Gravitas Spark CrowdFunding

Tag: portfolio

  • Think Big, Think Private

    Think Big, Think Private

    Well, that wasn’t so bad. Said no US general summoned to Quantico this week by their spray-tanned hardened bosses. I actually was thinking more about September and its data-earned reputation as historically the worst month for stock markets. Scratch that. The key benchmarks for equities, the S&P 500(up 4.25% in the month) and the Nasdaq(up 5.6%), blew the hinges off investor expectations amid lots of ugly headlines. Public markets are on an absolute tear, but investors playing catch up and wondering how to get involved could be understandably wary. I’d be wary too, but in a more nuanced way. My sense is the out-sized influence and weight of big tech in public markets is troubling. Try these statistics for size…

     

    *AI chip superstar, Nvidia, at $4.6 trillion is now worth more than Apple, Saudi Aramco and the entire German stock market…combined.

    *The “Buffett Indicator” is a trusted temperature check on US stock market euphoria which tracks the ratio of total US stock market value to US GDP. Currently that metric is touching 217%, or about 70% above trend.

    *Another long-run measure of ‘value’ is the Shiller PE Ratio (CAPE) which divides the current value of US markets (S&P 500) by the earnings of its constituent companies over the previous 10 years. That metric is over 40x for the first time since the dotcom bubble of 2000.

    *Options markets are not for the faint-hearted. So, it was striking to see the September 19th expiry date attract over $5 trillion of notional option exposure. More striking was that the majority of options players (62% of S&P 500 volume) in August were seeking ultra-high risk “Zero Day” instrument exposure (expiry within 24 hours). That is seat-of-pants stuff.

    *Intel’s share price has rocketed 50% since September, Google is up 68% since April, and Tesla’s stock has doubled in the same period while making the DOGE-whisperer, Elon Musk, the world’s first half trillionaire. Yep, $500 billion.

    *Nvidia’s stock market value is now bigger than the GDP of 180 countries, including India and its 1.4 billion people.

     

    You get the ‘big tech’ picture. Now for some historical context. Remember Palm Inc and its PalmPilot?  When Palm listed as an IPO 25 years ago, it was worth more than Apple, Amazon, Google and Nvidia combined. There is a cautionary tale there, but not the key point of today’s article. The sheer intensity and speed of capital flows in the listed large cap arena is telling us there is a massive investment shift happening. However, it is possibly too late to ‘pick’ the winners in the public markets, and one could end up picking today’s Palm Inc. However, private equity and venture capital markets have been left behind by public markets. Private investment flows and deals have slowed (with the exception of AI deals) due to subdued exit, M&A, and IPO activity, further hampered by levels of geopolitical uncertainty we haven’t seen in 50 years. The critical point is that private markets are likely to ultimately benefit from the trickle-down impact of public markets hitting all-time-high valuations. I would highlight four interesting developments:

     

    1. The leveraged buy-out (LBO) of gaming giant, Electronic Arts(EA), at $55 billion is the biggest ever and beats the $45 billion KKR deal to buy TXU way back in 2007. This time the buyer consortium is led by the Saudi PIF and Silver Lake. The EA buy-out adds to a wave of M&A in Q3 which will have topped $1 trillion in total global deal volume for only the second time in history.
    2. The latest funding round of OpenAI was a sale of $6.5 billion of employee stock putting the valuation of the ChatGPT owner at $500 billion. That makes it possibly the most valuable private company in the world. For those thinking it’s just AI giddiness, it’s not the only $500 billion private opportunity…
    3. We have written before about the fast-approaching age of stablecoins. So, we were intrigued to see stablecoin platform, Tether, launch a funding round of $15-20 billion which would value the financial services player at $500 billion, overtaking the value of Bank of America(!).
    4. These are all big beasts in the private markets. What about the small guys? Well, if you thought tech(+11.6%) and the Nasdaq (+9.7%) had a great last 3 months, you might be surprised that smaller companies in the Russell 2000 index did even better (+13.5%). Note 50% of the constituent companies in that index LOSE money.

     

    Arguably, the smaller company index is the best proxy for the Spark Private world of start-up tech and smaller private equity deals. So, evidence of small company catch-up is a positive indicator. Furthermore, Spark Private investors have a real opportunity to gain exposure to the digital currency infrastructure, AI and private equity themes above in our upcoming deal pipeline. Note we are also entering EIIS ‘season’ so investors fearing they’ve missed out on public/pension opportunities will be able to use the private markets to balance out their risk budgets at highly attractive tax-assisted valuations.

    The public markets are clearly telling investors to think BIG, but valuation risks are rising rapidly. Our message is BIG too, but private as valuations (not risk) resume an upward trajectory. Watch closely, those BIG theme deals are coming very soon.

     

     

  • Follow The Deals…

    Follow The Deals…

    The White House has approved this article. Oh, wait. That’s just my slow-learning chatbot co-writer, Eric, getting nervous. Silly boy. He’s still being trained and doesn’t understand how the world works yet. Of course, as Disney and Jimmy Kimmel have just discovered, if you want to get a deal done in the USA these days you do need the approval of the Dear (or Expensive) Leader. Beijing watchers will know that a centrally controlled economy dictates whether M&A deals get done, or not. For Disney, it needs regulatory approval for a deal acquiring 10% of ESPN in exchange for NFL sports broadcasting rights. For Nextra who cancelled Jimmy early, it is awaiting FCC approval for its $6.2 billion merger with Tegna. This all makes worrying sense, but on a positive note I’m sensing an exciting pick-up in the wider world of M&A outside the truth-strangled US media. Let’s take a look at a few deal developments and note how they tick more than a few thematic boxes.

    A is for AI and we just can’t avoid it. The good news is that the AI ‘space race’ is spilling over into the wider tech world and is not just a ‘Magnificent 7’ phenomenon. Last week we touched on “forgotten” Oracle flagging a $450 billion contract backlog for its AI cloud business. This week it’s struggling chip manufacturer, Intel, receiving the AI love. Fresh from accepting an “invite” from the US government (not China) to take a 10% ownership stake, Intel has just received a $5 billion investment from chip superstar Nvidia in exchange for approximately 4% of the company. Intel’s share pricy duly rocketed 22% in a matter of hours for its best day since… 1987. Back in 2011, Marc Andreessen wrote “software is eating the world”. More recently, we have flagged a significant shift in technology – hardware is hot. AI has focused minds on chips and cloud infrastructure with the most valuable company in the world now a hardware company (ahead of software beast Microsoft). In fact, 5 of the 10 most valuable companies on the planet are technology hardware players. Interestingly, human beings seem to be benefitting from this shift too. Again, Nvidia is splashing the cash.

    We have previously written about the acqui-hire trend; the strategic acquisition of scarce knowledge/skills by buying out early stage start-ups. Enfabrica, its CEO and a handful of its employees have just had $900m waved in front of them to join Jensen Huang and Nvidia. The Enfabrica team’s key IP is the ability to connect more than 100,000 GPUs(AI chips) together.  Oh to be an AI guru, as Meta, Google and Amazon hunt the globe for unique talents and knowledge. The attraction of hiring individuals (not acquiring start-ups) for the acquiror is the avoidance of regulatory scrutiny. The biggest deal of this genre so far was Meta’s $14.3 billion purchase of a 49% stake (dodging control/regulatory process) in Scale AI, its founder Alexandr Wang and his colleagues. Of course, all this talent and  hardware needs electricity to power research, manufacturing and cloud hosting.

    So, it was interesting to see private equity giant, Blackstone, acquire Pennsylvania’s Hill Top natural gas power plant for close to $1 billion. This follows Blackstone’s July announcement that it would invest $25 billion in Pennsylvania to build out its energy and digital infrastructure for the AI revolution. Yep, $25 billion. Meanwhile, Elon Musk’s xAI vehicle has purchased an entire power plant overseas and is shipping it to Memphis where xAI plans to build a data centre hosting 1 million GPUs. Blackstone and other private equity players are clearly taking a view that electricity grid infrastructure is critical to any digital/AI ambitions. Blackstone has been particularly busy with an August announcement of the $11.5 billion purchase of New Mexico’s largest utility, TXNM Energy. So, this focus on electricity infrastructure assets raises a further question, possibly opportunity. We know electric power is critical to the AI revolution but there’s another critical component to the digital world – basic materials. The investment community is correctly focusing on the physical assets of the manufacturing and power generation sectors but the most basic manifestation of infrastructure assets is raw materials. The Chinese have bullied the Expensive Leader on tariffs thanks to control of rare earths supplies but what about other critical metals? Let’s see.

    Silver and gold prices have both recently hit new highs with precious metals funds (ETFs) posting 47% returns year-to-date. But keep your eyes on the global electrification prize. Copper is the critical metal for electricity conduction in transmission grids, renewable power projects and electric vehicles (EVs). So, check out the biggest mining deal in ages. Anglo American is planning to merge with Canadian copper play, Teck Resources, in a $70 billion deal. Given EVs use up to 4 times more copper than traditional cars and wind farms consume 10 times more copper than gas-fired plants, it’s not a surprise to see this deal happen. However, what is surprising is that the GLOBAL publicly quoted mining sector is valued at just over $1.4 trillion. That doesn’t even cover the increase in value of just one tech company, Nvidia, in the past… 6 months! The most valuable US mining company, Southern Copper, is worth $87 billion. For context, note Larry Ellison’s personal wealth increased by $100 billion in just one epic trading session for Oracle on September 9th. Not for the first time in recent giddy weeks, it feels like something doesn’t quite add up. For illustration, the top 6 US tech companies are now valued at a combined $20 trillion, more than the GDP of China. And yet, each of these 6 companies is utterly dependent on rare earths, basic metals etc. to build semiconductor chips or their precious cloud-hosting data centres. I reference China deliberately.

    Not only did China take the long view on the critical role of rare earths in the modern digital economy, they also ‘got’ electricity. In 2010 they finally caught up with the US in terms of electricity generation. But….. today the Chinese electricity generation capacity stands at 2.5x the USA. We read a lot about tech ‘sovereignty’ these days but critical mineral ‘sovereignty’ could be the next frontier of the AI race. Already, the US Department of Defense has taken a 15% ($400m) stake in rare earths mining company, MP Materials. Surely, private equity and its mounting pile of investment  ‘dry powder’ sitting idle will start to look at the mining sector? We shall see, but it must be encouraged by the US Department of Defense taking time out of bravely bombing Venezuelan fishing boats to secure mining resources. Whoops, Eric is getting nervous again…. Best I stop now before I’m Kimmeled, and best you follow those deals.

     

  • Back To School For A Monster Theme…

    Back To School For A Monster Theme…

    I’m running out of expletives. It’s a sort of “FOMO” thing which rules out obsessing on Labour’s implosion or the Epstein “hoax” which mysteriously keeps removing only British citizens from high profile roles. No, the headlines driving my heightened state of anxiety are derived from a familiar theme. However, it’s a theme which is now hitting warp speed. We have previously written that the best pulse-take of the monster AI trend was tracking the “picks and shovels” of AI/cloud infrastructure rather than the “gems” of digital intelligent progression. Well, this week is turning into a “biggie” for the AI infrastructure theme. I’d highlight three key developments and a few other snippets. So, here goes….

    The creation of start-up billion dollar ‘unicorns’ has hardly any scarcity value these days. Maybe, we should think in trillions. Step forward almost 50-years old Oracle. Who knew Larry Ellison’s database software business would rack up a trillion dollar enterprise value at the beginning of this week? Probably nobody. Even the Wall Street analysts paid to follow every line of the Oracle business and financial model were truly shocked by the big reveal in Oracle’s quarterly update. In fact, earnings results were slightly shy of expectations. But, the share price proceeded to rocket 40%. Why? The future contract work backlog in its cloud(AI) infrastructure business grew 359% to $455 billion. I mentioned “warp speed” earlier so here’s what caught the eye. Oracle’s cloud revenues from Amazon, Google and Microsoft grew by 1,500% but the entire division this year is annualising revenues of circa $10 billion. That number will be $144 billion by 2030. Welcome to trickle-down AI economics. Oracle was barely mentioned in AI giddiness a year ago, now its owner is the richest man in the world. Oracle is not the only AI ‘unknown’ making waves.

    Anyone heard of Nebius? No, me neither until this week but I do remember its former Russian search/e-commerce platform, Yandex. Anyway, Russian sanctions forced a sale of the Russian assets leaving Nebius as an Amsterdam-listed company specializing in cloud computing (GPU) infrastructure. This week Microsoft signed an agreement worth up to $19.4 billion for Nebius in exchange for 5 years’ access to its GPU datacentre infrastructure in Vineland, New Jersey. Nebius’ market value before that news was less than $15 billion. Not surprisingly, the share price has roared 50% higher and the company is now seeking to raise $3 billion in fresh funds to accelerate its growth plans. This was not the only Dutch tech/AI zinger story this week…..

    Eindhoven-based ASML is the world’s dominant player in critical lithography technology used in chip manufacturing equipment. A single machine can contain up to 100,000 parts and cost $300-400 million. Clearly, semiconductor chips and AI are thematically closely connected. But investing in an AI start-up caught ASML analysts on the hop. ASML has just invested $1.5 billion in French AI player, Mistral, for a circa 11% stake valuing Mistral at close to $14 billion. Remember, Mistral raised $385m in late 2023 with a $2 billion valuation and early investor support from BNP Paribas, AndreessenHorowitz, Lightspeed Ventures and telecoms entrepreneur, Xavier Niel. Less than 2 years later, the Mistral valuation is racing towards a 7-8x return for those early investors. Apart from being an example of multi-layer AI investment activity, the deal is being hailed as a boost to Europe’s AI and semiconductor chip sovereignty.  And maybe I’m not the only one feeling a bit FOMO….

    It seems Ireland’s Taoiseach, Micheál Martin, has been thinking ‘sovereign’ too and looking at France’s early initiatives in funding AI startups. The Business Post has reported that Martin has sought the help of Eir owner, Xavier Neil (see above), in establishing an AI/tech incubator modelled on his highly successful Station F start-up campus. There might be good reason why Ireland needs to increase the pace of its AI and start-up readiness. I thought the next few little snippets should be focusing minds in Government buildings and elsewhere:

     

    Private investing: The UK debt market is worrying many, but on a more positive note it was interesting to see Hargreaves Lansdowne and Schroders join forces to offer UK retail investors the opportunity to add private assets to their pension pots. Note to Irish government – start-ups need investor incentives first, then campuses.

     

    Consumer behaviour: Wildfire Systems’ 2025 Consumer Shopping Trends Report shows 61% of consumers are now using generative AI tools like ChatGPT as a tool for deal-hunting.

     

    Company growth speeds: Stripe’s Indexing the AI Economy report shows AI companies reaching $1m annual recurring revenues (ARR) 4 months faster than even the fastest growing SaaS/software companies. And… AI companies reaching $5m revenues are reaching that milestone 3x faster.

     

    I feel my back-to-school mantra should read:    The future is private, AI and fast. Very fast.

     

     

  • Are We Watching The Wrong Bear…?

    Are We Watching The Wrong Bear…?

    I am worried now. And, I’m not talking bear markets. Not yet. I’m not even talking about the Russian bear heading for the Alaskan Trump TV-fest. Of course, Europe should be worried about the Dear Orange Leader trading Ukrainian sovereign territory with his Putin pal but this summit feels more and more like a photo op with minimal progress. Another chance for the Donald to host, and hallucinate. Even the Kennedy Centre Awards for the Performing Arts have been threatened with a Trump MC slot. Bill Kristol of The Bulwark amusingly described Trump as claiming “his aides had wept, pleaded, besought him to host the awards personally” with reluctant success.

     

    “I’ve been asked to host—I said, ‘I’m the president of the United States! Are you folks asking me to do that?’” Trump said. “‘Sir, you’ll get much higher ratings.’ I said, ‘I don’t care, I’m the president of the United States. I won’t do it.’ They said, ‘Please.’ And then Susie Wiles said, ‘Sir, I would like you to host,’ I said, ‘OK, I’ll do it.’”

     

    Grown men crying again. The former reality TV star can’t resist the cameras or weepy stories but he’s certainly showing a  curious resistance in one aspect of his gyrating global trade war. China was the original bipartisan focus of US trade deficit ire. Now, not so much. China trade tariffs are now lower than those smacked onto many US allies. In fact, Trump has once more delayed the imposition of escalating 100% + tariffs on China by 90 days. Global trade watchers and geopolitical risk analysts have been left scratching their heads. Apart from China tariff leniency, other developments indicate a shifting Trump focus. Here are three moves which are causing most confusion:

     

    1. Check out US Treasury Secretary Bessent describing to an incredulous Fox TV host, Larry Kudlow, the intention of the US to “appropriate” funds from allies in Europe, UAE and Japan to be invested in their trillions at the whim of the US government. Incredible stuff.
    2. Pity poor Switzerland. They are, as a friendly ally nation, currently topping the global tariff league tables with draconian 39% rates, higher even than China.
    3. After decades of US diplomatic efforts to woo India, the White House now seems determined to provoke the Modi government with tariffs because of their purchases of Russian oil. Never mind that China is in far bigger sanction infringement territory with its oil purchases, and weapons parts supplies.

     

    It has not escaped the notice of most risk analysts that China must be very happy with how things are playing out. Arguably, they might even be encouraged. That’s not good news for Taiwan which sits in Beijing’s crosshairs for ultimate political annexation or military invasion. The bear to watch, in my view, is the China panda bear. We are already seeing the US and Trump caving on rare earths/critical mineral supplies and even the export of high-end AI chips in exchange for a 15% cut of Nvidia and AMD Chinese revenues. Yep, if that sounds like the actions of a Politburo centrally-controlled economy, you’d be very close to the exact definition of same. However, there’s a real danger the US is slipping in the ‘imitation’ stakes of competing in many key technologies.

    We already know China controls close to 90% of electric battery cell production. Its dominance of the entire battery ecosystem from raw materials to processing capacity to battery components looks unassailable. Batteries might not be the only technology of our future racing to Chinese dominance. Research from the Australian Strategic Policy Institute (ASPI) shows that China is now leading the way in 57 out of the 64 technologies assessed by its Critical Technology Tracker, which has been updated to cover the last 20 years. The tracker measures a country’s performance based on the high-impact research it produces, specifically looking at the number of publications its institutions released in the top ten percent of cited papers in that specific field. The data studied was from a range of fields, like AI, cyber, defence, and robotics.

    Yep, even AI might not be the US lead technology you thought it was. Perhaps, looking at share prices and massive AI infrastructure spend by Big Tech might not be the best indicator of future leadership. The WIPO Patent report tracking generative AI patents filed in the period 2014-2023 showed China filed 6x more patents than the US, or 70% of the global total. This feels like a very focused busy China, not quite a playful low-energy panda. Recent visitors to China speak to warp-speed adoption of autonomous transport, delivery, digital currencies, robotics and digital services. Then consider our recent article flagging solar power capacity being built at a rate equivalent to 5 nuclear power stations…..per week!  It’s all about power, political and physical. It’s a language Trump understands, and one wonders has he decided it’s a battle he won’t win? If so, there’s one more focus for the panda.

    Taiwan historically has enjoyed the security protection of the US and its allies in the Asia-Pacific region. Right now, nobody is sure that will continue. China will also be hugely encouraged by the former gameshow host’s preference for transactional relationships, rather than principles or loyalty. Meanwhile, the general risk view in Asia is that we should be very concerned. We missed Ukraine. Dare we miss Taiwan….?

     

  • Are We Ready For Another Banking B-AI-L Out?

    Are We Ready For Another Banking B-AI-L Out?

    Domestic business and investing titan, Dermot Desmond, upset the orthodoxy this week. Ireland’s 500-year plan to build the Metrolink might be cut short, even ended. Desmond suggested the €12 billion urban rail project due to start in 2028 could be a white elephant project superseded by AI and autonomous-driving vehicles. Any bets on the kilometres per annum build speed on this 18 kilometre ‘monster’? Actually, don’t bother. Reflect on China’s average motor expressway construction build of circa 8,000 kilometres per year. Then think about the UK adding barely 65 miles of motorway over the past ….decade. Given the Irish public service obsession with tracking the UK National Health Service or UK Housing/Planning as benchmarks, one shudders to think what our ‘ambition’ could deliver in over-spend and century-shifting deadlines. On a more positive note, AI could be one of the tools which could dig us out of our transport infrastructure black hole.  A bit early to call that one you might say, but I’m beginning to think another crucial economic sector which gets its fair share of criticism is enjoying the halo AI effect. Don’t bank on it but the banking sector is suddenly looking interesting….

    The ”animal spirits” of Wall Street and record financial market highs always help the banking sector. Indeed Wall Street’s banks have just finished reporting quarterly results where trading revenues clocked a whopping $34 billion in Q2, up 17% on the previous year. Yes, the phenomenal gains in AI-focused stocks like Nvidia and Microsoft inflate bank trading revenues and drive increased investment activity but there’s more going on. You might have read about meme-stocks and unheard of companies in the US smaller cap markets (Russell 3000) tripling their share prices since April; 33 companies at the last count and only 5 actually making profits. But, banks as meme-stocks? Really? Well check out the Financial Times headline this week:

    “European banks get their meme-stock moment”

    Not even US banks, but European ones tracking an economic bloc getting its tummy tickled on tariffs by the Fiddler on The Roof of the White House. Can’t wait for the South Park treatment on that one, but back to the FT and European banks. When French banks like Societe Generale see their share prices increase by more than 100% year-to-date then my “spidey sense” tells me this is not about mundane cyclical banking drivers like trading revenues, interest rates or the shape of the bond yield curve. The aggregate European bank sector is up a whopping 40% in 2025 and there could be an (infra)structural driver of this story. Think back to our earlier sniping about Ireland’s struggles on transport infrastructure. Banks have struggled with unwieldy data and service infrastructures which have been a nightmare to upgrade to modern customer expectations. As we have written many times on these pages, the banks sit on some of the richest consumer data on the planet. Critical information on individual and institutional funding, spending and income patterns are in the possession of the banks. What if that data could be mobilised in a far more efficient way using AI and its agentic tools? Like Dermot Desmond’s thinking, could AI allow banks to skip an infrastructure bottleneck? It is early days but let’s take a look at a company you’ve probably never heard about before.

    Palantir Technologies might be named after a Tolkien crystal ball but it looks like its future might be right now, thanks to AI. The Denver-based company has been around since 2003 and specializes in software to analyze or “mine” data. Its early customers were government departments seeking assistance with unwieldy datasets and looking for actionable information. In particular, it gained traction with security/police departments searching for surveillance and predictive intelligence solutions. Sound familiar, or creepy? Park that thought and think banking. Then consider Palantir only just hit quarterly revenue run rates of $1 billion in its most recent results. However, that was enough to make it one of the 20 most valuable companies in America. Stock market investors think it’s worth $440 billion which is bigger than the mighty healthcare player, Johnson & Johnson (J&J) and its 138,000 employees. Yes, if you were wondering if the valuation of Palantir was looking a bit punchy, you’d be correct. Annualized revenues of just over $4 billion (vs J&J’s $85 billion) means the Palantir valuation multiple is currently 110x current revenues. The excitement and valuation is driven by two recurring messages whenever Palantir is mentioned:

     

    1. AI is accelerating the monetization of data infrastructure
    2. AI is reshaping enterprise software and Palantir is uniquely positioned

     

    Palantir is expanding beyond government into commercial sectors like healthcare, finance and energy. The first thing that should strike readers about government and these three specific sectors is that they have enormous customer/user bases. This is the banking sector clue, and possibly its infrastructure B-AI-L out. AI will very likely remove the need for “transition” projects to upgrade data infrastructure and provide banking organizations with valuable action prompts which might even be carried out by AI-agents/bots. That’s a business model ‘Hail Mary’ for the bank sector and Wall Street’s banking analysts are doing something unusual too.

    Typically, bank analysts stick close together and move their recommendations in tandem with their competitor analysts at the other investment banks. Remember, “nobody gets fired if we are all wrong” is an established career strategy for the average analyst. This also means that share price targets set by analysts move in relatively small increments so as not to spook the herd or attract excessive attention to their analysis or models (usually flawed as with all human forecasting exercises). So, I was checking a few market analytics dashboards today and spotted the following:

    KeyBanc target price moved UP from $60 to $100

    RBC Capital  target price moved UP from $63 to $97

    Raymond James target price moved UP from $79 to $95

    Believe me, 25%-65% banking share price target upgrades are not the done thing on Wall Street when TACO Trumpolini is threatening the Chairman of the Federal Reserve Bank on interest rate policy.  So, this is yet another sector to add to your list where the two letter response to any share price move query can be “AI”. However, at a structural level, you don’t need a Tolkien crystal ball to know that technology can transform the commercial prospects of a country or sector saddled with a perceived long-term ‘challenge’. I’m old enough to remember the gloomsters telling us Ireland was destined to perpetual under-development because we had no energy resources and could never compete in manufacturing/building things. Who knew? Maybe, the leaders who finally gave up on Ford in 1984 after welcoming and watching Apple begin manufacturing in Cork in 1980…..

     

  • Time To Think Different

    Time To Think Different

    I must confess I was very jealous. My son met Mike Bloomberg on his visit to Dublin this week, not me. Bloomberg and his eponymous data/media company have always fascinated me as a former customer, and as a financial markets observer. The Bloomberg business is still the gold standard for data analytics, trading communications and news for circa 350,000 financial market professionals who each pay $27,000 per year for the service. The company has been around since 1982 and it has made Bloomberg the owner incredibly wealthy. Uniquely so, perhaps, because it was done in private. If you check the ranks of the wealthiest people on the planet the top 10 features the usual names like Musk, Arnault, Gates, Zuckerberg, Ballmer and Ellison. However, all those names are attached to publicly listed companies which underpin their wealth. Bloomberg is still a private company, and still 88% owned by its founder.

    Think about a SaaS-type business doing circa $12 billion of revenues a year and 88% of the profits (probably 30% + margins) accruing to one person…..since 1982. Officially, Forbes Magazine ranks Mike Bloomberg in 18th place on the world’s richest list with a $105 billion fortune. I’m guessing it’s WAY more than that. But, the bigger reveal is how a private company was able to create wealth over decades without a fluctuating public share price and short-term institutional shareholders demanding it respond to dotcom revolutions, search engines, mobile internet, big data, cloud-based SaaS, credit crises and AI. Privacy gave Bloomberg time and strategic room to act in a different way to the Wall Street ‘crowd’ and its emotional baggage. Indeed, there were a few other reminders this week of how the “crowd” can miss important truths when analysis is dominated by a volatile public share price and human emotions. Remember Cisco?

    If you invested in Cisco this month 25 years ago you would have caught its peak dotcom bubble valuation before boom turned to bust. This week is the first time in 25 years you could sell those Cisco shares at a profit. Ouch. Patience and time is not just the preserve of investors in private illiquid assets. In fact, lack of liquidity can be an investor’s friend when markets are volatile. Fast forward to today and think about how many people sold stocks and bought oil on the weekend news that the US had bombed Iran’s hidden nuclear facilities. Well, the oil price is 15% off its peak price through the Iran-Israel conflict period (or “12 Day War” as named by the bomber-in-chief and Nobel Peace Prize wannabe) and actually below the trading price before hostilities even began. Oh, and the Nasdaq 100 just hit an all-time-high yesterday. For the faint-hearted, that’s a 36% gain for the largest tech stocks over two months of toddler tariffs, broken bromances, Gaza abandonment, WW3 fears, a Russian drone drubbing of its airforce and Love Island shocks. Rather than dodging a “risk-off” bullet, investors have been rewarded for not selling with strong stock market performances this week. It might not sound rational but there’s a very powerful lesson about the importance of “staying in the market”. For investors in publicly listed assets, there is an option every minute to sell and exit the market. But, there’s a cost.

    A piece of research from JP Morgan, studying the returns of the S&P 500 between 2002 and 2022, shows annualized performance(returns) of 9.4%. That’s pretty good. But…..if you missed the 10 best days your return would almost halve to 5.21%. More strikingly, 7 of those 10 best days happened within two weeks of the 10 WORST days. So, if you opt out during the bad periods of volatility you tend to lose out on the big bounces which have a huge impact on longer term performance. The uncomfortable truth is that the best days and worst days tend to occur within weeks of each other. Further angst for many, is that human emotions take over and investors flee for the exits after market turbulence. However, for investors in private assets that emotional self-destruct button is not available given there is no natural daily exit option. There is also another public market reality which leads to misleading comparisons with private asset investing.

    The accepted wisdom or orthodoxy in finance is that investing in early-stage companies has a high failure rate. The text books would suggest that failure rate is in the 70-90% range. That rightly implies that the vast majority of returns for investors in a portfolio of early-stage risky investments is delivered by a small number of investments. However, what is not mentioned in those texts or in plenty of fund investor information sheets is that portfolios of publicly listed companies have a similar story. A study conducted by Professor Hendrik Bessembinder at the Arizona State University Business School shows that just 4% of companies in the US stock markets have accounted for all of the wealth gains since 1926. Amazingly, the average cumulative return of the 29,078 common stocks listed since 1926 was a hefty 23,000% but….the median stock in that time experienced a cumulative return of NEGATIVE 7.4%. Given that’s a median number, that means more than half of all stocks have experienced negative returns. Fund manager, Bailie Gifford, has done further research on this data to identify the key performance drivers of the small number of genuine wealth creating companies. Interestingly, R&D investment was a critical driver. Now, let’s think private and different.

    Clearly, public and private markets are not so different. It’s better to be in the market ALL the time and only a small number of companies in a portfolio deliver the majority of returns. However, in order to capture that opportunity one needs to build a portfolio. It also looks like R&D is important to create a big enough competitive advantage to grow rapidly. We don’t know how much money Bloomberg invested in its famous desktop terminal over the years to effectively “own” the market but we do know he didn’t have to report profit numbers like Cisco to the market on a quarterly basis. So, if we think differently, how can we act differently?

    Well, you don’t need a Bloomberg terminal to tell you that high net worth investors are increasingly investing in private assets. Global giant private equity house, Blackstone, this week stated their belief that “Europe is in a unique position to capture more investment”. Blackstone themselves are going to invest $500 billion in Europe over the next decade. The other data point worth considering is that JP Morgan reckon the mass affluent investor market has just 2% of their portfolios allocated to alternative/private investments. So, this is not a dotcom/Cisco rush into peak investment cycles. There is real early opportunity in private assets and Spark Private can actually help kick start a portfolio very quickly. This summer Spark Private investors will be able to invest in a selection of up to seven R&D-rich medtechs, a few SaaS/software high-growth options, an exciting AI play and some really interesting infrastructure franchises.

    We now know the phrase “timing is everything” doesn’t work when trading public markets. However, we also know if you’re not in, and you’re not diversified, you can’t win. So, think different and think private. Now is an excellent time to combine private opportunity with portfolio-building deal flow.

    ** For further information on Ostoform, SymPhysis Medical, Social Voice, Digital Gait Labs, Tympany Medical, Liltoda, Array Patch or Quadrant Scientific contact us on www.sparkprivate.com

     

  • AI…AI…AI…AI…I Just Don’t Know

    AI…AI…AI…AI…I Just Don’t Know

    I’m going to have to up my game. Not just tennis. As a frequenter of the occasional business discussion panel, this week threw up a very different type of panelist. The Dublin Tech Summit at the RDS hosted a panel discussion on AI which featured contributions from a meta-human avatar created by AI, named Anja. Quite unnerving in a way. If it had been a horse on the panel, I don’t think it would have unsettled me more. Mind you, the no-clothes Emperor Taco Trump guy can’t be far away from appointing a horse to the Senate soon. Anyway, I digress as humans do. Back to AI, and I was thinking it would be no harm to highlight a few significant AI datapoints and developments which have caught my eye in recent weeks. First, the data.

    The Stargate data centre project backed by OpenAI, Japan’s Softbank, Oracle and Nvidia and to be built in the UAE is estimated to eventually have the capacity to consume 5GW of power, For context, that’s the power consumption equivalent of the entire island of Ireland. And, Ireland would already be considered a global leader in terms of data centre capacity as a proportion of the total energy grid, about 21%. Clearly, AI and its critical data centre/cloud infrastructure is moving at pace to meet expected future AI usage demand. The pulse-take on AI investment pace has been chip-maker, Nvidia, who reported quarterly results this week. Revenues for Nvidia (despite Trump China tariffs/blocks) are still growing at almost 70% but this doesn’t quite capture the scale of growth. Two years ago, at the time of ChatGPT’s launch, quarterly revenues at Nvidia were $6 billion. Now, they are at $44 billion. Furthermore, Nvidia plans to invest $500 billion to build AI infrastructure in the US. Note, things have also moved on from  ChatGPT and other Gen AI tools (like Gemini and Claude) as the drivers of AI investment. The big move now is to “Agentic AI” or “AI Agency”.

    Agentic AI is not a pilot or learning model wanting users to test its knowledge. No, this is the real “doing” stuff which companies are now paying to integrate in their work flows. According to CB Insights research, enterprise AI and copilots will generate $13 billion of revenues by the end of 2025 across a variety of activities from sales to coding to customer service. That’s a growth rate of 155% year-on-year and a wake-up call for most companies; the reality is that their competitors are likely deploying AI to dramatically improve productivity and costs. One wouldn’t want to be in the spectator seats for too long and it’s not just a corporate caution. At a sovereign level, Dubai has offered all its citizens free access to the premium ChatGPT Plus service which normally costs $20 per month. The digital information race is truly ‘on’ but there’s also a hardware story emerging.

    OpenAI has just acquired  Jony Ive’s AI hardware start-up, Io Products. The former Apple key man, whose design credits include the iPhone and iPad, will now lead design at OpenAI as the company pushes deeper into hardware. The move highlights a trend of VC-backed companies buying one another amid a shifting tech landscape and a hunger for talent. However, it is worth noting that this is the largest private-to-private acquisition ever at $6.4 billion. Indeed, over 40% (7) of all-time $1B+ private-to-private acquisitions have happened in just the last year. OpenAI, Databricks, and Stripe have each spent over 15% of their total funding to date on acquisitions in the last 2 years. Don’t forget Anja too. Venture capital investment in humanoid robots are estimated to double this year to over $2 billion per CB Insights data. Then consider that there are 660 million people in Asia (average age 27) using digital companions. That disturbing little gem came from anthropologist, Dr Lollie Mancey, in a recent RTE interview and….. I just don’t know. I’m not alone.

    The fascinating story of Irish recycling software company, AMCS, and its $2 billion wealth creation story was told by its founder, Jimmy Martin, at the Renatus/Fitzgerald Power “Real Deal” SME conference in Goffs this week. When asked about AI, he wisely declined to predict the future but did make one very interesting and more definitive point. As a hugely successful observer of ‘margin’ in industry ecosystems, Martin was quick to identify the monopolistic power of the big 3 cloud infrastructure players, Microsoft, Amazon and Google. For me, the unanswered question of who will be the winner(s) will focus on the following :

     

    1. The manufacturers of the critical semiconductor chips
    2. The owners of data centre infrastructure
    3. The providers of energy/power capacity
    4. Sovereign/digital alignment (China, Europe or US).

     

    I really don’t know, particularly the geopolitical/sovereign and energy/power questions. However, I do think it interesting that in recent days companies exposed to the nuclear power industry have seen big share price moves. Not coincidentally, the US and a number of European countries have been embracing a nuclear industry revival at the same time. Plenty to ponder, not all of it comfortable. Isn’t that right, Anja?

  • Big Beautiful Bull Breaks Bonds…

    Big Beautiful Bull Breaks Bonds…

    Here we go again. Toddler throws tariff tantrum again, and then some. I’d say “Happy Friday” but our screens have just puked up a headline about 50% tariffs hitting Europe within the next week. Clearly, the crypto-corruption-fest dinner last night in Virginia didn’t lighten Agent Orange’s mood. Indeed, in the past few hours we have also seen Harvard’s entire international student programme blown up by a planned White House denial of education visas and Apple have been threatened with 25% tariffs on foreign manufactured iPhones. Only a few weeks ago commentators were flagging that trade policy had already changed more than 50 times since Trump 2.0 entered office, rather than a prison cell. One could despair, or even ignore the headlines, but in the bowels of the financial system something is stirring. At first, you’ll be alarmed but there might be an optimistic twist to follow. First, let’s look at the finance stuff.

    The global tail wagging the dog (or DOGE) is the bond market. Specifically, investors in US bonds (Treasuries) are worried about a now centrally-controlled economy run by a fella who almost uniquely bankrupted a casino. There were two events this week which signalled increased investor nerves about US debt and Washington’s ability to rein in its budget deficit. The catalyst was the passing of Trump’s “Big Beautiful Bill” by one vote in the House of Representatives which was a mix of spending cuts for poorer Americans and tax cuts for the rich. Economist, Robert Reich, estimates the have-nots will lose $700-$1000 of benefits (including Medicaid) while the have-yachts in the top 0.1% of US society will pocket an extra $390,000 per year. Sounds ugly, but the bond market is clearly not buying the thesis that making oligarchs richer will benefit the nation overall. Nope, investors in US Treasuries expressed their concern in two ways:

     

    1. US Bonds of longer maturities (20-year and 30-year Treasuries) were sold by foreign investors which resulted in the yields(rates) on those bonds rising. In simple terms, when a bond falls in price, its yield or rate of interest rises to hopefully attract new buyers.
    2. A regular auction of 20-year bonds conducted by the US Treasury was received poorly and forced the Treasury to offer higher yields to attract sufficient investor interest.

     

    The blunt impact of these events is that US bonds are becoming less attractive for investors and so they are demanding higher yields (interest rates) to compensate for the risk of policy lunacy in Washington. Think Liz Truss and lettuce economics and then put on your helmet. The undermining of the credibility of the US bond market is a far bigger deal than turbulence in the British bond markets. The critical point about US bonds is that they are the source of the primary building block in every debt or investment calculation around the world. You will see it referenced as the “risk-free rate” of interest which makes the presumption that the US would never default on its debt obligations. Did anyone say bull…..??? Well, the whole world is beginning to wonder is the next toddler tantrum going to be the stiffing of a sovereign counterparty on a debt repayment. And the casino cracker guy has form. However, it will be US citizens who suffer monetarily first.

    The price of mortgages, auto financing, insurance, credit cards, BNPL rates will all rise as ‘risk-free’ interest rates rise. The scary thing is that the concept of “risk-free” returns on dollar denominated debt being trashed will impact the entire financial system and the calculations of everything from M&A deals to commodity prices.  Hopefully, this might spook the right people in Washington, including the 100 Senators who must vote on the “Big Beautiful Bill” too. There are potentially a few other things that might catch their eye.

    Firstly, credit default swaps (CDS) which this country became familiar with prior to Troika/IMF intervention can measure a sovereign state’s risk of default. Right now, the financial markets (through these CDS instruments) are pricing US default risk higher than…. Greece. Second, somebody might spot a little flaw in the MAGA make- everything-in-America dogma. Sure, the US has trade deficits on goods. But, what about services surpluses? More importantly, and a critical input into all GDP calculations, is foreign investment in US assets. We have written recently on Japan’s position as the world’s biggest creditor/investor in foreign assets. But, do you know the country which has the world’s worst, or most negative, net international investment position…? According to research by Deutsche Bank, that would be the good ol’ USA in the chart at the end of this article.

    Finally, as institutional vandalism is in full swing in Washington, the rest of the world is hoping the independence of the Federal Reserve (the Fed), and its Chairman Jay Powell, can be preserved. Again, there is breaking news and it’s not so good. The US Supreme Court overnight has decided that it is comfortable with the idea of independent government agencies (like the FTC, FCC, EPA etc) being abandoned. Instead, the right-wing constructed court has embraced the idea of a “unitary executive” which means Trump gains control over these agencies. However, the majority decision of the court stated that the Fed was not covered by this judgment.  For now. There is perhaps a wider perspective than Fed independence. If US rule of law is under threat, that will ultimately feed into US bond market weakness. Bonds are, in effect, a legal contract between the USA and investors. And, I’m quietly hopeful international bond market investors are going to be bullying quite a few US Senators before they vote…..and understand the impact of the chart below.

  • Japan’s Secret Private Power….

    Japan’s Secret Private Power….

    Thirty three years ago I was slightly ahead of George Soros in battering Sterling (GBP) out of the European exchange rate mechanism (ERM). In time terms only. I left the trading bit to the Japanese banks who I witnessed on the Tokyo trading floor of broker, Meitan Tradition, wield financial power like the world had never seen. Sound a bit Trumpy?  Yes, but unlike the Orange trade toddler, this was all attached to financial reality. In fact, nine of the ten biggest banks in the world at the time (September 1992) were Japanese. And, that night those banks tried to buy every German Deutschmark (DEM) on the planet, sharing the view of Soros that the British government would give up defending Sterling (against the DEM link) and pull their currency from the ERM. They were right.

    Soros and the hedge funds got the headlines but traders in every global trading centre knew who really moved the markets and broke Sterling. Fast forward to today, another financial sage, the greatest of them all, Warren Buffett is retiring and rightfully grabbing the headlines. However, one of Buffett’s final significant trades was to build 10% stakes in five of Japan’s biggest trading conglomerates. We referenced this in the first of our Japan series of articles and promised more on the investment environment and why the smart money is quietly returning to Tokyo trading floors.  So let’s start with the public markets.

    Japan’s stock market has suffered infamous ‘lost decades’, and it was only last year that the benchmark Nikkei index recovered to previous peaks and marked a new all-time-high. It took 34 years. However, the recovery of Japan’s stock markets has been accelerating in recent years and Buffett first started building equity positions in 2019. Change in corporate behaviour has been slow, but the following initiatives have been considered the key catalysts:

     

    *Japan Corporate Governance Code: Introduced in 2015 by the Tokyo Stock Exchange (TSE) as a set of principles to improve long-run value creation and encourage engagement with shareholders. Previously, Japan Inc had a notorious reputation for rejecting any strategic/governance or ownership challenges through “poison pill” defensive tactics.

     

    *TSE “name and shame” pressure: In early 2023 the TSE asked companies with poor ratings (valuations with a price-to-book ratio (PBR) of below 1x) to disclose initiatives they were making to improve ratings. In main street terms, a PBR of less than 1x is effectively the investment market saying the company is destroying value and therefore the book value is in decline, rather than creating wealth. In financial terms, returns running below the cost of capital destroys wealth. 

     

    So, did it work? Yes, slowly but surely, Japanese companies started to address return on capital, shareholder dividends and non-core holdings dragging performance. For example, Toyota started to offload cross-shareholdings in companies like Denso and KDDI. Then Obayashi, one of the biggest construction companies increased its dividend. Finally, share buybacks, which were extremely rare in Japan’s corporate world, have exploded. In 2024 more than $100 billion of buybacks (from existing shareholders) were committed to by companies publicly listed in Tokyo. That’s a 75% increase in this shareholder-friendly activity on 2023. And, there’s lots more to come. Consider the following:

     

    *The price-to-book (PBR) of Japan’s entire stock market is barely 1.3x. That compares to the US market on 3.9x.

     

    *There are at least six sectors in Japan where average PBR is below 1x:  banking, insurance, utilities, basic materials, autos, and auto parts.

     

    Please note these companies can remain cheap forever if investors believe there is no possibility of improved returns and strategies. So, there needs to be confidence in the ability to influence change. Of course, the ultimate barometer of change appetite is the willingness to accept new owners of a business. And, that’s where private equity activity and the buying out of publicly listed (cheap) companies is the pulse check on CHANGE actually happening. Let’s just say things are quite giddy. Activity really picked up with the 2023 buyout of the iconic blue chip firm, Toshiba, by local private equity house, Japan Industrial Partners(JIP) for $14 billion. That set the tone for M&A activity in Japan to grow by 44% to $230 billion in 2024(Source: Nikkei Asia), and the involvement of private equity houses has been striking.

    In previous times Japanese corporates would have considered it “a loss of face” to be seen meeting and exploring investment from “the barbarians at the gate”. Now, it’s very much game on and Japan Inc is increasingly open to private equity investment.  The big buyout battles have featured the usual global giants like Blackstone, Bain, Carlyle, Elliott etc but the acquisition targets in recent months have been a fascinating mix of $60 billion convenience stores (7-Eleven), $4 billion software (Fuji Soft), $8.5 billion cybersecurity (Trend Micro) and $42 billion auto parts (Toyota Industries). The last deal does not actually involve private equity but is in fact a potential acquisition by Toyota Motor Corp. It’s the sheer size of this deal which caught the eye and also a reminder of the cash firepower in Japanese listed companies. Two things to consider:

     

    *Cash held on Japanese corporate balance sheets is estimated to be more than $2 trillion, or almost 50% of Japan’s GDP.

     

    *Despite market reforms and 80% compliance with TSE “name and shame” pressures, almost 50% of Japanese listed companies (TOPIX) are trading at PBR valuations of less than 1x.

     

    This mix of cheap underperforming companies and enormous “dry powder” of cash on balance sheets is incredible fuel for both corporate and private equity buyout activity. The US since 1996 has seen the number of publicly listed companies decline from 7,300 listings to just 4,300. In Japan, the opposite has happened with 3,900 companies now listed and adding about 100 companies per year. I could see that trend reverse as private equity and corporates increase acquisition activity (and take public companies private) but there’s also another potentially massive driver of public assets moving into private hands. We have written about demographics before, but we haven’t considered the seismic and more rapid financial transfer going on in Japan right now.

    According to a Japan Times article written back in 2020, the country was about to embark on a wealth transfer never experienced by any other country in history. Between the years of 2020 and 2030 it was forecast that $5 trillion would transfer to Japan’s “Millennial” generation via inheritance. That’s $500 billion per annum or more than 10% of GDP every year for ten years. We have previously written about the $14 trillion of savings by Japan’s households (50% of it in passive cash) but this active $5 trillion wealth transfer is highly likely to lead to changed financial behaviours and riskier investment targets. The local millennial generation watching private equity activity take off must be tempted to get involved. Indeed , local capital (JIP) has shown what’s possible with the Toshiba take-out. Europe might be tempted to get involved too. Not necessarily with a Japan focus. But, recall Mario Draghi’s EU Competitiveness Report last year and its recommended financial policy changes for the following:

     

    • Infrastructure project funding
    • Innovation investment of €884 billion, mostly from venture capital.
    • Strengthening the Capital Markets Union (CMU) across the 27 jurisdictions
    • Revitalizing the securitization market to improve the financing capacity of the banking sector.

     

    Bluntly, Europe has been poor at putting risk capital to work. However, the experience of Japan and financial market reform has been extremely positive in driving domestic and foreign investment capital into its corporate assets. So, there is recent precedent. But, is there the money? Well, try this for starters – a 2021 report from X-Wealth forecasts a wealth inheritance transfer of $3.6 trillion across all of Europe by 2030. Maybe the demographic  “Japanification” of Europe won’t be as scary as some think. In fact, the future is looking increasingly private.

     

  • Tech Up And Smell The Coffee

    Tech Up And Smell The Coffee

    Japan is the number one coffee-to-go consumer in the world. It wasn’t always so. For 12 centuries the Japanese were a tea-drinking nation while a stigma attached to coffee and its miniscule 1% market penetration. Early commercial attempts to expand coffee consumption in the 1970s were a disaster. Contrast that with today where Japan’s best-in-world urban centres are served by a massive coffee culture. In fact, 48% of all coffee consumption is coffee to-go beating the likes of the US (45%), Australia (23%) and UK(17%) to global top spot. What happened? Well, Nestle spent a fortune in the 1970s and failed. Then, they hired a child psychologist. Nestle knew the existing tea culture (ceremonies, 90% domestic presence etc) was in the national DNA so they ignored the adult consumer and focused on youth tastes. Literally taste. They didn’t sell coffee.

    Nestle sold coffee flavoured candy, then snacks, then ice-cream. Of course, kids grew to love the flavour. By the 1980s vending machines and canned coffee were everywhere. In the ‘90s, when I was living in Tokyo, the marketing push had entered “genki drink” territory  associating nostalgic childhood flavour with increased productivity and professional success. Fast forward to today and the 30-year re-wiring of Japan’s taste buds has created a coffee market worth $12 billion consuming 7 billion cups annually (Source: Statista). So, as my Bullet train races away from Hiroshima, I can’t help thinking about generational shifts and how advanced technology (A-bomb) was part of a nation’s destruction but was adopted by subsequent generations to lead its future. Japan might be considered conservative but there is a boldness attached to their use of technology. World-leading in fact.

    Japan might be considered a strange leader-location for cryptocurrency payment/usage given its reputation as a cash-preferring economy. Wrong. Most of my trip payments here have been done on my phone but there’s more to report. In a number of retailers I have seen iris-scanning orbs supporting the Worldcoin crypto ecosystem set up by Sam Altman (OpenAI founder). For me, the big evolution to come in crypto/blockchain is payments ie the ‘currency’ actually being used. To date, the emphasis has been on cryptocurrencies and stablecoins as stores of value or investment instruments. Interestingly, there is a strong piece of Japanese DNA which lends itself to the use of tokens instead of cash. Ever heard of Pachinko? Here’s what we wrote about it back in 2023…

     

    “Ever heard of Pachinko? If not, this game’s annual revenues might surprise. Estimated annual revenues of $200 billion are more than ten times those of the NFL! Pachinko is a ball game too but it’s a vertical pinball game played in Japanese gaming arcades. Players twist wheels to steer descending small steel balls into cups which trigger a prize-winning payout of more balls which, in turn, can be exchanged for cash or small prizes. Gambling for cash is illegal in Japan but this low-stakes, low-strategy game exploits a legal loophole and is 30 times bigger than the annual gambling revenue of Las Vegas, as well as twice the size of Japan’s export car industry.”

     

    The key point is that entire Japanese generations have grown up exchanging prizes/tokens for cash. Not surprisingly, I note that Japan’s three biggest banks – Mitsubishi UFJ, Mizuho and Sumitomo Mitsui – plan to integrate stablecoins, blockchain and digital ID into their use of the SWIFT cross-border payment platform. My suspicion is that Japan is going to lead on payments which is the ultimate route to crypto commercial penetration. And, they culturally ‘get’ tokenisation, as well as providing Bitcoin with its pseudonymous founder name, Satoshi Nakamoto. So, if you smell Japanese opportunity, it might not just be you. It could be a robot. Seriously.

    Yep, our digital world has been built on two digits: 0 and 1. So, how can a robot smell? Japanese robotics company, Ainos, has installed its AI Nose in a humanoid robot built by another Japanese robotics player, Ugo. The collaboration introduces a new class of robots that can perceive the world not just through sight and sound, but also through smell, enabling them to make more intuitive and intelligent decisions that will transform industries, public health, and everyday life. The new robot combines a high-precision gas sensor array, real-time signal processing, and advanced AI algorithms to identify and digitize a wide range of scents, turning them into unique “Smell IDs.” Clearly, this is big news for life sciences precision manufacturing, elder care, gas safety etc. Again, it should not be a surprise that Japan is leading in robotics.

    Japan dominates the global robotics market with a 40% share of global exports. No fear of AI here. Of course, given the demographics of a shrinking workforce, it has become a social necessity as Japan turns to robots to care for its elderly population. Like crypto and blockchain payments (vs investment), robots are the natural next step for AI adoption. Nvidia’s CEO, Jensen Huang, is on record as saying that the “ChatGPT moment for robotics is coming…. I can’t imagine a better country to lead robotics AI revolution than Japan. This country loves robots”. Japan also has buckets of engineering talent. Almost 50% of global industrial robots are made by 3 Japanese giants – Fanuc, Yaskawa and Nachi-Fujikoshi. But….Nvidia knows these AI powered robots will need advanced semiconductor chips. Japan might have the latest manufacturing answer in a world where tariffs, supply chains, China decoupling and Taiwan are an increasing source of business worry. So, Japan is going technology “bold” and fearless again.

    Build it and they will come is a tried and failed tech commercialisation strategy. However, Japan is making a $67 billion bet on its semiconductor chip industry without securing any customers yet. Specifically, the Japanese government has passed legislation to allow it to invest in chip manufacturing start-up, Rapidus. The homegrown chip maker is due to produce the smallest chips in history (2 nanometer size for improved performance, density and efficiency) in its Hokkaido-based facility, backed by $27 billion of investment from heavyweight Japanese corporates like Sony and Toyota plus a design collaboration with IBM. In fact, IBM has made very clear that Japan as a next-generation chip manufacturer is “good for the world” given the global economy’s dependence on Taiwan and China for chips. The first chips are due to be produced from the Hokkaido plant in July (rumoured to be for Broadcom) and the latest reports suggest Apple and Google are in talks with Rapidus too. Watch carefully as this would be a massive chip comeback for Japan. On a broader level, Japan Inc can look forward to a re-assessment by global business as a stable supply chain partner with a healthy respect for international trade agreements. Who knew healthy democracy would be a business winner in 2025….? But, we do know health is big.

    Japan is already a leader in the $6 trillion wellness industry with its outsized presence in the personal care/beauty, healthy food/nutrition, wellness tourism and spa infrastructure sectors. However, one senses demographics, AI and robotics will combine to significantly increase Japan’s investment focus in the medtech sector. Typically, European and Irish medtechs have looked to the US for product market entry and venture funding. That will continue, but watch out for an increasing Japanese investment profile. We are often asked by Spark medtech investors “where will the exit come from?”. Well, Japan might need to be added to the list. Indeed, Digital Gait Labs (currently raising funds through Spark) tick those AI, wellness and elder-care boxes very nicely. As for Japan’s investment power, there are a few things you need to know.

    Japan is effectively the biggest creditor or banker to the world. There’s a reason why the Japanese can actually buy more coffee to-go than America and…. intimidate its President. Japan is hugely wealthy. The Japanese population holds a whopping $14 trillion in financial assets, or almost 5x the GDP of France. More strikingly, half of these assets are in cash or deposit accounts. That’s almost 50% of the EU GDP waiting to be used…… possibly by the next less-conservative generation. For me, this is the generational “coffee” wealth moment to start showing opportunities to Mrs Watanabe and her children. And, there’s an early leader.

    We recently wrote about ChatGPT/AI company, OpenAI’s funding round being the biggest public(IPO) or private raise in history. What we didn’t mention was that the lead investor was Japan’s Softbank who have committed $30 billion to the AI trailblazer. Softbank is an investment holding company led by Masayoshi Son whose career has been chronicled by ex-FT editor, Lionel Barber. The book is a fascinating read and the title, Gambling Man, hints at the highs of Alibaba, DoorDash, Uber and Slack as winners but also the losers like WeWork. However, the tagline of the book title tells us more –  “the world’s greatest disruptor.” I strongly believe Son has planted the “risk seed” in this generation of Japanese investors like Nestle did in the ‘70s with coffee. Japan has got “the taste” of private early-stage equity. Now, the rest of us need to show them candy with the same “unicorn” taste as Son has pursued. No psychologist is needed this time, just on the ground observation. Then action. We need to tech up, and show up.