It’s been more than two years — going back to the start of the Covid pandemic — since I have been able to do a deep dive of Silicon Valley. But over the past week I was able to reconnect with many executives, CEOs, and market insiders in CNBC’s San Francisco bureau, and I was blown away by what I learned and how different things have become. It is all pretty shocking compared even to the beginning of 2020. I want to give Investing Club members an exclusive look at my observations and impressions of the global center of the technology industry. I narrowed it all down to 15 core takeaways. They should inform many of your investing decisions; I know they will inform ours in my Charitable Trust portfolio. 1. The mood is very negative … Unlike the positive vibes pre-pandemic, there is an entirely different mindset. I detected an unrelenting gloom and worry, mostly based on the fears of a recession. Words matter: Jamie Dimon ‘s ill-advised use of the word “hurricane” to describe the economic troubles awaiting us is on everyone’s lips. When people say you can talk yourself into a recession, sadly Dimon, the CEO of JPMorgan Chase , will be Exhibit A for the prosecution. Many wanted to know what I thought about the performance Federal Reserve Chairman Jerome Powell . When I tried to emphasize the positives, most scoffed. 2. … and most believe a recession is unavoidable. There was near unanimity that we are facing the “R” word. The only questions were related to the downturn’s depth and length. No one would listen to any different narrative. Most figure it will be deep and long. The price of gasoline was a regular talking point. The inevitability of the decline in property values came up quite often. There was an explosion of macro concerns. 3. Nobody blames China for our troubles. Many believe the economic damage from Russia’s war on Ukraine and China’s Covid lockdowns will persist. And I didn’t get any sense from sources that the Chinese were wrongheaded in their approach. There is great deference to China among the hardware-making people. That’s likely because there’s a lot of business to be done when things reopen. Almost everyone is all in on China in one form or another — either through manufacturing or through customers. I got very few nods when I suggested that China was flat-out stupid in the way they are handling the pandemic. But I was loathe to criticize them for their views. 4. There is a stunning change in the balance of power — with one exception. In the beginning of 2020, there was tremendous awe for — and respect given to — the old FANG stocks: Facebook, now Meta Platforms (META), Amazon (AMZN), Netflix and Google, now Alphabet (GOOGL). The only FANG we don’t and never owned for the Trust is Netflix. (The acronym I coined was later expanded to FAANG to include Apple (AAPL), which is also a Trust holding.) Facebook was presented as an evil colossus, striding the Earth with its nefarious views and conduct. Now Facebook is viewed as a pitiful helpless giant — a phrase used by then-President Richard Nixon 52 years ago to describe our nation if it descended into his own view of anarchy. Meta CEO Mark Zuckerberg , once feared for his wrath, is now more of an enigma: He’s working on a project, the metaverse, which many think is a waste of time and money. These execs view the company as increasingly irrelevant, almost vestigial. When I argued otherwise, sometimes viscerally, I was viewed as being out-of-touch with the current dogma. As many believe in the recession thesis, Meta’s outsized dependence on advertising is now viewed as an Achilles’ heel. Amazon used to be feared and respected. There was a sense that founder Jeff Bezos once viewed the way Tesla (TSLA) CEO Elon Musk is now. Bezos could do no wrong and the company was always one step ahead of everyone. Now it was almost like Amazon didn’t exist. The company never came up. When I probed, people came back with a sense of irrelevancy. They would rather talk about the direct-to-consumer model as a disrupter of Amazon’s dominance. There is a bit of glee and schadenfreude here. Many seem relieved that Bezos is no longer in charge because Amazon, including Amazon Web Services, is just one of many. Netflix is derided as decidedly one trick. Many mentioned that it costs too much to be Netflix. Others brought up that they no longer presume a new Netflix series will be the topic of water cooler conversation like the old days. So many just thought, like with Amazon, that not only is it not dominant, it is one of many players that won’t make a lot of money going forward. Google, however, is still revered. It never lost any luster and the company is regarded as “the good guy.” People love management. They often mention CFO Ruth Porat as the grownup, the person who really gets it and is honest and strong and can be a terrific spokesperson for the industry. Google also seems to be the company where people want to work. The respect for this company is pretty extraordinary, whether it is from the omnipresent Waymo self-driving cars to the ever-improving search product to the power of its advertising model that is viewed as without peer. This company is the dominant company of FANG. 5. Tim Cook and Apple are much loved … There is a sense, 11 years since the death of Steve Jobs , that this is Tim Cook ‘s company and it is vibrant with the iPhone at everyone’s hand. I didn’t think this was possible even three years ago when I heard endlessly that Cook hadn’t developed much that is new. I didn’t hear anything like that this time around. What I heard was astonishment with how Apple never stops inventing. There’s a belief that Apple+, which started slowly, will surpass all other streaming services over time. There’s a tremendous amount of respect for Apple’s products and they are widely used here. Almost everyone wore an Apple watch and spoke with AirPods Pro when they chose to spoke on the phone. 6. … and Microsoft isn’t. Microsoft is viewed as a bit of a bully, and a not very competent bully at that. Its software was universally panned. Its cyber defenses are weak. People actually root for Slack and would love it if Slack were to supplant LinkedIn. I thought the contempt excessive but I was viewed as out-of-touch for thinking so. Azure was accepted as a neutral force. CEO Satya Nadella was feared by some as being far more aggressive than he seems. The enmity was visceral and nearly unanimous and it was often regarded as odd that I didn’t share it. 7. The semiconductor space is viewed as too crowded. Many said semiconductors, to some degree, are uninvestable for the moment. Advanced Micro Devices (AMD) CEO Lisa Su and Jensen Huang, the CEO of Nvidia (NVDA), were often cited as visionaries and winners and their stocks were closely watched, if not invested in. (Both stocks are owned by the Trust). That was odd given the concerns people have about the group. I think it is because everyone is waiting for China to open up. There is an undeniable sense that the industry itself will come roaring back because of the insatiable demand for chips of all kinds. The love for Jensen Huang is based on both his genius and his kindness and youthfulness. The respect for Lisa Su comes from her knocking Intel from its pedestal and uprooting it from all of the profitable markets. Intel CEO Pat Gelsinger is a bit of an enigma. He is widely viewed as someone who is righteous and forthright, but messianic in nature and not realistic enough about how far behind Intel really is from 2009 when he left for VMWare. I think that people want to see Gelsinger spend more time at the company than in Washington. But I also think he is respected for his desire to bring semiconductor manufacturing back to the United States. Overall, though, Gelsinger is derided because Intel keeps missing quarters and yet he seems to want to spend fortunes to build the company back. Respect to speak out in the Valley comes from making quarters, not missing them. Gelsinger is correct to try to restore the reputation of Intel as a dominant force, but incorrect to think that the company currently is one. Perhaps most intriguing? The stocks in the segment that are viewed as the most undervalued are the semiconductor equipment makers. There are only a few of them, but they control the production of precious cargo. Over and over again, I hear people speak positively of Lam Research as a cheap stock and if we didn’t own so many darned semis I think I would welcome the stock to the Club’s Bullpen . The company is regarded as part of a cycle, but it has become secular in its makeup and yet few seem to realize it. That makes its stock an even-bigger buy. Foundries are viewed as just a so-so business. Semis that have too much cellphone or low-end PC business are dismissed as also-rans. Harsh judgments all. 8. There is genuine concern about the VC industry. People are worried about the venture capital firms and about companies that are not yet public. They feel that this group is a source of vulnerability — not just to the Valley but to the entire economy. The VC-Wall Street complex that exercised no discipline and let anything come public is derided as something that should have known better. But it has been a long time since the dotcom bubble burst in 2001. Many people view the non-public companies as hopelessly overvalued and should be marked down. I heard nothing but bad things about pretty much every company that has come public in the last two years. Anyone who did a SPAC (special purpose acquisition company) is considered a fool. Many expect a multitude of companies to go under, both public and private. VC firms are regarded with contempt and many wonder why the government isn’t doing more to demand realistic prices for private companies. 9. The Valley thinks crypto is a con. I could not find anyone who considers crypto as anything but a ridiculous romp, and the purveyors of it outright charlatans. Some wonder how the federal government has allowed this industry to go unregulated. Non-fungible token (NFTs) are regarded as a joke. I got the sense that the Valley thinks crypto is a con and the promoters are fools who have taken an awful lot of money from the unsuspecting. Along the same lines, many were curious about how Robinhood can stay in business and whether it is simply an app for kids. Scathing. 10. SaaS is an overvalued commodity. There is a sense that software as a service (SaaS) that helps companies measure and analyze anything is yesteryear’s investing theme and one quarter away from being finished. When I somewhat vehemently disagreed with this, I was greeted with a “just you wait” admonition. The skepticism was often centered around Salesforce (CRM) and what they regarded as a company that will ultimately run out of steam. Many knew I had it in my Charitable Trust and wanted to know why. The explanation is two-fold: First, as someone who ran a consumer business I found it invaluable; and secondly, if it is so irrelevant why does it consistently beat the numbers. 11. Many own Teslas, but find Musk insufferable. Tesla CEO Elon Musk is disliked as an arrogant bully. Some of that stems from his treatment of Parag Agrawal, the CEO of Twitter , who is uniformly regarded as a nice, good man who should be given a chance. For all their bluster, CEOs in the Valley live by the rules of the Securities and Exchange Commission, especially those who have a lot of stock-based compensation. And they do not like Musk’s contempt for authority, especially the SEC, which they are always concerned about. Musk used to be revered out here. Now he is regarded as a self-aggrandizing, but accomplished, multiple-company CEO. 12. People want out of San Francisco. Workers in the Bay area find work from home, wherever one is, quite liberating. They like to meet face-to-face and they wish younger people would show more respect for the institution. But they also want to work from their vacation homes. I sense that many want to move their companies away — to Austin, to Ohio, North Carolina, Florida, and most importantly, Atlanta. This whole theme was a major topic of conversation. No one seemed to want to be here. The area is too expensive and it gives employees, especially young employees, too much opportunity. Execs believe that if their company was in Texas or Indiana they would find excellent, more talented, less-spoiled individuals for a lot less money. This all means layoffs for engineers. There are just too many of them and they aren’t all needed anymore. The first real layoffs will be in the Valley, before the rest of the country. The surfeit is palpable and many just can’t find a job. I expect real estate prices in the area to peak after a long ride up. 13. There was a remarkable sadness about the Biden presidency. Many view the Joe Biden administration as accomplishing nothing. When I mention that there is the same resistance as usual, and the Republicans can frustrate pretty much everything, they often contend that’s not the point. It’s Biden’s contempt or lack of respect for leaders of business that rankles. Many feel scorned after supporting the man. This issue was always discussed with whispers, because there were no friends of Donald Trump who spoke politics. But many here expect the Republicans to crush the Democrats in the midterm elections and are wondering who will replace Biden as the Democratic standard bearer. I don’t talk politics; others always brought these issues up — not me. 14. U.S. technology companies are more dominant than ever. For all the negativity I heard all week, many think that the U.S. is truly pulling away from tech around the globe, including, if not especially, China. The schism with China has led to less stealing simply because execs are trying to avoid building things there. Europe is regarded as almost hopeless, made worse by the Russian war. There is a disbelief about how Germany could have been so hoodwinked by Russia when it came to energy. 15. Tech execs are really worried about stocks. West Coast players fret over sinking share prices — their own and others. They think that the market has it wrong and that they are doing well and will continue to do well. They just don’t get the shrinking price-to-earnings ratios. They worry about their compensation. They think most definitely that I am too negative even as I regard myself as neither too bullish or bearish. And yet they are pessimistic about the future. They know how they are doing and wish they would be rewarded for what they do with higher stock prices. Selfish enigma? Perhaps. Or just a belief that we are off the rails as a nation and yet their businesses remain strong. I agree. (Jim Cramer’s Charitable Trust is long AMD, AMZN, CRM, GOOGL, META, MSFT, AAPL and NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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An aerial view of the city of San Francisco skyline and the Golden Gate Bridge in California, October 28, 2021.
Carlos Barria | Reuters
It’s been more than two years — going back to the start of the Covid pandemic — since I have been able to do a deep dive of Silicon Valley. But over the past week I was able to reconnect with many executives, CEOs, and market insiders in CNBC’s San Francisco bureau, and I was blown away by what I learned and how different things have become. It is all pretty shocking compared even to the beginning of 2020.
I want to give Investing Club members an exclusive look at my observations and impressions of the global center of the technology industry. I narrowed it all down to 15 core takeaways. They should inform many of your investing decisions; I know they will inform ours in my Charitable Trust portfolio.