The Investing Edge

Roku's dud of a quarter echoed both Snap's report from the week earlier and the start of the pandemic as the sudden advertising slowdown hit them as well. The issues with Roku go beyond the quarter, starting primarily with how much harder it is to understand the details of their business. Will this quarter force a change? And what else does the advertising slowdown mean for the market? We discuss on this week's The Razor's Edge. Topics Covered 3:30 minute mark – Breaking down Roku’s wipeout 11:30 – How important is the advertising wipeout in general 19:30 – Whisper numbers and the Roku black box 31:30 – Will this force Roku to be more transparent? The Twilio example 39:30 – What makes Roku more interesting? 55:00 – The death of never sell

It’s all happening: Elon Musk filed to terminate his deal to buy Twitter, Twitter sued him for specific performance, and now the trials begin. Today, not a trial actually but a hearing to see whether the trial should take place on Twitter’s requested timeline, in September, or Musk’s requested timeline, in February. Still, the two sides are starting to show their hands. While much of this ‘negotiating’ has been done in public, the filings were still revelatory. So, as we approach the endgame of the endgame, Akram's Razor and Daniel talk about what we learned, what happens next, and who has a stronger hand; though I don’t think you’ll be surprised by our conclusions if you’ve listened to us before.  Topics Covered 3:30 minute mark – Initial takeaways from the filings 12:30 – Twitter bot approach and response 15:00 – Breaking down Elon’s breach filing 23:30 – Takeaways from Twitter’s filing 29:00 – Recutting a deal and the Anaplan parallel 48:00 – Musk’s motivations and laziness 1:00:00 – What happens next? 1:09:30 – The “the court wouldn’t risk being ignored” argument 1:14:00 – The prisoner’s dilemma result of an actual acquisition 1:18:00 – The size of the deal 1:28:30 – Last thoughts

On this week’s The Razor’s Edge, we talk about the bear market. It’s here, it’s real, so now what? Neither Akram nor Daniel are in an apocalyptic mood, so we explain why we’re not, what green shoots there are on the supply side, what risks there are on the demand side, how this echoes 2020 (or not), how much crypto contagion worries us, and why it’s tricky picking individual names. Topics Covered 2:00 minute mark – An apocalyptic moment? Maybe not 10:00 – Is supply solving itself just as demand is weakening? 20:00 – The energy pullback – why was it predictable 23:00 – The echoes of March 2020 30:00 – Crypto contagion and its risks 38:00 – Opportunities in the current market 48:00 – What if inflation doesn’t slow down? 52:00 – The challenge of individual names and the hopes for a quiet summer

This week's episode picks up where last week's The Razor's Edge episode left off. We talk the current whipsaw/whiplash macro environment, where a smaller, often over optimistic social media company can trigger a panic, and then news that is no worse than expected can fire up a bear market rally. We discuss tech stocks, retail stocks, and whether it's possible to be too bearish or too bullish as the winds shift.

In part two of our recording this week, we get to Elon Musk and Twitter. Both because how can we not at this point, as the drama continues to unfurl, and also because Akram makes the case for this as a good merger arb play given the strength of contract law. We talk about whether Musk can work his way out of this and why Akram thinks he can’t, and what the next steps of the saga should be, along with a whole lot more. Topics Covered 3:00 minute mark - The logical aspects of the Twitter case 13:30 - Twitter's setting up to go the distance, and the bots issue 30:00 - How material is the bots case 35:00 - What are the next steps, and the role of the equity partners 43:00 - Past precedents 50:00 - The outstanding risks to Twitter as a company and to Tesla as a stock 1:00:00 - Quick comments on the retail sector

Markets are in turmoil, and we almost busted out the siren. But instead of commemorating the second bear market in the Razor's Edge's lifetime, we focused on whether, actually, growth stocks might have bottomed. In an episode recorded Sunday, May 22nd, we talk about the growth stock washout, whether sentiment or operating momentum has bottomed, whether ZoomInfo makes sense as a short and Zoom Video makes sense as a long, and the peer pressure that a lot of investors, famous or not, have faced in the past couple years. This is the first of a two-part episode, as we'll get to the Twitter story tomorrow or Wednesday. 3:00 minute mark – The pending bear market, and have growth stocks already washed out? 8:00 – The ZoomInfo short and picking on the last high flyer standing 14:00 – So is this a bottom? 21:00 – Sentiment bottom vs. operating momentum bottom 33:00 – The recession/slowdown shoe to drop 38:00 – Zoom’s “soft landing” problems 43:00 – The two Zooms 52:30 – The turning tide among big-name investors and the peer pressure market

Tech as a sector has been a theme of the Razor's Edge from the beginning. Tech as a sector to avoid has been a theme of the Razor's Edge for at least the last few months. While there have been exceptions and nuances to the sector, the market has shown little interest in nuance, as this week's earnings have made clear. Juniper Networks, an old dot com bubble victim and survivor, has been an exception to that rule. A name Akram's Razor wrote up as a long thesis late last year, Juniper is up for the year as it has a few points in its favor: an upgrade cycle, a reasonable valuation, and operational momentum in the Wi-Lan space thanks to a winning acquisition. We discuss the company's prospects and why it is an exception to the tech rule, and also the legacy of tech sector sentiment shifts and a lot more. Topics Covered 2:30 minute mark – The upgrade cycle driving Juniper 7:30 – Why the company has stagnated for so long and why that is changing 13:00 – The Wi-LAN opportunity and kicker 18:00 – How is Juniper handling the backlog 21:30 – Relative performance for Juniper and its risk/reward 27:30 – The dot.com legacy and the recent momentum 31:30 – How the networking and virtualization corner of tech fits into a broader tech bucket 35:30 – Tech shifts in sentiment, and a Microsoft case study

We planned to do another episode this week, but on a different tech stock. We did indeed record that episode, but at the same time, with all the developments around Twitter - the board's adoption of a poison pill, Elon Musk's discussion of his bid during a Ted talk, and Jack Dorsey's subtweets of the board, among other things - we decided to discuss the situation. Akram's Razor posted a case for why Twitter's Endgame is at hand. Daniel had questions. And with this being a fast-moving situation, we are sharing it quickly. The second half of the discussion, on a different tech company, will come out later this week. Topics Covered 3:00 minute mark – How the surrounding situation has changed and the case for the Elon Musk offer 15:30 – Why the current price of offer is ok and avoiding anchoring 28:00 – The private company angle and Twitter’s needed transformation 40:30 – Jack’s presence in all of this  

A lot has happened since we last published a Razor’s Edge episode: the outbreak of war, increased Fed hawkishness, and continued market volatility. We pick up the thread we’ve been following for some time, though: how to understand ‘normalized’ earnings power and behavior amidst the Covid-19 pandemic, the global response, and all the knock-on effects. We focus this time on the consumer goods sector and whether the cliff facing companies like RH and Best Buy is buyable, and what it says about the current market. We also, because how could we not, discuss Elon Musk’s investment in Twitter (though this was recorded a few hours before the news came out that he would not in the end serve as a director on Twitter’s board). Topics Covered 4:00 minute mark – Recent ups and downs 7:30 – Whither online spending 13:00 – The Consumer’s health and the consumer goods cliff – BBY, RH 23:00 – How much has the market already considered this all? 36:00 – Backlogs to save us 40:00 – Dive in or stay away? Revisiting travel 49:00 – The complicated consumer picture 54:00 – Twitter and the Musk situation 1:03:00 – The value of a corporate jackhammer 1:09:00 – The security analysis challenge Reading List: Akram's Razor's Edge: Covid Cliff Comes to Consumer and Fast's WeWork Moment Freight Waves' Why I believe a freight recession is imminent Stripe's Annual Report

Last week was a wild one. Given we’re not in a period of acute crisis, and that the market finished higher on the week, the swings from Wednesday to Thursday to Friday were especially pronounced, even before you throw in Monday’s comeback rally. The triggers to those moves? At least on the surface, big tech earnings. To figure out what’s happening there and what these outsized moves say about the companies involved and the market as a whole, Akram’s Razor and Daniel break down Google, Amazon, and Facebook’s earnings. We talk about the market set up, whether this is as good as it is going to get for these companies, and why no one predicts a massive growth slowdown in their compounding business line. Topics Covered 2:00 minute mark – Initial reaction including the muted note with Google 7:00 – What explains the outsized moves 14:00 – The nature of Amazon’s segments 18:00 – Facebook’s issues and how they might overcome it 30:30 – Peak online time 36:00 – AWS’s future growth 46:00 – Is this what slowdowns look like 1:00:00 – The market set-up

Happy New Year! Though this week’s The Razor’s Edge touches on what may not be the happiest start for people investing in software names or tech more generally. So what’s going on? We throw together a bit of recent and longer-term history, a bit of market sentiment analysis, and some opinions on what might still work, to see why a shift has been coming for a while and why there might be more to come. Topics covered 2:00 minute mark - Did the first week mark a change or a continuation? 10:00 – The momentum juggling game 13:30 – What’s triggering the shift? 20:00 – End of a software cycle and finding an investor base 28:00 – Tracking companies’ evolutions 36:30 – Consensus buys vs. taking a leap of faith 48:00 – Multiple gravity has changed towards the slow and steady 57:00 – The 00s shipping bubble as a parallel 59:30 – Navigating the factors and the importance of getting the cycle right 1:11:30 – Sectors to watch 1:17:00 – Importance of perspective 1:21:00 – The nature of competition when all eyes are on a trend 1:35:00 – Not quite validation for permabears either      

We pick up this week's conversation where last week's (and so many of our past episodes left off) - what about Twitter, at this price, in this economy? We talk about the succession decision and why the set-up for the incoming CEO, intentionally set or not, is pretty attractive. We talk about Elliott Management's role in all this, and what they might be thinking about Twitter at this stage. We talk about downside and sector performance, and then we circle back to last week's discussion on the overall market volatility and why buying great companies irrespective of price can lead to more than the occasional pothole, even if the ride as a whole may turn out successful enough. Topics Covered 2:45 minute mark – Twitter’s valuation and the set up for new CEO Parag Agarwal 8:00 - The succession decision 14:00 – Other considerations for this move 22:00 – The downside at this point for Twitter 25:00 – Elliott’s role in all of this 29:00 – Sector movements 34:00 – Market considerations 40:00 – Places to avoid 45:00 – Extreme outcomes when buying a good business 49:00 – The ongoing volatility event in the market

Docusign’s sell-off on Friday and the corresponding market (and Nasdaq) sell-off are the latest sign of market uncertainty. No one knows anything – as Monday’s rally reminds us – but the question is whether we know we don’t know. In this week’s The Razor’s Edge, we focus on the uncertainty in the market, the importance of valuation even when growth stocks work, and how to handle the volatility. This ends up being a two-parter, as we will get to Jack Dorsey’s exit from Twitter in the second part next Tuesday. Topics Covered 2:45 minute mark – Docusign initial take 5:00 – Ringing the bell or the rolling sell-off 14:00 – Inflation and the macro in context 21:00 – Buy and hold and contrasting investing styles 24:00 – Starting SaaS multiples 35:00 – Limited entry point 43:00 – Bubble basket challenges 51:00 – Triggers and bottoms Some references: Daniel’s Docusign article Akram’s SaaS tweet Akram’s Zoom tweet

We wrap up our Future of Compute series with a leading force in the field, Naveen Rao. Rao founded Nervana Systems, the first next-gen AI chip company, which he sold to Intel. He then drove Intel's AI road map before stepping down from the company in 2020, and just recently announced the founding of MosaicML, an AI startup focused on making algorithms more efficient through what he calls here a 'benchmarking as a service' approach. Given his interest in AI stretching back over two decades and his front seat position in the field, Rao's perspective on the competitive landscape, on how things have changed from Nervana to Mosaic, and the challenges facing merchant silicon firms is both valuable and a nice wrap-up of the three part series. He gives his take on the Nvidia/ARM deal, Intel's position, the supply chain, and a lot more. Check out MosaicML, as well as their twitter account and Naveen's. Topics Covered 2:30 minute mark – Naveen’s entry into the AI world over his career 6:00 – What did people have to learn about neural networks? 8:00 – The goal of Mosaic 14:00 – View on the current landscape 17:30 – The model Mosaic is targeting 20:30 – The significance of Nvidia’s A100 and shift to AI dedicated GPUs – the field in 2016 26:00 – The field in 2018 32:30 – How to look at the AI market today 38:30 – The challenges facing legacy merchant silicon makers 45:30 – Can the industry continue to develop with such a fragmented environment 51:30 – Intel’s reaction to the current climate 55:30 – Where are the IPOs? 1:04:00 – Tesla’s D1 Chip and AI ambitions 1:12:30 – The Nvidia/Arm deal 1:15:30 – Supply Chain challenges

This week we take a break from our Future of Compute series on the Razor’s Edge to talk Peloton. In an earnings season full of big moves and surprises, Peloton's downhill fall has been one of the headline events. As we mention on the call, who would imagine that COVID would still be a part of our lives, but Zoom and Peloton shares would be flat from June 2020? And yet, here we are. We break down how management may have backed themselves into a corner and what it would take for Peloton to climb again. We also get into how this is a signal of the pandemic-related challenges that still face many companies in a market that, despite continuing to rise as a whole, has seen more and more companies hit potholes. Topics Covered 2:30 minute mark – Peloton’s earnings fiasco 8:30 – The business model and the bull case 15:00 – Did Peloton’s management set themselves up for a fall?   21:00 – The permanent changes vs. trends in the broader U.S. economy 27:30 – How to recover from lost credibility 35:00 – Where does upside come from 40:00 – How Peloton can stabilize/turn it around 48:00 – The narrative momentum 56:30 – Market dispersion 1:01:00 – Last call on Peloton, and comparison to Zoom 1:16:00 – The challenges exiting a pandemic and investing meanwhile

The accelerating growth in the AI market requires different approaches from the hardware side. Cerebras's approach is that size matters and bigger is better: the company's massive wafer chip is the base of its AI intentions. CFO Tony Maslowski discusses the company's core insights and how that positions them to compete in the market. Maslowski, the former CFO at Avago Broadcom, also shares his view on the current supply chain challenges, on when these new-gen companies might go public, and on what the end game might be for the incumbent - Nvidia - and its challengers. Topics Covered 3:00 minute mark - Cerebras Origins 7:00 – Unpacking Cerebras’s core insight 10:00 – How has the market evolved the past few years? 14:00 – Telling a new story and carving a new path in the chip space 21:00 – System vs. accelerator solutions 22:45 – Current end markets for AI 29:00 – Differentiating between AI and supercomputing 33:00 – Understanding training vs. inference 36:45 – The fragmentation of AI uses and suppliers 41:45 – When do these companies start coming public? 43:45 – The limits or challenges on competing for a new company 46:45 – What force drives AI use in the near term? 48:45 – The lost flexibility in the semiconductor supply chain 53:45 – The auto industry’s chip needs 55:00 – Where the leading force in the chip industry will come from

The semiconductor industry is in a period of transition. Supply chain problems and questions over whether we are now in a secular growth environment; changing leadership as Intel loses ground and Taiwan Semiconductor, Nvidia, and even a new generation of start-ups stake out a claim; and the new demands posed by Artificial Intelligence and its burgeoning compute needs. We're rolling out a little Future of Compute series to cover this. We speak with several executives and experts in the field to hear what the state of semiconductors, technology usage, and artificial intelligence from the hardware and software side looks like. We kick off with Jeff Wittich, Chief Product Officer at Ampere Computing. Wittich, like several of his Ampere colleagues including CEO/founder Renee James, is an Intel veteran. Ampere’s aim is to develop server chips designed explicitly for cloud usage, using an ARM chip framework, with the target of delivering much greater power efficiency. They seem to be gaining traction, with the most recent evidence being reports SoftBank is considering an investment in Ampere at an $8B valuation. We speak with Jeff about Ampere’s journey, about why now is the time for Arm-based chips in servers, about how hyperscalers shape the industry’s demands, the state of semiconductors, and of course a bit on Intel and its challenges. Topics Covered 4:00 – Ampere’s story 6:00 – What does a cloud focus mean for a chip maker? 11:30 – ARM’s experience in the data center world 16:45 – Why now for ARM-based server chips? 19:30 – TSM’s passing Intel and Intel losing its data center advantage 24:30 – The role of the hyperscalers as pace setters for cloud hardware 28:30 – Can Intel hold onto a shrinking datacenter TAM? 30:30 – The inflection point in the competitive landscape 35:00 – The in-house vs. outsourcing question for AI companies 41:00 – The inference vs. training distinction and the role of the CPU 47:00 - Optimizing for AI workloads 50:30 – How is Ampere lasting when other companies quit 55:30 – Supply chain outlook 58:30 – Risk of a cyclical downturn? 1:01:30 – Lightning round and edge vs. cloud

*** Before you listen, there is a The Razor's Edge newsletter now available. Written by Akram's Razor, the Razor's Edge will come out at least twice a month and include ideas, analysis, macro input, and the insights you would expect from this podcast. Check it out at: https://the-razors-edge.ghost.io *** We revisit three The Razor's Edge names from 2021. Alibaba is down in the dumps from regulatory scrutiny, Stitch Fix can't get no respect, and Twitter received a negative sell-side initiation. We talk about each of the stocks, and while on the surface it would seem that nothing beyond stock performance and our interest unites the three, there are a lot of echoes in how the market is looking at each of them, at least from our vantage point. Topics Covered Alibaba 3:30 minute mark - Why the recent regulatory reports around Ant Financial aren’t shocking 10:00 – US corollaries for the current discussion 14:00 – Last year’s warning 18:00 – The significance of the FT report and how it might help Alipay’s/Alibaba’s position 22:30 – The impact on Alibaba’s valuation itself 26:30 – China regulators vs. U.S. regulators 33:00 – Time horizon for clouds to dissipate Stitch Fix 38:00 – Why is Stitch Fix so bad? Reviewing the story, valuation, stock, etc. 49:30 – The stylists’ news 53:00 – The market context for SFIX’s stock Twitter 55:30 – The Goldman downgrade and the confusion about Twitter from bulls 1:02:00 – Reframing the creator tools 1:08:00 – Blurring lenses in analyzing Twitter (or all of these names) 1:12:30 – The luxury of not having the market’s trust

*** Before you listen, there is a The Razor's Edge newsletter now available. Written by Akram's Razor, the Razor's Edge will come out at least twice a month and include ideas, analysis, macro input, and the insights you would expect from this podcast. Check it out at: https://the-razors-edge.ghost.io *** PagerDuty has been a regular topic on The Razor's Edge for over a year, and this month's earnings seemed to reward that attention, as the company crossed the magic 30%+ revenue growth barrier for the first time since the pandemic began. To get more details on what drove that acceleration and what might come next, we spoke with Howard Wilson, PagerDuty's CFO. We talked about the macro climate driving PagerDuty's opportunity, the competition they are seeing and why they remain confident about it, and what product expansion looks like. Justen Stepka, regular Razor's Edge guest and formerly of Atlassian and Docker, joined us, and the conversation went deep on strategy, tactics, and opportunities across the board. We think you'll get a lot out of this episode.   Topics Covered 3:45 minute mark – The second derivative effect 5:45 – What’s driving growth? 8:15 – Where is the sales focus? 9:45 – How the free tier fits into the business 13:15 – The power of the freemium model for PagerDuty 16:00 – The changing competitive stance and field 19:30 – Success in competing as a public company so far 22:30 – What is the future revenue growth strategy? 26:15 – PagerDuty network opportunities 29:45 – Customer sizing and how far penetration can go 37:45 - Pricing tiering potential 40:30 – Security Ops as an opportunity 42:15 – Long-term operating leverage

The quick hit re-open trade of January/February came and went. The U.S. is facing the delta variant of COVID-19 in full, which has shaken out some of the fast money from the travel sector. And yet... On this week's The Razor's Edge, we talk about why we think, in different ways, that the travel stocks are set up well for this year and beyond. There's a bit of the macro, a bit of a take on delta's persistence, and a lot more on Booking Holdings and Boeing as our focus companies. The full picture may not be clear, but we make a case for why there's enough visibility to make a bet at this point. Topics Covered 2:30 minute mark – The travel sector’s air pocket 7:00 – The delta factor 12:00 – The contrasting set-up between travel stocks and COVID winners this earnings season 15:30 – Booking Holding’s relative advantages in travel 22:00 – Thinking about Booking’s valuation 27:00 – Boeing’s situation and the 737 MAX and so on 30:00 – Portfolio positioning at this stage in the market 33:30 – Resetting on the macro outlook 40:30 – The deflation in inflation talk 43:30 – The importance of focus with more public names out there 47:30 – The lurking presence of the crypto trader 53:00 – The incremental news flow for travel 1:02:00 – The Covid market pendulum