AI Down, Oil Up, WeWork Bankrupting?

There are a few things happening in the markets to talk about.

To start, the enthusiasm for AI appears to be waning, as stocks related to artificial intelligence have started to undergo corrections in the recent days, along with the broader technology sector.

Here are some AI related stocks and their one day price change and year-to-date performance:

Despite the drop, these stocks have delivered good returns year-to-date. It is a natural course for overextended stocks to correct. The same can be said for the US stock market in general. S&P 500 and Nasdaq QQQ are still up 17% and 39% respectively.

Thus, a correction is justifiable, and it's possible that we could observe additional pullback in the stock market in the upcoming days or even weeks. However, as highlighted in the previous post, my anticipation is that this correction will remain under 20%, rather than a significant plummet, unless there are extremely unfavorable developments. This could present a favorable opportunity for investors to search for undervalued stocks suited for long-term holdings.

Conversely, crude oil has experienced a 13.6% increase compared to its value a month ago. It was trading below $70 per barrel in June, and now it has ascended beyond $80 per barrel.

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However, this doesn't necessarily indicate a resurgence of inflation. In contrast, certain commodities like corn have undergone a 13% decline in price over the past month. Additionally, for higher prices to have an impact on consumer products, these price gains need to sustain for a longer period.

Lastly, WeWork has raised doubts about their ability to continue as a going concern in its latest filing. In other words, WeWork is facing liquidity issues and may face insolvency.

WeWork is still losing money, $700 million for the first half of 2023, after losing $2.3 billion in 2022. As of June 30, it had $205 million in cash and operating cash flow was an outflow of $530 million for the last six months. WeWork needs a cash injection soon to survive.

The share price has tumbled 91% since its IPO at the start of the year:

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There was just too much hype with WeWork. Essentially, it's a real estate company disguised as a technology firm. WeWork received an excessively inflated valuation during a time of low-cost funding and elevated tech premiums. However, the situation has changed, and now that the favorable conditions have diminished, investors began to wake up to the issues in WeWork.

Another player in the co-working space, International Workplace Group (IWG), which possesses brands like Regus and Spaces, has also been grappling with losses for years. The silver lining is that it's managing to survive without encountering the financial woes experienced by WeWork.

Nevertheless, this situation highlights that the office subletting business model isn't proving to be effective, and it's advisable to steer clear of investing in it. In fact, given the permanent changes in office real estate demand following the Covid-19 pandemic, I consider it a risk area to be avoided.