This is a blog series based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders and investors. It is designed to keep you engaged in an ongoing discussion on investing in innovation.
1. Commercial Drone Deliveries Are On the Horizon
Both GoogleGOOG and AmazonAMZN just received approval to test non-line-of-sight operations, a major step forward for the future of commercial drone deliveries. Until last week, the FAA did not allow drones to fly beyond the line of sight of the operator, preventing most of the benefits of drone delivery. Last week, after UK regulators gave Amazon the okay to test non-line-of-sight drone operations, the FAA approved Google’s Project Wing to do the same. The FAA may have been motivated by the risk that other industry players might move their commercial drone operations abroad. Whatever the case, ARK is looking forward to watching drone deliveries take off.
ARK’s research suggests that, if approved today, Amazon’s drones could deliver a five pound package over a ten mile radius in less than 30 minutes for $1, which our analysis suggests would enable Amazon to break even after the first year!
2. Is Machine Learning the Future of Auto Manufacturing?
TeslaTSLA made a number of interesting announcements in its most recent earnings call. Among them were plans to design and manufacture its own camera chip, displacing MobileyeMBLY, and plans to design and manufacture its own inverter for solar and energy storage, displacing SolarEdge. Elon Musk also described Tesla’s emerging autonomous driving capability as “mind blowing”.
ARK is focused on Tesla’s commitment to massive improvements in its manufacturing efficiency. Musk reiterated, in last week’s earnings call, that its cars will be manufactured more efficiently by an order of magnitude as robots take over the assembly line. After the Gigafactory tour, Electrek noted that while the Fremont factory had mainly Kuka robots, the Gigafactory had mainly Fanuc robots. In this regard, it has been reported Fanuc has taken a small stake in an artificial intelligence company, Preferred Networks, and has demonstrated the ability to connect robots and have them teach each other how to accomplish a task.
While other auto manufacturing plants have not changed for decades, Tesla has been populating its factories with robots that learn and improve over time. Tesla has had lots of practice during the past few years as the performance of the Model S and Model X has improved continuously thanks to the power of software updates.
3. The Bitfinex Hack
Bitfinex, the most liquid dollar-based bitcoin exchange in the world, was hacked this week to the tune of at least 120,000 bitcoin, which were valued, at time of the hack, at approximately $75 million. Unfortunately, Bitfinex had decided to store all of its customers’ funds in “hot wallets” rather than the much safer process of “cold storage.” A hot wallet is connected directly to the internet, whereas “cold storage” provides a physical barrier between the wallet and the internet. Coinbase’s cold storage infrastructure, for example, would have forced the hacker first to break physically into a number of safes around the world, then to gather various pieces of information needed to hack the safekeeping system and, finally, to identify the private keys necessary to unlock and steal the bitcoin. Coinbase stores 98% of its customers’ bitcoin in cold storage.
Given this hack, use of cold storage should and likely will become an industry standard. Please tune into ARK’s interview on Bloomberg Canada for a more detailed explanation of this topic.
Ironically, while this hack seemingly gives bitcoin another reputational black eye, it actually shines a positive light on the security and functionality of Bitcoin’s blockchain. Bitfinex is an application riding on top of Bitcoin’s blockchain. While the underlying blockchain continued to remain robust and secure during the Bitfinex hack, the Bitfinex app, affixed to the blockchain, was hacked. By prioritizing liquidity over security and storing 100% of its customer funds in “hot wallets”, the Bitfinex exchange app was more easily susceptible to being hacked. Bitcoin’s blockchain was not.
4. Facebook Unveils Its Hardware Ambitions
This week, FacebookFB unveiled its new “Area 404” hardware lab to the world. Populating the 22,000 square feet facility are milling machines, sheet-cutting water jets and an electron microscope. During the next few years, Facebook will use Area 404 to fast-track the development of the Oculus headset, the Aquila drone, its Aries antenna, and its server hardware.
Some highly profitable Internet companies seem to be investing in diverse fields these days. Google’s ambitions span from life extension to robotics, while Tesla and SpaceX have significantly expanded their reach from their roots at PayPal.
However, unlike the venture capital style of investing, favored by companies like Google and SoftBank, Facebook’s approach is strictly mission driven: it focuses every project on connecting the world, in keeping with its ten-year roadmap. This year, it will spend a fraction of Apple’s $12 billion investment in plant, property, and equipment, perhaps only 3% as much, or $360 million and only 1% of revenue, to extend its ten-year runway.
5. Big Pharma Meets Tech Giant
In a surprising announcement this week, GlaxoSmithKlineGSK and Verily, Google’s life science R&D arm, will be creating a new company focused on “electroceuticals.” Galvani, as the two collaborators have named it, will create and produce nanochips which will stimulate and alter the activity of human organs. The collaborators will invest up to $700 million into Galvani with initial plans to focus on metabolic and autoimmune diseases.
The concept of stimulating nerves to impact disease progression is not new, but it still raises eyebrows. The magnitude of Galvani’s investment suggests that both companies have high conviction in this space. While Verily’s leadership has drawn questions about its commitment to past research projects, time will tell if GSK chose the right partner for its vision.
6. The NIH Has Lifted The Ban on Funding Human-Animal Stem Cell Research
The National Institutes of Health (NIH) announced on Thursday that it would lift a funding ban on some research that injects human pluripotent stem cells into animal embryos. Prior concerns had centered on the potential for and risks of procreation between human and animal chimeras. Organ transplantation research could be a prime beneficiary of the lifting of this ban. Gene-editing technology, in particular CRISPR-Cas9, could play an important role in this research which, ARK believes, will remain highly regulated in laboratory settings.
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