The tech elite found an enemy — and found Trump

October 15, 2024
by Björn Jeffery
SvD Näringsliv





Lina Khan made Silicon Valley switch political allegiance

Published in Svenska Dagbladet, 2024-10-15. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

As long as the money kept flowing in, venture capitalists didn’t need to care about politics. A young lawyer changed that. Now the liberal tech power centre of Silicon Valley is a pillar of the conservative movement that wants to make Trump president.

The audience cheers. The stage is framed by stone, with an engraved reminder about the importance of education. We are in Royce Hall at UCLA in Los Angeles — just south of Bel-Air. Duke Ellington and George Gershwin have performed here. But we won’t find jazz musicians today. Quite the opposite. Seated in a row of grey sofas and armchairs are four Silicon Valley venture capitalists. Before a full house, the suited men are interviewing guests including Google co-founder Sergey Brin, Tesla CEO Elon Musk, and outspoken Uber founder Travis Kalanick.

This is the All-In Summit, an annual gathering born from the popular tech podcast of the same name. The talk — and the bickering — between David Sacks, Jason Calacanis, David Friedberg and Chamath Palihapitiya has become one of the most popular tech podcasts in the United States, with hundreds of thousands of weekly listeners.

The next guest on stage, however, is no tech bro like the rest of them. But he is indicative of a larger shift that has taken place in Silicon Valley ahead of this election. “Welcome vice-presidential candidate JD Vance to the stage!” In the 2024 election campaign, technology has become politics — and vice versa.

JD Vance is admittedly a former venture capitalist himself, but that is not why he is visiting. The most outspoken of the hosts, David Sacks, is a vocal Republican who has increasingly steered the podcast toward political topics. One segment of the conversation with Vance is subtitled “how to practically approach deportations, and who is coming through the southern border” — not an entirely obvious subject for an event full of tech enthusiasts. This election year the range of topics in Silicon Valley has expanded dramatically. A new kind of political power player is emerging. But why is this happening now?

Silicon Valley’s liberal image is well-known. In the Castro district, a giant rainbow flag has flown for many years — a marker of the city’s openness toward the LGBTQ movement. Silicon Valley as a whole — the area stretching from San Francisco south to San Jose — is in many ways a textbook example of a well-functioning melting pot. About 37 percent of the area’s population are immigrants, and three of the biggest companies in the tech industry — Google, Nvidia and Microsoft — all have immigrants as their top executives. The region is a mix of nationalities and worldviews, though the heavy concentration of engineers means the range of professional backgrounds is fairly narrow.

This has contributed to the image of a liberal tech sector — and one that has not cared much about party politics at all. Silicon Valley has been like California writ large: a reliable Democratic win, every election year. Uncontroversial, and therefore rather uninteresting. But the reality has always been more complex.

A 2017 survey revealed more nuance. Among tech company founders, views were liberal on social issues — abortion, immigration, support for the less well-off — but significantly more conservative on questions of regulation. And especially on labour regulation — trade unions and the like. Looking at the last presidential election, Trump received more than a third of California’s votes. In Santa Clara County — the district that is home to the headquarters of Apple and Nvidia, among others — one in four people voted for Trump.

Silicon Valley and the surrounding Bay Area is also an economically very prosperous region. Of around 7.5 million residents, over 300,000 are millionaires in dollar terms. The average price of a house in Atherton — an upscale suburb sandwiched between Menlo Park and Redwood City — is roughly 75 million kronor. There is, simply put, enormous wealth — and there has been for a very long time. And that very wealthy individuals tend to vote more to the right than the left is a pattern easy to identify, even within this otherwise liberal enclave of America.

The tech elite’s newly awakened interest in politics can be traced back to a specific date: March 22, 2021. That was when Joe Biden nominated Lina Khan, a young law professor from Columbia Law School, as the new head of the Federal Trade Commission. Her arrival was a turning point in how tech companies needed to relate to politics. It had been relatively easy and quiet until then. The tech giants had been allowed to become giants, with minimal intervention from regulators. That was about to change.

Khan was already well-known before her appointment. As a 27-year-old doctoral student she had published an academic article in the Yale Law Journal. “Amazon’s Antitrust Paradox” was the title — a nod to a well-known 1970s book on competition law, Robert Bork’s “The Antitrust Paradox.” In her article Khan argued for the opposite of what Bork’s book claimed. Judging competition cases by whether consumer prices went up or not — Bork’s main argument — was not applicable across all contexts, she argued. For tech companies — and Amazon in particular — low prices for consumers could still lead to a long-term erosion of competition. Amazon’s data on consumer behaviour helped it build a better store, to the point that competing with it could become nearly impossible over time. What felt cheap to individual buyers on Amazon could end up being very costly for society as a whole. The article had major impact and set the tone for how the FTC would approach competition cases in an era dominated by a handful of tech giants.

Under Lina Khan’s leadership, the FTC sued Microsoft when it tried to acquire Activision Blizzard, one of the world’s largest video game companies. It sued Amazon over convoluted subscription cancellation flows for Prime. And in autumn 2023 the agency sued Amazon for holding an illegal monopoly in the e-commerce market — the thesis Khan had advanced in her original article. The message is clear: maintaining fair competition in the tech sphere is worth fighting for.

For the first time since today’s tech giants grew large, they now have to reckon with politics. For boards and investors it has become an almost existential question. For Silicon Valley’s venture capitalists, Lina Khan has become a symbol of how politics interferes with and ruins a functioning market. In a blog post, venture capitalist Marc Andreessen wrote that “regulators are blocking and punishing startups from being acquired” — leaving little doubt about which regulator, and which relatively newly appointed head of it, he had in mind.

Investor Peter Thiel was one of the few to take political sides early — he spoke at the Republican National Convention as far back as 2016. This year he has been joined by heavyweights including Marc Andreessen and Ben Horowitz, two of the most influential venture capitalists in the world, both now publicly backing Trump (though Horowitz recently also donated to Kamala Harris). Why are they so invested in ending Biden and the Democrats’ time in power?

Part of the answer lies in venture capital’s fundamental business model. They invest in high-risk small companies, and if some of them grow, they can either be sold or listed. The modest initial investment has by that point multiplied and generates the fund’s entire return. But this model has run into trouble in recent years — roughly since Lina Khan took over at the FTC. The problem: no one is buying companies any more. Meta has not made a single major acquisition in the past two years. Google has made only two minor ones. Compare that to the equivalent period before Khan’s arrival, when each company completed around ten such deals per year.

At the same time, tech IPOs are at their lowest level since the 2008 financial crisis — worse than any year going back to 1980. The tap that watered venture capital has been turned off. The big companies no longer dare make the same kinds of deals as before, for fear of having them blocked by Lina Khan and the FTC. Buying Instagram for a billion dollars, as Facebook did in 2012, is today unthinkable.

As an alternative, many venture capitalists — including Andreessen and Horowitz — have invested billions in cryptocurrencies, a sector that appears headed toward heavier regulation, which is the last thing investors want. Trump has taken a clear stance on this. He spoke at the major bitcoin conference in Nashville earlier this year, discussing among other things using the cryptocurrency to pay down the national debt — exactly how was unclear. But the crowd cheered when Trump promised to fire Gary Gensler, head of the financial regulator SEC, who has become the face of all cryptocurrency regulation. After making the promise, Trump called out: “I didn’t know he was so unpopular!” For that audience, he is. And Trump’s message may be opportunistic — but it is at least clear: under him, there will be no more regulation of this industry.

Back at UCLA, David Sacks sits at the far right of the stage. This summer he hosted a fundraising dinner for Donald Trump’s presidential campaign at his home on what is known as “billionaire’s row” in San Francisco. Tickets started at around three million kronor. Sacks is no newly minted Republican, but his profile and volume are higher than ever before. As the political world steps into the tech world’s territory, figures like David Sacks have decided to make the reverse journey loudly. It is easy to understand why. After twenty years of near-total political free rein to do whatever they wanted, the region’s enormous wealth has only grown. The deals have got bigger, and so have the profits.

Now Washington DC is trying to catch up. And Silicon Valley — which until now has had every incentive in the world to stay quiet and keep its head down — is slowly waking up to a world where it may no longer be able to do exactly as it pleases.


A Nobel Prize for Google — which may now be broken up

October 9, 2024
by Björn Jeffery
SvD Näringsliv





Nobel Prizes for Google — which may now be broken up

Published in Svenska Dagbladet, 2024-10-09. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Two Nobel Prizes linked to AI went to Google this week. But it is ordinary search ads that have paid for the development behind them — and now those ads are under threat.

Most companies would be thrilled to have had even one Nobel Prize recipient among their staff at any point. Google has just received two — in one week. Geoffrey Hinton, joint recipient of the physics prize, has admittedly left Google since last year, but worked there for ten years before that. Demis Hassabis, one of three sharing the chemistry prize, heads Google’s AI unit, DeepMind.

Both appointments are in different ways related to the development of artificial intelligence — an area that has been a core focus since Google’s current CEO Sundar Pichai took over in 2015. Less than ten years later, the world is in the midst of an accelerating AI race, with entirely new competitors like OpenAI’s ChatGPT challenging Google at the very heart of its business: delivering the right information, quickly, to those who search for it.

The Nobel announcements come at a particularly interesting — and somewhat ironic — moment for Google. AI development has so far been primarily a cost for the company. The hope is that it is an investment in the future. But what has paid for it to date is something considerably more mundane and undramatic: search advertising.

The way those ads are sold has begun to be questioned — including in the courts. In September a legal process began in the United States to examine whether Google’s ad sales constitute a form of monopoly. The outcome will be known in a few months. In a separate ruling from August, it was established that Google holds a monopoly in the search market. On Tuesday the US Department of Justice submitted its views on what remedies should be imposed to address that monopoly.

It was not pleasant reading for Google. “Radical and sweeping” was how a Google legal executive described the proposals. The DOJ wants Google to be broken up. If the American Justice Department gets its way, products like the Chrome browser and the Android mobile operating system could be forced to separate from the rest of the business — both to prevent Google’s dominant position in search from being further entrenched, and to make the search giant less competitive in artificial intelligence.

The significance of such a break-up would be hard to overstate. Revenue from search advertising accounts for around 57 percent of Google’s total revenue. Add roughly 10 percent from YouTube and around 9 percent from ads shown on third-party sites. Google may want to position itself as an AI company — but in all material respects it is still an advertising company.

The strong profitability from those ads is what has financed major acquisitions and AI investments. Both Geoffrey Hinton and Demis Hassabis came to Google through companies it acquired. Being able to pick up promising research projects early and let them develop inside Google has been a strategy that worked well for many years. Few other companies would have the means — or even the ambition — to run that kind of project without being able to directly attribute revenue to it.

DeepMind — the division where Demis Hassabis works — was acquired ten years ago for around four billion kronor at today’s exchange rate. Add ten years of salaries and expensive infrastructure on top. Even the T in competitor ChatGPT — transformer — is a technology originally developed by Google.

Something as simple as a text ad in a search result has thus paid for one of the most advanced areas of technological development we have today. What happens if the US Justice Department gets its way and Google is split into smaller pieces — and the company’s strong position in the advertising market weakens? The tap for some future technologies could be turned off. That may sound like a good outcome for the free market. But it is today’s ads that are paying for tomorrow’s Nobel Prizes.


A power struggle straight out of Silicon Valley

October 7, 2024
by Björn Jeffery
SvD Näringsliv





The fight in Klarna’s boardroom is a sign of things to come

Published in Svenska Dagbladet, 2024-10-07. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Tensions are rising ahead of Klarna’s approaching stock market listing. A power struggle with echoes of Silicon Valley appears to be taking shape in the boardroom.

For 19 years Klarna has been a privately held company. Its twentieth year looks set to be different. CEO Sebastian Siemiatkowski has been unusually clear — for the CEO of a major tech company — about his ambitions and plans for a listing. If Klarna goes public in 2025, much may change.

Life on the stock market is something different, for better and worse. Both the CEO’s outspokenness and the company’s operations may need to adapt. The internal struggle between Klarna’s major shareholders should be seen in that light. The Financial Times reports that the board intends to remove Mikael Walther from its membership in the near term. Walther represents Victor Jacobsson, one of Klarna’s founders and its third-largest shareholder.

Jacobsson is not currently active at Klarna beyond being a shareholder — but he has consolidated that position over recent years, buying shares on multiple occasions from former employees or investors who wanted to exit.

Siemiatkowski, for his part, is the fourth-largest shareholder and the company’s CEO. That combination gives him enormous power. Strictly speaking the voting register may not look overwhelming, but in practice it is decisive. It is unthinkable that a board would pick a fight with — or even irritate — a CEO whose company is about to list. And the absence of challenge creates power in these contexts.

The conflict between the two co-founders appears to stem from differing views on that power. How much influence will Siemiatkowski hold once the company is listed? The informal power will of course remain even in a public setting — but the complexity will increase. New shareholders will arrive who have no interest in old merits and achievements. Groups of shareholders will vote according to rules that can seem rigid, at least to those accustomed to private companies. A different way of running Klarna will be required, whether one wants it or not.

The issue is well-known. Among the American tech giants there are many entrepreneurs who have found ways to keep the best of both worlds — the control of a private company and the capital access of a public one. The method used is to convert some shares into super-voting stock, creating a controlling influence without needing to hold a majority stake. Sweden has plenty of examples of this too, including in Investor AB. By changing the share classes, founders create a mechanism to retain control. There is much to suggest it is precisely this type of process that the two Klarna founders disagree about — and what underlies the potential board change.

Changing share classes can seem unfair to individual shareholders, but it can also have advantages. The method creates a predictability and continuity that stock markets sometimes struggle to provide. Consider Twitter, bought by Elon Musk in 2022. The focus at the time was largely on the price and the conflict between buyer and seller. Less reported was that Twitter was one of the few larger tech companies where a takeover — without the consent of major shareholders — was even possible. Twitter did not have super-voting shares. Snap, Meta and Pinterest all do. That is why Twitter could be taken private and begin its transformation into what is now known as X.

Klarna has undergone major changes recently. It sold its checkout solution and has launched a long series of AI initiatives — the aim being to present a different kind of company than the image Klarna once had, in order to be well received on the markets.

The boardroom fight is a sign of the kinds of situations that may become more common going forward. It is understandable to want to keep control of the company close. It would be having the cake and eating it too. But having sceptical shareholders — perhaps all the way into the boardroom — is a situation Klarna and Siemiatkowski may need to get used to. On the stock market, more people get a say — even if super-voting shares help.


The layoffs won’t solve the problems

September 23, 2024
by Björn Jeffery
SvD Näringsliv





The layoffs won’t solve Northvolt’s problems

Published in Svenska Dagbladet, 2024-09-23. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

1,600 employees are losing their jobs at Northvolt in Sweden. Meanwhile, future financing is still not in place. What is actually happening now?

Why is Northvolt making so many redundancies now?

According to the company it is a result of the “macroeconomic climate” and the need to focus on fewer things. The expansion of the Skellefteå factory — which was supposed to triple production capacity — is now on ice. Northvolt Labs, based in Västerås, will continue at reduced pace.

Northvolt has faced serious problems with both production delays and the quality of its batteries. Despite significant improvements during the year, the existing factory is still running at only five percent capacity. Larger changes were therefore expected to be necessary.

How do the layoffs affect Northvolt’s future financing?

Northvolt is laying off around 20 percent of its global workforce. This will lead to a significant cost reduction — but probably not large enough to solve the battery company’s financial problems. It is more likely a condition set by prospective financiers: cut costs substantially before they are willing to invest more money.

The cost savings from redundancies take time to show up on the bottom line. Notice periods can be long and severance pay or similar programmes may apply. Northvolt saving its way out of a crisis is therefore unlikely — this looks more like a restructuring to ensure the financing the company needs can be put in place. Something the company has been forced to do to meet the conditions that financiers are imposing.

How will things go for Northvolt going forward?

The company still faces enormous challenges. CEO Peter Carlsson himself cites macro factors, but there are far more immediate internal issues at play. Persistently low capacity at the factory has caused major delays, and customers — including shareholders like BMW — have cancelled their orders. Northvolt has also experienced several workplace accidents and employee deaths that have not been satisfactorily explained. Reports have emerged that batteries are not meeting the quality standards promised. There is still a great deal that Northvolt needs to resolve.

But the most pressing issue is financing. Northvolt is still in a build-up phase and is losing large sums every month. New financing must be secured for the company to continue operating. Monday’s announcement suggests a temporary solution may at least be on its way — but that financiers are setting tough conditions for it. What appears to be emerging is a different, substantially smaller Northvolt. And it is still not clear who would be willing to fund it.

Can the Swedish state become a shareholder in Northvolt?

Prime Minister Ulf Kristersson has told Swedish Radio that the state will not become a shareholder in Northvolt, but that it may be able to help facilitate the financing process where possible. Northvolt’s Peter Carlsson has himself said that the state — and other stakeholders, including the German government — must contribute to a long-term solution. What that would look like in practice remains unclear.


Is anyone willing to save Northvolt?

September 16, 2024
by Björn Jeffery
SvD Näringsliv





Who can save Northvolt from its crisis?

Published in Svenska Dagbladet, 2024-09-16. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The crisis at Northvolt is deepening. Money is running out and the options are few. Who can save the company now?

More than 100 billion kronor has been pumped into Northvolt. Now the ground is shaking beneath the giant battery factory in Skellefteå before it has even reached full production. Customers have pulled out, employees have been given redundancy notices — and the money is running out.

When a company is doing well, its shareholder list resembles a hall of fame — representing those who saw something before others did, believed in the vision, and are now richly rewarded at a sale or listing. In the opposite scenario — when a company looks to be on its last legs — being on that list is not so glamorous. Owners must then ensure the company survives. Having to inject more money into a struggling business can feel painful. But it may also be the only way to rescue the investment already made.

In Northvolt’s case the shareholder list is long — and the names are well-known. The question is how many of them are willing to help the company out of its crisis, and whether it will be enough.

The largest shareholder is Volkswagen, with a 22 percent stake. But the German automotive giant has its own problems, which may make it difficult for them to step in. Earlier in September it was reported that Volkswagen was considering closing factories in Germany — which would be the first time in the company’s history. The aim is to cut costs, but it is unclear when negotiations with German trade unions would begin. Is this the right moment to inject more capital into a struggling Swedish battery factory? Hardly. On Monday Bloomberg reported that Volkswagen was in “close contact” with Northvolt — but no concrete investment figures were mentioned, and more importantly, no conditions were specified.

The second-largest shareholder is investment bank Goldman Sachs. A market capitalisation of around $150 billion gives an indication of the resources available. But it is unclear to what extent the bank actually holds Northvolt shares on its own behalf, as it also trades on behalf of clients. The position may be registered in Goldman Sachs’ name but actually consist of many smaller investors channelling money through the bank. Goldman Sachs has declined to comment on the ownership structure.

Third largest is Vargas Holding, the investment company of Harald Mix. He has told Affärsvärlden that they “will of course continue to support the company financially if that becomes relevant.” Well and good — but Vargas’ pro-rata share of a rights issue would be around one billion kronor, while the total investment made by Vargas and Harald Mix’s private holding company Kallskär amounts to 175 million kronor. To defend their stake they would in other words need to more than quintuple their investment.

The full shareholder list is long, but only the two largest own double-digit percentages. There is no dominant major shareholder beyond them — a weakness for Northvolt in this situation. A rights issue of this magnitude would require considerable time and scrutiny from the investor community. Moreover, many of the smaller players tend to look at how the larger ones act. If the biggest shareholders participate in a new round, the others may follow. But the reverse is equally true.

There are of course other forms of financing beyond rights issues. Loans and credit have been mentioned frequently in connection with the company. The Swedish National Debt Office has issued loan guarantees, for example — though these relate to loans that have not yet been disbursed, according to finance minister Elisabeth Svantesson, who has also stated that it is “not relevant” for the government to assist with the company’s financial problems.

So why is Northvolt not drawing on the state loans, if it is facing a liquidity crisis? Most likely because they are conditional on a rights issue. This structure is common for late-stage technology companies: the combination of a rights issue and a loan allows the money to go further without diluting existing shareholders’ stakes as much. But it typically requires the rights issue to be in place first — which Northvolt appears to be struggling to arrange right now.

A final possibility is that a completely new player decides to step forward — a white knight. It is unusual but not impossible. Such an actor would however need to explain to themselves why they understand Northvolt’s future potential better than the existing shareholders who have chosen not to invest. That reasoning tends to be difficult to make. There is one exception: if the valuation can be pushed down far enough that a large stake can be acquired for a relatively small sum. But if a player is looking at Northvolt from that perspective, why would they be in any hurry? Buying a company out of receivership will be cheaper and quicker than negotiating right now.

Many parties are likely watching and would be ready to act if that opportunity arises. But they will not rush the process toward it. The only one who is in a hurry right now is Peter Carlsson, Northvolt’s CEO — and time does not appear to be on his side.


Is the screen really the problem?

September 4, 2024
by Björn Jeffery
SvD Näringsliv





Little evidence of a link between mental illness and screen time

Published in Svenska Dagbladet, 2024-09-04. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Opinion.

The screen is today the route to community, news, schoolwork and culture. Rather than restricting access to the phone, we should ask ourselves what is actually happening on it.

At Ohio State University in the spring of 1947, a panel convened to discuss the great media question of the day. Parents were worried and experts were called in. Is radio really good for our children? The panel debated whether some programmes were harmful, while others felt it was the sheer volume of radio listening that most affected children and family life. A telling quote about the panel in the Muncie Evening Press describes how “instead of sharing the experiences of the day, everyone escapes from each other. Radio makes thinking, good conversation and concentration almost impossible.”

I think about this after reading the 94-page knowledge compilation produced by Sweden’s Public Health Agency and the Media Authority. The report addresses the link between digital media and young people’s health, and forms the basis for the screen-time recommendations recently released.

The assumption that there is a connection between screens and young people’s health is taken for granted before the work has even begun. The many pages then attempt to substantiate that thesis as best they can, using scientific research and various other studies. It does not go particularly well. There is very little research suggesting that the link is as strong as many parents may feel it to be. It is also difficult to make confident statements about recommendations for people aged 0 to 25 — the age range the report covers. Restrictions on screen time for children under two are less controversial than for older teenagers.

The subject is familiar to me. Beyond being a parent myself, I founded and was CEO of one of the world’s largest children’s games companies, Swedish Toca Boca. For eight years I worked in Sweden and the United States on everything from legislation and privacy protection to product development and communications. I have spent countless hours discussing screen time with researchers, teachers and parents — including the person behind the American screen-time recommendations from the AAP, the American Academy of Pediatrics. They have had theirs for 25 years. In Sweden we got ours only now.

As the radio example shows, parental anxiety about children is nothing new. In the late 1800s parents worried that young women could not distinguish reality from fiction — because they read too many novels, as depicted by Gustave Flaubert in Madame Bovary, whose book-addicted heroine is drawn into a corrupting fantasy world. The video violence debate of the 1980s was not entirely different. The fact that anxiety repeats itself is no reason to dismiss it. But it can help us contextualise it — and by looking back we can also see how those earlier concerns played out. An overconsumption of fiction and radio did not become a major social problem, after all.

When the Public Health Agency looks for problems with screen time, this perspective seems to have been lost. The report cites cross-sectional studies, described in the report as giving “a picture of how factors are related to each other, even if it is not possible to determine whether there are causal relationships.” Particularly clear causal relationships are not to be found — neither in the material nor in the world at large.

At the press conference where the recommendations were presented, the social affairs minister said that “we cannot simply stand by and watch as young people feel worse and screens tighten their grip on their lives.” The concern for young people’s wellbeing is something many can share — but why presuppose the cause? Statistics Sweden data shows that anxiety, worry or angst among 16–24-year-olds has increased. But that increase started in 1994. Instagram launched in 2010 and TikTok in 2016. Screens may well be a contributing factor, but singling them out as the cause of young people’s mental health is a one-eyed analysis.

What about sedentary behaviour? Parents have always felt that children should be “outside playing” rather than whatever it is they want to do instead. Looking at the Public Health Agency’s own data: the proportion of children aged 11 to 15 who exercise at least four times a week has increased — nearly tripled in some cases — between 1985 and 2021. The share who are physically active for an hour has been stable for 20 years. Certainly there are likely groups of young people for whom activities have decreased in favour of screen-based alternatives. But the breadth of the problem does not appear as widespread as many parents experience it to be.

One of the recommendations is to limit teenagers’ screen time to a maximum of three hours a day. Parents who try to implement this restriction will have a hard time. The screen for a teenager — as for an adult — is the gateway to communication, community, news, schoolwork, music, literature and film. Everything happens on the same screen. Restricting at that level becomes faintly parodical — a swing at thin air that is unlikely to help either the conversations between young people and adults, or the wellbeing of either party.

One concept mentioned in the report is displacement effects: what happens when something crowds out other things important to wellbeing — food, sleep or social relationships, for example. Here there is a recommendation worth listening to: do not let any single thing crowd out everything else. But to do that, we need to look one level deeper than the screen itself. What is actually happening on it? Is it games providing constant, immediate feedback? It may be worth reducing those to maintain the patience needed for other things. If, on the other hand, it is a group chat providing support and care, that may be worth keeping.


Why Nvidia is crashing — and it’s happening now

September 4, 2024
by Björn Jeffery
SvD Näringsliv





2,800 billion kronor wiped out — why Nvidia is crashing

Published in Svenska Dagbladet, 2024-09-04. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

2,800 billion kronor were erased in a single day when the shares of hyped chipmaker Nvidia fell sharply on Tuesday evening. Why are they falling now?

It was a broader collapse across the chip and semiconductor sector on American markets on Tuesday. The category — which includes companies like Intel, AMD and Qualcomm — had its worst collective day since March 2020. Nvidia, as the market leader in the AI field, was hit hardest given how extreme its rise has been. In total Nvidia fell 9.5 percent on Tuesday and slipped a little further in after-hours trading.

One contributing factor is likely the growing anxiety that AI development will take longer than expected and not be as transformative as many companies had hoped. If companies like Microsoft and Google decide to invest less — or simply more slowly — in the AI sector, that would hit Nvidia directly.

It is also worth remembering how high the starting point was. Nvidia had gained 118 percent on the stock market so far this year, and with a market capitalisation of an almost incomprehensible 27,000 billion kronor, even small adjustments translate into enormous sums of money.

When Nvidia reported its quarterly results last week the numbers were stellar — and still not enough to meet market expectations. Nvidia’s profit nearly tripled and revenue grew 130 percent. Despite that, the report was received with mild scepticism as the forward guidance was not as glittering as in previous quarters. With sky-high expectations from the outside world, and a position as one of the most important companies in AI development, it is a stock watched with extraordinary scrutiny. The slightest signal that something may be stirring can create uncertainty.

Another factor that may have contributed has nothing directly to do with Nvidia. Monday was Labor Day in the United States — a public holiday that traditionally marks the end of summer. Everyone is back at work after the holiday period, and it acts as a kind of reset ahead of the coming autumn. It is possible that parts of the market reconsidered the sector somewhat during the summer break and became a little more cautious.

What happens next for Nvidia? The company has just reported quarterly results, so it will be several months before we see new figures. However, Bloomberg reported late on Tuesday evening that Nvidia is under investigation for suspected antitrust violations. That the Department of Justice was looking into this was already known — but the investigation has now advanced further and Nvidia has been formally required to provide internal information, which can be seen as an escalation.

Antitrust scrutiny has increased significantly in the tech world recently; Google was among those found to have an illegal monopoly in the search market. In Nvidia’s case it is not entirely clear what the DOJ is looking for, but Bloomberg reports it may relate to how customers are treated differently depending on how many different categories of products and services they purchase from Nvidia.

Should it emerge that Nvidia has in some way impeded fair competition, it could substantially alter the company’s business model and outlook. This type of investigation — regardless of outcome — generally takes a long time. An immediate concern about this specific issue is therefore unlikely to be the primary cause of Tuesday’s fall.


Must surpass what was once unthinkable

August 29, 2024
by Björn Jeffery
SvD Näringsliv





Nvidia’s quarterly report: the burden of market expectations

Published in Svenska Dagbladet, 2024-08-29. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Nvidia delivered strong quarterly figures but was met with mild scepticism from the market. The company now faces its biggest challenge yet: market expectations.

A small group of enthusiasts gathered at a sports bar in New York on Wednesday afternoon. But it was not a game on the screens — they were there to watch chipmaker Nvidia’s quarterly earnings report. The hottest tech stocks have been blazing this year, and the scene at the bar suggests we may be entering a phase where things are becoming slightly absurd. Quarterly earnings are not traditional entertainment — they tend to be dry as dust. But if you have watched your Nvidia shares rise more than 160 percent over the past year, they become considerably more exciting.

Given the company’s size and weighting in the S&P 500 index, Nvidia’s figures mattered to the entire market. The question everyone wanted answered was whether investment in AI appeared set to remain at record levels, or whether there were signs of a coming slowdown.

Nvidia delivered numbers that for any other company would have been extraordinary. Revenue grew 130 percent year-on-year. Gross margin expanded. Profit nearly tripled. On top of that, the company announced a share buyback programme worth around 509 billion kronor. These were figures that any CFO would dream of presenting.

But the stock market is not only about what you deliver — it is about how you deliver relative to market expectations. And for the first time in a long while, several analyst estimates exceeded even these strong figures. The stock fell around 5 percent in after-hours trading.

The concern likely stemmed from Nvidia’s revenue guidance. It came in at the lower end of market expectations, and the company indicated that its new chip — Blackwell — had some production issues. Despite this, Nvidia said it expected Blackwell to generate “billions of dollars” in revenue within just two quarters.

But when you have a stock that has already risen so extraordinarily quickly — around 500 percent over the past two years — the expectations are priced in accordingly. A perceived deceleration, even from a very elevated level, is enough to create anxiety.

Nvidia has effectively become a barometer for AI development as a whole. The tech giants’ investments in the sector flow largely into Nvidia’s pockets — companies like Amazon, Google and Microsoft invest billions in data centres where Nvidia chips are often a critical component. As long as the willingness to invest among the tech majors remains strong, Nvidia benefits.

On the horizon one can sense a concern about whether that investment appetite will prove as enduring as the market hopes. Goldman Sachs reports suggest AI’s contribution to GDP growth may be closer to 1 percent than the 6-plus percent previously forecast — and the payoff may lie considerably further into the future. If that is the case, will the tech companies’ shareholders tolerate such large investments without seeing revenues increase at the same pace? Any hint of doubt could hit Nvidia hard, priced as it is for continued extraordinary growth.

For every other chipmaker, the challenge is catching up with Nvidia — competitors’ products simply are not as good yet, and billions are being invested around the world to close that gap. Nvidia’s challenge is an entirely different one. It has the products, the customers and the momentum. Now it must live up to the expectations created by its phenomenal run.

It is no longer enough just to be good — Nvidia must essentially beat numbers that a year ago would have been unthinkable. The market’s reaction on Wednesday evening showed that the road ahead will not be as smooth as the road that got it here.


Why did Russia change its position on Telegram?

August 26, 2024
by Björn Jeffery
SvD Näringsliv





Pavel Durov’s relationship with Russia raises many questions

Published in Svenska Dagbladet, 2024-08-26. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Drug trafficking and contract killings take place on the messaging app Telegram. But that is not the whole story behind the arrest of its founder Pavel Durov, whose relationship with the Russian state raises many questions.

When Sweden’s justice minister invited social media companies for talks about crime last week, one company name was absent: Telegram. It is a little like inviting representatives of the fast food industry and leaving out McDonald’s. The reason Telegram was not present likely has a simple explanation — its representatives would not have come anyway. The app has become known as a haven for both unwelcome political views and outright illegal activity. At the weekend, founder Pavel Durov was arrested at a Paris airport, reportedly for failing to take action against the criminal activity occurring on the platform.

The underlying question has existed since the internet was popularised: are internet platforms responsible for what happens on them? The answer is not clear-cut and varies by jurisdiction. In the United States it is governed by what is known as Section 230, a 1996 law that both political parties have tried to revise without success — leaving it rather toothless and poorly adapted to the modern era. In the EU the relatively new Digital Services Act governs, requiring services with more than 45 million monthly users in the EU to meet stricter rules on content moderation.

For services like Instagram and Pinterest that threshold is straightforward — they are listed companies that report user figures regularly. For Telegram it is considerably less clear. How many users does Telegram have within the EU? Fewer than 45 million, at least — if you believe the company itself. A spokesperson for the Belgian postal and telecoms authority — responsible for regulating Telegram in Europe — expressed scepticism, but diplomatically: “Depending on how you count the number of active users, you can arrive at different figures.”

Telegram has responded to its CEO’s arrest on X with the words: “It is absurd to claim that a platform or its owner is responsible for the misuse of that platform.” For a service run by an avowed libertarian, that reaction is understandable. But it is in the direction of greater platform accountability that legislation is inevitably moving — whatever one thinks of it. Even in Sweden, greater focus has been placed on the platforms that serve as marketplaces for crime, as gang-related shootings have increased.

An additional complexity with Telegram specifically is its connection to Russia. Arrested founder Pavel Durov is a Russian-born billionaire who made his name as the founder of VKontakte, often described as Russia’s Facebook. In 2014 a stake in VKontakte was sold to a company linked to oligarch Alisher Usmanov, and Durov became wealthy. Despite the outcome, Durov has described the sale as forced by the Russian state when he refused to hand over data on its users. The deal has also been described as the motivation behind his desire to start a new kind of service — one where Russia could not influence how it was run. Around this time Durov also became a French citizen, one of at least four nationalities he holds. The new service became Telegram, an app today formally based in Dubai.

Given that description it is easy to view Telegram as a resistance movement against Russian censorship and data collection — and that may have been the original intent. But there are indications that Telegram is now being used as a tool for the opposite. Reports in Wired magazine in early 2023 gave examples of Russian security services citing Telegram messages in police interrogations of dissidents — messages that senders and recipients believed were secure and encrypted.

For a long time Telegram was also blocked in Russia, but in June 2020 the app was permitted again. Today it is the most popular messaging service in the country. When announcing that Telegram would be allowed back, the Russian government cited an agreement touching on matters “in the context of terrorism.” Telegram denies any such agreement existed, but the circumstances have created unease among users.

Exactly what Pavel Durov has been arrested for is not fully established. What is known is that Telegram went from being banned in Russia to becoming a popular channel for Russian communication — particularly in relation to the war in Ukraine. What caused the Kremlin to change its position is unclear. But to view Telegram only as a bastion of free speech would be to underestimate how certain countries use platforms like Telegram for their own purposes. Whether Telegram is a useful tool or a deliberate actor in this remains to be seen.


The market has doubts — alarm over ‘bubble land’

August 17, 2024
by Björn Jeffery
SvD Näringsliv





The AI boom: doubt has arrived for the first time

Published in Svenska Dagbladet, 2024-08-17. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

After this spring’s stock market surge among tech companies, markets have started to doubt. Will AI deliver the economic explosion investors hoped for? Several influential voices are now expressing scepticism for the first time.

“I think it is insane.” Barton Briggs, strategist at investment bank Morgan Stanley, was speaking about Cisco in April 2000. The networking giant had been the star of the dotcom era, but some were beginning to wonder whether everything was as it seemed. “I cannot understand how you can make money on a stock trading at 150 times revenue, with a market cap of $500 billion,” Briggs continued, to the Wall Street Journal. He was right. A year later Cisco’s stock had fallen 80 percent. The dotcom bubble had burst.

After a turbulent summer for tech stocks, more experts are now asking whether we are facing a similar moment. Chipmaker Nvidia has fallen 15 percent from its summer peak. For the year as a whole the company is still up 145 percent, and looking back five years the gain is over 2,800 percent.

Attention is now turning to Nvidia’s next quarterly earnings, due within two weeks. Can the locomotive of the AI boom keep growing? One can sense some doubt, at least.

Much of the criticism centres on concern about how much is being invested in AI relative to the value companies are extracting from it. This summer Goldman Sachs published a report highlighting several critical voices. Daron Acemoglu, professor at MIT, is among the sceptics. He believes AI development is important, but that the major breakthroughs are further away — closer to ten years than one or two. While Goldman Sachs’ own economists believe AI could drive GDP growth of 6.1 percent, Acemoglu puts the equivalent figure closer to 1 percent. He is also sceptical that AI will deliver the cost savings many have hoped for.

Jim Covello, head of equity research at Goldman Sachs, argues that AI needs to be capable of solving very complex problems to justify today’s investments of around $1 trillion. That is something the technology currently cannot do. He also believes the savings being generated by AI today are too simple and too cheap to justify the enormous cost of building and maintaining these new services — and sees no reason to expect this to change in the near term.

There are naturally still enthusiasts in the market. The more optimistic camp sees a market that is still in its infancy. For them, AI development does not necessarily need to create wholly revolutionary products and services. Simply making existing things easier and faster may be entirely sufficient.

Looking back at the early dotcom period, the payback time on those investments was long too — particularly at the start. But as the technology matured, the pace accelerated. Eric Sheridan, a somewhat more optimistic equity analyst at Goldman Sachs, concedes that the paybacks need to be larger to justify the enormous investments now being made. But he does not believe that a somewhat extended build-out phase will deter the major companies from continuing to invest in AI.

For the large tech companies — Google, Amazon, Meta — the risk of investing too little and falling behind appears to feel considerably greater than the risk of wasting money on something that never materialises. Those with the most reason to be enthusiastic are those with large stakes in Nvidia, the company that has become the central node of AI development alongside OpenAI. Nvidia’s success is built largely on other tech companies’ investments in the sector — their capital expenditure becomes Nvidia’s revenue.

It comes down to patience, on several levels. How long will the tech giants be permitted to spend billions of dollars on bets that generate little in return? Will demands come from major shareholders wanting dividends or buybacks instead? Activist fund Elliott Management has taken a clear position, saying in a letter that Nvidia is in “bubble-land” — while adding that it would be “suicidal” to try to short the stock, given its trajectory.

As long as enthusiasm around AI remains high among the biggest tech companies, Nvidia should continue to do well. But for the first time in this cycle, at least some doubt is being heard. When Nvidia’s quarterly report is unveiled, we will see whether that doubt shows up in the numbers.