Progress, XB100 Deep Tech List

XB100 Deep Tech List – Bessemer

I enjoyed reading this list of the 100 leading deep tech companies by Bessemer Venture Partners as well as the intro letter. Bessemer is also known for maintaining the Cloud 100, the leading 100 public cloud companies.

While the list is probably repetitive for many, it’s useful to be aware of, for example, the top three fusion companies: Commonwealth Fusion, Helion, and Tae (which I hadn’t heard of). Helion has signed a PPA (power purchase agreement) with Microsoft to deliver fusion power. Fusion is still a decade or more in the future, but that timeline is down recently from multiple decades. Sam Altman from OpenAI is a Helion co-founder.

The important factor here is that many of these companies are successfully executing on some pretty outrageous new technologies. This week SpaceX launched a capsule by Varda that will manufacture pharmaceuticals in microgravity starting next week. Manufacturing in microgravity is also useful for fiber optic cables, which could dramatically reduce the cost of underwater cables that support global interconnectivity. Quantum computing is last on the list in terms of readiness while robotics are more or less ready for prime time. If this subject interests you, the intro letter is worth reading.

Progress

When a company’s worth rises just because people are willing to pay more for it (multiple expansion), markets rise, but so does the risk of a market drop. While multiple expansion explains some of the 2023 rally, there is in fact real positive earnings growth and earnings expectations growth happening under the surface. Cost-cutting and continued growth areas like AI, data centers, networking, and other tech and software themes play a significant role. Apple sits at the top of its historical valuation, a well-earned position, while Meta, Amazon, Google and Tesla are in the lower range. For market rallies to sustain, the underlying fundamentals need to support it, and that is happening in certain cases.

This raises the question about the Fed continuing to raise rates. We are at the tail end of the rate hiking cycle, and inflation has slowly and surely trended down in the US and abroad. Further rate hikes come at a significant expense to the government budget. We haven’t started the narrative about how much these rates cost. It’s a real problem, so at this point, it’s a matter of time for it to surface in the media.

Earnings growth and market rallies represent progress. Rallies increase business confidence and may even signal that IPO markets are ready to pick up again. IPO volumes are roughly half their pre-covid levels, following the dramatic 3-5x increase in 2021. It takes time to digest and absorb these extremes. Economic challenges today are more diversified compared to this time last year. When market risk converges on a single factor like the onset of Covid, or rate hikes, it creates significant market stress. Markets are better at absorbing diversified risks. Also, volatility is not the same as risk.