Thank You, Big Tech

Big Tech companies are here to save us—and not just from having to go outside and touch grass. Increased energy supply for the whole grid is coming, sponsored by your personal data.

October 22, 2024

Silver banana goes to…

In this issue of the peel:

  • Big Tech companies are here to save us—and not just from having to go outside and touch grass. Increased energy supply for the whole grid is coming, sponsored by your personal data.

  • Spirit Airlines was SAVEd from bankruptcy, but not how you’d expect. Boeing had its first good day since the last time a blind squirrel found a nut, and the parent company of Vans and North Face has a new hater. So does UPS.

  • Americans continued fleeing California faster than the state’s houses are sliding into the ocean and flocked to Texas and Florida faster than a hurricane.

Market Snapshot

Banana Bits

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Macro Monkey Says

Thank You, Big Tech

At least we know people are listening to us.

I guess I shouldn’t be surprised, given that The Daily Peel is the confirmed most popular and influential media empire in the world. But I didn’t expect our advice to go nuclear.

Weeks after talking about the importance of nuclear energy, every Big Tech company is hooking up with a nuclear energy firm. That’s great for the surge in energy demand from AI and is arguably even better for the economy as a whole.

Let’s get into it.

What’s Happening?

It takes an average of 10x more computing power to handle a query on ChatGPT compared to a non-AI Google search. In other words, it takes 10x the energy.

With LLMs set to become some of the most basic AI use cases compared to the applications expected to come online in the next few years and decades, anticipated energy demand is through the roof.

According to estimates from Goldman Sachs, AI applications could cause a 31% increase in U.S. energy demand by 2030. Globally, Goldman expects an increase of 21%, again from AI alone.

In recent weeks, Microsoft, Alphabet, and Amazon have entered agreements with various energy and utility companies to supply nuclear power to meet the extreme energy demand their AI applications need and will need.

It’s no surprise to see the kings of cloud and AI leading the charge (no pun intended) into nuclear for the seemingly selfish reason of powering their own applications. 

But, the deals struck by these thieves of our personal data offer an implicit societal dividend as well. Allow me to explain.

To power their plans for world dominations, our overlords have signed corporate Power Purchase Agreements (PPAs) with firms like Constellation, Dominion, Kairos, and X-energy.

The way these deals work is complicated and each one varies, but the important aspect for our purposes today is the addiionality included in these deals.

Basically, all additionality means is that the power from these nuclear reactors funded by Microsoft, Google, and Amazon is not going directly to the companies themselves—it’s simply an expansion of power inputs to the entire local grid.

The advantage received by these tech titans is that 1) local grids will have enough power to support AI applications and 2) the purchase agreements give these firms a fixed price that’s expected to be a discount to the average market price over the 20+ year lifetime of these deals.

In addition to AI’s expected societal benefits (or absolute, hellish chaos and destruction), the coming increase in energy demand incentivizes firms with godless amounts of capital to invest in expanding power capacity for us all.

This is a prime example of those “positive externalities” your nerd professor was talking about back in Macro 101 class.

Doing just about anything to contribute to the economy requires electricity. The cost of that electricity is not just a key input to every economic decision—from when to turn the heat on in your house to how much fuel airlines buy—it is the key input.

So, if you can decrease the cost of generating electricity, you dramatically lower the hurdle rate for ROI when it comes to investing in projects for economic growth.

For example, it’s a lot easier for municipalities to build new airports or companies to build new distribution centers when it costs less to power their construction and operation.

Therefore, the lower a country’s cost to generate one unit of electricity, the easier it is to expand GDP growth and increase residents' living standards.

With that in mind, it makes sense why the countries above with the lowest energy cost—China, India, Argentina, Russia, Turkey, etc.—are also experiencing the fastest GDP growth. 

Each of these countries has also been able to decrease energy generation costs on an annualized basis over the past two years, which is hugely beneficial to economic development.

It is crucial for the United States to remain economically competitive in the coming years and decades if it wants to remain the holder of the global reserve currency and maintain geopolitical supremacy. 

Arguably, the most important factor in doing so will be decreasing energy generation costs.

Right now, the average cost to generate 1kWh in the U.S. is $0.18, more than double that of China at $0.08/kWh and the others mentioned above. The only way to become energy-cost competitive is to ramp up the supply of cheap, efficient power sources.

The Takeaway?

In other words, the U.S. should scale the absolute f*ck out of a cheap and efficient supply generation method, exactly what Microsoft, Google, Amazon, and more to come are doing by investing in nuclear power projects.

There is not a standard, straightforward correlation between reducing energy generation costs and the degree to which this increases GDP growth. But the trend is clear.

Whether they intend to do so or not, these investments in nuclear energy generation capacity should provide enormous benefits if scaled enough to sustainably reduce nationwide energy costs. 

In other words, shoutout to Big Tech firms for saving America. As long as you keep my heating bill low, you can steal all the data on me that your heart desires.

Career Corner

Question

Yesterday, a banker replied to me asking when I would be available to talk. I gave him times for today, but then it seemed like he forgot about me. How would you recommend following up? He said that he could not talk any time after today.

Answer

Hi [name],

I hope you’re doing well! Given the upcoming holiday, I wanted to check if it might be more convenient for you to schedule our chat after the holiday period. Since my schedule is flexible, I could talk from 9 am to 9 pm ET throughout the rest of the summer. Please let me know what works best for you.

Looking forward to our conversation!

Best,

[name]

Head Mentor, WSO Academy

What's Ripe

Spirit Airlines (SAVE) 53.06%

  • In horrific news for legroom on airplanes across America, Spirit Airlines will not be going bankrupt… yet. The company just bought itself two more months.

  • Yesterday was the deadline for Spirit to refinance $1.1bn in debt, but the airline struck a last-minute deal to push that deadline to late December.

  • In other words, this is the first good delay an airline has ever had. Investors were hyped as the firm is not dying, but they’ll be right back where they were by Christmas. Maybe this deal with Malcolm not in the Middle can save the day.

Boeing (BA) 3.11%

  • Just like how broken clocks are right twice a day, Boeing sometimes can go 24 hours without shooting itself in the foot. Yesterday was one of those days.

  • The beleaguered (to say the least) aerospace and defense company reached a tentative agreement to end the ongoing strike of the firm’s machinists.

  • A vote to solidify the deal is set for Wednesday but is expected to go through as it gives a 35% raise, a $7k signing bonus, and more retirement contributions.

What's Rotten

V.F. Corp (VFC) 7.24%

  • The parent company of brands loved by hipsters and middle schoolers alike, including North Face, Vans, and others, has a new hater on their hands.

  • As a lifelong hater of Vans, I was pleased to see JPMorgan add the brand’s parent company, V.F. Corp, to its “Negative Catalyst Watchlist.”

  • Pointing to “wholesale challenges” and “ongoing traffic headwinds,” JPMorgan cut their FY’2025 EPS estimate, leading to the downgrade and yesterday’s selloff.

United Parcel Service (UPS) 3.38%

  • From Boeing to the longshoremen in the ILA to the teamsters union UPS workers are in, these employees asking for “livable wages” is getting really annoying.

  • In addition to that “new” labor deal signed last year, there are quite a few dynamics ongoing at UPS that triggered a downgrade to Underweight from Barclays.

  • Barclays sees softer demand, falling pricing power, and “difficult year-over-year cost comparisons” as reasons to sell shares, maintaining their $120/sh price target.

Thought Banana

California Texas Dreamin’

Waking up in Long Beach to a view of the sun and ocean, along with the usual chorus of SSRI-fueled celebrities, has long been the dream of Americans wishing to live in the Golden State.

However, in recent years, that dream has been swapped for one of low/no income taxes, less (and/or less aggressive) homeless people, and chicken fried steak.

Let’s dive in.

What Happened?

Instead of just remembering the Alamo, Americans are moving there… in droves… still.

The Census Bureau just published its data on where Americans moved to and from in 2023. The homies at Sherwood News put together the above chart to show where we were running to and escaping from.

The top 5 most moved-to states by absolute numbers in 2023 were:

  • Texas: +133,372

  • Florida: +126,008

  • North Carolina: +106,592

  • South Carolina: +68,667

  • Arizona: +62,533

…and the top 5 most moved-from states last year were:

  • California: -268,052

  • New York: -178,709

  • Illinois: -93,247

  • New Jersey: -69,179

  • Massachusetts: -39,513

Goes without saying why someone would want to leave New Jersey, but the states Americans are fleeing from share one trait driving residents out more than anything—a high cost of living.

And it’s not just taxes causing that either. For example, as a former North Carolinian now in Massachusetts, I pay less state income taxes here in MA. But that is quickly compensated for by higher average housing, grocery, and utility costs, among others.

Places don’t just become “high cost of living” in a vacuum. Usually, there is something in these locations that makes them more desirable. In the above moved-from states, this includes access to largely the best weather, information economies, and education.

Then… they reach a tipping point, as seen now after getting unveiled by the pandemic.

If these trends continued for long enough, we could expect a full-scale reversal where an influx of residents to Charleston, Austin, Sarasota, Raleigh, or Scottsdale pushed up prices and created the exact problem emigrants were escaping.

The Takeaway?

Americans are still choosing a lower cost of living in states with a little more space to spread out over potentially greater access to economic and educational opportunities.

In this economy, I sure as hell don’t blame them… especially for leaving New Jersey.

Maybe if more states had a similar system to Alaska, where residents are paid $1,000/yr to live there, they wouldn’t have this issue. Except, it would cost a lot more than a grand every year to stick me in Jersey. 

The Big Question: How long will current state-to-state migration trends last? How long does it take for the current low cost of living areas to become high-cost?

Banana Brain Teaser

Previous

If the sum of the reciprocals of two consecutive odd integers is 12/35, then the greater of the two integers is?

Answer: 7

Today

In a certain sequence, each term after the first term is one-half of the previous term. If the tenth term of the sequence is between 0.0001 and 0.001, then the twelfth term of the sequence is between?

Send your guesses to [email protected]

❝

Demography is destiny.

Auguste Comte

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Happy Investing,
David, Vyom, Jasper & Patrick