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Oklo Director Sold 50,000 Shares of Nuclear Start-Up Before Selloff
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Tag: medium businesses
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Small businesses are paying 100%+ of profits to Uncle Sam after tax-law change
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Small businesses in sectors like software and manufacturing are panicking over the expiration of a critical tax deduction that they say could lead to mass layoffs and business closures, unless Congress acts quickly to amend the law.
“This is a life-and-death scenario for small software companies,” Michelle Hansen, co-founder of the geocoding company Geocodio, told MarketWatch.
The tax change that Hansen and other software executives are taking issue with was signed into law by President Trump in 2017, as part of a larger tax overhaul that slashed the top corporate tax rate from 35% to 21%.
But in order to satisfy Senate budget rules and pass the law with only Republican votes, the bill could not increase the budget deficit over a 10-year window.
So lawmakers included a provision that, beginning in 2022, drastically reduced how much research-and-development spending a business could deduct from their annual revenue to determine taxable income.
The change penalizes certain industries like software and information technology — where engineer salaries are often classified as R&D expenses — as well as manufacturing and pharmaceuticals
IHE.IntervalZero CEO Jeff Hibbard, whose Massachusetts-based company designs and sells software for installation on precision machines like semiconductor manufacturers, told MarketWatch that he has had to tap into company savings for the past several years in order to avoid laying off engineers.
He said that his firm brings in about $9 million in revenue annually with expenses of $8 million — but 60% of those expenses come in the form of engineer salaries, which can only be deducted from taxable income over a five-year period because the IRS treats it as R&D.
He said that after taxes consumed all his profits in 2022, he had to pay an additional $800,000 to Uncle Sam, and an additional $600,000 for the 2023 tax year.
“We’ve had to do a hiring freeze and postpone projects” in a cutthroat industry where technology progresses rapidly, Hibbard said. “We’ve been in existence for 15 years. For the first 14, we always hired additional people. Now we have a hiring and salary freeze.”
The House of Representatives voted last week 357-70 to restore full expensing for R&D as part of a $79 billion tax package that boosted the child tax credit and extended other business tax breaks.
The bill now heads to the Senate, which already has its hands full debating immigration and national-security issues, and analysts say election-year politics could thwart its passage in 2024.
Henrietta Treyz, director of economic-policy research at Veda Partners, gave just a 10% chance of the bill passing the Senate in a recent note to clients.
“This year’s effort to pass a tax package has been more robust than the effort we saw in 2022 and 2023,” she wrote. Treyz added, however, that “the competing need to pass border reform and Ukraine/Israel aid, and general dysfunction in Washington keep us pessimistic that we’ll see a bipartisan economic-stimulus package come out of Congress this year.”
On top of Republicans not wanting to give President Joe Biden a victory that would provide tax relief for businesses and families, Senate Republicans could decide to drag their feet on the bill in the hope that they’ll retake the chamber next year and can play a bigger role in the process, according to Owen Tedford, policy analyst at Beacon Policy Advisors.
“The critical member to watch is Senator Mike Crapo [of Idaho], the top Republican on the Senate Finance Committee,” Tedford wrote. “Crapo has not outright opposed the bill but has raised policy concerns and has expressed a desire to have a chance to amend it.”
Political considerations may be dictating the bill’s fate in Washington — but some business owners fear they don’t have the wherewithal to wait until next year for the problem to be fixed.
Benjamin Bengfort, co-founder and CEO of Iowa-based software firm Rotational Labs, told MarketWatch that he had to lay off workers last year after his 2022 tax bill rose by 438%.
He noted that even demand for his products has taken a hit because of the change in the law, because his services can count as an R&D expense for his customers, too.
“So it is [between] a rock and a hard place for us, no matter how you look at it,” Bengfort said. “This is an existential threat for software engineering companies.”
Andrew Keshner contributed.
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‘Nobody in their right mind would do it.’ Nvidia CEO Jensen Huang says he wouldn’t start a company if he had a do-over.
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“ ‘You have to get yourself to believe that it’s not that hard, because it’s way harder than you think. If I go taking all of my knowledge now and I go back, and I said, I’m going to endure that whole journey again, I think it’s too much. It is just too much.’ ”
That was one of the world’s most visionary tech-sector leaders, Nvidia
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CEO Jensen Huang, who explained that building Nvidia was “a million times harder than I expected it to be” as he theorized that “nobody in their right mind would do it” if they were aware of the true personal toll.The Taiwan-born 60-year-old, whose family relocated to Thailand and then the U.S. in his youth and is said to have co-founded Nvidia in 1993 following a meeting at a Denny’s restaurant in San Jose, Calif., after stints at AMD
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and LSI Logic, wouldn’t start his own company today, he said, if he were 30 years old.The tech titan, however, posited in a recent interview with the podcast Acquired that a “superpower” among entrepreneurs is the ability to trick themselves into believing “it’s not that hard.”
Huang said that his biggest fear remains, as it has been since Nvidia’s early days, is failing to facilitate success among workers. “I’m afraid of the same things today that I was in the very beginning of this company, which is letting the employees down.”
Huang, who according to FactSet owns a 3.5% stake in Nvidia (market cap: $1.04 trillion), explained in the podcast interview that workers joining a company end up believing in its vision and taking on its aspirations as their own.
“You have a lot of people who joined your company because they believe in your hopes and dreams, and they’ve adopted it as their hopes and dreams,” Huang said. “You want to be right for them. You want to be successful for them. You want them to be able to build a great life. … The greatest fear is that you let them down.”
In explaining how he persevered, despite doubts and challenges, in building Nvidia into the company it is today, Huang credited a “support network” of people who never gave up on him during the three-decade journey.
He explained that the experience of leading Nvidia during those periods when its share price has been in seeming free fall was almost “too much to endure,” after the company was first listed on public markets in 1999. “It’s embarrassing no matter how you think about it.”
His comments come as Nvidia’s share price has, again, been in retreat, losing ground following a major 245% surge over the previous 12 months.
More recently, the Santa Clara–based company’s stock was hit by the Biden administration’s decision to introduce tougher controls on the export of semiconductors to China.
Read: One semiconductor company is expected to grow sales nearly as quickly as Nvidia through 2025
Looking ahead, Huang said developments in artificial intelligence now pose an “enormous” opportunity for companies like Nvidia. “The market opportunity has grown by probably a thousand times,” he said.
He said AI will “create more jobs” in the near term, but he also warned that the creation of those jobs doesn’t mean certain other jobs will not be lost to automation. “If you become more productive and the company becomes more profitable, usually they hire more people to expand into new areas,” Huang said.
“Now, obviously, net generation of jobs doesn’t guarantee that any one human doesn’t get fired. That’s obviously true. It’s more likely that someone will lose a job to someone else, some other human that uses an AI,” he added.
He advised people to “learn how to use AI” as he argued that “jobs will change.”
As to Nvidia itself, Huang explained, the company — in a reflection of the products it sells — is structured like a “computing stack.”
He said “Nvidia’s not built like a military” with a top-down command and control system. Instead, Huang said, the company is organized like a “neural network” with a decentralized structure, reflecting a belief that “your organization should be the architecture of the machinery of building the product.”
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Chinese cities announce further easing of COVID curbs, though police are still patrolling streets to stop protests
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Major Chinese cities on Thursday announced a further easing of COVID restrictions, as police continued to patrol streets to avert protests and the ruling Communist Party prepared for the funeral of late leader Jiang Zemin.
Guangzhou in the south, Shijiazhuang in the north, Chengdu in the southwest and other major cities announced they were easing testing requirements and controls on movement, as the Associated Press reported. In some areas, markets and bus service has reopened.
In Beijing, officials will let those infected patients who are at low risk to quarantine at home for a week, rather than in a government center, Bloomberg reported, citing unnamed sources.
China has required anyone with any degree of COVID to stay at those sites to cut transmission. The first signs of the shift have been seen in the heavily populated Chaoyang district, home to foreign embassies and offices.
Beijing is hoping to avoid more protests, while resources are also getting thin, those sources said. However, anyone wanting to isolate at home will have to provide a written guarantee to stay at home, with a magnetized alarm fitted on their door that will alert authorized if they try to leave, one source said. Bloomberg was unable to confirm the reports with officials from Beijing or its health department.
Large protests erupted across China as crowds voiced their frustration at nearly three years of Covid-19 controls. Here’s how a deadly fire in Xinjiang sparked domestic upheaval and a political dilemma for Xi Jinping’s leadership. Photo: Thomas Peter/Reuters
The World Health Organization’s weekly update shows the global tally of cases was flat in the week through Nov. 27 from the week earlier. The number of fatalities fell by 5% from the previous week.
Japan again led the world by new cases, with an 18% increase to 698,772. It was followed by South Korea, where cases rose 4% to 378,751 and the U.S., where they rose 8% to 296,882.
Omicron and its many subvariants and sublineages remained dominant in the period from Oct. 28 to Nov. 28, accounting for 99.9% of sequences reported to a central database. The BA.5 omicron subvariant and its sublineages were dominant in the week through Nov. 13 at 73.% of all sequences, and newer strains, including BQ. 1 and XBB continued to spread in November, the agency said.
In the U.S., known cases of COVID are rising again with the daily average standing at 45,219 on Wednesday, according to a New York Times tracker, up 15% from two weeks ago. Cases are now rising in 37 states from two weeks ago, as well as in Guam and Washington, D.C., led by Georgia, where they are up 60%, and California, where they have climbed 57%.
The daily average for hospitalizations was up 16% at 32,445, but again, the pace of the increase is not uniform across the country. Louisiana has the highest increase in hospitalizations at 99% from two weeks ago, followed by California, where they are up 62%.
The daily average for deaths is down 7% at 262.
Physicians are reporting high numbers of respiratory illnesses like RSV and the flu earlier than the typical winter peak. WSJ’s Brianna Abbott explains what the early surge means for the coming winter months. Photo illustration: Kaitlyn Wang
Coronavirus Update: MarketWatch’s daily roundup has been curating and reporting all the latest developments every weekday since the coronavirus pandemic began
Other COVID-19 news you should know about:
• Nineteen people, including 17 New York City and New York state public employees, were charged in a federal complaint unsealed Wednesday with submitting fraudulent applications for funds intended to help small businesses survive the coronavirus pandemic, the AP reported. The accused, including employees of New York City’s police department, correction department and public school system, listed themselves as owners of businesses that in some cases did not exist in their applications for funds through the Small Business Administration’s Economic Injury Disaster Loan program and Paycheck Protection Program, federal prosecutors in Manhattan said. The defendants collectively stole more than $1.5 million from the SBA and financial institutions that issued SBA-guaranteed loans, prosecutors said.
• The number of people in Europe with undiagnosed HIV has risen as testing rates fell during the pandemic, threatening a global goal of ending the disease by 2030, Reuters reported, citing a report from the WHO and European Center for Disease Prevention and Control. The report found that in 2021 a quarter fewer HIV diagnoses were recorded compared to pre-pandemic levels in the WHO’s European region.
• Republican Gov. Jim Justice said Wednesday that West Virginia’s state of emergency related to the COVID-19 pandemic will end at the start of the new year, the AP reported. The state of emergency has been in effect since March 16, 2020. It allows the governor to suspend certain rules on personnel and purchasing. “The truth is, the state of emergency doesn’t affect a whole lot, you know, anymore,” he said. “We absolutely declared an emergency at a time that we had an emergency. … Now, we need to move on.”
Here’s what the numbers say:
The global tally of confirmed cases of COVID-19 topped 643.4 million on Thursday, while the death toll rose above 6.63 million, according to data aggregated by Johns Hopkins University.
The U.S. leads the world with 98.8 million cases and 1,080,444 fatalities.
The Centers for Disease Control and Prevention’s tracker shows that 228.4 million people living in the U.S., equal to 68.8% of the total population, are fully vaccinated, meaning they have had their primary shots.
So far, just 37.6 million Americans have had the updated COVID booster that targets the original virus and the omicron variants, equal to 12.1% of the overall population.
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Ford reins in hopes for self-driving cars as Argo AI shuts down
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After betting big on self-driving cars — including $1 billion on soon-to-be shuttered startup Argo AI — Ford Motor Co. is softening its expectations on vehicles that don’t require drivers.
Ford
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executives on Wednesday said they were winding down their investment in Argo, which confirmed an earlier report of its plans to shut down, saying there were too many challenges to running a profitable network of fully self-driving vehicles anytime soon. That resulted in a $2.7 billion impairment on the startup, disclosed when Ford reported third-quarter results earlier in the day.“We still believe in Level 4 autonomy, that it will have a big impact on our business of moving people,” Ford CEO Jim Farley said on the company’s earnings call, referring to cars that are autonomous enough not to need handling from a driver. “We’ve learned, though, in our partnership with Argo, and after our own internal investments, that we will have a very long road.”
“It’s estimated that more than $100 billion has been invested in the promise of Level 4 autonomy,” he continued. “And yet no one has defined a profitable business model at scale.”
Executives described hurdles with building out technology and auto fleets, as well as the vast infrastructure of non-technological services, to turn a profit on self-driving cars. And they said the talents of the staff they have today would be better spent on less-sophisticated driver-assistance systems.
Argo AI told MarketWatch that some of its 2,000 employees would be able to continue working on the vehicle technology with Ford and Volkswagen AG. Volkswagen
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was Argo’s other big backer.“In the third quarter, Ford made a strategic decision to shift its capital spending from the L4 advanced driver-assistance systems being developed by Argo AI to internally developed L2+/L3 technology,” executives said in Ford’s earnings release. “Earlier, Argo AI had been unable to attract new investors.”
The remarks came as the auto industry deals with more immediate concerns about both production and demand, as ongoing supply-chain contortions lead to parts shortages and higher prices. Some signs have emerged that those supply-chain hitches have eased. But higher prices risk spooking potential car buyers.
During the call on Wednesday, executives said they’d seen a slight downtick in commodity prices. But Farley painted a mixed portrait of pricing and demand trends.
Demand for commercial vehicles and electric vehicles was “through the roof,” he said. But he noted a “slight uptick” from the prior quarter on 84-month customer financing, as customers stretch out car payments. And he said some of Ford’s rivals had boosted spending on incentives.
Meanwhile, Ford’s third-quarter results beat analysts’ estimates, though the auto maker forecast full-year adjusted profit at the low end of its expectations.
Ford reported a net loss of $800 million for the third quarter, or 21 cents a share, contrasting with a $1.8 billion profit, or 45 cents a share, in the prior-year period. The auto maker’s sales were $39.4 billion, compared with $35.7 billion in the quarter last year.
Adjusted for gains and losses on pensions, investments and costs related to things like staff and dealerships, Ford earned 30 cents a share, compared with 51 cents a year ago.
Analysts polled by FactSet expected adjusted earnings of 27 cents a share, on sales of $37.46 billion.
Executives said they expected full-year earnings before interest and taxes to be about $11.5 billion. In September, the company said it expected that figure to land within a range of $11.5 billion to $12.5 billion.
Ford also raised its full-year outlook for adjusted free-cash flow to $9.5 billion to $10 billion. It ended the third quarter with operating cash flow of $3.8 billion, and adjusted free-cash flow of $3.6 billion.
Shares fell 1% after hours.
Ford in September warned that tighter supplies of auto parts would leave it with 40,000 to 45,000 unfinished vehicles sitting in its inventories at the end of the third quarter, with “inflation-related supplier costs” running about $1 billion higher than expected. But the company, at that time, stuck with its full-year adjusted-profit outlook.
Ford, as with other auto makers, is putting more effort behind developing electric cars and trucks, including an electric version of its popular F-150. But it is laying off thousands as part of a split into two businesses — one devoted to electric vehicles, called Ford Model e, and one devoted internal combustion engines, called Ford Blue.
A day earlier, rival General Motors Co. noted signs of its supply chains loosening up.
On Tuesday, executives at General Motors
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noted easing in its supply chain and production improvements despite a difficult economic backdrop. GM stuck with its full-year outlook, cited strong demand, and said the company had landed some supply agreements and was working with chip makers to loosen up the flow of car parts and components.Shares of GM fell 0.2% on Wednesday.
The auto market has been roiled by a semiconductor shortage that gummed up production and drove up the price of new cars, and then used ones, as new vehicles got too expensive for buyers. Used car prices have trended lower since. UBS analysts have said that an auto undersupply could balloon into an oversupply, as higher prices threaten to suppress consumer shopping and raise concerns of a recession.
Edmunds last month said it expected new-vehicle sales in the U.S. to fall 0.9% in the third quarter when compared with the period in 2021. The auto-data provider said auto inventories have expanded, as chip supply chains open up.
Ford stock is down 38% so far this year. By comparison, the S&P 500 index
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