Hits and misses: X marked the rot in US tech

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After the record highs of 2021 and the lows of 2022, Lex guessed that 2023 would divide the US tech sector. Big, established companies would have a good year, using their cash piles to buy shares and scoop up acquisitions. Start-ups would struggle.

We were mostly right. But the strength of excitement surrounding generative artificial intelligence exceeded our forecasts. 

Rising interest rates hammered the prospects of unprofitable high-growth companies that hoped to raise funds or join markets. This was the second-worst year in a decade for venture capital exits, according to PitchBook data. Instacart’s poor market reception served as a warning to those who took the plunge to list on markets.

The digital advertising market recovered better than we expected. That has helped Meta, though we remain sceptical that there is much consumer demand for its virtual reality technology. Reality Labs continues to report consecutive quarters of falling revenue and multibillion-dollar operating losses.

Elsewhere in social media, we cheered Elon Musk’s eye-catching rebrand of Twitter while acknowledging that the $44bn acquisition was a poor deal for both the company and its new owner.

Torching the value of his new company by demolishing its globally recognised name was just one of Musk’s errors. Even hiring chief executive Linda Yaccarino, who had ties to the advertising sector, could not repair the rift. Companies remain rightly wary of X’s decision to cut content moderation and its owner’s volatile persona. Musk even denounced reticent advertisers in public. Many of the largest, including Apple and Disney, have jumped ship. 

Lex was also right that 2023 was the year to invest in the picks and shovels of AI. The gains for chip and cloud computing companies continue to mount. In May, Nvidia became the world’s first trillion-dollar chip company.

Microsoft, an early investor in OpenAI, is outpacing rivals in cloud computing.

We had assumed that elsewhere, investors would want proof of generative AI demand before inflating valuations much further. We were wrong. At the beginning of the year OpenAI, whose AI-powered chatbot ChatGPT sparked the AI boom, was valued at $20bn. By the end of the year, it was in talks for a share sale that would confer an $86bn valuation.