Arm Holdings plc (NASDAQ:ARM) is one of the 10 Best Semiconductor Stocks to Buy Right Now. On August 17, Jay Goldberg, an analyst at Seaport Global, initiated coverage on the company’s stock with a “Buy” rating and set a price objective of $150. As per the analyst, Arm Holdings plc (NASDAQ:ARM) is recognized for its significant value in the broader semiconductor industry, with a focus on expanding into new markets and enhancing its content offerings. This strategic direction is anticipated to fuel growth and increase Arm Holdings plc (NASDAQ:ARM)’s share of the industry’s value. Overall, the analyst noted the company’s potential as it embarks on the ambitious expansion.
Seaport Global Initiates Coverage on Arm Holdings (ARM) Stock
In Q1 2026, the company’s Royalty revenue rose 25% YoY to $585 million, with growth coming from all target end markets, such as data center, automotive, smartphones, and IoT. This highlights the momentum the company has been building throughout every corner of its business. Arm Holdings plc (NASDAQ:ARM) continues to increase its revenue beyond mobile via the broadening range of products, such as CPUs and systems for markets like cloud, automotive, and IoT/embedded compute.
While we acknowledge the potential of ARM as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
(Bloomberg) — A selloff in the world’s largest tech companies weighed heavily on stocks, while Treasury yields climbed amid bets the Federal Reserve will take a more measured approach on rate cuts.
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Equities extended losses into a third straight day, with the S&P 500 breaking below 5,800. Nvidia Corp. tumbled 4%, leading megacaps lower. Apple Inc. slid 3% after a closely followed analyst said iPhone 16 orders were cut by about 10 million units from the fourth quarter through the first half of 2025. As Tesla Inc. gets ready to report its results, Wall Street will be watching for signs that slowing sales are close to a trough.
FED: ECONOMIC ACTIVITY LITTLE CHANGED IN NEARLY ALL DISTRICTS
Investors face a number of risks that could be making them less willing to jump into the market: The next three weeks capture big tech earnings, October’s payrolls report, and the US election, followed by the Fed meeting. In another sign of Wall Street’s perception of future risk, the term premium on 10-year Treasury notes — an expression of the extra yield investors demand for owning the debt rather than rolling over shorter-term securities — hit the highest since November.
“This is about price exhaustion, this is about election exhaustion, it’s about campaign exhaustion, it’s about Fed exhaustion, it’s about policy exhaustion, it’s about geopolitical exhaustion,” said Kenny Polcari at SlateStone Wealth. “It’s about how stocks are stretched and it’s about the need for stocks to retreat, test lower, shake the branches, see who falls out and then move on.”
The S&P 500 fell 1.4%. The Nasdaq 100 dropped 2.1%. The Dow Jones Industrial Average slipped 1.3%. Boeing Co. dropped after signaling the company’s woes will take time to fix. Qualcomm Inc. got hit as Arm Holdings Plc canceled a license that allowed the company to use Arm’s intellectual property to design chips. Texas Instruments Inc. climbed after its results.
Treasury 10-year yields rose four basis points to 4.25%. A $13 billion sale of 20-year bonds tailed at the highest yield since May. The dollar rose against all of its Group-of-10 peers, on pace for its best month since 2022. The yen hit the lowest in almost three months, reviving concern that Japan may intervene. The loonie slid after the Bank of Canada stepped up the pace of easing.
Oil dropped as US crude inventories rose and the Biden administration renewed efforts to secure a cease-fire in the Middle East. Gold declined from a record.
To Jonathan Krinsky at BTIG, equities are finally noticing the moves in bonds and the dollar. That’s a stark contrast to the moves in the last couple of weeks. The bullish narrative was that bonds were re-pricing to where they should be based on the stronger-than-anticipated economy, he noted.
“While that might be fair in the big picture, markets are always concerned with the velocity of the move rather than the overall level, and the fact that stocks didn’t flinch in the face of those moves suggested complacency,” Krinsky said. Whether this is the start of the pre-election jitters or not, we continue to see downside risk for equities broadly over the coming weeks, with an SPX pullback into the 5,500-5,650 zone a decent probability.”
Swap prices reflect less than a 100% certainty that the central bank reduces rates at each of its two remaining policy meetings this year. The bond market is also trimming bets on the degree of Fed rate reductions over the next year. Traders will get more clarity next week on how much officials are likely to ease, with the release of a key labor-market reading for October.
“The price of options to hedge against Treasury losses is soaring,” said Andrew Brenner at NatAlliance Securities. “In the US, it is about the election and potential sweep. That is what is being built into the rate structure, which is giving the vigilantes the green light. It will reverse, but it might take a severe employment number or a surprise in the election.”
“We would caution investors from reading too much into the recent rise in bond yields,” said Tiffany Wilding at Pacific Investment Management Co. “Over the past six major Fed rate-cutting cycles, the change in the 10-year Treasury yield a month after the first cut has not provided a consistent signal about the magnitude of further cuts or whether the Us economy falls into recession.”
In fact, yields rose in the month after the first cut more often than not, she noted.
“Equity market performance in the first month after the Fed starts cutting has been a similarly bad predictor of future economic performance (and market returns),” Wilding said. “Equities, more often than not, have tended to rise in the month after a cutting cycle begins, despite more significant divergence as time goes on.”
Looking at the same starkly different cycles of 1995 and 2007, equity returns (proxied by the rate-sensitive Russell 2000 of small caps) in the month after the first cut were positive in both cycles (at 4.6% and 6.9%, respectively), Wilding said. However, equity market performance was down 4.4% in the year after the 2007 cut, while it was up 21% in the year following the 1995 adjustment.
“Even with the recent move in 10-year Treasury yields, we remain bullish on US large caps,” said Nicholas Colas at DataTrek Research. “History says to discount the idea that rates will blow out because of deficit worries, at least over the near term. Instead, we see higher yields as a sign that economic growth remains robust and corporate earnings growth should continue over the coming quarters.”
“All else equal, the more rate cuts that are removed for next year the less of an outlier reading it becomes for the market to achieve 15% earnings growth,” said Ryan Grabinski at Strategas. “However, additional rates cuts do not change the challenges the S&P faces with achieving that growth rate.”
Sales growth continues to show signs of slowing, and if analysts were suggesting rate cuts would reduce interest expense, that argument is beginning to recede, Grabinski said.
“Nearly 14% EPS margins continue to look more and more difficult to achieve,” he added. “The question is when does something give.”
“The equity market is extremely fragile considering the headwinds that are lurking right around the corner,” said Jose Torres at Interactive Brokers. “Earnings expectations are buoyant for next year, which increases the importance of forward guidance rather than past results.”
When considering that valuations are around 22 times next year’s profits, any disappointment in the outlook for the bottom line can significantly impact stock market performance, he added.
Corporate Highlights:
AT&T Inc. gained more mobile subscribers in the third quarter than analysts expected, continuing the winning streak from the previous period.
Hilton Worldwide Holdings Inc. lowered its profit outlook, as the addition of new hotels to its global system failed to offset slower travel demand.
Coca-Cola Co. dropped as investors weighed how much longer the soft-drink purveyor could raise prices without getting customers to buy more of its beverages.
Spirit Airlines Inc. jumped after the Wall Street Journal reported Frontier Group Holdings is exploring a renewed bid for the embattled carrier.
Capital One Financial Corp.’s proposed $35 billion acquisition of Discover Financial Services is being investigated by New York Attorney General Letitia James, who said the deal would have “significant impact” on consumers in the state.
Starbucks Corp. pulled its guidance for 2025, calling attention to the scope of the problems facing new Chief Executive Officer Brian Niccol.
McDonald’s Corp. is trying to contain the fallout from a severe E. coli outbreak that appears to be linked to onions in its Quarter Pounder sandwiches, which has killed one person and sickened dozens of people across the US.
Deutsche Bank AG said it will have to set aside more money than expected for souring debt, the second time this year it had to adjust its guidance.
Kering SA warned that its annual profit will fall to the lowest level since 2016 as a slump in Chinese demand for luxury goods hampers a turnaround of the French fashion group’s biggest label, Gucci.
Key events this week:
US new home sales, jobless claims, S&P Global Manufacturing and Services PMI, Thursday
UPS, Barclays earnings, Thursday
Fed’s Beth Hammack speaks, Thursday
US durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
The S&P 500 fell 1.4% as of 2:06 p.m. New York time
The Nasdaq 100 fell 2.1%
The Dow Jones Industrial Average fell 1.3%
The MSCI World Index fell 1.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.3% to $1.0771
The British pound fell 0.5% to $1.2913
The Japanese yen fell 1% to 152.65 per dollar
Cryptocurrencies
Bitcoin fell 3.2% to $65,331.83
Ether fell 6.4% to $2,464.88
Bonds
The yield on 10-year Treasuries advanced four basis points to 4.25%
Germany’s 10-year yield declined one basis point to 2.30%
Britain’s 10-year yield advanced three basis points to 4.20%
Commodities
West Texas Intermediate crude fell 1.2% to $70.85 a barrel
Spot gold fell 1.2% to $2,714.99 an ounce
This story was produced with the assistance of Bloomberg Automation.
Arm reported fiscal fourth-quarter revenue of $928 million Wednesday, marking a 47% year-over-year rise.
The performance was driven by Arm’s licensing business, which grew 60% to $414 million in the quarter. The firm cited “multiple high-value license agreements being signed” for AI chips.
Arm’s royalty revenue, meanwhile, grew 37% year over year to $514 million, with the company citing increasing penetration of its recently introduced Armv9-based chips, which have higher margins.
But it was Arm’s guidance that left investors unimpressed. For fiscal 2025, Arm said it expects revenue to come in between $3.8 billion and $4.1 billion. Analysts were expecting revenue of $3.99 billion for the full year, according to LSEG data.
For the 2025 fiscal first quarter — the current quarter — the company said it expects sales of $875 million to $925 million, compared with estimates of $857.5 million.
Citi analysts led by Andrew Gardiner noted that although Arm’s results for the fourth quarter beat expectations for the third straight quarter, the full-year guidance midpoint was slightly below consensus.
However, they stressed the importance of the strength of Arm’s licensing business looking ahead.
“Licensing upside both in F4Q and for FY25, which is being driven by the combination of AI needs and Arm’s provision of higher value v9 and Compute Subsystem solutions, is a positive leading indicator for future royalties,” they wrote in a note Thursday.
“The key for future royalty growth is upside from licensing today,” they added, reiterating their buy rating on the stock.
Arm is sometimes referred to as the “Switzerland” of the semiconductor industry.
Unlike chipmakers such as Nvidia, which makes and releases its own products commercially, Arm designs the “architectures” upon which chips are built.
It then licenses these designs out to other chip companies such as Qualcomm and Nvidia, charging royalty fees on each sale they make.
The company, founded in Cambridge, England, in 1990, was initially independent and listed in London, before a 2016 deal saw Japanese tech investor SoftBank acquire it for $32 billion.
U.S. name Nvidia subsequently tried to buy the company for $40 billion, but regulators effectively torpedoed the transaction by taking actions to block it over antitrust concerns.
SoftBank floated the company on the Nasdaq in September 2023. Arm’s shares have since more than doubled from its IPO price on the back of seismic demand for chips capable of running powerful generative AI applications such as ChatGPT.
The stock market debut was one of the technology industry’s first high-profile initial public offerings after they effectively ground to a halt in 2022 as higher interest rates knocked investor sentiment.
Correction: This story has been updated to correct the revenue estimates for the 2025 fiscal first quarter.
Stocks hit a rough patch after the Club’s March Monthly Meeting as Wall Street grappled with increasing odds of higher-for-longer interest rates. The S & P 500 and Dow Jones Industrial Average dropped more than 3%, respectively, from the close on the March 27 meeting day through Tuesday’s session. The tech-heavy Nasdaq Composite experienced a more-than-4% loss during the period. The losses would have been steeper if not for the strong start to this week. On Monday, the S & P 500 and Nasdaq snapped six-day losing streaks and followed that up with additional gains Tuesday. The sell-off had dragged the market into oversold territory, according to the S & P 500 Short Range Oscillator. That prompted the Club put its arsenal of cash to work , selectively purchasing shares of high-quality companies at attractive levels. After Tuesday’s gains, the market is no longer oversold, according to the S & P Oscillator. Here are our five top-performing stocks since the March Monthly Meeting. They span four sectors, ranging from financials to tech. WFC YTD mountain Wells Fargo (WFC) year-to-date performance Wells Fargo led the way, with shares jumping 5.8% over the period. The stock received a nice boost following the bank’s first-quarter earnings release — albeit on a delayed reaction. Wells Fargo beat on the top-and-bottom lines and disclosed a sizeable increase in stock buybacks during the period compared with the fourth quarter. “Talk about a vote of confidence,” Jim Cramer said after the results, referring to the boost in buybacks. The Club also was upbeat on management’s remarks about fee-based incomes growing as a percentage of Wells Fargo’s total revenue. Jim argued that fees reduce volatility and provide a great form of annuity for the bank. GOOGL YTD mountain Alphabet (GOOGL) year-to-date performance Alphabet stock rose 4.9% since the March Monthly Meeting, placing the Google parent in second place on the gainers list. Investor sentiment improved leading up to a string of generative artificial intelligence-related announcements during the company’s cloud-computing summit , Google Cloud Next. Most notably, Alphabet on April 9 announced a new Arm -based server chip and several generative AI service offerings. The event gave the Club more assurance of the company’s ability to compete in the heated AI arms race among Big Tech players. Shares hit an all-time high of $159.41 apiece on April 11, the final day of Google Cloud Next. The stock gave back some of those gains in the sessions that followed, but it is still less than 1% below its record peak. It closed Tuesday at $158.86 per share. PANW YTD mountain Palo Alto Networks (PANW) year-to-date performance Palo Alto Networks occupies the No. 3 spot, with shares advancing 4% since the March 27 close. The gains are welcome for the stock, which continues to trade well below where it did before a brutal post-earnings sell-off in late February. Although we don’t see one individual catalyst for the recent upswing, the Club holding continues to benefit from signs of increased demand for its cybersecurity offerings as the threat environment remains elevated. On March 30, for example, AT & T said that the telecommunications company was looking into a leak that resulted in millions of customers’ data getting published on the dark web. “Buy some Palo Alto on this,” Jim said after the high-profile cybersecurity incident. “We like that [stock.]” During the Club’s March Monthly Meeting, Jim told members that he’s tempted to add to our position if the stock falls under $280 per share — and we did just that April 8, picking up 25 shares around $268 each . EL YTD mountain Estee Lauder (EL) year-to-date performance Estee Lauder stock added 2.7% since the March Monthly Meeting, occupying the fourth spot on our list. Shares of the embattled cosmetics retailer have benefited from a slew of bullish Wall Street calls. On March 28, Bank of America upgraded the stock to a buy rating from hold, arguing Estee Lauder’s earnings have bottomed. The firm also raised its price target to $170 per share from $160. A few days later, Citigroup boosted the stock’s rating to buy from hold, adding that the company’s top line also is nearing an inflection point. On Thursday, we issued an upgrade of our own and added to our position that day , with the stock having essentially given up most of its post-earnings gains earlier in 2024. Estee Lauder remains a high-risk and volatile situation, but we’re hopeful that CEO Fabrizio Freda has finally righted the ship. Freda said during Estee Lauder’s most-recent earnings report that the company would return to profitability in the second half of the fiscal 2024 year. DHR YTD mountain Danaher (DHR) year-to-date performance Danaher rounds out the Club’s top performer’s list at No. 5 — and its 7.3% surge after earnings Tuesday is the reason for its inclusion. Overall, Danaher rose 1.7% since the March gathering The life sciences and diagnostics company posted earnings beats across its three main businesses. The results indicated the turnaround in the biotech industry has arrived, which should continue to support orders for Danaher’s offerings. “I have waited and waited and waited for this company to have the inflection, and this is the inflection,” Jim said Tuesday. (Jim Cramer’s Charitable Trust is long GOOGL, WFC, PANW, EL, DHR. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Traders work on the floor of the New York Stock Exchange (NYSE) on April 10, 2024 in New York City. As new inflation data released today showed a continued rise, stocks fell across the board with the Dow falling over 400 points.
Spencer Platt | Getty Images
Stocks hit a rough patch after the Club’s March Monthly Meeting as Wall Street grappled with increasing odds of higher-for-longer interest rates.
Reddit shares jumped as much as 70% in their debut on Thursday in the first initial public offering for a major social media company since Pinterest hit the market in 2019.
The 19-year-old website that hosts millions of online forums priced its IPO on Wednesday at $34 a share, the top of the expected range. Reddit and selling shareholders raised about $750 million from the offering, with the company collecting about $519 million.
The stock opened at $47 and reached a high of $57.80. At that price, the company had a market cap of about $10.9 billion. Reddit shares then dropped to $48.64 roughly a half hour after they began trading, giving the company a market cap of about $7.9 billion.
Trading under the ticker symbol “RDDT,” Reddit is testing investor appetite for new tech stocks after an extended dry spell for IPOs. Since the peak of the technology boom in late 2021, hardly any venture-backed tech companies have gone public and those that have — like Instacart and Klaviyo last year — have underwhelmed. On Wednesday, data center hardware company Astera Labs made its public market debut on Nasdaq and saw its shares soar 72%, underscoring investor excitement over businesses tied to the surge in artificial intelligence.
At its IPO price, Reddit was valued at about $6.5 billion, a haircut from the company’s private market valuation of $10 billion in 2021, which was a boom year for the tech industry. The mood changed in 2022, as rising interest rates and soaring inflation pushed investors out of high-risk assets. Startups responded by conducting layoffs, trimming their valuations and shifting their focus to profit over growth.
Reddit’s annual sales for 2023 rose 20% to $804 million from $666.7 million a year earlier, the company detailed in its prospectus. The company recorded a net loss of $90.8 million last year, narrower than its loss of $158.6 million in 2022.
Based on its revenue over the past four quarters, Reddit’s market cap at IPO gave it a price-to-sales ratio of about 8. Alphabet trades for 6.1 times revenue, Meta has a multiple of 9.7, Pinterest’s sits at 7.5 and Snap trades for 3.9 times sales, according to FactSet.
In addition to those companies, Reddit also counts X, Discord, Wikipedia and Amazon’s Twitch streaming service as competitors in its prospectus.
Reddit is betting that data licensing could become a major source of revenue, and said in its filing that it’s entered “certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years.” This year, Reddit said it plans to recognize roughly $66.4 million in revenue as part of its data licensing deals.
Google has also entered into an expanded partnership with Reddit, allowing the search giant to obtain more access to Reddit data to train AI models and improve its products.
Reddit revealed on March 15 that the Federal Trade Commission is conducting a nonpublic inquiry “focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models.” Reddit said it was “not surprised that the FTC has expressed interest” in the company’s data licensing practices related to AI, and that it doesn’t believe that it has “engaged in any unfair or deceptive trade practice.”
Reddit was founded in 2005 by technology entrepreneurs Alexis Ohanian and Steve Huffman, the company’s CEO. Existing stakeholders, including Huffman, sold a combined 6.7 million shares in the IPO.
As part of the IPO, Reddit gave some of its top moderators and users, known as Redditors, a chance to buy stock through a directed-share program. Companies like Airbnb, Doximity and Rivian have used similar programs to reward their power users and customers.
“I hope they believe in Reddit and support Reddit,” Huffman told CNBC in an interview on Thursday. “But the goal is just to get them in the deal. Just like any professional investor.”
Redditors have expressed skepticism about the IPO, both because of the company’s financials and its often troubled relationship with moderators. Huffman said he recognizes that reality and acknowledged the controversial subreddit Wallstreetbets, which helped spawn the surge in meme stocks like GameStop.
“That’s the beautiful thing about Reddit, is that they tell it like it is,” Huffman said. “But you have to remember they’re doing that on Reddit. It’s a platform they love, it’s their home on the internet.”
OpenAI CEO Sam Altman is one of Reddit’s major shareholders along with Tencent and Advance Magazine Publishers, the parent company of publishing giant Condé Nast. Altman’s stake in the company was worth over $400 million before the stock began trading. Altman led a $50 million funding round into Reddit in 2014 and was a member of its board from 2015 through 2022.
Reddit, the 19-year-old website that hosts millions of online forums, priced its IPO on Wednesday at $34 a share, the top of the expected range.
The offering brought in $519 million, according to a press release, and values the company at close to $6.5 billion. Reddit had planned to price the deal at $31 to $34 a share.
Reddit’s public market debut on Thursday, under ticker symbol “RDDT,” will be the first for a major social media company since Pinterest’s debut in 2019 and one of the very few venture-backed tech deals of the past two years. Reddit sold 15.28 million shares in the offering, while existing shareholders sold another 6.72 million.
The company is taking a haircut from its private market valuation of $10 billion in 2021 at the peak of the tech boom. Soaring inflation and rising interest rates pushed investors out of risky assets in 2022, eventually forcing startups to downsize, slash their valuations and focus on profit over growth.
On Wednesday, data center hardware company Astera Labs went public, and saw its shares skyrocket 72%, as investors flock to anything involving artificial intelligence. However, the IPO market has been in an extended dry spell for more than two years, with Instacart, Klaviyo and Arm Holdings among the few tech companies to hold offerings over that stretch.
Reddit’s core business of online advertising faces competition from industry giants like Alphabet and Meta. The company also counts Snap, X, Pinterest, Discord, Wikipedia and Amazon’s Twitch streaming service as competitors, according to its prospectus.
Revenue increased 20% last year to $804 from $666.7 million in 2022. Its net loss in 2023 was $90.8 million, marking an improvement from the $158.6 million net loss it recorded the previous year.
The company has said in filings that data licensing could become a big money maker, and that it plans to recognize about $66.4 million in such deals in 2024. The company recently entered an expanded partnership with Google, allowing the search giant more access to Reddit data to train AI models and other tasks.
Last week, Reddit said the Federal Trade Commission sent a letter to the company inquiring about its data-licensing practices.
As part of the initial public offering, Redditgave some of its leading moderators and users, known as Redditors, a chance to buy stock through a directed-share program. It’s a model that was previously used by Airbnb, Doximity and Rivian to reward their power users and customers.
A microchip and the Nvidia logo displayed on a phone screen are seen in this photo taken in Krakow, Poland, on April 10, 2023.
Nurphoto | Getty Images
Artificial intelligence and semiconductor chip stocks rallied after U.S. chip design firm Nvidiabeat Wall Street’s expectations for fourth-quarter earnings and revenue on Wednesday and projected “continued growth” in 2025 and beyond.
Nvidia supplier Taiwan Semiconductor Manufacturing Company jumped as much as 2.05% in Thursday morning trade. TSMC is the world’s largest contract chip maker and produces advanced processors for companies like Nvidia and iPhone maker Apple.
Shares of server component supplier Super Micro Computer rose 11.42% in Wednesday’s after-hours trading. Dutch chip equipment manufacturer ASML, which supplies TSMC lithography machines critical to chip making, jumped 2.7% in the U.S. during after hours trading.
Following Nvidia’s earnings report, rivals Advanced Micro Devices and SoftBank-backed U.K. chip designer Arm Holdings surged 4.08% and 7.87%, respectively, in after hours trading.
Nvidia, which custom designs AI chips for the likes of Amazon, Microsoft and Google, saw skyrocketing demand for its graphics processing units thanks to the AI boom.
OpenAI’s ChatGPT, which gained massive popularity worldwide in November 2022 for its ability to generate human-like responses to user prompts, is trained and run on thousands of Nvidia’s GPUs. Nvidia shares rose 9% in extended trading.
South Korea’s memory chipmakers Samsung Electronics and SK Hynix gained 0.41% and 3.22% respectively on Thursday. Large language models such as ChatGPT rely on high-performance memory chips to remember details from past conversations and user preferences in order to generate humanlike responses.
Other Taiwanese semiconductor firms Orient Semiconductor Electronics and MediaTek rose 2.94% and 1.53% respectively on Thursday.
Intel, Broadcom and Qualcomm, three U.S. chip makers, saw increases in share prices in extending trading Wednesday, surging 1.38%, 2.79% and 1.80% respectively.
“Fundamentally, the conditions are excellent for continued growth” in 2025 and beyond, Nvidia CEO Jensen Huang told analysts on Wednesday in an earnings call. He added that demand for Nvidia GPUs will remain high due to generative AI and an industry-wide shift away from central processors to the accelerators that Nvidia makes.
“If I was going to just kind of put a stake in the ground relative to the conversation, whether it’s related to market share or to their margins, I think they’re going to surprise people,” Gene Munster, managing partner of Deepwater Asset Management, told CNBC’s “Street Signs Asia” on Thursday.
Masayoshi Son, CEO of SoftBank, has been weighing up various options for chipmaker Arm after Nvidia walked away from buying the company.
Alessandro Di Ciommo | Nurphoto | Getty Images
SoftBank posted its biggest gain in nearly three years at the flagship tech investment arm, the Vision Fund, in the December quarter amid a recovery in valuation of technology companies.
Here’s how SoftBank did in the December quarter against LSEG estimates:
Net sales: 1.77 trillion Japanese yen ($11.9 billion) versus 1.8 trillion Japanese yen expected.
Net income: 950 billion Japanese yen versus 196.5 billion yen expected.
The Vision Fund logged a gain on investment of 600.7 billion Japanese yen, continuing a recovery after record losses in the previous fiscal year. That gain is the highest since the March 2021 quarter when the Vision Fund posted a 3.59 trillion yen gain.
SoftBank’s net income was also the first first quarterly profit after four straght losses.
SoftBank’s flagship tech investment arm had a rough time in the fiscal year that ended in March last year, posting a record loss of around $32 billion amid a slump in tech stock prices and the souring of some of the business’ bets in China.
The Nasdaq MarketSite in the Times Square neighborhood of New York, on Tuesday, May 31, 2022.
Michael Nagle | Bloomberg | Getty Images
Tech stocks rebounded from a disastrous 2022 and lifted the Nasdaq to one of its strongest years in the past two decades.
After last year’s 33% plunge, the tech-heavy Nasdaq finished 2023 up 43%, its best year since 2020, which was narrowly higher. The gain was also just shy of the index’s performance in 2009. Those are the only two years with bigger gains dating back to 2003, when stocks were coming out of the dot-com crash.
The Nasdaq is now just 6.5% below its record high it reached in November 2021.
Across the industry, the big story this year was a return to risk, driven by the Federal Reserve halting its interest rate hikes and a more stable outlook on inflation. Companies also benefited from the cost-cutting measures they put in place starting late last year to focus on efficiency and bolstering profit margins.
“Once you have a Fed that’s backing off, no mas, in terms of rate hikes, you can get back to the business of pricing companies properly — how much money do they make, what kind of multiple do you put on it,” Kevin Simpson, founder of Capital Wealth Planning, told CNBC’s “Halftime Report” on Tuesday. “It can continue into 2024.”
While the tech industry got a big boost from the macro environment and the prospect of lower borrowing costs, the emergence of generative artificial intelligence drove excitement in the sector and pushed companies to invest in what’s viewed as the next big thing.
Nvidia was the big winner in the AI rush. The chipmaker’s stock price soared 239% in 2023, as large cloud vendors and heavily funded startups snapped up the company’s graphics processing units (GPUs), which are needed to train and run advanced AI models. In the first three quarters of 2023, Nvidia generated $17.5 billion in net income, up more than sixfold from the prior year. Revenue in the latest quarter tripled.
Jensen Huang, Nvidia’s CEO, said in March that AI’s “iPhone moment” has begun.
“Startups are racing to build disruptive products and business models, while incumbents are looking to respond,” Huang said at Nvidia’s developers conference. “Generative AI has triggered a sense of urgency in enterprises worldwide to develop AI strategies.”
Consumers got to know about generative AI thanks to OpenAI’s ChatGPT, which the Microsoft-backed company released in late 2022. The chatbot allowed users to type in a few words of text and start a conversation that could produce sophisticated responses in an instant.
Developers started using generative AI to create tools for booking travel, creating marketing materials, enhancing customer service and even coding software. Microsoft, Google, Meta and Amazon touted their hefty investments in generative AI as they embedded the tech across product suites.
Amazon CEO Andy Jassy said on his company’s earnings call in October that generative AI will likely produce tens of billions of dollars in revenue for Amazon Web Services in the next few years, adding that Amazon is using the models to forecast inventory, establish transportation routes for drivers, help third-party sellers create product pages and help advertisers generate images.
“We have been surprised at the pace of growth in generative AI,” Jassy said. “Our generative AI business is growing very, very quickly. Almost by any measure it’s a pretty significant business for us already. And yet I would also say that companies are still in the relatively early stages.”
Amazon shares climbed 81% in 2023, their best year since 2015.
Microsoft investors enjoyed a rally this year unlike anything they’d seen since 2009, with shares of the software company climbing 58%.
In addition to its investment in OpenAI, Microsoft integrated the technology into products like Bing, Office and Windows. Copilot became the brand for its broad generative AI service, and CEO Satya Nadella described Microsoft last month as “the Copilot company.”
“Microsoft’s partnership with OpenAI and subsequent product innovation through 2023 has resulted in a market dynamic shift,” Michael Turrin, a Wells Fargo analyst who recommends buying the stock, wrote in a Dec. 20 note to clients. “Many now view MSFT as the outright leader in the early AI wars (even ahead of market share leader AWS).”
Meanwhile, Microsoft has been cranking out profits at a historic rate. In its latest earnings report, Microsoft said its gross margin exceeded 71% for the first time since 2013, when Steve Ballmer ran the company. Microsoft has found ways to more efficiently run its data centers and has lowered reliance on hardware, resulting in higher margins for the segment containing Windows, Xbox and search.
Microsoft CEO Satya Nadella (R) speaks as OpenAI CEO Sam Altman (L) looks on during the OpenAI DevDay event on November 06, 2023 in San Francisco, California. Altman delivered the keynote address at the first ever Open AI DevDay conference.
Justin Sullivan | Getty Images
After Nvidia, the biggest stock pop among mega-cap tech companies was in shares of Meta, which jumped almost 200%. Nvidia and Meta were by far the two top performers in the S&P 500.
Meta’s rally was sparked in February, when CEO Mark Zuckerberg, who founded the company in 2004, said 2023 would be the company’s “year of efficiency” after the stock plummeted 64% in 2022 due largely to three straight quarters of declining revenue.
The company cut more than 20,000 jobs, proving to Wall Street it was serious about streamlining its expenses. Then growth returned as Facebook picked up market share in digital advertising. For the third quarter, Meta recorded expansion of 23%, its sharpest increase in two years.
Like Meta, Uber wasn’t around during the dot-com crash. The ride-hailing company was founded in 2009, during the depths of the financial crisis, and became a tech darling in the ensuing years, when investors favored innovation and growth over profit.
Uber went public in 2019, but for a long time battled the notion that it could never be profitable because so much of its revenue went to paying drivers. But the economic model finally began to work late last year, for both its rideshare and food delivery businesses.
That all allowed Uber to achieve a major investor milestone earlier this month, when the stock was added to the S&P 500. Members of the index must have positive earnings in the most recent quarter and over the prior four quarters in total, according to S&P’s rules. Uber reported net income of $221 million on $9.29 billion in revenue for its third quarter, and in the past four quarters altogether, it generated more than $1 billion in profit.
Uber shares climbed to a record this week and jumped 149% for the year. The stock, which is listed on the New York Stock Exchange, finished the year as the sixth-biggest gainer in the S&P 500.
Despite the tech rally in 2023, there was a dearth of new opportunities for public investors during the year. After a dismal 2022 for tech IPOs, very few names came to market in 2023. The three most notable IPOs — Instacart, Arm and Klaviyo — all took place during a one-week stretch in September.
For most late-stage companies in the IPO pipeline, more work needs to be done. The public market remains unwelcoming for cash-burning companies that have yet to show they can be sustainably profitable, which is a problem for the many startups that raised mountains of cash during the zero-interest days of 2020 and 2021.
Even for profitable software and internet companies, multiples have contracted, meaning the valuation startups achieved in the private market will require many of them to take a haircut when going public.
Byron Lichtenstein, a managing director at venture firm Insight Partners, called 2023 “the great reset.” He said the companies best positioned for IPOs are unlikely to debut until the back half of 2024 at the earliest. In the meantime, they’ll be making necessary preparations, such as hiring independent board members and spending on IT and accounting to make sure they’re ready.
“You have this dynamic of where expectations were in ’21 and the prices that were paid then,” Lichtenstein said in an interview. “We’re still dealing with a little bit of that hangover.”
—CNBC’s Jonathan Vanian contributed to this report
Signage for the “Disneyland City Hall”, in Disneyland Paris, in Marne-la-Vallee, east of Paris, on October 16, 2023.
Ian Langsdon | Afp | Getty Images
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Streak continues, sans Dow Major U.S. indexes continued their blistering winning streak Wednesday — except for the Dow Jones Industrial Average, which snapped a seven-day streak. Asia-Pacific markets mostly rose Thursday. Japan’s Nikkei 225 climbed around 1.5% and South Korea’s Kospi added 0.5% after dropping 3.24% in the last two sessions, wiping out more than half of its gains earlier in the week.
Prices slump in China Fresh data from China’s National Bureau of Statistics showed the country continuing to struggle with deflationary pressures. China’s consumer price index for October declined 0.2% year on year, more than the 0.1% drop predicted. Producer prices also fell 2.6% — though it’s smaller than the expected 2.7% decline.
Disney pluses subscribers Disney’s shares jumped around 3% in extended trading after the company reported quarterly earnings. Earnings per share came in at 82 cents, higher than the expected 70 cents. Total Disney+ subscribers, at 150.2 million, also beat forecast by more than 2 million. But the firm’s revenue fell short of estimates — its second consecutive miss — even as quarterly revenue increased 5% to $21.24 billion year on year.
Weakness in Arm Arm reported earnings for the first time after its initial public offering. The semiconductor licensing company had a net loss of $110 million, but that’s because of a one-time share-based compensation of more than $500 million. Revenue, on the other hand, was up 28% year on year, as licensing sales jumped 106%. Still, shares sank 6.8% after the bell on weak guidance for the current quarter.
[PRO] ‘Fallen angels’ The bond market’s in its worst state in 200 years, according to BNP Paribas’ global chief investment officer. But one corner of the market — known as “fallen angels” — presents an opportunity for 8% yield at a relatively low risk-reward ratio, the analyst said. CNBC Pro screened for top-rated funds under that criteria and came up with a list of ‘fallen angels’ that might provide soaring returns.
Earning season’s winding down, and it’s been mostly a good one so far.
Out of the approximately 88% of companies in the S&P 500 have reported results, more than 88% have surpassed earnings estimates. However, only 62% have beaten revenue expectations. This suggests slowing demand is catching up with companies — but they’ve so far managed to expand their margins by cutting costs.
With hard-hitting reports from Disney and Arm coming in after the bell and no major economic data released, major indexes had a tepid day. Trading volume was lower than the 30-day average.
Nonetheless, the S&P 500 managed to inch up 0.1%, its eighth straight day of gains, and the Nasdaq Composite ticked up 0.08% for its ninth positive session. The last time both indexes enjoyed such uninterrupted gains was in November 2021. But the Dow Jones Industrial Average snapped its best winning streak since July with a 0.12% drop yesterday.
This lull in news’ only temporary. Federal Reserve Chair Jerome Powell will speak about monetary policy Thursday and October’s consumer price index reading comes out next Tuesday. Those events will serve as the next major catalysts for stocks, said AXS Investments CEO Greg Bassuk. And though it’s admittedly a very long shot, we’ll see, then, if (the surviving) major indexes manage to extend their winning streak — or precipitate a new fall.
But for investors hoping to time markets and reap quick gains on those events, CNBC’s Bob Pisani has a warning. “The idea that you can predict the future direction of stock prices, and act accordingly — is not a successful investing strategy,” Pisani writes. “The key to investing is not market timing” — it’s giving yourself time in the market.
Visitors wearing emblematic Mickey and Minnie Mouse ears look on, in front of the Sleeping Beauty-inspired castle at Disneyland Paris, in Marne-la-Vallee, east of Paris, on October 16, 2023. characters.
Ian Langsdon | Afp | Getty Images
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Streak continues, sans Dow Major U.S. indexes continued their blistering winning streak Wednesday — except for the Dow Jones Industrial Average, which snapped a seven-day streak. Europe’s regional Stoxx 600 rose 0.28%, lifted by strong earnings reports. Marks and Spencer shares popped 8.39% on the back of a solid first half of the year, while Dutch wind turbine manufacturer Vestas surged 9.8% after beating profit expectations.
Disney pluses subscribers Disney’s shares jumped around 3% in extended trading after the company reported quarterly earnings. Earnings per share came in at 82 cents, higher than the expected 70 cents. Total Disney+ subscribers, at 150.2 million, also beat forecast by more than 2 million. But Disney’s revenue fell short of estimates, even as it increased 5% to $21.24 billion compared with the same period a year earlier.
Weakness in Arm Arm reported earnings for the first time after its initial public offering. The semiconductor licensing company had a net loss of $110 million, but that’s because of a one-time share-based compensation of more than $500 million. Revenue, on the other hand, was up 28% year on year, as licensing sales jumped 106%. Still, shares sank about 8% after the bell on Arm’s weak guidance for the current quarter.
[PRO] A short-cover rally? Stock markets are enjoying their longest winning streak in two years.But some analysts are worried that November’s blistering start isn’t a true and sustainable rally. Instead, it’s more to do with hedge funds buying up stocks to cover their short positions. (When investors bet that stock prices will move down, they have to buy shares if prices move up, which pushes up prices even further.)
Earning season’s winding down, and it’s been mostly a good one so far.
Out of the approximately 88% of companies in the S&P 500 have reported results, more than 88% have surpassed earnings estimates. However, only 62% have beaten revenue expectations, suggesting that slowing demand is catching up with companies. The silver lining is that this phenomenon suggests margins have grown.
With hard-hitting reports from Disney and Arm coming in after the bell and no major economic data released, major indexes had a tepid day. Trading volume was lower than the 30-day average.
Nonetheless, the S&P 500 managed to inch up 0.1%, its eighth straight day of gains, and the Nasdaq Composite ticked up 0.08% for its ninth positive session. The last time both indexes enjoyed such uninterrupted gains was in November 2021. But the Dow Jones Industrial Average snapped its best winning streak since July with a 0.12% drop yesterday.
This lull in news’ only temporary. Federal Reserve Chair Jerome Powell will speak about monetary policy Thursday and October’s consumer price index reading comes out next Tuesday. Those events will serve as the next major catalysts for stocks, said AXS Investments CEO Greg Bassuk. And though it’s admittedly a very long shot, we’ll see, then, if (the surviving) major indexes manage to extend their winning streak — or precipitate a new fall.
But for investors hoping to time markets and reap quick gains on those events, CNBC’s Bob Pisani has a warning. “The idea that you can predict the future direction of stock prices, and act accordingly — is not a successful investing strategy,” Pisani writes. “The key to investing is not market timing” — it’s giving yourself time in the market.
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets attempt comeback The Nasdaq Composite snapped a four-day losing streak on Monday as Treasury yields retreated from their highs. Investors awaited the release of corporate earnings from tech giants including Alphabet and Microsoft. Asia-Pacific markets were higher in midday trading as investors assessed private surveys of business activity from Japan and Australia.
Another oil mega-merger Chevron on Monday said it agreed to buy Hessfor $53 billion in stock. It’s the second proposed mega merger among the biggest U.S. oil players after Exxon Mobil bid $60 billion for Pioneer Natural Resources earlier this month. The proposed deal also raises the competition between Chevron and Exxon to develop drilling in nascent producer Guyana.
Nvidia’s latest blow to Intel Nvidia is working on building personal computer chips which would use technology from Arm Holdings, Reuters reported on Monday. The plans mean the chipmaker would challenge Intel in its longtime stronghold of personal computers. Advanced Micro Devices also reportedly plans to make chips for PCs with Arm technology.
Bitcoin breaches $34,000 to highest since May 2022 The price of bitcoin breached the $34,000 level to hit its highest since May last year, bolstered by positive sentiment about a bitcoin exchange-traded fund. The world’s largest cryptocurrency was trading 4.97% higher at $34,596.40 on Tuesday, according to data from Coin Metrics.
[PRO] Portfolio manager namesthenew growth stocks Markets may be facing an “unusual amount” of uncertainty, but there still are very good opportunities right, according to one portfolio manager, who tells CNBC Pro about three new growth areas he likes: obesity drugs, reshoring and artificial intelligence.
Markets had an eventful start to the week, with just enough optimism ahead of Big Tech earnings reports to help the Nasdaq close higher for the first time in five sessions. Deal making was also at play on Monday as Chevron bet big on buying Hess to compete with larger rival Exxon Mobil.
Stocks have been feeling the pressure from multiyear highs in Treasury yields and worries about how that stands to affect the American economy. Some analysts think the benchmark 10-year yield could still have further room to run.
The rapid rise in yields “should accelerate an already weakening economic picture that is masked by higher rates,” said Canaccord Genuity chief market strategist Tony Dwyer.
Microsoft, which is slated to report earnings after the close Tuesday, is seen by UBS as a potential hedge against a recession next year. Unlike more focused software companies, Microsoft “has full geographic coverage across all industry verticals,” UBS analyst Karl Keirstead said, and that makes Microsoft less susceptible to downturns in any one sector or region. Alphabet is also set to report quarterly results Tuesday afternoon.
Wall Street analysts also made fresh calls on what is quickly becoming one of this year’s hottest segments in pharmaceuticals – weight loss drugs.
Most analysts predict the sales of weight loss drugs such as Wegovy and Mounjaro could easily exceed $100 billion. Citi most recently raised its sales estimates for such drugs to $71 billion by 2035, up from its prior estimate of $55 billion. Still, that’s conservative compared to Guggenheim’s expectations of $150 billion to $200 billion in sales.
Europe’s most valuable publicly listed company, Novo Nordisk makes Wegovy, which is also sold under the brand name Ozempic. U.S. drugmaker Eli Lilly makes Mounjaro.
Investors were also closely watching the crypto industry as bitcoin touched its highest level in over a year on Tuesday, on hopes of a bitcoin exchange-traded fund. A bitcoin ETF would give investors a way to gain exposure to bitcoin’s price movements without owning the volatile cryptocurrency directly.
Traders work on the floor of the New York Stock Exchange on April 26, 2023 in New York City.
Michael M. Santiago | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets attempt comeback The Nasdaq Composite snapped a four-day losing streak on Monday as Treasury yields retreated from their highs. Investors awaited the release of corporate earnings from tech giants including Alphabet and Microsoft. Europe’s Stoxx 600 index ended slightly lower amid geopolitical uncertainty and ahead of the European Central Bank’s monetary policy decision later this week.
Another oil mega-merger Chevron on Monday said it agreed to buy Hessfor $53 billion in stock. It’s the second proposed mega merger among the biggest U.S. oil players after Exxon Mobil bid $60 billion for Pioneer Natural Resources earlier this month. The proposed deal also raises the competition between Chevron and Exxon to develop drilling in nascent producer Guyana.
Nvidia’s latest blow to Intel Nvidia is working on building personal computer chips which would use technology from Arm Holdings, Reuters reported on Monday. The plans mean the chipmaker would challenge Intel in its longtime stronghold of personal computers. Advanced Micro Devices also reportedly plans to make chips for PCs with Arm technology.
Tesla discloses DOJ probes Tesla disclosed that the U.S. Department of Justice has been investigating, and in some cases issued subpoenas, to Elon Musk’s automaker. In a third-quarter financial filing out Monday, Tesla said the department is looking into its driver assistance systems marketed as Autopilot and Full Self-Driving, or FSD, options; the range of the company’s electric vehicles; as well as “personal benefits, related parties,” and “personnel decisions” at the company.
[PRO] Goldman’s guide to 5% 10-year yield Bond yields have been surging lately as the Federal Reserve signaled higher rates for longer in its inflation fight. The benchmark 10-year rate briefly topped the key 5% threshold Monday. Investors should focus on stocks with strong balance sheets as these companies tend to be more resilient against high interest rates, according to Goldman Sachs.
Markets had an eventful start to the week, with just enough optimism ahead of Big Tech earnings reports to help the Nasdaq close higher for the first time in five sessions. Deal making was also at play on Monday as Chevron bet big on buying Hess to compete with larger rival Exxon Mobil.
Stocks have been feeling the pressure from multiyear highs in Treasury yields and worries about how that stands to affect the American economy. Some analysts think the benchmark 10-year yield could still have further room to run.
The rapid rise in yields “should accelerate an already weakening economic picture that is masked by higher rates,” said Canaccord Genuity chief market strategist Tony Dwyer.
Microsoft, which is slated to report earnings after the close Tuesday, is seen by UBS as a potential hedge against a recession next year. Unlike more focused software companies, Microsoft “has full geographic coverage across all industry verticals,” UBS analyst Karl Keirstead said, and that makes Microsoft less susceptible to downturns in any one sector or region. Alphabet is also set to report quarterly results Tuesday afternoon.
Wall Street analysts also made fresh calls on what is quickly becoming one of this year’s hottest segments in pharmaceuticals – weight loss drugs.
Most analysts predict the sales of weight loss drugs such as Wegovy and Mounjaro could easily exceed $100 billion. Citi most recently raised its sales estimates for such drugs to $71 billion by 2035, up from its prior estimate of $55 billion. Still, that’s conservative compared to Guggenheim’s expectations of $150 billion to $200 billion in sales.
Europe’s most valuable publicly listed company, Novo Nordisk makes Wegovy, which is also sold under the brand name Ozempic. U.S. drugmaker Eli Lilly makes Mounjaro.
An exterior view of the NVIDIA headquarters in Santa Clara, California, May 30, 2023.
Justin Sullivan | Getty Images
Intel stock dropped more than 3% during trading on Monday after Reuters reported that Nvidia and AMD were working on Arm-based PC chips. Arm stock rose more than 6%, and Nvidia gained nearly 4% during late-day trading on Monday.
Intel currently has the majority of the market for PC chips, with AMD coming in second. Sales of PC chips comprised over half of Intel’s revenue in the June quarter.
Intel’s PC chips are based on the x86 instruction set. Chips that use the Arm-based instruction set, like those for smartphones, often use significantly less power, which is critical for battery-powered devices.
Apple recently transitioned its laptop and PC chips from Intel to home-grown Arm processors, which led to a short-term boom in sales and longer battery life for the devices.
Nvidia could release a PC chip based on Arm as soon as 2025, according to Reuters. AMD’s Arm chip is also in planning, according to the report. These chips would be used in PCs running Microsoft Windows.
Switching software from the x86 instruction set to be compatible with an Arm-based processor can be time-consuming and difficult, but Windows can already easily run on an Arm chip.
Qualcomm has been working on its own Arm-based PC chips for years, although they have yet to gain significant sales traction. It has a launch event planned for later this week.
Last month, Arm went through an initial public offering, where it emphasized to investors that it has long-term agreements with top chipmakers to use its technology in their chips.
Intel, ARM, and AMD did not immediately return requests for comment.
Venture-capital giant Softbank notched a $15 billion-plus gain on its 2016 deal to buy Arm Holdings when the artificial intelligence-enabling semiconductor firm went public last month. But not as many investors know about Softbank’s “other” big AI investment, Wilmington, Mass.-based software and robotics maker Symbotic, which Walmart has taken a big stake in itself.
That may soon change.
Symbotic, a company that has already generated market heat selling AI-powered robotic warehouse management systems to clients including Walmart, Target and Albertson’s, is partnering with Softbank to play in a potentially giant and transformative market. The two are teaming up in a joint venture called GreenBox Systems which promises to deliver AI-powered logistics and warehousing to much smaller companies, delivering it as a service in facilities different companies share. They say it’s a $500 billion market, and an example of the kind of change AI can bring to the economy at large.
If it works, GreenBox will reach companies that could never afford the multi-million dollar required investment, in the same way cloud computing puts high-end information tech within reach, said Dwight Klappich, an analyst at technology research firm Gartner.
“I’ve seen a lot of robotics tech and I’ve never seen anything like it in my life,” TD Cowen analyst Joseph Giordano said. “Compared to what it replaces, it’s like day and night.”
Erasing memories of a big WeWork real estate blunder
It might even mute the memory of Softbank’s most disastrous commercial real estate management investment ever, the notorious office-sharing company WeWork.
Like WeWork, GreenBox is a promise to fuse technology and real estate. Indeed, its sales pitch of “warehouse as a service” recalls the “space as a service” slogan in WeWork’s 2019 IPO prospectus almost exactly. The big difference: with WeWork, outside analysts struggled to identify what technological advantage WeWork ever offered clients over working at home or in traditional offices, let alone one that justified its peak valuation of $47 billion. WeWork today is worth under $150 million and is now under bankruptcy watch as it warned in August of its potential inability to remain “a going concern,” and more recently stopped making interest payments on debt, asking lenders to negotiate.
At GreenBox, the technology is the whole point, Giordano said. And unlike WeWork, which wanted people to change the way they used offices, Symbotic and GreenBox are out to let companies that already run warehouses boost efficiency and profits, he said.
“Contract warehousing exists today – but those operations are mostly manual,” said Robert W. Baird analyst Rob Mason.
Softbank owns more than 8% of Symbotic, according to data from Robert W. Baird, and took it public through a special purpose acquisition company last year. Softbank also owns 65% of the GreenBox venture, which launched with $100 million in investment by the two companies. Walmart owns another 11% of Symbotic, according to a proxy statement from the robotics company, and is by far its biggest customer until the GreenBox venture ramps up, accounting for almost 90% of revenue.
“We share the same vision of going big and going fast,” Symbotic CEO Rick Cohen said. “We believe this market is massive.”
Symbotic has generated stock-market excitement even before the GreenBox deal. Its shares are up 190% this year. Sales in its most recent quarter climbed 77%, and orders for its existing warehouse-management systems jumped to $12 billion – a backlog it would take the company years to fulfill Add in the $11 billion of Symbotic software and follow-on services GreenBox committed to buy over six years in July, and that backlog soars to $23 billion for a company that expects its first billion-dollar revenue year in fiscal 2023, and to break even on an EBITDA basis for the first time as a public company in the fourth quarter.
The best indication of the future may be from Walmart, which bought its Symbotic stake as part of the companies’ deal to automate the retailer’s 42 U.S. regional distribution centers for packaged consumer goods.
The product is the reason why, analysts say.
At prices of $25 million to hundreds of millions, according to a conference call Symbotic held with analysts in July, a Symbotic system blends as many as dozens of autonomous robots that scoot around warehouses at speeds up to 25 mph, moving and unloading boxes from pallets and picking orders with AI software that optimizes where in a warehouse to put individual cases of goods, and lets boxes be packed to the warehouse’s ceiling, Giordano said, wasting much less space in the building.
The system works something like a disk drive that uses intelligence to store data efficiently and retrieve the right data on demand – but with boxes of stuff. And a large warehouse can use several different systems, piling up the required investment to get moving.
Because Symbotic’s system can track inventory down to the case easily, where stuff is put can be matched much more easily to incoming orders, making it possible to more fully automate order picking. It can also match the design of outgoing pallets to the layout of the store the pallet is headed to, speeding up unloading and shelf stocking, Klappich said.
But the biggest innovation the tech allows is in business models, rather than in technology itself. That hasn’t spread outside of giant companies yet, but Giordano and Mason say they think it will.
The AI’s precision will let multiple companies share the same warehouse, and even commingle their goods for efficient shipping without confusion, much as cloud computing lets multiple clients share the same computer servers, Mason said.
“Through sharing infrastructure, you can get out of the infrastructure business and focus on what’s important to you,” Klappich said. “Larger-scale automation without the capital expense has been a challenge.”
Born out of stealth work with Walmart, minting a multi-billionaire
The idea grew out of a vision Cohen had when running his family’s grocery distribution company, C&S Wholesale Grocery, which he has grown to $33 billion in annual revenue from $14 million since 1974. Symbotic was founded in 2006, and worked in stealth mode for years while refining its prototypes with Walmart.
“I’ve spent my whole life in the outsourcing and [logistics] business with C&S, so, this — the ability to run warehouses for people — has always been on the plate, Cohen said in the July analyst call. “We said we’re going to take care of Walmart first. …We are now starting to say, I think we can do more.”
Symbotic and C&S have made the 71-year old Cohen one of America’s richest men, with a net worth hovering around $15.9 billion, according to Forbes.
Symbotic teamed up with Softbank to build GreenBox in order to preserve its own capital, Cohen told analysts. The joint venture was initially capitalized 65% by Softbank and 35% by Symbotic, for a total of $100 million. Analysts say the venture will require much more capital, possibly raised by having GreenBox itself borrow money in the bond market. Symbotic said it will use its share of the profits from sales to GreenBox to keep its equity stake in the joint venture around 35%.
“The question has been, who has the capital to set it all up?” Klappich said. “Softbank could be the key because they have deep pockets.”
The joint venture will buy software from Symbotic, then turn around and sell the warehouse space, equipment and related services as a package to tenants.
Many questions remain, and potential threats from Amazon, private equity
Much else about the new company remains unknown, beginning with the identity of its not-yet-announced chief executive, Mason said. The venture could either develop warehouses or rent them, though Symbotic said it will probably mostly rent them. Pricing for the warehouse-as-a-service is undisclosed.
But the rise of Greenbox more than doubles Symbotic’s potential market, and nearly doubles its backlog. Symbotic has said that its total market is about $432 billion, a figure chief strategy officer Bill Boyd repeated on the conference call when the GreenBox alliance was announced. Early adopters will be in businesses like grocery and packaged goods, with Symbotic expanding into pharmaceuticals and electronics over time, according to Symbotic’s annual federal regulatory filing this year.
The GreenBox market for smaller companies shapes up as another $500 billion of possible demand, Gartner’s Klappich said. The estimates are based on the number of warehouses in those industries, the likely percentage of warehouses in each whose owners can afford the technology, either independently or through GreenBox, and the average price of Symbotic-like systems.
The third quarter of the company’s fiscal year, which ends in October, illustrates how the company’s profits might scale. Revenue jumped 77% to $312 million, and its loss before interest, taxes and non-cash depreciation and amortization expenses shrank to $3 million. Mason says the company will turn profitable on an EBITDA basis in the fiscal year that begins this fall, before orders from GreenBox begin, and EBITDA will be “in the mid-teens” as a percent of sales by the following year.
Clients stand to save money all the way through the warehouse, Klappich said.
Giordano estimated the savings at eight hours of labor per outgoing truck. The technology can also cut space rental costs by allowing goods to be packed closer together and stacked higher.
Using the facility as a service will let seasonal companies cut back on the space and robot time they use during slow periods, rather than carry them all year. The warehouse should run with many fewer workers, Giordano said. And GreenBox will pay for upgrades to robots and software every few years, rather than making tenants invest more, he said.
Walmart led investors on a tour of its Brooksville, Fla. warehouse in April, and said technology investments like the Symbotic alliance will let profits grow faster than sales. More than half of distribution volume will move through automated centers within three years, improving unit costs by about 20% as two-thirds of stores are served by automated systems. The company has said little about the impact on jobs, but CEO Doug McMillon said overall employment should stay about the same size but shift toward delivery from warehouse roles.
Competition will be arriving soon enough, analysts say. Building something like Symbotic, and especially moving it down into the realm where companies other than global giants can afford it, takes a combination of technology, money and vision, Klappich said.
Amazon could expand into the space, using its warehousing expertise in a service that resembles its Web hosting business model, or private-equity firms awash in investable cash might acquire combinations of companies to produce competing products and business models, Klappich said.
For Softbank, the payoff if GreenBox works is potentially huge. Analysts on average project Symbotic shares to rise another 53% in the next year after pulling back amid recent recession fears, according to ratings aggregator TipRanks. With post-IPO estimates arguing that Arm shares will stagnate, and taking into account that Softbank paid a reported $36 billion for Arm in 2016, it’s possible Symbotic will be the bigger win in the end, at least on a percentage basis, as the 65% share of GreenBox rises in value.
Banks are facing mounting uncertainty as the commercial real estate (CRE) sector continues to struggle. But, tailwinds in our financial names should help safeguard their bottom lines. Club names Wells Fargo (WFC) and Morgan Stanley (MS) have bright spots in their operations that can offset potential weakness from CRE exposure. We’re optimistic about green shoots in Morgan Stanley’s dealmaking and the continued maturing of its wealth management business , along with progress in Wells Fargo’s multiyear recovery plans to expand its balance sheet and put past misdeeds behind it . Commercial real estate landscape Higher interest rates, tightening credit conditions and elevated office vacancies are weighing down the estimated $21 trillion commercial real estate sector . Many banks have exposure to CRE through loans. Fluctuations in property values and market conditions can impact their loan portfolios and asset quality. Economic downturns can lead to higher default rates and loan losses, affecting a bank’s profitability and overall financial health as well. Banks provide financing to investors and developers in the sector, making them vulnerable to weaker market cycles too. A lagging commercial real estate market can strain a bank’s capital reserves while a stronger market can boost incomes from lending and fees. Tomasz Piskorski, a property market expert and professor at Columbia Business School, said the key overhang on the banking sector is the central bank’s monetary tightening, and trouble in CRE is the “icing on the cake.” The Federal Reserve has hiked borrowing costs 11 times since March 2022 — from near-zero on the fed funds overnight bank lending rate to the target range of 5.25% to 5.5% — all in a bid to combat sticky inflation. The midpoint of the current range is the highest level in more than 22 years. “U.S. banks are now in a very difficult position and the main factor driving this difficult position is high interest rates,” Piskorski told CNBC in an interview. “This is one of the main problems affecting commercial real estate because a lot of these buildings were written at a lower rate and now they have to refinance to higher rates.” While there’s reason for concern in the broader commercial real estate market, we see the most pronounced challenges unfolding in offices. Work-from-home trends and tech layoffs have led to increased vacancies, decreased demand, and drastic reductions in property values. Office vacancy rates reached 18.6% in the first quarter of 2023. That’s 5.5% higher than when the Covid pandemic began to hit the U.S. during the first quarter of 2020. Back in July, Jim Cramer said the doom and gloom around CRE is a real threat but exaggerated, describing it at the time as a “well-overdone crisis” Morgan Stanley’s exposure MS YTD mountain Morgan Stanley (MS) year-to-date performance In reporting its second-quarter financial results, Morgan Stanley said that “increases in provisions for credit losses were primarily driven by credit deteriorations in the commercial real estate sector as well as modest growth across the portfolio.” The bank’s provision for credit losses rose to $161 million in Q2 from $101 million in the second quarter of 2022. Tailwinds spurred by a resurgence in Morgan Stanley’s investment banking (IB) services, however, could offset CRE market weakness going forward. There have been signals of more mergers and acquisitions (M & A) and initial public offerings (IPOs), which could boost this dormant, and crucial, part of the bank’s business. Semiconductor designer Arm Holdings (ARM) had a blockbuster listing earlier this month, the largest IPO since electric vehicle maker Rivian Automotive (RIVN) in 2021. Grocery delivery service Instacart (CART) and marketing automation Klaviyo (KVYO) made Klaviyo mad their debuts shortly after Arm. IB has lagged in recent quarters amid macro uncertainty and recession concerns. The global M & A value declined by 44% in the first five months of 2023, per data analytics firm GlobalData , with firms pulling back on dealmaking in order to preserve capital in the face of an economic downturn. During the Barclays conference earlier this month, management at Morgan Stanley said that capital markets are set to improve next year. This could boost IB broadly because companies will feel less conservative about how they allocate funds. “I would say we are more confident now than any time this year about an improved outlook for 2024,” the team said. “I think it’s clear to us now that the first half of the second quarter was probably the low point in sentiment around capital markets and M & A.” Still, there’s a lot of uncertainty around the U.S. economy as it’s unclear when the Fed will stop hiking interest rates. Academics like Piskorski, however, contend that pressure on traditional investment banking will likely continue. “We’re in a very different environment than two years ago. I would expect much fewer IPOs,” he said. “Cost of capital is much higher. Investor appetite to invest in companies, especially companies that are not profitable, is very different.” Wells Fargo’s exposure WFC YTD mountain Wells Fargo (WFC) year-to-date performance Offices represent around 22% of Wells Fargo’s outstanding commercial property loans and 3% of its entire loan book. It has one of the largest portfolios when it comes to CRE in the country, with more than $154 billion in loans outstanding and $33 billion of that consists of office loans. According to its latest quarterly earnings release, Wells Fargo boosted allowances for losses connected to its commercial property loans, driven mostly by the firm’s exposure to offices, flagging a $949 million increase in their credit loss allowance. However, management said that significant losses have not been observed so far. For context, banks typically boost reserves for credit losses as a preventative measure to curb losses from borrowers who could default on their loans. This, in theory, gives Wells Fargo the extra capital to absorb credit losses during a market downturn or periods of extreme volatility. For context, JPMorgan Chase (JPM) also bulked up its reserves in anticipation of rising office property loan losses. Wells Fargo stands to benefit from its multiyear recovery plan once U.S. regulators decide to lift its asset cap, which would increase its balance sheets, along with its valuation that’s providing a cushion to any downward earnings estimates. Still, it remains unclear when regulators may lift these rules. “The losses are still quite small,” Chief Financial Officer Michael Santomassimo said in July. “We do expect that there will be more weakness in the market, and it’s going to take a while to play out.” CEO Charlie Scharf said the bank sustained “higher losses in commercial real estate, primarily in the office portfolio.” He added, “While we haven’t seen significant losses in our office portfolio-to-date, we are reserving for the weakness that we expect to play out in that market over time.” Still, revenue from Wells Fargo’s commercial real estate business rose to $1.33 billion in the second quarter, up 26% from 2022 and 2% higher from the last quarter. The banking giant attributed the gains to “higher interest rates and higher loan balances.” Wells Fargo may not stand to gain as much as Morgan Stanley from an uptick in investment banking, but the comments made by management during the Barclays conference indicate ongoing signs of recovery for the bank. “A lack of bad news turned out to be good news,” Jeff Marks, CNBC Investing Club’s Director of Portfolio Analysis, said during a Morning Meeting earlier this month. Wells Fargo execs emphasized the bank’s solid forward guidance while signaling an improved efficiency ratio as the Wall Street giant continues to cut costs via various restructuring plans like layoffs. Santomassimo said the macro picture is “much better than people would have expected at this point” as well. (Jim Cramer’s Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Collin Madden, founding partner of GEM Real Estate Partners, walks through empty office space in a building they own that is up for sale in the South Lake Union neighborhood in Seattle, Washington, May 14, 2021.
Karen Ducey | Reuters
Banks are facing mounting uncertainty as the commercial real estate (CRE) sector continues to struggle. But, tailwinds in our financial names should help safeguard their bottom lines.
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Cautious markets U.S. stocks fell for a third consecutive day as Treasury yields continued rising to multiyear highs. Asia-Pacific markets were mixed Friday. Hong Kong’s Hang Seng Index rose almost 1% as the city’s inflation held steady at 1.8% in August. Meanwhile, Japan’s Nikkei 225 lost 0.42% after the country’s central bank maintained its negative interest rates.
Holding fast The Bank of Japan left its ultra-loose monetary policy untouched at its Friday meeting. That is, the bank kept its short-term interest rates at -0.1% and maintained the cap of its 10-year Japanese government bond yield at around zero. But with the Japanese yen weakening against the U.S. dollar in recent weeks, economists think the BOJ might be forced to tighten policy sooner than expected.
Securing business and the internet Cisco is acquiring Splunk, a cybersecurity software company, for $157 a share in a cash deal. The total deal’s worth $28 billion — about 13% of Cisco’s market capitalization — making it the company’s largest acquisition ever. Cisco’s known for making computer networking equipment, but has been boosting its cybersecurity business recently to grow its revenue stream.
New top of the class Singapore is the world’s freest economy, according to a 2023 report by Canada think tank Fraser Institute. It’s the first time since 1970, when the rankings started, that Hong Kong lost its top spot. “Hong Kong’s recent turn is an example of how economic freedom is intimately connected with civil and political freedom,” said Fraser Institute’s senior fellow, Matthew Mitchell.
[PRO] Value over growth U.S. markets have been having two bad months. Growth-focused technology stocks, in particular, are struggling in an environment of higher-for-longer interest rates. But that means the time’s ripe to look at European value stocks. Here’s a list of 10 stocks Citi analysts recommend — comprising a mix of quality and risky ones with more potential upside.
Four months after hype over artificial intelligence fired up markets, the rally’s starting to look more like a hallucination — a confident but false claim AI models are prone to making.
For evidence, look no further than Nvidia, the spark that ignited the whole blaze. Shares of the chipmaker peaked on Aug. 24 and have tumbled 18.4% since. While it’s true Nvidia’s still up 181% for the entire year, that’s 60 percentage points lower than its August peak, when shares were 244% higher.
Microsoft’s announcement of a broad rollout of Copilot — the company’s AI tool — to corporate clients didn’t stoke excitement. On the contrary, Microsoft shares dipped 0.39% after the company’s event. By contrast, recall how share prices popped to a record in May after the company announced the pricing of the Copilot subscription service.
In short, investor interest in AI — while still hot in comparison with other sectors — looks like it’s simmering down.
“The combination of waning retail demand and cautious risk sentiment among institutional investors may pose a substantial risk to the AI sector, potentially heralding a pronounced reversal in the weeks ahead,” said Vanda Research’s senior vice president Marco Iachini.
Blame the usual suspects for this lukewarm sentiment. Higher-for-longer interest rates — and Treasury yields — caused by spiking oil prices and a tight labor market. (Initial jobless claims for last week dropped to their lowest level since late January, according to the U.S. Labor Department.)
Against that backdrop, it’s unsurprising major indexes had a bad day. The Dow Jones Industrial Average fell 1.08%, the Nasdaq Composite slid 1.82% and the S&P 500 lost 1.64%, the most in a day since March. All three indexes are poised for a losing week, with the tech-heavy Nasdaq the deepest in the red so far.
If it’s any comfort, September — the worst month for stocks, historically — ends in a week. Investors will hope it’ll pass like a bad dream, or a banished hallucination.
Signage for Nvidia Corp. during the Taipei Computex expo in Taipei, Taiwan, on Tuesday, May 30, 2023.
Hwa Cheng | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Infectious pessimism U.S. stocks fell for a third consecutive day as Treasury yields continued rising to multiyear highs. The pan-European Stoxx 600 slumped 1.3% amid a flurry of central bank decisions. Sweden hiked rates by 25 basis points to 4%; Norway raised its rate from 4% to 4.25%; Switzerland kept rates unchanged. For more central bank decisions, see below.
A halt and a big hike The Bank of England elected to keep interest rates unchanged at its September meeting, breaking a series of 14 straight rate hikes. But the decision wasn’t unanimous: Four out of nine members voted for another 25-basis-point hike to 5.5%. In other central bank news, Turkey hiked its interest rate to 30%, a 5-percentage-point jump from 25%.
Securing business and the internet Cisco is acquiring Splunk, a cybersecurity software company, for $157 a share in a cash deal. The total deal’s worth $28 billion — about 13% of Cisco’s market capitalization — making it the company’s largest acquisition ever. Cisco’s known for making computer networking equipment, but has been boosting its cybersecurity business recently to grow its revenue stream.
Succession Rupert Murdoch is stepping down as chairman of the board of Fox Corp and News Corp in November. The 92-year-old will be succeeded by his son Lachlan Murdoch. Fox Corp is the parent company of Fox News, a TV channel embroiled in a $787.5 million settlement this year over false claims that Dominion Voting Systems’ machines swayed the 2020 U.S. presidential election.
[PRO] ‘Uninvestable’ banking sector Steve Eisman, the investor who called — and profited from — the subprime mortgage crisis that began in 2007, thinks “the whole bank sector is uninvestable.” Silicon Valley Bank collapsed in March this year, sparking panic and causing depositors to withdraw money at other regional banks. But that’s not the only risk to banks weighing on Eisman’s mind.
Four months after hype over artificial intelligence fired up markets, the rally’s starting to look more like a hallucination — a confident but false claim AI models are prone to making.
For evidence, look no further than Nvidia, the spark that ignited the whole blaze. Shares of the chipmaker peaked on Aug. 24 and have tumbled 18.4% since. While it’s true Nvidia’s still up 181% for the entire year, that’s 60 percentage points lower than its August peak, when shares were 244% higher.
Microsoft’s announcement of a broad rollout of Copilot — the company’s AI tool — to corporate clients didn’t stoke excitement. On the contrary, Microsoft shares dipped 0.39% after the company’s event. By contrast, recall how share prices popped to a record in May after the company announced the pricing of the Copilot subscription service.
In short, investor interest in AI — while still hot in comparison with other sectors — looks like it’s simmering down.
“The combination of waning retail demand and cautious risk sentiment among institutional investors may pose a substantial risk to the AI sector, potentially heralding a pronounced reversal in the weeks ahead,” said Vanda Research’s senior vice president Marco Iachini.
Blame the usual suspects for this lukewarm sentiment. Higher-for-longer interest rates — and Treasury yields — caused by spiking oil prices and a tight labor market. (Initial jobless claims for last week dropped to their lowest level since late January, according to the U.S. Labor Department.)
Against that backdrop, it’s unsurprising major indexes had a bad day. The Dow Jones Industrial Average fell 1.08%, the Nasdaq Composite slid 1.82% and the S&P 500 lost 1.64%, the most in a day since March. All three indexes are poised for a losing week, with the tech-heavy Nasdaq the deepest in the red so far.
If it’s any comfort, September — the worst month for stocks, historically — ends in a week. Investors will hope it’ll pass like a bad dream, or a banished hallucination.
Cathie Wood, CEO of Ark Invest, speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York City, February 27, 2023.
Brendan McDermid | Reuters
ARK Invest CEO Cathie Wood said she did not participate in Arm‘s blockbuster initial public offering last week because she finds the British chip designer was overvalued relative to its competitive position.
The initial buzz has since fizzled, with the stock suffering successive daily declines to end the Tuesday trade session at $55.17.
Speaking on CNBC’s “Squawk Box Europe” on Wednesday, Wood said the recent frenzy around AI-exposed companies was justified and that “innovation is undervalued given the enormous opportunities that we see ahead, catalyzed very importantly by artificial intelligence.”
“As far as Arm, I think there might be a little bit too much emphasis on AI when it comes to Arm and maybe not enough focus on the competitive dynamics out there,” she added.
Arm CEO Rene Haas and executives cheer, as Softbank’s Arm, chip design firm, holds an initial public offering (IPO) at Nasdaq Market site in New York, U.S., September 14, 2023.
Brendan Mcdermid | Reuters
“So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view on the high side, and we see within our portfolios much lower priced names with much more exposure to AI.”
After taking a beating during the recent cycle of aggressive interest rate hikes from the U.S. Federal Reserve, the ARK ETF resurged this year, as investors flocked to stocks with AI exposure. Wood said that the anticipation of interest rates peaking would further this trend.
“The appetite for innovation is stirring here, and I think one of the reasons is because many investors and analysts are starting to look over the interest rate hike moves we’ve seen, record breaking in the last year or so, and to the other side,” she explained.
With inflation coming down across major economies and with central banks expected to begin unwinding their aggressive monetary policy tightening over the next year, Wood suggested the coming period “should be a very good environment for innovation and global megatrend strategies.”
ARK Invest on Wednesday acquired British thematic ETF issuer Rize ETF for £5.25 million ($6.5 million), marking the company’s first venture into the European passive investment market.
Wood said that Europe has not had access to actually invest in the company’s U.S.-based ETFs until now, despite accounting for around 25% of demand for the company’s research since ARK’s inception in 2014.
“The cost of technology, especially with artificial intelligence now, is collapsing, and therefore it’s going to be much easier to build and scale tech companies anywhere in the world. This is no longer just the purview of Silicon Valley,” Wood said. “We are very open-minded about technologies flourishing throughout the world, including Europe.”
A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.
Reuters
The financial sector is making a comeback, and it looks to stay there.
Club names Morgan Stanley (MS) and Wells Fargo (WFC), in particular, have perked up recently. Still, we think shares have more room to run.
Banks have been rallying since their recent lows in late August on signs of life in the long-dormant IPO market and hopes for more mergers and acquisitions activity, which could boost investment banking services for Wall Street giants like Morgan Stanley.
It was San Francisco-based Instacart‘s (CART) turn on Tuesday to go public. Shares gained more than 30% on their first day of trading, one day after the newly Nasdaq-listed company priced its initial public offering at the top of the expected range at $31 per share. Venture capital firm Sequoia is Instacart’s biggest investor, with a fully diluted stake of 15%.
The debut of the grocery delivery service came less than a week after U.K. semiconductor designer Arm Holdings (ARM) was listed on the Nasdaq in a blockbuster IPO. Shares closed their first session up nearly 25% last Thursday for a market value of more than $63 billion. However, Softbank-owned Arm has been on a sharp, three-session losing streak — and on Tuesday, it was trading less than 8% above its $51-per-share offer price.
Key Points
Club names Wells Fargo and Morgan Stanley still have room to run higher.
Those stocks and the banking industry overall have experienced a boost recently as the sluggish IPO market of the past two years heats up.
Banks do face some risk going forward in the form of proposed tighter regulations in response to the March SBV failure.
Morgan Stanley did not have a hand in either of those IPOs, but it is a lead book runner on the upcoming IPO of marketing automation company Klaviyo, which disclosed in a filing Monday an increase in the offer range, targeting a fully diluted market valuation of $9 billion. E-commerce company Shopify (SHOP) owns about 11% of Klaviyo shares.
The outlook for the industry overall seems to be turning the corner since a mini-banking crisis erupted earlier this year following the March collapse of Silicon Valley Bank. The S&P 500 Financials sector index, while up about 1% year to date, has gained more than 12% since its 2023 lows in March. The overall S&P 500 index has gained 15% year to date and a little less than that from mid-March levels. (We recently did an in-depth report on all 11 sectors of the S&P 500 and where our 35 Club stocks fit in.)
Financials sector vs. S&P 500 year-to-date
The crisis of confidence in the banking industry ensued after SVB failed to manage risk and hedge for interest rates as the Federal Reserve continued to raise borrowing costs earlier this year. Other regionals such as Signature shuttered as well, accelerating the market selloff. First Republic was seized by federal regulators and sold for a song to JPMorgan. Tremors spread abroad, too, with Swiss bank UBS taking over its ailing rival Credit Suisse. Big banks, like Morgan Stanley and Wells Fargo, were never in any trouble but were painted with a broad brush of industry distrust.
Several months later, however, it seems like investors want back into big bank names again. Morgan Stanley and Wells Fargo were up 6.2% and 5% in the past five days, respectively, as of Monday’s close. However, those stocks, which were lower in Tuesday’s broader market sell-off, and the rest of the industry do face some uncertainty going forward.
Financial regulators are cracking down on banks with at least $100 billion of assets by increasing capital requirements in a bid to curb the risk of future insolvency issues. In response to the failure of SVB, regulators unveiled proposed changes in July that would require more banks to include unrealized losses and gains from securities in their capital ratios.
Still, Wells Fargo and Morgan Stanley are both well capitalized and haven’t been at risk of a run on deposits, according to the Fed’s latest stress test results. These new rules shouldn’t hit their bottom lines either, but there’s an argument to be made that an increase in capital requirements may weigh on revenue streams from net interest income as lending conditions tighten.
However, Chris Kotowski, senior research analyst at Oppenheimer told CNBC that if implemented, firms would adjust to the new regulations.
“Banks will adapt to capitals over time, but if there’s a sudden increase in capital requirements, you know, in the quarter or two or a year after, they can’t necessarily adjust to that instantly, but they will adjust,” Kotowski said in an interview. “If the capital charge on a certain kind of trading inventory is suddenly 20% more, all the market makers in that trading category are going to want to hold 20% less capital.”
Morgan Stanley YTD
During last week’s Barclays Financial Conference, management at Morgan Stanley said that capital markets are set to improve next year, with 2024 likely being a much better year for the economy as well. This could boost investment banking more broadly because companies will feel less inclined to preserve capital and more confident in going public or making acquisitions.
“We are more confident now than any time this year about an improved outlook for 2024,” Morgan Stanley Head of Investment Management Dan Simkowitz said at the event. “It’s clear to us now that the first half of the second quarter was probably the low point in sentiment around capital markets and M&A.” For context, global M&A value declined by 44% in the first five months of 2023, according to analytics firm GlobalData.
Simkowitz added that Morgan Stanley is seeing “improved execution quality across the capital markets and M&A,” leading him to believe the bank is “in the midst of a sustainable recovery.”
An upbeat economic outlook, along with a pickup in M&A and IPO activity, could certainly boost a dormant and crucial part of Morgan Stanley’s business. Due to the volatile nature of capital markets, Morgan Stanley has been putting a heavier focus recently on wealth management and other recurring fee-based revenue.
Wells Fargo YTD
Wells Fargo doesn’t stand to benefit quite as much as Morgan Stanley on a pickup in investment banking. However, management’s remarks at last week’s Barclays conference are showing signs of continued recovery. Wells Fargo Chief Financial Officer Michael Santomassimo said the macroeconomic picture is “much better than people would have expected at this point.”
“You still have a resilient employment picture. On the consumer side, the activity is still really good. People are out spending money. You see debit card spend up a couple of percent from what it was a year ago through the quarter,” according to Santomassimo. “You see strong growth in credit card spend, double-digit growth.”
Wells Fargo’s management reiterated the bank’s solid forward guidance while demonstrating an improving efficiency ratio as they continue to cut costs through layoffs and various restructuring plans. “A lack of bad news turned out to be good news,” CNBC Investing Club Director of Portfolio Analysis Jeff Marks said during last Thursday’s Morning Meeting.
The recent comments from Wells Fargo show further progress in the bank’s multi-year turnaround plan after the Fed imposed an asset cap on the firm in 2018. We see the timing of the financial regulator’s decision to lift the asset cap as a “when, not if” scenario, which would allow the bank to not only increase its balance sheet but also generate more profits.
(Jim Cramer’s Charitable Trust is long MS, WFC. See here for a full list of the stocks.)
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.
THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
