Data Sheet—What Happens Next to Tech Stocks Worldwide
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Good morning, and welcome to a week in which politics will trump business.
And yet there’s so darn much going on, particularly in the tech sector.
In fact, this likely will be a week of reconciliation as the market digests the horrible performance of tech stocks in October. Specifically, they’ll focus on the problematic earnings reports last week from Apple and Alibaba. A glitch attributable to human error—I am that human—resulted in Data Sheet readers getting Aaron’s excellent observations about Apple’s earnings on Friday rather than mine. I had written my observations Thursday evening, and we published them on Fortune.com Friday. I suggested Wall Street may look back at the violent reaction, down 6.6%, to Apple’s revised iPhone unit reporting as a blip.
More troubling still was Alibaba’s report. Similarly to Apple’s, it reflected an outstanding quarter completed but pointed to weaker results ahead. More to the point, Alibaba’s results speak directly to a slowing Chinese economy. As Breakingviews smartly noted last week, if the upcoming “Singles’ Day” online shopping celebration disappoints, there will be even more pain for Alibaba.
What explains all this bad tech news? The Wall Street Journal editorial page suggested, before the Apple and Alibaba news, that the plunge in tech stocks is a normal rotation away from riskier tech companies as interest rates rise and sturdier assets become more attractive. The Economist posits that how the slowing economy plays out in China is of paramount interest for all capital markets.
I have a fairly long recommended reading list for you this morning. If you’re half as interested as I am in the right way to do media product development, one short and one long article are worth a look. The review in The New York Times of its own parent company’s outstanding quarter, in which it reached four million total paid subscriptions, is the epitome of smart execution in a trying environment. New York Magazine’s feature on The Skimm, which has seven million nonpaying subscribers, also inspires. The irrepressible Yves Behar is at it again with a startup that provides modular housing.
My hunch is that most readers of The New Yorker in California will vote for Gavin Newsom for governor. This article won’t make them feel particularly good about their vote as it paints the state’s next leader as a distracted, insecure talking-point machine.
Finally, The Economist editorialized, in unusually strong words, in favor of the U.S. electing a Democratic House of Representatives as a counterbalance to Donald Trump. Noting the toxic political American dialogue, the magazine writes: “Mr. Trump did not begin this abasement. But he has embraced it as enthusiastically as anyone and carried it to new depths of his own devising.”
Champagne on ice. It's almost here...Amazon's second headquarters location announcement, that is. On Saturday, the Washington Post, owned by Jeff Bezos, reported that government officials in its D.C.-Northern Virginia locale were in "advanced discussions" to be the location of HQ2, as most bettors have assumed for a long time. But on Sunday, the Wall Street Journal said "late-stage talks" were ongoing with at least Dallas, New York City, and Northern Virginia's Crystal City. The leaks prompted Amazon exec Mike Grella to strike back on Twitter: "Stop treating the NDA you signed like a used napkin." Bezos himself says he'll be guided by intuition: "You immerse yourself in that data but then you make the decision with your heart," he said at a conference in New York last week. Back in Seattle at HQ1, Amazon decided to give free shipping to everyone for the holiday shopping season, by the way.
Follow this logic. President Donald Trump says his administration may fine big tech companies over antitrust violations because Europe did. "They fined I guess it was Google, billions of dollars, and frankly I don't like that they're doing that because that's an American company," Trump said in a TV interview that aired on Sunday. "I don't think it's good that they're doing that. But if anybody does that, it should be us doing it," adding in a follow up that the idea is "certainly something we're looking at." Speaking of Google, more than 20,000 Google employees and contractors walked out of offices around the world last Thursday to protest sexual misconduct and a non-inclusive workplace culture, organizers of the protest said. Employees in 50 cities, making up about 20% of Google's total employees, took to the streets.
Fast follower. The first iPhone didn't have 3G wireless but Apple followed up a year later with the iPhone 3G that included 3G. Sounds like the company might be following a similar timeline for 5G. Other phone makers are planning 5G devices for 2019 but Fast Company reports that Apple will debut with the faster network technology in 2020 using an Intel modem. Also, a report out of Asia claims Apple has told its suppliers to cut back on production of the iPhone XR (though similar supply chain rumors have proven unreliable in the past).
Side channel. Next year looks like it could be big for initial public stock offerings in tech, but not all the rumored candidates may be ready to go. “We have no specific timeline for an IPO,” Slack Stewart Butterfield tells Fortune. “We’ve been on a path to public company readiness for several years now and we’re continuing on that path.”
Side stepping. The murder of Saudi journalist Jamal Khashoggi was "horrible" but won't change SoftBank's relationship with the Saudi government, CEO Masayoshi Son said on his company's earnings call on Monday. “As horrible as this event was, we cannot turn our backs on the Saudi people as we work to help them in their continued efforts to reform and modernize their society," Son said in his first public remarks on the murder. SoftBank's Vision Fund includes $45 billion of Saudi investment.
Undo. The name of Apple's CFO is Luca Maestri, with a "c," and CEO Tim Cook does not typically make an ending statement on the company's earnings calls. Our apologies for the mistakes in Friday's essay.
FOOD FOR THOUGHT
Many artificial intelligence programs have struggled to learn games where the rewards of winning aren't straightforward. The non-profit OpenAI lab run by Ilya Sutskever in San Francisco has been experimenting with imbuing their A.I. learning agents with a sense of curiosity. Instead of just trying to score more points, the program is rewarded for discovering new parts of a video game. But the technique doesn't always work as intended, as James Vincent explains in a deep dive at The Verge:
Another issue is the “Noisy TV problem,” which is where AI agents that have been programmed to seek out new experiences get addicted to random patterns, such as a TV tuned to static noise. This is because these agents’ sense of what is “interesting” and “new” comes from their ability to predict the future. Before they take a certain action they predict what the game will look like afterwards. If they guess correctly, chances are they’ve seen this part of the game before. This mechanism is known as “prediction error.”
But because static noise is unpredictable, the result is that any AI agent confronted with such a TV (or a similarly unpredictable stimulus) becomes mesmerized. OpenAI compares the problem to human gamblers who are addicted to slot machines, unable to tear themselves away because they don’t know what’s going to happen next.
This new research from OpenAI sidesteps this issue by varying how the AI predicts the future. The exact methodology (named Random Network Distillation) is complex, but (Harrison) Edwards and his colleague Yuri Burda compare it to hiding a secret for the AI to find in every screen of the game. That secret is random and meaningless (something like, “what is the color in the top left of the screen?” suggests Edwards), but it motivates the agent to explore without leaving it vulnerable to the Noisy TV trap.
IN CASE YOU MISSED IT
Meet the Women Deciding Where Your Scooter Can—and Can't—Go By Emma Hinchliffe
Elon Musk Just Gave the First Peek of His Boring Tunnel By Hallie Detrick
The Latest Threat to Crypto Prices? The Federal Reserve By Jeff John Roberts
BEFORE YOU GO
He called them "optons" and "lectons." We call them e-books and audiobooks. Polish science fiction author Stanislaw Lem foresaw quite a few of our modern high-tech conveniences. He was also pretty up on fake news and the Internet. Who could have guessed?