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My efforts to find great companies is primarily based on analyzing the fundamentals of each company. It is almost impossible for the average investor to directly understand the effectiveness of a company’s IT spending. Luckily, we don’t have to because that effectiveness should result in growing revenue and growing profitability (which we can directly monitor).

As you read the annual reports of companies though, an important consideration is the CEO’s comments about how IT investment is helping the company. If you fail to see this line of commentary, it should be a red flag for you. Conversely, a strong emphasis by the executives on IT spend that offers competitive advantage should at least be a signal to you to continue watching the company’s performance.

From the cited WSJ article (article may be behind a paywall):

The secret of success for Amazon, Google and Microsoft is how much they invest in their own technology.

New data suggests that the secret of the success of the Amazons, Googles and Facebook s of the world—not to mention the Walmart s, CVSes and UPSes before them—is how much they invest in their own technology. IT spending that goes into hiring developers and creating software owned and used exclusively by a firm is the key competitive advantage. It’s different from our standard understanding of R&D in that this software is used solely by the company, and isn’t part of products developed for its customers.

Source: Why Do the Biggest Companies Keep Getting Bigger? It’s How They Spend on Tech

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The world’s largest tech companies further their advantage by building out extensive, global networks to deliver online services to businesses and consumers. This has never been an inexpensive endeavor, but the need for further sophistication and computing power has the bills growing larger each year and there are no signs of a slowdown on the horizon.

Take, for example, the largest three U.S.-based operators of cloud computing services. Amazon.com [stckqut]AMZN[/stckqut], Microsoft [stckqut]MSFT[/stckqut], and Alphabet Inc.’s[stckqut]GOOGL[/stckqut] Google had a combined $41.6 billion in capital expenditures and capital lease deals in 2017. That is up 33% from the previous year and represents an acceleration from the 23% growth in spending seen in 2016. Not all of this goes to data-center construction, though all three have identified network expansion as a major area of focus for their capital spending plans.

Source: Cloud Bills Will Get Loftier

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Nvidia[stckqut]NVDA[/stckqut] may have only high-quality problems these days, but it still needs to solve them.

One problem the chip maker has is that it seems to be selling all the chips it can make. Nvidia’s graphics processors, also called GPUs, are in hot demand by everyone from giant tech companies building data centers to videogamers to cryptocurrency enthusiasts. The latter two in particular are competing for the type of GPU cards used in supercharged PCs, causing a shortage that began last summer but seemed to have worsened later in the year as the value of cryptocurrencies continued to soar.

That gave a boost to what was already a strong year for Nvidia. Revenue from the company’s gaming segment jumped 33% to a record $5.5 billion for the fiscal year ended Jan. 28. This included an unspecified contribution from crypto demand, as well as the chips the company sells to Nintendo that are used in its popular Switch console.

Nvidia is a “fabless” chip company that outsources the actual manufacturing of its chips to others. CEO Jensen Huang said on the company’s earnings call Thursday that it is working with its partners to “catch up to that demand.”

Source: Nvidia’s Cryptic Road Ahead

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What a great year 2017 was for investors. No matter what your risk appetite nor your investing/trading strategy, you almost definitely ended the year with more money in your portfolio than you started with.

S&P 500 $SPY +19%
Dow Jones $DIA +24%
Nasdaq-100 $QQQ +31%
Long 20+ Year Treasuries $TLT +6.5%
Gold $GLD +13%
Emerging Markets $EEM +33%
Junk Bonds $JNK +1%
Bitcoin $BTC.X +93%

 

How did you do with your portfolio?

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Morgan Stanley analyst James Faucette and his team sent a research note to clients a few days ago suggesting that the real value of bitcoin might be … $0.

That’s zero dollars. (Bitcoin stood at around $14,400 at the time of writing.)

The paper (titled “Bitcoin decrypted”) did not give a price target for bitcoin.

But in a section titled “Attempts to Value Bitcoin,” Faucette described why it is so hard to ascribe value to the cryptocurrency. It’s not like a currency, it’s not like gold, and it has had difficulty scaling. He concluded:

• Very difficult question to answer, but some points to consider

• Can Bitcoin be valued like a currency? No. There is no interest rate associated with Bitcoin.

• Like digital gold? Maybe. Does not have any intrinsic use like gold has in electronics or jewelry. But investors appear to be ascribing some value to it.

• Is it a payment network? Yes but it is tough to scale and does not charge a transaction fee.

• Bitcoin average daily trading volume of $3bn (last 30 days) vs $5.4 trillion in the FX market.

• Est. <$300mn in daily purchase volume vs. $17bn for Visa.

“If nobody accepts the technology for payment then the value would be 0,” Faucette suggested.

Of course, even if bitcoin can’t be used to buy goods it is still largely exchangeable for fiat currency.

Source: Morgan Stanley on bitcoin: ‘the value would be 0’ – Business Insider