🛜💻 High-Speed Internet For All!
Happy Wednesday all,
I included a really interesting Twitter thread below that helps visualize the benefits of investing for the long term. There are some cool charts that put into perspective seemingly catastrophic bear markets and show how those who had a long-term mindset with investing always came out on top, historically. Be sure to check it out and let me know your thoughts!
This week, we discuss the Biden administration’s plan to provide universal broadband coverage to the entirety of the U.S., including U.S. territories. It’s an ambitious plan, but let’s see who stands the most to gain as part of passing this deal.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
Tweet of the Week
The Weekly Brief
U.S. Considers New Curbs on AI Chip Exports to China (WSJ)
The Biden administration is exploring restricting the export of AI chips to China over the fear of the power of the technology in the hands of U.S. rivals. As soon as next month, exports of chips made by Nvidia and other chip makers to customers in China + other countries of concern may be blocked without the proper license. This comes after the Biden administration already restricted China’s access to the most advanced chips made by Nvidia and AMD last year.
Why Does It Matter?
China is a big market for Nvidia which recently surpassed a $1T market cap briefly after a surge in demand fueled by an AI boom. Nvidia responded to last year's restrictions by making a chip that fell below performance thresholds outlined by the Commerce Department: the A800. However, the new restrictions would ban the sale of even A800 chips without a license.
Meta Launches VR Subscription Service That Costs $7.99/mo (CNBC)
Meta announced Meta Quest+: a VR subscription service that allows subscribers to play new games on the first of each month for $7.99. The move to launch a subscription service marks Meta’s latest efforts to generate recurring revenue from its Reality Labs unit, which recorded an operating loss of almost $4B in Q1 2023.
Why Does It Matter?
As the namesake for the entire company, Meta is banking on the success of VR to eventually become the future of the business. The market is not confident that VR will fully be adopted, with the stock falling 3.5% following the announcement. Reality Labs is burning a LOT of cash while only generating $339M in revenue.
U.S. Business Activity Growth Slows in June, but Services Keep Humming Along (Reuters)
U.S. business activity declined to a three-month low in June, with services growth easing and the manufacturing sector contracting. The Fed’s decision to pause rate increases at its last meeting seemed to bolster optimism in the service industry, which has become the major driver of growth. Despite the Fed’s aggressive interest rate increases over the past year, however, overall U.S. economic growth ticked upwards around 2% in Q2.
Why Does It Matter?
Investors are pricing in the Fed to return to raising rates by 0.25% at its meeting next month. Experts say, though, that they do not expect the Fed to continue raising rates beyond the next meeting.
Hump Days Scoop
In 2021, the Biden administration signed a $1T infrastructure bill that included funding under the Broadband Equity Access and Deployment Program. On Monday, the White House spread $42B among the nation’s 50 states and U.S. territories in an effort to bring universal high-speed broadband access by 2030.
What is driving the government’s push for high-speed broadband access?
In President Biden’s public remarks on Monday, he mentioned that 24M Americans lack high-speed internet, with many millions facing limited and unreliable service. The effects of not having universal broadband coverage were particularly exacerbated during the Covid-19 lockdowns, which forced many to work and study from home. Those who felt the consequences of not having universal broadband access were low-income and rural students/employees attempting to adapt to the online way of living.
Biden likened the expansion to FDR’s Rural Electrification Act of 1936 which brought access to electricity to almost 80% of farming communities. He added that internet access now is just as important as electricity was back when FDR was in office.
How will the government execute this initiative?
The money was allocated based on a map from the Federal Communications Commission (FCC) that detailed gaps in access. In order to get access to 20% of the funding, states are expected to submit initial plans later this year for how they will build out the infrastructure. Once those plans are finalized, the government will release the remaining funding.
At the top of the funding list are the two most populous states: Texas and California, which will both receive $3.1B and $1.9B, respectively. Virginia, Alabama, and Louisiana can also be found in the top 10 due to their large rural areas and lack of broadband infrastructure.
Who are the winners of this deal? Any losers?
Telecommunication companies win big as a result of this deal. Broadband companies such as Verizon VZ 0.00%↑, Comcast CMCSA 0.00%↑, and AT&T T 0.00%↑ have not provided access to low-population, rural communities due to the lack of profitability in servicing these areas. Now with government funding, these telecom companies have more incentive to provide access to a new, albeit small, subscriber base.
President Biden stands to gain by demonstrating how the legislation that was passed when his Democratic Party controlled Congress will benefit average Americans. His 2024 re-election bid will definitely chalk this up as a win.
Underserved areas see a big win with the initiative prioritizing connecting areas without internet access before bolstering service to speeds of 100Mbps/20Mbps. The proposals from the state must also have plans for schools, libraries, and other community institutions.
The only issue with the deal is that the proposals could take until 2025 to finalize with the promise of connecting the entirety of the United States by 2030; it’s going to take a long time.
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