Caught off guard — now the US will hit back

January 30, 2025
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 30th, 2025. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The much-discussed AI model DeepSeek has crashed the stock market — and pushed tech development into a geopolitical phase. Now Trump and Zuckerberg are desperately searching for a countermove that can stop China from seizing the throne.

“I think there are a number of original things they did that we are still digesting.”

When Meta presented its quarterly report on Wednesday evening, there was another company the analyst community would rather have talked about: DeepSeek — the Chinese AI company that had rocked the global economy over the past week. How will things go for Meta and its AI projects, given that the Chinese competitors appear to be so capable?

The same question hung over OpenAI’s major shareholder Microsoft, which also presented its quarterly report the same evening.

“I think DeepSeek has some genuine innovations,” said CEO Satya Nadella.

It is obvious that they do not quite know how DeepSeek managed to achieve its results. And they appear to have been caught completely off guard by how quickly they found themselves facing a new Chinese competitor.

The answers from the two tech leaders also hint at something even more interesting: AI development is entering a new phase. Now it is about geopolitics.

Until now, the AI market has been dominated by a handful of large American companies. Microsoft and OpenAI with ChatGPT have been pitted against Google’s Gemini and Meta’s Llama, with individual challengers like Anthropic also in the mix. Virtually all the major players have their home on the American West Coast and have competed with one another in full view.

Now the view of competition is shifting. Rather than pitting OpenAI against Google, it may increasingly become a national question — the US against China. Well-known venture capitalist Marc Andreessen called DeepSeek the AI world’s “Sputnik moment” — the point at which it suddenly became clear that there were more candidates ready to compete seriously.

In the same analyst call on Wednesday, Mark Zuckerberg made his position plain:

“There will be a new global standard for open-source AI. And for it to be advantageous for us nationally, it is important that it be an American standard.”

What was previously almost self-evident now needs to be stated clearly — because it is being called into question.

The issue has become particularly pressing in the wake of this week’s sharp fall in Nvidia, the chip company whose fortunes are closely tied to AI development. Meta plans to invest around 65 billion dollars — roughly 714 billion kronor — on AI in 2025 alone. Much of that money will flow directly to Nvidia.

The development is driven largely by anxiety about the Chinese AI model DeepSeek R1, which has performed extraordinarily well in comparative benchmarks. What spooked the markets, however, was not its performance — but the cost of developing it. That cost was said to be very low compared to its American equivalents, and moreover it was produced using inferior chips: a necessity for Chinese companies, since the best chips are not permitted to be exported to China.

Whether the claimed low cost is accurate is disputed. There are likely substantial hidden costs that have not been disclosed. Both DeepSeek and China as a whole have every incentive to present themselves as innovators in this space. But the uncertainty alone was enough to send Nvidia’s share price into sharp decline. In a single day, 6,440 billion kronor was wiped out — though the price partially recovered the following day.

Shortly afterwards, Nvidia’s share price was rattled again. This time it was the United States that drove the fall. Donald Trump is reportedly discussing tighter controls on what type of chips can be exported at all. China is Nvidia’s second-largest market, and further trade barriers of this kind could hit the company hard.

China is now regarded by many — for the first time — as a fully-fledged rival to the US in AI. China has long had AI development with several large models that have performed well — among others from tech giants Baidu and Alibaba. But none has broken through in the same way as DeepSeek. It is also possible that China’s hardware constraints have been compensated by innovation on the software side.

It is through this lens that one should understand Trump’s discussions about increased restrictions on Nvidia. This is a larger question than the profit-and-loss accounts of individual companies — it is now about the country as a whole. And the US is a country that does not like to lose.

Fear of DeepSeek shakes the stock market

January 27, 2025
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 27th, 2025. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Hundreds of billions have been invested in AI chips, making Nvidia the world’s most highly valued company. Now a small Chinese player is challenging the need for those investments — and the markets are beginning to shake.

On 27 March 2000, Cisco became the world’s most highly valued company. The American networking giant was riding high on dotcom waves and the internet economy promised growth and success. Cisco was selling the picks and shovels of the gold rush — networking equipment. As everyone around the world scrambled to get connected, it looked like a sure winner.

Everyone remembers how it ended. Less than a year later, Cisco’s share price had fallen by 80 percent and the crash was a fact. Now the markets are shaking and the anxiety is clear: are we facing a similar scenario once again?

The Chinese AI model DeepSeek R1 is giving markets a sense of déjà vu. Over the weekend, DeepSeek reached the top spot in the American App Store, overtaking rival ChatGPT. Venture capitalist Marc Andreessen called it the “Sputnik moment” of the AI world — the moment when the world understood that there were other players in the game.

The appeal for consumers is straightforward: DeepSeek is good and free. But it is how DeepSeek was built that is truly disruptive. It is said to have used far fewer resources than comparable competitors while still delivering equivalent results. Should that prove to be true, it could be bad news for companies like Nvidia, which has prospered handsomely from tech giants’ investments in chips and data centres. Will as many really be needed going forward?

Nvidia — today the world’s most highly valued company — carries expectations of growing, not shrinking, demand. When markets opened on Monday, the company’s share fell by around 13 percent — representing a loss of value of approximately 465 billion dollars, the largest single-day loss in stock market history.

Making matters worse, China faces strict restrictions on what type of chips it can import from Nvidia. DeepSeek therefore appears to have been developed using inferior chips compared to those available to Meta and Google.

A great many uncertainties remain. These range from suspicions that DeepSeek stole data and information from ChatGPT, to claims that the company behind it does in fact have access to the best chips but cannot admit it for understandable reasons. Meta has assigned extra staff to try to work out how it succeeded. But the uncertainty is sufficient to rattle the markets. Dutch company ASML, which makes machines for manufacturing chips, fell around nine percent when European exchanges opened.

If it turns out that the Chinese have found a more efficient way to develop AI models, it can be interpreted in two different ways.

The first is what underlies the anxiety described above. Do we really need more and better chips if we can achieve the same type of results with far fewer? Is this a potential paradigm shift in how AI models are trained? It could mean a reduced need for chips and data centres, and lower investment required to remain competitive. It would also mean that high-level AI development could take place in many more countries, moving beyond today’s heavy concentration in Silicon Valley.

The second perspective is what is known as Jevons paradox. Named after the English economist William Stanley Jevons, who showed in 1865 that increased efficiency in the use of coal did not reduce demand for the raw material — but rather increased it. Applied to AI development, this would mean that the need for capacity and chips will only grow as the stakes get larger and more players can participate. Microsoft CEO Satya Nadella wrote on Monday that he believes this is precisely a Jevons paradox moment.

Looking back at Cisco in 2000, there are further parallels to be found. The direction for the future proved to be correct — the internet economy would indeed become world-changing. But it took considerably longer than anyone had expected. And the immediate need for Cisco’s hardware did not materialise on cue. Only now — 25 years later — has Cisco’s share price caught up and is approaching the same heights it once reached. But more than anything else, Cisco’s dotcom valuation was based on near-infinite growth projections. Enthusiasm overrode reason.

The fact that a chip manufacturer like Nvidia is the world’s most highly valued company speaks to a similar enthusiasm today. It is not sufficient, necessarily, that AI is here to stay, or that it may come to revolutionise society and business life. Timing also matters. And as DeepSeek is reminding markets right now: there may be more ways to reach that vision than buying vast numbers of extraordinarily expensive chips.

Decision-makers know something we don’t

January 20, 2025
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 20th, 2025. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

TikTok is banned — and permitted again a few hours later. The law says one thing and the incoming president says another. But both American and Chinese decision-makers have one thing in common: they know something we don’t.

“TikTok is definitely a threat to national security. We have seen classified evidence.”

Democrat Josh Gottheimer speaks with absolute certainty. The American congressman from New Jersey is one of the politicians behind the law banning Chinese ownership of TikTok, among other things. When the law came into force over the weekend, it should have felt like a victory. It didn’t quite work out that way. When the incoming president said he wanted to circumvent the law immediately, the feeling of a political win evaporated.

What we are left with instead is a long list of questions.

The first concerns the classified evidence. Gottheimer, along with several other politicians, has referred to information that American politicians have been given access to. It is said to have been so persuasive that both Democrats and Republicans united around the conclusion that TikTok poses a security threat. In the House of Representatives, the law passed by the clear margin of 352 to 65.

American politicians are, however, among the small minority of people who know what this evidence actually consists of. None of it has been shared with the public. It is unclear whether the evidence has even been shared with TikTok itself, so that it could respond.

The situation is therefore rather strange. There are 170 million monthly users of TikTok in the US, all wondering what dangerous activities TikTok may have been engaged in. There are a few hundred politicians essentially saying “trust us — we’re doing you a favour by banning TikTok.” As an outsider it is impossible to assess how serious this evidence is. But one can clearly observe that the method for convincing the American public has been sorely lacking.

The second question concerns TikTok’s own motives. The law does not ban TikTok as an app — it bans its Chinese ownership. Parent company ByteDance, a commercial enterprise with investors from around the world, therefore had every reason to sell the app during the period from last spring until now. So far, it has refused.

TikTok’s value has been estimated at around 40 to 50 billion dollars, or roughly 450 to 550 billion kronor. Regardless of whether they think the law is wrong or not, it is usually in commercial companies’ interest to do what maximises revenues and profit.

Unless other motives are at play, of course.

The Chinese state owns 1 percent of the shares in ByteDance. In the normal course of events, such a small stake would not be able to block a sale or significantly affect the company at all. The structure is known as “golden shares” — a name referring to the disproportionate influence they carry over a company’s operations. The method is common in China, and in January 2023 the Chinese state also purchased golden shares in subsidiaries of the Chinese tech giants Alibaba and Tencent.

Republican senator Lindsey Graham has written on X that it is precisely the golden shares that are preventing the TikTok situation from being resolved. He adds that he will propose legislation banning any company that holds these golden shares from trading on American stock exchanges — though this would not affect ByteDance, since it is not publicly listed.

The absence of business logic undermines TikTok and ByteDance’s arguments. If they genuinely have nothing to do with the Chinese state — then what company would turn down 500 billion kronor? Here too, they know something we don’t.

The third question concerns how clearly content on TikTok can be controlled, and to what extent this is already happening today. It is worth recalling that TikTok does not exist in China at all, since much of the information shared on it would not be legal there. ByteDance does, however, own a similar app, Douyin, which operates in China — though it prioritises content differently from TikTok and is described as having a profile that leans more towards educational material.

What is shown on TikTok is governed by an algorithm — a kind of data system that tries to predict which videos each user might enjoy. The feed is adjusted based on feedback. As SvD has previously reported, content is selected based on what you actually watch, not what you have expressed an interest in. Getting drawn into clips that encourage eating disorders, for example, can lead to ever more of them appearing — even if you try to avoid that type of content.

Beyond individual calibration, it is also possible to steer what content is shown from a central level. A study from the Network Contagion Research Institute at Rutgers University demonstrates that this is already happening today. The study was originally released in August 2024 and received a good deal of criticism — from TikTok itself in particular. In December an updated version was released with twice the amount of source data, and the study will also be published in a peer-reviewed scientific journal.

The study shows that when searching for topics considered controversial by the Chinese state — the protests at Tiananmen Square in 1989, for example — there is markedly less material on TikTok than on comparable social media platforms. One of the study’s authors, Joel Finkelstein, told The Free Press that “the scaled indoctrination is not hypothetical, it is real.” A search on Instagram about the Uyghur people showed negative sentiment towards China in more than 80 percent of all videos. The corresponding figure for TikTok was just 11 percent.

A TikTok spokesperson strongly criticised the study and considered it to have been designed to reach a predetermined conclusion. But the questions remain: is content on TikTok being steered to achieve a political goal? To what extent is this happening? And even if it is not happening today — could it happen in the future?

The fourth and final question concerns Donald Trump. During his previous term as president, he proposed banning TikTok. Now he is being portrayed as the saviour. TikTok is thanking him in the app itself before he has even taken office as president. Why does he suddenly want to save TikTok? And is it even possible for him to do so without breaking American law?

Most likely, Trump will push through a temporary three-month extension — a kind of reprieve while a commercial deal is being prepared. Given the questions above, the negotiations will be difficult. American authorities are demanding a deal; Chinese authorities are opposed to one. Both cannot get what they want. But by deferring the matter for a few months, Trump becomes a temporary winner and restores normalcy for the 170 million users here and now. The underlying problem remains, however: the law has been passed and the Supreme Court has ruled it constitutional.

Viewed from outside, the situation most resembles a spectacle — with states, politicians, and companies swinging back and forth in an unusually chaotic manner.

For those of us watching, several central pieces of the picture are missing. Are we in the middle of an information war between the US and China? The answer to that question appears to be classified. That is a shame. Everyone would benefit from understanding the motives at play — and who stands to win in this dispute.

Update: President Donald Trump subsequently approved a deal on TikTok in the United States through an executive order, with Trump telling reporters at the White House that Chinese President Xi Jinping had also agreed.

China’s budget AI is changing the market

January 19, 2025
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 19th, 2025. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Countless billions have been spent by tech giants to develop the best AI models. Now the next era is beginning — with budget versions from China that are completely changing the rules of the game.

“Have you got a Panadol?” Ever since paracetamol was launched in Sweden in 1958, the brand has remained synonymous with painkillers. Competitors like Ibuprofen have tried to challenge that image with the help of amusing advertising.

But it helps to be first to market, to have a well-known brand, or a reputation for being the best. All three at once is, of course, even better.

The young AI industry is in a similar position. Microsoft has invested over 145 billion kronor in OpenAI to stay at the absolute cutting edge — and to be both first and best. The rather square name ChatGPT has, somewhat unexpectedly, become the most well-known name for an AI product so far. But that could change quickly.

There is much to suggest that the market for AI products is now facing a major transformation. Like industries such as fashion, pharmaceuticals, and interior design, it will become broader — and substantially cheaper. And as in many other industries, it is China that is driving the development.

One new AI model has brought the question into sharp focus. Chinese DeepSeek V3 has only existed since December last year, but has already attracted a great deal of attention. The reason is not primarily that it is good — though in benchmarks it holds its own admirably against models from OpenAI, Meta, and Google. No, the reason for the attention is that it was extraordinarily cheap to build. It cost under six million dollars and took two months to put together — a pittance compared to the billions invested in today’s market leaders. Former Tesla AI chief Andrej Karpathy noted that DeepSeek should have needed at least eleven times more computing power to achieve these results.

As is often the case, the Chinese version closely resembles the original. DeepSeek looks and functions, in all essential respects, exactly like ChatGPT.

There may be a logical explanation for this.

When TechCrunch asked DeepSeek which AI model it had used, it answered that it was ChatGPT. No explanation for this obvious confusion has been given, but a fairly safe guess is that they copied material from their Western competitor in some way.

Regardless of the method — and however well that squares with copyright law — DeepSeek will have major implications for the AI market. A new category has emerged: so-called “fast followers.” Like H&M and Zara in the fashion world, they take inspiration from leading brands and produce their own version that sells quickly and cheaply. They are rarely the best, but as long as they are good enough, there are plenty of customers for this segment too.

The change may further polarise AI development. A fast follower has neither the ambition nor the resources to advance the category further. The major technical breakthroughs will therefore not come from here. On the contrary, more time and money than ever may need to be invested in creating a clear distinction between the leading AI models and everything else on the market. The most advanced version of ChatGPT currently costs around 2,200 kronor a month for users. Why would anyone pay that if a much cheaper version is almost as good?

DeepSeek itself is moreover built on open source code — like Meta’s Llama model — and is therefore free to use. But as with many free products, there is still a kind of cost. When you ask the Chinese AI model what happened at Tiananmen Square in 1989, it simply replies that “unfortunately this falls outside my current knowledge. Let’s talk about something else.” Chinese companies must comply with Chinese laws, even when users in Sweden are asking the questions.

Despite these obvious drawbacks, a clear and new direction for the AI market can be discerned. The barriers to entry just dropped significantly. What was once a business requiring billions in resources from the world’s largest companies has now made highly capable models available to the general public. Curious businesses can experiment at very low cost and achieve results that would have seemed incredible just a year ago. That is how fast this market is moving.

Keeping pace with AI development will still be a challenge. But now it is at least not your wallet that determines whether you can try.

Will Trump or MrBeast save TikTok?

January 17, 2025
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 17th, 2025. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The deadline expires this weekend. But will one of the world’s most popular apps really disappear? SvD’s tech analyst Björn Jeffery explains what happens when the espionage-accused TikTok is banned in the United States.

Yes — at present it looks that way. The US law was voted through in April 2023 and set a final deadline of 19 January, the day before Donald Trump is sworn in as president. The law does not actually regulate whether TikTok (or similar apps) may exist or not, but is aimed at its Chinese ownership. TikTok’s Chinese parent company ByteDance could therefore sell the app and thereby allow it to continue on the American market — but so far it has chosen not to do so.

There are still a few lifelines left for TikTok. The first and most important was the US Supreme Court, which considered whether the law violated the country’s freedom of expression — the so-called “first amendment.” TikTok appealed all the way to this level. On Friday, however, the definitive ruling came: the Supreme Court would not block the ban. The decision was expected, and the legal process is now formally concluded.

The second lifeline is whether some form of sale can be arranged. The law allows for a temporary three-month extension if such a deal is in progress but has not yet been completed. ByteDance has previously said a sale is out of the question, but that was when the outlook for TikTok looked brighter. Now that the Supreme Court route has not worked out, it is not impossible that they will apply for such an extension to explore a potential sale after all.

Several names have been mentioned as potential buyers or interested parties — among them Elon Musk, Bobby Kotick (the former CEO of gaming company Activision Blizzard), and Frank McCourt, a billionaire linked to the political movement Project Liberty. In recent days, even the YouTuber MrBeast has expressed interest in buying TikTok.

The third lifeline is the incoming president, Donald Trump. He is a self-styled dealmaker and has said he is interested in finding a solution — some form of partnership or sale. One can also imagine him issuing a so-called “executive order,” a mechanism that allows the president to prevent the law from being enforced in practice. TikTok’s CEO Shou Zi Chew has been invited to Trump’s inauguration, which can be seen as a positive signal.

Time is, however, extremely tight — and even if a new solution is found, there may be a gap during which TikTok disappears for users for a while.

The law has been known about for a long time, but many users assumed it would have no practical effect. The hope was that a sale or something similar would allow the service to continue running as before.

Over the past week it has become clearer that the end may be near. As a signal to American politicians, TikTok users have begun downloading and using the Chinese app Xiaohongshu instead. The app — previously virtually unknown in the US — reached the top spot in Apple’s App Store after the influx of TikTok users became so large. Xiaohongshu literally means “little red book,” which is itself a nod to Mao’s Little Red Book. If the original purpose of the law was to reduce the Chinese Communist Party’s influence on American citizens, it has at least temporarily backfired.

Setting aside the peculiar phenomenon of Xiaohongshu, TikTok’s users will quickly need to find a new, stable platform to use. Many use the service commercially and make their living by creating video clips, and businesses rely on it for marketing.

Most likely, the majority will switch to Instagram’s Reels — a product that is essentially a copy of TikTok. It has achieved considerable success, but has not fully broken through for the most prominent creators. Now there is an opportunity for Meta — Instagram’s owner — to restart with this influential group. Adam Mosseri, head of Instagram, has already announced that they are working on improvements to video editing and other tools used by creators.

Update: President Donald Trump subsequently approved a deal on TikTok in the United States through an executive order, with Trump telling reporters at the White House that Chinese President Xi Jinping had also agreed to the arrangement.

Big changes are coming for social media

January 10, 2025
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 10th, 2025. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Silicon Valley is entering Washington DC as Trump’s new government takes office. Never before has the political influence of tech companies been so great. But not all changes in the apparatus of state will be welcomed with open arms.

When Donald Trump is sworn in as the 47th president of the United States on 20 January, he brings with him a group of formidably influential entrepreneurs and investors.

David Sacks — the investor known through the All-In podcast — is set to become the new AI and crypto tsar. Big questions for America’s future, one might think. But apparently not so big that Sacks intends to work on them full-time. He plans to continue as a venture capitalist simultaneously.

While the tech celebrities — led by Elon Musk — descend on Washington DC, they are preceded by a vast political machinery. A range of American agencies are about to change leadership and, along with it, parts of their direction and remit. It is in these less glamorous areas, away from AI and cryptocurrencies, that one finds questions which will very much affect the American tech industry and Silicon Valley in particular.

There are three areas where things could become especially fraught.

The first concerns competition issues — what is known as “antitrust” in the United States. Here, the past four years have been defined by a highly restrictive political stance on the ability of tech giants to acquire other companies. The number of acquisitions has therefore fallen dramatically. Meta, Facebook’s parent company, has not completed a single major acquisition in the past two years.

This shift has been driven by Lina Khan, Biden’s appointed chair of the Federal Trade Commission (FTC), the American competition authority. Her hard line has put pressure on Amazon and Google in a way they had never experienced before. The same tendency has been visible in the courts, with a judge ruling last year that Google holds a monopoly on the search market.

With Trump in the White House, Lina Khan will be fired immediately. Her replacement will be lawyer Andrew Ferguson, a former prosecutor from the state of Virginia. When Ferguson takes over, the FTC will be in the middle of a lengthy series of legal proceedings initiated by Khan, and it is unclear whether he will see them through. It is, however, highly likely that the FTC going forward will take a more permissive attitude towards corporate acquisitions — though it could push harder on regulating content on social media platforms.

This leads to the second area. That Meta’s Mark Zuckerberg chose this week to remove fact-checking from Facebook and Instagram is no coincidence. It was an opportunistic — and to some extent necessary — move to avoid attracting immediate problems from the incoming administration. Anything that can be perceived as censorship of any kind will have a harder time under Trump in the years ahead. Zuckerberg almost certainly made the correct calculation that it is better to get ahead of things than to be caught out. He therefore realigned Meta’s policy to something more suited to Trump. Whether it will be enough remains to be seen.

The question of content on social media is, however, highly complex — politically as well. It is not only the FTC that may have views on this, but also the agency FCC — the Federal Communications Commission. The incoming chair there, Brendan Carr, wrote ahead of the election that the law governing immunity for what is written on social media — the so-called “Section 230” — should be drastically curtailed. This would mean that social media companies could be held liable for what is said by users on their platforms. But they could also be held liable for removing too much material through moderation. That would represent a major change and a significant tightening if it came to pass.

It is not clear whether such a change falls within the FCC’s jurisdiction, and any such move could therefore be tied up in the courts for a long time. But the mere prospect of new regulation here could prompt sweeping changes at social media companies.

The third and final area concerns labour immigration. Here a rift has already opened between Silicon Valley and the broader MAGA wing of the Republican Party — even before Trump has taken office. The issue centres in particular on the H-1B visa type used by tech companies to hire talented individuals, often engineers, from other countries. Their stay in the country is tied to employment, meaning they are effectively expelled if they are unemployed for more than 60 days. For Silicon Valley firms, the visa type is considered vital for finding the right kind of workforce.

The criticism from the MAGA camp is that American jobs are going to foreign workers, meaning native-born Americans are missing out on well-paid positions.

These are three areas whose impact will be enormous for many tech companies. Ahead of an election, it is easy to unite around big pledges and joint statements projecting unity. But there are many questions where the interests of tech companies do not necessarily align with the views of the Republican majority. Having a tsar for AI issues certainly looks impressive and a little exciting — but that is not where Silicon Valley has its greatest needs.

The latest stock market trend: copy the celebrities

January 7, 2025
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 7th, 2025. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Why make your own investment decisions when you can copy someone else? A new phenomenon from the US is creating new and unusual ways to trade stocks — by riding on the coattails of celebrities.

If you follow the markets, you have almost certainly seen him. Sleeves rolled up, tie loosened, and a bald head, the boisterous Jim Cramer shouts out buy and sell recommendations on the financial channel CNBC. He is a loud and polarising figure who mixes financial advice with entertainment.

Those who followed his advice have had a rough ride. If, on the other hand, you had done the exact opposite of what he recommended, your portfolio would be up 45 percent over the past year. And now there are financial products that help you do precisely that kind of manoeuvre.

The American app Autopilot is part of a new phenomenon in how stock market investments can be made. Traditionally, a distinction is drawn between active and passive fund and stock management. But as the app’s name suggests, this is something that combines both. Someone — a politician, a hedge fund, or a billionaire — makes active investment decisions, and with the help of the service you passively replicate what they do. Or do the exact opposite.

By using publicly available data on which stocks well-known figures hold, you get a somewhat simplified picture of how they think about investments. If you had, for example, mimicked American politician Nancy Pelosi’s stock purchases over the past year, you would have seen a gain of around 55 percent.

The phenomenon is part of a broader trend. New types of financial products are making it easier to access ideas and areas to invest in. The exchange-traded fund KPOP invests in the Korean entertainment industry — something that appears to have had a tough time, having fallen 34 percent in a year. With the description “stop investing in companies that are woke,” you can buy the “God Bless America ETF,” abbreviated as “YALL.” DEAD is not yet a tradeable product, but is an index that tracks listed companies whose chief executives train deadlifts. The idea is that they — regardless of industry — outperform their competitors.

Repackaging financial products into new configurations is thus a familiar method in the industry.

What is new here is not that there are individuals and firms with very specific investment theses — it is the ability for a broader public to trade them in a simple way. On the institutional side, similar ideas have existed for a long time.

In the book “Chaos Kings,” author Scott Patterson describes how two investors created the fund Empirica Capital as far back as 1999. The fund’s purpose was the opposite of everything else at the time. While the rest of the market was trying to find stocks and other assets that increased in value, Empirica had a different strategy: it only made money when the world was going badly. The fund performed best of all in a complete crisis. Behind it stood Mark Spitznagel and the now well-known Nassim Nicholas Taleb, who went on to make a name for himself as the author of books on similarly chaotic themes, including the bestseller “The Black Swan.”

Repackaging financial products into new configurations is therefore a well-established method in the industry. But even if access for the general public has now increased, there are reasons to consider whether there were good reasons why small investors did not put their money to work in this way previously.

Several exchange-traded funds have poor liquidity, for example, which makes them hard to trade. It can also be difficult to understand the precise risk profile of these new products. In the case of the Autopilot app, you are mimicking someone whose appetite for risk may be substantially different from your own. They may also hold other types of financial instruments that protect them against a sudden drop in value — a kind of hedge, or insurance if you will. Trying to replicate a portfolio without seeing the full picture can easily become misleading and risky.

In Sweden, the phenomenon is still in its infancy. Perhaps that is for the best. The newfound simplicity that now attracts many curious small investors may well conceal a great deal of complexity. You do not become Jim Cramer or Nancy Pelosi simply by copying what they do.

Taking extreme risks in the hunt for the next success

December 25, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 25th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

He has been right on companies like Alibaba, Uber — and Klarna. Masayoshi Son is the legendary investor who plays for extremely high stakes, and sometimes loses everything. But who always comes back to find the next success.

It is an investor’s dream. Identify a company early, have the right thesis — and be richly rewarded. If the company in question is chipmaker Nvidia and the return over the past five years has been around 2,400 percent, it is about as good as it gets. One investor found Nvidia long before anyone else: Masayoshi Son, founder of the Japanese conglomerate SoftBank. As early as 2016 he invested $2.8 billion in the company on the thesis that it would become a winner from the development of AI. Masa got it right. But he sold too early. SoftBank exited in 2019 — and missed the 2,400 percent. For most any other investor this could have been devastating. Masa shrugged. If you have had a hand in some of the biggest successes in the history of the internet, you can perhaps forgive yourself for a billion-dollar miss here and there.

In the new book Gambling Man by Lionel Barber there is a lengthy list of well-known internet companies — and how Masa has been involved in them in various ways. He does deals with Bill Gates at age 25, collaborates with networking giant Cisco and Yahoo in Japan — and in the middle of it all loses 99 percent of his assets in a crash. But he comes back again. How does he do it?

There are a few episodes in Masa’s life that perhaps best illustrate what is so distinctive about the Japanese investor. One of them unfolds in a grand building in central Beijing in 1999 — a local version of Dragon’s Den taking place in an office, without cameras. Chinese entrepreneurs pitch their ideas hoping to hook an investor. A short man who works as a teacher and tourist guide pitches his new company. What if you took the “Yellow Pages” of the day and put them on the internet? Today the concept is obvious and well-established. Then it was an innovation. The service was only a few months old and was already attracting thousands of new users every day. Masa had a good feeling about the teacher turned entrepreneur. He saw him as an underdog — someone he recognised something of himself in. He offered on the spot to invest $40 million for 49 percent of the company. That may sound extraordinary — until you add that the company was called Alibaba and the entrepreneur was Jack Ma. Alibaba would go on to become one of the largest and most influential companies in China and the world. Ma turned down Masa’s millions: “Alibaba is just a baby, and a baby doesn’t need this much money,” he said. Perhaps he could consider half as much. Masa’s colleagues at SoftBank were unimpressed and advised against the deal. Jack Ma was neither a skilled engineer nor a product developer — just an apparently ordinary Chinese man with an idea. That was enough for Masa. He overruled his colleagues and negotiated a deal in which he and SoftBank got 30 percent of Alibaba for $20 million, valuing the company at $60 million. Fifteen years later Alibaba listed in New York at around $230 billion. By May 2023 SoftBank had sold almost its entire stake — at a profit of around $72 billion. Masa had been right.

In 2005 Masa visited Steve Jobs in California. He had brought a sketch showing how the iPod music player could get a large screen and work as a phone — in essence using Apple’s operating system. It was a sketch for something like an iPhone. Jobs was not interested in the sketch: “I have my own,” he said laconically, revealing no more. But Masa persisted. He secured a follow-up meeting at which he reportedly extracted a promise from Jobs of exclusive rights to the coming phone in Japan. Japan was a pioneer in smartphones, already having a system called i-mode that enabled smartphone-like functions before the concept had been established elsewhere. As a tech-focused Japanese company, SoftBank followed the developments closely. They wanted into the market — but Masa needed “a weapon.” He believed Steve Jobs’ future product could be exactly that. In 2006 SoftBank bought Vodafone Japan for around $17 billion. A few months after the deal closed the company was renamed SoftBank Mobile. Three years after the first meeting with Masa, Jobs released the iPhone in Japan. By that point Masa had made an investment equivalent to 187 billion kronor in today’s money to become the mobile operator that brought the iPhone to Japan — without having seen so much as a prototype from Apple, or having any formal agreement with Steve Jobs. The gamble paid off. From 2008 to 2011 SoftBank had exclusive rights to sell the iPhone in Japan and grew its market share significantly during that period.

But the deals do not always go Masa’s way. The appetite for risk and the fondness for big visions have also led him badly astray — rarely more so than when he tried to revolutionise the office industry. Masa was late to a meeting with a tall Israeli entrepreneur in 2016. There was no time to visit the company’s headquarters, so the entrepreneur got into the back seat of Masa’s car while he drove to his next meeting in New York. The visitor was Adam Neumann, who had a grandiose vision for the future of office work. The concept was called WeWork. They drove 38 blocks north before Masa arrived — and in that time he sketched out a deal on an iPad. Neumann stepped out of the car with a promise of $4.4 billion in investment. The valuation placed on WeWork — then a small but promising concept — was the same as the entire Hilton hotel chain. The following year the two men met again in Japan. Over dinner Masa told an anecdote about a fight between a smart person and a crazy person — the crazy one always wins. Neumann agreed. But, said Masa, “you’re not crazy enough.” The episode is revealing about Masa’s need to push limits. A SoftBank colleague says in the book that encouraging Neumann to be crazier was like “giving alcohol to a monkey.” The result was catastrophic. Together they built to a plan to take WeWork to a valuation of 10,000 billion kronor — roughly a third of the entire US stock market. It did not happen. Conflicts between the two led to Masa ultimately buying Neumann out of WeWork entirely for the tidy sum of $1.7 billion — and shortly afterwards the company began to collapse. In November 2023 WeWork filed for bankruptcy protection in the United States after its share price crashed. Masa’s total investment of around $16 billion had gone up in smoke.

Masayoshi Son is now 67 years old but shows no clear signs of slowing down. Quite the opposite — he has found his next thing: AI. He has just announced plans to invest $100 billion in the United States in this area within the next four years alone. At the end of November the Financial Times also reported that SoftBank intended to buy shares in OpenAI for $1.5 billion — not an investment in the company itself, but purchases of shares from employees. History appears to be repeating itself. Masa goes in early, big — and at high valuations. When asked whether he sees any problem in his strategy of extreme risk-taking, which among other things led him to sell Nvidia too early, he simply says: “Timing-wise, we may have been a little too early.” There appears to be no self-criticism of the method itself. Everything points instead to SoftBank and Masayoshi Son heading into another round — as funder and chief risk-taker for the world’s most important technology companies.


3 artists, 2 books & 1 documentary

December 19, 2024
by Björn Jeffery
Newsletters

Friends,

This may be the least predictable newsletter imaginable. But unlike the rest of the stuff clogging up your inbox – this is not selling or asking anything of you. It’s just some good stuff that I’ve come across lately.

I’m still writing a lot for the Swedish newspaper Svenska Dagbladet. If that’s a language you’re comfortable reading, then here’s a listing of my latest work. If not – you’re out of luck, for the time being at least.

I hope you find something interesting among the recommendations below. And happy holidays.

/Björn

Three artists to spend time with

  • Doechii – She just crossed over into the mainstream, but this is the most interesting rap I’ve heard for a long time. It’s versatile, clever, and artistic.
    Listen to: Nissan Altima.

  • Caroline Polachek – Hardly a new artist, this former singer from Chairlift is now on a solo ride. I discovered her this year, so it’s new to me. The music is unusually original and goes way beyond the average pop song.
    Listen to: Sunset + Watch: Dang (live on The Late Show with Stephen Colbert)

  • Remi Wolf – Her single “Cinderella” was one of my most played songs in the car this summer. It’s poppy and fun, with a souly voice.
    Listen to: Cinderella

Two books for your holiday break

  • Gambling Man – The wild ride of Japan’s Masayoshi Son, by Lionel Barber

    There’s hardly a major internet company that hasn’t been touched – in some way – by Softbank and their founder, Masayoshi Son. How did it happen? This former FT editor does a fantastic job of describing both the background and context for Masa’s trajectory, as well as a lot of juicy anecdotes from behind the scenes. A delightful read.

  • Send Nudes, by Saba Sams

    Short stories written in a light, bouncy manner. Little moments of youth get caught and dissected from the inside. This is fiction that reminds you of what it is like to be young – with everything good (and bad) that comes along with that.

One documentary to cherish

  • Wise Guy – David Chase and The Sopranos (MAX) – This is so much more than a walk down memory lane for Sopranos fans (which would have been fine by me). It adds personal depth to what I consider to be the finest tv-series ever made.

Three bonus things worth a look & a listen

  • The Rip Current – My friend Jake Ward (previously of NBC News and Popular Science fame) has a new Substack about technology that you should check out. He has a good eye for the space.

  • The Reith Lectures; Is Violence Normal? – The BBC series invites the forensic psychiatrist Dr Gwen Adshead to answer the seemingly simple question “is violence normal?”. The answer is more nuanced and interesting than it sounds.

  • If Books Could Kill: Who Moved My Cheese? – A podcast which is always a laugh, but this episode was especially good. A brutal teardown of a management literature staple.

Originally published on Substack on December 19th, 2024.

Trump’s appointment — a win for the tech companies

December 6, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 6th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The tech elite’s bet on Trump has already started to pay off. With the appointment of David Sacks as “AI and crypto tsar,” the venture capitalists have billions of reasons to celebrate.

The Silicon Valley elite gathered for a dinner at venture capitalist David Sacks’ home in June. The guest of honour was Donald Trump, then a presidential candidate. Tickets cost over three million kronor each — which may sound steep, but getting the ear of an incoming president can be worth considerably more than that. Venture capitalists around San Francisco are used to staking millions in the hope of a large return later.

That return arrived in the early hours of Friday morning. David Sacks was appointed by Donald Trump as “AI and crypto tsar.” It is largely a symbolic role — but the message it sends is clear: tech is back in the political inner sanctum. The tech companies’ new enthusiasm for Donald Trump is mostly about what he will not do. Trump has indicated he will not introduce tough regulation of cryptocurrencies and that he will not block as many corporate acquisitions on competition grounds. The “crypto tsar” Sacks will, according to Trump, work on a “legal framework” for the crypto industry to create more clarity. Clear guidelines are something most people — both critics and enthusiasts — would welcome. But the real value here is the legitimisation of the sector.

The market has already spoken clearly on this. Since election day in the United States, the crypto market as a whole has risen by over 65 percent. The equivalent of market capitalisation has increased by over 15,000 billion kronor in roughly one month. Bitcoin has set new price records. After a couple of years in the penalty box following enormous crashes at companies like FTX, there is now a strong tailwind for the first time in a long while.

Cryptocurrencies have often been presented as a kind of alternative to the existing economic system — an economy without a central bank, politically close to libertarianism. Philosophically it is a reasonable match. Transactions can occur without intermediaries, and flows of capital can happen without the possibility of political interference. Reality, as so often, looks a little different. Enthusiasts tend to distinguish between bitcoin and the rest — so let us do that. Bitcoin has an underlying system with some similarities to more stable assets — it has often been called digital gold. But for a wholly new economic system, there are structural problems that also exist in conventional economies. As early as 2021 a study found that 0.01 percent of all bitcoin holders owned over 58 percent of all available bitcoin. The starting point is, to put it mildly, imbalanced.

Looking at other cryptocurrencies, one need look no further than the name of the platform where many so-called “memecoins” are produced — tokens whose purpose is pure speculation. It is called “Pump.fun.” Being on the receiving end of a pump-and-dump — even if you are aware of the risks — is not always as fun as the name implies. It resembles a casino, with bad odds. Those who stand to gain from a less regulated crypto market in the United States are therefore fairly easy to identify. One example is venture capital fund Andreessen Horowitz, whose crypto fund has 82 billion kronor of exposure in this area — the value of their holdings just increased substantially. Individual early bitcoin investors are another example. They are already in the market and have seen a near-extraordinary rise in value in a short time.

The losers will likely be those who are now looking at crypto for the first time and deciding to invest — or gamble, which is probably a better description. Who would not be tempted by a rise of over 30 percent in one month, as bitcoin has just delivered? For every buyer at the peak price, there is also a seller. The Biden administration has put significant pressure on the tech world in recent years — companies have been blocked from acquiring smaller competitors and criticism of the entire sector has at times been fierce. Big tech became a temporary pariah in American politics. They therefore placed their trust — and their money — on Trump and a new era. That investment now looks set to become one of the better ones made in Silicon Valley in many years.