This week on Equity Mates

Hey there Equity Mate,

As we get to the end of January and everyone returns from their breaks, activity in the share market is heating up. Once a darling of the Australian share market, Appen is down 50% year-to-date and suffered its biggest blow this week as Google cut its contract.

Over in the United States it is Google and it’s peer leading the market higher. The Nasdaq-100 index is up 5% for the year already. No prizes for guessing the company leading the charge, Nvidia is up 24% year-to-date.

Here at Equity Mates we continue with our Summer Series on both Equity Mates and Get Started Investing podcasts. Here’s a look at what we’ve released this week:

• Equity Mates Investing (Apple | Spotify)

  • The Aussie small cap taking on the tech giants - Dropsuite

  • Riding the boom in aesthetic medicine - InMode

• Get Started Investing (Apple | Spotify):

  • Saving and investing during a cost of living crisis

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Your questions, answered

Eleanor asked via email:

What are my options when it comes to claiming work expenses while working from home? How do I calculate it?

We put Eleanor’s question to Andrew Wilson, Managing Director at Wilson CA:

This is an excerpt from the Ask An Advisor episode we did with Andrew.

There are now two methods [to work out your work from home deductions] - they are the revised fixed rate method and the actual cost method.

Under the fixed rate method, you're entitled to claim $0.67 per hour that you work from home. But that hourly rate covers things such as your data and phone usage, electricity and gas, printer ink, stationery and the like.

So it's good to keep some kind of record for the days and hours that you work. And then on top of that, there are some other separate deductions you can include - things like office desks and computers and cleaning, but only if you have a dedicated office space.

If you set up your laptop and you're watching State of Origin in your lounge room, and you're also working in there then you can't claim for cleaning your lounge room. But if you've got a spare bedroom in a designated space, you can include those additional costs.

The second method is the actual cost method and is a bit more onerous, but it's probably more advantageous for people who generally work heavily at home and have the ability to keep track of their actual costs.

They're allowed to capture all those internet, mobile phone, electricity and gas and the like on an actual cost method. The deductions can be heavier and you can claim more, but obviously the record keeping requirements attached to that are more onerous.

If you have a question you’d like answered, hit us up at ask@equitymates.com

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What we’ve been reading

TSMC hedges against a CHIPS Act fail

One of the Biden Administration’s biggest achievements has been the CHIPS Act, designed to respond to the thread from China and protect America’s technological advantage in semiconductors. The Act allocated $280 billion to bolster American semiconductor manufacturing, invest in research and create regional tech hubs across America. 16 months since the bill passed, the largest semiconductor manufacturer in the world - TSMC - is starting to position itself for the failure of this industrial program.

When the CHIPS Act was passed, the aim was to onshore semiconductor manufacturing from the biggest players - TSMC and Samsung - while also reinvigorating America’s former giants - namely Intel. However, to date, only two grants have been made under the program - $35 million to BAE Systems and $162 million to Microchip Technology - and both of these companies are making older-style chips, rather than the advanced chips that are the focus of US-China competition.

There has been some progress with these advanced manufacturers. At the time the CHIPS Act passed, TSMC announced a $40 billion manufacturing plant in Arizona. However, since then, it has seen multiple delays that the company blames on “insufficient amount of skilled workers”. TSMC has also reportedly struggled to get any funding from the CHIPS Act. Both Samsung and TSMC have claimed that the US Department of Commerce is attaching strings to these grants that they cannot agree to, including the sharing of confidential information about operational details and customers.

And while America flounders, the rest of the world is catching up. Taiwan passed its own version of the CHIPS Act in early 2023, South Korea announced a $471 billion plan over 25 years and recent reports are that the Japanese government has offered TSMC incentives to build more advanced fabrication plants there. So any failure of the US government to support the industry will see plenty of willing countries step in. It’s a good time to be a semiconductor manufacturer.

Google shut the door on competition, AI swung it back open

This article comes from Drew Cohen of Speedwell Research, who joined us on the podcast in October last year (Apple | Spotify). In this article he writes about Google’s changes over the past decade and how artificial intelligence poses the biggest competitive risk they’ve seen since the early days of search.

The article starts with Google’s ‘I’m Feeling Lucky’ button. Younger users of the search engine may not be familiar with it (although it still exists if you go to Google.com) - it was a button that took you directly to the first result of the web search rather than displaying a page of the search results.

As Google’s ad business grew, the ‘I’m Feeling Lucky’ button started to become a business problem. When users went directly to the webpage, they weren’t served up ads. Business Insider estimated in 2010 that the button was costing Google $100m a year.

This story illustrates one of the biggest competitive threats Google faces in 2024: AI search. Much like the ‘I’m Feeling Lucky’ button, chatbots like ChatGPT and Google Bard offer users a way to search without encountering Google’s ads. Even if a user was to stay in the Google ecosystem and use Bard rather than Google Search, they become a far less profitable user.

That is just one challenge that Google faces as it celebrates its 20th anniversary as a listed company. As this article unpacks, the company faces challenges from AI, from Big Tech peers and from new technologies.

Google has been challenged before. Many thought the mobile phone revolution would lead to more ‘app-first’ searches over ‘browser-first’ searches (i.e. you open the Expedia app to search for hotels rather than doing a Google search). However, that threat never truly materialised. The question for investors is: will the potential threat of AI be different?

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