What we’re reading (2/2)
“Elon Musk Says SpaceX Has Acquired xAI” (Wall Street Journal). “The combination brings together a mature and dominant company in SpaceX, with one that is in a nascent stage. Musk’s xAI is also facing formidable competition from OpenAI, Anthropic and others to build large language models and big businesses around artificial-intelligence technology. In his memo, Musk said global electricity demand for AI can’t be met with data centers on the ground, and that space-based technology will be the only way to scale up AI over the long term.”
“Palantir Beats Fourth-Quarter Estimates On The Strength Of AI And Defense Demand” (CNBC). “Looking forward, the AI-powered software provider said it expects $1.532 billion to $1.536 billion in revenue for the first quarter, well above the $1.32 billion projected by FactSet. For fiscal 2026, the company guided to a range of $7.182 billion to $7.198 billion in revenue, beating the FactSet expectation of $6.22 billion.”
“The Dot-Com Optimists Got A Lot Right” (Bloomberg). “An analysis of Mary Meeker’s late-90s internet reports suggests she was often accurate, or even too conservative.”
“What Comes After The Bubble Could Be Electrifying” (Sam Ro). “If AI is all it’s cracked up to be, the winners in the stock market should extend far beyond the large-cap tech hyperscalers currently building the AI infrastructure. As BofA’s Savita Subramanian wrote back in June 2023: ‘The larger benefit may be had by old-economy, inefficient companies that can increase earnings power more permanently from efficiency and productivity gains.’ It’s too early to say conclusively, but the market may be in the process of getting in front of this phase of the AI narrative, as small-cap stocks have recently been outperforming large-cap stocks. As Wells Fargo’s Ohsung Kwon argues, small-cap stocks (as tracked by the Russell 2000, or RTY) could see a bigger tailwind from AI than large-cap stocks (as tracked by the S&P 500 or SPY). ‘We see signs that small caps have been slower to adopt AI than large caps,’ Kwon wrote on Monday. ‘We believe the next leg of AI adoption is in small caps — the longer-term bull case for RTY. We estimate every 1% labor cost saving translates to a ~2% EPS boost for SPX, but >6% for RTY.’”
“The Zero-Beta Interest Rate” (Sebastian Di Tella, Benjamin Hébert, Pablo Kurlat and Qitong Wang). “We used equity returns to construct a time-varying measure of the zero-beta interest rate: the expected return of a stock portfolio orthogonal to the stochastic discount factor. In contrast to safe rates, the zero-beta rate fits the aggregate consumption Euler equation remarkably well, both unconditionally and conditional on monetary policy shocks, and is high, volatile, and persistent enough to explain the average return and most of the volatility of the market portfolio. The puzzle is whey safe rates are so low, stable, and is connected from both consumption and the zero-beta rate.”
