Charles-Edouard Bilbault
Global Equities Portfolio Manager
"Artifical intelligence is no match for natural stupidity" Albert Einstein
In May, technology outperformed, mostly led by equities exposed to Artificial Intelligence (AI). Global equity markets otherwise traded sideways. The portfolio benefited from AI frenzy. Nvidia and Palantir strongly outperformed the market, supported by both solid earnings and AI theme. Nvidia reached the trillion US Dollar market cap, supported by ambitious topline guidance boosted by AI. Palantir’s Artificial Intelligence Platform attracted strong interest growth from customers – a recognition of years long research and development efforts. Galaxy Digital CEO Mike Novogratz highlighted the role blockchain technology will play in artificial intelligence developments.
What’s our take on blockchain and AI? Fundamentally, blockchain is a powerful tool used to track data integrity and provenance. It contributes to data quality management, an essential prerequisite for an intelligent use of AI. Blockchain is supported by cryptographic developments allowing users to develop nimble digital identities. It supports strong tracking capabilities, while preserving user data privacy at the same time. Looking ahead, blockchain is thus expected to play a key role in managing ethics and data quality aspects of AI use, while boosting AI productivity, compliance and reliability. For that reason, we are convinced that blockchain will support human conscious uses of AI. As Gargantua taught young Pantagruel, “science without conscience is nothing but ruin to the soul.” Blockchain will help on this.
At the company level, the earnings season confirmed operational leverage continues to play out. Remarkably, digital assets platform Coinbase reported better-than-expected results: EBITDA turned back to positive territory. This positive surprise was supported by larger trading spreads, subscription revenue growth and decrease of operational expenses. The platform’s international expansion was reported to be well on track, with, for instance, services expansion in Singapore. Transactions however overall remained shy in May. Going forward, a pickup in digital assets interest should turn highly accretive in terms of operational cash flows and benefit from increased operational leverage. Regulatory uncertainty remains an overhang for the company calling for some caution. We marginally traded Coinbase this month, taking advantage of end of April price drop and strong post-earnings rebound. In terms of flows overall, May closed with the 6th consecutive week of net outflows for digital asset investment products. As of May 26th, redemptions reached US$176m month-to-date and US$78m year-to-date(1).
In May, positive portfolio performance was supported by constructive earnings and news flows. We continued to progressively build positions on Asian stocks JD Logistics and Vobile on good results and price weakness. We slightly increased our position on open-source collaborative platform Gitlab. We marginally secured some gains by taking advantage of equities volatility. While we recognize the upbeat directional growth that will eventually be brought by AI developments, we marginally trimmed Nvidia and Palantir on stellar price strength. At the end of May, equity exposure was 98.9%.
Industry news to watch
Announcements by established companies of blockchain based innovations continued to impact various sectors of the economy and enterprise use-cases. Among many others:
- Sotheby’s generated USD 2.5 million out of the sale of former hedge fund 3AC(2). A total of 7 “GRAILS” NFT were auctioned, including a “Fidenza” by Tyler Hobbs for more than US$1m.
- Nike and gaming leader Electronic Arts (EA) partner on virtual creations for EA Sports ecosystem(3). Nike will benefit from EA Sport huge fan base and EA from Nike advanced knowledge on digital assets.
- Deutsche Telekom set up a blockchain validator node and announced the launch of “staking” services to their clients(4). Staking is one of the main mechanisms contributing to the validation and security of blockchains. It involves setting up a blockchain server and putting cryptocurrencies in escrow. Participants to this validation mechanism are rewarded by cryptocurrencies for their service.
