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This Week in European Tech with Dan Bowyer, Mads Jensen, Lomax Ward and Andrew J. Scott

Welcome to a new episode of the EUVC podcast, where our good friends Dan Bowyer and Mads Jensen from SuperSeed in a discussion with Andrew J. Scott, Founding Partner at 7percent Ventures and Lomax Ward, General Partner at Outsized Ventures, cover recent news and movements in the European tech landscape 💬

Watch it here or add it to your episodes on Apple or Spotify 🎧 chapters for easy navigation available on the Spotify/Apple episode.

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✍️ Show notes

Apple Will Win Consumer AI

In the race for consumer AI dominance, Dan Bowyer argues Apple is positioned to lead due to its unparalleled ecosystem and strategic focus on voice technology.

Key Points:

  • Interconnected Ecosystem: Apple controls 2.2 billion devices globally, including 1.5 billion iPhones, with 87% of U.S. teens using iPhones. This integration sets it apart from fragmented ecosystems like Android.

  • Voice as the Next Frontier: Siri, powered by partnerships like OpenAI, could become the go-to consumer AI standard, rivaling ChatGPT. Apple aims to make voice commands seamless across apps, leveraging its ecosystem's cohesion.

  • Execution Over Innovation: While some argue Apple has lost its innovative edge, others point out that its strength lies in execution, stitching together technology into cohesive consumer experiences.

  • Mixed Reality Synergy: Voice commands will play a pivotal role in emerging mixed-reality devices, a trend Apple can capitalize on despite challenges like Vision Pro's limited success.

OpenAI Will Be Dethroned as the AI Leader

Despite its stronghold in the AI space, OpenAI faces mounting challenges from rivals like Google, xAI, and Anthropic, all vying for dominance in raw model performance and next-gen applications.

Key Points:

  • Rising Competitors: OpenRouter data highlights Anthropic as the leader in next-gen embedded applications, followed by Meta/Llama, Deepseek, and Google/Gemini.

  • Global Innovation Push: The emergence of cost-efficient models like Deepseek from China showcases innovation outside the U.S., challenging OpenAI's dominance.

  • Internal Challenges: OpenAI’s leadership instability and increased competition for top talent pose significant risks to its market position.

We Will Get a Recession in the US: What Will It Mean for Europe?

Mads Jensen predicts that the US economy is headed for a recession in 2025, with clear warning signs from multiple financial indicators. This recession could have significant implications for Europe’s already sluggish economy.

Key Points:

  • Deteriorating US Financial Indicators:

    • Fed funds rate has dropped by 100 basis points since September 2024, yet Treasury yields have risen by the same amount to approximately 4.6%.

    • Chicago PMI is weak, signaling a looming recession.

    • Credit card delinquency rates for subprime borrowers reached 22%, the highest since 2010.

    • Credit card providers wrote off $45 billion in 2024, the largest figure since 2010.

  • Commercial Real Estate Challenges:

    • Delinquency rates on commercial office loans are at 11%, exceeding the 2012 peak.

    • Small banks, which control 67% of commercial real estate loans, are under stress, echoing but compounding the instability seen in 2022.

  • Potential Spillover to Europe:

    • Europe’s economic outlook is already fragile due to slow growth and political gridlock in key economies like Germany, France, and the UK.

    • A US recession could exacerbate Europe’s challenges, slowing exports and investment while amplifying financial instability.

  • Market Concentration Risks:

    • The US stock market’s narrow rally is highly concentrated, with the top 10 companies making up 40% of the S&P 500 and just three companies—Apple, Nvidia, and Microsoft—accounting for 20%. A downturn in these stocks could trigger wider market panic.

There will a major stock market correction in 2025

The market correction predicted for 2025 will likely have widespread implications. What are the key transmission mechanisms that could affect growth globally?

Key Points:

1. Market Corrections and Global Impacts

  • Will there be a major stock market correction in 2025?
    A significant correction in the U.S. stock market could have widespread effects, given its central role in the global economy.

Transmission Mechanisms:

  • Stock market corrections reduce household wealth, which dampens consumer spending and slows economic growth (wealth effect).

  • U.S. exports play a modest but impactful role for Europe:

    • 7% of UK GDP depends on exports to the U.S.

    • 4% of EU GDP depends on U.S. exports (22% of the UK’s total exports, 20% of the EU’s).

  • Second-order impacts could lead to further stock market volatility in Europe and beyond.

2. Tech Sector Resilience or Strain?

  • How will the tech sector fare during a correction?

    • Enterprise software startups selling into the U.S. could face challenging quarters as corporate budgets tighten.

    • However, the transformative nature of technology may buffer these effects, keeping the downturn relatively shallow for innovative companies.

3. Bigger Picture: U.S. vs. Europe

  • Why is the U.S. pulling ahead in growth and innovation?

    • U.S. economic growth continues to outpace Europe, underpinned by nearly double the R&D investment:

      • U.S.: 3.5% of GDP invested in R&D.

      • Europe: 2.22% of GDP invested in R&D (on a smaller GDP base).

    • An impressive 92% of U.S. R&D now traces back to VC-backed companies, emphasizing the role of venture capital in driving innovation.

Implications for Europe:

  • To compete, Europe must create conditions for more scaleups, fostering the next wave of trillion-dollar companies.

  • Scaling up isn’t just about startups; it’s about ensuring growth-stage companies can thrive on a global stage.

4. The Concentration of Market Power in the U.S.

  • How concentrated is the U.S. stock market?

    • The top 10 stocks now account for 40% of the S&P 500 index.

      • Notable players include Apple, Nvidia, Microsoft, Broadcom, Berkshire Hathaway, and JPMorgan Chase.

    • The top three alone—Apple, Nvidia, and Microsoft—make up over 20% of the index.

What does this mean for investors?

  • Free cash flow (FCF) of these top 10 companies is at its highest level in history (~27%). These companies are extremely valuable and profitable.

  • However, the index is heavily concentrated, leaving it vulnerable to downturns in just a few stocks.

5. M&A: A Bright Spot Amid Market Challenges

  • Why will M&A activity pick up in 2025?

    • Despite market turbulence, M&A is expected to thrive:

      • Pent-up demand: Several years of delayed deals will create momentum.

      • Higher interest rates: Rates will remain elevated but not high enough to derail transactions.

      • Valuation resets: Recession-driven adjustments in valuations will create opportunities for deals.

      • Leadership change: With Andrew Ferguson replacing Lina Khan as FTC Chair, regulatory barriers will ease, making M&A more feasible.

Opportunities for Shareholders:

  • Liquidity events will increase, offering exits for those willing to accept less-than-ideal valuations.

  • Founders and VCs should consider these opportunities strategically to weather market uncertainty and capitalize on liquidity events.

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