An electronic stock board displayed inside the Kabuto One building in Tokyo, Japan, on Thursday, June 27, 2024.
Bloomberg | Bloomberg | Getty Images
Japan’s Nikkei 225 nosedived almost 5% on Friday, with most Asia-Pacific markets lower after a sell-off on Wall Street overnight.
The Nikkei extended its 2.62% slide on Thursday to lead losses in the region and reach its lowest level since February. The Topix also plunged more than 5%.
Some heavyweight names that are seeing losses include Softbank Group, which tumbled over 7%. Trading houses Mitsui and Marubeni saw losses of over 9% and 7%, respectively.
Japanese government bond yields fell, with the yield on the benchmark 10-year JGB falling below the 1% mark and hitting it lowest level since June 20.
South Korea’s Kospi tumbled 2.6%, while the small-cap Kosdaq plunged 2.56%.
However, K-pop stocks were a bright spot for the market. Shares of three of the four listed K-pop companies defied the broader sell-off to climb on Friday, led by Hybe after the firm announced its new business strategy on Thursday after market hours.
Australia’s S&P/ASX 200 was down 2.02% , retreating from its all-time high achieved on Thursday.
Hong Kong’s Hang Seng index futures were at 17,047, lower than the HSI’s last close of 17,304.96.
Separately, South Korea’s inflation numbers for July came in slightly higher than expected, with the country’s consumer price index climbing 2.6% year on year, compared to the 2.5% expected by economists polled by Reuters.
The gloomy sentiment in Asia markets comes after a sell-off on Wall Street in Thursday’s trading session, which saw all three major U.S. indexes plunge on recession fears.
The Russell 2000 index, the small-cap benchmark that has rallied lately, dropped 3%.
In the U.S., fresh data stoked fears over a possible recession and apprehensions that the Federal Reserve could be too late in cutting interest rates.
Initial jobless claims rose the most since August 2023. The ISM manufacturing index, a barometer of factory activity in the U.S., came in at 46.8%, worse than expected and signaling economic contraction.
After these data, the 10-year Treasury yield dropped below 4% for the first time since February.
—CNBC’s Pia Singh and Samantha Subin contributed to this report.
Harry Murphy | Sportsfile for Web Summit via Getty Images
LONDON — The boss of British financial technology giant Revolut told CNBC he is optimistic about the company’s chances of being granted a U.K. banking license, as a jump in users saw the firm report record full-year pre-tax profits.
In an exclusive interview with CNBC, Nikolay Storonsky, Revolut’s CEO and co-founder, said that the company is feeling confident about securing its British bank license, after overcoming some key hurdles in its more than three-year-long journey toward gaining approval from regulators.
“Hopefully, sooner or later, we’ll get it,” Storonsky told CNBC via video call. Regulators are “still working on it,” he added, but so far haven’t raised any outstanding concerns with the fintech.
Storonsky noted that Revolut’s huge size has meant that it’s taken longer for the company to get its banking license approved than would have been the case for smaller companies. Several small financial institutions have been able to win approval for a banking license with few customers, he added.
“U.K. banking licenses are being approved for smaller companies,” Storonsky said. “They usually approve someone twice every year,” and they typically tend to be smaller institutions. “Of course, we are very large, so it takes extra time.”
Revolut is a licensed electronic money institution, or EMI, in the U.K. But it can’t yet offer lending products such as credit cards, personal loans, or mortgages. A bank license would enable it to offer loans in the U.K. The firm has faced lengthy delays to its application, which it filed in 2021.
One key issue the company faced was with its share structure being inconsistent with the rulebook of the Prudential Regulation Authority, which is the regulatory body for the financial services industry that sits under the Bank of England.
Revolut has multiple classes of shares and some of those share classes previously had preferential rights attached. One conditions set by the Bank of England for granting Revolut its U.K. banking license, was to collapse its six classes of shares into ordinary shares.
Revolut has since resolved this, with the company striking a deal with Japanese tech investor SoftBank to transfer its shares in the firm to a unified class, relinquishing preferential rights, according to a person familiar with the matter. News of the resolution with SoftBank was first reported by the Financial Times.
The fintech giant on Tuesday released financial results showing full-year pre-tax profit rose to £438 million ($545 million) in 2023, swinging to the black from a pre-tax loss of £25.4 million in 2022. Group revenues rose by 95% to £1.8 billion ($2.2 billion), up from £920 million ($1.1 billion) in 2022.
Victor Stinga, Revolut’s chief financial officer, said the company’s growth stemmed from a record jump in user numbers — Revolut added 12 million customers in 2023 — as well as strong performance across all its key business lines, including card fees, foreign exchange and wealth, and subscriptions.
“We consider 2023 to be what we would call a breakout year from the point of view of growth and profitability,” Stinga said in an interview this week.
Revenue growth was driven by three main factors, Stinga said, including customer growth, strong performance across its key revenue lines, and a significant jump in interest income, which he said now accounts for about 28% of Revolut’s revenues.
He added that Revolut made exercising financial discipline a key priority in 2023, keeping a lid on operating expenses and adopting a “zero-based budgeting” philosophy, where every new expense has to be justified and accounted for before it’s considered acceptable.
This translated to administrative expenses growing far less than revenues did, Stinga said, with admin costs growing by 49% while revenues nearly doubled year-on-year.
Revolut has been investing more aggressively in advertising and marketing, he added, with the firm having deployed $300 million in advertising and marketing last year. The company’s business banking solutions are also a top priority, with Revolut devoting about 900 employees toward business-to-business sales.
Pedestrians cross an intersection in the Shibuya district of Tokyo, Japan, on Tuesday, April 25, 2023. Photographer: Kentaro Takahashi/Bloomberg via Getty Images
The country’s core inflation rate — which strips out prices of fresh food — came in at 2.5%. A Reuters poll of economists expected the May core inflation reading to come in at 2.6%, compared with April’s 2.2%.
The so-called “core-core” inflation, which strips out prices of fresh food and energy, came in at 2.1%. This is lower than April’s reading of 2.4%. The metric is considered by the Bank of Japan when formulating the country’s monetary policy.
Japan’s headline rate rose to 2.8%, higher than April’s figure of 2.5%.
Japan’s Nikkei 225 rose 0.03%, while the broad-based Topix gained 0.21%.
Softbank — the third heaviest weighted stock on the index — saw shares drop 2.87% after Softbank Group CEO Masayoshi Son said the company needed “immense capital” to develop AI robotics.
The yen weakened for a seventh straight day, declining to 158.95 against the U.S. dollar.
Japan’s chief currency diplomat, Masato Kanda, said the government was ready to make a move against the volatile currency market that has hurt the economy, Reuters reported.
India’s benchmark Nifty 50 index gained 0.1% to hit a new record high.
HSBC flash Composite Purchasing Managers’ Index for India rose to 60.9 in June from 60.5 in May. The data complied by S&P Global showed that growth was stronger at goods producers compared to service providers.
South Korea’s Kospi fell 0.94%, while the small-cap Kosdaq lost 0.54%.
Separately, the country announced that the finance ministers of South Korea and Japan will meet on June 25 to discuss bilateral and multilateral cooperation, as well as their views on the global economy. The meeting will be held two months after both parties agreed to manage excessive currency volatilities during their meeting in Washington.
Mainland China’s CSI 300 dipped 0.60%, while Hong Kong’s Hang Seng index declined 1.71%.
Overnight in the U.S., the S&P 500 closed 0.25 % lower after hitting a new high. The Nasdaq Composite dipped 0.79%, while the Dow Jones Industrial Average climbed 0.77%. Nvidia slipped 3.5% after rising earlier in the trading day.
—CNBC’s Samantha Subin and Brian Evans contributed to this report.
Oliver Matthew of CLSA discusses the surge in chip designer Arm’s shares and the positive impact that its initial public offering success has had on SoftBank.
Masayoshi Son, CEO of SoftBank, has been weighing up various options for chipmaker Arm after Nvidia walked away from buying the company.
Alessandro Di Ciommo | Nurphoto | Getty Images
SoftBank posted its biggest gain in nearly three years at the flagship tech investment arm, the Vision Fund, in the December quarter amid a recovery in valuation of technology companies.
Here’s how SoftBank did in the December quarter against LSEG estimates:
Net sales: 1.77 trillion Japanese yen ($11.9 billion) versus 1.8 trillion Japanese yen expected.
Net income: 950 billion Japanese yen versus 196.5 billion yen expected.
The Vision Fund logged a gain on investment of 600.7 billion Japanese yen, continuing a recovery after record losses in the previous fiscal year. That gain is the highest since the March 2021 quarter when the Vision Fund posted a 3.59 trillion yen gain.
SoftBank’s net income was also the first first quarterly profit after four straght losses.
SoftBank’s flagship tech investment arm had a rough time in the fiscal year that ended in March last year, posting a record loss of around $32 billion amid a slump in tech stock prices and the souring of some of the business’ bets in China.
“Buy-now, pay-later” firm Klarna aims to return to profit by summer 2023.
Jakub Porzycki | NurPhoto | Getty Images
Buy now, pay later firm Klarna has established a holding company in the U.K. that will sit at the top of its corporate structure, in a symbolic move that paves the path for an eventual listing.
A Klarna spokesperson confirmed to CNBC that the Stockholm-based business, which lets shoppers defer payments over a period of instalments, has begun a legal entity restructuring to set up the holding company.
Preparations for the new company have been agreed with some of Klarna’s largest shareholders, including Sequoia and Heartland, the spokesperson said.
The Klarna spokesperson said that the move was a precursor to a formal listing, but added these are still “very early days,” and the company has no immediate-term plans to go public.
Klarna also hasn’t decided on where it would opt to list, the spokesperson said, and setting up its new legal entity in the U.K. does not necessarily mean that the company will go public there.
It does, however, give Klarna flexibility over which stock exchange it decides on.
The restructuring “is an administrative change that has been in the works for over 12 months and does not affect anyone’s roles, nor Klarna’s Swedish operations,” the Klarna spokesperson told CNBC via email.
“Klarna Holding will continue to be the regulated financial holding company under the direct supervision of the SFSA and we will continue to hold a Swedish banking license.”
Klarna is a big player in the European payments industry, worth $6.7 billion.
Like PayPal and Stripe, it allows merchants to add checkout functionality to their online stores. It differs from these competitors in its flexible payment plans, known as buy now, pay later.
At the height of the Covid-driven boom in e-commerce, Klarna was worth a whopping $46 billion, onboarding SoftBank as an investor. Its valuation slashed by 85%, to $6.7 billion after the pandemic-fueled boom in technology valuations deflated.
The U.K. was originally set to enforce tough new regulations on the buy now, pay later industry, with plans to require affordability checks and clearer communication in the advertisement of such services.
Britain has reportedly been considering shelving those plans after a number of the biggest players said, in talks with the government, that they may be forced to leave the U.K. if they are subjected to “heavy-handed” regulation.
Bosses at Klarna and Block, which owns buy now, pay later service Clearpay, had lashed out at certain aspects of the U.K.’s regulation plans, including a measure which would have exempted e-commerce giant Amazon from being subjected to the rules.
It has since been pushing aggressively toward profitability, reporting its first month of profit earlier this year for the first time since 2020.
Klarna has been investing heavily in artificial intelligence products, most recently launching an AI image recognition tool that can identify certain products, like a jacket or a pair of headphones.
Separately this weekend, Klarna also reached a deal with workers in Sweden to put an end to plans to go on strike.
Cathie Wood, CEO of Ark Invest, speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York City, February 27, 2023.
Brendan McDermid | Reuters
ARK Invest CEO Cathie Wood said she did not participate in Arm‘s blockbuster initial public offering last week because she finds the British chip designer was overvalued relative to its competitive position.
The initial buzz has since fizzled, with the stock suffering successive daily declines to end the Tuesday trade session at $55.17.
Speaking on CNBC’s “Squawk Box Europe” on Wednesday, Wood said the recent frenzy around AI-exposed companies was justified and that “innovation is undervalued given the enormous opportunities that we see ahead, catalyzed very importantly by artificial intelligence.”
“As far as Arm, I think there might be a little bit too much emphasis on AI when it comes to Arm and maybe not enough focus on the competitive dynamics out there,” she added.
Arm CEO Rene Haas and executives cheer, as Softbank’s Arm, chip design firm, holds an initial public offering (IPO) at Nasdaq Market site in New York, U.S., September 14, 2023.
Brendan Mcdermid | Reuters
“So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view on the high side, and we see within our portfolios much lower priced names with much more exposure to AI.”
After taking a beating during the recent cycle of aggressive interest rate hikes from the U.S. Federal Reserve, the ARK ETF resurged this year, as investors flocked to stocks with AI exposure. Wood said that the anticipation of interest rates peaking would further this trend.
“The appetite for innovation is stirring here, and I think one of the reasons is because many investors and analysts are starting to look over the interest rate hike moves we’ve seen, record breaking in the last year or so, and to the other side,” she explained.
With inflation coming down across major economies and with central banks expected to begin unwinding their aggressive monetary policy tightening over the next year, Wood suggested the coming period “should be a very good environment for innovation and global megatrend strategies.”
ARK Invest on Wednesday acquired British thematic ETF issuer Rize ETF for £5.25 million ($6.5 million), marking the company’s first venture into the European passive investment market.
Wood said that Europe has not had access to actually invest in the company’s U.S.-based ETFs until now, despite accounting for around 25% of demand for the company’s research since ARK’s inception in 2014.
“The cost of technology, especially with artificial intelligence now, is collapsing, and therefore it’s going to be much easier to build and scale tech companies anywhere in the world. This is no longer just the purview of Silicon Valley,” Wood said. “We are very open-minded about technologies flourishing throughout the world, including Europe.”
Arm CEO Rene Haas and executives cheer as Softbank’s Arm, a chip design firm, holds an initial public offering at the Nasdaq MarketSite in New York, Sept. 14, 2023.
Brendan Mcdermid | Reuters
Arm Holdings, the chip design company controlled by SoftBank, jumped nearly 25% during its first day of trading Thursday after selling shares at $51 a piece in its initial public offering.
At the open, Arm was valued at almost $60 billion. The company, trading under ticker symbol “ARM,” sold about 95.5 million shares. SoftBank, which took the company private in 2016, controls about 90% of shares outstanding.
On Wednesday, Arm priced shares at the upper end of its expected range. On Thursday, the stock first traded at $56.10 and ended the day at $63.59.
It’s a hefty premium for the British chip company. At a $60 billion valuation, Arm’s price-to-earnings multiple would be over 110 based on the most recent fiscal year profit. That’s comparable to Nvidia’s valuation, which trades at 108 times earnings, but without Nvidia’s 170% growth forecast for the current quarter.
Arm Chief Financial Officer Jason Child told CNBC in an interview that the company is focusing on royalty growth and providing products to its customers that cost and do more.
Many of Arm’s royalties come from products released decades ago. About half the company’s royalty revenue, which totaled $1.68 billion in 2022, comes from products released between 1990 and 2012.
“As a CFO, it’s one of the better business models I’ve seen. I joke sometimes that those older products are like the Beatles catalog, they just keep delivering royalties. Some of those products are three decades old,” Child said.
In a presentation to investors, Arm said it expects the total market for its chip designs to be worth about $250 billion by 2025, including growth in chip designs for data centers and cars. Arm’s revenue in its fiscal year that ended in March slipped less than 1% from the prior year to $2.68 billion.
Arm’s architecture is used in nearly every smartphone chip and outlines how a central processor works at its most basic level, such as doing arithmetic or accessing computer memory.
Child said the company sold $735 million in shares to a group of strategic investors comprising Apple, Google, Nvidia, Samsung, AMD, Intel, Cadence, Synopsis, Samsung and Taiwan Semiconductor Manufacturing Company. It’s a testament to Arm’s influence among chip companies, which rely on Arm’s technology to design and build their own chips.
“There was interest to buy more than what was indicated, but we wanted to make sure we had a diverse set of shareholders,” Child said.
In an interview with CNBC on Thursday, SoftBank CEO Masayoshi Son emphasized how Arm’s technology is used in artificial intelligence chips, as he seeks to tie the firm to the recent boom in AI and machine learning. He also said he wanted to keep the company’s remaining Arm stake as long as possible.
The debut could kick open the market for technology IPOs, which have been paused for nearly two years. It’s the biggest technology offering of 2023.
Arm Holdings Ltd. filed its long-awaited initial public offering late Monday, following last year’s failed bid by Nvidia Corp. to acquire the U.K.-based chip architecture company.
Arm has reportedly been seeking to raise $8 billion to $10 billion at a valuation of $60 billion to $70 billion, making its IPO the biggest of the year so far, and a number of large tech companies, including Amazon.com Inc. AMZN, +1.10%, Intel Corp. INTC, +1.19%
and Nvidia NVDA, +8.47%,
are reportedly in the mix to be anchor investors.
At the time of the breakup, chips sales had hit record highs in 2021, surging 26.2% to a record $555.9 billion, fueled by pandemic-triggered shortages. But the chip industry has since swung to a glut.
Arm listed Barclays, Goldman Sachs, JP Morgan, Mizuho, BofA Securities, Citigroup, and Deutsche Bank Securities among the IPO’s underwriters.
Recent reports said SoftBank was in discussions to purchase the 25% stake in Arm that it does not outright own, which is held by its Vision Fund 1, ahead of the IPO.
Arm reported net income of $524 million, or 51 cents a share, on revenue of $2.68 billion for fiscal 2023, which ended March 31, compared with net income of $549 million, or 54 cents a share, on revenue of $2.7 billion, in fiscal 2022, and $388 million, or 38 cents a share, on revenue of $2.03 billion in fiscal 2021.
Arm uses an architecture that is different from the once-standard x86 one built by Intel in the early days of computing.
The company said it has shipped more than 250 billion Arm-based chips since its started in 1990 as a joint venture between Acorn Computers, Apple AAPL, +0.77%
and VLSI Technology. In fiscal 2023, Arm said it shipped 30.6 billion chips.
The company said it is going public as the “resources required to develop leading-edge products are significant and continue to increase exponentially as manufacturing process nodes shrink.” Transistors are expressed in scales of nanometers, with design costs running about $249 million for a 7-nanometer chip and about $725 million for a 2-nm chip.
“As the world moves increasingly towards AI- and [machine language]-enabled computing, Arm will be central to this transition,” the company said in the filing. “Arm CPUs already run AI and ML workloads in billions of devices, including smartphones, cameras, digital TVs, cars and cloud data centers.”
Arm said it is working with Alphabet Inc. GOOG, +0.64%
SoftBank Group Corp. is reportedly in discussions to purchase the 25% stake in chip designer Arm Ltd. that is held by its Vision Fund 1, ahead of a highly anticipated IPO.
Reuters reported Sunday that Japan’s SoftBank 9984, +0.37%
— which owns 75% of Arm — is negotiating a deal with VF1, the $100 billion investment fund it created in 2017, and noted that a deal could give VF1 investors a big boost after years of meager returns. Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Co. are among VF1’s largest investors.
SoftBank is planning to launch a long-awaited initial public offering for British chip designer Arm as soon as September. That will likely be the biggest IPO of the year on Wall Street, aiming to raise $8 billion to $10 billion at a valuation around $60 billion to $70 billion.
As British chip designer Arm prepares to raise about $5 billion in an initial public offering (IPO) on Thursday, its China business has become a serious point of concern.
The SoftBank-owned firm used many pages of its IPO prospectus to warn investors of risks related to its exposure to China at a time of rising tension between Washington and Beijing over chip technology.
Its regulatory filing last month revealed that a quarter of its sales come from China, through an unusual relationship with an entity it does not control and with which it has a complex history.
Arm China is “an entity that operates independently of us and is our single largest customer,” the company said in its prospectus. “Neither we nor SoftBank Group control the operations of Arm China.”
Arm, which is based in Cambridge, added that the scale of its business in China made it “particularly susceptible to economic and political risks,” which could be worsened by tensions between the country and the United States or the United Kingdom.
The companyhas long been vulnerable in this area, which may have already contributed to a lower market valuation than SoftBank was expecting.
Arm blamed an economic slowdown in China as well as “factors related to export control and national security matters” for slower growth in royalty revenues from China in its fiscal year to March. Total revenue from China did increase in that period, however.
Royalties are hugely significant for Arm, which gets a fee from each chip developed using its products. The company relies on royalties and licensing for most of its income.
Arm said Wednesday it priced its shares at $51 each, raising as much as $4.9 billion. The tally could rise to $5.2 billion if banks exercise an option to buy additional shares, valuing the chip designer at as much as $54.5 billion.
That’s less than the $64 billion valuation implied when SoftBank bought a remaining 25% stake in the company from its Vision Fund unit just last month.
Arm has declined to comment.
Concerns about China are likely to have been “built into IPO pricing expectations already, although a worst-case scenario of increased US sanctions [or] trade restrictions probably is not,” Kirk Boodry, an investment advisor at Astris Advisory, a Japanese investment research firm, told CNN.
Arm was publicly listed until 2016, when Japan’s SoftBank bought it for $32 billion.
Four years later, SoftBank tried to sell Arm to Nvidia for $40 billion, in what would have been the biggest chip deal of all time. But it didn’t pass muster with global antitrust regulators, and was called off in February 2022.
Now, Arm’s return to the stock market is being closely watched as it promises to be the biggest US IPO since 2021.
SoftBank CEO Masayoshi Son has touted it as an AI company that could have “exponential growth,” and promised that ChatGPT-like services will eventually be offered on Arm-designed machines.
“The value of chips, and Arm’s technology, has maybe never been more in demand from the global economy,” said Kyle Stanford, lead venture capital analyst at PitchBook.
But Arm is a middleman in the semiconductor industry, which is a key source of tension in US-China relations. Both countries are racing to boost their prowess in the sector, and each side has recently enacted export controls aimed at limiting the other’s capacity.
“Chip tensions will never go away,” Stanford argued. “Political and regulatory pressure is likely to increase.”
On Tuesday, former US Securities and Exchange Commission Chairman Jay Clayton told US lawmakers that large public companies with major exposure to China should be prompted to disclose specific risks associated with the country, “and what type of scenario planning they have done in the event of abrupt decoupling.”
Although US officials have insisted that America is not seeking to decouple from China, they have pointed to the importance of reducing its reliance on the world’s second largest economy.
In its filing, Arm said it held just a “4.8% indirect ownership interest in Arm China,” through a 10% non-voting stake in a SoftBank-controlled entity that owns less than half of the Chinese company.
While such convoluted corporate structures aren’t unique in China, “in my view, it is very problematic,” said Ivana Delevska, founder and chief investment officer of asset manager Spear Invest.
“Investors of other companies are just waking up to this fact in light of increased tensions,” she added.
Arm has had trouble with Arm China before. In its filing, it said the business has a record of late payments.
“Although these historical issues did not have a material impact on our operations, any future failure to pay us the amounts we are owed … could have a material adverse effect on our business,” Arm said.
Arm China has also been subject to a legal battle with its former CEO, Allen Wu.
Since April 2022, Wu and entities effectively controlled by him have lodged several lawsuits in Chinese courts against Arm China, “seeking to challenge certain aspects of Arm China’s corporate governance and the actions of Arm China’s board of directors,” Arm said in its filing.
As of August, the cases had been resolved in favor of Arm China, it said, but the outcome could still be appealed. potentially hurting the British firm in the future.
That hasn’t stopped many of the biggest names in global tech from jumping on board.
Companies including Apple (AAPL), Google (GOOGL), Nvidia (NVDA), AMD (AMD), Samsung and TSMC (TSM) have indicated interest in acting as cornerstone investors in the offering, according to a filing last week.
Delevska said the interest reflected Arm’s strong position in the industry and had helped to prop up its overall valuation.
“I believe it is good timing for the IPO,” she added. “Investors will just have to price in the China risk.”
SoftBank CEO Masayoshi Son said he believes artificial general intelligence (AGI), artificial intelligence that surpasses human intelligence in almost all areas, will be realized within 10 years.
Speaking at the SoftBank World corporate conference, Son said he believes AGI will be ten times more intelligent than the sum total of all human intelligence. He noted the rapid progress in generative AI that he said has already exceeded human intelligence in certain areas.
“It is wrong to say that AI cannot be smarter than humans as it is created by humans,” he said. “AI is now self learning, self training, and self inferencing, just like human beings.”
Son has spoken of the potential of AGI — typically using the term “singularity” — to transform business and society for some years, but this is the first time he has given a timeline for its development.
He also introduced the idea of “Artificial Super Intelligence” at the conference which he claimed would be realized in 20 years and would surpass human intelligence by a factor of 10,000.
Son is known for several canny bets that have turned SoftBank into a tech investment giant as well as some bets that have spectacularly flopped.
He’s also prone to making strident claims about the transformative impact of new technologies. His predictions about the mobile internet have been largely borne out while those about the Internet of Things have not.
Son called upon Japanese companies to “wake up” to the promise of AI, arguing they had increasingly fallen behind in the internet age and reiterated his belief in chip designer Arm as core to the “AI revolution.”
Arm CEO Rene Haas, speaking at the conference via video, touted the energy efficiency of Arm’s designs, saying they would become increasingly sought after to power artificial intelligence.
Son said he thinks he is the only person who believes AGI will come within a decade. Haas said he thought it would come in his lifetime.
A hotly anticipated IPO for a company that designs chips for 99% of the world’s smartphones is just around the corner, after it filed paperwork Monday to go public.
Arm is a British tech company that architects power-sipping microchips for phones and tablets and licenses them to CPU makers, including Apple and Samsung. The company was public until 2016, when Japan’s Softbank bought it for $32 billion.
Softbank tried to offload Arm to Nvidia for $40 billion, in what would have been the biggest chip deal of all time. But global antitrust regulators put a stop to it, and the deal fell apart in February 2022.
Arm had been a hot commodity for decades, when the smartphone business was booming. But sales of smartphones have subsided recently, as customers opt to keep their phones for longer and new tech features have become less enticing to consumers.
The company, in its regulatory filing, said sales slipped 1% to $2.7 billion in the year that ended March 31, 2023. In the following quarter, which ended in June, sales fell 2.5%.
Still, Arm has piqued the interest of tech investors who are looking to catch the AI wave. Softbank CEO Masayoshi Son has touted Arm as an AI company that could have “exponential growth.” He promised ChatGPT-like services would eventually be offered on Arm-designed machines.
In its IPO filing, Arm said the company “will be central” to the transition to AI.
“Arm CPUs already run AI and [machine learning] workloads in billions of devices, including smartphones, cameras, digital TVs, cars and cloud data centers,” the company said. “In the emerging area of large language models, generative AI and autonomous driving, there will be a heightened emphasis on the low power acceleration of these algorithms.”
But Son and Arm’s AI promises may overstate the company’s potential, at least somewhat. Arm-based chips have appeared in some gadgets beyond smartphones and tablets, such as servers that are less power-hungry. But Arm said it does not make AI chips and is not a direct competitor to Nvidia and others that make chips that are purpose-built for AI. Nvidia’s stock has exploded more than 200% this year.
Arm did not list the number of shares it planned to sell, so a valuation wasn’t determinable yet. But Reuters reported Softbank is looking to basically double its investment from seven years ago with a $60 billion to $70 billion valuation for Arm when it IPOs, likely next month.
Softbank also this week bought the 25% stake in Arm that it did not own directly but that had been held by the Saudi Vision Fund, which Softbank manages. That purchase valued Arm at $64 billion, according to the Financial Times.
Barclays has named several global stocks that are expected to do well as the usage of artificial intelligence-related services evolves. The investment bank acknowledged that hardware and infrastructure giants, most notably Nvidia and Microsoft , are currently seeing the immediate benefits of the AI hype. Still, over the long term, it said businesses in the service sector could cash in significantly. The companies in Barclays’ “Global AI Winners” basket include Canada-headquartered Telus and France’s Capgemini . Shares of the two companies, which provide customer service, digital strategy, and consultancy services, are expected to rise by 67% and 31%, respectively, according to the consensus price target of analysts compiled by FactSet. “We believe that most of the near-term economic value attached to AI will accrue to a handful of key players in the foundational hardware segments of the AI value chain, whereas longer-term innovation and adoption at the software level should ultimately benefit primarily Tech and services-based businesses,” Barclays analysts led by Emmanuel Cau said in a note to clients on June 22. Capgemini was also among the companies identified by Goldman Sachs earlier this month as stocks with the potential to be boosted by AI applications over the medium and long term. The below table highlights non-U.S. stocks in Barclays’ basket of AI stocks. Japanese and Taiwanese companies dominate the list, with six stocks from each country. Companies in Taiwan included chip makers such as TSMC , Gigabyte , Global Unichip , and Alchip , whereas Japanese firms included high-tech component makers such as Lasertec and Tokyo Electron . Barclays also expects SoftBank Group to be a long-term beneficiary of A.I. thanks to the conglomerate’s investments in many startups and technology firms. Barclays identified Germany’s SAP and UK’s Sage Group as potential long-term beneficiaries in Europe. The two companies have access to vast troves of data — critical for enabling AI — since they provide their customers with several customer support, HR, and accounting tools. Similarly, according to Barclays, Amsterdam-headquartered Adyen stands to benefit from increased A.I. adoption. The fintech and payment services company has previously admitted using AI to improve fraud detection and customer support. Dutch companies ASM and its former subsidiary ASML are also named net beneficiaries of the AI trend. The firms produce tools that enable the manufacture of high-tech semiconductor chips powering chatbots, such as ChatGPT.
Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp.
Kiyoshi Ota | Bloomberg | Getty Images
SoftBank Group chairman and CEO Masayoshi Son on Wednesday said that the Japanese investment firm plans to shift from “defense mode” to “offense mode” and wants to capitalize on the AI revolution.
“Now, the time has come to shift to offense mode,” Son said during a shareholders’ annual general meeting.
“In the past few years, we focused on being [on] ‘defense.’ Three years ago, we didn’t have a lot of cash on hand. But because we have been in defense mode, we have built our cash on hand to five trillion yen ($35.3 billion),” Son said.
“We are ready to shift to offense mode. I am excited about that,” said Son.
The tech conglomerate, which engages in venture capital investing through its Vision Fund, has had its fair share of ups and downs. It was in “defense mode” as it halted new investments and trimmed its stake in Alibaba. In May, the Vision Fund reported a record $32 billion loss.
“What I am interested in most, what I am working on most, is the AI revolution. I believe that mankind is going to be exceeded by computer or AI,” said Son.
“We would like to be [in] the leading position for the AI revolution,” said Son.
SoftBank shares rose 2.63% in Wednesday morning trade.
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The Vision Fund has invested in Chinese tech firms and therefore was hit by Beijing’s crackdown on the country’s tech sector and the subsequent plunge in share prices. SoftBank’s portfolio companies include ByteDance, DiDi Grocery, Coupang and more.
SoftBank is gearing up for the IPO of Arm, the U.K.-based chip design firm it acquired in 2016. Arm filed for the listing in the U.S. SoftBank’s CFO Yoshimitsu Goto said the IPO process is “going smoothly.”
Artificial intelligence has seen explosive growth in recent months, fueled by chatbot ChatGPT’s virality. ChatGPT has amazed researchers and the general public with its ability to generate humanlike responses to users’ prompts.
Son said on Tuesday that he is “a heavy user of ChatGPT” and that ChatGPT is “amazing.”
“The fortunes of SoftBank is looking to turn,” said Amir Anvarzadeh, Japan equity market strategist at Asymmetric Advisors on CNBC’s “Street Signs Asia” Wednesday after SoftBank’s shareholders’ meeting.
“You can see why Nvidia wanted to buy Arm a few years back because obviously, they wanted all of the architecture to themselves. Now it kind of makes sense, looking back.” The U.S. chip maker had dropped out of the $40 billion deal to acquire Arm.
“$30 billion is what we thought could be what Arm is worth. I reckon now, even $60 billion, might not seem too insane, given the backdrop,” said Anvarzadeh.
Jaidev Janardana, CEO of peer-to-peer lender Zopa.
Zopa
LONDON — British digital bank Zopa is beefing up its management team with a couple of senior hires, as the company looks to fuel growth and prepare its business for an eventual public listing.
The SoftBank-backed company, which offers credit cards, personal loans and savings accounts, told CNBC exclusively it has hired Peter Donlon, the former chief technology officer of online card retailer Moonpig, as its CTO.
The firm has also brought in Kate Erb, a qualified chartered accountant from KPMG with over 20 years of experience in financial services, as its chief operating officer.
Erb was most recently an operations director at Leeds Building Society.
Donlon notably saw Moonpig through its public listing in 2021, which valued the company at around £1.2 billion at the time. Moonpig now trades at a price of £151 per share, which gives it a market capitalization of £518 million, reflecting a broad slump in technology shares.
His appointment reflects a push from Zopa to grow in maturity and ramp up user growth in anticipation of an eventual initial public offering (IPO). Zopa had planned to go public last year, however it put this ambition on ice as the stock market took a turn for the worst with rising interest rates clobbering high-growth tech stocks.
CEO Jaidev Janardana insisted the bank has no plans for an IPO in the immediate term, however he suggested a flotation could be on the horizon by mid-next year were sentiment in the public markets to change. What will need to change for that to happen, he explained, is for the public markets to open back up.
“We haven’t had great IPOs,” he told CNBC in an interview on the sidelines of London Tech Week this week. “I would love to see some successful IPOs actually coming.”
“If you look at kind of banks, and how they’re valued, or tech companies, both of them, public market valuations are not great.”
“The second thing is … liquidity.” he added. “We need to make sure that there is enough liquidity for a public company to be truly public. Shares should be able to be bought and sold reasonably easily.”
Zopa will soon reach 1 million customers, a spokesman for the company told CNBC. It ultimately wants to hit 5 million users in the coming years. The firm competes with large banks as well as fintechs like Monzo, Revolut and Starling.
Janardana suggested the company could look to ramp up growth of its business through mergers and acquisitions, and a move into other areas of finance including small business loans and open banking, which allows for the sharing of data between banks and third-party firms.
Zopa raised £75 million ($95.9 million) from investors earlier this year.
“We are open,” he said. “Where there is opportunity for us to use open banking, infrastructure, data, to be able to provide holistic experiences to customers is something that has been of interest for us.”
“SME (small and medium-sized enterprises) lending is another thing that is of interest for us.”
Zopa reached profitability on a monthly basis in April 2022. Zopa aims to achieve full-year profitability by the end of 2024.
In terms of the products that Janardana isn’t interested in rolling out, crypto tops the list. The financial executive, who has helmed Zopa since 2014, said that crypto “is not great for the retail consumer today.”
“I’m not a big fan of crypto yet, I’m not convinced,” he said. “It’s a complicated product that people don’t understand, which is why we never offered it.”
Visitors look out to St. Paul’s Cathedral from a rooftop in the City of London, UK, on Thursday, March 2, 2023.
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British tech darling Arm may be ditching its home turf in favor of New York for its highly-anticipated initial public offering — but the CEO of the London Stock Exchange still hopes the company could opt to list in the U.K. one day.
“There was a difference between the demands of a listed company in the U.K. versus a listed company in the U.S., and that was one of the rationales why ultimately Arm chose to go to the U.S.,” Julia Hoggett told CNBC’s Arjun Kharpal at the Money20/20 fintech conference in Amsterdam on Tuesday.
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Were it not for regulatory differences, Hoggett believes the semiconductor firm would have likely proposed a return to the kind of structure it had before it was acquired by Japan’s SoftBank in 2016 — a London listing and an American Depositary Receipt, allowing its shares to be traded on U.S. exchanges.
“I haven’t lost hope at all that Arm might have a place in the London market as well in the future, and I think we should absolutely fight for great U.K. tech companies to feel that they have a home here,” she said.
“I absolutely know there was strong appetite from investors in the U.K. for Arm. And it was always going to be a both sides of the Atlantic trade. The fact that, actually, the U.S. had to fight as hard as they did to get it, I think illustrates how strong our proposition actually is.”
Hoggett also addressed the wider debate about whether the London Stock Exchange has failed to modernize in order to pull in the biggest, buzziest companies — and whether it’s seen as an unattractive destination for tech firms.
Following a critical review of the LSE in 2021, the U.K. Financial Conduct Authority proposed a set of reforms, including removing separate ‘premium’ and ‘standard’ listing segments and allowing the dual-class share structures that are popular with some founders but criticised for diluting the power of regular shareholders.
“If you look at the listings that have already happened in London, you take Wise, for example, which is in a similar sector, it’s actually had an incredibly successful listing in London, and is trading at a 50% premium to its U.S.-listed peers,” Hoggett said. “So the idea that you always get an enhanced premium in the U.S. is a misnomer.”
She added that London could also offer access to follow on capital beyond an IPO, and had fallen by less than other jurisdictions on that measure this year.
“We are also going through a radical period of reform in the U.K., which will enable us to have a completely level playing field versus any jurisdiction,” she said, while noting this was not a silver bullet.
“The U.K. has the world’s leading global financial market, it starts more brilliant start-ups and creates more unicorns in any country outside of the U.S., China and India, and it has a deep and liquid pool of capital markets. One of the things we haven’t always done is connect those as well together, and that’s one of the jobs that we’re seeking to do,” Hoggett said.
Billionaire Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., speaks in front of a screen displaying the ARM Holdings logo during a news conference in Tokyo on July 28, 2016.
Tomohiro Ohsumi | Bloomberg | Getty Images
SoftBank Group Corp’s chip maker Arm has filed with regulators confidentially for a U.S. stock market listing, Arm said on Saturday, setting the stage for this year’s largest initial public offering.
The IPO registration shows that SoftBank is pressing ahead with the blockbuster offering despite adverse market conditions, after saying in March that it planned to list Arm in the U.S. stock market.
U.S. IPOs, excluding listings for special purpose acquisition companies, are down about 22% to a total of just $2.35 billion year-to-date, according to Dealogic, as stock market volatility and economic uncertainty put many IPO hopefuls off.
Arm plans to sell its shares on Nasdaq later this year, seeking to raise between $8 billion and $10 billion, people familiar with the matter said. In a statement, which confirmed an earlier Reuters report on the planned IPO, Arm said the size and price range for the offering has not yet been determined.
The sources cautioned that the exact timing and size of the IPO are subject to market conditions and asked not to be identified because the matter is confidential.
SoftBank and Arm declined to comment.
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There are signs that the IPO market is beginning to thaw. Johnson & Johnson is preparing to list its consumer health business Kenvue in New York next week, hoping to raise about $3.5 billion.
SoftBank has been targeting a listing for Arm since its deal to sell the chip designer to Nvidia for $40 billion collapsed last year because of objections from U.S. and European antitrust regulators.
Since then, Arm’s business has fared better than the broader chip industry thanks to its focus on data center servers and personal computers that generate higher royalty payments. The company said sales were up 28% in its most recent quarter.
Arm’s IPO is expected to boost the fortunes of SoftBank, which is battling to turn around its giant Vision Fund, which has been hit by losses due to the declining valuations of many of its holdings in technology startups.
Earlier this year, Arm rebuffed a campaign from the British government to list its shares in London and said it would pursue a flotation on a U.S. exchange.
U.S. Federal Reserve Chair Jerome Powell testifies before a Senate Banking, Housing, and Urban Affairs Committee on Capitol Hill on March 3, 2022.
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Fed Chair Powell will speak later today. Markets don’t know what to expect.
U.S. Federal Reserve Chair Jerome Powell will testify before Congress as a week packed with economic data releases lies ahead. That includes February’s jobs report, which will show whether the Fed’s aggressive rate hikes are starting to cool the economy – especially after January’s hot report.
Stocks in the U.S. were a mixed picture as investors braced for more hawkish commentary from Powell – the Dow Jones Industrial Average rose slightly by 0.12% while the Nasdaq Composite dipped 0.11%. Asia-Pacific markets traded mixed Tuesday after Australia’s central bank raised its cash rate by 25 basis points to 3.6%, the highest rate since June 2012.
China’s new foreign minister in a Tuesday briefing warned of rising tension ahead with the U.S. Qing Gang told journalists relations have left a “rational path” and that there would be conflict if Washington does not “hit the break, but continue to speed down the wrong path,” he said.
Iran says 8.5 million tons of lithium has been discovered in one of its western provinces. The metal, also known as “white gold” for the electric vehicle industry, has seen prices skyrocketing in the last year on higher demand before seeing a drop in EV sales and slower business.
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Good morning. This is Jihye Lee writing to you from Singapore. I’m sitting in today for Yeo Boon Ping, who is on leave.
All eyes will be on Powell testifying today and Wednesday. What he says will guide traders as well as lawmakers on how the U.S. central bank is viewing the state of inflation and how far its campaign of aggressive hikes has come – and most importantly, where markets go from here.
Treasury yields rose slightly, after peaking above 4% last week.
Powell is almost certain to face tough questions from Congress. He’ll likely be asked how badly high interest rates have hurt the economy, as global markets face a slowing business environment.
Iran claims it’s discovered the world’s second-largest known lithium holdings, after Chile’s. Iran says it found a deposit of 8.5 million tons of the metal. But whether the EV industry will benefit from that claim is very much in question. While a deposit that large could drive down lithium prices, bringing that commodity to market would depend on Iran’s capacity to export. The country’s economy has been crushed by heavy sanctions and a plunging currency.
And finally, we look ahead to International Women’s Day. Moody’s Analytics in a recent report said it may take 132 years for the world to close the gender pay gap. And when it does, the world will see an economic boost of $7 trillion – that’s an additional 7% to the world’s GDP of untapped potential.
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An art exhibition based on the hit TV series “The Walking Dead” in London, England.
Ollie Millington | Getty Images
For some venture capitalists, we’re approaching a night of the living dead.
Startup investors are increasingly warning of an apocalyptic scenario in the VC world — namely, the emergence of “zombie” VC firms that are struggling to raise their next fund.
Faced with a backdrop of higher interest rates and fears of an oncoming recession, VCs expect there will be hundreds of firms that gain zombie status in the next few years.
“We expect there’s going to be an increasing number of zombie VCs; VCs that are still existing because they need to manage the investment they did from their previous fund but are incapable of raising their next fund,” Maelle Gavet, CEO of the global entrepreneur network Techstars, told CNBC.
“That number could be as high as up to 50% of VCs in the next few years, that are just not going to be able to raise their next fund,” she added.
In the corporate world, a zombie isn’t a dead person brought back to life. Rather, it’s a business that, while still generating cash, is so heavily indebted it can just about pay off its fixed costs and interest on debts, not the debt itself.
Life becomes harder for zombie firms in a higher interest rate environment, as it increases their borrowing costs. The Federal Reserve, European Central Bank and Bank of England all raised interest rates again earlier this month.
In the VC market, a zombie is an investment firm that no longer raises money to back new companies. They still operate in the sense that they manage a portfolio of investments. But they cease to write founders new checks amid struggles to generate returns.
Investors expect this gloomy economic backdrop to create a horde of zombie funds that, no longer producing returns, instead focus on managing their existing portfolios — while preparing to eventually wind down.
“There are definitely zombie VC firms out there. It happens during every downturn,” Michael Jackson, a Paris-based VC who invests in both startups and venture funds, told CNBC.
“The fundraising climate for VCs has cooled considerably, so many firms won’t be able to raise their next fund.”
VCs take funds from institutional backers known as LPs, or limited partners, and hand small amounts of the cash to startups in exchange for equity. These LPs are typically pension funds, endowments, and family offices.
If all goes smoothly and that startup successfully goes public or gets acquired, a VC recoups the funds or, better yet, generates a profit on their investment. But in the current environment, where startups are seeing their valuations slashed, LPs are becoming more picky about where they park their cash.
“We’re going to see a lot more zombie venture capital firms this year,” Steve Saraccino, founder of VC firm Activant Capital, told CNBC.
A sharp slide in technology valuations has taken its toll on the VC industry. Publicly-listed tech stocks have stumbled amid souring investor sentiment on high-growth areas of the market, with the Nasdaq down nearly 26% from its peak in November 2021.
A chart showing the performance of the Nasdaq Composite since Nov. 1, 2021.
With private valuations playing catch-up with stocks, venture-backed startups are feeling the chill as well.
Stripe, the online payments giant, has seen its internal market value drop 40% to $63 billion since reaching a peak of $95 billion in March 2021. Buy now, pay later lender Klarna, meanwhile, last raised funds at a $6.7 billion valuation, a whopping 85% discount to its prior fundraise.
Crypto was the most extreme example of the reversal in tech. In November, crypto exchange FTX filed for bankruptcy, in a stunning flameout for a company once valued by its private backers at $32 billion.
Investors in FTX included some of the most notable names in VC and private equity, including Sequoia Capital, Tiger Global, and SoftBank, raising questions about the level of due diligence — or lack thereof — put into deal negotiations.
Since the firms they back are privately-held, any gains VCs make from their bets are paper gains — that is, they won’t be realized until a portfolio company goes public, or sells to another firm. The IPO window has for the most part been shut as several tech firms opt to stall their listings until market conditions improve. Merger and acquisition activity, too, has slowed down.
In the past two to three years, a flood of new venture funds have emerged due to a prolonged period of low interest rates. A total of 274 funds were raised by VCs in 2022, more than in any previous year and up 73% from 158 in 2019, according to numbers from the data platform Dealroom.
LPs may be less inclined to hand cash to newly established funds with less experience under their belt than names with strong track records.
“LPs are pulling back after being overexposed in the private markets, leaving less capital to go around the large number of VC firms started over the past few years,” Saraccino said.
“A lot of these new VC firms are unproven and have not been able to return capital to their LPs, meaning they are going to struggle mightily to raise new funds.”
Frank Demmler, who teaches entrepreneurship at Carnegie Mellon University’s Tepper School of Business, said it would likely take three to four years before ailing VC firms show signs of distress.
“The behavior will not be as obvious” as it is with zombie firms in other industries, he said, “but the tell-tale signs are they haven’t made big investments over the last three or four years, they haven’t raised a new fund.”
“There were a lot of first-time funds that got funded during the buoyant last couple of years,” Demmler said.
“Those funds are probably going to get caught midway through where they haven’t had an opportunity to have too much liquidity yet and only been on the investing side of things if they were invented in 2019, 2020.”
“They then have a situation where their ability to make the type of returns that LPs want is going to be close to nil. That’s when the zombie dynamic really comes into play.”
According to industry insiders, VCs won’t lay off their staff in droves, unlike tech firms which have laid off thousands. Instead, they’ll shed staff over time through attrition, avoiding filling vacancies left by partner exits as they prepare to eventually wind down.
“A venture wind down isn’t like a company wind down,” Hussein Kanji, partner at Hoxton Ventures, explained. “It takes 10-12 years for funds to shut down. So basically they don’t raise and management fees decline.”
“People leave and you end up with a skeleton crew managing the portfolio until it all exits in the decade allowed. This is what happened in 2001.”
