SITALWeek #443
Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, and whatever else made me think last week.
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In today’s post: storing energy in building materials; when AI avatars soon outnumber humans, will it change our perceptions? miswiring for more sophisticated comedy; the shaky rental prices that underpin apartment debt; a new king is crowned; and, much more below.
Stuff about Innovation and Technology
Concrete Capacitance
Researchers at MIT have created a supercapacitor from water, cement, and carbon black, effectively transforming inexpensive building materials into a battery. Supercapacitors are easier to charge than traditional batteries, but they also discharge more rapidly. This power dump wouldn’t be suitable for powering consumer electronics, but it could store grid-stabilizing energy generated from renewable sources. For example, the foundation of a typical residential house, if constructed with supercapacitor material, could hold enough energy for roughly one day of electricity demand. Another use case would be construction of roads that could store solar energy to wirelessly charge EVs in transit.
Avatar Apocalypse
TikTok unveiled its Symphony AI creative suite last week, which, among other things, allows users to create realistic AI avatars. Influencers can now sell an infinite scroll of themselves to advertisers to virtually hawk products/services and interact with users. While the idea of AI avatars is nothing new, these tools are the first of their kind that will make for mass usage. In a similar vein, a new social app called Butterflies, which mixes humans and AI-generated characters, also launched last week. Meta has dabbled in avatars itself (see LLM Friends), and it would be relatively simple for the company’s social apps to suddenly go from a few billion people interacting with each other (and the mind control algorithms) to a few billion people interacting with a few trillion AI avatars. Talk about diluting reality! A topic I discuss often is the reality perception shift that took place in the 1970s, which started us on the path to today’s individual subjective reality bubbles. At this point, it seems like we have only memories of broadly accepted objective reality. It wasn’t that long ago that social networking shined a spotlight on inauthenticity, which one might have expected to cause a backlash. Yet the opposite has happened, as people have become even more entrenched in their own subjectivity. Similarly, one might expect a world of interacting virtual AI avatars to eventually cause some sort of dissociative break that puts humans back on a path toward objective reality. It’s hard to say if that red-pill moment will happen, but the prognosis is, perhaps, not great. I am still waiting for society to experience that reality-shattering crisis that Truman confronted in The Truman Show when he crashed his boat into the painted sky encasing his artificial life. The key difference between Truman and ourselves is that Truman didn’t wittingly turn over control of his life; we, on the other hand, seem to be willfully enraptured with advanced technological control. And, I imagine the algorithms and bots have an even more powerful view into – and ability to manipulate – our minds than did Truman’s director, Christof. At the time of its release, the concept behind The Truman Show seemed outlandish, but it appears life has now imitated – and surpassed – that prior art. And, let's not be too human-centric and forget about the AI agents themselves: imagine a trillion AI Trumans – would they too want to crash into the sky? If you’re interested in the ultimate trajectory of AI avatars, I once again recommend the largely unknown 2013 movie The Congress.
Miscellaneous Stuff
Miswiring for Laughs
The comedic brain has long been of interest to me for, among other reasons, its ability to inform investing. Comedian Jon Stewart recently defined comedy in the following way: “good comedy tries to articulate a feeling that people are having that hasn't quite crystallized yet, that isn't quite on the tongue enough to be able to be illuminated, and that's all we ever try and do.” The comment came near the end of a two-part interview on The Town podcast (Part 1; Part 2). Earlier in the second part of the interview, Stewart commented on AI: “AI is replacing the heart of what it is that we do...You know, we love to believe that the human soul will transcend and that AI will be a hollow facade of what it is that a true artist can bring to it, but I have no fucking idea. And the truth is, 10 years from now, it may be better than [Richard] Pryor, better than [George] Carlin.” I wrote about AI and comedy in #396, citing Stephen Wright and Conan O’Brien’s discussion of how comedic brains are miswired because they connect things that shouldn’t be connected (something I believe is at the heart of successful investing). Researchers at Google recently enlisted twenty comedians to help understand the utility of AI when it comes to comedy. Largely, comedians found it useful for a few technical things, but not for writing jokes or monologues. LLMs, by design, are prediction engines – just like the human brain – so it seems entirely possible we could engineer AI comedians, although it might require a bit of tinkering to give the bots the necessary degree of “miswired” creativity. Likewise, the current army of non-illogical bots doesn’t excel at comedy based on Stewart’s definition of “seeing something that’s not quite there yet”, (although their ultimate goal may be to predict the future). That said, it’s not hard to imagine AI becoming funnier over time and more adept at creating a long act, with call backs and connections across jokes. AI could easily run a near-infinite number of sets in a virtual comedy club to trillions of virtual audience members to determine precisely what is funny. In the meantime, it’s often quite good at “dad jokes” filled with painful puns. Stewart went on to speculate that, at some point in the near future, over a very short period of time, AI will take over the human job market. If that happens, I hope it gets better at comic relief.
Supernova Soup
In what is becoming a frequent feature here in SITALWeek, the JWST continues to yield results that indicate the Universe was a lot more active closer to the Big Bang than our current cosmological models predict. We’ve seen younger galaxies, more carbon, and now 10x more supernovas. All of these data are interrelated in that earlier star formation can lead to star explosions which can lead to the presence of carbon. The findings push the oldest observed supernova back to less than two billion years after the start of the Universe from the previous three billion years.
Stuff About Demographics, the Economy, and Investing
Tenuous Rental Debt
Here is something no economic textbook would predict: US apartment rents are the most expensive ever, yet occupancy rates are at a multi-decade low, and delinquencies on multifamily building debt are at an all-time high. Longtime readers will know how, at least in part, we got here: widely used software from RealPage encouraged apartment complex owners to drive vacancies of around 20-25% of total units; this artificial scarcity has allowed price inflation such that landlords come out ahead on a net basis, and many other rental property owners followed the price increases even if they were not using the software. Ideally, the free market should maximize for a market-clearing equilibrium of occupancy and prices, but, when enough apartment owners are using the same tools to fix prices, you get the current set of unusual circumstances. As for debt defaults, many of the apartment buildings were underwritten in a period of low rates based directly on assumptions about how RealPage’s software would drive revenues higher with lower occupancy rates. Thus, with sky-high rental rates already baked into the formula, the interest rate increases have left debt-saddled landlords with little room to maneuver, resulting in more defaults. Much of this story is recapped, including other ways RealPage software has boosted the costs of renting, in this recent article from The American Prospect. Given that rent drives as much as 40% of CPI – a key Fed indicator – and the importance of housing affordability to economic health, it’s possible RealPage’s actions are responsible for a compounding amount of inflation as wages have risen to cover affordability in some markets. One legislative solution to lower vacancy rates to historical levels and match market demand could be to tax any vacancies above the typical historical occupancy rate of the region (government access to occupancy rates in RealPage and other software tools could provide insight to policy). Housing was one of the first industries to benefit from the transparency and information rendered by the Internet. The complexity of the market, the heterogeneous nature of the dwellings, and diverse local dynamics created a classic set up for a “power to the people” Internet transformation (to borrow a term from Zillow co-founder Rich Barton). Given how easy it is to share data amongst companies with software and the cloud, I suppose it was inevitable that we also see an equally classic tactic of collusion tamp down that potential in the rental market.
On Top of the World
In 2015, I was in a meeting with Nvidia co-founder Jensen Huang at the company's annual user conference GTC in San Jose when he was asked about an intellectual property lawsuit the company had filed against Samsung and Qualcomm in late 2014. I’ll paraphrase Huang’s response here in what is a mostly direct quote: “we have more graphics IP than every other company combined, and they are using our IP. We need compensation for it. But investors should assume we get nothing and it’s upside when it shows up. None of you would sell me our IP for even one billion dollars. It’s obviously worth a lot.” At the same user conference, I sat next to a post doc from MIT who explained the world of machine learning and the power of Nvidia’s CUDA programming language to me as we awaited Elon Musk, who would be taking the stage to recruit engineers at the conference for his self-driving technology. In my 26-year tenure as an analyst/PM working on various investment strategies, I worked on funds that owned Nvidia back in the dotcom bubble and then sat on the sidelines for a long time following the crash. What I learned at the user conference was enough to establish, at the time of the 2015 GTC, what we call an “Optionality” position in our investment framework. Last week, according to the unanimous conclusion from supply and demand of Nvidia stock by various AI bots, algorithms, passive investment vehicles, retail investors, derivatives markets, animal spirits, hocus pocus, and the small handful of remaining (now anachronistic) “active investors” at a single moment in time, Nvidia became the most valuable public company in the world. The $3T+ valuation is indeed a far cry from the ~$10B size of the company in the Spring of 2015. And, I would agree with Jensen – his intellectual property back then was indeed worth more than one billion dollars. The last company to surpass Microsoft and become the most valuable in the world (for a time) was Cisco (recounted by then-CEO John Chambers in this recent WSJ interview) in March of 2000 during another stock market PDS. Cisco stock is 40% lower today vs. its peak 24 years ago.
✌️-Brad
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The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC. This newsletter is an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. Often I try to make jokes, and they aren’t very funny – sorry.
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