ECONOMY

San Francisco’s AI Advantage Is Helping It Make a Post-Pandemic Comeback

San Francisco has become a lightning rod in the culture war — with the country’s fourth-richest economy plagued by limited housing, rampant homelessness, and rising crime. So unsurprisingly, when the pandemic made remote work possible, many residents packed their bags and left.

The talent exodus led some to believe SF’s reign as the world’s tech capital was over. But four years later, workers and businesses are returning to develop the next generation of technology.

Old habits die hard: Although San Francisco is already home to major AI companies like OpenAI and Anthropic, its lead in AI research and talent has helped it evade a slowdown in the startup ecosystem. Last year, the Bay Area attracted $63.4B in new startup funding — down just 12% year-over-year, while total US venture funding dropped by 40%.

• SF’s share of US venture funding reached a multi-year high, with over 41% going to Bay Area startups, up from 36% between 2019 and 2021.

• In contrast, funding volumes in Austin, LA, and Miami decreased by 27%, 42%, and 70%, respectively, last year — indicating that their bids to become tech hubs had mostly fizzled (WSJ).

Return to tech mecca

The wave of AI funding benefits downtown SF — with companies leasing over 1M square feet of new office space last year. Mayor London Breed hopes the momentum will revive the region and encourage employees to return, which seems to be happening.

• Companies such as Uber, Microsoft, and Google are urging their employees to return to the office, taking advantage of new city tax credits and reforms.

• Although Breed’s office reported a 23% increase in 2023, office vacancy stood at a record 35.9% by the end of that year.

Solving San Franpsycho: According to the Downtown Recovery initiative, SF’s traffic stands at only 67% of its pre-pandemic levels. However, the anticipated return of workers could contribute essential tax revenues to the region. Breed’s office has strategically invested in housing, crime reduction, and public safety, but despite these efforts, SF has a lot to figure out, and preventing major brands from closing their stores is just one of many.

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MARKET SENTIMENT

It’s official. Investors are overwhelmingly bullish. The S&P 500 just recorded its fourth consecutive month in the green. Bank of America’s chief technical strategist thinks the S&P 500 has room to run to 5.6K, another 10% increase from current levels.

Meanwhile, crypto (Bitcoin, at least) is almost back at all-time highs. Ethereum isn’t far off. And a sudden rush of traffic to Coinbase ($COIN) caused operational issues that led to users seeing a $0 balance.

Get the foam soap ready, because bubble talks are about to enter the discussion.

LARGECAP RECAP

🎮 The gaming industry has peaked… for now

After decades of tremendous growth for gaming publishers, studios, and console makers, game developers are being forced to see sunlight for the first time in a long time. Some developers are returning to the office (GTA6 workers can thank hackers for that) — while others are going to their next job interview. Last year, over 9K jobs were cut as the hype cycle around the metaverse and esports has subsided. And from the looks of it, 2024 is shaping up to be way worse.

• Layoffs at Unity Software ($U), Riot Games, Electronic Arts ($EA), and other major gaming companies have led to over 8.1K jobs lost in the first 60 days of 2024.

• Even employees at industry giants Microsoft’s Xbox ($MSFT) and Sony’s PlayStation ($SONY) have been affected as console and game sales decline.

Cultural stagnation: The gaming industry’s connection to mainstream culture has also weakened. Amazon ($AMZN) laid off 35% of employees at the streaming site Twitch, and esports giant FaZe Clan ($FAZE) was sold for pennies a year after its $1B public listing. If anything, it looks like things are getting worse, not better.

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Markets & Economy

January inflation in line with estimates: The PCE price index, the Fed’s favorite inflation marker, rose 0.4%, up 2.8% from a year ago, signaling that inflation remains hotter than the Fed’s 2% target, further delaying potential rate cuts. [Read]

Americans feel less job security: All those headlines about layoffs have Americans feeling jittery, with the share of workers fearing a loss of income in the next month rising across all income levels. [Read]

How to lock in higher yields: If you wisely parked some cash in a high-yield savings account when the Fed started raising rates, it’s time to act before they start cutting. Multi-year guaranteed annuities and defined-maturity ETFs are just a few ways to lock in today’s favorable yields. [Read]

Business & Wealth

Warby Parker ($WRBY) plans 40 new stores after hot year: Double-digit growth in each quarter of 2023 has the OG e-commerce brand feeling good, so they’re looking to expand their physical footprint, adding 40 new stores to their existing 237. The ultimate goal: 900 stores. [Read]

Boeing’s ($BA) tough times continue: The Department of Justice wants to investigate if the company’s recent door plug incident breached a settlement with Boeing after another safety incident in 2021 — which could open Boeing to criminal liability. Meanwhile, their employees could be on the brink of a strike. [Read]

Consumers urged to be proactive after service blackouts: In the wake of AT&T’s blackout, which resulted in a $5 payout to all affected users, consumer advocates are reminding people to always seek compensation for outages, as companies may not automatically offer payouts. [Read]

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DIGIT OF THE DAY

(Re)-Emerging Geothermal Energy Could Power 65M US Homes By 2050

Miles beneath the surface lies one of the hottest solutions to the energy shortage: geothermal power. Although it currently accounts for less than 1% of US electricity generation, this carbon-free energy source provides reliability and versatility across various weather conditions, albeit at a higher production cost compared to solar and wind. With growing attention on renewables, electricity shortages, and power-hungry data centers gobbling up our energy, utility giants are increasingly looking to farm the heat beneath our feet.

• Key players like BP ($BP) and Chesapeake ($CHK) have invested significantly in geothermal startups in recent years.

• Trader John Arnold expects the “oil-and-gas industry to either buy or build their way to be significant players in advanced geothermal” (WSJ).

The only path forward… Making it more affordable. Fervo, a private geothermal operator, announced a $244M investment yesterday, achieving significant strides by cutting drilling costs nearly in half in recent years. Oil and gas companies are also repurposing old wells into geothermal plants, leveraging fracking tools for exploration. Meanwhile, Ormat Technologies ($ORA), a leading US geothermal plant operator, continues to see steady profitability growth.