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Market Pulse
Friday, May 17, 2024

Burberry Blues, Memes 2.0 and… Contexts in AI

Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team. 

Our three stories this week:

  1. Burberry Blues
  2. Memes 2.0
  3. AI Contexts

Adrian (Portfolio Manager), and the rest of the Sidekick team. 

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

1) Burberry Blues

Burberry's latest results, released yesterday, were a stark reminder of the luxury fashion market's heterogeneity. While the figures themselves were not as dismal as anticipated [1], a conference call filled with uncertainty caused the shares to drop 7%. This places the stock at levels not seen since 2016, a sharp contrast to the relative success of Prada, LVMH, and Ralph Lauren in what has been a challenging market so far this year

CEO Jonathan Akeroyd's comment about "London losing out to Paris, Milan" [2] may have been targeted toward the impact of removing tax-free shopping in the UK, but also highlights the divergent approaches to luxury. 

LVMH's masterful packaging of the French "Art de Vivre," a lifestyle synonymous with luxury, refinement, and a discerning taste for the finer things, is reflected in its diverse product range, from fashion and travel accessories to homeware and even gourmet experiences.

Burberry's "East London cool and edgy" aesthetic, on the other hand, caters to a younger, more contemporary consumer with a distinctly British flair. Think trench coats, tartan, streetwear influences, and gritty urban photoshoots. Chief Creative Officer Daniel Lee's bold use of colour and design [3] in his 18-month mission to elevate the brand has been met with the headwinds of a slowing luxury market and the rising popularity of "quiet luxury," a trend that doesn't play to Burberry's strengths.

The good news is that Burberry still possesses many of the hallmarks of a true luxury brand. And as industry observers know, fashion trends are cyclical, brands experience periods of waning desirability, but turnarounds can be swift.

2) Memes 2.0

Meme stocks are back. GameStop and AMC (among others) recently experienced a surge reminiscent of the wild ride in 2021 [4]. The craze was restarted by a tweet [5] from Keith Gill, a.k.a. "Roaring Kitty," the man responsible for the 2021 trading frenzy. Retail investors, fueled by social media hype and a touch of fear of missing out, piled into these stocks, causing their prices to skyrocket. 

AMC, not one to miss an opportunity, seized the moment by issuing more stock [6]. The move allowed the company to raise capital and shore its balance sheet, a win-win situation for them. However, this also diluted the value of existing shares, which could impact retail investors if the stock price falls in the future.

While the allure of quick riches is tempting, investing in meme stocks is risky. Seasoned investors like Bill Gross, sold “straddles” on GameStop shares this week [7], but retail investors often lack the sophisticated strategies and risk management tools to navigate these turbulent markets. In a straddle, the investor sells both a call and a put option on the same stock, betting that the stock’s implied volatility returns to more “normal” levels, allowing the options to expire worthless.

While the surge echoes the 2021 frenzy, there are some key differences. Regulatory scrutiny has intensified, and trading platforms have implemented measures to curb excessive volatility. The 125% surge in GameStop is impressive but moderate relative to 2021’s 2000% surge. Short interest is also lower at 24% compared to 140% in 2021 [8]. This doesn't mean the party's over, but it does signal a shift in the landscape. 

The meme stock phenomenon is a sign of the times. It reflects the growing influence of retail investors, the power of social media, and the democratisation of financial markets. While it's easy to dismiss it as a passing fad, ignoring it would also be unwise.

3) AI Contexts

With Google and OpenAI making announcements this week about updates to their AI chat processing, and Apple flirting with the latter to incorporate its technology into the upcoming iPhones, it's clear that companies are racing to be at the forefront of AI innovation with new products and features.

The OpenAI announcement on Monday showed off a new version of chatGPT that founder Sam Altman likened to “AI from the movies.” The model would see, hear and read with a “context” - the information it needs to customise its responses - of 128,000 pieces of information or “tokens”. Given that the model can also search the web for results, it is presenting itself as a direct competitor of Google as a search engine and a generative AI processor.

But 24 hours after that announcement, Google held its own I/O developer conference when it came out with something even bigger - a multi-modal AI similar to OpenAI that can handle 2 million tokens. That’s equivalent to the information in a one-hour video or a 1500-page PDF [9].

Given that brand-focused Apple has been comparatively lagging in the AI boom, it’s no surprise that they’re in a hurry to seal the deal with OpenAI to incorporate the latter’s ​​chatbot features ahead of the launch of iOS 18 expected in June.

The winners and losers of the AI race won’t be determined overnight. However, as the AI war moves from hardware to software, the winners will ultimately be determined by the data fueling their large language models and applications. The ability to leverage massive amounts of diverse, real-world data provides an unparalleled advantage in training and refining AI models.

Companies with extensive data repositories across various domains, from search engines to video platforms, hold a crucial edge in this competitive landscape because such data dominance allows for the creation of more accurate, nuanced, and adaptable AI systems - and consequently the development of AI products that customers are willing to pay for.


[1] https://www.ft.com/content/a870108c-8e4f-4e8a-a0a1-c97c823804b6

[2] https://www.theguardian.com/business/2023/jul/14/london-losing-out-to-paris-and-milan-over-tourist-shopping-says-burberry

[3] https://magazine.luxus-plus.com/en/london-fashion-week-daniel-lee-reimagines-burberry-with-lightness-and-sensuality/

[4] https://www.bloomberg.com/news/articles/2024-05-13/gamestop-stock-surge-looks-like-meme-mania-here-s-why-it-isn-t

[5] https://twitter.com/TheRoaringKitty/status/1789807772542067105/photo/1

[6] https://www.cnbc.com/2024/05/14/amc-raises-250-million-in-stock-sale-during-mondays-meme-rally.html

[7] https://www.bloomberg.com/news/articles/2024-05-14/bill-gross-sells-gamestop-amc-options-to-cash-in-on-meme-mania

[8] https://www.bloomberg.com/opinion/articles/2024-05-14/gamestop-mania-won-t-pack-a-punch-like-in-2021

[9] https://www.afr.com/technology/google-gets-closer-to-ai-that-knows-you-better-than-you-know-yourself-20240514-p5jdfk


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