Over the last five years, we’ve made a habit of offering a few predictions for the year ahead. Here’s what we’re anticipating in 2022:
1. Apple and Facebook will duel for the spot as the top-performing FAANG stock in 2022, driven by metaverse’s flight to quality. For the fourth consecutive year we are predicting that AAPL will be the top-performing FAANG stock and will add a twist for 2022. The twist is that, we believe, AAPL and FB will finish one-two among FAANG stocks being that investors increasingly view the two companies as the safest choices to invest in the metaverse. Given that both companies are highly profitable, they will likely play central roles in defining the metaverse. We believe metaverse companies with less earnings will see a headwind in 2022, while the companies building the metaverse will surely benefit from a flight to quality. Loup is an investor in Facebook. It’s a similar dynamic we observed in the EV space in 2021: with valuations of the top three EV companies (Tesla, Rivian, and Lucid) climbing 220% (from last private round earlier in 2021) compared to the Nasdaq which was up about 25%. Conversely, a basket of 10 EV companies with market caps of less than $5B were punished by investors last year, down on average by 45%.
- Apple’s metaverse opportunity. We believe there is a high likelihood that Apple eventually has a family of products addressing the opportunity and we should see a prototype in 2022. AR or MR glasses are a logical Apple contribution to the metaverse, where we will play and work in more immersive digital worlds. Over the next several years the metaverse will largely be experienced in 2D as it is today with Roblox and Zoom. Down the road, I agree with Zuckerberg that hardware will power more 3D presence, pitting Facebook vs. Apple in a race to build affordable and comfortable headsets through which the world can experience the metaverse.
- Facebook’s metaverse opportunity. Facebook’s commitment to forming the building blocks of the metaverse is undeniable, as evidenced by the company’s investment in its Reality Labs division. According to a report from the Information, roughly 20% (or 10,000 employees) of Facebook’s total team is stationed at Reality Labs — up from about 5% in 2017. On top of that is the name change to Meta, which we see as a big deal given that it focuses the company culture on building the metaverse. Housekeeping item: when Facebook’s ticker is changed to META sometime in Q1 2022, we’re going to do our best to refer to the company as META.
2. Apple will preview an MR headset. While it won’t be ready for sale, we believe WWDC 2022 is the most likely time for Apple to preview its mixed reality headset. Mixed reality is a level of wearable computing that sits between VR and AR. In MR you can “see” the real word through computer vision, projected to a screen that covers the eyes. While revenue won’t start until 2023, Apple’s headset reveal will be a powerful statement that it means business when it comes to metaverse.
3. The EV theme cools. We expect a headwind to the EV theme in 2022. Every year has a class of investing themes that typically don’t repeat in the subsequent year. 2021 was about big EV companies and traditional auto stepping into the EV game. As a recap of 2021: Tesla, Rivian and Lucid were up 220% (last private rounds). On the traditional OEM side, Ford shares were up 143%, followed by both GM and Volkswagen up 44%. It’s hard for such outperformance to continue for two years, especially given that Rivian and Lucid are moving from story stocks to delivery stocks. The good news for both companies is that they will be around in 2023 and beyond because they have cash. Rivian has $14B in cash and is losing just over $1B per quarter. Lucid has $5B in cash and loses just around $750m per quarter. The bad news is that ramping up for deliveries will be challenging in 2022. In 2017, Elon Musk commented on “production hell,” referring to the exponential increase in Model 3 production — and in 2019, Musk commented that designing the car’s manufacturing system is “100 times more difficult” than designing the car itself. 2022 will be the year that Rivian and Lucid navigate ramping production with the added supply chain headwinds that Tesla did not have to face.
- We’re still bullish on Tesla. Long term, we still believe TSLA is a $2,500 stock. EV, Energy, Autonomy, HVAC, VTOL, Robots. Near-term (over the next year) TSLA shares are unpredictable. Long-term our valuation case is based on 6x revenue in 5 years. That’s essentially in line with Apple’s hardware, software + services revenue multiple. We expect that Tesla will go from $70B in revenue in 2022 to $400B in 2027. Applying a 6x multiple on 2027 revenue yields a $2,500 stock.
4. Tesla, Rivian & Lucid deliveries. 2022 is the year when the EV focus shifts to deliveries. We believe Tesla will exceed consensus expectations of 1.2m deliveries and finish the year between 1.2-1.3m vehicles, with the mid-point implying 45% y/y growth. We believe Rivian and Lucid will be challenged to meet consensus delivery expectations given they are ramping production into a tight labor and component market. We see slight downside to Rivian’s ~42k deliveries expectation and Lucid’s ~22k. Fun fact: If we’re right, Tesla will account for 96% of 2022 deliveries between Tesla, Rivian and Lucid.
5. The Quantum Computing theme heats up. 2022 made us all appreciate the importance of semiconductors in our daily lives. From cars to consumer electronics to smartphones, the chip shortage of 2021 contributed at large to delays and rising prices. Quantum computing may not solve the chip shortage, but it ushers in the next evolution of chips that will enable: more efficient processing of current tasks, and the ability to perform calculations that traditional binary computing solutions cannot.
To understand why quantum is so potentially disruptive, you must understand the basics of our current computing paradigm. Current semiconductors are built on binary architectures that rely on billions of transistors that are either on or off, zero or one. The calculations performed by these binary transistors allow our many devices to function. Quantum computing solutions differ from binary ones in that quantum chips can be both zero and one, simultaneously — a state called superposition. The ability to operate in superposition exponentially increases the speed of calculations, which improves Silicon’s performance and allows for more complicated problems to be solved. While it’s early, we’re getting closer to real quantum solutions. Mega cap companies like Google, Microsoft and Nvidia are all working on quantum technologies. Two recent SPACs also brought pure-play quantum companies IonQ and Rigetti (merger to be completed) into the public arena.
6. Sony will re-enter VR gaming with a PSVR 2 headset. Sony may try to recapture some of the lower-end VR gaming market with a new headset in 2022. Sony sold 5M PSVR units in 2016 and was the market leader prior to the release of Oculus Quest. We believe Sony may compete with Oculus in the VR gaming segment in 2022. Related to Sony’s effort, Facebook previously announced a new “high-end” headset coming in 2022 called Project Cambria. You can read more about it here. We see Cambria as opening up new use cases through advanced technologies and learnings from Quest 2. It will not be a replacement for Quest 2, but it will be one step closer to Facebook’s vision of the metaverse and it will represent progress on the path of making VR a general computing platform.
A look back at our 2021 predictions:
1. Apple will be the top-performing FAANG stock in 2021. 👎
- We fell short in our prediction that Apple would, for the third consecutive year, be the top-performing FAANG stock. In 2021, shares of Apple were up about 38%, well behind Google up 68%. If you’re curious, Facebook shares were up 26%, Netflix up 16% and Amazon up 5%.
2. FAANG will fracture. 👍
- Not all FAANG is created equally, as evidenced by Google and Apple up on average by 55% with Netflix and Amazon up 13%.
3. Tesla will launch a chaperoned robotaxi fleet. 👎
- We missed the mark in thinking that the earliest versions of Tesla’s robotaxi service would see the light of day in 2021, with the launch of a chaperoned robotaxi fleet. Our thought was that this would require a driver to accommodate the regulatory environment. Think: an Uber driver in a Model 3 running FSD. In this scenario, drivers would benefit from reduced stress and fatigue, and Tesla would benefit by building a ride-sharing brand and shepherding us into the robotaxi age.
4. Some Big Tech companies will be proactive around regulatory challenges. 👍
- 2020 was a year of saber rattling from regulators that materialized in recent antitrust lawsuits against Google, Facebook and Apple. Apple was proactive in making two changes to its App Store related to steering and making it easier for media app developers to build a direct payment relationship with users. The first change was newsworthy and the second was investor worthy. There will likely be more changes to come, given that it will take years to define the long-term app store policies for the tech industry. The bottom line: Apple and other tech tycoons will likely have to make further app store policy concessions, and investors will largely look through these developments given. Once the company anniversaries changes, app store growth rates should return to pre-regulation levels.
5. Peloton will launch new exercise hardware. 👍👎
- It’s debatable if we got this one right. Peloton did not launch new exercise hardware in 2021, but they did announce the launch of Peloton Guide in early 2022. Guide is strength hardware that starts at $495 with a $12.99/month membership. No additional membership fees for All-Access Members.
6. Apple will launch AirTags and new services in 2021. 👍
- First, AirTags did launch. Second, Apple launched an Apple Podcast Subscriptions service. We view Apple’s podcast offering as more of a hands-off hobby than a dedicated project. While it could morph into a full-time venture down the road, today we see it as a way for Apple to keep its users engaged with its first-party apps and maintain leadership in an important content category. Podcasts will continue to play a paramount role in the lives of consumers. The podcast like its predecessor, the radio, provides listeners with the benefits of both soundbite information and multitasking abilities.
7. 5G coverage and performance will quicken. 👍👎
- While 5G performance in the U.S. improved, it fell short of our prediction that a single carrier would deliver 200Mbps download speeds. The latest data we have is the October update from Opensignal, which cointed T-Mobile as the fastest U.S. download speed at 118Mbps, nearly 2x faster than Verizon and AT&T. Needless to say, there is room to improve for 5G to hit the projected 1GB download speed stamp. More importantly, 5G has yet cross the “gotta have it” consumer demand threshold. Good news: passing that milestone is only a function of time.
8. The work-from-anywhere trend will continue. 👍
- A year ago we estimated that roughly 90% of U.S. knowledge workers (about 1/3 of the US workforce) were working from home. Today, we believe that 70% are working remotely, well above our end-of-2021 prediction set around 20%. While the persistency of COVID has propped up the numbers of hybrid work, we now believe remote work will normalize at 30%, escalated from about 7% pre-pandemic. We expect that Zoom revenue growth in CY21 will outpace the current Street estimate of 38%. If the company meets analyst expectations for the final quarter of CY21, revenue will be 54% for the full year.
9. Video game streaming viewership will grow. 👍
- According to TwitchTracker, more than 24.2B hours have been spent watching Twitch streams in 2021, up 31% from 2020. This is in comparison to our growth prediction of a 25% increase.