data, adhering to data privacy regulations - Establishing clear ethical guidelines for AI development and deployment: These guidelines should address issues like transparency, accountability, and fairness in AI decision-making
  • 16. 16 How OpenAI Overcame Regulatory Concerns Ethical Use and Responsible AI Development: OpenAI encountered regulatory challenges related to ensuring the ethical use of AI and responsible development practices. With the growing concerns surrounding AI's societal impact, regulatory scrutiny intensified, requiring organizations like OpenAI to navigate ethical considerations and regulatory expectations effectively Data Privacy and Security Compliance: The sensitive nature of data used to train AI models posed regulatory challenges concerning data privacy and security compliance. As data protection regulations such as GDPR and CCPA became more stringent, OpenAI needed to ensure robust measures to safeguard user data and comply with evolving legal requirements Export Control and International Regulations: OpenAI faced regulatory hurdles regarding export control and compliance with international regulations governing the export of AI technology. The global nature of AI development necessitated meticulous attention to export control laws and navigating complex international regulatory frameworks OpenAI conducted thorough assessments of export control regulations in different jurisdictions to understand the regulatory landscape comprehensively. By staying informed about export control laws such as the Export Administration Regulations (EAR) in the United States and similar regulations in other countries, OpenAI ensured compliance with relevant export control requirements OpenAI addressed data privacy and security compliance challenges through encryption, access controls, and anonymization techniques. Regular audits ensured regulatory compliance, with prompt action taken to mitigate risks. Collaboration with legal experts facilitated navigation of international regulations and acquisition of export licenses for global AI distribution OpenAI conducted thorough ethical reviews of AI applications, engaging stakeholders for feedback, and adhering to ethical principles like fairness, transparency, and accountability. Collaborating with regulatory bodies and industry groups helped shape AI governance frameworks and advocate for responsible AI practices at the regulatory level Navigating the Complexities of AI Ethics and Compliance OpenAI's Strategic Approach
  • 17. 17 Balancing Innovation and Regulation The Societal and Corporate Impact of AI and Cryptocurrency AI Impacts on Society AI Impacts on Companies - Increased financial inclusion: Bitcoin and other cryptocurrencies could potentially offer alternative financial tools for individuals and communities excluded from traditional financial systems - Innovation and technological advancements: The development of blockchain technology underlying Bitcoin has the potential to spur innovation in various sectors beyond finance - Potential risks: Concerns regarding financial stability, money laundering, and consumer protection necessitate careful consideration and responsible regulatory frameworks to mitigate these risks - Clarity and predictability: Clear and adaptable regulations can provide a more predictable environment for AI companies to invest and innovate - Focus on ethical development: Regulatory frameworks emphasizing ethical considerations can encourage responsible AI development and mitigate potential societal harms - Challenges and adaptation: Adapting to evolving regulations can be resource-intensive and require ongoing efforts from AI companies
  • 18. 18 Social Media Industry Deep Dive Technology I. Tech Stocks Rally 5 II. AI Regulations 11 III. Social Media Industry Deep Dive 18 IV. Deal Coverage 32
  • 19. 19 4.9 5.8 4.4 4.6 4.8 5 5.2 5.4 5.6 5.8 6 2023 2027 Active Users in Billions The Timeline of Social Media A Journey from SixDegrees to Today's Giants and the Advertising Landscape 145 minutes daily average use per person 77 % of all businesses utilize social media to reach audiences 76% of social media users have purchased a service or good on social media Social media adspend has crossed $182B which marks 15.2% growth YoY (largest in all verticals) Implications for Advertising Social Media Evolution Social Media Today 1997 2003 2005 2017 2022 Today SixDegrees: First social media network. Amassed 1m+ users and acquired for $125m MySpace is founded and peaked 25 million users Facebook, Linkedin, Youtube, Wordpress founded 2010 Instagram founded 2012 Facebook reaches 1B users and acquires Instagram for a significant $1B Tiktok is born Elon Musk buys Twitter for a record breaking $44B
  • 20. 20 Social Media Market Dynamics Dominance of Short-Form Content and TikTok's Growth 84% 81% 73% 45% 0% 20% 40% 60% 80% 100% 18-29 30-49 50-64 65+ Social Media Use by Age Group Largest Players by Market Cap $1.2T $18B $351B $- (Private) Rise of Tik Tok: 1. Tiktok has crafted near-perfect short-form content for instant gratifying and digestible information 2. Within 8 years Tiktok has over 2B downloads indiscriminately from all age groups and demographics 3. Tiktok prioritizes user engagement through AI/ML, music licensing deals, and creative expression through authentic growth 4. Short-form content has become the most effective type of content for lead generation and engagement for marketing and ad-spend 5. More importantly, Tiktok has recently aggressively expanded its in-app e- commerce shop to integrate the consumer and social media experience Shifting Engagement to Short-Form Content 54% 36% 36% 34% 32% 30% Short-form Long videos Live stream User-generated content Interviews, podcasts, etc Infographics Which Formats do Social Media Marketers Use
  • 21. 21 Integrated social-commerce platforms The Evolution of Social Commerce Integration, Impact, and Regulatory Challenges Influencers The Social Commerce Digital Marketing User- generated content • Social commerce integrates social media and the e- commerce experience into a 1 stop shop, generating a new type of experience for online shoppers. Social media platforms are introducing eCommerce features, allowing users to buy products directly from posts and stories • 89% of consumers have bought goods online after seeing products in their social media feed; now Tiktok, Facebook Instagram, and WeChat have all implemented a form of integrated marketplace. Anyone can become an affiliate for a commission or push brand exposure through user-generated content. The marketplace utilizes network marketing and trends to push sales • AI algorithms study consumer behavior and interest alongside big data feeders to accelerate social commerce integration. Social media is a feeding ground of information that is trained to push and filter relevant content to its user base • As these social media companies become large “data storage centers” privacy and data protection have become a roadblock for the space. There have recently been multiple congressional hearings and attempted regulatory controls set in place to restrict the data collected and used by these social media giants Data and Privacy Regulations AI, data analytics Livestreaming AI, data analytics User-generated marketing and sales affiliation Content generation Corporations
  • 22. 22 Social Media Industry Challenges Privacy and Data Security • Social media companies collect tons of user data, including personal info, browsing history, location data which they share frequently share with third-party developers, advertisers, and business partners for purposes such as targeted advertising. People have raised concerns about how their data is being handled and who can access it • The GDPR imposes strict requirements on the collection and processing of personal data. The organization makes sure that social media companies have a lawful basis for collecting user data, such as obtaining explicit consent Content Moderation • Content moderation for social media companies is has many issues including the delicate balance between free speech and preventing harm, the sheer amount of user-generated content requiring efficient review, consideration of cultural contexts, challenges with algorithmic biases, the psychological impact on human moderators, and legal compliance. Achieving effective moderation is a challenge. Thus incorporating AI tools, human expertise, transparent policies, is necessary to protect free expression, and uphold ethical standards Market Saturation • With lots of options and intense competition, companies have to adapt to changing user preferences fast which is hard to predict. They also have to manage content overload, and balance monetization pressures from investors while maintaining user trust amidst privacy concerns. In order to stand out, platforms need to innovate, offer personalized experiences, and address diverse demographic preferences. Ultimately, success depends on value, engagement, and differentiation for brands Social Media's Biggest Challenges
  • 23. 23 Evolution of Social Media Monetization Advertising, Influencers, and Data Analytics Monetization Strategies Influencer Economy Analytics and ROI Social media companies generate revenue primarily through advertising, subscription services, and in-app purchases. Advertising models utilize user data for targeted ads which many different companies have adapted to their sites. Subscription services offer ad-free experiences or premium features for a fee like X (formerly Twitter) which allows users to pay to be verified in the app. Lastly, in-app purchases enable users to buy virtual goods like gifts on livestreams within the app. Some sites integrate e-commerce for direct shopping like Instagram has Influencers have become pivotal in social media marketing, collaborating with brands through sponsored content, affiliate marketing, and product placements. They create seemingly authentic, relatable content that resonates with audiences. Although maintaining authenticity, adhering to regulatory disclosure requirements is a challenge. Despite these challenges, influencer marketing remains a powerful tool for brands to engage with consumers effectively and drive sales Analytics help by providing insights into audience behavior, campaign performance, and ROI. Tools for measuring campaigns like click-through rates, help marketers understand the effectiveness of their ads. ROI is assessed through metrics such as conversions, customer acquisition costs, and revenue generated from social media campaigns, then marketers evaluate the impact of their marketing efforts. Big data analytics leverage large datasets for targeted advertising, personalized content, enhancing the effectiveness of social media advertising
  • 24. 24 Future Outlook and Ethical Considerations Predictions for the Future The future of social media will be shaped by technological advancements like augmented reality (AR) and virtual reality (VR). Short-form video content, live streaming, and ephemeral stories will remain popular. Personalized content through AI- powered algorithms will gain popularity. It's hard to say exactly what the future holds for social media companies but they will stay relevant through competitive practices Strategic Considerations In today's landscape a business can become a household name simply by creating content, leveraging targeted advertising.Partnering with influencers, fostering communities, and analyzing performance metrics enable businesses to amplify their reach and optimize their strategies effectively. Businesses can cultivate loyal followers, differentiate themselves, and position themselves for success Ethical Considerations Social media bears ethical responsibilities like data privacy, content moderation while promoting transparency and accountability. Social media also has a big impact on society with communication, and civic engagement. The role of social media in democracy is complex, as it involves political activism, and public discourse, but also involves things like echo chambers
  • 25. 25 Tik Tok Ban Overview The Biden Administration signs the "No TikTok on Government Devices Act," prohibiting the app on federal government devices December 2022 The Administration calls on ByteDance to either sell TikTok or face a ban due to security concerns. Additionally, there is an investigation into TikTok jointly conducted by the DOJ and the FBI to investigate allegations of spying on American journalists March 2023 The Senate will now consider the legislation passed by the House. If passed by the Senate, it would then go to President Biden for his signature Future House Foreign Affairs Committee Vote On March 13th 2024, the House passed H.R. 7521, which would effectively ban TikTok unless its parent company, ByteDance, divests itself of the app in a way that satisfies security concerns. This vote by the House Foreign Affairs Committee is a significant step towards a potential ban Proponents Opponents Lawmakers worry that ByteDance could be forced to share user data with the Chinese government, which could include browsing history, location information, and even private messages This group argues that a ban would violate First Amendment rights to free speech and expression as they point out that millions of Americans use TikTok for entertainment and communication
  • 26. 26 Strategic Response and Legislative Concerns Surrounding TikTok Operations Risks of Outside Influences ▪ TikTok surfaces as a vector for potential cybersecurity threats within the U.S. regulatory framework, amplifying the dialogue on digital platforms' data integrity to external influence. Consideration of TikTok's protocols is critical to mitigating cybersecurity risks of U.S.-China tech competition Legislative Guardrails Strategic Recalibration Regulatory and Compliance ▪ U.S. policymakers advocate for decisive action, proposing legislation mandating ByteDance's divestiture of TikTok. This reflects a proactive stance toward enforcing data privacy and addressing potential foreign control within the tech sector, highlighting the need for robust compliance mechanisms and Market Viability ▪ Facing legislative challenges, TikTok's strategic maneuvers in the U.S. include potential litigation, fierce advocacy, and operational adjustments. The platform's efforts to maintain its presence in the U.S will require adept navigation of policy developments, positive user sentiment, and strong market forces Corporate Decoupling ▪ TikTok's rebranding as a global entity, distinct from its Chinese roots, is an exercise in strategic corporate positioning. The platform's proactive data management and market exit strategies aim to comply with international standards and navigate the complex geopolitical landscape
  • 27. 27 Analyzing the Legal and Political Hurdles in the TikTok Divestiture Debate Legal Complexities Political Dynamics Infringement on 1st Amendment Rights: The bill would give ByteDance six months to divest and find a buyer for Tiktok. However, ‘Restricting Americans' right to access information or ideas on a media platform from abroad implicates the First Amendment. Three separate federal district judges have blocked efforts to ban TikTok — two courts during the Trump administration, and one U.S. court more recently in Montana Geopolitical tensions with China: Many in Washington, including lawmakers from both parties and top intelligence officials, fear the Chinese government could use TikTok to spy on Americans, push pro-China propaganda, or use the service to interfere in U.S. elections. Chinese officials have said they would oppose a divestiture due to an export ban on algorithms. It seems as though the Chinese government has been making laws specifically to complicate a TikTok divestiture The Roadblocks and Issues Potential Solution Publish & document evidence: To date, lawmakers have not offered any evidence of the Chinese Communist Party using TikTok as a weapon against American interests. Providing a strong case of tangible & credible threats to domestic American security would legitimize the bill for cause
  • 28. 28 Prospects and Challenges in the Potential Acquisition of TikTok by American Tech Giants Background • Why is TikTok a target?: In October 2019, Senator Marco Rubio initiated a request for a Committee on Foreign Investment in the United States (CFIUS) investigation into TikTok. The concern stemmed from worries that ByteDance, the app's parent company, was engaging in content censorship not in line with democratic principles, potentially influenced by the Chinese Communist Party. In 2020 former president Trump tried to get the application banned before it was ultimately blocked. In 2023 with the Israel-Palestine conflict, the rise of pro- Palestine hashtags started to gain a lot of traction, with many politicians getting concerned that it was propaganda. In 2024 The Protecting Americans From Foreign Adversary Controlled Applications Act passed in the House of Representatives. • Impact on American Tech Companies: It's unclear how the banning/sale of TikTok could impact other American tech companies, some worry that the bill could potentially hurt domestic tech companies if companies are deemed to be "foreign controlled". One thing for certain is that competitors might try to gain a competitive advantage during the complex sale of the company. Acquisition Scenario Microsoft •Microsoft having previously been open to acquiring the company in 2020, it seems most probable that the company will move quickly and in conjunction with TikTok. •As they have previously said that they would be committed to acquiring TikTok " subject to a complete security review and providing proper economic benefits to the United States". This would most likely be one of the first things that they would do Oracle •Oracle already has a working relationship with TikTok which is housing its U.S. data. Which gives it the upper hand and could help speed up the process should the sale be completed •Still many obstacles they would face. One of the first is clear understanding of what TikTok would sell, and whether that would include the algorithm. Many speculate that the algorithm is the key to the transaction What will happen? Considering that so many different aspects have to be taken into consideration, its hard to realistically see that the transaction happens on time if at all. With regulations, money, legal, and specific deal terms all of which needs to be clarified and approved in under 6 months or less. This means that it's really uncertain what will happen.
  • 29. 29 • China will prevent the sale of TikTok’s Algorithm. Chinese authorities are widely expected to block the deal, considering the company’s algorithm a “home-grown technology”. • TikTok’s potential sale faces antitrust challenges. Former justice department official claims antitrust laws will block the forced merger if big tech attempts to acquire the social media platform. • Deal must be executed in 6 months. Due to the legislation, the deadline for the acquisition may not be enough time for effective due diligence. Key Considerations in the Acquisition Risks of TikTok Technology & Security • Banning TikTok might not solve data security concerns. Experts from the Center of Strategic and International Studies described the ban as symbolic. TikTok will still be accessible through private security networks. Judicial & Legal • TikTok may attempt to block legislation through judicial due process. TikTok can execute First Amendment rights, which will cause a deal fallout if the target succeeds in blocking the legislation. Valuation & Deal Structure • TikTok’s Valuation is approximately $223.5 Billion. The merger requires access to significant capital reserves. Multiple competing strategic and financial sponsors will be needed to execute the acquisition.
  • 30. 30 TikTok Ban Global Implications and Industry Shifts US – China Relation Digital Rights Tech Industry Impact of the Ban The forced sale of Tik-Tok could further strain an already tense relationship. The Chinese company ByteDance is worth roughly $264B and one of China’s largest companies. This ban could limit economic cooperation between companies Tik-Tok ban could potentially challenge first amendment with argues for freedom of speech. Data privacy could heighten awareness for other social media companies Foreign media companies could face more regulations and investigations in future. This could accelerate a trend of the US and China developing separate technological spheres. This would limit collaboration and innovation on a global scale Upsides to the Ban • Rise of Domestic Alternatives: A ban could create space for new US-based social media apps to emerge. This could foster innovation and competition in the tech industry, potentially leading to platforms with better privacy features or content moderation. We could see Tik-Tok users stream to other media platforms like YouTube, Instragram and Facebook • Intellectual property protection: TikTok has come under fire for enabling users to upload videos without giving credit or receiving payment. Businesses can safeguard their rights to intellectual property and stop illegal usage of their content by outlawing TikTok Downsides to the Ban • Uncertainty for Content producers: Millions of content producers depend on TikTok for their careers; a ban would ruin their way of life. It might require time and effort for them to adjust and possibly move to new platforms • Effect on Influencer Marketing: Companies using TikTok influencer marketing would need to modify their approaches. Tik- Tok has over 170 million users, reaching people across the globe.To reach their intended audience, they might have to look for new channels or influencer partnerships
  • 31. 31 Deal Coverage Technology I. Tech Stocks Rally 5 II. AI Regulations 11 III. Social Media Industry Deep Dive 18 IV. Deal Coverage 32
  • 32. 32 Synopsys Acquire Ansys Deal Introduction • Announcement Date: December 21st, 2023, and expected to close 2025 • Transaction Value: $35 billion • Form of Payment: Combination of cash and stock Key Details • Synopsys: Synopsys, Inc. is known for its electronic design automation (EDA) tools and semiconductor IP. It plays a crucial role in designing and testing integrated circuits and systems • Ansys: A global leader in engineering simulation software, helping the world's most innovative companies deliver radically better products to their customers. Ansys offers a portfolio of engineering simulation software to support the development of complex products across industries Brief Introduction of Synopsys and Ansys Stock Performance • Marks the largest acquisition in the tech sector, placing it among the top five largest ever tech deals • Reflects the growing importance of integrated chip and system design in powering next-generation computing hardware and AI applications • Demonstrates the industry's shift towards more complex, software-defined systems requiring advanced simulation and design capabilities • Addresses the expanding needs of both tech and non-tech businesses in integrating advanced semiconductor functionalities Importance of the Deal in the Context of the Industry -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Synopsys, Inc. (NasdaqGS:SNPS) ANSYS, Inc. (NasdaqGS:ANSS) S&P 500 Index • The acquisition is transformative for the engineering and design simulation industry, marking one of the largest deals in this sector • It signifies a major consolidation in the market, aiming to create an end-to-end integrated circuit and system design platform • Addresses growing demand for integrated software solutions that can accelerate development cycles in the rapidly evolving tech landscape, particularly in semiconductors and electronics Key Objectives of the Deal Announcement of Deal: Dec 21st, 2023
  • 33. 33 Electronic Design Automation (EDA) Industry & Market Overview Potential Regulatory Impacts or Considerations • The acquisition could lead to a decrease in market competition, which would attract scrutiny from regulators like the FTC in the U.S. or the European Commission in the EU. These entities aim to prevent monopolies and ensure a competitive market landscape Data Privacy and Security • Regulators will closely examine the companies data handling and privacy practices to ensure they comply with stringent data protection laws such as GDPR in Europe. This scrutiny aims to safeguard user data and maintain high security standards • There will be conditions set to prevent the inappropriate transfer of sensitive technologies, especially those that could affect national security. This is important in industries like semiconductor manufacturing, where technology can significant strategic implications • Since both companies operate globally, the acquisition will be subject to review by various international regulatory bodies, which could prolong the approval process and impose different conditions in different jurisdictions Antitrust Concerns Internation al Scrutiny Technology Transfer and IP Global Electronic Design Automation Market Forecast $3.4 $8.0 $0.0bn $1.0bn $2.0bn $3.0bn $4.0bn $5.0bn $6.0bn $7.0bn $8.0bn $9.0bn -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% (NasdaqGS:CDNS) (NasdaqGS:SNPS) (NasdaqGS:ANSS) (ENXTPA:DSY) (ASX:ALU) Top Industry Players (% Share Change)
  • 34. 34 Electronic Design Automation (EDA) Industry & Market Overview Specifically Relating to Deal Underlying R&D Growth Secular Trends Estimated 2023 TAM Estimated 2023 TAM Systems Silicon ~$10B Sector: Simulation & Analysis ~$7B Sector: IP ~$11B Sector: EDA TAM CAGR 2023-2028 CAGR ~11% CAGR ~12% TAM CAGR ~12% ~6-7% ~8-9% • Sustainability • Autonomy • IoT • Engineering Digital Transformation • Model-Based Systems Engineering • Avaliablility of Compute (Cloud) • Engineering Complexity • AI-Powered design & anaysis • Talent Constraints • Software-defined systems • Domain-specific silicon • Multi-die • Angstrom-size nodes
  • 35. 35 64% 63% 63% 25% 26% 26% 9% 9% 9% 0% 20% 40% 60% 80% 100% Fiscal 2021 Fiscal 2022 Fiscal 2023 Revenue by Product Group EDA Design IP Software Integrity Other Synopsys Company Overview Company Overview Inception Business Segments Synopsys, Inc. is a global leader in electronic design automation (EDA) software for designing and testing integrated circuits and electronic systems, including cloud-based solutions to enhance chip design. They also offer a suite of semiconductor intellectual property (IP) products & software tools for improving software security, quality, compliance across industries Founded as a synthesis company in 1986 • Design Automation: EDA software for circuit design and testing. • Design IP: Pre-designed circuit components for chip designs. • Software Integrity: Tools for software security and quality Customers and End Markets Synopsys Company Overview Intel Corporation, IBM, STMicroelectronics, Honeywell International, Top Universities • Revenue Growth: Revenue increased significantly from $4.2 billion in FY21 to $5.8 billion in FY23, indicating strong top-line growth • Operational Efficiency: Operating income grew notably, with EBIT margins expanding from 18.3% to 23%, reflecting improved operational efficiency • Profitability: Net income rose from $757.5 million to $1.23 billion, and net income margin improved, signaling enhanced overall profitability • Gross Margin Stability: Gross margin remained consistently high at around 80%, indicating stable cost control relative to revenue • Healthy Balance Sheet: Total assets and equity both increased, pointing to a robust financial position Key Takeaways from FY21 to FY23 Financials Income Statement Historical: ($M USD) FY21 FY22 FY23 Total Revenue: 4,204.2 5,081.5 5,842.6 (-) Cost of Sales -813.3 -996.8 -1147.3 Gross Profit: 3,390.9 4,084.8 4,695.3 Gross Margin % 80.7% 80.4% 80.4% (-) Total Operating Expenses: 2622.7 2910.7 3349.0 Operating Income (EBIT): 768.2 1,174.1 1,346.3 EBIT Margin: 18.3% 23.1% 23.0% EBITDA 921.8 1,335.4 1,516.2 EBITDA Margin: 21.9% 26.3% 26.0% (+/-) Other Income (Expense) - - - Earnings Before Income Tax (EBT): 805.5 1,115.5 1,301.8 (+/-) Income (Loss) from Discont. Ops - - - Net Income to Parent: 757.5 984.6 1,229.9 Net Income Margin: 18.0% 19.4% 21.1% Balance Sheet Total Assets: 8,752.3 9,418.1 10,333.1 Total Liabilities: 3,453.3 3,858.9 4,148.8 Total Equity: 5,298.9 5,559.2 6,184.3
  • 36. 36 ANSYS, Inc. Company Overview Income Statement Historical: ($M USD) FY21 FY22 FY23 Total Revenue: 4,204.2 5,081.5 5,842.6 (-) Cost of Sales 813.3 996.8 1147.3 Gross Profit: 5,017.5 6,078.3 6,989.9 Gross Margin % 119.3% 119.6% 119.6% (-) Total Operating Expenses: 768.2 1174.1 1346.3 Operating Income (EBIT): 768.2 1,174.1 1,346.3 EBIT Margin: 18.3% 23.1% 23.0% EBITDA 921.8 1,335.4 1,516.2 EBITDA Margin: 21.9% 26.3% 26.0% (+/-) Other Income (Expense) - - - Earnings Before Income Tax (EBT): 768.2 1,174.1 1,346.3 (+/-) Income (Loss) from Discont. Ops - - - Net Income to Parent: 757.5 984.6 1,229.9 Net Income Margin: 18.0% 19.4% 21.1% Balance Sheet Total Assets: 8,752.3 9,418.1 10,333.1 Total Liabilities: 3,453.3 3,858.9 4,148.8 Total Equity: 5,298.9 5,559.2 6,184.3 Company Overview Inception Business Segments ANSYS, Inc. offers engineering simulation software and services worldwide, supporting diverse industries with open, flexible solutions for efficient product development. The company targets growth by enhancing its multiphysics portfolio and broadening user access, responding to increasing demands fueled by trends like electrification and sustainability Founded established in 1994 • Simulation and Modeling Software: Providing engineering simulation and 3D design software used across various industries for product development, testing, and optimization • Services and Support: Offering consulting, training, and customer support services to enhance software implementation and utilization Customers and End Markets Synopsys Company Overview Cummins Inc, Hyperloop One, General Electric, Elbit Systems of America, Panasonic Corp, Fujitsu Ltd • Revenue Growth: ANSYS has shown a consistent increase in total revenue, growing from $4.204 billion in FY21 to $5.843 billion in FY23 • Profitability Enhancement: The company has significantly improved its net income, from $757.5 million in FY21 to $1.229.9 million in FY23 • Operational Efficiency: Improvement in operating income and EBIT margin reflects ANSYS's enhanced operational efficiency and profit retention • Financial Health: The growth in ANSYS's assets indicates an overall enhancement in the company's financial stability and health Key Takeaways from FY21 to FY23 Financials Significance of the Deal 1.Margin Improvement: The acquisition aims to enhance Synopsys' non- GAAP operating margins by about 125 basis points 2.Free Cash Flow: There is an expected increase in unlevered free cash flow (FCF) margins by approximately 75 basis points in the first year following the deal's closure, suggesting better cash generation capabilities 3.Earnings Per Share: The deal is anticipated to positively impact non-GAAP (EPS) starting from the second full year after the acquisition, contributing positively to Synopsys' earnings and potentially increasing shareholder value 4.Long-Term Financial Benefits: The acquisition is expected to provide significant contributions to the financial metrics of the merged company beyond the initial years, aiding in sustained growth and profitability
  • 37. 37 Deal Breakdown and Potential Synergies Revenue Synergies Cost Synergies Financial Synergies • Cross-Selling and Up-Selling Opportunities: With Synopsys’s strong presence in the semiconductor and EDA market and Ansys’s leadership in simulation for various industries, there’s significant potential for cross- selling & up-selling products to the existing customer bases • Integration of Technologies for New Solutions: By combining Synopsys's EDA tools with Ansys's simulation capabilities, the merged company can create integrated solutions that are more powerful and comprehensive than what competitors offer • Consolidation of Platforms and Services: The integration of similar technologies and services between the two companies can eliminate redundancies and lower operating costs • Shared R&D Activities: By aligning their research and development activities, Synopsys and Ansys can avoid duplicate efforts in areas where their technologies overlap • Improved Borrowing Terms: The combined entity’s increased size and market share could enable it to negotiate better terms on debt or refinancing, potentially reducing interest rates & lowering cost of capital • Enhanced Cash Flow Management: The merger could lead to improved cash flow management, as the combined company leverages economies Potential Synergy Opportunities -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% ANSYS, Inc. Synopsys, Inc. 6.4% 23.7% • Announcement: Synopsys Inc. and Ansys announced the acquisition of Ansys on 21st December, 2023 • Valuation: Ansys shareholders will receive $197.00 in cash and 0.3450 shares of Synopsys common stock for each Ansys share, which totals approximately $35 billion in equity. This valuation implies a per-share value of $390.19, which indicates a premium of about 29% over Ansys' last closing price before the announcement • Rational Behind Deal: The deal is poised to create a new leader in a highly consolidated business software sector, particularly focusing on semiconductor electronic design automation (EDA) and system simulation and analysis • The deal is expected to close by the end of the 3rd quarter of the calendar year 2025, subject to regulatory approval and other customary closing conditions, including approval by Ansys shareholders • The investment bank underwriters for the Ansys-Synopsys deal are Evercore (for Synopsys) and Qatalyst Partners LP (for Ansys) Cisco Splunk Deal Breakdown Tracking % Change of Ansys and Synopsys
  • 38. 38 Ansys Multiples Show That It’s In Line with Its Public Comps Source: Calculated from Ansys 10k & Comparable Companies 10Ks 10.6 x 9.0 x 9.5 x 0.0 x 10.8 x 11.6 x 9.4 x 8.3 x 8.4 x 9.9 x EV / FY24 Revenue EV / FY25 Revenue 37.1 x 41.3 x 25.6 x 34.0 x 85.4 x 0.0 x 24.4 x 32.5 x 34.8 x 22.0 x 29.9 x 52.6 x 22.8 x 22.8 x EV/FY24 EBITDA EV/FY25 EBITDA EV/FY24 EBITDA TEV/ Revenue Multiples TEV / EBITDA Multiples 12.9 x 18.6 x 16.5 x
  • 39. 39 Ansys Football Field Methodology Selected Public Comparable Companies Assumptions LTM TEV / Revenue CY 24 TEV / Revenue CY 25 TEV / Revenue LTM TEV / EBITDA CY 24 TEV / EBITDA CY 25 TEV / EBITDA CY 24 P / E CY 25 TEV / EBITDA Transactions between 2020 to 2023 CY 25 P / E 22x - 35x EBITDA Exit Multiple, 7% - 11% WACC Precedent Transactions Ansys Valuation - Range of Implied Share Prices Discounted Cash Flow Selected Comps 1. Bentley Systems 2. Cadence Design Systems 3. PTC Inc 4. Tyler Technologies 5. Guidewire Software ARM is currently overvalued, based on our DCF projections and trading multiples $303 Pre-Offer Price $235.24 85.81 277.94 289.76 316.30 493.39 251.63 252.26 250.03 $308.80 203.53 499.88 459.05 510.17 671.17 354.90 359.83 365.52 $- $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 $800.00 25th to Median Median to 75th Current Share Price $ 303 Pre-Offer Price $ 197 in cash + 0.3450 share exchange Source: Calculated from Ansys 10k & Comparable Companies 10Ks