☀️☕️ Nvidia, Arm and Grace Hopper

📊 Also: Disinflation USA; Microsoft Busts the Trustbuster 🎓️ Busted Trustbusters

Jul 12, 2023

📈 Market Roundup 13-July-2023

US large-cap S&P 500 closed 0.74% UP ▲

Tech-heavy Nasdaq Composite closed 1.15% UP ▲

Pan European STOXX Europe 600 closed 1.51% UP ▲

HK/China's Hang Seng Index closed 1.08% UP ▲

Japan's broad TOPIX closed 0.67% DOWN 🔻

📝 Focus

Nvidia, Arm and Grace Hopper

📊 In the Markets

Disinflation USA
Microsoft Busts the Trustbuster

📖 MoneyFitt Explains

🎓️ Busted Trustbusters

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📝 Focus

Nvidia, Arm and Grace Hopper

Chip designer, Arm, is in talks with trillion dollar chipmaker Nvidia to bring them in as an “anchor investor” for its planned New York listing in September. Nvidia had to abandon its $66bn acquisition of Arm last year due to objections by antitrust🎓 regulators, and now Arm is looking to lock in existing partners to support its IPO. The stake is likely to only be small, in the “low hundreds of millions of dollars”, according to the FT.

..... ▷ Arm is spinning back out of SoftBank, which had taken it private in 2016 at $32bn (£24.3bn), a 43% premium to the company's share price before the announcement, a price that now looks uncharacteristically decent (for SoftBank.) The valuation is still being negotiated, with Nvidia aiming for a lower range of $35-40bn, while Arm and SoftBank want it closer to $80bn. Pricing for the IPO is not yet set but is said to be in the range of $40-80bn, with SoftBank boss Masayoshi Son actively involved.

..... ▷ For Arm, working with Nvidia helps position artificial intelligence (AI) at the centre of its growth plans. Nvidia is looking to expand beyond its core business in graphics processing units (GPUs) into central processing units (CPUs) to handle broader computing functions, further increasing competition for embattled CPU leader Intel. Nvidia recently released Grace Hopper, its first superchip CPU for giant-scale AI and high-performance computing, which used Arm's designs.

..... ▷ Arm is a British semiconductor company that designs microprocessors and other intellectual property (IP). Chips using its IP are used in various devices, including the vast majority of smartphones, tablets, servers and, increasingly, cars. Arm is different from almost all other fabless semiconductor companies in one key way: It does not sell chips. Instead, the company licences its intellectual property to other companies, which then use it to design and manufacture their own chips.

You used to be listed on the London Stock Exchange!
- Image credit: The 100 / The CW via Tenor

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📊 In the Markets

Disinflation USA: U.S. stocks closed higher on Wednesday after the consumer price index showed inflation falling to the lowest reading in over two years (below), suggesting that the Federal Reserve may not need to raise interest rates beyond the expected July hike. Even as Twitter bleeds more users to Threads, owner Elon Musk launched xAI, an AI company with “a focus on understanding the universe.” The team includes experts from DeepMind, Microsoft and OpenAI and will be led by Musk. The market also reacted positively to EU antitrust approval for Broadcom's $61bn acquisition of VMware and news of Nvidia's potential investment in Arm Ltd (above.)

..... ▷ US inflation in June dropped to 3%, slightly lower than the expected 3.1-3.4%, showing the impact of the Federal Reserve's interest rate hikes on price pressures. It slowed from 4% in May and is the slowest rate since March 2021, a year before the Fed started its rate hikes. The dip was partly due to base effects (June 2022 was the peak at a rate of 9%) and a moderation in core inflation, which excludes volatile food and energy costs, to 4.8% from 5.3% in May (and below the 5.1% expected.) The headline inflation rate is nearing the Fed's 2% target, while core inflation remains higher, so further interest rate hikes remain likely. (The Fed prefers PCE inflation data, which is broader and which comes out July 28.)

Microsoft Busts the Trustbusters

Microsoft won a stunning victory in court over US antitrust🎓 regulators on Tuesday and breathed new life into its long-running $69bn acquisition of giant video game maker Activision Blizzard. The deal was believed to be dead on arrival at least since April, when the UK's Competition and Markets Authority (CMA) blocked the deal, though the EU in May seemed to have no issue with the deal going through. Well, neither did the federal judge in SF when it ruled against the Federal Trade Commission (FTC) and said:

“Despite the…production of nearly 1 million documents and 30 depositions, the FTC has not identified a single document which contradicts Microsoft’s publicly-stated commitment to make Call of Duty available on PlayStation.”

Judge Jacqueline Scott Corley, United States District Judge for the Northern District of California

FTC boss Lina Khan wasn’t expecting this setback
- Image credit: Crash Bandicoot / Activision Blizzard via Tenor

.....▷ Oddly, within an hour of the US ruling, the CMA in the UK reversed its stance and asked Microsoft and Activision to come up with new concessions to satisfy its concerns, which were mainly around cloud gaming (the FTC was more worried about Call of Duty’s availability on rival consoles like Sony’s PlayStation.) Microsoft will now be clear to make a massive push into mobile gaming and the still-new cloud gaming space, i.e. streaming games over the internet and disrupting the industry the way Netflix and Spotify did for movies and music.

.....▷ The Activision Blizzard share price rose 10% to $91, close to Microsoft’s all-cash bid price of $95 per share. Shares in smaller rivals Electronic Arts and Take-Two Interactive rose by about 5% each on Tuesday, with investors and analysts seeing the ruling as a major development, signalling a shift in the regulatory landscape for the gaming industry. It may even be a change for the tech industry, with the FTC’s all-out battle with Big Tech possibly now in question.

.....▷ According to PwC, the global video gaming industry is expected to grow from $227bn in 2023 to $312bn in 2027, driven by a number of factors, including the increasing popularity of mobile gaming, the rise of esports and the growing adoption of cloud gaming. And even back in 2020, global gaming market revenue was $159bn compared to the movie industry at $42bn and the music industry at $19bn (of which probably 90% went to Taylor Swift.)

Lina Khan gets taken down by Satya Nadella
- Image credit: Call of Duty / Activision Blizzard

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📖 MoneyFitt Explains

🎓️ Busting Trusts by Trustbusters

While it may seem anti-capitalistic for a government agency to stop one private company from buying or merging with another on either agreed or hostile terms, there are strong reasons for it to happen!

Competition or antitrust laws exist to protect consumers from unlawful monopolies or unfair business practices which would harm them through higher prices and less competition while benefiting certain powerful companies.

The stated mission of the US Federal Trade Commission (FTC) is to protect the public from deceptive or unfair business practices and unfair methods of competition. The European Competition Commission and the Competition and Markets Authority in the EU and UK have similar mandates.

Preventing mergers and acquisitions from resulting in monopolies is perhaps the easiest part of the job, but firms that have become monopolies or overly concentrated market power can also be broken up.

Collusion between several companies in formal or informal cartels with practices such as price fixing is also forbidden, though proving it in court can be a lot harder.

Weird name, though.

The word "antitrust" is most often used in the US and comes from the battle with "trusts", which were pioneered in the 1880s by oil magnate John D Rockefeller to group companies across US state lines under one controlling legal body, specifically to concentrate power and reduce or eliminate competition. Thus was born the Standard Oil Trust. (S for Standard, O for Oil, hence "ESSO".) Only in 1911 was it finally broken up and split into 34 companies.

In the US, both the Federal Trade Commission and the entirely separate Department of Justice Antitrust Division enforce federal antitrust laws, agreeing to take cases based on expertise in particular industries or markets. Perhaps just one agency would seem... monopolistic?