Over the last six years, we’ve made a habit of offering a few predictions for the year ahead. Here’s what we’re anticipating for 2023:
- We believe that FAANG will outperform the S&P in 2023. In 2022, the S&P 500 is down 21% while FAANG is down 48%. Given that FAANG names make up 18% of the S&P index, we’re not expecting an irrefutable victory as there is a mirroring factor. The reason why we are optimistic on FAANG is that these companies continue to operate high-quality, generational business. In 2022, most FAANG names have not experienced an impairment to their core business but valuations have been marked down (by 48% on average) related to a reduction in market multiples as investors brace for a recession in 2023. While we are stopping short of predicting a FAANG winner in 2023, we are predicting that Netflix’s performance will be most challenged next year among FAANG.
- Apple will show its MR headset in late 2023. We think it’s likely that Apple previews its headset in 2023 with initial sales in 2024 at a starting price of ~$3k, targeted at developers. While this is a different product release approach for Apple, we believe it’s the right approach given the importance of getting developers engaged with the company’s new hardware.
- Tesla will wait until 2024 to announce Model 2. If the company announces the lower priced car too early, they risk slowing sales of Model 3 while ramping capacity during what is likely to be a broader auto recession. In short, it’s a function of time before we see the Model 2 and, more likely, we’ll get a preview in early 2024 with production ramping mid-2025.
- F-150 Lightning will outsell Cybertruck in 2023. While we expect Cybertruck to meet investor expectations of 83k deliveries in 2023, the EV will fall below Ford’s expected 100k deliveries of F-150 Lightning. The initial deliveries of Cybertruck will likely be in mid-2023 with production ramping in late 2023. This gives Ford’s electric F-150 about a year to run up the score against the Cybertruck. In 2024, however, we look for the tables to turn when Cybertruck production is fully ramped. Tesla’s Cybertruck currently has been estimated by third parties to be as high as 1.5m orders and is still taking orders. For 2024, we expect Cybertruck to comfortably outsell the Ford Lightning.
- Global EV sales will be a disappointment in 2023 given a slowdown in the broader new car market. Traditional gas car deliveries will be hit harder by the macro in 2023. EVs will still gain a share of overall new car sales, likely accounting for 10% of new car sales in the US (up from about 6% in 2022). Longer term, all cars will be electric but that trend will take more time than many think.
- Private equity will be active in taking tech companies private in 2023. We expect to see five or more take private tech deals valued above $2B.
- A wave of unicorns will go bankrupt. Even the biggest unicorns are under pressure, as evidenced by Instacart’s declining valuation from $39B a year ago to a reported $10B today. In the middle of 2022, there were about 750 unicorns with about 500 of those minted in 2021. We believe that we’ll exit 2022 with around 200 unicorns and less than 125 by the end of 2023.
- A thought on the Macro. While we pay attention to the macro, we focus on investing in companies over the long run. That said, we do have a view on the macro and believe that the key metric (interest rates) won’t end the year at the current expectation of 5.25%. We believe that it’s more likely the economy will slow to a deeper recession or none at all. The current consensus of a mild recession is unlikely according to the current and upcoming macro data along with potential revisions to past data, including jobs numbers. Putting it together, we think the markets will end 2023 higher than the start of the year and see the timing of when the market bottoms as unknown.
A look back at our 2022 predictions:
1. Apple and Meta will duel for the spot as the top-performing FAANG stock in 2022, driven by metaverse’s flight to quality.
Apple (market cap $2T) will likely end the year as the top-performing FAANG stock of 2022, with shares down 30% YTD. META was the worst performing FAANG stock, with shares down 66% YTD. Where we went wrong was that Metaverse R&D spending depressed earnings and soured investor confidence in Zuckerberg’s vision. If you’re curious, overall FAANG is down 48% YTD.
2. Apple will preview an MR headset.
We believe the announcement of Apple’s MR headset has been delayed until late 2023.
3. The EV theme cools.
While 2021 was about big EV companies and traditional auto stepping into the EV game, it’s hard for outperformance to remain unchallenged. As a recap of 2022: Tesla shares are down 72%, Rivian -83%, Lucid -85% and Ford -50%.
4. Tesla, Rivian & Lucid deliveries.
We predicted that Tesla would exceed expectations of 1.2m deliveries with the implication of 45% y/y growth. We expect them to slightly exceed that target when they report December deliveries on January 1st. We also predicted that Rivian and Lucid would miss their 2022 delivery targets. Lucid did miss its initial target of 20K deliveries and will likely come in around 6.5K vehicles. As of October, Rivian has maintained its 2022 target of 25K vehicles which means it has to deliver about 10K in the December quarter. We think it’s more likely that deliveries fall below the 10K target.
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. While it’s still early, we’re getting closer to quantum solutions and mega cap companies like Google, Microsoft and Nvidia are all researching its capacities. Quantum computers can be used for medical research and drug development, cybersecurity, next-gen battery technology and artificial intelligence. IBM built the first system for commercial use, Quantum System One, which joins Microsoft’s Azure Quantum, Google’s Sycamore processor and startups like IonQ and Rigetti that stepped into the public arena in 2022.
6. Sony will re-enter VR gaming with a PSVR 2 headset.
While it’s true that Sony aims to recapture some of the lower-end VR gaming market with a new headset, the PSVR2 won’t be released until February 2023. In 2016, the company sold 5M units of its PSVR and was the market leader prior to the release of Oculus Quest.
7. More big brands will experiment with digital goods.
The start of 2022 showed increased interest from big brands experimenting with NFTs, including Nike acquiring RTFKT, a creative NFT studio, in December of 2021. It launched its own .SWOOSH platform where members can create and trade digital collectibles. Adidas launched a 30,000 NFT collection in collaboration with Bored Ape Yacht Club and Punks Comic, as well as launching an NFT project with Prada in 2022. Other brands that participated include Time Inc, Budweiser, Bud Light, Dolce & Gabbana, Gucci and Tiffany & Co, Lacoste, the NBA and the NFL. We give ourselves a “thumbs down” on this prediction given that the NFT space has come to a standstill in the final quarter of 2022.