- The market capitalization of an investment is dependent on the distribution of ownership and liquidity. Squid Game’s popularity is so powerful it spawned a new currency… that promptly went to zero.
- Interoperability refers to compatibility between software systems and data sets. It’s an essential component of the future of our interconnected digital world.
- ASML semiconductor manufacturer is likely the most important company globally and perhaps one of the most impressive as well.
Market Caps, Distribution of Ownership and Liquidity
What makes a market cap? Tesla’s current market cap (market capitalization) is among the largest globally, at $1.2T, with a share price around $1200/share. Elon Musk owns around 17% of the company, worth nearly $200B at today’s prices.
Nassim Taleb wrote in Dynamic Hedging, “the market is a large movie theater with a small door.” Too much buying or selling causes markets to soar or crash. In Tesla’s case, the average daily trading volume is equivalent to about 3-4% of the company’s value. If Elon were to liquidate all of his shares in one day, there would not be enough liquidity available and Tesla’s stock price would crash in dramatic fashion. In this case, large holders like Bezos, Musk, Gates, etc., cannot liquidate their shares without causing significant economic challenges for all other shareholders, including employees.
You may have heard by now about SquidGame coin, which experienced an epic -100% crash over the weekend. Squid Game coin is a cryptocurrency named after the popular Netflix TV show. SquidGame coin prices skyrocketed from $.01 to just north of $2800/coin, with a total supply of 800,000,000 coins indicating a market cap of $2.2 trillion – nearly double Tesla’s market cap. Within 5 minutes, that price dropped from $2800 to $0.01. We call this a rug-pull, when the founders crash their market and run away with the proceeds. If we look at the holders of DOGE coin, 45% of the supply is held by just 14 people. If those DOGE whales sold all of their holdings, they would also instantly send the price of DOGE to $0. Since DOGE trades at a market cap of $50B, with low distribution of ownership, how reliable is the $50B market cap? Not very reliable at all.
In short, a market cap is only as good as the distribution of ownership and the market’s liquidity.
When Mark Zuckerberg recently laid out his thesis for the future of the metaverse, he said, “In order to unlock the full potential of the metaverse, there needs to be interoperability.” This was an interesting statement because Facebook is not known for its leadership in open data sharing.
Interoperability refers to compatibility between software systems. Interoperability refers to data shared between programs and users that exist on different platforms. In the video game world, this would be the same as moving your car, spaceship, outfit or in-game currency into another game. As we start to build a metaverse, the virtual recreation of our physical world, you can imagine that you would want to bring your virtual “stuff” between the different platforms.
It’s easy to see how restricting interoperability can create a monopoly. In the current Web2.0 world, where almost every application is free (Google, Facebook, LinkedIn, etc.), interoperability is not currently an obvious pain point for consumers. However, in the Web3.0 world, people spend real money buying virtual Bored Ape NFTs for $250,000+. You can see how users will become increasingly frustrated in the near future if they aren’t able to carry their $250k purchases from one system to another. Interoperability makes the internet a more diverse and user-friendly place. Preserving interoperability standards should help spur innovation and competition. If you’re really curious about this topic, you can read the Interoperability whitepaper published this year by EFF.
ASML – Quite Possibly The Most Important Company In The World
MIT Technology Review published another great deep dive last week, this time on one of our favorite semiconductor leaders: ASML. ASML manufactures the machines that semiconductor fabrication plants (fabs) use to build the chips that go into every one of the top of the line computer products for Apple, Google, NVidia and many others. ASML is the only company in the world capable of producing the level of precision required to make the special chips that power the latest version of your iPhone – the M1 chip, for example.
The level of precision within ASML’s machine is truly unbelievable, and it’s earned them a monopoly position within the semiconductor equipment business.
ASML machines use EUV – Extreme Ultraviolet Light with a wavelength of 13.5 nanometers, just above an x-ray. It took ASML 17 years and $9 billion in R&D to build a working EUV machine. The machines must operate in a complete vacuum as even air particles will absorb the EUV light waves. Their machines hold 11 magnifying lenses polished for months via an ion beam that knocks individual molecules off to create the most precise surface in the world.
The EUV light that powers the machine is produced by firing tin droplets just 1/3rd the diameter of a human hair into a chamber. Each droplet is tracked via a camera and hit with a laser beam at the perfect moment to turn the tin into plasma heated to 500,000 Kelvin. This process repeats 50,000 per second (not a typo). The tin plasma droplets emit the EUV light used to burn patterns into the surface of the silicon wafers to create logic gates used in your phone. Even if you want to replicate this process, you can’t do it without extensive in-field experience and critical global partnerships with other elite manufacturers. ASML shipped its first EUV machine in 2017 after first embarking on this EUV project in 2000.
The world’s three leading chipmakers: Intel, Samsung and TSMC have become as reliant on ASML as the rest of the technology industry is on their chips. Canon and Nikon, the only other two competitors in the space, are no longer pursuing EUV technology. ASML’s commitment to R&D puts them ahead of everyone in the industry.
Trump and Biden have successfully prevented ASML from selling their machines to China, creating a severe disadvantage for the Chinese technology industry. Apple and NVidia would not be able to ship their latest products, and Google would not be able to continue to refine its AI models without the capabilities invented and implemented by ASML. One could argue that our global reliance on ASML’s innovative products makes it one of the most important companies of the modern world.
delivered to your inbox
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.