(Bloomberg) — Broadcom Inc. plans to fire almost 1,300 VMware Inc. employees in California following the completion of a $61 billion acquisition that pushed the chipmaker deeper into the software industry.
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The cuts will begin Jan. 26 and affect some 1,267 positions, Broadcom said in a submission to the California Employment Development Department. The jobs are located at VMware’s Palo Alto headquarters, which will remain open.
The chipmaker is following its usual pattern of eliminating support roles to cut costs in the wake of takeovers. Chief Executive Officer Hock Tan has built one of the biggest companies in the semiconductor industry through a string of deals, which have increasingly focused on software.
Tan’s strategy, which has boosted profits and won him support from investors, is to identify companies that have strong market share but stunted growth prospects. After purchasing them, he consolidates operations — such as sales, human resources and other support organizations — to cut costs while trying to retain engineering talent.
VMware has become the centerpiece of Tan’s software operations. He previously built up the division by purchasing CA Technologies and Symantec Corp.’s corporate security business.
VMware, founded in 1998, pioneered virtualization programs, which allow software to make more efficient use of server computers. The company had about 38,300 employees prior to the closing of the transaction, according to data compiled by Bloomberg.
Broadcom, whose other operations include making chips used by companies including Apple Inc. and Alphabet Inc.’s Google, will report earnings next week.
The San Francisco Chronicle previously reported that Broadcom would cut more than 1,200 workers.
(Bloomberg) — Goldman Sachs Group Inc., which has been trying to jettison its struggling credit card business, now has a potential way out of its partnership with Apple Inc.
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The iPhone maker, which offers a credit card and savings account with Goldman, recently sent a term sheet to the financial giant that would be a first step toward severing the contract, according to a person familiar with the matter. The process could still take multiple years, said the person, who asked not to be identified because the discussions are private. The partnership had been slated to last at least another five years.
Goldman Sachs has been pulling back from a foray into consumer lending after it proved costlier than expected. The New York-based company has said it pushed too quickly into the effort, contributing to missteps. Goldman also is expected to scrap a credit card partnership with General Motors Co.
For Apple, the partnership was part of a broader push into financial offerings. The company is looking to generate more revenue from services as sales of its hardware products slow. Apple got 22% of its sales from that category last year, up from less than 10% a decade ago.
The iPhone maker remains committed to its Apple Card credit card and savings account and doesn’t plan to discontinue the products — whether or not Goldman is involved — the person familiar with the situation said. Apple hasn’t gotten to the point of talking to firms that could replace Goldman, according to the person.
In a statement, Apple said it was “focused on providing an incredible experience for our customers to help them lead healthier financial lives.”
“The award-winning Apple Card has seen a great reception from consumers, and we will continue to innovate and deliver the best tools and services for them,” the Cupertino, California-based company said in the statement.
Goldman Sachs has been exploring options to get out of its credit card tie-ups for much of this year, people with knowledge of the matter have previously said. Apple’s proposal would give the company a way to do that, but it’s not yet a done deal, according to one of the people.
Goldman Sachs declined to comment. The Wall Street Journal previously reported on the proposal Apple sent to Goldman, saying it could take effect within approximately 12 to 15 months.
Goldman Sachs has held talks with American Express Co. to take over the Apple credit card and other services, but that company expressed concerns about loss rates, the Journal said. Synchrony Financial also broached the idea of taking over the credit card program, according to the newspaper.
Despite the struggles, Apple and Goldman Sachs just introduced a long-promised high-yield savings account in April. And the companies touted in August that the program had reached $10 billion in US deposits.
The savings account drew complaints from some users, who weren’t able to easily withdraw cash. Chief Executive Officer Tim Cook said in a June interview that the problem was caused by a security system designed to prevent fraud.
—With assistance from Sridhar Natarajan and Mark Gurman.
(Bloomberg) — Miriam Adelson, the widow of casino magnate Sheldon Adelson, is selling $2 billion of stock in Las Vegas Sands Corp. so the family can acquire a majority stake in an unidentified professional sports team.
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The family already has a binding purchase agreement for a team, according to a regulatory filing Tuesday. The Adelsons will use the proceeds from the offering as well as cash on hand to purchase the team, “subject to customary league approvals.”
A spokesperson for the company and the Adelsons declined to comment beyond the filing.
Adelson, an Israeli-born physician, has led the family since her husband died in January 2021. Her son-in-law, Patrick Dumont, is president of Sands, which owns casinos in Singapore and Macau.
Despite selling the flagship Venetian resort in Las Vegas to Apollo Global Management Inc. last year, the family retains close ties to America’s gambling capital. They own the Las Vegas Review-Journal newspaper and the company is still based there.
According to the latest proxy statement, Adelson controls about 433 million shares of Sands, or more than 56% of the total outstanding. The stock being sold represents about 11% of those holdings.
She is worth about $33 billion, according to the Bloomberg Billionaires Index.
Shares of Sands were down 3.2% to $46.15 in extended trading after initially falling further.
The shares are being marketed from $43 to $45.25 each, according to a term sheet seen by Bloomberg News. That range represents as much as a 10% discount to Las Vegas Sands’s share price of $47.66 at at Tuesday’s close, Bloomberg calculations show.
Goldman Sachs Group Inc. and Bank of America Corp. are bookrunners on the sale.
(Bloomberg) — Asian stocks swung to a loss and US equity futures fell as slowing Chinese industrial profit growth sapped optimism after last week’s equity rally. The yen strengthened against all its Group-of-10 peers.
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China shares led declines as data showed profits at the nation’s industrial companies climbed at a slower pace, suggesting the economic recovery remains uncertain. The Hang Seng China Enterprises Index dropped as much as 1.4% while CSI 300 Index closed 1.2% lower in Monday’s morning session. Benchmarks also fell in Australia and Japan.
Equities trimmed some of last week’s gains amid uncertainty before the next installment of key global economic data this week including euro-zone inflation data, China PMIs and US personal consumption numbers on Thursday, and US, European and Chinese PMIs on Friday. Asian markets had little direction from the US following the holiday shortened post-Thanksgiving session Friday.
“We’ve seen US bond yields gap higher at the open, and that has weighed on equity market sentiment to send US futures down alongside Chinese markets that are already under pressure from weak industrial profits,” said Matt Simpson, a senior market strategist at City Index Inc.
US stock futures dropped in Asia after the S&P 500 capped a fourth week of gains Friday, when the VIX — Wall Street’s “fear gauge” and a measure of equity volatility — fell to its lowest level since January 2020.
The subdued growth at Chinese industrial companies will likely keep firms cautious about expanding or hiring more, which in turn could add more pressure on prices. Profits increased just 2.7% in October from a year ago, down from September’s 11.9% gain.
“The profit numbers show that current recovery momentum is still fairly fragile,” Dong Chen, head of Asia macroeconomic research at Pictet Wealth Management, said in an interview with Bloomberg Television. “We still have a long way to go to get out of the woods.”
This week, investors will be looking especially closely at Chinese activity data to gauge the health of the world’s second largest economy. Traders will be assessing shadow banking stocks after Chinese authorities said they recently opened criminal investigations into the money management business of Zhongzhi Enterprise Group Co.
In Hong Kong, the one-month interbank offered rate jumped to the highest since 2007 as the supply of cash tightened toward year-end.
‘Remain Heavy’
Treasury 10-year yields climbed as much as five basis points to 4.51%, the highest in more than a week.
The dollar was mixed in Asian trade after Bloomberg’s index of the greenback slipped 0.5% last week.
The US currency may “remain heavy” for most of the week as fund managers adjust hedges and cash heads into developing economies, Commonwealth Bank of Australia strategists including Joseph Capurso wrote in a note to clients. “The backdrop of low volatility and expectations for a soft landing in the US economy supports portfolio capital flows into emerging markets,” they said.
In earnings due this week, Crowdstrike Holdings Inc. will underscore how businesses are prioritizing cybersecurity after recent high-profile corporate hacks, while Salesforce Inc. and Dell Technologies Inc. are expected to post slower sales growth as overall corporate expenditure tightens.
Traders will also be keeping an eye on gold and oil after Israel and Hamas signaled that a temporary cease-fire in Gaza could be extended beyond Monday to allow for the release of more hostages and prisoners. Oil fell for a fourth day as traders looked ahead to this week’s delayed OPEC+ meeting and wider financial markets carried a risk-off tone.
Key events this week:
European Central Bank President Christine Lagarde appears in parliamentary committee, Monday
Australia retail sales, Tuesday
NATO foreign ministers meet, Tuesday
US Conf. Board consumer confidence, Tuesday
Fed Governor Chris Waller, Chicago Fed President Austan Goolsbee speak at different events, Tuesday
Australia CPI, Wednesday
Reserve Bank of New Zealand policy decision, Wednesday
(Bloomberg) — Inflation gauges in the US and euro zone are set to show the smallest annual increases since early or mid-2021, reinforcing sentiment that interest rates won’t be raised again.
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The Federal Reserve’s preferred measures will be published on Thursday, with the personal consumption expenditures price index seen rising 3.1% in October from a year ago. The core measure, which excludes food and fuel and is considered a better gauge of underlying inflation, is expected to have climbed 3.5%.
Euro-region data for November, also due on Thursday, will probably show inflation at 2.7%, the lowest since July 2021. The underlying measure is seen slowing to 3.9%.
Despite the disinflation progress, officials on both sides of the Atlantic insist they want to see more evidence to be sure that consumer prices are durably under control. On Friday, European Central Bank President Christine Lagarde said that “we’re certainly not declaring victory.”
Fed officials are united around a strategy of being deliberate about the path for policy. Minutes of their last meeting showed that they took note of how higher rates were starting to squeeze households and businesses.
The Fed on Wednesday will issue its Beige Book of economic conditions and anecdotes from across the country.
The US personal income and spending report is also forecast to show only a slight advance in inflation-adjusted consumer outlays. The October downshift in demand help explain forecasts for a slowdown in the economy after a third-quarter growth spurt.
What Bloomberg Economics Says:
“The inflation impulse dulled in October, which should allow the Fed to stay on hold through year-end.”
—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists. For full analysis, click here
The government issues its first revision to third-quarter gross domestic product on Wednesday, the median forecast in a Bloomberg survey calls for 5% growth. Initial estimate of corporate profits are also expected.
Other US data in the coming week include October new-home sales, November consumer confidence, weekly jobless claims, and a key manufacturing survey.
Further north, Canada will release third-quarter GDP data that will reveal whether it entered a recession, though economists reckon on at least minimal growth. Jobs numbers for November will be the last major data point before the Bank of Canada’s rate decision on Dec. 6.
Elsewhere, the Paris-based OECD presents a new set of forecasts, Lagarde speaks to European lawmakers, and central banks from New Zealand to South Korea are expected to keep rates on hold.
Click here for what happened last week and below is our wrap of what’s coming up in the global economy.
Asia
Central bank governors are expected to gather at the start of the week as part of the Hong Kong Monetary Authority’s global financial summit and Bank for International Settlements conference.
Chinese purchasing manager indexes will start being published toward the end of the week, data to be closely watched by investors for signs of recovery in the world’s second-largest economy.
The Bank of Korea is expected to hold rates steady on Thursday, though it continues to face a tricky policy environment where inflation remains sticky, growth weak and household debt on the rise.
South Korea is also set to report on trade data Friday, one of the earliest looks into how global demand was holding up in November.
The Reserve Bank of New Zealand and the Bank of Thailand are set to make their latest rate decisions on Wednesday, while India will report third quarter GDP the same day.
A range of Asian countries will report on manufacturing PMI data on Friday, from India to Vietnam to Indonesia, giving a broader view into how the region’s economies are holding up.
Bank of Japan board members will speak to business leaders and hold press conferences on Wednesday and Thursday, amid continued speculation over the timing for policy normalization.
The country will also report on industrial production and retail sales data on Thursday, plus labor and business spending data on Friday, after figures showed the Japanese economy contracted in the third quarter.
Europe, Middle East, Africa
Testimony by Lagarde to the European Parliament on Monday will provide investors with something to trade on before the inflation data.
Those numbers will arrive after a drip of national reports starting on Wednesday that are mostly expected to show a synchronized decline across major economies, albeit at divergent levels.
While Spanish inflation probably accelerated, it’s seen weakening in France to 4.1%, and the outcome in Germany is also projected lower at 2.7%. Italian price increases are expected to decelerate markedly further below the ECB’s goal, to 1.1%.
Friday may feature the release of several reports by ratings companies. Among them, S&P Global Ratings is scheduled to publish a view on France, and Scope Ratings could do the same for Italy.
Meanwhile, the German government is struggling to hammer out a revised budget after a shock court ruling earlier this month.
In the UK, several Bank of England policymakers are due to make appearances, including Governor Andrew Bailey, while it’s a quieter week for data.
After Sweden’s Riksbank surprised investors on Thursday by halting rate increases, third-quarter GDP on Wednesday may reveal a recession. Economic weakness was one argument economists gave to keep borrowing costs on hold – although Governor Erik Thedeen hasn’t closed the door on another hike.
On Friday, meanwhile, Swiss data could show that the economy returned to marginal growth during the same period after stalling in the prior three months.
Turning east, Poland will publish inflation, seen staying at 6.6% — more than twice as much as in the neighboring euro region. GDP numbers in the Czech Republic may show a recession.
In Israel, analysts expect the base rate to stay at 4.75% on Monday as the central bank continues supporting the currency. The shekel has recovered all losses since Israel’s war with Hamas began in early October, but officials may refrain from cutting rates until next year.
The same day, Ghana, the world’s second-largest cocoa producer, is set to leave borrowing costs unchanged.
Mauritius on Tuesday is also poised to hold rates steady as inflation has eased below the central bank’s 2% to 5% target range earlier than expected. And with inflation quickening again, gas-rich Mozambique is also likely to keep borrowing costs unchanged on Wednesday.
Latin America
Latin America has a light economic calendar in the coming week, with highlights to include mid-month consumer prices index in Brazil and an inflation report by Mexico’s central bank.
Brazil’s mid-November inflation, due on Tuesday, is expected to further decelerate from a year ago, justifying the central bank’s pledge to deliver at least two more rate cuts of half a percentage point.
Mexico releases its inflation report the following day. The document, which usually brings revisions to growth estimates, may shed light on the timing of a much-anticipated monetary easing cycle.
The central bank has signaled that rate cuts are near, but the latest economic activity data, including third-quarter GDP figures released on Friday, showed Latin America’s second-largest economy is performing better than economists forecast.
Chile publishes a number of activity and production reports starting on Thursday, the most important being Friday’s Imacec index of economic activity for October. The indicator, considered a proxy for GDP, had its biggest gain in eight months in September, surprising economists.
Also on Friday, Brazil releases industrial production for October, while Mexico publishes remittances data for the same month.
–With assistance from Monique Vanek, Piotr Skolimowski, Yuko Takeo, Molly Smith and Laura Dhillon Kane.
(Bloomberg) — OpenAI will bring back Sam Altman and overhaul its board with new directors, a stunning reversal in a drama that’s transfixed Silicon Valley and the global AI industry.
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Altman is returning as chief executive officer and the initial board will be led by Bret Taylor, a former co-CEO of Salesforce Inc. and director at Twitter before it was acquired by Elon Musk. The other directors are Larry Summers, the US Treasury Secretary under President Bill Clinton, and existing member Adam D’Angelo, the co-founder and CEO of Quora Inc. OpenAI is now working “to figure out the details,” the company said in a post on X, formerly Twitter.
The reworked board will not be final: its main priority is to select up to nine new directors, said a person familiar with the negotiations who asked not to be identified. Board composition proved to be a major sticking point in negotiations for Altman’s return after his shocking ouster on Friday.
The decision to restore him to the world’s best-known AI startup marks a victory for biggest backer Microsoft Corp., which worked with fellow investors to reverse Altman’s firing. The two new board members also hold appeal for Wall Street and the Silicon Valley crowd. Summers, a Harvard academic and paid contributor to Bloomberg Television, sits on the board of several startups, including Jack Dorsey’s Block Inc. Taylor is a director at Shopify Inc. and helped steer the sale of Twitter to Musk last year, acting as a calming force.
Parties are still determining which members — beside D’Angelo, who has been appointed — will stay on the new OpenAI board.
Altman agreed not to take a board seat initially in order to get the deal done, said the person. It’s likely he’ll join the board eventually. He also agreed to an internal investigation into the conduct that led to his dismissal, another person said.
OpenAI’s biggest backer celebrated Altman’s return to the helm, after briefly agreeing to hire him on Sunday to start a new in-house research group. Microsoft, whose AI strategy hinges on the startup’s technology, will likely have representation on the new board, certainly as an observer and possibly with one or more seats, one of the people said.
OpenAI’s earlier board members included D’Angelo, OpenAI co-founder and chief scientist Ilya Sutskever, Tasha McCauley of GeoSim Systems, and Helen Toner, director at Georgetown’s Center for Security and Emerging Technology.
Read more: OpenAI Negotiations to Reinstate Altman Snag Over Board Role
The agreement followed four days of high-stakes negotiations, after nearly all of its employees threatened to quit if Altman was not reinstated. Much of the drama played out on X as notable financiers, Silicon Valley honchos and key players from Nadella to Altman himself posted declarations, exchanged messages, liked each others’ posts and otherwise advocated their position. Altman’s rehiring triggered swift congratulations on X from main characters in the saga, including former president Greg Brockman — who said he too is returning to the company — and Chief Technology Officer Mira Murati.
In a statement Friday that triggered the furor, OpenAI said Altman was dismissed after an internal review by the board found the chief executive “was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.”
Negotiations for his return reached an impasse on Sunday in part over pressure from Altman and others for existing board members to resign, according to people familiar with the matter. Instead, the board named a new leader — former Twitch CEO Emmett Shear.
Within hours, most of OpenAI’s 770 employees signed a letter to the board saying they might quit and join Microsoft unless all directors resigned and Altman was reinstated. Among the many who signed the letter was Murati, who had been named interim CEO on Friday, and Sutskever.
The quick reversal could appease investors and reduce the threat of employees fleeing. But it also raises questions about the path ahead for the ChatGPT maker and other AI startups, which have tried to balance developing artificial intelligence responsibly alongside the need to raise vast amounts of capital from investors to support the expensive computing infrastructure required to build these tools.
Investors were blindsided by Altman’s removal. Microsoft, which backed the startup with a more than $10 billion stake, had only a few minutes’ advance notice about Altman’s firing. The software giant began working with investors including Thrive Capital and Tiger Global Management to bring him back, according to people familiar with the matter who asked to remain anonymous discussing private information.
Read More: OpenAI Leaders Tell Staff ‘Get Back to Shipping’ Amid Tumult
More than any other figure, Altman, 38, emerged as the face of a new era of artificial intelligence technology, thanks to the viral success of ChatGPT. Altman was at the center of the industry’s efforts this year to work with regulators and he met regularly with world leaders, including US President Joe Biden and UK Prime Minister Rishi Sunak. On Thursday, he appeared on a panel at the Asia-Pacific Economic Cooperation conference, attended by other executives and world leaders, to discuss the future of AI and its risks.
Behind the scenes, however, Altman clashed with members of his board, especially Sutskever, over how quickly to develop generative AI, how to commercialize products and the steps needed to lessen their potential harms to the public, people with knowledge of the matter have said.
Alongside rifts over strategy, board members also contended with Altman’s entrepreneurial ambitions.
He has been looking to raise tens of billions of dollars from Middle Eastern sovereign wealth funds to create an AI chip startup to compete with AI accelerators made by Nvidia Corp., according to a person with knowledge of the investment proposal. Altman was courting SoftBank Group Corp. chairman Masayoshi Son for a multibillion-dollar investment in a new business to make AI-oriented hardware in partnership with former Apple Inc. designer Jony Ive.
The boardroom drama carried echoes of other coups in Silicon Valley history. Apple co-founder Steve Jobs was fired as CEO in 1985 only to return more than a decade later. Twitter co-founder Dorsey was pushed out in 2008 and came back as CEO seven years later.
–With assistance from Dina Bass, Ashlee Vance, Ed Ludlow and Anne VanderMey.
(Updates with board deliberations from the second paragraph. A previous version of this story was corrected to reflect Summers’ tenure.)
Nvidia Corp. investors gave a cool reaction to its latest quarterly report, which blew past average analysts’ estimates but failed to satisfy the loftier expectations of shareholders who have bet heavily on an artificial intelligence boom.
Revenue in the current period will be about $20 billion, the world’s most valuable chipmaker said Tuesday in a statement. Though that topped the average Wall Street prediction of $17.9 billion, some projections reached as high as $21 billion.
After sliding as much as 6.3% in late trading, the shares settled down to a decline of about 1%.
While Nvidia posted another quarter of impressive growth, some investors were clearly anticipating more. They have poured money into the stock this year—sending it up 242%—on the hopes that the AI industry will continue to bring explosive sales gains for Nvidia. That means Nvidia shares were priced at a level that required an absolutely perfect outcome, analysts have said.
Setting aside the outsized expectations, “Nvidia’s results continue to be astounding,” Wolfe Research analyst Chris Caso said in a note to clients. The numbers are particularly impressive given that US restrictions on China are hurting sales, he said. Moreover, Nvidia announced new chips designed for China on Tuesday that could help that market rebound, he noted.
Nvidia shares had closed at $499.44 in New York on Tuesday before the report. The company has been the best-performing stock on the Philadelphia Stock Exchange Semiconductor Index this year, sending its valuation to more than $1.2 trillion.
In fact, Nvidia’s market capitalization is now more than $1 trillion bigger than that of rival Intel Corp., which until recently was the world’s largest chipmaker.
Nvidia Chief Executive Officer Jensen Huang has parlayed a prowess in graphics chips into a leading role in what he calls accelerated computing. The company’s processors, which crunch more data by performing calculations in parallel, have become the go-to tool for training AI services.
In the fiscal third quarter, which ended Oct. 29, revenue more than tripled to $18.1 billion, the company said. Profit was $4.02 a share, minus certain items. Analysts had predicted sales of about $16 billion and earnings of $3.36 a share.
Nvidia’s data center division, the star performer in its operations, had $14.5 billion of revenue, up 279% from the same period a year earlier. The company’s personal computer unit, meanwhile, has rebounded from an industrywide slowdown. Its revenue rose 81% to $2.86 billion.
Nvidia’s success in selling AI chips to companies such as Microsoft Corp. and Alphabet Inc.’s. Google has also made it a target. Microsoft unveiled its own in-house AI processor last week, following a similar effort by Amazon.com Inc.’s AWS. This quarter, Advanced Micro Devices Inc. also will debut a competitor to Nvidia called the MI300. But Nvidia isn’t standing still. It recently unveiled a successor to its prized H100 chip dubbed the H200, and it will be available early next year.
Another threat to Nvidia’s business has come in the form of US curbs on exports to China, the largest market for chips. The Biden administration has restricted the sale of some of Nvidia’s best products on national security grounds.
The US government recently updated its rules governing such exports in October, aiming to make the restrictions harder to circumvent. Nvidia said that the changes won’t affect its sales for now, given the insatiable demand for its products elsewhere. But the requirements are forcing it to rejigger operations and could have an impact down the road.
Nvidia reiterated on Tuesday that the rules didn’t have “a meaningful impact” last quarter. But China and other areas affected by the curbs have accounted for about a quarter of its data center revenue. “We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions,” the company said.
Chief Financial Officer Colette Kress said that US rules require licenses on some exports and advanced notification for other types of chips when shipping to China and some countries in the Middle East. The company is working with customers in those regions to try to secure permission to ship some of its products and on “solutions” that won’t trigger restrictions.
The fourth-quarter drop in China, “though not concerning for the near term, will likely be an area of investor focus,” Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a note.
Nvidia is working on some new chips that won’t trigger export restrictions, Kress said. They will appear in the coming months, but won’t likely help results in the current period, she said. It’s too early and there are too many factors involved to make predictions on how such products may affect future revenue, she said.
Guidance in the fourth quarter would have been higher absent the new rules on China shipments, she said.
Huang, meanwhile, pushed back strongly on questions about whether the company’s data center business was reaching peak growth. Nvidia is adding more supply and the expanding use of AI hardware—by software providers, governments and corporate customers—gives him confidence that demand will continue to go up.
“I absolutely believe that data center can grow through 2025,” he said.
Nvidia, based in Santa Clara, California, said it’s spending more on employees after raising pay and hiring new staff. Operating expenses rose 13% from a year ago, and is up 10% from the prior period.
The company also is spending more to look after workers in Israel.
“We are monitoring the impact of the geopolitical conflict in and around Israel on our operations, including the health and safety of our approximately 3,400 employees in the region who primarily support the research and development, operations, and sales and marketing of our networking products,” Nvidia said. “Our operating expenses in the third quarter of fiscal 2024 include expenses for financial support to impacted employees and charitable activity.”
AI has been the hottest topic for tech investors this year, and every major company has talked up its capabilities in that area. But Nvidia is one of the few businesses making serious money from the trend, which has accelerated since the public debut of OpenAI’s ChatGPT in November 2022. That tool helped show the potential of generative AI to a broader audience.
(Bloomberg) — Binance Holdings Ltd. and its Chief Executive Officer Changpeng Zhao pleaded guilty to anti-money laundering and US sanctions violations under a sweeping settlement with the US that allows the cryptocurrency exchange to continue operating.
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Binance will pay $4.3 billion in one of the largest corporate agreements in US history. Zhao will pay a $50 million fine under a deal that requires him to step down as CEO. Zhao pleaded guilty Tuesday to violating the Bank Secrecy Act in federal court in Seattle. The deal, which includes the Justice Department, Treasury Department and the Commodity Futures Trading Commission, ends a years-long investigation into the exchange.
Binance, which admitted that it allowed transactions with Hamas and other terrorist groups on the platform, was charged with three counts, including anti-money laundering, operating an unlicensed money transmitting business and violating US sanctions. The exchange is paying a criminal fine of $1.8 billion and forfeiting $2.5 billion, according to court filings unsealed Tuesday.
Zhao faces as many as 10 years in prison but is expected to get no more than 18 months under a plea deal that appears to have saved him from the harsh penalties that other prominent crypto criminals have faced. The Justice Department hasn’t decided yet what length of a prison term they will seek for him.
Binance’s violations included failure to prevent and report suspicious transactions with terrorists, including Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda, and the Islamic State of Iraq and Syria, according to the Treasury Department. The announcement comes as Israel and Hamas have been embroiled in a war that began Oct. 7.
Binance also allowed at least 1.1 million transactions, worth more than $898 million, on its platform between customers in US and Iran, according to the court filing.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now it’s paying one of the largest corporate penalties in U.S. history,” Attorney General Merrick Garland said in a press release.
Money from the fine will be split among DOJ, CFTC and other agencies. It includes $3.4 billion to the Treasury Department’s Financial Crimes Enforcement Network and $968 million to its Office of Foreign Assets Control over Bank Secrecy Act and sanctions violations.
New CEO
BNB, a cryptocurrency tied to the Binance ecosystem, slipped about 5.2% following the news. The token had hit a five-month high earlier in the day on the news that the DOJ would soon confirm its settlement with the exchange.
“Binance turned a blind eye to its legal obligations in the pursuit of profit,” Treasury Secretary Janet Yellen said in a press release. “Its willful failures allowed money to flow to terrorists, cybercriminals and child abusers through its platform.”
The settlement negotiated between the two sides will resolve all allegations of criminal wrongdoing. Bloomberg News reported the settlement on Monday. Garland and Yellen held a press conference Tuesday to announce details of the deal.
Read More: US Is Seeking More than $4 Billion From Binance to End Case
As part of his plea deal with the government, Zhao, who has a net worth of $23 billion according to Bloomberg’s Billionaires Index, has stepped down as Binance CEO and can’t be involved in managing the company for three years. Richard Teng will succeed Zhao as CEO. Richard Teng will succeed Zhao as CEO.
The company has also agreed to enhance its compliance program and appoint an independent monitor for three years. Binance’s multibillion dollar fine reflects a 20% discount for “partial cooperation” with the investigation, the agreement states.
In a blog post Tuesday, the company acknowledged that it did not have proper compliance controls in its early launch, but said the settlement didn’t include any allegations that Binance misappropriated user funds or engaged in market manipulation.
VIP Customers
The Justice Department accused the company — as well as top executives, including Zhao — of taking steps to conceal that it was dodging US laws intended to stem the flow of dirty money around the world. The filing states that from about August 2017 until October 2022, Binance and Zhao were involved in a “deliberate and calculated effort” to profit from the US market without implementing controls required by law.
Binance “chose not to comply with US legal and regulatory requirements because it determined that doing so would limit its ability to attract and maintain US users,” according to the charging document.
Binance created loopholes that allowed US-based VIP customers to trade on the international exchange through offshore entities. The government’s case relied on internal documents, chats and details of phone calls to show how Binance helped VIP customers circumvent IP address blocking.
These strategies, the government claimed, allowed US-based VIP users to carry out virtual currency transactions “equivalent to billions of US dollars per day.” Acting on instruction from Zhao and other senior management, employees encouraged the VIPs to conceal their US connections, including by creating new accounts.
Zhao, according to the government’s court filings, discussed strategies to keep the market makers on Binance.com to reduce “our own losses” and to have “US supervision agencies not cause us any troubles.”
Zhao was well aware of the presence of US customers on the Binance.com exchange. In a chat in 2019, he wrote that if Binance blocked US customers from day one “Binance will not be as big as we are today.”
A year later, US users still made up 16% of total users on Binance, more than any other country. Binance removed the US label for user location and recategorized it as “UNKWN.”
Zhao wrote that it was “better to ask for forgiveness than permission” and described the situation as a “grey zone.”
CZ in Court
Zhao wore a dark suit and light blue tie, and spent most of the hearing seated with his hands clasped. Judge Brian Tsuchida ruled Zhao would be released and was free to return to his home in the United Arab Emirates while awaiting sentencing.
“I want to close the issue, I want to take responsibility and close this chapter of my life,” Zhao told the court during the hearing. Zhao said he was “a little bit scared” to come to the US to face his plea, but said he was reassured by the court’s thoroughness. “I will return.”
Zhao’s bond was set at $175 million, after his lawyers said he would be prepared to put up that amount to secure his release. Lawyers for the government, who had asked that Zhao be ordered to stay in the country because the US lacks an extradition treaty with the UAE, said they would appeal the release terms.
As part of the release, Zhao’s sister also put up a California home, which his lawyers said was valued at more than $5 million, and two unnamed guarantors committed a total of $350,000.
Zhao faces a maximum sentence of 10 years and fines up to $500,000, plus any profits he made from the alleged scheme. His lawyers said in court that his sentencing will be delayed by 6 months. Zhao’s agreement includes a waiver of his right to appeal, provided that his sentence doesn’t exceed 18 months, judge Tsuchida said during the plea hearing.
Crypto Crackdown
The resolution against the world’s largest cryptocurrency exchange and its top leader represents one of the largest penalties imposed within the cryptocurrency industry, which has been facing withering scrutiny from the Justice Department, other government agencies and lawmakers.
Binance, which exploded onto the crypto scene in 2017 and almost immediately took on and surpassed larger rivals, saw its market share surge to more than 60% worldwide after the fall of FTX in November 2022. Since then, its combined market share for spot crypto and derivatives has declined to less than 44% this month, according to researcher CCData.
The Justice Department recently prosecuted FTX co-founder Sam Bankman-Fried in New York for allegedly orchestrating a multibillion-dollar misappropriation of customer funds that led to the cryptocurrency exchange’s collapse. Bankman-Fried was convicted of fraud following a high-profile criminal trial.
Both the CFTC and Securities and Exchange Commission sued Binance and Zhao earlier this year alleging a range of violations, including mishandling customer funds and allowing Americans to illegally access the platform. Tuesday’s settlement resolves the CFTC case but the SEC lawsuit is ongoing.
Zhao worked at Bloomberg LP, the parent company of Bloomberg News, from 2002 to 2005.
–With assistance from Michael P. Regan, Yueqi Yang, stacy-marie ishmael, David Voreacos and Daniel Flatley.
(Updates with details from the press conference and the complaint throughout the story.)
(Bloomberg) — Alibaba Group Holding Ltd.’s market value has slumped to only about half that of rival Tencent Holdings Ltd. as the former’s e-commerce-centric business faces sluggish demand and intensified competition.
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Alibaba, whose other main business line includes cloud computing, has a market capitalization of $201 billion, while Tencent, focused on social media and gaming, is valued at $391 billion, according to data compiled by Bloomberg. Alibaba’s shares now trade around eight times forward earnings multiples, versus 16 times for Tencent.
Alibaba on Thursday abruptly ended its plan to spin off its cloud unit, citing heightened US restrictions on chip sales to China. The announcement, along with lower-than-expected domestic e-commerce sales, sent the stock tumbling about 10% in Hong Kong, its largest decline this year.
The divergence in the market value of the two companies also highlights some of the regulatory and macroeconomic issues that have troubled Alibaba. In recent years, China has sought to rein in the country’s tech giants, with regulators probing Alibaba affiliate Ant Group Co. and imposing a $1 billion fine on the fintech company backed by Jack Ma. Its market value had largely been higher than Tencent before the crackdown started in late 2020.
Tencent earlier this week reported better-than-expected profitability across its main business lines for the third quarter. The Chinese social media operator delivered growth across divisions from gaming and advertising to fintech, driving a 10% increase in revenue.
“China’s tepid consumption recovery and the heightened competition in the e-commerce space all make it harder for Alibaba’s business environment,” said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. “There were also greater regulatory concerns for Alibaba earlier that weighed on investors sentiment.”
(An earlier version corrected day to Thursday in third paragraph)
(Bloomberg) — Applied Materials Inc., the largest US maker of chipmaking machinery, slid in late trading following a report that it faces a US criminal investigation for allegedly violating export restrictions to China.
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The company is being probed by the Justice Department over dealings with China’s biggest chipmaker, Semiconductor Manufacturing International Corp., according to Reuters. The department is looking at whether Applied Materials sold hundreds of millions of dollars of equipment without the proper licenses, the news outlet reported, citing unidentified people familiar with the situation.
The Justice Department declined to comment. Applied Materials declined to discuss details of the case but noted that it previously disclosed a federal review of China deliveries.
“Applied Materials first disclosed in October 2022 that it received a subpoena from the US Attorney’s Office for the District of Massachusetts requesting information relating to certain China customer shipments,” the company said in an emailed statement. “The company is cooperating with the government and remains committed to compliance with global laws, including export controls and trade regulations.”
The report overshadowed generally upbeat quarterly results from Applied Materials, which topped analysts’ estimates with its earnings and forecast.
Shares of Applied Materials, based in Santa Clara, California, fell as much as 7% in extended trading. KLA Corp. and Lam Research Corp., two other US chip-equipment makers, also fell. KLA was down 3.4%, while Lam dropped 1.6%.
The company and its peers are operating under increasingly strict rules imposed by Washington on exports of chip technology to China. The US has argued such rules are needed to protect national security and requires companies to seek licenses to send certain types of machines or have dealings with particular companies in the Asian nation.
According to Reuters, Applied Materials produced chipmaking gear in Gloucester, Massachusetts, and then shipped it to a subsidiary in South Korea. It then went to China’s SMIC, the people familiar with the investigation said.
SMIC was placed on a so-called entity list in December 2020 by the Department of Commerce, which cited alleged links between the chipmaker and China’s military. That means US companies need special permission to sell to the company.
Applied Materials’ fourth-quarter report coincided with publication of the Reuters story. Earnings in the period amounted to $2.12 a share, excluding some items, the company said. Sales were little changed in the quarter, which ended Oct. 29, at $6.72 billion. Analysts estimated earnings of $1.99 a share and revenue of $6.54 billion.
Fiscal first-quarter sales will be about $6.47 billion, the company said. That compares with an average analyst estimate of $6.34 billion. Excluding some items, profit will be $1.72 to $2.08 a share in the period, which ends in January. The average projection was $1.84 a share.
Semiconductor manufacturers order machinery from Applied Materials and its peers well ahead of opening new factories, which can take more than a year to build and equip. That makes the company’s guidance a key indicator of the industry’s confidence in future demand.
Though the chip industry has been contending with a slowdown in personal computers and smartphones — two of the biggest traditional consumers of semiconductors — Applied Materials Chief Executive Officer Gary Dickerson has argued that artificial intelligence computing will fuel a new surge in demand.
Semiconductor equipment companies have been hurt by weak demand from memory-chip makers, which are enduring an industry glut that’s wiped out profits and slowed factory expansions. But that’s been offset, to an extent, by the ongoing race to make high-end processors — particularly for AI work.
China had been one of the fastest-growing markets for chip equipment. But the US restrictions have begun to take a toll on sales. Analysts and investors are still trying to gauge the full impact of the new rules — and how they’re likely to be enforced.
A recent tightening of the export restrictions won’t have an incremental impact on Applied Materials’ results, the company said Thursday.
In the fourth quarter, that market provided 44% of overall sales and will remain at an “elevated level” in the current period because of some large shipments to a computer memory customer, the company said. Over time, China will shrink back down to around 30% of sales — its historical level.
Dickerson said he remains bullish on the outlook for demand for his products overtime.
“Longer term, the setup is really great,” he said in an interview.
(Updates with more on results in eighth paragraph.)
(Bloomberg) — Cathie Wood said that deflation is already underway in the US across industries and will force the Federal Reserve to kick off a big interest-rate cutting cycle.
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“The Federal Reserve has overdone it, we’re going to see a lot more deflation going forward,” the head of ARK Investment Management told Bloomberg TV Tuesday. “If we’re right, and they’ve gone way too far, they’ll have to cut fairly significantly.”
She added that the CPI inflation rate could turn negative “at some point next year.” US inflation broadly slowed in October, which markets cheered as a strong indication that the Fed is done raising interest rates. The aforementioned data was released Tuesday.
Wood’s prediction clashes with the consensus on Wall Street. Economists expect annual inflation to tick down to 2.7% next year from 3.2% in October, according to a Bloomberg survey.
Read More: US Inflation Broadly Slows, Erasing Bets on More Fed Rate Hikes
Wood said that a deflationary trend that began in commodities is now extending out to airline and auto prices. She has long expected an era of falling prices, backed by new technologies including artificial intelligence, electric vehicles, robotics, genomic sequencing and blockchain. She has also criticized the Fed previously, saying its aggressive hikes could increase the risks of a deflationary bust.
ARK’s Flagship Fund
After a blockbuster year in 2020, Wood’s flagship $6.9 billion ARK Innovation ETF (ticker ARKK) tumbled roughly 23% in 2021 and 67% in 2022. It’s up 33% so far this year.
“We’ve paid our dues,” Wood said. “We had a great year through July, then a little bit of a setback, as inflation fears picked up again. But I think today’s report is very important in terms of — look through there and see the price declines. You’ll see a number of them.”
Read more: Cathie Wood Sees Revival of Thematic Investing When Rates Fall
Despite ARKK’s rally this year, the fund is still trailing the tech-heavy Nasdaq 100’s roughly 44% gain, which has been propelled by companies absent from Wood’s ETF, including Nvidia Corp., Microsoft Corp. and Apple Inc.
–With assistance from Romaine Bostick.
(Updates headline, adds details in paragraph four.)
(Bloomberg) — Shares in Asia were mostly higher following a tech-driven rally Friday on Wall Street, as investors look ahead to crucial US inflation data due Tuesday.
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Stocks rose in Japan and South Korea, along with Hong Kong futures, while Australian shares were slightly lower in early trading Monday. The moves followed a 2.3% gain Friday for the tech-heavy Nasdaq 100, helped along by a record high for Microsoft Corp. The S&P 500 rose 1.6%. US stock futures slid in Asia early Monday.
Markets are closed in Singapore and Malaysia for a holiday.
Australian and New Zealand government bonds edged lower after short-dated Treasuries sold off on Friday. Those declines failed to weigh on the long end of the curve. The 30-year yield was left largely unchanged while the 10-year yield rose three basis points.
Both Treasuries and the dollar were steady early Monday.
“We are going to see a change in policy in Japan and that is going to make the yen attractive,” Sonal Desai, chief investment officer for fixed income at Franklin Templeton, said in an interview with Bloomberg Television. “The BOJ will ultimately be pushed towards changing its own interest rate stance which will bring money back.”
Japanese producer prices declined in October from the prior month. India will release its latest inflation report Monday and new loan and money supply figures for China could also be released.
In the US, inflation is anticipated to have declined to a year-over-year rate of 3.3% in October, down from 3.7% recorded in the prior month, when the data is released Tuesday. Many bond investors are convinced a sustained rally in Treasuries will fail to occur without a clear economic slowdown. US President Joe Biden and his Chinese counterpart Xi Jinping meet Wednesday.
ANZ Group Holdings Ltd. shares fell after the bank’s chief executive officer warned of a challenging economic environment ahead in its latest earnings results. Profits for the group were buoyed by higher interest rates.
Other companies set to report Monday include Apple supplier Hon Hai Precision Industry, also known as Foxconn, Chinese tech giants JD.com Inc and Tencent Holdings Ltd., Japanese financial heavyweights Mitsubishi UFJ Financial Group and Mizuho Financial Group, Walmart Inc. and Siemens.
Australia is grappling with the fallout of a cyberattack on port operator DP World Plc as the holiday season approaches. Operations at its largest ports are slowly resuming, the Freight & Trade Alliance said Monday.
JD.com and Alibaba Group Holding reported a pickup in sales for Singles’ Day, following steep discounts offered by the e-commerce groups.
Elsewhere, oil trimmed gains from Friday against the backdrop of concerns over global demand. Gold was little changed. Bitcoin hovered near $37,000 — around the highest price in 18 months.
Events coming up this week:
Japan PPI, Monday
ECB Vice President Luis de Guindos speaks, Monday
US CPI, Tuesday
UK jobless claims, Tuesday
Chicago Fed President Austan Goolsbee speaks, Tuesday
China retail sales, Wednesday
UK CPI, Wednesday
US retail sales, PPI, Wednesday
China new home prices, Thursday
US initial jobless claims, Thursday
New York Fed President John Williams, Thursday
US housing starts, Friday
ECB President Christine Lagarde speaks, Friday
Chicago Fed President Austan Goolsbee, Boston Fed President Susan Collins, San Francisco Fed President Mary Daly all speak, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.2% as of 9:08 a.m. Tokyo time
Nasdaq 100 futures fell 0.2%
Hang Seng futures rose 0.5%
Japan’s Topix rose 0.6%
Australia’s S&P/ASX 200 fell 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0689
The Japanese yen was little changed at 151.46 per dollar
The offshore yuan was little changed at 7.3045 per dollar
Cryptocurrencies
Bitcoin fell 0.4% to $37,051.83
Ether fell 0.8% to $2,044.03
Bonds
The yield on 10-year Treasuries was little changed at 4.64%
Japan’s 10-year yield advanced two basis points to 0.850%
Australia’s 10-year yield advanced four basis points to 4.66%
Commodities
This story was produced with the assistance of Bloomberg Automation.
JPMorgan Chase & Co. is working with US regulators and walking them through its first set of generative AI pilot projects to ensure all controls are in place, as the bank attempts to bound ahead of rivals in deploying artificial intelligence in the highly-regulated industry. “It’s about helping regulators understand how we build the generative AI models, how we […]
For years, Dutch payments fintech Adyen NV’s founders and management ran things their own way, thanks to some blowout growth. During its listing in 2018 they didn’t feel the need to pre-brief investors — the shares doubled in the first two hours of trading all the same, making one of the founders an instant billionaire. There was […]
(Bloomberg) — South Korean stocks surged after regulators reimposed a full ban on short-selling for about eight months, a controversial move that authorities said was needed to stop illegal use of a trading tactic deployed regularly by hedge funds and other investors around the world.
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The ban may help appeal to retail investors who have complained about the impact of shorting — the selling of borrowed shares by institutional investors — ahead of elections in April. However, it could deter some foreign investors and hold back MSCI Inc. from upgrading Korean equities to developed market from emerging status.
The benchmark Kospi jumped as much as 4%, the most since January 2021, leading gains among major regional gauges in Asia on Monday. Stocks that had seen recent jumps in short-selling positions, including LG Energy Solution Ltd. and Posco Future M Co., were among the biggest boosts. The small-cap Kosdaq Index surged as much as 5.9%, the most since June 2020.
The nation’s Financial Services Commission said on Sunday that new short-selling positions will be prohibited for equities on the Kospi 200 Index and Kosdaq 150 Index from Monday through the end of June 2024. Pandemic-era restrictions on the practice had been lifted for those two gauges only in May 2021, while the ban has remained in place for some 2,000 stocks.
READ: South Korea to Ban Short-Selling of Stocks Until June 2024
The move comes ahead of general elections in April for the National Assembly in South Korea, where public perception of short-selling remains deeply negative. Some ruling party lawmakers urged the government to temporarily end stock short-selling in response to demands by retail investors, who have staged protests against the tactic. Most short-selling in South Korea is conducted by institutional investors.
“This policy reversal with respect to short selling is unwarranted at the current time,” said Wongmo Kang, an analyst at Exome Asset Management. “Many people view it as a political move aimed at next year’s general election,” he said, adding that the Korean market tend to be “heavily influenced by retail investors”.
The Kospi surged earlier this year on frenzied buying of electric-vehicle battery names and chip stocks related to the artificial intelligence theme. Concerns over geopolitical tensions and high interest rates reversed the rally in recent months, driving the benchmark into a technical correction and nearly erasing its gain for the year.
The latest ban is “unusual” as authorities are comprehensively prohibiting short selling at a time when there is no financial crisis, said Huh Jae-Hwan, an analyst at Eugene Investment & Securities.
The financial regulator said the market had been disrupted due to “massive” naked short-selling by global investment banks. The so-called naked variety of the trade involves shorting shares without borrowing them first. The regulator said it is now seeking to make improvements to create a level playing field for retail investors, with stronger punishments for traders who break the rules.
READ: Korea to Fine Banks for Naked Shorts; Local Media Name HSBC, BNP
While regulators argue that naked short-selling inhibits fair price formation and hurts confidence, some observers say broad outright bans make the market less transparent and therefore less attractive. Some say the restrictions may keep the market from being upgraded in MSCI indexes.
“It does compromise their status and certainly would hold them back from achieving developed market status,” said Gary Dugan, chief investment officer at Dalma Capital Management Ltd. “Given that there is an immediate ban there will be an initial sharp move higher in stock prices of companies that have had some short selling,” but the impact may be limited given low levels of short positions in the overall market, he said.
“There is a possibility that international investors may lose trust and opportunity in the Korean market,” Exome Asset’s Kang said. “Without the ability for investors to express a view that markets and individual stocks are ‘mispriced’ to the upside, stock markets lose long term credibility on the world stage.”
–With assistance from Abhishek Vishnoi.
(An earlier version of this story was corrected to show the ban was partially lifted in May 2021)
(Bloomberg) — The stock market just finished its best week in almost a year, but lurking beneath the euphoric surface are fears about Corporate America’s profit outlook.
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Among companies that have issued guidance this earnings season for next quarter and beyond, more have been providing estimates that trail analysts’ expectations. A gauge of forward guidance that compares corporate forecasts with the Wall Street consensus has been lower only once since 2019, data compiled by Bloomberg Intelligence show.
The equities optimists might look at that and conclude the C-Suite signals will end up being too conservative, setting the stage for eventual investor cheer. But the gloomier interpretation is that companies are quietly building caution as they grapple with a concerning global outlook and the demand headwinds from the Federal Reserve’s aggressive interest-rate hikes.
“If there’s a lot of optimism based on forward projections and suddenly that starts to turn, then it doesn’t bode well for stock prices,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. “But we’re seeing more signs that cracks are beginning to form from tighter financial conditions and profit outlooks. Some analysts have been slower to come to terms with this.”
Only about a quarter of S&P 500 companies provide quarterly guidance, and just over half offer it on an annual basis, typically the technology and discretionary sectors. Earnings for most Big Tech companies have been in line or above expectations, though the outlook has dimmed along with broadly higher borrowing costs.
The S&P 500 gained 5.9% this week after weaker-than-forecast US jobs data on Friday bolstered bets the Fed is done tightening and caused Treasury yields to dive.
The gauge of earnings guidance momentum — derived in part from the ratio of increased versus reduced guidance — is hovering at the lowest level since the first quarter, and aside from that period is the lowest since 2019, Bloomberg Intelligence data show.
The downbeat signal suggests the profit expansion investors had been banking on may not be as swift as expected. The S&P 500 is on track to post earnings growth of 3.2% in the third quarter, halting a three-quarter streak of contracting profits, according to BI.
There are plenty of reasons for companies to be wary, ranging from a war in the Middle East to stubborn inflation to a lack of clarity on the economy. The Atlanta Fed’s GDPNow model sees fourth-quarter real GDP growth slowing to a 1.2% annual rate, from a 4.9% pace in the three months through September.
Sell-side analysts are taking notice. Since Oct. 6, they’ve cut their fourth-quarter EPS views by 1.9%, data compiled by Deutsche Bank AG show. This far into earnings season the view on the following reporting cycle has typically seen a 1% median drop, according to Deutsche Bank data going back to 2010.
Dim confidence in companies’ profit outlook is the main reason behind a lackluster reaction to third-quarter earnings, according to Justin Burgin, director of equity research at Ameriprise Financial.
The S&P 500 firms that missed analysts’ earnings estimates have trailed the benchmark’s performance by 3.8% on average a day after the results, the worst showing in a year, according to BI.
(Bloomberg) — Stocks rallied as investors reacted to the possible peak of the Federal Reserve’s historic tightening campaign and processed the latest major company earnings.
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Rates-sensitive real estate stocks led the advance in Europe’s Stoxx 600 index, which is set for its longest winning streak since July. US equity futures pointed to an extension of Wednesday’s gains on Wall Street as Asian stocks headed for their biggest gain in almost four months.
Novo Nordisk A/S rose after reporting that third-quarter sales surged amid the frenzy for its blockbuster obesity and diabetes drugs. Shell Plc gained after accelerating the pace of share buybacks as its third-quarter profit rose. Apple Inc. headlines the roster of US earnings due later.
While the Fed left the door open to another increase after pausing Wednesday, officials hinted that a run-up in long-term Treasury yields reduces the impetus to tighten policy further. The Bank of England is likely to keep interest rates at the highest level since 2008 later Thursday, amid evidence that the UK economy, labor market and inflation are weakening.
“The Fed did not throw in the towel yesterday, but the changes in the speech are in line with a more moderate growth situation,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “What transpires from the speech is essentially a first eyebrow raised at the real growth situation, which markets decided to take for a ‘bad news is good news’ message.”
The dollar weakened and Treasuries steadied after Wednesday’s sharp gains.
US yields were already heading lower prior to the Fed decision after the government announced plans to borrow slightly less than expected over the next three months, reassuring investors worried about a deluge of debt issuance. A gauge of US factory activity also came in below expectations, adding to concerns of an economic downturn.
In Asia, the yen extended its gains from Wednesday, while the South Korean won led emerging-market currencies higher.
Meanwhile, the rebound in the region’s stocks signaled relief among investors fretting over the expectation of higher-for-longer US rates and hikes continuing into 2024. Asian stocks lost more than 12% from the end of July through October.
Fed Chair Jerome Powell on Wednesday noted that financial conditions have “tightened significantly in recent months driven by higher, longer—term bond yields, among other factors.” He repeatedly said the committee was moving “carefully,” a wording that often has signaled a low likelihood of any immediate change in policy, while adding that risks to the outlook have become more two-sided as the tightening campaign nears its end.
US jobs data painted a mixed picture. There were more job openings than forecast, according to the latest JOLTS data, while ADP’s private payrolls figures showed fewer new roles than anticipated. Initial jobless claims figures will be released later Thursday.
In commodities, global benchmark Brent crude oil rose past $85 a barrel, after sliding around 5% over the previous three sessions.
Key events this week:
Eurozone S&P Global Eurozone Manufacturing PMI, Thursday
Bank of England interest rate decision. Governor Andrew Bailey holds news conference, Thursday
US factory orders, initial jobless claims, productivity, Thursday
Apple earnings, Thursday
China Caixin services PMI, Friday
Eurozone unemployment, Friday
US unemployment, nonfarm payrolls, Friday
Canada employment report, Friday
Here are some of the major moves in markets:
Stocks
The Stoxx Europe 600 rose 1.4% as of 8:52 a.m. London time
S&P 500 futures rose 0.5%
Nasdaq 100 futures rose 0.6%
Futures on the Dow Jones Industrial Average rose 0.3%
The MSCI Asia Pacific Index rose 1.4%
The MSCI Emerging Markets Index rose 1.6%
Currencies
The Bloomberg Dollar Spot Index fell 0.3%
The euro rose 0.3% to $1.0604
The Japanese yen rose 0.4% to 150.42 per dollar
The offshore yuan was little changed at 7.3321 per dollar
The British pound rose 0.1% to $1.2166
Cryptocurrencies
Bitcoin fell 0.4% to $35,306.23
Ether fell 1.3% to $1,831.95
Bonds
The yield on 10-year Treasuries declined one basis point to 4.72%
Germany’s 10-year yield declined five basis points to 2.72%
Britain’s 10-year yield declined eight basis points to 4.42%
Commodities
Brent crude rose 1.4% to $85.79 a barrel
Spot gold rose 0.2% to $1,987.46 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu and Sagarika Jaisinghani.
(Bloomberg) — MicroStrategy Inc., the enterprise-software maker that is the largest publicly-traded holder of Bitcoin, posted a third-quarter loss after taking a writedown because of a decline in the value of the cryptocurrency.
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The Tysons Corner, Virginia-based company’s net loss widened to $143.4 million, or $10.09 a share, from $27 million, or $2.39, in the year-ago period. Revenue from the software business rose about 3% to $129.5 million, above the average forecast of $125.8 million of analysts surveyed by Bloomberg.
MicroStrategy, which has been buying Bitcoin in bulk since 2020 as a hedge against inflation, has been forced to take massive writedowns over the years following downturns in the volatile digital currency. Bitcoin has increased about 30% since falling 11% in the three months ended Sept. 30.
Co-founder Michael Saylor has turned the once struggling software company into a Bitcoin proxy for equity investors by accumulating more than $5.5 billion of the cryptocurrency. Saylor gave up his chief executive officer title last year, saying he would focus on the Bitcoin aspect of the company’s dual strategy.
The $33.6 million impairment loss for the quarter brings the cumulative total to over $2.2 billion, meaning the company has written off almost half the Bitcoin purchases it has made, according to Bloomberg calculations. MicroStrategy as of Oct. 31 held more than 158,000 Bitcoin at a total cost of $4.69 billion, or $29,586 each, according to a statement.
In a post-earnings conference call, Chief Financial Officer Andrew Kang said the company plans to purchase more Bitcoin.
Investors and analysts are beginning to debate whether MicroStrategy’s shares will continue to command a Bitcoin-related premium, given that the US Securities and Exchange Commission seems likely to approve ETFs that invest directly in Bitcoin after a key court loss earlier this year.
Since the middle of 2020, MicroStrategy shares have more than tripled as Bitcoin surged in value. The benchmark Standard & Poor’s 500 Index gained about 40% during the same period.
ETF Competition
Saylor in the conference call pointed to advantages of investing in MicroStrategy stock instead of a US spot Bitcoin ETF.
“There will be fees to invest in a spot ETF,” Saylor said. “The ability to get Bitcoin exposure and not get charged a fee is another plus for us.”
Saylor said spot ETFs would “grow the market dramatically” and be “an onramp for capital on Wall Street to come into the Bitcoin ecosystem.”
Since the quarter ended, MicroStrategy’s Bitcoin holdings have risen in value by around $1.2 billion, which was about the company’s market capitalization when it started buying crypto in 2020.
Saylor said he will sell some of his MicroStrategy shares between January and April of next year in connection with expiring options.
–With assistance from Tom Contiliano.
(Updates with comments from executives from the sixth paragraph.)
(Bloomberg) — Advanced Micro Devices Inc. said a new AI chip will generate $2 billion in sales next year, fueling optimism that demand for the component will offset a slump in orders for video-game equipment.
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The company’s MI300 processor, which will compete with Nvidia Corp. products in the market for artificial intelligence accelerators, is set to begin shipping in the coming weeks, AMD said during a post-earnings conference call Tuesday.
The chip has received strong early orders, including from large cloud computing customers. It should bring in $400 million in revenue this quarter, on the way toward generating $2 billion for the whole of 2024, AMD said. In fact, it’s on course to be the fastest-ever AMD product to reach $1 billion in sales, the company projected.
“We think the market is huge,” Chief Executive Officer Lisa Su said. “We’re playing to win and we think MI300 is a great product. I’m encouraged with the progress we’re making with the hardware and software.”
Those prospects helped take the focus off a sales forecast that fell short of many Wall Street estimates. Fourth-quarter revenue will be $5.8 billion to $6.4 billion, AMD said earlier Tuesday. The average analyst estimate was $6.4 billion.
Otherwise strong demand will be offset by “lower sales in the gaming segment,” Chief Financial Officer Jean Hu said in a statement. Chips for industrial, automotive and networking systems — known as the embedded market — will continue to weaken as well.
The forecast initially sent AMD shares down as much as 5.1% in late trading, but they recovered almost all of the loss after the AI remarks on the conference call. The stock was up 52% this year through the close, lifted by a broader resurgence in chipmaker shares.
AMD is playing catch-up with Nvidia in AI accelerators, the processors used to develop chatbots and other advanced tools. There’s a lot riding on AMD’s new MI300. The total market for such chips could top $150 billion by 2027, Su has said.
“We’re just at the very early innings of people adopting this,” she said on the conference call with analysts, who mostly focused their questions on the prospects for the MI300.
Read More: AMD’s New AI Chip Poised to Steal Earnings Spotlight
In the nearer term, the company has been helped by a rebound in its traditional business, the main processors for PCs. That industry has emerged from a slump that was made worse by a massive buildup in excess inventory. AMD is the second-largest maker of PC processors, after Intel Corp.
AMD’s third-quarter earnings amounted to 70 cents a share, excluding some items, compared with an estimate of 68 cents. Revenue was $5.8 billion, versus an average projection of $5.7 billion.
AMD’s PC chip division had revenue of $1.45 billion, compared with a $1.23 billion estimate, while data center sales were $1.6 billion, just short of a $1.62 billion projection. Gaming computer-related revenue was $1.51 billion, missing a $1.53 billion prediction.
AMD is the second-largest maker of chips that go onto add-in graphics cards, which turn PCs into gaming machines. It also provides chips to both Sony Group Corp. and Microsoft Corp. for their consoles. Demand for such products typically goes up during the end-of-year holiday shopping season, and components needed for that seasonal peak would have been ordered by now. Nvidia leads the market for PC add-in card chips.
The age of the Sony and Microsoft console models — both of which went on sale in late 2020 — means that demand is naturally declining, AMD’s Su said. Still, they’re selling at higher levels than the preceding generations of the gaming machines, she said.
The weakness in the embedded market has hurt other chipmakers, including Texas Instruments Inc., which has reported that demand for industrial semiconductors is cooling. AMD makes programmable chips that are used in networking gear, vehicles, space and defense hardware.
Demand from makers of communications equipment, particularly 5G-related mobile-phone gear, has declined sharply and will continue to do so, AMD projected. In the broader industrial market, orders in Europe are weak, the company said.
AMD, Nvidia and Intel, meanwhile, are trying to make their technology essential in data centers, part of a race to capture new spending on AI hardware. For now, Nvidia has taken the lead in this scramble, helping propel its market valuation past $1 trillion this year.
The chipmakers will also have to navigate new more strict rules on the export of those chips to China, the largest market for semiconductors. Washington has clamped down on such shipments in an effort, it says, to protect US national security.
(Updates with more details from conference call in 10th paragraph.)
(Bloomberg) — Investors hoping for a boost to stocks by the end of the year will be disappointed, according to Morgan Stanley’s Michael Wilson.
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“Chances of a fourth-quarter rally have fallen considerably,” said Wilson, who was once again named as the best portfolio strategist by the latest Institutional Investor survey. “Narrowing breadth, cautious factor leadership, falling earnings revisions and fading consumer and business confidence tell a different story than the consensus, which sees a rally into year-end.”
Wilson’s bearish view on equities has been unfolding over the past three months as investors fret about the impact of higher-for-longer interest rates. The S&P 500 entered a technical correction on Friday amid rising volatility and hotter inflation numbers, with the benchmark closing 10% below a recent peak.
Investors are now looking to guidance from the ongoing earnings season to assess the outlook for profits and how companies are able to withstand headwinds like higher rates.
Profit expectations are “too high for the fourth quarter and 2024, even in an economy that’s performing well,” Wilson said. Monetary and fiscal policy are unlikely to provide relief and could tighten further, while weak breadth — referring to the amount of stocks gaining — reflects how earnings remain at risk for most companies.
The strategist said the stock market is taking notice that the impact of Federal Reserve tightening is just starting to be felt across the economy, with interest rate-sensitive stocks underperforming in recent months while defensive sectors start to outperform with energy.
“This performance backdrop reflects a market that is incrementally more concerned about growth than higher interest rates and valuations per se,” he said.
